Document:

Exhibit 10.1

 

 

 

 

SECOND
RESTATED CREDIT
AGREEMENT

 

AMONG

 

HALLMARK
FINANCIAL SERVICES,
INC.,

AS
BORROWER,

AMERICAN
HALLMARK INSURANCE COMPANY
OF TEXAS,

AND

HALLMARK
INSURANCE COMPANY

 

AND

 

FROST
BANK,

AS LENDER

 

JUNE
30, 2015

 

 

 

    	 

    	 

    

 

Table
of Contents

 

	Section	 	Page
	 	 	 	 
	ARTICLE I DEFINITIONS	 	1
	1.1	Definitions	 	1
	1.2	Additional Definitions	 	18
	1.3	Construction	 	19
	 	 	 	 
	ARTICLE II REVOLVING LOANS	 	19
	2.1	Revolving Loans	 	19
	2.2	Revolving Borrowings	 	19
	2.3	Repayment	 	19
	2.4	Voluntary Prepayments	 	20
	2.5	Mandatory Prepayments	 	20
	2.6	Termination and Reduction of Commitments	 	20
	2.7	Interest on Revolving Loans Generally	 	20
	2.8	Computations	 	21
	2.9	Interest After an Event of Default	 	21
	2.10	Payments Generally	 	21
	2.11	Booking the Revolving Loans	 	22
	2.12	Collateral	 	22
	2.13	Usage Fee	 	22
	 	 	 	 
	ARTICLE III LETTER OF CREDIT FACILITIES	 	22
	3.1	Letters of Credit	 	22
	3.2	Procedures for Issuance and Amendment of Letters of Credit; Auto-Renewal Letters of Credit	 	23
	3.3	Drawings and Reimbursements	 	24
	3.4	Obligations Absolute	 	24
	3.5	Role of Lender	 	25
	3.6	Cash Collateral	 	26
	3.7	Letter of Credit Fees	 	26
	3.8	Fronting Fee and Documentary and Processing Charges Payable to Lender	 	26
	3.9	Conflict with L/C Agreements	 	26
	3.10	Letters of Credit Issued for L/C RIC	 	26
	3.11	Existing Letters of Credit	 	26
	 	 	 	 
	ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY	 	27
	4.1	Taxes	 	27
	4.2	Illegality	 	28
	4.3	Inability to Determine Rates	 	28
	4.4	Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar Rate Loans	 	28
	4.5	Matters Applicable to all Requests for Compensation	 	29
	4.6	Dodd-Frank	 	29
	4.7	Survival	 	30
	 	 	 	 
	ARTICLE V CONDITIONS PRECEDENT	 	30
	5.1	Conditions Precedent to Restatement of Existing Agreement, Initial Revolving Loan and L/C Credit Extension	 	30
	5.2	Conditions Precedent to all Revolving Loans and L/C Credit Extensions	 	32
	5.3	Conditions Precedent to all Revolving Loans for Permitted Acquisitions	 	32

 

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	ARTICLE VI AFFIRMATIVE COVENANTS	 	32
	6.1	General Covenants	 	32
	6.2	Accounts, Reports and Other Information	 	33
	6.3	Inspection	 	37
	6.4	Compliance with ERISA	 	37
	6.5	Performance of Obligations	 	37
	6.6	Maintenance of Priority of Bank Liens	 	37
	6.7	Indemnity	 	37
	6.8	Use of Proceeds	 	38
	 	 	 	 
	ARTICLE VII NEGATIVE COVENANTS	 	39
	7.1	AHIC Total Adjusted Capital	 	39
	7.2	HIC Total Adjusted Capital	 	39
	7.3	Combined Ratio	 	39
	7.4	Consolidated Net Worth	 	39
	7.5	Fixed Charges Coverage Ratio	 	39
	7.6	Limitation on Debt	 	39
	7.7	Limitation on Liens	 	39
	7.8	Burdensome Agreements	 	39
	7.9	Disposition of Assets	 	39
	7.10	Acquisition of Assets	 	40
	7.11	Merger and Consolidation	 	40
	7.12	Loans and Investments	 	40
	7.13	ERISA	 	40
	7.14	Assignment	 	40
	7.15	Transactions with Affiliates	 	40
	7.16	Business	 	40
	7.17	Activities of Hallmark Trust I and Hallmark Trust II	 	40
	7.18	2005 Documents and 2007 Documents	 	41
	7.19	Limitation on Dividends and Distributions	 	41
	 	 	 	 
	ARTICLE VIII REPRESENTATIONS AND WARRANTIES	 	41
	8.1	Organization and Qualification	 	41
	8.2	Financial Statements	 	42
	8.3	Compliance With Laws and Other Matters	 	42
	8.4	Litigation	 	42
	8.5	Debt	 	42
	8.6	Title to Properties	 	42
	8.7	Authorization; Validity	 	42
	8.8	Taxes	 	43
	8.9	Use of Proceeds	 	43
	8.10	Possession of Franchises, Licenses, Etc	 	43
	8.11	Leases	 	43
	8.12	Disclosure	 	43
	8.13	ERISA	 	44
	8.14	Regulatory Acts	 	44
	8.15	Solvency	 	44
	8.16	Environmental Matters	 	44
	8.17	Investments	 	45
	8.18	Intellectual Property, Etc	 	45
	8.19	Reinsurance Agreements	 	45
	8.20	2005 Documents; 2007 Documents	 	45

 

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	8.21	Subordination; 2005 Documents; 2007 Documents	 	45
	8.22	Anti-Corruption Laws and Sanctions	 	46
	8.23	Survival of Representations and Warranties, Etc	 	46
	 	 	 	 
	ARTICLE IX EVENTS OF DEFAULT	 	46
	9.1	Default	 	46
	9.2	Remedies	 	48
	9.3	Application of Funds	 	49
	 	 	 	 
	ARTICLE X MISCELLANEOUS	 	50
	10.1	Notices	 	50
	10.2	Expenses	 	50
	10.3	Waivers	 	50
	10.4	Determinations by Lender	 	50
	10.5	Set-Off	 	50
	10.6	Assignment	 	51
	10.7	Amendment and Waiver	 	51
	10.8	Confidentiality	 	52
	10.9	Counterparts	 	52
	10.10	Severability	 	52
	10.11	Interest and Charges	 	52
	10.12	Exception to Covenants	 	53
	10.13	Restatement	 	53
	10.14	USA Patriot Act Notice	 	53
	10.15	GOVERNING LAW	 	53
	10.16	WAIVER OF JURY TRIAL	 	53
	10.17	ENTIRE AGREEMENT	 	53
	 	 	 	 
	SIGNATURES	 	 	S-1

 

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Exhibits
and Schedules

 

	Exhibit A	Revolving Note
	Exhibit B	Pledge Agreement
	Exhibit C	Revolving Loan Notice
	Exhibit D	Compliance Certificate
	Exhibit E	Notice of Final Agreement
	Exhibit F	Release Agreement
	 	 
	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 10.1	Notice Addresses

 

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Second
Restated Credit Agreement

 

THIS SECOND
RESTATED CREDIT AGREEMENT is dated as of June 30, 2015 (this agreement, together with all amendments and restatements hereto, this
“Agreement”), among HALLMARK FINANCIAL SERVICES, INC., a Nevada corporation (“Borrower”),
FROST BANK, a Texas state bank, formerly known as The Frost National Bank (“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 First Restated Credit Agreement dated as of January 27, 2006 (such agreement,
together with all amendments and restatements, the “Existing Agreement”). Borrower and each L/C RIC have requested
that Lender restate the Existing Agreement and (a) make a revolving credit facility available to Borrower, (b) make available Letters
of Credit for the account of Borrower and each L/C RIC, and (c) release certain Liens granted by Borrower and certain Subsidiaries
and release guaranties of Subsidiaries, subject to the terms of the Release Agreement. 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:

 

“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.

 

“AHIC Net Income” means
for any period, the amount of net income of AHIC computed using the same information and in the same manner as was utilized
in preparing page 4, line 20 of the March 31, 2015 quarterly regulatory financial statement of AHIC, utilizing the format
promulgated by NAIC and filed with the applicable Insurance Regulator, or if such format is changed after March 31, 2015, the
same type of information, computed in the same manner, as contained on page 4, line 20 of such regulatory financial statement
of AHIC dated March 31, 2015.

 

“Anti-Corruption
Laws” means the United States Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010, and other similar anti-corruption
or anti-bribery Laws in other jurisdictions.

 

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“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. §§ 85 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 Ernst & Young 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 Secured Obligations, including,
but not limited to, rights in any Collateral created in favor of or for the benefit 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 any lease or sublease of (or other arrangement conveying the right to use) real or personal property, or
a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of
the lessee or sublessee, as applicable, under GAAP, and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.

 

“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.

 

“Cash
Management Agreement” means any agreement between or among any Obligor and/or any Subsidiary of any Obligor and Lender
and/or any Affiliate of Lender related to treasury management, deposit accounts, cash management, custodial services, automated
clearinghouse, funds transfer, overdraft, or credit or debit card services or arrangements or similar services or arrangements.

 

“Cash
Management Obligations” means all obligations and liabilities of any Obligor or any Subsidiary of any Obligor owed to
Lender or any Affiliate of Lender arising under or in connection with any Cash Management Agreement.

 

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“Code” means the Uniform Commercial
Code as in effect in Texas.

 

“Collateral”
means any assets of any Person in which at any time Lender, or another Person acting for the benefit of Lender, shall be granted
a Bank Lien to secure the Secured Obligations.

 

“Combined
Ratio” means the net combined ratio of Borrower and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP for the four fiscal quarter period ended on the date of determination and in the same manner as used in the determination
of the net combined ratio of Borrower and its consolidated Subsidiaries as stated in Borrower’s filed SEC Form 10-Q for the
fiscal quarter ended on March 31, 2015.

 

“Commitment” means the Revolving
Commitment.

 

“Compliance Certificate” means
a compliance certificate, substantially in the form of Exhibit D.

 

“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), plus (c) the aggregate unpaid principal
amount of all 2007 Debentures; provided, all 2007 Debentures, all 2007 Preferred Securities and the 2007 Guaranty are subordinate
to the Obligations as provided in the 2007 Documents (as the 2007 Documents existed on August 23, 2007).

 

“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 Equity Interests,
securities or obligations of the lessor;

 

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(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 Equity Interests, 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 Equity Interests 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, limited liability
company or other entity.

 

“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, and (ii) the 2007 Debentures or the obligations with respect to the 2007 Guaranty if
at the time of determination all amounts owed with respect to the 2007 Debentures and the 2007 Guaranty 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, or the happening
of any further specified condition, event or act, 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.

 

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“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 the sum of (i) the greater of (A) the sum of an amount equal to 10% of Surplus of AHIC, plus an amount equal to 10% of Surplus
of HIC, each as at the date of determination, and (B) the sum of AHIC Net Income
for the four fiscal quarters of AHIC ended on the date of determination, plus HIC Net Income for the four fiscal quarters
of HIC ended on the date of determination, plus (ii) for Borrower and its Subsidiaries (other than AHIC and HIC for each
determination pursuant to this clause (ii)) on a consolidated basis, an amount equal to Consolidated Net Income for the
four fiscal quarters ended on the date of determination, plus (A) the following to the extent deducted in calculating such
Consolidated Net Income: (1) Consolidated Interest Expenses for such period, (2) the provision for federal, state, local and foreign
income Taxes payable by Borrower and its Subsidiaries for such period (net of the amount of any tax refund actually received by
Borrower and its Subsidiaries during such period), (3) the amount of depreciation and amortization expense for such period, and
(4) without duplication, 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. §§ 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. §§
6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. §§
1251 et seq., the Clean Air Act of 1970, 42 U.S.C. §§ 7401 et seq., as amended, the Toxic Substances Control
Act of 1976, 15 U.S.C. §§ 2601 et seq., the Occupational Safety and Health Act of 1970, as amended by 29 U.S.C.
§§ 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et
seq., the Safe Drinking Water Act of 1974, as amended by 42 U.S.C. §§ 300(f) et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. §§ 5101 et seq., and any similar or implementing Law.

 

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“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.

 

“Equity
Interests” means, with respect to any Person, all of the shares of capital stock, limited liability company interest,
partnership interest or trust interest of (or other ownership or profit interests in) such Person, all of the warrants, options
or other rights for the purchase or acquisition from such Person of shares of capital stock, limited liability company interest,
partnership interest or trust interest of (or other ownership or profit interests in) such Person, all of the securities or other
interests convertible into or exchangeable for shares of capital stock, limited liability company interest, partnership interest
or trust interest of (or other ownership or profit interests in) such Person, and all of the other ownership or profit interests
in such Person, whether voting or nonvoting, and whether or not such shares, limited liability company interest, partnership interest,
trust interest, warrants, options, rights or other interests are outstanding on any date of determination.

 

“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 Wall Street Journal (U.S. Edition) in the “London Interbank Offered Rates” column
(or if The Wall Street Journal (U.S. Edition) is not published on such day, in the issue most recently published); provided,
the Eurodollar Basis shall never be less than a rate of 0.15% per annum. Borrower acknowledges that (a) if more than one London
Interbank Offered Rate is published at any time by The Wall Street Journal, the highest of such London Interbank Offered
Rates shall constitute the London Interbank Offered Rate hereunder; provided, if the highest of such London Interbank Offered
Rates shall be less than 0.15% per annum, such rate shall be deemed to be 0.15% per annum for purposes of this Agreement and each
other Loan Document, and (b) if at any time The Wall Street Journal ceases to publish a London Interbank Offered Rate, Lender
shall have the right to select a substitute rate that Lender determines, in the exercise of its reasonable commercial discretion,
to be comparable to such London Interbank Offered Rate, and the substituted rate as so selected, upon the sending of written notice
thereof to Borrower, shall constitute the London Interbank Offered Rate hereunder; provided, if such substituted rate shall
be less than 0.15% per annum, such rate shall be deemed to be 0.15% per annum for purposes of this Agreement and each other Loan
Document. The Wall Street Journal London Interbank Offered Rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any customer. Each determination by Lender of the London Interbank Offered Rate shall be
conclusive and binding absent manifest error, and may be computed using any reasonable averaging and attribution method.

 

“Eurodollar Rate” means the sum
of the Eurodollar Basis plus 2.50%.

 

“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.

 

“Excluded
Swap Obligation” means, with respect to any Obligor (other than Borrower), any Swap Obligation if, and to the extent
that, all or a portion of any guaranty of such Obligor of such Swap Obligation is or becomes illegal under the Commodity Exchange
Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation
of any thereof) by virtue of such Obligor’s failure for any reason to constitute an “eligible contract participant”
as defined in the Commodity Exchange Act at the time the guaranty of such Obligor becomes effective with respect to such Swap Obligation.
If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion
of such Swap Obligation that is attributable to swaps for which such guaranty is or becomes excluded in accordance with the first
sentence of this definition.

 

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“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 May 31, 2015, 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.

 

“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 (net of
the amount of any tax refund actually received by Borrower and its Subsidiaries during such period), 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.

 

“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.

 

    	7

    	 

    

 

“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 thereto.

 

“Hallmark
Trust II” means Hallmark Statutory Trust II, a special purpose statutory Delaware business trust established by Borrower,
of which Borrower holds all the common securities, which is the issuer of the 2007 Preferred Securities, and which purchased from
Borrower the 2007 Debentures with the net proceeds of the issuance and sale of the 2007 Preferred Securities.

 

“Hallmark
Trust II Declaration of Trust” means the Amended and Restated Declaration of Trust of Hallmark Trust II, dated as of
August 23, 2007, together with all amendments and restatements thereto.

 

“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.

 

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

 

“HIC
Net Income” means for any period, the amount of net income of HIC computed using the same information and in the same
manner as was utilized in preparing page 4, line 20 of the March 31, 2015 quarterly regulatory financial statement of HIC, utilizing
the format promulgated by NAIC and filed with the applicable Insurance Regulator, or if such format is changed after March 31,
2015, the same type of information, computed in the same manner, as contained on page 4, line 20 of such regulatory financial statement
of HIC dated March 31, 2015.

 

“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.

 

    	8

    	 

    

 

“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, (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,
and (d) with respect to any RIC, any other securities in which such RIC is permitted to invest pursuant to Applicable Law.

 

“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 HIC.

 

“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.

 

    	9

    	 

    

 

“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 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.

 

“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.

 

“Notice
of Final Agreement” means the Arbitration and Notice of Final Agreement, substantially in the form of Exhibit E.

 

    	10

    	 

    

 

“Obligations”
means all obligations, indebtedness and liabilities under the Loan 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, “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.

 

“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).

 

“Payment Date” means the first 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.

 

    	11

    	 

    

 

“Permitted
Acquisition” means the acquisition of all or substantially all of the assets or all of the Equity Interest 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 Interest 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
or a wholly-owned Domestic Subsidiary, (c) all of the authorized, issued and outstanding Equity Interest 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 Domestic Subsidiary (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 $10,000,000 during any fiscal year of Borrower, and (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. For
purposes of determining compliance with clause (f), (y) the cash portion of the consideration paid for each acquisition
of assets or Equity Interest 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 Interest
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 Interest 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 $500,000 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) the 2007 Debentures; provided, that all amounts owed with respect to the 2007 Debentures shall be
subordinated to all Obligations on terms acceptable to Lender, and; provided further, the aggregate principal amount
of all 2007 Debentures shall not exceed $25,774,000, (i) the 2007 Guaranty; provided, that all amounts owed with
respect to the 2007 Guaranty shall be subordinated to all Obligations on terms acceptable to Lender, (j) contingent purchase
price payable pursuant to the TBIC Purchase Agreement; provided, the aggregate amount of such contingent purchase
price shall not exceed $3,000,000, and (k) other Debt of Borrower and Subsidiaries in an aggregate amount not to exceed
$1,000,000 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 Domestic Subsidiaries, if such equity contribution results in
an increase in shareholders’ or members’ equity of such Domestic 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 $1,000,000 (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).

 

    	12

    	 

    

 

“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, and (g) 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.

 

“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
Agreement” means the First Restated Pledge Agreement executed by Borrower, substantially in the form of Exhibit B.

 

“Prime
Rate” means the maximum “latest” “U.S.” prime rate of interest per annum published from time
to time in the “Money Rates” column of The Wall Street Journal (U.S. Edition) or in any successor publication
to The Wall Street Journal. Borrower understands that the Prime Rate may not be the best, lowest, or most favored rate of
Lender or The Wall Street Journal, and any representation or warranty in that regard is expressly disclaimed by Lender.
Borrower acknowledges that (a) if more than one U.S. prime rate is published at any time by The Wall Street Journal, the
highest of such prime rates shall constitute the Prime Rate hereunder and (b) if at any time The Wall Street Journal ceases
to publish a U.S. prime rate, Lender shall have the right to select a substitute rate that Lender determines, in the exercise of
its reasonable commercial discretion, to be comparable to such prime rate, and the substituted rate as so selected, upon the sending
of written notice thereof to Borrower, shall constitute the Prime Rate hereunder. Upon each increase or decrease hereafter in the
Prime Rate, the rate of interest upon the unpaid principal balance hereof shall be increased or decreased by the same amount as
the increase or decrease in the Prime Rate, such increase or decrease to become effective as of the day of each such change in
the Prime Rate and without notice to Borrower or any other Person.

 

“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.

 

    	13

    	 

    

 

“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.

 

“Release
Agreement” means the Release of Security Interests and Guaranties, substantially in the form of Exhibit F.

 

“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 $15,000,000.

 

“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 Commitment Expiration Date” means the first to occur of (a) June 30, 2018, (b) the date the Revolving Facility
L/C Commitment or the Revolving 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.

 

    	14

    	 

    

 

“Revolving
Loan Maturity Date” means the first to occur of (a) June 30, 2018, (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 C.

 

“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 rounded to two decimal places), at any time, of (a) the
Total Adjusted Capital of such RIC to (b) 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.

 

“Sanctioned
Country” means, at any time, a country or territory which is itself the subject or target of any Sanctions (at the time
of this Agreement, Cuba, Iran, North Korea, Sudan and Syria).

 

“Sanctioned
Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the
Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State or by the United Nations
Security Council, the European Union or any European Union member state, (b) any Person operating, organized or resident in a Sanctioned
Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b).

 

“Sanctions”
means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government,
including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department
of State, or (b) the United Nations Security Council, the European Union, any European Union member state or Her Majesty’s
Treasury of the United Kingdom.

 

“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.

 

    	15

    	 

    

 

“Secured
Obligations” means collectively, (a) the Obligations, (b) all Swap Obligations, (c) all Cash Management Obligations,
and (d) any and all out-of-pocket expenses (including, without limitation, expenses and Attorney Costs of any holder of Swap Obligations
or Cash Management Obligations) incurred by any such holder in enforcing its rights under any Cash Management Agreement, Swap Contract
or other agreement related to or evidencing Swap Obligations or Cash Management Obligations. Without limiting the generality of
the foregoing, “Secured Obligations” includes all interest, fees and other amounts that would be owed by Borrower
or any other Person to Lender or an Affiliate of Lender under any Cash Management Agreement, Swap Contract or other agreement related
to or evidencing Cash Management Obligations or Swap Obligations, regardless of whether such interest, fees or other amounts are
enforceable or allowed claims in any proceeding under any Debtor Relief Law involving Borrower or any other Person (other than
Lender or any holder of such Swap Obligation or Cash Management Obligation). Notwithstanding the foregoing or any other provision
of any Loan Document, “Secured Obligations” shall exclude any Excluded Swap Obligations.

 

“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
Documents” means, collectively, the Pledge 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 PC, or such other legal counsel as Lender may select.

 

“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 Equity Interests having ordinary voting power for the election of directors or other governing
body (other than securities or Equity 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 and Hallmark Trust II
are deemed to be a Subsidiary of Borrower.

 

“Surplus”
means (a) if the calculation is made as at the last day of the first three fiscal quarters of AHIC or HIC, the amount of surplus
as regards policyholders, computed using the same information and in the same manner as was utilized in preparing page 3, line
37 of the March 31, 2015 quarterly regulatory financial statement of AHIC or HIC, respectively, utilizing the format promulgated
by NAIC and filed with the applicable Insurance Regulator, or if such format is changed after March 31, 2015, the same type of
information, computed in the same manner, as contained on page 3, line 37 of such regulatory financial statement of AHIC or HIC,
respectively, dated March 31, 2015, or (b) if the calculation is made as at the last day of the fiscal year of AHIC or HIC, the
amount of surplus as regards policyholders, computed using the same information and in the same manner as was utilized in preparing
page 3, line 37 of the December 31, 2014 annual statements of AHIC or HIC, respectively, utilizing the format promulgated by NAIC
and filed with the applicable Insurance Regulator, or if such format is changed after December 31, 2014, the same type of information,
computed in the same manner, as contained on page 3, line 37 of such regulatory financial statement of AHIC or HIC, respectively,
dated December 31, 2014.

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“Swap
Contract” means any of the following entered into between Lender and/or any Affiliate of Lender and Borrower and/or any
Subsidiary: (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity
swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index
swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign
exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate
swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing
(including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any
master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and
conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc.,
any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any
related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

 

“Swap
Obligations” means with respect to any Obligor or any other Subsidiary any obligation to pay or perform under any Swap
Contract or other agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47)
of the Commodity Exchange Act.

 

“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.

 

“TBIC
Purchase Agreement” means the Stock Purchase Agreement dated as of March 25, 2011, among AHIC, Robert C. Siddons, Paul
W. Keller, Stephen W. Gurasich, Austin Engineering Co., Inc., Kerry A. Keller and Andrew J. Reynolds.

 

“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 thereto.

 

“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 thereto.

 

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

 

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“2007
Debentures” means the $25,774,000 aggregate principal amount of Junior Subordinated Debt Securities due September 15,
2037 issued by Borrower to Hallmark Trust II.

 

“2007
Documents” means any equity security of Hallmark Trust II, any 2007 Debenture, any 2007 Preferred Security, the 2007
Indenture, the Hallmark Trust II Declaration of Trust, the 2007 Guaranty, any document evidencing or governing any equity or Debt
of Hallmark Trust II and all other documents and instruments executed and delivered by Borrower or Hallmark Trust II in connection
with any of the foregoing.

 

“2007
Guaranty” means the Guarantee Agreement dated August 23, 2007, made by Borrower in favor of The Bank of New York Trust
Company, National Association, as Guarantee Trustee, together with all amendments and restatements thereto.

 

“2007
Indenture” means the Indenture dated August 23, 2007, between Borrower and The Bank of New York Trust Company, National
Association, as Trustee, together with all amendments and restatements thereto.

 

“2007
Preferred Securities” means the $25,000,000 Preferred Securities issued by Hallmark Trust II.

 

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
	Eurocurrency liabilities	 	Section 4.4(c)
	Existing Agreement	 	Background
	Indemnified Matters	 	Section 6.7
	Indemnified Taxes	 	Section 4.1(a)
	Indemnitees	 	Section 6.7
	Information	 	Section 10.8
	Lender	 	Introductory Paragraph
	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
	Revolving Loan	 	Section 2.1
	Unreimbursed Amount	 	Section 3.3(b)
	Usage Fee	 	Section 2.13

 

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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, (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
and (k) references to consolidated or other Financial Statements of Borrower and Subsidiaries or to the determination of any amount
for Borrower and Subsidiaries on a consolidated or other basis or any similar reference shall, in each case, be deemed to include
each variable interest entity that Borrower is required to consolidate pursuant to FASB ASC 810 as if such variable interest entity
were a Subsidiary as defined herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including
the computation of any financial covenant) contained herein, Debt of Borrower and Subsidiaries shall be deemed to be carried at
100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities
shall be disregarded.

 

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 Revolving
Loan Maturity 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 Revolving Loan Maturity 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 (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 unpaid principal of all Revolving Loans shall be due and payable on the Revolving Loan Maturity Date.

 

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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.

 

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 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 and Revolving Facility 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 Revolving Loan Maturity Date, the Revolving Commitment and Revolving Facility L/C Commitment shall automatically reduce to
zero and terminate.

 

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

 

2.7         Interest
on Revolving Loans Generally.

 

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

 

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(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 request a Eurodollar Rate Loan until Lender notifies Borrower
that the provisions of Sections 4.2 or 4.3 no longer 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 Loan Documents; and (v) to the payment of principal then due and payable on the Revolving Loans.

 

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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.
Payment of the Obligations is secured on the Agreement Date by a perfected first priority security interest in all of the authorized,
issued and outstanding capital stock and other Equity Interests of each of AHIC and HIC.

 

2.13        Usage
Fee. For so long as the Revolving Commitment is in effect, Borrower shall pay to Lender a fee (the “Usage Fee”)
on each Payment Date, commencing with July 1, 2015. The Usage Fee is equal to a per annum rate of 0.25% multiplied by the
actual daily amount by which the Revolving Commitment (as it exists on each determination date) exceeds the Revolving Facility
Outstanding Amount (as of each determination date). The Usage Fee shall be calculated quarterly in arrears and shall accrue regardless
of whether any condition in Article V has been satisfied. Subject to Section 10.11, the Usage Fee shall be fully
earned when paid and is not refundable.

 

ARTICLE III

 

LETTER OF CREDIT FACILITIES

 

3.1          Letters
of Credit.

 

(a)          Subject
to the terms and conditions of this Agreement, Lender agrees, (i) 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 (ii) 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, (A) the Revolving Facility L/C Obligations would exceed the Revolving
Facility L/C Commitment, or (B) 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.

 

(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;

 

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(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) June 30, 2018, 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
L/C Credit Extension would violate one or more policies of Lender;

 

(iv)         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;

 

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

 

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

 

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

 

(viii)      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, amend or renew, and shall not issue, amend or renew, any Letter of Credit (i) the proceeds of
which would be made available to any Person

(A) to fund any activity or business
of or with any Sanctioned Person, or in any country or territory that, at the time of such funding, is the subject of any Sanctions
or (B) in any manner that would result in a violation of any Sanctions by any party to this Agreement or any other Obligor or any
Subsidiary.

 

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.

 

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(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 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)          If
Borrower or the applicable L/C RIC fails to so reimburse Lender by the time specified in Section 3.3(a), 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 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:

 

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(a)          any
lack of validity or enforceability of such Letter of Credit, this Agreement 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.

 

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3.6           Cash
Collateral. 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 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 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.

 

3.7           Letter
of Credit 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.

 

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. 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.

 

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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.

 

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(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.

 

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(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.

 

4.6           Dodd-Frank.
Notwithstanding anything in this Agreement to the contrary (a) the Dodd-Frank Wall Street Reform and Consumer Protection Act and
all requests, rules, guidelines, requirements or directives thereunder or issued in connection therewith or in the implementation
thereof, and (b) all requests, rules, guidelines, requirements or directives promulgated by the Bank for International Settlements,
the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign Governmental
Authorities, in each case pursuant to Basel III, shall in each case be deemed not to be in effect on the Agreement Date, regardless
of the date enacted, adopted, issued or implemented.

 

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4.7          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 on or after the Agreement Date and to make the initial L/C Credit
Extension on or after the Agreement Date 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)          AHIC
Certificate. A certificate of officers acceptable to Lender of AHIC 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,
certified as true, complete and correct as of a date acceptable to Lender by the Commissioner of Insurance, Texas Department of
Insurance, (iii) a copy of its By-Laws, as in effect on the Agreement Date, (iv) 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 (v) a copy of the Certificate
of Authority of AHIC, issued by the Commissioner of Insurance, Texas Department of Insurance (certified as of a date acceptable
to Lender).

 

(c)          HIC
Certificate. A certificate of officers acceptable to Lender of HIC 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,
certified as true, complete and correct as of a date acceptable to Lender by the Arizona Department of Insurance and the Arizona
Secretary of State, (iii) a copy of its By-Laws, as in effect on the Agreement Date, (iv) 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 (v) a copy of the
Authorization and Deposit Certificate of HIC, issued by the Arizona Department of Insurance (certified as of a date acceptable
to Lender).

 

(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 Pledge Agreement executed by Borrower, dated as of the Agreement Date, granting
to Lender a Lien in the Collateral set forth therein (which Lien shall be perfected and first priority), together with stock certificates
evidencing all of the Equity Interest of each of AHIC and HIC (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); and (iii) confirmations of all Liens in all Equity Interest
of each of AHIC and HIC.

 

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(f)          Governance
Document Waiver. Waivers of any Equity Interest transfer restrictions contained in the organization and governance documents
of each of AHIC and HIC, duly executed by each party thereto.

 

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

 

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

 

(i)          Opinions
of Borrower’s, AHIC’s and HIC’s Counsel. Opinions of counsel to Borrower, AHIC and HIC 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.

 

(j)          Obligor
Proceedings. Evidence that all corporate 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.

 

(k)          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, 2014, 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, March 31, 2015, (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, 2014, and (iv) 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 March 31, 2015.

 

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

 

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

 

(n)          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.

 

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

 

(p)          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.

 

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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 on or after the Agreement Date) and to make each L/C Credit Extension (including the initial L/C Credit
Extension on or after the Agreement Date) 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 and each other Obligor under this Agreement and each
other Loan Document, which, pursuant to Section 8.23, 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, 2014, 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 on or after the Agreement Date) 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.

 

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(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 Sections 7.9 and 7.11).

 

(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. In addition, Borrower shall, and shall cause each Subsidiary to, maintain in effect
and enforce policies and procedures designed to ensure compliance by such Person, its Subsidiaries and its respective directors,
officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.

 

(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) if required by Sarbanes-Oxley, 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.

 

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(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.

 

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(ii)         With
respect to each RIC, within 60 days after the last day of each fiscal quarter (excluding 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.

 

(v)          Within
60 days after the end of each fiscal quarter of Borrower, a report analyzing the Combined Ratio for such fiscal quarter, such report
to be in form and substance satisfactory to Lender.

 

(c)          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.

 

(d)          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.

 

(e)          Notice
of Litigation. Promptly upon becoming aware of the existence of any Litigation, other than that arising in the normal course
of business related to policies of insurance issued to its policyholders and in which the amount in controversy is within policy
limits, before any Governmental Authority, arbitrator or mediator (but no later than 10 Business Days after the filing thereof)
involving it, (i) which could reasonably be expected to involve its payment of $500,000.00 or more, or (ii) which, under normal
operating standards, could reasonably be expected to result in a reserve being established in excess of $500,000.00 a written notice
specifying the nature thereof and whether it will contest such proceeding.

 

(f)          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 $250,000 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.

 

(g)          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.

 

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(h)          Investment
Policy. Within 5 days after any material amendment to or restatement of any Investment Policy of any RIC, a copy of such material
amendment or restatement as approved by the board of directors or other appropriate governance body of such RIC.

 

(i)          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.

 

(j)          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.

 

(k)          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.

 

(l)          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.

 

(m)          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.

 

(n)          Annual
Budget. If requested by Lender, as soon as available, but in any event not later than sixty days after the first day of each
fiscal year of Borrower, a copy of the final annual consolidated and consolidating operating budget and projections of Borrower
and Subsidiaries for such fiscal year in form and substance satisfactory to Lender.

 

(o)          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.

 

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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 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 REVOLVING 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.

 

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6.8           Use
of Proceeds. Borrower shall use (a) the proceeds of the Revolving
Loans to (i) provide working capital to Borrower and Domestic Subsidiaries, (ii) to acquire Equity Interests of or make capital
contributions to a Person that is either a Subsidiary on the Agreement Date or became a Domestic 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 Domestic 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 purchase Equity Interests of Borrower; provided, that each such purchase
is made in compliance with all applicable Securities Laws, and (b) the Revolving Facility L/Cs and proceeds of the Revolving Facility
L/Cs to secure the performance of Borrower and/or an L/C RIC pursuant to Reinsurance Agreements to which it is or they are a party
or such other purpose as Lender may permit in its discretion. Borrower shall not request any Revolving Borrowing and neither Borrower
nor any L/C RIC shall request any L/C Credit Extension, and Borrower shall not use the proceeds of any Revolving Borrowing and
neither Borrower nor any L/C RIC shall use the proceeds of any Letter of Credit, and Borrower shall procure that Subsidiaries
and its and their respective directors, officers, employees and agents shall not use, the proceeds of any Revolving Borrowing
or Letter of Credit (a) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money,
or anything else of value, to any Person in violation of any Anti- Corruption Laws, (b) for the purpose of funding, financing
or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or (c)
in any manner that would result in the violation of any Sanctions applicable to any party hereto or any Subsidiary.

 

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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) $90,000,000
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           HIC
Total Adjusted Capital. Borrower shall not permit Total Adjusted Capital of HIC to be less than the greater of (a) $50,000,000
and (b) the amount required for Risk-Based Capital of HIC to equal 250%, as at the last day of any fiscal quarter of HIC.

 

7.3           Combined
Ratio. Borrower shall not permit the Combined Ratio, determined as at the last day of any fiscal quarter of Borrower, to be
greater than 103%.

 

7.4           Consolidated
Net Worth. Borrower shall not permit Consolidated Net Worth to be less than $275,000,000 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 and the other Loan Documents) 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 Equity Interests 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) more than $250,000 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 $500,000.

 

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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, and (b) 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.

 

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 so long as Borrower is the survivor; (b) a Domestic
Subsidiary which is not a RIC may merge with and into any other Domestic Subsidiary which is not a RIC; and (c) 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 § 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 (other than Borrower or any Subsidiary) except at arm’s length and in the ordinary course of business.

 

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 Insurance Business and related activities.

 

7.17         Activities
of Hallmark Trust I and Hallmark Trust II.

 

(a)          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).

 

(b)          Neither
Borrower nor any of its Subsidiaries shall permit Hallmark Trust II to engage in any business activity other than as described
in the Hallmark Trust II Declaration of Trust (as such agreement existed on August 23, 2007).

 

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7.18         2005
Documents and 2007 Documents.

 

(a)          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 (i) an increase in the principal, interest, overdue interest, fees or other amounts payable under
any 2005 Document, (ii) 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), (iii) a change in any of the subordination
provisions of any 2005 Document, (iv) a change in any of the interest deferral provisions of any 2005 Document, or (v) any other
change in any term or provision of any 2005 Document that could reasonably be expected to have an adverse effect on the interests
of Lender. 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 Interest 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.

 

(b)          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 2007
Document, that would result in (i) an increase in the principal, interest, overdue interest, fees or other amounts payable under
any 2007 Document, (ii) an acceleration of any date fixed for payment or prepayment of principal, interest, fees or other amounts
payable under any 2007 Document (including, without limitation, as a result of any redemption), (iii) a change in any of the subordination
provisions of any 2007 Document, (iv) any change in any of the interest deferral provisions of any 2007 Document, or (v) any other
change in any term or provision of any 2007 Document that could reasonably be expected to have an adverse effect on the interests
of Lender. 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 Interest or Debt of Hallmark Trust II, the 2007 Debentures, the 2007 Indenture, the
2007 Preferred Securities, the Hallmark Trust II Declaration of Trust or the 2007 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 2007 Debentures by Borrower and payments of regularly scheduled cash interest payments in respect of 2007 Preferred Securities
by Hallmark Trust II.

 

7.19         Limitation
on Dividends and Distributions. Borrower shall not declare, pay or otherwise be liable for the payment of any Dividend if an
Default or Event of Default exists at the time thereof or will exist immediately after giving effect thereto.

 

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 (other than a RIC) are conducted or located in a jurisdiction other than such Person’s
jurisdiction of organization.

 

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8.2           Financial
Statements. The financial statements described in Section 5.1(k) 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 as disclosed on such
financial statements. 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(k)
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 reasonably be expected to 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 of 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 could reasonably
be expected to 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 $500,000. 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.

 

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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.

 

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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 2005, 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.

 

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8.17         Investments. Schedule
8.17 is a complete and correct description of all Existing Investments as of May 31, 2015. 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)          Except
as set forth on Schedule F to the Annual Statements for each RIC for its fiscal year ending December 31, 2014, 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 as of December 31, 2015 has a rating of “A-” or better
by A.M. Best.

 

(b)          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         2005
Documents; 2007 Documents.

 

(a)          Attached
as Exhibit N to the Credit Agreement dated as of June 29, 2005, among Borrower, certain RICs and Lender 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 Interest 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 such Exhibit N.

 

(b)          Attached
as Exhibit Q to the Existing Agreement are true and correct copies of the Hallmark Trust II Declaration of Trust, the 2007
Indenture, the 2007 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 Interest or Debt of Hallmark Trust II, any trustee of Hallmark Trust II,
any holder of any 2007 Debenture or any other Person, or their respective Affiliates, related to the subject matter of such agreements
not contained in the documents attached as such Exhibit Q.

 

8.21         Subordination;
2005 Documents; 2007 Documents.

 

(a)          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 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).

 

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(b)          The
principal of and interest on the 2007 Debentures and all obligations of Borrower and each of its Subsidiaries in respect of and
under the 2007 Debentures, the 2007 Indenture, the 2007 Preferred Securities, the Hallmark Trust II Declaration of Trust and the
2007 Guaranty are subordinate in all respects to all of the Obligations. No obligation under any 2007 Document benefits from any
collateral (including any sinking fund or similar deposit arrangement) or guaranty (except, with respect to the 2007 Preferred
Securities, only, the 2007 Guaranty).

 

8.22         Anti-Corruption
Laws and Sanctions. Borrower and each Subsidiary have implemented and maintain in effect policies and procedures designed to
ensure compliance by such Person and its respective directors, officers, employees and agents with Anti-Corruption Laws and applicable
Sanctions, and such Person and its respective officers and employees and, to the knowledge of such Person, its directors and agents,
are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects and are not knowingly engaged in
any activity that would reasonably be expected to result in any Obligor or any Subsidiary being designated as a Sanctioned Person.
None of (a) any Obligor, any Subsidiary or any of their respective directors, officers or employees, or (b) to the knowledge of
any such Obligor or Subsidiary, any agent of such Obligor or any Subsidiary that will act in any capacity in connection with or
benefit from the credit facility established hereby, is a Sanctioned Person. No Revolving Borrowing or Letter of Credit, use of
proceeds thereof or other transaction contemplated by this Agreement or the other Loan Documents will violate Anti-Corruption Laws
or applicable Sanctions.

 

8.23         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 (other than as referenced in Sections 9.1(a) or (b)), Article
VII, or Sections 6.2, 6.3, 6.6 or 6.8;

 

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(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, unstayed, unsatisfied
and unreleased for a period of sixty consecutive days;

 

(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;

 

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(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 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 Interest 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)          2007
Documents. Any Person who is a holder of, or claims to act for the benefit of any holder of, any Equity Interest or Debt of
Hallmark Trust II, any 2007 Debenture, any 2007 Preferred Security, the 2007 Guaranty, or any other 2007 Document shall assert
that any obligation under any 2007 Document is not subordinate in any respect to the Obligations; any payment or transfer of property
shall be made under any 2007 Document (other than payment of regularly scheduled cash interest payments in accordance with the
2007 Debentures and 2007 Preferred Securities (as such agreements existed on August 23, 2007) if no Default or Event of Default
exists prior to or after giving effect to such payment); a default shall occur under any 2007 Document; or the 2007 Indenture,
2007 Debentures or 2007 Preferred Securities shall benefit from any collateral (including any sinking fund or similar deposit
arrangement) or guarantee (except, with respect to the 2007 Preferred Securities, only, the 2007 Guaranty);

 

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 the Revolving Commitment
and the Revolving Facility 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 and the Revolving Facility 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.

 

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(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 any of the Revolving Loans and other
Obligations have automatically become immediately due and payable), any amounts received on account of the Obligations shall be
applied by Lender in the following order:

 

(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;

 

(f)          Sixth,
to all other Secured Obligations; and

 

(g)          Last,
to the balance, if any, after all of the Secured 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.

 

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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.

 

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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 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 signed by the parties required by this Section 10.7.

 

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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 other Obligor or any Subsidiary. 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.

 

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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         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.

 

10.16         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.

 

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

 

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The
Remainder of This Page Is Intentionally Left Blank.

 

    	54

    	 

    

 

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

 

	BORROWER:	HALLMARK FINANCIAL SERVICES, INC.
	 	 
	 	By:	/s/ Jeff Passmore
	 	Print Name: 	Jeff Passmore
	 	Print Title:	SVP

 

	L/C RIC:	AMERICAN HALLMARK INSURANCE COMPANY 

OF TEXAS
	 	 
	 	By:	/s/ Jeff Passmore
	 	Print Name: 	Jeff Passmore
	 	Print Title:	CFO

 

	 	HALLMARK INSURANCE COMPANY
	 	 
	 	By:	/s/ Jeff Passmore
	 	Print Name: 	Jeff Passmore
	 	Print Title:	CFO

 

Signature Page to Second Restated Credit Agreement

 

    	 

    	 

    

 

	LENDER:	FROST BANK
	 	 
	 	By:	/s/ Adam  Palmer
	 	Print Name:	Adam  Palmer
	 	Print Title:	 Senior Vice President

 

Signature Page to Second Restated Credit Agreement

 

    	 

    	 

    

 

Exhibit A

 

Revolving Note

 

    	 

    	 

    

  

 

NINTH RESTATED REVOLVING PROMISSORY
NOTE

 

	$15,000,000.00	June 30, 2015

 

For
value received, HALLMARK FINANCIAL SERVICES, INC., a Nevada corporation (“Borrower”), does hereby
promise to pay to the order of FROST BANK, a Texas state bank (“Lender”), at P.O.
Box 34746, San Antonio, Texas 78265, or at such other address as Lender shall from time to time specify in writing, in lawful money
of the United States of America, the sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00), or so much thereof as from time
to time may be disbursed by Lender to Borrower under the terms of the Second Restated Credit Agreement dated of even date herewith,
among Borrower, American Hallmark Insurance Company of Texas, Hallmark Insurance Company and Lender (such agreement, together with
all amendments and restatements thereto, the “Credit Agreement”, capitalized terms not otherwise defined
herein have the meaning specified in the Credit Agreement), and be outstanding, together with interest from date hereof on the
principal balance outstanding from time to time as hereinafter provided. Interest shall be computed on a per annum basis of a year
of 360 days and for the actual number of days elapsed, 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 a per annum basis of a year of 365 days or 366 days
in a leap year, as the case may be.

 

1.           Payment
Terms. Interest only on amounts outstanding hereunder shall be due and payable quarterly as it accrues, on the first day
of each and every calendar quarter, beginning July 1, 2015, and continuing regularly and quarterly thereafter until June 30, 2018,
when the entire amount of principal and accrued interest then remaining unpaid shall be then due and payable; interest being calculated
on the unpaid principal each day principal is outstanding and all payments made credited to any collection costs and late charges,
to the discharge of the interest accrued and to the reduction of the principal, in the order provided in the Credit Agreement (subject
to Paragraph 8).

 

2.           Late
Charge. If a payment is made more than 10 days after it is due, Borrower will be charged (subject to Paragraph 8),
in addition to interest, a delinquency charge of (a) 5% of the unpaid portion of the regularly scheduled payment, or (b) $250.00,
whichever is less. Additionally, upon maturity of this Note, if the outstanding principal balance (plus all accrued but unpaid
interest) is not paid within 10 days of the maturity date, Borrower will be charged (subject to Paragraph 8) a delinquency
charge of (a) 5% of the sum of the outstanding principal balance (plus all accrued but unpaid interest), or (b) $250.00, whichever
is less. Borrower agrees with Lender that the charges set forth herein are reasonable compensation to Lender for the handling
of such late payments.

 

3.           Interest
Rate.

 

(a)          Subject
to and in accordance with the terms of the Credit Agreement and Paragraphs 3(b) and 4 of this Note, (i) each Eurodollar
Rate Loan shall bear interest on the outstanding principal amount thereof from the borrowing date, the effective date of the election
by Borrower that the Revolving Loan becomes a Eurodollar Rate Loan or such other date on which the Revolving Loan becomes a Eurodollar
Rate Loan (as applicable) to but not including the date on which another interest rate becomes applicable to the Revolving Loan
pursuant to the terms of the Credit Agreement at a rate per annum equal to the lesser of (A) the Highest Lawful Rate and (B) the
Eurodollar Basis plus 2.50%, and (ii) each Prime Rate Loan shall bear interest on the outstanding principal amount thereof
from the borrowing date, the effective date of the election by Borrower that the Revolving Loan becomes a Prime Rate Loan or such
other date on which the Revolving Loan becomes a Prime Rate Loan (as applicable) to but not including the date on which another
interest rate becomes applicable to the Revolving Loan pursuant to the terms of the Credit Agreement at a rate per annum equal
to the lesser of (A) the Highest Lawful Rate and (B) the Prime Rate.

 

    	 

    	 

    

  

“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 Wall Street Journal (U.S. Edition) in the “London Interbank Offered Rates” column (or if The Wall
Street Journal (U.S. Edition) is not published on such day, in the issue most recently published); provided, the Eurodollar
Basis shall never be less than a rate of 0.15% per annum. Borrower acknowledges that (a) if more than one London Interbank Offered
Rate is published at any time by The Wall Street Journal, the highest of such London Interbank Offered Rates shall constitute
the London Interbank Offered Rate hereunder; provided, if the highest of such London Interbank Offered Rates shall be less
than 0.15% per annum, such rate shall be deemed to be 0.15% per annum for purposes of this Note and each other Loan Document, and
(b) if at any time The Wall Street Journal ceases to publish a London Interbank Offered Rate, Lender shall have the right
to select a substitute rate that Lender determines, in the exercise of its reasonable commercial discretion, to be comparable to
such London Interbank Offered Rate, and the substituted rate as so selected, upon the sending of written notice thereof to Borrower,
shall constitute the London Interbank Offered Rate hereunder; provided, if such substituted rate shall be less than 0.15%
per annum, such rate shall be deemed to be 0.15% per annum for purposes of this Note and each other Loan Document. The Wall
Street Journal London Interbank Offered Rate is a reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Each determination by Lender of the London Interbank Offered Rate shall be conclusive and binding
absent manifest error, and may be computed using any reasonable averaging and attribution method.

 

(b)          If
Lender has sent to Borrower the notice provided for in either Section 4.2 or 4.3 of the Credit Agreement, until Lender
has notified Borrower that the provisions Section 4.2 or 4.3 of the Credit Agreement, as appropriate, do not apply,
interest on the outstanding and unpaid principal balance hereof shall be computed at a per annum rate equal to the lesser of (i)
the Prime Rate and (ii) the Highest Lawful Rate, said rate to be effective as provided in Section 2.7(b) of the Credit Agreement,
except as provided in Paragraph 4.

 

“Prime Rate”
means the maximum “latest” “U.S.” prime rate of interest per annum published from time to time in the “Money
Rates” section of The Wall Street Journal (U.S. Edition) or in any successor publication to The Wall Street Journal.
Borrower understands that the Prime Rate may not be the best, lowest, or most favored rate of Lender or The Wall Street Journal,
and any representation or warranty in that regard is expressly disclaimed by Lender. Borrower acknowledges that (a) if more than
one U.S. prime rate is published at any time by The Wall Street Journal, the highest of such prime rates shall constitute
the Prime Rate hereunder and (b) if at any time The Wall Street Journal ceases to publish a U.S. prime rate, Lender shall
have the right to select a substitute rate that Lender determines, in the exercise of its reasonable commercial discretion, to
be comparable to such prime rate, and the substituted rate as so selected, upon the sending of written notice thereof to Borrower,
shall constitute the Prime Rate hereunder. Upon each increase or decrease hereafter in the Prime Rate, the rate of interest upon
the unpaid principal balance hereof shall be increased or decreased by the same amount as the increase or decrease in the Prime
Rate, such increase or decrease to become effective as of the day of each such change in the Prime Rate and without notice to Borrower
or any other Person.

 

4.          Default
Rate. If an Event of Default exists, subject to the provisions of Section 2.9 of the Credit Agreement, and in addition
to all other rights and remedies of Lender hereunder, interest on the outstanding and unpaid principal balance hereof shall be
computed at a rate per annum equal to the lesser of (a) the Eurodollar Rate in effect at such time plus 2% and (b) the Highest
Lawful Rate, but in no event in excess of the highest rate permitted by Applicable Law, and such accrued interest shall be immediately
due and payable. Borrower acknowledges that it would be extremely difficult or impracticable to determine Lender’s actual
damages resulting from any event of default, and such accrued interest is a reasonable estimate of those damages and does not constitute
a penalty.

 

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5.          Revolving
Line of Credit. Under the Credit Agreement, Borrower may request, prior to the Revolving Loan Maturity Date, advances and
make payments hereunder from time to time, provided that it is understood and agreed that the Revolving Facility Outstanding Amount
shall not at any time exceed $15,000,000.00. The unpaid balance of this Note shall increase and decrease with each new advance
or payment hereunder, as the case may be. This Note shall not be deemed terminated or canceled prior to the date of its maturity,
although the entire principal balance hereof may from time to time be paid in full. Subject to the terms of the Credit Agreement,
Borrower may borrow, repay and re-borrow hereunder. All payments and prepayments of principal or interest on this Note shall be
made in lawful money of the United States of America in immediately available funds, at the address of Lender indicated above,
or such other place as the holder of this Note shall designate in writing to Borrower. If any payment of principal or interest
on this Note shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business
Day and any such extension of time shall be included in computing interest in connection with such payment. As used herein, the
term “Business Day” shall mean any day other than a Saturday, Sunday or any other day on which
commercial banks in the State of Texas are authorized to close or are in fact closed. The books and records of Lender shall be
prima facie evidence of all outstanding principal of and accrued and unpaid interest on this Note.

 

6.          Prepayment.
Borrower reserves the right to prepay, prior to maturity, all or any part of the principal of this Note without penalty. Any prepayments
shall be applied first to accrued interest and then to principal. Borrower will provide written notice to the holder of this Note
of any such prepayment of all or any part of the principal at the time thereof. All payments and prepayments of principal or interest
on this Note shall be made in lawful money of the United States of America in immediately available funds, at the address of Lender
indicated above, or such other place as the holder of this Note shall designate in writing to Borrower. All partial prepayments
of principal shall be applied to the last installments payable in their inverse order of maturity.

 

7.          Default.
It is expressly provided that if an Event of Default exists (except as provided in the last sentence of this Paragraph 7),
the holder of this Note may, at its option, without further notice or demand, (a) declare the outstanding principal balance of
and accrued but unpaid interest on this Note at once due and payable, (b) refuse to advance any additional amounts under this Note,
(c) foreclose all Liens securing payment hereof, (d) pursue any and all other rights, remedies and recourses available to the holder
hereof, including but not limited to any such rights, remedies or recourses under the Loan Documents, at law or in equity, or (e)
pursue any combination of the foregoing; and in the event default is made in the prompt payment of this Note when due or declared
due, and the same is placed in the hands of an attorney for collection, or suit is brought on same, or the same is collected through
probate, bankruptcy or other judicial proceedings, then Borrower agrees and promises to pay all costs of collection, including
Attorney Costs. Upon the occurrence of an Event of Default specified in Section 9.1(e) or (f) of the Credit Agreement,
the outstanding principal balance of and accrued but unpaid interest on this Note shall thereupon and concurrently therewith become
due and payable and the Revolving Commitment shall forthwith terminate, all without any action by Lender or any holder of this
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.

 

8.          No
Usury Intended; Usury Savings Clause. In no event shall interest contracted for, charged or received hereunder, plus any
other charges in connection herewith which constitute interest, exceed the maximum interest permitted by Applicable Law. The amounts
of such interest or other charges previously paid to the holder of the Note in excess of the amounts permitted by Applicable Law
shall be applied by the holder of the Note to reduce the principal of the indebtedness evidenced by the Note, or, at the option
of the holder of the Note, be refunded. To the extent permitted by Applicable Law, determination of the legal maximum amount of
interest shall at all times be made by amortizing, prorating, allocating and spreading in equal parts during the period of the
full stated term of the loan and indebtedness, all interest at any time contracted for, charged or received from Borrower hereof
in connection with the loan and indebtedness evidenced hereby, so that the actual rate of interest on account of such indebtedness
is uniform throughout the term hereof.

 

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9.          Security.
This Note has been executed and delivered pursuant to the Credit Agreement, and is secured by, inter alia, the Loan Documents.
The holder of this Note is entitled to the benefits and security provided in the Loan Documents.

 

10.         Joint
and Several Liability; Waiver. Each maker, signer, surety and endorser hereof, as well as all heirs, successors and legal
representatives of said parties, shall be directly and primarily, jointly and severally, liable for the payment of all indebtedness
hereunder. Lender may release or modify the obligations of any of the foregoing persons or entities, or guarantors hereof, in connection
with this Note without affecting the obligations of the others. All such persons or entities expressly waive presentment and demand
for payment, notice of default, notice of intent to accelerate maturity, notice of acceleration of maturity, protest, notice of
protest, notice of dishonor, and all other notices and demands for which waiver is not prohibited by Law, and diligence in the
collection hereof; and agree to all renewals, extensions, indulgences, partial payments, releases or exchanges of collateral, or
taking of additional collateral, with or without notice, before or after maturity. No delay or omission of Lender in exercising
any right hereunder shall be a waiver of such right or any other right under this Note.

 

11.         Texas
Finance Code. In no event shall Chapter 346 of the Texas Finance Code (which regulates certain revolving loan accounts
and revolving tri-party accounts) apply to this Note. To the extent that Chapter 303 of the Texas Finance Code is applicable to
this Note, the “weekly ceiling” specified in such article is the applicable ceiling; provided that, if any Applicable
Law permits greater interest, the Law permitting the greatest interest shall apply.

 

12.         Governing
Law, Venue. This Note is being executed and delivered, and is intended to be performed in the State of Texas. Except to
the extent that the Laws of the United States may apply to the terms hereof, the substantive Laws of the State of Texas shall govern
the validity, construction, enforcement and interpretation of this Note. In the event of a dispute involving this Note or any other
instruments executed in connection herewith, the undersigned irrevocably agrees that venue for such dispute shall lie in any court
of competent jurisdiction in Bexar County, Texas.

 

13.         Purpose
of Loan. Borrower agrees that advances under this Note shall be used solely for the purposes stated in the Credit Agreement.

 

14.         Captions.
The captions in this Note are inserted for convenience only and are not to be used to limit the terms herein.

 

15.         Restatement.
This Note is given in restatement, but not extinguishment or novation, of all amounts left owing and unpaid on the Eighth Restated
Revolving Promissory Note dated September 30, 2012, made by Borrower and payable to the order of Lender in the original principal
amount of $15,000,000.

 

The Remainder
of This Page Is Intentionally Left Blank.

 

    	4

    	 

    

   

	 	BORROWER:
	 	 
	 	HALLMARK FINANCIAL SERVICES, INC.
	 	 	 
	 	By:	 
	 	Print Name:	 
	 	Print Title:	 

 

Promissory Note (Revolving)

Rev. June 2012 

 

Ninth Restated Revolving Note – Signature
Page

 

    	 

    	 

    

  

Exhibit B

 

Pledge
Agreement - Borrower

  

    	 

    	 

    

 

 

FIRST RESTATED PLEDGE AND SECURITY AGREEMENT

 

	Borrower/Grantor:	Lender/Secured Party:
	 	Hallmark Financial Services, Inc.	 	Frost Bank
	 	 	Address: 	P.O. Box 1600
	 	 	 	San Antonio, TX 78296
	Address:	777 Main Street, Suite 1000	 	 
	 	Fort Worth, TX 76102	 	 

 

THIS FIRST RESTATED
PLEDGE AND SECURITY AGREEMENT (“Agreement”) is dated as of June 30, 2015, by and between Grantor and Lender
(“Secured Party”).

 

1.          Definitions.
As used in this Agreement, the following terms shall have the meanings indicated below:

 

(a)          “Code”
means the Uniform Commercial Code as in effect in the State of Texas or of any other state having jurisdiction with respect to
any of the rights and remedies of Secured Party on the date of this Agreement or as it may hereafter be amended from time to time.

 

(b)          “Collateral”
means (i) all personal property of Grantor specifically described on Schedule A attached hereto and made a part hereof,
(ii) all certificates, instruments and/or other documents evidencing the foregoing and following, (iii) all renewals, replacements
and substitutions of all of the foregoing and following, (iv) all Additional Property (as hereinafter defined), (v) all Equity
Interests with respect to the foregoing and following, (vi) any and all deposit accounts of Grantor, wherever located, and
(vii) all PRODUCTS and PROCEEDS of all of the foregoing. The designation of proceeds does not authorize Grantor to sell, transfer
or otherwise convey any of the foregoing property. The delivery at any time by Grantor to Secured Party of any property as a pledge
to secure payment or performance of any indebtedness or obligation whatsoever shall also constitute a pledge of such property as
Collateral hereunder.

 

(c)          “Credit
Agreement” means the Second Restated Credit Agreement dated as of June 30, 2015, among Grantor, American Hallmark Insurance
Company of Texas, Hallmark Insurance Company and Secured Party, together with all amendments and restatements thereto.

 

(d)          “Grantor”
means Borrower, a corporation, whose federal taxpayer identification number is 87-0447375 and who is organized in the State of
Nevada.

 

    	 

    	 

    

  

(e)          “Indebtedness”
means (i) all indebtedness, obligations and liabilities of Grantor, each L/C RIC and each other Obligor to Secured Party of any
kind or character, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several, and regardless of whether such indebtedness, obligations and liabilities may,
prior to their acquisition by Secured Party, be or have been payable to or in favor of a third party and subsequently acquired
by Secured Party (it being contemplated that Secured Party may make such acquisitions from third parties), including without limitation
all indebtedness, obligations and liabilities of Grantor, each L/C RIC and each other Obligor to Secured Party now existing or
hereafter arising by note, draft, acceptance, guaranty, endorsement, letter of credit, assignment, purchase, overdraft, discount,
indemnity agreement or otherwise, (ii) all indebtedness, obligations and liabilities now or hereafter existing of Grantor, each
L/C RIC and each other Obligor under the Credit Agreement and each other Loan Document (including, but not limited to, the Obligations),
(iii) all Secured Obligations, (iv) all accrued but unpaid interest (including all interest that would accrue but for the existence
of a proceeding under any Debtor Relief Laws) on any of the indebtedness, obligations and liabilities described in this definition
of “Indebtedness,” (v) all indebtedness, obligations and liabilities of Grantor, each L/C RIC and each other Obligor
to Secured Party under any documents evidencing, securing, governing and/or pertaining to all or any part of the indebtedness,
obligations and liabilities described in this definition of “Indebtedness,” (vi) all costs and expenses incurred by
Secured Party in connection with the collection and administration of all or any part of the indebtedness, obligations and liabilities
described in this definition of “Indebtedness” or the protection or preservation of, or realization upon, the collateral
securing all or any part of such indebtedness, obligations and liabilities, including without limitation all Attorney Costs, and
(vii) all renewals, extensions, modifications, restructurings, and rearrangements of the indebtedness, obligations and liabilities
described in this definition of “Indebtedness.”

 

(f)          “Margin
Stock” means margin stock as defined in Section 221.3(v) of Regulation U, promulgated by the Board of Governors of the
Federal Reserve System, 12 C.F.R. part 221, as amended.

 

All words and phrases used
herein which are expressly defined in Section 1.201, Chapter 8 or Chapter 9 of the Code shall have the meaning provided for therein.
Other words and phrases defined elsewhere in the Code shall have the meaning specified therein except to the extent such meaning
is inconsistent with a definition in Section 1.201, Chapter 8 or Chapter 9 of the Code. Capitalized terms not otherwise defined
herein have the meaning specified in the Credit Agreement.

 

2.          Security
Interest. As security for the Indebtedness, Grantor, for value received, hereby grants to Secured Party, for it and the
benefit of holders of Indebtedness, a continuing security interest in the Collateral.

 

3.          Additional
Property. Collateral shall also include the following property (collectively, the “Additional Property”)
which Grantor becomes entitled to receive or shall receive in connection with any other Collateral: (a) any stock certificate,
including without limitation, any certificate representing a stock dividend or any certificate in connection with any recapitalization,
reclassification, merger, consolidation, conversion, sale of assets, combination of shares, stock split or spin-off; (b) any option,
warrant, subscription or right, whether as an addition to or in substitution of any other Collateral; (c) any dividends or distributions
of any kind whatsoever, whether distributable in cash, stock or other property; (d) any interest, premium or principal payments;
and (e) any conversion or redemption proceeds; provided, however, that if an Event of Default does not exist or
result therefrom and subject to the terms of the Credit Agreement, Grantor shall be entitled to all cash dividends (other than
dividends representing a return of capital or a liquidating dividend) and all interest paid on the Collateral (except interest
paid on any certificate of deposit pledged hereunder) free of the security interest created under this Agreement. All Additional
Property received by Grantor shall be received in trust for the benefit of Secured Party. All Additional Property and all certificates
or other written instruments or documents evidencing and/or representing the Additional Property that is received by Grantor,
together with such instruments of transfer as Secured Party may request, shall immediately be delivered to or deposited with Secured
Party and held by Secured Party as Collateral under the terms of this Agreement. If the Additional Property received by Grantor
shall be shares of stock, other securities or other Equity Interests, such shares of stock, other securities and other Equity
Interests shall be duly endorsed in blank or accompanied by proper instruments of transfer and assignment duly executed in blank
with, if requested by Secured Party, signatures guaranteed by a bank or member firm of the New York Stock Exchange, all in form
and substance satisfactory to Secured Party. Secured Party shall be deemed to have possession of any Collateral in transit to
Secured Party or its agent.

 

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4.          Voting
Rights. As long as no Event of Default exists, any voting rights incident to any stock, other securities or other Equity
Interests pledged as Collateral may be exercised by Grantor; provided, however, that Grantor will not exercise, or cause to be
exercised, any such voting rights, without the prior written consent of Secured Party, if the direct or indirect effect of such
vote will result in an Event of Default hereunder.

 

5.          Maintenance
of Collateral. Other than the exercise of reasonable care to assure the safe custody of any Collateral in Secured
Party’s possession from time to time, Secured Party does not have any obligation, duty or responsibility with respect
to the Collateral. Without limiting the generality of the foregoing, Secured Party shall not have any obligation, duty or
responsibility to do any of the following: (a) ascertain any maturities, calls, conversions, exchanges, offers, tenders or
similar matters relating to the Collateral or informing Grantor with respect to any such matters; (b) fix, preserve or
exercise any right, privilege or option (whether conversion, redemption or otherwise) with respect to the Collateral unless
(i) Grantor makes written demand to Secured Party to do so, (ii) such written demand is received by Secured Party in
sufficient time to permit Secured Party to take the action demanded in the ordinary course of its business, and (iii) Grantor
provides additional collateral, acceptable to Secured Party in its sole discretion; (c) collect any amounts payable in
respect of the Collateral (Secured Party being liable to account to Grantor only for what Secured Party may actually receive
or collect thereon); (d) sell all or any portion of the Collateral to avoid market loss; (e) sell all or any portion of the
Collateral unless and until (i) Grantor makes written demand upon Secured Party to sell the Collateral, and (ii) Grantor
provides additional collateral, acceptable to Secured Party in its sole discretion; or (f) hold the Collateral for or on
behalf of any party other than Grantor.

 

6.          Representations
and Warranties. Grantor hereby represents and warrants the following to Secured Party:

 

(a)          Authority.
The execution, delivery and performance of this Agreement and all of the other Loan Documents by Grantor have been duly authorized
by all necessary corporate action of Grantor.

 

(b)          Accuracy
of Information. All information heretofore, herein or hereafter supplied to Secured Party by or on behalf of Grantor with
respect to the Collateral is true and correct. The exact legal name of Grantor is correctly shown above.

 

(c)          Enforceability.
This Agreement and the other Loan Documents constitute legal, valid and binding obligations of Grantor, enforceable in accordance
with their respective terms, except as limited as to enforcement of remedies by Debtor Relief Laws and except to the extent specific
remedies may generally be limited by equitable principles.

 

(d)          Ownership
and Liens. Grantor has good and marketable title to the Collateral free and clear of all Liens or adverse claims, except for
the security interest created by this Agreement. No dispute, right of setoff, counterclaim or defense exists with respect to all
or any part of the Collateral. Grantor has not executed any other security agreement currently affecting the Collateral and no
financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording
office except as may have been executed or filed in favor of Secured Party.

 

    	3

    	 

    

  

(e)          No
Conflicts or Consents. Neither the ownership, the intended use of the Collateral by Grantor, the grant of the security interest
by Grantor to Secured Party herein nor the exercise by Secured Party of its rights or remedies hereunder, will (i) conflict with
any provision of (A) any Law, (B) the articles or certificate of incorporation, certificate of organization, charter, bylaws,
partnership agreement or trust agreement, as the case may be, of Grantor or any issuer of any Collateral, or (C) any agreement,
judgment, license, order or permit applicable to or binding upon Grantor or otherwise affecting the Collateral, or (ii) result
in or require the creation of any Lien upon any assets or properties of Grantor or of any Person except as may be expressly contemplated
in the Loan Documents. Except as expressly contemplated in the Loan Documents, no consent, approval, authorization or order of,
and no notice to or filing with, any Governmental Authority or other Person is required in connection with the grant by Grantor
of the security interest herein or the exercise by Secured Party of its rights and remedies hereunder.

 

(f)          Security
Interest. Grantor has and will have at all times full right, power and authority to grant a security interest in the Collateral
to Secured Party in the manner provided herein, free and clear of any Lien. This Agreement creates a legal, valid and binding
security interest in favor of Secured Party in the Collateral. Upon the filing of a financing statement describing the Collateral
with the Uniform Commercial Code central filing office of the jurisdiction of Grantor’s location and delivery to Secured
Party of all certificates evidencing Collateral, the security interest granted by this Agreement shall be perfected and prior
to all other Liens.

 

(g)          Location/Identity.
Grantor’s place of business and chief executive office (as those terms are used in the Code), is located at the address
set forth herein. Except as specified elsewhere herein, all Collateral and records concerning the Collateral shall be kept at
such address. Grantor’s exact legal name, as stated in the currently effective articles or certificate of incorporation
of Grantor as filed with the appropriate authority of Grantor’s jurisdiction of organization, entity type, state of organization,
and federal taxpayer identification number (the “Organizational Information”) are as set forth in the definition
of “Grantor”. Grantor is not organized in more than one jurisdiction. Except as specified herein, the Organizational
Information shall not change. During the five years preceding the date of this Agreement, Grantor has not had or operated under
any name other than its name as stated in the definition of “Grantor,” has not been organized under the Laws of any
jurisdiction other than Nevada, has not been organized as any type of entity other than a corporation and the chief executive
office of Grantor has not been located at any address other than as set forth on the first page hereof.

 

(h)          Solvency
of Grantor. As of the date hereof, and after giving effect to this Agreement and the completion of all other transactions
contemplated by Grantor at the time of the execution of this Agreement, Grantor is and will be Solvent. Grantor is not entering
into this Agreement or any other Loan Document to which Grantor is a party or its property is subject with the intent of hindering,
delaying or defrauding any creditor.

 

(i)          Securities.
Any certificates evidencing securities or other Equity Interests pledged as Collateral are valid and genuine and have not been
altered. All securities or other Equity Interests pledged as Collateral have been duly authorized and validly issued, are fully
paid and non- assessable, and were not issued in violation of the preemptive rights of any party or of any agreement by which
Grantor or the issuer thereof is bound. No restrictions or conditions exist with respect to the transfer or voting of any securities
or other Equity Interests pledged as Collateral or the admission of Secured Party or any transferee as a holder of any Collateral,
other than federal and state securities Laws applicable to issuers of securities generally; provided, Secured Party may
be required to obtain the consent of the applicable Insurance Regulator prior to the foreclosure upon any Equity Interest in or
exercise of Control over any Equity Interest in or exercise of Control over any RIC. No issuer of such securities or other
Equity Interests has any outstanding stock rights, rights to subscribe, options, warrants or convertible securities or other Equity
Interests outstanding or any other rights outstanding entitling any Person other than Grantor to have issued to such Person capital
stock, other securities or other Equity Interests of such issuer. Schedule A contains a complete and correct description
of each certificate or other instrument included in or evidencing Collateral. Schedule B is a complete and correct list
of the exact name of the issuer of all Collateral described on Schedule A, its jurisdiction of organization, its federal
taxpayer identification number, and the authorized, issued and outstanding capital stock and other Equity Interests of such issuer.
Grantor’s interest in such issuer is as stated on Schedule A.

 

    	4

    	 

    

  

(j)          Margin
Regulations; Investment Company Act; Public Utility Holding Company Act.

 

(i)          Grantor
is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying
Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock.

 

(ii)         None
of Grantor, any Person controlling Grantor, or any subsidiary (A) is a “holding company,” or a “subsidiary company”
of a “holding company,” or an “affiliate” of a “holding company” or of a “subsidiary
company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of 2005, or (B)
is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

 

(k)          Patriot
Act. All capitalized words and phrases and all defined terms used in the USA Patriot Act of 2001, 107 Public Law 56 (October
26, 2001) (the “Patriot Act”) and in other statutes and all orders, rules and regulations of the United
States government and its various executive department, agencies and offices related to the subject matter of the Patriot Act,
including, but not limited to, Executive Order 13224 effective September 24, 2001, are hereinafter collectively referred to as
the “Patriot Rules” and are incorporated into this Agreement. Neither Grantor nor any Subsidiary is a Person named
as a Specially Designated National and Blocked Person (as defined in Presidential Executive Order 13224) and neither Grantor nor
any Subsidiary is acting, directly or indirectly, for or on behalf of any such Person. Grantor and Subsidiaries are not, directly
or indirectly, engaged in, nor facilitating, the transactions contemplated by this Agreement on behalf of any Person named as
a Specially Designated National and Blocked Person. To Grantor’s best knowledge, none of Grantor’s principals, shareholders
or affiliates (other than Subsidiaries) is a Person named as a Specially Designated National and Blocked Person (as defined in
Presidential Executive Order 13224) and none of them is acting, directly or indirectly, for or on behalf of any such Person or
directly or indirectly, engaged in, nor facilitating, the transactions contemplated by this Agreement on behalf of any Person
named as a Specially Designated National and Blocked Person. Grantor hereby agrees to defend, indemnify and hold harmless Secured
Party from and against any and all claims, damages, losses, risks, liabilities, and expenses (including Attorney Costs) arising
from or related to any breach of the foregoing representations and warranties.

 

7.          Affirmative
Covenants. Grantor will comply with the covenants contained in this Section at all times during the period of time this
Agreement is effective unless Secured Party shall otherwise consent in writing.

 

(a)          Ownership
and Liens. Grantor will maintain good and marketable title to all Collateral free and clear of all Liens or adverse claims,
except for the security interest created by this Agreement and the security interests and other encumbrances expressly permitted
by the other Loan Documents. Grantor will not permit any dispute, right of setoff, counterclaim or defense to exist with respect
to all or any part of the Collateral. Grantor will cause any financing statement or other security instrument with respect to
the Collateral to be terminated, except as may exist or as may have been filed in favor of Secured Party. Grantor hereby irrevocably
appoints Secured Party as Grantor’s attorney-in-fact, such power of attorney being coupled with an interest, with full authority
in the place and stead of Grantor and in the name of Grantor or otherwise, for the purpose of terminating any financing statements
currently filed with respect to the Collateral. Grantor will defend at its expense Secured Party’s right, title and security
interest in and to the Collateral against the claims of any third party.

 

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(b)          Inspection
of Books and Records. Grantor will keep adequate records concerning the Collateral and will permit Secured Party and all representatives
and agents appointed by Secured Party to inspect Grantor’s books and records of or relating to the Collateral at any time
during normal business hours, to make and take away photocopies, photographs and printouts thereof and to write down and record
any such information.

 

(c)          Adverse
Claim. Grantor covenants and agrees to promptly notify Secured Party of any claim, action or proceeding affecting title to
the Collateral, or any part thereof, or the security interest created hereunder and, at Grantor’s expense, defend Secured
Party’s security interest in the Collateral against the claims of any third party. Grantor also covenants and agrees to promptly
deliver to Secured Party a copy of all written notices received by Grantor with respect to the Collateral, including without limitation,
notices received from the issuer of any securities or other Equity Interests pledged hereunder as Collateral.

 

(d)          Further
Assurances. Grantor will contemporaneously with the execution hereof and from time to time thereafter at its expense promptly
execute and deliver all further instruments and documents and take all further action necessary or appropriate or that Secured
Party may request in order (i) to perfect and protect the security interest created or purported to be created hereby and the
first priority of such security interest, (ii) to enable Secured Party to exercise and enforce its rights and remedies hereunder
in respect of the Collateral, and (iii) to otherwise effect the purposes of this Agreement, including without limitation: (A)
executing (if requested) and filing any financing or continuation statements, or any amendments thereto; (B) obtaining written
confirmation from the issuer of any securities or other Equity Interests or other property pledged as Collateral of the pledge
of such securities, other Equity Interests or other property, in form and substance satisfactory to Secured Party; (C) cooperating
with Secured Party in registering the pledge of any securities or other Equity Interests or other property pledged as Collateral
with the issuer of such securities, other Equity Interests or other property; (D) delivering notice of Secured Party’s security
interest in any securities or other Equity Interests or other property pledged as Collateral to any financial intermediary, clearing
corporation or other party required by Secured Party, in form and substance satisfactory to Secured Party; and (E) obtaining written
confirmation of the pledge of any securities or other Equity Interests or other property constituting Collateral from any financial
intermediary, clearing corporation or other party required by Secured Party, in form and substance satisfactory to Secured Party.
If all or any part of the Collateral is securities issued by an agency or department of the United States, Grantor covenants and
agrees, at Secured Party’s request, to cooperate in registering such securities in Secured Party’s name or with Secured
Party’s account maintained with a Federal Reserve Bank.

 

(e)          Control
Agreements. Grantor will cooperate with Secured Party in obtaining a control agreement in form and substance satisfactory
to Secured Party with respect to Collateral for which such agreement is required for perfection of a security interest pursuant
to the Code (as determined by Secured Party in its sole discretion).

 

8.          Negative
Covenants. Grantor will comply with the covenants contained in this Section at all times during the period of time
this Agreement is effective, unless Secured Party shall otherwise consent in writing.

 

(a)          Transfer
or Encumbrance. Grantor will not (i) sell, assign (by operation of law or otherwise) or transfer Grantor’s rights in
any of the Collateral, (ii) grant or permit to exist a Lien in or execute, authorize, file or record any financing statement or
other security instrument with respect to the Collateral to any party other than Secured Party, or (iii) deliver actual or constructive
possession of any certificate, instrument or document evidencing and/or representing any of the Collateral to any party other
than Secured Party.

 

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(b)          Impairment
of Security Interest. Grantor will not take or fail to take any action which would in any manner impair the value or enforceability
of Secured Party’s security interest in any Collateral.

 

(c)          Dilution
of Ownership. As to any securities or other Equity Interests pledged as Collateral (other than securities of a class which
are publicly traded), Grantor will not consent to or approve of the issuance of (i) any additional shares of any class of securities
or other Equity Interests of such issuer (unless immediately upon issuance additional securities or other Equity Interests are
pledged and delivered to Secured Party pursuant to the terms hereof to the extent necessary to give Secured Party a security interest
after such issuance in at least the same percentage of such issuer’s outstanding securities or other Equity Interests as
Secured Party had before such issuance), (ii) any instrument convertible voluntarily by the holder thereof or automatically upon
the occurrence or non-occurrence of any event or condition into, or exchangeable for, any such securities or other Equity Interests,
or (iii) any warrants, options, contracts or other commitments entitling any third party to purchase or otherwise acquire any such
securities or other Equity Interests.

 

(d)          Restrictions
on Securities. Grantor will not enter into any agreement creating, or otherwise permit to exist, any restriction or condition
upon the transfer, voting or control of any securities or other Equity Interests pledged as Collateral, except as consented to
in writing by Secured Party. No issuer of any Collateral which is either a partnership or limited liability company shall amend
or restate its certificate of limited partnership, partnership agreement, certificate of organization, limited liability company
agreement or operating agreement, respectively or other governance document, to provide that any Equity Interest of such issuer
is a security governed by Article 8 of the Code or permit any Equity Interest of such issuer to be evidenced by a certificate
or other instrument.

 

(e)          Organizational
Information. Except as permitted by the Credit Agreement and this Agreement, Grantor shall not permit any Organizational Information
to change.

 

9.          Rights
of Secured Party. Secured Party shall have the rights contained in this Section at all times during the period of
time this Agreement is effective.

 

(a)          Power
of Attorney. Grantor hereby irrevocably appoints Secured Party as Grantor’s attorney-in-fact, such power of attorney
being coupled with an interest, with full authority in the place and stead of Grantor and in the name of Grantor or otherwise,
to take any action and to execute any instrument which Secured Party may from time to time in Secured Party’s discretion
deem necessary or appropriate to accomplish the purposes of this Agreement, including without limitation, the following action:
(i) transfer any securities or other Equity Interests, instruments, documents or certificates pledged as Collateral in the name
of Secured Party or its nominee; (ii) use any interest, premium or principal payments, conversion or redemption proceeds or other
cash proceeds received in connection with any Collateral to reduce any of the Indebtedness; (iii) exchange any of the securities
or other Equity Interests pledged as Collateral for any other property upon any merger, consolidation, reorganization, recapitalization
or other readjustment of the issuer thereof, and, in connection therewith, to deposit and deliver any and all of such securities
or other Equity Interests with any committee, depository, transfer agent, registrar or other designated agent upon such terms
and conditions as Secured Party may deem necessary or appropriate; (iv) exercise or comply with any conversion, exchange, redemption,
subscription or any other right, privilege or option pertaining to any securities or other Equity Interest pledged as Collateral;
provided, however, except as provided herein, Secured Party shall not have a duty to exercise or comply with any
such right, privilege or option (whether conversion, redemption or otherwise) and shall not be responsible for any delay or failure
to do so; and (v) file any claims or take any action or institute any proceedings which Secured Party may deem necessary or appropriate
for the collection and/or preservation of the Collateral or otherwise to enforce the rights of Secured Party with respect to the
Collateral. THE PROXY AND EACH POWER OF ATTORNEY HEREIN GRANTED, AND EACH STOCK POWER AND SIMILAR POWER NOW OR HEREAFTER
GRANTED (INCLUDING ANY EVIDENCED BY A SEPARATE WRITING), ARE COUPLED WITH AN INTEREST AND ARE IRREVOCABLE PRIOR TO FINAL INDEFEASIBLE
PAYMENT IN FULL OF THE INDEBTEDNESS AND THE TERMINATION OF ALL COMMITMENTS OF SECURED PARTY TO EXTEND CREDIT PURSUANT TO THE LOAN
DOCUMENTS.

 

    	7

    	 

    

  

(b)          Performance
by Secured Party. If Grantor fails to perform any agreement or obligation provided herein, Secured Party may itself perform,
or cause performance of, such agreement or obligation, and the expenses of Secured Party incurred in connection therewith shall
be a part of the Indebtedness, secured by the Collateral and payable by Grantor on demand.

 

Notwithstanding any other
provision herein to the contrary, Secured Party does not have any duty to exercise or continue to exercise any of the foregoing
rights and shall not be responsible for any failure to do so or for any delay in doing so.

 

10.         Events
of Default. Each of the following constitutes an “Event of Default” under this Agreement:

 

(a)          Default
Under Loan Documents. The existence of an Event of Default (as defined in the Credit Agreement) under this Agreement or any
of the other Loan Documents; or

 

(b)          False
Representation. Any representation contained herein is false or misleading in any material respect on or as of the date made;
or

 

(c)          Execution
on Collateral. The Collateral or any portion thereof is taken on execution or other process of law in any action against Grantor
or any attachment, sequestration or similar writ is levied upon any Collateral; or

 

(d)          Abandonment.
Grantor abandons the Collateral or any portion thereof; or

 

(e)          Action
by Other Lienholder. The holder of any Lien on any of the assets of Grantor, including without limitation, the Collateral
(without hereby implying the consent of Secured Party to the existence or creation of any such Lien on the Collateral), declares
a default thereunder or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder; or

 

(f)          Dilution
of Ownership. The issuer of any securities or other Equity Interests constituting Collateral hereafter issues any shares of
any class of capital stock or other Equity Interests (unless promptly upon issuance, additional securities or other Equity Interests
are pledged and delivered to Secured Party pursuant to the terms hereof to the extent necessary to give Secured Party a security
interest after such issuance in at least the same percentage of such issuer’s outstanding securities or other Equity Interests
as Secured Party had before such issuance) or any options, warrants or other rights to purchase any such capital stock or other
Equity Interests;

 

(g)          Bankruptcy
of Issuer. (i) The issuer of any securities or other Equity Interest constituting Collateral files a petition for relief under
any Debtor Relief Law, (ii) an involuntary petition for relief is filed against any such issuer under any Debtor Relief Law, (iii)
an order for relief naming any such issuer is entered under any Debtor Relief Law, or (iv) any Governmental Authority shall issue
any order of conservation, supervision or any other order of like effect relating to any such issuer, or

 

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(h)          Search
Report; Opinion. Secured Party shall receive at any time following the execution of this Agreement a search report or opinion
of counsel indicating that Secured Party’s security interest is not prior to all other Liens, security interests or other
interests reflected in the report or opinion.

 

11.         Remedies
and Related Rights. If an Event of Default exists, and without limiting any other rights and remedies provided herein,
under any of the other Loan Documents or otherwise available to Secured Party, Secured Party may exercise one or more of the rights
and remedies provided in this Section.

 

(a)          Remedies.
Secured Party may from time to time at its discretion, without limitation and without notice (except as expressly provided in any
Loan Document):

 

(i)          exercise
in respect of the Collateral all the rights and remedies of a secured party under the Code (whether or not the Code applies to
the affected Collateral);

 

(ii)         reduce
its claim to judgment or foreclose or otherwise enforce, in whole or in part, the security interest granted hereunder by any available
judicial procedure;

 

(iii)        sell
or otherwise dispose of, at its office, on the premises of Grantor or elsewhere, the Collateral, as a unit or in parcels, by public
or private proceedings, and by way of one or more contracts (it being agreed that the sale or other disposition of any part of
the Collateral shall not exhaust Secured Party’s power of sale, but sales or other dispositions may be made from time to
time until all of the Collateral has been sold or disposed of or until the Indebtedness has been paid and performed in full), and
at any such sale or other disposition it shall not be necessary to exhibit any of the Collateral;

 

(iv)         buy
the Collateral, or any portion thereof, at any public sale;

 

(v)          buy
the Collateral, or any portion thereof, at any private sale if the Collateral is of a type customarily sold in a recognized market
or is of a type which is the subject of widely distributed standard price quotations;

 

(vi)         apply
for the appointment of a receiver for the Collateral, and Grantor hereby consents to any such appointment; and

 

(vii)        at
its option, retain the Collateral in satisfaction of the Indebtedness whenever the circumstances are such that Secured Party is
entitled to do so under the Code or otherwise, to the full extent permitted by the Code, Secured Party shall be permitted to elect
whether such retention shall be in full or partial satisfaction of the Indebtedness.

 

In the event Secured Party
shall elect to sell the Collateral, Secured Party may sell the Collateral without giving any warranties as and shall be permitted
to specifically disclaim any warranties of title or the like. Further, if Secured Party sells any of the Collateral on credit,
Grantor will be credited only with payments actually made by the purchaser, received by Secured Party and applied to the Indebtedness.
In the event any purchaser fails to pay for the Collateral, Secured Party may resell the Collateral and Grantor shall be credited
with the proceeds of the sale actually received by Secured Party and applied to the Indebtedness. Grantor agrees that in the event
Grantor or any Obligor is entitled to receive any notice under the Code, as it exists in the state governing any such notice, of
the sale or other disposition of any Collateral, reasonable notice shall be deemed given when such notice is deposited in a depository
receptacle under the care and custody of the United States Postal Service, postage prepaid, at such party’s address set forth
on the first page hereof, ten (10) days prior to the date of any public sale, or after which a private sale, of any of such Collateral
is to be held. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given.
Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it was so adjourned. Grantor further acknowledges
and agrees that the redemption by Secured Party of any certificate of deposit pledged as Collateral shall be deemed to be a commercially
reasonable disposition under Section 9.610 of the Code.

 

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(b)          Private
Sale of Securities; Further Approvals.

 

(i)          Grantor
recognizes that Secured Party may be unable to effect a public sale of all or any part of the securities or other Equity Interests
pledged as Collateral because of restrictions in applicable securities Laws, insurance Laws and contractual restrictions
and that Secured Party may, therefore, determine to make one or more private sales of any such securities or other Equity Interests
to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such securities or other Equity
Interests for their own account, for investment and not with a view to the distribution or resale thereof. Grantor acknowledges
that each such private sale may be at prices and other terms less favorable than what might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that each such private sale shall be deemed to have been made in a commercially reasonable
manner and that Secured Party shall have no obligation to delay the sale of any such securities or other Equity Interests for the
period of time necessary to permit the issuer to register such securities or other Equity Interests for public sale under any securities
Laws. Grantor further acknowledges and agrees that any offer to sell such securities or other Equity Interests which has been made
privately in the manner described above to not less than five (5) bona fide offerees shall be deemed to involve a “public
sale” for the purposes of Chapter 9 of the Code, notwithstanding that such sale may not constitute a “public offering”
under any securities Laws and that Secured Party may, in such event, bid for the purchase of such securities or other Equity Interests.

 

(ii)         In
connection with the exercise by Secured Party of its rights hereunder that effects the disposition of or use of any Collateral,
it may be necessary to obtain the prior consent or approval of Governmental Authorities and other Persons to a transfer or assignment
of Collateral, including, without limitation, any Governmental Authorities regulating insurance companies and their Affiliates,
any issuer of Collateral or Grantor and their respective Affiliates. Grantor agrees, if an Event of Default exists, to execute,
deliver, and file, and hereby appoints Secured Party as its attorney-in-fact, to execute, deliver, and file on Grantor’s
behalf and in Grantor’s name, all applications, certificates, filings, instruments, and other documents (including without
limitation any application for an assignment or transfer of control or ownership) that may be necessary or appropriate, in Secured
Party’s opinion, and to obtain such consents, waivers, or approvals under applicable Laws and agreements prior to an Event
of Default. Grantor further agrees to use its best efforts to obtain the foregoing consents, waivers, and approvals, including
receipt of consents, waivers, and approvals under applicable Laws and agreements prior to an Event of Default. Grantor acknowledges
that there is no adequate remedy at law for failure by it to comply with the provisions of this Section and that such failure
would not be adequately compensable in damages, and therefore agrees that this Section may be specifically enforced.

 

(c)          Application
of Proceeds. If any Event of Default exists, Secured Party shall apply or use any cash held by Secured Party as Collateral,
and any cash proceeds received by Secured Party in respect of any sale or other disposition of, collection from, or other realization
upon, all or any part of the Collateral as follows:

 

(i)          to
the repayment or reimbursement of the costs and expenses (including, without limitation, Attorney Costs) incurred by Secured Party
in connection with (A) the administration of the Loan Documents, (B) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, the Collateral, and (C) the exercise or enforcement of any of the rights and remedies
of Secured Party hereunder;

 

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(ii)         in
accordance with Credit Agreement Section 9.3;

 

(iii)        to
the payment of any other amounts required by applicable Law (including without limitation, Section 9.615(a)(3) of the Code or any
other applicable statutory provision); and

 

(iv)         by
delivery to Grantor or any other party lawfully entitled to receive such cash or proceeds whether by direction of a court of competent
jurisdiction or otherwise.

 

(d)          Deficiency.
In the event that the proceeds of any sale of, collection from, or other realization upon, all or any part of the Collateral by
Secured Party are insufficient to pay all amounts to which Secured Party is legally entitled, Grantor and each other Obligor and
any Person who guaranteed or is otherwise obligated to pay all or any portion of the Indebtedness shall be liable for the deficiency,
together with interest thereon as provided in the Loan Documents, to the full extent not prohibited by the Code.

 

(e)          Non-Judicial
Remedies. In granting to Secured Party the power to enforce its rights hereunder without prior judicial process or judicial
hearing, Grantor expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Secured Party
to enforce its rights by judicial process. Grantor recognizes and concedes that non-judicial remedies are consistent with the usage
of trade, are responsive to commercial necessity and are the result of a bargain at arm’s length. Nothing herein is intended
to prevent Secured Party or Grantor from resorting to judicial process at either party’s option.

 

(f)          Other
Recourse. Grantor waives any right to require Secured Party to proceed against any third party, exhaust any Collateral or
other security for the Indebtedness, or to have any third party joined with Grantor in any suit arising out of the Indebtedness
or any of the Loan Documents, or pursue any other remedy available to Secured Party. Grantor further waives any and all notice
of acceptance of this Agreement and of the creation, modification, rearrangement, renewal or extension of the Indebtedness. Grantor
further waives any defense arising by reason of any disability or other defense of any third party or by reason of the cessation
from any cause whatsoever of the liability of any third party. Until all of the Indebtedness shall have been paid in full in cash
and all obligations of Secured Party to extend credit to or for the benefit of any Obligor pursuant to the Loan Documents are
terminated, Grantor shall have no right of subrogation and Grantor waives the right to enforce any remedy which Secured Party
has or may hereafter have against any third party, and waives any benefit of and any right to participate in any other security
whatsoever now or hereafter held by Secured Party. Grantor authorizes Secured Party, and without notice or demand and without
any reservation of rights against Grantor and without affecting Grantor’s liability hereunder or on the Indebtedness, to
(i) take or hold any other property of any type from any third party as security for the Indebtedness, and exchange, enforce,
waive and release any or all of such other property, (ii) apply such other property and direct the order or manner of sale thereof
as Secured Party may in its discretion determine, (iii) renew, extend, accelerate, modify, compromise, settle or release any of
the Indebtedness or other security for the Indebtedness, (iv) waive, enforce or modify any of the provisions of any of the Loan
Documents executed by any third party, and (v) release or substitute any third party.

 

(g)          Voting
Rights. If an Event of Default exists, Grantor will not exercise any voting rights with respect to securities or other Equity
Interests pledged as Collateral. Grantor hereby irrevocably appoints Secured Party as Grantor’s attorney-in-fact (such power
of attorney being coupled with an interest and exercisable if an Event of Default exists) and proxy to exercise any voting rights
with respect to Grantor’s securities and other Equity Interests pledged as Collateral.

 

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(h)          Dividend
Rights and Interest Payments. If an Event of Default exists:

 

(i)          all
rights of Grantor to receive and retain the dividends and interest payments which it would otherwise be authorized to receive and
retain pursuant to Section 3 shall automatically cease, and all such rights shall thereupon become vested with Secured Party
which shall thereafter have the sole right to receive, hold and apply as Collateral such dividends and interest payments; and

 

(ii)         all
dividend and interest payments which are received by Grantor contrary to the provisions of clause (i) of this Section
shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Grantor, and shall
be forthwith paid over to Secured Party in the exact form received (properly endorsed or assigned if requested by Secured
Party), to be held by Secured Party as Collateral.

 

12.         INDEMNITY.
GRANTOR HEREBY INDEMNIFIES AND AGREES TO HOLD HARMLESS SECURED PARTY, AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND REPRESENTATIVES
(EACH AN “INDEMNIFIED PERSON”) FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE (COLLECTIVELY, THE “CLAIMS”)
WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST, ANY INDEMNIFIED PERSON ARISING IN CONNECTION WITH THE LOAN DOCUMENTS,
THE INDEBTEDNESS OR THE COLLATERAL (INCLUDING WITHOUT LIMITATION, THE ENFORCEMENT OF THE LOAN DOCUMENTS AND THE DEFENSE OF ANY
INDEMNIFIED PERSON’S ACTIONS AND/OR INACTIONS IN CONNECTION WITH THE LOAN DOCUMENTS), OTHER THAN ANY CLAIMS ARISING AS A
RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY INDEMNIFIED PERSON, AS FINALLY DETERMINED BY A COURT OF COMPETENT
JURISDICTION. THE INDEMNIFICATION PROVIDED FOR IN THIS SECTION SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT AND SHALL
EXTEND AND CONTINUE TO BENEFIT EACH INDIVIDUAL OR ENTITY WHO IS OR HAS AT ANY TIME BEEN AN INDEMNIFIED PERSON HEREUNDER.

 

13.         Miscellaneous.

 

(a)          Entire
Agreement. This Agreement and the other Loan Documents contain the entire agreement of Secured Party and Grantor with respect
to the Collateral. If the parties hereto are parties to any prior agreement, either written or oral, relating to the Collateral,
the terms of this Agreement shall amend and supersede the terms of such prior agreements as to transactions on or after the effective
date of this Agreement, but all security agreements, financing statements, guaranties, other contracts and notices for the benefit
of Secured Party shall continue in full force and effect to secure the Indebtedness unless Secured Party specifically releases
its rights thereunder by separate release.

 

(b)          Amendment.
No modification, consent or amendment of any provision of this Agreement or any of the other Loan Documents shall be valid or
effective unless the same is in writing and authenticated by the party against whom it is sought to be enforced, except to the
extent of amendments specifically permitted by the Code without authentication by the Grantor or any other Obligor.

 

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(c)          Actions
by Secured Party. The Lien and other rights of Secured Party hereunder shall not be impaired by (i) any renewal,
extension, increase or modification with respect to the Indebtedness, (ii) any surrender, compromise, release, renewal,
extension, exchange or substitution which Secured Party may grant with respect to the Collateral, or (iii) any release or
indulgence granted to any endorser, guarantor or surety of the Indebtedness. The taking of additional security by Secured
Party shall not release or impair the Lien or other rights of Secured Party hereunder or affect the obligations of Grantor
hereunder.

 

(d)          Waiver
by Secured Party.  Secured Party may waive any Event of Default without waiving any other prior or subsequent Event
of Default. Secured Party may remedy any default without waiving the Event of Default remedied. Neither the failure by Secured
Party to exercise, nor the delay by Secured Party in exercising, any right or remedy upon any Event of Default shall be construed
as a waiver of such Event of Default or as a waiver of the right to exercise any such right or remedy at a later date. No single
or partial exercise by Secured Party of any right or remedy hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right or remedy hereunder may be exercised at any time. No waiver of any provision hereof or consent
to any departure by Grantor therefrom shall be effective unless the same shall be in writing and signed by Secured Party and then
such waiver or consent shall be effective only in the specific instances, for the purpose for which given and to the extent therein
specified. No notice to or demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand
in similar or other circumstances.

 

(e)          Transfer
Restriction Waiver.  To the extent not prohibited by Applicable Law, Grantor hereby agrees that any provision of
any of the certificate or articles of incorporation, certificate of formation or organization, or certificate of limited partnership
of any issuer of Collateral, the bylaws, limited liability company agreement or partnership agreement of such issuer, any
designation of rights or similar agreement with respect to any Equity Interest of such issuer, any voting or similar equityholder
agreement with respect to such issuer or any other organization or governance document with respect to such issuer, any agreement
related to any debt issued by such issuer, or any Applicable Law that in any manner restricts, prohibits or provides conditions
to (i) the grant of a Lien on any security, Equity Interest of or any interest in, or any debt issued by, such issuer, (ii) any
transfer of any security, Equity Interest of or any interest in, or any debt issued by, such issuer, (iii) any change in management
or control of such issuer, or (iv) any other exercise of any rights of Secured Party pursuant to this Agreement, any other Loan
Document or Law shall not apply to (A) the grant of any Lien hereunder, (B) the execution, delivery and performance of this Agreement
by Grantor, (C) the foreclosure or other realization upon any interest in any Collateral, (D) the admission of Secured Party or
its assignee or any other holder of any Collateral as an equityholder of such issuer and the exercise of all rights of an equityholder
of such issuer, or (E) the exercise of all rights of a holder of debt of such issuer. Furthermore, Grantor agrees that it will
not permit any amendment to or restatement of any of the certificate or articles of incorporation, certificate of formation or
organization, or certificate of limited partnership of any issuer of Collateral, the bylaws, limited liability company agreement
or partnership agreement of such issuer, any designation of rights or similar agreement with respect to any Equity Interest of
such issuer, any voting or similar equityholder agreement with respect to such issuer, any other organization or governance document
with respect to such issuer, or any agreement related to debt of such issuer, in any manner to adversely affect Secured Party’s
ability to foreclose or otherwise realize on any Collateral or which conflicts with the provisions of this Section without
the prior written consent of Secured Party.

 

(f)          Costs
and Expenses.  Grantor will upon demand pay to Secured Party the amount of any and all costs and expenses (including
without limitation, Attorney Costs), which Secured Party may incur in connection with (i) the transactions which give rise to the
Loan Documents, (ii) the preparation of this Agreement and the perfection and preservation of the security interests granted under
the Loan Documents, (iii) the administration of the Loan Documents, (iv) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, the Collateral, (v) the exercise or enforcement of any of the rights of Secured
Party under the Loan Documents, or (vi) the failure by Grantor to perform or observe any of the provisions hereof.

 

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(g)          Controlling
Law; Venue.  This Agreement is executed and delivered as an incident to a lending transaction negotiated and consummated
in Bexar County, Texas, and shall be governed by and construed in accordance with the Laws of the State of Texas, except to the
extent that perfection and the effect of perfection or non-perfection of the security interest granted hereunder, in respect of
any particular item of Collateral, are governed by the Laws of a jurisdiction other than the State of Texas. Grantor, for itself
and its successors and assigns, hereby irrevocably (i) submits to the nonexclusive jurisdiction of the state and federal courts
in Texas, (ii) waives, to the fullest extent not prohibited by Law, any objection that it may now or in the future have to the
laying of venue of any litigation arising out of or in connection with any Loan Document brought in the District Court of Bexar
County, Texas, or in the United States District Court for the Western District of Texas, San Antonio, Division, (iii) waives any
objection it may now or hereafter have as to the venue of any such action or proceeding brought in such court or that such court
is an inconvenient forum, (iv) agrees that any legal proceeding against any party to any Loan Document arising out of or in connection
with any of the Loan Documents may be brought in one of the foregoing courts, and (v) agrees that service of process upon it may
be made by certified or registered mail, return receipt requested, at its address specified herein. Nothing herein shall affect
the right of Secured Party to serve process in any other manner permitted by Law or shall limit the right of Secured Party to bring
any action or proceeding against Grantor or with respect to any of Grantor’s property in courts in other jurisdictions. The
scope of each of the foregoing waivers is intended to be all encompassing of any and all disputes that may be filed in any court
and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach
of duty claims, and all other common law and statutory claims. Grantor acknowledges that these waivers are a material inducement
to Secured Party’s agreement to enter into agreements and obligations evidenced by the Loan Documents, and that Secured Party
has already relied on these waivers and will continue to rely on each of these waivers in related future dealings. The waivers
in this Section are irrevocable, meaning that they may not be modified either orally or in writing, and these waivers apply
to any future renewals, extensions, amendments, modifications, or replacements in respect of the applicable Loan Document. In connection
with any litigation, this Agreement may be filed as a written consent to a trial by the court.

 

(h)          Severability.  If
any provision of this Agreement is held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present
or future Laws, such provision shall be fully severable, shall not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal, invalid or unenforceable.

 

(i)          No
Obligation.  Nothing contained herein shall be construed as an obligation on the part of Secured Party to extend
or continue to extend credit to or for the benefit of any Obligor.

 

(j)          Notices.  All
notices, requests, demands or other communications required or permitted to be given pursuant to this Agreement shall be in writing
and given by (i) personal delivery, (ii) expedited delivery service with proof of delivery, or (iii) United States mail, postage
prepaid, registered or certified mail, return receipt requested, sent to the intended addressee at the address set forth on the
first page hereof or to such different address as the addressee shall have designated by written notice sent pursuant to the terms
hereof and shall be deemed to have been received either, in the case of personal delivery, at the time of personal delivery, in
the case of expedited delivery service, as of the date of first attempted delivery at the address and in the manner provided herein,
or in the case of mail, upon deposit in a depository receptacle under the care and custody of the United States Postal Service.
Either party shall have the right to change its address for notice hereunder to any other location within the continental United
States by notice to the other party of such new address at least thirty (30) days prior to the effective date of such new address.

 

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(k)          Binding
Effect and Assignment.  This Agreement (i) creates a continuing security interest in the Collateral, (ii) shall be
binding on Grantor and the successors and assigns of Grantor, and (iii) shall inure to the benefit of Secured Party and its successors
and assigns. Without limiting the generality of the foregoing, Secured Party may pledge, assign or otherwise transfer the Indebtedness
and its rights under this Agreement and any of the other Loan Documents to any other party. Grantor’s rights and obligations
hereunder may not be assigned or otherwise transferred without the prior written consent of Secured Party.

 

(l)          Termination.  It
is contemplated by the parties hereto that from time to time there may be no outstanding Indebtedness, but notwithstanding such
occurrences, this Agreement shall remain valid and shall be in full force and effect as to subsequent outstanding Indebtedness.
Upon (i) the indefeasible satisfaction in full of the Indebtedness, (ii) the termination or expiration of each commitment of Secured
Party to extend credit to or for the benefit of each Obligor, (iii) written request for the termination hereof delivered by Grantor
to Secured Party, and (iv) written release delivered by Secured Party to Grantor, this Agreement and the security interests created
hereby shall terminate. Upon termination of this Agreement and Grantor’s written request, Secured Party will, at Grantor’s
sole cost and expense, return to Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied
pursuant to the terms hereof and execute and deliver to Grantor such documents as Grantor shall reasonably request to evidence
such termination. Grantor agrees that to the extent that Secured Party or other holder of Indebtedness receives any payment or
benefit and such payment or benefit, or any part thereof, is subsequently invalidated, declared to be fraudulent or preferential,
set aside or is required to be repaid to a trustee, receiver, or any other Person under any Debtor Relief Law, common law or equitable
cause, then to the extent of such payment or benefit, the Indebtedness or part thereof intended to be satisfied shall be revived
and continued in full force and effect as if such payment or benefit had not been made and, further, any such repayment by Secured
Party or other holder of Indebtedness, to the extent that Secured Party or other holder of Indebtedness did not directly receive
a corresponding cash payment, shall be added to and be additional Indebtedness payable upon demand by Secured Party or other holder
of Indebtedness and secured hereby, and, if the Lien and security interest, any power of attorney, proxy or license hereof shall
have been released, such Lien and security interest, power of attorney, proxy and license shall be reinstated with the same effect
and priority as on the date of execution hereof all as if no release of such Lien or security interest, power of attorney, proxy
or license had ever occurred. This Section 13(l) shall survive the termination of this Agreement, and any satisfaction and
discharge of Grantor or any other Obligor by virtue of any payment, court order, or Law.

 

(m)          Cumulative
Rights.  All rights and remedies of Secured Party hereunder are cumulative of each other and of every other right
or remedy which Secured Party may otherwise have at law or in equity or under any of the other Loan Documents, and the exercise
of one or more of such rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights
or remedies. Further, except as specifically noted as a waiver herein, no provision of this Agreement is intended by the parties
to this Agreement to waive any rights, benefits or protection afforded to Secured Party under the Code.

 

(n)          Gender
and Number.  Within this Agreement, words of any gender shall be held and construed to include the other gender,
and words in the singular number shall be held and construed to include the plural and words in the plural number shall be held
and construed to include the singular, unless in each instance the context requires otherwise.

 

(o)          Descriptive
Headings.  The headings in this Agreement are for convenience only and shall in no way enlarge, limit or define the
scope or meaning of the various and several provisions hereof.

 

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14.         Financing
Statement Filings.  Grantor recognizes that financing statements pertaining to the Collateral have been or may
be filed in one or more of the following jurisdictions: the location of Grantor’s place of business, the location of Grantor’s
chief executive office, or other such place as the Grantor may be “located” under the provisions of the Code; where
Grantor maintains any Collateral, or has its records concerning any Collateral, as the case may be. Without limitation of any other
covenant herein, Grantor will neither cause or permit any change in the location of (a) any Collateral, (b) any records concerning
any Collateral, or (c) the location of Grantor’s place of business, or the location of Grantor’s chief executive office,
as the case may be, to a jurisdiction other than as represented in Subsection 6(g), nor will Grantor change its name or
the Organizational Information as represented in Subsection 6(g), unless Grantor shall have notified Secured Party in writing
of such change at least thirty (30) days prior to the effective date of such change, shall have complied with the Credit Agreement
and shall have first taken all action required by Secured Party for the purpose of further perfecting or protecting the security
interest in favor of Secured Party in the Collateral. In any written notice furnished pursuant to this Subsection, Grantor
will expressly state that the notice is required by this Agreement and contains facts that may require additional filings of financing
statements, amendments or other notices for the purpose of continuing perfection of Secured Party’s security interest in
the Collateral.

 

Without limiting Secured
Party’s rights hereunder, Grantor authorizes Secured Party to file financing statements or amendments thereto under the provisions
of the Code as amended from time to time.

 

15.         Consent
to Disclose Information.  Grantor authorizes and consents to the disclosure by Secured Party of all information
relating to the Loan Documents to any other party to each account pledged as Collateral and upon which a security interest is granted
herein, including, but not limited to, information regarding the name of Obligors and the amount, date and maturity of the credit
facilities under the Loan Documents.

 

16.         Counterparts;
Facsimile Documents and Signatures.  This Agreement may be separately executed in any number of counterparts,
each of which will be an original, but all of which, taken together, will be deemed to constitute one and the same instrument.
For purposes of negotiating, finalizing, enforcing or proving this Agreement, if this document or any document executed in connection
with it is transmitted by facsimile machine, electronic mail or other electronic transmission, it will be treated for all purposes
as an original document. Additionally, the signature of any party on this document transmitted by way of a facsimile machine, electronic
mail or other electronic transmission will be considered for all purposes as an original signature. Any such transmitted document
will be considered to have the same binding legal effect as an original document. At the request of any party, any faxed or electronically
transmitted document will be re-executed by each signatory party in an original form.

 

17.         Imaging
of Documents.  Grantor understands and agrees that (a) Secured Party’s document retention policy may involve
the electronic imaging of executed Loan Documents and the destruction of the paper originals, and (b) Grantor waives any right
that it may have to claim that the imaged copies of the Loan Documents are not originals.

 

18.         Restatement.  This
Agreement is a restatement of, but not a release or novation of, the Pledge and Security Agreement dated as of June 29, 2015, made
by Grantor in favor of Secured Party (such agreement, together with all amendments and restatements thereto, the “Existing
Agreement”). All Liens granted pursuant to the Existing Agreement are continued and restated by this Agreement.

 

19.         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.

 

    	16

    	 

    

  

	The Remainder of This Page Is Intentionally Left Blank.

 

    	17

    	 

    

 

EXECUTED as of the date first written above.

 

	 	GRANTOR:
	 	 
	 	HALLMARK FINANCIAL SERVICES, INC.,
	 	a Nevada corporation

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title:	 

 

First Restated Pledge Agreement (Hallmark
Financial Services, Inc.) – Signature Page

 

    	 

    	 

    

 

	 	SECURED PARTY:
	 	 
	 	FROST BANK, a Texas state bank

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title:	 

 

Pledge and Security Agreement

Rev. June 2012

 

First Restated Pledge Agreement (Hallmark
Financial Services, Inc.) – Signature Page

 

    	 

    	 

    

 

SCHEDULE A

TO

FIRST RESTATED PLEDGE AND SECURITY AGREEMENT

DATED JUNE 30, 2015,

BY AND BETWEEN 

FROST BANK

AND

HALLMARK FINANCIAL SERVICES, INC.

 

The following property is a
part of the Collateral as defined in Section 1(b):

 

A.           All
capital stock and other Equity Interests of American Hallmark Insurance Company of Texas, a Texas insurance corporation, now or
hereafter owned beneficially or of record by Debtor.

 

Capital stock issued and outstanding on
the date of the Agreement:

 

1,000,000 shares of
common stock of American Hallmark Insurance Company of Texas, a Texas insurance corporation, as evidenced by certificate no. 004
issued in the name of Debtor.

 

As of the date of this
Agreement, such common stock represents all of the authorized, issued and outstanding shares of common stock of American Hallmark
Insurance Company of Texas.

 

B.           All
capital stock and other Equity Interests of Hallmark Insurance Company (formerly known as Phoenix Indemnity Insurance Company),
an Arizona insurance corporation, now or hereafter owned beneficially or of record by Debtor.

 

Capital stock issued and outstanding on
the date of the Agreement:

 

500,000 shares of common
stock of Phoenix Indemnity Insurance Company, an Arizona insurance corporation, as evidenced by certificate no. 9 issued in the
name of Debtor.

 

As of the date of this
Agreement, such common stock represents all of the authorized, issued and outstanding shares of common stock of Hallmark Insurance
Company (formerly known as Phoenix Indemnity Insurance Company).

 

Pledge Agreement – Schedule A

 

    	 

    	 

    

 

SCHEDULE B 

TO

FIRST RESTATED PLEDGE AND SECURITY AGREEMENT

DATED JUNE 30, 2015,

BY AND BETWEEN 

FROST BANK

AND

HALLMARK FINANCIAL SERVICES, INC.

 

	Issuer Name:	American Hallmark Insurance Company of Texas
	 	 
	Jurisdiction of Incorporation:	Texas 
	 	 
	Federal Taxpayer I.D. Number:	75-1817901
	 	 
	Authorized Capital Stock:	2,000,000 shares of $4.00 par stock 
	 	 
	Issued Capital Stock:	1,000,000 shares of $4.00 par stock 
	 	 
	Outstanding Capital Stock:	1,000,000 shares of $4.00 par stock
	 	 
	Issuer Name:	Hallmark Insurance Company (formerly known as Phoenix Indemnity Insurance Company)
	 	 
	Jurisdiction of Incorporation:	Arizona 
	 	 
	Federal Taxpayer I.D. Number:	47-0718164
	 	 
	Authorized Capital Stock:	500,000 shares of $7.00 par stock 
	 	 
	Issued Capital Stock:	500,000 shares of $7.00 par stock 
	 	 
	Outstanding Capital Stock:	500,000 shares of $7.00 par stock

 

Pledge Agreement – Schedule B

 

    	 

    	 

    

  

Exhibit C

 

Revolving Loan Notice

 

    	 

    	 

    

 

Revolving
Loan Notice

 

Date: ___________, ______

 

		To:	Frost Bank

 

Ladies and Gentlemen:

 

Reference is made to
the Second Restated Credit Agreement dated as of June 30, 2015 (such agreement, together with all amendments and restatements thereto,
the “Credit Agreement”; the terms defined therein being used herein as therein defined), among Hallmark Financial
Services, Inc., as Borrower, American Hallmark Insurance Company of Texas, Hallmark Insurance Company, and Frost Bank, Lender.

 

	A.	The undersigned hereby requests a Revolving Borrowing:

 

	 	1.	On ____________________________________________ (a Business Day).
	 	 	 
	 	2.	In the amount of $_________________________.

 

	B.	The undersigned hereby requests a change of the interest rate applicable to the
    Revolving Loan on _____________________ (a Business Day) (the “Effective Date”):

 

	 	1.	Existing loan type:

 

	 	 ̈	Eurodollar Rate Loan
	 	 	 
	 	 ̈	Prime Rate Loan

 

	 	2.	Requested loan type (to be effective on Effective Date):

 

	 	 ̈	Eurodollar Rate Loan
	 	 	 
	 	 ̈	Prime Rate Loan

 

The undersigned hereby
certifies that the following statements are true on the date hereof, and will be true on the date of the Revolving Borrowing, before
and after giving effect thereto and to the application of the proceeds thereof, and before and after giving effect to the change
of the interest rate applicable to the Revolving Loan, as applicable:

 

(A)         the
conditions precedent specified in Sections 5.1, 5.2, and 5.3 of the Credit Agreement have been satisfied
with respect to the Revolving Borrowing and will remain satisfied on the date of such Borrowing; and

 

(B)         after
giving effect to the Revolving Borrowing, the Revolving Facility Outstanding Amount shall not exceed the Revolving Commitment.

 

The Revolving Borrowing
requested herein complies with Section 2.1 and 2.2(a) of the Credit Agreement.

 

    	 

    	 

    

 

	 	HALLMARK FINANCIAL SERVICES, INC.

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title:	 

 

    	 

    	 

    

 

Exhibit D

 

Compliance Certificate

 

    	 

    	 

    

 

Compliance
Certificate

 

Financial Statement Date:____________

 

		To:	Frost Bank

 

Ladies and Gentlemen:

 

Reference is made to the Second Restated
Credit Agreement dated as of June 30, 2015 (such agreement, together with all amendments and restatements thereto, the “Agreement”;
the terms defined therein being used herein as therein defined), among Hallmark Financial Services, Inc., American Hallmark Insurance
Company of Texas, Hallmark Insurance Company and Frost Bank.

 

The undersigned Authorized Signatory hereby
certifies as of the date hereof that he/she is the chief financial officer or chief accounting officer of Borrower, and that, as
such, he/she is authorized to execute and deliver this Certificate to Lender on the behalf of Borrower, and that:

 

[Use following for fiscal year-end
financial statements required by Section 6.2(a)(i)]

 

Attached hereto as
Exhibit 6.2(a)(i) are consolidating and audited consolidated annual Financial Statements showing the consolidated and consolidating
financial condition and results of operations of Borrower and its consolidated Subsidiaries, as of, and for the fiscal year ended
on, the last day of such fiscal year, 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 states 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 in all material respects the consolidated financial condition of Borrower
and its consolidated Subsidiaries and their results of operations, and (b) an attestation report of Auditors as to Borrower’s
internal controls pursuant to Section 404 of Sarbanes-Oxley.

 

Such Financial Statements
present fairly the financial condition of Borrower and its consolidated Subsidiaries and the results of their operations.

 

Attached hereto as
Exhibit 6.2(a)(i)(D) is a complete and correct description of all Contingent Debt and Off-Balance Sheet Liabilities of Borrower
and its Subsidiaries.

 

[Use following for the fiscal year-end
financial statements required by Section 6.2(a)(ii)]

 

Attached as Exhibit
6.2(a)(ii) are unaudited consolidated and consolidating annual Financial Statements, 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, the
last day of the indicated fiscal year of Borrower, prepared in accordance with GAAP.

 

Such Financial Statements
present fairly the financial condition of Borrower and its consolidated Subsidiaries and the results of their operations.

 

Attached hereto as
Exhibit 6.2(a)(ii)(B) is a complete and correct description of all Contingent Debt and Off-Balance Sheet Liabilities of
Borrower and its Subsidiaries.

 

Compliance
Certificate – Page 1

 

    	 

    	 

    

 

[Use following for the fiscal year-end
financial statements required by Section 6.2(a)(iii)]

 

Attached as Exhibit
6.2(a)(iii) are audited annual Financial Statements, prepared by Auditors in accordance with SAP, showing the financial condition
and results of operations of each RIC, as of, and for the year ended on, such last day of the indicated fiscal year, accompanied
by an opinion of Auditors containing only qualifications (including qualifications as to the scope of the examination) and emphasis
acceptable to Lender, which opinion states 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.

 

Attached hereto as
Exhibit 6.2(a)(iii)(B)(2) is a complete and correct description of all Contingent Debt and Off-Balance Sheet Liabilities
of each RIC.

 

[Use following for the fiscal quarter-end
financial statements required by Section 6.2(b)(i)]

 

Attached as Exhibit
6.2(b)(i) are unaudited consolidated and consolidating quarterly Financial Statements, 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 include an income statement for the fiscal year through such last day,
prepared in accordance with GAAP.

 

Such Financial Statements
present fairly the financial condition of Borrower and its consolidated Subsidiaries and the results of their operations (subject
to year-end adjustment).

 

Attached hereto as
Exhibit 6.2(b)(i)(C) is a complete and correct description of all Contingent Debt and Off-Balance Sheet Liabilities of Borrower
and its Subsidiaries.

 

[Use following for the fiscal quarter-end
financial statements required by Section 6.2(b)(ii)]

 

Attached as Exhibit
6.2(b)(ii) are unaudited quarterly Financial Statements for each RIC, 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 include an income statement for the fiscal year through such last day, and in the form of quarterly financial statements
prescribed by NAIC, including a report with respect to “Invested Assets” as set forth on Schedule D on such financial
statements.

 

Attached hereto as
Exhibit 6.2(b)(ii) is a complete and correct description of all Contingent Debt and Off-Balance Sheet Liabilities of each
RIC.

 

[select one:]

[to the best knowledge of the undersigned
during such fiscal period, no Default or Event of Default exists.]

 

—or—

 

[the following covenants or conditions
have not been performed or observed and the following is a list of each such Default or Event of Default (and, to the best knowledge
of the undersigned, are the only Defaults and Event of Default that exist) and its nature and status:]

 

1.        The financial covenant analyses and
information set forth on the attached Schedule 1 are true and accurate on and as of the date of this Certificate.

 

	The
    Remainder of This Page is Intentionally Left Blank.

 

Compliance
Certificate – Page 2

 

    	 

    	 

    

 

IN
WITNESS WHEREOF, the undersigned has executed this Certificate as of _________________, ________________.

 

	 	HALLMARK FINANCIAL SERVICES, INC.

  

	 	By: 	 
	 	Print Name: 	 
	 	Print Title:	 

 

Compliance
Certificate – Signature Page

 

    	 

    	 

    

 

For the Quarter/Year ended ____________________(“Reporting
Date”)

 

SCHEDULE 1

TO THE COMPLIANCE CERTIFICATE

 

	I.	Section 7.1 – Total Adjusted Capital of AHIC.

 

	 	A.	Total Adjusted Capital of AHIC (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) on Reporting Date): 	$	___________	 
	 	 	 	 	 	 
	 	B.	$90,000,000	$	90,000,000	 
	 	 	 	 	 	 
	 	C.	Risk-Based Capital	 	 	 

 

	 	 	1.	Line I.A:	$	 	 
	 	 	 	 	 	 	 
	 	 	2.	Authorized Control Level of AHIC on Reporting Date:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	3.	Risk-Based Capital (Line I.C.1. ÷ Line I.C.2.) on Reporting Date	 	 	%

 

	 	D.	Amount required for Risk-Based Capital of AHIC to equal 250% (Line I.C.2 x 2.5):	$ 	 	 
	 	 	 	 	 	 
	 	E.	Minimum Total Adjusted Capital (greater of I.B. and I.D.):	$ 	 	 

 

	II.	Section 7.2 – Total Adjusted Capital of HIC.

 

	 	A.	Total Adjusted Capital of HIC (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) on Reporting Date):	$	___________ 	 
	 	 	 	 	 	 
	 	B.	$50,000,000	$	50,000,000	 
	 	 	 	 	 	 
	 	C.	Risk-Based Capital	 	 	 

 

	 	 	1.	Line II.A:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	2.	Authorized Control Level of HIC on Reporting Date:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	3.	Risk-Based Capital (Line II.C.1. ÷ Line II.C.2.) on Reporting Date	 	 	%

 

	 	D.	Amount required for Risk-Based Capital of HIC to equal 250% (Line II.C.2 x 2.5):	$ 	 	 
	 	 	 	 	 	 
	 	E.	Minimum Total Adjusted Capital (greater of II.B. and II.D.):	$ 	 	 

 

Schedule
1 to Compliance Certificate – Page 1

 

    	 

    	 

    

 

	III.	Section 7.3 – Combined Ratio.

 

	 	A.	Combined Ratio	 	 	%
	 	 	 	 	 	 
	 	B.	Maximum Combined Ratio:	 	103	%

 

	IV.	Section 7.4 – Consolidated Net Worth.

 

	 	A.	Consolidated Net Worth as of the 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), plus (c) the aggregate unpaid principal amount of all 2007 Debentures; provided, all 2007 Debentures, all 2007 Preferred Securities and the 2007 Guaranty are subordinate to the Obligations as provided in the 2007 Documents (as the 2007 Documents existed on August 23, 2007)):	$ 	___________  	 
	 	 	 	 	 	 
	 	B.	Minimum Consolidated Net Worth:	$	275,000,000	 

 

	V.	Section 7.5 – Fixed Charges Coverage Ratio.

 

	 	A.	EBITDA:	 	 	 

 

	 	 	1.	Surplus of AHIC on the date of determination:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	2.	Line V.A.I x 0.10:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	3.	Surplus of HIC on the date of determination:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	4.	Line V.A.3. x 0.10:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	5.	Lines V.A.2. + 4.:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	6.	AHIC Net Income for the four fiscal quarters of AHIC ended on the date of determination:	$ 	____________	
	 	 	 	 	 	 	 
	 	 	7.	HIC Net Income for the four fiscal quarters of HIC ended on the date of determination:	$ 	____________	 
	 	 	 	 	 	 	 
	 	 	8.	Lines VI.A.6. + 7.:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	9.	Greater of Line V.A.5. and Line V.A.8.:	$ 	 	 
	 	 	 	 	 	 	 
	 	 	10.	Consolidated Net Income of Borrower and its Subsidiaries (other than AHIC and HIC) for the four fiscal quarters ended on the date of determination:	$ 	____________	 

 

Schedule
1 to Compliance Certificate – Page 2

 

    	 

    	 

    

 

	 	 	11.	To the extent deducted in calculating Consolidated Net Income of Borrower and its Subsidiaries (other than AHIC and HIC), Consolidated Interest Expenses of Borrower and its Subsidiaries (other than AHIC and HIC) for the four fiscal quarters ended on the date of determination:	$ 	___________ 	 
	 	 	 	 	 	 	 
	 	 	12.	To the extent deducted in calculating Consolidated Net Income of Borrower and its Subsidiaries (other than AHIC and HIC), the amount of the provision for federal, state, local and foreign incomes Taxes payable by Borrower and its Subsidiaries (other than AHIC and HIC) (net of the amount of any tax refund actually received by Borrower and its Subsidiaries during such period) during such four fiscal quarters ended on the date of determination:	$ 	___________  	 
	 	 	 	 	 	 	 
	 	 	13.	To the extent deducted in calculating Consolidated Net Income of Borrower and its Subsidiaries (other than AHIC and HIC), the amount of depreciation and amortization expense of Borrower and its Subsidiaries (other than AHIC and HIC) for the four fiscal quarter period ended on the date of determination:	$ 	___________  	 
	 	 	 	 	 	 	 
	 	 	14.	To the extent deducted in calculating Consolidated Net Income of Borrower and its Subsidiaries (other than AHIC and HIC) (without duplication), other expenses reducing Consolidated Net Income of Borrower and its Subsidiaries (other than AHIC and HIC) which do not represent a cash item in such four fiscal quarters or any future period:	$ 	___________  	 
	 	 	 	 	 	 	 
	 	 	15.	all   non-cash   items   increasing   Consolidated   Net   Income   of Borrower and its Subsidiaries (other than AHIC and HIC) for the four fiscal quarter period ended on the date of determination:	$ 	___________  	 
	 	 	 	 	 	 	 
	 	 	16.	EBITDA (Lines V.A.9. + 10. + 11. + 12. + 13. + 14. – 15.):	$ 	___________ 	 

 

	 	B.	Fixed Charges as at the last day of such fiscal quarter:	$ 	___________ 	 

 

	 	 	1.	Consolidated Interest Expenses for the four fiscal quarter period ended on the date of determination:	$ 	___________  	 
	 	 	 	 	 	 	 
	 	 	2.	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:	$ 	___________  	 
	 	 	 	 	 	 	 
	 	 	3.	Cash  Capex  actually  paid  by  Borrower  and  its  consolidated Subsidiaries during the four fiscal quarter period ended on the date of determination:	$ 	___________ 	 
	 	 	 	 	 	 	 
	 	 	4.	aggregate  amount  of  Taxes  actually  paid  by  Borrower  and  its consolidated Subsidiaries during the four fiscal quarter period ended on the date of determination (net of the amount of any tax refund actually received by Borrower and its Subsidiaries during such period):	$ 	___________  	 

 

Schedule
1 to Compliance Certificate – Page 3

 

    	 

    	 

    

 

	 	 	5.	cash Dividends actually paid by Borrower during the four fiscal quarter period ended on the date of determination:	$ 	___________  	 
	 	 	 	 	 	 	 
	 	 	6.	Fixed Charges (Lines V.B.1. + 2. + 3. + 4. + 5.):	$ 	___________ 	 

 

	 	C.	Fixed Charge Coverage Ratio ((Line V.A.16.)  ̧ (Line V.B.6.)) (rounded to two decimal places):	 	____ to 1.00	 
	 	 	 	 	 	 
	 	D.	Minimum Fixed Charge Coverage Ratio:	 	1.25 to 1.00	 

 

	VI.	Section 7.9 – Disposition of Assets.

 

	 	A.	Dispositions not in the ordinary course of business:

 

	 	 	1.	Greatest value (valued at the greater of market or book (determined in accordance with GAAP) value) of any single asset Disposed of by Borrower and its Subsidiaries or the greatest value of assets disposed of in any single transaction by Borrower and its Subsidiaries during current fiscal year of Borrower (amount not to exceed $250,000):	$ 	___________  	 
	 	 	 	 	 	 	 
	 	 	2.	Aggregate  value  (valued  at  the  greater  of  market  or  book (determined in accordance with GAAP) value) of all Dispositions by Borrower and its Subsidiaries during the current fiscal year of Borrower (amount not to exceed $500,000):	$ 	___________ 	 

 

This Compliance Certificate is executed and delivered on the
____ day of _____________, __________.

 

	 	HALLMARK FINANCIAL SERVICES, INC.

 

	 	By:	 
	 	Print Name:	 
	 	Print Title:	 

 

Schedule
1 to Compliance Certificate – Page 4

 

    	 

    	 

    

 

Exhibit E

 

Arbitration and Notice of Final Agreement

 

    	 

    	 

    

 

 

 

ARBITRATION AND NOTICE OF FINAL
AGREEMENT

 

	Borrower:	Hallmark Financial Services, Inc. 	Lender:	Frost Bank
	Address:	777 Main Street, Suite 1000	Address:	P.O. Box 1600
	 	Fort Worth, TX 76102	 	San Antonio, TX 78296

 

	L/C RICs:	American Hallmark Insurance Company of Texas  	 
	 	 	 
	 	Hallmark Insurance Company	 

 

	Address:	777 Main Street, Suite 1000
	 	Fort Worth, TX 76102

 

(Borrower and each L/C RIC collectively,
whether one of more, “Obligated Party”).

 

As of the effective date of this Agreement,
Obligated Party and FROST BANK, a Texas state bank (“Lender”), have consummated a transaction pursuant to which
Lender has agreed to make a loan or loans to Borrower, to renew and extend an existing loan or loans to Borrower, to issue letters
of credit to or for the benefit of Borrower and/or a L/C RIC and/or to otherwise extend credit or make financial accommodations
to or for the benefit of Borrower and/or a L/C RIC, in an aggregate amount up to $15,000,000 (collectively, whether one or more,
the “Loan”).

 

ARBITRATION

 

Upon written request of either Lender or
Obligated Party, any controversy or claim between or among the parties hereto including but not limited to those arising out of
or relating to the Loan or any of the loan documents or any related agreements or instruments executed in connection with the Loan
(the “Loan Documents”), including, without limitation, any claim based on or arising from an alleged
tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable
state law), the Commercial Arbitration Rules of the American Arbitration Association, and the “Special Rules” set forth
below unless both Lender and Obligated Party, in their respective sole discretion, agree in writing to mediate the dispute prior
to submitting to binding arbitration. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration
award may be entered in any court having jurisdiction. Any party to this Agreement may bring an action, including a summary or
expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction
over such action. The party that requests arbitration has the burden to initiate the arbitration proceedings pursuant to and by
complying with the Commercial Arbitration Rules of the American Arbitration Association and shall pay all associated administrative
and filing fees.

 

    	 

    	 

    

 

The arbitration shall be conducted
in the City of San Antonio, Bexar County, Texas and administered by the American Arbitration Association (“AAA”).
All arbitration hearings will be commenced within sixty (60) days of the later
of any of the following: (1) the date of AAA’s confirmation to the parties of the filing of the arbitration demand with
AAA; (2) the administrative conference, if any; or (3) the preliminary hearing, if any. If the arbitration hearing is not
commenced within this sixty (60) day period, the party that requested arbitration shall have waived its election to
arbitrate. This sixty (60) day period shall be extended from day to day if such delay is due to (a) a delay caused by the AAA
in communicating with the parties, selecting the arbitrator(s), or initiating the arbitration proceedings or AAA procedures;
or (b) the arbitrators’ unavailability to commence the arbitration hearing within the applicable sixty (60) day period.
Nothing in this Agreement shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation
or repose and any waivers contained in this Agreement or any other Loan Document; or (ii) be a waiver by Lender of the
protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of Lender
hereto (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to foreclose against any real or
personal property collateral in accordance with applicable law, or (C) to obtain from a court provisional or ancillary
remedies such as (but not limited to) injunctive relief or the appointment of a receiver in accordance with applicable law.
Lender may exercise such self help remedies, foreclose upon such property, or obtain such provisional or ancillary remedies
before, during or after the pendency of any arbitration proceeding brought pursuant to this Agreement or any other Loan
Document. At Lender’s option, foreclosure under a deed of trust or mortgage may be accomplished by any of the
following: the exercise of a power of sale under the deed of trust or mortgage, or by judicial sale under the deed of trust
or mortgage, or by judicial foreclosure. Neither this exercise of self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such
remedies. Each Obligated Party agrees that any election by Borrower pursuant to this Agreement shall bind such Obligated
Party.

 

COUNTERPARTS; FACSIMILE DOCUMENTS
AND SIGNATURES; ESIGN; IMAGING OF DOCUMENTS

 

This Agreement, may be separately executed
in any number of counterparts, each of which will be an original, but all of which, taken together, will be deemed to constitute
one and the same instrument. If this document is transmitted by facsimile machine, electronic mail or other electronic transmission,
it shall be treated for all purposes as an original document. Additionally, the signature of any party on this document transmitted
by way of a facsimile machine, electronic mail or other electronic transmission shall be considered for all purposes as an original
signature. Any such transmitted document shall be considered to have the same binding legal effect as an original document. At
the request of any party, any facsimile, electronic mail or other electronically transmitted document shall be re-executed by each
signatory party in an original form. Obligated Party and Lender agree that no notices or other communications by electronic means
between such parties or their representatives in connection with the Loan or any instrument executed in connection therewith shall
constitute a transaction, agreement, contract or electronic signature under the Electronic Signatures in Global and National Commerce
Act, any version of the Uniform Electronic Transactions Act or any other statute governing electronic transactions, unless otherwise
specifically agreed to in writing. Obligated Party understands and agrees that (a) Lender’s document retention policy may
involve the electronic imaging of executed documents and the destruction of the paper originals, and (b) Obligated Party waives
any right that it may have to claim that the imaged copies of the documents are not originals.

 

PATRIOT ACT NOTICE

 

Lender hereby notifies Obligated Party
that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies Obligated
Party, which information includes the name and address of Obligated Party and other information that will allow Lender to identify
Obligated Party in accordance with the Act.

 

    	2

    	 

    

 

WAIVER OF RIGHT TO TRIAL BY JURY

 

EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THE LOAN DOCUMENTS
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

NOTICE OF FINAL AGREEMENT

 

In connection with the Loan, Obligated
Party has executed and delivered and may hereafter execute and deliver certain agreements, instruments and documents (collectively
hereinafter referred to as the “Written Loan Agreement”).

 

It is the intention of Lender and Obligated
Party that this Notice be incorporated by reference into each of the written agreements, instruments and documents comprising the
Written Loan Agreement. Each Obligated Party warrants and represents that the entire agreement made and existing by or between
Lender and Obligated Party with respect to the Loan is and shall be contained within the Written Loan Agreement, as amended and
supplemented hereby, and that no agreements or promises exist or shall exist by or between, Lender and Obligated Party that are
not reflected in the Written Loan Agreement.

 

THE WRITTEN LOAN AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.

 

Effective Date: June 30, 2015.

 

	The
    Remainder of this Page Is
    Intentionally Left Blank.

 

    	3

    	 

    

 

	 	FROST BANK,
	 	a Texas state bank

 

	 	By:	 
	 	Print Name:	 
	 	Print Title:	 

 

Arbitration Notice – Signature
Page

 

    	 

    	 

    

 

ACKNOWLEDGED AND AGREED:

 

BORROWER:

 

HALLMARK FINANCIAL SERVICES, INC.

 

	By:	 	 
	Print Name:	 	 
	Print Title:	 	 

 

L/C RICS:

 

AMERICAN HALLMARK INSURANCE COMPANY OF
TEXAS

 

	By:	 	 
	Print Name:	 	 
	Print Title:	 	 

 

HALLMARK INSURANCE COMPANY

 

	By:	 	 
	Print Name:	 	 
	Print Title:	 	 

 

Arbitration And Notice Of Final Agreement

Rev. June 2012

 

Arbitration Notice – Signature
Page

 

    	 

    	 

    

 

Exhibit F

 

Release Agreement

 

    	 

    	 

    

 

Release
of Security Interests and Guaranties

 

This RELEASE OF SECURITY
INTERESTS AND GUARANTIES (“Release”) is effective as of June 30, 2015, among HALLMARK FINANCIAL SERVICES, INC.,
a Nevada corporation (“Borrower”), AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS, a Texas insurance corporation
(“AHIC”), HALLMARK INSURANCE COMPANY, an Arizona insurance corporation, formerly known as Phoenix Indemnity
Insurance Company (“HIC”), each Subsidiary listed on Schedule 1 in the “Released Subsidiary”
column (each such Subsidiary, a “Released Subsidiary”), and FROST BANK, a Texas state bank, formerly known as
The Frost National Bank (“Lender”).

 

Background

 

In connection
with the Credit Agreement dated as of June 29, 2005, among Borrower, L/C RICs and Lender, and the First Restated Credit
Agreement dated as of January 27, 2006, among Borrower, L/C RICs and Lender, (a) each Released Subsidiary executed and
delivered to Lender (i) the Guaranty Agreement or Supplement to a Guaranty Agreement described opposite the name of such
Released Subsidiary on Schedule 1 (each such agreement, together with all amendments thereto, a “Released
Guaranty”), (ii) the Security Agreement described opposite the name of such Released Subsidiary on Schedule
1 (each such agreement, together with all amendments thereto, a “Released Subsidiary Security
Agreement”), (iii) the Pledge Agreement (if any) described opposite the name of such Released Subsidiary on Schedule
1 (each such agreement, together with all amendments thereto, a “Released Subsidiary Pledge
Agreement”), and (iv) the Confirmation or Confirmations of Pledge by Issuer (if any) or Confirmation of Pledge by
Maker (if any) described opposite the name of such Released Subsidiary on Schedule 1 (each such agreement, together
with all amendments thereto, a “Released Subsidiary Confirmation”), and (b) Borrower executed and
delivered to Lender (i) the Security Agreement described on Schedule 2 (such agreement, together with all
amendments thereto, the “Borrower Security Agreement”), (ii) the Pledge and Security Agreement described
on Schedule 2 (such agreement, together with all amendments (but excluding the Restated Borrower Pledge Agreement)
thereto, the “Original Borrower Pledge Agreement”), and (iii) the Confirmations of Pledge by Issuer and
the Confirmation of Pledge by Maker described on Schedule 2 (each such agreement, together with all amendments
thereto, a “Released Borrower Confirmation”).

 

Lender and Borrower
have entered into the Second Restated Credit Agreement dated as of June 30, 2015 (such agreement, together with all amendments
and restatements thereto, the “Credit Agreement”).

 

In connection with
the Credit Agreement, Borrower has executed and delivered to Lender (a) the First Restated Pledge Agreement (such agreement, together
with all amendments and restatements thereto, the “Restated Borrower Pledge Agreement”), (b) the First Restated
Confirmation of Pledge by Issuer related to the Equity Interests of AHIC and the Restated Borrower Pledge Agreement (such agreement,
together with all amendments and restatements thereto, the “AHIC Confirmation”), and (c) the First Restated
Confirmation of Pledge by Issuer related to the Equity Interests of HIC and the Restated Borrower Pledge Agreement (such agreement,
together with all amendments and restatements thereto, the “HIC Confirmation”).

 

Agreement

 

NOW, THEREFORE, for
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, and in reliance on the
agreements made by Borrower, each L/C RIC and each Released Subsidiary to Lender in this Release, Lender, Borrower, each L/C RIC
and each Released Subsidiary agree as follows:

 

    	1

    	 

    

 

1.          Defined
Terms.  Unless otherwise stated, capitalized terms used herein but not defined herein shall have the meanings ascribed
thereto in the Credit Agreement.

 

2.          Release
of Lien (Released Subsidiary Pledge Agreements).  Lender releases and discharges the security interest and other
Liens held by or benefiting Lender and that are granted by each Released Subsidiary to Lender pursuant to the Released Subsidiary
Pledge Agreement to which such Released Subsidiary is a party. Lender specifically releases only the
security interest and Liens granted by such Released Subsidiary to Lender pursuant to such Released Subsidiary Pledge Agreement.
Lender does not release pursuant to this Section 2, and this Section 2 is not intended as and shall not be construed
as, a release or termination of (a) any Lien or security interest granted by a Released Subsidiary (or any property subject to
such Lien or security interest) to Lender other than the security interest or Lien granted by such Released Subsidiary pursuant
to such Released Subsidiary Pledge Agreement, or (b) any provision of any Released Subsidiary Pledge Agreement that survives termination
of such Released Subsidiary Pledge Agreement.

 

3.          Release
of Lien (Released Subsidiary Security Agreements).  Lender releases and discharges the security interest and other
Liens held by or benefiting Lender and that are granted by each Released Subsidiary to Lender pursuant to the Released Subsidiary
Security Agreement to which such Released Subsidiary is a party. Lender specifically releases only the security
interest and Liens granted by such Released Subsidiary to Lender pursuant to such Released Subsidiary Security Agreement. Lender
does not release pursuant to this Section 3, and this Section 3 is not intended as and shall not be construed as,
a release or termination of (a) any Lien or security interest granted by such Released Subsidiary (or any property subject to such
Lien or security interest) to Lender other than the security interest or Lien granted by such Released Subsidiary pursuant to such
Released Subsidiary Security Agreement, or (b) any provision of any Released Subsidiary Security Agreement that survives termination
of such Released Subsidiary Security Agreement.

 

4.          Release
of Released Guaranties.  Lender releases and terminates the obligations of each Released Subsidiary pursuant to the
Released Guaranty to which such Released Subsidiary is a party (including any Supplement to Guaranty Agreement to which such Released
Subsidiary is a party). Lender specifically releases and terminates only the obligations of such Released
Subsidiary pursuant to such Released Guaranty. Lender does not release or terminate pursuant to this Section 4, and this
Section 4 is not intended as and shall not be construed as, a release or termination of (a) any other guarantee made by
such Released Subsidiary, or (b) any provision of any Released Guaranty that survives termination of such Released Guaranty.

 

5.          Release
of Released Subsidiary Confirmations.  Lender releases and terminates the obligations of each Released Subsidiary
pursuant to each Released Subsidiary Confirmation.

 

6.          Release
of Lien (Original Borrower Pledge Agreement). Lender releases and discharges the security interest and other Liens held by
or benefiting Lender and that are granted by Borrower to Lender pursuant to the Original Borrower Pledge Agreement to the extent
that Collateral (as defined in the Original Borrower Pledge Agreement) is not included in Collateral (as defined in the Restated
Borrower Pledge Agreement). Lender specifically releases only the security interest and Liens granted
by Borrower to Lender pursuant to the Original Borrower Pledge Agreement to the extent that Collateral (as defined in the Original
Borrower Pledge Agreement) is not included in Collateral (as defined in the Restated Borrower Pledge Agreement). Lender does not
release or terminate pursuant to this Section 6, and this Section 6 is not intended as and shall not be construed
as, a release of any Lien or security interest granted by Borrower (or any property subject to such Lien or security interest)
to Lender (a) other than the security interest or Lien granted by Borrower pursuant to the Original Borrower Pledge Agreement to
the extent that Collateral (as defined in the Original Borrower Pledge Agreement) is not included in Collateral (as defined in
the Restated Borrower Pledge Agreement), or (b) pursuant to the Restated Borrower Pledge Agreement.

 

    	2

    	 

    

 

7.          Release
of Lien (Borrower Security Agreement).  Lender releases and discharges the security interest and other Liens held
by or benefiting Lender and that are granted by Borrower to Lender pursuant to the Borrower Security Agreement. Lender specifically
releases only the security interest and Liens granted by Borrower to Lender pursuant to the Borrower
Security Agreement. Lender does not release or terminate pursuant to this Section 7, and this Section 7 is not intended
as and shall not be construed as, a release of (a) any Lien or security interest granted by Borrower (or any property subject to
such Lien or security interest) to Lender other than the security interest or Lien granted by Borrower pursuant to the Borrower
Security Agreement, or (b) any provision of the Borrower Security Agreement that survives termination of the Borrower Security
Agreement.

 

8.          Release
of Released Borrower Confirmations.   Lender releases and terminates the obligations of Borrower pursuant to each
Released Borrower Confirmation. Lender does not release or terminate pursuant to this Section 8, and this Section 8
is not intended as and shall not be construed as, a release of any provision of the AHIC Confirmation or the HIC Confirmation.

 

9.          Financing
Statement Amendments.   Promptly following the effectiveness of the Credit Agreement, Lender shall file or cause
to be filed amendments to Uniform Commercial Code financing statements in the form of Exhibit A.

 

10.         Stock
Certificates.   Borrower and each Released Subsidiary acknowledge receipt of each original stock certificate and
each original stock power described on Schedule 3. Each Released Subsidiary that is the registered holder of a stock certificate
described on Schedule 3 instructs Borrower to receive from Lender each such certificate and each related power on behalf
of such Released Subsidiary.

 

11.         Promissory
Note.   Borrower acknowledges receipt of the original of the Revolving Promissory Note dated May 31, 2007, made by
Pan American Acceptance Corporation, payable to the order of Borrower in the original amount of $5,000,000, and the original of
the related allonge.

 

12.         Loan
Document.   This Release is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof.

 

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

 

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

 

15.         GOVERNING
LAW.  THIS RELEASE AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS. THIS RELEASE IS PERFORMABLE IN SAN ANTONIO, BEXAR COUNTY, TEXAS, AND BORROWER, EACH L/C RIC, EACH RELEASED
SUBSIDIARY AND LENDER WAIVE THE RIGHT TO BE SUED ELSEWHERE. BORROWER, EACH L/C RIC, EACH RELEASED SUBSIDIARY 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 RELEASE AND THE OTHER LOAN DOCUMENTS.

 

    	3

    	 

    

 

16.         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.

 

    	4

    	 

    

 

	 	BORROWER:
	 	 
	 	HALLMARK FINANCIAL SERVICES, INC.,
	 	a Nevada corporation

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title: 	 

 

Release of Security Interests and Guaranties
(Hallmark Subsidiaries) – Signature Page

 

    	 

    	 

    

 

	 	L/C RICS:
	 	 
	 	AMERICAN HALLMARK INSURANCE COMPANY OF TEXAS,
	 	a Texas insurance corporation

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title: 	 

 

	 	HALLMARK INSURANCE COMPANY,
	 	an Arizona insurance corporation

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title: 	 

 

Release of Security Interests and Guaranties
(Hallmark Subsidiaries) – Signature Page

 

    	 

    	 

    

 

	 	RELEASED SUBSIDIARIES:
	 	 
	 	ACO HOLDINGS, INC.
	 	ALLRISK INSURANCE AGENCY, INC. 
	 	AMERICAN HALLMARK AGENCIES, INC. 
	 	EFFECTIVE CLAIMS MANAGEMENT, INC. 
	 	HALLMARK CLAIMS SERVICE, INC.  
	 	HALLMARK FINANCE CORPORATION 
	 	AMERICAN HALLMARK INSURANCE SERVICES, INC.
	 	HALLMARK UNDERWRITERS, INC.

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title: 	 

 

	 	AEROSPACE CLAIMS MANAGEMENT GROUP, INC.
	 	AEROSPACE HOLDINGS, LLC 
	 	AEROSPACE SPECIAL RISK, INC. 
	 	TGA INSURANCE MANAGERS, INC. 
	 	TGA SPECIAL RISK, INC.

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title: 	 

 

	 	AEROSPACE FLIGHT, INC.

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title: 	 

 

	 	AEROSPACE INSURANCE MANAGERS, INC.

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title: 	 

 

Release of Security Interests and Guaranties
(Hallmark Subsidiaries) – Signature Page

 

    	 

    	 

    

 

	 	PAN AMERICAN ACCEPTANCE CORPORATION

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title: 	 

 

Release of Security Interests and Guaranties
(Hallmark Subsidiaries) – Signature Page

 

    	 

    	 

    

 

	 	LENDER:
	 	 
	 	FROST BANK,
	 	a Texas state bank

 

	 	By: 	 
	 	Print Name: 	 
	 	Print Title: 	 

 

Release of Security Interest and Guaranty
(Hallmark Subsidiaries) – Signature Page

 

    	 

    	 

    

 

Schedule 1

 

	Released
    Subsidiary	 	Collateral
    Documents
	ACO Holdings, Inc.	 	Guaranty Agreement dated as of June 29, 2005
	 	Security Agreement dated as of June 29, 2005
	 	Pledge and Security Agreement dated as of June 29, 2005
	 	Confirmation of Pledge by Issuer from ACO Holdings, Inc. and American Hallmark General Agency, Inc.
	 	Confirmation of Pledge by Issuer from ACO Holdings, Inc. and Hallmark Claims Service, Inc.
	 	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and ACO Holdings, Inc.
	Aerospace Claims Management Group, Inc.	 	Guaranty Supplement No. 1 dated as of January 27, 2006
	 	Security Agreement dated as of January 27, 2006
	 	Confirmation of Pledge by Issuer from Aerospace Holdings, LLC and Aerospace Claims Management Group, Inc.
	Aerospace Flight, Inc.	 	Guaranty Supplement No. 1 dated as of January 27, 2006
	 	Security Agreement dated as of January 27, 2006
	 	Confirmation of Pledge by Issuer from Aerospace Holdings, LLC and Aerospace Flight, Inc.
	Aerospace Holdings, LLC	 	Guaranty Supplement No. 1 dated as of January 27, 2006
	 	Security Agreement dated as of January 27, 2006
	 	Pledge and Security Agreement dated as of January 27, 2006
	 	Confirmation of Pledge by Issuer from Aerospace Holdings, LLC and Aerospace Claims Management Group, Inc.
	 	Confirmation of Pledge by Issuer from Aerospace Holdings, LLC and Aerospace Flight, Inc.
	 	Confirmation of Pledge by Issuer from Aerospace Holdings, LLC and Aerospace Insurance Managers, Inc.
	 	Confirmation of Pledge by Issuer from Aerospace Holdings, LLC and Aerospace Special Risk, Inc.
	 	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Aerospace Holdings, LLC
	Aerospace Insurance Managers, Inc.	 	Guaranty Supplement No. 1 dated as of January 27, 2006
	 	Security Agreement dated as of January 27, 2006
	 	Confirmation of Pledge by Issuer from Aerospace Holdings, LLC and Aerospace Insurance Managers, Inc.
	Aerospace Special Risk, Inc.	 	Guaranty Supplement No. 1 dated as of January 27, 2006
	 	Security Agreement dated as of January 27, 2006

 

    	-1-

    	 

    

 

	Released Subsidiary	 	Collateral Documents
	 	 	Confirmation of Pledge by Issuer from Aerospace Holdings, LLC and Aerospace Special Risk, Inc.
	Allrisk Insurance Agency, Inc.	 	Guaranty Agreement dated as of June 29, 2005
	 	Security Agreement dated as of June 29, 2005
	 	 	Confirmation of Pledge by Issuer from American Hallmark General Agency, Inc. and Allrisk Insurance Agency, Inc.
	American Hallmark Agencies, Inc.	 	Guaranty Agreement dated as of June 29, 2005
	 	Security Agreement dated as of June 29, 2005
	 	Confirmation of Pledge by Issuer from American Hallmark General Agency, Inc. and American Hallmark Agencies, Inc.
	American Hallmark General Agency, Inc.	 	Guaranty Agreement dated as of June 29, 2005
	 	Security Agreement dated as of June 29, 2005
	 	Pledge and Security Agreement dated as of June 29, 2005
	 	Confirmation of Pledge by Issuer from American Hallmark General Agency, Inc. and Allrisk Insurance Agency, Inc.
	 	Confirmation of Pledge by Issuer from American Hallmark General Agency, Inc. and American Hallmark Agencies, Inc.
	 	Confirmation of Pledge by Issuer from American Hallmark General Agency, Inc. and Hallmark Finance Corporation
	 	Confirmation of Pledge by Issuer from American Hallmark General Agency, Inc. and Hallmark Underwriters, Inc.
	 	Confirmation of Pledge by Issuer from ACO Holdings, Inc. and American Hallmark General Agency, Inc.
	Effective Claims Management, Inc.	 	Guaranty Agreement dated as of June 29, 2005
	 	Security Agreement dated as of June 29, 2005
	 	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Effective Claims Management, Inc.
	Hallmark Claims Service, Inc.	 	Guaranty Agreement dated as of June 29, 2005
	 	Security Agreement dated as of June 29, 2005
	 	Confirmation of Pledge by Issuer from ACO Holdings, Inc. and Hallmark Claims Service, Inc.
	Hallmark Finance Corporation	 	Guaranty Agreement dated as of June 29, 2005
	 	Security Agreement dated as of June 29, 2005
	 	Confirmation of Pledge by Issuer from American Hallmark General Agency, Inc. and Hallmark Finance Corporation
	Hallmark General Agency, Inc. (Hallmark General Agency, Inc. changed its name to American Hallmark Insurance Services, Inc. on 01.07.08)	 	
        Guaranty Agreement dated as of June 29, 2005

         

         

	 	Security Agreement dated as of June 29, 2005

 

    	-2-

    	 

    

 

	Released
    Subsidiary	 	Collateral
    Documents
	 	 	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Hallmark General Agency, Inc.
	Hallmark Underwriters, Inc.	 	Guaranty Agreement dated as of June 29, 2005
	 	Security Agreement dated as of June 29, 2005
	 	Confirmation of Pledge by Issuer from American Hallmark General Agency, Inc. and Hallmark Underwriters, Inc.
	Pan American Acceptance Corporation	 	Guaranty Supplement No. 2 dated as of January 30, 2006
	 	Security Agreement dated as of January 30, 2006
	 	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Pan American Acceptance Corporation
	 	Confirmation of Pledge by Maker from Hallmark Financial Services, Inc. and Pan American Acceptance Corporation
	Texas General Agency, Inc. (Texas General Agency, Inc. changed its name to TGA Insurance Managers, Inc. on 11.12.07; changed its name to Hallmark Specialty Underwriters, Inc. on 03.12.12)	 	Guaranty Supplement No. 2 dated as of January 30, 2006
	 	Security Agreement dated as of January 30, 2006
	 	Pledge and Security Agreement dated as of January 30, 2006
	 	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Texas General Agency, Inc.
	TGA Special Risk, Inc.	 	Guaranty Supplement No. 2 dated as of January 30, 2006
	 	Security Agreement dated as of January 30, 2006
	 	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and TGA Special Risk, Inc.

 

    	-3-

    	 

    

 

Schedule 2

 

Hallmark Financial Services, Inc.

 

	Security Agreement dated as of June 29, 2005
	Pledge and Security Agreement dated as of June 29, 2005
	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and ACO Holdings, Inc.
	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Effective Claims Management, Inc.
	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Hallmark General Agency, Inc.
	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Aerospace Holdings, LLC
	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Pan American Acceptance Corporation
	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and Texas General Agency, Inc.
	Confirmation of Pledge by Issuer from Hallmark Financial Services, Inc. and TGA Special Risk, Inc.
	Confirmation of Pledge by Maker from Hallmark Financial Services, Inc. and Pan American Acceptance Corporation

 

    	-1-

    	 

    

 

Schedule 3

 

Stock Certificates

 

	1.	Certificate No. 03, in the name of Hallmark Financial Services, Inc. representing   10,000 shares of capital stock of ACO Holdings, Inc.
	 	Stock Power, undated and executed in blank by Hallmark Financial Services, Inc. for stock of ACO Holdings, Inc.
	2.	Certificate No. 3, in the name of Hallmark Financial Services, Inc. representing 1,000 shares of capital stock of Effective Claims Management, Inc.
	 	Stock Power, undated and executed in blank by Hallmark Financial Services, Inc. for stock of Effective Claims Management, Inc.
	3.	Certificate No. 5, in the name of Hallmark Financial Services, Inc. representing 100 shares of capital stock of Hallmark General Agency, Inc.
	 	Stock Power, undated and executed in blank by Hallmark Financial Services, Inc. for stock of Hallmark General Agency, Inc.
	4.	Certificate No. 12, in the name of ACO Holdings, Inc. representing 1,000 shares of capital stock of American Hallmark General Agency, Inc.
	 	Stock Power, undated and executed in blank by ACO Holdings, Inc. for stock of American Hallmark General Agency, Inc.
	5.	Certificate No. 004, in the name of ACO Holdings, Inc. representing 1,000 shares of capital stock of Hallmark Claims Service, Inc.
	 	Stock Power, undated and executed in blank by ACO Holdings, Inc. for stock of Hallmark Claims Service, Inc.
	6.	Certificate No. 6, in the name of American Hallmark General Agency, Inc. representing 1,000 shares of capital stock of Allrisk Insurance Agency, Inc.
	 	Stock Power, undated and executed in blank by American Hallmark General Agency, Inc. for stock of Allrisk Insurance Agency, Inc.
	7.	Certificate No. 007, in the name of American Hallmark General Agency, Inc. representing 1,000 shares of capital stock of American Hallmark Agencies, Inc.
	 	Stock Power, undated and executed in blank by American Hallmark General Agency, Inc. for stock of American Hallmark Agencies, Inc.
	8.	Certificate No. 007, in the name of American Hallmark General Agency, Inc. representing 1,000 shares of capital stock of Hallmark Finance Corporation.

 

    	-1-

    	 

    

 

	 	Stock Power, undated and executed in blank by American Hallmark General Agency, Inc. for stock of Hallmark Finance Corporation.
	9.	Certificate No. 007, in the name of American Hallmark General Agency, Inc. representing 1,000 shares of capital stock of Hallmark Underwriters, Inc.
	 	Stock Power, undated and executed in blank by American Hallmark General Agency, Inc. for stock of Hallmark Underwriters, Inc.
	10.	Certificate No. 002, in the name of Hallmark Financial Services, Inc. representing 0.1% Class A Voting of limited liability company interest of Aerospace Holdings, LLC
	11.	Certificate No. 003, in the name of Hallmark Financial Services, Inc. representing 99.9% Class B Non-Voting of limited liability company interest of Aerospace Holdings, LLC
	 	Power, undated and executed in blank by Hallmark Financial Services, Inc. for units of limited liability company interest of Aerospace Holdings, LLC
	12.	Certificate No. 27, in the name of Hallmark Financial Services, Inc. representing 2,031 shares of capital stock of Pan American Acceptance Corporation
	 	Stock Power, undated and executed in blank by Hallmark Financial Services, Inc. for stock of Pan American Acceptance Corporation
	13.	Certificate No. 10, in the name of Hallmark Financial Services, Inc. representing 1,000 shares of capital stock of Texas General Agency, Inc.
	 	Stock Power, undated and executed in blank by Hallmark Financial Services, Inc. for stock of Texas General Agency, Inc.
	14.	Certificate No. 4, in the name of Hallmark Financial Services, Inc. representing 1,000 shares of capital stock of TGA Special Risk, Inc.
	 	Stock Power, undated and executed in blank by Hallmark Financial Services, Inc. for stock of TGA Special Risk, Inc.
	15.	Certificate No. 3, in the name of Aerospace Holdings, LLC representing 100,000 shares of capital stock of Aerospace Claims Management Group, Inc.
	 	Stock Power, undated and executed in blank by Aerospace Holdings, LLC for stock of Aerospace Claims Management Group, Inc.
	16.	Certificate No. 3, in the name of Aerospace Holdings, LLC representing 1,000 shares of capital stock of Aerospace Flight, Inc.
	 	Stock Power, undated and executed in blank by Aerospace Holdings, LLC for stock of Aerospace Flight, Inc.

 

    	-2-

    	 

    

 

	17.	Certificate No. 2, in the name of Aerospace Holdings, LLC representing 1,000 shares of capital stock of Aerospace Insurance Managers, Inc.
	 	Stock Power, undated and executed in blank by Aerospace Holdings, LLC for stock of Aerospace Insurance Managers, Inc.
	18.	Certificate No. 002, in the name of Aerospace Holdings, LLC representing 100,000 shares of capital stock of Aerospace Special Risk, Inc.
	 	Stock Power, undated and executed in blank by Aerospace Holdings, LLC for stock of Aerospace Special Risk, Inc.

 

    	-3-

    	 

    

 

Exhibit A

 

Financing Statement Amendments

 

    	-1-Exhibit 10.1.1

 

 

 

CONIFER HOLDINGS, INC. 
 AMENDED AND RESTATED CREDIT AGREEMENT 
 DATED AS OF SEPTEMBER 29, 2014 
 COMERICA BANK

 

 

 

 

CLOSING AGENDA
 CONIFER HOLDINGS, INC.

 

September 29, 2014

 

1.                                 Amended and Restated Credit Agreement (4310845)

 

2.                                 $17,500,000 Master Revolving Note (4310843)

 

3.                                 $7,500,000 Installment Note (4310842)

 

4.                                 Waiver Letter (4328818)

 

5.                                 Consistency Letter (43393%) (Bank and Bodman Only)

 

 

AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS AMENDED AND RESTATED CREDIT AGREEMENT, made as of the 29th day of September, 2014, by and between CONIFER HOLDINGS, INC., a Michigan corporation (herein called “Company”) and COMERICA BANK (herein called “Bank”),

 

RECITALS:

 

A.                                    Company and Bank entered into a Credit Agreement dated as of April 30, 2010 (as amended, the “Existing Credit Agreement”).

 

B.                                    Company and Bank desire to amend and restate the Existing Credit Agreement in its entirety.

 

C.                                    Company desires to obtain certain credit facilities from Bank.

 

D.                                    Bank is willing to extend such credit to Company on the terms and conditions herein set forth.

 

NOW, THEREFORE, Bank and Company agree as follows:

 

WITNESSETH:

 

1.                                      DEFINITIONS

 

For the purposes of this Agreement the following terms will have the following meanings:

 

“Advance” shall mean a borrowing requested by Company and made by Bank under Section 2 of this Agreement.

 

“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and executive officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation for the purposes of this definition if such Person possesses, directly or indirectly, the power (1) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise,

 

“Applicable L/C Commission Rate” shall mean two and three quarters percent (2 3/4%) per annum.

 

“Best” shall mean A,M. Best Company and its successors.

 

 

“Business Day” shall mean any day on which commercial banks are open for domestic and international business (including dealings in foreign exchange) in Detroit, London and New York.

 

“Capital Expenditure” shall mean, without duplication, any payment made directly or indirectly for the purpose of acquiring or constructing fixed assets, real property or equipment which in accordance with GAAP would be added as a debit to the fixed asset account of Company, including, without limitation, amounts paid or payable under any conditional sale or other title retention agreement or under any lease or other periodic payment arrangement which is of such a nature that payment obligations of Company or a Subsidiary, as applicable, thereunder would be required by GAAP to be capitalized and shown as liabilities on the balance sheet of Company and its consolidated Subsidiaries.

 

“Capital Lease” shall mean any lease of any property (whether real, personal or mixed) by Company or any Subsidiary as lessee which, in conformity with GAAP, is, or is required to be accounted for as a capital lease on the balance sheet of Company and its consolidated Subsidiaries.

 

“Consolidated” or “Consolidating” shall mean, when used with reference to any financial term in this Agreement, the aggregate for two or more Persons of the amounts signified by such term for all such Persons determined on a consolidated or combined, as applicable, basis in accordance with GAAP. Unless otherwise specified herein, references to Consolidated financial statements or data of Company includes consolidation with its Subsidiaries in accordance with GAAP or SAP, as applicable.

 

“Consolidated Net Income” shall mean, the net income (or loss) (after taxes) of Company and its consolidated Subsidiaries for such period, all as determined in accordance with GAAP.

 

“Dividend Paying Capacity” shall mean for any Insurance Subsidiary for any fiscal year, the greater of (i) net income of such Insurance Subsidiary for such year or (ii) the sum of ten percent (10%) of statutory capital for such Insurance Subsidiary as of the last day of such fiscal year, all as determined in accordance with GAAP or SAP, as applicable.

 

“Environmental Laws” shall mean all federal, state and local laws including statutes, regulations, ordinances, codes, rules, and other governmental restrictions and requirements, relating to environmental pollution, contamination or other impairment of the environment or any hazardous or toxic substances of any nature. These Environmental Laws shall include but ‘not be limited to the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, and the Federal Superfund Amendments and Reauthorization Act of 1986.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor act or code.

 

“Event of Default” shall mean any of the Events of Default specified in Section 10 hereof.

 

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“Fixed Charge Coverage Ratio” shall mean, as of any date of determination, a ratio, the numerator of which is Consolidated Net Income of Company less net income from Subsidiaries (to the extent included in Net Income when applying the consolidated basis of accounting, in accordance with GAAP) for the four preceding fiscal quarters ending on such date, plus to the extent deducted in determining Net Income, interest expense, depreciation and amortization expenses (only to the extent directly recorded in Company) for such period, plus the Dividend Paying Capacity of all Insurance Subsidiaries and the denominator of which is the sum of (A) the amount of all dividends paid by Company to its shareholders during such period, (B) all scheduled principal and interest payments with respect to Funded Debt of Company during such period, (C) all payments by Company with respect to Capital Leases during such period, and (D) 20% of the Revolving Credit Facility Amount.

 

“Funded Debt” shall mean as of any date of determination, the sum, without duplication, of (a) all indebtedness of Company and its consolidated Subsidiaries for borrowed money or for the deferred purchase price of property or services as of such date (other than trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of Company and its consolidated Subsidiaries under Capital Leases as of such date, (c) all obligations of Company and its consolidated Subsidiaries in respect of letters of credit, acceptances or similar obligations issued or created for the account of Company or any of its consolidated Subsidiaries as of such date, (d) all liabilities secured by any lien on any property owned by Company and its consolidated Subsidiaries as of such date even though Company or its Subsidiaries, as applicable, have not assumed or otherwise become liable for the payment thereof, (e) all obligations of Company and its consolidated Subsidiaries arising in connection with Hedging Transactions; (f) all liabilities of Company or any Subsidiary under any securitization, any so-called “synthetic lease” or “tax ownership operating lease” or any other off balance sheet transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on a balance sheet of such Person, based on the outstanding amount of such liability if it had been structured as a financing on the balance sheet of such person, and (g) all obligations of others similar in character to those described in clauses (a) through (f) of this definition for which Company or any of its Subsidiaries is contingently liable, as obligor, guarantor, surety or in any other capacity, or in respect of which obligations Company or any of its Subsidiaries assures a creditor against loss or agrees to take any action to prevent any such loss (other than endorsements of negotiable instruments for collection in the ordinary course of business), including without limitation all reimbursement obligations of Company or any of its Subsidiaries in respect of letters of credit, surety bonds or similar obligations and all obligations of Company or any of its Subsidiaries to advance funds to, or to purchase assets, property or services from, any other Person in order to maintain the financial condition of such other Person, other than insurance contracts issued by the Company or any of its Subsidiaries in the ordinary course of business.

 

“GAAP” shall mean, as of any applicable date of determination, generally accepted accounting principles consistently applied, as in effect on the date of this Agreement.

 

“Governmental Obligations” means noncallable direct general obligations of the United States of America or obligations the payment of principal of and interest on which is unconditionally guaranteed by the United States of America.

 

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“Gross Premiums Ratio” shall mean for any Person as of any date of determination a ratio the numerator of which is gross premiums written of such Person for the four preceding fiscal quarters ending on such date of determination and the denominator of which is Statutory Surplus of such Person as of such date.

 

“Guarantors” shall mean each Subsidiary of Company required to guaranty the Indebtedness under the provisions of this Agreement and “Guarantor” shall mean each of them.

 

“Guaranties” shall mean the Guaranties in the form of attached Exhibit “A” from the Guarantors in favor of Bank and “Guaranty” shall mean each of them.

 

“Indebtedness” shall mean all loans, advances, indebtedness, obligations and liabilities of Company to Bank under this Agreement, together with all other indebtedness, obligations and liabilities whatsoever of Company to Bank arising under or in connection with this Agreement or otherwise, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, due or to become due, now existing or hereafter arising.

 

“Insurance Regulatory Authority” shall mean, with respect to any Insurance Subsidiary, the insurance department or similar governmental authority charged with regulating insurance companies or insurance holding companies, in its state of domicile and, to the extent that it has regulatory authority over such Insurance Subsidiary, in each other jurisdiction in which such Insurance Subsidiary conducts business or is licensed to conduct business.

 

“Insurance Subsidiar(ies)” shall mean any Subsidiary of the Company, the ability of which to pay dividends is regulated by an Insurance Regulatory Authority or that is otherwise required to be regulated thereby in accordance with the applicable Requirement of Law of its state of domicile.

 

“Letter of Credit” shall have the meaning set forth in Section 2.5.

 

“Letter of Credit Reserve” shall mean as of any date of determination, an amount equal to the aggregate principal amount of all undrawn Letters of Credit issued by Bank for the account of Company under and pursuant to this Agreement and the amount of all draws under Letters of Credit paid by Bank and not reimbursed by Company.

 

“Life Insurance Policy” shall mean a key man life insurance policy in an amount of at least $5,000,000 insuring the life of James G. Petcoff which is owned by Company.

 

“Loan Documents” shall mean collectively, this Agreement, the Security Agreement, the Pledge Agreements, the Guaranties, the Note, and any other instruments or agreements executed at any time pursuant to or in connection with any such documents.

 

“NAIL” shall mean the National Association of Insurance Commissioners.

 

“Net Premium Ratio” shall mean for any Person as of any date of determination a ratio the numerator of which is Net Written Premiums of such Person for the four preceding fiscal quarters ending on such date of determination and the denominator of which is Statutory Surplus of such Person as of such date.

 

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“Net Worth” shall mean as of any date of determination the common shareholders’ equity of Company and its consolidated Subsidiaries as of such date as determined in accordance with GAAP as in effect on the date of this Agreement.

 

“Net Uncollateralized Reinsurance Recoverables” shall mean as of any date of determination the aggregate amount of the Insurance Subsidiaries’ reinsurance recoverables as of such date, minus the aggregate amount of reinsurance recoverables which are secured by a letter of credit or cash collateral as of such date.

 

“Net Written Premiums” shall mean with respect to any Subsidiary of the Company, such Subsidiary’s gross written premiums, plus reinsurance assumed premiums less reinsurance ceded premiums.

 

“Note” shall mean the Revolving Credit Note, the Term Note and the 2014 Term Note or any of them as the context may require.

 

“Permitted Acquisitions shall mean any acquisition (including by way of merger) by Company or any wholly-owned Subsidiary of Company of all or substantially all of the assets of another Person, or of a division or line of business of another Person, or shares of stock or other ownership interests of another Person, which is conducted in accordance with the following requirements:

 

(a)                                 Such acquisition is of a business or Person organized under the laws of the United States of America or any state or district thereof which is engaged in a reasonably related line of business and whose assets are located in the United States of America;

 

(b)                                 Company shall have delivered to Bank not less than ten (10) nor more than ninety (90) days prior to the date of such acquisition, notice of such acquisition together with Pro Forma Projected Financial Information, copies of all material documents relating to such acquisition;

 

(c)                                  Both before and after giving effect to such acquisition, Company shall be in compliance with all other financial covenants in this Agreement, in each case on a pro forma basis acceptable to Bank;

 

(d)                                 Both immediately before and after such acquisition no Default or Event of Default shall have occurred and be continuing;

 

(e)                                  The board of directors (or other Person(s) exercising similar functions) of the seller of the assets or issue of the shares of stock or other ownership interests being acquired shall not have disapproved such transaction or recommended that such transaction be disapproved, and (in the case of a merger) the Company shall be the surviving entity;

 

(f)                                   The rating of the acquisition target by Best, if then rated by Best, must be at least B+’

 

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(g)                                  If such ‘acquisition includes seller debt, such seller debt shall be Subordinated Debt and shall otherwise be acceptable to the Bank;

 

(h)                                 All approvals from all Regulatory Agencies shall have been obtained; and

 

(i)                                     If the sum of the purchase price of such proposed new acquisition, computed on the basis of total acquisition consideration paid or incurred, or to be paid or incurred, by Company and its Subsidiaries with respect thereto, including the amount of Debt assumed or to which such assets, businesses or business or ownership interest or shares, or any Person so acquired, is subject plus the amount of any seller notes, but excluding the value of any common shares transferred as a part of such acquisition, is greater than Four Million Dollars ($4,000,000), the acquisition shall have been approved in writing by Bank prior to its consummation.

 

“Permitted Investments” shall mean with respect to any Person;

 

(a)                                 Governmental Obligations;

 

(b)                                 Obligations of a state of the United States, the District of Columbia or any possession of the United States, or any political subdivision thereof, which are described in Section 103(a) of the Internal Revenue Code and are graded in any of the highest three (3) major grades as determined by at least one Rating Agency; or secured, as to payments of principal and interest, by a letter of credit provided by a financial institution or insurance provided by a bond insurance company which in each case is itself or its debt is rated in one of the highest three (3) major grades as determined by at least one Rating Agency;

 

(c)                                  Banker’s acceptances, commercial accounts, demand deposit accounts, certificates of deposit, or depository receipts issued by or maintained with any Bank or a bank, trust company, savings and loan association, savings bank or other financial institution whose deposits are insured by the Federal Deposit Insurance Corporation and whose reported capital and surplus equal at least $100,000,000, provided that such minimum capital and surplus requirement shall not apply to demand deposit accounts maintained by the Company or any of its Subsidiaries in the ordinary course of business;

 

(d)                                 Commercial paper rated at the time of purchase within the two highest classifications established by not less than two Rating Agencies, and which matures within 270 days after the date of issue;

 

(e)                                  Secured repurchase agreements against obligations itemized in paragraph (a) above, and executed by a bank or trust company or by members of the association of primary dealers or other recognized dealers in United States government securities, the market value of which must be maintained at levels at least equal to the amounts advanced;

 

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(f)                                   Any fund or other pooling arrangement which exclusively purchases and holds the investments itemized in (a) through (e) above;

 

(g)                                  Securities and other investments held in its investment portfolio which are permitted under Company’s and the Insurance Subsidiaries’ then current investment policies and which are permitted under applicable law.

 

“Permitted Liens” shall mean with respect to any Person:

 

(a)                                 liens for taxes not yet due and payable or which are being contested in good faith by appropriate proceedings diligently pursued, provided that provision for the payment of all such taxes has been made on the books of such Person as may be required by generally accepted accounting principles, consistently applied;

 

(b)                                 mechanics’, materialmen’s, banker’s, carriers’, warehousemen’s and similar liens and encumbrances arising in the ordinary course of business and securing obligations of such Person that are not overdue for a period of more than 60 days or are being contested in good faith by appropriate proceedings diligently pursued, provided that in the case of any such contest (i) any proceedings commenced for the enforcement of such liens and encumbrances shall have been duly suspended; and (ii) such provision for the payment of such liens and encumbrances has been made on the books of such Person as may be required by generally accepted accounting principles, consistently applied;

 

(c)                                  liens arising in connection with worker’s compensation, unemployment insurance, old age pensions and social security benefits and similar statutory obligations which are not overdue or are being contested in good faith by appropriate proceedings diligently pursued, provided that in the case of any such contest (i) any proceedings commenced for the enforcement of such liens shall have been duly suspended; and (ii) such provision for the payment of such liens has been made on the books of such Person as may be required by generally accepted accounting principles, consistently applied;

 

(d)                                 (i) liens incurred in the ordinary course of business to secure the performance of statutory obligations arising in connection with progress payments or advance payments due under contracts with the United States government or any agency thereof entered into in the ordinary course of business and (ii) liens incurred or deposits made in the ordinary course of business to secure the performance of statutory obligations, bids, leases, fee and expense arrangements with trustees and fiscal agents and other similar obligations (exclusive of obligations incurred in connection with the borrowing of money, any lease-purchase arrangements or the payment of the deferred purchase price of property), provided that full provision for the payment of all such obligations set forth in clauses (i) and (ii) has been made on the books of such Person as may be required by generally accepted accounting principles, consistently applied; and

 

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(e)                                  minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which do not materially interfere with the business of such Person.

 

“Person” or “person” shall mean any individual, corporation, partnership, joint venture, limited liability company, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity.

 

“Pledge Agreements” shall mean the Security Agreements under which the Company and/or its Subsidiaries, as applicable, grant to Bank first priority security interests in all of the equity interests in their Subsidiaries.

 

“Prime Rate” shall mean the per annum interest rate established by Bank as its prime rate for its borrowers as such rate may vary from time to time, which rate is not necessarily the lowest rate on loans made by Bank at any such time.

 

“Pro Forma Projected Financial Information” shall mean, as to any proposed acquisition, a statement executed by the treasurer or otherwise designated authorized employee of Company (supported by reasonable detail) setting forth the total consideration to be paid or incurred in connection with the proposed acquisition, and pro forma combined projected financial information for the Company and its Consolidated Subsidiaries and the acquisition target (if applicable), consisting of projected balance sheets as of the proposed effective date of the. acquisition or the closing date thereof and as of the end of at least the next succeeding two (2) fiscal years of the Company following .the acquisition and projected statements of income and cash flows for each of those years, including sufficient detail to permit calculation of the amounts and the ratios described in Sections 7.13 through 7.16, as projected as of the effective date of the acquisition and for those fiscal years and accompanied by (i) a statement setting forth a calculation of the ratios and amounts so described, (ii) a statement in reasonable detail specifying all material assumptions underlying the projections and (iii) such other information as Bank may reasonably request.

 

“Rating Agency” shall mean the NAIC Securities Valuation Office.

 

“Regulatory Agency” shall mean any state board, commission, department or other regulatory body which regulates insurance companies or insurance holding companies.

 

“Required Rating” shall mean “Bi-”. •

 

“Requirement of Law” shall mean as to any Person, the certificate of incorporation and bylaws, the partnership agreement or other organizational or governing documents of such Person and any law, treaty, rule or regulation or determination of an arbitration or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“Revolving Credit Facility Amount” shall mean Seventeen Million Five Hundred Thousand Dollars ($17,500,000).

 

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“Revolving Credit Maturity Date” shall mean August 1, 2016. .

 

“Revolving Credit Note” or “Note” shall mean the Note described in Section 2.1 hereof made by Company to Bank in the form annexed to this Agreement as Exhibit “B”..

 

“SAP” or “Statutory Accounting Principles” shall mean, with respect to any Insurance Subsidiary, the statutory accounting practices or practices prescribed or permitted by the relevant Insurance Regulatory Authority of its state of domicile, consistently applied and maintained and in conformity with those used in the preparation of the most recent historical financial statements after giving effect to any changes in such principles and practices from time to time.

 

“Security Agreement” shall mean the collective reference to the Security Agreements in the form and content of Exhibit “C” to this Agreement pursuant to which Company and its Subsidiaries (other than the Insurance Subsidiaries) grant to Bank a first priority security interest in all tangible and intangible personal property, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing.

 

“Statutory Surplus” of any Person shall mean the statutory surplus of such Person computed in the manner required for its annual statement of condition and affairs prepared in accordance with SAP.

 

“Subordinated Debt” shall mean all indebtedness of Company for borrowed money which is subordinated to Company’s indebtedness to Bank pursuant to a written subordination agreement in form and substance acceptable to Bank and which otherwise is on terms acceptable to Bank in the exercise of it sole discretion.

 

“Subordination Agreements” shall mean the subordination agreements executed from time to time by the holders of Subordinated Debt in favor of Bank, in each case in form and substance acceptable to Bank.

 

“Subsidiary” shall mean a corporation or other entity of which more than fifty percent (50%) of the outstanding voting stock or equivalent equity interests are owned by Company, either direct or indirectly, through one or more intermediaries.

 

“Tangible Effective Net Worth” shall mean as of any date of determination, Tangible Net Worth as of such date, plus the outstanding principal amount of the Subordinated Debt as of such date.

 

“Tangible Net Worth” shall mean as of any date Net Worth less the Intangible Assets of the Company and its consolidated Subsidiaries, all determined as of such date. For purposes of this Agreement, “Intangible Assets” means the amount (to the extent reflected in determining such Net Worth) of (1) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) in the book value of any asset owned by Company and its consolidated Subsidiaries, (ii) loans or advances to Affiliates and receivables from Affiliates, (iii) -all investments in unconsolidated Subsidiaries of the Company and all equity investments in Persons which are not Subsidiaries of Company (provided that this exclusion shall not include

 

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Permitted Investments) and (iv) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks,, trade names, copyrights, organization or developmental expenses, deferred acquisition costs and other intangible assets.

 

“Term Loan Maturity Date” shall mean July 1, 2018.

 

“Term Note” shall mean the Installment Note dated March 5, 2013 in the principal amount of Five Million Dollars ($5,000,000) in the form attached as Exhibit “B-1”.

 

“2014 Term Loan Maturity Date” shall mean September 29, 2019.

 

“2014 Term Note” shall mean the Installment Note dated September 29, 2014 in the principal amount of Seven Million Five -Hundred Thousand Dollars ($7,500,000) in the form attached as Exhibit “B-2”.

 

“Uniform Commercial Code” or “UCC” shall mean the Uniform Commercial Code of ‘any applicable state and unless specified otherwise shall mean the Uniform Commercial Code as in effect in the State of Michigan.

 

2.                                      THE INDEBTEDNESS:  Revolving Credit

 

2.1                               Bank agrees to make Advances to Company at any time and from time to time from the effective date hereof until the Revolving Credit Maturity Date, not to exceed the Revolving Credit Facility Amount in aggregate principal amount at any one time outstanding. All of the Advances under this Section 2 shall be evidenced by the Revolving Credit Note under which Advances, repayments and readvances may be made, subject to the terms and conditions of this Agreement.

 

2.2                               The Revolving Credit Note shall mature on the Revolving Credit Maturity Date and each Advance from time to time outstanding thereunder shall bear interest as provided in the Revolving Credit Note. The amount and date of each Advance and the amount and date of any repayment shall be noted on Bank’s records, which records will be conclusive evidence thereof absent manifest error.

 

2.3                               Company may request an Advance under this Section 2 upon the delivery to Bank of a request for advance as provided in the Revolving Credit Note.

 

2.4                               Company may prepay all or part of the outstanding balance of the Prime-based Advance(s) under the Revolving Credit Note as provided in the Revolving Credit Note.

 

2.5                               In addition to Advances under the Revolving Credit Note to be provided to Company by Bank under and pursuant to Section 2.1 of this Agreement, Bank may from time to time issue, or commit to issue, standby letters of credit for the account of Company (herein individually called a “Letter of Credit” and collectively “Letters of Credit”) in aggregate undrawn amounts not to exceed Two Million Dollars ($2,000,000) at any one time outstanding; provided, however that the sum of the aggregate amount of Advances outstanding under the Revolving Credit Note plus the Letter of Credit Reserve shall not exceed the Revolving Credit Facility Amount at any one time; and provided further that no Letter of Credit shall, by its terms, have an

 

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expiration date which extends beyond the fifth (5th) Business Day before the Revolving Credit Maturity Date or one (1) year after issuance, whichever first occurs. In addition to the terms and conditions of this Agreement, the issuance of any Letters of Credit shall also be subject to the terms and conditions of any letter of credit applications and agreements executed and delivered by Company to Bank with respect thereto. Company shall pay to Bank quarterly in advance a per annum fee equal to the Applicable L/C Commission Rate of the amount of each .standby Letter of Credit.

 

2.6                               Company shall pay to the Bank an unused fee for the period from the date of this Agreement to and including the Revolving Credit Maturity Date equal to two tenths of one percent (0.2%) per annum on the average daily excess of the Revolving Credit Facility Amount over the aggregate unpaid principal balance of the Advances. Such commitment fee shall be payable on the first Business Day of each calendar quarter, beginning January 1, 2015 and the Revolving Credit Maturity Date,- for the periods ending on such dates. The fee under this Section 2.6 shall be computed on the basis of the actual number of days elapsed using a year of 360 days.

 

2.7                               Proceeds of Advances under the Revolving Credit Note shall be used solely for working capital purposes and to finance Permitted Acquisitions and such proceeds may not be used to repurchase or redeem the shares of any preferred stock issued by Company.

 

3.                                      THE INDEBTEDNESS:  Term Loan

 

3.1                               Bank loaned to Company and Company borrowed, on March 5, 2013, the sum of Five Million Dollars ($5,000,000). At the time of borrowing, Company executed the Term Note. The loan under this Section 3 shall be subject to the terms and conditions of this Agreement.

 

3.2                               The indebtedness represented by the Term Note shall be repaid in quarterly principal installments as set forth in the Term Note, until the Term Loan Maturity Date, when the entire unpaid balance of principal and interest thereon shall be due and payable. Company agrees to pay interest on the unpaid principal balance of the Term Note from time to time outstanding as provided in the Term Note.

 

3.3                               Company may prepay the Term Note in whole or in part at any time upon five (5) days prior written notice to Bank without premium or penalty. All prepayments shall be applied to principal installments in the inverse order of their respective maturities.

 

3.4                               The proceeds of the Term Note were used to refinance existing indebtedness of the Company to Bank;

 

4.                                      THE INDEBTEDNESS:  2014 Term Loan

 

4.1                               Bank agrees to loan to Company and Company agrees to borrow, on September 29, 2014, the sum of Seven Million Five Hundred Thousand Dollars ($7,500,000), At the time of borrowing, Company shall execute the 2014 Term Note. The loan under this Section 4 shall be subject to the terms and conditions of this Agreement.

 

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4.2                               The indebtedness represented by the 2014 Term Note shall be repaid in quarterly principal installments as set forth in the 2014 Term Note, until the 2014 Term Loan Maturity Date, when the entire unpaid balance of principal and interest thereon shall be due and payable. Company agrees to pay interest on the unpaid principal balance of the 2014 Term Note from time to time outstanding as provided in the 2014 Term Note.

 

4.3                               Company may prepay the 2014 Term Note in whole or in part at any time upon five (5) days prior written notice to Bank without premium or penalty. All prepayments shall be applied to principal installments in the inverse order of their respective maturities.

 

4.4                               The proceeds of the 2014 Term Note shall be used to make equity investments in certain of its Insurance Subsidiaries and/or refinance existing indebtedness to Bank.

 

5.                                      CONDITIONS

 

5.1                               Company agrees to furnish Bank on the date of execution of this Agreement, in form and substance to be satisfactory to Bank, with (1) certified copies of resolutions of the Directors of Company evidencing approval of the borrowings and transactions contemplated hereunder; (ii) a certificate of good standing from the state of Company’s incorporation and from the state(s) in which is required to be qualified to do business; (iii) an opinion of Company’s legal counsel; (iv) evidence of the receipt of net cash proceeds of new equity contributions to Company consisting of $10,000,000 from the issuance of common stock and $5,000,000 from the issuance of preferred stock which is on terms acceptable to Bank; and (v) such other documents and instruments as Bank may reasonably require.

 

5.2                               As security for all Indebtedness, Company agrees to furnish, execute and deliver to Bank, or cause to be furnished, executed and delivered to Bank, prior to or simultaneously with the initial borrowing hereunder, in form to be satisfactory to Bank and supported by appropriate resolution in certified form authorizing same, the following:

 

(a)                                 The Security Agreement;

 

(b)                                 The Guaranties (if any);

 

(c)                                  The Pledge Agreements;

 

(d)                                 Financing Statements required or requested by Bank to perfect all security interests to be conferred upon Bank under this Agreement and to accord Bank a perfected first priority security position under the Uniform Commercial Code (subject only to the encumbrances permitted hereunder);

 

(e)                                  Such other documents or agreements of security and appropriate assurances of validity and perfected first priority of lien or security interest as Bank may reasonably request at any time.

 

5.3                               As a condition to the effectiveness of this Agreement, Bank shall have received from Company a non-refundable commitment fee in the amount of $50,000.

 

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6.                                      REPRESENTATIONS AND WARRANTIES

 

Company represents and warrants and such representations and warranties shall be deemed to be continuing representations and warranties during the entire life of this Agreement:

 

6.1                               Company is a corporation duly organized and existing in good standing under the laws of the State of Michigan; Company and each of its Subsidiaries is in good standing in each jurisdiction in which it is required to be qualified to do business, except where the failure to be so qualified would not have a material adverse effect on the financial condition of Company and its Subsidiaries or their ability to carry on their business; execution, delivery and performance of this Agreement and other documents and instruments required under this Agreement, and the issuance of the Note by Company are within its powers, have been duly authorized, are not in contravention of law or the terms of Company’s Articles of Incorporation or Bylaws, and do not require the consent or approval of any governmental body, agency or authority; and this Agreement and other documents and instruments required under this Agreement and Note, when issued and delivered, will be valid and binding on the Company in accordance with their terms.

 

6.2                               The execution, delivery and performance of this Agreement and any other documents and instruments required under this Agreement, and the issuance of the Note by Company are not in contravention of the unwaived terms of any indenture, agreement or undertaking to which Company is a party or by which it is bound,

 

6.3                               No litigation or other proceeding before any court or administrative agency is pending, or to the knowledge of the officers of Company is threatened against Company or any of its Subsidiaries, the outcome of which would reasonably be expected to materially impair Company’s or any Subsidiary’s financial condition or the ability of Company or any Subsidiary to carry on its business.

 

6.4                               There are no security interests in, liens, mortgages, or other encumbrances on any of Company’s or any Subsidiary’s assets, except to Bank or as otherwise permitted by this Agreement.

 

6.5                               Neither Company nor any Subsidiary maintains or contributes to any employee pension benefit plan subject to title IV of the “Employee Retirement Income Security Act of 1974” (herein called “ERISA”), except those set forth in attached Schedule 6.5.  There was no unfunded past service liability of any pension plan maintained by the Company as of December 31, 2013, and there is no accumulated funding deficiency within the meaning of ERISA, or any existing material liability with respect to any pension plan owed to the Pension Benefit Guaranty Corporation (“PBGC”) or any successor thereto, except any funding deficiency for which an application to the PBGC for waiver is pending or for which a waiver has been granted by the PBGC.

 

6.6                               The financial statements of the Company dated December 31, 2013, previously furnished to Bank, fairly present in all material respects the financial condition of the Company and its consolidated Subsidiaries as of such date; since said date there has been no material adverse change in the financial condition of the Company and its consolidated Subsidiaries; to the best of the knowledge of Company’s officers, Company does not have any material

 

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contingent obligations (including any liability for taxes) not disclosed by or reserved against in said balance sheet, and at the present time there are no material unrealized or anticipated losses from any present commitment of Company or any of its Subsidiaries.

 

6.7                               All tax returns and tax reports of Company and its consolidated Subsidiaries required by law to have been filed have been duly filed or extensions obtained, and all taxes, assessments and other governmental charges or levies (other than those presently payable without penalty and those currently being contested in good faith for which adequate reserves have been established) upon Company and its consolidated Subsidiaries (or any of its or their properties) which are due and payable and for which the failure to pay would materially adversely affect its business or the value of its property or assets have been paid. The charges, accruals and reserves on the books of Company in respect of the Federal income tax for all periods are adequate in the opinion of Company.

 

6.8                               Except as set forth in Schedule 6.8, there are no subsidiaries of Company,

 

6.9                               Except as set forth in Schedule 6.9:

 

(a)                                 Company and each of its Subsidiaries, in the conduct of its business, is in compliance in all material respects with all federal, state or local laws, statutes, ordinances and regulations applicable to any of them, the enforcement of which, if such Person were-not in compliance, would reasonably be expected to materially adversely affect its business or the value of its property or assets. Company and its Subsidiaries have all approvals, authorizations, consents, licenses, orders and other permits of all governmental agencies and authorities, whether federal, state or local, required to permit the operation of their business as presently conducted, except such approvals, authorizations, consents, licenses, orders and other permits with respect to which the failure to have would not reasonably be expected to materially adversely affect their business or the value of their property or assets (taken as a whole).

 

(b)                                 Neither Company nor any Subsidiary is a party to any litigation or administrative proceeding, nor so far as is known by Company is any litigation or administrative proceeding threatened against Company or any Subsidiary, the outcome of which would reasonably be expected to have a material adverse effect on the Company or any Subsidiary which in either case (i) asserts or alleges that Company or any Subsidiary violated Environmental Laws, (ii) asserts or alleges that Company or any Subsidiary is required to clean up, remove, or take remedial or other response action due to the “disposal, depositing, discharge, leaking or other release of any hazardous substances or materials, (iii) asserts or alleges that Company or any Subsidiary is required to pay all or a portion of the cost of any past, present, or future cleanup, removal or remedial or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release of any hazardous substances or materials by Company or any Subsidiary.

 

(c)                                  Neither Company nor any Subsidiary is subject to any judgment, decree, order or citation related to or arising out of applicable Environmental Laws which would

 

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reasonably be expected to materially adversely affect its business or the value of its property or assets and to the best knowledge of the Company, neither Company nor any Subsidiary has been named or listed as a potentially responsible party by any governmental body or agency in a matter arising under any applicable Environmental Laws which would reasonably be expected to materially adversely affect its business or the value of its property or assets.

 

(d)                                 To the best of Company’s knowledge, Company and its Subsidiaries have all permits, licenses and approvals required under applicable Environmental Laws, the failure of which to have would have a material adverse effect on the operation of their business as presently conducted and as proposed to be conducted.

 

6.10                        Company is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended. Company is not engaged principally, or as one of its important activities, directly or indirectly, in the business of extending credit for the purpose of purchasing or carrying margin stock, and none of the proceeds of any of the loans hereunder will be used, directly or indirectly, for any purpose which would violate the provisions of Regulation U or X of the Board of Governors of the Federal Reserve System. Terms for which meanings are provided in Regulation U of the Board of Governors of the Federal Reserve System or any regulations substituted therefor, as from time to time in effect, are used in this paragraph with such meanings.

 

6.11                        Company and its Subsidiaries have good and valid title to the property pledged, mortgaged or otherwise encumbered or to be encumbered by them under the Security Agreements.

 

6.12                        Except as have been previously obtained, no authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange or any other person or party (whether or not governmental) is required in connection with the execution, delivery and performance: (i) by Company of this Agreement, any of the other Loan Documents to which it is a party, or any other documents or instruments to be executed and or delivered by Company in connection therewith or herewith, or (ii) by Company of the Liens granted, conveyed or otherwise established (or to be granted, conveyed or otherwise established) by or under this Agreement or the other Loan Documents, except for such filings to be made as are required by the Loan Documents to perfect Liens in favor of the Agent. All such authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and registrations which have previously been obtained or made, as the case may be, are in full force and effect and are not the subject of any attack, or to the knowledge of Company threatened attack (in any material respect) by appeal or direct proceeding or otherwise.

 

7.                                      AFFIRMATIVE COVENANTS

 

Company covenants and agrees that it will, so long as Bank may make any advance under this Agreement and thereafter so long as any indebtedness remains outstanding under this Agreement:

 

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7.1                               Furnish Bank:

 

(a)                                 as soon as available, but in any event not later than one hundred fifty (150) days after and as of the end of each fiscal year of Company a copy of the audited Consolidated and Consolidating financial statements of Company as at the end of the preceding fiscal year and the related audited statements of income, accumulated earnings, and cash flows for such year, setting forth in each case in comparative form the figures for the previous year, certified as being fairly stated in all material respects in accordance with GAAP by one of the “Big Four” certified public accounting firms or by any other recognized certified public accountant reasonably satisfactory to Bank;

 

(b)                                 as soon as available, but in any event not later than seventy five (75) days after the end of each fiscal quarter (commencing with the fiscal quarter ending September 30, 2014), the unaudited Consolidated and Consolidating financial statements of Company as at the end of such fiscal quarter and the related unaudited statements of income, accumulated earnings and cash flows of Company for the portion of the fiscal year through the end of such fiscal quarter, setting forth in each case in comparative form the figures for the previous year, and certified by the treasurer of Company as being fairly stated in all material respects and as having been prepared in accordance with GAAP;

 

(c)                                  as soon as available and in any event within seventy five (75) days after the end of each fiscal quarter (excluding the fourth fiscal quarter of each fiscal year), a copy of each Insurance Subsidiary’s financial statements for such fiscal quarter, including a balance sheet as of the end of such fiscal quarter and the related statements of income and retained earnings for such fiscal quarter, each prepared in accordance with SAP and certified by an officer of the applicable Insurance Subsidiary;

 

(d)                                 as soon as available and in any event not later than one hundred fifty (150) days after and as of the end of each fiscal year of Company, for each Insurance Subsidiary, a copy- of such Insurance Subsidiary’s financial statements for the preceding fiscal year, including a balance sheet as of the end of such fiscal year and the related statements of income and retained earnings for such fiscal year, each prepared in accordance with SAP (commonly referred to as the “Yellow Book” statements) and certified by an officer of the applicable Insurance Subsidiary;

 

(e)                                  as soon as available and in any event not later than June 1 of each year, for each Insurance Subsidiary, a copy of such Insurance Subsidiary’s audited financial statements for the preceding fiscal year (commencing with the fiscal year ending December 31, 2010), including a balance sheet as of the end of such fiscal year and the’ related statements of income and retained earnings for such fiscal year, each prepared in accordance with SAP and certified as being fairly stated in all material respects by one of the “Big Four” certified public accounting firms or by any another recognized certified public accountant reasonably acceptable to Bank;

 

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(f)                                   as soon-as available, copies of all financial statements related to Company and/or any of its Subsidiaries filed with any Regulatory Agency;

 

(g)                                  as soon as available and to the extent not previously furnished to Bank, copies of all reports with respect to Company and/or any of its Subsidiaries prepared by any Regulatory Agency or rating agency;

 

all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP or SAP, as applicable, throughout the periods reflected therein and with prior periods.

 

7.2                               Furnish to Bank:

 

(a)                                 Within seventy five (75) days after and as the end of each fiscal quarter, a covenant compliance certificate substantially in form attached hereto as Exhibit D; and

 

(b)                                 within five (5) days after the occurrence thereof, written notice from Company of any change in the Best rating of an Insurance Subsidiary or in any other change in any rating of any Insurance Subsidiary by any other rating agency.

 

7.3                               Pay and discharge, and cause its Subsidiaries to pay and discharge, all taxes and other governmental charges, and all contractual obligations calling for the payment of money, before the same shall become overdue, unless and to the extent only that such payment is being contested in good faith.

 

7.4                               Maintain, and cause its Subsidiaries to maintain, insurance coverage on their physical assets and against other business risks in such amounts and of such types as are customarily carried by companies similar in size and nature, and in the event of acquisition of additional property, real or personal, or of incurrence of additional risks of any nature, increase such insurance coverage in such manner and to such extent as prudent business judgment and present practice would dictate; and in the case of all policies covering property mortgaged or pledged to Bank or property in which Bank shall have a security interest of any kind whatsoever, other than those policies protecting against casualty liabilities to strangers, all such insurance policies shall provide that the loss payable thereunder shall be payable to Company and Bank (as mortgagee) as their respective interests may appear, all said policies or copies thereof, including all endorsements thereon and those required hereunder, to be deposited with Bank.

 

7.5                               Permit Bank, through its authorized attorneys, accountants and representatives, to examine Company’s and each Subsidiary’s books, accounts, records, ledgers and assets of every kind and description at all reasonable times upon oral or written request of Bank.

 

7.6                               Promptly notify Bank of any condition or event which constitutes or with the running of time and/or the giving of notice would constitute an event of default under this Agreement, and promptly inform Bank of the existence or occurrence of any condition or event (other than conditions having an effect on the economy in general) which could have a material adverse effect upon Company’s or any Subsidiary’s financial condition.

 

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7.7                               Maintain, and cause its Subsidiaries to maintain, in good standing all licenses required by the State of Michigan or any agency thereof, or other governmental authority that may be necessary or required for Company and its Subsidiaries to carry on its general business objects and purposes.

 

7.8                               Comply, and cause its Subsidiaries to’ comply, with all material requirements imposed by ERISA as presently in effect or hereafter promulgated, including but not limited to, the minimum funding requirements of any Pension Plan.

 

7.9                               Promptly notify Bank after the occurrence thereof in writing of any of the following events:

 

(a)                                 the termination of a Pension Plan pursuant to Subtitle C of Title IV of ERISA or otherwise;

 

(b)                                 the appointment of a trustee by a United States District Court to administer a Pension Plan;

 

(c)                                  the commencement by the Pension Benefit Guaranty Corporation, or any successor thereto of any proceeding to terminate a Pension Plan;

 

(d)                                 the failure of a Pension Plan to satisfy the minimum funding requirements for any plan year as established in Section 412 of the Internal Revenue Code of 1954, as amended or any similar provision under the Internal Revenue Code of 1986, as amended;

 

(e)                                  the withdrawal of Company or any Subsidiary from a Pension Plan; or

 

(f)                                   a reportable event, within the meaning of Title IV of ERISA

 

7.10                        Furnish Bank, upon Bank’s request, in form satisfactory to Bank with pledges, assignments, mortgages, lien instruments or other security instruments covering any or all of Company’s and each Subsidiary’s real and personal property, of every nature and description, whether now owed or hereafter acquired, to the extent that Bank may in its sole reasonable discretion require.

 

7.11                        Maintain, and cause its Subsidiaries to maintain, with Bank all of its and their bank accounts, except for local petty cash, payroll and similar accounts.

 

7.12                        With respect to each Person which becomes a Subsidiary (other than an Insurance Subsidiary) subsequent to the date of this Agreement, within fifteen (15) days of the date such a new Subsidiary is created or acquired, as the case may be, (a) cause each such Subsidiary to execute and deliver to Bank, (1) a guaranty in form acceptable to Bank whereby each Subsidiary guarantees the Indebtedness and (ii) a Security Agreement, together with such supporting documentation, including without limitation corporate authority, certificates and opinions of counsel, as reasonably required by Bank and (b) unless prohibited by applicable law, pledge, pursuant to a pledge agreement acceptable to Bank, all of the capital stock or other equity interests of any Subsidiary.

 

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7.13                        Maintain as of the end of each fiscal quarter. of Company a Tangible Effective Net Worth of not less than the following amounts during the periods specified below:

 

	
December 31,   2014 through December 30, 2015
    	
 
    	
$
    	
37,000,000
    	
 
    
	
December 31,   2015 and thereafter
    	
 
    	
$
    	
41,000,000
    	
 
    

 

7.14                        Not permit “total adjusted capital” (within the meaning of the Risk-Based Capital for Insurers Model Act as promulgated by the NAIC as of the date of this Agreement (the “Model Act”)) of any of its Insurance Subsidiaries as of the last day of each fiscal year to be less than 300% of the applicable “Authorized Control Level RBC” (within the meaning of the Model Act) for such Insurance Subsidiary.

 

7.15                        Maintain as of the end of each fiscal year of Company a Fixed Charge Coverage Ratio of not less than 1,20 to 1.0.

 

7.16                        Cause each Insurance Subsidiaries to maintain as of the end of each fiscal quarter .a Net Premium Ratio of not more than 2.0 to 1.0 and a Gross Premium Ratio of not more than 3,0 to 1.0, This Section does not apply to Red Cedar Insurance Company,

 

7.17                        Not permit the Dividend Paying Capacity of any Insurance Subsidiary for any fiscal year to be less than $500,000. This Section does not apply to Red Cedar Insurance Company.

 

7.18                        Not permit as of the end of any fiscal year of Company Net Uncollateralized Reinsurance Recoverables under reinsurance contracts with Persons having a Best rating of less than A- to exceed 10% of reinsurance recoverables as reported in the Company’s consolidated balance sheet.

 

7.19                        Deliver to Bank on or before November 30, 2014 evidence of the issuance of the Life Insurance Policy and such documents as Bank may require to obtain a first priority collateral assignment of such Life Insurance Policy and after issuance of the Life Insurance Policy maintain the Life Insurance Policy in full force and effect.

 

7.20                        Provide to Bank on or before October 31, 2014 evidence of the receipt by Company of net cash proceeds of at least $5,000,000 resulting from the issuance of common stock of Company (which shall be in addition to the stock issuances referenced in Section 5.1(iv) above).

 

8.                                      NEGATIVE COVENANTS

 

Company covenants and agrees that, so long as Bank may make any Advances under this Agreement and thereafter so long as any Indebtedness remains outstanding under this Agreement, it will not, and will cause its Subsidiaries not to, without the prior written consent of Bank:

 

8.1                               Purchase, acquire or redeem any of its stock or make any material change in its capital structure.

 

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8.2                               Enter into any merger or consolidation or sell, lease, transfer, or dispose of all, substantially all, or any part of its assets, except sales of inventory in the ordinary course of its business.

 

8.3                               Guarantee, endorse, or otherwise become secondarily liable for or upon the obligations of others, except by endorsement for deposit in the ordinary course of business and guaranties in favor of Bank.

 

8.4                               Purchase or otherwise acquire, or become obligated for the purchase of all or substantially all of the assets or business interests of any person, firm or corporation or any shares of stock of any corporation, trusteeship or association or in any other manner effectuate or attempt to effectuate an expansion of present business by acquisition, except for Permitted Acquisitions.

 

8.5                               Affirmatively pledge or mortgage any of its assets, whether now owned or hereafter acquired, or create, suffer or permit to exist any lien, security interest in, or encumbrance thereon, except:

 

(a)                                 to Bank;

 

(b)                                 the Permitted Liens;

 

(c)                                  liens described in attached Schedule 8.5; and

 

(d)                                 liens and security interests upon fixed assets acquired by Company after the date of this Agreement (including by virtue of a Capital Lease) provided that (i) any such lien or security interest is created solely for the purpose of securing indebtedness representing, or incurred to finance, the cost of the item of property subject thereto; (ii) the principal amount of the indebtedness secured by such lien does not exceed 100% of the fair value of the property at the time it was acquired, and (iii) the lien or security interest does not cover any property other than such item of property.

 

8.6                               Sell, assign, transfer or confer a security interest in any account, contract, note, trade acceptance or other receivable, except to Bank.

 

8.7                               Materially alter the character of its business from that conducted as of the date of this Agreement.

 

8.8                               Declare or pay any dividends or make any other distribution upon its equity interests if at the time declared or paid or if after giving effect thereto an Event of Default (or event which with the giving of notice or the passage of time or both would constitute an Event of Default) shall have occurred.

 

8.9                               Enter into any transaction or series of transactions with any Affiliate other than on terms and conditions as favorable to Company as would be obtainable in a comparable arms-length transaction with a Person other than an Affiliate.

 

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8.10                        Make or allow to remain outstanding any investment (whether such investment shall be of the character of investment in shares of stock, evidence of indebtedness or other securities or otherwise) in, or any loans or advances or extensions of credit to, any person, firm, corporation or other entity or association, except:

 

(a)                                 Permitted Investments;

 

(b)                                 sales on open account and in the ordinary course of business;

 

(c)                                  deposits made in the ordinary course of business in order to obtain goods or services;

 

(d)                                 Company’s investments in its Subsidiaries which are Guarantors;

 

(e)                                  other loans, advances and investments not exceeding $350,000 in the aggregate at any time outstanding.

 

8.11                        Enter into or become subject to any agreement (other than this Agreement) (i) prohibiting the creation or assumption of any lien or encumbrance upon the properties or assets of Company or (ii) requiring an obligation to become secured (or further secured) if another obligation is secured or further secured.

 

8.12                        Become or remain obligated for any indebtedness for borrowed money, or for any indebtedness incurred in connection with the acquisition of any property, real or personal, tangible or intangible, except;

 

(a)                                 indebtedness to Bank;

 

(b)                                 current unsecured trade payables and accrued liabilities arising in the ordinary course of Company’s business (including, without limitation, obligations under operating leases);

 

(c)                                  indebtedness described in attached Schedule 8.13;

 

(d)                                 Subordinated Debt;

 

(e)                                  purchase money indebtedness incurred in connection with the acquisition of fixed assets in an aggregate amount not exceeding $500,000 incurred during any single fiscal year of Company.

 

8.13                        Make any Capital Expenditure during any fiscal year if after giving effect thereto the aggregate amount of all Capital Expenditures made by Company and its Subsidiaries during such fiscal year would exceed $500,000.

 

8.14                        Permit or suffer any material adverse change in either the quality of its investments or its investment policies.

 

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8.15                        Permit or suffer any Insurance Subsidiary of the Company to at any time be outside the recommended range for more than four (4) of the Insurance Regulatory Information System ratio tests.

 

9.                                      ENVIRONMENTAL PROVISIONS

 

9.1                               Company shall comply, and shall cause its Subsidiaries to comply, with all applicable Environmental Laws except for such non-compliance which would reasonably not be expected to materially adversely affect its business or the value of its property or assets.

 

9.2                               Company shall provide to Bank, promptly upon receipt, copies of any correspondence, notice, pleading, citation, indictment, complaint, order, decree, or other document from any source asserting or alleging a circumstance or condition which requires or may require a financial contribution by Company or any Subsidiary to a cleanup, removal, remedial action, or other response by or on the part of Company or any Subsidiary under applicable Environmental Laws or which seeks damages or civil, criminal or punitive penalties from Company for an alleged violation of Environmental Laws, where such contribution, response or damages would reasonably be expected to materially adversely affect its business or the value of its property or assets.

 

9.3                               Company shall promptly notify Bank in writing as soon as Company becomes aware of the occurrence or existence of any condition or circumstance which makes the environmental warranties contained in this Agreement incomplete or inaccurate in any material respect as of any date.

 

9.4                               In the event of any condition or circumstance that makes any environmental warranty, representation and/or agreement incomplete or inaccurate in any material respect as of any date, Company shall, at the reasonable request of Bank, at its sole expense, retain an environmental consultant, reasonably acceptable to Bank, to conduct a thorough and complete investigation regarding the changed condition and/or circumstance. A copy of the environmental consultant’s report will be promptly delivered to both Bank and Company upon completion.

 

9.5                               At any time Company, directly or indirectly through any environmental consultant or other representative, determines to undertake an environmental audit, assessment or investigation relating to any fact, event or condition which would reasonably be expected to materially adversely affect its business or the value of its property or assets, Company shall promptly provide Bank with written notice of the initiation of the environmental audit, fully describing the purpose and intended scope of the environmental audit, Upon receipt, Company will promptly provide to Bank copies of all final findings and conclusions of any such environmental investigation.

 

9.6                               Company hereby indemnifies, saves and holds Bank and any of its past, present and future officers, directors, shareholders, employees, representatives and consultants harmless from any and all loss, damages, suits, penalties, costs,. liabilities and expenses (including but not limited to reasonable investigation, environmental audit(s), and legal expenses) arising out of any claim, loss or damage to any property, injuries to or death of persons, contamination of or adverse affects on the environment, or any violation of any applicable Environmental Laws,

 

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caused by or in any way related to any property owned or operated by Company, or due to any acts of Company or such person’s, officers, directors, shareholders, employees, consultants and/or representatives; provided, however, that the foregoing indemnification shall not be applicable when arising solely from events or conditions occurring while the Bank is hi sole possession (subject to the rights of any creditors of Company) of such property. In no event shall Company be liable hereunder for any loss, damages, suits, penalties, costs, liabilities or expenses arising from any act of gross negligence of Bank, or its agents or employees.

 

It is expressly understood and agreed that the indemnifications granted herein are -intended to protect Bank, its past, present and future officers, directors, shareholders, employees, consultants and representatives from any claims that may arise by reason of the security interest, liens and/or mortgages granted to Bank, or under any other document or agreement given to secure repayment of any indebtedness from Company, whether or not such claims arise before or after Bank has foreclosed upon and/or otherwise become the owner of any such property.

 

It is expressly agreed and understood that the provisions of this Section 9 shall and are intended to be continuing and shall survive the repayment of any indebtedness from Company to Bank,

 

9.7                               Company shall maintain, and shall cause its Subsidiary to maintain, all permits, licenses and approvals required under applicable Environmental Laws except such permits, licenses and approvals the failure of which to have would reasonably not be expected to materially adversely affect its business or the value of its property or assets.

 

10.                               EVENTS OF DEFAULT

 

10.1                        Upon occurrence of any of the following events of default:

 

(a)                                 non-payment of any installment of the principal of any Note when due or any reimbursement obligation with respect to any Letter of Credit when due;

 

(b)                                 non-payment of any interest on any Note when due in accordance with the terms thereof, or upon non-payment of any other outstanding Indebtedness when due in accordance with the terms thereof;

 

(c)                                  default in the observance or performance of any of the conditions, covenants or agreements of Company set forth in Section 7 or set forth in Section 8;

 

(d)                                 default in observance or performance of any of the other conditions, covenants or agreements of Company herein set forth, and continuance thereof for thirty (30) days after written notice to Company by Bank;

 

(e)                                  any material representation or warranty made by Company or any other Person herein or in any instrument submitted pursuant hereto proves untrue in any material respect when made or deemed made;

 

(f)                                   default in the observance or performance of any of the conditions, covenants or agreements of Company, any Guarantor or any other Person set forth in any

 

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collateral document which may be given to secure the indebtedness hereunder or in any other collateral document related to or connected with this Agreement or the indebtedness hereunder and continuance for fifteen (15) days after notice thereof by Bank to Company;

 

(g)                                  default in the payment of any other obligation of Company or any Subsidiary for borrowed money in an aggregate amount in excess of Ten Thousand Dollars ($10,000), or in the observance or performance of any conditions, covenants or agreements related or given with respect to any obligations for borrowed money in an aggregate amount in excess of Ten Thousand Dollars ($10,000) sufficient to permit the holder thereof to accelerate the maturity of such obligation;

 

(h)                                 judgments for the payment of money in excess of the sum of Ten Thousand Dollars ($10,000) in the aggregate shall be rendered against Company or any Subsidiary and such judgments shall remain unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of thirty (30) consecutive days from the date of its entry and such judgment is not covered by insurance from a solvent insurer who is defending such action without reservation of rights;

 

(i)                                     the occurrence of any “reportable event”, as defined in the Employee Retirement Income Security Act of 1974 and any amendments thereto, which is determined to constitute grounds for termination by the Pension Benefit Guaranty Corporation of any employee pension benefit plan maintained by or on behalf of Company or any Subsidiary for the benefit of any of its employees or for the appointment by the appropriate United States District Court of a trustee to administer such plan and is reasonably likely that the occurrence of such event would result in a material adverse effect on Company, and such reportable event is not corrected and such determination is not revoked within thirty (30) days after notice thereof has been given to the plan administrator or Company; or the institution of proceedings by the Pension Benefit Guaranty Corporation to terminate any such employee benefit pension plan or to appoint a trustee to administer such plan; or the appointment of a trustee by the appropriate United States District Court to administer any such employee benefit pension plan;

 

(j)                                    if there shall be any change for any reason in the ownership or control of Company which results in James G. Petcoff owning less than 51% of the outstanding shares of stock of Company having voting power or if Company ceases to own 100% of the outstanding stock of its Subsidiaries;

 

(k)                                 if Bank shall for any reason deem itself to be insecure;

 

(l)                                     if any Guaranty is revoked or any individual Guarantor shall die;

 

(m)                             if (i) the Best rating for any Insurance Subsidiary is below the Required Rating, (ii) Best shall withdraw its rating for any Insurance Subsidiary or (iii) the Best rating for any Insurance Subsidiary shall be downgraded more than one level during any period of twelve (12) consecutive months;

 

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(n)                                 if any of the Insurance Subsidiaries shall be prohibited by any Regulatory Agency from issuing new insurance policies in any jurisdiction and such prohibition shall have a material adverse effect on such Insurance Subsidiary’s business;

 

(o)                                 if any of the Insurance Subsidiaries shall fail to maintain such catastrophe reinsurance as a prudent insurance company would deem necessary, as reasonably determined by Bank; or

 

(p)                                 if the operation of Company or any of its Subsidiaries shall become subject to the control of any Regulatory Agency, other than in the normal course of business;

 

then, or at any time -thereafter, unless such default is remedied, Bank may give notice to Company declaring all outstanding indebtedness hereunder and under the Notes to be due and payable, whereupon all Indebtedness then outstanding hereunder and under the Notes and any Letters of Credit shall immediately become due and payable without further notice and demand, and Bank shall not be obligated to make further Advances or issue any Letter of Credit hereunder.

 

10.2                        If a creditors’ committee shall have been appointed for the business of Company or any Subsidiary in connection with any bankruptcy or insolvency; or if Company or any Subsidiary shall have made a general assignment for the benefit of creditors or shall have been adjudicated bankrupt, or shall have filed a voluntary petition in bankruptcy or for reorganization or to effect a plan or arrangement with creditors; or shall file an answer to a creditor’s petition or other petition filed against it, admitting the material allegations thereof for an adjudication in bankruptcy or for reorganization; or shall have applied for or permitted the appointment of a receiver, or trustee or custodian for any of its property or assets; or such receiver, trustee or custodian shall have been appointed for any of its property or assets (otherwise than upon application or consent of Company or any Subsidiary, as applicable), and such receiver, trustee or custodian so appointed shall not have been discharged within sixty (60) days after the date of his appointment or if an order shall be entered and shall not be dismissed or stayed within sixty (60) days from its entry, approving any petition for reorganization of Company or any Subsidiary, then the Notes and all Indebtedness then outstanding hereunder and under any Letters of Credit shall automatically become immediately due and payable and Bank shall not be .obligated to make further Advances or issue any Letters of Credit under this Agreement.

 

10.3                        Upon the occurrence and during the continuance of an Event of Default which is not cured with the cure period, if any, provided hereunder, unless all of the Indebtedness is then immediately fully paid, Bank shall have and may exercise any one or more of the rights and remedies for which provision is made for a secured party under the Michigan Uniform Commercial Code (or other applicable law), under the Security Agreements or under any other document contemplated hereby or for which provision is provided by law or in equity, including, without limitation, the right to take possession and sell, lease or otherwise dispose of any or all of the collateral and to. set off against the Indebtedness any amount owing by Bank to Company and/or any property of Company in possession of Bank. Company agrees, upon request of Bank, ‘to assemble the collateral and make it available to Bank at any place designated by Bank which is reasonably convenient to Bank and Company.

 

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10.4                        All of the Indebtedness shall constitute one loan secured by Bank’s security interest in the collateral and by all other security interests, mortgages, liens, claims, and encumbrances now and from time to time hereafter granted from Company to Bank. Upon the occurrence and during the continuance of an Event of Default which is not cured within the cure period, if any, provided hereunder, Bank may in its sole discretion apply the collateral to any portion of the Indebtedness. The proceeds of any sale or other disposition of the Collateral authorized by this Agreement shall be applied by Bank, first upon all expenses authorized by the Michigan Uniform Commercial Code (or other applicable law) or otherwise in connection with the sale and all reasonable attorneys’ fees and legal expenses incurred by Bank; the balance of the proceeds of such sale or other disposition shall be applied in the payment of the Indebtedness, first to interest, then to principal, then to other Indebtedness and the surplus, if any, shall be paid over to Company or to such other Person or Persons as may be entitled thereto under applicable law, Company shall remain liable for any deficiency, which Company shall pay to Bank immediately upon demand.

 

10.5                        Upon the occurrence and during the continuance of any Event of Default, Company shall immediately upon demand by Bank deposit with Bank cash collateral in the amount equal to 105% of the maximum amount available to be drawn at any time under any Letter of Credit then outstanding,

 

11.                               MISCELLANEOUS

 

11.1                        This Agreement shall be binding upon and shall inure to the benefit of Company and Bank and their respective successors and assigns, except that the credit provided for under this Agreement and no part thereof and no obligation of Bank hereunder shall be assignable or otherwise transferable by Company.

 

11.2                        Company shall pay all closing costs and expenses, including, by way of description and not limitation, reasonable attorney fees and lien search fees incurred by Bank in connection with the commitment, consummation and closing of this Agreement. All of said amounts required to be paid by Company may, at Bank’s option, be charged by Bank as an advance against the proceeds of the Notes. All costs, including reasonable attorney fees incurred by Bank in protecting or enforcing any of its or any of the Bank’s rights against Company or any collateral or in defending Bank from any claims or liabilities by any party or otherwise incurred by Bank in connection with an event of default or the enforcement of this Agreement or the related documents, including by way of description and not limitation, such charges in any court or bankruptcy proceedings or arising out of any claim or action by any person against Bank which would not have been asserted were it not for Bank’s relationship with Company hereunder, shall also be paid by Company.

 

11.3                        Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, it shall be done in accordance with GAAP.

 

11.4                        No delay or failure of Bank in exercising any right, power or privilege hereunder shall affect such right, power or privilege, nor shall any single or partial exercise thereof

 

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preclude any further exercise thereof, or the exercise of any other power, right or privilege. The rights of Bank under this Agreement are cumulative and not exclusive of any right or remedies which Bank would otherwise have.

 

11.5                        Except as expressly provided otherwise in this Agreement, all notices and other communications provided to any party hereto under this Agreement shall be in writing and shall be given by personal delivery, by mail, by reputable overnight courier, by telex or by facsimile and addressed or delivered to it at its address set forth below or at such other address as may be designated by such party in a notice to the other parties that complies as to delivery with the terms of this Section 11.5. Any notice, if personally delivered or if mailed and properly addressed with postage prepaid and sent by registered or certified mail, shall be deemed given when received; any notice, if given to a reputable overnight courier and properly addressed, shall be deemed given two (2) Business Days after the date on which it was sent, unless it is actually received sooner by the named addressee; and any notice, if transmitted by telex or facsimile, shall be deemed given when received (answerback confirmed in the case of telexes and receipt confirmed in the case of telecopies). Bank may, but shall not be required to, take any action on the basis of any notice given to it by telephone, but Company shall promptly confirm such notice in writing or by telex or facsimile, and such notice will not be deemed to have been received until such confirmation is deemed received in accordance with the provisions of this Section set forth above. If such telephonic notice conflicts with any such confirmation, the terms of such telephonic notice shall control.

 

To Company:

550 W. Merrill Street, Suite 200 
 Birmingham, Michigan 48009 
 Attention: James G. Petcoff 
 Fax No. (248) 559-0870

 

To Bank:

411 W. Lafayette

Detroit, Michigan 48226 -

Attention: Paul G. Russo

Fax No. (313) 222-5636

 

11.6                        This Agreement and the Notes have been delivered at Detroit, Michigan, and shall be governed by and construed and enforced in accordance with the laws of the State of Michigan. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision. or the remaining provisions of this Agreement.

 

11.7                        No amendments or waiver of any provisions of this Agreement nor consent to any departure by Company therefrom shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment, waiver

 

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or consent with respect to any provision of this Agreement shall affect any other provision of this Agreement.

 

11.8                        All sums payable by Company to Bank under this Agreement or the other documents contemplated hereby shall be paid directly to Bank at its principal office set forth in Section 11.5 hereof in immediately available United States funds, without set off, deduction or counterclaim. In its sole discretion, Bank may charge any and all deposit or other accounts (including without limit an account evidenced by a certificate of deposit) of Company with Bank for all or a part of any Indebtedness then due; provided, however, that this authorization shall not affect Company’s obligation to pay, when due, any Indebtedness whether or not account balances are sufficient to pay amounts due.

 

11.9                        Any payment of the Indebtedness made by mail will be deemed tendered and received only upon actual receipt by Bank at the address designated for such payment, whether or not Bank has authorized payment by mail or any other manner, and shall not be deemed to have been made in a timely manner unless received on the date due for such payment, time being of the essence. Company expressly assumes all risks of loss or liability resulting from non-delivery or delay of delivery of any item of payment transmitted by mail or in any other manner. Acceptance by Bank of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default, and at any time thereafter and until the entire amount then due has been paid, Bank shall be entitled to exercise any and all rights conferred upon it herein upon the occurrence of an Event of Default. Upon the occurrence and during the continuance of an Event of Default, Company waives the right to direct the application of any and all payments at any time or times hereafter received by Bank from or on behalf of Company. Upon the occurrence and during the continuance of an Event of Default, Company agrees that ,Bank Shall have the continuing exclusive right to apply and to reapply any and all payments received at any time or times hereafter against the Indebtedness in such manner as Bank may deem advisable, notwithstanding any entry by Bank upon any of its books and records. Company expressly agrees that to the extent that Bank receives any payment or benefit and such payment or benefit, or any part thereof, is subsequently invalidated, declared to be fraudulent or preferential, set aside or is required to be repaid to a trustee, receiver, or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment or benefit, the Indebtedness or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or benefit had not been made and, further, any such repayment by Bank, to the extent that Bank did not directly receive a corresponding cash payment, shall be added to and be additional Indebtedness payable upon demand by Bank.

 

11.10                 In the event Company’s obligation to pay interest on the principal balance of the Note is or becomes in excess of the maximum interest rate which Company is permitted by law to contract or agree to pay, giving due consideration to the execution date of this Agreement, then, in that event, the rate of interest applicable shall be deemed to be immediately reduced to such maximum rate and all previous payments in excess of such maximum rate shall be deemed to have been payments in reduction of principal and not of interest.

 

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11.11                 COMPANY AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.

 

11.12                 This Agreement shall become effective upon the execution hereof by Bank and Company.

 

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WITNESS the due execution hereof as of the day and year first above written.

 

	
COMERICA BANK
    	
CONIFER HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ Paul G. Russo
    	
 
    	
/s/ Brian Roney
    
	
 
    	
Paul G. Russo
    	
 
    	
 
    
	
Its:
    	
Vice President
    	
 
    	
Its:
    	
President
    

 

(Signature Page to Amended and Restated Credit Agreement)

 

 

	

    	
Master Revolving Note

LIBOR-based Rate/Prime Referenced Rate

Maturity Date-Optional Advances (Business and   Commercial Loans Only)
    

 

	
AMOUNT
    	
 
    	
NOTE DATE
    	
 
    	
MATURITY DATE
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
$17,500,000
    	
 
    	
September 29, 2014
    	
 
    	
August 1, 2016
    

 

On or before the Maturity Date set forth above, FOR VALUE RECEIVED, CONIFER HOLDINGS, INC. (referred to herein as the “undersigned”) promises to pay to the order of COMERICA BANK (herein called “Bank”), at any office of the Bank in the State of Michigan, the principal sum of SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000), or so much of said sum as has been advanced and is then outstanding under this Note, together with interest thereon as hereinafter set forth.

 

This Note is a note under which Advances, repayments and re-Advances may be made from time to time, subject to the terms and conditions of this Note. AT NO TIME SHALL THE BANK BE UNDER ANY OBLIGATION TO MAKE ANY ADVANCES TO THE UNDERSIGNED PURSUANT TO THIS NOTE (NOTWITHSTANDING ANYTHING EXPRESSED OR IMPLIED IN THIS NOTE OR ELSEWHERE TO THE CONTRARY, INCLUDING, WITHOUT LIMIT, IF THE BANK SUPPLIES THE UNDERSIGNED WITH A BORROWING FORMULA) AND THE BANK, AT ANY TIME AND FROM TIME TO TIME, WITHOUT NOTICE, AND IN ITS SOLE DISCRETION, MAY REFUSE TO MAKE ADVANCES TO THE UNDERSIGNED WITHOUT INCURRING ANY LIABILITY DUE TO THIS REFUSAL AND WITHOUT AFFECTING THE UNDERSIGNED’S LIABILITY UNDER THIS NOTE FOR ANY AND ALL AMOUNTS ADVANCED.

 

Subject to the terms and conditions of this Note, each of the Advances made hereunder shall bear interest at the LIBOR-based Rate plus the Applicable Margin or the Prime Referenced Rate plus the Applicable Margin, as elected by the undersigned or as otherwise determined under this Note.

 

Accrued and unpaid interest on the unpaid balance of each outstanding Advance bearing interest at the Prime Referenced Rate hereunder shall be payable quarterly, in arrears, on the first Business Day of each calendar quarter (commencing January 2, 2012), until maturity (whether as stated herein, by acceleration, or otherwise). Interest accruing on the basis of the Prime Referenced Rate shall be computed on the basis of a year of 360 days, and shall be assessed for the actual number of days elapsed, and in such computation, effect shall be given to any change in the Applicable Interest Rate as a result of any change in the Prime Referenced Rate on the date of each such change. Accrued and unpaid interest on each LIBOR-based Advance shall be payable on the last day of the Interest Period applicable thereto (unless sooner accelerated in accordance with the terms of this Note); provided, however, if such Interest Period in respect of any such LIBOR-based Advance is more than three (3) months, interest thereon shall also be payable at intervals of three (3) months from the date of such Advance. Interest accruing on the basis of the LIBOR-based Rate shall be computed on the basis of a 360 day year and shall be assessed for the actual number of days elapsed from the first day of the Interest Period applicable thereto but not including the last day thereof.

 

 

From and after the occurrence of any Default hereunder, and so long as any such Default remains unremedied or uncured thereafter, the Indebtedness outstanding under this Note shall bear interest at a per annum rate of three percent (3%) above the otherwise Applicable Interest Rate(s), which interest shall be payable upon demand. In addition to the foregoing, a late payment charge equal to five percent (5%) of each late payment hereunder may be charged on any payment not received by Bank within ten (10) calendar days after the payment due date therefor, but acceptance of payment of any such charge shall not constitute a waiver of any Default hereunder.

 

In no event shall the interest payable under this Note at any time exceed the maximum rate permitted by law.

 

The amount and date of each Advance, its Applicable Interest Rate, its Interest Period, if applicable, and the amount and date of any repayment shall be noted on Bank’s records, which records shall be conclusive evidence thereof, absent manifest error; provided, however, any failure by Bank to make any such notation, or any error in any such notation, shall not relieve the undersigned of its/their obligations to repay Bank all amounts payable by the undersigned to Bank under or pursuant to this Note, when due in accordance with the terms hereof.

 

The undersigned may request an Advance hereunder, including the refunding of an outstanding Advance as the same type of Advance or the conversion of an outstanding Advance to another type of Advance, upon the delivery to Bank of a Request for Advance executed by the undersigned, subject to the following: (a) no Default, or any condition or event which, with the giving of notice or the running of time, or both, would constitute a Default, shall have occurred and be continuing or exist under this Note; (b) each such Request for Advance shall set forth the information required on the Request for Advance form annexed hereto as Exhibit “A”; (c) each such Request for Advance shall be delivered to Bank by 11:00 a.m. (Detroit, Michigan time) on the proposed date of the requested Advance; (d) the principal amount of each LIBOR-based Advance shall be at least Two Hundred Fifty Thousand Dollars ($250,000.00) (or such lesser amount as is acceptable to Bank in its sole discretion); (e) the proposed date of any refunding of any outstanding LIBOR-based Advance as another LIBOR-based Advance or the conversion of any outstanding LIBOR-based Advance to another type of Advance shall only be on the last day of the Interest Period applicable to such outstanding LIBOR-based Advance; (f) after giving effect to such Advance, the aggregate unpaid principal amount of Advances outstanding under this Note shall not exceed the face amount of this Note; and (g) a Request for Advance, once delivered to Bank, shall not be revocable by the undersigned; provided, however, as aforesaid, Bank shall not be obligated to make any Advance under this Note.

 

Advances hereunder may be requested in the undersigned’s discretion by telephonic notice to Bank. Any Advance requested by telephonic notice shall be confirmed by the undersigned that same day by submission to Bank, either by first class mail, facsimile or other means of delivery acceptable to Bank, of the written Request for Advance aforementioned. The undersigned acknowledge(s) that if Bank makes an Advance based on a telephonic request, it shall be for the undersigned’s convenience and all risks involved in the use of such procedure shall be borne by the undersigned, and the undersigned expressly agree(s) to indemnify and hold Bank harmless therefor. Bank shall have no duty to confirm the authority of anyone requesting an Advance by telephone.

 

 

lf, as to any outstanding LIBOR-based Advance, Bank shall not receive a timely Request for Advance, or telephonic notice, in accordance with the foregoing requesting the refunding or continuation of such Advance as another LIBOR-based Advance for a specified Interest Period or the conversion of such Advance to a Prime-based Advance, effective as of the last day of the Interest Period applicable to such outstanding LIBOR-based Advance, and as of the last day of each succeeding Interest Period, the principal amount of such Advance which is not then repaid shall be automatically refunded or continued as a LIBOR-based Advance having an Interest Period equal to the same period of time as the Interest Period then ending for such outstanding LIBOR-based Advance, unless the undersigned is/are not entitled to request LIBOR-based Advances hereunder or otherwise elect the LIBOR-based Rate as the basis for the Applicable Interest Rate for the principal Indebtedness outstanding hereunder in accordance with the terms of this Note, or the LIBOR-based Rate is not otherwise available to the undersigned as the basis for the Applicable interest Rate hereunder for the principal Indebtedness outstanding hereunder in accordance with the terms of this Note, in which case, the Prime Referenced Rate plus the Applicable Margin shall be the Applicable Interest Rate hereunder in respect of such Indebtedness for such period, subject in all respects to the terms and conditions of this Note. The foregoing shall not in any way whatsoever limit or otherwise affect any of Bank’s rights or remedies under this Note upon the occurrence of any Default hereunder, or any condition or event which, with the giving of notice or the running of time, or both, would constitute a Default.

 

Subject to the definition of an “Interest Period” hereunder, in the event that any payment under this Note becomes due and payable on any day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day, and, to the extent applicable, interest shall continue to accrue and be payable thereon during such extension at the rates set forth in this Note.

 

All payments to be made by the undersigned to Bank under or pursuant to this Note shall be in immediately available United States funds, without setoff or counterclaim, and in the event that any payments submitted hereunder are in funds not available until collected, said payments shall continue to bear interest until collected.

 

lf the undersigned make(s) any payment of principal with respect to any LIBOR-based Advance on any day other than the last day of the Interest Period applicable thereto (whether voluntarily, by acceleration, required payment or otherwise), or if the undersigned fail(s) to borrow any LIBOR-based Advance after notice has been given by the undersigned (or any of them) to Bank in accordance with the terms of this Note requesting such Advance, or if the undersigned fail(s) to make any payment of principal or interest in respect of a LIBOR-based Advance when due, the undersigned shall reimburse Bank, on demand, for any resulting loss, cost or expense incurred by Bank as a result thereof, including, without limitation, any such loss, cost or expense incurred in obtaining, liquidating, employing or redeploying deposits from third parties, whether or not Bank shall have funded or committed to fund such Advance. Such amount payable by the undersigned to Bank may include, without limitation, an amount equal to the excess, if any, of (a) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, refunded or converted, for the period from the date of such prepayment or of such failure to borrow, refund or convert, through the last day of the relevant Interest Period, at the applicable rate of interest for said Advance(s) provided under this Note, over (b) the amount of interest (as reasonably determined by Bank) which would have accrued to Bank on such amount by placing such amount on deposit for a comparable period with leading

 

 

banks in the interbank eurodollar market. Calculation of any amounts payable to Bank under this paragraph shall be made as though Bank shall have actually funded or committed to fund the relevant LIBOR-based Advance through the purchase of an underlying deposit in an amount equal to the amount of such Advance and having a maturity comparable to the relevant Interest Period; provided, however, that Bank may fund any LIBOR-based Advance in any manner it deems fit and the foregoing assumptions shall be utilized only for the purpose of the calculation of amounts payable under this paragraph. Upon the written request of the undersigned, Bank shall deliver to the undersigned a certificate setting forth the basis for determining such losses, costs and expenses, which certificate shall be conclusively presumed correct, absent manifest error. The undersigned may prepay all or part of the outstanding balance of any Prime-based Advance under this Note or any Indebtedness hereunder which is bearing interest based upon the Prime Referenced Rate at any such time without premium or penalty. Any prepayment hereunder shall also be accompanied by the payment of all accrued and unpaid interest on the amount so prepaid.

 

For any LIBOR-based Advance, if Bank shall designate a LIBOR Lending Office which maintains books separate from those of the rest of Bank, Bank shall have the option of maintaining and carrying such Advance on the books of such LIBOR Lending Office.

 

if, at any time, Bank determines that, (a) Bank is unable to determine or ascertain the LIBOR-based Rate, or (b) by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars in the applicable amounts or for the relative maturities are not being offered to Bank for any applicable Advance or Interest Period, or (c) the LIBOR-based Rate plus the Applicable Margin will not accurately or fairly cover or reflect the cost to Bank of maintaining any of the Indebtedness under this Note based upon the LIBOR-based Rate, then Bank shall forthwith give notice thereof to the undersigned. Thereafter, until Bank notifies the undersigned that such conditions or circumstances no longer exist, the right of the undersigned to request a LIBOR-based Advance and to convert an Advance to or refund an Advance as a LIBOR-based Advance shall be suspended, and the Prime Referenced Rate plus the Applicable Margin shall be the Applicable Interest Rate for all Indebtedness hereunder during such period of time.

 

If any Change in Law shall make it unlawful or impossible for the Bank (or its LIBOR Lending Office) to make or maintain any Advance with interest based upon the LIBOR-based Rate, Bank shall forthwith give notice thereof to the undersigned. Thereafter, (a) until Bank notifies the undersigned that such conditions or circumstances no longer exist, the right of the undersigned to request a LIBOR-based Advance and to convert an Advance to or refund an Advance as a LIBOR-based Advance shall be suspended, and thereafter, the undersigned may select only the Prime Referenced Rate plus the Applicable Margin as the Applicable Interest Rate for the Indebtedness hereunder, and (b) if Bank may not lawfully continue to maintain an outstanding LIBOR-based Advance to the end of the then current Interest Period applicable thereto, the Prime Referenced Rate plus the Applicable Margin shall be the Applicable Interest Rate for the remainder of such Interest Period with respect to such outstanding Advance.

 

If any Change in Law shall: (a) subject Bank (or its LIBOR Lending Office) to any tax, duty or other charge with respect to this Note or any Indebtedness hereunder, or shall change the basis of taxation of payments to Bank (or its LIBOR Lending Office) of the principal of or interest under this Note or any other amounts due under this Note in respect thereof (except for changes in the rate of tax on the overall net income of Bank or its LIBOR Lending Office imposed by the jurisdiction in which Bank’s

 

 

principal executive office or LIBOR Lending Office is located); or (b) impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by Bank (or its LIBOR Lending Office), or shall impose on Bank (or its LIBOR Lending Office) or the foreign exchange and interbank markets any other condition affecting this Note or the Indebtedness hereunder; and the result of any of the foregoing is to increase the cost to Bank of maintaining any part of the Indebtedness hereunder or to reduce the amount of any sum received or receivable by Bank under this Note by an amount deemed by the Bank to be material, then the undersigned shall pay to Bank, within fifteen (15) days of the undersigned’s receipt of written notice from Bank demanding such compensation, such additional amount or amounts as will compensate Bank for such increased cost or reduction. A certificate of Bank, prepared in good faith and in reasonable detail by Bank and submitted by Bank to the undersigned, setting forth the basis for determining such additional amount or amounts necessary to compensate Bank shall be conclusive and binding for all purposes, absent manifest error.

 

In the event that any Change in Law affects or would affect the amount of capital required or expected to be maintained by Bank (or any corporation controlling Bank), and Bank determines that the amount of such capital is increased by or based upon the existence of any obligations of Bank hereunder or the maintaining of any Indebtedness hereunder, and such increase has the effect of reducing the rate of return on Bank’s (or such controlling corporation’s) capital as a consequence of such obligations or the maintaining of such Indebtedness hereunder to a level below that which Bank (or such controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy), then the undersigned shall pay to Bank, within fifteen (15) days of the undersigned’s receipt of written notice from Bank demanding such compensation, additional amounts as are sufficient to compensate Bank (or such controlling corporation) for any increase in the amount of capita! and reduced rate of return which Bank reasonably determines to be allocable to the existence of any obligations of the Bank hereunder or to maintaining any Indebtedness hereunder. A certificate of Bank as to the amount of such compensation, prepared in good faith and in reasonable detail by the Bank and submitted by Bank to the undersigned, shall be conclusive and binding for all purposes absent manifest error.

 

This Note and any other indebtedness and liabilities of any kind of the undersigned (or any of them) to the Bank, and any and all modifications, renewals or extensions of it, whether joint or several, contingent or absolute, now existing or later arising, and however evidenced and whether incurred voluntarily or involuntarily, known or unknown, or originally payable to the Bank or to a third party and subsequently acquired by Bank including, without limitation, any late charges; loan fees or charges; overdraft indebtedness; costs incurred by Bank in establishing, determining, continuing or defending the validity or priority of any security interest, pledge or other lien or in pursuing any of its rights or remedies under any loan document (or otherwise) or in connection with any proceeding involving the Bank as a result of any financial accommodation to the undersigned (or any of them); and reasonable costs and expenses of attorneys and paralegals, whether inside or outside counsel is used, and whether any suit or other action is instituted, and to court costs if suit or action is instituted, and whether any such fees, costs or expenses are incurred at the trial court level or on appeal, in bankruptcy, in administrative proceedings, in probate proceedings or otherwise (collectively “Indebtedness”) are secured by and the Bank is granted a security interest in and lien upon all items deposited in any account of any of the undersigned with the Bank and by all proceeds of these items (cash or otherwise), all account balances of any of the undersigned from time to time

 

 

with the Bank, by all property of any of the undersigned from time to time in the possession of the Bank and by any other collateral, rights and properties described in each and every deed of trust, mortgage, security agreement, pledge, assignment and other security or collateral agreement which has been, or will at any time(s) later be, executed by any (or all) of the undersigned to or for the benefit of the Bank (collectively “Collateral”). Notwithstanding the above, (i) to the extent that any portion of the Indebtedness is a consumer loan, that portion shall not be secured by any deed of trust or mortgage on or other security interest in any of the undersigned’s principal dwelling or in any of the undersigned’s real property which is not a purchase money security interest as to that portion, unless expressly provided to the contrary in another place, or (ii) if the undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or mortgage covering California real property, that deed of trust or mortgage shall not secure this Note or any other indebtedness of the undersigned (or any of them), unless expressly provided to the contrary in another place, or (iii) if the undersigned (or any of them) has (have) given or give(s) the Bank a deed of trust or mortgage covering real property which, under Texas law, constitutes the homestead of such person, that deed of trust or mortgage shall not secure this Note or any other indebtedness of the undersigned (or any of them) unless expressly provided to the contrary in another place.

 

Upon the occurrence of a Default, then the Bank may, at its option and without prior notice to the undersigned (or any of them), declare any or all of the Indebtedness to be immediately due and payable (notwithstanding any provisions contained in the evidence of it to the contrary), sell or liquidate all or any portion of the Collateral, set off against the Indebtedness any amounts owing by the Bank to the undersigned (or any of them), charge interest at the default rate provided in the document evidencing the relevant Indebtedness and exercise any one or more of the rights and remedies granted to the Bank by any agreement with the undersigned (or any of them) or given to it under applicable law.

 

The undersigned authorize(s) the Bank to charge any account(s) of the undersigned (or any of them) with the Bank for any and all sums due hereunder when due; provided, however, that such authorization shall not affect any of the undersigned’s obligation to pay to the Bank all amounts when due, whether or not any such account balances that are maintained by the undersigned with the Bank are insufficient to pay to the Bank any amounts when due, and to the extent that are insufficient to pay to the Bank all such amounts, the undersigned shall remain liable for any deficiencies until paid in full.

 

If this Note is signed by two or more parties (whether by all as makers or by one or more as an accommodation party or otherwise), the obligations and undertakings under this Note shall be that of all and any two or more jointly and also of each severally. This Note shall bind the undersigned, and the undersigned’s respective heirs, personal representatives, successors and assigns.

 

The undersigned waive(s) presentment, demand, protest, notice of dishonor, notice of demand or intent to demand, notice of acceleration or intent to accelerate, and all other notices, and agree(s) that no extension or indulgence to the undersigned (or any of them) or release, substitution or nonenforcement of any security, or release or substitution of any of the undersigned, any guarantor or any other party, whether with or without notice, shall affect the obligations of any of the undersigned. The undersigned waive(s) all defenses or right to discharge available under Section 3-605 of the Michigan Uniform Commercial Code and waive(s) ail other suretyship defenses or right to

 

 

discharge. The undersigned agree(s) that the Bank has the right to sell, assign, or grant participations or any interest in, any or all of the Indebtedness, and that, in connection with this right, but without limiting its ability to make other disclosures to the full extent allowable, the Bank may disclose all documents and information which the Bank now or later has relating to the undersigned or the Indebtedness. The undersigned agree(s) that the Bank may provide information relating to this Note or relating to the undersigned to the Bank’s parent, affiliates, subsidiaries and service providers.

 

The undersigned agree(s) to reimburse Bank, or any other holder or owner of this Note, for any and all costs and expenses (including, without limit, court costs, legal expenses and reasonable attorneys’ fees, whether inside or outside counsel is used, whether or not suit is instituted, and, if suit is instituted, whether at the trial court level, appellate level, in a bankruptcy, probate or administrative proceeding or otherwise) incurred in collecting or attempting to collect this Note or the Indebtedness or incurred in any other matter or proceeding relating to this Note or the Indebtedness.

 

The undersigned acknowledge(s) and agree(s) that there are no contrary agreements, oral or written, establishing a term of this Note and agree(s) that the terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an officer of the Bank expressly stating that the writing constitutes an amendment, waiver or modification of the terms of this Note. As used in this Note, the word “undersigned” means, individually and collectively, each maker, accommodation party, endorser and other party signing this Note in a similar capacity. If any provision of this Note is unenforceable in whole or part for any reason, the remaining provisions shall continue to be effective. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

 

For the purposes of this Note, the following terms have the following meanings:

 

“Advance” means a borrowing requested by the undersigned and made by Bank under this Note, including any refunding of an outstanding Advance as the same type of Advance or the conversion of any such outstanding Advance to another type of Advance, and shall include a LIBOR-based Advance and a Prime-based Advance.

 

“Applicable Interest Rate” means the LIBOR-based Rate plus the Applicable Margin or the Prime Referenced Rate plus the Applicable Margin, as selected by the undersigned from time to time or as otherwise determined in accordance with the terms and conditions of this Note.

 

“Applicable Margin” means:

 

1.                                      in respect of the LIBOR—based Rate, two and three quarters percent (2 3/4 %) per annum; and

 

2.                                      in respect of the Prime Referenced Rate, one percent (1%) per annum.

 

“Business Day” means any day, other than a Saturday, Sunday or any other day designated as a holiday under Federal or applicable State statute or regulation, on which Bank is open for all or substantially all of its domestic and international business (including dealings in foreign exchange) in Detroit, Michigan, and, in respect of notices and determinations relating to LIBOR-based Advances, the LIBOR-based Rate and the Daily Adjusting LIBOR Rate, also a day on

 

 

which dealings in dollar deposits are also carried on in the London interbank market and on which banks are open for business in London, England.

 

“Change in Law” means the occurrence, after the date hereof, of any of the following: (i) the adoption or introduction of, or any change in any applicable law, treaty, rule or regulation (whether domestic or foreign) now or hereafter in effect and whether or not applicable to Bank on such date, or (ii) any change in interpretation, administration or implementation thereof of any such law, treaty, rule or regulation by any Governmental Authority, or (iii) the issuance, making or implementation by any Governmental Authority of any interpretation, administration, request, regulation, guideline, or directive (whether or not having the force of law), including any risk-based capital guidelines. For purposes of this definition, (x) a change in law, treaty, rule, regulation, interpretation, administration or implementation shall include, without limitation, any change made or which becomes effective on the basis of a law, treaty, rule, regulation, interpretation administration or implementation then in force, the effective date of which change is delayed by the terms of such law, treaty, rule, regulation, interpretation, administration or implementation, and (y) the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, H.R. 4173) and all requests, rules, regulations, guidelines, interpretations or directives promulgated thereunder or issued in connection therewith shall be deemed to be a “Change in law”, regardless of the date enacted, adopted, issued or promulgated, whether before or after the date hereof, and (z) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel Ill, shall each be deemed to be a “Change in Law”, regardless of the date enacted, adopted, issued or implemented.

 

“Daily Adjusting LIBOR Rate” means, for any day, a per annum interest rate which is equal to the quotient of the following:

 

2.1                               for any day, the per annum rate of interest determined on the basis of the rate for deposits in United States Dollars for a period equal to one (1) month appearing on Page BBAM of the Bloomberg Financial Markets Information Service as of 11:00 am. (Detroit, Michigan time) (or as soon thereafter as practical) on such day, or if such day is not a Business Day, on the immediately preceding Business Day. In the event that such rate does not appear on Page BBAM of the Bloomberg Financial Markets Information Service (or otherwise on such Service) on any day, the “Daily Adjusting LIBOR Rate” for such day shall he determined by reference to such other publicly available service for displaying eurodollar rates as may be reasonably selected by Bank, or, in the absence of such other service, the “Daily Adjusting LIBOR Rate” for such day shall, instead, be determined based upon the average of the rates at which Bank is offered dollar deposits at or about 11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical), on such day, or if such day is not a Business Day, on the immediately preceding Business Day, in the interbank eurodollar market in an amount comparable to the applicable principal amount of Indebtedness hereunder and for a period equal to one (1) month;

 

divided by

 

2.2                               1.00 minus the maximum rate (expressed as a decimal) on such day at which Bank is required to maintain reserves on “Euro-currency Liabilities” as defined in and pursuant to Regulation D of the Board of Governors of the Federal Reserve System or, if such regulation

 

 

or definition is modified, and as long as Bank is required to maintain reserves against a category of liabilities which includes eurodollar deposits or includes a category of assets which includes eurodollar loans, the rate at which such reserves are required to be maintained on such category.

 

“Default” shall mean any Event of Default, as defined in the Credit Agreement dated April 30, 2010 between undersigned and Bank, as the same may be amended or modified from time to time (“Credit Agreement”).

 

“Governmental Authority” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including, without limitation, any supranational bodies such as the European Union or the European Central Bank).

 

“Interest Period” means, with respect to a LIBOR-based Advance, a period of one (1) month, two (2) months, three (3) months or six (6) months, as selected by the undersigned (and which period is acceptable to Bank in its sole discretion), or as otherwise determined pursuant to and in accordance with the terms of this Note, commencing on the day a LIBOR-based Advance is made or the day an Advance is converted to a LIBOR-based Advance or the day an outstanding LIBOR-based Advance is refunded or continued as another LIBOR-based Advance for an applicable Interest Period, provided that any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day, except that if the next succeeding Business Day falls in another calendar month, the Interest Period shall end on the next preceding Business Day, and when an Interest Period begins on a day which has no numerically corresponding day in the calendar month during which such Interest Period is to end, it shall end on the last Business Day of such calendar month. In the event that any LIBOR-based Advance is at any time refunded or continued as another LIBOR-based Advance for an additional Interest Period, such Interest Period shall commence on the last day of the preceding Interest Period then ending.

 

“LIBOR-based Advance” means an Advance which bears interest at the LIBOR-based Rate plus the Applicable Margin.

 

“LIBOR-based Rate” means a per annum interest rate which is equal to the quotient of the following:

 

(a)                                 the LIBOR Rate;

 

divided by

 

(b)                                 1.00 minus the maximum rate (expressed as a decimal) during such Interest Period at which Bank is required to maintain reserves on “Euro-currency Liabilities” as defined in and pursuant to Regulation D of the Board of Governors of the Federal Reserve System or, if such regulation or definition is modified, and as long as Bank is required to maintain reserves against a category of liabilities which includes eurodollar deposits or includes a category of assets which includes eurodollar loans, the rate at which such reserves are required to be maintained on such category.

 

 

“LIBOR Lending Office” means Bank’s office located in the Cayman Islands, British West Indies, or such other branch of Bank, domestic or foreign, as it may hereafter designate as its LIBOR Lending Office by notice to the undersigned.

 

“LIBOR Rate” means, with respect to any Indebtedness outstanding under this Note bearing interest on the basis of the LIBOR-based Rate, the per annum rate of interest determined on the basis of the rate for deposits in United States Dollars for a period equal to the relevant Interest Period for such Indebtedness, commencing on the first day of such Interest Period, appearing on Page BBAM of the Bloomberg Financial Markets Information Service as of 11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical), two (2) Business Days prior to the first day of such Interest Period. In the event that such rate does not appear on Page BBAM of the Bloomberg Financial Markets Information Service (or otherwise on such Service), the “LIBOR Rate” shall be determined by reference to such other publicly available service for displaying eurodollar rates as may be reasonably selected by Bank, or, in the absence of such other service, the “LIBOR Rate” shall, instead, be determined based upon the average of the rates at which Bank is offered dollar deposits at or about 11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical), two (2) Business Days prior to the first day of such Interest Period in the interbank eurodollar market in an amount comparable to the principal amount of the respective LIBOR-based Advance which is to bear interest on the basis of such LIBOR-based Rate and for a period equal to the relevant Interest Period.

 

“Prime Rate” means the per annum interest rate established by Bank as its prime rate for its borrowers, as such rate may vary from time to time, which rate is not necessarily the lowest rate on loans made by Bank at any such time.

 

“Prime-based Advance” means an Advance which bears interest at the Prime Referenced Rate plus the Applicable Margin.

 

“Prime Referenced Rate” means, for any day, a per annum interest rate which is equal to the Prime Rate in effect on such day, but in no event and at no time shall the Prime Referenced Rate be less than the sum of the Daily Adjusting LIBOR Rate for such day plus two and one-half percent (2.50%) per annum. If, at any time, Bank determines that it is unable to determine or ascertain the Daily Adjusting LIBOR Rate for any day, the Prime Referenced Rate for each such day shall be the Prime Rate in effect at such time, but not less than two and one-half percent (2.50%) per annum.

 

“Request for Advance” means a Request for Advance issued by the undersigned under this Note in the form annexed to this Note as Exhibit “A”.

 

No delay or failure of Bank in exercising any right, power or privilege hereunder shall affect such right, power or privilege, nor shall any single or partial exercise thereof preclude any further exercise thereof, or the exercise of any other power, right or privilege. The rights of Bank under this Note are cumulative and not exclusive of any right or remedies which Bank would otherwise have, whether by other instruments or by law.

 

THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25% PER ANNUM OR THE HIGHEST APPLICABLE USURY CEILING, WHICHEVER IS LESS.

 

 

THE UNDERSIGNED AND BANK, BY ACCEPTANCE OF THIS NOTE, ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.

 

 

This Note amends and restates and increases that certain Master Revolving Note dated as of March    , 2013, made in the principal amount of Ten Million Dollars ($10,000,000) by the undersigned payable to Bank (the “Prior Note”); provided, however, (i) the execution and delivery by the undersigned of this Note shall not, in any manner or circumstance, be deemed to be a payment of, a novation of or to have terminated, extinguished or discharged any of the undersigned’s indebtedness evidenced by the Prior Note, all of which indebtedness shall continue under and shall hereinafter be evidenced and governed by this Note, and (ii) all collateral and guaranties securing or supporting the Prior Note shall continue to secure and support this Note.

 

 

	
 
    	
CONIFER   HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Brian Roney
    
	
 
    	
 
    	
SIGNATURE OF
    
	
 
    	
 
    
	
 
    	
Its:
    	
President
    
	
 
    	
 
    	
TITLE
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
SIGNATURE OF
    
	
 
    	
 
    
	
 
    	
Its:
    	
 
    
	
 
    	
 
    	
TITLE
    

 

	
26300 Northwestern Highway
    	
 
    	
Southfield
    	
 
    	
Michigan
    	
 
    	
48076
    
	
STREET ADDRESS
    	
 
    	
CITY
    	
 
    	
STATE
    	
 
    	
ZIP
    

 

	
For Bank Use Only
    
	
 
    
	
LOAN OFFICER INITIALS
    	
LOAN GROUP NAME
    	
OBLIGOR NAME
   Conifer Holdings, Inc.
    	
 
    	
 
    
	
LOAN OFFICER ID.   NO.
    	
LOAN GROUP NO.
    	
OBLIGOR NO.
    	
NOTE NO.
    	
AMOUNT
   $17,500,000
    

 

(Signature Page to Master Revolving Note — 4310843)

 

 

EXHIBIT “A”

 

REQUEST FOR ADVANCE

 

CONIFER HOLDINGS, INC. (referred to herein as the “undersigned”) hereby requests COMERICA BANK (“Bank”) to make a                            * Advance to the undersigned on           ,     , in the amount of                                                          Dollars ($        ) under the Master Revolving Note dated as of September 29, 2014, issued by the undersigned to said Bank in the face amount of Seventeen Million Five Hundred Thousand Dollars ($17,500,000) (the “Note”). The Interest Period for the requested Advance, if applicable, shall be                          (    )** month(s).  In the event that any part of the Advance requested hereby constitutes the refunding or conversion of an outstanding Advance, the amount to be refunded or converted is                                     Dollars ($                 ), and the last day of the Interest Period for the amounts being converted or refunded hereunder, if applicable, is            , 201  .

 

The undersigned represent(s), warrant(s) and certify(ies) that no Default, or any condition or event which, with the giving of notice or the running of time, or both, would constitute a Default, has occurred and is continuing under the Note, and none will exist upon the making of the Advance requested hereunder. The undersigned further certify(ies) that upon advancing the sum requested hereunder, the aggregate principal amount outstanding under the Note will not exceed the face amount thereof. If the amount advanced to the undersigned under the Note shall at any time exceed the face amount thereof, the undersigned will immediately pay such excess amount, without any necessity of notice or demand.

 

The undersigned hereby authorize(s) Bank to disburse the proceeds of the Advance being requested by this Request for Advance by crediting the account of the undersigned with Bank separately designated by the undersigned or as the undersigned may otherwise direct, unless this Request for Advance is being submitted for a conversion or refunding of all or any part of any outstanding Advance(s), in which case, such proceeds shall be deemed to be utilized, to the extent necessary, to refund or convert that portion stated above of the existing outstandings under such Advance(s).

 

Capitalized terms used but not otherwise defined herein shall have the respective meanings given to them in the Note.

 

Dated this         day of            , 201  .

 

 

	
 
    	
CONIFER   HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Its:
    	
 
    

 

 

* Insert, as applicable, “LIBOR-based” or “Prime Referenced Rate”.

 

**For a LIBOR-based Advance, insert the applicable Interest Period (i.e., “one (1)”, “two (2)” or “three (3)” months).

 

 

REQUEST FOR ADVANCE

 

CONIFER HOLDINGS, INC. (referred to herein as the “undersigned”) hereby requests COMERICA BANK (“Bank”) to make a libor based* Advance to the undersigned on September 30, 2014, in the amount of Seven Million Five Hundred Thousand 00/100 Dollars ($7,500,000.00) under the Master Revolving Note dated as of September 29, 2014, issued by the undersigned to said Bank in the face amount of Seventeen Million Five Hundred Thousand Dollars ($17,500,000) (the “Note”). The Interest Period for the requested Advance, if applicable, shall be three (3)** month(s).  In the event that any part of the Advance requested hereby constitutes the refunding or conversion of an outstanding Advance, the amount to be refunded or converted is                                     Dollars ($                 ), and the last day of the Interest Period for the amounts being converted or refunded hereunder, if applicable, is            , 201  .

 

The undersigned represent(s), warrant(s) and certify(ies) that no Default, or any condition or event which, with the giving of notice or the running of time, or both, would constitute a Default, has occurred and is continuing under the Note, and none will exist upon the making of the Advance requested hereunder. The undersigned further certify(ies) that upon advancing the sum requested hereunder, the aggregate principal amount outstanding under the Note will not exceed the face amount thereof. If the amount advanced to the undersigned under the Note shall at any time exceed the face amount thereof, the undersigned will immediately pay such excess amount, without any necessity of notice or demand.

 

The undersigned hereby authorize(s) Bank to disburse the proceeds of the Advance being requested by this Request for Advance by crediting the account of the undersigned with Bank separately designated by the undersigned or as the undersigned may otherwise direct, unless this Request for Advance is being submitted for a conversion or refunding of all or any part of any outstanding Advance(s), in which case, such proceeds shall be deemed to be utilized, to the extent necessary, to refund or convert that portion stated above of the existing outstandings under such Advance(s).

 

Capitalized terms used but not otherwise defined herein shall have the respective meanings given to them in the Note.

 

Dated this 30th day of September, 2014.

 

 

	
 
    	
CONIFER   HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Brian Roney
    
	
 
    	
 
    	
 
    
	
 
    	
Its:
    	
President
    

 

* Insert, as applicable, “LIBOR-based” or “Prime Referenced Rate”.

 

**For a LIBOR-based Advance, insert the applicable Interest Period (i.e., “one (1)”, “two (2)” or “three (3)” months).

 

 

	

    	
Installment Note

LIBOR-based Rate/Prime Referenced Rate

 
    

 

	
AMOUNT
    	
 
    	
NOTE DATE
    	
 
    	
MATURITY DATE
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
$7,500,000
    	
 
    	
September 29, 2014
    	
 
    	
September 29, 2019
    

 

FOR VALUE RECEIVED, CONIFER HOLDINGS, INC. (referred to herein as the “undersigned”) promises to pay to the order of COMERICA BANK (herein called “Bank”), at any office of the Bank in the State of Michigan, the principal sum of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000), payable in quarterly installments each in the amounts set forth on attached Schedule 1, PLUS interest as set forth below, commencing on January 1, 2015, and on each succeeding Installment Payment Date thereafter, until the Maturity Date set forth above, when the entire unpaid balance of principal, interest and all other sums hereunder shall be due and payable in full (unless sooner accelerated in accordance with the terms of this Note).

 

Subject to the terms and conditions of this Note, the unpaid principal balance outstanding under this Note from time to time shall bear interest at the LIBOR-based Rate plus the Applicable Margin or the Prime Referenced Rate plus the Applicable Margin, or any number or combination of such interest rates, as elected by the undersigned or as otherwise determined under this Note.

 

Interest accruing hereunder on the basis of the Prime Referenced Rate shall be computed on the basis of a 360-day year if this Note evidences a business or commercial loan or a 365/366-day year if a consumer loan, and shall be assessed for the actual number of days elapsed, and in such computation, effect shall be given to any change in the Applicable Interest Rate as a result of any change in the Prime Referenced Rate on the date of each such change. Interest accruing on the basis of the LIBOR-based Rate shall be computed on the basis of a 360 day year and shall be assessed for the actual number of days elapsed from the first day of the Interest Period applicable thereto but not including the last day thereof.

 

Accrued and unpaid interest hereunder shall be payable, in arrears, on the first (1st) day of each April, July, October, and January commencing January 1, 2015, and on the Maturity Date (unless sooner accelerated in accordance with the terms of this Note).

 

Payments under this Note shall be first applied to accrued and unpaid interest hereunder and the balance, if any, to principal.

 

In the event the periodic installments set forth above are inclusive of interest, the undersigned hereby acknowledge(s) and agree(s) that such installments are based upon the original principal amount of Indebtedness outstanding under this Note, an assumed fixed rate of interest, and an assumed amortization term, notwithstanding the fact that the Applicable Interest Rate(s) may change from time to time during the term of this Note. Therefore, in the event that the Applicable Interest Rate(s) change(s) at any time as a result of any change(s) in the LIBOR-based Rate and/or the Prime Referenced Rate, Bank may, in its sole discretion, recalculate the installments of principal and interest required to be made by the undersigned under and pursuant to the terms

 

 

of this Note, and the undersigned agree(s) to pay such installments as they may be recalculated by Bank, and the undersigned acknowledge(s) and agree(s) that any such recalculation shall not affect the Maturity Date of this Note or any other terms or provisions herein set forth.

 

From and after the occurrence of any Default hereunder, and so long as any such Default remains unremedied or uncured thereafter, the Indebtedness outstanding under this Note shall bear interest at a per annum rate of three percent (3%) above the otherwise Applicable Interest Rate(s), which interest shall be payable upon demand. In addition to the foregoing, a late payment charge equal to five percent (5%) of each late payment hereunder may be charged on any payment not received by Bank within ten (10) calendar days after the payment due date therefor, but acceptance of payment of any such charge shall not constitute a waiver of any Default hereunder.

 

In no event shall the interest payable under this Note at any time exceed the maximum rate permitted by law.

 

The amount from time to time outstanding under this Note, the Applicable Interest Rate(s), the Interest Period(s), if applicable, and the amount and date of any repayment shall be noted on Bank’s records, which records shall be conclusive evidence thereof, absent manifest error; provided, however, any failure by Bank to make any such notation, or any error in any such notation, shall not relieve the undersigned of its/their obligations to repay Bank all amounts payable by the undersigned to Bank under or pursuant to this Note, when due in accordance with the terms hereof.

 

The undersigned may elect the LIBOR-based Rate plus the Applicable Margin or the Prime Referenced Rate plus the Applicable Margin as the Applicable Interest Rate for all or any part of the unpaid principal balance outstanding under this Note, subject to the following: (a) the undersigned shall deliver to Bank, by 11:00 a.m. (Detroit, Michigan time) on the proposed effective date of such election, a Notice of Interest Rate executed by the undersigned setting forth the information required on the Notice of Interest Rate form attached hereto as Exhibit “A”; (b) any conversion from an Applicable Interest Rate based upon the LIBOR-based Rate to an Applicable Interest Rate based upon the Prime Referenced Rate shall only be effective as of the last day of the Interest Period applicable to such LIBOR-based Rate; and (c) in the case of a LIBOR-based Rate Election, (i) the principal Indebtedness outstanding under this Note which is to bear interest on the basis of the relevant LIBOR-based Rate for the applicable Interest Period must be at least Two Hundred Fifty Thousand Dollars ($250,000.00) (or such lesser amount as is acceptable to Bank in its sole discretion) as of the first day of such Interest Period; (ii) no Default, or any condition or event which, with the giving of notice or the running of time, or both, would constitute a Default, shall have occurred and be continuing or exist under this Note; (iii) if, at the time of any such election, the LIBOR-based Rate plus the Applicable Margin is the Applicable Interest Rate with respect to all or any part of the Indebtedness which is to be subject to such election, such election shall be effective only as of the last day of the Interest Period applicable to such existing LIBOR-based Rate; (iv) the undersigned shall elect Interest Periods hereunder so as to permit the undersigned to make the mandatory installment payments required under the terms of this Note, when due in accordance with the terms hereof, without prepaying any Indebtedness hereunder which is then bearing interest on the basis of the LIBOR-based Rate prior to the end of the Interest Period applicable thereto; and (v) any LIBOR-based Rate Election

 

6

 

by the undersigned hereunder shall not be revocable by the undersigned. Any election by the undersigned of an Applicable Interest Rate based upon the Prime Referenced Rate for all or any part of the Indebtedness hereunder shall remain in effect, and the Prime Referenced Rate plus the Applicable Margin shall continue as the Applicable Interest Rate for such Indebtedness hereunder, unless and until Bank receives a Notice of Interest Rate from the undersigned in accordance with the foregoing making a LIBOR-based Rate Election hereunder in respect of such Indebtedness, subject in all respects to the terms and conditions of this Note.

 

In the event that the LIBOR-based Rate is at any time the basis for the Applicable Interest Rate for all or any part of the principal Indebtedness outstanding under this Note, effective as of the last day of the Interest Period applicable to such LIBOR-based Rate and as of the last day of each succeeding Interest Period, the LIBOR-based Rate for such Indebtedness shall be determined as of each such date in accordance with the terms of this Note, and the LIBOR-based Rate plus the Applicable Margin shall continue to be the Applicable Interest Rate for and in respect of such Indebtedness for successive Interest Periods equal to the same period of time as the Interest Period then ending for such LIBOR-based Rate (but not less than one (1) month), unless and until the Bank receives a Notice of Interest Rate from the undersigned in accordance with the terms of this Note requesting a LIBOR-based Rate with an Interest Period having a duration different from the Interest Period then in effect or requesting the conversion to the Prime Referenced Rate plus the Applicable Margin as the Applicable Interest Rate for such Indebtedness hereunder; or unless the undersigned is/are not entitled to elect the LIBOR-based Rate as the basis for the Applicable Interest Rate for all or any part of the principal Indebtedness outstanding hereunder in accordance with the terms of this Note or the LIBOR-based Rate is not otherwise available to the undersigned as the basis for the Applicable Interest Rate for all or any part of the principal Indebtedness outstanding hereunder in accordance with the terms of this Note, in which case, the Prime Referenced Rate plus the Applicable Margin shall be the Applicable Interest Rate hereunder in respect of such Indebtedness for such period, subject in all respects to the terms and conditions of this Note. The foregoing shall not in any way whatsoever limit or otherwise affect any of Bank’s rights or remedies under this Note upon the occurrence of any Default hereunder, or any condition or event which, with the giving of notice or the running of time, or both, would constitute a Default.

 

Subject to the definition of an “Interest Period” hereunder, in the event that any payment under this Note becomes due and payable on any day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day, and, to the extent applicable, interest shall continue to accrue and be payable thereon during such extension at the rates set forth in this Note.

 

All payments to be made by the undersigned to Bank under or pursuant to this Note shall be in immediately available United States funds, without setoff or counterclaim, and in the event that any payments submitted hereunder are in funds not available until collected, said payments shall continue to bear interest until collected.

 

In the event that the LIBOR-based Rate plus the Applicable Margin is the Applicable Interest Rate for all or any part of the principal Indebtedness outstanding under this Note, and any payment or prepayment of any such Indebtedness shall occur on any day other than the last day of the Interest Period applicable thereto (whether voluntarily, by acceleration, required payment

 

7

 

or otherwise), or if the undersigned make(s) a LIBOR-based Rate Election with respect to all or any part of the principal indebtedness outstanding under this Note in accordance with the terms and conditions hereof, and, subsequent to such election, but prior to the commencement of the Interest Period applicable thereto, the undersigned (or any of them) revoke(s) such election for any reason whatsoever, or if the undersigned shall fail to make any payment of principal or interest hereunder at any time that the LIBOR-based Rate is the basis for the Applicable Interest Rate hereunder in respect of such Indebtedness, the undersigned shall reimburse Bank, on demand, for any resulting loss, cost or expense incurred by Bank as a result thereof, including, without limitation, any such loss, cost or expense incurred in obtaining, liquidating, employing or redeploying deposits from third parties. Such amount payable by the undersigned to Bank may include, without limitation, an amount equal to the excess, if any, of (a) the amount of interest which would have accrued on the amount so prepaid, for the period from the date of such prepayment through the last day of the relevant Interest Period, at the applicable rate of interest provided under this Note, over (b) the amount of interest (as reasonably determined by Bank) which would have accrued to Bank on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. Calculation of any amounts payable to Bank under this paragraph shall be made as though Bank shall have actually funded or committed to fund the relevant Indebtedness hereunder through the purchase of an underlying deposit in an amount equal to the amount of such Indebtedness and having a maturity comparable to the relevant Interest Period; provided, however, that Bank may fund the Indebtedness hereunder in any manner it deems fit and the foregoing assumptions shall be utilized only for the purpose of the calculation of amounts payable under this paragraph. Upon the written request of the undersigned, Bank shall deliver to the undersigned a certificate setting forth the basis for determining such losses, costs and expenses, which certificate shall be conclusively presumed correct, absent manifest error. The undersigned may prepay all or any part of the outstanding balance of any Indebtedness hereunder which is bearing interest based upon the Prime Referenced Rate at any such time without premium or penalty. Any prepayment hereunder shall also be accompanied by the payment of all accrued and unpaid interest on the amount so prepaid. Partial prepayments hereunder shall be applied to the installments hereunder in the inverse order of their maturities.

 

For any Indebtedness hereunder for which the Applicable Interest Rate is at any time based upon the LIBOR-based Rate, if Bank shall designate a LIBOR Lending Office which maintains books separate from those of the rest of Bank, Bank shall have the option of maintaining and carrying this Note and the relevant Indebtedness hereunder on the books of such LIBOR Lending Office.

 

If, at any time, Bank determines that, (a) Bank is unable to determine or ascertain the LIBOR-based Rate, or (b) by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars in the applicable amounts or for the relative maturities are not being offered to Bank for any applicable Interest Period, or (c) the LIBOR-based Rate plus the Applicable Margin will not accurately or fairly cover or reflect the cost to Bank of maintaining any of the Indebtedness under this Note based upon the LIBOR-based Rate, then Bank shall forthwith give notice thereof to the undersigned. Thereafter, until Bank notifies the undersigned that such conditions or circumstances no longer exist, any obligation of the Bank to maintain any of the Indebtedness outstanding under this Note at an Applicable Interest Rate based upon the LIBOR-based Rate shall be suspended, and the Prime Referenced Rate plus the

 

8

 

Applicable Margin shall be the Applicable Interest Rate for all Indebtedness hereunder during such period of time.

 

If any Change in Law shall make it unlawful or impossible for the Bank (or its LIBOR Lending Office) to make or maintain any of the Indebtedness under this Note with interest based upon the LIBOR-based Rate, Bank shall forthwith give notice thereof to the undersigned. Thereafter, until Bank notifies the undersigned that such conditions or circumstances no longer exist, the Prime Referenced Rate plus the Applicable Margin shall be the Applicable Interest Rate for all Indebtedness hereunder during such period of time.

 

If any Change in Law shall: (a) subject Bank (or its LIBOR Lending Office) to any tax, duty or other charge with respect to this Note or any Indebtedness hereunder, or shall change the basis of taxation of payments to Bank (or its LIBOR Lending Office) of the principal of or interest under this Note or any other amounts due under this Note in respect thereof (except for changes in the rate of tax on the overall net income of Bank or its LIBOR Lending Office imposed by the jurisdiction in which Bank’s principal executive office or LIBOR Lending Office is located); or (b) impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by Bank (or its LIBOR Lending Office), or shall impose on Bank (or its LIBOR Lending Office) or the foreign exchange and interbank markets any other condition affecting this Note or the Indebtedness hereunder; and the result of any of the foregoing is to increase the cost to Bank of maintaining any part of the Indebtedness hereunder or to reduce the amount of any sum received or receivable by Bank under this Note by an amount deemed by the Bank to be material, then the undersigned shall pay to Bank, within fifteen (15) days of the undersigned’s receipt of written notice from Bank demanding such compensation, such additional amount or amounts as will compensate Bank for such increased cost or reduction. A certificate of Bank, prepared in good faith and in reasonable detail by Bank and submitted by Bank to the undersigned, setting forth the basis for determining such additional amount or amounts necessary to compensate Bank shall be conclusive and binding for all purposes, absent manifest error.

 

In the event that any Change in Law affects or would affect the amount of capital required or expected to be maintained by Bank (or any corporation controlling Bank), and Bank determines that the amount of such capital is increased by or based upon the existence of any obligations of Bank hereunder or the maintaining of any Indebtedness hereunder, and such increase has the effect of reducing the rate of return on Bank’s (or such controlling corporation’s) capital as a consequence of such obligations or the maintaining of such Indebtedness hereunder to a level below that which Bank (or such controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy), then the undersigned shall pay to Bank, within fifteen (15) days of the undersigned’s receipt of written notice from Bank demanding such compensation, additional amounts as are sufficient to compensate Bank (or such controlling corporation) for any increase in the amount of capital and reduced rate of return which Bank reasonably determines to be allocable to the existence of any obligations of the Bank hereunder or to maintaining any Indebtedness hereunder. A certificate of Bank as to the amount of such compensation, prepared in good faith and in reasonable detail by the Bank and submitted by Bank to the undersigned, shall be conclusive and binding for all purposes absent manifest error.

 

9

 

This Note and any other indebtedness and liabilities of any kind of the undersigned (or any of them) to the Bank, and any and all modifications, renewals or extensions of it, whether joint or several, contingent or absolute, now existing or later arising, and however evidenced and whether incurred voluntarily or involuntarily, known or unknown, or originally payable to the Bank or to a third party and subsequently acquired by Bank including, without limitation, any late charges; loan fees or charges; overdraft indebtedness; costs incurred by Bank in establishing, determining, continuing or defending the validity or priority of any security interest, pledge or other lien or in pursuing any of its rights or remedies under any loan document (or otherwise) or in connection with any proceeding involving the Bank as a result of any financial accommodation to the undersigned (or any of them); and reasonable costs and expenses of attorneys and paralegals, whether inside or outside counsel is used, and whether any suit or other action is instituted, and to court costs if suit or action is instituted, and whether any such fees, costs or expenses are incurred at the trial court level or on appeal, in bankruptcy, in administrative proceedings, in probate proceedings or otherwise (collectively ‘Indebtedness”) are secured by and the Bank is granted a security interest in and lien upon all items deposited in any account of any of the undersigned with the Bank and by all proceeds of these items (cash or otherwise), all account balances of any of the undersigned from time to time with the Bank, by all property of any of the undersigned from time to time in the possession of the Bank and by any other collateral, rights and properties described in each and every deed of trust, mortgage, security agreement, pledge, assignment and other security or collateral agreement which has been, or will at any time(s) later be, executed by any (or all) of the undersigned to or for the benefit of the Bank (collectively “Collateral”). Notwithstanding the above, (i) to the extent that any portion of the Indebtedness is a consumer loan, that portion shall not be secured by any deed of trust or mortgage on or other security interest in any of the undersigned’s principal dwelling or in any of the undersigned’s real property which is not a purchase money security interest as to that portion, unless expressly provided to the contrary in another place, or (ii) if the undersigned (or any of them) has (have) given or give(s) Bank a deed of trust or mortgage covering California real property, that deed of trust or mortgage shall not secure this Note or any other indebtedness of the undersigned (or any of them), unless expressly provided to the contrary in another place, or (iii) if the undersigned (or any of them) has (have) given or give(s) the Bank a deed of trust or mortgage covering real property which, under Texas law, constitutes the homestead of such person, that deed of trust or mortgage shall not secure this Note or any other indebtedness of the undersigned (or any of them) unless expressly provided to the contrary in another place.

 

Upon the occurrence of a Default, then the Bank may, at its option and without prior notice to the undersigned (or any of them), declare any or all of the Indebtedness to be immediately due and payable (notwithstanding any provisions contained in the evidence of it to the contrary), sell or liquidate all or any portion of the Collateral, set off against the Indebtedness any amounts owing by the Bank to the undersigned (or any of them), charge interest at the default rate provided in the document evidencing the relevant Indebtedness and exercise any one or more of the rights and remedies granted to the Bank by any agreement with the undersigned (or any of them) or given to it under applicable law.

 

The undersigned authorize(s) the Bank to charge any account(s) of the undersigned (or any of them) with the Bank for any and all sums due hereunder when due; provided, however, that such authorization shall not affect any of the undersigned’s obligation to pay to the Bank all amounts when due, whether or not any such account balances that are maintained by the undersigned with

 

10

 

the Bank are insufficient to pay to the Bank any amounts when due, and to the extent that are insufficient to pay to the Bank all such amounts, the undersigned shall remain liable for any deficiencies until paid in full.

 

If this Note is signed by two or more parties (whether by all as makers or by one or more as an accommodation party or otherwise), the obligations and undertakings under this Note shall be that of all and any two or more jointly and also of each severally. This Note shall bind the undersigned, and the undersigned’s respective heirs, personal representatives, successors and assigns.

 

The undersigned waive(s) presentment, demand, protest, notice of dishonor, notice of demand or intent to demand, notice of acceleration or intent to accelerate, and all other notices, and agree(s) that no extension or indulgence to the undersigned (or any of them) or release, substitution or nonenforcement of any security, or release or substitution of any of the undersigned, any guarantor or any other party, whether with or without notice, shall affect the obligations of any of the undersigned. The undersigned waive(s) all defenses or right to discharge available under Section 3-605 of the Michigan Uniform Commercial Code and waive(s) all other suretyship defenses or right to discharge. The undersigned agree(s) that the Bank has the right to sell, assign, or grant participations or any interest in, any or all of the Indebtedness, and that, in connection with this right, but without limiting its ability to make other disclosures to the full extent allowable, the Bank may disclose all documents and information which the Bank now or later has relating to the undersigned or the Indebtedness. The undersigned agree(s) that the Bank may provide information relating to this Note or relating to the undersigned to the Bank’s parent, affiliates, subsidiaries and service providers.

 

The undersigned agree(s) to pay to or reimburse Bank, or any other holder or owner of this Note, on demand, any and all costs and expenses of Bank or such holder or owner (including, without limit, court costs, legal expenses and reasonable attorneys’ fees, whether inside or outside counsel is used, whether or not suit is instituted, and, if suit is instituted, whether at the trial court level, appellate level, in a bankruptcy, probate or administrative proceeding or otherwise) incurred in connection with the preparation, execution, delivery, amendment, administration, and performance of this Note and the related documents, or incurred in collecting or attempting to collect this Note or the Indebtedness, or incurred in any other matter or proceeding relating to this Note or the Indebtedness.

 

The undersigned acknowledge(s) and agree(s) that there are no contrary agreements, oral or written, establishing ,a term of this Note and agree(s) that the terms and conditions of this Note may not be amended, waived or modified except in a writing signed by an officer of the Bank expressly stating that the writing constitutes an amendment, waiver or modification of the terms of this Note. As used in this Note, the word “undersigned” means, individually and collectively, each maker, accommodation party, endorser and other party signing this Note in a similar capacity. If any provision of this Note is unenforceable in whole or part for any reason, the remaining provisions shall continue to be effective. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

 

For the purposes of this Note, the following terms have the following meanings:

 

11

 

“Applicable Interest Rate” means, in respect of all or any part of the Indebtedness hereunder, either the LIBOR-based Rate plus the Applicable Margin or the Prime Referenced Rate plus the Applicable Margin, as selected by the undersigned from time to time or as otherwise determined in accordance with the terms and conditions of this Note.

 

“Applicable Margin” means:

 

(a)                                 in respect of the LIBOR—based Rate, three and one quarter percent (31/4%) per annum; and

 

(b)                                 in respect of the Prime Referenced Rate, one and one half percent (11⁄2%) per annum.

 

“Business Day” means any day, other than a Saturday, Sunday or any other day designated as a holiday under Federal or applicable State statute or regulation, on which Bank is open for all or substantially all of its domestic and international business (including dealings in foreign exchange) in Detroit, Michigan, and, in respect of notices and determinations relating to the LIBOR-based Rate and the Daily Adjusting LIBOR Rate, also a day on which dealings in dollar deposits are also carried on in the London interbank market and on which banks are open for business in London, England.

 

“Change in Law” means the occurrence, after the date hereof, of any of the following: (i) the adoption or introduction of, or any change in any applicable law, treaty, rule or regulation (whether domestic or foreign) now or hereafter in effect and whether or not applicable to Bank on such date, or (ii) any change in interpretation, administration or implementation thereof of any such law, treaty, rule or regulation by any Governmental Authority, or (iii) the issuance, making or implementation by any Governmental Authority of any interpretation, administration, request, regulation, guideline, or directive (whether or not having the force of law), including any risk-based capital guidelines. For purposes of this definition, (x) a change in law, treaty, rule, regulation, interpretation, administration or implementation shall include, without limitation, any change made or which becomes effective on the basis of a law, treaty, rule, regulation, interpretation administration or implementation then in force, the effective date of which change is delayed by the terms of such law, treaty, rule, regulation, interpretation, administration or implementation, and (y) the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, H.R. 4173) and all requests, rules, regulations, guidelines, interpretations or directives promulgated thereunder or issued in connection therewith shall be deemed to be a “Change in Law”, regardless of the date enacted, adopted, issued or promulgated, whether before or after the date hereof, and (z) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel Ill, shall each be deemed to be a “Change in Law’, regardless of the date enacted, adopted, issued or implemented.

 

“Daily Adjusting LIBOR Rate” means, for any day, a per annum interest rate which is equal to the quotient of the following:

 

(a)                                 for any day, the per annum rate of interest determined on the basis of the rate for deposits in United States Dollars for a period equal to one (1) month appearing on Page BBAM of

 

12

 

the Bloomberg Financial Markets Information Service as of 11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical) on such day, or if such day is not a Business Day, on the immediately preceding Business Day. In the event that such rate does not appear on Page BBAM of the Bloomberg Financial Markets Information Service (or otherwise on such Service) on any day, the “Daily Adjusting LIBOR Rate” for such day shall be determined by reference to such other publicly available service for displaying eurodollar rates as may be reasonably selected by Bank, or, in the absence of such other service, the “Daily Adjusting LIBOR Rate” for such day shall, instead, be determined based upon the average of the rates at which Bank is offered dollar deposits at or about 11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical), on such day, or if such day is not a Business Day, on the immediately preceding Business Day, in the interbank eurodollar market in an amount comparable to the principal amount of the Indebtedness hereunder and for a period equal to one (1) month;

 

divided by

 

(b)                                 1.00 minus the maximum rate (expressed as a decimal) on such day at which Bank is required to maintain reserves on “Euro-currency Liabilities” as defined in and pursuant to Regulation D of the Board of Governors of the Federal Reserve System or, if such regulation or definition is modified, and as long as Bank is required to maintain reserves against a category of liabilities which includes eurodollar deposits or includes a category of assets which includes eurodollar loans, the rate at which such reserves are required to be maintained on such category.

 

“Default” shall mean any Event of Default, as defined in the Credit Agreement dated April 30, 2010 between the undersigned and Bank, as the same may be amended or modified from time to time (“Credit Agreement”).

 

“Governmental Authority” means the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including, without limitation, any supranational bodies such as the European Union or the European Central Bank).

 

“Installment Payment Date” means January 1, 2015, and the first (1st) day of April, July, October and January thereafter, until (and including) the Maturity Date.

 

“Interest Period” means, a period of one (1) month, two (2) months, or three (3) months (or such shorter period as may be acceptable to Bank in its sole discretion), as selected by the undersigned (and which period is acceptable to Bank in its sole discretion), or as otherwise determined pursuant to and in accordance with the terms of this Note, commencing on the effective date of a LIBOR-based Rate Election by the undersigned with respect to all or any part of the Indebtedness hereunder, or in the case of successive continuations of the LIBOR-based Rate plus the Applicable Margin as the Applicable Interest Rate hereunder, as herein provided, on the last day of the preceding Interest Period then ending, provided that:

 

13

 

(a)                                 any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day, except that if the next succeeding Business Day falls in another calendar month, the Interest Period shall end on the next preceding Business Day, and when an Interest Period begins on a day which has no numerically corresponding day in the calendar month during which such Interest Period is to end, it shall end on the last Business Day of such calendar month;

 

(b)                                 the undersigned shall elect Interest Periods hereunder so as to permit the undersigned to make the mandatory installment payments required under the terms of this Note, when due in accordance with the terms hereof, without prepaying any Indebtedness hereunder which is then bearing interest on the basis of the LIBOR-based Rate prior to the end of the Interest Period applicable thereto; and

 

(c)                                  no Interest Period shall extend beyond the Maturity Date.

 

“LIBOR-based Rate” means a per annum interest rate which is equal to the quotient of the following:

 

(a)                                 the LIBOR Rate;

 

divided by

 

(b)                                 1.00 minus the maximum rate (expressed as a decimal) during such Interest Period at which Bank is required to maintain reserves on “Euro-currency Liabilities’ as defined in and pursuant to Regulation D of the Board of Governors of the Federal Reserve System or, if such regulation or definition is modified, and as long as Bank is required to maintain reserves against a category of liabilities which includes eurodollar deposits or includes a category of assets which includes eurodollar loans, the rate at which such reserves are required to be maintained on such category.

 

“LIBOR-based Rate Election” means an election by the undersigned of the LIBOR-based Rate plus the Applicable Margin as the Applicable Interest Rate for all or any part of the indebtedness hereunder, subject to and in accordance with the terms and conditions of this Note.

 

“LIBOR Lending Office” means Bank’s office located in the Cayman islands, British West Indies, or such other branch of Bank, domestic or foreign, as it may hereafter designate as its LIBOR Lending Office by notice to the undersigned.

 

“LIBOR Rate” means, with respect to any Indebtedness outstanding under this Note bearing interest on the basis of the LIBOR-based Rate, the per annum rate of interest determined on the basis of the rate for deposits in United States Dollars for a period equal to the relevant interest Period for such Indebtedness, commencing on the first day of such Interest Period, appearing on Page BBAM of the Bloomberg Financial Markets Information Service as of 11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical), two (2) Business Days prior to the first day of such Interest Period. In the event that such rate does not appear on Page BBAM of the Bloomberg Financial Markets Information Service (or otherwise on such Service), the “LIBOR Rate’ shall be determined by reference to such other publicly available service for displaying eurodollar rates as may be reasonably selected by Bank, or, in the absence of such other service,

 

14

 

the “LIBOR Rate” shall, instead, be determined based upon the average of the rates at which Bank is offered dollar deposits at or about 11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as practical), two (2) Business Days prior to the first day of such Interest Period in the interbank eurodollar market in an amount comparable to the amount of the outstanding Indebtedness hereunder which is to bear interest on the basis of such LIBOR-based Rate and for a period equal to the relevant Interest Period.

 

“Notice of Interest Rate” means a Notice of Interest Rate in form similar to that attached to this Note as Exhibit “A” issued and delivered by the undersigned to Bank in accordance with the terms of this Note.

 

“Prime Rate” means the per annum interest rate established by Bank as its prime rate for its borrowers, as such rate may vary from time to time, which rate is not necessarily the lowest rate on loans made by Bank at any such time.

 

“Prime Referenced Rate” means, for any day, a per annum interest rate which is equal to the Prime Rate in effect on such day, but in no event and at no time shall the Prime Referenced Rate be less than the sum of the Daily Adjusting LIBOR Rate for such day plus two and one-half percent (2.50%) per annum. If, at any time, Bank determines that it is unable to determine or ascertain the Daily Adjusting LIBOR Rate for any day, the Prime Referenced Rate for each such day shall be the Prime Rate in effect at such time, but not less than two and one-half percent (2.50%) per annum.

 

No delay or failure of Bank in exercising any right, power or privilege hereunder shall affect such right, power or privilege, nor shall any single or partial exercise thereof preclude any further exercise thereof, or the exercise of any other power, right or privilege. The rights of Bank under this Note are cumulative and not exclusive of any right or remedies which Bank would otherwise have, whether by other instruments or by law.

 

No delay or failure of Bank in exercising any right, power or privilege hereunder shall affect such right, power or privilege, nor shall any single or partial exercise thereof preclude any further exercise thereof, or the exercise of any other power, right or privilege. The rights of Bank under this Note are cumulative and not exclusive of any right or remedies which Bank would otherwise have, whether by other instruments or by law.

 

THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25% PER ANNUM OR THE HIGHEST APPLICABLE USURY CEILING, WHICHEVER IS LESS.

 

15

 

THE UNDERSIGNED AND BANK, BY ACCEPTANCE OF THIS NOTE, ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT. THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.

 

 

	
 
    	
CONIFER   HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Brian Roney
    
	
 
    	
 
    	
SIGNATURE OF
    
	
 
    	
 
    
	
 
    	
Its:
    	
President
    
	
 
    	
 
    	
TITLE
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
SIGNATURE OF
    
	
 
    	
 
    
	
 
    	
Its:
    	
 
    
	
 
    	
 
    	
TITLE
    

 

	
26300 Northwestern Highway
    	
 
    	
Southfield
    	
 
    	
Michigan
    	
 
    	
48076
    
	
STREET ADDRESS
    	
 
    	
CITY
    	
 
    	
STATE
    	
 
    	
ZIP
    

 

	
For Bank Use Only
    	
CCAR#
    
	
 
    
	
LOAN OFFICER INITIALS
    	
LOAN GROUP NAME
    	
BASE RATE INDEX

20129
    	
OBLIGOR NAME 
   Conifer Holdings, Inc.
    
	
LOAN OFFICER ID.   NO.
    	
LOAN GROUP NO.
    	
OBLIGOR NO.
    	
NOTE NO.
    	
AMOUNT
   $7,500,000
    
						

 

(Signature Page to Installment Note - 4310842)

 

 

EXHIBIT “A”

 

NOTICE OF INTEREST RATE

 

With reference to the Installment Note dated as of September 29, 2014 (the “Note”), made in the principal amount of $7,500,000 by Conifer Holdings, Inc. (referred to herein as the “undersigned”) payable to Comerica Bank (“Bank”), and subject to the terms and conditions of the Note, the undersigned hereby elect(s) the              * plus the Applicable Margin as the Applicable Interest Rate for $            of principal Indebtedness outstanding under the Note.  Such election shall be effective as of                           ,     , and the Interest Period, if applicable, shall be for                            (    )** month(s), and shall end on                  , 201  .

 

In the event that the Indebtedness outstanding under the Note to which this Notice relates is currently bearing interest at the LIBOR-based Rate, the Interest Period with respect thereto ends on              , 201  .

 

The undersigned hereby certify(ies) that, as of the date hereof, no Default, or any condition or event which, with the giving of notice or the running of time, or both, would constitute a Default, has occurred and is continuing or exists under said Installment Note.

 

Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in said Installment Note.

 

Dated this       day of             , 201  .

 

 

	
 
    	
CONIFER   HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Its:
    	
 
    

 

* Insert, as applicable, “LIBOR-based Rate” or “Prime Referenced Rate”.

 

**For an election of the LIBOR-based Rate, insert the applicable Interest Period (i.e., “one (1)”, “two (2)” or “three (3)” months).

 

 

SCHEDULE 1

 

	
Installment Payments
    	
 
    	
Amount
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
1-8
    	
 
    	
$
    	
250,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
9-12
    	
 
    	
$
    	
375,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
13 and thereafter
    	
 
    	
$
    	
500,000
    	
 
    

 

 

NOTICE OF INTEREST RATE

 

With reference to the Installment Note dated as of September 29, 2014 (the “Note”), made in the principal amount of $7,500,000 by Conifer Holdings, Inc. (referred to herein as the “undersigned”) payable to Comerica Bank (“Bank”), and subject to the terms and conditions of the Note, the undersigned hereby elect(s) the Libor-based rate* plus the Applicable Margin as the Applicable Interest Rate for $7,500,000.00 of principal Indebtedness outstanding under the Note.  Such election shall be effective as of September 30, 2014, and the Interest Period, if applicable, shall be for three (3)** month(s), and shall end on January 1, 2015.

 

In the event that the Indebtedness outstanding under the Note to which this Notice relates is currently bearing interest at the LIBOR-based Rate, the Interest Period with respect thereto ends on              , 201  .

 

The undersigned hereby certify(ies) that, as of the date hereof, no Default, or any condition or event which, with the giving of notice or the running of time, or both, would constitute a Default, has occurred and is continuing or exists under said Installment Note.

 

Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in said Installment Note.

 

Dated this 30th day of September, 2014.

 

 

	
 
    	
CONIFER   HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Brian Roney
    
	
 
    	
 
    	
 
    
	
 
    	
Its:
    	
President
    

 

* Insert, as applicable, “LIBOR-based Rate” or “Prime Referenced Rate”.

 

**For an election of the LIBOR-based Rate, insert the applicable Interest Period (i.e., “one (1)”, “two (2)” or “three (3)” months).

 

 

Waiver Letter 
 September 30, 2014

 

Conifer Holdings, Inc. 
 550 W. Merrill Street 
 Suite 200Birmingham, MC 48009

 

Re:                        Credit Agreement dated August 30, 2010 between Conifer Holdings, Inc. (“Company”) and Comerica Bank, as amended (“Credit Agreement”)

 

Gentlemen:

 

The Company has advised the Bank that it violated the provisions of Section 8.10(e) of the Credit Agreement for periods ending prior to the date of this Waiver Letter (the “Covenant Violation”) and that an Event of Default under Section 10.1(j) because James Petcoff previously owned less than 51% of the stock of Company. The Company has requested that the Bank waive any Event of Default under the Credit Agreement resulting from the Covenant Violation. The Bank hereby waives such Events of Default (“Waiver”).

 

The Waiver shall not be deemed to amend or alter in any respect the terms and conditions of the Credit Agreement, or to constitute a waiver or release by the Bank of any right, remedy or Event of Default under the Credit Agreement, except to the extent expressly set forth above. Furthermore, the Waiver shall not affect in any manner whatsoever any rights or remedies of the Bank with respect to any other non-compliance by Company with the Credit Agreement whether in the nature of an Event of Default or otherwise, and whether now in existence or subsequently arising.

 

Except as specifically defined to the contrary herein, capitalized terms used in this Waiver shall have the meanings given them in the Credit Agreement.

 

	
 
    	
Very truly yours,
    
	
 
    	
 
    
	
 
    	
COMERICA BANK
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Paul G. Russo
    
	
 
    	
 
    	
Paul G. Russo
    
	
 
    	
Its:
    	
Vice President

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00246-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00246-of-00352.parquet"}]]