Document:

exv10w4

 

Exhibit 10.4

February 1, 2006

Nortel Networks Facilities

Securities Demand Letter

Nortel Networks Corporation

Nortel Networks Inc.

8200 Dixie Road Suite 100

Brampton, Ontario L6T 5P6

Canada

Attention: Katharine Stevenson, Treasurer

          Reference is made to the letter dated the date hereof (the “Commitment Letter”)
relating to (a) the engagement of J.P. Morgan Securities Inc. as a Bookrunner and Arranger (the
“Arranger”) to arrange financing (the “Financing”) in the aggregate amount of up to
US$1.3 billion for Nortel Networks Inc. (“NNI”) and together with Nortel Networks
Corporation (“NNC”), the “Company”) and (b) the commitment by JPMorgan Chase Bank,
N.A. (“JPMCB”) to the Financing as specified therein. Terms defined in the Commitment
Letter are used herein with the same meaning.

          You agree to engage an investment bank to serve as lead left initial purchaser, placement
agent or underwriter (the “Lead Investment Bank”) and one or more other investment banks to
act as co-initial purchasers, co-placement agents or co-underwriters, which investment banks shall
be reasonably satisfactory to JPMCB to place senior, unsecured debt securities pursuant to Rule
144A or Regulation S of the Securities Act of 1933, as amended, to prepay or repay all or any
portion of the principal and other amounts then outstanding under the Facilities (any such
securities, the “Securities”, and any such offering, an “Offering”). Such
Securities shall have covenants and events of default substantially the same as those in the draft
description of notes which you furnished to us, dated November 23, 2005, subject to such changes
based upon market conditions as the Company and the Lead Investment Bank shall mutually agree. You
shall take all actions reasonably necessary or desirable so that the Lead Investment Bank can, as
soon as practicable after the first date on which a Securities Demand (as defined below) may be
given, offer and sell the Securities in one or more offerings or placements pursuant to Rule 144A
or Regulation S of the Securities Act of 1933, as amended. The Lead Investment Bank, in its
reasonable discretion after consultation with you, shall determine whether, and in what amounts,
the Securities shall be issued and the amount of each series of Securities to be issued if the
Securities are to be issued in a series of placements; provided that the interest rate
(whether floating or fixed) applicable to the Securities shall be as reasonably agreed by the Lead
Investment Bank and the Company in light of the then prevailing market conditions for comparable
securities. Upon notice by the Lead Investment Bank (a “Securities Demand”), at any time
and from time to time, from and after May 31, 2006, the Borrower shall take all actions reasonably
necessary or desirable to cause the issuance and sale of Securities upon such terms and conditions
as specified in the Securities Demand.

 

 

          This letter is intended solely for the use of the Company and not any other person and may not
be used or disclosed, referred to or communicated by the Company (in whole or in part) to any third
party (other than the Company’s, its subsidiaries and their respective directors, employees,
advisors, auditors and agents who are directly involved in the consideration of this matter) for
any purpose whatsoever (except that, after acceptance of this letter by you, the foregoing
restriction shall terminate).

          If you accept and agree to this proposal, please so indicate by signing in the space provided
below and returning a copy of this letter to us on or before 5:00 p.m. on February 1, 2006.

	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	J.P. MORGAN SECURITIES INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Bruce Borden
 

Name: Bruce Borden
	 	 
	 

	 	 	 	Title: Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	JPMORGAN CHASE BANK, N.A.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David M. Mallett	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: David M. Mallett	 	 
	 

	 	 	 	Title: Vice President	 	 

-2-

 

	 	 	 	 	 
	ACCEPTED AND AGREED TO
AS OF THE DATE FIRST ABOVE WRITTEN:	 	 
	 	 	 
	 	 	 
	 
	 	 	 	 
	NORTEL NETWORKS CORPORATION	 	 
	 
	 	 	 	 
	By:

	 	/s/ Katharine B. Stevenson
 

Name: Katharine B. Stevenson
	 	 
	 

	 	Title: Treasurer	 	 
	 
	 	 	 	 
	By:

	 	/s/ Gordon A. Davies	 	 
	 

	 	 	 	 
	 

	 	Name: Gordon A. Davies	 	 
	 

	 	Title: General Counsel — Corporate and	 	 
	 

	 	          Corporate Secretary	 	 
	 
	 	 	 	 
	NORTEL NETWORKS INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Lynn C. Egan	 	 
	 

	 	 	 	 
	 

	 	Name: Lynn C. Egan
	 	 
	 

	 	Title: Assistant Secretary	 	 

-3-EXHIBIT 4.1

  --------------------------------------------------------------------------

                       FIRST RESTATED CREDIT AGREEMENT

                                   AMONG

                       HALLMARK FINANCIAL SERVICES, INC.,
                                AS BORROWER,

                 AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS,

                                    AND

                     PHOENIX INDEMNITY INSURANCE COMPANY

                                    AND

                          THE FROST NATIONAL BANK,
                                 AS LENDER

                              JANUARY 27, 2006

  --------------------------------------------------------------------------

                              TABLE OF CONTENTS

 Section                                                          Page
 -------                                                          ----

 ARTICLE I   DEFINITIONS .......................................    1
      1.1    Definitions. ......................................    1
      1.2    Additional Definitions. ...........................   19
      1.3    Construction. .....................................   19

 ARTICLE II  REVOLVING LOANS ...................................   20
      2.1    Revolving Loans. ..................................   20
      2.2    Revolving Borrowings. .............................   20
      2.3    Repayment. ........................................   21
      2.4    Voluntary Prepayments. ............................   21
      2.5    Mandatory Prepayments. ............................   21
      2.6    Termination and Reduction of Commitments. .........   21
      2.7    Interest on Revolving Loans Generally. ............   22
      2.8    Computations. .....................................   22
      2.9    Interest After an Event of Default. ...............   22
      2.10   Payments Generally. ...............................   22
      2.11   Booking the Revolving Loans. ......................   23
      2.12   Collateral. .......................................   23

 ARTICLE III LETTER OF CREDIT FACILITIES........................   24
      3.1    Letters of Credit. ................................   24
      3.2    Procedures for Issuance and Amendment of Letters of
             Credit; Auto-Renewal Letters of Credit.............   26
      3.3    Drawings and Reimbursements. ......................   27
      3.4    Obligations Absolute. .............................   27
      3.5    Role of Lender. ...................................   28
      3.6    Cash Collateral. ..................................   29
      3.7    Letter of Credit Fees. ............................   29
      3.8    Fronting Fee and Documentary and Processing Charges
             Payable to Lender..................................   29
      3.9    Conflict with L/C Agreements. .....................   30
      3.10   Letters of Credit Issued for L/C RIC. .............   30
      3.11   Existing Letters of Credit. .......................   30

 ARTICLE IV  TAXES, YIELD PROTECTION AND ILLEGALITY ............   30
      4.1    Taxes. ............................................   30
      4.2    Illegality. .......................................   32
      4.3    Inability to Determine Rates. .....................   32
      4.4    Increased Cost and Reduced Return; Capital
             Adequacy; Reserves on Eurodollar Rate Loans........   32
      4.5    Matters Applicable to all Requests for Compensation   33
      4.6    Survival. .........................................   33

 ARTICLE V   CONDITIONS PRECEDENT ..............................   33
      5.1    Conditions Precedent to Restatement of Existing
             Agreement, Initial Revolving Loan and L/C Credit
             Extension..........................................   33
      5.2    Conditions Precedent to all Revolving Loans and L/C
             Credit Extensions..................................   37
      5.3    Conditions Precedent to all Revolving Loans for
             Permitted Acquisitions.............................   38

 ARTICLE VI  AFFIRMATIVE COVENANTS .............................   38
      6.1    General Covenants. ................................   38
      6.2    Accounts, Reports and Other Information. ..........   39
      6.3    Inspection. .......................................   43
      6.4    Compliance with ERISA. ............................   43
      6.5    Performance of Obligations. .......................   43

      6.6    Maintenance of Priority of Bank Liens. ............   43
      6.7    Indemnity. ........................................   43
      6.8    Convertible Note. .................................   45
      6.9    Use of Proceeds. ..................................   45

 ARTICLE VII NEGATIVE COVENANTS ................................   45
      7.1    AHIC Total Adjusted Capital. ......................   45
      7.2    PIIC Total Adjusted Capital. ......................   45
      7.3    Net Underwriting Gain. ............................   45
      7.4    Consolidated Net Worth. ...........................   45
      7.5    Fixed Charges Coverage Ratio. .....................   45
      7.6    Limitation on Debt. ...............................   46
      7.7    Limitation on Liens. ..............................   46
      7.8    Burdensome Agreements. ............................   46
      7.9    Disposition of Assets. ............................   46
      7.10   Acquisition of Assets. ............................   46
      7.11   Merger and Consolidation. .........................   48
      7.12   Loans and Investments. ............................   48
      7.13   ERISA. ............................................   48
      7.14   Assignment. .......................................   48
      7.15   Transactions with Affiliates. .....................   48
      7.16   Business. .........................................   48
      7.17   Activities of Hallmark Trust I. ...................   48
      7.18   2005 Documents. ...................................   48
      7.19   Convertible Notes. ................................   49

ARTICLE VIII REPRESENTATIONS AND WARRANTIES ....................   49
      8.1    Organization and Qualification. ...................   49
      8.2    Financial Statements. .............................   49
      8.3    Compliance With Laws and Other Matters. ...........   50
      8.4    Litigation. .......................................   50
      8.5    Debt. .............................................   50
      8.6    Title to Properties. ..............................   50
      8.7    Authorization; Validity. ..........................   50
      8.8    Taxes. ............................................   50
      8.9    Use of Proceeds. ..................................   51
      8.10   Possession of Franchises, Licenses, Etc. ..........   51
      8.11   Leases. ...........................................   51
      8.12   Disclosure. .......................................   51
      8.13   ERISA. ............................................   52
      8.14   Regulatory Acts. ..................................   52
      8.15   Solvency. .........................................   52
      8.16   Environmental Matters. ............................   52
      8.17   Investments. ......................................   53
      8.18   Intellectual Property, Etc. .......................   53
      8.19   Reinsurance Agreements. ...........................   53
      8.20   Retrocession Agreements. ..........................   53
      8.21   2005 Documents. ...................................   53
      8.22   Subordination; 2005 Documents. ....................   54
      8.23   Subordination; Convertible Notes. .................   54
      8.24   Survival of Representations and Warranties, Etc. ..   54

 ARTICLE IX  EVENTS OF DEFAULT .................................   54
      9.1    Default. ..........................................   54
      9.2    Remedies. .........................................   57
      9.3    Application of Funds. .............................   58

 ARTICLE X   MISCELLANEOUS .....................................   58
      10.1   Notices. ..........................................   58
      10.2   Expenses. .........................................   59
      10.3   Waivers. ..........................................   59
      10.4   Determinations by Lender. .........................   59

      10.5   Set-Off. ..........................................   59
      10.6   Assignment. .......................................   60
      10.7   Amendment and Waiver. .............................   61
      10.8   Confidentiality. ..................................   61
      10.9   Counterparts. .....................................   61
      10.10  Severability. .....................................   61
      10.11  Interest and Charges. .............................   62
      10.12  Exception to Covenants. ...........................   62
      10.13  Restatement. ......................................   62
      10.14  USA Patriot Act Notice. ...........................   62
      10.15  Existing Agreement Waivers. .......................   63
      10.16  GOVERNING LAW. ....................................   63
      10.17  WAIVER OF JURY TRIAL. .............................   64
      10.18  ENTIRE AGREEMENT. .................................   64

 SIGNATURES.....................................................  S-1

<PAGE>

                            EXHIBITS AND SCHEDULES

 Exhibit A Revolving Note
 Exhibit B Pledge Agreement - Borrower
 Exhibit C Pledge Agreement - Subsidiary
 Exhibit D Security Agreement - Borrower
 Exhibit E Security Agreement - Subsidiary
 Exhibit F Guaranty Agreement
 Exhibit G Revolving Loan Notice
 Exhibit H Confirmation Agreement
 Exhibit I Subordination Agreement
 Exhibit J Compliance Certificate
 Exhibit K Notice of Final Agreement
 Exhibit L Subordination Agreement I
 Exhibit M Subordination Agreement II

 Schedule 3.11  Existing Letters of Credit
 Schedule 8.1   Subsidiaries
 Schedule 8.4   Existing Litigation
 Schedule 8.5   Existing Debt
 Schedule 8.10  Licensed Jurisdictions
 Schedule 8.13  Plans
 Schedule 8.16  Environmental Matters
 Schedule 8.17  Existing Investments
 Schedule 8.19  Reinsurance Agreements
 Schedule 8.20  Retrocession Agreements
 Schedule 10.1  Notice Addresses

<PAGE>

                       FIRST RESTATED CREDIT AGREEMENT

      THIS FIRST RESTATED CREDIT AGREEMENT is dated as of January 27, 2006
 (this agreement, together with all amendments and restatements, this
 "Agreement"), among HALLMARK FINANCIAL SERVICES, INC., a Nevada corporation
 ("Borrower"), THE FROST NATIONAL BANK, a national banking association
 ("Lender"), and each L/C RIC.  Each L/C RIC is a party to this Agreement
 to acknowledge and agree to its obligations pursuant to Articles III, IV,
 and X.

                                  BACKGROUND
                                  ----------

      Borrower, each L/C RIC and Lender have previously entered into the
 Credit Agreement dated as of June 29, 2005 (such agreement, together with
 all amendments and restatements, the "Existing Agreement").  Borrower has
 requested that Lender restate the Existing Agreement and make a revolving
 credit facility available to Borrower and make available Letters of Credit
 for the account of Borrower.  Borrower and each L/C RIC have requested that
 Lender restate the Existing Agreement and make available Letters of Credit
 for the account of Borrower and each L/C RIC.  Lender has agreed to do so,
 subject to the terms and conditions of this Agreement.

                                  AGREEMENT
                                  ---------

      In consideration of the mutual covenants and agreements contained
 herein, and other good and valuable consideration, receipt of which is
 acknowledged by the parties hereto, the parties hereto agree as follows:

                                  ARTICLE I

                                 DEFINITIONS

     1.1  Definitions.  For purposes of this Agreement:

      "Aerospace" means Aerospace Holdings, LLC, a Texas limited liability
 company.

      "Aerospace Purchase Agreement" means the Purchase Agreement dated as of
 December 12, 2005, among Borrower, Donnell Children Revocable Trust and
 Curtis R. Donnell.

      "Affiliate" means any Person that directly, or indirectly, through one
 or more intermediaries, Controls or is Controlled By or is Under Common
 Control with any other Person.

      "Agreement Date" means the date of this Agreement.

      "AHIC" means American Hallmark Insurance Company of Texas, a Texas
 insurance corporation.

      "Applicable Law" means (a) in respect of any Person, all provisions of
 Laws and orders of Governmental Authorities applicable to such Person and
 its properties, including, without limiting the foregoing, all orders and
 decrees of all Governmental Authorities and arbitrators in proceedings or
 actions to which the Person in question is a party, and (b) in respect of
 contracts relating to interest or finance charges that are made or performed
 in the State of Texas, "Applicable Law" means the Laws of the United States
 of America, including without limitation 12 U.S.C. SS85 and 86,  and any
 other statute of the United States of America now or at any time hereafter
 prescribing the maximum rates of interest on loans and extensions of credit,
 and the Laws of the State of Texas, and any other Laws of the State of Texas
 now or at any time hereafter prescribing maximum rates of interest on loans
 and extensions of credit.

      "Attorney Costs" means and includes all fees, expenses and
 disbursements of any law firm or other external counsel and, without
 duplication, the allocated cost of internal legal services and all expenses
 and disbursements of internal counsel.

      "Auditors" means KPMG LLP, or other independent certified public
 accountants selected by Borrower and reasonably acceptable to Lender and
 that are a Registered Public Accounting Firm.

      "Authorized Control Level" means "Authorized Control Level" as defined
 by NAIC from time to time and as applied in the context of the Risk-Based
 Capital Guidelines promulgated by NAIC (or any term substituted therefor by
 NAIC).

      "Authorized Signatory" means such senior personnel of Borrower,
 any Subsidiary of Borrower or an Obligor as may be duly authorized and
 designated in writing by Borrower, such Subsidiary or such Obligor to
 execute documents, agreements and instruments on behalf of Borrower, such
 Subsidiary or such Obligor.

      "Bank Liens" means Liens in favor of or for the benefit of Lender
 securing all or any of the Obligations, including, but not limited to,
 rights in any Collateral created in favor of Lender, whether by mortgage,
 pledge, hypothecation, assignment, transfer, or other granting or creation
 of Liens.

      "Business Day" means any day other than a Saturday, Sunday, or other
 day on which commercial banks are authorized to close under the Laws of, or
 are in fact closed in, the state where Lender's office is located and, if
 such day relates to any Eurodollar Rate Loan, means any such day on which
 dealings in Dollar deposits are conducted by and between banks in the
 applicable offshore Dollar interbank market.

      "Capital Leases" means capital leases and subleases, as defined in the
 Financial Accounting Standards Board Statement of Financial Accounting
 Standards No. 13, dated November 1976, as amended.

      "Cash Capex" means any capital expenditure (determined in accordance
 with GAAP) the source of funds for which was not or is not proceeds of any
 Debt (whether or not subordinate to any other obligation of any Person), any
 operating lease or any equity issuance.

      "Code" means the Uniform Commercial Code as in effect in Texas.

      "Collateral" means any assets of any Person in which at any time Lender
 shall be granted a Bank Lien to secure the Obligations.

      "Commitment" means each of the Revolving Commitment, Revolving Facility
 L/C Commitment and the TGA L/C Commitment.

      "Compliance Certificate" means a compliance certificate, substantially
 in the form of Exhibit J.

      "Confirmation Agreement" means the Confirmation Agreement,
 substantially in the form of Exhibit H.

      "Consolidated Interest Expenses" means, for any period, for Borrower
 and its Subsidiaries on a consolidated basis, the sum of (a) all interest,
 premium payments, debt discount, fees, charges and related expenses of
 Borrower and its Subsidiaries in connection with borrowed money (including
 that attributable to Capital Leases) or in connection with the deferred
 purchase price of assets, in each case to the extent treated as interest in
 accordance with GAAP, and (b) the portion of rent expense of Borrower and
 its Subsidiaries with respect to such period under Capital Leases that is
 treated as interest in accordance with GAAP.

      "Consolidated Net Income" means, with respect to Borrower and its
 Subsidiaries for any period, the net income (or loss) of Borrower and its
 Subsidiaries for such period (excluding any extraordinary gains and any
 gains from discontinued operations but including extraordinary losses for
 such period), all determined in accordance with GAAP.

      "Consolidated Net Worth" means, as of any date of determination,
 the sum of (a) consolidated shareholders' equity of Borrower and its
 Subsidiaries determined in accordance with GAAP, plus (b) the aggregate
 unpaid principal amount of all 2005 Debentures; provided, all 2005
 Debentures, all 2005 Preferred Securities and the 2005 Guaranty are
 subordinate to the Obligations as provided in the 2005 Documents (as the
 2005 Documents existed on June 29, 2005).

      "Contingent Debt" means, for any Person:

           (a)  guarantees, endorsements (other than endorsements of
      negotiable instruments for collection in the ordinary course of
      business) and other contingent liabilities (whether direct or indirect)
      in connection with the obligations of any other Person;

           (b)  obligations under any contract providing for the making of
      loans, advances or capital contributions to any other Person, or for
      the purchase of any property from any other Person, in each case in
      order to enable such other Person primarily to maintain working
      capital, net worth or any other balance sheet condition or to pay
      Debts, Dividends or expenses;

           (c)  obligations under any contract to rent or lease (as lessee)
      any real or personal property (other than operating leases) if such
      contract (or any related document) provides that the obligation to make
      payments thereunder is absolute and unconditional under conditions not
      customarily found in commercial leases then in general use or requires
      that the lessee purchase or otherwise acquire securities or obligations
      of the lessor;

           (d)  obligations under contracts for the purchase of property if
      such contract (or any related document) provides that the obligation to
      make payments thereunder is contingent upon the occurrence of certain
      events or the existence of certain facts;

           (e)  obligations in respect of letters of credit; and

           (f)  obligations under any other contract which, in economic
      effect, is substantially equivalent to a guaranty, including but
      not limited to "keep well" or "capital maintenance" agreements.

      "Control" or "Controlled By" or "Under Common Control" means
 possession, directly or indirectly, of power to direct or cause the
 direction of management or policies (whether through ownership of voting
 securities, by contract or otherwise); provided that, in any event any
 Person which beneficially owns, directly or indirectly, 10% or more (in
 number of votes) of the securities having ordinary voting power for the
 election of directors of a corporation or managers of a limited liability
 company or other governance board of an entity shall be conclusively
 presumed to control such corporation or limited liability company.

      "Convertible Notes" means (a) the Convertible Promissory Note to be
 dated not later than February 10, 2006, in the original principal amount of
 $12,550,000 made by Borrower and payable to the order of Newcastle Special
 Opportunity Fund I, L.P, a Delaware limited partnership, and (b) the
 Convertible Promissory Note to be dated not later than February 10, 2006, in
 the original principal amount of $12,450,000, made by Borrower and payable
 to the order of Newcastle Special Opportunity Fund II, L.P., a Delaware
 limited partnership.

      "Current Financials" means the most recent annual Financial Statements
 of Borrower or any of its Subsidiaries.

      "Debt" means, at any time, for any Person, (a) Capital Leases,
 (b) Contingent Debt, (c) debt created, issued, incurred or assumed for money
 borrowed or for the deferred purchase price of property purchased, (d) all
 debt, obligations and liabilities secured by any Lien upon any property
 owned by such Person, even though it has not assumed or become liable for
 the payment of same, and (e) liabilities in respect of unfunded vested
 benefits under any Plans; provided, that, for purposes of Section 7.5, Debt
 shall not include the unpaid principal amount of (i) the 2005 Debentures
 or the obligations with respect to the 2005 Guaranty if at the time of
 determination all amounts owed with respect to the 2005 Debentures and the
 2005 Guaranty are subordinated to all Obligations on terms acceptable to
 Lender, (ii) the Newcastle Note if at the time of determination all amounts
 owed with respect to the Newcastle Note are subordinated to all Obligations
 on terms acceptable to Lender, and (iii) the Convertible Notes if at the
 time of determination all amounts owed with respect to the Convertible Notes
 are subordinated to all Obligations on terms acceptable to Lender.

      "Debtor Relief Laws" means any applicable liquidation, conservatorship,
 bankruptcy, moratorium, rearrangement, insolvency, fraudulent conveyance,
 reorganization or similar debtor relief Laws affecting the rights of
 creditors generally from time to time in effect.

      "Default" means any of the events specified in Section 9.1 that would,
 with the giving of notice or the passage of time, become an Event of
 Default.

      "Default Rate" means for any date a simple per annum interest rate
 equal to the lesser of (a) the Eurodollar Rate in effect at such time, plus
 2%, and (b) the Highest Lawful Rate.

      "Disposition" and "Dispose" mean any sale, lease, abandonment,
 transfer, disposal, exchange or other transfer of any ownership or leasehold
 interest in or control of any asset.

      "Dividends" means, with respect to any Person, any dividend on any
 class of its capital stock or other equity interest now or hereafter
 outstanding, any distribution of cash or property to owners of any shares of
 such stock or other equity interest, any retirement, redemption, purchase or
 other acquisition, directly or indirectly, of any shares of any class of its
 capital stock or other equity interest now or hereafter outstanding.

      "Dollars" and the sign "$" mean lawful money of the United States of
 America.

      "Domestic Subsidiary" means any Subsidiary that is organized under the
 Laws of the United States or any political subdivision of the United States.

      "EBITDA" means, for any period, for Borrower and its Subsidiaries on a
 consolidated basis, an amount equal to Consolidated Net Income for such
 period plus (a) the following to the extent deducted in calculating such
 Consolidated Net Income: (i) Consolidated Interest Expenses for such period,
 (ii) the provision for federal, state, local and foreign income Taxes
 payable by Borrower and its Subsidiaries for such period, (iii) the amount
 of depreciation and amortization expense and (iv) other expenses of Borrower
 and its Subsidiaries reducing such Consolidated Net Income which do not
 represent a cash item in such period or any future period, and minus
 (b) all non-cash items increasing Consolidated Net Income for such period.

      "Environment" means ambient air, surface water and groundwater
 (including potable water, navigable water and wetlands), the land surface or
 subsurface strata, real property improvements or as otherwise defined in any
 Environmental Law.

      "Environmental Claim" means any written accusation, allegation, notice
 of violation, claim, demand, order, directive, consent decree, cost recovery
 action or other cause of action by, or on behalf of, any Governmental
 Authority or any Person for damages, injunctive or equitable relief,
 personal injury (including sickness, disease or death), Remedial Action
 costs, property damage, natural resource damages, nuisance, pollution, any
 adverse effect on the Environment caused by any Hazardous Material, or for
 fines, penalties or restrictions, resulting from or based upon: (a) the
 existence, or the continuation of the existence, of a Release; (b) exposure
 to any Hazardous Material; (c) the presence, use, handling, transportation,
 storage, treatment or disposal of any Hazardous Material; or (d) the
 violation or alleged violation of any Environmental Law or Environmental
 Permit.

      "Environmental Law" means any and all applicable domestic Laws,
 judgments, injunctions, notices or binding agreements issued, promulgated
 or entered into by any Governmental Authority, relating in any way to the
 Environment, preservation or reclamation of natural resources, the
 management, Release or threatened Release of any Hazardous Material or
 to health and safety matters, including the Comprehensive Environmental
 Response, Compensation, and Liability Act of 1980, as amended by the
 Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. SS 9601 et
 seq. (collectively "CERCLA"), the Solid Waste Disposal Act, as amended by
 the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid
 Waste Amendments of 1984, 42 U.S.C. SS 6901 et seq., the Federal Water
 Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C.
 SS 1251 et seq., the Clean Air Act of 1970, 42 U.S.C. SS 7401 et seq., as
 amended, the Toxic Substances Control Act of 1976, 15 U.S.C. SS 2601 et
 seq., the Occupational Safety and Health Act of 1970, as amended by
 29 U.S.C. SS 651 et seq., the Emergency Planning and Community Right-to-Know
 Act of 1986, 42 U.S.C. SS 11001 et seq., the Safe Drinking Water Act of
 1974, as amended by 42 U.S.C. SS 300(f) et seq., the Hazardous Materials
 Transportation Act, 49 U.S.C. SS 5101 et seq., and any similar or
 implementing Law.

      "Environmental Permit" means any permit, approval, authorization,
 certificate, license, variance, filing or permission required by or from
 any Governmental Authority pursuant to any Environmental Law.

      "ERISA" means the Employee Retirement Income Security Act of 1974.

      "Eurodollar Basis" means for any day a rate per annum equal to the
 "London Interbank Offered Rate" for a three-month term, as published in the
 "Money Rates" column of The Wall Street Journal, Central Edition, from time
 to time, or if any reason such rate is no longer available:

           (a)  for any day the rate per annum (rounded upward to the nearest
      1/100 of 1%) equal to the rate determined by Lender to be the offered
      rate that appears on the page of the Telerate screen (or any successor
      thereto) that displays an average British Bankers Association Interest
      Settlement Rate for deposits in Dollars (for delivery on the date of
      determination) with a three-month term, determined as of approximately
      11:00 a.m. (London time) on the date of determination, or

           (b)  if the rate referenced in clause (a) does not appear on such
      page or service or such page or service shall not be available, for any
      day the rate per annum (rounded upward to the nearest 1/100 of 1%)
      equal to the rate determined by Lender to be the offered rate on such
      other page or other service that displays an average British Bankers
      Association Interest Settlement Rate for deposits in Dollars (for
      delivery on date of determination) with a three-month term, determined
      as of approximately 11:00 a.m. (London time).

      The Eurodollar Basis shall change effective as of the date of any
 change as published in The Wall Street Journal, Central Edition, or as
 determined by Lender, as appropriate.  The Eurodollar Basis is a reference
 rate and does not necessarily represent the lowest or best rate actually
 charged to any customer of Lender.

      "Eurodollar Rate" means the sum of the Eurodollar Basis plus 2.00%.

      "Eurodollar Rate Loan" means a Revolving Loan when it bears interest
 at a rate based on the Eurodollar Rate.

      "Event of Default" means any of the events specified in Section 9.1,
 provided there has been satisfied any requirement in connection with such
 event for the giving of notice, or the lapse of time, or the happening of
 any further specified condition, event or act.

      "Existing Debt" means the Debt of Borrower and its Subsidiaries
 existing on the Agreement Date, which is described on Schedule 8.5,
 including renewals (but not increases) thereof.

      "Existing Investments" means the Investments of Borrower and its
 Subsidiaries existing on the Agreement Date, which are described on
 Schedule 8.17.

      "Existing Litigation" means the Litigation involving or otherwise
 affecting Borrower and its Subsidiaries existing on the Agreement Date.

      "Federal Funds Rate" means, for any day, the rate per annum equal to
 the weighted average of the rates on overnight Federal funds transactions
 with members of the Federal Reserve System arranged by Federal funds brokers
 on such day, as published by the Federal Reserve Bank on the Business Day
 next succeeding such day; provided that (a) if such day is not a Business
 Day, the Federal Funds Rate for such day shall be such rate on such
 transactions on the next preceding Business Day as so published on the next
 succeeding Business Day, and (b) if no such rate is so published on such
 next succeeding Business Day, the Federal Funds Rate for such day shall be
 the average rate (rounded upward, if necessary, to a whole multiple of 1/100
 of 1%) charged to Frost on such day on such transactions as determined by
 Lender.

      "Financial Statements" includes, but is not limited to, balance sheets,
 profit and loss statements, reconciliations of capital and surplus and/or
 partnership capital accounts, as appropriate, and statements of changes in
 financial position or cash flow, prepared in comparative form with respect

 to the corresponding period of the preceding fiscal year and prepared in
 accordance with SAP or GAAP, as appropriate.

      "Fixed Charges" means the sum of (a) Consolidated Interest Expenses
 for the four fiscal quarter period ended on the date of determination, plus
 (b) scheduled principal payments of Debt which would be classified as a
 current liability on a consolidated balance sheet of Borrower and its
 consolidated Subsidiaries payable during the four fiscal quarter period
 beginning on the day following the date of determination, plus (c) Cash
 Capex actually paid by Borrower and its consolidated Subsidiaries during the
 four fiscal quarter period ended on the date of determination, plus (d) the
 aggregate amount of Taxes actually paid by Borrower and its consolidated
 Subsidiaries during the four fiscal quarter period ended on the date of
 determination, plus (e) cash Dividends actually paid by Borrower during the
 four fiscal quarter period ended on the date of determination.

      "Fixed Charges Coverage Ratio" means the ratio (rounded to two decimal
 places) determined as at the last day of the most recent fiscal quarter of
 Borrower of (a) EBITDA for the four fiscal quarter period ended on the last
 day of such fiscal quarter, to (b) Fixed Charges determined as at the last
 day of such fiscal quarter.

      "Foreign Subsidiary" means any Subsidiary that is organized under
 the Laws of a jurisdiction other than the United States or a political
 subdivision of the United States.

      "GAAP" means generally accepted accounting principles applied on a
 consistent basis, set forth in the Opinions of the Accounting Principles
 Board of the American Institute of Certified Public Accountants and/or in
 statements of the Financial Accounting Standards Board, which are applicable
 in the circumstances as of the date in question, and the requisite that such
 principles be applied on a consistent basis shall mean that the accounting
 principles observed in a current period are comparable in all material
 respects to those applied in a preceding period.

      "Governmental Authority" means any nation or government, any state or
 other political subdivision thereof, any agency, authority, instrumentality,
 regulatory body, court, administrative tribunal, central bank or other
 entity exercising executive, legislative, judicial, taxing, regulatory or
 administrative powers or functions of or pertaining to government.

      "Guarantor" means each Domestic Subsidiary (whether now or hereafter
 existing) of Borrower (other than a RIC).

      "Guaranty" means a Guaranty Agreement, substantially in the form of
 Exhibit F, duly executed by each Guarantor.

      "Hallmark Trust I" means Hallmark Statutory Trust I, a special purpose
 statutory Delaware business trust established by Borrower, of which Borrower
 holds all the common securities, which is the issuer of the 2005 Preferred
 Securities, and which purchased from Borrower the 2005 Debentures with the
 net proceeds of the issuance and sale of the 2005 Preferred Securities.

      "Hallmark Trust I Declaration of Trust" means the Amended and Restated
 Declaration of Trust of Hallmark Trust I, dated as of June 21, 2005,
 together with all amendments and restatements.

      "Hazardous Materials" means all explosive or radioactive substances or
 wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid
 or gaseous wastes, including petroleum or petroleum distillates, asbestos or
 asbestos-containing materials, polychlorinated biphenyls ("PCBs") or PCB-
 containing materials or equipment, radon gas, infectious or medical wastes

 and all other substances or wastes of any nature regulated pursuant to any
 Environmental Law.

      "Highest Lawful Rate" means at the particular time in question the
 maximum rate of interest which, under Applicable Law, Lender is then
 permitted to charge on the Obligations.  If the maximum rate of interest
 which, under Applicable Law, Lender is permitted to charge on the
 Obligations shall change after the date hereof, the Highest Lawful Rate
 shall be automatically increased or decreased, as the case may be, from time
 to time as of the effective time of each change in the Highest Lawful Rate
 without notice to Borrower.  For purposes of determining the Highest Lawful
 Rate under Applicable Law, the indicated rate ceiling shall be the
 lesser of (a)(i) the "weekly ceiling", as that expression is defined in
 Section 303.003 of the Texas Finance Code, as amended, or (ii) if available
 in accordance with the terms thereof and at Lender's option after notice to
 Borrower and otherwise in accordance with the terms of Section 303.103 of
 the Texas Finance Code, as amended, the "annualized ceiling" and (b)(i) if
 the amount outstanding under this Agreement is less than $250,000, 24% per
 annum, or (ii) if the amount under this Agreement is equal to or greater
 than $250,000, 28% per annum.

      "Insurance Business" means one or more aspects of the business of
 selling, issuing or underwriting insurance or reinsurance.

      "Insurance Contract" means any insurance contract or policy issued
 by a RIC, but shall not include any Reinsurance Agreement or Retrocession
 Agreement.

      "Insurance Regulator" means, when used with respect to any RIC, the
 Governmental Authority, insurance department or similar administrative
 authority or agency located in (a) each state in which such RIC is domiciled
 or (b) to the extent asserting regulatory jurisdiction over such RIC, the
 Governmental Authority, insurance department, authority or agency in each
 state in which such RIC is licensed, and shall include any Federal insurance
 regulatory department, authority or agency that may be created and that
 asserts regulatory jurisdiction over such RIC.

      "Interest Payment Date" means each Payment Date and the Revolving Loan
 Maturity Date.

      "Internal Control Event" means a material weakness in, or fraud that
 involves management or other employees who have a significant role in,
 Borrower's "disclosure controls and procedures" or "internal controls over
 financial reporting", in each case as described in Rule 13a-15 or Rule 15d-
 15 promulgated under the Securities Act of 1934.

      "Investment" means, as to any Person, any direct or indirect
 acquisition or investment by such Person, whether by means of (a) the
 purchase or acquisition of all or substantially all of the assets of any
 Person, (b) any direct or indirect purchase or other acquisition of, or a
 beneficial interest in, any equity interest or other securities of any other
 Person, or (c) any direct or indirect loan, advance, or capital contribution
 to or investment in any other Person, including without limitation the
 incurrence or sufferance of Debt or accounts receivable of any other Person
 that are not current assets or do not arise from Dispositions to that other
 Person in the ordinary course of business.

      "Investment Grade Securities" means and includes (a) securities that
 are direct obligations of the United States of America, the payment of which
 is backed by the full faith and credit of the United States of America,
 (b) debt securities or debt instruments with a rating of A or higher by S&P,
 A2 or higher by Moody's, Class (1) or higher by NAIC or the equivalent of

 such rating by S&P, Moody's or NAIC, or if none of S&P, Moody's and NAIC
 shall then exist, the equivalent of such rating by any other nationally
 recognized securities rating agency, but excluding any debt securities
 or instruments constituting loans or advances among Borrower and its
 wholly-owned Subsidiaries, and (c) any fund investing exclusively in
 investments of the type described in clauses (a) and (b), which funds may
 also hold immaterial amounts of cash pending investment and/or distribution.

      "Investment Policy" means the written policies and procedures
 which govern the acquisition and maintenance of Investments and the cash
 management procedures of Borrower and each of its Subsidiaries, as such
 written policies and procedures exist on the Agreement Date.

      "L/C Agreements" means all agreements related to any letter of credit
 issued by Lender or any Affiliate of Lender for the account of Borrower, any
 L/C RIC or any other Obligor, including but not limited to, any Letter of
 Credit Application, any reimbursement agreement, and any amendment or
 restatement thereof.

      "L/C Credit Extension" means, with respect to any Letter of Credit, the
 issuance thereof, the extension of the expiry date thereof (including with
 respect to any Auto-Renewal Letter of Credit) or the increase of the amount
 thereof.

      "L/C RIC" means AHIC and PIIC.

      "Laws" means, collectively, all international, foreign, Federal, state
 and local constitutions, statutes, treaties, rules, guidelines, regulations,
 ordinances, codes and administrative or judicial precedents or authorities,
 including the interpretation or administration thereof by any Governmental
 Authority charged with the enforcement, interpretation or administration
 thereof, and all applicable administrative orders, directed duties,
 requests, licenses, authorizations and permits of, and agreements with, any
 Governmental Authority, in each case whether or not having the force of law.

      "Lender's Office" means Lender's address and, as appropriate, account
 as set forth on Schedule 10.1, or such other address or account as Lender
 may from time to time notify Borrower.

      "Letter of Credit" means any letter of credit issued hereunder.  Each
 Letter of Credit shall be a standby letter of credit.

      "Letter of Credit Application" means an application and agreement for
 the issuance or amendment of a Letter of Credit in the form from time to
 time in use by Lender.

      "Lien" means any mortgage, pledge, security interest, encumbrance, lien
 or charge of any kind (including any agreement to give or not to give any of
 the foregoing), any conditional sale or other title retention agreement,
 any financing or other lease in the nature thereof, and the filing of or
 agreement to give any financing statement or other similar form of public
 notice under the Laws of any jurisdiction.

      "Litigation" means any proceeding, claim, lawsuit and/or investigation
 conducted or threatened by or before any Governmental Authority, including,
 but not limited to, proceedings, claims, lawsuits, and/or investigations
 under or pursuant to any environmental, occupational, safety and health,
 antitrust, unfair competition, securities, Tax, or other Law, or under or
 pursuant to any contract, agreement or other instrument.

      "Litigation Report" means a report, certified to be true, correct and
 complete by an Authorized Officer of Borrower and each of its Subsidiaries

 which is a party to any Litigation, describing all Litigation relating to
 Insurance Business of Borrower and each of its Subsidiaries, in format
 acceptable to Lender.

      "Loan Documents" means this Agreement, the Revolving Note, the Security
 Documents, the Guaranties, the L/C Agreements and all other documents and
 instruments executed and delivered to Lender by any Obligor or any other
 Person in connection with this Agreement.

      "Loss Report" means a quarterly summarization of losses, allocated loss
 adjustment expenses and related reserves in format acceptable to Lender and
 within the ability of Borrower to produce.

      "Mannequin" means Mannequin Life PCC Limited, a Guernsey protected cell
 company.

      "Material Adverse Change or Effect" means (a)  a material adverse
 change in, or a material adverse effect upon, the operations, business,
 properties, liabilities (actual or contingent), condition (financial or
 otherwise) or prospects of Borrower or Borrower and its Subsidiaries taken
 as a whole; (b) a material impairment of the ability of any Obligor to
 perform its obligations under any Loan Document to which it is a party; or
 (c)  a material adverse effect upon the legality, validity, binding effect
 or enforceability against any Obligor of any Loan Document to which it is a
 party or its property is subject.

      "Maximum Amount" means the maximum amount of interest which, under
 Applicable Law, Lender is permitted to charge on the Obligations.

      "Moody's" means Moody's Investors Service, Inc.

      "NAIC" means the National Association of Insurance Commissioners or any
 successor organization thereto.

      "NAIC Tests" means the ratios and other financial measurements
 developed by NAIC under its Insurance Regulatory Information System, as in
 effect from time to time.

      "Net Underwriting Gain" means, at any date with respect to a RIC, net
 underwriting gain (or loss) as shown on line 8 of the Statement of Income of
 such RIC as would be prepared as of such date utilizing the identical format
 promulgated by NAIC and utilized by such RIC in preparing the December 31,
 2004, annual statements filed with the applicable Insurance Regulator, or
 if such format is changed after the Agreement Date, the same type of
 information, computed in the same manner, as contained in line 8 of the
 Statement of Income of such RIC dated as of December 31, 2004.

      "Newcastle Note" means the Promissory Note dated January 3, 2006, made
 by Borrower, payable to the order of Newcastle Partners, L.P., a Texas
 limited partnership, in the original principal amount of $12,500,000.00,
 together with all amendments and restatements thereto.

      "Notice of Final Agreement" means the Arbitration and Notice of Final
 Agreement, substantially in the form of Exhibit K.

      "Obligor" means Borrower and each other Person liable for performance
 of any of the Obligations or the property of which secures the performance
 of any of the Obligations.

      "Off-Balance Sheet Liabilities" means, with respect to any Person as of
 any date of determination thereof, without duplication and to the extent not
 included as a liability on the consolidated balance sheet of such Person and

 its Subsidiaries in accordance with GAAP: (a) with respect to any asset
 securitization transaction (including any accounts receivable purchase
 facility) (i) the unrecovered investment of purchasers or transferees of
 assets so transferred and (ii) any other payment, recourse, repurchase,
 hold harmless, indemnity or similar obligation of such Person or any of its
 Subsidiaries in respect of assets transferred or payments made in respect
 thereof, other than limited recourse provisions that are customary for
 transactions of such type and that neither (x) have the effect of limiting
 the loss or credit risk of such purchasers or transferees with respect to
 payment or performance by the obligors of the assets so transferred nor
 (y) impair the characterization of the transaction as a true sale under
 applicable Laws (including Debtor Relief Laws); (b) the monetary obligations
 under any financing lease or so-called "synthetic," tax retention or off-
 balance sheet lease transaction which, upon the application of any Debtor
 Relief Law to such Person or any of its Subsidiaries, would be characterized
 as indebtedness; (c) the monetary obligations under any sale and leaseback
 transaction which does not create a liability on the consolidated balance
 sheet of such Person and its Subsidiaries; or (d) any other monetary
 obligation arising with respect to any other transaction which (i) upon
 the application of any Debtor Relief Law to such Person or any of its
 Subsidiaries, would be characterized as indebtedness or (ii) is the
 functional equivalent of or takes the place of borrowing but which does not
 constitute a liability on the consolidated balance sheet of such Person and
 its Subsidiaries (for purposes of this clause (d), any transaction
 structured to provide tax deductibility as interest expense of any Dividend,
 coupon or other periodic payment will be deemed to be the functional
 equivalent of a borrowing).

      "PAAC" means Pan American Acceptance Corporation, a Texas corporation.

      "PAAC Purchase Agreement" means the PAAC Purchase Agreement dated as of
 November 23, 2005, among Borrower, Samuel M. Cangelosi, Donate A. Cangelosi
 and Carol A. Meyer.

      "Payment Date" means the first Business Day of each calendar quarter.

      "PBGC" means the Pension Benefit Guaranty Corporation established under
 ERISA.

      "PCAOB" means the Public Company Accounting Oversight Board, or any
 entity succeeding to any of its principal functions.

      "Permitted Acquisition" means the acquisition of all or substantially
 all of the assets or all of the equity of an insurance agency, managing
 general agency or property and casualty insurance company, so long as in
 each case (a) there exists no Default or Event of Default both before and
 after giving effect to any such acquisition, (b) all of the authorized,
 issued and outstanding equity of each acquired insurance agency or managing
 general agency and all voting rights (including voting rights arising upon
 the occurrence of a contingency) with respect to such insurance agency or
 managing general agency will be owned by Borrower, (c) all of the
 authorized, issued and outstanding equity of each acquired property and
 casualty insurance company and all voting rights (including voting rights
 arising upon the occurrence of a contingency) with respect to such property
 and casualty insurance company will be owned by either Borrower or a wholly-
 owned RIC which is a Domestic Subsidiary, (d) such acquired assets are
 acquired by either Borrower or a wholly-owned Subsidiary that is a Guarantor
 (with respect to assets of an insurance agency or managing general agency)
 or a RIC which is a Domestic Subsidiary (with respect to assets of a
 property and casualty insurance company), (e) Borrower provides Lender with
 information and a Compliance Certificate demonstrating pro forma compliance
 with the terms of this Agreement through the Revolving Loan Maturity Date,
 after giving effect to such acquisition, including, without limitation, each
 provision of Sections 7.1 through 7.6, (f) the aggregate cash portion of the
 consideration for all such acquisitions does not exceed $5,000,000 during
 any fiscal year of Borrower or $10,000,000 over the term of this Agreement,
 (g) each acquisition is consummated pursuant to a negotiated acquisition
 agreement on a non-hostile basis pursuant to an acquisition agreement
 approved by the board of directors or other applicable governing body of the
 entity to be acquired prior to the commencement thereof, (h) Borrower or the
 Guarantor acquiring the assets or equity of an insurance agency or managing
 general agency, and each acquired insurance agency and managing general
 agency executes and delivers, or causes to be executed and delivered, each
 of the documents applicable to it described in Sections 7.10(a) - (i) and
 (i) Borrow executes and delivers, or causes to be executed and delivered,
 each of the documents applicable to it described in Sections 7.10 (a), (d),
 (e), (f), (g) and (i) (with respect to the acquisition of equity of a
 property and casualty insurance company).  For purposes of determining
 compliance with clause (f), (y) the cash portion of the consideration
 paid for each acquisition of assets or equity of a property and casualty
 insurance company shall be deemed to exclude an amount up to and not greater
 than an amount equal to the sum of the amount of the paid in capital of such
 entity (in the case of the acquisition of equity of such entity) plus the
 amount of the surplus as regards policyholders (without duplication of the
 amount of the paid in capital of such entity) being acquired (all determined
 in accordance with SAP as at the date of the acquisition), and (z) the cash
 portion of the consideration for each acquisition of assets or equity of a
 property and casualty insurance company shall be deemed to be allocated
 first to the surplus as regards policyholders (without duplication of the
 amount of the paid in capital of such entity) being acquired.

      "Permitted Debt" means (a) Existing Debt, (b) the Obligations,
 (c) trade accounts payable and other similar obligations incurred in the
 ordinary course of business, (d) intercompany balances in the ordinary
 course of business among Borrower and its Domestic Subsidiaries; provided,
 that all amounts owed by any Obligor to its Subsidiaries shall be
 subordinated to all Obligations on terms acceptable to Lender, (e) Capital
 Leases of Borrower and each of its Subsidiaries in an aggregate principal
 amount not to exceed $200,000 at any time, (f) the 2005 Debentures;
 provided, that all amounts owed with respect to the 2005 Debentures shall be
 subordinated to all Obligations on terms acceptable to Lender, and; provided
 further, the aggregate principal amount of all 2005 Debentures shall not
 exceed $30,928,000, (g) the 2005 Guaranty; provided, that all amounts owed
 with respect to the 2005 Guaranty shall be subordinated to all Obligations
 on terms acceptable to Lender, (h) contingent purchase price payable
 pursuant to the Aerospace Purchase Agreement; provided, the aggregate
 amount of such contingent purchase price shall not exceed $2,500,000,
 (i) contingent purchase price payable pursuant to the TGA Purchase
 Agreement; provided, the aggregate amount of such contingent purchase price
 shall not exceed $8,000,000, (j) Debt evidenced by the TGA Notes; provided,
 the aggregate principal amount of all TGA Notes shall not exceed
 $23,750,000, (k) Debt evidenced by the Convertible Notes; provided, (i)
 the aggregate principal amount of the Convertible Notes shall not exceed
 $25,000,000, and (ii) the Convertible Notes are in form, payable on terms
 and subordinate to the Obligations on terms acceptable to Lender,
 (l) obligations of Borrower pursuant to the TGA Purchase Agreement related
 to non-competition payments in an aggregate amount not to exceed $2,000,000,
 and (m) other Debt of Borrower and Subsidiaries in an aggregate amount not
 to exceed $400,000 at any time and that is subordinated to the Obligations
 on terms acceptable to Lender in its discretion.

      "Permitted Investments" means (a) Investment Grade Securities,
 (b) Existing Investments, (c) travel advances to employees in the ordinary
 course of business, (d) equity contributions made by Borrower in existing
 Subsidiaries that are either Guarantors or RICs that are Domestic
 Subsidiaries, if such equity contribution results in an increase in
 shareholders' or members' equity of such Subsidiary receiving such equity
 contribution, (e) the purchase by Borrower of surplus debentures issued by a
 RIC that is a Domestic Subsidiary if the original principal amount of such
 surplus debenture is not less than the consideration paid by Borrower, and
 (f) other Investments of Borrower and Subsidiaries that do not, as at any
 date of determination, exceed in the aggregate $500,000 (the value of each
 such Investment to be the greater of (1) the then current market value of
 such Investment, and (2) the purchase price of such Investment).

      "Permitted Liens" means (a) Bank Liens, (b) pledges or deposits made to
 secure payment of workmen's compensation, or to participate in any fund in
 connection with workmen's compensation, unemployment insurance, pensions, or
 other social security programs (excluding any Liens in respect of ERISA),
 (c) good-faith pledges or deposits made to secure performance of bids,
 tenders, contracts (other than for the repayment of borrowed money), or
 leases, or to secure statutory obligations, surety or appeal bonds, or
 indemnity, performance, or other similar bonds in the ordinary course of
 business, (d) encumbrances consisting of zoning restrictions, easements, or
 other restrictions on the use of real property, none of which impair the use
 of such property by any Obligor or any of its Subsidiaries in the operation
 of its business in any manner which would have a Material Adverse Effect,
 (e) the following, if the validity or amount thereof is being contested in
 good faith and by appropriate and lawful proceedings and so long as levy and
 execution thereon have been stayed and continue to be stayed: claims and
 Liens for Taxes due and payable; claims and Liens upon, and defects of title
 to, real or personal property or other legal process prior to adjudication
 of a dispute on the merits, including mechanic's and materialmen's Liens;
 and adverse judgments on appeal, (f) set-off, charge-back and other rights
 of depository and collection banks and other financial institutions with
 respect to money or instruments of Borrower or its Subsidiaries on deposit
 with or in possession of such institutions, (g) Liens granted by PAAC to
 secure loans the proceeds of which are used by PAAC to fund its premium
 finance operations; provided, such Liens do not attach to any property other
 than Premium Finance Agreements and related general intangibles and
 proceeds, (h) encumbrances pursuant to the TGA Trust Documents, and (i)
 Liens arising under Capital Leases permitted under this Agreement.

      "Person" means and includes an individual, a partnership, a joint
 venture, a limited liability company, a corporation, a trust, an
 unincorporated organization, and a government or any department,
 Governmental Authority, agency or political subdivision thereof.

      "PIIC" means Phoenix Indemnity Insurance Company, an Arizona insurance
 corporation.

      "Plan" means any plan subject to Title IV of ERISA and maintained for
 employees of any Obligor or any of its Subsidiaries, or of any member of
 a controlled group of corporations, as the term "controlled group of
 corporations" is defined in Section 1563 of the Internal Revenue Code of
 1986, as amended, of which any Obligor or any of its Subsidiaries is a part.

      "Pledge Agreements" means the Pledge Agreement executed by Borrower,
 substantially in the form of Exhibit B, and the Pledge Agreement executed
 by a Subsidiary, substantially in the form of Exhibit C.

      "Premium Finance Agreement" means an agreement by which an insured
 or prospective insured promises to pay to PAAC the amount advanced to an
 insurance company (or to a third party for the benefit of an insurance
 company) by PAAC in payment of premium on an insurance contract.

      "Prime Rate" means for any day a per annum rate of interest equal
 to the "prime rate," as published in the "Money Rates" column of The Wall
 Street Journal, Central Edition, from time to time, or if for any reason
 such rate is no longer available, the rate established by Lender as its
 prime rate.  The Prime Rate shall change effective as of the date of any
 change as published in The Wall Street Journal, Central Edition, or as
 established by Lender, as appropriate.  The Prime Rate is a reference rate
 and does not necessarily represent the lowest or best rate actually charged
 to any customer of Lender.

      "Prime Rate Loan" means a Revolving Loan when it bears interest at a
 rate based on the Prime Rate.

      "Principal Office" means the location of Lender's chief executive
 office.

      "Registered Public Accounting Firm" means an accounting firm that (a)
 has registered with the PCAOB pursuant to the provisions of Section 102 of
 Sarbanes-Oxley and whose registration has not been withdrawn, terminated,
 revoked or suspended and (b) meets the "independence" requirements of
 Section 10A of the Securities Exchange Act of 1934.

      "Reinsurance Agreement" means any agreement, contract, treaty or other
 arrangement whereby one or more insurers, as reinsurers, assume liabilities
 under insurance policies or agreements issued by another insurance or
 reinsurance company or companies.

      "Release" means any spilling, leaking, pumping, pouring, emitting,
 emptying, discharging, injecting, escaping, leaching, dumping, disposing,
 depositing, dispersing, emanating or migrating of any Hazardous Material in,
 into, onto or through the Environment.

      "Remedial Action" means (a) "remedial action" as such term is defined
 in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required
 by any Governmental Authority or voluntarily undertaken to: (i) cleanup,
 remove, treat, abate or in any other way address any Hazardous Material in
 the Environment; (ii) prevent the Release or threat of Release, or minimize
 the further Release of any Hazardous Material so it does not migrate or
 endanger or threaten to endanger public health, welfare or the Environment;
 or (iii) perform studies and investigations in connection with, or as a
 precondition to, (i) or (ii) above.

      "Reportable Event" means a reportable event as defined in
 Section 4043(b) of Title IV of ERISA or PBGC regulations issued thereunder,
 other than a reportable event not subject to Section 4043's notification
 requirements pursuant to PGBC's regulations.

      "Retrocession Agreement" means any agreement, contract, treaty or
 other arrangement whereby one or more insurers or reinsurers, as
 retrocessionaires, assume liabilities of reinsurers under a Reinsurance
 Agreement or other retrocessionaires under another retrocession agreement.

      "Revolving Borrowing" means a borrowing by Borrower of Revolving Loans
 made by Lender pursuant to Section 2.1.

      "Revolving Commitment" means $20,000,000.

      "Revolving Facility L/C" means a Letter of Credit issued pursuant to
 Section 3.1(a)(i).

      "Revolving Facility L/C Commitment" means $5,000,000.

      "Revolving Facility L/C Expiration Date" means the first to occur of
 (a) January ___, 2008, (b) the date the Revolving Facility L/C Commitment
 is terminated pursuant to either Section 2.6 or 9.2, and (c) the date the
 Obligations are accelerated.

      "Revolving Facility L/C Obligations" means, as at any date of
 determination, the aggregate undrawn amount of all outstanding Revolving
 Facility L/Cs plus the aggregate of all Unreimbursed Amounts with respect
 to Revolving Facility L/Cs.

      "Revolving Facility Outstanding Amount" means, as of any date of
 determination, the sum of (a) the aggregate outstanding principal amount of
 all Revolving Loans, after giving effect to any Revolving Borrowing and any
 principal payment of Revolving Loans occurring on such date, and (b) the
 Revolving Facility L/C Obligations on such date, after giving effect to any
 L/C Credit Extension and any other changes in the aggregate amount of the
 Revolving Facility L/C Obligations on such date, including as a result of
 payment of any Unreimbursed Amount.

      "Revolving Loan Maturity Date" means the first to occur of
 (a) January ___, 2011, (b) the date the Revolving Commitment is terminated
 pursuant to either Section 2.6 and 9.2, and (c) the date the Obligations are
 accelerated.

      "Revolving Loan Notice" means a notice of a Revolving Borrowing request
 pursuant to Section 2.2(a), substantially in the form of Exhibit G.

      "Revolving Note" means the promissory note made by Borrower in favor of
 Lender evidencing the Revolving Loans made by Lender, substantially in the
 form of Exhibit A.

      "RIC" means any Subsidiary, whether now owned or hereafter acquired,
 that is authorized or admitted to carry on or transact Insurance Business in
 any jurisdiction, is regulated by any Insurance Regulator, and is required
 by any Insurance Regulator to file an annual statement in the form
 prescribed by NAIC for a property and casualty insurance company.

      "Risk-Based Capital" means for a RIC, the ratio (expressed as a
 percentage), at any time, of the Total Adjusted Capital of such RIC to the
 Authorized Control Level of such RIC.

      "S&P" means Standard & Poor's Ratings Group, a division of McGraw-
 Hill, Inc., a New York corporation.

      "SAP" means the statutory accounting and reporting practices prescribed
 by the insurance Laws or Insurance Regulator (or other similar Governmental
 Authority) with respect to each RIC.

      "Sarbanes-Oxley" means the Sarbanes-Oxley Act of 2002.

      "SEC" means the Securities and Exchange Commission, or any Governmental
 Authority succeeding to any of its principal functions.

      "Securities Laws" means the Securities Act of 1933, the Securities
 Exchange Act of 1934, Sarbanes-Oxley and the applicable accounting and
 auditing principles, rules, standards and practices promulgated, approved
 or incorporated by the SEC or the PCAOB.

      "Security Agreements" means the Security Agreement executed by
 Borrower, substantially in the form of Exhibit D, and each Security
 Agreement executed by a Subsidiary, substantially in the form of Exhibit E.

      "Security Documents" means, collectively, the Pledge Agreements, the
 Security Agreements and any and all other documents, instruments, financing
 statements, public notices and the like executed and delivered in connection
 with any of the Bank Liens or the Collateral.

      "Solvent" means, with respect to any Person, that the fair value of the
 assets of such Person (both at fair valuation and at present fair saleable
 value) is, on the date of determination, greater than the total amount of
 liabilities (including contingent and unliquidated liabilities) of such
 Person as of such date and that, as of such date, such Person is able to pay
 all liabilities of such Person as such liabilities mature and such Person
 does not have unreasonably small capital with which to carry on its
 business.  In computing the amount of contingent or unliquidated liabilities
 at any time, such liabilities will be computed at the amount which, in light
 of all the facts and circumstances existing at such time, represents the
 amount that can reasonably be expected to become an actual or matured
 liability discounted to present value at rates believed to be reasonable
 by such Person.

      "Special Counsel" means the law firm of Winstead Sechrest &
 Minick P.C., or such other legal counsel as Lender may select.

      "Subordination Agreement" means the Subordination Agreement,
 substantially in the form of Exhibit I.

      "Subordination Agreement I" means the Subordination Agreement among
 Newcastle Special Opportunity Fund I, L.P., Borrower and Lender,
 substantially in the form of Exhibit L.

      "Subordination Agreement II" means the Subordination Agreement among
 Newcastle Special Opportunity Fund II, L.P., Borrower and Lender,
 substantially in the form of Exhibit M.

      "Subsidiary" of a Person means a corporation, partnership, joint
 venture, limited liability company or other business entity of which a
 majority of the shares of securities or other interests having ordinary
 voting power for the election of directors or other governing body (other
 than securities or interests having such power only by reason of the
 happening of a contingency) are at the time beneficially owned, or the
 management of which is otherwise Controlled, directly or indirectly through
 one or more intermediaries, or both, by such Person.  Unless otherwise
 specified, all references to a "Subsidiary" or to "Subsidiaries" refers to a
 Subsidiary or Subsidiaries of Borrower.  For purposes of the Loan Documents,
 Hallmark Trust I is deemed to be a Subsidiary of Borrower.

      "Taxes" means all taxes, assessments, fees or other charges from time
 to time or at any time imposed by any Laws or by any Governmental Authority.

      "Termination Date" means January 27, 2008.

      "TGA" means Texas General Agency, Inc., a Texas corporation.

      "TGA Account" means a brokerage account, securities account or similar
 account, together with all property on deposit or subject thereto, and all
 related agreements, in form and substance satisfactory to Lender.

      "TGA Facility Documents" means all L/C Agreements and all other
 agreements between Lender and Borrower related to the TGA L/C Commitment and
 the TGA L/Cs, including all reimbursement agreements and agreements securing
 or guaranteeing performance of such agreements.  Each TGA Facility Document
 is a Loan Document.

      "TGA L/C" means a Letter of Credit issued for the benefit of all
 sellers a party to the TGA Purchase Agreement and having an expiry date of
 January 4, 2008.

      "TGA L/C Commitment" means $25,000,000.

      "TGA Note" means a promissory note in the form of Exhibit A to the TGA
 Purchase Agreement (without giving effect to any amendment to or restatement
 of such form after the Agreement Date).

      "TGA Obligations" means all obligations, indebtedness and liabilities
 under the TGA Facility Documents now or hereafter owing by Borrower or any
 other Person to or for the benefit of Lender, whether joint or several,
 fixed or contingent, including principal, interest, expenses of collection
 and foreclosure and attorneys' fees that Borrower is responsible for
 pursuant to Section 10.2.  Without limiting the generality of the foregoing,
 "TGA Obligations" includes interest, fees and other amounts that would
 accrue after the commencement by or against Borrower, any Affiliate thereof
 or any other Person (other than Lender, any Assignee or any Participant) of
 any proceeding under any Debtor Relief Laws naming such Person as the debtor
 in such proceeding, regardless of whether such interest, fees and other
 amounts are allowed claims in such proceeding.  TGA Obligations are
 Obligations.

      "TGA Purchase Agreement" means the Purchase Agreement dated as of
 November 9, 2005, among Borrower, Samuel M. Cangelosi, Donate A. Cangelosi
 and Donald E. Meyer.

      "TGA Trust Documents" means all agreements pursuant to which Borrower
 establishes and maintains with Lender a trust account for the benefit of
 the sellers under the TGA Purchase Agreement to secure the performance of
 Borrower of the TGA Notes and payment by Borrower of amounts due with
 respect to non-competition covenants in the TGA Purchase Agreement.

      "TGASR" means TGA Special Risk, Inc., a Texas corporation.

      "Total Adjusted Capital" means "Total Adjusted Capital" as defined
 by NAIC from time to time and as applied in the context of the Risk-Based
 Capital Guidelines promulgated by NAIC (or any term substituted therefor by
 NAIC).

      "2005 Debentures" means the $30,928,000 aggregate principal amount of
 Junior Subordinated Debt Securities due June 15, 2035 issued by Borrower to
 Hallmark Trust I.

      "2005 Documents" means any equity security of Hallmark Trust I,
 any 2005 Debenture, any 2005 Preferred Security, the 2005 Indenture, the
 Hallmark Trust I Declaration of Trust, the 2005 Guaranty, any document
 evidencing or governing any equity or Debt of Hallmark Trust I and all other
 documents and instruments executed and delivered by Borrower or Hallmark
 Trust I in connection with any of the foregoing.

      "2005 Guaranty" means the Guaranty Agreement dated June 21, 2005,
 made by Borrower in favor of JPMorgan Chase Bank, National Association,
 as Guarantee Trustee, together with all amendments and restatements.

      "2005 Indenture" means the Indenture dated June 21, 2005, between
 Borrower and JPMorgan Chase Bank, National Association, as Trustee, together
 with all amendments and restatements.

      "2005 Preferred Securities" means the $30,000,000 Preferred Securities
 issued by Hallmark Trust I.

      1.2  Additional Definitions.  The following additional terms have
 the meaning specified in the indicated Section or other provision of this
 Agreement:

           Term                              Section/Provision
           ----------------------------      -----------------------------
           Agreement                         Introductory Paragraph
           Assignee                          Section 10.6(c)
           Auto-Renewal Letter of Credit     Section 3.2(c)
           Borrower                          Introductory Paragraph
           Cash Collateralize                Section 3.6(a)
           Eurocurrency liabilities          Section 4.4(c)
           Existing Agreement                Background
           Existing Non-Compliance           Section 10.15(f)
           Indemnified Matters               Section 6.7
           Indemnified Taxes                 Section 4.1(a)
           Indemnitees                       Section 6.7
           Information                       Section 10.8
           Lender                            Introductory Paragraph
           Nonrenewal Notice Date            Section 3.2(c)
           Other Taxes                       Section 4.1(b)
           Participant                       Section 10.6(b)
           Participation                     Section 10.6(b)
           Properties                        Section 8.16(a)
           Revolving Facility L/C Fee        Section 3.7(a)
           Revolving Loan                    Section 2.1
           TGA L/C Fee                       Section 3.7(b)
           Unreimbursed Amount               Section 3.3

      1.3  Construction.  Unless otherwise expressly provided in this
 Agreement or the context requires otherwise, (a) the singular shall include
 the plural, and vice versa, (b) words of a gender include the other gender,
 (c) all accounting terms shall be construed in accordance with GAAP or SAP,
 as the context requires, (d) all references to time are San Antonio time,
 (e) monetary references are to Dollars, (f) all references to "Articles,"
 "Sections," "Exhibits," and "Schedules" are to the Articles, Sections,
 Exhibits, and Schedules of and to this Agreement, (g) headings used in
 this Agreement and each other Loan Document are for convenience only and
 shall not be used in connection with the interpretation of any provision
 hereof or thereof, (h) references to any Person include that Person's
 heirs, personal representatives, successors, and permitted assigns,
 that Person as a debtor-in possession, and any receiver, trustee,
 liquidator, conservator, custodian, or similar party appointed for such
 Person or all or substantially all of its assets, (i) references to any
 Law include every amendment or restatement to it, rule and regulation
 adopted under it, and successor or replacement for it, and (j) references
 to a particular Loan Document include each amendment, modification, or
 supplement to or restatement of it made in accordance with this Agreement
 and such Loan Document.

                                  ARTICLE II

                               REVOLVING LOANS

      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.

      2.2 Revolving Borrowings.

          (a) Revolving Borrowings.  Each Revolving Borrowing shall be
 made upon Borrower's irrevocable notice to Lender, which may be given by
 telephone.  Each such notice must be received by Lender not later than
 2:00 p.m. (i)  one Business Day prior to the requested date of any Revolving
 Borrowing of Eurodollar Rate Loans and (ii)  one Business Day prior to the
 requested date of any Revolving Borrowing of Prime Rate Loans (subject to
 Section 2.7).  Each such telephonic notice must be confirmed promptly by
 delivery to Lender of a written Revolving Loan Notice appropriately
 completed and signed by an Authorized Signatory of Borrower.  Each Revolving
 Loan Notice (whether telephonic or written) shall specify (i) the requested
 date of the Revolving Borrowing, as the case may be (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.

          (b) Funding.  Upon satisfaction of the applicable conditions
 set forth in Article V, Lender shall make the proceeds of each Revolving
 Borrowing available to Borrower by crediting the account of Borrower on
 the books of Lender with the amount of such funds.

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

 The Revolving Loan Maturity      The remaining unpaid principal
 Date                             of all Revolving Loans

      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.

      2.5 Mandatory Prepayments.  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.  On
 each date that the Revolving Facility L/C Obligations exceed the Revolving
 Facility L/C Commitment, Borrower shall Cash Collateralize the Revolving
 Facility L/C Obligations in an amount equal to such excess.  Each mandatory
 prepayment shall be accompanied by all accrued and unpaid interest thereon.

      2.6 Termination and Reduction of Commitments.

           (a) Borrower shall have the right to terminate or reduce the
 Revolving Commitment, Revolving Facility L/C Commitment and TGA L/C
 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 and
 Revolving L/C Commitment shall automatically reduce to zero and terminate.
 On February 10, 2006, the TGA L/C Commitment shall terminate.  If on
 or before February 10, 2006, (a) the TGA L/C has not been issued, and
 (b) Borrower has either (i) established the TGA Trust Documents or (ii) made
 other arrangements to secure performance of Borrower of the TGA Notes and
 payment by Borrower of amounts due with respect to non-competition covenants
 in the TGA Purchase Agreement, the TGA L/C Commitment shall automatically
 reduce to zero and Lender shall have no obligation to issue the TGA L/C.

           (c) Borrower shall not have any right to rescind any termination
 or reduction.  Once terminated or reduced, the Revolving Commitment,
 Revolving Facility L/C Commitment and TGA L/C Commitment, respectively,
 may not be reinstated.

      2.7 Interest on Revolving Loans Generally.

           (a) Subject to the provisions of Section 2.7(b) and Section 2.9,
 each Revolving Loan shall bear interest on the outstanding principal amount
 thereof from the applicable borrowing date or such other date on which it
 becomes a Eurodollar Rate Loan (as applicable) to but not including the
 date on which another interest rate becomes applicable to it pursuant to
 the terms of this Agreement at a rate per annum equal to the lesser of (i)
 the Highest Lawful Rate and (ii)  the Eurodollar Rate.

           (b) Subject to the provisions of Section 2.9, if at any time
 Lender has notified Borrower that the provisions of Sections 4.2 or 4.3
 apply, each Revolving Loan shall bear interest on the outstanding principal
 amount thereof from the date on which Lender determines or is notified that
 the provisions of Sections 4.2 or 4.3 apply to and including the date on
 which Lender notifies Borrower that the provisions of Sections 4.2 and 4.3
 no longer apply at a rate per annum equal to the lesser of (i)  the Highest
 Lawful Rate and (ii)  the Prime Rate.  Borrower may not elect that any
 Revolving Loan be a Prime Rate Loan unless Lender has notified Borrower
 that the provisions of Sections 4.2 or 4.3 apply.

          (c)  Interest on the Revolving Loans shall be due and payable in
 arrears on each Interest Payment Date and at such other times as may be
 specified herein.  Interest hereunder shall be due and payable in accordance
 with the terms hereof before and after judgment, and before and after the
 commencement of any proceeding under any Debtor Relief Law.

      2.8  Computations.  Subject to Section 10.11, interest on the Revolving
 Loans, fees and any other amounts due hereunder shall be calculated on
 the basis of actual days elapsed over a year of 360 days, unless such
 calculation would result in a rate greater than the highest rate permitted
 by Applicable Law, in which case interest shall be computed on the basis of
 a year of 365 days or 366 days in a leap year, as the case may be.  Nothing
 herein shall be deemed to obligate Lender to obtain the funds for any
 Revolving Loan in any particular place or manner or to constitute a
 representation by Lender that it has obtained or will obtain the funds
 for any Revolving Loan in any particular place or manner.

      2.9  Interest After an Event of Default.  (a) If an Event of Default
 exists (other than an Event of Default specified in Section 9.1(e) or (f)),
 at the option of Lender, and (b) after an Event of Default specified in
 Section 9.1(e) or (f) and during any continuance thereof, automatically and
 without any action by Lender, the Obligations shall bear interest at a rate
 per annum equal to the lesser of (i) the Default Rate and (ii) the Highest
 Lawful Rate.  Such interest shall be payable on the earlier of demand or
 the Revolving Loan Maturity Date and shall accrue until the earlier of (a)
 waiver or cure (to the satisfaction of Lender) of the applicable Event of
 Default, (b) agreement by Lender to rescind the charging of interest at the
 Default Rate, or (c) payment in full of the Obligations.  Lender shall not
 be required to accelerate the maturity of the Revolving Loans, to exercise
 any other rights or remedies under the Loan Documents, or to give notice to
 Borrower of the decision to charge interest at the Default Rate.  Lender
 will undertake to notify Borrower, after the effective date, of the decision
 to charge interest at the Default Rate.

     2.10  Payments Generally.  (a) Each payment (including prepayments) by
 Borrower of the principal of or interest on the Revolving Loans and any
 other amount owed under this Agreement or any other Loan Document shall be
 made not later than 2:00 p.m. on the date specified for payment under this
 Agreement to Lender at Lender's Office, in Dollars constituting immediately
 available funds.  All payments received by Lender after 2:00 p.m. shall be
 deemed received on the next succeeding Business Day and any applicable
 interest or fee shall continue to accrue.

          (b) If any payment under this Agreement or any other Loan Document
 shall be specified to be made upon a day which is not a Business Day, it
 shall be made on the next succeeding day which is a Business Day.  Any
 extension of time shall in such case be included in computing interest
 and fees, if any, in connection with such payment.

          (c) Borrower agrees to pay principal, interest, fees and all other
 amounts due under the Loan Documents without deduction for set-off or
 counterclaim or any deduction whatsoever.

          (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 Revolving 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).

     2.11 Booking the Revolving Loans.  Lender may make, carry or transfer
 each Revolving Loan at, to or for the account of any of its branch offices
 or the office of any Affiliate.

     2.12  Collateral.

           (a) Obligations.  Payment of the Obligations is secured on the
 Agreement Date by (i) a perfected first priority security interest in
 (A) all of the authorized, issued and outstanding capital stock and other
 equity interests of each Domestic Subsidiary, and (B) not less than 65% of
 all of the authorized, issued and outstanding capital stock and other equity
 interests of each Foreign Subsidiary (other than Mannequin or any protected
 cell a part of Mannequin), (ii) a perfected first priority security interest
 (subject only to Permitted Liens) in current and future assets and
 properties of Borrower and all of its Domestic Subsidiaries (other than
 a RIC, except as provided in Section 3.6), and (iii) Guaranties of the
 Obligations by each Domestic Subsidiary (other than a RIC).  Borrower shall
 cause each Domestic Subsidiary (other than a RIC) of Borrower created or
 acquired after the Agreement Date to execute and deliver to Lender a
 Guaranty, Security Agreement, Pledge Agreement (if applicable) and such
 other documents as are required to grant to Lender and perfect the Lien
 granted pursuant to such Security Agreement and Pledge Agreement.  Borrower
 shall, and shall cause each Domestic Subsidiary to, execute and deliver to
 Lender a Pledge Agreement or amendment to an existing Pledge Agreement and
 such other documents as are required to grant and perfect a first priority
 security interest in not less than 65% of all of the authorized, issued and
 outstanding capital stock and other equity interests of each first tier
 Foreign Subsidiary (other than Mannequin or any protected cell a part of
 Mannequin) in which Borrower or a Domestic Subsidiary has an interest.

           (b) TGA Obligations.  Payment of the TGA Obligations (if the TGA
 L/C is issued) shall be secured (i) as described in Section 2.12(a), and
 (ii) not later than February 10, 2006 and thereafter by a perfected first
 priority security interest in the TGA Account and all property subject to
 the TGA Account.  Notwithstanding any provision of any Loan Document, the
 TGA Account and the property subject to the TGA Account are not collateral
 for performance for any Obligation other than the TGA Obligations.

                                 ARTICLE III

                         LETTER OF CREDIT FACILITIES

      3.1 Letters of Credit.

         (a)  (i) Subject to the terms and conditions of this
 Agreement, Lender agrees, (A) on any Business Day during the period
 from the Agreement Date until the Revolving Facility L/C Commitment
 Expiration Date, to issue Revolving Facility L/Cs for the account of
 Borrower and each L/C RIC, and to amend or renew Revolving Facility L/Cs
 previously issued by it, in accordance with Section 3.1(b), and (B) to honor
 drafts under the Revolving Facility L/Cs; provided that Lender shall not be
 obligated to make any L/C Credit Extension with respect to any Revolving
 Facility L/C, if as of the date of and before or after giving effect to
 such L/C Credit Extension, (1) the Revolving Facility L/C Obligations would
 exceed the Revolving Facility L/C Commitment, or (2) the Revolving Facility
 Outstanding Amount would exceed the Revolving Commitment.  Within the
 foregoing limits, and subject to the terms and conditions hereof, Borrower's
 ability to obtain Revolving Facility L/Cs shall be fully revolving, and
 accordingly Borrower and each L/C RIC may, during the foregoing period,
 obtain Revolving Facility L/Cs to replace Revolving Facility L/Cs that have
 expired or that have been drawn upon and reimbursed.  The Revolving Facility
 L/C Commitment is a subfacility of the Revolving Commitment and not in
 addition to the Revolving Commitment.

                (i) Subject to the terms and conditions of this Agreement,
      Lender agrees (A) on any Business Day during the period from the
      Agreement Date until February 10, 2006, to issue the TGA L/C for
      the account of Borrower, and (B) to honor drafts under the TGA L/C;
      provided that Lender shall not be obligated to issue the TGA L/C if the
      face amount of the TGA L/C exceeds the TGA L/C Commitment.  Lender has
      no obligation to increase the undrawn amount of or extend the expiry
      date of the TGA L/C.  The TGA L/C shall not be an Auto-Renewal Letter
      of Credit.  The TGA L/C Commitment is in addition to and not a
      subfacility of the Revolving Commitment.

           (b) Lender shall be under no obligation to make any L/C Credit
      Extension if:

                (i) any order, judgment or decree of any Governmental
      Authority or arbitrator shall by its terms purport to enjoin or
      restrain Lender from issuing, amending or renewing such Letter of
      Credit, or any Law applicable to Lender or any request or directive
      (whether or not having the force of law) from any Governmental
      Authority with jurisdiction over Lender shall prohibit, or request that
      Lender refrain from, the issuance, amendment or renewal of letters of
      credit generally or such Letter of Credit in particular or shall impose
      upon Lender with respect to such Letter of Credit any restriction,
      reserve or capital requirement (for which Lender is not otherwise
      compensated hereunder) not in effect on the Agreement Date, or shall
      impose upon Lender any unreimbursed loss, cost or expense which was not
      applicable on the Agreement Date and which Lender in good faith deems
      material to it;

                (ii)  the expiry date of any requested Revolving Facility L/C
      would occur (A) after the first to occur of (1) one year after the date
      of issuance and (2) January 27, 2011, or (B) in the case of an Auto-
      Renewal Letter of Credit, more than five years after the initial
      issuance date of such Auto-Renewal Letter of Credit;

                (iii)  the expiry date of the TGA L/C would occur after
      January 4, 2008;

                (iv)  the L/C Credit Extension would violate one or more
      policies of Lender;

                (v)  any Revolving Facility L/C is to be used for a purpose
      other than (A) to assure the performance of Borrower or an L/C RIC
      pursuant to a Reinsurance Agreement to which Borrower and/or such L/C
      RIC is a party, or (B) as may be agreed to by Lender in its discretion;

                (vi)  the TGA L/C is to be used for any purpose other than
      to assure the performance of Borrower of the TGA Notes and payment by
      Borrower of amounts due with respect to non-competition covenants in
      the TGA Purchase Agreement;

                (vii)  such Letter of Credit is to be denominated in a
      currency other than Dollars;

                (viii) the face amount of such Letter of Credit (including
      the face amount of any Auto-Renewal Letter of Credit) is less than
      $100,000;

                (ix)  Lender has not received the Revolving L/C Fee or TGA
      L/C Fee with respect to such L/C Credit Extension; or

                (x)  such Letter of Credit contains any provisions for
      automatic reinstatement of the stated amount after a drawing
      thereunder.

           (c) Lender shall be under no obligation to amend or renew any
 Letter of Credit if (i) Lender would have no obligation at such time to
 issue such Letter of Credit in its amended or renewed form under the terms
 hereof, or (ii) the beneficiary of such Letter of Credit does not accept the
 proposed amendment or renewal to such Letter of Credit.

           (d) Lender shall have no obligation to issue the TGA L/C unless
 Lender has received all of the TGA Facility Documents, all in form and
 substance satisfactory to Lender, and the TGA Account, and all property
 subject to the TGA Account, are subject to a perfected first priority
 security interest in favor of Lender.  Lender shall have no obligation to
 issue the TGA L/C if the TGA Trust Documents are effective or if Borrower
 has made other arrangements to secure performance of Borrower of the TGA
 Notes and payment by Borrower of amounts due with respect to non-competition
 covenants in the TGA Purchase Agreement.

      3.2 Procedures for Issuance and Amendment of Letters of Credit; Auto-
 Renewal Letters of Credit.

           (a) Each Letter of Credit shall be issued or amended, as the case
 may be, upon the request of Borrower and the applicable L/C RIC (if such L/C
 RIC is a party to the respective Reinsurance Agreement or other agreement to
 which the requested Revolving Facility L/C relates) delivered to Lender in
 the form of a Letter of Credit Application, appropriately completed and
 signed by an Authorized Signatory of Borrower and such L/C RIC (if
 applicable), together with a copy of the Reinsurance Agreement or other
 agreements to which the requested Revolving Facility L/C relates and such
 other documents and information as Lender may request.  Such Letter of
 Credit Application must be received by Lender not later than 2:00 p.m. at
 least three Business Days (or such other date and time as Lender may agree
 in a particular instance in its sole discretion) prior to the proposed
 issuance date or date of amendment, as the case may be.  In the case of a
 request for an initial issuance of a Letter of Credit, such Letter of Credit
 Application shall specify in form and detail reasonably satisfactory to
 Lender: (i) the proposed issuance date of the requested Letter of Credit
 (which shall be a Business Day); (ii) the amount thereof; (iii) the expiry
 date thereof; (iv) the name and address of the beneficiary thereof; (v)
 the documents to be presented by such beneficiary in case of any drawing
 thereunder (if any); (vi) the full text of any certificate to be presented
 by such beneficiary in case of any drawing thereunder (if any); and
 (vii) such other matters as Lender may reasonably require.  In the case of a
 request for an amendment of any outstanding Letter of Credit, such Letter of
 Credit Application shall specify in form and detail reasonably satisfactory
 to Lender: (i) the Letter of Credit to be amended; (ii) the proposed date of
 amendment thereof (which shall be a Business Day); (iii) the nature of the
 proposed amendment; and (iv) such other matters as Lender may reasonably
 require.

           (b) Unless Lender has received written notice from Borrower or the
 appropriate L/C RIC, at least one Business Day prior to the requested date
 of issuance or amendment of the applicable Letter of Credit, that one or
 more applicable conditions contained in this Article III shall not then be
 satisfied, then, subject to the terms and conditions hereof, Lender shall,
 on the requested date, issue a Letter of Credit for the account of Borrower,
 or Borrower and the applicable L/C RIC, or enter into the applicable
 amendment, as the case may be, in each case in accordance with Lender's
 usual and customary business practices.

           (c) If Borrower and the applicable L/C RIC (if such L/C RIC is a
 party to the respective Reinsurance Agreement or other agreement to which
 the respective Revolving Facility L/C relates) so request in any applicable
 Letter of Credit Application, Lender may, in its sole and absolute
 discretion, agree to issue a Revolving Facility L/C that has automatic
 renewal provisions (each, an "Auto-Renewal Letter of Credit"); provided that
 any such Auto-Renewal Letter of Credit must permit Lender to prevent any
 such renewal at least once in each twelve-month period (commencing with the
 date of issuance of such Revolving Facility L/C and in no event later than
 seven Business Days prior to the expiry date of such Revolving Facility L/C)
 by giving prior notice to the beneficiary thereof not later than a day (the
 "Nonrenewal Notice Date") in each such twelve-month period to be agreed upon
 at the time such Revolving Facility L/C is issued (or if no date is agreed
 to at issuance, the day seven Business Days prior to the expiry date of such
 Revolving Facility L/C).  Unless otherwise directed by Lender, Borrower
 shall not be required to make a specific request to Lender for any such
 renewal.

           (d) Promptly after its delivery of any Letter of Credit or any
 amendment to a Letter of Credit to an advising bank with respect thereto or
 to the beneficiary thereof, Lender will also deliver to Borrower a true and
 complete copy of such Letter of Credit or amendment.

      3.3 Drawings and Reimbursements.  (a) Upon receipt from the
 beneficiary of any Revolving Facility L/C of any notice of a drawing
 under such Revolving Facility L/C, Lender shall notify Borrower and
 the applicable L/C RIC thereof.  Not later than the Business Day
 immediately following the date of any payment by Lender under a Revolving
 Facility L/C, Borrower and the applicable L/C RIC, jointly and severally,
 shall reimburse Lender in an amount equal to the sum of the amount of such
 drawing (which, if no Default or Event of Default exists before and after
 giving effect thereto and subject to the other conditions of this Agreement,
 can be made with the proceeds of a Revolving Loan), plus interest on the
 amount of such payment, which interest shall accrue at the lesser of (i) the
 Prime Rate (if no Default or Event of Default exists) or the Default Rate
 (if a Default or Event of Default exists), and (ii) the Highest Lawful Rate.

           (b) Upon receipt from the beneficiaries of the TGA L/C of any
 notice of a drawing under the TGA L/C, Lender shall notify Borrower thereof.
 Not later than the Business Day immediately following the date of any
 payment by Lender under the TGA L/C, Borrower shall reimburse Lender in an
 amount equal to the sum of the amount of such drawing, plus interest on the
 amount of such payment, which interest shall accrue at the lesser of (i) the
 Prime Rate (if no Default or Event of Default exists) or the Default Rate
 (if a Default or Even of Default exists), and (ii) the Highest Lawful Rate.
 If Borrower fails to reimburse Lender as provided in the preceding sentence,
 Lender may withdraw funds (and sell or liquidate cash equivalents and other
 non-cash items) on deposit pursuant to the TGA Trust Documents and apply
 such funds to the amount described in the preceding sentence.

           (c) If Borrower or the applicable L/C RIC fails to so reimburse
 Lender by the time specified in Section 3.3(a) or Borrower fails to so
 reimburse Lender by the time specified in Section 3.3(b), the amount of the
 unreimbursed drawing (the "Unreimbursed Amount") shall be due and payable on
 demand (together with interest) and shall bear interest at the Default Rate.

     3.4 Obligations Absolute.  The obligation of Borrower and the applicable
 L/C RIC to reimburse Lender for each drawing under each Revolving Facility
 L/C and Borrower to reimburse Lender for each drawing under the TGA L/C
 shall be absolute, unconditional and irrevocable, and shall be paid strictly
 in accordance with the terms of this Agreement and the applicable L/C
 Agreements under all circumstances, including the following:

           (a) any lack of validity or enforceability of such Letter of
 Credit, this Agreement, any TGA Facility Document or any other Loan
 Document;

           (b) the existence of any claim, counterclaim, setoff, defense or
 other right that Borrower or the applicable L/C RIC may have at any time
 against any beneficiary or any transferee of such Letter of Credit (or any
 Person for whom any such beneficiary or any such transferee may be acting),
 Lender or any other Person, whether in connection with this Agreement, the
 transactions contemplated hereby or by such Letter of Credit or any
 agreement or instrument relating thereto, or any unrelated transaction;

           (c) any draft, demand, certificate or other document presented
 under such Letter of Credit proving to be forged, fraudulent, invalid or
 insufficient in any respect or any statement therein being untrue or
 inaccurate in any respect; or any loss or delay in the transmission or
 otherwise of any document required in order to make a drawing under such
 Letter of Credit;

           (d) any payment by Lender under such Letter of Credit against
 presentation of a draft or certificate that does not strictly comply with
 the terms of such Letter of Credit; or any payment made by Lender under such
 Letter of Credit to any Person purporting to be a trustee in bankruptcy,
 debtor-in-possession, assignee for the benefit of creditors, liquidator,
 receiver or other representative of or successor to any beneficiary or any
 transferee of such Letter of Credit, including any arising in connection
 with any proceeding under any Debtor Relief Law; or

           (e) any other circumstance or happening whatsoever, whether or not
 similar to any of the foregoing, including any other circumstance that might
 otherwise constitute a defense available to, or a discharge of, Borrower or
 the applicable RIC.

      Borrower and the applicable L/C RIC shall promptly examine a copy of
 each Letter of Credit and each amendment thereto that is delivered to it
 and, in the event of any claim of noncompliance with Borrower's instructions
 or other irregularity, Borrower will immediately (but in no event later than
 the Business Day immediately following the date on which Borrower receives a
 copy of such Letter of Credit or amendment) notify Lender.  Borrower and the
 applicable L/C RIC shall be conclusively deemed to have waived any such
 claim against Lender and its correspondents unless such notice is given as
 aforesaid.

     3.5 Role of Lender.  Borrower and each L/C RIC agree that, in paying any
 drawing under a Letter of Credit, Lender shall not have any responsibility
 to obtain any document (other than any sight draft, certificates and
 documents expressly required by the Letter of Credit) or to ascertain or
 inquire as to the validity or accuracy of any such document or the authority
 of the Person executing or delivering any such document.  None of Lender,
 any of its Affiliates nor any correspondent, Participant or Assignee of
 Lender, shall be liable or responsible for any of the matters described in
 Section 3.4; provided, however, that anything in such clauses to the
 contrary notwithstanding, Borrower and the applicable L/C RIC may have a
 claim against Lender, and Lender may be liable to Borrower and the
 applicable L/C RIC, to the extent, but only to the extent, of any direct, as
 opposed to consequential or exemplary, damages suffered by Borrower and the
 applicable L/C RIC which Borrower and the applicable L/C RIC prove were
 caused by Lender's willful misconduct or gross negligence or Lender's
 willful failure to pay under any Letter of Credit after the presentation to
 it by the beneficiary of a sight draft and certificate(s) strictly complying
 with the terms and conditions of such Letter of Credit.  In furtherance and
 not in limitation of the foregoing, Lender may accept documents that appear
 on their face to be in order, without responsibility for further
 investigation, regardless of any notice or information to the contrary,
 and Lender shall not be responsible for the validity or sufficiency of any
 instrument transferring or assigning or purporting to transfer or assign a
 Letter of Credit or the rights or benefits thereunder or proceeds thereof,
 in whole or in part, which may prove to be invalid or ineffective for any
 reason.

      3.6 Cash Collateral.

           (a) Revolving Facility L/Cs.  Upon the request of Lender, if an
 Event of Default exists, Borrower and the applicable L/C RIC, jointly and
 severally, shall immediately Cash Collateralize the then outstanding amount
 of all Revolving Facility L/C Obligations.  Section 2.5 sets forth certain
 additional requirements to deliver Cash Collateral hereunder.  For purposes
 of this Section 3.6(a) and Section 2.5, "Cash Collateralize" means to pledge
 and deposit with or deliver to Lender, as collateral for Revolving Facility
 L/C Obligations, cash or deposit account balances (in an amount not
 less than the Revolving Facility L/C Obligations, or if the Cash
 Collateralization is required pursuant to Section 2.5, in the amount
 required by Section 2.5) pursuant to documentation in form and substance
 satisfactory to Lender.  Derivatives of such term have corresponding
 meanings.  Borrower and each L/C RIC hereby grant to Lender a security
 interest in all such cash, deposit accounts and all balances therein and all
 proceeds of the foregoing.  Cash Collateral shall be maintained in blocked,
 non-interest bearing deposit accounts at Lender under the control of Lender.
 The obligations imposed on an L/C RIC pursuant to this Section 3.6(a) shall
 be limited to the extent necessary in order for the L/C RIC to comply with
 all relevant insurance Laws and may be subject to regulatory approval.  Upon
 each request by Lender for Cash Collateral, Borrower and the applicable L/C
 RIC shall deliver to Lender evidence satisfactory to Lender that the
 performance by such L/C RIC complies with applicable insurance Laws and
 has received any necessary consent from any applicable Insurance Regulator.

           (b) TGA L/C.  Not later than February 10, 2006 (if Lender has
 issued or will issue the TGA L/C), Borrower shall deposit with Lender,
 subject to the terms of the TGA Account, cash or cash equivalents (which
 cash equivalents are subject to the approval of Lender) in an aggregate
 principal amount of $25,000,000.  Borrower hereby grants to Lender a
 security interest in all such cash, deposit accounts, securities and
 all balances therein and all proceeds of the foregoing.

      3.7 Letter of Credit Fees.

           (a) Revolving Facility L/C Fees.  Borrower and the applicable L/C
 RIC, jointly and severally, shall pay to Lender a Letter of Credit fee (the
 "Revolving Facility L/C Fee") for each Revolving Facility L/C equal to
 1.00% times the face amount of such Revolving Facility L/C.  The Revolving
 Facility L/C Fee is due and payable on the date of issuance, the date of
 renewal (including the date of renewal of each Auto-Renewal Letter of
 Credit), the date of extension of the expiry date and the date of any
 amendment to a Revolving Facility L/C if the effect of such amendment is to
 renew such Revolving Facility L/C, extend the expiry date or increase the
 maximum amount available to be drawn under such Revolving Facility L/C.

           (b) TGA L/C Fees.  Borrower shall pay to Lender a Letter of Credit
 fee (the "TGA L/C Fee") for the TGA L/C equal to 1.00% times the face amount
 of the TGA L/C.  The TGA L/C Fee is due and payable on the date of issuance
 of the TGA L/C.

      3.8 Fronting Fee and Documentary and Processing Charges Payable to
 Lender.  Borrower and the applicable L/C RIC, jointly and severally, shall
 pay to Lender the customary issuance, presentation, amendment and other
 processing fees, and other standard costs and charges, of Lender relating to
 L/C Credit Extensions (with respect to Revolving Facility L/Cs) as from time
 to time in effect.  Borrower shall pay to Lender the customary issuance,
 presentation, amendment and other processing fees, and other standard costs
 and charges, of Lender relating to L/C Credit Extensions (with respect to
 the TGA L/C) as from time to time in effect.  Such customary fees and
 standard costs and charges are due and payable on demand and are
 nonrefundable.

      3.9 Conflict with L/C Agreements.  In the event of any conflict between
 the terms hereof and the terms of any L/C Agreement, the terms hereof shall
 control.

      3.10 Letters of Credit Issued for L/C RIC.  Notwithstanding that a
 Letter of Credit issued or outstanding hereunder is in support of any
 obligations of, or is for the account of, an L/C RIC, Borrower shall be
 obligated to reimburse Lender hereunder for any and all drawings under such
 Letter of Credit.  Borrower hereby acknowledges that the issuance of Letters
 of Credit for the account of an L/C RIC inures to the benefit of Borrower,
 and that Borrower's business derives substantial benefits from the
 businesses of each L/C RIC.

      3.11 Existing Letters of Credit.  Borrower and each L/C RIC acknowledge
 and agree that each Letter of Credit described on Schedule 3.11 was issued
 pursuant to the Existing Agreement, is outstanding and shall be a Letter of
 Credit subject to this Agreement.

                                 ARTICLE IV

                    TAXES, YIELD PROTECTION AND ILLEGALITY

      4.1  Taxes.

           (a) Except as provided in this Section 4.1, any and all payments
 by Borrower or any L/C RIC (with respect to such L/C RIC's obligations
 pursuant to Article III or any L/C Agreement) to or for the account of
 Lender under any Loan Document shall be made free and clear of and without
 deduction for any and all present or future income, stamp or other Taxes,
 duties, levies, imposts, deductions, assessments, fees, withholdings or
 similar charges, now or hereafter imposed, and all liabilities with
 respect thereto, excluding, in the case of Lender, or its Principal Office,
 applicable lending office, or any branch or Affiliate thereof, Taxes imposed
 on or measured by its net income (including net income Taxes imposed by
 means of a backup withholding tax), franchise Taxes, branch Taxes, Taxes on
 doing business or Taxes measured by or imposed upon the overall capital or
 net worth of Lender or its Principal Office, applicable lending office, any
 branch or Affiliate thereof, in each case imposed: (i) by the jurisdiction
 under the Laws of which Lender, its Principal Office, applicable lending
 office, branch or Affiliate is organized or is located, or in which the
 principal executive office of Lender is located, or any nation within which
 such jurisdiction is located or any political subdivision thereof, or (ii)
 by reason of any present or former connection between the jurisdiction
 imposing such Tax and Lender or its Principal Office, applicable lending
 office, branch or Affiliate other than a connection arising solely from
 Lender having executed, delivered or performed its obligation under, or
 received payment under or enforced this Agreement pursuant to the Laws of
 such jurisdiction (all such Taxes, duties, levies, imposts, deductions,
 assessments, fees, withholdings or similar charges, and liabilities being
 hereinafter referred to as "Indemnified Taxes").  If Borrower or any L/C RIC
 (with respect to such L/C RIC's obligations pursuant to Article III or any
 L/C Agreement) shall be required by any Laws to deduct any Indemnified Taxes
 from or in respect of any sum payable under any Loan Document to Lender, (i)
 the sum payable shall be increased as necessary to yield to Lender an amount
 equal to the sum it would have received had no such deductions been made,
 (ii) Borrower and such L/C RIC shall make such deductions, (iii) Borrower
 and such L/C RIC shall pay the full amount deducted to the relevant taxation
 authority or other Governmental Authority in accordance with Applicable
 Laws, and (iv) promptly (but in no event later than thirty days) after the
 date of such payment, Borrower and such L/C RIC shall furnish to Lender the
 original or a certified copy of a receipt evidencing payment thereof.

           (b) In addition, Borrower and each L/C RIC (with respect to such
 L/C RIC's obligations pursuant to Article III or any L/C Agreement) shall
 pay any and all present or future stamp, court or documentary taxes and any
 other excise or property taxes or charges or similar levies which arise from
 any payment made under any Loan Document or from the execution, delivery,
 performance, enforcement or registration of, or otherwise with respect to,
 any Loan Document (hereinafter referred to as "Other Taxes").

           (c) If Borrower or any L/C RIC (with respect to such L/C RIC's
 obligations pursuant to Article III or any L/C Agreement) shall be required
 to deduct or pay any Indemnified Taxes or Other Taxes from or in respect of
 any sum payable under any Loan Document to Lender, Borrower and such L/C RIC
 shall also pay to Lender, at the time interest on the Obligations is paid,
 such additional amount that Lender specifies as necessary to preserve the
 after-tax yield (after factoring in all Taxes, including Taxes imposed on or
 measured by net income) Lender would have received if such Indemnified Taxes
 or Other Taxes had not been imposed.

           (d) BORROWER AND EACH L/C RIC (WITH RESPECT TO SUCH L/C RIC'S
 OBLIGATIONS PURSUANT TO ARTICLE III OR ANY L/C AGREEMENT) SHALL INDEMNIFY
 LENDER FOR (i) THE FULL AMOUNT OF INDEMNIFIED TAXES AND OTHER TAXES
 (INCLUDING ANY INDEMNIFIED TAXES OR OTHER TAXES IMPOSED OR ASSERTED BY
 ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION) PAID BY LENDER,
 (ii) AMOUNTS PAYABLE UNDER SECTION 4.1(c) AND (iii) ANY LIABILITY (INCLUDING
 PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO,
 IN EACH CASE WHETHER OR NOT SUCH INDEMNIFIED TAXES OR OTHER TAXES WERE
 CORRECTLY OR LEGALLY IMPOSED OR ASSERTED BY THE RELEVANT GOVERNMENTAL
 AUTHORITY.  PAYMENT UNDER THIS SECTION 4.1(d) SHALL BE MADE WITHIN THIRTY
 DAYS AFTER THE DATE LENDER MAKES A DEMAND THEREFOR.

           (e) If Lender determines, in its reasonable discretion, that it
 has received a refund of any Indemnified Taxes or Other Taxes as to which
 it has been indemnified by Borrower or an L/C RIC or with respect to which
 Borrower or an L/C RIC has paid additional amounts pursuant to this Section,
 it shall pay to Borrower or such L/C RIC, as appropriate, an amount equal
 to such refund (but only to the extent of indemnity payments made, or
 additional amounts paid, by Borrower or such L/C RIC under this Section with
 respect to the Indemnified Taxes or Other Taxes giving rise to such refund),
 net of all out-of-pocket expenses of Lender and without interest (other than
 any interest paid by the relevant Governmental Authority with respect to
 such refund), provided that Borrower and such L/C RIC, upon the request
 of Lender, jointly and severally, agree to repay the amount paid over to
 Borrower (plus any penalties, interest or other charges imposed by the
 relevant Governmental Authority) to Lender in the event Lender is required
 to repay such refund to such Governmental Authority.  Neither this Section
 nor any other Loan Document shall be construed to require Lender to make
 available its tax returns (or any other information relating to its taxes
 that it deems confidential) to Borrower, any L/C RIC or any other Person.

      4.2 Illegality. If Lender determines that any change in Law on or after
 the Agreement Date has made it unlawful, or that any Governmental Authority
 on or after the Agreement Date has asserted that it is unlawful, for Lender
 or its applicable lending office to make, maintain or fund Eurodollar Rate
 Loans, or materially restricts the authority of Lender to purchase or sell,
 or to take deposits of, Dollars in the applicable offshore Dollar market, or
 to determine or charge interest rates based upon the Eurodollar Basis, then,
 on notice thereof by Lender to Borrower, any obligation of Lender to make or
 maintain Eurodollar Rate Loans shall be suspended until Lender notifies
 Borrower that the circumstances giving rise to such determination no longer
 exist.  Upon the date of such notice, all Eurodollar Rate Loans shall
 convert to Prime Rate Loans.  Lender agrees to designate a different lending
 office if such designation will avoid the need for such notice and will not,
 in the good faith judgment of Lender, otherwise be materially
 disadvantageous to Lender.

      4.3 Inability to Determine Rates.  If (a) Lender reasonably determines
 in connection with any request for or maintenance of a Eurodollar Rate Loan
 or any determination of the Eurodollar Basis that (i) Dollar deposits are
 not being offered to banks in the applicable offshore Dollar market for the
 applicable amount and applicable term, or (ii) adequate and reasonable means
 do not exist for determining the Eurodollar Basis, or (b)  Lender notifies
 Borrower that the Eurodollar Basis for such Eurodollar Rate Loan does not
 adequately and fairly reflect the cost to Lender of funding or maintaining
 such Eurodollar Rate Loan, Lender will promptly notify Borrower.
 Thereafter, the obligation of Lender to make or maintain Eurodollar Rate
 Loans shall be suspended until Lender notifies Borrower that Lender revokes
 such notice.  Upon the date of such notice, all Eurodollar Rate Loans shall
 convert to Prime Rate Loans.

      4.4  Increased Cost and Reduced Return; Capital Adequacy; Reserves on
           Eurodollar Rate Loans.

           (a) If Lender in good faith determines that as a result of the
 introduction of or any change in or in the interpretation of any Law on or
 after the Agreement Date, or Lender's compliance therewith, there shall be
 any increase in the cost to Lender of agreeing to make or making, funding or
 maintaining Eurodollar Rate Loans, or a reduction in the amount received or
 receivable by Lender in connection with any of the foregoing (excluding for
 purposes of this Section 4.4(a) any such increased costs or reduction in
 amount resulting from (i) Indemnified Taxes or Other Taxes (as to which
 Section 4.1 shall govern), (ii) changes in the basis of taxation of overall
 net income or overall gross income by the United States or any political
 subdivision of either thereof under the Laws of which Lender is organized
 or has its Principal Office or applicable lending office, and (iii) reserve
 requirements contemplated by Section 4.4(c)), then from time to time within
 five Business Days after demand of Lender, Borrower shall pay to Lender
 such additional amounts as will compensate Lender for increased cost or
 reduction.

           (b) If Lender in good faith determines that the introduction
 of any Law regarding capital adequacy or any change therein or in the
 interpretation thereof on or after the Agreement Date, or compliance by
 Lender (or its lending office) therewith, has the effect of reducing the
 rate of return on the capital of Lender or any corporation controlling
 Lender with respect to this Agreement as a consequence of Lender's
 obligations hereunder (taking into consideration its policies with respect
 to capital adequacy and Lender's desired return on capital), then from time
 to time within five Business Days after demand of Lender, Borrower shall
 pay to Lender such additional amounts as will compensate Lender for such
 reduction.

           (c) Borrower shall pay to Lender, as long as Lender shall be
 required under regulations of the Federal Reserve Board to maintain
 reserves with respect to liabilities or assets consisting of or including
 Eurocurrency funds or deposits (currently known as "Eurocurrency
 liabilities"), additional costs on the unpaid principal amount of each
 Eurodollar Rate Loan equal to the actual costs of such reserves allocated to
 such Eurodollar Rate Loan by Lender (as determined by Lender in good faith,
 which determination shall constitute prima facie evidence as to the facts
 thereof), which shall be due and payable on each date on which interest is
 payable on such Eurodollar Rate Loan, provided Borrower shall have received
 at least fifteen days' prior notice of such additional interest from Lender.
 If Lender fails to give notice fifteen days prior to the relevant Payment
 Date, such additional interest shall be due and payable fifteen days from
 receipt of such notice.

           (d) If Lender claims any additional amounts payable pursuant to
 this Section 4.4, it shall use its reasonable best efforts (consistent with
 its internal policy and legal and regulatory restrictions) to change the
 jurisdiction of its applicable lending office, if the making of such a
 change would avoid the need for, or reduce the amount of, any such
 additional amounts which may thereafter accrue and would not, in the
 reasonable judgment of Lender, be disadvantageous to Lender.

      4.5 Matters Applicable to all Requests for Compensation.  Any demand or
 notice delivered by Lender to Borrower or any L/C RIC claiming compensation
 under this Article IV shall be in writing and shall certify (a) that one
 of the events described in this Article IV has occurred, describing in
 reasonable detail the nature of such event and (b) as to the amount or
 amounts for which Lender seeks compensation hereunder, setting forth in
 reasonable detail the basis for and calculations of such compensation.
 Such certification shall be conclusive in the absence of manifest error.
 In determining such amount, Lender may use any reasonable averaging and
 attribution methods.

      5.6 Survival.  All of Borrower's and each L/C RIC's obligations under
 this Article IV shall survive termination of the Commitments and payment in
 full of all Obligations.

                                  ARTICLE V

                             CONDITIONS PRECEDENT

      5.1 Conditions Precedent to Restatement of Existing Agreement, Initial
 Revolving Loan and L/C Credit Extension.  The obligation of Lender to
 restate the Existing Agreement, make the initial Revolving Loan and to make
 the initial L/C Credit Extension is subject to (i) receipt by Lender of the
 following items which are to be delivered, in form and substance reasonably
 satisfactory to Lender and (ii) satisfaction of the following conditions, in
 form and substance reasonably satisfactory to Lender:

           (a) Borrower Certificate.  A certificate of officers acceptable
 to Lender of Borrower certifying as to (i) the incumbency of the officers
 signing such certificate and the Loan Documents to which it is a party, (ii)
 an original certified copy of its Articles of Incorporation or Certificate
 of Incorporation, as applicable, certified as true, complete and correct as
 of a date acceptable to Lender by the appropriate authority of the State of
 Nevada, (iii) a copy of its By-Laws, as in effect on the Agreement Date,
 (iv) a copy of the resolutions of its Board of Directors authorizing it to
 execute, deliver and perform the Loan Documents to which it is a party,
 (v) an original certificate or certificates of good standing, existence
 and qualification issued by the appropriate authority or authorities of the
 States of Nevada and Texas (certified as of a date acceptable to Lender),
 (vi) the accuracy of the representations and warranties in the Loan
 Documents, (vii) no Default or Event of Default exists, and (viii) no
 Material Adverse Change having occurred.

           (b) Obligor and L/C RIC Certificate.  A certificate of officers
 acceptable to Lender of each Obligor (other than Borrower) and each L/C
 RIC certifying as to (i)  the incumbency of the officers signing such
 certificate and the Loan Documents to which it is a party, (ii)  if a
 corporation, an original certified copy of its Articles of Incorporation
 or Certificate of Incorporation, as applicable, certified as true, complete
 and correct as of a date acceptable to Lender by the appropriate authority
 of its state of incorporation, (iii)  if a limited liability company,
 an original certified copy of its Articles of Organization (or similar
 organization and governance document), certified as true, complete and
 correct as of a date acceptable to Lender by the appropriate authority
 of its state of organization, (iv)  if a limited partnership, an original
 certified copy of its Certificate of Limited Partnership (or similar
 organization or governance document), certified as true, complete and
 correct as of a date acceptable to Lender by the appropriate authority
 of its jurisdiction of organization, (v)  if a corporation, a copy of its
 By-Laws, as in effect on the Agreement Date, (vi)  if a limited liability
 company, a copy of its operating agreement (or similar organization and
 governance document), as in effect on the Agreement Date, (vii)  if a
 limited partnership, a copy of its partnership agreement (or similar
 organization or governance document), as in effect on the Agreement Date,
 (viii)  a copy of the resolutions of the appropriate governance board
 authorizing it to execute, deliver and perform the Loan Documents to which
 it is a party, and (ix)  an original certificate or certificates of good
 standing and existence issued by the appropriate authority or authorities
 of its state of organization and the state in which its chief executive
 office is located (certified as of a date acceptable to Lender).

           (c) Subsidiary Certificate.  A certificate of officers acceptable
 to Lender of each Subsidiary (other than an Obligor) of each Obligor
 certifying as to (i)  if a corporation, an original certified copy of its
 Articles of Incorporation, certified as true, complete and correct as of a
 date acceptable to Lender by the appropriate authority of its state of
 incorporation, (ii)  if a limited liability company, an original certified
 copy of its Articles of Organizations (or similar organization and
 governance document), certified as true, complete and correct as of a
 date acceptable to Lender by the appropriate authority of its state of
 organization, (iii)  if a corporation, a copy of its By-Laws, as in effect
 on the Agreement Date, (iv)  if a limited liability company, a copy of its
 operating agreement (or similar organization and governance document), as in
 effect on the Agreement Date, and (v)  if a Foreign Subsidiary (other than
 Mannequin), an original certified copy of its organizational and governance
 documents, certified as true, complete and correct as of a date reasonably
 acceptable to Lender by the appropriate authority of the jurisdiction of
 organization (as to organization and governance documents filed with such
 authority) or an officer of such Foreign Subsidiary acceptable to Lender
 (as to organization and governance documents not filed with such authority),
 together with an English language translation, if applicable.

           (d) Revolving Note.  The duly executed Revolving Note, payable
 to the order of Lender and in an amount equal to the Revolving Commitment.

           (e) Security Documents.  The duly executed and completed (i)
 First Amendment to Pledge Agreement executed by Borrower, dated as of the
 Agreement Date, granting to Lender, a first priority Lien in the Collateral
 set forth therein, together with stock certificates evidencing all of the
 equity interest of each directly owned Subsidiary of Borrower not previously
 delivered to Lender (which certificates shall not contain any restriction
 on transfer not acceptable to Lender), (ii)  undated, blank stock powers
 executed by Borrower of the stock or other equity interest evidenced by
 such certificates (with signatures guaranteed as required by Lender); (iii)
 confirmations of all Liens in all equity interest of each directly owned
 Subsidiary of Borrower; (iv)  Pledge Agreements executed by each Subsidiary
 (other than a RIC) that owns an equity interest in an other Subsidiary,
 dated as of the Agreement Date, granting to Lender, a first priority Lien
 in the Collateral set forth therein, together with stock certificates
 evidencing all of the equity interest of such other Subsidiary (or, if such
 Subsidiary is a Foreign Subsidiary, evidencing 65% of all of the equity
 interest of such Foreign Subsidiary) not previously delivered to Lender
 (which certificates shall not contain any restriction on transfer not
 acceptable to Lender), (v)  undated, blank stock powers executed by such
 Subsidiary of the stock or other equity interest evidenced by such
 certificates (with signatures guaranteed as required by Lender); (vi)
 confirmations of all Liens in all equity interest of such other Subsidiary
 of Borrower; and (vii)  Security Agreements, executed by each Subsidiary
 (other than a RIC) acquired or created after the date of the Existing
 Agreement, dated as of the Agreement Date, granting to Lender a first
 priority Lien in the Collateral set forth therein.  No Obligor shall be
 required to grant a security interest in equity of Mannequin or any cell
 of Mannequin.

           (f) Guaranty Supplement.  A duly executed supplement to the
 Guaranty (in the form of Exhibit F) for each Domestic Subsidiary (other
 than a RIC) acquired or created after the date of the Existing Agreement.

           (g) Confirmation Agreement.  The Confirmation Agreement, duly
 executed by each party thereto.

           (h) Subordination Agreement.  The Subordination Agreement, duly
 executed by each party thereto.

           (i) Governance Document Waiver.  Waivers of any equity interest
 transfer restrictions contained in the organization and governance documents
 of each Subsidiary any equity of which is subject to a Bank Lien, duly
 executed by each party thereto.

           (j) Aerospace Purchase Agreement.  A certificate signed by an
 Authorized Signatory of Borrower, certifying as to the completeness and
 correctness of an attached copy of the Aerospace Purchase Agreement and
 related agreements.

           (k) PAAC Purchase Agreement.  A certificate signed by an
 Authorized Signatory of Borrower, certifying as to the completeness and
 correctness of an attached copy of the PAAC Purchase Agreement and related
 agreements.

           (l) TGA Purchase Agreement.  A certificate signed by an Authorized
 Signatory of Borrower, certifying as to the completeness and correctness of
 an attached copy of the TGA Purchase Agreement and related agreements.

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

           (n) UCC and Lien Searches.  Searches of the Uniform Commercial
 Code, Tax lien and other records as Lender may require.

           (o) Opinions of Borrower's, each RIC's and Other Obligors'
 Counsel.  Opinions of counsel to Borrower, each RIC and each other Obligor
 addressed to Lender, dated the Agreement Date and covering such matters
 incident to the transactions contemplated hereby as Lender or Special
 Counsel may reasonably request.

           (p) 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 Agreement and the other Loan Documents shall be
 reasonably satisfactory in form and substance to Lender and Special Counsel;
 and Lender shall have received copies of all documents or other evidence
 which Lender or Special Counsel may reasonably request in connection with
 such transactions.

           (q) Current Financial Statements.  A copy of the Current
 Financials, including (i)  the audited annual consolidated Financial
 Statements, showing the financial condition and results of operations of
 Borrower and its consolidation Subsidiaries as of, and for the year ended
 on, December 31, 2004, together with the opinion of Auditors containing
 only qualifications and emphasis acceptable to Lender, (ii)  the unaudited
 consolidated Financial Statements, showing the financial condition and
 results of operations of Borrower and its consolidated Subsidiaries as of,
 and for the fiscal quarter ended on, September 30, 2005, (iii) the annual
 financial statements of each RIC prepared in the form of convention blanks
 prescribed by NAIC, as filed with the Insurance Regulator of such RIC's
 jurisdiction of organization, for the year ended on December 31, 2004, and
 (iii) the quarterly financial statements of each RIC prepared in the form of
 convention blanks prescribed by NAIC, as filed with the Insurance Regulator
 of such RIC's jurisdiction of organization, for the quarter ended on
 September 30, 2005.

           (r) Compliance Certificate.  A Compliance Certificate, dated the
 Agreement Date and signed by an Authorized Signatory of Borrower, confirming
 compliance with the financial covenants set forth therein as of the most
 recent determination date.

           (s) Reinsurance Agreements and Retrocession Agreements.  If
 requested by Lender, a copy of each Reinsurance Agreement and Retrocession
 Agreement to which Borrower or any Subsidiary is a party or it or its
 property is subject.

           (t) Insurance  Evidence that insurance required by the Loan
 Documents is in effect.

           (u) Investment Portfolio and Policy.  A schedule of all Existing
 Investments and a copy of the complete currently effective Investment Policy
 of each RIC, and Lender shall be satisfied with the investment portfolio of
 each RIC and the Investment Policy of each RIC.

           (v) Notice of Final Agreement.  The Notice of Final Agreement
 executed by all parties thereto.

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

       5.2 Conditions Precedent to all Revolving Loans and L/C Credit
 Extensions.  The obligation of Lender to make each Revolving Loan (including
 the initial Revolving Loan) and to make each L/C Credit Extension (including
 the initial L/C Credit Extension) is subject to fulfillment of the following
 conditions immediately prior to or contemporaneously with each such
 Revolving Loan or L/C Credit Extension:

           (a) Representations and Warranties.  All of the representations
 and warranties of Borrower, each of its Subsidiaries and each other Obligor
 under this Agreement and each other Loan Document, which, pursuant to
 Section 8.24, are made at and as of the time of each Revolving Loan and each
 L/C Credit Extension, shall be true and correct when made, except to the
 extent applicable to a specific date, both before and after giving effect to
 the application of the proceeds of such Revolving Loan and L/C Credit
 Extension.

           (b) No Default or Event of Default.  There shall not exist a
 Default or Event of Default.

           (c) Notices; Documents.  Lender shall have received all notices
 and documents required by Articles II and III as a condition to the related
 Revolving Loan or L/C Credit Extension.

           (d) Litigation.  There shall be no Litigation pending against, or,
 to Borrower's or any Obligor's knowledge, threatened against Borrower, any
 other Obligor, or any Subsidiary, or in any other manner relating directly
 and adversely to Borrower, any other Obligor, or any Subsidiary, or any of
 their respective properties, in any court or before any arbitrator of any
 kind or before or by any Governmental Authority which could reasonably be
 expected to have a Material Adverse Effect.

           (e) Material Adverse Change.  There shall have occurred no change
 in the business, assets, operations, prospects or conditions (financial
 or otherwise) of Borrower, any other Obligor, or any Subsidiary since
 December 31, 2004, which caused or could reasonably be expected to cause
 a Material Adverse Effect.

      5.3 Conditions Precedent to all Revolving Loans for Permitted
 Acquisitions.  The obligation of Lender to make each Revolving Loan
 (including the initial Revolving Loan) any proceeds of which will be used to
 make a Permitted Acquisition is subject to receipt by Lender of each of the
 documents and performance by Borrower of each of the acts required by the
 Loan Documents and Lender as a condition to the making of such Revolving
 Loan.

                                 ARTICLE VI

                           AFFIRMATIVE COVENANTS

      From the date hereof and so long as this Agreement is in effect
 and until payment in full of the Obligations, the termination of the
 Commitments, and the performance of all other obligations of each Obligor
 under this Agreement and each other Loan Document, Borrower will, and will
 cause each Subsidiary to:

      6.1  General Covenants.

           (a) Payment of Taxes and Claims.  Pay and discharge all lawful
 Taxes imposed upon its income or profits or upon any of its property before
 the same shall be in default, and all lawful claims for labor, rentals,
 materials and supplies which, if unpaid, might become a Lien upon its
 property or any part thereof; provided, however, that it shall not be
 required to pay or discharge any such Tax, assessment or claim so long as
 the validity thereof shall be contested in good faith by appropriate
 proceedings, and adequate book reserves shall be established with respect
 thereto, and it shall pay such Tax, charge or claim before any property
 subject thereto shall be sold to satisfy a Lien.

           (b) Maintenance of Existence.  Do all things necessary to preserve
 and keep in full force and effect its existence as a corporation, limited
 liability company or partnership, as appropriate (except, as to
 Subsidiaries, as permitted by Section 7.9).

           (c) Preservation of Property.  Keep its properties which are
 necessary to continue business, whether owned in fee or otherwise, or
 leased, in good operating condition, ordinary wear and tear excepted, and
 comply with all material leases to which it is a party or under which it
 occupies or uses property so as to prevent any material loss or forfeiture
 thereunder.

           (d) Insurance.  Maintain in force with financially sound and
 reputable insurers, policies with respect to its property and business
 against such casualties and contingencies (including public liability,
 larceny, embezzlement or other criminal misappropriation insurance) and in
 such amounts as is customary in the case of entities engaged in the same or
 similar lines of business of comparable size and financial strength.

           (e) Compliance with Applicable Laws.  Comply in all material
 respects with the requirements of all applicable Laws and orders of any
 Governmental Authority, except where contested in good faith and by proper
 proceedings or where the failure to so comply could not reasonably be
 expected to have a Material Adverse Effect.

           (f) Licenses.  Obtain and maintain all material licenses, permits,
 franchises or other governmental authorizations necessary to the ownership
 of its properties or to the conduct of its business.

      6.2 Accounts, Reports and Other Information.  Maintain a system of
 accounting in accordance with GAAP or SAP, as appropriate, consistently
 applied, and furnish, or cause to be furnished, to Lender the following:

           (a) Annual Financial Statements.

                (i) As soon as available, but in any event within 160 days
      after the last day of each fiscal year of Borrower, annual consolidated
      and consolidating Financial Statements (such consolidated Financial
      Statements to be audited), showing the consolidated and consolidating
      financial condition and results of operations of Borrower and its
      consolidated Subsidiaries as of, and for the year ended on, such
      last day, accompanied by (A) an opinion of Auditors containing only
      qualifications (including qualifications as to the scope of the
      examination) and emphasis acceptable to Lender, which opinion shall
      state that said consolidated Financial Statements have been prepared in
      accordance with GAAP consistently applied, and that the examination of
      Auditors in connection with such consolidated Financial Statements has
      been made in accordance with generally accepted auditing standards and
      applicable Securities Laws and that said consolidated Financial
      Statements present fairly the consolidated financial condition of
      Borrower and its consolidated Subsidiaries and their results of
      operations; (B) an attestation report of Auditors as to Borrower's
      internal controls pursuant to Section 404 of Sarbanes-Oxley expressing
      a conclusion to which Lender does not object; (C) a certificate of the
      chief financial officer of Borrower, which certificate shall state that
      said Financial Statements present fairly the financial condition of
      Borrower and its consolidated Subsidiaries and their results of
      operations; and (D) a description of all Contingent Debt and Off-
      Balance Sheet Liabilities of Borrower and its Subsidiaries.

                (ii) As soon as available, but in any event within 60 days
      after the last day of each fiscal year of Borrower, unaudited annual
      consolidated and consolidating Financial Statements (such consolidated
      and consolidating Financial Statements shall be in a format, prepared
      in a manner and based on assumptions and procedures as are reasonably
      acceptable to Lender), showing the consolidated and consolidating
      financial condition and results of operations of Borrower and its
      consolidated Subsidiaries as of, and for the year ended on, such last
      day, accompanied by (A) a certificate of the chief financial officer of
      Borrower, which certificate shall state that said Financial Statements
      present fairly the financial condition of Borrower and its consolidated
      Subsidiaries and their results of operations; and (B) a description of
      all Contingent Debt and Off-Balance Sheet Liabilities of Borrower and
      its Subsidiaries.

                (iii) With respect to each RIC, within 15 days after the
      first to occur of (A) the required filing date (as established by Law
      or the applicable Insurance Regulator), and (B) the date on which
      actually filed, audited annual Financial Statements, prepared by
      Auditors in accordance with SAP, showing the financial condition and
      results of operations of such RIC, as of, and for the year ended on,
      such last day, accompanied by (1) an opinion of Auditors containing
      only qualifications (including qualifications as to the scope of the
      examination) and emphasis acceptable to Lender, which opinion shall
      state that said Financial Statements have been prepared in accordance
      with SAP consistently applied, and that the examination of the
      Auditors in connection with such Financial Statements has been made
      in accordance with generally accepted auditing standards and that said
      Financial Statements present fairly the financial condition of such
      RIC, and its results of operations; and (2) a description of all
      Contingent Debt and Off-Balance Sheet Liabilities of such RIC.

                (iv) With respect to each RIC, within 15 days after the
      first to occur of (A) the required filing date (as established by Law
      or the applicable Insurance Regulator), and (B) the date on which
      actually filed, annual Financial Statements prepared in the form of
      convention blanks prescribed by NAIC, as filed with each Insurance
      Regulator.

                (v) With respect to each RIC, as soon as available and in
      any event within 15 days after the required filing date (as established
      by Law or the applicable Insurance Regulator), a copy of the "Statement
      of Actuarial Opinion" and "Management Discussion and Analysis" for such
      RIC (prepared in accordance with SAP) for each fiscal year of such RIC
      and as filed with the applicable Insurance Regulator in compliance with
      the requirements thereof (or a report containing equivalent information
      for such RIC, if such RIC is not so required to file the foregoing with
      the applicable Insurance Regulator).

                (vi) Within 60 days after the end of each fiscal year of
      Borrower, a Litigation Report for such fiscal year.

           (b) Quarterly Financial Statements.

                (i) Within 60 days after the last day of each fiscal quarter
      (excluding the last fiscal quarter of each fiscal year) of Borrower,
      (A) unaudited consolidated and consolidating Financial Statements
      (which consolidated and consolidating Financial Statements shall be
      in format, prepared in a manner and based on such assumptions and
      procedures as are acceptable to Lender), showing the consolidated and
      consolidating financial condition and results of operations of Borrower
      and its consolidated Subsidiaries as of, and for the quarter ended on,
      such last day (subject to year-end adjustment), and which shall include
      an income statement for the fiscal year through such last day, prepared
      in accordance with GAAP; (B) a certificate of the chief financial
      officer of Borrower, which certificate shall state that said Financial
      Statements present fairly the financial condition of Borrower and its
      consolidated Subsidiaries and their results of operations; and (C) a
      description of all Contingent Debt and Off-Balance Sheet Liabilities
      of Borrower and its Subsidiaries.

                (ii) With respect to each RIC, within 60 days after the last
      day of each fiscal quarter (including the last fiscal quarter of each
      fiscal year) of such RIC, unaudited quarterly Financial Statements,
      prepared in accordance with SAP, showing the financial condition and
      results of operations of such RIC as of, and for the quarter ended on,
      such last day (subject to year-end adjustment), and which shall include
      an income statement for the fiscal year through such last day, and in
      the form of quarterly financial statements prescribed by NAIC, and
      including a report with respect to "Invested Assets" as set forth on
      Schedule D on such financial statements, together with a description
      of all Contingent Debt and Off-Balance Sheet Liabilities of such RIC.

                (iii) Within 60 days after the end of each fiscal quarter of
      Borrower, a Loss Report as at the last day of such quarter.

                (iv) Within 60 days after the end of each fiscal quarter of
      Borrower, a Compliance Certificate executed by an Authorized Signatory
      who is a senior financial officer of Borrower.

           (c) Annual Budget.  As soon as available, but in any event within
 60 days prior to the end of each fiscal year of Borrower, a copy of the
 annual consolidated operating budget of Borrower and Subsidiaries for the
 succeeding fiscal year in form and substance satisfactory to Lender.

           (d) Other Reports.  Promptly upon request by Lender, a copy of
 (i) such financial statements, reports, notices or proxy statements sent
 by it to stockholders requested by Lender, (ii) such regular or periodic
 reports and any registration statements, prospectuses and written
 communications in respect thereof filed by it with any state insurance
 department, any securities exchange, or with the SEC or any successor
 agency requested by Lender, and (iii) all press releases concerning it.

           (e) Notice of Default.  Promptly upon the happening of any
 condition or event which constitutes an Event of Default or Default, a
 written notice specifying the nature and period of existence thereof and
 what action it is taking and propose to take with respect thereto.

           (f) Notice of Litigation.  Promptly upon becoming aware of the
 existence of any Litigation before any Governmental Authority, arbitrator or
 mediator (but no later than 10 days after the filing thereof) involving it,
 (i) which could reasonably be expected to involve its payment of $250,000 or
 more, or (ii) which, under normal operating standards, could result in a
 reserve being established in excess of $250,000 a written notice specifying
 the nature thereof and whether it will contest such proceeding.

           (g) Notice of Claimed Default.  Promptly upon becoming aware that
 the holder of any note or any evidence of indebtedness or other security or
 payee of any obligation in an amount of $100,000 or more has given notice
 or taken any action with respect to a claimed default or event of default
 thereunder, a written notice specifying the notice given or action taken
 by such holder and the nature of the claimed default or event of default
 thereunder and what action it is taking or proposes to take with respect
 thereto.

           (h) Notice from Governmental Authority.  Promptly upon receipt
 thereof, information with respect to and copies of any notices received from
 any Governmental Authority relating to an order, ruling, statute or other
 Law or information which could reasonably be expected to have a Material
 Adverse Effect.

           (i) Investment Policy.  Within (i) 90 days after the last day of
 each fiscal year of each RIC, a copy of the Investment Policy of such RIC
 applicable to the current fiscal year of such RIC, as approved by the board
 of directors or other appropriate governance body of such RIC, and (ii)
 within 5 days after any amendment to or restatement of any Investment Policy
 of any RIC, a copy of such amendment or restatement as approved by the board
 of directors or other appropriate governance body of such RIC.

           (j) Reinsurance Agreements and Retrocession Agreements.  Not later
 than (i) 10 days prior to the termination of each Reinsurance Agreement and
 Retrocession Agreement, a copy of the slip or other document, agreement or
 correspondence with each reinsurer, retrocessionaire, reinsurance broker or
 agent which will amend, restate or supersede such terminating Reinsurance
 Agreement or Retrocession Agreement, and (ii) 30 days after the first to
 occur of (A) execution, and (B) the effective date of each Reinsurance
 Agreement and Retrocession Agreement, a copy of each such Reinsurance
 Agreement and Retrocession Agreement, certified to be complete and correct
 by an Authorized Signatory of the RIC a party to such agreement acceptable
 to Lender.

           (k) Auditors' Reports.  Promptly upon receipt thereof, a copy of
 (i) each other report or "management letter" submitted to Borrower or any
 of its Subsidiaries by Auditors in connection with any annual, interim or
 special audit made by them of the books of Borrower or such Subsidiary and
 (ii) each report submitted to Borrower or any of its Subsidiaries by any
 Auditors to the extent that such report, in the good faith opinion of
 Borrower or such Subsidiary, identifies a condition, situation or event
 that has or is reasonably likely to have a Material Adverse Effect.

           (l) Internal Control Event.  Promptly upon the occurrence of an
 Internal Control Event, a written notice specifying the nature and period
 of existence thereof and what action it is taking and proposes to take with
 respect thereto.

           (m) Reserve Adequacy Report.  Promptly following a reasonable
 request from Lender, a report prepared (at the expense of Borrower) by an
 independent actuarial consulting firm of recognized professional standing
 reasonably satisfactory to Lender reviewing the adequacy of reserves and
 surplus of each RIC determined in accordance with SAP, which firm shall
 be provided access to or copies of all reserve and surplus analyses and
 valuations relating to the Insurance Business of each RIC in the possession
 of or available to Borrower or any of its Subsidiaries.

           (n) Other Regulatory Statements and Reports.  Promptly (i)
 after receipt thereof, copies of all triennial examinations and risk
 adjusted capital reports of any RIC, delivered to such Person by any
 Insurance Regulator, insurance commission or similar Governmental Authority,
 (ii)  after receipt thereof, a copy of the final report to each RIC from the
 NAIC for each fiscal year, as to such RIC's compliance or noncompliance with
 each of the NAIC Tests, (iii)  after receipt thereof, a copy of any notice
 of termination, cancellation or recapture of any Reinsurance Agreement or
 Retrocession Agreement to which a RIC is a party to the extent such
 termination, cancellation or recapture is likely to have a Material Adverse
 Effect, (iv)  and in any event within ten Business Days after receipt
 thereof, copies of any notice of actual suspension, termination or
 revocation of any license of any RIC by any Insurance Regulator, including
 any request by an Insurance Regulator which commits a RIC to take or refrain
 from taking any action and which, if such RIC fails to comply with such
 request, could affect the authority of such RIC to conduct its business, and
 (v)  and in any event within thirty Business Days after Borrower or any of
 its Subsidiaries obtains knowledge thereof, notice of any actual change in
 the insurance Laws enacted in any state in which any RIC is domiciled which
 could reasonably be expected to have a Material Adverse Effect.

           (o) A.M. Best.  Not later than 15 days after receipt by Borrower,
 a copy of (i) each A.M. Best report, if any, with respect to Borrower or any
 of its Subsidiaries, and (ii) all correspondence from A.M. Best to Borrower
 or any of its Subsidiaries the contents of which (A) relate to a probable
 downgrade of the A.M. Best rating of any RIC or (B) describe or relate to
 a circumstance that could reasonably be expected to have a Material Adverse
 Effect.

           (p) Requested Information.  With reasonable promptness, such other
 data, including any management reports to the Board of Directors of Borrower
 or any of its Subsidiaries, and information as from time to time may be
 reasonably requested by Lender.

      6.3  Inspection. (a) If no Event of Default exists, upon three Business
 Day's prior notice, and as often as may be reasonably requested, and (b) if
 an Event of Default exists, upon request by Lender, permit Lender or any
 representatives of Lender to visit and inspect any of its properties, to
 examine all books of account, records, reports and other papers, to make
 copies and extracts therefrom, and to discuss the affairs, finances and
 accounts with its officers, employees and Auditors (and by this provision
 Borrower authorizes Auditors to discuss with Lender and its representatives
 the finances and affairs of Borrower and its Subsidiaries).  All reasonable
 costs and expenses of Lender related to the first such inspection during
 each fiscal year conducted when no Event of Default exists shall be a part
 of the Obligations and paid by Borrower to Lender within ten days after
 demand by Lender.  All costs and expenses of Lender related to each such
 inspection conducted when an Event of Default exists shall be a part of the
 Obligations and paid by Borrower to Lender within ten days after demand by
 Lender.

      6.4 Compliance with ERISA.  Comply with ERISA in all material respects,
 and (a) at all times make contributions within the time limits imposed by
 Law to meet the minimum funding standards set forth in ERISA with respect
 to any Plan; (b) notify Lender as soon as reasonably practicable of any fact
 which it knows or should know, including but not limited to any Reportable
 Event, arising in connection with any Plan which could reasonably be
 expected to result in termination thereof by the PBGC or for the appointment
 by a Governmental Authority of a trustee to administer the Plan; and (c)
 furnish to Lender upon such request such additional information concerning
 any Plan as Lender may reasonably request.

      6.5 Performance of Obligations.  Perform all of its obligations under
 the Loan Documents.

      6.6 Maintenance of Priority of Bank Liens.  Upon the request of Lender
 from time to time, it shall perform such acts and duly authorize, execute,
 acknowledge, deliver, file, and record such additional assignments,
 pledge agreements, security agreements and other agreements, documents,
 instruments, and certificates as Lender may deem necessary or appropriate in
 order to perfect and maintain the Bank Liens in favor of Lender and preserve
 and protect the rights of Lender in respect of the Collateral.

      6.7 Indemnity.  BORROWER SHALL DEFEND, PROTECT, INDEMNIFY AND HOLD
 HARMLESS LENDER AND ITS AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING
 SUCH AFFILIATES') OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS,
 SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT LIMITATION, THOSE RETAINED
 IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED SATISFACTION OF ANY OF
 THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY,
 "INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,
 LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, COSTS,
 EXPENSES AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING,
 WITHOUT LIMITATION, THE REASONABLE ATTORNEY COSTS OF COUNSEL FOR SUCH
 INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL
 PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE DESIGNATED A PARTY
 THERETO), IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNITEES
 (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL,
 STATE, OR LOCAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE
 CAUSE, OR ON CONTRACT, TORT OR OTHERWISE, ARISING FROM OR CONNECTED WITH THE
 PAST, PRESENT OR FUTURE OPERATIONS OF BORROWER OR ANY OF ITS SUBSIDIARIES OR
 THEIR RESPECTIVE PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE
 ENVIRONMENTAL CONDITION OF PROPERTY OF BORROWER OR ANY OF ITS SUBSIDIARIES),
 IN ANY MANNER RELATING TO OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN
 DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT, EVENT OR
 TRANSACTION RELATING OR ATTENDANT THERETO, THE MAKING OF ANY REVOLVING LOANS
 AND L/C CREDIT EXTENSIONS, INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN
 WHOLE OR IN PART, OF ANY NEGLIGENCE OF LENDER (OTHER THAN THOSE MATTERS
 RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST LENDER AND NOT BORROWER), OR
 THE USE OR INTENDED USE OF THE PROCEEDS OF ANY LOAN OR LETTER OF CREDIT
 HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF ANY POTENTIAL MATTER
 COVERED HEREBY, BUT EXCLUDING ANY CLAIM OR LIABILITY THAT ARISES AS THE
 RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNITEE,
 AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION
 (COLLECTIVELY, "INDEMNIFIED MATTERS").  IN ADDITION, BORROWER SHALL
 PERIODICALLY, UPON REQUEST, REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE
 LEGAL AND OTHER ACTUAL EXPENSES (INCLUDING THE REASONABLE COST OF ANY
 INVESTIGATION AND PREPARATION) INCURRED IN CONNECTION WITH ANY INDEMNIFIED
 MATTER.  THE REIMBURSEMENT, INDEMNITY AND CONTRIBUTION OBLIGATIONS UNDER
 THIS SECTION SHALL BE IN ADDITION TO ANY LIABILITY WHICH BORROWER MAY
 OTHERWISE HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO EACH
 INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY
 SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF BORROWER, LENDER
 AND ALL OTHER INDEMNITEES.  THIS SECTION SHALL SURVIVE ANY TERMINATION OF
 THIS AGREEMENT AND PAYMENT OF THE OBLIGATIONS.

      6.8 Convertible Note. On the date of issuance of each Convertible Note,
 Borrower shall execute and deliver to Lender a certificate signed by an
 Authorized Signatory of Borrower, certifying as to the completeness and
 correctness of an attached copy of each Convertible Note and related
 agreements.

      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 provide all or a portion of the cash
 purchase price payable by Borrower at closing pursuant to the TGA
 Purchase Agreement and the PAAC Purchase Agreement, (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, and (c) the TGA L/C and proceeds of the
 TGA L/C to secure the performance of Borrower of the TGA Notes and payment
 by Borrower of amounts due with respect to non-competition covenants in the
 TGA Purchase Agreement, and for no other purpose.

                               ARTICLE VII

                            NEGATIVE COVENANTS

      From the date hereof and so long as this Agreement is in effect
 and until payment in full of the Obligations, the termination of the
 Commitments, and the performance of all other obligations of each Obligor
 under this Agreement and each other Loan Document:

      7.1  AHIC Total Adjusted Capital.  Borrower shall not permit Total
 Adjusted Capital of AHIC to be less than the greater of (a) $55,000,000 and
 (b) the amount required for Risk-Based Capital of AHIC to equal 250%, as at
 the last day of any fiscal quarter of AHIC.

      7.2  PIIC Total Adjusted Capital.  Borrower shall not permit Total
 Adjusted Capital of PIIC to be less than the greater of (a) $30,000,000 and
 (b) the amount required for Risk-Based Capital of PIIC to equal 250%, as at
 the last day of any fiscal quarter of PIIC.

      7.3  Net Underwriting Gain.  Borrower shall not permit the sum of Net
 Underwriting Gain of any RIC for any four consecutive fiscal quarters of
 such RIC to be equal to or less than zero.

      7.4  Consolidated Net Worth. Borrower shall not permit Consolidated Net
 Worth to be less than $110,000,000 as at the last day of any fiscal quarter
 of Borrower.

      7.5  Fixed Charges Coverage Ratio.  Borrower shall not permit the Fixed
 Charges Coverage Ratio to be less than 1.25 to 1.00 as at the last day of
 any fiscal quarter of Borrower.

      7.6  Limitation on Debt.  Borrower shall not, and shall not permit any
 Subsidiary to, create, incur, assume, become or be liable in any manner in
 respect of, or suffer to exist, any Debt except Permitted Debt.

      7.7  Limitation on Liens.  Borrower shall not, and shall not permit any
 Subsidiary to, create or suffer to be created or to exist any Lien upon any
 of its properties or assets except Permitted Liens.

      7.8  Burdensome Agreements.  Borrower shall not, and shall not permit
 any Subsidiary to, enter into any agreement (other than this Agreement or
 any other Loan Document) that limits the ability (a) of any Subsidiary to
 pay Dividends to Borrower or to otherwise transfer property to Borrower,
 (b) of any Subsidiary to guarantee the Obligations or (c) of Borrower or any
 Subsidiary to create, incur, assume or suffer to exist Liens on property of
 such Person.

      7.9  Disposition of Assets.  Borrower shall not, and shall not permit
 any Subsidiary to, directly or indirectly, Dispose of all or any portion of
 any of its properties (including any capital stock of any Subsidiary and
 equity interests constituting Collateral) and assets except (a) Dispositions
 pursuant to its Investment Policy in the ordinary course of business for
 full and fair consideration, (b) other Dispositions in the ordinary course
 of business for full and fair consideration, (c) mergers of Subsidiaries of
 Borrower described in the proviso to Section 7.11, and (d) Dispositions not
 in the ordinary course of business if (i) no single asset Disposed of or
 single transaction including a Disposition has a value (valued at the
 greater of market or book (determined in accordance with GAAP) value) less
 than $100,000 and (ii) the aggregate value (valued at the greater of market
 or book (determined in accordance with GAAP) value) of all such Dispositions
 by Borrower and its Subsidiaries during any fiscal year of Borrower is less
 than $250,000.

     7.10  Acquisition of Assets.  Borrower shall not, and shall not permit
 any Subsidiary to, acquire any assets, property or business of any Person,
 or participate in any joint venture, or create or acquire any Subsidiary,
 except (a) Permitted Acquisitions, (b) the acquisition of all capital stock
 and other equity interest in TGA and TGASR pursuant to the TGA Purchase
 Agreement (without giving effect to any amendment to or restatement of such
 agreement after the Agreement Date); provided, not later than February 10,
 2006, Borrower executes and delivers, and causes each Person acquired
 pursuant to the TGA Purchase Agreement to execute and deliver, each of the
 documents applicable to it described in Sections 7.10(a) - (i), (c) the
 acquisition of all capital stock and other equity interest in PAAC pursuant
 to the PAAC Purchase Agreement (without giving effect to any amendment to or
 restatement of such agreement after the Agreement Date); provided, not later
 than February 10, 2006, Borrower executes and delivers, and causes each
 Person acquired pursuant to the PAAC Purchase Agreement to execute and
 deliver, each of the documents applicable to it described in Sections
 7.10(a) - (i), and (d) Borrower may form new direct wholly-owned
 Subsidiaries which are corporations or limited liability companies which
 will engage in the insurance agency or managing general agency business
 and new property and casualty insurance companies that are wholly-owned
 Subsidiaries of Borrower or another RIC if prior to each such new Subsidiary
 conducting any activities other than (i) filing its organizational documents
 with the appropriate authority of one of the United States, (ii) adopting
 its bylaws, operating agreement or other governance document and (iii)
 obtaining consideration for the issuance of its equity in an aggregate
 amount equal to the lesser of (A) the minimum initial capital required by
 Law and (B) $5,000, such new Subsidiary delivers to Lender (in such number
 of counterparts as Lender may reasonably require):

           (a) A certificate of officers acceptable to Lender of such
 Subsidiary certifying as to (i) the incumbency of the officers signing
 such certificate and the Loan Documents to which it is a party, (ii) if a
 corporation, an original certified copy of its Articles of Incorporation or
 Certificate of Incorporation, as applicable, certified as true, complete and
 correct by the appropriate authority of its state of incorporation as of a
 date not more than ten days prior to the date such certificate is delivered
 to Lender, (iii) if a limited liability company, an original certified copy
 of its Articles of Organizations (or similar organization and governance
 document), certified as true, complete and correct by the appropriate
 authority of its state of organization as of a date not more than ten
 days prior to the date such certificate is delivered to Lender, (iv) if
 a corporation, a copy of its By-Laws, as in effect on the date such
 certificate is delivered to Lender, (v) if a limited liability company,
 a copy of its operating agreement (or similar organization and governance
 document), as in effect on the date such certificate is delivered to
 Lender, (vi) a copy of the resolutions of the appropriate governance board
 authorizing it to execute, deliver and perform the Loan Documents to which
 it is a party, and (vii) an original certificate of good standing and
 existence issued by the appropriate authority of its state of organization
 (certified as of a date not more than ten days prior to the date such
 certificate is delivered to Lender).

           (b) The duly executed and completed Security Agreement of such
 Subsidiary (other than a RIC), granting to Lender, for the benefit of
 Lender, a first priority Lien in the Collateral set forth therein.

           (c) The duly executed Guaranty of such Subsidiary (other than a
 RIC).

           (d) The duly executed and completed (i) Pledge Agreement (or
 amendment to the Pledge Agreement), granting to Lender a first priority Lien
 in all equity of such Subsidiary, together with stock or other certificates
 evidencing all of the equity interest of such Subsidiary (which certificates
 shall not contain any restriction on transfer not acceptable to Lender),
 (ii) undated, blank stock powers and (iii) confirmations of all Liens in all
 equity interest of such Subsidiary (other than with respect to any equity of
 a RIC owned by another RIC).

           (e) Reimbursement of Lender's reasonable expenses related to the
 formation of such new Subsidiary, including Attorney Costs.

           (f) Searches of the Uniform Commercial Code, Tax lien and other
 records as Lender may require.

           (g) Opinions of counsel to Borrower and such Subsidiary addressed
 to Lender and covering such matters incident to such new Subsidiary and the
 Loan Documents as Lender or Special Counsel may reasonably request.

           (h) A Notice of Final Agreement executed by such Subsidiary.

           (i) In form and substance satisfactory to Lender and Special
 Counsel, such other documents, instruments and certificates as Lender may
 reasonably require in connection with the formation of such new Subsidiary.

      7.11 Merger and Consolidation. Borrower shall not, and shall not permit
 any Subsidiary to, directly or indirectly consolidate with or merge into any
 other Person, permit any other Person to consolidate with or merge into it,
 or acquire any Person (other than acquisitions permitted by Section 7.10);
 provided, so long as no Default or Event of Default exists at the time of or
 immediately after giving effect thereto, (a) Subsidiaries may merge with and
 into Borrower or any other direct wholly-owned Subsidiary of Borrower so
 long as Borrower or such other direct wholly-owned Subsidiary of Borrower is
 the survivor and the surviving Subsidiary is a Guarantor; and (b) a RIC may
 merge with and into another RIC that is a Domestic Subsidiary.

      7.12 Loans and Investments.  Borrower shall not, and shall not permit
 any of its Subsidiaries to, make any Investment except (a) Permitted
 Investments, and (b) acquisitions permitted by Section 7.10.

      7.13 ERISA.  Borrower shall not, and shall not permit any Subsidiary to,
 make funding contributions with respect to any Plan that are less than the
 minimum required by ERISA or the regulations thereunder, or permit any Plan
 ever to be subject to involuntary termination proceeding by the PBGC
 pursuant to ERISA S 4042(a).

      7.14  Assignment.  Borrower shall not, and shall not permit any
 Subsidiary to, directly or indirectly, assign or transfer, or attempt to do
 so, any rights, duties or obligations under the Loan Documents, except in
 connection with a merger of a Subsidiary described in the proviso to
 Section 7.11.

      7.15  Transactions with Affiliates.  Borrower shall not, and shall
 not permit any Subsidiary to, carry on any transaction with any of their
 respective Affiliates except (a) at arm's length and in the ordinary course
 of business and (b) the transactions related to the Newcastle Note and the
 Convertible Notes.

      7.16  Business.  Borrower shall not, and will not permit any Subsidiary
 to, engage in any material line or lines of business activity or any
 businesses other than (a) lines of business activity and businesses engaged
 in on the Agreement Date, and (b) Insurance Business activities related to
 homeowners insurance and general aviation insurance.

      7.17  Activities of Hallmark Trust I.  Neither Borrower nor any of its
 Subsidiaries shall permit Hallmark Trust I to engage in any business
 activity other than as described in the Hallmark Trust I Declaration of
 Trust (as such agreement existed on June 21, 2005).

      7.18  2005 Documents.  Borrower shall not, and shall not permit any of
 its Subsidiaries to, change, amend or restate (or take any action or fail to
 take any action the result or which is an effective amendment, change or
 restatement) or accept any waiver or consent with respect to, any 2005
 Document, that would result in (a) an increase in the principal, interest,
 overdue interest, fees or other amounts payable under any 2005 Document, (b)
 an acceleration of any date fixed for payment or prepayment of principal,
 interest, fees or other amounts payable under any 2005 Document (including,
 without limitation, as a result of any redemption), (c) a change in any of
 the subordination provisions of any 2005 Document, or (d) any other change
 in any term or provision of any 2005 Document that could reasonably be
 expected to have an adverse effect on the interest of Lender.

      7.19  Convertible Notes.  Borrower shall not amend or restate (or take
 any action or fail to take any action the result or which is an effective
 amendment, change or restatement) or accept any waiver or consent with
 respect to, any Convertible Note, that would result in (a) an increase in
 the principal, interest, overdue interest, fees or other amounts payable
 under any Convertible Note, (b) an acceleration of any date fixed for
 payment or prepayment of principal, interest, fees or other amounts payable
 under any Convertible Note (including, without limitation, as a result of
 any redemption, but excluding any conversion of principal of or interest on
 a Convertible Note into common stock of Borrower), (c) a change in any of
 the subordination provisions of Subordination Agreement I or Subordination
 Agreement II, or (d) any other change in any term or provision of any
 Convertible Note that could reasonably be expected to have an adverse
 effect on the interest of Lender.

                                ARTICLE VIII

                       REPRESENTATIONS AND WARRANTIES

      Borrower represents, warrants, and covenants to Lender as follows:

      8.1  Organization and Qualification.  Borrower and each of its
 Subsidiaries (a) is a corporation, limited liability company or limited
 partnership duly organized, validly existing, and in good standing under
 the Laws of its jurisdiction of organization; (b) is duly licensed and in
 good standing as a foreign corporation, limited liability company or
 limited partnership in each jurisdiction in which the nature of the business
 transacted or the property owned is such as to require licensing as such;
 and (C)  possesses all requisite corporate, limited liability company or
 limited partnership (respectively) power, authority and legal right, to
 execute, deliver and comply with the terms of the Loan Documents to be
 executed by it, all of which have been duly authorized and approved by all
 necessary corporate, limited liability company or limited partnership action
 (respectively) and for which no approval or consent of any Governmental
 Authority which has not been obtained is required.  No proceeding is pending
 for the forfeiture of any Borrower's or any such Subsidiary's organization
 documents or its dissolution.  The issued and outstanding capital stock,
 limited liability company interest and partnership interest of Borrower
 and each Subsidiary is duly authorized validly issued, fully paid and
 nonassessable, and free of the preemptive rights of shareholders and other
 equity holders.  Schedule 8.1 sets forth the respective jurisdiction of
 organization and percentage ownership as of the Agreement Date of each
 Subsidiary.  Borrower has no direct or indirect Subsidiary other than those
 set forth on Schedule 8.1.  Neither a material portion of the operations nor
 a material portion of the assets of Borrower or any Subsidiary are conducted
 or located in a jurisdiction other than such Person's jurisdiction of
 organization.

      8.2  Financial Statements.  The financial statements described in
 Section 5.1(q) heretofore furnished to Lender are complete and correct
 in all material respects and prepared in accordance with GAAP or SAP, as
 appropriate, and fairly present the financial condition of the Persons
 described therein as of the dates indicated and for the periods involved.
 There are no Contingent Debts, liabilities for Taxes, unusual forward or
 long-term commitments or unrealized or anticipated losses from any
 unfavorable commitments, any of which are material in amount in relation
 to the financial condition of Borrower or any Subsidiary, except (a) as
 disclosed on such financial statements, and (b) Contingent Debt under the
 Aerospace Purchase Agreement.  The description of all Off-Balance Sheet
 Liabilities of Borrower and Subsidiaries heretofore furnished to Lender
 is complete and correct in all material respects.  Since the date of the
 Financial Statements described in Section 5.1(q) or the Current Financials,
 there has been no Material Adverse Change or Internal Control Event.

      8.3  Compliance With Laws and Other Matters.  The execution, delivery
 and performance and compliance with the terms of the Loan Documents will not
 cause Borrower or any Subsidiary to be, (a) in violation of its corporate
 charter or bylaws, certificate of organization, operating agreement,
 certificate of limited partnership, partnership agreement or other
 organization and governance document, (b) in violation of any Law in any
 respect which could have any Material Adverse Effect, or (c) in default (nor
 has any event occurred which, with notice or lapse of time or both, could
 constitute a default) under any material agreement (including any agreement
 related to any Debt or such Person).

      8.4 Litigation.  There is no Litigation pending against or, to the
 knowledge of Borrower, threatened against or affecting any Borrower or any
 Subsidiary or their respective assets or properties which involves the
 probability of any final judgment or liability which may result in a
 Material Adverse Change.  Schedule 8.4 is a complete and correct description
 of all Existing Litigation where the amount in controversy is equal to or
 greater than $250,000.  Borrower's good faith estimate of the aggregate
 amount of all claims against Borrower and Subsidiaries pursuant to Existing
 Litigation on the Agreement Date is as stated in a letter dated as of the
 Agreement Date, from Borrower to Lender.  There are no outstanding or unpaid
 final judgments against Borrower or any Subsidiary.

      8.5  Debt.  Since the date of the latest of the Current Financials,
 neither Borrower nor any of its Subsidiaries has incurred any Debt except
 Permitted Debt.  Schedule 8.5 is a complete and correct description of all
 Existing Debt.

      8.6  Title to Properties.  Borrower and each Subsidiary have (a)
 full corporate, limited liability or partnership (respectively) power,
 authority and legal right to own and operate the properties which it now
 owns or leases, and to carry on the lines of business in which it is now
 engaged, and (b) good and marketable title to its owned properties, subject
 to no Lien of any kind, except Permitted Liens.

      8.7 Authorization; Validity. The Board of Directors, managers, partners
 or other appropriate governance board of each Obligor has duly authorized
 the execution and delivery of the Loan Documents to which such Obligor is
 a party and the performance of their respective terms.  No consent of the
 stockholders, members, partners or other equityholders of any Obligor is
 required as a prerequisite to the validity and enforceability of any Loan
 Document.  Each Obligor has full corporate, limited liability or partnership
 (respectively) power, authority and legal right to execute and deliver and
 to perform and observe the provisions of all Loan Documents to which such
 Obligor is a party.  Each of the Loan Documents is the legal, valid and
 binding obligation of each Obligor which is a party thereto, enforceable in
 accordance with its respective terms, subject as to enforcement of remedies
 to any Debtor Relief Laws.

      8.8  Taxes.  Borrower and each Subsidiary have filed all federal and
 state and all other material income Tax returns which are required to be
 filed by such Person and have paid all Taxes as shown on said returns, and
 all Taxes due and payable without returns and all assessments received to
 the extent that such Taxes or assessments have become due and payable.  All
 Tax liabilities of Borrower and each Subsidiary are adequately provided for
 on the books of such Person, including interest and penalties.  No income
 Tax liability of a material nature has been asserted by taxing authorities
 for Taxes in excess of those already paid, except such Taxes being contested
 in good faith by appropriate proceedings.  There is no material action,
 suit, proceeding, investigation, audit, or claim now pending or, to the
 knowledge of Borrower or any Subsidiary, threatened by any Governmental
 Authority regarding any Taxes relating to Borrower or such Subsidiary.
 Neither Borrower nor any Subsidiary has entered into an agreement or waiver
 or been requested to enter into an agreement or waiver extending any statute
 of limitations relating to the payment or collection of Taxes of Borrower or
 such Subsidiary, or is aware of any circumstances that would cause the
 taxable years or other taxable periods of Borrower or such Subsidiary not to
 be subject to the normally applicable statute of limitations.

      8.9  Use of Proceeds.  No Obligor is engaged principally, or as one
 of its important activities, in the business of extending credit for the
 purpose of purchasing or carrying margin stock (within the meaning of
 Regulation U of the Board of Governors of the Federal Reserve System) and no
 part of the proceeds of any Revolving Loan or Letter of Credit will be used
 to purchase or carry any margin stock or to extend credit to others for the
 purpose of purchasing or carrying any margin stock.  None of the assets of
 any Obligor are margin stock.  No Obligor nor any agent acting on its behalf
 has taken or will take any action which might cause this Agreement or any of
 the Loan Documents to violate any regulation of the Board of Governors of
 the Federal Reserve System or to violate the Securities Exchange Act of
 1934, in each case as in effect now or as the same may hereafter be in
 effect.

      8.10  Possession of Franchises, Licenses, Etc.  Borrower and each
 Subsidiary possess all franchises, certificates, licenses, permits and
 other authorizations from all Governmental Authorities, free from burdensome
 restrictions, that (a) are necessary for the ownership, maintenance and
 operation of its properties and assets, and (b) the loss of possession of
 which could reasonably be expected to have a Material Adverse Effect, and
 such Person is  not in violation of any thereof.  Schedule 8.10 lists with
 respect to each RIC, as of the Agreement Date, all of the jurisdictions in
 which such RIC holds licenses (including, without limitation, licenses or
 certificates of authority from relevant Insurance Regulators), permits or
 authorizations to transact Insurance Business, and indicates the line or
 lines of insurance in which each such RIC is permitted to be engaged with
 respect to each license therein listed.  To the knowledge of Borrower, (a)
 no such license is the subject of a proceeding for suspension, revocation or
 limitation or any similar proceedings, (b) there is no sustainable basis for
 such a suspension, revocation or limitation, and (c) no such suspension,
 revocation or limitation is threatened by any relevant Insurance Regulator.
 As of the Agreement Date, no RIC transacts any Insurance Business, directly
 or indirectly, in any jurisdiction other than those listed on Schedule 8.10.

      8.11 Leases.  Borrower and each Subsidiary enjoy peaceful and
 undisturbed possession of all leases necessary for the operation of its
 properties and assets the loss of possession of which could reasonably be
 expected to have a Material Adverse Effect.  All such leases are valid and
 subsisting and are in full force and effect.

      8.12  Disclosure.  Neither this Agreement nor any other document,
 certificate or statement furnished to Lender by or on behalf of Borrower or
 any Subsidiary in connection herewith contains any untrue statement of a
 material fact or omits to state a material fact necessary in order to make
 the statements contained herein and therein not misleading.  There is no
 fact known to Borrower or any Subsidiary and not known to the public
 generally which reasonably may be expected to materially adversely affect
 its assets or in the future may reasonably be expected (so far as Borrower
 or such Subsidiary can now foresee) to result in a Material Adverse Effect,
 which has not been set forth in this Agreement or in the documents,
 certificates and statements furnished to Lender by or on behalf of Borrower
 or any Subsidiary prior to the date hereof in connection with the
 transactions contemplated hereby.

      8.13  ERISA.  Schedule 8.13 sets forth each Plan.  Neither Borrower nor
 any Subsidiary has (a) incurred any material accumulated funding deficiency
 within the meaning of ERISA, or (b)  incurred any material liability to the
 PBGC in connection with any Plan established or maintained by it.  No
 Reportable Event has occurred with respect to any Plan which could
 reasonably be expected to result in a Material Adverse Change.  No Plan
 is in the process of termination.

      8.14  Regulatory Acts.  None of Borrower or any Subsidiary is an
 "investment company" within the meaning of the Investment Company Act of
 1940, as amended, or is subject to regulation under the Public Utility
 Holding Act of 1935, the Federal Power Act, the Interstate Commerce Act,
 or any other Law (other than Regulation X of the Board of Governors of the
 Federal Reserve System and applicable insurance Laws) which regulates the
 incurring by Borrower or any Subsidiary of debt, including, but not limited
 to, Laws regulating common or contract carriers or the sale of electricity,
 gas, steam, water, or other public utility services.

      8.15  Solvency.  Borrower and each Subsidiary is, and Borrower and
 Subsidiaries on a consolidated basis are, Solvent.

      8.16  Environmental Matters. Except as set forth in Schedule 8.16 or as
 could not reasonably be expected to result in a Material Adverse Change or
 Effect:

           (a) The properties owned, operated or leased by Borrower and each
 Subsidiary (the "Properties") do not contain any Hazardous Materials in
 amounts or concentrations which (i) constitute, or constituted a violation
 of, or (ii) could reasonably be expected to give rise to liability under,
 Environmental Laws, which violations and liabilities, in the aggregate,
 could reasonably be expected to result in a Material Adverse Change;

           (b) All Environmental Permits have been obtained and are in
 effect with respect to the Properties and operations of Borrower and each
 Subsidiary, and the Properties and all operations of Borrower and each
 Subsidiary are in compliance, and have been in compliance, with all
 Environmental Laws and all necessary Environmental Permits, except to the
 extent that such non compliance or failure to obtain any necessary permits,
 in the aggregate, could not reasonably be expected to result in a Material
 Adverse Change;

           (c) Neither Borrower nor any Subsidiary has received any notice of
 an Environmental Claim in connection with the Properties or the operations
 of Borrower or such Subsidiary or with regard to any Person whose
 liabilities for environmental matters Borrower or such Subsidiary has
 retained or assumed, in whole or in part, contractually, which, in the
 aggregate, could reasonably be expected to result in a Material Adverse
 Change, nor does Borrower or any Subsidiary have knowledge that any such
 notice will be received or is being threatened; and

           (d) Hazardous Materials have not been transported from the
 Properties, nor have Hazardous Materials been generated, treated, stored
 or disposed of at, on or under any of the Properties in a manner that could
 reasonably be expected to give rise to liability under any Environmental
 Law, nor has Borrower or any Subsidiary retained or assumed any liability
 contractually, with respect to the generation, treatment, storage or
 disposal of Hazardous Materials, which transportation, generation,
 treatment, storage or disposal, or retained or assumed liabilities, in the
 aggregate, could reasonably be expected to result in a Material Adverse
 Change.

      8.17 Investments.  Schedule 8.17 is a complete and correct description
 of all Existing Investments as of the Agreement Date.  Borrower has provided
 to Lender a complete copy of the Investment Policy of Borrower and each RIC.
 The Investment Policy of Borrower applies to each Subsidiary (other than a
 RIC).

      8.18 Intellectual Property, Etc.  Borrower and each Subsidiary have
 obtained all material patents, trademarks, service marks, trade names,
 copyrights, licenses and other rights, free from burdensome restrictions,
 that are necessary for the operation of their respective businesses as
 presently conducted and as proposed to be conducted.

      8.19 Reinsurance Agreements.

           (a) Schedule 8.19 is a complete and correct list of all
 Reinsurance Agreements to which Borrower or any Subsidiary is a party,
 describing the names of all parties to each agreement, the date of each
 agreement, and the termination date of each agreement.

           (b) Except as set forth on Schedule F to the Annual Statements for
 each RIC for its fiscal year ending December 31, 2004, there are no material
 liabilities outstanding as of the Agreement Date under any Reinsurance
 Agreement.  Each Reinsurance Agreement is in full force and effect; no RIC
 or, to the knowledge of Borrower, any other party thereto, is in breach of
 or default under any such Reinsurance Agreement; and Borrower has no reason
 to believe that the financial condition of any other party to any such
 Reinsurance Agreement is impaired such that a default thereunder by such
 party could reasonably be anticipated.  Each Reinsurance Agreement is
 qualified under all applicable Laws to receive the statutory credit assigned
 to such Reinsurance Agreement in the relevant annual statement or quarterly
 statement at the time prepared.  Except as set forth on Schedule 8.19, each
 Person to whom any RIC has ceded any material liability pursuant to any
 Reinsurance Agreement on the Agreement Date has a rating of "A-" or better
 by A.M. Best.

           (c) As of the Agreement Date, there are no Reinsurance Agreements
 between Borrower or any Subsidiary and Affiliates of Borrower, except as
 described on Schedule 8.19.

      8.20  Retrocession Agreements.  Schedule 8.20 is a complete and correct
 list of all Retrocession Agreements to which Borrower or any Subsidiary is a
 party, describing the names of all parties to each agreement, the date of
 each agreement and the termination date of each agreement.

      8.21  2005 Documents.  Attached as Exhibit N to the Existing Agreement
 are true and correct copies of the Hallmark Trust I Declaration of Trust,
 the 2005 Indenture, the 2005 Guaranty, and all exhibits and schedules to
 such agreements.  There are no agreements between or among any of the
 parties to such agreements, any holder of any equity security or Debt of
 Hallmark Trust I, any trustee of Hallmark Trust I, any holder of any 2005
 Debenture or any other Person, or their respective Affiliates, related to
 the subject matter of such agreements not contained in the documents
 attached as Exhibit N to the Existing Agreement.

      8.22  Subordination; 2005 Documents.  The principal of and interest
 on the 2005 Debentures and all obligations of Borrower and each of its
 Subsidiaries in respect of and under the 2005 Debentures, the 2005
 Indenture, the 2005 Preferred Securities, the Hallmark Trust I Declaration
 of Trust and the 2005 Guaranty are subordinate in all respects to all of the
 Obligations.  No redemption, purchase, Dividend, payment, distribution or
 other transfer of property shall be made to or for the benefit of any holder
 of or in respect of any equity security or Debt of Hallmark Trust I, the
 2005 Debentures, the 2005 Indenture, the 2005 Preferred Securities, the
 Hallmark Trust I Declaration of Trust or the 2005 Guaranty other than, if
 a Default or Event of Default does not exist prior or after giving effect
 thereto, payments of regularly scheduled cash interest payments in respect
 of the 2005 Debentures by Borrower and payments of regularly scheduled cash
 interest payments in respect of 2005 Preferred Securities by Hallmark Trust
 I.  No obligation under any 2005 Document benefits from any collateral
 (including any sinking fund or similar deposit arrangement) or guaranty
 (except, with respect to the 2005 Preferred Securities, only, the 2005
 Guaranty).

      8.23  Subordination; Convertible Notes.  The principal of, interest
 on and other amounts payable with respect to the Convertible Notes are
 subordinate to the Obligations as provided in Subordination Agreement I
 or Subordination Agreement II, respectively.  No redemption, purchase,
 Dividend, payment, distribution or other transfer of property shall be made
 to or for the benefit of any holder of or in respect of any Convertible Note
 other than as permitted by Subordination Agreement I or Subordination
 Agreement II, respectively.  No obligation under any Convertible Note
 benefits from any collateral (including any sinking fund or similar deposit
 arrangement) or guaranty.

      8.24  Survival of Representations and Warranties, Etc.  All
 representations and warranties made under this Agreement and the other Loan
 Documents shall be deemed to be made at and as of the Agreement Date and at
 and as of the date of the making of each Revolving Loan and each L/C Credit
 Extension, and each shall be true and correct in all material respects
 when made, except to the extent applicable to a specific date.  All such
 representations and warranties shall survive, and not be waived by, the
 execution hereof by Lender any investigation or inquiry by Lender or by the
 making of any Revolving Loan or L/C Credit Extension under this Agreement.

                                 ARTICLE IX

                             EVENTS OF DEFAULT

      9.1 Default.  The term "Event of Default" as used herein, means the
 occurrence and continuance of any one or more of the following events
 (including the passage of time, if any, specified therefor):

           (a) Revolving Loans; Unreimbursed Amount.  The failure or refusal
 of Borrower to pay any part of the principal of or interest on any Revolving
 Loan or of Borrower or the applicable L/C RIC to pay any part of any
 Unreimbursed Amounts on or before the date such payment is due;

           (b) Other Obligations.  The failure or refusal of (i) Borrower to
 pay any part of the Obligations or (ii) an L/C RIC to pay any part of the
 Revolving Facility L/C Obligations related to a Revolving Facility L/C
 issued for the account of such L/C RIC (other than as referenced in
 Section 9.1(a)) on or before the date such payment is due and such failure
 shall continue for five days after such payment was due;

           (c) Certain Covenants.  The failure or refusal of any Obligor
 punctually and properly to perform, observe and comply with any covenant,
 agreement or condition contained in Article III, Article VII, Sections 6.2,
 6.3 or 6.6;

           (d) Other Covenants.  The failure or refusal of any Obligor
 punctually and properly to perform, observe and comply with any covenant,
 agreement or condition contained in any of the Loan Documents (other than
 covenants to pay the Obligations referenced in Sections 9.1(a) and (b) and
 those referenced in Section 9.1(c)) and such failure shall not have been
 remedied within ten days after the earlier of (i) notice thereof by Lender
 (which may be telephonic) and (ii) actual knowledge thereof by any such
 Obligor;

           (e) Voluntary Debtor Relief.  Any Obligor or any of its
 Subsidiaries shall (i) execute an assignment for the benefit of creditors,
 or (ii) admit in writing its inability, or be generally unable, to pay its
 debts generally as they become due, or (iii) voluntarily seek the benefit or
 benefits of any Debtor Relief Law, or (iv) voluntarily become a party to any
 proceeding provided for by any Debtor Relief Law that would suspend or
 otherwise affect any of the rights of Lender granted in the Loan Documents;

           (f) Involuntary Proceedings.  Any Obligor or any of its
 Subsidiaries shall involuntarily (i) have an order, judgment or decree
 entered against it or a material portion of its property by any Governmental
 Authority pursuant to any Debtor Relief Law that would suspend or otherwise
 affect any of the rights granted to Lender in any of the Loan Documents, or
 (ii) have a petition filed against it or a material portion of its property
 seeking the benefit or benefits provided for by any Debtor Relief Law that
 would suspend or otherwise affect any of the rights granted to Lender in any
 of the Loan Documents;

           (g) Insurance Regulator.  Any Insurance Regulator of any
 jurisdiction suspends or takes any steps towards suspending the business
 or operations of any Obligor or any of its Subsidiaries and any such event
 could reasonably be expected to result in a Material Adverse Change;

           (h) Internal Control Event; Securities Laws.  An Internal Control
 Event shall occur or any Governmental Authority shall allege a violation or
 commence any action based on an alleged violation of any Securities Laws
 by Borrower, any employee, officer or director of Borrower or Borrower's
 auditor (with respect to actions of such auditor in its capacity as auditor
 for Borrower) and any such event could reasonably be expected to result in
 a Material Adverse Change;

           (i) Judgments.  Any Obligor or any of its Subsidiaries shall have
 rendered against it a money judgment in an aggregate uninsured amount in
 excess of $500,000 for which such Person has not set aside appropriate
 reserves, and the same shall remain in effect and unstayed for a period of
 sixty consecutive days (provided, no Default or Event of Default shall exist
 if a money judgment in an aggregate uninsured amount in excess of $500,000
 is rendered against any Obligor or any of its Subsidiaries with respect to
 any Litigation described on Schedule 8.4 if, not later than five Business
 Days after the entry of such judgment, such Obligor or Subsidiary is
 released from all liability with respect to all of the uninsured amount of
 such judgment and Borrower delivers to Lender evidence of such release in
 form and substance satisfactory to Lender);

           (j) Other Debt. (i) Any Obligor or any of its Subsidiaries
 shall default (A) in the payment of principal of or interest on any
 Debt in an aggregate amount, together with all other Debt in which
 a default exists, in excess of $500,000, or (B) in the performance of
 any other covenant, term or condition contained in any agreement with
 respect to such Debt (if such default shall occur and be continuing beyond
 any grace period with respect to such payment or performance), if the effect
 of such default is to cause or permit the holder or holders of such Debt (or
 any trustee on their behalf) to cause such Debt to become due, prepaid,
 redeemed or purchased prior to its date of maturity; or (ii) any event
 shall occur which either causes or permits the holder or holders of such
 Debt (or any trustee on their behalf) to cause such Debt to become due,
 prepaid, redeemed or purchased prior to its date of maturity;

           (k) Misrepresentation.  Any statement, representation or warranty
 in the Loan Documents or in any record (as defined in Article 9 of the Texas
 Business and Commerce Code) ever delivered to Lender pursuant to the Loan
 Documents proves to be incorrect in any material respect when made;

           (l) ERISA.  Any Reportable Event under any Plan, or the
 appointment by an appropriate Governmental Authority of a trustee to
 administer any Plan, or the termination of any Plan within the meaning of
 Title IV of ERISA, or any material accumulated funding deficiency within the
 meaning of ERISA under any Plan, or the institution of proceedings by the
 PBGC to terminate any Plan or to appoint a trustee to administer any Plan,
 and any of such events could reasonably be expected to result in a Material
 Adverse Change;

           (m) Loan Documents.  Any Loan Document shall at any time after its
 execution and delivery and for any reason, cease to be in full force and
 effect or be declared to be null and void (other than in accordance with
 the terms hereof or thereof) or the validity or enforceability thereof be
 contested by any Person party thereto (other than Lender) or any Person
 (other than Lender) shall deny in writing that it has any liability or any
 further liability or obligations under any Loan Document to which it is a
 party; or any Security Document shall for any reason (other than pursuant to
 the terms thereof) cease to create a valid and perfected first priority Lien
 (other than Permitted Liens) in any Collateral;

           (n) 2005 Documents.  Any Person who is a holder of, or claims
 to act for the benefit of any holder of, any equity security or Debt of
 Hallmark Trust I, any 2005 Debenture, any 2005 Preferred Security, the 2005
 Guaranty, or any other 2005 Document shall assert that any obligation under
 any 2005 Document is not subordinate in any respect to the Obligations; any
 payment or transfer of property shall be made under any 2005 Document (other
 than payment of regularly scheduled cash interest payments in accordance
 with the 2005 Debentures and 2005 Preferred Securities (as such agreements
 existed on June 21, 2005) if no Default or Event of Default exists prior to
 or after giving effect to such payment); a default shall occur under any
 2005 Document; or the 2005 Indenture, 2005 Debentures or 2005 Preferred
 Securities shall benefit from any collateral (including any sinking fund or
 similar deposit arrangement) or guarantee (except, with respect to the 2005
 Preferred Securities, only, the 2005 Guaranty);

           (o) Newcastle Note.  Any Person who is a holder of, or claims to
 act for the benefit of any holder of, any interest in the Newcastle Note
 shall assert that any obligation under the Newcastle Note is not subordinate
 to the Obligations in accordance with the terms of the Subordination
 Agreement; any payment or transfer of property shall be made under or with
 respect to the Newcastle Note in violation of the Subordination Agreement; a
 default shall occur under the Subordination Agreement; or the Newcastle Note
 shall benefit from any collateral (including any sinking fund or similar
 deposit arrangement) or guarantee;

           (p) Convertible Note.  Any Person who is a holder of, or claims
 to act for the benefit of any holder of, any interest in any Convertible
 Note shall assert that any obligation under any Convertible Note is not
 subordinate to the Obligations in accordance with Subordination Agreement I
 or Subordination Agreement II (respectively); any payment or transfer of
 property shall be made under or with respect to any Convertible Note in
 violation of Subordination Agreement I or Subordination Agreement II
 (respectively); a default shall occur under Subordination Agreement I or
 Subordination Agreement II; or any Convertible Note shall benefit from any
 collateral (including any sinking fund or similar deposit arrangement) or
 guarantee; or

           (q) TGA Account.  Lender is unable, for any reason, to apply funds
 or property subject to the TGA Account to any TGA Obligation.

      9.2  Remedies.  If an Event of Default exists:

           (a) With the exception of an Event of Default specified in
 Section 9.1(e) or (f), Lender may terminate each or all of the Revolving
 Commitment, the Revolving Facility L/C Commitment and TGA L/C 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, Revolving Facility L/C Commitment and TGA L/C
 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.

           (c) Lender may exercise all of the post-default rights granted to
 it under the Loan Documents or under Law.

           (d) Lender may require that Borrower and the applicable L/C RIC
 Cash Collateralize all Revolving Facility L/C Obligations.

           (e) The rights and remedies of Lender hereunder shall be
 cumulative and not exclusive.

      9.3  Application of Funds.  After the exercise of remedies provided
 for in Section 9.2 (or after 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:

           (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.
 Amounts constituting or received from the TGA Account or property subject to
 the TGA Account shall be applied to the TGA Obligations, only, in the order
 determined by Lender.

                                 ARTICLE X

                               MISCELLANEOUS

      10.1 Notices.

           (a) All notices and other communications under this Agreement
 (except in those cases where giving notice by telephone is expressly
 permitted) shall be in writing and shall be deemed to have been given on
 the date personally delivered or sent by telecopy (answerback received), or
 three days after deposit in the mail, designated as certified mail, return
 receipt requested, postage-prepaid, or one day after being entrusted to a
 reputable commercial overnight delivery service, addressed to the party to
 which such notice is directed at its address determined as provided in this
 Section.  All notices and other communications under this Agreement shall
 be given if to Borrower or any L/C RIC, at the address specified on
 Schedule 10.1, and if to Lender, at the address specified on Schedule 10.1.

           (b) Any party hereto may change the address to which notices shall
 be directed by giving ten days' written notice of such change to the other
 parties.

      10.2 Expenses.  Borrower shall promptly pay:

           (a) all reasonable out-of-pocket expenses and reasonable Attorney
 Costs of Lender in connection with the preparation, negotiation, execution
 and delivery of this Agreement and the other Loan Documents, the
 transactions contemplated hereunder and thereunder, the making of the
 Revolving Loans and L/C Credit Extensions hereunder, and the preparation,
 negotiation, execution and delivery of any waiver, amendment or consent by
 Lender relating to this Agreement or the other Loan Documents; and

           (b) all costs, out-of-pocket expenses and Attorney Costs of Lender
 incurred for enforcement, collection, restructuring, refinancing and "work-
 out", or otherwise incurred in obtaining performance under the Loan
 Documents, and all costs and out-of-pocket expenses of collection if default
 is made in the payment of the Revolving Note or other Obligations which in
 each case shall include without limitation fees and expenses of consultants,
 counsel for Lender, and administrative fees for Lender.

     10.3 Waivers. The rights and remedies of Lender under this Agreement and
 the other Loan Documents shall be cumulative and not exclusive of any rights
 or remedies which it would otherwise have.  No failure or delay by Lender in
 exercising any right shall operate as a waiver of such right.  Any waiver or
 indulgence granted by Lender shall not constitute a modification of any Loan
 Document, except to the extent expressly provided in such written waiver or
 indulgence, or constitute a course of dealing by Lender at variance with the
 terms of any Loan Document such as to require further notice by Lender of
 Lender's intent to require strict adherence to the terms of such Loan
 Document in the future.  Any such actions shall not in any way affect the
 ability of Lender, in its discretion, to exercise any rights available to it
 under this Agreement, any other Loan Document or under any other agreement,
 whether or not Lender is a party thereto, relating to Borrower, its
 Subsidiaries or other Obligors.

     10.4  Determinations by Lender.  Any material determination required or
 expressly permitted to be made by Lender under this Agreement shall be made
 in its reasonable judgment and in good faith, and shall when made, absent
 manifest error, constitute prima facie evidence as to the accuracy thereof.

     10.5  Set-Off.  In addition to any rights now or hereafter granted under
 Law and not by way of limitation of any such rights, during the existence of
 an Event of Default, Lender and any subsequent holder of the Revolving Note
 or other Obligations, and any Assignee or Participant in the Revolving Note
 or other Obligation is hereby authorized by Borrower at any time or from
 time to time, without notice to Borrower or any other Person, any such
 notice being hereby expressly waived, to set-off, appropriate and apply any
 deposits (general or special (except trust and escrow accounts), time or
 demand, including without limitation Debt evidenced by certificates of
 deposit, in each case whether matured or unmatured) and any other Debt at
 any time held or owing by Lender or such holder, Assignee or Participant to
 or for the credit or the account of Borrower, against and on account of the
 Obligations and other liabilities of Borrower to Lender or such holder,
 Assignee or Participant, irrespective of whether or not (a) Lender or such
 holder, Assignee or Participant shall have made any demand hereunder or
 required that Borrower or any L/C RIC Cash Collateralize any Revolving
 Facility L/C Obligations, or (b) Lender or such holder, Assignee or
 Participant shall have declared the principal of and interest on any
 Revolving Loan and other amounts due hereunder to be due and payable as
 permitted by Section 9.2 and although such obligations and liabilities, or
 any of them, shall be contingent or unmatured.  Any sums obtained by Lender
 or any Assignee, Participant or subsequent holder of the Revolving Note or
 other Obligation shall be subject to pro rata treatment of the Obligations
 and other liabilities hereunder.

      10.6 Assignment.

           (a) None of Borrower, any L/C RIC nor any other Obligor may assign
 or transfer any of its rights or obligations hereunder or under the other
 Loan Documents without the prior written consent of Lender.

           (b) Lender may at any time sell participations in all or
 any part in any Commitment and/or the Revolving Loans (collectively,
 "Participations") to any banks or other financial institutions
 ("Participants") provided that such Participation shall not confer on any
 Person (other than the parties hereto) any right to vote on, approve or sign
 amendments or waivers, or any other independent benefit or any legal or
 equitable right, remedy or other claim under this Agreement or any other
 Loan Documents, other than the right to vote on, approve, or sign amendments
 or waivers or consents with respect to items that would result in (i) (A)
 the extension of the date of maturity of the Revolving Loans, or (B) the
 extension of the due date for any payment of principal, interest or fees
 respecting the Revolving Loans, or (C) the reduction of the amount of any
 installment of principal or interest on or the change or reduction of any
 mandatory reduction required hereunder, or (D) a reduction of the rate of
 interest on the Revolving Loans; or (ii) the release of security for the
 Obligations (except pursuant to this Agreement).  Notwithstanding the
 foregoing, Borrower and each L/C RIC agree that Participants shall be
 entitled to the benefits of Article IX and Section 10.5 as though they
 were Lender.  To the fullest extent it may effectively do so under Law,
 Borrower agrees that any Participant may exercise any and all rights of
 banker's lien, set-off and counterclaim with respect to its Participation
 as fully as if such Participant were the holder of the Revolving Loans and
 participation in the Revolving Facility L/C Obligations and TGA Obligations
 in the amount of its Participation.

           (c) Lender may assign to one or more financial institutions or
 funds organized under the Laws of the United States, or any state thereof,
 or under the Laws of any other country that is a member of the Organization
 for Economic Cooperation and Development, or a political subdivision of any
 such country, which is engaged in making, purchasing or otherwise investing
 in commercial loans in the ordinary course of its business (each, an
 "Assignee") its rights and obligations under this Agreement and the other
 Loan Documents.

           (d) Except as specifically set forth in this Section 10.6, nothing
 in this Agreement or any other Loan Documents, expressed or implied, is
 intended to or shall confer on any Person other than the respective parties
 hereto and thereto and their successors and assignees permitted hereunder
 and thereunder any benefit or any legal or equitable right, remedy or other
 claim under this Agreement or any other Loan Documents.

           (e) Notwithstanding anything in this Section 10.6 to the contrary,
 no Assignee or Participant shall be entitled to receive any greater payment
 under Article IV than Lender would have been entitled to receive with
 respect to the interest assigned or participated to such Assignee or
 Participant.

      10.7 Amendment and Waiver.  The provisions of this Agreement may not be
 amended, modified or waived except by the written agreement of Borrower and
 Lender; provided, however, that no such amendment, modification or waiver
 shall be made without the consent of any L/C RIC if it would alter the
 rights, duties or obligations of such L/C RIC or amend, modify or waive any
 provision of any L/C Agreement to which such L/C RIC is a party.  Neither
 this Agreement nor any term hereof may be amended orally, nor may any
 provision hereof be waived orally but only by an instrument in writing the
 parties required by this Section 10.7.

      10.8 Confidentiality.  Lender agrees to maintain the confidentiality
 of the Information, except that Information may be disclosed (a) to its
 and its Affiliates' directors, officers, employees and agents, including
 accountants, legal counsel and other advisors (it being understood that the
 Persons to whom such disclosure is made will be informed of the confidential
 nature of such Information and instructed to keep such Information
 confidential), (b) to the extent requested by any Governmental Authority
 (including any self-regulatory authority, such as the NAIC), (c) to the
 extent required by Laws or by any subpoena or similar legal process, (d) in
 connection with the exercise of any remedies hereunder or under any other
 Loan Document or any action or proceeding relating to this Agreement or any
 other Loan Document or the enforcement of rights hereunder or thereunder,
 (e) subject to an agreement containing provisions substantially the same
 as those of this Section, to any Assignee of or Participant in, or any
 prospective Assignee of or Participant in, any of its rights or obligations
 under this Agreement, (f) with the written consent of Borrower or (g) to the
 extent such Information (i) becomes publicly available other than as a
 result of a breach of this Section or (ii) becomes available to Lender
 on a nonconfidential basis from a source other than Borrower, any of
 its Subsidiaries or any other Obligor.  For purposes of this Section,
 "Information" means all information received from Borrower, any other
 Obligor or any Subsidiary relating to Borrower, any other Obligor or any
 Subsidiary or any of their respective businesses, other than any such
 information that is available to Lender on a nonconfidential basis prior to
 disclosure by Borrower, any other Obligor or any Subsidiary, provided that,
 in the case of information received from a Borrower, any other Obligor or
 any Subsidiary after the date hereof, such information is clearly identified
 at the time of delivery as confidential.  Any Person required to maintain
 the confidentiality of Information as provided in this Section shall be
 considered to have complied with its obligation to do so if such Person has
 exercised the same degree of care to maintain the confidentiality of such
 Information as such Person would accord to its own confidential information.

      10.9 Counterparts.  This Agreement may be executed in any number of
 counterparts, including via facsimile, each of which shall be deemed to be
 an original, but all such separate counterparts shall together constitute
 but one and the same instrument.

      10.10  Severability.  Any provision of this Agreement which is for
 any reason prohibited or found or held invalid or unenforceable by any
 Governmental Authority shall be ineffective to the extent of such
 prohibition or invalidity or unenforceability without invalidating the
 remaining provisions hereof in such jurisdiction or affecting the validity
 or enforceability of such provision in any other jurisdiction.

      10.11 Interest and Charges.  It is not the intention of any parties
 to this Agreement to make an agreement in violation of the Laws of any
 applicable jurisdiction relating to usury.  Regardless of any provision in
 any Loan Document, Lender shall never be entitled to receive, collect or
 apply, as interest on the Obligations, any amount in excess of the Maximum
 Amount.  If Lender ever receives, collects or applies, as interest, any such
 excess, such amount which would be excessive interest shall be deemed a
 partial repayment of principal by Borrower.  In determining whether or not
 the interest paid or payable, under any specific contingency, exceeds the
 Maximum Amount, Borrower, each L/C RIC and Lender shall, to the maximum
 extent permitted under Applicable Law, (a) characterize any nonprincipal
 payment as an expense, fee or premium rather than as interest, (b) exclude
 voluntary prepayments and the effect thereof, and (c) amortize, prorate,
 allocate and spread in equal parts, the total amount of interest throughout
 the entire contemplated term of the Obligations so that the interest rate is
 uniform throughout the entire term of the Obligations; provided, however,
 that if the Obligations are paid and performed in full prior to the end of
 the full contemplated term thereof, and if the interest received for the
 actual period of existence thereof exceeds the Maximum Amount, Lender shall
 refund to Borrower or the applicable L/C RIC, as appropriate, or such other
 Person legally entitled thereto the amount of such excess or credit the
 amount of such excess against the total principal amount of the Obligations
 owing, and, in such event, Lender shall not be subject to any penalties
 provided by any Laws for contracting for, charging or receiving interest
 in excess of the Maximum Amount.  This Section shall control every other
 provision of all agreements pertaining to the transactions contemplated by
 or contained in the Loan Documents.  The provisions of this Section 10.11
 applicable to Lender are equally applicable to each Participant, Assignee
 and any subsequent holder.

      10.12  Exception to Covenants.  No Obligor shall be deemed to be
 permitted to take any action or fail to take any action which is permitted
 as an exception to any of the covenants contained herein or which is within
 the permissible limits of any of the covenants contained herein if such
 action or omission would result in the breach of any other covenant
 contained herein.

      10.13  Restatement.  This Agreement is a restatement of the Existing
 Agreement, and, as such, except for the indebtedness and other than
 obligations included in "Obligations" as defined in the Existing Agreement
 (which indebtedness and obligations shall survive, be renewed and restated
 by the terms of this Agreement), all terms and provisions of this Agreement
 supersede in their entirety the terms and provisions of the Existing
 Agreement.  This Agreement is not intended as and shall not be construed
 as a release or novation of any Obligation.  All references in each Loan
 Document to the "Credit Agreement" are deemed to be references to this
 Agreement.  All provisions of each Loan Document shall remain in full
 force and effect, and such provisions are hereby ratified and confirmed,
 regardless of whether any such Loan Document was executed prior to the
 Agreement Date.

      10.14 USA Patriot Act Notice.  Lender hereby notifies Borrower and each
 L/C RIC that pursuant to the requirements of the USA Patriot Act (Title III
 of Pub.L. 107-56 (signed into law October 26, 2001)) (the "Act"), Lender is
 required to obtain, verify and record information that identifies Borrower
 and each L/C RIC, which information includes the name and address of
 Borrower and each L/C RIC and other information that will allow Lender to
 identify Borrower and each L/C RIC in accordance with the Act.

      10.15 Existing Agreement Waivers.

           (a) Debt.  Existing Agreement Section 7.8 prohibits Borrower
 from incurring any Debt (as defined in the Existing Agreement) other than
 Permitted Debt (as defined in the Existing Agreement).  The Newcastle Note
 is not Permitted Debt.

           (b) Acquisitions.  Existing Agreement Section 7.12 prohibits
 Borrower from acquiring any asset, except as permitted by Existing Agreement
 Section 7.12.  The acquisition by Borrower of member interest in Aerospace
 is not permitted by Existing Agreement Section 7.12.

           (c) Investments.  Existing Agreement Section 7.14 prohibits
 Borrower from making any Investment (as defined in the Existing Agreement)
 except as permitted by Existing Agreement Section 7.14.  The acquisition by
 Borrower of member interest in Aerospace is not permitted by Existing
 Agreement Section 7.14.

           (d) Affiliate Transactions.  Existing Agreement Section 7.17
 prohibits Borrower from entering into certain transactions with Affiliates
 (as defined in the Existing Agreement).  The Newcastle Note is not permitted
 by Existing Agreement Section 7.17.

           (e) Business.  Existing Agreement Section 7.18 prohibits Borrower
 or any Subsidiary (as defined in the Existing Agreement) from engaging in
 any line of business except as permitted by Existing Agreement Section 7.18.
 The lines of business of Aerospace and Subsidiaries of Aerospace are not
 permitted by Existing Agreement Section 7.18.

           (f) Non-Compliance.  Each non-compliance with the provisions of
 the Existing Agreement described in Sections 10.15(a) - (e) is an "Existing
 Non-Compliance."

           (g) Waiver.  Subject to the effectiveness of this Agreement,
 Lender waives each Existing Non-Compliance.

           (h) Limited Waiver.  The waiver provided in Section 10.15(g) does
 not constitute a waiver of any other requirement of any Loan Document or of
 any Default or Event of Default, now or hereafter existing, under this
 Agreement or any other Loan Document.

      10.16 GOVERNING LAW.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
 BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
 TEXAS; PROVIDED, HOWEVER, IT IS AGREED THAT THE PROVISIONS OF CHAPTER 346
 OF THE TEXAS FINANCE CODE SHALL NOT APPLY TO THE REVOLVING LOANS, THIS
 AGREEMENT AND THE OTHER LOAN DOCUMENTS.  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
 AGREEMENT AND THE OTHER LOAN DOCUMENTS.

      10.17 WAIVER OF JURY TRIAL.  EACH OF BORROWER, EACH L/C RIC AND LENDER
 HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE
 MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
 PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS
 OR THE TRANSACTIONS CONTEMPLATED THEREBY.  THIS PROVISION IS A MATERIAL
 INDUCEMENT TO LENDER ENTERING INTO THIS AGREEMENT AND MAKING ANY REVOLVING
 LOANS AND ANY L/C CREDIT EXTENSION HEREUNDER.

      10.18 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.

 THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

      IN WITNESS WHEREOF, this Agreement is executed as of the date first set
 forth above.

 BORROWER:                     HALLMARK FINANCIAL SERVICES, INC.

                               By:
                                   ------------------------------------------
                               Print Name:
                                           ----------------------------------
                               Print Title:
                                           ----------------------------------

 L/C RIC:                      AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS

                               By:
                                   ------------------------------------------
                               Print Name:
                                           ----------------------------------
                               Print Title:
                                           ----------------------------------

                               PHOENIX INDEMNITY INSURANCE COMPANY

                               By:
                                   ------------------------------------------
                               Print Name:
                                           ----------------------------------
                               Print Title:
                                           ----------------------------------

 LENDER:                       THE FROST NATIONAL BANK

                               By:
                                   ------------------------------------------
                               Print Name:
                                           ----------------------------------
                               Print Title:
                                           ----------------------------------

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