-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EA7cg6h5Xki1wHz3838G0qVVT3GOxUZha9QkQbSLSvqj/Ie9nEw8f8aXCJEqfYqC oIAAVPxfWnjv4G2rjLlWBw== 0000703701-01-500011.txt : 20010426 0000703701-01-500011.hdr.sgml : 20010426 ACCESSION NUMBER: 0000703701-01-500011 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010425 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASCENT ASSURANCE INC CENTRAL INDEX KEY: 0000703701 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 731165000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-10873 FILM NUMBER: 1610131 BUSINESS ADDRESS: STREET 1: 110 WEST SEVENTH STREET STREET 2: STE 300 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8178783306 MAIL ADDRESS: STREET 1: 110 WEST SEVENTH STREET STREET 2: SUITE 300 CITY: FORT WORTH STATE: TX ZIP: 76102 FORMER COMPANY: FORMER CONFORMED NAME: WESTBRIDGE CAPITAL CORP DATE OF NAME CHANGE: 19920703 8-K 1 f8k0401.txt FORM 8-K FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act Date of Report (Date of earliest event reported): APRIL 17, 2001 ------------------------ ASCENT ASSURANCE, INC. ---------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) DELAWARE 1-8538 73-1165000 - ------------------- ---------------- -------------------- (State of Other (Commission File Number)(IRS Employer Jurisdiction of Incorporation) Identification Number) 110 WEST SEVENTH STREET, SUITE 300, FORT WORTH, TEXAS 76102 -------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (817) 878-3300 ------------------------------------------------ (Registrant's Telephone Number, Including Area Code) N/A ----------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) This Form 8-K consists of 127 pages, including the exhibits. The Exhibit Index is on page 5. Item 5. Other Events On April 17, 2001, Ascent Assurance, Inc. ("Ascent") received the proceeds of an $11 million debt transaction it entered into under a Credit Agreement with Credit Suisse First Boston Management Corporation, which is an affiliate of Special Situations Holdings, Inc. -- Westbridge (Ascent's largest stockholder). The loan bears interest at a rate of 12% per annum, which is payable monthly in arrears, and the loan matures on April 17, 2004. Absent any acceleration following an event of default, the Company may elect to pay interest in kind. The credit agreement also provides for a facility fee of $1.5 million which is payable upon the earlier of the maturity of the loan or upon a change in control, as defined. Ascent's obligations under the credit agreement and the loan are secured by certain assets of Ascent and some its subsidiaries. Pursuant to a pledge agreement, Ascent has granted a security interest in the capital stock of Foundation Financial Services, Inc., Westbridge Printing Services, Inc. and, subject to insurance regulatory approval, Pacific Casualty Company, Inc. In addition, the capital stock and equity interests of LifeStyles Marketing Group, Inc., Precision Dialing Services, Inc. and Senior Benefits, L.L.C. are also pledged as collateral under a guarantee and security agreement pursuant to which Foundation Financial Services, Inc., NationalCare(R)Marketing, Inc., LifeStyles Marketing Group, Inc., Precision Dialing Services, Inc., Senior Benefits, L.L.C., and Westbridge Printing Services, Inc have guaranteed Ascent's obligations under the credit agreement and granted a security interest in assets that are not pledged to LaSalle Bank National Association under Ascent's receivables financing facility. In connection with the loan from Credit Suisse First Boston Management Corporation, Ascent also entered into a Sixth Amendment to its Guaranty Agreement with LaSalle Bank National Association and a Fourth Amendment to the Credit Agreement between Ascent Funding Corporation and LaSalle Bank National Association. The Sixth Amendment to the Guaranty Agreement provides, among other things, for a reduction in the minimum requirement for Ascent's consolidated GAAP net worth from $45 million to $31 million, and an increase in the minimum statutory surplus requirement for Freedom Life Insurance Company of America from $5 million to $7.5 million. The Fourth Amendment to the Credit Agreement provides, among other things, for an increase of 50 basis points in the interest rate applicable to the loans under Ascent's receivables financing facility. Item 7. Financial Statements and Exhibits (c) Exhibits. 10.1 Credit Agreement, dated as of April 17, 2001, between Ascent Assurance, Inc., a Delaware corporation, the several entities identified on the signature pages of this Agreement as Lenders and each other person that becomes a lender hereunder, Credit Suisse First Boston Management Corporation, as Administrative Agent and as Arranger. 10.2 Guaranty and Security Agreement made as of April 17, 2001, among (a) Foundation Financial Services, Inc., a Nevada corporation, (b) NationalCare(R)Marketing, Inc., a Delaware corporation, (c) LifeStyles Marketing Group, Inc., a Delaware corporation, (d) Precision Dialing Services, Inc., a Delaware corporation, (e) Senior Benefits, L.L.C., an Arizona limited liability company, and (f) Westbridge Printing Services, Inc., a Delaware corporation, and Credit Suisse First Boston Management Corporation as secured party hereunder. 10.3 Pledge Agreement made as of April 17, 2001, between Ascent Assurance, Inc., a Delaware corporation, and Credit Suisse First Boston Management Corporation, as pledgee 10.4 Sixth Amendment to Guaranty Agreement and Waiver made as of the 17th day of April, 2001 by and among Ascent Assurance, Inc. and LaSalle Bank National Association. 10.5 Fourth Amendment to Credit Agreement made as of the 17th day of April, 2001 by and among Ascent Funding, Inc. and LaSalle Bank National Association. 99 Press release announcing earnings and Credit Agreement with Credit Suisse First Boston Management Corporation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ASCENT ASSURANCE, INC. Dated: April 25, 2001 By: /S/ PATRICK J. MITCHELL ------------------------ Patrick J. Mitchell Chairman and Chief Executive Officer INDEX TO EXHIBITS Exhibit No. Exhibit - ----------- ----------------------------------------------------------------- 10.1 Credit Agreement, dated as of April 17, 2001, between Ascent Assurance, Inc., a Delaware corporation, the several entities identified on the signature pages of this Agreement as Lenders and each other person that becomes a lender hereunder, Credit Suisse First Boston Management Corporation, as Administrative Agent and as Arranger. 10.2 Guaranty and Security Agreement made as of April 17, 2001, among (a) Foundation Financial Services, Inc., a Nevada corporation, (b) NationalCare(R)Marketing, Inc., a Delaware corporation, (c) LifeStyles Marketing Group, Inc., a Delaware corporation, (d) Precision Dialing Services, Inc., a Delaware corporation, (e) Senior Benefits, L.L.C., an Arizona limited liability company, and (f) Westbridge Printing Services, Inc., a Delaware corporation, and Credit Suisse First Boston Management Corporation as secured party hereunder. 10.3 Pledge Agreement made as of April 17, 2001, between Ascent Assurance, Inc., a Delaware corporation, and Credit Suisse First Boston Management Corporation, as pledgee 10.4 Sixth Amendment to Guaranty Agreement and Waiver made as of the 17th day of April, 2001 by and among Ascent Assurance, Inc. and LaSalle Bank National Association. 10.5 Fourth Amendment to Credit Agreement made as of the 17th day of April, 2001 by and among Ascent Funding, Inc. and LaSalle Bank National Association. 99 Press release announcing earnings and Credit Agreement with Credit Suisse First Boston Management Corporation. EX-10.1 2 exh10_1.txt CREDIT AGREEMENT CREDIT AGREEMENT among ASCENT ASSURANCE, INC., as Borrower, Each Lender Party Hereto from Time to Time, CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION, as Administrative Agent and Arranger Dated as of April 17, 2001 TABLE OF CONTENTS
Page ARTICLE 1. DEFINITIONS..................................................................................1 1.1 Defined Terms.................................................................................1 1.2 Interpretation...............................................................................12 ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS.............................................................13 2.1 Commitments..................................................................................13 2.2 Notes........................................................................................13 2.3 Procedure for Borrowing......................................................................14 2.4 [Reserved.]..................................................................................15 2.5 Optional Prepayment and Repayment at Maturity................................................15 2.6 Interest Rate; Default Rate; Payment Dates...................................................16 2.7 Computation of Interest; Making of Payments..................................................17 2.8 Pro Rata Treatment and Payments; Funding Reliance............................................17 2.9 Illegality...................................................................................18 2.10 Requirements of Law..........................................................................18 2.11 Taxes........................................................................................18 2.12 Lending Offices..............................................................................20 ARTICLE 3. REPRESENTATIONS AND WARRANTIES..............................................................20 3.1 Financial Condition..........................................................................20 3.2 No Change....................................................................................21 3.3 Corporate Existence; Compliance with Law.....................................................21 3.4 Corporate Power; Authorization; Enforceable Obligations......................................22 3.5 No Legal Bar.................................................................................22 3.6 No Material Litigation.......................................................................22 3.7 No Default...................................................................................23 3.8 Ownership of Property; Liens.................................................................23 3.9 Intellectual Property........................................................................23 3.10 [Reserved.]..................................................................................23 3.11 Taxes........................................................................................23 3.12 Federal Margin Regulations...................................................................24 3.13 ERISA........................................................................................24 3.14 Holding Company; Investment Company Act; Other Regulations...................................25 3.15 Purpose of Loans.............................................................................25 3.16 Environmental Matters........................................................................25 3.17 Insurance; Reinsurance Agreements............................................................25 3.18 Accuracy and Completeness of Information.....................................................26 3.19 Leaseholds, Permits, etc.....................................................................26 3.20 No Restrictive Covenants.....................................................................27 3.21 Solvency.....................................................................................27 3.22 Subsidiaries.................................................................................27 3.23 Credit Arrangements..........................................................................27 3.24 Pledge Agreement.............................................................................28 ARTICLE 4. CONDITIONS PRECEDENT........................................................................28 4.1 Conditions to Initial Loans..................................................................28 4.2 Conditions to Each Loan......................................................................31 4.3 Representation...............................................................................32 ARTICLE 5. AFFIRMATIVE COVENANTS.......................................................................32 5.1 Financial Statements.........................................................................32 5.2 Certificates; Other Information..............................................................33 5.3 Payment of Obligations.......................................................................35 5.4 Maintenance of Existence.....................................................................35 5.5 Maintenance of Property; Insurance...........................................................36 5.6 Inspection of Property; Books and Records; Discussions.......................................36 5.7 Other Notices................................................................................36 5.8 Environmental Laws...........................................................................37 5.9 ERISA........................................................................................38 5.10 Use of Proceeds..............................................................................38 5.11 Margin Stock.................................................................................38 5.12 Maintain Ownership of Insurance Businesses...................................................38 5.13 Fees.........................................................................................38 5.14 Pledge Agreement.............................................................................38 5.15 Relief From Automatic Stay in Bankruptcy.....................................................38 5.16 Application of Capital Contributions.........................................................39 5.17 [Reserved]...................................................................................39 5.18 [Reserved]...................................................................................39 ARTICLE 6. NEGATIVE COVENANTS..........................................................................39 6.1 Financial Covenants..........................................................................40 6.2 Limitation on Fundamental Changes............................................................40 6.3 Limitation on Transactions with Affiliates...................................................40 6.4 Limitation on Liens..........................................................................41 6.5 Hedging Arrangements.........................................................................41 6.6 Limitation on Guaranties.....................................................................42 6.7 Limitation on Sale of Assets.................................................................42 6.8 Limitation on Investments, Loans and Advances................................................42 6.9 Limitations Relating to Stock of Subsidiaries, Dividends and Stock Repurchases...............42 6.10 Limitation on Indebtedness...................................................................43 6.11 Limitation on Capital Expenditures...........................................................44 6.12 Limitation on Negative Pledge Clauses; Payment Restrictions..................................44 6.13 Limitation on Businesses.....................................................................44 6.14 Limitation on Certain Prepayments and Amendments.............................................44 ARTICLE 7. EVENTS OF DEFAULT...........................................................................45 7.1 Events of Default............................................................................45 ARTICLE 8. THE ADMINISTRATIVE AGENT....................................................................47 8.1 Appointment..................................................................................47 8.2 Delegation of Duties.........................................................................47 8.3 Exculpatory Provisions.......................................................................48 8.4 Reliance by Administrative Agent.............................................................48 8.5 Notice of Default............................................................................48 8.6 Non-Reliance on Administrative Agent and Other Lenders......................................49 8.7 Indemnification..............................................................................49 8.8 Administrative Agent in Its Individual Capacity.............................................50 8.9 Successor Administrative Agent...............................................................50 ARTICLE 9. MISCELLANEOUS...............................................................................50 9.1 Amendments and Waivers.......................................................................50 9.2 Notice.......................................................................................51 9.3 No Waiver; Cumulative Remedies...............................................................52 9.4 Survival of Representations and Warranties...................................................52 9.5 Payment of Expenses and Taxes; Indemnification...............................................52 9.6 Successors and Assigns; Participations and Assignments.......................................53 9.7 Adjustments; Setoff..........................................................................55 9.8 Confidentiality..............................................................................56 9.9 Effectiveness................................................................................56 9.10 Counterparts.................................................................................56 9.11 Severability.................................................................................56 9.12 Integration..................................................................................56 9.13 GOVERNING LAW................................................................................56 9.14 Submission To Jurisdiction; Waivers..........................................................57 9.15 Acknowledgments..............................................................................57 9.16 Waivers of Jury Trial........................................................................58
EXHIBITS AND SCHEDULES Schedule I Lending Offices of Lender and Commitments Exhibit A-1 Form of Note Exhibit A-2 Form of PIK Interest Note Exhibit B Form of Notice of Borrowing Exhibit C Form of Closing Certificate Exhibit D Form of Commitment Transfer Supplement Exhibit E Form of Compliance Certificate Exhibit F Form of Pledge Agreement Exhibit G Minimum Statutory Surplus Requirements Exhibit H Reports and Other Information Required by Section 5.2(e) Exhibit I Form of Guaranty and Security Agreement Schedule 1 Borrower Affiliates Schedule 3.1(b) Variances from Financial Statements Schedule 3.1(c) Identification of Projections Provided Schedule 3.1(d) Variances to Annual Statements Schedule 3.2 Material Adverse Events Schedule 3.3 Legal Non-Compliance Schedule 3.4 Requisite Authorizations Schedule 3.6(a) Litigation Schedule 3.6(b) Restrictions on New Insurance Business Schedule 3.7 Defaults/Events of Default Schedule 3.8 Liens Schedule 3.11 Taxes Schedule 3.13 ERISA Schedule 3.14 Regulations Limiting Indebtedness Schedule 3.17(a) Insurance Policies Schedule 3.17(b) Reinsurance Contracts Schedule 3.20 Agreements Containing Restrictive Covenants Schedule 3.22 Subsidiaries Schedule 3.23 Credit Agreements Schedule 6.3 Transactions with Affiliates Schedule 6.6 Guaranties Schedule 6.7 Permitted Tax Benefit Purchases and Capital Contributions Schedule 6.11 Permitted Capital Expenditures CREDIT AGREEMENT, dated as of April 17, 2001, between ASCENT ASSURANCE, INC., a Delaware corporation (the "Borrower"), the several entities identified on the signature pages of this Agreement as Lenders and each other person that becomes a lender hereunder (collectively, the "Lenders," and each individually, a "Lender"), CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION ("CSFBM"), as Administrative Agent (in such capacity the "Administrative Agent "), and as Arranger (in such capacity, the "Arranger"). PRELIMINARY STATEMENT The Borrower has requested that the Lenders make senior secured loans to the Borrower in an aggregate principal amount not to exceed $11,000,000 for use by the Borrower to make capital contributions to or purchase surplus notes issued by a Subsidiary of the Borrower as permitted by the terms set forth below. The Lenders, severally but not jointly, are willing to make loans, on the terms and subject to the conditions set forth herein. Therefore, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the terms defined in the recital of the parties shall have the meanings given to them therein, the following terms shall have the meanings indicated, and the terms defined in Schedule 1 setting forth the names of certain Affiliates of the Borrower shall have the meanings given to them therein. "Affiliate" means, as to any Person, any other Person directly or indirectly controlling, controlled by or under common control with that other Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract or otherwise, and "controlling" and "controlled" have correlative meanings. "Annual Statement" means, in relation to any Insurance Subsidiary for any fiscal year, the annual financial statements of that Insurance Subsidiary as required to be filed with the Insurance Regulatory Authority of its jurisdiction of domicile and in accordance with the laws of that jurisdiction, together with all exhibits, schedules, certificates and actuarial opinions required to be filed or delivered therewith. "Applicable Rate" means 12% per annum. "Assignee" shall have the meaning ascribed thereto in Section 9.6(c). "Borrowing Date" means, with respect to any Loan, the date specified as such in a notice given by the Borrower in accordance with Section 2.3. "Business Day" means a day other than a Saturday, a Sunday or another day on which commercial banks in New York City or Fort Worth, Texas are authorized or required by law to close. "Capital Expenditures" means, for any period, the Dollar amount of gross expenditures (including payments in respect of Capital Lease Obligations) made for fixed assets, real property, plant and equipment, and all renewals, improvements and replacements thereto (but not repairs thereof) incurred during such period, all as determined in accordance with GAAP. "Capital Lease" means any lease under which the lessee has or may have obligations that should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. "Capital Lease Obligation" means, in relation to any Person at any date, the amount of each obligation of that Person as lessee under a Capital Lease which should, in accordance with GAAP, be shown on its balance sheet as a liability at that date. "Capital Stock" means, in relation to a corporation, any and all shares, interests, participations or other equivalents (however designated) of capital stock of that corporation, in relation to any Person other than a corporation, any and all equivalent ownership interests in that Person, and, in relation to all Persons, any and all warrants or options to purchase any of the foregoing. "Closing Date" means the date on or before the Termination Date on which the conditions precedent set forth in Section 4.1 are satisfied or waived, as determined by the Administrative Agent. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, as to each Lender, the amount specified opposite the name of that Lender in Schedule I. "Commitment Percentage" means, as to any Lender, at any time, the quotient derived by dividing the Total Commitment by that Lender's Commitment at that time. "Common Stock" means the common stock, par value $.01 per share, of the Borrower as it exists at the date of execution of this Agreement or as it may be reconstituted from time to time. The foregoing reference to the Common Stock as it may be reconstituted shall not be construed to derogate from any restrictions in this Agreement on the borrower's actions in respect of the Common Stock. "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001(a)(14) of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "Compliance Certificate" shall have the meaning ascribed thereto in Section 5.2(b). "Consolidated GAAP Net Worth" means, for any date, the sum of (a) the Capital Stock (including mandatorily redeemable preferred capital stock) and additional paid-in capital of the Borrower and its Subsidiaries on a consolidated basis plus (without duplication) (b) the amount of retained earnings, inclusive of deferred revenues, or, in the case of a deficit, minus the deficit, minus (c) treasury stock, plus or minus (d) any other account which is customarily added or deducted in determining shareholders' equity (without giving effect to any increase or decrease to Consolidated GAAP Net Worth attributable to the application of SFAS No. 115, 130 and 133 and related deferred tax effects), all determined on a consolidated basis in accordance with GAAP. "Contractual Obligation" means as to the Borrower or any Subsidiary, any provision of any security issued by the Borrower or any Subsidiary or of any agreement, instrument or other undertaking to which the Borrower or any Subsidiary is a party or by which it or any of its property is bound. "Debt for Borrowed Money" means, as to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, and (c) all Capital Lease obligations of such Person. "Default" means any of the events specified in Section 7.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Dollars" or "$" means dollars in lawful currency of the United States of America. "Environmental Laws" means any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning public health, public and workplace safety or protection of the environment, as now or may at any time hereafter be in effect. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Event of Default" means any of the events specified in Section 7.1; provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Funded Debt" means, with respect to any Person as of any date, all Indebtedness of that Person that, by the terms of the agreement governing or instrument evidencing the Indebtedness, matures more than one year from, or is directly or indirectly renewable or extendable at the option of that Person under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from the date of creation thereof, including current maturities of long-term Indebtedness, revolving credit and short-term Indebtedness extendable beyond one year at the option of that Person. "Funded Debt Ratio" means, as at any date, the ratio of Funded Debt to Total Capital, in each case, determined as of the end of the most recent fiscal quarter ending on or prior to that date for which financial statements are available. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time consistent with those utilized in preparing the audited financial statements referred to in Section 3.1. "Governmental Authority" means any national government (United States or foreign), any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any agency, authority, instrumentality, or regulatory body of any thereof. "Guaranty" means, as to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, liability or other obligation, whether or not contingent (the "primary obligation"), of another Person (the "primary obligor") in any manner, (i) to purchase, repurchase or otherwise acquire the primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth, liquidity or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any primary obligation of the ability of the primary obligor to make payment of that primary obligation or (iv) otherwise to assure or hold harmless the owner of any primary obligation against loss in respect thereof. "Guaranty" shall not include endorsements of instruments for deposit or collection in the ordinary course of business. "Guaranty and Security Agreement" means an agreement in the form set forth in Exhibit I among the Administrative Agent, as secured party on its own behalf and on behalf of the Lenders, and each of the Subsidiaries of the Borrower identified therein as a Company, or debtor. "Hedging Agreements" means, as to any Person, (a) any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement to which that Person is a party and (b) any other agreement or arrangement designed to limit or eliminate the risk and/or exposure of that Person to fluctuations in currency exchange rates, credit risk or any other variable that is not within that Person's control. "Indebtedness" means, with respect to any Person at any date, (a) Debt for Borrowed Money of that Person, (b) all indebtedness of that Person for the deferred purchase price of property or services (other than current trade liabilities and accrued expenses incurred in the ordinary course of that Person's business and payable in accordance with customary practices), (c) all outstanding reimbursement obligations of that Person in respect of outstanding letters of credit, acceptances and similar obligations issued or created for the account of that Person, (d) all liabilities secured by any Lien on any property owned by that Person even if that Person has not assumed or otherwise become liable for the payment thereof, (e) liabilities arising under Hedging Agreements of that Person (other than interest rate caps purchased by it), (f) all Guaranties of that Person and (g) all Capital Lease Obligations of that Person. "Insolvency" means, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insurance Regulatory Authority" means, in relation to any Subsidiary, the insurance department or similar Governmental Authority charged with regulating insurance companies or insurance holding companies in the jurisdiction of domicile of that Subsidiary and, to the extent that it has regulatory authority over that Subsidiary, in each other jurisdiction in which that Subsidiary conducts business or is licensed to conduct business. "Insurance Subsidiary" means each Subsidiary the ability of which to pay dividends is regulated by an Insurance Regulatory Authority or that is otherwise required to be regulated thereby in accordance with the applicable Requirements of Law of its jurisdiction of domicile, and shall include each Subsidiary identified as an Insurance Subsidiary in Schedule 3.22. "Intellectual Property" has the meaning given to the term in Section 3.9. "Intercreditor Agreement" means the Intercreditor and Subordination Agreement, dated as of April 17, 2001 among LaSalle Bank National Association and Credit Suisse First Boston Management Corporation, as Administrative Agent under this Agreement on its own behalf and on behalf of the Lenders. "Interest Payment Date" means, as to each Loan, the last Business Day of each month, beginning with the month in which the Borrowing Date occurs, and the Maturity Date for that Loan or any earlier date on which that Loan becomes due and payable pursuant to this Agreement. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and 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, other than any such filing in connection with any true lease or operating lease). "Loan Documents" means this Agreement, the Security Documents and each other agreement, instrument or certificate executed and delivered to the Lenders or the Administrative Agent pursuant hereto or to any other Loan Document including, without limitation, the Notes. "Loan" means the loans made by the Lenders to the Borrower pursuant to this Agreement, including increases to the principal amount thereof through conversion of PIK Interest pursuant to Section 2.6(d). "Material Adverse Effect" means (a) a material adverse effect on the business, operations, property, condition (financial or otherwise) or prospects of the Borrower and its consolidated Subsidiaries (taken as a whole) or (b) either singly or in the aggregate, any material adverse effect on the validity or enforceability of this Agreement, any of the Notes, the Pledge Agreement or the Lien created thereunder, or on any of the other Loan Documents, or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "Materials of Environmental Concern" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Maturity Date" means the third anniversary of the date of this Agreement. "Minimum Statutory Surplus Requirement" means, as of any day, the amount identified as such in Exhibit G. "Moody's" means Moody's Investors Service, Inc. ------- "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Income" means, for any period, net income (or deficit) of the Borrower and its Subsidiaries for that period determined on a consolidated basis in accordance with GAAP reduced by preferred stock dividends. "Note" means the notes referred to in Section 2.2(a) and PIK Interest Notes. "Notice of Borrowing" has the meaning given to the term in Section 2.3(a). "Obligations" means the unpaid principal of and interest on the Loans (including, without limitation, interest accruing after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower or any Subsidiary, as applicable, whether or not a claim for post-filing or post-petition interest is allowed in the proceeding and whether the Administrative Agent, for the benefit of the Lenders, is oversecured or undersecured with respect to the Loans) and all other obligations and liabilities of the Borrower to the Administrative Agent and the Lenders, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Notes, the other Loan Documents or any other document made, delivered or given in connection therewith or herewith, whether on account of principal, interest, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or the Lenders that are required to be paid by the Borrower pursuant to the terms of this Agreement or any other Loan Document) or otherwise. "Participant" has the meaning ascribed thereto in Section 9.6(b). "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor thereto. "Permitted Investment" means each of the following: (a) investments of the Borrower or any Subsidiary in any other Subsidiary (i) to the extent existing on the date of this Agreement and identified in Schedule 3.22 (it being understood that a change in value of any such investment will not for this purpose be considered an investment), (ii) consisting of surplus notes purchased by the Borrower or capital contributions made by the Borrower with the proceeds of any Loan or (iii) consisting of investments by Ascent Funding, Inc. in receivables generated by any other Subsidiary for the purposes of obtaining financing under the Receivables Financing Agreements; (b) direct obligations of the United States of America or any agency thereof, or obligations guaranteed as to principal and interest by the United States of America or any agency thereof, in either case, if the obligation matures not more than 90 days from the date of acquisition; (c) certificates of deposit issued by or other overnight deposits with any commercial bank or trust company organized under the laws of the United States of America or any state thereof and having capital, surplus and undivided profits of at least $500,000,000 and long-term unsecured and unguaranteed debt rated at least "BBB+" or "Baa1" by Standard & Poor's or Moody's, respectively, in each case if the deposit obligation matures not more than 90 days from the date of acquisition; (d) commercial paper of any issuer rated at least A-1 or P-1 by Standard & Poor's or Moody's, respectively, and maturing not more than 90 days from the date of acquisition; (e) repurchase agreements and reverse repurchase agreements with any bank with combined capital and surplus of at least $500,000,000, or any primary dealer in United States government securities, in each case, if (1) the bank or dealer has long-term unsecured and unguaranteed debt rated at least "BBB" or "Baa1" by Standard & Poor's or Moody's, respectively, if the repurchase or reverse repurchase agreement relates to marketable direct obligations that, (w) at the time of execution of the agreement, mature within 60 days, (x) are issued or unconditionally guaranteed or insured by the United States of America or any agency thereof and are backed by the full faith and credit of the United States of America, (y) provide for the payment of principal and interest (and not principal alone or interest alone) and (z) are not subject to any contingency regarding the payment of principal or interest; (f) long-term debt rated at least "BBB" or "Baa1" by Standard & Poor's or Moody's, respectively; and (g) investments of Subsidiaries permitted under Section 6.8. "Permitted Lien" has the meaning given to the term in Section 6.4. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PIK Interest" has the meaning given to the term in Section 2.6(d). "PIK Interest Note" has the meaning given to the term in Section 2.6(d). "Plan" means, at any time, any employee benefit plan of a kind contemplated in Section 3(2) of ERISA and in respect of which the Borrower or any Subsidiary at the time is, an "employer" as defined in Section 3(5) of ERISA, other than a Multiemployer Plan. "Pledge Agreement" means an agreement in the form set forth in Exhibit F between the Borrower and the Administrative Agent, as secured party on its own behalf and on behalf of the Lenders. "Pledged Collateral" has the meaning given to that term in the Pledge Agreement. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code for which there is no applicable statutory or regulatory exemption (including a class exemption or an individual exemption). "QFL Note" has the meaning given to that term in Section 2.2(b). "Quarterly Statement" means, in relation to any Insurance Subsidiary for any fiscal quarter, the quarterly financial statements of that Insurance Subsidiary as required to be filed with the Insurance Regulatory Authority of its jurisdiction of domicile, together with all exhibits, schedules, certificates and actuarial opinions required to be filed or delivered therewith. "RBC Ratio" means, in relation to any Person as at the last day of any fiscal year, the ratio of "Total Adjusted Capital" of that Person as at that date to "Company Action Level RBC" of that Person as at that date, as those terms are defined by either the NAIC Risk Based Capital (RBC) for Insurers Model Act (the "Model Act") or the Insurance Commissioner of the State in which that Person is incorporated, as amended from time to time. To the extent the Model Act definition is used, using the annual SAP Financial Statements form prescribed by the Model Act for the year ended December 31, 2000 is equal to the quotient of (a) the amount that appears on line 27, column (1) on page 22 of the Convention Blank, divided by (b) two times the amount that appears on line 28, column (1) on page 22 of the Convention Blank. "Receivables Financing Agreements" means the agreements identified as items 1 through 6 in Schedule 3.23, as in effect on the date of this Agreement or hereafter amended with the prior written consent of the Lenders. For this purpose an increase in the maximum amount of financing available under any such agreement after the date of this Agreement shall be deemed made with the consent of the Lenders to the extent the increase is identified as permitted in Schedule 3.23 (but this deemed consent shall not be treated as applicable to any increase or change in the security or other credit support for any related obligations or otherwise to derogate from the restrictions in Article 6). "Register" has the meaning given to the term in Section 9.6(d). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time, or any successor regulation. "Reinsurance Agreement" means any agreement, contract, treaty, certificate or other arrangement whereby any Insurance Subsidiary agrees or has agreed to transfer, cede or retrocede to another insurer or reinsurer all or part of the liability assumed or assets held by that Insurance Subsidiary under a policy or policies of insurance issued by that Insurance Subsidiary or under a reinsurance agreement assumed by that Insurance Subsidiary. "Reorganization" means, with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA other than those events for which the notice requirement has been waived under applicable regulations. "Required Lenders" means, at any time, Lenders whose Commitment Percentages aggregate at least 51% of the Total Commitment in effect at the time. "Requirement of Law" mean, as to any Person, the articles of organization and by-laws or other organizational or governing documents of that Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority (including, without limitation, any of the foregoing relating to employee health and safety or public utilities and all Environmental Laws), in each case, as applicable to or binding upon that Person or any of its property or to which that Person or any of its property is subject. "Responsible Officer" means, with respect to a Person, the chairman of the board of directors, the chief executive officer or the president of that Person or, with respect to financial matters, the chief financial officer of that Person in each case, acting in their capacity as such. "SEC" means the Securities and Exchange Commission. "SEC Reports" means the reports filed by the Borrower with the SEC on Form 10-K, Form 10-Q or Form 8-K or any successor Form. "Security Document" means each of the Pledge Agreement and the Guaranty and Security Agreement. "Single Employer Plan" means any Plan that is covered by Title IV of ERISA but is not a Multiemployer Plan. "Standard & Poor's" means Standard & Poor's Rating Group, a division of The McGraw-Hill Companies, Inc. "Statutory Capital and Surplus" means, as to any Insurance Subsidiary as of any date, the amount shown on line 38, column 1, page 3, of the 2000 Annual Statement of that Insurance Subsidiary, or the sum of amounts determined in a manner consistent with that contemplated there, for any date other than one as of which an Annual Statement is prepared. "Statutory Accounting Practices" or "SAP" means, in relation to an Insurance Subsidiary, the statutory accounting practices prescribed or permitted by the relevant Insurance Regulatory Authority of that Insurance Subsidiary's state of domicile, consistently applied and maintained and in conformity with those used in the preparation of the most recent statutory financial statements delivered hereunder (except where changes are required by the relevant Insurance Regulatory Authority) and the Annual Statement. "Subsidiary" means, in relation to any Person, any corporation, company or other entity and any partnership or joint venture, whether now existing or hereafter organized or acquired, which is under the control of that Person; and, except as otherwise expressly provided in this Agreement, all references to any Subsidiary are to direct or indirect subsidiaries of the Borrower. For this purpose, a Person will be deemed to have control of a second Person if the first Person has the power to elect at least a majority of the board of directors or other managers of the second Person either by virtue of ownership (direct or indirect, through one or more intermediaries) of the shares of stock or other ownership interests with ordinary voting power of the second Person, or otherwise; and a Person will be deemed to have control over a partnership if that Person or one of its Subsidiaries is the general partner. Stock or other ownership interests that have voting power only by reason of the occurrence of a contingency will be disregarded for purposes of the preceding sentence. "Tax" means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature that is imposed by any Governmental Authority or taxing authority. "Termination Date" has the meaning given to that term in Section 2.1(b). "Total Commitment" at any time means the aggregate of the respective Commitments of individual Lenders at that time. "Total Capital" means, on any date (a) Funded Debt on that date plus (b) the Consolidated GAAP Net Worth. "Transferee" has the meaning given to the term in Section 9.6(f). "Wholly Owned Subsidiary" means, with respect to any Person, any corporation or other entity of which all of the outstanding shares of stock or other ownership interests in which, other than directors' qualifying shares (or the equivalent thereof), are at the time directly or indirectly owned or controlled by such Person or one or more of the Subsidiaries of such Person. 1.2 Interpretation (a) . (a) As used in this Agreement, (i) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified; (ii) the words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation," (iii) the word "or" shall not be exclusive, (iv) the word "will" shall be construed to have the same meaning and effect as the word "shall" and (v) the plural form of any term defined in the singular in this Agreement shall merely express the grammatical plural of that defined term unless otherwise expressly provided herein. (b) As used herein, in the Notes and in any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Borrower or any Subsidiary that are not defined in Section 1.1 and accounting terms that are partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP or, to the extent that any such term applies solely to an Insurance Subsidiary, the means given to that term in SAP, where applicable. All financial data or statements that the Borrower is required to deliver hereunder shall be prepared in accordance with GAAP or, insofar as the data relates solely to an Insurance Subsidiary, in accordance with SAP, if applicable, in each case, applied on a consistent basis, except as otherwise expressly prescribed herein, subject to the following paragraph. (c) If GAAP changes while any of the Obligations remains outstanding and, as a result, the financial covenants set forth in Section 6.1 would be calculated in a manner or with components different from those applicable prior to the change, (i) the Borrower and the Lenders will enter into good faith negotiations to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating the Borrower's financial condition to substantially the same criteria as were effective prior to the relevant change in GAAP and (ii) the Borrower shall be deemed to be in compliance with those financial covenants during the prior of 60 days beginning with the effective date of that change in GAAP if and to the extent that the Borrower would have been in compliance therewith under GAAP if the change had not occurred and compliance were tested applying GAAP as in effect immediately before the change. Where this Agreement or any other Loan Document refers, directly or indirectly, to amounts on particular exhibits, schedules, lines, pages or columns of any Annual Statement or Quarterly Statement, the references are based on the format promulgated by the NAIC for the 2000 Annual Statements and Quarterly Statements. If that format is changed for 2001 or any year thereafter so that different information is required in the items referred to, or so that they no longer exist, of if the Annual Statement or Quarterly Statement is replaced by the NAIC or by any Insurance Regulatory Authority after the date of this Agreement so that a different form of financial statement is required to be furnished by an Insurance Subsidiary in lieu thereof, the relevant reference in this Agreement or any other Loan Document shall be to information consistent with that reported in the referenced item in the 2000 Annual Statements or Quarterly Statements, as applicable. (d) Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to that agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include that Person's successors and assigns (without prejudice to any restrictions on transfer or other consequences of a transfer contemplated herein), and (iii) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. (e) The terms defined in this Agreement shall have the meanings given to them herein when they are used in the Notes or any certificate or other document made or delivered pursuant hereto, unless otherwise specified therein. ARTICLE 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 Commitments. (a) On the terms and subject to the conditions hereof, each Lender severally agrees to make one or more term loans to the Borrower in an aggregate amount not to exceed that Lender's Commitment in effect at the time. The aggregate amount of the Loans to be made pursuant to this provision on any day by the Lenders shall be as determined by the Lenders. (b) The Commitment of each Lender will automatically be reduced on any Borrowing Date by the amount of the Loan made by that Lender pursuant to Section 2.1(a) on that Borrowing Date. Unless previously terminated, the Commitment of each Lender will automatically be reduced to zero and terminate at 3:00 p.m., New York City time, on April 30, 2001 (the "Termination Date"). 2.2 Notes (a) . (a) The Loans made by each Lender on any Borrowing Date pursuant to Section 2.1(a) shall be evidenced by a promissory note of the Borrower (a "Note"), substantially in the form set forth in Exhibit A-1, with appropriate insertions as to payee, date and the principal amount of the Loan made by that Lender, payable to the order of that Lender, and, if applicable with such other features as are specified in paragraph (b) of this Section for a QFL Note. The Borrower hereby irrevocably authorizes each Lender to record the date and amount of each Loan made by it and the date and amount of each payment or prepayment of principal thereof on the schedule annexed to and constituting a part of its Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded absent manifest error. Failure by a Lender to make any such recordation shall not, however, affect the Borrower's obligations hereunder. Each Note shall (i) be dated the Closing Date, (ii) be stated to mature on the Maturity Date and (iii) provide for the payment of interest in accordance with Section 2.6. (b) Any Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and that is not incorporated or otherwise organized under the laws of the Untied States of America or any state thereof (a "Qualified Foreign Lender") shall, upon receipt of the written request of the Administrative Agent or the Borrower, and may, upon its own written request to the Administrative Agent, exchange any Note held by or assigned to it for a qualified foreign lender Note ( a "QFL Note"). A QFL Note shall contain the following legend but otherwise be in the same form as other Notes: "This Note is a QFL Note, and as such, ownership of the obligation represented by such QFL Note may be transferred only in accordance with Section 2.2(d) of the Credit Agreement." Any QFL Note issued in replacement of any existing Note pursuant to this Section shall be (i) dated the Closing Date, (ii) issued in the name of the entity in whose name that existing Note was issued and (iii) issued in the same principal amount as that existing Note. (c) Upon the request of or delivery of a request to a Qualified Foreign Lender pursuant to paragraph (b) of this Section, the Borrower shall execute and deliver a QFL Note to the Administrative Agent in replacement of the Note surrendered in connection with the request conforming to the requirements of this paragraph. Each Qualified Foreign Lender shall surrender its Note in connection with any replacement pursuant to this Section. In connection with any such replacement, upon receipt by the Administrative Agent of a QFL Note and the existing Note to be replaced by that QFL Note in accordance with this paragraph, the Administrative Agent shall forward the QFL Note to the Lender which has surrendered its Note for the replacement and shall forward the surrendered Note to the Borrower marked "canceled." Once issued, QFL Notes (i) shall be deemed to and shall be "Notes" for all purposes under the Loan Documents, (ii) may not be exchanged for Notes which are not QFL Notes, notwithstanding anything to the contrary in the Loan Documents and (iii) shall at all times thereafter be QFL Notes, including, without limitation, following any transfer or assignment thereof. (d) Notwithstanding anything to the contrary in the Loan Documents, the QFL Notes are registered obligations as to both principal and interest with the Borrower, and transfer of the obligations underlying such QFL Note may be effected only by surrender of the QFL Note to the Borrower and either reissuance by the Borrower of that QFL Note to the transferee or issuance by the Borrower of a new QFL Note to the transferee. A QFL Note shall only evidence the Lender's or an assignee's right, title and interest in and to the related obligation, and in no event is a QFL Note to be considered a bearer instrument or obligation. This Section shall be construed so that the obligations underlying the QFL Notes are at all times maintained in "registered form" within the meaning of Sections 871(h)(2) and 881(c)(3) of the Code. 2.3 Procedure for Borrowing (a) . (a) The Borrower shall give the Administrative Agent notice of the date on which it would like the Lenders to make Loans pursuant to Section 2.1(a) not later than 10:00 a.m., New York City time, on the proposed Borrowing Date identified in that notice. Any such notice shall be irrevocable and shall be substantially in the form set forth in Exhibit B (a "Notice of Borrowing") specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date and shall be executed by a Responsible Officer of the Borrower. (b) However, if the Borrower and the Lenders have agreed that any Loans hereunder may be made on any floating-rate interest rate basis, the Notice of Borrowing shall also contain all such additional information as may be required to implement and set forth the parties' agreement on the subject (including all relevant modifications to the terms of this Agreement as may be required to address interest periods, relevant business day and other conventions and related modifications to the Notes) and shall be given not later than the time specified in that agreement. Any such Notice of Borrowing relating to proposed floating-rate Loans shall be effective as such only when executed by the Borrower and countersigned by the Lenders and the Administrative Agent and shall automatically become a part of and amendment to this Agreement. Upon receipt of a Notice of Borrowing from the Borrower, the Administrative Agent shall promptly notify each Lender thereof and of that Lender's pro rata share of the borrowing contemplated in that Notice of Borrowing (the Lender's Commitment Percentage of the amount of the proposed borrowing). Each Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Section 9.2 prior to 11:00 a.m., New York City time, on the relevant Borrowing Date in funds immediately available to the Administrative Agent. The Administrative Agent shall, on that Borrowing Date, make available to the Borrower the aggregate of the amounts made available to the Administrative Agent by the Lenders, by wire transfer in like funds as received by the Administrative Agent, to the Borrower's account identified on the signature pages of this Agreement or such other account as the Borrower may have identified by notice given to the Administrative Agent not later than the Business Day preceding the Borrowing Date. 2.4 [Reserved.] 2.5 Optional Prepayment and Repayment at Maturity (a) . (a) Each prepayment of - - any portion of the Loans made pursuant to this Section 2.5 shall permanently reduce the Commitments and the Total Commitment, and no amount that has been prepaid may be reborrowed. In addition, an obligation to make a prepayment pursuant to this Section 2.5 (by virtue of the Borrower's having given notice electing to make the prepayment) shall permanently reduce the Commitments and the Total Commitment with effect on the date the prepayment is due, regardless of whether it is made. Each prepayment pursuant to this Section 2.5 shall be made without premium or penalty but together with payment in full of all interest on the amount being prepaid accrued to but excluding the date of prepayment. The Administrative Agent shall promptly notify the Lenders of any notice of prepayment, and of the amount of any prepayment, received by the Administrative Agent. (b) The Borrower may at any time prepay all or, subject to the following, any portion of the Loans, upon notice given to the Administrative Agent not later than two hours before the payment. Each such notice shall be irrevocable. (c) The Borrower shall repay the outstanding principal amount of the Loans and the Notes on the Maturity Date together with interest accrued and not paid to but excluding the Maturity Date. 2.6 Interest Rate; Default Rate; Payment Dates (a) . (a) Subject to paragraph (b), interest on each Loan shall accrue from and including the Loan's Borrowing Date, in the case of a Loan made pursuant to Section 2.1(a), and from and including the date specified in Section 2.6(d), in the case of a Loan made through conversion of PIK Interest, and, in all cases, to but excluding the day on which the Loan is repaid in full, at the Applicable Rate, subject to the following. Until the Maturity Date, but only so long as the Loans and other Obligations hereunder have not become or been declared due and payable in connection with an Event of Default, interest on the Loans may be paid, at the option of the Borrower, in PIK Interest Notes, as provided in Section 2.6(d). The amount of PIK Interest Notes shall be treated as Loan principal amounts. (b) If any amount payable hereunder by the Borrower is not paid as and when due (or a PIK Interest Note is not delivered with respect thereto), interest shall accrue thereon, to the extent permitted by applicable law (both before and after judgment) at a rate per annum equal to the sum of the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2% from the date of occurrence of such Event of Default until the date such Event of Default is cured or waived (after as well as before judgment). In addition, should any interest on such Loans or any other amount (other than principal) payable hereunder not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest (to the extent permitted by law in the case of interest on interest) at a rate per annum as determined pursuant to the preceding sentence, in each case, from the date of such non-payment until such amount is paid in full (after as well as before judgment). (c) Interest accruing pursuant to Section 2.6(a) shall be payable in arrears on each Interest Payment Date, subject to Section 2.6(d). Interest accruing pursuant to Section 2.6(b) shall be payable from time to time on demand. (d) The Borrower is executing and delivering to the Administrative Agent, pursuant to Section 4.1(b), for each Lender a note in the form set forth in Exhibit A-2 (a "PIK Interest Note"). The Borrower, may, subject to Section 2.6(a) and the last sentence of this Section 2.6(d), in lieu of tendering payment of interest accruing under Section 2.6(a) in cash, on the Interest Payment Date on which that interest is due, give the Administrative Agent notice that the Borrower is electing to pay each Lender's pro rata share of the relevant interest payment through conversion of the amount of that share (each such amount "PIK Interest") to the principal of the Loans hereunder outstanding to that Lender. If the Borrower gives such a notice to the Administrative Agent, it shall give each Lender notice of the Borrower's election. The Borrower hereby irrevocably authorizes each Lender to record the date and amount of each Loan principal increase pursuant to this provision, and the date and amount of each payment or prepayment of principal thereof, on the schedule annexed to and constituting part of its PIK Interest Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded absent manifest error. Failure by a Lender to make any such recordation shall not, however, affect the Borrower's obligations hereunder. Interest shall accrue on the principal amount of each PIK Interest Note at the Applicable Rate, from and including the Interest Payment Date corresponding to the due date for that PIK Interest. The Borrower's right to convert PIK Interest to Loan principal as contemplated in this Section 2.6(d) will automatically cease if the Loans and other Obligations hereunder become or are declared due and payable in connection with an Event of Default. 2.7 Computation of Interest; Making of Payments (a) . All interest accruing hereunder shall be calculated on the basis of the actual number of days in the relevant period and a year of 360 days. (b) All payments (including prepayments) to be made by the Borrower hereunder and under the Notes, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, to the account of the Administrative Agent at Citibank, N.A., ABA #021000089, Account no. 4080-4716, REF: Ascent Term Loan, Attn: Adair Young, CSFB, 212-322-1365, or to such other account as the Administrative Agent may specify by notice to the Borrower or, if the Administrative Agent so specifies, at the Administrative Agent's office specified in Section 9.2, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder becomes due and payable on a day other than a Business Day, the due date for such payment shall be extended to the next following Business Day, and interest shall continue to accrue thereon in respect of the extension. 2.8 Pro Rata Treatment and Payments; Funding Reliance (a) . (a) Each borrowing by the Borrower from the Lenders hereunder and any reduction of the Commitments of the Lenders shall be made pro rata according to the respective Commitment Percentages of the Lenders. Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall (except as may be required as a result of Section 2.9, Section 2.10 or Section 2.11) be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Lenders. (b) On each Borrowing Date, the Administrative Agent shall be entitled to assume that each Lender (other than any Lender that has given the Administrative Agent notice to the contrary) has made funds available to the Administrative Agent as required by Section 2.3(c), and the Administrative Agent may (but shall not be required to) credit funds to the Borrower in an amount equal to the aggregate of the principal amount of the Loans to be made on that date by all Lenders from which no such notice has been received. If any Lender that has not given that notice fails to make funds available as required by Section 2.3(c) and the Administrative Agent has credited to the Borrower an amount equal to that aggregate, the Administrative Agent shall be entitled at its option to recover from either that Lender or the Borrower (without prejudice to the rights of the Borrower against that Lender), on demand, an amount equal to the Loan that was to have been made by that Lender on that date, together with interest on that amount accrued for each day from and including the applicable Borrowing Date to but excluding the date of that recovery at a rate per annum equal to the daily average Federal Funds Rate for the period. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. If a Lender pays an amount due from it under this Section to the Administrative Agent, then that amount shall constitute the Lender's Loan included in the relevant borrowing. The obligations of the Lenders hereunder are several, and none of the Lenders shall be responsible for any other Lender's failure to make any Loan as required hereunder. 2.9 Illegality. Notwithstanding any other provision herein, if any Lender determines at any time that any Requirement of Law or any change therein or in the interpretation or application thereof makes or will make it unlawful for that Lender to fulfill its commitment to make Loans hereunder, to maintain a Loan or to claim or receive any amount payable to it hereunder, the Lender shall give notice of that determination to the Borrower, with a copy to the Administrative Agent, whereupon the obligations of that Lender hereunder shall terminate and that Lender's Commitment shall be reduced to zero. The Borrower shall repay the Loans of that Lender in full on the following Business Day. Repayment pursuant to this Section shall be made without premium but together with interest accrued on the Loans being repaid to the date of repayment and all other amounts then payable to the relevant Lender by the Borrower hereunder. 2.10 Requirements of Law. If any Lender determines that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by that Lender or any corporation controlling the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made after the date hereof has or will have the effect of reducing the rate of return on that Lender's or the corporation's capital as a consequence of its obligations hereunder to a level below that which the Lender or that corporation could have achieved but for the change or compliance (taking into consideration the policies with respect to capital adequacy of that Lender or corporation) by an amount deemed by the Lender to be material, the Borrower shall pay to that Lender such additional amount or amounts as will compensate the Lender for the reduction, in each case promptly after submission by the Lender to the Borrower (with a copy to the Administrative Agent ) of a written request for the payment. A Lender's statements of additional amounts to be paid from time to time pursuant to this Section shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Obligations hereunder. 2.11 Taxes (a) . (a) Each payment by the Borrower under this Agreement or the Notes shall be made without withholding on account of Taxes unless withholding is required by applicable law. If applicable law requires withholding, the Borrower shall give notice to that effect to the Administrative Agent, make the necessary withholding and make timely payment of the amount withheld to the appropriate Governmental Authority. All Taxes so withheld shall be paid before penalties attach thereto or interest accrues thereon. If any such penalties or interest nonetheless become due, the Borrower shall make prompt payment thereof to the appropriate Governmental Authority. If any Lender pays any amount in respect of a Tax that is not a franchise tax or imposed on the Lender's net income or in lieu of net income taxes (an "Indemnifiable Tax"), which is imposed on any payment due from the Borrower hereunder or penalties or interest thereon, the Borrower shall reimburse that Lender in Dollars for that payment on demand. If the Borrower pays any such Indemnifiable Taxes or penalties or interest thereon, it shall deliver official tax receipts evidencing the payment or certified copies thereof to the Administrative Agent not later than the thirtieth day after payment. (b) If any Lender is or becomes entitled to a reduced withholding rate or a complete exemption from withholding with respect to Taxes on payments to it by the Borrower under this Agreement or the Notes, including backup withholding tax, that Lender shall complete and deliver from time to time to the Borrower such form as the Borrower is required to obtain from that Lender in order to give effect to the reduced rate or exemption and certify that the Lender is entitled to the relevant exemption (whether the form relates to that Lender or to any person to which it has sold a participation or other beneficial interest in any of its rights hereunder). In particular, each Lender that is not incorporated or otherwise organized under the laws of the United States of America or a state thereof shall deliver to the Borrower two copies of the following with the relevant certification, as and if applicable, from time to time: (i) Internal Revenue Service form W-8BEN, W-8ECI, W-8 or W-9 (or any successor form) form, or, (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and intends to claim exemption from U.S. Federal withholding tax under Section 871(h) or Section 881(c) of the Code with respect to payments of "portfolio interest," a certificate (a "Non-Bank Status Certificate") executed by that Lender representing that (1) it is not a bank for purposes of Section 881(c) of the Code, is not a 10 percent shareholder (within the meaning of Section 871 (h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code), claiming complete exemption from U.S. Federal withholding tax on payments of interest by the Borrower under this Agreement and the other Loan Documents and (2) that the Lender has received in replacement of any Note held by or assigned to it, a QFL Note. Each Person that becomes a Lender or a Participant pursuant to Section 9.6 shall, upon the effectiveness of the related transfer, be required to provide all the forms and statements required pursuant to this Section; provided that, in the case of a Participant, such Participant shall furnish all such required forms and statements to the Lender from which it purchased the related participation. (c) If any Taxes withheld from a payment due to a Lender in accordance with Section 2.11(a) are Indemnifiable Taxes, the Borrower shall promptly pay such additional amount as is necessary to ensure that the net amount actually received by that Lender free and clear of those Taxes is equal to the amount that the Lender would have received had those Taxes not been withheld, except that no such additional amount will be payable to the extent that the withholding would not have been due but for failure by the relevant Lender to furnish in a timely fashion any form or Non-Bank Status Certificate that it is required to deliver pursuant to Section 2.11(b). 2.12 Lending Offices. The Loans made by any Lender will be made and maintained by it at its office identified in Schedule I or any other office designated by it from time to time as its lending office, by notice to the Administrative Agent. If a Lender makes a demand for a payment pursuant to Section 2.10 or Section 2.11, it will use reasonable efforts to designate a different lending office, if doing so would eliminate the need for the Borrower to make further additional payments, or reduce the amounts of the additional payments it would be required to make, pursuant to the relevant Section to that Lender, but a Lender will not be required to make any efforts or change in lending office that it, in its discretion, determines would be disadvantageous to it or inconsistent with its internal policy or legal or regulatory restrictions. ARTICLE 3. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Administrative Agent and each Lender as follows. 3.1 Financial Condition (a) . (a) The unaudited consolidated and consolidating balance sheets of the Borrower and the Subsidiaries as of December 31, 2000 and the related consolidated and consolidating statements of operations, changes in stockholder's equity and cash flows for the fiscal year ended on that date, copies of which have been furnished to the Lenders, fairly present the consolidated and consolidating financial condition of the Borrower and the Subsidiaries as at such dates, and the results of their operations and their retained earnings and cash flows for the fiscal year then ended. All such financial statements, including the related schedules and notes thereto relating to those financial statements, have been prepared in accordance with GAAP applied consistently throughout the periods involved, except as disclosed therein. (b) Except as set forth in Schedule 3.1(b), during the period beginning on January 1, 2001 and ending with the date of this Agreement, (i) neither the Borrower nor any of its consolidated Subsidiaries has, on the date of this Agreement, any material Guaranty obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term exchange transaction or other Hedging Arrangement or other financial derivative which is not reflected in the financial statements referred to above in this Section; and (ii) there has been no sale, transfer or other disposition by the Borrower or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property, including Capital Stock of any other Person, that is material in relation to the consolidated financial position of the Borrower and its consolidated Subsidiaries at December 31, 2001. (c) The operating forecast and cash flow projections of the Borrower and its consolidated Subsidiaries, copies of which have been furnished to the Lenders as set forth in Schedule 3.1(c), have been prepared in good faith under the direction of a Responsible Officer of the Borrower, and in accordance with GAAP or SAP, as applicable, except that the forecast and projections do not include footnotes and other disclosures that may be required pursuant to GAAP or SAP, as applicable. This representation is subject to the further representation of the Borrower and to the qualification as to projections in Section 3.18. (d) Except as set forth in Schedule 3.1(d), the Annual Statements of each of the Insurance Subsidiaries as of December 31, 2000 and for the fiscal year then ended, as delivered by the Borrower to the Administrative Agent and the Lenders, are as filed with the relevant Insurance Regulatory Authority, have been prepared in accordance with SAP where required, except as may be reflected in the notes thereto, were in compliance with applicable Requirements of Law when filed, and based on the information available on the date of such filings fairly presented in all material respects the financial condition of the respective Insurance Subsidiaries covered thereby for the relevant period and the results of operations, changes in capital and surplus and cash flow of those Insurance Subsidiaries for the period ended on that date; provided that, to the extent any matter disclosed in Schedule 3.1(d) has been cured directly or indirectly through the application of the proceeds of any Loan, that Schedule shall, as of the date the cure occurs, be deemed to cease to refer to that matter. 3.2 No Change. Except as set forth in Schedule 3.2, since December 31, 2000 there has been no development or event which has had or could have a Material Adverse Effect, and during the period beginning on that date and ending on the date of this Agreement, no dividends or other distributions have been declared, paid or made upon the Capital Stock of the Borrower or any Subsidiary (other than a Wholly Owned Subsidiary), nor has any such Capital Stock been redeemed, retired, purchased or otherwise acquired for value by the Borrower or any Subsidiary; provided that, to the extent any matter disclosed in Schedule 3.2 has been cured directly or indirectly through the application of the proceeds of any Loan, that Schedule shall, as of the date the cure occurs, be deemed to cease to refer to that matter. 3.3 Corporate Existence; Compliance with Law. --------- ---------- ---------- ---- ---- Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such a qualification except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, and (d) except as disclosed in Schedule 3.3, is in compliance with all Requirements of Law, except to the extent that the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect; provided that, to the extent any matter disclosed in Schedule 3.3 has been cured directly or indirectly through the application of the proceeds of any Loan, that Schedule shall, as of the date the cure occurs, be deemed to cease to refer to that matter. 3.4 Corporate Power; Authorization; Enforceable Obligations (a) . (a) The Borrower has the corporate power and authority, and the legal right, to execute and deliver the Loan Documents and perform its obligations thereunder, to borrow hereunder and to create the Lien contemplated in the Pledge Agreement. The Borrower has taken all necessary corporate action to authorize and create that Lien and the borrowings contemplated herein on the terms and conditions set forth in this Agreement and in the Notes. (b) Except as set forth in Schedule 3.4, no consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Borrower's creation of the Lien contemplated in the Pledge Agreement or any borrowings hereunder or with the execution and delivery of the Loan Documents, performance by the Borrower of its obligations thereunder or the validity or enforceability of the Loan Documents other than any of the foregoing that, if not obtained, could not reasonably be expected to have a Material Adverse Effect. No such consent, authorization or filing is conditioned upon or otherwise imposes any materially burdensome or adverse condition. The documents identified in Schedule 3.4 that have been delivered by the Borrower to the Administrative Agent and each Lender are complete and current copies of all such documents. (c) This Agreement has been, and each other Loan Document delivered by the Borrower at the time of its delivery will have been, duly executed and delivered on behalf of the Borrower. This Agreement constitutes, and each other Loan Document when executed and delivered will constitute, a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with the terms of this Agreement or, as applicable, that Loan Document, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.5 No Legal Bar. The execution and delivery by the Borrower of the Loan Documents and performance by it of its obligations thereunder, the borrowings hereunder and the use of the proceeds thereof, and the creation by the Borrower of the Lien created by the Pledge Agreement and delivery thereunder of the Pledged Collateral do not and will not violate any Requirement of Law or Contractual Obligation of the Borrower or any Subsidiary, will not accelerate or result in the acceleration of any payment obligations of the Borrower or any Subsidiary and, except for the Lien created by the Pledge Agreement, will not result in, or require, the creation or imposition of any Lien on any of the respective properties or revenues of the Borrower or any Subsidiary pursuant to any Requirement of Law or Contractual Obligation, except as specified in Schedule 3.4 in the case of any Pledged Collateral issued by an Insurance Subsidiary, if creation of that Lien or delivery of the relevant share certificates requires the approval of an Insurance Regulatory Authority. 3.6 No Material Litigation. (a) Except as set forth in Schedule 3.6(a), no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any Subsidiary or against any of the respective properties or revenues of the Borrower or any Subsidiary which could reasonably be expected to have a Material Adverse Effect. (b) No litigation, investigation or, except as set forth in Schedule 3.6(b), proceeding of or before any Governmental Authority is pending or, to the knowledge of the Borrower, is threatened (i) restricting or seeking to restrict any Subsidiary from engaging in further insurance underwriting or similar business or (ii) seeking to obtain, or having resulted in the entry of, any judgment, order or injunction that could reasonably be expected to affect the ability of the Borrower to perform its obligations hereunder or would be materially inconsistent with the stated assumptions underlying the projections provided to the Administrative Agent or the Lenders or otherwise, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 3.7 No Default. Except as set forth in Schedule 3.7, No Default or Event of Default has occurred and is continuing and neither the Borrower nor any Subsidiary is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument material to its business, including those identified in Schedule 3.23. 3.8 Ownership of Property; Liens. Except as set forth in Schedule 3.8, each of the Borrower and its Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its material real property, and good title to, or a valid leasehold interest in, all its other material property. None of that property is subject to any Lien other than Permitted Liens. Where applicable, the Liens described in Schedule 3.8 correctly refer to the credit or other agreements and instruments identified in Schedule 3.23 that are secured by the relevant Liens. 3.9 Intellectual Property. Each of the Borrower and its Subsidiaries owns, or is licensed to use, all patents, trademarks, trade names, copyrights, technology, know-how, processes, logos and insignia (the "Intellectual Property") necessary for the conduct of its business as currently conducted except for any case in which the failure to own or license could not reasonably be expected to have a Material Adverse Effect. There is no pending claim asserted by any Person that challenges or questions the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, which could reasonably be expected to have a Material Adverse Effect, nor does the Borrower or any consolidated Subsidiary know of any valid basis for any such claim. The use of Intellectual Property by the Borrower or any Subsidiary does not infringe on the rights of any Person, except for such infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.10 [Reserved.] 3.11 Taxes. Except as set forth in Schedule 3.11, each of the Borrower and the Subsidiaries has filed or caused to be filed all federal, state and other material tax returns which are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any tax, fee or other charge the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or that Subsidiary (or, where applicable, in conformity with SAP), as the case may be). No tax Lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such tax, fee or other charge. Neither the Borrower nor any Subsidiary has waived or extended or has been requested to waive or extend the statute of limitations relating to the payment of any taxes. 3.12 Federal Margin Regulations (a) . No part of the proceeds of any Loan will be used for "purchasing" or "carrying" or extending credit for the purpose of purchasing or carrying any "margin stock," as those terms are used under Regulation U, except in compliance with applicable law and regulations. If any Lender or the Administrative Agent so requests, the Borrower will furnish to the Administrative Agent, for itself, any relevant Lenders and the Arranger a statement to the foregoing effect in conformity with the requirements of an applicable form referred to in Regulation U. 3.13 ERISA. Neither the Borrower nor any Subsidiary maintains, contributes to or has material obligation with respect to, any welfare plan (as defined in Section(3)(1) of ERISA) which provides benefits to employees after termination of employment other than as required by Part 6 of Title I of ERISA or similar state laws regarding continuation of benefits. Each Plan has complied and is in compliance in all respects with the applicable provisions of ERISA and the Code except where failure of compliance could not reasonably be expected to have a Material Adverse Effect. There has not been any breach by the Borrower or any Subsidiary of any of the responsibilities, obligations or duties imposed on it by ERISA, the Code, or regulations promulgated thereunder which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary nor any fiduciary of any Plan who is an officer or an employee of the Borrower or any Subsidiary has engaged in a nonexempt prohibited transaction described in Section 406 of ERISA or 4975 of the Code with respect to a Plan which could reasonably be expected to have a Material Adverse Effect. With respect to any employee benefit plan (as defined in Section 3(3) of ERISA) currently or formerly maintained or contributed to by any Commonly Controlled Entity, no liability exists and no event has occurred which could subject the Borrower or any Subsidiary to any liability which could reasonably be expected to have a Material Adverse Effect. Except as disclosed in Schedule 3.13, none of the Borrower or any Subsidiary has any liability, direct or indirect, contingent or otherwise, under Section 4201 or 4204 or 4212(c) of ERISA which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has any outstanding liability in respect of (i) a failure to make a required contribution or payment to a Multiemployer Plan or (ii) a complete or partial withdrawal under Section 4203 or 4205 of ERISA from such a Plan, which in either case could reasonably be expected to have a Material Adverse Effect. 3.14 Holding Company; Investment Company Act; Other Regulations. ------- -------- ---------- ------- ---- ----- ------------ Neither the Borrower nor any of the Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or except as described in Schedule 3.14, subject to regulation under any Federal or state statute, regulation, decree or order which limits its ability to incur Indebtedness or conditions its ability to do so upon any act, approval or consent of any Governmental Authority. 3.15 Purpose of Loans. The proceeds of the Loans will be used solely (a) to purchase one or more surplus notes, in form and substance acceptable to the Lenders, from FLICA as the issuer of the relevant surplus note or notes, in a transaction in form and substance acceptable to the Lenders at the time, unless the Borrower is unable at the time to make the purchase without approval of an Insurance Regulatory Authority and, with the consent of the Lenders, has not sought or has been unable to obtain that approval, or (b) to make a capital contribution to FLICA, if the Lenders are at the time satisfied with arrangements for use by FLICA in compliance with the requirements of Section 5.16. 3.16 Environmental Matters (a) . (a) The facilities and properties owned, leased or operated by the Borrower and its Subsidiaries (referred to in this Section as the "Properties") and all operations at the Properties are in compliance in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the Borrower and its Subsidiaries (referred to in this Section as the "Business") which could reasonably be expected to have a Material Adverse Effect. (b) Neither the Borrower nor any Subsidiary has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor do the Borrower or any Subsidiary have knowledge or reason to believe that any such notice will be received or is being threatened, in each case which could reasonably be expected to have a Material Adverse Effect. (c) There has been no release or threat of release of Materials of Environmental Concern at or from any of the Properties, or arising from or related to the operations of the Borrower or any Subsidiary in connection with any of the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could reasonably be expected to have a Material Adverse Effect. 3.17 Insurance; Reinsurance Agreements (a) . (a) Except as set forth in Schedule 3.17(a), all policies of insurance of any kind or nature maintained by or issued to the Borrower or any Subsidiary, including, without limitation, policies of life, fire, theft, public liability, property damage, other casualty, employee fidelity, worker's compensation, employee health and welfare, title, property and liability insurance, are in full force and effect in all material respects and are of a nature and provide such coverage as is sufficient and as is customarily carried by companies of similar size and character. (b) Each Reinsurance Agreement is in full force and effect. None of the Insurance Subsidiaries and no other party to any Reinsurance Agreement is in breach of or default under any Reinsurance Agreement, other than breaches or defaults that are being contested in good faith and by proper proceedings, in the case of any alleged breach or default by any Insurance Subsidiary. The Borrower and the Insurance Subsidiaries have no reason to believe that the financial condition of any party to any Reinsurance Agreement other than an Insurance Subsidiary is impaired such that a default thereunder by that party could reasonably be anticipated. Each Reinsurance Agreement is qualified under all applicable Requirements of Law to receive the statutory credit assigned to that Reinsurance Agreement in the relevant Annual Statement or Quarterly Statement at the time prepared, except where the failure to receive the relevant statutory credit is not reasonably likely to have a Material Adverse Effect. There are no reinsurance contracts or arrangements entered into by an Insurance Subsidiary in which an Insurance Subsidiary has ceded risk to any other Person which are material, individually or in the aggregate, to the Borrower and the Subsidiaries taken as a whole, except as identified in Schedule 3.17(b). 3.18 Accuracy and Completeness of Information. -------- --- ------------ -- ------------ All information, reports and other papers and data (other than projections) with respect to the Borrower or any consolidated Subsidiary, or, to the knowledge of the Borrower, any Subsidiary furnished to the Lenders by the Borrower, or on behalf of the Borrower, in connection with the negotiation, preparation or execution of this Agreement or any of the other Loan Documents were, at the time furnished, complete and correct in all material respects, or have been subsequently supplemented by other information, reports or other papers or data, to the extent necessary to correct any material misstatement or omission. All projections with respect to the Borrower or any consolidated Subsidiary, or, to the knowledge of the Borrower, any Subsidiary, furnished by the Borrower, in connection with the negotiation, preparation or execution of this Agreement or any of the other Loan Documents were prepared and presented in good faith by the Borrower based upon facts and assumptions that the Borrower believed to be reasonable in light of current and foreseeable conditions, it being understood that projections are subject to significant uncertainties and contingencies, many of which are beyond the control of the Borrower and that no assurance can be given that the financial results set forth in those projections will actually be realized. There is no fact known to the Borrower or any of its Subsidiaries which has a Material Adverse Effect and has not been disclosed to the Administrative Agent and the Lenders. 3.19 Leaseholds, Permits, etc. The Borrower possesses or has the right to use, all leaseholds, easements, franchises and permits and all authorizations and other rights which are material to and necessary for the conduct of its business. All the foregoing are in full force and effect, and each of the Borrower and the Subsidiaries is in substantial compliance with the foregoing without any known conflict with the valid rights of others, except for such noncompliance with the foregoing which could not reasonably be expected to have a Material Adverse Effect. No event has occurred which permits, or after notice or lapse of time or both would permit, the revocation or termination of any such leasehold, easement, franchise, license or other right which, when considered with any other revocation or termination could reasonably be expected to have a Material Adverse Effect. 3.20 No Restrictive Covenants. Excepts as disclosed in Schedule 3.20, no Subsidiary of the Borrower is party to, or otherwise bound by, and the Borrower is not party to, any agreement or other arrangement that prohibits any Subsidiary, or requires the Borrower to prevent a Subsidiary, from making any payments, directly or indirectly, to the Borrower or to any other Subsidiary, by way of dividends, advances, repayment of loans or advances, reimbursements of management or other intercompany charges, expenses and accruals or other returns on investment, or any other agreement or arrangement that restricts the ability of that Subsidiary to make any payment, directly or indirectly, to the Borrower or another Subsidiary, other than prohibitions and restrictions proscribed by law or permitted to exist under Section 6.12. 3.21 Solvency. The Borrower is solvent, is able to pay its debts as they mature, owns property with fair saleable value greater than the amount required to pay its debts and, after giving effect to the making of Loans in an aggregate amount equal to the Total Commitment, will have capital sufficient to carry on its business as currently constituted and proposed. 3.22 Subsidiaries. Schedule 3.22 correctly sets forth the names of all Subsidiaries of the Borrower, identifies those that are Insurance Subsidiaries, and sets forth all outstanding shares of Capital Stock or other units of equity or other ownership interests of each Subsidiary, and the number of those shares or units owned by the Borrower, directly or indirectly. All such shares and other units are duly authorized, validly issued, fully paid, nonassessable and were issued in compliance with all Requirements of Law. Except as disclosed in Schedule 3.22, the Borrower is the owner of record and beneficial owner of all of the Capital Stock and other such interests of the Subsidiaries either directly or through another Subsidiary indicated in that Schedule, free and clear of Liens and, except as disclosed in Schedule 3.22, free of all other restrictions other than those imposed upon the sale of stock of the Insurance Subsidiaries by an applicable Insurance Regulatory Authority. Except as disclosed in Schedule 3.22, there are no outstanding options, warrants or other rights to purchase Capital Stock or other ownership interests of any Subsidiary. Except for any Subsidiary identified in Schedule 3.22, each Subsidiary is a corporation or a limited liability company and none of the Subsidiaries is a partner in any partnership. 3.23 Credit Arrangements. Schedule 3.23 is a complete and correct list, as of the date of this Agreement, of all credit agreements, indentures, Guaranties, Capital Leases, mortgages and other material instruments, agreements and arrangements (including those contemplating the issuance of letters of credit or acceptance financing) in respect of which the Borrower or any of the Subsidiaries is in any manner directly or contingently obligated, other than trade payables in the ordinary course of business. Schedule 3.23 correctly and completely sets forth the maximum principal or face amounts of the credit that in each case is outstanding and can be outstanding, as of the date of this Agreement, and describes all Liens created or given or agreed to be created or given as security therefor. 3.24 Pledge Agreement. The provisions of the Pledge Agreement are effective to create in favor of the Administrative Agent for the ratable benefit of the Lenders and for the benefit of the Administrative Agent itself, to the extent there provided, a legal, valid and enforceable security interest in all right, title and interest of the Borrower in the "Pledged Collateral" described therein. When certificates representing the Pledged Stock and Pledged Notes (each as defined in the Pledge Agreement) are delivered to the Administrative Agent, together with stock powers or another instrument of assignment endorsed in blank by a duly authorized officer of the Borrower, the Pledge Agreement will constitute a fully perfected first priority Lien on, and security interest in, all right, title and interest of the Borrower in that Pledged Stock or Pledged Note pursuant to the Pledge Agreement. ARTICLE 4. CONDITIONS PRECEDENT 4.1 Conditions to Initial Loans. The agreement of each Lender to make the Loan requested to be made by it on the Closing Date or, if no Loan is made on that date, on the first Borrowing Date thereafter, is subject to the satisfaction, immediately prior to or concurrently with the making of those Loans, of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received each of the following, in form and substance satisfactory to the Administrative Agent, executed and delivered by a duly authorized Responsible Officer of the Borrower or, in the case of the items identified in subparagraphs (iv) and (v), by a duly authorized Responsible Officer of each of the Borrower's Subsidiaries identified in the Guaranty and Security Agreement as a Debtor: (i) this Agreement (in sufficient counterparts for each of the Lenders and the Administrative Agent); (ii) the Pledge Agreement (in the same number of counterparts); (iii)the certificates representing the shares of the Pledged Stock referred to therein which are owned by the Borrower on the Closing Date (together with stock transfer powers endorsed in blank), to the extent no further authorizations, consents or approvals of any Insurance Regulatory Authority are required for the pledge and delivery of those Shares on the Closing Date; (iv) the Guaranty and Security Agreement (in sufficient counterparts for each of the Lenders and the Administrative Agent); (v) each of the Financing Statements and other documents to be delivered to the Administrative Agent pursuant to Section 5 of the Guaranty and Security Agreement; and (vi) the Note and PIK Interest Note for each Lender. (b) Corporate Proceedings of the Borrower and Certain Subsidiaries. The --- --------- ----------- -- --- -------- --- ------- ------------ Administrative Agent shall have received with a counterpart for each Lender, a copy of each of the following: (i) the resolutions of the Board of Directors of the Borrower authorizing (A) the execution, delivery and performance of this Agreement, the Notes, the Pledge Agreement and the other Loan Documents to which it is a party, and (B) the borrowings contemplated hereunder and the creation of the Lien provided for in the Pledge Agreement in connection herewith and therewith; and (ii) the resolutions of the respective Boards of Directors of each of the Borrower's Subsidiaries which is a party to the Guaranty and Security Agreement authorizing (A) the execution and delivery by that Subsidiary of the Guaranty and Security Agreement and the other Loan Documents to be executed and delivered by it thereunder and performance of its Obligations thereunder, and (B) the creation of the Lien provided for in the Guaranty and Security Agreement in respect of the property and assets of the Subsidiary identified therein as Collateral. These resolutions shall be in form and substance satisfactory to the Administrative Agent and delivered with a certificate of the Borrower or the relevant Subsidiary, executed by the Secretary or an Assistant Secretary of the Borrower or the relevant Subsidiary, to the effect that, as of the Closing Date, the resolutions have not been amended, modified, revoked or rescinded. The Administrative Agent also shall have received, with a counterpart for each Lender, a certificate of the Borrower and each such Subsidiary, dated the Closing Date, executed by a Responsible Officer of the Borrower or the relevant Subsidiary and satisfactory in form and substance to the Administrative Agent, as to the incumbency and signature of the officers of the Borrower or the relevant Subsidiary executing any Loan Document. (c) Corporate Documents; Good Standing. The Administrative Agent shall have received, with a counterpart for each Lender, true and complete copies of (i) the charter documents of the Borrower, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of the Borrower, (ii) a certificate as of a recent date of good standing of each of the Borrower and its Subsidiaries under the laws of its jurisdiction of organization, from the Secretary of State or a comparable Governmental Authority of that jurisdiction and (iii) for each of the Insurance Subsidiaries, a certificate of compliance as of a recent date, from the relevant Insurance Regulatory Authority of the jurisdiction in which that Subsidiary is domiciled and any other jurisdiction in which that Subsidiary is reasonably likely to be commercially domiciled, as defined under the laws and regulations of that jurisdiction, other than a jurisdiction identified in Section 3.6(b) in which that Subsidiary is not permitted to engage in further insurance underwriting. (d) Consents, Licenses and Approvals. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of a Responsible Officer of the Borrower (i) attaching copies of all consents, authorizations and filings referred to in Schedule 3.4, and (ii) stating that such consents, licenses and filings are in full force and effect, and each such consent, authorization and filing shall be in form and substance satisfactory to the Administrative Agent, subject to the following. If any consent or authorization of the creation of the Lien contemplated in the Pledge Agreement is required and has not yet been obtained from any Insurance Regulatory Authority, the Administrative Agent shall have received, with a counterpart for each Lender, a certificate of a Responsible Officer of the Borrower evidencing the steps taken to obtain that consent or authorization and certifying as to the status of and expected completion date for the approval process, along with any conditions that may be imposed in connection therewith, as described to the Borrower by the relevant Insurance Regulatory Authority. (e) Intercreditor Agreement. The Administrative Agent shall have received the Intercreditor Agreement, in form and substance satisfactory to the Administrative Agent, executed and delivered by a duly authorized Responsible Officer of (i) the Borrower, (ii) the Borrower and each of its Subsidiaries that is a party to the Guaranty and Security Agreement, and (iii) LaSalle Bank National Association. (f) Legal Opinions. The Administrative Agent shall have received, with a counterpart for each Lender and the Administrative Agent, the executed legal opinions of counsel to the Borrower and each of its Subsidiaries that is a party to the Guaranty and Security Agreement, in form and substance satisfactory to the Administrative Agent. (g) Closing Certificate. The Administrative Agent shall have received, with a counterpart for each Lender, a closing certificate of each of the Borrower and each of its Subsidiaries that is a party to the Guaranty and Security Agreement, dated as of the Closing Date, substantially in the form of Exhibit C. (h) Insurance and Insurance Subsidiary Matters. The Administrative Agent --- --------- --- --------- ---------- ------- shall have received evidence satisfactory to it of the existence of the insurance required hereunder. (i) Financial Information. The Administrative Agent shall have received, with a copy for each Lender, a copy of each of the financial statements, projections and the like referred to in Section 3.1, in form and substance satisfactory to the Administrative Agent. (j) Compliance Certificate. The Administrative Agent shall have received, with a counterpart for each Lender, a Compliance Certificate, substantially in the form set forth in Exhibit E, executed by a chief financial officer or treasurer of the Borrower, dated as of the Closing Date and satisfactory in form and substance to the Administrative Agent. (k) No Material Adverse Effect. Since December 31, 2000, there shall have been no development or event which, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect other than those identified in Schedule 3.2. (l) Waivers. The Administrative Agent shall have received evidence, satisfactory in form and substance to it, that any existing defaults or events of default or other breaches by the Borrower or any Subsidiary under any of the agreements or instruments referred to in Schedule 3.23, as described by the Borrower in Schedule 3.7, have been waived, that the waivers remain in effect on the Closing Date and that the terms of the waivers are such that they will remain in effect subject only to conditions that are satisfactory to the Lenders. 4.2 Conditions to Each Loan. ----------------------- The agreement of each Lender to make any Loan is subject to the satisfaction of the following additional conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by each of the Borrower and each of its Subsidiaries in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of the relevant Borrowing Date as if made on and as of such date (both before and after giving effect to the proposed Loan). (b) No Default. No Default or Event of Default shall have occurred and be --- -- ------- continuing on the relevant Borrowing Date or after giving effect to the proposed Loans. (c) No Material Adverse Effect. Since the date of the last borrowing under this Agreement, no event shall have occurred and no circumstance shall have arisen that could reasonably be expected to have a Material Adverse Effect. (d) Aggregate Amount. Immediately before and immediately after giving --- --------- ------ effect to the relevant Loans, the aggregate outstanding principal amount of the Loans will not exceed the Total Commitment. (e) Use of Proceeds. The Lenders shall be satisfied that the proceeds of the relevant Loans are being applied strictly in accordance with Section 3.15 and Section 5.16. (f) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with this Agreement, the Security Documents and the other Loan Documents shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other documents, instruments and legal opinions in respect of any aspect or consequence of each such agreement and document and the transactions contemplated hereby or thereby as it shall reasonably request. (g) Statutory Surplus. --- --------- ------- (h) In the case of each borrowing after the first, the statutory surplus of the Insurance Subsidiaries shall be sufficient to enable each of the Insurance Subsidiaries to continue underwriting at least such further insurance business as it is permitted to underwrite after giving effect to the capital contribution made with the proceeds of the Loans made on the initial Borrowing Date. 4.3 Representation. Each borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the relevant Borrowing Date that (a) the statements in any document delivered by the Borrower in connection with that borrowing are true and correct in all material respects, (b) after due inquiry, it has no reason to believe that any of the statements made by any Subsidiary in the Guaranty and Security Agreement or any other Loan Document is not true and correct in all material respects, and (c) the applicable conditions contained in this Article 4 have been satisfied. ARTICLE 5. AFFIRMATIVE COVENANTS So long as any of the Commitments remains in effect, any Note remains outstanding and unpaid or any Obligation is owing to any Lender or the Administrative Agent hereunder, the Borrower shall: 5.1 Financial Statements. Furnish to each Lender: (a) as soon as available, but in any event within 120 days after the end of each fiscal year of the Borrower (or such earlier date as the Borrower's Form 10-K is filed with the SEC), copies of (i) the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of that year and (ii) the related consolidated and consolidating statements of operations and consolidated statements of stockholders' equity and cash flows of the Borrower and the Subsidiaries for that year, setting forth in each case in comparative form the figures as of the end of and for the previous year, in each case prepared in accordance with GAAP, all in reasonable detail and accompanied by an opinion of PricewaterhouseCoopers or other independent certified public accountants of nationally recognized standing reasonably acceptable to the Lenders, to the effect that the consolidated financial statements have been prepared in accordance with GAAP (except for changes in application in which those accountants concur) and present fairly in all material respects in accordance with GAAP the financial condition of the Borrower and its Subsidiaries as of the end of that fiscal year and the results of its operations for the fiscal year then ended, and that the examination by those accountants in connection with these financial statements has been made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; provided that the submission of the Borrower's report on Form 10-K shall satisfy the foregoing requirements; (b) as soon as available, but in any event within 150 days after the end of each fiscal year of each Insurance Subsidiary (or such earlier date as filed with the applicable Insurance Regulatory Authority), a copy of the audited SAP financial statements for each Insurance Subsidiary, in each case setting forth in comparative form the figures for the preceding fiscal year, prepared in accordance with SAP, all in reasonable detail and accompanied by an opinion of PricewaterhouseCoopers or another firm of independent public accountants of recognized national standing reasonably acceptable to the Administrative Agent, to the effect that the financial statements have been prepared in accordance with SAP (except for changes in application in which those accountants concur) and fairly present in all material respects in accordance with SAP the financial condition of that Insurance Subsidiary as of the end of that fiscal year and the results of its operations for the fiscal year then ended, and that the examination by those accountants in connection with those financial statements has been made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; provided that the submission of the Annual Statement for that Insurance Subsidiary as filed with the applicable Insurance Regulatory Authority shall satisfy the foregoing requirements; (c) as soon as available, but in any event not later than 60 days after the end of each fiscal quarter of each fiscal year of the Borrower (or such earlier date as the Borrower's Form 10-Q for that quarter is filed with the SEC), a copy of the unaudited consolidated balance sheet of the Borrower and the Subsidiaries as at the end of that quarter and the related unaudited consolidated statements of operations and statements of shareholders' equity and cash flows of the Borrower and the Subsidiaries for that quarter and the portion of the fiscal year through the end of that quarter and setting forth the actual figures for the corresponding date or period in the previous year, certified by the chief financial officer or treasurer of the Borrower as being fairly stated in all material respects (subject to normal year-end audit adjustments); provided that the submission of the Borrower's report on Form 10-Q shall satisfy the foregoing requirements; (d) as soon as available, but in any event not later than 60 days after the end of each fiscal quarter of each fiscal year of each Insurance Subsidiary (or such earlier date as filed with the applicable Insurance Regulatory Authority), a copy of the unaudited balance sheet of that Insurance Subsidiary as at the end of that quarter and the related unaudited statements of income, retained earnings and cash flows of that Insurance Subsidiary for that quarter and the portion of the fiscal year through the end of that quarter and setting forth the actual figures for the corresponding date or period in the previous year, all prepared in accordance with SAP and certified by the chief financial officer or treasurer of that Insurance Subsidiary as being fairly stated in all material respects (subject to normal year-end audit adjustments); provided that the submission of the Quarterly Statement for that Insurance Subsidiary as filed with the applicable Insurance Regulatory Authority shall satisfy the foregoing requirements; All such financial statements shall be complete and correct in all material respects and shall be prepared in accordance with GAAP or, as applicable, SAP, applied consistently throughout the periods reflected therein and with prior periods (except as approved by the relevant accountants or officer, as the case may be, and disclosed therein). 5.2 Certificates; Other Information. Furnish to each Lender: (a) concurrently with the delivery of the financial statements referred to in Section 5.1(a) or Section 5.1(b), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in Section 5.1, a compliance certificate substantially in the form set forth in Exhibit E of the chief financial officer or treasurer of the Borrower (the "Compliance Certificate"), in form and substance satisfactory to the Administrative Agent, showing compliance by the Borrower and the Subsidiaries with the covenants contained in Section 6.1; (c) promptly after the sending or filing thereof, and in any event within five days after the filing thereof, copies of all reports that the Borrower sends to any of its stockholders, and copies of all registration statements, reports on Form 10-K, Form 10-Q or Form 8-K (or, in each case, any successor form) and other material reports that the Borrower or any Subsidiary files with the SEC or any successor or analogous Governmental Authority or that any Insurance Subsidiary files with any Insurance Regulatory Authority (other than public offerings of securities under employee benefit plans or dividend reinvestment plans); (d) as soon as available and, in any event by April 30 of each fiscal year of each Insurance Subsidiary (or such earlier date as filed with the applicable Insurance Regulatory Authority), statements showing the RBC Ratio and IRIS Ratios for each Insurance Subsidiary as of the immediately prior fiscal year end; (e) at the times specified in Exhibit H, the reports and other information there specified (or reports of the Borrower containing the same information in such other form as at the time is used by the Borrower and reasonably satisfactory to the Administrative Agent), certified by a Responsible Officer to be true and correct as of the dates there specified, and promptly after request, such additional financial and other information as the Administrative Agent or any Lender may from time to time reasonably request; (f) promptly after receipt, a copy of any report or management letter relating to internal financial controls and procedures delivered to the Borrower or any Subsidiary by any independent firm of public accountants in connection with the examination of the financial statements of the Borrower or any Subsidiary; (g) promptly and in event within five days after any Responsible Officer of the Borrower or, where applicable, any Insurance Subsidiary learns of the facts, notice of the following, setting forth in reasonable detail the underlying facts and circumstances and the action that the Borrower or, if applicable, an Insurance Subsidiary has taken or proposes to take in connection with the facts and circumstances: (i) the receipt by the Borrower or any Insurance Subsidiary from any Governmental Authority or Insurance Regulatory Authority of written notice asserting any failure of compliance with any applicable Requirement of Law which is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect or that threatens the taking of any action against the Borrower or any Subsidiary or sets forth circumstances that, if taken or adversely determined, would be reasonably likely to have a Material Adverse Effect; or (ii) the receipt by the Borrower or any Insurance Subsidiary from any Governmental Authority or Insurance Regulatory Authority of a notice of any actual or threatened suspension, limitation or revocation of, failure to renew, or imposition of any restraining order, escrow or impoundment of funds in connection with, any license, permit, accreditation or authorization of any Subsidiary, if the relevant action would be reasonably likely to have a Material Adverse Effect; (iii)the occurrence of any actual changes in any insurance statute or regulation governing the investment or dividend practices of any Insurance Subsidiary that would be reasonably likely to have a Material Adverse Effect; (iv) the occurrence of any material amendment or modification (other than expiration) of any Reinsurance Agreement (whether entered into before or after the date of this Agreement), including any such agreements that are in a runoff mode on the date of this Agreement, if the amendment or modification would be reasonably likely to have a Material Adverse Effect; (v) the receipt by any Insurance Subsidiary of any written notice of denial of coverage or claim, litigation or arbitration with respect to any Reinsurance Agreement to which it is a ceding party, if the circumstances would be reasonably likely to have a Material Adverse Effect; (vi) any other matter or event that has, or would be reasonably likely to have, a Material Adverse Effect. 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy, and cause each Subsidiary to pay, discharge or otherwise satisfy, at or before maturity or before they become delinquent, as the case may be, all taxes, fees or other charges imposed on it or on any of its properties by any Governmental Authority and all its other material obligations of whatever nature, except, in each case, where the amount or validity thereof is currently being diligently contested in good faith and reserves in conformity with GAAP or, if applicable, SAP, with respect thereto have been provided on the books of the Borrower or the relevant Subsidiary, as the case may be. 5.4 Maintenance of Existence. Continue and cause each Subsidiary to continue to engage only in a business of the same type as is conducted by it on the date of this Agreement; and renew and keep in full force and effect, and cause each Subsidiary to renew and keep in full force and effect, its corporate existence, and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business except to the extent such failure to maintain could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, be reasonably expected to have a Material Adverse Effect. 5.5 Maintenance of Property; Insurance. Keep and cause each Subsidiary to keep all property useful and necessary in its business in good working order and condition (ordinary wear and tear, and casualties, excepted), maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business, and furnish to each Lender, upon request, full information as to the insurance carried including certified copies of policies and certificates of insurance from a recognized insurance broker. 5.6 Inspection of Property; Books and Records; Discussions. ---------- -- --------- ----- --- -------- ------------ Keep and cause each Subsidiary to keep proper books of records and account, in which full, true and correct entries in conformity with GAAP (or, where applicable, in conformity with SAP) and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit, and cause each Subsidiary to permit, after reasonable notice, representatives of the Administrative Agent or any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Borrower and each Subsidiary with officers and employees of the Borrower and that Subsidiary and with their independent certified public accountants so long as such actions do not materially interfere with the operations of the Borrower or any of its Subsidiaries. 5.7 Other Notices (a) . (a) Promptly after the Borrower or any Subsidiary knows and, in any event, within 5 days after the Borrower or the relevant Subsidiary knows with respect to any notice under clause (i) or within 10 days with respect to any other notice under this Section 5.7(a), give notice to the Administrative Agent and each Lender of: (i) the occurrence of any Default or Event of Default; (ii) any (A) default or event of default under any Contractual Obligation of the Borrower or any Subsidiary, or (B) litigation, investigation or proceeding which may exist at any time between the Borrower or any Subsidiary and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (iii)any litigation, investigation or proceeding of the type referred to in Section 3.6(b); (iv) any material labor dispute to which the Borrower or any Subsidiary may become a party and which involves any group of employees, any strikes or walkouts relating to any of its facilities and the expiration or termination of any labor contract to which the Borrower or a Subsidiary is a party or by which the Borrower or a Subsidiary is bound, if the dispute could reasonably be expected to materially disrupt the operations of the Borrower or a Subsidiary; (v) any Reportable Event or Prohibited Transaction that the Borrower or any Subsidiary knows or has reason to know has occurred with respect to any Plan, or receipt by the Borrower or any Subsidiary of notice that the PBGC has instituted or will institute proceedings under Title IV of ERISA to terminate any Plan. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower or the relevant Subsidiary has taken or proposes to take with respect thereto. For the purposes of this Section 5.7(a), the Borrower shall be deemed to have knowledge when any officer of the Borrower charged with responsibility for any matter that is the subject of such notice requirement knows that such notice was required. 5.8 Environmental Laws (a) . (a) Comply and cause the Subsidiaries to comply in all material respects with all applicable Environmental Laws and obtain and comply and cause the Subsidiaries to obtain and comply in all material respects with and maintain and cause the Subsidiaries to maintain any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so could not be reasonably expected to have a Material Adverse Effect. (b) Conduct and complete and cause the Subsidiaries to conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not be reasonably expected to have a Material Adverse Effect. (c) Defend, indemnify and hold harmless, and cause the Subsidiaries to defend, indemnify and hold harmless, the Administrative Agent and the Lenders, and their respective parents, subsidiaries, affiliates, employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any Environmental Laws applicable to the Business of any Subsidiary or the Properties (as defined in Section 3.16), or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. This indemnity shall continue in full force and effect regardless of the termination of this Agreement. 5.9 ERISA. Establish, maintain and operate and cause each Subsidiary to establish, maintain and operate all Plans to comply in all material respects with the applicable provisions of ERISA, the Code, and all other applicable laws, and the regulations and interpretations thereunder and the respective requirements of the governing documents for such Plans except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect. 5.10 Use of Proceeds. Use the proceeds of each Loan solely for the purposes specified in Section 3.15. 5.11 Margin Stock. Not permit the aggregate value of margin stock (as defined in Regulation U) at any time owned or held by the Borrower or any Subsidiary to exceed an amount equal to 25% of the value of all consolidated assets subject at such time to any "arrangement" (as such term is used in the definition of "indirectly secured" in Section 221.2 of Regulation U). 5.12 Maintain Ownership of Insurance Businesses. Maintain direct or indirect ownership of all of the issued and outstanding Capital Stock of each Insurance Subsidiary. 5.13 Fees. (a) On the earlier of the Maturity Date and the date on which a Change in Control occurs, pay to the Administrative Agent for distribution by it among the Administrative Agent and the Lenders in such proportions as they shall separately have agreed a facility fee in the amount of $1,500,000.00. For this purpose, "Change in Control" means the acquisition, directly or indirectly, beneficially or of record, by any Person or group (within the meaning given to that term in the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date of this Agreement) other than CSFBM or any of its Affiliates of shares representing more than 50% of the aggregate voting power for the election of directors of the issued and outstanding Capital Stock of the Borrower. 5.14 Pledge Agreement. Comply in a timely manner with all obligations of the Borrower under the Pledge Agreement, and cause each Subsidiary that issues a surplus note purchased with the proceeds of any Loan or identified in the Pledge Agreement as a Company, to deliver to the Administrative Agent an acknowledgment of and consent to the Pledge Agreement, executed by a Responsible Officer of that Subsidiary. 5.15 Relief From Automatic Stay in Bankruptcy (a) . (a) Upon the occurrence of an Event of Default under subparagraph (g)(i), (ii), (iii) or (iv) of Section 7.1, deliver, and cause each of its Subsidiaries, to immediately, upon request therefor by the Administrative Agent, deliver to the Administrative Agent its written consent to the entry of an order modifying the automatic stay provided for under 11 U.S.C. Section 362(a) (including any similar or analogous provision under applicable state law, whether automatic or imposed by court order at the request of an Insurance Regulatory Authority or otherwise (the "Stay")) to the extent necessary to permit the Administrative Agent to exercise and enforce any and all rights and remedies that the Administrative Agent has under the Loan Documents and applicable law. (b) Not seek, apply for or cause, and not permit any Subsidiary to seek, apply for or cause, the entry of any order enjoining, staying or otherwise interfering with the exercise and enforcement of any of the Administrative Agent's rights or remedies under the Loan Documents and applicable law after the Stay shall have been modified under the circumstances contemplated under subparagraph (a) of this Section 5.15 or otherwise. (c) Acknowledge and cause each of its Subsidiaries to acknowledge the exigent circumstances surrounding the execution and delivery of the Loan Documents and the making of the Loans, that the inclusion of this Section 5.15 in this Agreement and provision of the relief contemplated hereby is a material inducement to the making of the Loans and that the occurrence of an Event of Default under subparagraph (g)(i), (ii), (iii) or (iv) of Section 7.1 of this Agreement would constitute "cause" within the meaning of the Stay as imposed under 11 U.S.C. Section 362(a). 5.16 Application of Capital Contributions. Cause and permit FLICA or any other Insurance Subsidiary that receives a capital contribution made with the proceeds of any Loan to use the capital contribution solely for the purpose of preventing statutory surplus from ceasing to meet any applicable Requirements of Law which, if not met, could result in an event of a kind specified in Section 7.1(g)(iii). 5.17 [Reserved](a) ---------- 5.18 [Reserved](a) ---------- ARTICLE 6. NEGATIVE COVENANTS So long as the Commitments remain in effect, any Note remains outstanding and unpaid or any Obligation is owing to any Lender or the Administrative Agent hereunder, the Borrower shall not: 6.1 Financial Covenants (a) . (a) Minimum Net Worth. Permit Consolidated GAAP Net Worth as of the last day of any fiscal quarter to be less than an amount equal to the sum of (i) $31,000,000 plus (ii) 50% of any cumulative positive Net Income of the Borrower and its Subsidiaries for each fiscal quarter following the fiscal quarter ended December 31, 2000 plus (c) deferred revenues as of the end of the most recent fiscal quarter. (b) Funded Debt. Permit the Funded Debt Ratio as of the last day of any fiscal quarter of the Borrower to exceed 0.65 to 1.0, determined on a consolidated basis for the Borrower and its Subsidiaries. (c) RBC Ratio. Permit the RBC Ratio of any Insurance Subsidiary other than National Financial Insurance Company or Pacific Casualty Company, Inc. to be less than 105% at any time. If, after the date of this Agreement, there is any change that affects any State's calculation or interpretation of the RBC Ratio, (i) the Borrower and the Lenders will enter into good faith negotiations to amend this Agreement in such respects as are necessary to conform this paragraph as a measurement of the sufficiency of the risk-based capital of each Insurance Subsidiary to substantially the same measurement as was effective before that change and (ii) the Borrower will be deemed to be in compliance with this paragraph during period of 60 days beginning on the effective date of the change if and to the extent that it would have been in compliance with this paragraph if the change had not occurred and the calculation and interpretation of the RBC Ratio within the context of this paragraph were being determined on the basis of its calculation and interpretation as in effect immediately prior to the change. (d) Minimum Statutory Surplus of Insurance Subsidiaries. Permit the Statutory Capital and Surplus of any Insurance Subsidiary as of the last day of any fiscal quarter to be less than the Minimum Statutory Surplus Requirement for that Insurance Subsidiary, as specified in Exhibit G. 6.2 Limitation on Fundamental Changes. Enter into or permit any Subsidiary to enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all its property, business or assets, except that any Wholly Owned Subsidiary may be merged or consolidated with or into, or make such a transfer to, another Wholly Owned Subsidiary, or with or to the Borrower, if, as of the consummation of, and after giving effect to, the merger or consolidation, no Event of Default would occur and, in the case of a merger or consolidation or transfer involving the Borrower, the Borrower is the entity that survives the merger, consolidation or transfer. 6.3 Limitation on Transactions with Affiliates. Enter into or, except for any transaction provided for in any of the Receivables Financing Agreements identified in Schedule 6.3, permit any Subsidiary to enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate or any other Person that owns 5% or more of the outstanding Capital Stock of the first Person, unless the transaction is (a) between or among the Borrower and one or more of its Wholly Owned Subsidiaries or between or among Wholly Owned Subsidiaries of the Borrower or (b) is on fair and reasonable terms that are at least as favorable to the Borrower and its Subsidiaries as would be obtained in a comparable arm's length transaction between unrelated Persons of equal bargaining power. 6.4 Limitation on Liens (a) . Except as contemplated in this Agreement and the Security Documents, create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Lien upon any of its properties, assets or revenues, whether now owned or hereafter acquired, except for the following (each of which is a "Permitted Lien"): (a) inchoate Liens for taxes, assessments or other governmental charges or levies or Liens for taxes, assessments, governmental charges or levies not yet due or which are being contested in good faith by appropriate proceedings, but only if adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as relevant, in conformity with GAAP; (b) Liens imposed by law in the nature of carriers', warehousemen's, mechanics', materialmen's or similar Liens arising, and securing obligations incurred, in the ordinary course of business which are not overdue for more than 45 days or which are being contested in good faith by appropriate proceedings, if appropriate reserves with respect thereto are maintained in accordance with GAAP; (c) pledges or deposits under workers' compensation, unemployment insurance and other social security legislation (other than ERISA); (d) any attachment or judgment Lien arising in connection with court proceedings, but only if (1) the execution or other enforcement of the relevant Lien is effectively stayed and claims secured thereby are being actively contested in good faith and by appropriate proceedings and (2) the Lien (together with other Liens) has not given rise to an Event of Default under Section 7.1(h); (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and landlords' Liens which, in the aggregate and individually, do not materially detract from the value of the property subject thereto or materially interfere with the occupation, use and enjoyment by the Borrower or any of its Subsidiaries of the property subject thereto in the normal course of business; (f) Liens existing on the date hereof to the extent disclosed in Schedule 3.8; and (g) the Liens created in and pursuant to the Security Documents. 6.5 Hedging Arrangements. Enter into, or permit any Subsidiary to enter into, any Hedging Arrangement providing for the transfer or mitigation of interest rate risk relating to the Loans either generally or under specific contingencies, except on terms that are reasonably acceptable to the Lenders. 6.6 Limitation on Guaranties. Create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Guaranty except: (a) Guaranties existing on the date of this Agreement, to the extent identified in Schedule 6.6; and (b) Guaranties by the Borrower of Indebtedness and other obligations of its Subsidiaries, and by Subsidiaries of Indebtedness and other obligations of other Subsidiaries and the Borrower, in each case to the extent that Indebtedness is permitted under this Agreement. 6.7 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or otherwise dispose of, or, except for a transaction of a kind described in Schedule 6.7, permit any Subsidiary to convey, sell, lease, assign, transfer or otherwise dispose of any of, its property, business or assets (including, without limitation, tax benefits, receivables and leasehold interests), whether now owned or hereafter acquired except for (a) the sale or other disposition of any property that, in the reasonable judgment of the Borrower, has become uneconomic, obsolete or worn out, and which is disposed of in the ordinary course of business; and (b) reinsurance, sales of inventory and receivables made in the ordinary course of business. 6.8 Limitation on Investments, Loans and Advances. Make any advances or permit any Subsidiary to make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of, or make any other investment in, any Person except for (a) the Permitted Investments, (b) a transaction of a kind described in Schedule 6.7, or (c) an investment permitted by section 6.5 ("Investment Grade Assets") of the Guaranty Agreement identified as item 1 of Schedule 6.6 as amended through and including the date of this Agreement. 6.9 Limitations Relating to Stock of Subsidiaries, Dividends and Stock Repurchases. Except as contemplated in this Agreement: (a) transfer, convey, sell or otherwise dispose of any shares of Capital Stock of any Insurance Subsidiary or permit any Insurance Subsidiary to issue any additional shares of its capital stock to any Person other than the Borrower or any Subsidiary; or (b) permit any Subsidiary to declare any dividends on any shares of any class of Capital Stock or to make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement or other acquisition of any shares of any class of Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any of its Subsidiaries (all of the foregoing being referred to herein as "Restricted Payments"); except that: (i) Subsidiaries may pay dividends directly or indirectly to the Borrower or to Wholly Owned Subsidiaries of the Borrower; (ii) Subsidiaries may pay dividends directly or indirectly to the Borrower or other Subsidiaries and each other owner of an equity interest in such Subsidiary on a pro rata basis based on their relative ownership interests; and (iii) the Borrower may make Restricted Payments on or with respect to its Capital Stock so long as, after giving effect to those Restricted Payments, no Default or Event of Default shall have occurred and be continuing or shall result therefrom. (c) Except for any shares of Capital Stock of a Subsidiary identified in Schedule 3.8 as subject to a Lien that exists on the date of this Agreement and is a Permitted Lien, permit any Subsidiary to issue any shares of Capital Stock that are not "certificated securities" (as defined in ss. 8-102 of the Uniform Commercial Code as in effect in the State of New York on the date hereof) and are not pledged to the Administrative Agent pursuant to the Pledge Agreement to the extent required hereunder or thereunder or (B) permit any Subsidiary to issue any shares of preferred stock. 6.10 Limitation on Indebtedness. Create, incur, issue, assume or suffer to exist, or permit any Subsidiary to create, incur, issue, assume or suffer to exist or permit any of its Subsidiaries to create, incur, issue, assume or suffer to exist, any Indebtedness or any Mandatory Redeemable Stock (as defined below) or preferred stock, except: (a) Indebtedness of the Borrower under this Agreement and under the Notes; (b) Indebtedness of the Borrower under the agreements and instruments listed in Schedule 3.23 in a maximum principal amount equal to the commitments of the lenders thereunder as in effect on the date of this Agreement, or (if applicable) increased to the extent specified as permitted in Schedule 3.23; (c) Indebtedness and Mandatory Redeemable Stock outstanding on the date of this Agreement and any additional shares of Series A preferred stock issuable as dividends in accordance with the terms of that Mandatory Redeemable Stock as in effect on the date of this Agreement; and (d) Surplus notes of an Insurance Subsidiary which are purchased by the Borrower with the proceeds of the Loans in accordance with this Agreement and pledged pursuant to the Pledge Agreement. For this purpose, "Mandatory Redeemable Stock" means, with respect to any Person, any share of that Person's Capital Stock, to the extent that it is (i) redeemable, payable or required to be purchased or otherwise retired or extinguished, or convertible into any Indebtedness or other liability, obligation, covenant or duty of or binding upon, or any term or condition to be observed by or binding upon such Person or any of its assets, (A) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (B) at the option of any other Person or (C) upon the occurrence of a condition not solely within the control of that Person such as a redemption required to be made utilizing future earnings or (ii) convertible into Capital Stock which has the features set forth in clause (i). 6.11 Limitation on Capital Expenditures. Make or permit any Subsidiary to make any Capital Expenditure, except as contemplated in Schedule 6.11. 6.12 Limitation on Negative Pledge Clauses; Payment Restrictions. Enter into or suffer to exist, or permit any Subsidiary to enter into or suffer to exist, any agreement or other consensual encumbrance or restriction that (i) prohibits or limits the ability of the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, or (ii) prohibits or limits the ability of the Borrower or any of its Subsidiaries to make payments or dividends to or investments in the Borrower or any of its Subsidiaries, other than (a) this Agreement, (b) the agreements containing such restrictions that exist on the date of this Agreement, as identified in Schedule 3.20 or Schedule 3.23, (c) purchase money mortgages or Capital Leases permitted by this Agreement (in which cases, any prohibition or limitation shall only be effective against the assets financed thereby) or (d) any other Contractual Obligation which prohibits the assignment of that Contractual Obligation, or the property that is the subject of that Contractual Obligation (in which case, any prohibition or limitation shall only be effective against such Contractual Obligation or the property that is the subject of such Contractual Obligation). 6.13 Limitation on Businesses. Enter into or engage in any business, either directly or through any Subsidiary, except for businesses of the same general type as those in which the Borrower and its Subsidiaries are engaged on the date hereof or other business activities reasonably incidental or related to any of the foregoing. 6.14 Limitation on Certain Prepayments and Amendments. Make or permit any Subsidiary to make, any optional payment or prepayment on or redemption, defeasance or purchase of any Debt for Borrowed Money (other than with respect to (i) Indebtedness hereunder or under the Notes, (ii) Indebtedness under the Contractual Obligations identified in items 1-6 of Schedule 3.23, and (iii) any Indebtedness to the extent that Indebtedness by the terms thereof would otherwise have become due and payable within three months of such payment, redemption, defeasance or purchase); or amend, modify or change, or consent to any amendment, modification or change to any of the terms relating to the payment or prepayment of principal of or interest on, any such Indebtedness, other than any amendment, modification or change which would extend the maturity or reduce the amount of any payment or prepayment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon or which would not be adverse to the Lenders. ARTICLE 7. EVENTS OF DEFAULT 7.1 Events of Default. If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan or the fee payable pursuant to Section 5.13 when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder or any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by the Borrower herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Borrower shall default in the observance or performance of any agreements contained in Article 6 or in Section 5.4, Section 5.6, Section 5.7(a), Section 5.10, Section 5.12 or Section 5.16; or (d) The Borrower or any Subsidiary shall default in the observance or performance of any of its agreements contained any of the Security Documents or any of the Security Documents shall cease or fail for any reason to constitute a first priority Lien on any of the "Pledged Collateral" or "Collateral" referred to therein for any reason other than the inability of the Borrower, using its best efforts, to obtain any authorization from an Insurance Regulatory Authority that is required to enable the Borrower to create or perfect the Lien contemplated in any of the Security Documents; or (e) The Borrower shall default in the observance or performance of any other agreement contained in this Agreement and such default shall continue unremedied for a period of 30 days; or (f) The Borrower or any Subsidiary shall (i) default in any payment (regardless of amount) of principal of or interest on any Indebtedness having an aggregate principal amount in excess of $20,000,000 (other than the Notes) beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness is incurred or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or Administrative Agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice, if required, such Indebtedness to become due prior to its stated maturity; or (iii) any combination of defaults referred to in clauses (i) and (ii) of this paragraph in the aggregate involve Indebtedness in excess of $20,000,000; or (g) (i) The Borrower or any Subsidiary shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or un-bonded for a period of 60 days; or (iii) any Insurance Regulatory Authority applies for an order pursuant to any section of the applicable insurance code, directing the rehabilitation, conservation or liquidation of any Insurance Subsidiary, and any such application shall not be dismissed or otherwise terminated during a period of sixty (60) consecutive days, or a court of competent jurisdiction shall enter an order granting the relief sought; or (iv) any Insurance Regulatory Authority files a complaint or petition pursuant to any applicable insurance code seeking the dissolution of any Insurance Subsidiary, and any such complaint or petition is not dismissed or otherwise terminated for a period of sixty (60) consecutive days, or a court of competent jurisdiction shall order the dissolution of any Insurance Subsidiary; or, (v) there shall be commenced against the Borrower or any Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distrait or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (vi) the Borrower or any Subsidiary shall take any action to authorize or approve of, or in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), (iii), (iv) or (v) above; or (vii) the Borrower or any Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (h) (i) Any Person shall engage in any Prohibited Transaction involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Single Employer Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower, any Subsidiary or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (i) One or more judgments or decrees shall be entered against the Borrower or any Subsidiary involving in the aggregate a liability (to the extent not covered by third-party insurance as to which the insurer has acknowledged coverage) of $5,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; then, and in any such event, (A) if such event is an Event of Default specified in clause (i), (ii), (iii) or (iv) of paragraph (g) above with respect to the Borrower or any Subsidiary, the Commitment shall automatically and immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, by notice to the Borrower, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. ARTICLE 8. THE ADMINISTRATIVE AGENT 8.1 Appointment. Each Lender hereby irrevocably designates and appoints CSFBM as Administrative Agent of such Lender under this Agreement and the other Loan Documents. Each Lender irrevocably authorizes CSFBM, as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 8.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to rely on the advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties, made by the Borrower or any officer or any of them contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or any other Loan Document or for the value of any "Collateral" or "Pledged Collateral" under (and as defined in) the Guaranty and Security Agreement or the Pledge Agreement or any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower or any Subsidiary. 8.4 Reliance by Administrative Agent . The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes and the other Loan Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. 8.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower and the Subsidiaries. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder or furnished to the Administrative Agent for the account of, or with a counterpart or copy for, each Lender, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower or any Subsidiary which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 8.7 Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the joint and several obligation of the Borrower to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their Commitment Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Obligations hereunder. 8.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower and any Subsidiary as though the Administrative Agent were not an Administrative Agent hereunder and under the other Loan Documents. With respect to Loans made by it and any Note issued to it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 8.9 Successor Administrative Agent . The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If the Administrative Agent resigns as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall, with the consent of the Borrower (which consent shall not be unreasonably withheld and shall not be required if an Event of Default shall have occurred that is continuing) appoint a successor administrative agent, whereupon the successor administrative agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean that successor Administrative Agent effective upon its appointment and approval as provided above, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of that former Administrative Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring or terminated Administrative Agent's resignation or termination, as the case may be, as Administrative Agent, the provisions of this Section shall inure to its benefit as to any actions taken or omitted by it while it was Administrative Agent under this Agreement and the other Loan Documents. 8.10 Intercreditor Agreement. Each Lender hereby irrevocably instructs the Administrative Agent to enter into the Intercreditor Agreement on behalf of that Lender and to take and refrain from taking all actions provided for therein in accordance with the terms of that agreement. Each Lender confirms that it is bound by the terms of the Intercreditor Agreement, acknowledging that they provide for the subordination of such Lender's claims hereunder and under the other Loan Documents to certain claims of LaSalle Bank National Association identified in the Intercreditor Agreement. ARTICLE 9. MISCELLANEOUS 9.1 Amendments and Waivers. This Agreement, the Notes and the other Loan Documents may not be amended, supplemented or modified except in accordance with the provisions of this Section. The Required Lenders may, or, with the written consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into written amendments, supplements or modifications hereto with the Borrower for the purpose of adding any provisions to this Agreement or changing in any manner the rights of the Lenders or of the Borrower hereunder, (b) enter into written amendments, supplements or modifications to the Notes and the other Loan Documents with the Borrower for the purpose of adding provisions to the Notes or such other Loan Documents or changing in any manner the rights of the Lenders or the Borrower thereunder or (c) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement, the Notes or the other Loan Documents or any Default or Event of Default and its consequences; provided that no such waiver and no such amendment, supplement or modification (i) shall reduce the amount or extend the scheduled date of maturity of any Note or of any installment thereof, or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitments, in each case, without the consent of all the Lenders, or (ii) shall amend, modify or waive any provision of this Section, or vary any provision of this Agreement or any other Loan Document which specifically by its terms requires the approval or consent of all the Lenders or reduce the percentage specified in the definition of Required Lenders, or consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, the Notes and the other Loan Documents, in each case, without the written consent of all the Lenders, or (iii) shall amend, modify or waive any provision of Article 8 without the written consent of the then Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrower, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Notes and any other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. 9.2 Notice. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or, in the case of notice by mail, when received, or, in the case of telecopy notice, when received, addressed as follows or, if addressed to a Lender, to its address specified in Schedule I or, in any case, to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Borrower: Ascent Assurance, Inc. 110 W. 7th St., Suite 300 Fort Worth, TX 76102 Attention: President Telecopy: (817) 878-3672 The Administrative Agent: Credit Suisse First Boston Management Corporation 277 Park Avenue, 11th Floor New York, NY 10172 Attention: Mr. Alex Lagetko Ms. Donna P. Alderman Telecopy: (212) 325-8290 provided that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to Section 2.3, Section 2.5, Section 2.8, Section 2.9, Section 2.10 or Section 2.15 shall not be effective until received. 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 9.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans hereunder. 9.5 Payment of Expenses and Taxes; Indemnification. The Borrower shall (a) promptly upon written request, pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Notes and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent, (b) pay or reimburse the Administrative Agent and each Lender for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the other Loan Documents and any such other documents, including, without limitation, the fees and disbursements of counsel to the Administrative Agent and each Lender, and (c) pay, indemnify and hold harmless the Administrative Agent and each Lender from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes, the other Loan Documents and any such other documents, and (d) pay, and indemnify and hold harmless the Administrative Agent and each Lender (including each of their respective parents, subsidiaries, officers, directors, employees, agents and affiliates) from and against, any and all other claims, demands, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, settlements, expenses or disbursements of whatever kind or nature arising from, in connection with or with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the Notes, the other Loan Documents, or any other documents or the use of the proceeds of the Loans or any other purpose (all the foregoing in this clause (d), collectively, the "indemnified liabilities"); provided that the Borrower shall not have any obligation hereunder to any Lender with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Administrative Agent or that Lender. The agreements in this Section 9.5 shall survive repayment of the Obligations hereunder. 9.6 Successors and Assigns; Participations and Assignments (a) . (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Administrative Agent, the Arranger, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. If amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note; provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 9.7(a) as fully as if it were a Lender hereunder. Each Participant shall be entitled to the benefits of Section 2.10 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it were a Lender; provided that such Participant shall have complied with the requirements of said Section and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time and from time to time may assign to any Lender or any affiliate thereof with the consent of the Administrative Agent, or, with the consent of the Borrower (so long as no Event of Default shall have occurred which is continuing) and the Administrative Agent (which consent, in the case of either the Borrower or the Administrative Agent, shall not be unreasonably withheld), to another Person (an "Assignee") all or any part of its rights and obligations under this Agreement and the Notes pursuant to a supplement substantially in the form of Exhibit D (a "Commitment Transfer Supplement"), executed by that Assignee, the assigning Lender and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Borrower and the Administrative Agent and delivered to the Administrative Agent for its acceptance and recording in the Register; provided that, after giving effect to any such assignment, the assigning Lender shall have either (x) sold all its rights and obligations hereunder and under the Notes or (y) retained at least $1,000,000 of the aggregate Commitment. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Commitment Transfer Supplement, (1) the Assignee thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein and (2) the assigning Lender thereunder, to the extent provided in such Commitment Transfer Supplement, shall be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto; provided that the provisions of Section 2.10, Section 2.11 and Section 9.5 shall continue to benefit the assigning Lender to the extent required by such Sections). (d) The Administrative Agent shall maintain, at its address referred to in Section 9.2, a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of any Assignees and the Commitment of, and principal amount of the Loans owing to, any Assignees from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower and the Administrative Agent may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrower at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a Commitment Transfer Supplement executed by the assigning Lender, an Assignee (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Borrower and the Administrative Agent ) and the Borrower together with payment by the assigning Lender or by the Assignee to the Administrative Agent of a registration and processing fee of $3,500, the Administrative Agent shall promptly accept such Commitment Transfer Supplement and, on the effective date determined pursuant thereto, shall record the information contained therein in the Register and give notice of such acceptance and recordation to the Borrower. On or prior to such effective date, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent (in exchange for the Note of the assigning Lender) a new Note to the order of such Assignee in an amount equal to the Commitment, assumed by such Assignee pursuant to such Commitment Transfer Supplement and, if the assigning Lender has retained a Commitment, a new Note to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Notes replaced thereby. (f) The Borrower authorizes the Lenders to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee, any and all financial information in the Lenders' possession concerning the Borrower and its Affiliates which has been delivered to the Administrative Agent or the Lenders by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to the Administrative Agent or the Lenders by or on behalf of the Borrower in connection with the Lender's credit evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement; provided that each such Transferee and prospective Transferee agrees in writing to be bound by the provisions of Section 9.8. (g) Nothing herein shall prohibit any Lender from pledging or assigning any Note to any Federal Reserve Bank in accordance with applicable law. 9.7 Adjustments; Setoff (a) . (a) If any Lender (a "Benefited Lender") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, pursuant to events or proceedings of the nature referred to in Section 7.1(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans, or interest thereon, such Benefited Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right (without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law), upon any amount becoming due and payable by the Borrower hereunder or under the Notes (whether at the stated maturity, by acceleration or otherwise), to setoff and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender; provided that the failure to give such notice shall not affect the validity of such setoff and application. 9.8 Confidentiality. Each Lender agrees to exercise all reasonable efforts (consistent with its customary methods for keeping information confidential) to keep any information delivered or made available by the Borrower confidential from anyone other than persons employed or retained by such Lender who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided that nothing herein shall prevent any Lender from disclosing such information (a) to any Affiliate of such Lender or to any other Lender, (b) upon the order of any court or administrative agency, (c) upon the request or demand of any regulatory agency or authority having jurisdiction over such Lender, (d) that has been publicly disclosed, (e) in connection with any litigation relating to the Loans, this Agreement or any transaction contemplated hereby to which any Lender or the Administrative Agent may be a party, (f) to the extent reasonably required in connection with the exercise of any remedy hereunder, (g) to such Lender's legal counsel and independent auditors, and (h) to any actual or proposed participant or assignee of all or any part of its Loans hereunder, if such other Person, prior to such disclosure, agrees, in writing, for the benefit of the Borrower to comply with the provisions of this Section 9.8. 9.9 Effectiveness. This Agreement shall become effective on the date when counterparts hereof executed on behalf of the Borrower, the Administrative Agent and each Lender shall have been received by the Administrative Agent and notice thereof shall have been given by the Administrative Agent to the Borrower. 9.10 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with each of the Borrower and the Administrative Agent. 9.11 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective 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. 9.12 Integration. This Agreement and the other Loan Documents represent the agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof and thereof. 9.13 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK. 9.14 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower, as the case may be, at its address set forth in Section 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing contained herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 9.15 Acknowledgments. Each of the parties hereby acknowledges that: (a) Neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Administrative Agent and the Lenders, on the one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of creditor and debtor; (b) the Arranger has no obligations under this Agreement or any of the other Loan Documents and has no fiduciary relationship with or duty to the Borrower, the Lenders or the Administrative Agent arising out of or in connection with this Agreement or any of the other Loan Documents; and the Arranger shall be entitled to the benefit of the provisions set forth in Section 8.3, Section 8.6 and Section 8.7 as if references in each such Section to the Administrative Agent were references to the Arranger; provided, however, that the extension of those benefits to the Arranger shall not be deemed to give rise to any implication that the Arranger has any obligations under this Agreement; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby between the Administrative Agent, the Lenders and the Borrower. 9.16 Waivers of Jury Trial. THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. BORROWER: ASCENT ASSURANCE, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman Account for Disbursement of Loans: ADMINISTRATIVE AGENT AND ARRANGER: CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION By: /s/Donna P. Alderman Name: Donna P. Alderman Title: Director By: /s/Donna P. Alderman Name: Donna P. Alderman Title: Director LENDERS: CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION By: /s/Donna P. Alderman Name: Donna P. Alderman Title: Director SCHEDULE I LENDING OFFICES OF LENDER AND COMMITMENTS Lenders and Addresses Commitments Commitment Commitment Percentage Credit Suisse First Boston Management Corporation $11,000,000 100% 277 Park Avenue, 11th Floor New York, NY 10172 EXHIBIT A-1 TO CREDIT AGREEMENT FORM OF NOTE $ * New York, New York ------------------ April ( ), 2001 FOR VALUE RECEIVED, the undersigned promises to pay to the order of _________________ (the "Lender"), the principal amount of _____________ DOLLARS ($____________) or such lesser aggregate principal amount of the Loans of the Lender that may be outstanding from time to time under the Credit Agreement referred to below, payable as hereinafter set forth. The undersigned promises to pay interest on the principal amount hereof remaining unpaid from time to time from the date hereof until the date of payment in full, payable as hereinafter set forth. Reference is made to the Agreement dated as of April 17, 2001 (as it may be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") among Ascent Assurance, Inc., a Delaware corporation, as borrower, Credit Suisse First Boston Management Corporation, as Administrative Agent (in that capacity, the "Administrative Agent") and Arranger, and the Lenders from time to time party thereto. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings given those terms in the Credit Agreement. This is one of the Notes referred to in the Credit Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Credit Agreement as originally executed or as it may from time to time be supplemented, modified or amended. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof, and the optional and mandatory prepayment in whole or in part hereof, upon the happening of certain stated events upon the terms and conditions therein specified. This Note is secured by Collateral and Pledged Collateral as more fully set forth in the Security Documents. The outstanding principal indebtedness evidenced by this Note shall be payable as provided in the Credit Agreement and in any event on the Maturity Date. Interest shall be payable hereunder on the outstanding daily unpaid principal amount of each Loan hereunder, and, to the extent permitted by applicable law, on any unpaid interest payable hereon, from the date that Loan is made or, in the case of interest, from the date it falls due, shall accrue at the rate of 12% per annum and shall be payable on the dates set forth in the Credit Agreement until each such amount of principal and interest is paid in full (both before and after judgment). The amount of each payment due hereunder shall be made to the Administrative Agent at the Administrative Agent's Office for the account of the Lender in immediately available funds not later than 12:00 noon (New York City time) on the day the payment is due. All payments received after 12:00 noon (New York City time) on any particular Business Day shall be deemed received on the next succeeding Business Day. All payments shall be made in lawful money of the United States of America, provided however, that interest hereon may be paid in the form of PIK Interest Notes in the circumstances permitted in the Credit Agreement. The holder of this Note is authorized to record the date and amount of each Loan of the Lender and the date and amount of each payment or prepayment of principal thereof on the schedules annexed hereto and made a part hereof, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded absent manifest error; provided that the failure of the holder to make such recordation (or any error in such recordation) shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. The undersigned hereby promises to pay all reasonable costs and expenses of any rightful holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of such holder's rights hereunder, including reasonable attorneys' fees and disbursements as contemplated in the Credit Agreement, whether or not an action is filed in connection therewith. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and (except to the extent expressly required in the Credit Agreement) any other notice or formality, to the fullest extent permitted by applicable laws. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). ASCENT ASSURANCE, INC. By: ----------------------------------------- Name: Title: Schedule to Note LOANS AND PAYMENTS
======================= ============================ ============================= ============================ ============== Date Amount of Loan Made Amount of Principal Repaid Unpaid Amount of Principal Notation or Prepaid Made by - ----------------------- ---------------------------- ----------------------------- ---------------------------- -------------- - ----------------------- ---------------------------- ----------------------------- ---------------------------- -------------- - ----------------------- ---------------------------- ----------------------------- ---------------------------- -------------- - ----------------------- ---------------------------- ----------------------------- ---------------------------- -------------- - ----------------------- ---------------------------- ----------------------------- ---------------------------- -------------- ======================= ============================ ============================= ============================ ==============
EXHIBIT A-2 TO CREDIT AGREEMENT FORM OF PIK INTEREST NOTE $* New York, New York April [ ], 2001 FOR VALUE RECEIVED, the undersigned promises to pay to the order of _________________ (the "Lender"), the principal amount of ($ ) or such lesser amount as equals the aggregate outstanding amount of PIK Interest (as defined in the Credit Agreement referred to below) that has been paid through its conversion to the principal amount of a Loan of the Lender pursuant to Section 2.6(d) of the Credit Agreement, payable as hereinafter set forth. The undersigned promises to pay interest on each amount of PIK Interest that remains unpaid from time to time from the date such amount of PIK Interest becomes principal as provided in Section 2.6(d) of the Credit Agreement (the "Increase Date" for such PIK Interest) until the date of payment in full, payable as hereinafter set forth. Reference is made to the Credit Agreement dated as of April 17, 2001 (as it may be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") among Ascent Assurance, Inc., a Delaware corporation, as borrower, Credit Suisse First Boston Management Corporation, as Administrative Agent (in that capacity, the "Administrative Agent") and Arranger, and the Lenders from time to time party thereto. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings given those terms in the Credit Agreement. This Note is one of the PIK Interest Notes and Notes referred to in the Credit Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Credit Agreement as originally executed or as it may from time to time be supplemented, modified or amended. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof, and the optional and mandatory prepayment in whole or in part hereof, upon the happening of certain stated events upon the terms and conditions therein specified. This Note has been issued to evidence interest paid in kind under the Credit Agreement, and all amounts due hereunder shall be treated as additional amounts of principal due in respect of the Loans of the Lender. This Note is secured by Collateral and Pledged Collateral as more fully set forth in the Security Documents. The outstanding principal indebtedness evidenced by this Note shall be payable as provided in the Credit Agreement and in any event on the Maturity Date. Interest shall be payable hereunder on the outstanding daily unpaid principal amount hereof, and, to the extent permitted by applicable law, on any unpaid interest payable hereon, from the Increase Date for such PIK Interest, shall accrue at the rate of 12% per annum and shall be payable dates set forth in the Credit Agreement until each such amount of principal and interest is paid in full (both before and after judgment). The amount of each payment due hereunder shall be made to the Administrative Agent at the Administrative Agent's Office for the account of the Lender in immediately available funds not later than 12:00 noon (New York City time) on the day the payment is due. All payments received after 12:00 noon (New York City time) on any particular Business Day shall be deemed received on the next succeeding Business Day. All payments shall be made in lawful money of the United States of America, provided however, that interest hereon may be paid in the form of PIK Interest Notes in the circumstances permitted in the Credit Agreement. The holder of this Note is authorized to record the date and amount of each of its Loans consisting of PIK Interest added to the principal hereof and the date and amount of each payment or prepayment of principal thereof on the schedules annexed hereto and made a part hereof, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded absent manifest error; provided that the failure of the holder to make such recordation (or any error in such recordation) shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. The undersigned hereby promises to pay all reasonable costs and expenses of any rightful holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of such holder's rights hereunder, including reasonable attorneys' fees and disbursements as contemplated in the Credit Agreement, whether or not an action is filed in connection therewith. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and (except to the extent expressly required in the Credit Agreement) any other notice or formality, to the fullest extent permitted by applicable laws. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). ASCENT ASSURANCE, INC. By: --------------------------------------- Name: Title: Schedule to Note LOANS AND PAYMENTS
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EXHIBIT B TO CREDIT AGREEMENT FORM OF NOTICE OF BORROWING To: Credit Suisse First Boston Management Corporation, as Administrative Agent under the Credit Agreement dated as of April 17, 2001 among Ascent Assurance, Inc., a Delaware corporation (the "Borrower"), the Lenders party thereto, the Administrative Agent and the Arranger thereunder (as amended from time to time, the "Credit Agreement"). Pursuant to Section 2.3 of the Credit Agreement, this Notice of Borrowing ("Notice") represents the request of Borrower to borrow on [ , ] (the "Borrowing Date")1 from the Lenders the principal amount of [$ ] in Loans to be used for the Borrower's [contribution of capital to] [purchase of surplus notes of] its Insurance Subsidiary, [name] (the "Subsidiary") as contemplated in the arrangements approved by the Lenders and the Administrative Agent on [ ]. Proceeds of such Loans are to be wire-transferred in accordance with the following wire instructions, which is the account of the Subsidiary to which the Borrower is required to deposit [that capital contribution] [the purchase price for those surplus notes]: [The Commitment on the Borrowing Date is $ .] The undersigned hereby certifies that, as of the Borrowing Date, all the applicable conditions contained in [Sections 4.1 and 4.2]2 [Section 4.2]3 of the Credit Agreement have been satisfied (or waived pursuant to Section 9.1 of the Credit Agreement). Unless otherwise defined herein, terms defined in the Credit Agreement have the same meanings in this Notice. Dated this ___ day of _______, ___. ASCENT ASSURANCE, INC. By: ------------------------------------- Name: Title: EXHIBIT C TO CREDIT AGREEMENT FORM OF CLOSING CERTIFICATE [ASCENT ASSURANCE, INC.] [NAME OF RELEVANT SUBSIDIARY]* Pursuant to Section 4.1(g) of the Credit Agreement dated as of April 17, 2001 among Ascent Assurance, Inc., a Delaware corporation, the several Lender parties thereto from time to time parties thereto, and Credit Suisse First Boston Management Corporation, as Administrative Agent and Arranger (the "Credit Agreement"), the undersigned (the "Company") hereby certifies as follows (using capitalized terms that are not otherwise defined herein with the meanings given to them in the Credit Agreement): 1. The representations and warranties of the Company set forth in each of the Loan Documents to which it is a party, or which are contained in any certificate, document or financial or other statement furnished by it pursuant to or in connection therewith or any such other document are true and correct in all material respects on and as of the date hereof with the same effect as if made on and as of the date hereof. 2. The Company has received all documents and instruments, including all consents, authorizations and filings, required or advisable under any Requirement of Law or Contractual Obligation of the Company in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents to which it is a party except as expressly set forth in each document. Attached hereto are copies of all consents, authorizations and filings referred to in [ ]**, which consents, authorizations and filings are in full force and effect as of the date hereof. 3. No Default or Event of Default has occurred and is continuing as of the date hereof or after giving effect to the making of the Loans on the date hereof. 4. There are no liquidation or dissolution proceedings pending or, to the Borrower's knowledge, threatened against the Borrower, nor has any other event occurred affecting or threatening the existence of the Borrower. IN WITNESS WHEREOF, the undersigned has hereunto set his name. [ASCENT ASSURANCE, INC.] [NAME OF SUBSIDIARY] By: --------------------------------------- Name: Title: Date: , 2001 --------------------- EXHIBIT D TO CREDIT AGREEMENT FORM OF COMMITMENT TRANSFER SUPPLEMENT COMMITMENT TRANSFER SUPPLEMENT, dated as of the date set forth in Item 1 of Schedule I hereto, among the Transferor Lender identified in Item 2 of Schedule I hereto (the "Transferor Lender"), each Purchasing Lender identified in Item 3 of Schedule I hereto (each, a "Purchasing Lender"), and Credit Suisse First Boston Management Corporation, as Administrative Agent for the Lenders under the Credit Agreement described below (in such capacity, the "Administrative Agent "). W I T N E S S E T H: - - - - - - - - - - WHEREAS, this Commitment Transfer Supplement is being executed and delivered in accordance with Section 9.6(c) of the Credit Agreement, dated as of April 17, 2001, among Ascent Assurance, Inc., a Delaware corporation (the "Borrower"), the Transferor Lender identified below and the other Lenders party thereto, Credit Suisse First Boston Management Corporation, as Administrative Agent and Arranger (as from time to time amended, supplemented or otherwise modified in accordance with the terms thereof, the "Credit Agreement"); WHEREAS, each Purchasing Lender (if it is not already a Lender party to the Credit Agreement) wishes to become a Lender party to the Credit Agreement; and WHEREAS, the Transferor Lender is selling and assigning to each Purchasing Lender its rights, obligations and commitments under the Credit Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows (using capitalized terms that are not otherwise defined herein with the meanings given to them in the Credit Agreement): 1. Upon receipt by the Administrative Agent of (i) a counterpart of this Commitment Transfer Supplement, to which is attached a fully completed Schedule I and Schedule II, and which has been executed by the Transferor Lender, each Purchasing Lender and any other person required by the Credit Agreement to consent to the transfer evidenced by this Commitment Transfer Supplement, and (ii) the processing fee referred to in Section 9.6(e) of the Credit Agreement, the Administrative Agent will transmit to the Borrower, the Transferor Lender and each Purchasing Lender, a Transfer Effective Notice, substantially in the form of Schedule III to this Commitment Transfer Supplement (a "Transfer Effective Notice"). That Transfer Effective Notice shall set forth, inter alia, the date on which the transfer effected by this Commitment Transfer Supplement shall become effective (the "Transfer Effective Date"), which date shall be the fifth Business Day following the date of such Transfer Effective Notice. From and after the Transfer Effective Date, each Purchasing Lender shall be a Lender party to the Credit Agreement for all purposes thereof. 2. At or before 12:00 noon, local time for the Transferor Lender on the Transfer Effective Date, each Purchasing Lender shall pay to the Transferor Lender, in immediately available funds, an amount equal to the purchase price, as agreed between the Transferor Lender and that Purchasing Lender (the "Purchase Price"), of the portion being purchased by that Purchasing Lender (that Purchasing Lender's "Purchased Percentage") of the outstanding Loans and other amounts owing to the Transferor Lender under the Credit Agreement and its Note(s). Effective upon receipt by the Transferor Lender of the Purchase Price from a Purchasing Lender, the Transferor Lender hereby irrevocably sells, assigns and transfers to that Purchasing Lender, without recourse, representation or warranty, and each Purchasing Lender hereby irrevocably purchases, takes and assumes from the Transferor Lender, that Purchasing Lender's Purchased Percentage of the Commitments and the presently outstanding Loans and other amounts owing to the Transferor Lender under the Credit Agreement and its Note(s) together with all instruments, documents and collateral security pertaining thereto. 3. The Transferor Lender has made arrangements with each Purchasing Lender with respect to (i) the portion, if any, to be paid, and the date or dates for payment, by the Transferor Lender to that Purchasing Lender of any fees heretofore received by the Transferor Lender pursuant to the Credit Agreement prior to the Transfer Effective Date and (ii) the portion, if any, to be paid, and the date or dates for payment, by such Purchasing Lender to the Transferor Lender of fees or interest received by such Purchasing Lender pursuant to the Credit Agreement from and after the Transfer Effective Date. 4. (a) All principal payments that would otherwise be payable from and after the Transfer Effective Date to or for the account of the Transferor Lender pursuant to the Credit Agreement and its Note(s) shall, instead, be payable to or for the account of the Transferor Lender and the Purchasing Lenders, as the case may be, in accordance with their respective interests as reflected in this Commitment Transfer Supplement. (b) All interest, fees and other amounts that would otherwise accrue for the account of the Transferor Lender from and after the Transfer Effective Date pursuant to the Credit Agreement and its Note(s) shall, instead, accrue for the account of, and be payable to, the Transferor Lender and the Purchasing Lenders, as the case may be, in accordance with their respective interests as reflected in this Commitment Transfer Supplement. In the event that any amount of interest, fees or other amounts accruing prior to the Transfer Effective Date was included in the Purchase Price paid by any Purchasing Lender, the Transferor Lender and each Purchasing Lender will make appropriate arrangements for payment by the Transferor Lender to that Purchasing Lender of the relevant amount upon receipt thereof from the Borrower. 5. On or prior to the Transfer Effective Date, the Transferor Lender will deliver to the Administrative Agent its Note(s). On or prior to the Transfer Effective Date, the Borrower will deliver to the Administrative Agent a new Note or Notes of the Borrower for each Purchasing Lender and (if the Transferor Lender shall, after giving effect to the transfer effected by this Commitment Transfer Supplement, remain a Lender party to the Credit Agreement) the Transferor Lender, in each case in principal amounts reflecting, in accordance with the Credit Agreement, their Commitments as adjusted pursuant to this Commitment Transfer Supplement. Each new Note shall be dated the Closing Date. Promptly after the Transfer Effective Date, the Administrative Agent will send to each of the Transferor Lender and the Purchasing Lender its new Note(s) and will send to the Borrower the superseded Note(s) of the Transferor Lender, marked "cancelled." 6. Concurrently with the execution and delivery hereof, the Transferor Lender will provide to each Purchasing Lender (if it is not already a Lender party to the Credit Agreement) conformed copies of all documents delivered to that Transferor Lender on the Closing Date or any other Borrowing Date prior to the date of this Commitment Transfer Supplement in satisfaction of the conditions precedent set forth in the Credit Agreement. 7. Each of the parties to this Commitment Transfer Supplement agrees that at any time and from time to time upon the written request of any other party, it will execute and deliver such further documents and do such further acts and things as that other party may reasonably request in order to effect the purposes of this Commitment Transfer Supplement. 8. By executing and delivering this Commitment Transfer Supplement, the Transferor Lender and each Purchasing Lender confirm to and agree with each other and the Administrative Agent and the Lenders as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned hereby free and clear of any adverse claim, the Transferor Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, the Note(s) or any other instrument or document furnished pursuant thereto; (ii) the Transferor Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any of its Subsidiaries or the performance or observance by the Borrower of any of its obligations under the Credit Agreement, the Note(s), the Pledge Agreement or any other instrument or document furnished pursuant hereto; (iii) each Purchasing Lender confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 3.1 of the Credit Agreement, the financial statements delivered pursuant to Section 5.1 of the Credit Agreement, if any, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Commitment Transfer Supplement; (iv) each Purchasing Lender will, independently and without reliance upon the Administrative Agent, the Transferor Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (v) each Purchasing Lender appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto, all in accordance with Section 9.6 of the Credit Agreement; and (vi) each Purchasing Lender will perform in accordance with their terms all the obligations which, by the terms of the Credit Agreement, are required to be performed by it as a Lender. 9. Schedule II hereto sets forth the revised Commitment and Commitment Percentage of the Transferor Lender and each Purchasing Lender as well as administrative information with respect to each Purchasing Lender. 10. By executing and delivering this Commitment Transfer Supplement, each Purchasing Lender acknowledges that its claims on account of amounts payable in respect of the Loans under the Credit Agreement and the other Loan Documents are subordinate to the terms and conditions of the Intercreditor Agreement on the terms provided therein. 11. THIS COMMITMENT TRANSFER SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. IN WITNESS WHEREOF, the parties hereto have caused this Commitment Transfer Supplement to be executed by their respective duly authorized officers on Schedule I hereto as of the date set forth in Item 1 of Schedule I hereto. SCHEDULE I TO COMMITMENT TRANSFER SUPPLEMENT COMPLETION OF INFORMATION AND SIGNATURES FOR COMMITMENT TRANSFER SUPPLEMENT Item 1 (Date of Commitment Transfer Supplement): Item 2 (Transferor Lender): Item 3 (Purchasing Lender): Item 4 (Signatures of Parties to Commitment Transfer Supplement): ---------------------, as Transferor Lender By: --------------------- Name: Title: --------------------, as Purchasing Lender By: ---------------------- Name: Title: The undersigned consents to the transfer hereunder in favor of the Purchasing Lender(s) specified herein: ASCENT ASSURANCE, INC., as Borrower By: --------------------------------------- Name: Title: ACCEPTED FOR RECORDATION IN REGISTER: CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION, as Administrative Agent By: --------------------------------------- Name: Title: SCHEDULE II TO COMMITMENT TRANSFER SUPPLEMENT LIST OF LENDING OFFICES, ADDRESSES FOR NOTICES AND COMMITMENT AMOUNTS [Name of Transferor Lender] Revised Commitment Amount: $ --------------------- Revised Commitment Percentage: % --------------------- [Name of Purchasing Lender] New Commitment Amount: $ --------------------- New Commitment Percentage: % -------------------- Address for Notices: - ------------------- [Address] Attention: ------------------------ Telephone: ------------------------ Telecopy: ------------------------- Telephone Confirmation: ----------------------- Lending Office: - ---------------------------------- - ---------------------------------- - ---------------------------------- SCHEDULE III TO COMMITMENT TRANSFER SUPPLEMENT Form of Transfer Effective Notice To: Ascent Assurance, Inc., [Transferor Lender and each Purchasing Lender] The undersigned, as Administrative Agent under the Credit Agreement, dated as of April 17, 2001 among Ascent Assurance, Inc., a Delaware corporation (the "Borrower"), the Lenders party thereto from time to time, and Credit Suisse First Boston Management Corporation, as Administrative Agent and Arranger, acknowledges receipt of an executed counterpart of a completed Commitment Transfer Supplement. Terms defined in that Commitment Transfer Supplement are used herein as therein defined. 1. Pursuant to such Commitment Transfer Supplement, you are advised that the Transfer Effective Date will be _____________, ______ [insert fifth Business Day following date of Transfer Effective Notice]. 2. Pursuant to such Commitment Transfer Supplement, the Transferor Lender is required to deliver to the Administrative Agent on or before the Transfer Effective Date its Notes. 3. Pursuant to such Commitment Transfer Supplement, the Borrower is required to deliver to the Administrative Agent on or before the Transfer Effective Date the following Notes, each dated the Closing Date: [Describe each new Note for Transferor Lender and Purchasing Lender as to principal amount and payee.] 4. Pursuant to that Commitment Transfer Supplement, each Purchasing Lender is required to pay its Purchase Price to the Transferor Lender at or before 12:00 noon on the Transfer Effective Date in immediately available funds. Very truly yours, CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION, as Administrative Agent By: ------------------------ Name: Title: EXHIBIT E TO CREDIT AGREEMENT FORM OF COMPLIANCE CERTIFICATE ASCENT ASSURANCE, INC. Pursuant to Section 4.1(j) of the Credit Agreement dated as of April 17, 2001 among Ascent Assurance, Inc., a Delaware corporation (the "Borrower"), the several Lenders from time to time parties thereto (the "Lenders") and Credit Suisse First Boston Management Corporation, as Administrative Agent and Arranger (the "Credit Agreement"), the undersigned hereby certifies that [he/she] is a Responsible Officer of the Borrower and further certifies as follows (using capitalized terms that are not defined in this Certificate with the meanings given to them in the Credit Agreement): 1. No Default or Event of Default has occurred and is continuing as of the date hereof[, except as set forth in this Certificate]. 2. As of ________ (the "Computation Date"), the Consolidated GAAP Net Worth of the Borrower was $ ___________, ---------------- as computed on Attachment 1 hereto. 3. The consolidated Funded Debt Ratio of the Borrower and its Subsidiaries for the fiscal quarter ended most recently before the Computation Date was ______% as computed on Attachment 2 hereto. 4. As of the Computation Date, the RBC Ratio of each Insurance Subsidiary other than National Financial Insurance Company or Pacific Casualty Company, Inc. is not less than 105%. 5. As of the Computation Date, the Statutory Capital and Surplus of each Insurance Subsidiary (shown on Attachment 5 hereto) as of the last day of the fiscal quarter ended most recently before the Computation Date is not less than the Minimum Statutory Surplus Requirement for that Insurance Subsidiary, as specified in Exhibit G (as shown on Attachment 5 hereto). IN WITNESS WHEREOF, the undersigned has hereunto set his name on this ___ day of ________, ___. ASCENT ASSURANCE, INC. By: ------------------------------ Name: Title: ATTACHMENT 1 CONSOLIDATED GAAP NET WORTH 1. The Capital Stock and additional paid-in capital of the Borrower and its Subsidiaries on a consolidated basis plus $ ---------------- 2. The amount of retained earnings, inclusive of deferred revenues, or, in the case of a deficit, minus the deficit, minus $ ---------------- 3. The treasury stock, plus or minus $ ---------------- 4. Any other account which is customarily added or deducted in determining shareholders' equity (without giving effect to any increase or decrease to Consolidated GAAP Net Worth attributable to the application of SFAS No. 115, 130 or 133) $ ----------------- 5. Consolidated GAAP Net Worth of the Borrower (The sum of Item 1, Item 2, Item 3 and Item 4) $___________ 6. Covenant Requirement: Consolidated GAAP Net Worth of the Borrower (line 5) shall be an amount greater than or equal to the amount shown in Item 6(v) below: (i) $31,000,000 (ii) Any cumulative positive Net Income of the Borrower and its Subsidiaries for each fiscal quarter following the fiscal quarter ended December 31, 2000 $ ___________ (iii) 50% of Item 6(ii) $ ___________ (iv) Deferred revenues as of the end of the most recent fiscal quarter $ ___________ (v) Required Consolidated GAAP Net Worth of the Borrower (The sum of Item 6(i), Item 6(iii), and Item 6(iv)) $ ___________ ATTACHMENT 2 FUNDED DEBT RATIO 1. Funded Debt: (Item 8 column A of Attachment 4) $ ----------------- 2. Total Capital (Item 4 of Attachment 3) $ ----------------- 3. Funded Debt Ratio (Item 1 divided by Item 2) _____% 4. Covenant Requirement: Funded Debt Ratio shall not be greater than 0.65 to 1 ATTACHMENT 3 TOTAL CAPITAL 1. Funded Debt (Item 4 of Attachment 3) plus $ ----------------- 2. Stockholders' equity plus $ ----------------- 3. Preferred stock, preference stock and preferred securities of the Borrower and its Consolidated Subsidiaries $ ----------------- 4. Total Capital (sum of Item 1, Item 2 and Item 3) $ ----------------- ATTACHMENT 4 INDEBTEDNESS4
- --------------------------------------- ---------------------- ---------------------- -------------------- A. Long-Term B. Short-Term C. Total Indebtedness5 ($) Indebtedness ($) Indebtedness ($) - --------------------------------------- ---------------------- ---------------------- -------------------- - --------------------------------------- ---------------------- ---------------------- -------------------- 1. Indebtedness for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) - --------------------------------------- ---------------------- ---------------------- -------------------- - --------------------------------------- ---------------------- ---------------------- -------------------- 2. To the extent not included above, indebtedness evidenced by a note, bond, debenture or similar instrument - --------------------------------------- ---------------------- ---------------------- -------------------- - --------------------------------------- ---------------------- ---------------------- -------------------- 3. Capital Lease Obligations - --------------------------------------- ---------------------- ---------------------- -------------------- - --------------------------------------- ---------------------- ---------------------- -------------------- 4. Reimbursement obligations under outstanding letters of credit and other obligations under acceptances and similar obligations - --------------------------------------- ---------------------- ---------------------- -------------------- - --------------------------------------- ---------------------- ---------------------- -------------------- 5. To the extent not included above, liabilities secured by any Lien on owned property even if not assumed or otherwise liable for payment - --------------------------------------- ---------------------- ---------------------- -------------------- - --------------------------------------- ---------------------- ---------------------- -------------------- 6. To the extent not included above, liabilities arising under the Hedging Agreements (other than interest rate caps) - --------------------------------------- ---------------------- ---------------------- -------------------- - --------------------------------------- ---------------------- ---------------------- -------------------- 7. To the extent not included above, Guaranties - --------------------------------------- ---------------------- ---------------------- -------------------- - --------------------------------------- ---------------------- ---------------------- -------------------- 8. Total Indebtedness (sum of Item 1, Item 2, Item 3, Item 4, Item 5, Item 6, and Item 7) - --------------------------------------- ---------------------- ---------------------- --------------------
ATTACHMENT 5 MINIMUM STATUTORY CAPITAL AND SURPLUS REQUIREMENT -------------------------------------------------
-------------------------------------------------------------- ----------------------------------------- B. Minimum Statutory Surplus Requirement for that Insurance Subsidiary, as specified in Exhibit G A. Insurance Subsidiary to the Credit Agreement -------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------- ----------------------------------------- 1. National Foundation Life Insurance Company $5.2 million -------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------- ----------------------------------------- 2. National Financial Insurance Company $1.4 million -------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------- ----------------------------------------- 3. American Insurance Company of Texas, Inc. $1.4 million -------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------- ----------------------------------------- 4. Freedom Life Insurance Company of America $7.5 million -------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------- ----------------------------------------- 5. -------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------- ----------------------------------------- 6. -------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------- ----------------------------------------- 7. -------------------------------------------------------------- -----------------------------------------
EXHIBIT F TO CREDIT AGREEMENT FORM OF PLEDGE AGREEMENT [Following this page] EXHIBIT G TO CREDIT AGREEMENT MINIMUM STATUTORY SURPLUS REQUIREMENT
-------------------------------------------------------------- ----------------------------------------- B. Minimum Statutory Surplus Requirement for that Insurance Subsidiary, as specified in Exhibit G A. Insurance Subsidiary to the Credit Agreement -------------------------------------------------------------- ----------------------------------------- 1. National Foundation Life Insurance Company $5.2 million -------------------------------------------------------------- ----------------------------------------- 2. National Financial Insurance Company $1.4 million -------------------------------------------------------------- ----------------------------------------- 3. American Insurance Company of Texas, Inc. $1.4 million -------------------------------------------------------------- ----------------------------------------- 4. Freedom Life Insurance Company of America $7.5 million -------------------------------------------------------------- ----------------------------------------- 5. -------------------------------------------------------------- ----------------------------------------- 6. -------------------------------------------------------------- ----------------------------------------- 7. -------------------------------------------------------------- -----------------------------------------
EXHIBIT H TO CREDIT AGREEMENT REPORTS AND OTHER INFORMATION REQUIRED BY SECTION 5.2(e) [Format attached behind this page] Monthly Management Report Freedom Life Insurance Company of America [Month and Year] EXHIBIT I TO CREDIT AGREEMENT FORM OF GUARANTY AND SECURITY AGREEMENT [Following this page] EX-10.2 3 exh10_2.txt GUARANTY AND SECURITY AGREEMENT GUARANTY AND SECURITY AGREEMENT among FOUNDATION FINANCIAL SERVICES, INC., NATIONALCARE(R) MARKETING, INC., LIFESTYLES MARKETING GROUP, INC., PRECISION DIALING SERVICES, INC., SENIOR BENEFITS, L.L.C., and WESTBRIDGE PRINTING SERVICES, INC., each, as Grantor, each Lender which is a Beneficiary hereunder from time to time and CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION as Administrative Agent and Secured Party Dated: As of April 17, 2001 - -------------------------------------------------------------------------- * Identify any imposed by applicable Law, other than any which appear on the certificates evidencing the relevant Pledged Stock. * Other than the Lien created by this Agreement. GUARANTY AND SECURITY AGREEMENT THIS GUARANTY AND SECURITY AGREEMENT is made as of April 17, 2001, among (a) Foundation Financial Services, Inc., a Nevada corporation, (b) NationalCare(R) Marketing, Inc., a Delaware corporation ("NCM"), (c) LifeStyles Marketing Group, Inc., a Delaware corporation, (d) Precision Dialing Services, Inc., a Delaware corporation, (e) Senior Benefits, L.L.C., an Arizona limited liability company ("Senior Benefits"), and (f) Westbridge Printing Services, Inc., a Delaware corporation (each, a "Grantor"), and Credit Suisse First Boston Management Corporation as secured party hereunder (the "Secured Party") for the ratable benefit of the Lenders in its capacity as Administrative Agent (as those terms are defined below) and for its own benefit as Administrative Agent (as that term is so defined), and the Administrative Agent and each of the Lenders party to the Credit Agreement (as so defined) from time to time, as Beneficiary of the Guaranty provided for herein. A. Pursuant to the Credit Agreement dated as of the date hereof (as it may be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") among Ascent Assurance, Inc., a Delaware corporation, as borrower (the "Borrower"), Credit Suisse First Boston Management Corporation, as Administrative Agent (in that capacity, the "Administrative Agent") and Arranger, and the Lenders from time to time party thereto (the "Lenders"), the Lenders have agreed, on the terms and subject to the conditions of the Credit Agreement, to make loans (the "Loans") to the Borrower. B. As a Subsidiary, each Grantor acknowledges that it will benefit materially from the Loans to be made to the Borrower and is willing to guaranty the Borrower's obligations under the Credit Agreement, the Notes and the other Loan Documents and to grant a security interest in its personal property and assets to the Administrative Agent for the ratable benefit of the Lenders and the Administrative Agent to secure that Grantor's obligations under its guaranty of the Borrower's obligations. C. It is a condition precedent to the making of the initial Loan that each Grantor, among other things, shall have executed and delivered to the Secured Party this Agreement. NOW, THEREFORE, in order to induce the Lenders to make the Loans and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, each Grantor hereby agrees as follows: Section 1. Definitions. ----------- (a) Terms used herein that are defined in the New York Uniform Commercial Code (as amended from time to time, the "UCC"), unless otherwise defined herein, have the meanings given to them from time to time in the UCC. The term "Obligations" and all other capitalized terms used herein without definition have the meanings given to those terms in the Credit Agreement. Certain terms relating to the Collateral are defined in Section 3. The following terms, as used herein, have the meanings set forth below, and shall be equally applicable to both the singular and the plural forms thereof: "Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S.C.ss.ss.101 et seq. "Beneficiary" has the meaning set forth in Section 2. "Collateral" has the meaning set forth in Section 3 and, when used in relation to a particular Grantor, means all of such Grantor's personal property identified therein as Collateral. "Contractual Obligation" means, as to any Person, any indenture or loan or credit agreement, security (including, but not limited to any capital stock, convertible debt instrument, warrant, option or other right to acquire any security of such Person) or other agreement, lease or instrument issued by such Person or to which such Person is a party or by which such Person or its properties may be bound or affected. "Event of Default" has the meaning set forth in Section 14. "Excluded Property" means, in relation to each Grantor the property of such Grantor identified in Schedule IV, for so long as such property remains subject to a Permitted Lien. "Grantor Documents" means, as to each Grantor, this Agreement and each other Loan Document to which such Grantor is or at any time hereafter becomes a party. "Guaranty" means, in respect of each Grantor, the guaranty of payment made by it in Section 2(a) of this Agreement. "Law" means any treaty, foreign, federal, state or local statute, law, rule, regulation, ordinance, order, code, policy or rule of common law, now or hereafter in effect, 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), preference 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 UCC or comparable law of any jurisdiction to evidence any of the foregoing). "Pledged Membership Interests" means all Collateral subject to the Lien created herein by NCM which represents its interests in Senior Benefits, as a member thereof. "Pledged Stock" has the meaning set forth in Section 3. "Secured Obligations" has the meaning set forth in Section 4(a). Section 2. Guaranty. -------- (a) Each Grantor, severally, as primary obligor and not merely as a surety, hereby irrevocably, absolutely and unconditionally guarantees to the Administrative Agent and the Lenders (each a "Beneficiary" and collectively, the "Beneficiaries"), the prompt and complete payment by the Borrower, as and when due and payable, of the Obligations. (b) The term "obligations" is used herein, and in each other Grantor Document, in the broadest sense possible, and (i) in relation to Grantor, includes all payment and performance obligations of such Grantor under this Agreement and any other Grantor Document to which it is a party, and (ii) in relation to obligations of the Borrower, includes all payment and performance obligations of the Borrower in respect of any and all advances, debts, reimbursement or indemnity obligations, guarantees and liabilities heretofore, now, or hereafter made, incurred or created, whether in respect of principal, interest, fees or any other amount and whether accruing before or after judgment or the commencement of any bankruptcy or insolvency proceedings in respect of the Borrower or any other Person, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether any Grantor may be liable individually or jointly with others, whether recovery thereon may be or hereafter becomes barred by any statute of limitations or whether any of the foregoing may be or hereafter becomes otherwise unenforceable. (c) Each Grantor hereby severally guarantees that it will pay, or cause the Obligations to be paid, strictly in accordance with the terms of the Loan Documents, regardless of any Law now or hereafter in effect in any jurisdiction affecting any such terms or the rights of the Beneficiaries with respect thereto. The obligations and liabilities of each Grantor under the Guaranty shall be absolute and unconditional irrespective of: (A) any lack of validity or enforceability of any of the Obligations or any Loan Document, or any delay, failure or omission to enforce or agreement not to enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise of any right with respect to the foregoing (including, in each case, without limitation, as a result of the insolvency, bankruptcy or reorganization of any Beneficiary, the Borrower, any other Grantor or any other Person); (B) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations or any other amendment or waiver of or consent to any departure from the Loan Documents or any agreement or instrument relating thereto; (C) any exchange or release of, or non-perfection of, any Lien on or in any collateral, or any release, amendment or waiver of, or consent to any departure from, any other guaranty of, or agreement granting security for, all or any of the Obligations; (D) any claim, set-off, counterclaim, defense or other rights that the Grantor may have at any time and from time to time against any Beneficiary, any other Grantor or any other Person, whether in connection with this Agreement, the Obligations or any unrelated transaction; or (E) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower, such Grantor or any other guarantor or surety in respect of the Obligations. (d) The Guaranty (A) is a continuing guaranty of each Grantor and shall remain in full force and effect until the termination of the Commitments, the payment in full of the Obligations and the payment of all other amounts required to be paid by each Grantor pursuant hereto; and (b) shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be returned by any Beneficiary upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower, any Grantor or otherwise, all as though such payment had not been made. (e) The obligations and liabilities of each Grantor under the Guaranty shall not be conditioned or contingent upon the pursuit by any Beneficiary or any other Person at any time of any right or remedy against the Borrower, any other Grantor or any other Person that may be or become liable in respect of or any part of the Obligations or against any collateral security or guaranty therefor or any right of setoff with respect thereto. (f) Each Grantor hereby consents that, without the necessity of any reservation of rights against such Grantor and without notice to or further assent by such Grantor or any other Grantor, any demand for payment of any of the Obligations made by any Beneficiary may be rescinded by such Beneficiary, and any of the Obligations may be continued after such rescission. Section 3. Grant of Security. Each Grantor hereby grants to the Secured Party, in its capacity as Administrative Agent for the ratable benefit of the Lenders and for its own benefit as Administrative Agent, a security interest in and lien on all of such Grantor's right, title and interest in and to all of such Grantor's personal property assets, including but not limited to all of the following, whether now owned or existing or hereafter acquired or existing, and wherever located except for the Excluded Property (subject to that exception, the "Collateral") to secure the Secured Obligations: (a) All machinery, furnishings, fixtures, service vehicles, supplies and other equipment, together with all attachments, components, parts and accessories installed thereon or affixed thereto ("Equipment"); (b) All goods held for sale or lease or to be furnished under contracts of service, and all additions, substitutions and replacements thereof, wherever located, together with all goods and materials used or usable in manufacturing, processing, packaging or shipping; in all stages of production, from raw materials through work-in-process to finished goods ("Inventory"); (c) All other goods, of any nature whatsoever; (d) All (i) (A) rights to payment for goods sold or services rendered by such Grantor, including all accounts arising from sales or rendition of services made under any of such Grantor's trade names or styles or through any of such Grantor's divisions, regardless of how such right is evidenced, whether secured or unsecured (and whether or not specifically listed on schedules furnished to the Secured Party) ("Accounts Receivable"), and (B) other accounts; (ii) unpaid seller's rights (including rights of rescission, replevin, reclamation and stoppage in transit) relating to the foregoing or arising therefrom; (iii) rights to any goods represented by any of the foregoing, including rights to returned or repossessed goods; (iv) reserves and credit balances arising under any of the foregoing; (v) guarantees, letters of credit, collateral or other supporting obligations supporting or securing any of the foregoing; and (vi) insurance policies or rights relating to any of the foregoing (collectively, including Accounts Receivable, the "Accounts"); (e) All (i) instruments, (ii) documents, (iii) contract rights, (iv) chattel paper, (v) letters of credit, (vi) letter-of-credit rights, (vii) claims and causes of action against any other Person, however arising, and (viii) general intangibles, whether or not for the payment of money, including, but not limited to, all (A) rights to tax refunds or other payments of every kind or nature, including rights to the payment of letters of credit; (B) copyrights, rights in or licenses of copyrights and marks subject to copyright protection, in whole or in part, and all renewals or extensions of any of the foregoing; (C) trade names, trademarks, service marks, trade styles, designs, logos, indicia, corporate names, company names and fictitious business names, in each case, together with all associated goodwill; (D) patents and patent applications and rights in or licenses of patents or patent applications; (E) computer programs and all intellectual property rights therein (other than such programs and rights in which, by their terms enforceable under applicable law, no security interest may be granted); and (F) other proprietary information; (f) All investment property, including, without limitation, all securities and capital stock or other interests in any other Person whether certificated or uncertificated; all warrants, options and other rights to acquire securities, capital stock or other interests in any other Person; all securities entitlements; and all securities accounts, together with all financial assets credited thereto; (g) All cash and cash equivalents, including, without limitation, money, demand deposit accounts and other deposit accounts; (h) All governmental approvals, licenses, franchises and authorizations, to the maximum extent permitted by applicable law; (i) All property and interests in property of such Grantor now or hereafter coming into the actual possession, custody or control of the Secured Party in any way and for any purpose (whether for safekeeping, deposit, custody, pledge, transmission, collection or otherwise); (j) All books and records; (k) All other property and interests in property of such Grantor constituting personal property; and (l) All accessions and additions to, substitutions for, and replacements, products and proceeds of any of the foregoing (including, without limitation, proceeds that constitute property of the types described in clauses (a) through (k) of this Section 3, and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Secured Party is the loss payee thereof), or any indemnity, warranty, guaranty or letter of credit, payable by reason of loss or damage to or otherwise with respect to any of the foregoing; and (ii) any and all supporting obligations in respect of any of the foregoing). At the time of its execution of this Agreement, NCM shall, in its capacity hereunder as Grantor, deliver to the Secured Party all certificates or instruments representing or evidencing the Collateral that consists of all of the common stock of each of the companies identified in Annex 1 to this Agreement (the "Companies") represented by the certificate(s) identified in Annex 1 to this Agreement (the "Pledged Stock"), to be held by or on behalf of the Secured Party pursuant hereto. Each such certificate or instrument shall be (a) in suitable form for transfer by delivery or (b) accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Secured Party. For the sake of clarity, NCM hereby expressly grants a security interest in all of the membership interests of Senior Benefits, L.L.C. The Secured Party shall have the right, at any time in its discretion and without notice to NCM, to transfer to, or to register in the name of, the Secured Party or any of its nominees any or all of the Pledged Stock, subject only to the revocable rights specified in Section 22. Section 4. Security for Secured Obligations. (a) (a) The Lien created by each Grantor under this Agreement secures the payment and performance of any and all obligations of the Borrower now existing or hereafter arising under or in respect of the Credit Agreement or any other Loan Document, and any and all obligations of such Grantor now existing or hereafter arising under the Guaranty or otherwise under this Agreement or any other Grantor Document (the "Secured Obligations"). (b) Senior Benefits, as issuer of the Pledged Membership Interests made subject to the Lien of this Agreement by NCM, hereby agrees that (i) it shall comply with any notification originated and communicated to it by the Secured Party which directs that the transfer of the Pledged Membership Interests be registered or that the Pledged Membership Interests be redeemed ("Instructions") without further consent from NCM, (ii) it will cause such registration to remain in effect, and (iii) it will disregard Instructions from any Person other than the Secured Party and will comply with its agreement set forth in this provision until it shall have received a written agreement of the Secured Party releasing it from its agreement set forth in this paragraph. Section 5. Representations and Warranties. Each Grantor hereby represents and warrants to the Secured Party and each of the Lenders as follows: (a) All of the Inventory and Equipment of such Grantor is located at the places specified on Schedule I. The chief place of business and chief executive office of such Grantor, the office where such Grantor keeps its records concerning Accounts Receivable and other Collateral, and each other place of business of the Grantor, are located at the addresses specified on Schedule I. None of the Accounts Receivable is evidenced by a promissory note or other instrument or by chattel paper. (b) Such Grantor is a duly incorporated or organized and validly existing corporation under the laws of its state of organization, and is qualified to do business and in good standing in all states and other jurisdictions in which the failure to be so qualified and in good standing would have a Material Adverse Effect or a material adverse effect on the ability of such Grantor to enforce the collection of Accounts Receivable due from customers residing in such locations. (c) This Agreement has been duly executed and delivered by each Grantor and constitutes a legal, valid and binding obligation of such Grantor enforceable in accordance with its terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by general principles of equity (whether enforcement is sought by proceedings in equity or at law). Neither the execution and delivery nor the performance hereof: (i) requires any consent or approval of such Grantor's stockholders, except for such consents and approvals as have been duly obtained and are in full force and effect; (ii) contravenes such Grantor's certificate of incorporation or by-laws or other organizational documents; (iii) violates any provision of, or requires any filing (other than the filing of the financing statements contemplated hereby), registration, consent or approval under, any Law, order, writ, judgment, injunction, decree, determination or award currently in effect applicable to such Grantor or its property; (iv) results in a breach of, constitutes a default under, or otherwise contravenes, any Contractual Obligation of such Grantor; or (v) causes such Grantor to be in default under any such Law, order, writ, judgment, injunction, decree, determination or award or any such Contractual Obligation or in violation of any other obligation with respect to the Collateral. (d) Such Grantor is the legal, record or beneficial owner of, and has good and marketable title to, the property of such Grantor that constitutes Collateral, free and clear of any Lien whatsoever, except for (A) the Lien created hereby, and (B) other Permitted Liens, and in the case of NCM, the Pledged Stock includes all of the issued and outstanding Capital Stock of the Companies. No financing statement or other security instrument is on file in any jurisdiction covering any such Collateral, other than any that has been filed with respect to either (i) the Lien created hereby or (ii) another Permitted Lien. Schedule II identifies all Permitted Liens, other than the Lien created hereby, existing on the date of this Agreement in respect of personal property of such Grantor and the Contractual Obligation secured by such Permitted Lien. (e) Except for such defaults as have been waived pursuant to waivers that are in full force and effect, such Grantor is not in default under the terms of any Contractual Obligation of such Grantor with respect to any loan, borrowing or indebtedness to which such Grantor is a party of any nature whatsoever or any other Contractual Obligation of such Grantor, contract or agreement to which such Grantor is a party, the result of which could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), results of operations, property or prospects of such Grantor, or upon such Grantor's ability to perform any of its obligations under this Agreement or any other Loan Document to which such Grantor is a party. (f) Such Grantor has established adequate means of keeping itself informed of the Borrower's financial condition and of other circumstances affecting the Borrower's ability to perform the Obligations. (g) Such Grantor does not conduct any business under any name or trade name other than its proper name, which is set forth in the first paragraph of this Agreement. The taxpayer identification number of such Grantor is set forth on Schedule I. (h) Schedule IV identifies all of the property of such Grantor subject to a Permitted Lien on the date of this Agreement. Except for Inventory in transit in the ordinary course of such Grantor's business, such Grantor has exclusive possession and control of the Inventory and Equipment constituting Collateral. (i) As of the date of this Agreement, this Agreement creates a continuing Lien in the Collateral, securing the payment of the Secured Obligations. (j) No consent or authorization of, filing with, notice to, or other act by or in respect of, any Governmental Authority or any other Person is required with respect to any Grantor in connection with either (i) the grant by such Grantor of the Guaranty and Lien created hereby or the execution, delivery or performance of this Agreement by such Grantor or (ii) for the perfection of or the exercise by the Secured Party of its rights and remedies hereunder, other than the filing of financing statements with the Secretary as set forth in Schedule II or otherwise specified in Schedule III. (k) There is no action, suit or proceeding pending or threatened against or otherwise affecting such Grantor before any court or other Governmental Authority or before any arbitrator or mediator the result of which, either singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (l) In the case of NCM, there are no restrictions upon the transfer of any of the Pledged Stock or any of the Pledged Membership Interests, except for any which appear on the certificates evidencing such Pledged Stock or any restrictions imposed by Law which are identified in Annex 1. Section 6. Subordination and Waiver. (a) (i) (i) All existing or future obligations owed to each Grantor by the Borrower or any other Person liable in respect of all or any portion of the Obligations (collectively, whether for principal, interest, fees or any other amount, "Subordinated Indebtedness"), and any Lien, of any nature whatsoever, securing all or any portion of such Subordinated Indebtedness, are hereby subordinated, respectively, to all Secured Obligations and to such Lien. Until the Commitments have been terminated and all Obligations have been paid in full in cash, except with the Administrative Agent's prior written consent: (A) no payment in respect of any Subordinated Indebtedness shall be demanded, created or accepted by or for the benefit of such Grantor; and (B) no Lien securing the payment or performance of any Subordinated Indebtedness shall be demanded, created or accepted by or for the benefit of such Grantor. If any amount is received by any Grantor in respect of any Subordinated Indebtedness in violation of the foregoing prohibition, such Grantor shall receive such amount as the property of, and as trustee for, the Administrative Agent and the Lenders, and shall pay such amount over to the Administrative Agent on account of the Secured Obligations in exactly the form received, together with any required endorsement or assignment of such Grantor, but without reducing or affecting in any manner the liability of such Grantor under the other provisions of this Agreement. (ii) In the event of any insolvency of the Borrower or any other Person liable in respect of all or any portion of the Obligations, or of any distribution, division or application, whether partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets (or proceeds of assets) of any Person obligated in respect of Subordinated Indebtedness, the Secured Obligations shall be paid in full, in cash, before any payment is made on such Subordinated Indebtedness, and all dividends, payments and other distributions of any nature whatsoever, whether in cash or in other property, that would otherwise be payable or deliverable upon or in respect of the Subordinated Indebtedness shall be paid over or delivered directly to the Administrative Agent, for application to the Secured Obligations until they have been paid in full. (b) The subordination provided for herein shall apply to all Subordinated Indebtedness and its subordintion to all Secured Obligations, in each case, whether in respect of principal, interest, fees, charges, indemnity obligations or constituting a payment obligation of any other nature whatsoever, and whether accrued before or after the commencement of any bankruptcy, insolvency or reorganization proceeding in respect of the Borrower or any other Person obligated in respect of any Subordinated Indebtedness. (c) All existing or future Subordinated Indebtedness owed to each Grantor is hereby assigned to the Administrative Agent by such Grantor as security for the Secured Obligations and, if requested by the Administrative Agent during the continuance of any Event of Default, shall be collected and received by each such Grantor as trustee for the Administrative Agent and the Lenders and paid over to the Administrative Agent, on account of the Secured Obligations, as the Administrative Agent may elect, but without reducing or affecting in any manner the liability of any Grantor under the other provisions of this Agreement. All notes now or hereafter evidencing Subordinated Indebtedness shall be marked with a legend that they are subject to the Lien created by, and the other provisions of, this Agreement and, if the Administrative Agent so requests, shall be delivered to the Administrative Agent, endorsed in blank. In addition, each Grantor shall, upon request, provide the Administrative Agent with access to and copies of such Grantor's records that pertain to the Subordinated Indebtedness and shall execute such instruments as may be required by the Administrative Agent to enable it to enforce all claims of such Grantor in respect of such Subordinated Indebtedness and to collect all dividends, payments or other disbursements that may be made on account thereof. For such purposes, each Grantor hereby irrevocably authorizes the Administrative Agent, in its discretion, to make and present for or on behalf of such Grantor such proofs of claim on account of Subordinated Indebtedness as the Administrative Agent may deem expedient or proper, to vote such claims in any bankruptcy, insolvency or reorganization proceeding, to receive and collect any and all dividends, payments or other disbursements made thereon, in whatever form, and to apply such dividends, payments or other disbursements to the Secured Obligations, as the Administrative Agent may elect. (d) Each Grantor hereby acknowledges and agrees that, until the Commitments have been terminated and all of the Obligations have been paid in full in cash, under no circumstances shall it be entitled to be subrogated to any rights of any Beneficiary in respect of the Obligations performed by it hereunder or otherwise, and each Grantor hereby expressly and irrevocably waives, until the Commitments have been terminated and all of the Obligations have been paid in full in cash, (i) each and every such right of subrogation and any claims, reimbursements, right or right of action relating thereto (howsoever arising), and (ii) each and every right to contribution, indemnification, set-off or reimbursement, whether from the Borrower or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, and whether arising by contract or operation of law or otherwise by reason of such Grantor's execution, delivery or performance of this Agreement. Section 7. Financing Statements. At the time of execution of this Agreement, each Grantor shall furnish to the Administrative Agent properly executed financing statements, registrar's certificates, amendments and assignments as prescribed by the Uniform Commercial Code as presently in effect in the states where the Collateral is located and, insofar as a particular Grantor is concerned, in the state where it maintains any office. All such statements shall be prepared in form and number sufficient for filing wherever required with respect to the Collateral, in order that the Administrative Agent, for the benefit of the Secured Parties, shall have a duly perfected security interest of record in the Collateral, to the extent a security interest in such Collateral can be perfected by filing a financing statement, following the filing of such financing statements with the appropriate local and state governmental authorities, subject only to Permitted Liens. Section 8. Further Assurances. Each Grantor shall, from time to time, at the expense of such Grantor, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or reasonably desirable, or that the Secured Party may reasonably request, in order to perfect and protect any Lien granted or purported to be granted by such Grantor under this Agreement or to enable the Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, such Grantor shall: (i) at the request of the Secured Party, mark conspicuously each document and agreement included in the Collateral, and each of its records pertaining to the Collateral, with a legend, in form and substance satisfactory to the Secured Party, indicating that such Collateral is subject to the Lien granted hereby; (ii) if any Collateral shall be, or shall be evidenced by, a promissory note or other instrument or chattel paper, deliver such item to the Secured Party duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Secured Party; and (iii) execute and file or record, as applicable, such financing statements, amendments thereto, continuation statements, agreements granting control to the Secured Party over all or any portion of the Collateral, and such other instruments or notices, as may be necessary or desirable, or as the Secured Party may reasonably request from time to time in order to perfect and preserve the Lien granted or purported to be granted hereby, all in form and substance reasonably satisfactory to the Secured Party. Each Grantor hereby authorizes the Secured Party, where permitted by Law, to file any financing statement, amendment thereto, or continuation statement, without such Grantor's signature thereon. Each Grantor hereby irrevocably makes, constitutes and appoints the Secured Party (and all Persons designated by the Secured Party for that purpose) such Grantor's true and lawful attorney-in-fact to sign the name of such Grantor on any financing statement or other writing necessary or requested by the Secured Party to perfect its Lien on or in any of the Collateral or to maintain the perfection thereof. (a) Each Grantor shall furnish to the Secured Party from time to time such statements and schedules further identifying and describing the Collateral, and such other reports in connection with the Collateral, as the Secured Party may reasonably request, all in reasonable detail. Without limiting the generality of the foregoing, each Grantor shall, from time to time, execute and deliver to the Secured Party, in such form and manner as the Secured Party may reasonably require, solely for the Secured Party's convenience in maintaining records of the Collateral, such confirmatory schedules of Accounts Receivable, and such other appropriate reports designating, identifying and describing the Accounts Receivable, as the Secured Party may reasonably request. In addition, upon the Secured Party's request, each Grantor shall provide the Secured Party with copies of agreements with, or purchase orders from, such Grantor's customers, of invoices to customers and proof of shipment or delivery and such other documentation and information relating to the Accounts Receivable and other Collateral as the Secured Party may from time to time reasonably request. Failure to provide the Secured Party with any of the foregoing shall in no way affect, diminish, modify or otherwise limit the Lien granted herein. Each Grantor hereby authorizes the Secured Party to regard its printed name or rubber stamp signature on assignment schedules or invoices as the equivalent of a manual signature by an authorized officer or agent of such Grantor. (b) Each Grantor agrees to maintain such books and records regarding Accounts Receivable and the other Collateral as the Secured Party may reasonably require, and agrees that the books and records of such Grantor will reflect the Secured Party's Liens on and in the Accounts Receivable and other Collateral. All of the books and records of each Grantor, including any records handled or maintained for each such Grantor by any other Person, shall be made available to the Secured Party and to any Lender, or to any of its or their representatives, during normal business hours and upon reasonable notice. No Grantor shall (i) change the location of its chief executive office/chief place of business from that specified on Schedule I or remove its books and records from the location specified on Schedule I, (ii) change its name (including the adoption of any new trade name), jurisdiction of incorporation, identity or corporate structure, or (iii) change the location of any other Collateral to a location not listed on Schedule I, unless, in any such case, it shall have provided at least thirty (30) days' prior written notice to the Secured Party of any such change. Each Grantor shall from time to time notify the Secured Party of each location at which any portion of the Collateral or such books and records are to be kept for temporary processing, storage or similar purposes. No action requiring notice to the Secured Party under this paragraph shall be effected until such filings and other measures as may be required under applicable law to continue uninterrupted the perfected Lien of the Secured Party on and in the Collateral affected thereby shall have been taken, and until the Secured Party shall have received such opinions of counsel with respect thereto as it may have reasonably requested. (c) Each Grantor shall defend the Collateral against all claims and demands of all Persons (other than the Secured Party and holders of Permitted Liens) claiming an interest therein. Each Grantor shall pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent that (i) such Grantor is, in good faith and by appropriate proceedings, contesting the validity thereof and (ii) the Collateral that is the subject thereof is not in imminent risk of seizure, levy, sale, execution or other process. (d) Each Grantor confirms to the Secured Party that any and all taxes or fees relating to its business, including, but not limited to, its sales, the Accounts Receivable and all goods relating thereto, are its sole responsibility and shall be paid by such Grantor when due and that none of said taxes or fees represent a Lien on the Collateral. Each Grantor shall maintain its status as a validly existing corporation (or, if not a corporation on the date of this Agreement, as such other kind of legal entity as is specified in Schedule I), and shall remain qualified to do business and in good standing in all states and other jurisdictions in which the failure to be so qualified and in good standing would have a Material Adverse Effect or a material adverse effect on the ability of such Grantor to enforce collection of Accounts Receivable due from customers residing in such locations. (e) Upon the occurrence and during the continuation of any Event of Default, if so requested by the Secured Party, each Grantor shall set aside all returned, reclaimed or repossessed merchandise or goods, mark them with the Secured Party's name and hold them for the Secured Party's account as owner. (f) Each Grantor agrees that all Collateral consisting of tangible property is now and shall remain personal property, notwithstanding the manner in which such Collateral or any part thereof shall now or hereafter be affixed or annexed to real estate. Each Grantor shall use commercially reasonable efforts to obtain and deliver to the Secured Party such instruments as may reasonably be requested by the Secured Party pursuant to which any Person with an interest in any real property upon which all or any part of the tangible Collateral is now or may hereafter be located consents to the Liens created hereby, disclaims any Lien on or other interest in the tangible Collateral, waives in favor of the Secured Party all right to distrain or levy upon such Collateral for rent or other payments due or to become due to such Person, and authorizes the Secured Party to enter upon the relevant premises at any time to remove such Collateral. (g) If any of the property of a Grantor identified in Schedule IV ceases at any time to be subject to a Permitted Lien, whether because the obligations secured thereby are paid or otherwise performed or discharged, or for any other reason, such Grantor shall give the Administrative Agent prompt notice of the circumstances, identifying the relevant item of property. Such Grantor shall also promptly execute and deliver such documents as the Administrative Agent may request to confirm that the relevant item of property has ceased to be Excluded Property hereunder and is subject to the negative covenant in Section 6.4 of the Credit Agreement. A Grantor's failure to do so will not, however, alter the fact that any such item of property will automatically cease to be Excluded Property when it ceases to secure a Permitted Lien. Section 9. Actions Affecting the Collateral (a) . (a) Except with the Secured Party's prior written consent or as otherwise expressly permitted in the Credit Agreement, each Grantor agrees that it shall not sell or otherwise dispose of any Collateral, except for Inventory sold in accordance with Section 9(b). (b) Each Grantor shall safeguard, protect and hold all Inventory for the Secured Party's account and make no disposition thereof except in the regular course of the business of such Grantor as herein provided. Unless the Secured Party has given a Grantor notice to the contrary, as provided for below, any Inventory may be sold and shipped by any Grantor to its customers in the ordinary course of such Grantor's business, on open account and on terms generally extended by such Grantor to its customers. The Secured Party shall have the right to withdraw the foregoing authorization at any time following the occurrence and during the continuation of an Event of Default, in which event no further disposition shall be made of the Inventory by any Grantor without the Secured Party's prior written approval. Upon the sale, exchange, or other disposition of Inventory, the Lien provided for herein shall, without break in continuity and without further formality or act, continue in, and attach to, all proceeds thereof, including any instruments for the payment of money, Accounts Receivable, contract rights, documents of title, shipping documents, chattel paper and all other cash and non-cash proceeds of such sale, exchange or disposition. As to any such sale, exchange or other disposition, the Secured Party shall have all of the rights of an unpaid seller, including stoppage in transit, replevin, rescission and reclamation. (c) Each Grantor shall take all necessary action to ensure that, except for Permitted Liens, such Grantor is (or, at all times after additional Collateral is acquired by it, will be) the absolute owner of the Collateral other than Inventory obtained on consignment or pursuant to any similar arrangement, with full right to create a Lien thereon, free and clear of any and all claims or Liens in favor of others other than the Lien in favor of the Secured Party created hereby and other Permitted Liens. Each Grantor agrees that it shall not grant, create or permit to exist any Lien upon all or any portion of the Collateral, or any proceeds thereof, in favor of any other Person other than the Secured Party or holders of the Permitted Liens and the rights of vendors providing Inventory to such Grantor on consignment or pursuant to a similar arrangement, which rights are subordinate to the Lien of the Secured Party in such Inventory; and shall not create, or permit to exist, any obligations, other than those secured by the Permitted Liens, that are secured thereby. (d) Each Grantor shall permit the Secured Party and the Lenders, or its or their respective representatives, to have access to the Inventory and the Equipment, and other tangible Collateral for purposes of inspection during normal business hours and upon reasonable notice to such Grantor; and shall promptly notify the Secured Party in writing of any material loss or damage to the Inventory, Equipment or other Collateral. (e) No Grantor shall use, or permit any of the Collateral in its possession or subject to its control to be used, for any unlawful purpose or in violation of any applicable Law or for hire. (f) Each Grantor agrees that it shall not (i) other than in the ordinary course of business as generally conducted by such Grantor prior to the date hereof, (A) grant any extension of the time for payment of any of the Accounts, (B) compromise, compound or settle any Account for less than the full amount thereof, (C) release, wholly or partially, any Person liable for the payment thereof, or (D) allow any credit or discount whatsoever thereon; or (ii) amend, modify, terminate or waive any provision of any contract, license or agreement giving rise to an Account in any manner that could reasonably be expected to materially adversely affect the value of such contract, license or Account as Collateral. Each Grantor shall exercise promptly and diligently each and every material right it may have under any material contract, license or agreement giving rise to an Account (other than any right of termination), in a manner consistent with the ordinary and customary conduct of its business; and shall deliver to the Secured Party, upon request, a copy of each material demand, notice or document received by it relating in any way to any material contract, license or agreement giving rise to an Account. (g) Subject to the other provisions of this Agreement, each Grantor shall continue to collect, at its own expense, all amounts due or to become due to such Grantor under the Collateral. In connection with such collections, any Grantor may take (and, at the Secured Party's direction, shall take) such action as such Grantor or the Secured Party may deem necessary or advisable to enforce collection thereof. Upon the occurrence and during the continuation of any Event of Default, (i) all amounts and proceeds (including instruments) received by each Grantor in respect of the Collateral shall be received in trust for the benefit of the Secured Party, shall be segregated from other property of such Grantor and shall be forthwith paid over to the Secured Party in the same form as so received (with any necessary endorsement) to be held as Collateral or to be applied as provided by Section 14(e), as determined by the Secured Party. Section 10. Insurance (a) (a) Each Grantor shall, at its own expense, maintain insurance with respect to the Collateral in such amounts, against such risks, in such form and with such insurers, as is commonly maintained by prudent Persons engaged in businesses similar to the business engaged in by such Grantor or as otherwise may be required under the Credit Agreement. Each policy of liability insurance shall provide for all losses to be paid on behalf of the Secured Party and the applicable Grantor as their respective interests may appear; and, if so requested by the Secured Party, each policy of property damage insurance shall provide for all losses to be paid directly to the Secured Party. Each such policy shall in addition: (i) name the Secured Party as an insured party thereunder (without any representation or warranty by or obligation upon the Secured Party) as its interest may appear; (ii) contain the agreement by the insurer that any loss thereunder shall be payable to the Secured Party notwithstanding any action, inaction or breach of representation and warranty by the Grantor; (iii) provide that there shall be no recourse against the Secured Party for payment of premiums or other amounts with respect thereto; and (iv) provide that at least thirty (30) days' prior written notice of amendment to or cancellation or lapse of such policy shall be given to the Secured Party by the insurer. Each Grantor shall, if so requested by the Secured Party, deliver to the Secured Party original or duplicate policies of all such insurance and, as often as the Secured Party may request, a report of a reputable insurance broker with respect to such insurance. Further, each Grantor shall, at the request of the Secured Party, duly execute and deliver such instruments of assignment of such insurance policies as the Secured Party may reasonably request for purposes of perfecting or protecting its interest therein or with respect thereto, and cause each affected insurer to acknowledge notice of such assignment. (b) Amounts payable under any liability insurance maintained by any Grantor pursuant to this Section 10 may be paid directly to the Person who shall have incurred liability covered by such insurance. All proceeds of insurance payable with respect to any loss involving damage to or loss of any Collateral shall be paid directly to the Secured Party and, in the Secured Party's discretion, applied to payment of the Secured Obligations in such order as the Secured Party may determine in its sole discretion or held as Collateral hereunder. If, in the Secured Party's discretion, it elects to permit the use of all or any portion of such proceeds to repair or replace the affected Collateral, the applicable Grantor shall make or cause to be made the necessary repairs to or replacements of such Collateral, and, upon receipt by the Secured Party of invoices and other documentation, in reasonable detail, evidencing such repair or replacement and the cost thereof, the Secured Party shall release to such Grantor, as reimbursement therefor (but only to the extent of the lesser of the cost of such repair or replacement and the amount of any such proceeds actually received by the Secured Party), the insurance proceeds paid with respect to such loss. Section 11. The Secured Party Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints the Secured Party as such Grantor's attorney-in-fact, with full power of substitution and with full authority in the place and stead of and in the name of such Grantor, the Secured Party or otherwise, to take any action and to execute any instrument, that the Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (a) to perform or cause the performance of any obligation of such Grantor hereunder; (b) to obtain and adjust insurance required to be paid to the Secured Party pursuant to Section 10; (c) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (d) to receive, endorse, assign and collect any and all checks, notes, drafts and other negotiable and non-negotiable instruments, documents and chattel paper in connection with clause (b) or (c) above, and each such Grantor waives notice of presentment, protest and non-payment of any instrument, document or chattel paper so endorsed or assigned; (e) to file any claims, take any action or institute any proceedings that the Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Secured Party or the applicable Grantor with respect to any of the Collateral; (f) to sell, transfer, assign or otherwise deal in or with the Collateral or the proceeds or avails thereof, as full and effectually as if the Secured Party were the absolute owner thereof; (g) to receive, open and dispose of all mail addressed to such Grantor and to notify postal authorities to change the address for delivery thereof to such address as the Secured Party may designate; and (h) to transmit to customers indebted on Accounts notice of the Secured Party's interest therein and to notify customers indebted on Accounts to make payment directly to the Secured Party for such Grantor's account. Each Grantor hereby ratifies and approves all acts of the Secured Party taken pursuant to the foregoing appointment, other than acts of the Secured Party constituting gross negligence or willful misconduct, and the Secured Party, as such Grantor's attorney-in-fact, will not be liable for any acts of commission or omission, or for any error of judgment or mistake of fact or law, other than those that result from the Secured Party's gross negligence or willful misconduct. The foregoing power, being coupled with an interest, is irrevocable for so long as this Agreement remains in effect. Each Grantor also authorizes the Secured Party, at any time and from time to time, (i) to request from customers indebted on Accounts Receivable, in the name of the Secured Party or such Grantor or that of the Secured Party's designee, information concerning the amounts owing on the Accounts Receivable; and (ii) to communicate in its own name with any party to any contract, agreement or instrument included in the Collateral with regard to the assignment of such contract, agreement or instrument and other matters relating thereto. Section 12. Secured Party May Perform. If any Grantor fails to perform any agreement contained herein, the Secured Party may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be payable by such Grantor under Section 15(b). Section 13. Secured Party's Duties. The powers conferred on the Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Secured Party shall not have any duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Without limiting the generality of the foregoing, the Secured Party shall have no obligation to ascertain or to initiate any action with respect to or to inform the Grantor of maturity dates, conversion, call or exchange rights, offers to purchase the Collateral or any similar matters, notwithstanding the Secured Party's knowledge. The Secured Party shall have no duty to initiate any action to protect against the possibility of a decline in the value of the Collateral. Section 14. Events of Default; Remedies. The occurrence of any Event of Default shall constitute an "Event of Default" hereunder, whether such occurrence is voluntary or involuntary or occurs by operation of law or otherwise. If any Event of Default has occurred and is continuing: (a) In addition to any and all other rights and remedies provided for herein or otherwise available to the Secured Party, the Secured Party shall have all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral) or, to the extent required by applicable law, the Uniform Commercial Code as in effect in the jurisdiction where the Secured Party enforces such rights and remedies, and also may (i) require each Grantor to, and each such Grantor hereby agrees that it shall at its expense and upon the request of the Secured Party forthwith, assemble all or part of the Collateral as directed by the Secured Party and make it available to the Secured Party at a place, to be designated by the Secured Party, that is reasonably convenient to both parties; (ii) enter the premises where any of the Collateral is located and take and carry away all or any portion of the Collateral, by any of its representatives, with or without legal process, to a place of storage; and (iii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Secured Party's offices or elsewhere, for cash, on credit or for future delivery and upon such other terms as the Secured Party may deem commercially reasonable, without assumption of any credit risk. The Secured Party may, in its own name, or in the name of a designee or nominee, buy the Collateral at any public sale and, if permitted by applicable law, at any private sale; and shall have the right to credit against the amount of the bid made therefor the amount payable to the Secured Party out of the net proceeds of such sale. (b) Each Grantor agrees that, to the extent that notice of sale shall be required by law, at least ten (10) business days' notice to any such Grantor of the time and place of any public or private sale is to be made shall constitute reasonable notification. The Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place it was so adjourned. If sale of all or any part of the Collateral is made on credit or for future delivery: (i) the Collateral so sold may be retained by the Secured Party until the sale price is paid by the purchaser or purchasers thereof, (ii) the Secured Obligations shall be reduced only to the extent that payment is actually received by the Secured Party in respect of such sale, and (iii) the Secured Party shall not incur any liability if any purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. Each Grantor agrees that any sale of the Collateral conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies or other financial institutions disposing of property similar to the Collateral shall be deemed to be commercially reasonable. (c) Immediately upon the occurrence of any Event of Default and so long as such Event of Default is continuing, the Secured Party may, to the extent permitted by Law: (i) remove from any premises where they may be located any and all documents, instruments, files and records, and any receptacles or cabinets containing same, relating to the Accounts and other rights to payment of any Grantor, or the Secured Party may use, at such Grantor's expense, any of such Grantor's personnel, supplies or space at such Grantor's places of business or otherwise, as may be necessary to properly administer and control the Accounts and other rights of payment or the handling of collections and realizations thereon; and (ii) bring suit, in the name of such Grantor or the Secured Party, and generally shall have all other rights respecting said Accounts or other rights to payment, including, without limitation, the right to accelerate or extend the time of payment, to settle, compromise or release in whole or in part any amounts owing thereon and to issue credits in the name of such Grantor or the Secured Party. (d) Each Grantor recognizes that the Secured Party may be unable to effect a public sale of all or part of the Collateral consisting of investment property by reason of certain prohibitions contained in the Securities Act of 1933, as amended, or in applicable New York or other states' securities laws as now or hereafter in effect, unless registration or qualification, as the case may be, is accomplished. Each Grantor acknowledges that the Secured Party may resort to one or more private sales to a single purchaser or a restricted group of purchasers who will be obliged to agree, among other things, to acquire such investment property for their own account, for investment and not with a view to the distribution or resale thereof. Each Grantor agrees that private sales may be at prices and other terms less favorable to such Grantor than if such investment property were sold at a public sale and that the Secured Party shall have no obligation to delay the sale of any such portion of the Collateral for the period of time necessary to permit the issuer of such investment property to register or qualify such investment property, even if such issuer would, or should, proceed to register or qualify such investment property for public sale. Each Grantor agrees that private sales made under the foregoing circumstances shall be deemed to have been made in a "commercially reasonable" manner. (e) All cash proceeds received by the Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral, and all payments made in respect of the Collateral and received by the Secured Party may, in the discretion of the Secured Party, be held by the Secured Party as collateral for the Secured Obligations or may be applied (after payment to the Secured Party of the reasonable expenses, including reasonable attorneys' fees and expenses, expert witnesses' and consultants' reasonable fees and expenses, and other amounts payable under Section 15) at any time in whole or in part by the Secured Party against all or any part of the Secured Obligations in such order as the Secured Party shall elect, in its sole discretion. Any surplus of such payments held by the Secured Party and remaining after payment in full of all of the Secured Obligations shall be paid over to the applicable Grantor or to whomsoever may lawfully be entitled to receive such surplus. (f) The Secured Party may use (and is hereby granted a license to use), in connection with any assembly, preparation for disposition or disposition of the Collateral, any of the trademarks, copyrights, patents, technical processes, trade names, service marks or trade styles and other intellectual property used by any Grantor, without payment or additional compensation therefor. (g) For the purposes of determining the rights of any purchaser of Collateral, recitals contained in any conveyance to any purchaser at any sale made hereunder shall conclusively establish the truth and accuracy of the matters therein stated, including, without limitation, nonpayment of the Secured Obligations and advertisement and conduct of such sale in the manner provided herein; and the Grantor hereby ratifies and confirms all legal acts that the Secured Party may do in carrying out the provisions of this Agreement. Any sale of the Collateral or any part thereof pursuant to the provisions of this Section 14 shall operate to divest all right, title, interest, claim and demand of the applicable Grantor in and to the property sold and shall be a perpetual bar against such Grantor. Nevertheless, if requested by the Secured Party so to do, the Grantor shall join in the execution, acknowledgment and delivery of all proper conveyances, assignments and transfers of the property so sold. It shall not be necessary for the Secured Party to have physically present or constructively in its possession any of the Collateral at any such sale, and the Secured Party shall deliver all of the Collateral under its control to the purchaser thereof at such sale on the date of sale and, if it should be impossible or impracticable then to take actual delivery of the Collateral, the title and right of possession to that Collateral shall pass to the purchaser at such sale as completely as if such Collateral had been actually present and delivered. (h) NCM hereby authorizes and empowers the Secured Party (personally or through an agent), upon the occurrence and during the continuation of an Event of Default, to transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exercise all voting rights with respect thereto, to collect and receive all cash dividends and other distributions made thereon, and to otherwise act with respect to the Pledged Collateral as though the Secured Party were the outright owner thereof, and NCM irrevocably constitutes and appoints the Secured Party as the proxy and attorney-in-fact of NCM, with full power of substitution, to do so; provided, however, that the Secured Party shall have no duty to exercise or to preserve any such right and shall not be liable for any failure to do so or for any delay in doing so. Section 15. Indemnity and Expenses. (a) Each Grantor shall, upon demand, (a) pay or reimburse the Secured Party for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the other Loan Documents to which such Grantor is a party and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Secured Party, (b) pay or reimburse the Secured Party and each Lender for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement and the other Loan Documents to which such Grantor is or becomes a party, including, without limitation, the fees and disbursements of counsel to the Secured Party and each Lender, and (c) pay, and indemnify and hold harmless the Secured Party and each Lender from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement or any such other Loan Document and (d) pay, and indemnify and hold harmless the Secured Party and each Lender (including each of their respective parents, subsidiaries, officers, directors, employees, agents and affiliates) from and against, any and all other claims, demands, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, settlements, expenses or disbursements of whatever kind or nature arising from, in connection with or with respect to the execution, delivery, enforcement, performance and administration of this Agreement and such other Loan Documents, (all the foregoing in this clause (d), collectively, the "indemnified liabilities"); provided that no Grantor shall have any obligation hereunder to the Secured Party or any Lender with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Secured Party or that Lender. The agreements in this Section 15 shall survive repayment of the Secured Obligations hereunder. Section 16. Assignment. No Grantor shall pledge, assign or otherwise transfer any or all of its rights, obligations or duties hereunder, except with the prior written consent of the Secured Party. This Agreement (a) shall be binding in accordance with and to the extent of its terms upon each Grantor and its successors and assigns and each other Person who becomes bound as a debtor to this Agreement under applicable law, and (b) shall inure, together with all rights, remedies, powers and privileges of the Secured Party hereunder, to the benefit of the Secured Party and each Lender and its and their respective successors, endorsees, transferees and assigns. Without limiting the generality of clause (b) of the immediately preceding sentence, the Secured Party may assign or otherwise transfer its rights under this Agreement to another Person in connection with an assignment or transfer of its rights as Administrative Agent in accordance with the provisions of the Credit Agreement, and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Secured Party herein or otherwise. Section 17. Notices etc. All notices, requests and demands to or upon the respective parties hereto, to be effective, shall be in writing (including by telecopy) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) when delivered by hand, (b) five Business Days after being deposited in the mail, postage prepaid, or (c) in the case of telecopy notice or delivery by a nationally recognized overnight courier, when received, in each case, addressed as follows: (i) if to a Grantor, at: 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 Attention: President Telecopy: (817) 878 3672 (ii) if to the Administrative Agent at: Credit Suisse First Boston Management Corporation 277 Park Avenue, 11th Floor New York, NY 10172 Attention: Mr. Alex Lagetko, Ms. Donna P. Alderman Telecopy: (212) 325-8290 (iii)if to any Lender: To it, care of and at the address of, the Administrative Agent specified above, or to such other address for notices as such Person may have delivered to the party giving the notice in accordance with this Section 17; provided that any notice, request or demand to or upon the Secured Party shall not be effective until received. Section 18. Continuing Obligations. (a) The obligations of each Grantor under the Guaranty shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding or action, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, marshalling of assets, assignment for the benefit of creditors, composition with creditors, readjustment, liquidation or arrangement of the Borrower or any other Grantor or any similar proceedings or actions, or by any defense the Borrower or any other Grantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding or action. Without limiting the generality of the foregoing, the Grantor's liability shall extend to all amounts and obligations that constitute the Obligations and would be owed by the Borrower, but for the fact that they are unenforceable or not allowable due to the existence of any such proceeding or action. (b) This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the termination of the Commitments and the payment and performance in full of the Secured Obligations. Upon the termination of the Commitments and the payment and performance in full of the Secured Obligations, the Lien created by this Agreement shall terminate. Upon any such termination, the Secured Party shall, at such Grantor's expense, execute and deliver to any Grantor such documents, and take such other acts, as such Grantor shall reasonably request to evidence, or give effect to, such termination. Section 19. Limitation on Grantor Liability. Each Grantor and (by their acceptance of the benefits of this Agreement) the Administrative Agent and each of the Lenders hereby (i) confirm that it is the intention of such Grantor and the Beneficiaries that this Agreement not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent Conveyance Act or Uniform Fraudulent Transfer Act, as in effect in any jurisdiction, or any similar Law (any such event, a "Fraudulent Transfer"); and (ii) to effectuate the foregoing intention, irrevocably agree that such Grantor's liability hereunder in respect of the Obligations shall be limited to such amount as will not, after giving effect (to the extent relevant under applicable Law) to (A) such maximum liability and all other liabilities of such Grantor (contingent or otherwise), and (B) all rights to contribution, indemnification, set-off or reimbursement, whether from the Borrower or any other Person, and whether arising by contract, by operation of law or otherwise by reason of such Grantor's execution, delivery or performance of this Agreement, result in such Grantor's obligations constituting a Fraudulent Transfer. Section 20. Certain Waivers. (a) Each Grantor consents to any extension or waiver of any Secured Obligation. The Secured Party shall have no duty with respect to the preservation or protection of the Collateral or any income thereof or the preservation or protection of any rights against other parties with respect thereto. The Secured Party may exercise any rights it may have hereunder against any Grantor or the Collateral, after having given notice to any such Grantor as provided herein or under applicable law, whether or not it has given notice to any other Person or otherwise taken any action against any other Person, or other assets, for the enforcement of its rights in respect of any Secured Obligation. Without limiting the generality of the foregoing: to the extent that the Secured Obligations are now or hereafter secured or otherwise supported by any assets or property other than the Collateral or the Guaranty of each Grantor or by the guarantee, endorsement, assets or property of any other Person, then the Secured Party shall have the right in its sole discretion to determine which rights, security, Liens or remedies the Secured Party shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way modifying or affecting any of them, or any of the Secured Party's rights hereunder. (b) Each Grantor hereby unconditionally waives: (i) promptness and diligence; (ii) notice of or proof of reliance by the Beneficiaries upon this Agreement, including the Guaranty of such Grantor, or acceptance of this Agreement and such Guaranty; (iii) notice of the incurrence of any Obligation by the Borrower or the renewal, extension or accrual of any Obligation or of any circumstances affecting the Borrower's financial condition or ability to perform the Obligations; (iv) notice of any actions taken by the Beneficiaries or the Borrower or any other Person under any Loan Document or any other agreement or instrument relating thereto; (v) all other notices, demands and protests, and all other formalities of every kind in connection with the enforcement of the Obligations or of the obligations of such Grantor or any other Grantor hereunder, the omission of or delay in which, but for the provisions of this Section 20(b), might constitute grounds for relieving such Grantor of its obligations hereunder; (vi) any requirement that the Beneficiaries protect, secure, perfect or insure any Lien or any property subject thereto, or exhaust any right or take any action against the Borrower or any other Person or any collateral; and (vii) each other circumstance, other than payment of the Obligations in full, that might otherwise result in a discharge or exoneration of, or constitute a defense to, such Grantor's obligations hereunder. Section 21. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE LIEN PROVIDED FOR HEREIN, OR ANY REMEDY PROVIDED FOR HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Section 22. Voting Rights. During the term of this Agreement, and so long as no Default or Event of Default has occurred and is continuing, NCM shall be entitled to exercise all of its voting and other consensual rights pertaining to the Pledged Stock or any part thereof; provided that, without the prior written consent of the Secured Party (which consent shall not be unreasonably withheld or delayed): to the extent that any such matter is subject to the vote or other consent of NCM, NCM shall not vote or give consent (i) to amend the certificate of incorporation or bylaws of any Company; (ii) to sell or otherwise dispose of or transfer, or grant any Lien (other than a Permitted Lien) on, all or any portion of the assets of any Company; (iii) to terminate or dissolve any Company; (iv) to cause the redemption of all or any portion of NCM's interest in any Company; (v) to permit any change in the directors of any Company; (vi) to admit any additional shareholder to any Company; (vii) to permit any additional shares of the Capital Stock of any Company to be issued; (viii) to alter the terms of any surplus notes issued by any Company or waive any of their conditions, or (ix) to take or approve any action that could reasonably expected to adversely affect the Secured Party's security hereunder. To this end, the Secured Party shall execute and deliver to NCM all proxies and other instruments that NCM may reasonably request. Upon the occurrence and during the continuation of a Default or an Event of Default, all rights of NCM to exercise the voting and other consensual rights that NCM would otherwise be entitled to exercise pursuant to this Section 22 shall cease, and all such rights shall thereupon become vested in the Secured Party, who shall thereupon have the sole right to exercise such voting and other consensual rights. Section 23. Protection of Pledged Stock. NCM shall pay all taxes, charges and assessments against the Pledged Stock and do all acts necessary and appropriate to preserve and maintain the Pledged Stock free of any Liens other than Permitted Liens. Without limiting the generality of the foregoing, NCM shall not grant a Lien on or in the Pledged Stock to any other Person without the prior written consent of the Secured Party thereto. Upon the failure of NCM to comply with any of the foregoing provisions of this Section 23, the Secured Party may make such payments and take such actions on account thereof as the Secured Party, in its discretion, deems necessary or appropriate. NCM shall reimburse the Secured Party immediately upon demand for any and all such payments and related costs so incurred, together with interest thereon, from the date incurred by NCM until paid, calculated on the basis of a year of 360 days and for the actual number of days elapsed, at the highest rate of interest then applicable to any of the Secured Obligations. Section 24. Miscellaneous. (a) Each Grantor shall make each payment under its Guaranty in lawful money of the United States of America and in immediately available funds to the Lenders at the Administrative Agent's address specified below or to such other address as the Administrative Agent may designate for itself by like notice: Account for payments: Citibank, N.A. ABA #021000089 Account: Credit Suisse First Boston-Distressed Account #4080-4716 REF: Ascent Term Loan Attn: Adair Young, CSFB, 212-322-1365 (b) Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. If and to the extent that applicable Law confers any rights in addition to any of the provisions of this Agreement, the affected provision shall be considered amended to conform thereto. (c) The failure of the Secured Party or any Beneficiary to exercise, or delay in exercising, any right, remedy, power or privilege hereunder or under any other Grantor Document or agreement or instrument relating thereto, shall not operate as a waiver thereof, nor shall any single or partial exercise by the Secured Party of any right, remedy, power or privilege hereunder or under any other Grantor Document or agreement or instrument relating thereto preclude any other or future exercise thereof, or the exercise of any other right, remedy, power or privilege. This Agreement is in addition to and not in limitation of any other rights, remedies, powers and privileges the Secured Party may have by virtue of any other instrument or agreement heretofore, contemporaneously herewith or hereafter executed by any Grantor or any other Person or by applicable Law or otherwise. All rights, remedies, powers and privileges of the Secured Party shall be cumulative and may be exercised singly or concurrently. (d) The representations, covenants and agreements of each Grantor herein contained shall survive the date hereof, and shall be deemed to have been remade on and as of the date on which any additional Secured Obligations are created. (e) Neither this Agreement nor any of the provisions hereof can be changed, waived or terminated orally. No waiver or modification of any of the provisions hereof shall be binding upon any party unless in writing and signed by a duly authorized representative thereof. (f) This Agreement may be executed in counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute one instrument. (g) The headings herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. When used in this Agreement: (i) "or" is not exclusive; (ii) "including" is not limiting; (iii) a reference to any law, rule or regulation includes any amendment or modification thereto or thereof, as well as any replacement therefor; and (iv) unless otherwise provided for in this Agreement, a reference to any Grantor Document or other agreement, instrument or document, shall include such Grantor Document, other agreement, instrument or document, as it may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms. References herein to Sections, paragraphs, Schedules and the like, unless otherwise stated, are references to Sections or paragraphs of, or Schedules to, this Agreement. Terms such as "herein", "hereof", or "hereunder" refer to this Agreement as a whole, and not to any particular provision hereof. (h) Each Grantor acknowledges that it has sought to become, and will continue to be familiar with the Credit Agreement to the extent it deems necessary in connection with its execution and delivery of this Agreement and performance of its obligations hereunder. The Secured Party and the Lenders will have no obligation to inform the Grantors of amendments to the Credit Agreement, the making or repayment of Loans thereunder or any other matter relating thereto. To the extent it deems necessary, each Grantor will verify all such matters through the Borrower. Section 25. Waiver of Trial by Jury. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR AND THE SECURED PARTY, AND (BY THEIR ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) EACH OF THE LENDERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. Section 26. Jurisdiction. Each of (i) each Grantor and (ii) the Secured Party and (iii)(by its acceptance of the benefits of this Agreement) each of the Lenders hereby irrevocably and unconditionally (i) submits for itself and its property, in any legal action or proceeding relating to this Agreement or any other Grantor Document or the transactions contemplated hereunder or thereunder, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (ii) agrees that all claims in respect of any such action or proceeding may be heard or determined in such New York State court or, to the extent permitted by law, in such federal court; (iii) consents that any such action or proceeding may be brought in such courts and, to the extent permitted by applicable Law, waives and agrees not to assert, by way of motion, as a defense or otherwise, in any such action or proceeding, any claim that it is not personally subject to the jurisdiction of such courts, that the action or proceeding is brought in an inconvenient forum, that the venue of the action or proceeding is improper or that this Agreement or the subject matter hereof may not be litigated in or by such courts; and (iv) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each Grantor agrees that service on it of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Grantor, at the address for such Grantor specified in Section 17 or at such other address of such Grantor of which the Secured Party shall have been notified pursuant thereto; and agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. GRANTORS: FOUNDATION FINANCIAL SERVICES, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman NATIONALCARE(R)MARKETING, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman LIFESTYLES MARKETING GROUP, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman PRECISION DIALING SERVICES, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman SENIOR BENEFITS, L.L.C. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Manager WESTBRIDGE PRINTING SERVICES, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman [Guaranty and Security Agreement] SECURED PARTY: CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION By: /s/Donna P. Alderman Name: Donna P. Alderman Title: Director LENDERS: CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION By: /s/Donna P. Alderman Name: Donna P. Alderman Title: Director [Guaranty and Security Agreement] ANNEX 1 to the Guaranty and Security Agreement Pledged Stock Company No. of Shares Class of Stock Certificate Nos. LifeStyles Marketing 100 Common 15 Group, Inc. Precision Dialing 1 Common 5 Services, Inc. Restrictions on Transfer* Pursuant to the Receivables Financing Agreements, the consent of LaSalle Bank National Association is required for the pledge of the Pledged Stock and Pledged Membership Interests hereunder by NCM and the related pledge hereunder by it of interests in any other capital stock or similar interests in any Subsidiary of the Borrower. SCHEDULE I to the Guaranty and Security Agreement Grantor Places of Business and Organization and Locations of Collateral ----------------------------------------------------------------------- A. Jurisdiction of Organization 1. Foundation Financial Services, Inc. - Nevada 2. LifeStyles Marketing Group, Inc. - Delaware 3. NationalCare(R) Marketing, Inc. - Delaware 4. Precision Dialing Services, Inc. - Delaware 5. Senior Benefits, L.L.C. - Arizona 6. Westbridge Printing Services, Inc. - Delaware B.(1) Chief Executive Office 1. Foundation Financial Services, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 2. LifeStyles Marketing Group, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 3. NationalCare(R)Marketing, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 4. Precision Dialing Services, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 5. Senior Benefits, L.L.C. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 6. Westbridge Printing Services, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 (2) Chief Place of Business For each Grantor other than the following, the address set out in B(1). For the following , the addresses indicated: 1. Precision Dialing Services, Inc. 9550 Forest Lane, Suite 715 Dallas, Texas 75243 2. Westbridge Printing Services, Inc. 7333 Jack Newell Blvd. North Fort Worth, Texas 76118 C. Locations of Inventory 1. Foundation Financial Services, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 2. LifeStyles Marketing Group, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 3. NationalCare(R)Marketing, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 4. Precision Dialing Services, Inc. 9550 Forest Lane, Suite 715 Dallas, Texas 75243 5. Senior Benefits, L.L.C. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 6. Westbridge Printing Services, Inc. 7333 Jack Newell Blvd. North Fort Worth, Texas 76118 D. Locations of Equipment 1. Foundation Financial Services, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 2. LifeStyles Marketing Group, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 3. NationalCare(R)Marketing, Inc. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 4. Precision Dialing Services, Inc. 9550 Forest Lane, Suite 715 Dallas, Texas 75243 5. Senior Benefits, L.L.C. 110 W. 7th St., Suite 300 Fort Worth, Texas 76102 6. Westbridge Printing Services, Inc. 7333 Jack Newell Blvd. North Fort Worth, Texas 76118 E. Other Places of Business None. F. Taxpayer I.D. No.: 1. Foundation Financial Services, Inc. - 75-2193766 2. LifeStyles Marketing Group, Inc. - 75-2225187 3. NationalCare(R)Marketing, Inc. - 75-2192748 4. Precision Dialing Services, Inc. - 75-2225186 5. Senior Benefits, L.L.C. - 86-0739432 6. Westbridge Printing Services, Inc. - 75-2192750 SCHEDULE II to the Guaranty and Security Agreement Part 1: Permitted Liens on Personal Property of Grantors* Reference is made to items 5 and 7 through 32 of Schedule 3.23 of the Credit Agreement. For the avoidance of doubt, the Borrower and certain of its Subsidiaries have, pursuant to the Receivables Financing Agreements and the Guaranty Agreement by Ascent Management Inc. referred to in Item 4 of Schedule 6.6 to the Credit Agreement, granted security interests in certain assets and property as collateral for the obligations of the Borrower and its Subsidiaries to LaSalle Bank National Association, all as described in such agreements. Any assets or property that are the subject of such security interests and liens are excluded as collateral under the Loan Documents. Please see attached Lien Reports. Part 2: Financing Statements relating to the Lien Created by this Agreement Grantor Office of Filing 1. Foundation Financial Services, Inc. Secretary of State of the State of Texas 2. LifeStyles Marketing Group, Inc. Secretary of State of the State of Texas 3. NationalCare(R)Marketing, Inc. Secretary of State of the State of Texas 4. Precision Dialing Services, Inc. Secretary of State of the State of Texas 5. Senior Benefits, L.L.C. Secretary of State of the State of Texas 6. Westbridge Printing Services, Inc. Secretary of State of the State of Texas SCHEDULE III to the Guaranty and Security Agreement Required Consents Reference is made to Section 3.4 of the Credit Agreement. SCHEDULE IV to the Guaranty and Security Agreement Excluded Property Please see Lien Reports attached to Schedule II. EX-10.3 4 exh10_3.txt PLEDGE AGREEMENT PLEDGE AGREEMENT between ASCENT ASSURANCE, INC. as Pledgor and CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION as Pledgee Dated: As of April 17, 2001 PLEDGE AGREEMENT THIS PLEDGE AGREEMENT is made as of April 17, 2001, between ASCENT ASSURANCE, INC., a Delaware corporation (the "Pledgor"), and CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION, as pledgee hereunder (the "Pledgee") for its benefit in its capacity as Administrative Agent for the Lenders (as those terms are defined below) and for its own benefit as Administrative Agent (as that term is so defined). RECITALS A. Each of the entities identified in Annex 1 (each a "Company" and, collectively, the "Companies") is a Subsidiary of the Pledgor. B. Pursuant to the Credit Agreement dated as of the date hereof (as it may be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") among the Pledgor, as borrower, Credit Suisse First Boston Management Corporation, as Administrative Agent (in that capacity, the "Administrative Agent") and Arranger, and the Lenders from time to time party thereto (the "Lenders"), the Lenders have agreed, on the terms and subject to the conditions of the Credit Agreement, to make loans (the "Loans") to the Borrower. C. It is a condition precedent to the making of the initial Loans that the Pledgor enter into this Agreement granting the Administrative Agent a Lien (as defined below) on and in the Pledged Collateral (as defined below) as security for the payment and performance of the Pledgor's obligations under the Credit Agreement and the Notes (as defined in the Credit Agreement). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows: SECTION 1. Definitions. Terms used herein that are defined in the New York Uniform Commercial Code (as amended from time to time, the "UCC"), unless otherwise defined herein, have the meanings given to them from time to time by the UCC. Capitalized terms used herein without definition have the meanings given to those terms in the Credit Agreement. Certain terms relating to the Collateral are defined in Section 2. The following terms, as used herein, have the meanings set forth below, and shall be equally applicable to both the singular and the plural forms thereof: "Event of Default" has the meaning set forth in Section 11. "Law" means any treaty, foreign, federal, state or local statute, law, rule, regulation, ordinance, order, code, policy or rule of common law, now or hereafter in effect, 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. "Pledged Collateral" has the meaning set forth in Section 2. "Pledged Notes" has the meaning set forth in Section 2. "Pledged Stock" has the meaning set forth in Section 2. "Pledgor Documents" means this Agreement, the Notes and each other Loan Document to which the Pledgor is or at any time hereafter becomes a party. "Secured Obligations" has the meaning set forth in Section 3. "Surplus Notes" means all surplus notes issued by any Insurance Subsidiary that are purchased by the Pledgor from time to time with the proceeds of any of the Loans as contemplated in Section 5.10 of the Credit Agreement and identified as Pledged Notes on Annex 2). SECTION 2. Pledge. The Pledgor hereby pledges to the Pledgee, in its capacity as Administrative Agent for the benefit of the Lenders and for its own benefit as Administrative Agent, and grants to the Pledgee a security interest in and lien on all of the Pledgor's right, title and interest in and to the following, whether now owned or hereafter acquired or existing (the "Pledged Collateral"): (a) all shares of Capital Stock of each of the Companies to the extent that such Capital Stock is now owned by the Pledgor, regardless of the class of that Capital Stock, in each case together with the certificates evidencing the same, all of which are identified in Annex 1, and (ii) any options, warrants or other rights to purchase such interests or stock at any time owned by the Pledgor, including, without limitation, all such interests or stock, options, warrants or other rights acquired by the Pledgor in the future (the "Pledged Stock"); (b) all shares, securities, moneys or property representing a dividend on any of the Pledged Stock, representing a distribution or return of capital upon or in respect of the Pledged Stock, resulting from a split-up, revision, reclassification or other like change of the Pledged Stock or otherwise received in exchange therefor, and any subscription warrants, rights or options issued to the holders of, or otherwise in respect of, the Pledged Stock; (c) all supporting obligations for any of the property described in the foregoing clauses of this Section 2; (d) subject to the proviso at the end of this Section 2, all Surplus Notes (collectively, the "Pledged Notes"); (e) all securities or other investment property, of any nature whatsoever, received or receivable in substitution for or in addition to any of the Pledged Notes, any certificates representing or evidencing such securities, and all cash, distributions and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Notes, and all securities accounts to which any or all of the foregoing may at any time be credited; and (f) all proceeds of and to any of the property of the Pledgor described in the foregoing clauses in this Section 2, in whatever form, including, without limitation, in the form of accounts, instruments, chattel paper, documents, goods, investment property, letters of credit, letter-of-credit rights, money, deposit accounts, claims or causes of action or general intangibles; provided, however, that, if the authorization of any Insurance Regulatory Authority must, as disclosed in Schedule 3.4 of the Credit Agreement, be obtained under any applicable Requirement of Law to enable the Pledgor to lawfully make the pledge and grant of security interest contemplated in this Section 2 in respect of any Surplus Notes or Pledged Stock of an Insurance Subsidiary those Surplus Notes (the "Committed Notes") or that Pledged Stock (the "Committed Stock") will constitute Pledged Notes or Pledged Stock for purposes of this Agreement subject to the issuance of that authorization by the relevant Insurance Regulatory Authority. The Pledgor shall promptly give the Pledgee notice of the issuance of any such authorization that has not been obtained on or before the date of this Agreement and shall, from time to time, after request from the Pledgee, give the Pledgee notice of the status of the Pledgor's request or application for any such authorization that is pending. The Pledgor shall use its best efforts actively and vigorously to pursue all such authorizations. . SECTION 3. Security for Obligations (a) . (a) This Agreement secures the payment and performance of any and all obligations of the Pledgor now existing or hereafter arising under or in respect of the Credit Agreement and each other Pledgor Document, including this Agreement (the "Secured Obligations"). (b) The term "obligations" is used herein, and in each other Pledgor Document, in the broadest sense possible, and includes all payment and performance obligations of the Pledgor in respect of any and all advances, debts, reimbursement or indemnity obligations, guarantees and liabilities heretofore, now, or hereafter made, incurred or created, whether in respect of principal, interest, fees or any other amount and whether accruing before or after judgment or the commencement of any bankruptcy or insolvency proceedings in respect of the Pledgor, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether the Pledgor may be liable individually or jointly with others, whether recovery thereon may be or hereafter becomes barred by any statute of limitations or whether any of the foregoing may be or hereafter becomes otherwise unenforceable. SECTION 4. Delivery of Pledged Collateral All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Pledgee pursuant hereto and shall be (a) in suitable form for transfer by delivery or (b) accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Pledgee. The Pledgee shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to, or to register in the name of, the Pledgee or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6. SECTION 5. Distributions. So long as no Default or Event of Default is continuing, any cash dividends or other cash distributions on the Pledged Stock and any interest paid on the Pledged Notes may be paid directly to the Pledgor. If an Event of Default has occurred and is continuing, upon request of the Secured Party, the principal of the Surplus Notes and all other dividends or distributions in respect of any of the Pledged Collateral shall be paid or delivered directly to the Pledgee, to be held as additional Pledged Collateral hereunder or, if the Pledgee so elects, applied to payment of the Secured Obligations, in such order as the Pledgee may determine in its sole discretion, until all Secured Obligations are paid in full. Any dividends, interest or distributions received by the Pledgor in contravention of the preceding sentence of this Section 5 shall be segregated from all other property of the Pledgor, held in trust for the Pledgee, and delivered to the Pledgee in exactly the form received, together with any necessary endorsements, for application in accordance with this Section 5. SECTION 6. Voting Rights. During the term of this Agreement, and so long as no Default or Event of Default has occurred and is continuing, the Pledgor shall be entitled to exercise all of its voting and other consensual rights pertaining to the Pledged Collateral or any part thereof; provided that, without the prior written consent of the Pledgee (which consent shall not be unreasonably withheld or delayed): to the extent that any such matter is subject to the vote or other consent of the Pledgor, the Pledgor shall not vote or give consent (i) to amend the certificate of incorporation or bylaws of any Company; (ii) to sell or otherwise dispose of or transfer, or grant any Lien (other than a Permitted Lien) on, all or any portion of the assets of any Company; (iii) to terminate or dissolve any Company; (iv) to cause the redemption of all or any portion of the Pledgor's interest in any Company; (v) to admit any additional shareholder to any Company; (vi) to permit any additional shares of the Capital Stock of any Company to be issued; (vii) to alter the terms of any Surplus Notes or waive any of their conditions, or (viii) to take or approve any action that could reasonably expected to adversely affect the Pledgee's security hereunder. To this end, the Pledgee shall execute and deliver to the Pledgor all proxies and other instruments that the Pledgor may reasonably request. Upon the occurrence and during the continuation of a Default or an Event of Default, all rights of the Pledgor to exercise the voting and other consensual rights that the Pledgor would otherwise be entitled to exercise pursuant to this Section 6 shall cease, and all such rights shall thereupon become vested in the Pledgee, who shall thereupon have the sole right to exercise such voting and other consensual rights. SECTION 7. Payment of Secured Obligations; Release of Collateral. This Agreement shall create a continuing Lien on and in the Pledged Collateral and shall remain in full force and effect until the termination of the Commitments and the payment and performance in full of the Secured Obligations. Upon termination of all Commitments and payment and performance in full of all of the Secured Obligations, the Pledgor shall be entitled to the return, upon the Pledgor's request and at the Pledgor's expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof, and the Pledgee shall, at the Pledgor's expense, execute and deliver to the Pledgor such documents, and take such other acts, as the Pledgor shall reasonably request to evidence, or give effect to, such termination. SECTION 8. Protection of Pledged Collateral. The Pledgor shall pay all taxes, charges and assessments against the Pledged Collateral and do all acts necessary and appropriate to preserve and maintain the Collateral free of any Liens other than Permitted Liens. Without limiting the generality of the foregoing, the Pledgor shall not grant a Lien on or in the Pledged Collateral to any other Person without the prior written consent of the Pledgee thereto. Upon the failure of the Pledgor to comply with any of the foregoing provisions of this Section 8, the Pledgee may make such payments and take such actions on account thereof as the Pledgee, in its discretion, deems necessary or appropriate. The Pledgor shall reimburse the Pledgee immediately upon demand for any and all such payments and related costs so incurred, together with interest thereon, from the date incurred by the Pledgor until paid, calculated on the basis of a year of 360 days and for the actual number of days elapsed, at the highest rate of interest then applicable to any of the Secured Obligations. SECTION 9. Representations and Warranties of the Pledgor. The Pledgor hereby represents and warrants to the Pledgee and each of the Lenders as follows: (a) True and correct copies of the certificate of incorporation and bylaws of each of the Companies, as currently in full force and effect, have been delivered to the Pledgee. Except for those agreements identified in Exhibit A, true and correct copies of which have been delivered to the Pledgee, there are no stockholder or other agreements relating to the management of any of the Companies. (b) Except for the Committed Stock and Committed Notes, if any, pending its becoming Pledged Collateral hereunder pursuant to the proviso at the end of Section 2, the Pledged Collateral includes all of the issued and outstanding Capital Stock of the Companies and all of the Surplus Notes. The Pledgor is or, upon its acquisition of Pledged Collateral not currently owned by it, will be, the legal, record or beneficial owner of, and has, or at the time of that acquisition, will have, good and marketable title to, the Pledged Collateral, free and clear of any Lien whatsoever, except for the Lien created hereby. (c) This Agreement has been duly executed and delivered by the Pledgor and constitutes a valid, legal and binding obligation of the Pledgor enforceable in accordance with the terms of this Agreement except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by general principles of equity (whether enforcement is sought by proceedings in equity or at law). (d) The execution and delivery of this Agreement by the Pledgor, performance by it of its obligations hereunder and the grant of the Lien hereunder do not (i) require any consent or approval of the Pledgor's stockholders, except for such consents or approvals as have been duly obtained and are in full force and effect as of the date hereof; (ii) contravene any Requirement of Law; (iii) violate any provisions of, or require any filing (other than the filing of the financing statements contemplated hereby), registration, consent or approval under any Law, order writ, injunction, determination or award currently in effect applicable to the Pledgor or any of the Companies or the property of the Pledgor or any of the Companies except for the authorizations of applicable Insurance Regulatory Authorities identified in Schedule 3.4 of the Credit Agreement, each of which has been requested by the Pledgor on or before the date of this Agreement; (iv) result in a breach of, constitute a default under, or otherwise contravene, any Contractual Obligation of the Pledgor or any Company; or (v) cause either the Pledgor or any Company to be in default under any such Law, order, writ, judgment, injunction, decree, determination or award or any such Contractual Obligation or in violation of any other obligation with respect to the Pledged Collateral. (e) No consent or authorization, filing with, notice to, or other act by or in respect of, any Governmental Authority or any other Person is required with respect to the Pledgor in connection with either (i) the grant by the Pledgor of the Lien created hereunder or the execution, delivery or performance of this Agreement by the Pledgor or (ii) for the perfection of or the exercise by the Pledgee of the voting or other rights, remedies, powers or privileges provided for hereunder, except as identified in Schedule 3.4 of the Credit Agreement. (f) The pledge, assignment and delivery of the Pledged Collateral pursuant to this Agreement creates a valid first lien and a first perfected security interest in the Pledged Collateral, subject to no prior Lien or to any agreement to grant to any third party a Lien on or in the property or assets of the Pledgor that would include the Pledged Collateral. (g) Except for such restrictions as may appear on the certificates evidencing the Pledged Stock and the restrictions imposed by applicable Law which are identified in Schedule 3.4 of the Credit Agreement, there are no restrictions upon the transfer of any of the Pledged Stock. (h) The chief place of business and chief executive office of the Pledgor are located at the address specified for notices to the Pledgor herein. The Pledgor does not conduct any business under any name or tradenames other than its proper corporate name, which is the name set forth in the first paragraph of this Agreement. The Pledgor maintains no other place of business. SECTION 10. Covenants of the Pledgor (a) . (a) The Pledgor shall defend the Pledgee's right and title to, and Lien on and in, the Pledged Collateral and the proceeds thereof against the claims of all Persons. (b) The Pledgor shall not (i) change the location of its chief executive office/chief place of business from its address specified for notices herein, or (ii) change its name (including the adoption of any new trade name), jurisdiction of incorporation, identity or corporate structure, unless, in any such case, it shall have provided at least thirty (30) days' prior written notice to the Pledgee of any such change and until such filings and other measures as may be required under applicable law to continue uninterrupted the perfected Lien of the Pledgee on and in the Pledged Collateral shall have been taken, and until the Pledgee shall have received such opinions of counsel with respect thereto as it may have reasonably requested. (c) Pursuant to Section 5.10 of the Credit Agreement, when the Pledgor shall at any time acquire any Surplus Notes, the Pledgor shall (i) immediately deliver those Surplus Notes to the Administrative Agent to be held as additional collateral security for the Secured Obligations hereunder, (ii) promptly deliver to the Administrative Agent a supplement to this Pledge Agreement, substantially in the form set forth in Exhibit B to this Agreement, and (iii) promptly cause the Subsidiary that issued those Surplus Notes to execute and deliver an acknowledgment and consent substantially in the form appended as Schedule I to Exhibit B to this Agreement unless it has already done so at an earlier time. SECTION 11. Default. The occurrence of any Event of Default shall constitute an "Event of Default" hereunder, whether such occurrence is voluntary or involuntary or occurs by operation of law or otherwise. If any Event of Default has occurred and is continuing: (a) In addition to any and all other rights and remedies provided for herein or otherwise available to the Pledgee, the Pledgee shall have all the rights and remedies of a secured party on default under the UCC. The Pledgee (personally or through an agent) is hereby authorized and empowered, upon the occurrence and during the continuation of an Event of Default, to transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exercise all voting rights with respect thereto, to collect and receive all cash dividends and other distributions made thereon, and to otherwise act with respect to the Pledged Collateral as though the Pledgee were the outright owner thereof, the Pledgor irrevocably constituting and appointing the Pledgee as the proxy and attorney-in-fact of the Pledgor, with full power of substitution, to do so; provided, however, that the Pledgor shall have no duty to exercise or to preserve any such right and shall not be liable for any failure to do so or for any delay in doing so. (b) With respect to the Pledged Collateral or any part thereof that shall then be in or shall thereafter come into possession or custody of the Pledgee or that the Pledgee shall otherwise have the ability to transfer under applicable law, the Pledgee may, in its sole discretion, without notice except as set forth below, after the occurrence of an Event of Default, sell or cause such Pledged Collateral to be sold at any exchange or broker's board or at a public or private sale, in one or more sales or lots, at such price as the Pledgee may deem best, for cash or on credit or for future delivery, without assumption of any credit risk, and the purchaser of any or all of the Pledged Collateral so sold shall thereafter own the Pledged Collateral so purchased absolutely free of any adverse claim of any kind whatsoever. The Pledgee may, in its own name, or in the name of a designee or nominee, buy the Pledged Collateral at any public sale, and, if permitted by applicable law, at any private sale; and shall have the right to credit against the amount of the bid made therefor the amount payable to the Pledgee out of the net proceeds of such sale. (c) Unless any of the Pledged Collateral threatens to decline speedily in value or is or becomes of a type sold on a recognized market, the Pledgee will give the Pledgor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any sale of the Pledged Collateral conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies or other financial institutions disposing of property similar to the Pledged Collateral shall be deemed to be commercially reasonable. Notwithstanding any provision to the contrary contained herein, the Pledgor agrees that any requirements of reasonable notice shall be met by notice given to the Pledgor in accordance with the notice provisions hereof at least ten (10) business days before the time of the sale or other disposition, provided, however, that the Pledgee may give any shorter notice that is commercially reasonable under the circumstances. Any requirement of notice, demand or advertisement for sale is waived, to the extent permitted by law. Proceeds of any realization upon all or any part of the Pledged Collateral shall be applied first, to the payment of the Pledgee's reasonable out-of-pocket expenses (including reasonable attorneys' fees and expenses and reasonable expert witnesses' and consultants' fees and expenses) incurred in retaking, collecting, selling or disposing of the Pledged Collateral and other expenses payable under the terms of any Secured Obligation, and second, to payment of the remaining Secured Obligations, in such order as the Pledgee may determine in its sole discretion. Any surplus of such proceeds held by the Pledgee and remaining after payment in full of all of the Secured Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. (d) The Pledgee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Pledgee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place it was so adjourned. If sale of all or any part of the Pledged Collateral is made on credit or for future delivery: (i) the Pledged Collateral so sold may be retained by the Pledgee until the sale price is paid by the purchaser or purchasers thereof, (ii) the Secured Obligations shall be reduced only to the extent that payment is actually received by the Pledgee in respect of such sale, and (iii) the Pledgee shall not incur any liability in the event that any purchaser or purchasers shall fail to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may be sold again upon like notice. (e) The Pledgor recognizes that the Pledgee may be unable to effect a public sale of all or part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended, or in applicable New York or other states' securities laws as now or hereafter in effect, unless registration or qualification, as the case may be, is accomplished. The Pledgor acknowledges that the Pledgee may resort to one or more private sales to a single purchaser or a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgor agrees that private sales may be at prices and other terms less favorable to the Pledgor than if such securities were sold at a public sale and that the Pledgee shall have no obligation to delay the sale of any such portion of the Pledged Collateral for the period of time necessary to permit the issuer of such securities to register or qualify such securities, even if such issuer would, or should, proceed to register or qualify such securities for public sale. The Pledgor agrees that private sales made under the foregoing circumstances shall be deemed to have been made in a "commercially reasonable" manner. (f) Notwithstanding the foregoing, insofar as any Pledged Stock or Pledged Notes of an Insurance Subsidiary are concerned, the rights and remedies of the Pledgee provided for above in this Section 11 shall be exercised only in accordance with any restriction imposed by an applicable Requirement of Law or under an authorization from an Insurance Regulatory Authority that was necessary for the creation of the Lien of this Agreement on that Pledged Stock or, as the case may be, those Pledged Notes. SECTION 12. Possession of Pledged Collateral (a) . (a) The Pledgee will hold in accordance with this Agreement all items of the Pledged Collateral at any time received under this Agreement. It is understood and agreed that the obligations of the Pledgee as holder of the Pledged Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. If the Pledgor takes possession of any items of Pledged Collateral, pursuant to this Agreement or otherwise, including, without limitation, the certificates representing the Pledged Stock or the Pledged Notes and any assignments separate from any certificate or other documents relating thereto, the Pledgor agrees (subject to the provisions of Section 5) to immediately transfer possession of such items of Pledged Collateral to the Pledgee and, until such time as such transfer of possession is effected, agrees to hold such items of Pledged Collateral in trust for the Pledgee and the Lenders. (b) The Pledgee shall have no obligation in respect of the Pledged Collateral, except as set forth in this Agreement and except to use reasonable care in the custody and preservation of Pledged Collateral in its possession. The obligations of the Pledgee shall not include any obligation to ascertain or to initiate any action with respect to or to inform the Pledgor of maturity dates, conversion, call, or exchange rights, offers to purchase the Pledged Collateral or any similar matters, notwithstanding the Pledgee's knowledge. The Pledgee shall have no duty to take any steps necessary to preserve the rights of the Pledgor against prior parties or to initiate any action to protect against the possibility of a decline in the value of the Pledged Collateral. The Pledgee shall not be obligated to take any actions that may be requested by the Pledgor with respect to the Pledged Collateral unless such request is made in writing and the Pledgee determines, in its sole and absolute discretion, that the requested actions would not unreasonably jeopardize the value of the Pledged Collateral as security for the Secured Obligations. The Pledgee may at any time deliver the Pledged Collateral, or any part thereof, to the Pledgor, and the receipt thereof by the Pledgor shall be a complete and full acquittance for the Pledged Collateral so delivered, and the Pledgee shall thereafter be discharged from any liability or responsibility therefor. SECTION 13. Waivers (a) . The Pledgee shall have no duty with respect to the preservation or protection of the Pledged Collateral or any income thereof or the preservation or protection of any rights against other parties with respect thereto. The Pledgee may exercise any rights it may have hereunder against the Pledgor or the Pledged Collateral, after having given notice to the Pledgor as provided herein or under applicable law, whether or not it has given notice to any other Person or otherwise taken any action against any other Person, or other assets, for the enforcement of its rights in respect of any Secured Obligation. Without limiting the generality of the foregoing: to the extent that the Secured Obligations are now or hereafter secured or otherwise supported by any assets or property other than the Pledged Collateral or by the guarantee, endorsement, assets or property of any other Person, then the Pledgee shall have the right in its sole discretion to determine which rights, security, Liens or remedies the Pledgee shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way modifying or affecting any of them, or any of the Pledgee's rights hereunder. SECTION 14. Indemnity and Expenses. The Pledgor shall, on demand, (a) pay or reimburse the Pledgee for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Pledgee, (b) pay or reimburse the Pledgee and each of the Lenders for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the fees and disbursements of counsel to the Pledgee and each of the Lenders, and (c) pay, and indemnify and hold harmless the Pledgee and each of the Lenders from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) pay, and indemnify and hold harmless the Pledgee and each of the Lenders (including each of their respective parents, subsidiaries, officers, directors, employees, agents and affiliates) from and against, any and all other claims, demands, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, settlements, expenses or disbursements of whatever kind or nature arising from, in connection with or with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents, or any other documents or the use of the proceeds of the Loans or any other purpose (all the foregoing in this clause (d), collectively, the "indemnified liabilities"); provided that the Pledgor shall have no obligation hereunder to the Pledgee or any Lender with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Pledgee or that Lender. The agreements in this Section 14 shall survive repayment of the Secured Obligations hereunder. SECTION 15. Assignment. The Pledgor shall not pledge, assign or otherwise transfer any or all of its rights, obligations or duties in, or in respect of, the Pledged Collateral or hereunder, without the prior written consent of the Pledgee. This Agreement (a) shall be binding in accordance with and to the extent of its terms upon the Pledgor and its successors and assigns and each other Person who becomes bound as a debtor to this Agreement under applicable law, and (b) shall inure, together with all rights, remedies, powers and privileges of the Pledgee hereunder, to the benefit of the Pledgee and the Lenders and its and their respective successors, endorsees, transferees and assigns. Without limiting the generality of clause (b) of the immediately preceding sentence, the Pledgee may assign or otherwise transfer its rights under this Agreement to any other Person in connection with any assignment or transfer of its rights as Agent in accordance with the provisions of the Credit Agreement, and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Pledgee herein or otherwise. SECTION 16. Further Assurances. The Pledgor shall cooperate with the Pledgee, and shall execute and deliver, or cause to be executed and delivered, all such other stock powers, proxies, instruments and documents, and shall take all such other actions, including, without limitation, the execution and filing or recording, as applicable, of financing statements, amendments thereto, continuation statements, and agreements granting control to the Pledgee over all or any portion of the Pledged Collateral, and such other instruments or notices, as may be necessary or reasonably desirable, or as the Pledgee may reasonably request from time to time, in order to carry out the provisions and purposes of this Agreement. The Pledgor hereby irrevocably makes, constitutes and appoints the Pledgee (and all persons designated by the Pledgee for that purpose) the Pledgor's true and lawful attorney-in-fact to sign the name of the Pledgor on any financing statement, amendment thereto, continuation sttement or other writing necessary or requested by the Pledgee to perfect and maintain a perfected Lien on and in any of the Pledged Collateral. The Pledgor hereby authorizes the Pledgee, where permitted by law, to file any financing statement, amendment thereto, or continuation statement without the Pledgor's signature. If at any time after the date hereof all or any portion of the Pledged Collateral shall be represented or evidenced by certificates or instruments not theretofore delivered to the Pledgee, all such certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by the Pledgee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Pledgee. SECTION 17. Power of Attorney. The Pledgor hereby irrevocably appoints the Pledgee as the Pledgor's attorney-in-fact, with full power of substitution, and with full authority in the place and stead of and in the name of the Pledgor, the Pledgee or otherwise, to take any action and to execute any instrument, that the Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (a) to perform or cause the performance of any obligation of the Pledgor hereunder; (b) during the continuance of any Event of Default, to liquidate any Pledged Collateral and otherwise to deal in or with the Pledged Collateral or the proceeds or avails thereof, as full and effectually as if the Pledgee were the absolute owner thereof, and to apply the proceeds thereof to payment of the Secured Obligations, notwithstanding the fact that such liquidation may give rise to penalties; (c) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral; (d) to receive, endorse, assign and collect any and all checks, notes, drafts and other negotiable and non-negotiable instruments, documents and chattel paper constituting Pledged Collateral in connection with clause (b) or (c) above, and the Pledgor waives notice of presentment, protest and non-payment of any instrument, document or chattel paper so endorsed or assigned; (e) during the continuance of any Event of Default, to file any claims, take any action or institute any proceedings that the Pledgee may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of the Pledgee or the Pledgor with respect to any of the Pledged Collateral; (f) to notify any Person obligated on any Pledged Collateral of the Pledgee's rights hereunder; and (g) to enter into any extension, reorganization, deposit, merger or consolidation agreement or any other agreement relating to or affecting the Pledged Collateral and, in connection therewith, to deposit or surrender control of the Pledged Collateral and to accept other property in exchange for the Pledged Collateral, subject otherwise to this Agreement. The Pledgor hereby ratifies and approves all acts of the Pledgee taken pursuant to the foregoing appointment, other than acts of the Pledgee constituting gross negligence or willful misconduct, and the Pledgee, as the Pledgor's attorney-in-fact, will not be liable for any acts of commission or omission, or for any error of judgment or mistake of fact or law, other than those that result from the Pledgee's gross negligence or willful misconduct. The foregoing power, being coupled with an interest, is irrevocable for so long as this Agreement remains in effect. SECTION 18. Notices. All notices, requests and demands to or upon the respective parties hereto to be effective, shall be in writing (including by telecopy) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) when delivered by hand, (b) five Business Days after being deposited in the mail, postage prepaid, or (c) in the case of telecopy notice or delivery by a nationally recognized overnight courier, when received, in each case, addressed as follows: (a) To the Pledgor: Ascent Assurance, Inc. 110 W. 7th St., Suite 300 Fort Worth, TX 76102 Attention: President Telecopy: (817) 878 3672 (b) if to the Pledgee: Credit Suisse First Boston Management Corporation 277 Park Avenue, 11th Floor New York, NY 10172 Attention: Mr. Alex Lagetko, Ms. Donna P. Alderman Telecopy: (212) 325-8290 or to such other address for notices as such Person may deliver to the other party in accordance with this Section 18; provided that any notice, request or demand to or upon the Pledgee shall not be effective until received. SECTION 19. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE LIEN PROVIDED FOR HEREIN, OR ANY REMEDY HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 20. Miscellaneous (a) . (a) Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. If and to the extent that applicable Law confers any rights in addition to any of the provisions of this Agreement, the affected provision shall be considered amended to conform thereto. (b) The failure of the Pledgee to exercise, or delay in exercising, any right, remedy, power or privilege hereunder, shall not operate as a waiver thereof, nor shall any single or partial exercise by the Pledgee of any right, remedy or privilege hereunder preclude any other or future exercise thereof, or the exercise of any other right, remedy, power or privilege. This Agreement is in addition to and not in limitation of any other rights, remedies, powers and privileges the Pledgee may have by virtue of any other instrument or agreement heretofore, contemporaneously herewith or hereafter executed by the Pledgor or any other Person or by applicable Law or otherwise. All rights, remedies, powers and privileges of the Pledgor shall be cumulative and may be exercised singly or concurrently. (c) The representations, covenants and agreements of the Pledgor herein contained shall survive the date hereof, and shall be deemed to have been remade on and as of the date on which any additional Secured Obligations are created. (d) Neither this Agreement nor any of the provisions hereof can be changed, waived or terminated orally. No waiver or modification of any of the provisions hereof shall be binding upon the Pledgee unless in writing and signed by a duly authorized representative thereof. (e) This Agreement may be executed in counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute one instrument. (f) The headings herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. When used in this Agreement: (i) "or" is not exclusive; (ii) "including" is not limiting; (iii) a reference to any law, rule or regulation includes any amendment or modification thereto or thereof, as well as any replacement therefor; and (iv) unless otherwise provided for in this Agreement, a reference to any Pledgor Document or other agreement, instrument or document, shall include such Pledgor Document, other agreement, instrument or document, as it may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms. References herein to Sections, paragraphs, Annexes and Schedules and the like, unless otherwise stated, are references to Sections or paragraphs of, or Annexes or Schedules to, this Agreement. Terms such as "herein", "hereof", or "hereunder" refer to this Agreement as a whole, and not to any particular provision hereof. SECTION 21. Waiver of Trial By Jury. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR, THE PLEDGEE AND (BY THEIR ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) EACH OF THE LENDERS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. SECTION 22. Jurisdiction. Each of the Pledgor and the Pledgee and (by its acceptance of the benefits of this Agreement) each of the Lenders hereby irrevocably and unconditionally (i) submits for itself and its property, in any legal action or proceeding relating to this Agreement or any other Pledgor Document or the transactions contemplated hereunder or thereunder, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (ii) agrees that all claims in respect of any such action or proceeding may be heard or determined in such New York State court or, to the extent permitted by law, in such federal court; (iii) consents that any such action or proceeding may be brought in such courts and, to the extent permitted by applicable Law, waives and agrees not to assert, by way of motion, as a defense or otherwise, in any such action or proceeding, any claim that it is not personally subject to the jurisdiction of such courts, that the action or proceeding is brought in an inconvenient forum, that the venue of the action or proceeding is improper or that this Agreement or the subject matter hereof may not be litigated in or by such courts; and (iv) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. The Pledgor agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party, at the address for Pledgor specified in Section 18 or at such other address of the Pledgor of which the Pledgee shall have been notified pursuant thereto; and agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. PLEDGOR: ASCENT ASSURANCE, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: PLEDGEE: CREDIT SUISSE FIRST BOSTON MANAGEMENT CORPORATION By:/s/Donna P. Alderman Name: Donna P. Alderman Title: Director [Signature Page to Pledge Agreement] ACKNOWLEDGMENT Each of the undersigned, the Companies referred to in the foregoing Pledge Agreement, hereby acknowledges receipt of a copy thereof and agrees to cooperate in the implementation of the terms thereof insofar as such terms are applicable to it or to exercise by the Pledgee of its rights and remedies under that Pledge Agreement in respect of the Pledged Stock or Pledged Notes issued by that company, including their registration in the name of the Pledgee or its nominee. Pacific Casualty Company, Inc. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman Foundation Financial Services, Inc. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman Westbridge Printing Services, Inc. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman ANNEX 1 to the Pledge Agreement Pledged Stock Company No. of Shares Class of Stock Certificate Nos. Foundation Financial 1 common 2 Services, Inc. Westbridge Printing 1 common 3 Services, Inc. Pacific Casualty 1,000 common 1 Company, Inc. ANNEX 2 to the Pledge Agreement Pledged Notes Initially none EXHIBIT A to the Pledge Agreement AGREEMENTS AFFECTING MANAGEMENT OF COMPANY None. EXHIBIT B to the Pledge Agreement PLEDGE AGREEMENT SUPPLEMENT PLEDGE AGREEMENT SUPPLEMENT, dated as of ____________, made by Ascent Assurance, Inc., a Delaware corporation (the "Pledgor"), in favor of Credit Suisse First Boston Management Corporation, as pledgee under the Pledge Agreement referred to below (in such capacity, the "Pledgee"). 1. Reference is hereby made to the Pledge Agreement, dated as of April 17, 2001, made by the Pledgor in favor of the Pledgee (as amended, supplemented or otherwise modified as of the date hereof, the "Pledge Agreement"). Terms defined in the Pledge Agreement are used herein as therein defined. 2. The Pledgor hereby confirms and reaffirms the security interest in the Pledged Collateral granted to the Pledgee for the benefit of the Lenders and its own benefit as provided in the Pledge Agreement, and, as additional collateral security for the prompt and complete payment when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations and in order to induce the Lenders to make their Loans under the Credit Agreement and the other Loan Documents, the Pledgor hereby delivers to the Pledgee, for the benefit of the Lenders and for the benefit of the Administrative Agent, as security for the Secured Obligations, the Surplus Note in a principal amount equal to the aggregate principal amount of the Loans made on the date hereof under the Credit Agreement, as described in Schedule 1 to this Supplement (the "Additional Pledged Note") and hereby confirms its grant to the Administrative Agent, for the ratable benefit of the Lenders and for the benefit of the Administrative Agent, as security for the Secured Obligations, of a first priority security interest in the Additional Pledged Note and all Proceeds thereof. From and after the date of this Supplement, as used in the Pledge Agreement as supplemented by this Supplement and for all purposes of the Pledge Agreement as so supplemented, "Pledged Notes" shall be deemed to include the Additional Pledged Note. 3. The Pledgor hereby represents and warrants that the representations and warranties contained in Section 9 of the Pledge Agreement are true and correct on the date of this Supplement with references therein to the "Pledged Note" to include the Additional Pledged Note, and with references to the Pledge Agreement to mean the Pledge Agreement as supplemented hereby. 4. This Supplement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the undersigned has caused this Supplement to be duly executed and delivered as of the date first above written. ASCENT ASSURANCE, INC. By: ________________________ Name: Title: SCHEDULE I to the Pledge Agreement Supplement DESCRIPTION OF ADDITIONAL PLEDGED NOTE Name of Issuer EX-10.4 5 exh10_4.txt SIXTH AMENDMENT TO GUARANTY AGREEMENT SIXTH AMENDMENT TO GUARANTY AGREEMENT AND WAIVER OF CERTAIN EVENTS OF DEFAULT UNDER CREDIT AGREEMENT This Sixth Amendment to Guaranty Agreement and Waiver of Certain Events of Default under Credit Agreement (the "Amendment") is made as of this 17th day of April, 2001 by and among ASCENT ASSURANCE, INC. (the "Guarantor"), and LASALLE BANK NATIONAL ASSOCIATION (the "Bank"). W I T N E S S E T H WHEREAS, the Guarantor delivered a Guaranty Agreement in favor of the Bank, dated as of June 6, 1997, as amended by that certain First Amendment to Guaranty Agreement, dated as of March 24, 1999, as further amended by that certain Second Amendment to Guaranty Agreement, dated as of July 21, 1999, as further amended by that certain Third Amendment to Guaranty Agreement, dated as of April 17, 2000, as further amended by that certain Fourth Amendment to Guaranty Agreement dated as of August 10, 2000, as further amended by that certain Fifth Amendment to Guaranty Agreement made as of November 30, 2000, to be effective as of September 30, 2000 (collectively, the "Guaranty Agreement"); WHEREAS, the Guarantor delivered the Guaranty pursuant to that certain Credit Agreement, dated as of June 6, 1997 between Ascent Funding, Inc. (formerly Westbridge Funding Corporation) and the Bank (the "Credit Agreement"); WHEREAS, simultaneously with the execution hereof, the Guarantor will be entering into a Credit Agreement (the "CSFB Financing") dated of even date with Credit Suisse First Boston Management Corporation ("CSFB") and, in connection therewith, will be pledging shares of stock of certain subsidiaries of the Guarantor which requires the consent of the Bank; and WHEREAS, the Bank is willing to provide its consent thereto and to further amend the Guaranty Agreement and waive certain covenant defaults and events of default under the Guaranty and Credit Agreement, subject to the terms and conditions contained herein. NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the adequacy of which is hereby acknowledged, and subject to the terms and conditions hereof, the parties hereto agree as follows: SECTION 1. DEFINITIONS. Unless otherwise defined herein, all capitalized terms shall have the meaning given to them in the Guaranty. SECTION 2. WAIVER OF CERTAIN COVENANT DEFAULTS UNDER GUARANTY AND EVENTS OF DEFAULT UNDER CREDIT AGREEMENT. 2.1 As of December 31, 2000 the Guarantor is in Default of Negative Covenants Section 6.3 Minimum Consolidated GAAP Net Worth of the Guaranty. Such covenant default under the Guaranty, unless waived, constitutes an Event of Default under Section 8.1(e) of the Credit Agreement. The Bank hereby waives (i) such default under the Guaranty and (ii) such Event of Default under the Credit Agreement or the Installment Note, dated July 21, 1999 from Ascent Management, Inc. in favor of the Bank and any and all documents executed in connection therewith (collectively, the "AMI Agreements"); provided, however, that such waiver shall not constitute a future waiver of any Default or Event of Default under the Guaranty or under such Event of Default section of the Credit Agreement or the AMI Agreements or of any other covenant under the Guaranty, the Credit Agreement or the AMI Agreements. 2.2 In connection with the CSFB Financing, the Guarantor requires the consent of the Bank to the pledge by the Guarantor and NationalCare(R)Marketing, Inc. of the stock, certain membership interests and other similar interests in Foundation Financial Services, Inc., Westbridge Printing Services, Inc., Pacific Casualty Company, Inc., LifeStyles Marketing Group, Inc., Precision Dialing Services, Inc. and Senior Benefits, L.L.C. or any other Subsidiary of the Guarantor. The Bank hereby provides its consent to such pledge in accordance with Section 6.2 of the Guaranty, subject to the terms and conditions of this Amendment; provided, however, that such consent shall not constitute any future consent of the Bank under the Guaranty, the Credit Agreement or the AMI Agreements where written consent of the Bank is required in writing. SECTION 3. AMENDMENTS TO GUARANTY AGREEMENT. 3.1 Section 6.3 of the Guaranty is hereby amended by deleting the reference to "$45,000,0000" contained therein and inserting $31,000,000 in its stead. 3.2 Schedule 6.8 of the Guaranty is hereby amended by deleting the reference to "5.0" Minimum Statutory Surplus Requirement corresponding to FLICA and inserting "$7.5" in its stead. SECTION 4. CONDITIONS PRECEDENT. The effectiveness of this Amendment is expressly conditioned upon satisfaction of the following conditions precedent: 4.1 The Bank shall have received copies of this Amendment duly executed by the Guarantor. 4.2 The Bank shall have received copies of the Fourth Amendment to Credit Agreement, duly executed by Ascent Funding, Inc. 4.3 The Bank shall have received a Side Agreement with respect to the contribution by the Guarantor of proceeds from the CSFB Financing in an amount not less than $11,000,0000 to Freedom Life Insurance Company of America ("FLICA") duly executed by the Guarantor and CSFB, together with evidence satisfactory to the Bank in its sole and absolute discretion that CSFB has loaned an amount not less than $11,000,000 to the Guarantor and the Guarantor has contributed an amount not less than $11,000,000 to FLICA. 4.4 The Bank shall have received a Subordination Agreement, duly executed by CSFB. 4.5 The Bank shall have received a $25,000 waiver and amendment fee due and payable and deemed fully earned on the date hereof. 4.6 The Bank shall have received copies of all loan and related documents in connection with the CSFB Financing in form and content acceptable to the Bank in its reasonable sole discretion. 4.7 The Bank acknowledges satisfaction of each of the foregoing, and this Amendment shall be effective upon receipt by FLICA of the $11,000,000. SECTION 5. REAFFIRMATION OF THE GUARANTOR. The Guarantor hereby ratifies and reaffirms that certain Guaranty Agreement and each of the terms and provisions contained therein, including, without limitation, Section 7.2 thereof, and agrees that the Guaranty Agreement continues in full force and effect following the execution and delivery of this Amendment. The Guarantor represents and warrants to the Bank that the Guaranty Agreement was, on the date of the execution and delivery thereof, and continues to be, the valid and binding obligation of the Guarantor enforceable in accordance with its terms and that the Guarantor has no claims or defenses to the enforcement of the rights and remedies of the Bank under the Guaranty Agreement. SECTION 6. COUNTERPARTS. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the day and year specified above. ASCENT ASSURANCE, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: President and CEO LASALLE BANK NATIONAL ASSOCIATION By: /s/Linda Whittaker Name: Linda Whittaker Title: Assistant Vice President ACKNOWLEDGMENT AND AGREEMENT OF BORROWER The undersigned, ASCENT FUNDING, INC. hereby represents and warrants to the Bank that (i) the warranties set forth in Article 5 of the Credit Agreement are true and correct on and as of the date hereof, except to the extent (a) that any such warranties relate to a specific date, or (b) changes thereto are a result of transactions for which the Bank has granted its consent; (ii) the Borrower is on the date hereof in compliance with all the terms and provisions set forth in the Credit Agreement; and (iii) upon execution hereof no Event of Default has occurred and is continuing or has not previously or simultaneously with the execution hereof been waived. IN WITNESS WHEREOF, this Acknowledgment and Agreement of Borrower has been duly authorized as of this 17th day of April, 2001. ASCENT FUNDING, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: President & CEO EX-10.5 6 exh10_5.txt FOURTH AMENDMENT TO CREDIT AGREEMENT FOURTH AMENDMENT TO CREDIT AGREEMENT This Fourth Amendment to Credit Agreement (the "Amendment") is made as of this 17th day of April, 2001 by and among ASCENT FUNDING, INC. (the "Borrower"), and LASALLE BANK NATIONAL ASSOCIATION (the "Bank"). W I T N E S S E T H: WHEREAS, the Borrower and the Bank are parties to that certain Credit Agreement, dated as of June 6, 1997, as amended by that certain First Amendment to Credit Agreement, dated as of September 8, 1998, as further amended by that certain Second Amendment to Credit Agreement, dated as of August 12, 1999, and as further amended by that certain Third Amendment to Credit Agreement, dated as of November 30, 2000 with an effective date of September 30, 2000 (collectively, the "Credit Agreement); and WHEREAS, Ascent Assurance, Inc. ("Guarantor") executed and delivered that certain Guaranty, dated as of June 6, 1997 in favor of the Bank with respect to all of the obligations of the Borrower to the Bank, as amended from time to time (the "Guaranty"); WHEREAS, simultaneously herewith, Guarantor and the Bank will further amend the Guaranty pursuant to that certain Sixth Amendment and Waiver of Certain Events of Default under Credit Agreement (the "Sixth Amendment to Guaranty") providing, among other things, for the waiver of certain covenant defaults under the Guaranty and the Credit Agreement; WHEREAS, the Guarantor desires to enter into a Credit Agreement (the "CSFB Financing") with Credit Suisse First Boston Management Corporation ("CSFB") and requires the consent of the Bank with respect to the pledge of stock and other similar interests of certain subsidiaries of the Guarantor (the "Subsidiary Pledge") in connection therewith; WHEREAS, as a condition to the Bank providing (i) its consent with respect to the Subsidiary Pledge and (ii) waiver of certain covenant defaults pursuant to the Sixth Amendment to Guaranty, the Bank is requiring that the Borrower execute and deliver this Amendment. NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the adequacy of which is hereby acknowledged, and subject to the terms and conditions hereof, the parties hereto agree as follows: SECTION I. DEFINITIONS. ------------ Unless otherwise defined herein, all capitalized terms shall have the meaning given to them in the Credit Agreement. SECTION II. AMENDMENTS TO CREDIT AGREEMENT. 2.1 Section 1.1 of the Credit Agreement is hereby amended by deleting the definition of "Applicable Margin" in its entirety and inserting the following in its stead: "Applicable Margin" means, as of any date, (i) with respect to each LIBOR Rate Loan, the per annum rate equal to the LIBOR Rate plus 3.25%, or (ii) with respect to each Base Rate Loan, the per annum rate equal to the Base Rate plus 1.125%, as applicable. 2.2 Section 1.1 of the Credit Agreement is hereby amended by deleting the definition "Change in Control" in its entirety and inserting the following in its stead: "Change in Control" means, with respect to the Borrower or the Guarantor, the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of shares representing more than 50% of the aggregate ordinary voting power for the election of directors of the issued and outstanding capital stock of the Borrower or the Guarantor." SECTION III. CONDITIONS PRECEDENT. ---------- ---------- The effectiveness of this Amendment is expressly conditioned upon satisfaction of the following conditions precedent: 3.1 The Bank shall have received a copy of this Amendment duly executed by the Borrower. 3.2 The Bank shall have received a copy of the Sixth Amendment of Guaranty duly executed by the Guarantor. 3.3 The Bank shall have received a Side Agreement with respect to the contribution by the Guarantor of proceeds from the CSFB Financing in an amount not less than $11,000,0000 to Freedom Life Insurance Company of America ("FLICA") duly executed by the Guarantor and CSFB, together with evidence satisfactory to the Bank in its sole and absolute discretion that CSFB has loaned an amount not less than $11,000,000 to the Guarantor and the Guarantor has contributed an amount not less than $11,000,000 to FLICA. 3.4 The Bank shall have received a Subordination Agreement, duly executed by CSFB. 3.5 The Bank shall have received a $25,000 waiver and amendment fee due and payable and deemed fully earned on the date hereof, as required under the Sixth Amendment to Guaranty. 3.6 The Bank shall have received such other documents, certificates and assurances as it shall reasonably request, all of which have been delivered on or prior to the date hereof. SECTION IV. REAFFIRMATION OF THE BORROWER. ------------- -- --- -------- The Borrower hereby represents and warrants to the Bank that (i) the warranties set forth in Article 5 of the Credit Agreement are true and correct on and as of the date hereof, except to the extent (a) that any such warranties relate to a specific date, or (b) changes thereto are a result of transactions for which the Bank has granted its consent; (ii) the Borrower is on the date hereof in compliance with all of the terms and provisions set forth in the Credit Agreement as hereby amended; and (iii) upon execution hereof no Event of Default has occurred and is continuing or has not previously been waived. SECTION V. FULL FORCE AND EFFECT. ---- ----- --- ------ Except as herein amended, the Credit Agreement and all other Loan Documents shall remain in full force and effect. SECTION VI. COUNTERPARTS. ------------- This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the day and year specified above. ASCENT FUNDING, INC. By: /s/Patrick J. Mitchell Name: Patrick J. Mitchell Title: Chairman of the Board and CEO LASALLE BANK NATIONAL ASSOCIATION By: /s/Linda Whittaker Name: Linda Whittaker Title: Assistant Vice President EX-99 7 exh99.txt PRESS RELEASE FOR: ASCENT ASSURANCE, INC. FROM: Ascent Assurance, Inc. 110 West Seventh Street, Suite 300 Fort Worth, TX 76102 (817) 878-3300 CORPORATE CONTACT: Cynthia B. Koenig Chief Financial Officer (817) 878-3732 FOR IMMEDIATE RELEASE: April 17, 2001 ASCENT ASSURANCE REPORTS FOURTH QUARTER RESULTS FORT WORTH, Texas, April 17, 2001...Ascent Assurance, Inc. (AASR.OB) reported today a net loss of ($16.7) million for the fourth quarter and ($18.9) million for the year ended December 31, 2000. The loss applicable to common stockholders was ($17.3) million or ($2.67) per common share for the fourth quarter and ($21.5) million or ($3.31) per common share for the year ended December 31, 2000 after deducting preferred stock dividends of $622,000 and $2.6 million, respectively. For the fourth quarter of 1999, net income was $345,000 and loss applicable to common stockholders was ($286,000) or ($0.04) per common share after deducting preferred stock dividends of $631,000. Preferred stock dividends are payable annually through the issuance of additional shares of preferred stock or cash, at the Company's option. On December 31, 2000, preferred stock dividends accrued in 2000 were paid through the issuance of 2,575 shares of preferred stock. Total revenues were $38.4 million and $149.6 million for the fourth quarter and year ended December 31, 2000, respectively, as compared to $34.8 million and $142.8 million for the corresponding 1999 periods. Total premium revenues increased by $2.6 million or 9% for the fourth quarter and $3.6 million or 3% for the year ended December 31, 2000 as compared to the corresponding prior year periods. First year premiums increased by 53% to $8.6 million for the fourth quarter of 2000 as compared to $5.6 million for the 1999 fourth quarter. The benefits and claims to premium ratio was 99.8% and 85% for the fourth quarter and year ended December 31, 2000, respectively, as compared to 75.5% and 75.2% for the corresponding 1999 periods. In July 2000, the Company discontinued marketing the principal medical expense product sold since 1998, as targeted profitability levels were not met. As a result of fourth quarter 2000 losses, the Company determined that a premium deficiency of $1.5 million existed at December 31, 2000 related to medical expense products issued subsequent to the fresh start date of March 31, 1999. Accordingly, a non-cash charge was recorded to reduce deferred policy acquisition costs by $1.5 million at December 31, 2000. Also as a result of fourth quarter 2000 losses, the Company recorded a non-cash charge to increase the deferred tax asset valuation allowance by $10.4 million to $18.3 million at December 31, 2000 which fully reserves the Company's deferred tax asset. Realization of the Company's deferred tax asset is dependent upon the Company's return to profitability. Management believes that losses from discontinued medical expense products can be reduced through rate increase management. However, under applicable accounting literature, projections of future profitability are given little weight when evaluating the recoverability of deferred tax assets. Patrick J. Mitchell, Chairman and CEO, commenting on fourth quarter operations said, "Our financial results for the quarter were again adversely impacted by a high benefits and claims to premium ratio. We continue to focus our efforts on our operating strategies to enhance future results. Sales of our new major medical product, introduced in July of 2000, continue to accelerate. The new product, designed to produce a substantially lower benefits and claims to premium ratio, should begin to favorably impact operating results later this year." The Company also closed a debt financing arrangement with Credit Suisse First Boston Management Corporation, an affiliate of the Company's largest stockholder, enabling the Company to contribute the entire $11 million proceeds of the loan as a capital contribution to one of its insurance subsidiaries. The loan bears interest at a rate of 12% per annum and matures in April, 2004. Absent any acceleration following an event of default, the Company may elect to pay interest in kind by issuance of additional notes. The credit agreement relating to the loan provides for a facility fee of $1.5 million which is payable upon the earlier of maturity or a change in control, as defined. The Company's obligations under this facility are secured by the capital stock of certain subsidiaries and other assets not pledged as collateral in connection with the Company's receivables financing facility. Mr. Mitchell commenting on the transaction stated "We are pleased that this additional investment will enable us to satisfy our statutory capital and surplus requirements and continue our long term commitment to our shareholders, the policyholders of our insurance subsidiaries and all other stakeholders of the Company." Book value at December 31, 2000 was $.63 per outstanding common share, or $1.17 per outstanding common share excluding the effects of the change in unrealized mark to market valuation of the Company's investment portfolio. Ascent Assurance, Inc. is an insurance holding company primarily engaged in the development, marketing, underwriting and administration of medical-surgical expense, supplemental health, life and disability insurance products to self-employed individuals and small business owners. Marketing is achieved primarily through the career agency force of its marketing subsidiary. The Company's goal is to combine the talents of its employees and agents to market competitive and profitable insurance products and provide superior customer service in every aspect of operations. (www.ascentassurance.com) (Forward-Looking Statements: The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This press release contains forward-looking statements regarding the intent, belief or current expectations of the Company and members of its senior management team. While the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Factors that would cause actual results to differ materially from those contemplated within this press release can be found in the Company's Form 10-K for the year ended December 31, 2000 and Forms 10-Q for the quarters ended March 31, 2000, June 30, 2000 and September 30, 2000.) ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (000's omitted, except for per share amounts)
Nine Months Three Months Three Months Ended Year Ended Ended Ended December 31, December 31, December 31, March 31, --------------------------- ------------------------------------------- 2000 1999 2000 1999 1999 ------------ -------------- --------------------------- --------------- Westbridge Capital Corp.* --------------- First-year premium $ 8,626 $ 5,638 $ 30,984 $ 14,350 $ 3,121 Renewal premium 22,218 22,647 88,924 72,021 26,827 ----------------------- --------------------------- ----------- Total premium 30,844 28,285 119,908 86,371 29,948 Net investment income 2,772 2,186 9,741 6,740 2,562 Fee and service income 4,994 4,367 20,391 13,069 4,263 Net realized (loss) gain on investments (246) (38) (454) (208) 41 ----------------------- --------------------------- ----------- Total revenue 38,364 34,800 149,586 105,972 36,814 ----------------------- --------------------------- ----------- Benefits and claims 30,780 21,347 101,940 65,699 21,799 Commissions 6,209 5,962 25,010 17,891 6,688 General and administrative expenses 9,010 7,527 35,159 21,034 7,229 Recognition of premium deficiency 1,500 - 1,500 - - Taxes, licenses and fees 1,167 940 5,105 3,422 1,059 Increase in deferred acquisition costs (925) (1,595) (6,818) (4,354) (862) Interest expense on notes payable 194 80 629 284 119 Interest expense on retired/canceled debt - - - - 507 Resolution of preconfirmation contingencies - - - (1,235) - ----------------------- --------------------------- ----------- Total expenses 47,935 34,261 162,525 102,741 36,539 ----------------------- --------------------------- ----------- Pretax (loss) income (9,571) 539 (12,939) 3,231 275 Federal income tax benefit (expense) (7,148) (194) (6,003) (1,125) (67) ----------------------- --------------------------- ----------- Net (loss) income $(16,719) $ 345 $ (18,942) $ 2,106 $ 208 ======================= =========================== =========== Preferred stock dividends 622 631 2,576 1,874 - ----------------------- --------------------------- ----------- (Loss) income applicable to common stockholders $(17,341) $ (286) $ (21,518) $ 232 $ 208 ======================= =========================== =========== Basic and diluted (loss) income per common share $ (2.67) $ (.04) $ (3.31) $ .04 $ .03 ======================= =========================== =========== Weighted average shares outstanding Basic 6,500 6,500 6,500 6,500 7,032 ======================= =========================== =========== Diluted 6,500 6,500 6,500 6,510 7,032 ======================= =========================== ===========
* The Company changed its name to Ascent Assurance, Inc. on March 24, 1999, the effective date of its reorganization and adoption of "fresh-start" accounting in accordance with generally accepted accounting principles. ASCENT ASSURANCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (000's omitted, except for per share amounts)
December 31, December 31, 2000 1999 ------------------- ------------------ Assets Investment assets $ 109,577 $ 110,193 Cash 2,658 5,110 Accrued investment income 1,965 2,030 Deferred policy acquisition costs 24,711 19,393 Agent receivables, net 8,737 7,062 Deferred tax asset, net - 7,086 Property and equipment 6,375 6,272 Other assets 6,455 6,544 ------------------- ------------------ Total Assets $ 160,478 $ 163,690 =================== ================== Liabilities and Equity Policy liabilities $ 104,084 $ 95,895 Notes payable 8,947 7,162 Other liabilities 15,667 13,592 ------------------- ------------------ Total Liabilities 128,698 116,649 Redeemable Convertible Preferred Stock 27,705 23,257 Stockholders' Equity * 4,075 23,784 ------------------- ------------------ Total Liabilities and Equity $ 160,478 $ 163,690 =================== ================== Book Value Per Outstanding Common Share* $ .63 $ 3.66 =================== ==================
* Excluding pre-tax unrealized investment losses of $3,521 for December 31, 2000 and after-tax unrealized investment losses of $3,851 for December 31, 1999, book value per outstanding common share was $1.17 at December 31, 2000 and $4.25 at December 31, 1999. -----END PRIVACY-ENHANCED MESSAGE-----