Document:

exv10w1w13

 

Exhibit 10.1.13

AMENDED AND RESTATED

SUBORDINATED LOAN AND SECURITY AGREEMENT

among

COURTNEY SMITH, PETER JOKIEL, WILLIAM LODER,

and GARY FERGUSON,

as Subordinated Lenders,

and

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.,

as the Borrower,

and

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.,

and

STANDARD AMERICAN INSURANCE LIMITED,

as Senior Lenders

Amended and Restated as of July 23, 2004

Originally dated December 12, 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	ARTICLE I DEFINITIONS
	 	 	2	 
	Section 1.01. Definitions
	 	 	2	 
	ARTICLE II THE LOAN
	 	 	10	 
	Section 2.01. The Commitment; General Advance Requirements
	 	 	10	 
	Section 2.02. Procedures for Obtaining Advances; Use of Proceeds
	 	 	10	 
	Section 2.03. Advance Conditions Precedent
	 	 	12	 
	Section 2.04. Interest Payments
	 	 	12	 
	Section 2.05. Principal Payments
	 	 	13	 
	Section 2.06. Application of Payments
	 	 	13	 
	Section 2.07. Subordinated Notes
	 	 	13	 
	Section 2.08. No Transfer of Debt
	 	 	14	 
	Section 2.09. Subordination Provisions
	 	 	14	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES
	 	 	17	 
	Section 3.01. Representations and Warranties of the Borrower
	 	 	17	 
	ARTICLE IV COVENANTS OF THE BORROWER
	 	 	20	 
	Section 4.01. Affirmative Covenants
	 	 	20	 
	Section 4.02. Negative Covenants of the Borrower
	 	 	23	 
	ARTICLE V SECURITY AGREEMENT
	 	 	25	 
	Section 5.01. Grant of Security Interest
	 	 	25	 
	Section 5.02. Security for the Debt
	 	 	27	 
	Section 5.03. Intention of Parties
	 	 	27	 
	ARTICLE VI INDEMNIFICATION
	 	 	27	 
	Section 6.01. Indemnification by the Borrower
	 	 	27	 
	ARTICLE VII EVENTS OF DEFAULT
	 	 	29	 
	Section 7.01. Occurrence of an Event of Default
	 	 	29	 
	Section 7.02. Effect of an Event of Default
	 	 	30	 
	ARTICLE VIII GENERAL PROVISIONS
	 	 	32	 
	Section 8.01. Cooperation, Confidentiality, Etc.
	 	 	32	 
	Section 8.02. Waiver of Trial by Jury
	 	 	33	 
	Section 8.03. Amendment; Waivers
	 	 	33	 
	Section 8.04. Limited Liability
	 	 	33	 
	Section 8.05. Costs and Expenses
	 	 	34	 
	ARTICLE IX CONSTRUCTION
	 	 	34	 
	Section 9.01. Entire Agreement
	 	 	34	 
	Section 9.02. Severability Clause
	 	 	34	 
	Section 9.03. Counterparts
	 	 	34	 

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	Section 9.04. Governing Law; Agreement Constitutes Security Agreement;
Consent to Forum; Immunities
	 	 	34	 
	Section 9.05. No Agency; No Partnership; No Joint Venture
	 	 	35	 
	Section 9.06. Judicial Interpretation
	 	 	36	 
	Section 9.07. Recitals
	 	 	36	 
	Section 9.08. Rules of Interpretation
	 	 	36	 
	Section 9.09. Good Faith
	 	 	37	 
	ARTICLE X MISCELLANEOUS
	 	 	37	 
	Section 10.01. Notices
	 	 	37	 
	Section 10.02. Further Agreements
	 	 	39	 
	Section 10.03. Third-Party Rights
	 	 	39	 
	Section 10.04. Advice from Independent Counsel
	 	 	39	 
	Section 10.05. Reproduction of Documents
	 	 	39	 

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EXHIBITS AND SCHEDULES

	 	 	 
	Exhibit A

	 	Form of Subordinated Note
	 
	 	 
	Exhibit B

	 	Form of Subordinated Lender Warrant
	 
	 	 
	Exhibit C

	 	Form of Intercreditor Agreement
	 
	 	 
	Schedule 3.01A

	 	Borrower’s Organizational Documents
	 
	 	 
	Schedule 3.01B

	 	Borrower’s Capital Stock

iii

 

AMENDED AND RESTATED

SUBORDINATED LOAN AND SECURITY AGREEMENT

     This AMENDED AND RESTATED SUBORDINATED LOAN AND SECURITY AGREEMENT (the
“Agreement”) is dated as of July 23, 2004, among (1) Courtney Smith, Peter
Jokiel, William Loder, and Gary Ferguson, each an individual (each a
“Subordinated Lender” and, together, the “Subordinated Lenders”); and (2)
Specialty Underwriters’ Alliance, Inc., a Delaware corporation, as the borrower
(the “Borrower”); and (3)(a) Friedman, Billings, Ramsey Group, Inc., a Virginia
corporation, as a senior lender to the Borrower and (b) Standard American
Insurance Limited, a Bermuda company, as a senior lender to the Borrower
(“SAIL,” and, together with FBR, the “Senior Lenders,” for the purpose of
receiving the rights and benefits created by Section 2.02(d) and Section 2.09
hereof);

     WHEREAS, the Borrower entered into a Subordinated Loan and Security
Agreement (the “Original Agreement”), dated December 12, 2003, among the
Borrower, the Subordinated Lenders, and FBR, as sole senior lender, in order to
secure a short-term stage-funded, non-revolving line of credit with a maximum
borrowing limit of $350,000, subject to limited exceptions for draws in respect
of interest accrued prior to the Maturity Date, as described herein, from the
Subordinated Lenders to enable the Borrower to fund its working capital needs
from time to time, pending a public offering of equity of the Borrower;

     WHEREAS, the Borrower wishes to amend and restate the Original Agreement
to extend the Maturity Date to October 31, 2004, increase the maximum borrowing
limit to $450,000 by increasing Courtney Smith’s commitment amount by $100,000
to acknowledge an additional $50,000 Advance already made by Courtney Smith and
to provide for an additional $50,000 Advance from Courtney Smith, and each
Subordinated Lender wishes to make such line of credit available subject to the
terms and conditions set forth herein, which facility is intended to be
subordinated in all respects to the Borrower’s indebtedness and obligations to
the Senior Lenders pursuant to the Senior Loan Agreement, as described in
Section 2.09 hereof and in the Intercreditor Agreement referred to herein; and

     WHEREAS, the Borrower intends to grant a second-priority security interest
to the Subordinated Lenders in all of the Borrower’s assets to secure the
credit facility described herein.

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

 

 

ARTICLE I

DEFINITIONS

     Section 1.01. Definitions.

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

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

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

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

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

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

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

     “Aggregate Advances” means, with respect to any Funding Date, the sum of
all Advances made (or requested to be made, as the context requires) by all
Subordinated Lenders on such Funding Date.

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     “Aggregate Commitment Amount” means $450,000; provided, that amounts added
to the Aggregate Advance Balance in respect of interest accrued prior to the
Maturity Date pursuant to Section 2.02(a) shall not count as amounts drawn
under the Aggregate Commitment Amount.

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

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

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

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

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

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

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

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

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

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

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

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

     “Commitment Percentage” shall mean (i) for the first $250,000 of Advances
requested pursuant to Section 2.02(a) hereof, 40% for each of Courtney Smith
and Peter Jokiel, and shall mean 10% for each of William Loder and Gary
Ferguson and (ii) for the remaining $100,000 of Advances requested pursuant to
Section 2.02(a) hereof, 100% of Courtney Smith and 0% for each other
Subordinated Lender.

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

     “Deemed Expense Advance” shall have the meaning assigned to such term in
Section 2.02(d), and shall only be deemed Advances hereunder to the extent the
Senior Lender shall have given its prior written consent to the same.

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

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

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

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

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

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

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

     “Ferguson Advance” means an Advance made by Gary Ferguson.

     “Ferguson Note” means the amended and restated subordinated note, in the
form of Exhibit A hereto, executed by the Borrower in favor of Gary Ferguson.

4

 

     “Ferguson Percentage” means, as of any date, the percentage obtained by
dividing the Advance Balance of all Ferguson Advances outstanding by the
Aggregate Advance Balance.

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

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

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

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

     “General Intangibles” means of the Borrower’s now owned or hereafter
acquired right, title, and interest with respect to “general intangibles” (as
such term is defined in the Virginia UCC), including payment intangibles
(including, without limitation, all Supporting Obligations in respect thereof),
contract rights (including, without limitation, all rights under any contracts
with Managing General Agents, as defined in the Senior Loan Agreement), rights
to payment, rights arising under common law, statutes, or regulations, choses
or things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, rights to payment and other
rights under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, money, insurance premium rebates, tax refunds,
and tax refund claims, and any and all supporting obligations in respect
thereof, and any other personal property.

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

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

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

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

     “Intellectual Property” means all of the Borrower’s rights, priorities and
privileges relating to intellectual property, now existing or hereafter adopted
or acquired, including, without limitation: (i) all patents, reissues and
extensions thereof, patent

5

 

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

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

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

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

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

     “Jokiel Advance” means an Advance made by Peter Jokiel.

     “Jokiel Note” means the amended and restated subordinated note, in the
form of Exhibit A hereto, executed by the Borrower in favor of Peter Jokiel.

     “Jokiel Percentage” means, as of any date, the percentage obtained by
dividing the Advance Balance of all Jokiel Advances outstanding by the
Aggregate Advance Balance.

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

6

 

     “Lender Percentage” means, as of any date and with respect to any
Subordinated Lender, the percentage obtained by dividing the Advance Balance of
all outstanding Advances made by such Subordinated Lender by the Aggregate
Advance Balance. Prior to the initial Advance hereunder, each Lender’s Lender
Percentage shall equal its Commitment Percentage.

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

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

     “Loder Advance” means an Advance made by William Loder.

     “Loder Note” means the amended and restated subordinated note, in the form
of Exhibit A hereto, executed by the Borrower in favor of William Loder.

     “Loder Percentage” means, as of any date, the percentage obtained by
dividing the Advance Balance of all Loder Advances outstanding by the Aggregate
Advance Balance.

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

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

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

     “Negotiable Collateral” means all of the Borrower’s now owned or hereafter
acquired right, title and interest with respect to letters of credit,
Letter-of-Credit Rights, Instruments, promissory notes, drafts, Documents and
Chattel Paper (including electronic chattel paper and tangible chattel paper)
and any and all Supporting Obligations in respect thereof.

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

7

 

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

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

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

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

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

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

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

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

     “Senior Claims” has the meaning assigned to such term in Section 2.09(j).

     “Senior Lenders” or “Lenders” means Friedman, Billings, Ramsey Group,
Inc., a Virginia corporation, and Standard American Insurance Limited, a
Bermuda company, and their respective successors in interest and permitted
assigns.

     “Senior Loan Agreement” means the Amended and Restated Senior Loan
Agreement, of even date herewith, among the Senior Lenders, as lenders, and the
Borrower, as borrower, and acknowledged by each Subordinated Lender.

8

 

     “Senior Loan Documents” has the meaning assigned to such term in Section
2.09(b).

     “Senior Obligations” means all “Obligations” under, and as defined in, the
Senior Loan Agreement.

     “Significant Documents” means this Agreement, the Subordinated Notes, the
Subordinated Lender Warrant, the Intercreditor Agreement and the Senior Loan
Agreement and the Senior Secured Notes executed pursuant to the Senior Loan
Agreement.

     “Smith Advance” means an Advance made by Courtney Smith.

     “Smith Note” means the amended and restated subordinated note, in the form
of Exhibit A hereto, executed by the Borrower in favor of Courtney Smith.

     “Smith Percentage” means, as of any date, the percentage obtained by
dividing the Advance Balance of all Smith Advances outstanding by the Aggregate
Advance Balance.

     “Subordinated Lender Warrants” means the warrants to be issued to each
Subordinated Lender, each exercisable for such number of shares of the Common
Stock of the Borrower that would be purchasable in a Qualified Equity Offering
of the common stock of the Borrower and any successor to the Borrower, assuming
no underwriter fees, placement agent fees, or other similar fees would be
payable in connection with such offering, for a dollar amount equal to
$520,000, in the case of Courtney Smith, $228,000, in the case of Peter Jokiel,
equal to $90,000, in the case of William Loder, and equal to $62,000, in the
case of Gary Ferguson, which warrants shall be in the form of Exhibit B
attached hereto.

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

     “Subordinated Loan Documents” has the meaning assigned to such term in
Section 2.09(b).

     “Subordinated Notes” means each of the Ferguson Note, the Jokiel Note, the
Loder Note and the Smith Note.

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

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

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

9

 

ARTICLE II

THE LOAN

     Section 2.01. The Commitment; General Advance Requirements.

     Subject to the terms and conditions of this Agreement (including, without
limitation, approval of each Advance request by the Senior Lenders pursuant to
Section 2.02) and provided no Default or Event of Default has occurred and is
continuing uncured and unwaived, each Subordinated Lender agrees from time to
time during the period from the Closing Date through the Maturity Date, to make
Advances to the Borrower, provided the total amount outstanding at any one time
of all such Advances shall not exceed the Aggregate Commitment Amount, and that
the total principal amount outstanding from any Subordinated Lender at any time
shall not exceed such Subordinated Lender’s Commitment Percentage of the
Advances. The Borrower may not reborrow any amount borrowed and repaid; the
Loan is not a revolving credit facility. All Advances under this Agreement
shall constitute a single indebtedness. Each Subordinated Lender shall
surrender to the Borrower his subordinated note and warrant issued pursuant to
the Original Agreement as soon as practicable following delivery of the related
Subordinated Note and Subordinated Lender Warrant issued to him pursuant to
this Agreement. Each such original note and warrant are canceled effective on
the date of this Agreement.

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

     (a) Advance Requests. When the Borrower wants to receive an Aggregate
Advance hereunder (other than to cover an interest payment due pursuant to
Section 2.04 hereof), the Borrower shall submit a written request for an
Advance to each Subordinated Lender (or to Courtney Smith only, in the case of
Advances as to which his Commitment Percentage equals 100%), which shall set
forth (1) a detailed statement of the proposed use of the Advance funds
(including specific listing of the operating expenses of the Borrower to be
paid with such Advance funds), (2) the amount of the Aggregate Advance
requested, and the amount of the Advance requested from each Subordinated
Lender (which shall equal such Subordinated Lender’s Commitment Percentage of
the Aggregate Advance requested), and (3) the requested Funding Date (such
items collectively, a “Funding Package”). Each Subordinated Lender shall
evaluate whether to approve an Advance within five Business Days after its
receipt of the Funding Package and request any other items reasonably requested
by such Subordinated Lender, and shall communicate such decision to the
Borrower within such five Business Day period. A Subordinated Lender’s
decision whether to approve any Advance shall be solely within such
Subordinated Lender’s discretion. With the prior written consent of the Senior
Lenders, the Borrower may draw an Advance in order to pay interest due pursuant
to Section 2.04 hereof on the Subordinated Notes on any Payment Date occurring
prior to the Maturity Date by notifying each Subordinated Lender of its request
to do so, in writing, at least two Business Days prior to such Payment Date.
Advances requested under this Section 2.02(a), not including Advances drawn to
cover interest accrued on the Subordinated Notes prior to the Maturity Date,
may not exceed $350,000.

10

 

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

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

     (d) Deemed Advances. Each Subordinated Lender has previously advanced,
and may from time to time in the future advance, certain out-of-pocket expenses
for the Borrower at the Borrower’s request. To the extent that any such
out-of-pocket expenses are actually paid by a Subordinated Lender, and if and
to the extent that the Senior Lender approves such expenses in writing (which
approval may be withheld in its sole and absolute discretion), then such
Subordinated Lender shall be deemed to have made an additional Advance to the
Borrower hereunder in the amount of such expenses paid (provided that in no
event shall the Aggregate Advance Balance of all Advances disbursed hereunder
exceed the Aggregate Commitment Amount, and in no event shall the total amount
of expenses paid by all Subordinated Lenders under this Section 2.02(d) deemed
to be Advances exceed $100,000). Any Advance deemed made pursuant to this
Section 2.02(d) shall be referred to herein as a “Deemed Expense Advance.”
Before disbursing any such expenses after the Closing Date, each Subordinated
Lender shall notify the other Subordinated Lenders and provide them with one
Business Day’s notice to enable them to participate in the payment of the
expense. If any other Subordinated Lender so elects, he shall have the sole
right to advance his Commitment Percentage of the aggregate Deemed Expense
Advance if he disburses such funds at or before the date and time specified in
the notice provided pursuant to the preceding sentence. No such expense
payment in excess of $10,000 shall be made unless the Senior Lender provides
prior written consent thereto. In addition, the Subordinated Lenders shall
notify FBR in writing when the aggregate amount of Borrower expenses paid by
the Subordinated Lenders equals $25,000, when it equals $50,000, and when such
aggregate amount equals each increment of $25,000 in excess of $50,000 (it
being understood that the Deemed Advances have been fully disbursed as of July
23, 2004), in the amount of $60,000 by Courtney Smith, $14,000 by Peter Jokiel,
$20,000 by William Loder, and $6,000 by Gary Ferguson.

11

 

     Section 2.03. Advance Conditions Precedent.

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

     (a) the Borrower shall have executed this Agreement, each Subordinated
Note and each Subordinated Lender Warrant, and delivered the same to the
Subordinated Lenders, and each Subordinated Lender shall have surrendered to
the Borrower its initial Subordinated Lender Warrant and Subordinated Note
which he received pursuant to the Original Agreement;

     (b) the Subordinated Lenders shall have received an opinion of counsel to
the Borrower in form and substance satisfactory to the Subordinated Lenders, if
so requested by the Subordinated Lenders;

     (c) the Subordinated Lenders shall have received a UCC search of the
filing records of the Secretary of State of Texas for all UCC-1 filings and tax
and judgment liens against the Borrower as debtor, the results of which are
satisfactory to the Subordinated Lenders;

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

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

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

     Section 2.04. Interest Payments.

     (a) Interest shall accrue daily on each day during each Accrual Period on
each Advance from and including the Funding Date of such Advance at a rate
equal to the product of (i) 1/360, (ii) the Interest Rate, and (iii) the
Advance Balance for such Advance at the beginning of such day. Such accrued
interest for any Accrual Period and Advance shall be added to the Advance
Balance of such Advance on the Payment Date immediately following the end of
such Accrual Period.

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

12

 

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

     Section 2.05. Principal Payments.

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

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

     (c) Option to Pay Obligations in Common Stock. If the Maturity Date
occurs on the closing date for a Qualified Equity Offering, then the Borrower
shall pay all Obligations owed to each Subordinated Lender by delivering to
such Subordinated Lender a number of shares of Common Stock equal to the number
of shares that could be purchased in the Qualified Equity Offering (assuming no
underwriter fees, placement agent fees or other similar fees are payable in
connection with such offering) for the total dollar amount of the Obligations
owing to such Subordinated Lender.

     Section 2.06. Application of Payments.

     Whenever the Borrower makes a payment under this Agreement in cash or in
Common Stock, the Borrower must allocate such payment pro rata among the
Subordinated Lenders based upon their respective Lender Percentages. Any
payment made under this Agreement shall, unless otherwise specified herein, be
applied (i) first, to pay any unpaid fees, costs, expenses or obligations (A)
which arise hereunder, (B) which are to be paid by the Borrower, and (C) which
are due and payable, (ii) second, to pay any accrued and unpaid interest on the
Aggregate Advance Balance pursuant to Section 2.04 which is due and payable on
or prior to the date of such payment, and (iii) finally, to reduce the
Aggregate Advance Balance.

     Section 2.07. Subordinated Notes.

     The Borrower’s Obligations shall be evidenced by four subordinated secured
promissory note of the Borrower (the “Subordinated Notes”) each dated as of the
date of this Agreement and substantially in the form of Exhibit A attached
hereto. The term

13

 

“Subordinated Notes” shall include all extensions, renewals and
modifications of the Subordinated Notes and all substitutions therefor. All
terms and provisions of the Subordinated Notes are expressly incorporated into
this Agreement. Each Subordinated Lender is authorized to record the date and
amount of each Advance it makes and the date and amount of each repayment of
principal thereof on the schedule annexed to his Subordinated Note and any such
recordation shall be conclusive evidence of the accuracy of the amounts so
recorded (absent manifest error); provided, however, that the failure of a
Subordinated Lender to make such recordation (or any error in such recordation)
shall not affect the rights and obligations of the Borrower hereunder or under
any Subordinated Note; provided, further, however, that no Subordinated Lender
shall record an additional Advance in respect of expenses incurred pursuant to
Section 2.02(d) to the extent that the addition of such Advance would cause
aggregate Deemed Expense Advances to exceed $100,000, and any such Advance
recorded in violation of this cap shall be null and void.

     Section 2.08. No Transfer of Debt.

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

     (b) No Subordinated Lender may assign its rights and delegate its
obligations under this Agreement without the prior written consent of the
Borrower and the Senior Lender.

     Section 2.09. Subordination Provisions.

     (a) Each Subordinated Lender has acknowledged and agreed to the terms of
the Senior Loan Agreement. All Obligations of the Borrower to the Subordinated
Lenders under this Agreement and all related Significant Documents are and
shall be at all times subject and subordinate to any and all claims now or
hereafter existing which the Senior Lenders may have against the Borrower under
the Senior Loan Agreement or any of the Significant Documents (and any and all
extensions, renewals, modifications, replacements and substitutions of or for
the same), for so long as any such claim or claims of any Senior Lender under
such documents shall exist.

     (b) All claims of each Subordinated Lender against the Borrower now or
hereafter existing under this Agreement, the Subordinated Notes and the
Subordinated Lender Warrants (collectively, the “Subordinated Loan Documents”)
are and shall be at all times subject and subordinate to any and all claims now
or hereafter existing which any Senior Lender may have against the Borrower
under the Senior Loan Agreement, the Senior Secured Notes and the Warrants
issued to the Senior Lenders pursuant to the Senior Loan Agreement
(collectively, the “Senior Loan Documents”) (and all extensions, renewals,
modifications, replacements and substitutions of or for the same), for so long
as any such claim or claims of the Senior Lenders under the Senior Loan
Documents shall exist.

     (c) No Subordinated Lender shall (1) receive payment of or collect, in
whole or in part, or sue upon, any claim or claims now or hereafter existing
which the

14

 

Subordinated Lender may hold against the Borrower under the Subordinated
Loan Documents; (2) sell, assign, transfer, pledge, hypothecate or encumber
such claim or claims except subject expressly to this Agreement; (3) enforce
any lien the Subordinated Lender may now or in the future have on any debt
owing by the Borrower to such Subordinated Lender under the Subordinated Loan
Documents; and/or (4) join in any petition in bankruptcy, assignment for the
benefit of creditors or creditors’ agreement as a Subordinated Lender, except
as directed by the Senior Lenders, in any of the foregoing events so long as
any claim of any Senior Lender against the Borrower under the Senior Loan
Documents, or commitment of any Senior Lender to extend credit to the Borrower
under the Senior Loan Agreement, is in existence.

     (d) No payments on any of the indebtedness owing by the Borrower to any
Subordinated Lender under the Subordinated Loan Documents or otherwise shall be
paid until the Senior Lenders have been indefeasibly paid in full all
Obligations under the Senior Loan Documents, as evidenced by written notice
from the Senior Lenders to each Subordinated Lender. The subordination of
claims of each Subordinated Lender hereunder shall remain in effect so long as
there shall be outstanding any obligation of the Borrower to any Senior Lender
under the Senior Loan Documents (for this purpose, the Borrower shall be deemed
obligated to each Senior Lender under the Senior Loan Documents even if no
amount is outstanding from such Senior Lender so long as such Senior Lender
shall have outstanding any commitment to make any loan to the Borrower under
the Senior Loan Documents, whether or not any such loan shall have been made or
advanced).

     (e) In the event that any Subordinated Lender receives a payment from the
Borrower in violation of the terms of this Agreement, such Subordinated Lender
(1) shall hold such money in trust for the benefit of the Senior Lenders, (2)
shall segregate such payment from (and shall not commingle such payment with
any of) the other funds of such Subordinated Lender, and (3) shall forthwith
remit such payment to the Senior Lenders, pro rata based upon their respective
Senior Lender Percentages.

     (f) In case of (1) any assignment by the Borrower for the benefit of
creditors, (2) any bankruptcy proceedings instituted by or against the
Borrower, (3) the appointment of any receiver for the Borrower’s business or
assets, or (4) any dissolution or winding up of the affairs of the Borrower,
the Borrower and any assignee, trustee in bankruptcy, receiver, or other person
or persons in charge, are hereby directed to pay to each Senior Lender the full
amount of such Senior Lender’s claim against the Borrower under the Senior Loan
Documents before making any payment of principal or interest to any
Subordinated Lender under the Subordinated Loan Documents and each Subordinated
Lender hereby sells, transfers, sets over and assigns to the Senior Lenders all
claims that such Subordinated Lender may now or hereafter have against the
Borrower under the Subordinated Loan Documents and in any security therefor,
and the proceeds thereof, and all rights to any payments, dividends or other
distributions arising therefrom. If a Subordinated Lender does not file a
proper claim or proof of debt in the form required in such proceeding prior to
thirty (30) days before the expiration of the time to file such claim in such
proceedings, then each Senior Lender shall have the right (but no

15

 

obligation) to do so and is hereby authorized to file an appropriate claim
or claims for and on behalf of the Subordinated Lender.

     (g) For violation of this Section 2.09, each Subordinated Lender shall be
liable to the Senior Lenders for all loss and damage sustained by reason of
such breach, and upon any such violation, any Senior Lender may accelerate the
maturity of its claims against the Borrower, at such Senior Lender’s option.

     (h) Each Subordinated Lender will, at any time and from time to time,
promptly execute and deliver all further instruments and documents, and take
all further action, that may be reasonably necessary in order to protect any
right or interest granted hereby or to enable the Senior Lenders to exercise
and enforce their rights and remedies under the Senior Loan Documents.

     (i) No Subordinated Lender will amend, extend or in any way modify the
terms of its claims against the Borrower under the Subordinated Loan Documents,
as such terms exist as of the date of this Agreement, without the prior written
consent of the Senior Lenders. Each Subordinated Lender agrees to provide to
the Senior Lenders, upon the occurrence thereof, notice of the existence of any
default (however defined or described) under any document or agreement relating
to its claims against the Borrower under the Subordinated Loan Documents.

     (j) All rights and interest of the Senior Lenders hereunder, and all
agreements and obligations of each Subordinated Lender hereunder, shall remain
in full force and effect irrespective of:

     (i) any sale, assignment, pledge, encumbrance or other disposition
of the claims of any Senior Lender under the Significant Documents
against the Borrower (the “Senior Claims”) and/or any document or
instrument executed in connection therewith;

     (ii) any change in the time, manner or place of payment of, or in
any other terms of, all or any of the Senior Claims, or any refinancing
thereof, or any other amendment, modification, extension or renewal of or
waiver of or any consent to departure from any document or instrument
relating thereto, including, without limitation, changes in the terms of
the repayment of loan proceeds, modifications, extensions or renewals of
payment dates, changes in interest rate or the advancement of additional
funds by any Senior Lender in its sole discretion under the Significant
Documents; or

     (iii) any exchange, release or nonperfection of any security
interest in any collateral, or any release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the Senior
Claims.

     (k) The provisions of this Section 2.09 shall continue to be effective or
be reinstated, as the case may be, if at any time any payment or performance of
all or any portion of the Senior Claims is rescinded or must otherwise be
returned by any Senior Lender or any other party to the documents relating
thereto upon the insolvency,

16

 

bankruptcy or reorganization of any such party or otherwise, all as though
such payment had not been made.

     (l) Each Subordinated Lender hereby waives promptness, diligence, notice
of acceptance and any other notice with respect to this Agreement and any
requirement that any Senior Lender protect, secure, perfect or insure any
security interest or lien or any property subject thereto or exhaust any right
or take any action against such Subordinated Lender or any other person or
entity or any Collateral.

     (m) No failure on the part of any Senior Lender to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.

     (n) No amendment or waiver of any provision of this Agreement nor consent
to any departure by any Subordinated Lender therefrom shall in any event be
effective unless the same shall be in writing and signed by the Senior Lenders,
and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

     (o) Each Subordinated Lender agrees to pay, upon demand, to each Senior
Lender the amount of any and all expenses, including the reasonable fees and
expenses of its counsel and all court costs and other reasonable litigation
expenses, including but not limited to expert witness fees, document copying
expenses, exhibit preparation costs, and courier, postage and communication
expenses, which such Senior Lender may incur in connection with the exercise or
enforcement of any of its rights or interest hereunder against such
Subordinated Lender if the Subordinated Lender violates this Section 2.09.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     Section 3.01. Representations and Warranties of the Borrower.

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

     (a) Organization. The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and operate its properties
and to carry on its business as presently conducted, and to enter into this
Agreement. Attached hereto as Schedule 3.01A is a complete and correct copy of
the Certificate of Incorporation and Bylaws of the Borrower, and all amendments
thereto, substantially as such organizational documents will be in effect at
the Closing Date. The Borrower has authorized capital stock and outstanding
capital stock as set forth on Schedule 3.01B. All of the outstanding shares of
capital stock of the Borrower (as listed in Schedule 3.01B) have been duly
authorized and validly issued and are fully-paid and non-assessable. The items
on

17

 

Schedule 3.01A and Schedule 3.01B may be amended after the Closing Date
with the prior written consent of the Senior Lenders, which consent shall not
be unreasonably withheld in the case of any amendment necessary to facilitate
an Equity Offering, except in the case of any amendment to the bylaws
provisions required pursuant to Section 2.03(g) of the Senior Loan Agreement.

     (b) Qualification. [RESERVED]

     (c) Authority. The Borrower has the absolute and unconditional power and
authority and legal right to own and grant a lien on all of its right, title
and interest in and to the Collateral, and the Borrower has the requisite power
and authority and legal right to execute and deliver, engage in the
transactions contemplated by, and perform and observe the terms and conditions
of, the Significant Documents.

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

     (e) Financial Statements. [RESERVED]

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

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

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

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

     (j) Enforceability of Significant Documents. Each of the Significant
Documents has been duly authorized and executed by the Borrower and is a legal,
valid

18

 

and binding agreement and is enforceable against the Borrower in
accordance with its terms.

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

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

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

     (n) No Misstatement or Omissions. All information and documents or copies
of documents furnished and to be furnished to any Subordinated Lender by the
Borrower pursuant to or in connection with this Agreement and any Significant
Documents, are and will be (as the case may be) true, complete and correct in
all material respects at the time furnished (or, with respect to items prepared
by third parties, as of such items’ respective dates), and all such
information, documents, copies and reports contain no, nor will they contain
any, material misstatements of fact as of the respective dates they were
furnished or filed, nor do any of such items omit nor will they omit (as the
case may be) to state any facts, the omission of which renders the statements
made therein misleading in any material respect. For purposes of this Section
3.01(n), each item of information and each document or copy thereof furnished
and to be furnished shall be viewed in a context that includes all other items
of information and documents that have been furnished to the Subordinated
Lenders; provided, however, that to the extent different items contradict each
other, the most recently furnished item supersedes the contradictory item. The

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Borrower understands that the Subordinated Lenders and their respective
designees are relying and shall rely on the true, correct and complete nature
of such information in taking or refraining from taking actions in furtherance
of the transactions contemplated hereby, and that neither the Subordinated
Lenders nor their respective designees shall have any obligations to verify
independently any such information furnished or to be furnished by the Borrower
hereunder.

     (o) Taxes. The Borrower has filed or caused to be filed all federal,
state, material local and foreign tax returns and other reports required by Law
to have been filed by it and has paid or caused to be paid all material taxes,
assessments and governmental charges and levies due and payable by it, except
to the extent that (A) such taxes, assessments, charges and levies are being
actively contested in good faith and by appropriate proceedings and such
contest operates to suspend collection of the contested tax, assessment, charge
or levy and (B) the Borrower shall have maintained adequate reserves therefor.
No tax lien has been filed (other than for taxes not yet due and payable)
against the Borrower and no claim is being asserted with respect to any such
tax, lien or other such charge.

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

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

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

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

ARTICLE IV

COVENANTS OF THE BORROWER

     Section 4.01. Affirmative Covenants.

     Until all Obligations shall have been paid in full, the Borrower covenants
and agrees with each Subordinated Lender as follows:

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

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

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

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

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

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

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

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

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

     (e) Compliance with Laws. The Borrower shall comply with all Laws,
ordinances, governmental rules and regulations to which it is subject, and
obtain and keep in force any and all licenses, permits, franchises, or other
governmental authorizations

21

 

from, give all such notices promptly to, register, enroll or file promptly
all such agreements, instruments or documents required by applicable Laws with,
and promptly take all such other legally required action with respect to, any
Governmental Authority or regulatory authority, agency or official, as is
required under any provision of any applicable Law and that is necessary (i)
for the continued operation of any of the Borrower’s activities or business or
the performance by the Borrower of any of its agreements or obligations under
any of the Significant Documents or (ii) to ensure the continuing legality,
validity, binding effect or enforceability of any of the Significant Documents
or any of the obligations thereunder of the Borrower necessary to the ownership
of its properties or to the conduct of its businesses.

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

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

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

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

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

     (k) Distributions from Subsidiaries. The Borrower shall notify each
Subordinated Lender immediately in writing of the timing and amount of any
dividend or

22

 

distribution paid by any Subsidiary, and shall be available to answer each
Subordinated Lender’s questions about the value of the equity on such
Subsidiary after such dividend or distribution.

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

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

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

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

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

     Section 4.02. Negative Covenants of the Borrower.

     Until all Obligations shall have been paid in full, the Borrower covenants
and agrees with each Subordinated Lender as follows:

     (a) No Assignment. The Borrower shall not (i) assign or attempt to assign
this Agreement or any rights hereunder, or (ii) grant or permit to exist any
security interest,

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lien or other encumbrance on any Collateral other than those created
hereby and by the Senior Loan Agreement.

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

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

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

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

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

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

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

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

     (j) No Guarantees. Except with the prior written consent of each
Subordinated Lender, the Borrower shall not guarantee, endorse or otherwise in
any way become or be responsible for any obligations of any other Person,
including, without limitation, whether directly or indirectly by agreement to
purchase the indebtedness of any other person or through the purchase of goods,
supplies or services, or maintenance

24

 

of working capital or other balance sheet covenants or conditions, or by
way of stock purchase, capital contribution, advance or loan for the purposes
of paying or discharging any indebtedness or obligation of such other person or
otherwise.

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

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

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

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

     Notwithstanding anything to the contrary in this Agreement, wherever in
this Section 4.02 the consent of each Subordinated Lender is required for any
action or omission to act, until all obligations owing to the Senior Lenders
under the Senior Loan Agreement shall have been paid in full, the Borrower may
take such action or omit to take such action with the prior written consent of
the Senior Lenders, and without any consent from any Subordinated Lender.

ARTICLE V

SECURITY AGREEMENT

     Section 5.01. Grant of Security Interest.

     The Borrower hereby grants a security interest to the Subordinated
Lenders, pro rata based upon their respective Lender Percentages from time to
time, in the following assets of the Borrower, including all right, title and
interest of the Borrower therein, whether now owned or hereafter acquired or
existing (collectively, the “Collateral”), subject in all respects to the prior
security interest in such Collateral held by the Senior Lenders, as described
in Section 2.09 hereof and in the Intercreditor Agreement:

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     (a) Accounts;

     (b) Books;

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

     (d) Commercial Tort Claims;

     (e) Documents;

     (f) Deposit Accounts;

     (g) Equipment;

     (h) Fixtures;

     (i) General Intangibles and Payment Intangibles;

     (j) Goods;

     (k) Instruments;

     (l) Intellectual Property;

     (m) Inventory;

     (n) Investment Property

     (o) Letter-of-Credit Rights;

     (p) Negotiable Collateral;

     (q) Real Property Collateral;

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

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

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

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

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     Section 5.02. Security for the Debt.

     (a) Pursuant to this Agreement, the Collateral secures the prompt and
complete payment when due of principal and interest on any amounts outstanding
under this Agreement and each Subordinated Note and all other amounts and
Obligations owing to the Subordinated Lenders pursuant to this Agreement and
each Subordinated Note, pro rata among the Subordinated Lenders based upon
their respective Lender Percentages from time to time.

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

     Section 5.03. Intention of Parties.

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

ARTICLE VI

INDEMNIFICATION

     Section 6.01. Indemnification by the Borrower.

     (a) If, in connection with the matters that are the subject of this
Agreement, any Subordinated Lender or any Senior Lender, any of its Affiliates
and/or their respective directors, partners, officers, employees, agents and
controlling persons (each an “Indemnified Party”) becomes involved in any
capacity in, or incurs any cost, damage, expense or liability in connection
with, any action or legal proceeding, actual or threatened, involving claims by
any third party, or to enforce any Senior Lender’s or any Subordinated Lender’s
rights under this Agreement or to collect any amount under this Agreement, the
Borrower shall reimburse each such Indemnified Party immediately upon request
for all reasonable expenses (including the reasonable fees and disbursements of
legal counsel, the allocated reasonable costs of in-house counsel acting as
litigators, and the reasonable cost of investigation and preparation) in
connection with or related to such action or legal proceedings as they are
incurred. Notwithstanding the generality of the foregoing, if any action, suit
or other proceeding is brought against an Indemnified Party for which the
Indemnified Party seeks indemnification hereunder, the Indemnified Party shall
promptly notify the Borrower of the commencement thereof, whereupon the

27

 

Borrower will be entitled to participate therein, and to assume the
defense thereof, with counsel selected by the Borrower and satisfactory to such
Indemnified Party (such consent not to be unreasonably withheld); provided,
however, that, if in the Indemnified Party’s reasonable judgment the
Indemnified Party has any claims or defenses that conflict with or differ from
the interests of the Borrower, the Indemnified Party shall be entitled to
select counsel of its choosing and pursue such claims and defenses separately
and all related costs, expenses and liabilities associated with such separate
claims or defenses will continue to be covered by the Borrower’s
indemnification obligation hereunder. The Borrower shall not be entitled to
settle any proceeding without the consent of each Indemnified Party with any
right to indemnification hereunder with respect to such proceeding except upon
such terms as will provide each such Indemnified Party reasonable assurance of
full indemnity hereunder.

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

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

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ARTICLE VII

EVENTS OF DEFAULT

     Section 7.01. Occurrence of an Event of Default.

     An “Event of Default” shall occur:

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

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

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

     (d) immediately upon any “Event of Default” under, and as defined in, the
Senior Loan Agreement;

     (e) immediately upon the assignment or attempted assignment by the
Borrower of this Agreement or any rights hereunder, without first obtaining the
specific written consent of each Subordinated Lender, or the granting by the
Borrower of any security interest, lien or encumbrance or any Collateral to any
Person other than the Senior Lender or the Subordinated Lenders pursuant to the
Subordinated Loan Agreement;

     (f) immediately upon any Change of Control;

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

     (h) immediately upon commencement by the Borrower of a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the Borrower to the entry of an order
for relief in an involuntary

29

 

case under any such law or to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Borrower or of any substantial part of the Borrower’s
property, or the making by the Borrower of any general assignment for the
benefit of creditors, or the failure of the Borrower generally to pay its debts
as such debts become due, or the taking of action by the Borrower in
furtherance of any of the foregoing; or

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

     Section 7.02. Effect of an Event of Default.

     Upon the occurrence of an Event of Default, the following rights and
remedies are available to each Subordinated Lender:

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

     (b) If all Senior Obligations have been paid in full, and subject to the
Intercreditor Agreement, each Subordinated Lender shall have the right to
obtain physical possession of all files of the Borrower relating to the
Collateral and all documents relating to the Collateral which are then or may
thereafter come into the possession of the Borrower or any Affiliate or any
third party acting for the Borrower, and each Subordinated Lender shall be
entitled to specific performance of all agreements of the Borrower contained in
this Agreement.

     (c) If all Senior Obligations have been paid in full, and subject to the
Intercreditor Agreement, each Subordinated Lender shall have the right to
collect and receive all further payments made on any item included in the
Collateral and shall pay such amounts received to the Subordinated Lenders, pro
rata based upon their respective Lender Percentages. If any such payments are
received by the Borrower after all Senior Obligations have been paid in full,
the Borrower shall not commingle the amounts received with other funds and
shall promptly pay them over to the Subordinated Lenders, pro rata based upon
their respective Lender Percentages.

30

 

     (d) If all Senior Obligations have been paid in full, and subject to the
Intercreditor Agreement, at its option, but with no obligation to do so, any
Subordinated Lender may at any time sell, without notice or demand of any kind,
at a public or private sale and at such price or prices as such Subordinated
Lender may reasonably deem satisfactory, any or all Collateral. The proceeds
of any such disposition shall be applied first to the costs and expenses
incurred by the Subordinated Lenders in connection with the Borrower’s default,
allocated pro rata among the Subordinated Lenders based upon their respective
Lender Percentages, and then as described in Section 2.06 with respect to the
proceeds from the Collateral. Any amounts remaining after such application of
sale proceeds of Collateral shall be remitted to the Borrower.

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

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

     (g) The Borrower shall be liable to any Subordinated Lender for (1) the
amount of all expenses, including reasonable legal or other expenses incurred
by such Subordinated Lender in connection with an Event of Default, and (2)
actual damages, including, without limitation, all reasonable costs incurred in
connection with hedging or covering transactions.

     (h) Each Subordinated Lender shall have all the rights and remedies
provided herein, provided by applicable federal, state, foreign, and local laws
(including, without limitation, the rights and remedies of a secured party
under the Uniform Commercial Code, to the extent that the Uniform Commercial
Code is applicable, and the right to offset any mutual debt and claim), in
equity, subject to Section 2.09 hereof and to the Intercreditor Agreement.

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

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

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

ARTICLE VIII

GENERAL PROVISIONS

     Section 8.01. Cooperation, Confidentiality, Etc.

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

     (b) The Borrower recognizes and confirms that each Subordinated Lender in
acting pursuant to this Agreement may use information in reports and other
information

32

 

provided by others, including, without limitation, information provided by
the Borrower and that no Subordinated Lender assumes responsibility for, and
that each Subordinated Lender may rely, without independent verification, on
the accuracy and completeness of any such reports and information. Each
Subordinated Lender and the Borrower shall not disclose to any Person any
information received by such party from any other party to this Subordinated
Loan Agreement except to the extent (1) consented to in writing by the party as
to which such information relates, (2) required to be disclosed in a proceeding
before a court or other similar tribunal, (3) such information came into the
disclosing party’s possession otherwise than from the party to which the
information relates, and under circumstances that did not reasonably imply that
the information was of a confidential nature, or (4) such information was
already generally available to the public for a reason other than dissemination
by the disclosing party.

     Section 8.02. Waiver of Trial by Jury.

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

     Section 8.03. Amendment; Waivers.

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

     Section 8.04. Limited Liability.

     Except with respect to the Senior Lenders’ recourse to Subordinated
Lenders for breach of Section 2.09 hereof or the Intercreditor Agreement, no
recourse under any Significant Documents shall be had against, and no personal
liability shall attach to, any officer, employee, director, Affiliate or
shareholder of any party hereto, as such, by the enforcement of any assessment
or by any legal or equitable proceeding, by virtue of any statute or otherwise
in respect of any of the Significant Documents, it being expressly agreed and
understood that each Significant Document is solely an obligation of each party
hereto as corporations and limited liability companies, and that any and all
personal liability, either at common law or in equity, or by statute or
constitution, of every such officer, employee, director, Affiliate or
shareholder for breaches by any party hereto of any obligations under any
Significant Document is hereby expressly waived as a condition of and in
consideration for the execution and delivery of this Agreement.

33

 

     Section 8.05. Costs and Expenses.

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

ARTICLE IX

CONSTRUCTION

     Section 9.01. Entire Agreement.

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

     Section 9.02. Severability Clause.

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

     Section 9.03. Counterparts.

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

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

     This Agreement and each Subordinated Note shall be governed by and
construed in accordance with the Laws of the Commonwealth of Virginia, without
giving effect to the conflict of laws rules therein, and shall constitute a
security agreement within the

34

 

meaning of the Virginia UCC. The parties hereto hereby consent and agree
that the Circuit Court of Arlington County, Virginia, or, at the related
Subordinated Lender’s option, the United States District Court for the Eastern
District of Virginia, shall have exclusive jurisdiction to hear and determine
any claims or disputes between the parties hereto pertaining to this Agreement
and any Subordinated Note or to any matter arising out of or related to this
Agreement and any Subordinated Note. The parties hereto expressly submit and
consent in advance to such jurisdiction in any action or suit commenced in any
such court, and hereby waive any objection which it may have based upon lack of
personal jurisdiction, improper venue or forum non convenient and hereby
consent to the granting for such legal or equitable relief as is deemed
appropriate by such court. Each party hereto irrevocably consents to the
service of process by registered or certified mail, postage prepaid, to it at
its address given pursuant to Section 10.01 hereof. Nothing in this Agreement
or any Subordinated Note shall be deemed or operate to affect the right of any
Subordinated Lender to serve legal process in any other manner permitted by
Law, or to preclude the enforcement by any Subordinated Lender of any judgment
or order obtained in such forum or the taking of any action under this
Agreement or the related Subordinated Note to enforce same in any other
appropriate forum or jurisdiction.

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

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

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

     None of any Senior Lender, any Subordinated Lender nor the Borrower is the
agent or representative of any of the other parties hereto, and nothing in this
Agreement shall be construed to make any Senior Lender, any Subordinated Lender
or the Borrower liable to any third party for services performed by such third
party or for debts or claims accruing to such third party against any Senior
Lender, any Subordinated Lender or the Borrower. This Agreement is intended by
the parties hereto to constitute a loan and security agreement and nothing
contained herein nor the acts of the parties hereto shall be construed to
create a partnership, agency, equity investment, profit sharing agreement,
joint venture or sale of receivables among any Senior Lender, any Subordinated
Lender and the Borrower. The parties agree that they will not file any
federal, state or local income tax return that is inconsistent with such
intended treatment.

35

 

     Section 9.06. Judicial Interpretation.

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

     Section 9.07. Recitals.

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

     Section 9.08. Rules of Interpretation.

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

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

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

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

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

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

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

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

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

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

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

36

 

     Section 9.09. Good Faith.

     The Borrower and each Subordinated Lender shall implement the terms and
provisions of this Agreement in good faith in accordance with applicable Law.

ARTICLE X

MISCELLANEOUS

     Section 10.01. Notices.

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

     if to the Borrower:

	 	 	Specialty Underwriters’ Alliance, Inc.

8585 Stemmons Fwy.

Suite 200, South Tower

Dallas, Texas 75247

Attn: Courtney Smith, CEO

Telephone Number: (972) 401-3665

Telecopier Number: (972) 506-7774

     with a copy to:

	 	 	William W. Rosenblatt, Esq.

Stroock & Stroock & Lavan LLP

180 Maiden Lane

New York, New York 10038-4982

Telephone Number: (212) 806-5940

Telecopier Number: (212) 806-6006

     if to a Subordinated Lender:

	 	 	Courtney Smith

330 Los Colinas Blvd. E., #1614

Irving, Texas 75039
	 
	 	 	Peter Jokiel

11 N 160 Lamont Ct.

Elgin, Illinois 60123
	 
	 	 	Gary Ferguson

P. O. Box 374

Cave Creek, Arizona 85327

37

 

	 	 	William Loder

4202 Spyglass Ln.

Irving, Texas 75038

     if to the Senior Lenders:

     if to FBR:

	 	 	Friedman, Billings, Ramsey Group, Inc.

Potomac Tower

1001 Nineteenth Street North, 18th Floor

Arlington, VA 22209

Attention: Ned Wheeler

Telephone Number: (703) 312-9527

Telecopier Number: (703) 312-9602

     with a copy to:

	 	 	Thomas Y. Hiner, Esq.

Hunton & Williams LLP

Riverfront Plaza — East Tower

951 East Byrd Street

Richmond, VA 23219

Telephone Number: (804) 788-8279

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

P.O. Box HM2274

Hamilton HM JX Bermuda

	 
	 	 	if to SAIL (by courier):
	 
	 	 	Standard American Insurance Limited

44 Church Street

Hamilton HM 12 Bermuda

Attention: Tim Carr

Telecopier Number: 441-295-1697

     with a copy to:

	 	 	Jim Zech

672 Oenoke Ridge Rd.

New Canaan, CT 06840

Telephone Number: (203) 972-3982

Telecopier Number: (203) 972-3986

38

 

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

     Section 10.02. Further Agreements.

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

     Section 10.03. Third-Party Rights.

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

     Section 10.04. Advice from Independent Counsel.

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

     Section 10.05. Reproduction of Documents.

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

[Signature Page Follows]

39

 

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

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	SPECIALTY UNDERWRITERS’ ALLIANCE,
	 	 	 	 	 	 	INC., Borrower
	 
	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	By:	 	/s/ Courtney Smith
	

	 	 	 	 	 	 	 	
 
	

	 	 	 	 	 	Name:	 	Courtney Smith
	

	 	 	 	 	 	Title:	 	President
	 
	 	 	 	 	 	 	 	 
	SUBORDINATED LENDERS:	 	 	 	 	 	 
	 
	 	/s/ Courtney Smith	 	 	 	 	 	/s/ William Loder
	
	 	 	 	

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

	Peter Jokiel	 	 	 	Gary Ferguson
	 
	 	 	 	 	 	 	 	 
	FRIEDMAN, BILLINGS, RAMSEY GROUP,	 	 	 	 	 	 
	INC., as Senior Lender, for purposes	 	 	 	 	 	 
	of receiving the rights and benefits	 	 	 	 	 	 
	created by Section 2.02(d) and	 	 	 	 	 	 
	Section 2.09 hereof	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	/s/ Edward M. Wheeler	 	 	 	 	 	 
	

	 	
 	 	 	 	 	 	 
	Name:
	 	Edward M. Wheeler	 	 	 	 	 	 
	Title:
	 	Managing Director	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	STANDARD AMERICAN INSURANCE LIMITED,	 	 	 	 	 	 
	Senior Lender	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	/s/ David Pickering	 	 	 	 	 	 
	

	 	
 	 	 	 	 	 	 
	Name:
	 	David Pickering	 	 	 	 	 	 
	Title:
	 	Director	 	 	 	 	 	 

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

 

 

EXHIBIT A

FORM OF SUBORDINATED NOTE

ALL INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE IS SUBORDINATED TO OTHER
INDEBTEDNESS PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE
SUBJECT TO THE TERMS OF, (1) SECTION 2.09 OF THE AMENDED AND RESTATED
SUBORDINATED LOAN AGREEMENT, AMENDED AND RESTATED AS OF JULY 23, 2004, AMONG
SPECIALTY UNDERWRITERS’ ALLIANCE, INC., AS THE BORROWER (THE “BORROWER”),
COURTNEY SMITH, PETER JOKIEL, WILLIAM LODER AND GARY FERGUSON, AS SUBORDINATED
LENDERS (THE “SUBORDINATED LENDERS”), AND FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC. AND STANDARD AMERICAN INSURANCE LIMITED, AS THE SENIOR LENDERS (THE
“SENIOR LENDERS”), AND (2) THE AMENDED AND RESTATED INTERCREDITOR AND
SUBORDINATION AGREEMENT, AMENDED AND RESTATED AS OF JULY 23, 2004, AMONG THE
BORROWER, THE SUBORDINATED LENDERS AND THE SENIOR LENDERS (TOGETHER, THE
“SUBORDINATION PROVISIONS”), AS THE SAME MAY BE AMENDED, MODIFIED OR OTHERWISE
SUPPLEMENTED FROM TIME TO TIME.

			
	 	 	 
	Up to $[                   ]
	 	As of December 12, 2003
	[$260,000 for Mr. Smith]
	 	Amended and Restated as of July 23, 2004
	[$128,000 for Mr. Jokiel]	 	 
	[$45,000 for Mr. Loder]	 	 
	[$31,000 for Mr. Ferguson]	 	 

     FOR VALUE RECEIVED, the undersigned, SPECIALTY UNDERWRITERS’ ALLIANCE,
INC., a Delaware corporation, with a principal place of business located at
8585 Stemmons Fwy., Suite 200, South Tower, Dallas, Texas 75247 (the
“Borrower”), promises to pay to the order of                               , an
individual residing at                           (the “Subordinated Lender”) on or
before the Maturity Date, in lawful money of the United States of America, the
principal sums set forth on the Schedule of Advances attached hereto, which are
not to exceed at any one time                      THOUSAND AND 00/100 DOLLARS
($[                    ]), plus interest at the times and in the amounts and manner as
provided in the Amended and Restated Subordinated Loan and Security Agreement
(as it may be supplemented and amended from time to time, the “Agreement”),
amended and restated as of July 23, 2004, among the Borrower, Courtney Smith,
Peter Jokiel, William Loder and Gary Ferguson as Subordinated Lenders, and
Friedman, Billings, Ramsey Group, Inc. and Standard American Insurance Limited,
as Senior Lenders, for limited purposes; provided, however, that the principal
sum evidenced by this Subordinated Note may exceed the maximum principal amount
specified above to the extent of any amounts added to the principal balance of
this Subordinated Note in respect of interest accrued on this Subordinated

A-1

 

Note prior to its Maturity Date, to the extent permitted pursuant to
Section 2.02(a) of the Agreement.

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

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

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

     PAYMENT AND EXPENSES OF COLLECTION: All amounts payable hereunder are
payable by wire transfer in immediately available funds to the account number
specified by the Subordinated Lender, in lawful money of the United States.
Payments remitted by the Borrower via wire transfer initiated after 3:00 p.m.
New York City time shall be deemed to be received on the next business day.
The Borrower agrees to pay all costs of collection when incurred, including,
without limiting the generality of the foregoing, reasonable attorneys’ fees
through appellate proceedings and allocated cost of in-house counsel, and to
perform and comply with each of the covenants, conditions, provisions and
agreements contained in every instrument now evidencing or securing said
indebtedness. If any suit or action be instituted to enforce this Subordinated
Note, the Borrower promises to pay, in addition to the cost and disbursements
otherwise allowed by Law, such sums as the court may adjudge reasonable
attorneys’ fees in such suit or action. This Note may be payable in shares of
Common Stock of the Borrower, as described in Section 2.05(c) of the Agreement.

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

     DEFAULTS: Upon the occurrence of an Event of Default (as defined in the
Agreement), the Subordinated Lender shall have all rights and remedies set
forth in the Agreement, subject to the limitations of the Subordination
Provisions.

A-2

 

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

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

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

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

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

A-3

 

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

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

A-4

 

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

	 	 	 	 	 
	 	 	SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
	 	 	 
	

	 	By:	 	 
	

	 	Name:	 	 
	

	 	Title:	 	 

A-5

 

Schedule of Advances

	 	 	 	 	 	 	 
	 	 	 	 	Interest
	Date
	 	Amount
	 	Rate

	

	 	$                    
	 	 	12.00	%

A-6

 

EXHIBIT B

FORM OF SUBORDINATED LENDER WARRANT

B-1

 

EXHIBIT C

FORM OF INTERCREDITOR AGREEMENT

C-1

 

SCHEDULE 3.01A

BORROWER’S ORGANIZATIONAL DOCUMENTS

Certificate of Incorporation

Bylaws

 

 

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

Pursuant to Sections 228 and 242 of the

Delaware General Corporation Law

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

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

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

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

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

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

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

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

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

 

 

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

	1.	 	Common Stock

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

	2.	 	Preferred Stock

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

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

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

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

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

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

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

 

 

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

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

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

	 	 	Purvi Shah

Debevoise & Plimpton

919 Third Avenue

New York, New York 10022

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

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

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

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

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

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

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

 

 

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

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

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

	 	 	 	 	 
	 	 	/s/ Courtney C. Smith
	 	 	

	

	 	Name:
	 	Courtney C. Smith
	

	 	Title:
	 	Chief Executive Officer

 

 

AMENDED AND RESTATED BY-LAWS

OF

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

Dated as of
September 14, 2004

 

 

Table of Contents

	 	 	 	 	 
	Section
	 	Page

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

i

 

Table of Contents

(Continued)

	 	 	 	 	 
	Section
	 	Page

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

ii

 

 

Table of Contents

(Continued)

	 	 	 	 	 
	Section
	 	Page

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

iii

 

 

SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

AMENDED AND RESTATED BY-LAWS

Dated as of December 12, 2003

ARTICLE I

STOCKHOLDERS

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

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

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

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

 

 

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

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

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

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

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

2

 

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

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

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

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

3

 

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

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

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

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

ARTICLE II

BOARD OF DIRECTORS

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

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

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

4

 

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

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

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

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

5

 

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

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

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

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

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

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

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

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

6

 

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

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

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

ARTICLE III

EXECUTIVE COMMITTEE AND OTHER COMMITTEES

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

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

          (a)
to amend the Certificate of Incorporation;

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

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

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

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

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

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

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

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

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

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

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

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

8

 

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

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

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

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

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

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

ARTICLE IV

OFFICERS

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

9

 

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

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

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

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

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

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

10

 

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

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

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

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

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

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

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

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

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

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

11

 

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

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

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

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

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

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

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

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

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

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

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ARTICLE V

CAPITAL STOCK

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

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

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

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

13

 

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

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

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

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

14

 

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

ARTICLE VI

INDEMNIFICATION

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

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

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

15

 

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

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

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

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

16

 

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

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

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

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

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

17

 

ARTICLE VII

OFFICES

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

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

ARTICLE VIII

GENERAL PROVISIONS

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

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

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

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

18

 

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

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

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

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

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

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

19

 

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

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

ARTICLE IX

AMENDMENT OF BY-LAWS

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

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

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

ARTICLE X

CONSTRUCTION

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

20

 

SCHEDULE 3.01B

BORROWER’S CAPITAL STOCK

Common Stock

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

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

Preferred Stock

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

No Shares Issued or Outstanding

Common Stockexv10w1w14

 

Exhibit 10.1.14

AMENDED AND RESTATED

INTERCREDITOR AND SUBORDINATION AGREEMENT

     AMENDED AND RESTATED INTERCREDITOR AND SUBORDINATION AGREEMENT, dated as
of July 23, 2004 (“Intercreditor Agreement”), among FRIEDMAN, BILLINGS, RAMSEY
GROUP, INC., as a senior lender under the Senior Loan Agreement referred to
below (“FBR”), STANDARD AMERICAN INSURANCE LIMITED, as a senior lender under
the Senior Loan Agreement referred to below (“SAIL” and, together with FBR, the
“Senior Lenders”), each of COURTNEY SMITH, PETER JOKIEL, WILLIAM LODER and GARY
FERGUSON, each as a subordinated lender under the Subordinated Loan Agreement
referred to below (the “Subordinated Lenders,” and, together with the Senior
Lenders, the “Lenders”), and SPECIALTY UNDERWRITERS’ ALLIANCE, INC., as
borrower under the Senior Loan Agreement and under the Subordinated Loan
Agreement (the “Borrower”).

PRELIMINARY STATEMENTS

     Each Senior Lender has agreed, subject to conditions set forth in the
Senior Loan Agreement, to make loans to the Borrower in the aggregate principal
amount of up to $2,000,000 (in the case of FBR) and $1,450,000 (in the case of
SAIL) (the “Senior Loan”), pursuant to an Amended and Restated Senior Loan and
Security Agreement (as amended, modified, restated, consolidated or
supplemented, from time to time, the “Senior Loan Agreement”), amended and
restated as of July 23, 2004, amending and restating the senior loan agreement,
dated December 12, 2003, under which FBR was the sole senior lender (the
“Original Senior Loan Agreement”) between the Senior Lenders and the Borrower,
and acknowledged and agreed to by each Subordinated Lender, and evidenced by
senior secured notes (the “Senior Secured Notes”).

     Each Subordinated Lender has agreed, subject to conditions set forth in
the Amended and Restated Subordinated Loan Agreement, to make loans (together,
the “Subordinated Loan”) to the Borrower in the aggregate principal amount of
up to $450,000, pursuant to an Amended and Restated Subordinated Loan and
Security Agreement, amended and restated as of July 23, 2004, amending and
restating the subordinated loan agreement, dated December 12, 2003 (as amended,
modified, restated, consolidated or supplemented, from time to time, the
“Subordinated Loan Agreement,” and, together with the Senior Loan Agreement,
the “Loan Agreements”), among the Subordinated Lenders, the Borrower, and the
Senior Lenders, and which Subordinated Loan is evidenced by four separate
subordinated secured notes payable by the Borrower to the Subordinated Lenders
(the “Subordinated Notes”).

     Pursuant to the Loan Agreements, the Borrower granted to the Senior Lender
and to the Subordinated Lenders certain Collateral (as defined in each of the
Loan Agreements).

     The parties desire to enter into this Amended and Restated Intercreditor
and Subordination Agreement with respect to the exercise of certain rights,
remedies and options by the respective parties hereto under the above described
documents and the agreements related thereto, to amend and restate the
Intercreditor and Subordination Agreement, dated as of December 12, 2003,
entered into in connection with the Original Senior Loan Agreement.

     NOW, THEREFORE, the parties hereto covenant and agree as follows:

 

 

     SECTION 1. Definitions. All terms capitalized herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Senior
Loan Agreement.

     “Collateral Proceeds” has the meaning specified in Section 5.

     “Condemnation Awards” means any payments received at any time by the
Borrower or any Lender as a result of the taking for public or quasi-public
purposes by condemnation as a result of any action or proceeding in eminent
domain, or the transfer in lieu of condemnation to any authority entitled to
exercise the power of eminent domain, of any of the Collateral or real or
personal property of the Borrower.

     “Event of Default” means an “Event of Default” under either of the Loan
Agreements.

     “Liquidation Event” has the meaning specified in Section 7(d).

     “Insurance Proceeds” means any payments received at any time by the
Borrower or any Lender in respect of any insurance policies maintained with
respect to the Collateral or any real or personal property of the Borrower.

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

     “Lien” means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction to evidence any
of the foregoing).

     “Notice of Liquidation” means a notice delivered by a Senior Lender to the
other Lenders stating that (i) an Event of Default has occurred and is
continuing under the Senior Loan Agreement, (ii) such Senior Lender has
accelerated the obligations owing to it by the Borrower under the Senior Loan
Agreement, and (iii) such Senior Lender intends to commence exercising remedies
with respect to the Collateral securing the obligations under the Senior Loan
Agreement.

     “Secured Obligations” means, collectively, the Senior Obligations and the
Subordinated Obligations.

     “Security Interest” means any Lien on any Collateral granted to any Lender
pursuant to any of the Senior Loan Documents, or the Subordinated Loan
Documents.

     “Senior Loan Documents” means the “Significant Documents” as defined in
the Senior Loan Agreement.

2

 

     “Senior Obligations” means, with respect to the Senior Lenders, the
“Obligations” owned to such Lenders pursuant to the Senior Loan Agreement.

     “Subordinated Loan Documents” means the “Significant Documents” as defined
in the Subordinated Loan Agreement.

     “Subordinated Obligations” means the “Obligations” as defined in the
Subordinated Loan Agreement.

     “Subordination Provisions” has the meaning assigned to such term in
Section 6.

     SECTION 2. Grants of Security Interests. Pursuant to the Loan Agreements,
the Borrower has granted security interests to the Lenders in all of the
Borrower’s right, title and interest in the Collateral to secure the Secured
Obligations.

     SECTION 3. Priority of Security Interests. Each of the parties hereto
agrees that each security interest granted by the Borrower pursuant to the Loan
Agreements is for the benefit of (1) each of the Senior Lenders in proportion
with their respective Senior Lender Percentages as described in the Senior Loan
Agreement, and (2) each of the Subordinated Lenders in proportion with their
respective Lender Percentages as described in the Subordinated Loan Agreement,
and that the benefit of each such security interest shall be shared by the
Senior Lenders and the Subordinated Lenders in accordance with the terms of
Section 4 of this Intercreditor and Subordination Agreement.

     The priorities specified in this Intercreditor and Subordination Agreement
are applicable irrespective of any statement in any of the Loan Agreements or
in any other agreement to the contrary, the time or order or method of
attachment or perfection of any Security Interest or the time or order of
filing of deeds of trust or financing statements the rules for determining
priority under the Uniform Commercial Code or any law governing the relative
priorities of Lenders, or the giving or failure to give notice of the
acquisition or expected acquisition of any purchase money security interest.

     SECTION 4. Liquidation of Collateral. Subject to subsections (a) through
(e) below, any Security Interests granted pursuant to the Senior Loan Documents
in any Collateral have and shall have priority, to the extent of any unpaid
Senior Obligations, over any Security Interest in such Collateral pursuant to
any Subordinated Loan Documents.

          (a) If an Event of Default occurs under the Senior Loan Agreement and a
Senior Lender determines to accelerate the obligations owing to it by the
Borrower and proceed to liquidate the Collateral, such Senior Lender shall
deliver a Notice of Liquidation to the other Lenders.

          (b) Any Senior Lender (with the consent of the other Senior Lender) shall
have the sole and exclusive right and power to exercise rights and remedies
with respect to the Collateral, to enforce the provisions of the Senior Loan
Agreement and exercise remedies thereunder including, but not limited to, to
effect a liquidation of the Collateral, to incur expenses in connection with
the sale or disposition of the Collateral and to exercise all rights and
remedies of a secured party under the Uniform Commercial Code of any applicable
jurisdiction, all in such

3

 

order and in such manner as such Senior Lender determines, in the exercise
of its sole business judgment and shall do so only following delivery of a
Notice of Liquidation.

          (c) The Senior Lender liquidating Collateral pursuant to the Senior Loan
Agreement shall have no liability to the Borrower, any other Lender or any
other Person, except for any such liability as by law may not be waived;
provided, that any amounts collected by a Senior Lender in respect of any
Collateral as a result of exercising remedies hereunder shall be allocated
among the Senior Lenders pro rata based upon their respective Senior Lender
Percentages, and the Senior Lender receiving amounts as a result of the
exercise of remedies shall hold the other Senior Lender’s Senior Lender
Percentage of such amounts in trust for such other Senior Lender and shall
promptly remit such allocable share of such amounts to such other Senior Lender
        .

          (d) No Subordinated Lender shall have any right to effect, or cause to be
effected, a liquidation of Collateral, except as provided in Section 7(b)
below.

          (e) Neither Senior Lender shall have any obligation to pay over to any
Subordinated Lenders any proceeds of the Collateral until the Senior
Obligations are paid in full.

     SECTION 5. Allocation of Proceeds. The proceeds of any sale, disposition
or other realization by any Lender upon any Collateral following an “Event of
Default” under the appropriate Loan Agreement, including any and all
Condemnation Awards or Insurance Proceeds with respect to such Collateral (the
“Collateral Proceeds”), shall be distributed in the following order of
priorities:

     First, to the Senior Lenders, for the payment or prepayment of all
the Senior Obligations owed to the Senior Lenders, allocated between the
Senior Lenders pro rata based upon their respective Senior Lender
Percentages;

     Second, to the Subordinated Lenders for the payment or prepayment of
all the Subordinated Obligations, to be allocated among the Subordinated
Lenders pro rata, based upon their respective Lender Percentages; and

     Third, to the Borrower or its successors or assigns or to whomever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, any surplus then remaining from such proceeds.

     SECTION 6. Subordination of Subordinated Loan. The Borrower and each
Subordinated Lender hereby agree that, until the Senior Obligations have been
paid in full, the Borrower and each Subordinated Lender will observe and
perform all of the covenants and agreements applicable to them under Section
2.09 of the Subordinated Loan Agreement (the “Subordination Provisions”), which
provisions and the covenants therein are hereby incorporated herein by
reference, mutatis mutandis.

4

 

     SECTION 7. Additional Provisions Concerning Subordination.

          (a) Acceleration. Nothing contained herein shall prevent a Subordinated
Lender from accelerating the Subordinated Obligations upon an Event of Default.

          (b) Rights and Remedies of Subordinated Lender. Subject to the terms of
this Intercreditor Agreement, (a) the Subordinated Lenders may only commence
the exercise of their remedies in respect of any Collateral (1) following an
Event of Default, (2) following the discharge in full of the Senior
Obligations, or (3) with the prior written consent of the Senior Lenders.

     Nothing herein will impair the Borrower’s obligations to the Subordinated
Lenders to pay to the Subordinated Lenders the Subordinated Obligations in
accordance with the applicable terms thereof except as expressly provided
herein. No provision of this Intercreditor Agreement will be deemed to
subordinate, to any extent, any claim or right of any Subordinated Lender to
any claim against the Borrower by a creditor or any other person or entity
except to the extent expressly provided in this Intercreditor Agreement.

          (c) Subrogation. Upon the payment in full of all Senior Obligations, each
Subordinated Lender shall be subrogated to the rights of the Senior Lenders to
receive payment or distributions of cash, property or securities of the
Borrower applicable to Senior Obligations, until the Subordinated Obligations
shall be paid in full. For the purposes of this subrogation, no payments or
distributions to the Senior Lenders of cash, property or securities to which
the Subordinated Lenders would have been entitled except for the provisions of
this Intercreditor Agreement will, as between the Borrower, its creditors other
than the Senior Lenders, and the Subordinated Lenders, be deemed to be a
payment by such Borrower to the Senior Lender, it being understood that the
provisions of this Agreement are, and are intended solely, for the purpose of
defining the relative rights of the Subordinated Lenders, on the one hand, and
the Senior Lenders, on the other hand. Upon any payment or distribution of
assets of the Borrower in connection with a liquidation of the Borrower, the
Borrower shall be entitled to rely upon a certificate of the liquidating
trustee or agent or the person making any distribution to the Senior Lenders
for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Obligations and other indebtedness of the
Borrower, the amount thereof payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this
Intercreditor Agreement.

     The provisions of this Intercreditor Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Obligations is rescinded or must otherwise be returned by any
Senior Lender for any reason whatsoever including, without limitation, the
insolvency, bankruptcy, or reorganization of the Borrower, all as though such
payment had not been made.

5

 

          (d) Voting of Claims. Each Subordinated Lender shall retain its right to
vote its claim and otherwise act in any insolvency proceeding (including,
without limitation, the right to vote to accept or reject any plan or partial
or complete liquidation, reorganization, arrangement, composition or
extension); provided, however, that no Subordinated Lender will take any action
or vote in any way so as to contest the enforceability of the subordination
provisions set forth in this Intercreditor Agreement.

          (e) Obligations Hereunder Not Affected. No right of any Lender to enforce
the intercreditor and subordination provisions provided in this Intercreditor
Agreement and in the Subordination Provisions shall at any time in any way be
prejudiced or impaired by any act or failure to act by any Lender, or by any
noncompliance by the Borrower, with the terms and provisions and covenants in
this Intercreditor Agreement regardless of any knowledge thereof any Lender may
have or otherwise be charged with.

          (f) Waivers, Consents. Each Subordinated Lender hereby waives promptness,
diligence, notice of acceptance, notice of the creation, renewal, extension or
accrual of any of the Senior Obligations, notice of proof of reliance by any
Senior Lender and any other notice, demand or protest, and all other
formalities of every kind with respect to, any of the Senior Obligations and
this Intercreditor Agreement, and any requirement that any Senior Lender
protect, secure, perfect or insure any Lien on any property subject thereto or
exhaust any right to take any action against the Borrower or any other person
or entity or any collateral.

     Each Subordinated Lender consents that, without the necessity of any
reservation of rights against any Subordinated Lender, and without notice to or
further assent by any Subordinated Lender:

     (1) any demand for payment of any Senior Obligations made by a
Senior Lender may be rescinded in whole or in part by such Senior Lender,
and any Senior Obligation may be continued, and the Senior Obligations,
or the liability of the Borrower or any guarantor or any other party upon
or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, or any obligation or liability
of the Borrower or any other party under the Senior Loan Documents or any
other agreement, may, from time to time, in whole or in part, be renewed,
extended, modified, accelerated, compromised, waived, surrendered, or
released by a Senior Lender as the Senior Loan Documents permit;

     (2) the Senior Loan Agreement, the Senior Secured Notes delivered
pursuant thereto and any other Senior Loan Documents may be amended,
modified, supplemented or terminated, in whole or in part, as the Senior
Lenders may deem advisable from time to time, and any collateral security
at any time held by a Senior Lender for the payment of any of the Senior
Obligations may be released or sold by such Senior Lender;

     in each case all without notice to or further assent by any Subordinated
Lender, each of whom will remain bound under this Agreement, and all without
impairing, abridging, releasing or affecting the subordination provided for
herein.

6

 

          (g) Amendment of Subordinated Loan Agreement. Each Subordinated Lender
hereby agrees that it shall not amend the Subordinated Loan Agreement without
the consent of the Senior Lenders.

          (h) Negative Covenants of the Subordinated Lenders. So long as any of the
Senior Obligations shall remain outstanding, no Subordinated Lender shall,
without the prior written consent of the Senior Lenders, sell, assign, or
otherwise transfer, in whole or in part, the Subordinated Obligations or any
interest therein to any other Person (a “Transferee”) or create, incur or
suffer to exist any security interest, lien, charge or other encumbrance
whatsoever upon the Subordinated Obligations in favor of any Transferee unless
(1) such action is made expressly subject to this Agreement and (2) the
Transferee expressly acknowledges to the Senior Lender, by a writing in form
and substance satisfactory to the Senior Lenders, the subordination provided
for herein and agrees to be bound by all of the terms hereof.

     SECTION 8. No Representations. Neither the Senior Lenders nor the
Subordinated Lenders make any representations or warranties or assume any
liability to the other with respect to (i) the financial or other condition of
obligors under any instrument of guarantee with respect to the Senior
Obligations, (ii) the enforceability, validity, value or collectibility of the
Senior Obligations, the Subordinated Obligations, or the Collateral (or any
portion thereof) or any guaranty or security which may have been granted to any
of them in connection with the Senior Obligations or the Subordinated
Obligations; or (iii) the Borrower’s title or right to transfer the Collateral
(or any portion thereof).

     SECTION 9. Further Assurances. The Subordinated Lenders and the Borrower,
at their own expense and at any time from time to time, upon the written
request of any Senior Lender will promptly and duly execute and deliver such
further instruments and documents and take such further actions as such Senior
Lender reasonably may request for the purposes of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted.

     SECTION 10. Provisions Define Relative Rights. This Agreement is intended
solely for the purpose of defining the relative rights of the Senior Lenders on
the one hand and the Subordinated Lenders on the other, and the rights of the
Senior Lenders as between each other with respect to proceeds of the exercise
of remedies against the Collateral, and no other Person shall have any right,
benefit or other interest under this Agreement.

     SECTION 11. Powers Coupled with an Interest. All powers, authorization
and agencies contained in this Agreement are coupled with an interest and are
irrevocable until the Senior Obligations are paid in full.

     SECTION 12. Addresses for Notices. All demands, notices and other
communications provided for hereunder shall be in writing (including telecopy)
and, mailed or telecopied or delivered to it, addressed to it, at the address
specified in the Subordinated Loan Agreement for such party, or as to each
party at such other address as shall be designated by such party in a written
notice to each other party complying as to delivery with the terms of the
Subordinated Loan Agreement. All such demands, notices and other
communications shall, when mailed or telecopied, be effective when received.

7

 

     SECTION 13. No Waiver; Remedies; Summary Judgment. No failure on the part
of the Lenders to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.

     SECTION 14. Continuing Agreements. This Intercreditor Agreement is a
continuing agreement and shall (1) remain in full force and effect until the
Senior Obligations shall have been paid in full, (2) be binding upon the
Lenders, and their successors and assigns, and (3) inure to the benefit of and
be enforceable by the Lenders and their respective successors, transferees and
assigns.

     SECTION 15. Severability of Provisions. Any provision of this
Intercreditor Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to each such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Intercreditor Agreement in any other jurisdiction.

     SECTION 16. Entire Agreement. This Intercreditor Agreement and the Senior
Loan Documents and Subordinated Loan Documents embody the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements and understanding, written or oral, between the parties hereto
relating to the subject matter hereof.

     SECTION 17. Governing Law; Counterparts. This Intercreditor Agreement
shall be governed by, and construed in accordance with, the laws of the
Commonwealth of Virginia. This Intercreditor Agreement may be executed by one
or more of the parties on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.

     TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO IRREVOCABLY
WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN CONNECTION WITH THIS INTERCREDITOR AGREEMENT OR ANY MATTER
ARISING HEREUNDER. EACH PARTY HERETO ALSO WAIVES ANY RIGHT SUCH PARTY MAY HAVE
TO CONSEQUENTIAL OR PUNITIVE DAMAGES FROM ANY OTHER PARTY AND HEREBY AGREES NOT
TO ASSERT ANY CLAIM FOR SUCH DAMAGES.

8

 

     IN WITNESS WHEREOF, each of the parties hereto have duly executed and
delivered by its authorized representatives or officer, as the case may be,
thereunto duly authorized this Amended and Restated Intercreditor and
Subordination Agreement as of the date first above written.

	 	 	 	 	 
	 	 	FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
	 
	 	 	 	 
	

	 	By:	 	/s/ Edward M. Wheeler
	

	 	 	 	
 
	

	 	Name:	 	Edward M. Wheeler
	

	 	 	 	
 
	

	 	Title:	 	Managing Director
	

	 	 	 	
 
	 
	 	 	 	 
	 	 	STANDARD AMERICAN INSURANCE LIMITED
	 
	 	 	 	 
	

	 	By:	 	/s/ David Pickering
	

	 	 	 	
 
	

	 	Name:	 	 David Pickering
	

	 	 	 	
 
	

	 	Title:	 	Director
	

	 	 	 	
 
	 
	 	 	 	 
	 	 	SPECIALTY UNDERWRITERS’ ALLIANCE, INC.
	 
	 	 	 	 
	

	 	By:	 	/s/ Courtney Smith
	

	 	 	 	
 
	

	 	Name:	 	 Courtney Smith
	

	 	 	 	
 
	

	 	Title:	 	President
	

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

[Signature Page to Amended and Restated Intercreditor And Subordination Agreement]

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