10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

or

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-31698

BROOKE CORPORATION

(Exact name of registrant as specified in its charter)

Kansas	48-1009756
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10950 Grandview Drive, Suite 600, Overland Park, Kansas	66210
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number: (913) 661-0123

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, Par Value $.01 per share	American Stock Exchange

Securities registered under Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein this form, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s common stock held by non-affiliates, computed by reference to the price at which the stock was last sold, as of June 30, 2004, was approximately $55,470,000.

The number of shares of issuer’s common stock, $.01 par value, outstanding on February 28, 2005, was 9,466,238.

DOCUMENTS INCORPORATED BY REFERENCE

Certain specified portions of our definitive proxy statement relating to the registrant’s Annual Meeting of Shareholders, to be held on April 28, 2005, are incorporated by reference in Part III to the extent described therein.

TABLE OF CONTENTS

		Page No.
FORWARD LOOKING AND CAUTIONARY STATEMENTS		1
PART I
ITEM 1.	BUSINESS	2
ITEM 2.	PROPERTIES	20
ITEM 3.	LEGAL PROCEEDINGS	21
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	21
ITEM 4A	EXECUTIVE OFFICERS OF THE REGISTRANT	21
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	23
ITEM 6.	SELECTED FINANCIAL DATA	25
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION	26
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	45
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	45
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	84
ITEM 9A.	CONTROLS AND PROCEDURES	84
ITEM 9B.	OTHER INFORMATION	84
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	84
ITEM 11.	EXECUTIVE COMPENSATION	85
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	85
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	85
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	85
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	85
SIGNATURES		88

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

We caution you that this annual report on Form 10-K includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and is subject to the safe harbor created by that Act. Among other things, these statements relate to our financial condition, results of operations and business. These forward-looking statements are generally identified by the words or phrases “would be,” “will allow,” “expect to,” “intend to,” “will continue,” “is anticipated,” “estimate,” “plan,” “may,” “believe,” “implement,” “build,” “project” or similar expressions and references to strategies or plans.

While we provide forward-looking statements to assist in the understanding of our anticipated future financial performance, we caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date that we make them. Forward-looking statements are subject to significant risks and uncertainties, many of which are beyond our control. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Actual results may differ materially from those contained in or implied by these forward-looking statements for a variety of reasons. These risks and uncertainties are discussed in more detail under “Business” (including, but not limited to, the subsection therein entitled “Risk Factors”) and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in this report and include, but are not limited to:

• A significant part of our business strategy involves adding new franchise locations, and our failure to grow may adversely affect our business, prospects, results of operations and financial condition.

• Our franchisees’ financial performance may adversely affect their ability to repay amounts due to us.

• Our financial condition could be adversely affected if we are unable to fund our loans through sales to third parties.

• We make certain assumptions regarding the profitability of our securitizations which may not prove to be accurate.

• The value of the collateral securing our loans to franchisees may be adversely affected by our franchisees’ actions.

• Potential litigation and regulatory proceedings regarding commissions, fees, contingency payments, profit sharing and other compensation paid to brokers or agents could materially adversely affect our financial condition.

• We are dependent on key personnel.

• We may be required to repurchase loans sold with recourse or make payments on guarantees.

• We have experienced material weaknesses in our internal controls.

• Efforts to comply with the Sarbanes Oxley Act will entail significant expenditures; non-compliance with the Sarbanes Oxley Act may adversely affect us.

• We compete in a highly regulated industry, which may result in increased expenses or restrictions in our operations.

We expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, or otherwise. We make no prediction or statement about the market performance of our shares of common stock.

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PART I

ITEM 1. BUSINESS.

We sell insurance, financial services and funeral services to individuals and small businesses through our network of over 385 franchised locations. Our business model is based on providing our franchisees with the opportunities for wealth creation associated with independent business ownership while offering operational resources typical of a large insurance distribution company. Through Brooke Franchise, we provide our franchise agencies with access to the products of many leading insurance companies, marketing assistance and administrative support. As part of our strategy, we lend money to our franchisees, through Brooke Credit, to fund the acquisition of a franchise or the start up of a new franchise. Through Brooke Brokerage, we act as a wholesale insurance broker for both unaffiliated agents and our franchise agents. We also conduct limited self-insurance operations and are positioned to conduct reinsurance operations through our Bermuda captive insurance companies.

For the year ended December 31, 2004, we had revenues and income of $101,923,000 and $6,694,000 compared to $65,967,000 and $4,160,000, respectively, for the year ended December 31, 2003.

Brooke Franchise Corporation

Brooke Franchise has become one of the largest franchisors of property and casualty insurance agencies, based on number of locations, by offering access to the products of many leading insurance carriers, marketing and business management support, back office assistance, financial management tools and association with an emerging brand identity. According to Entrepreneur Magazine, January 2005, we were ranked first in our industry category of franchisors of miscellaneous financial services based on factors such as financial strength, stability, growth rate and size of system.

We currently franchise businesses in the following four specialties:

• General insurance services. Franchise locations that sell primarily property and casualty insurance, such as homeowners and small business insurance.

• Auto insurance services. Franchise locations, typically in a storefront environment, that focus on drivers with higher risk profiles.

• Financial services. Franchise locations that sell primarily group and individual health insurance, life insurance, annuities and securities, such as mutual funds.

• Final expense/funeral services. Franchise locations, such as funeral homes, that sell insurance and investments to prepay burial and other funeral expenses, as well as provide funeral and cremation services.

Based on commission revenue for the year ended December 31, 2004, approximately 65% of our retail commission income was derived from personal lines policies such as home and auto insurance and approximately 35% was derived from commercial lines policies such as business owner insurance. The following table shows revenues generated through our network of franchise locations by business specialty for the year ended December 31, 2004 (in thousands):

Specialty	Year ended December 31, 2004
General Insurance	$	35,876
Auto Insurance		18,340
Financial Services		1,104
Final Expense/Funeral Services		2,299

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Franchisees. Our franchisees are typically entrepreneurial individuals with experience in the sale of insurance, or, in a limited number of cases, financial services or funeral services, and smaller businesses with annual revenues of less than $1 million. We believe that these entrepreneurial individuals and smaller businesses will benefit from the business, operational and marketing support that we offer. Because they are locally owned and operated by motivated entrepreneurs, we believe that our franchises will perform better than their competitors. Our franchisees generally either convert an existing insurance agency to a franchise or form a new insurance agency. As of December 31, 2004, 2003 and 2002, we had 370, 234 and 163 franchise locations, respectively.

The following table shows the states that have more than fifteen of our franchise locations as of December 31, 2004.

State	Number of Franchise Locations	Property and Casualty Insurance	Conversions	Start up
Kansas	75	70	70	5
Florida	53	51	53	0
Texas	52	50	47	5
California	29	29	24	5
Arizona	24	24	13	11
Illinois	20	14	15	5
Missouri	18	18	17	1
Colorado	17	17	15	2

The other 18 states in which we operate had a total of 82 franchise locations as of December 31, 2004, of which 80 were property and casualty insurance agencies (including general insurance and auto insurance businesses), 75 were conversion franchisees and seven were start up franchisees. The conversions and start ups include our property and casualty insurance agencies as well as our financial services and funeral services locations.

Support for our franchisees. We offer to our franchisees business opportunities and efficiencies more typical of a large company and other resources, including:

Access to the products of leading insurance carriers. As a general matter, insurance companies require their independent agents to produce specified minimum premium volumes in order to continue selling their products. While smaller insurance agencies can generally meet such minimum premium volumes for one or even a few carriers, it is often difficult for such insurance agencies to meet these minimum requirements for many carriers, thereby limiting the agent’s ability to offer an array of insurance products. We aggregate the insurance premium volumes generated by our franchisees, approximately $450,000,000 for the year ended December 31, 2004, in order to gain access to the insurance products of 11 of the 15 largest U.S. insurers, measured by net premiums written, such as Chubb, St. Paul Travelers, Hartford and American International Group, Inc., and other national carriers such as Safeco and Met Life Auto and Home. This consolidated purchasing power generally allows our franchisees to have far more insurance products to sell than they would have on their own.

Professional marketing. We have specialized teams of marketing professionals who assist our franchisees in identifying potential customers, developing cooperative advertising and measuring marketing effectiveness. Our lead generation system, which includes referrals from insurance companies, lead brokers, e-mail solicitations and our on-line quote request system, helps our franchisees identify prospective customers. We employ a total of 18 marketing professionals and expect to expand this staff to serve our growing network.

Business administration. We provide a range of administrative support services to our franchisees that enhance operating efficiency. First, we provide cash management services such as daily consolidation of all cash collected by franchisees and reconciliation of sales commissions and other revenue to the franchisee’s

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account statement. As part of our cash management services, we also make short-term commission advances to our franchisees, which we expect to be repaid within 120 days. As of December 31, 2004, there was approximately $4,359,000 of principal amount of these commission advances outstanding, of which $1,576,000 had been outstanding for over 120 days. Second, we store our franchisees’ customer documents as electronic images and maintain customer name and address data for accurate ownership identification. Third, we have established buying groups to assist our franchisees in the purchase of office equipment, supplies and services at bulk discounted rates that may otherwise be unavailable to them.

Financial discipline. We work with franchisees to devise budgets and action plans to help enhance agency performance. We monitor our franchisees’ performance and work with our franchisees to address negative operating trends. As a result, we can identify those franchisees who may have difficulty in meeting their obligations to Brooke Credit or who may become unable to repay short-term commission advances within the specified 120 day period. In cases where we identify financial or operational problems, we generally can instill greater financial discipline by establishing expense controls, making changes in management or, in severe cases, assuming day-to-day operating control of the franchise.

Buyers assistance. We assist our franchisees in the acquisition and conversion of businesses into our franchise network. Our services include pre-closing inspections, human resources reviews, facilities and operations reports, marketing and training plan development and operational consulting. Further assistance provided includes our payment for signage, mass media advertising and direct mail advertising expenses.

We believe that these resources and systems provide our franchisees the ability to compete favorably against both small independent agencies and the “captive” insurance agencies controlled by large insurance companies, such as Allstate Insurance Group, State Farm, Farmers Insurance and Nationwide Group. We believe that our franchisees have significantly greater resources, including access to the products of many insurance carriers, than most small, independently owned property and casualty insurance agencies. Further, we believe our franchisees’ ability to offer their customers the products of many insurance carriers provides them with a competitive advantage over “captive” insurance agencies who generally can offer to their customers only the products of their affiliated insurance carrier.

Business model. We generate revenues through our network of franchise locations in the following ways:

Share of ongoing revenues. As part of our franchise relationship, we receive a percentage of the ongoing revenues of each franchisee, which is generally 15% of our insurance agency franchisees’ revenues. In most cases, we receive the cash commission payments directly from the insurance companies that write the policies sold by our franchisees. We then remit to our franchisees the balance of the commissions, net of any loan payments, other amounts owed to us and our percentage of these commission revenues.

Franchise fees. We earn initial franchise fees from franchisees converting an existing agency into a new franchise and from those franchisees starting up a new franchise. These fees include:

• Basic services fees. In exchange for a basic franchise fee of $125,000, we provide our conversion and start up franchisees with a business model, use of a registered trade name, access to the products of our insurance company suppliers and use of our Internet-based management system.

• Buyers assistance fees. For those franchisees acquiring and converting an existing insurance agency into one of our franchised locations, we provide, among other things, an inspection of the agency to be acquired, human resources review, and a conversion and marketing transition strategy. Initial franchise fees associated with these services usually equal approximately 50% of the annual gross revenues of the agency to be acquired and converted, less the $125,000 initial franchise fee for basic services.

• Start up assistance fees. In 2004, we began recruiting experienced insurance agents to start up new business locations, opening 41 new start up locations. We did not charge any additional initial franchise fees for start up services provided to these franchisees other than our fee for basic services, but we expect to eventually charge for these services in the future.

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Seller consulting fees. We advise the owners of insurance agencies and, to a lesser extent, other businesses on the sale of their businesses to our franchisees and, in a limited number of cases, to unaffiliated third parties. We help sellers develop business profiles and tabulate revenues, share sample sales agreements and assist with general sale preparation. These consulting fees usually equal 10% of the total purchase price of the agency to be sold.

The following table shows the revenues and fees we received from our franchisees for the years ended December 31, 2004, 2003 and 2002 (in thousands):

	Year ended December 31,
	2004		2003		2002
Share of Ongoing Revenues	$	13,233	$	6,421	$	3,759
Initial Franchise Fees
Basic Services		8,795		425		0
Buyers Assistance		8,122		8,147		3,954
Start Up Assistance		0		0		0
Seller Consulting Fees		5,236		4,109		1,589

Brooke Credit Corporation

Brooke Credit specializes in lending money to provide our franchisees with the capital to purchase or start up their own agencies and to fund ongoing working capital needs. We also extend credit to borrowers to acquire non-franchised businesses such as captive Allstate insurance agencies and funeral homes. Our lending business helps us to grow our franchise network and support our franchisees.

Business model. Brooke Franchise assists Brooke Credit in monitoring our borrowers and providing management expertise when one of our franchisees encounters operating difficulties. To reduce the risk of loss on loans made to our franchisees, Brooke Franchise and Brooke Credit have developed the following “collateral preservation and loss mitigation” tools:

Receipt of cash directly from insurers. When our franchisees sell an insurance policy, the insurance carrier, in most cases, pays the commission directly to us, not to our franchisee. We deduct the percentage of commission revenues, monthly loan payments and any other amounts our franchisee borrowers owe us before we remit the balance to our franchisees.

Ability to monitor our franchisees and take action. In addition to controlling the initial receipt of our franchisees’ commission revenues, we help our franchisees set budgets, control operating expenses and develop marketing plans. We review reports monthly and have access to daily financial data on our franchisees, which enables us to identify potential shortfalls in cash flow at a relatively early stage. In cases where we identify financial or operational problems, we generally are able to take prompt corrective action, such as establishing greater expense controls or, in severe cases, assuming day-to-day operating control of the franchise.

Loan underwriting. In determining whether to make a loan, we conduct a thorough review of a potential borrower, including risk profiling and personality testing. We also analyze revenue, supplier relationships, marketing activities, producer relationships and customer retention.

Back-office administration. Our franchise agreements require that we provide trust accounts for customer receipts, centralized storage of customer files, and accounting for and disbursement of revenues. In the event that we must assume operating control over a franchise borrower, we have the information and records necessary to continue operating the business.

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Loan origination. We originate loans primarily through referrals from Brooke Franchise because of its extensive recruiting review process and its franchisee management systems. We also have originated loans through submissions from loan brokers who we believe have access to high quality borrowers in businesses such as insurance agencies and funeral homes. The following table shows information regarding our loans for the years ended December 31, 2004, 2003 and 2002 (dollars are shown in thousands):

	Year ended December 31,
	2004		2003		2002
Loan balances outstanding	$	183,384	$	112,732	$	60,353
Loan balances held by participating lenders		85,414		72,031		59,516
Loan balances held by securitization entities		53,326		29,891		—
Loan balances held on our balance sheet		44,644		10,810		837
Gain on sale recognized		2,475		4,368		2,762
Loan origination fees		2,421		1,132		—
Interest and servicing income		5,072		1,819		737
Number of loans outstanding to franchisees		655		403		337
Number of loans outstanding to non-franchisees		77		52		24

No amounts of recourse loans or loans associated with securitizations were charged off during the year ended December 31, 2004 and no such loans were delinquent 60 days or more as of December 31, 2004. Of inventory loans, principal balances of $135,000 were 60 or more days past due as of December 31, 2004, but no such loans had been charged off. We believe that credit problems of our borrowers are more likely to be identified when Brooke Franchise collects franchisees’ monthly statement account balances than by monitoring Brooke Credit’s loan delinquencies.

In instances where our borrowers have failed to perform, we usually have been able to assume management of the franchise in question, address any relevant operating problems and then sell or facilitate the sale of the franchise to another interested party. In these cases, the franchise management expertise of Brooke Franchise and our access to the franchisee’s customer and other records have been critical in allowing us to preserve the value of the franchise and to ultimately achieve full or substantial repayment of the loan principal. Generally, there have not been charge-offs on our loans because we generally receive the commissions directly from insurance companies and deduct the loan payments prior to remitting the balance to our borrowers.

Loan funding. We fund our loans primarily by selling participation interests in individual loans and selling investments in pools of loans to a network of 85 commercial banks and finance companies that we have developed. Although traditional lenders typically avoid making acquisition and other loans to insurance agencies directly, our network of funding institutions has been willing to purchase loans from Brooke Credit because of our collateral preservation and loss mitigation tools. To provide short-term financing for our lending operations, in August 2004, we secured a $50 million line of credit through DZ Bank AG Deutsche Zentral-Genossenschaltsbank. As of December 31, 2004, we had approximately $26,178,000 in loans pledged in connection with this line of credit and approximately $25,908,000 available under this line of credit. We expect that this line of credit will be repaid substantially in full upon the completion of each sale of securities backed by a pool of our loans.

Included in our funding programs are: a non-rated participation funding program; a self insured funding program; and a rated securitization funding program. First, our non-rated participation program involves the sale of non recourse loan participation interests in individual loans to our network of commercial banks and finance companies. The sole source of repayment is our borrowers. Second, our self insured funding program involves the sale of non recourse participation interests in loans that are insured by a financial guaranty policy issued by a captive insurance company subsidiary of ours. The financial guaranty policy provides coverage, under certain circumstances, for participating lenders, and the policy premiums are paid by our borrowers as part of the loan

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closing costs. Finally, our rated securitization funding program involves the sale of securities backed by a pool of loans. Under a typical securitization of these loans, we sell a pool of secured loans to a special purpose entity, generally a limited liability company. The special purpose entity, in turn, usually issues securities that are collateralized by the pool and the holders of those securities are entitled to participate in certain pool cash flows. We have sold four issues of such securities backed by insurance agency loan assets, all of which have an “A” rating from Standard & Poor’s Ratings Services.

Brooke Brokerage Corporation

Brooke Brokerage serves as a wholesale broker and has binding authority on behalf of certain insurance companies. We assist both unaffiliated agents and franchise agents in finding insurance coverage for hard to place and niche risks. Through our Bermuda captive insurance companies, we also self insure certain of our risks and are positioned to reinsure risks in connection with policies placed by our franchisees and other agents.

We believe that engaging in insurance brokerage allows us to support our franchisees by providing services that would otherwise be provided by a third party. As a result, we are able to generate additional revenues without placing additional costs on our franchisees. We have contracts with major carriers and syndicates including Scottsdale Insurance Company, ACE INA Group of Companies, Penn America and Penn Select Insurance Companies, United National Insurance Company, Wind River Insurance Company, Nautilus Insurance Company, Sagamore Insurance Company, and Lloyds of London syndicates.

The following table shows wholesale commissions and premiums received by Brooke Brokerage through its subsidiaries for the years ended December 31, 2004, 2003 and 2002 (in thousands):

	Year ended December 31,
	2004		2003		2002
Wholesale commissions	$	6,285	$	5,596	$	2,574
Premiums earned
DB Indemnity, LTD.		401		283		0
DB Group, LTD.		0		0		0

We plan to reinsure the underwriting risk on selected hard to place and niche insurance policies placed by Brooke Brokerage with unaffiliated insurance companies. We expect to conduct this activity through one or more reinsurance contracts, in which percentages of expense, loss and profit will be assigned to each participant. We plan to conduct these reinsurance activities through The DB Group, LTD., a captive insurance company subsidiary wholly owned by us. As of December 31, 2004, The DB Group had not written any policies and had recorded no premium revenues but had capital and surplus of $1,035,000.

We also have established DB Indemnity, LTD., a captive insurance company wholly owned by us, to self-insure a portion of our errors and omissions insurance and to issue financial guaranty policies on loans we have made. As of December 31, 2004, DB Indemnity had capital and surplus of $1,053,000. DB Indemnity is a Class 1 Bermuda Captive Insurer, which means that it is only allowed to insure our risks, and not those of unaffiliated third parties.

Typical Transaction

We create new franchises primarily by either converting existing insurance agencies into franchises or by helping entrepreneurs to form a new franchise agency. In both “conversion” and “start up” franchise transactions, we generate revenues through initial franchise fees and through an ongoing share of the franchisee’s revenues. In conversion franchise transactions, we also may earn a fee from the seller of the conversion agency. In a typical conversion transaction, we:

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Identify insurance agencies for sale. We use tools such as Internet advertising, direct mail campaigns, magazine and newsletter advertisements, e-mail campaigns and our website to identify potential sellers of insurance agencies.

Assist the seller. We help the seller prepare the agency for sale, in exchange for a seller fee generally based upon transaction size, as typically determined by the purchase price of the agency.

Identify a buyer. We identify and recruit potential buyers and conduct an extensive underwriting process (including background checks, personal interviews, applications, and personality testing) to determine the prospective buyer’s suitability for agency ownership. Brooke Credit contemporaneously conducts its own underwriting processes in relation to those new franchisees desiring or requiring financing from us.

Structure the sale and enter into agreement with seller. Our acquisition agreements typically provide for the transfer of the agency’s assets, a down payment and the remaining purchase price generally paid over three or fewer years. We generally resell the agency to a franchisee on the same day we acquire it.

Enter into agreements with buyer. We then enter into an agreement for sale of agency assets and our franchise agreement with the qualified buyer. We also enter into a buyers assistance agreement pursuant to which we consult with the franchisee in purchasing agency assets and preparing for business ownership.

Provide the needed financing. A loan originated by Brooke Credit for one of our new franchisees typically calls for a 5 to 10% down payment; a 12 to 15 year maturity; a personal guarantee by the principals of the franchise; an interest rate based on a spread over the New York prime rate; and, loan origination fees. On the same date the loan is originated, we either: (1) retain the loan in our inventory; (2) sell up to 100% of the loan as a participation interest without recourse; or (3) fund the loan through our warehouse credit line and later package it with other loans to be sold as rated securities.

In a typical start up transaction, we identify a qualified entrepreneur, enter into our franchise agreement, assist in the opening of the new location and provide short-term financing. After the start-up franchise’s first year of operations, we extend permanent financing to qualified start-up franchisees on terms generally similar to those provided in a conversion transaction.

Industry Opportunity

We believe that the large number of both independent insurance agents and small insurance agencies in the United States offers us a significant opportunity to recruit experienced agents and agencies to start up their own franchise locations or to convert to one of our franchises. According to the FutureOne 2004 Agency Universe Study conducted by the Independent Insurance Agents and Brokers of America, there were approximately 39,000 independent insurance agencies in the United States in 2004. Of these insurance agencies, over 20,000 had annual revenues of between $150,000 and $1.25 million. Additionally, according to the U.S. Department of Labor, Bureau of Statistics, in 2002, there were over 380,000 individual licensed insurance agents in the United States. We also believe that the average age of these independent agents has been increasing, resulting in increased demand for liquidity and potential availability of agencies for sale.

We also have other opportunities to expand into financial services and final expense or funeral services. According to data from Dun & Bradstreet’s ZAPDATA, the number of independently owned financial services firms was approximately 212,000 in 2003, and according to the five year statistical review of the National Association of Securities Dealers, as of 2003 there were approximately 654,000 individual licensed securities brokers. The number of independently owned funeral homes is approximately 22,000, according to the 2004 National Directory of Morticians.

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Corporate Structure and Business History

Brooke Corporation was incorporated under the laws of the State of Kansas on January 22, 1986, under the name of Brooke Financial Services, Inc. We subsequently amended our articles of incorporation, changing our name to Brooke Corporation. Our registered office is located in Overland Park, Kansas. We are controlled by Brooke Holdings, Inc., which owned approximately 63% of our outstanding common stock as of December 31, 2004. We are a holding company that owns, directly or indirectly through another subsidiary, 100% of the ownership of all our subsidiaries. Our primary business operations are conducted by our subsidiaries.

In 1986, we acquired our first property and casualty insurance agency. In 1996, we adopted a “franchise” approach to expansion and developed a lending program under Brooke Credit to facilitate agency ownership transfers. In 2000, we elected to register our common stock under Section 12(g) of the Securities Exchange Act of 1934, as amended, and thereafter began filing periodic reports with the Securities and Exchange Commission. In 2002, we obtained a posting on the OTCBB to offer our shareholders increased liquidity and then subsequently listed on the American Stock Exchange in 2003. Also in 2003, Brooke Credit completed its first two securitizations of insurance agency loans. In 2004, we secured a $50 million line of credit through DZ Bank to assist Brooke Credit in the short-term funding of its franchisee loans.

Competition

As a franchisor of property and casualty insurance agencies, we seek to grow our network of franchises primarily through conversions of existing insurance agencies to franchises and through start up franchise agencies. Our competition for these agencies and experienced agents includes large insurance companies that recruit insurance agents and agencies into their systems, such as Allstate Insurance Group. Nationwide Group and State Farm, all of which are larger and have greater financial resources than us. Because the larger insurance brokers and agents generally seek to acquire agencies with revenues greater than those we acquire, we believe that our franchising strategy offers an attractive alternative for smaller insurance agencies. We also face competition from regional franchisors of insurance agencies, such as Fed USA Insurance/Financial Services and DCAP Group, Inc., and networks of independently owned insurance agencies, such as Strategic Independent Agents Alliance and The Iroquois Group.

Our franchisees primarily compete against independent insurance agencies located in their communities, against the locally-placed “captive” insurance agencies of large insurance companies and against large insurance agencies and brokers. Our franchisees compete against these companies for the insurance business of the individual and small business end-customers. The popularity of Internet sales and the passage of the Financial Services Modernization Act also have increased the number of potential insurance and financial services competitors. In the sale of other financial services, our competitors include independent securities representatives, life insurance agents and securities dealers. In funeral and final expense services, competitors of our franchisees include independent, regional and multinational operators of funeral homes, crematoria and cemeteries, as well as publicly traded companies that expand through acquisitions of smaller funeral services providers.

In our lending business, our financing services compete against other lenders, primarily banks and other traditional lenders, who have substantially greater resources and market presence than we do. However, most traditional lenders will not finance agency acquisitions due to the intangible nature of the collateral typically offered to secure such loans.

Our brokerage product line competes for business with a large number of wholesale insurance brokerage companies some of which are independently owned and others of which are owned by major retail insurance agency companies. Many independent insurance agents and insurance brokers have developed insurance programs for specific market niches and provide significant competition.

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Employees

We employ approximately 600 people, of which approximately 540 are employed on a full-time equivalency basis (work 37.5 hours or more per week). Of these employees, Brooke Corporation employs approximately 60, Brooke Franchise employs approximately 455, Brooke Credit employs approximately 15 and Brooke Brokerage and its subsidiaries employ approximately 70 people. We have never had a work stoppage, and none of our employees are currently represented under collective bargaining agreements. We consider our relations with our employees to be good.

Suppliers

Most of our revenues currently result from our franchisees’ sales of insurance policies. As such, our primary suppliers are insurance companies, and we have direct and indirect agency relationships with several hundred insurance companies, including several of the leading writers of personal lines and commercial insurance in the United States. Our largest suppliers include Progressive Insurance, Safeco Insurance Company, St. Paul Travelers, Allied Insurance Company, and Employers Mutual Companies, which together account for approximately 29% of the commissions generated by our franchisees. We have agency agreements with each of the suppliers listed above.

Regulations

We are subject to licensing or regulatory approval by the state insurance department in each state in which we do business. Each of our franchise agencies also is subject to licensing or regulatory approval in the state in which it conducts business. Our operations depend on the validity of and our continued good standing under the licenses and approvals under which we operate. Licensing laws and regulations vary from jurisdiction to jurisdiction. In all jurisdictions, the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities, and generally, these authorities are vested with broad discretion as to grant, renewal and revocation of licenses and approvals.

We are subject to the unfair trade practices acts of the various states in which we do business. They each define and prohibit unfair methods of competition or unfair or deceptive acts or practices, including misrepresentation of policy terms, false advertising, making false statements, and defamation. Failure to comply with such acts or insurance regulations could have a material adverse effect on us.

Brooke Credit’s lending activities are targeted to businesses and are generally unregulated. Although we do not typically make consumer loans, Brooke Credit is licensed as a consumer finance company in Kansas.

We must comply with regulations adopted by the Federal Trade Commission and with several state laws that regulate the offer and sale of franchises. The Federal Trade Commission’s Trade Regulation Rule on Franchising and certain state laws require that we furnish prospective franchisees with a franchise offering circular containing information prescribed by the Trade Regulation Rule on Franchising and applicable state laws and regulations.

We also must comply with a number of state laws that regulate certain substantive aspects of the franchisor-franchisee relationship. These laws may limit a franchisor’s business practices in a number of ways, including limiting the ability to: (1) terminate or not renew a franchise without good cause; (2) interfere with the right of free association among franchisees; (3) disapprove the transfer of a franchise; and (4) discriminate among franchisees with regard to charges, royalties and other fees.

Our funeral home operations are regulated under the Federal Trade Commission Act which requires funeral service providers to disclose the prices for their goods and services as soon as the subject of price arises in a discussion with a potential customer and to offer their goods and services on an unbundled basis. Our pre-funded funeral insurance products are subject to state regulation, which varies considerably from state to state.

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Pursuant to the Bermuda Insurance Act of 1978, our Bermuda captive insurance companies are regulated by the Supervisor of Insurance of the Bermuda Monetary Authority. Our captive insurance companies must appoint and maintain a principal representative in Bermuda, appoint an auditor to report on financial statements, meet minimum capital and solvency requirements, maintain certain liquid assets compared to liabilities, file annual statutory financial returns, and comply with other provisions of the Act as amended and with applicable Bermuda regulations.

We believe that we are currently in material compliance with all state, federal and foreign regulations to which we are subject and we are unaware of any pending or threatened investigation, action or proceeding by any state, federal or foreign regulatory agency involving us that would have a material adverse effect on us.

Risk Factors

Risks Related to Brooke Corporation

A significant part of our business strategy involves adding new franchise locations, and our failure to grow may adversely affect our business, prospects, results of operations and financial condition.

Our expansion strategy consists principally of adding new franchise locations. Our continued growth is dependent upon a number of factors, including the availability of adequate financing and suitable franchise locations on acceptable terms, experienced management employees, the ability to obtain required government permits and licenses and other factors, some of which are beyond our control. In addition, we compete for acquisition and expansion opportunities with entities that have substantially greater resources than us. We cannot assure you that we will be able to grow our business successfully through adding new franchise locations or by growing the operations of existing franchisees. Our failure to grow could have a material adverse effect on our business, prospects, results of operations and financial condition.

Our franchisees’ financial performance may adversely affect their ability to repay amounts due to us.

We have credit exposure with respect to loans made to our franchisees and with respect to our franchisees’ monthly statement balances. We lend money to our franchisees to acquire businesses and, in addition, we assist our franchisees by financing cyclical fluctuations of revenues, receivables and payables with commission advances recorded by us on our franchisees’ monthly statements and by granting temporary extensions of due dates for franchisee statement balances owed by franchisees to us. Our franchisees depend on commission income to pay amounts due to us in respect of their loans and in respect of their statement balances. If our franchisees’ businesses are not successful, they may be unable to pay statement balances to us and may be unable to repay their loans, either of which would have a detrimental effect on us.

If statement balances are not paid in full at least once every four months, we consider such balances “watch” balances. Our credit loss reserves are determined primarily by our watch statement balances. Other factors we consider in determining credit loss reserves are statement loss experience, management’s evaluation of the potential for future losses and management’s evaluation of the potential for future recoveries. We may not be able to accurately predict credit losses and, as a result, our credit reserves may not be sufficient to cover future losses, in which case, our financial condition and results of operations will be adversely affected.

The ability of our franchisees to repay loans made to them by our finance subsidiary may be adversely affected by an increase in market interest rates.

The loans we make to our franchisees through Brooke Credit typically bear interest at a variable or floating interest rate. To the extent that market interest rates increase, our franchisees may be unable to make debt service payments. As a result, an increase in market interest rates will increase the risk of default on the loans made by us.

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Our financial condition could be adversely affected if we are unable to fund our loans through sales to third parties.

In an effort to broaden our funding sources and to provide an additional source of liquidity, we have sold participation interests in our loans and have accessed, and intend to attempt to continue to access, the asset-backed securitization markets. Under a typical asset-backed securitization, we sell a “pool” of secured loans to a special-purpose entity, generally a limited liability company. The special-purpose entity, in turn, typically issues securities that are collateralized by the pool and the holders are entitled to participate in certain pool cash flows. Several factors will affect our ability to sell participation interests in our loans and to complete securitizations, including:

• conditions in the securities markets, generally;

• conditions in the asset-backed securities markets;

• the credit quality and performance of our financial instruments and loans;

• our ability to adequately service our financial instruments and loans; and

• the absence of any material downgrading or withdrawal of ratings given to securities previously issued in our securitizations.

We make certain assumptions regarding the profitability of our securitizations and loan participations which may not prove to be accurate.

In a securitization or participation sale transaction, a gain on sale resulting from related retained interest and/or servicing rights in the securitized pool or loan may be recognized when the assets are sold. The value assigned to the retained interest and/or servicing asset depends upon certain assumptions regarding future performance of the securitized loan portfolio or participation loan, including the level of credit losses and the rate of prepayments. If actual credit losses or prepayment rates differ from the original assumptions, the value of the retained interest and/or servicing asset may decrease materially. The value of the retained interest and/or servicing asset may also decrease materially as a result of changes in market interest rates. Also, if assets being sold are not properly hedged, the gain on sale recorded in a securitization or participation loan sale transaction may be affected by changes in market interest rates between the time the assets being sold are originated and the time the assets are sold. Changes in the volume of assets securitized or loan participations sold due to our inability to access the asset-backed securitization markets or other funding sources could have a material adverse effect on our business, financial condition and results of operations. In addition, decreases in the value of the retained interests and/or servicing asset in securitizations that we have completed or loan participations we have sold due to market interest rate fluctuations or higher than expected credit losses on prepayments also could have a material adverse effect on our business, financial condition and results of operations.

The value of the collateral securing our loans to franchisees may be adversely affected by our franchisees’ actions.

We make loans to franchisees through Brooke Credit primarily for the purpose of allowing our franchisees to acquire insurance agencies. These loans are secured by, among other things, insurance agency assets. Insurance agency assets in most cases are intangible, and the value of these assets may rapidly deteriorate if our franchisees do not adequately serve their policyholders or if the policies they offer are not competitively priced. Reduction in the value of such assets could result in these loans being inadequately secured, which could adversely affect us in the event of a default on these loans.

Carrier override and contingent or profit sharing commissions are difficult to predict, and any decrease in our receipt of such payments may adversely affect us.

We derive a portion of our revenues from carrier override and contingent or profit sharing commissions based upon the terms of the contractual relationships between our insurance companies and us. Carrier override

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commissions are commissions paid by insurance companies in excess of the standard commission rates on specific classes of business. These amounts may be but are not always contingent on achieving a specific premium volume or profitability of the business. Contingent or profit sharing commissions are commissions paid by insurance companies based on the estimated profit that the companies make on the overall volume of business that we place with such companies. We generally receive these contingent commissions in the first and second quarters of each year. We do not account for carrier overrides separately. However, contingent or profit sharing commissions accounted for approximately three percent of our total revenues for the fiscal year ended December 31, 2004.

Due to the nature of these commissions, it is difficult for us to predict their payment. Increases in loss ratios experienced by insurance companies will result in a decreased profit to them and may result in decreases in payments of contingent or profit sharing commissions to us. Furthermore, we have no control over insurance companies’ ability to estimate loss reserves, which affects our profit-sharing calculation. In addition, tightening of underwriting criteria by certain insurance companies, due in part to high loss ratios, may result in a lower volume of business that we are able to place with them. Our company override and contingent or profit sharing commissions affect our revenues, and decreases in their payment to us may have an adverse effect on our results of operations.

Potential litigation and regulatory proceedings regarding commissions, fees, contingency payments, profit sharing and other compensation paid to brokers or agents could materially adversely affect our financial condition.

The insurance industry has recently come under a significant level of scrutiny by various regulatory bodies, including state Attorneys General and the departments of insurance for various states, with respect to contingent compensation and other volume or profit based compensation arrangements. Attorneys General have issued subpoenas to various insurance brokerages and insurance companies. Certain of these investigations have led to complaints being filed against brokerages and insurance companies and some brokerages and insurance companies have stated that they will discontinue accepting or making, respectively, volume based and profit based payments. In addition to government investigations, class action lawsuits relating to these business practices have been filed against various members of the insurance industry. Negative publicity associated with these investigations and lawsuits have precipitated increased volatility in the prices of securities issued by companies throughout the insurance industry. We have received inquiries from departments of insurance which are related to such compensation arrangements or are related to unethical or unlawful sales practices. These inquiries were not related to specific or general allegations of wrongdoing on our behalf. Rather, these inquiries were sent to numerous agents and brokers based upon their status as a licensed agent or broker, the volume of business they produce or other factors unrelated to allegations of wrongdoing. We cannot predict whether we will receive further inquiries or will receive subpoenas, or will become subject to investigations, regulatory actions, proceedings or lawsuits. The outcome of any such subpoena, investigation, regulatory action, proceeding or lawsuit could have a material adverse effect on our business or financial condition.

The insurance industry has also recently come under a significant level of scrutiny by consumer advocacy groups, and certain media reports have advocated governmental action with respect to contingent and other volume or profit based compensation arrangements. The consumer groups and media reports typically characterize these payments as creating an unacceptable conflict of interest and adding an unnecessary or even unfair consumer cost. If negative characterizations of such compensation arrangements become accepted by consumers, this could have a material adverse effect on the demand for our franchisees’ products and services and could materially adversely affect our results of operations and financial condition. Negative perception of such compensation arrangements or other activities could also result in us being subject to more restrictive laws and regulations as well as increased litigation, which may increase further our costs of doing business and adversely affect our profitability by impeding our ability to market our products and services, requiring us to change our marketing practices, products or services and increasing the regulatory burdens under which we operate.

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Our business is dependent on the cyclical pricing of property and casualty insurance, which may adversely affect our franchisees’ performance and, thus, our financial performance.

Our franchisees are primarily engaged in insurance agency and brokerage activities and derive revenues from commissions paid by insurance companies, which commissions are based in large part on the amount of premiums paid by our franchisees’ customers to such insurance companies. In turn, we earn fees from our franchisees based upon the amount of such commissions payable by insurance companies, which fees make up a substantial portion of our revenues. Neither we nor our franchisees determine insurance premiums. Premium rates are determined by insurers based on a fluctuating market. Historically, property and casualty insurance premiums have been cyclical in nature, characterized by periods of severe price competition and excess underwriting capacity, or soft markets, which generally have an adverse effect upon the amount of commissions earned by our franchisees, followed by periods of high premium rates and shortages of underwriting capacity, or hard markets. The current insurance market generally may be characterized as “soft,” with a flattening or decreasing of premiums in most lines of insurance. As insurance carriers continue to outsource the production of premium revenue to independent brokers or agents, such as our franchisees, those insurance carriers may seek to reduce further their expenses by reducing the commission rates payable to our franchisees. The reduction of these commission rates, along with general volatility and/or declines in premiums, may significantly undermine our franchisees’ and our profitability. A reduction in commission rates may significantly undermine our borrower’s ability to repay loans to us. Because we do not determine the timing and extent of premium pricing changes, we cannot accurately forecast our commission revenues, including whether they will significantly decline. As a result, our budgets for future acquisitions, capital expenditures, credit loss reserves, dividend payments, loan repayments and other expenditures may have to be adjusted to account for unexpected changes in revenues.

We may not be able to successfully convert new franchises.

Our ability to successfully identify suitable acquisition candidates, complete acquisitions, convert acquired businesses into our franchisees, and expand into new markets will require us to continue to implement and improve our operations, financial, and management information systems. Our new franchises may not achieve levels of revenue, profitability, or productivity comparable to our existing franchises, or otherwise perform as expected. In addition, when we make an acquisition and effect a conversion, we are subject to a number of special risks, such as entry into unfamiliar markets and unanticipated problems or legal liabilities, some or all of which could have a material adverse effect on our results of operations and financial condition.

We may be required to repurchase loans sold with recourse or make payments on guarantees.

In some instances, Brooke Credit has sold loans to investors with full recourse, which may adversely affect our financial condition or results of operations in the event Brooke Credit is required to repurchase loans of poor quality. In addition, in connection with our activities of matching business purchasers and sellers, we have sometimes guaranteed payments from purchasers to sellers, which may adversely affect us in the event such a purchaser defaults on its obligations to such a seller.

We will be adversely affected if we do not have alternative sources of funds to repay our obligations as they mature.

Loans made by Brooke Credit are usually amortized for a period of between twelve years and fifteen years. We have funded a portion of our loan portfolio with a funding facility which will require all or partial repayment by us prior to the time that loans made by us are scheduled to be repaid, and we will be adversely affected if we do not have alternative sources of funds to repay these obligations as they mature.

We are dependent on key personnel.

We are dependent upon the continued services of senior management, particularly the services of Robert D. Orr, Leland G. Orr, Shawn T. Lowry, Michael S. Lowry, Kyle L. Garst and Anita F. Larson. We have entered

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into an employment agreement with each of them. The loss of the services of any of these key personnel, by termination, death or disability, or our inability to identify, hire and retain other highly qualified personnel in the future, could have a material adverse effect on us. We currently do not maintain key employee insurance with respect to any of our officers or employees.

Because we intend to change our method of funding our loans, our leverage will increase.

As a part of our strategy to increase recurring revenues, our goal is to recognize fewer gains on loan sales and more net interest revenue. As a result, our current liabilities are expected to increase because more loans will be funded through sales of participations that do not qualify as true sales and through our warehouse facility with DZ Bank AG Deutsche Zentral-Genossenschaftsbank. Our network of participating lenders may become uncomfortable with such an increase in current liabilities, and as a result, we may not be able to sell participation interests in loans we originate on terms acceptable to us or at all, which would have a material adverse effect on our operations and prospects for growth.

Our business, results of operations, financial condition or liquidity may be materially adversely affected by errors and omissions.

Our franchisees are subject to claims and litigation in the ordinary course of business resulting from alleged errors and omissions. Because we are agent of record on policies written through our franchisees, claims against our franchisees may also allege liability against us for all or part of the amounts in question. Claimants may seek large damage awards and these claims may involve potentially significant defense costs. Errors and omissions could include, for example, our employees or sub-agents failing, whether negligently or intentionally, to place coverage or to notify insurance companies of claims on behalf of clients, to provide insurance companies with complete and accurate information relating to the risks being insured or to appropriately apply funds that we hold for our clients. It is not always possible to prevent and detect errors and omissions and the precautions we take may not be effective in all cases. While most of the errors and omissions claims made against us have been covered by our professional liability insurance, subject to our self-insured deductibles, our results of operations, financial condition or liquidity may be adversely affected if in the future our insurance coverage proves to be inadequate or unavailable or there is an increase in liabilities for which we self-insure. In addition, errors and omissions claims may harm our reputation or divert management resources away from operating our business.

Termination of our professional liability insurance policy would adversely impact our financial prospects and our ability to continue our relationships with insurance companies.

Without professional liability insurance, it is unlikely that we would be able to continue our relationships with insurance companies, which would adversely impact our financial prospects. Although we have an acceptable claims history, there can be no assurance that we will be able to maintain our professional liability insurance and in the event of the termination or non-renewal of our professional liability insurance policy, we may be unable to acquire this insurance on acceptable terms, or at all.

Efforts to comply with the Sarbanes Oxley Act will entail significant expenditures; non-compliance with the Sarbanes Oxley Act may adversely affect us.

The Sarbanes Oxley Act of 2002 that became law in July 2002 and rules subsequently implemented by the Securities and Exchange Commission and the American Stock Exchange require changes to some of our accounting and corporate governance practices, including the requirement that we issue a report on our internal controls as required by Section 404 of the Sarbanes Oxley Act. If we are an accelerated filer (as defined in Exchange Act Rule 12b-2) as of June 30, 2005, we will be required to comply with Section 404 of the Sarbanes Oxley Act by December 31, 2005. We expect these new rules and regulations to continue to increase our accounting, legal and other costs, and to make some activities more difficult, time consuming and/or costly. In the event that we are unable to maintain or achieve compliance with the Sarbanes Oxley Act and related rules, we may be adversely affected.

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We have experienced material weaknesses in our internal controls. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm the value of our common stock.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results will be harmed. We have, in the past, discovered and may in the future discover areas of our internal controls over financial reporting that need improvement. For example, during the audits of our 2001, 2002 and 2003 results, our independent auditors noted certain reportable conditions involving our internal controls and operations, primarily relating to accounting oversight, including a shortage of a qualified, experienced accounting staff. In addition, our independent auditors indicated in connection with the audit of our 2003 results that our lack of accounting personnel was a material weakness. We have made significant changes to our operations to improve our internal controls and have hired several individuals who have accounting experience, have accounting degrees and/or are certified public accountants. As a result of these improvements, our independent auditor’s letter to our audit committee in connection with the audit of our 2004 results did not note any material weaknesses. To address reportable conditions noted in connection with our 2004 audit, particularly accounting staff shortages and the need for additional documentation in support of estimates related to revenue recognition, we are continuing to take steps to improve our internal controls. For example, we are continuing to hire additional accounting staff and have engaged an independent accounting firm to assist our internal accounting staff with financial reporting and other accounting related matters. We cannot be certain that these measures, and any other steps we may take, will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operation results or cause us to fail to meet our reporting obligations.

As a public company we are subject to the reporting requirements of the Sarbanes-Oxley Act of 2002. Beginning with the year ending December 31, 2006 (or December 31, 2005, depending upon the value of our common stock held by non-affiliates), our management will be required to annually assess and report on our internal controls over financial reporting. We cannot assure you that our management will be able to complete its required assessment by our reporting deadline. If we are unable to adequately establish or improve our internal controls over financial reporting, we may report that our internal controls are ineffective and our independent auditors will not be able to issue an unqualified opinion on the effectiveness of our internal controls. Ineffective internal controls over financial reporting could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock or could affect our ability to access the capital markets, and which could result in regulatory proceedings against us by among others, the U.S. Securities Exchange Commission.

Our dependence on initial fees creates an incentive for us to extend credit to borrowers that may not meet stringent underwriting guidelines.

A significant part of our revenues are derived from one time initial fees we receive from assisting franchisees and others with the acquisition of businesses. Generating fees is largely dependent on our franchisees’ and others’ ability to obtain acquisition financing from Brooke Credit. Our dependence on these initial fees creates an incentive for us to extend credit to borrowers that may not meet stringent underwriting criteria. Our failure to follow stringent underwriting guidelines could adversely affect the quality of the loans we make and adversely affect our financial condition and results of operations.

Because a significant part of our loans and insurance-related revenues derive from operations located in five states, our business may be adversely affected by conditions in these states.

A substantial portion of our loans and insurance-related revenues derive from operations located in the states of Florida, Kansas, Texas, Missouri and California. Our franchisees’ and our revenues and profitability are affected by the prevailing regulatory, economic, demographic, weather, competitive, industry and other conditions in these states. Changes in any of these conditions could make it more costly or difficult for our

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franchisees and us to conduct our business. Adverse regulatory or industry developments in these states, which could include fundamental changes to the design or implementation of the insurance regulatory framework, could have a material adverse effect on our results of operations and financial condition.

Losses sustained by our Bermuda captive insurance companies may adversely affect us.

Our captive insurance company subsidiary, DB Indemnity, LTD., domiciled in Bermuda, is directly liable for losses and loss adjustment expenses under the terms of the insurance policies that it writes. DB Indemnity is required by Bermuda law to maintain minimum levels of statutory capital and surplus. In addition, DB Indemnity is required to maintain a minimum liquidity ratio whereby the value of its relevant assets is not less than a specified percentage of the amount of its relevant liabilities.

If DB Indemnity fails to accurately assess the risks it assumes, it may fail to establish appropriate premium rates and its reserves may be inadequate to cover its losses. Claim reserves represent estimates involving actuarial and statistical projections at a given point in time of expectations of the ultimate settlement and administrative costs of claims incurred. DB Indemnity uses actuarial models as well as historical industry loss development patterns to assist in the establishment of appropriate claim reserves. For both casualty and property losses, actual claims and claim expenses paid may deviate, perhaps substantially, from DB Indemnity’s reserve estimates. If DB Indemnity’s claim reserves are determined to be inadequate, it will be required to increase claim reserves with a corresponding reduction in its net income in the period in which the deficiency is rectified. Even though most insurance contracts have policy limits, the nature of property and casualty insurance and reinsurance is that losses can exceed policy limits for a variety of reasons and could significantly exceed the premiums received on the underlying policies. DB Indemnity has not incurred any claims or claims expenses; however, claims, claims settlement patterns, legislative activity, social and economic patterns, and litigation and regulatory trends, all of which are difficult to predict, may have a substantial impact on DB Indemnity’s future loss experience. If DB Indemnity’s reserves are insufficient to cover claims, this could have a material adverse effect on future earnings DB Indemnity contributes to the Company and accordingly could have a material adverse effect on our prospects. In addition, if DB Indemnity’s reserves are insufficient to cover claims, because the risks insured are risks of the Company and its franchisees, in some instances, we may have to pay losses for which DB Indemnity’s reserves were not adequate to cover.

Our Bermuda captive insurance company subsidiary, DB Group, LTD., is currently negotiating a quota share reinsurance agreement with an unaffiliated insurance company which would allow us to share a portion of the premiums and risks in relation to certain policies written through our franchisees and unaffiliated agents. Our plans also include negotiation of reinsurance agreements with other carriers. Brooke Brokerage’s ability to achieve its goals is dependent upon the successful negotiation of such agreements. There can be no assurance that current or future negotiations will be successful, and if negotiations fail, it could have a material adverse effect on our financial prospects. If we are successful in negotiating these reinsurance agreements, DB Group’s financial prospects will be subject to most of the risks described with respect to DB Indemnity, including failure to assess the risks it assumes and inadequate claims reserves.

Our reliance on the Internet could have a material adverse effect on our operations and our ability to meet customer expectations.

We rely heavily on the Internet in conducting our operations. A main component of our franchise program is providing franchisees and their personnel access to documents and other data over the Internet. This service requires efficient operation of Internet connections from franchisees and franchisee personnel to our system. These connections, in turn, depend on efficient operation of web browsers, Internet service providers and Internet backbone service providers, all of which have experienced periodic operational problems or outages in the past and over which we have no control. Any system delays, failures or loss of data, whatever the cause, could reduce customer satisfaction with our services and products. Moreover, despite the implementation of security measures, our computer system may be vulnerable to computer viruses, program errors, attacks by third parties or similar disruptive problems. These events could have a material adverse effect on our operations and our ability to meet customer expectations.

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Our network may be vulnerable to security breaches and inappropriate use by Internet users, which could disrupt or deter future use of our services.

Concerns over the security of transactions conducted on the Internet and the privacy of users may inhibit the growth of the Internet and other online services. Our failure to successfully prevent security breaches could significantly harm our business, reputation and results of operations and could expose us to lawsuits by state and federal consumer protection agencies, by governmental authorities in the jurisdictions in which we operate, and by consumers. Anyone who is able to circumvent our security measures could misappropriate proprietary information, including personal customer data, cause interruptions in our operations or damage our brand and reputation. A breach of our security measures could involve the disclosure of personally identifiable information and could expose us to a material risk of litigation, liability or governmental enforcement proceeding. We cannot assure you that our systems and other technology resources are completely secure from security breaches, password lapses or sabotage, and we have occasionally experienced attempts at “hacking.” We may be required to incur significant additional costs to protect against security breaches or to alleviate problems caused by any of these type of breaches. Any well publicized compromise of our security or the security of any other Internet provider could deter people from using our services or the Internet to conduct transactions that involve transmitting confidential information or downloading sensitive materials, which could have a detrimental impact on our franchise network. Furthermore, computer viruses may affect our ability to provide our services and adversely affect our revenues. Moreover, if a computer virus affecting our system were highly publicized, our reputation could be significantly damaged, resulting in the loss of current and future franchisees and customers.

We are in a highly competitive market, which could result in reduced profitability.

Our franchisees face significant competition. The popularity of Internet sales and enactment of the Financial Services Modernization Act have increased the number of potential competitors and allow highly capitalized competitors, like banks, to offer certain kinds of insurance services which are competitive with the products of our franchisees. If our prediction that the number of agents will increase is accurate, we will face greater competition for the services we provide to our franchisees. Our funeral services franchisees face competition for sales of funeral services from independent, regional and multinational operators, including large publicly traded owners and discount funeral service providers who provide products and services on discount or “a la carte” bases. In addition, they face significant competition with respect to pre-need insurance policies, pre-need trusts and other products. Many of our potential competitors have greater financial resources and market acceptance than we do.

Our processing center may be insufficient to accommodate expected growth.

Our processing services are completed at a processing center located in Phillipsburg, Kansas. If we grow more quickly than anticipated, the processing center’s management, facilities, and labor force may become insufficient to accommodate our expected growth. We have safeguards for emergencies and have arranged for back-up facilities to process information if the processing center in Phillipsburg, Kansas is not functioning. However, the occurrence of a major catastrophic event or other system failure at our processing center in Phillipsburg, Kansas could interrupt document processing or result in the loss of stored data.

We are a controlled company that is exempt from certain stock exchange corporate governance requirements.

Our common stock is currently listed on the American Stock Exchange. The American Stock Exchange generally requires a majority of directors to be independent and requires audit, compensation and nominating committees to be composed solely of independent directors. However, under the rules of the American Stock Exchange, if a single stockholder holds more than 50% of the voting power of a listed company, that company is considered a “controlled company” and, except for the rules relating to independence of the audit committee, is exempt from these independence requirements. We are a controlled company because Brooke Holdings, Inc. owns approximately 63% of our common stock. A majority of our directors are not independent and our shareholders do not have, and may never have, all the protections that these rules are intended to provide.

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We compete in a highly regulated industry, which may result in increased expenses or restrictions in our operations.

We conduct business in a number of states and are subject to comprehensive regulation and supervision by government agencies in many of the states in which we do business. The primary purpose of such regulation and supervision is to provide safeguards for policyholders rather than to protect the interests of shareholders. The laws of the various state jurisdictions establish supervisory agencies with broad administrative powers with respect to, among other things, licensing to transact business, licensing of agents and unfair trade practices.

Although we believe that we are currently in material compliance with statutes and regulations applicable to our business, we cannot assure you that we will be able to maintain compliance without incurring significant expense, or at all. In addition, our franchisees are also subject to comprehensive regulations and supervision and we cannot ensure their material compliance with statutes and regulations applicable to our business. Our failure to comply, or the failure of our franchisees to comply, with any current or subsequently enacted statutes and regulations could have a material adverse effect on us. Furthermore, the adoption of additional statutes and regulations, changes in the interpretation and enforcement of current statutes and regulations, or the expansion of our business into jurisdictions that have adopted more stringent regulatory requirements than those in which we currently conduct business, could have a material adverse effect on us.

We are subject to franchise law and regulations that govern our status as a franchisor and regulate some aspects of our franchise relationships. Our ability to develop new franchise locations and to enforce contractual rights against franchisees may be adversely affected by these laws and regulations, which could cause our franchise revenues to decline and adversely affect our growth strategy.

We are subject to federal and state laws and regulations, including the regulations of the Federal Trade Commission as well as similar authorities in individual states, in connection with the offer, sale and termination of franchises and the regulation of the franchisor-franchisee relationship. Our failure to comply with these laws could subject us to liability to franchisees and to fines or other penalties imposed by governmental authorities. In addition, we may become subject to litigation with, or other claims filed with state or federal authorities by, franchisees based on alleged unfair trade practices, implied covenants of good faith and fair dealing, payment of royalties, location of stores, advertising expenditures, franchise renewal criteria or express violations of franchise agreements. We cannot assure you that we will not encounter compliance problems from time to time, or that material disputes will not arise with one or more franchisees. Accordingly, our failure to comply with applicable franchise laws and regulations, or disputes with franchisees, could have a material adverse effect on our results of operations, financial condition and growth strategy.

Risks Related to Our Common Stock

Our Chairman of the Board and Chief Executive Officer, Robert D. Orr, is able to exert significant control over us and may act in a manner that is adverse to our other shareholders’ interests.

As of December 31, 2004, Robert D. Orr, our Chairman of the Board and Chief Executive Officer, beneficially owned approximately 63% of our outstanding common stock. As a result, he is able to exert significant influence over:

• the election of our board of directors;

• the adoption of amendments to our charter documents;

• our management and policies; and

• the outcome of any corporate transaction or other matter submitted to our shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets.

Mr. Orr’s interests may conflict with the interests of other holders of our common stock and he may take actions affecting us with which other shareholders may disagree. For example, in order to retain control, Mr. Orr may decide not to enter into a transaction in which our shareholders would receive consideration for their shares that is much higher than the cost of their investment in our common stock or than the then current market price of our common stock. Any decision regarding the ownership of our company that Mr. Orr may make at some future time will be in his absolute discretion.

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Our relatively low trading volume may limit shareholders’ ability to sell their shares.

Although shares of our common stock are listed on the American Stock Exchange, our average daily trading volume has been fewer than 9,000 shares during the year ended December 31, 2004. As a result of this low trading volume, shareholders may have difficulty selling a large number of shares of our common stock in the manner or at the price that might be attainable if our common stock were more actively traded.

The price of our common stock may fluctuate significantly, which may make it difficult for shareholders to resell common stock when they want or at a price they find attractive.

Since January 1, 2004, our common stock has traded at prices ranging between $4.81 and $31.50 on the American Stock Exchange. We expect that the market price of our common stock will continue to fluctuate. Our common stock price can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include:

• actual or anticipated variations in our quarterly operating results;

• actual or anticipated changes in the dividends we pay on our common stock;

• recommendations by securities analysts;

• significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;

• operating and stock price performance of other companies that investors deem comparable to us;

• news reports relating to trends, concerns, litigation and other issues in our industry;

• geopolitical conditions such as acts or threats of terrorism or military conflicts; and

• relatively low trading volume.

Kansas law and our articles of incorporation and bylaws contain antitakeover provisions that could delay or discourage takeover attempts that shareholders may consider favorable.

Certain provisions of our articles of incorporation and our bylaws and of Kansas law may discourage, delay or prevent transactions that our shareholders may consider favorable, including transactions that could provide for payment of a premium over the prevailing market price of our common stock, and also may limit the price that investors are willing to pay in the future for our common stock. For example, our articles of incorporation contain provisions, such as allowing our board of directors to issue preferred stock with rights superior to those of our common stock without the consent of our shareholders, which could make it more difficult for a third party to acquire us without the consent of our board of directors. In addition, our bylaws establish that our independent directors have neither the right nor the obligation to vote for the nomination, election or removal of directors of our company; those rights and obligations rest solely with the representative of our controlling company, Brooke Holdings, Inc.

ITEM 2. PROPERTIES.

Our principal executive offices are located in leased premises at 10950 Grandview Drive, Suite 600, Overland Park, Kansas 66210, and our telephone number is (913) 661-0123. In addition to serving as our principal executive offices, this facility also functions as the national sales office, the Kansas City regional franchise sales office and a franchise customer service center.

We own a processing center in Phillipsburg, Kansas, and lease additional regional offices in Englewood, Colorado, Nashville, Tennessee, Dallas, Texas, and Sacramento, California, as well as brokerage underwriting offices, franchise customer service centers and auto insurance sales centers in other locations in the United States. We, or our subsidiaries, may acquire or lease real estate for use in our subsidiaries’ operations and for lease, sublease or license to franchisees.

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The properties from which operations are conducted are not materially important to us. Management believes that our facilities will be adequate for current and proposed operations. In management’s opinion, adequate insurance has been purchased for each of the above-referenced properties.

ITEM 3. LEGAL PROCEEDINGS.

We and our subsidiaries have from time to time been parties to claims and lawsuits that are incidental to our business operations. While ultimate liability with respect to these claims and litigation is difficult to predict, we believe that the amount, if any, that we are required to pay in the discharge of liabilities or settlements in these matters will not have a material adverse effect on our consolidated results of operations or financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of our security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 2004.

ITEM 4A.   EXECUTIVE OFFICERS OF THE REGISTRANT.

Name	Age	Position(s)
Robert D. Orr	51	Chairman of the Board and Chief Executive Officer
Leland G. Orr	42	Chief Financial Officer, Treasurer and Assistant Secretary
Anita F. Larson	43	President and Chief Operating Officer
James H. Ingraham	51	General Counsel and Secretary
Michael S. Hess	49	President of Brooke Brokerage Corporation and CJD & Associates, L.L.C.
Shawn T. Lowry	31	President of Brooke Franchise Corporation
Michael S. Lowry	29	President of Brooke Credit Corporation
Kyle L. Garst	35	Senior Vice President of Brooke Franchise Corporation

Robert Orr and Leland Orr are brothers. Shawn Lowry and Michael Lowry are brothers and they are also nephews of Robert Orr and Leland Orr.

The business experience of each of the executive officers is described below:

Robert D. Orr, Director, Chairman of the Board and Chief Executive Officer, is our founder. Mr. Orr has served as a director and our Chief Executive Officer since our inception in 1986. He was our President from 1986 until 1991 and has been our Chairman of the Board since 1991. Prior to focusing full time as our Chairman of the Board and Chief Executive Officer beginning in 1996, Mr. Orr served as President of Farmers State Bank, Phillipsburg, Kansas, Chairman of the Board of Brooke State Bank, Jewell, Kansas, President of First National Bank, Smith Center, Kansas, and a self-employed insurance agent for American Family Insurance Company. Mr. Orr is an honors graduate from Fort Hays State University in Hays, Kansas, with a Bachelor of Arts degree in Political Science. He also completed the Graduate School of Banking program at the University of Colorado. Mr. Orr is the author of a book published in 2000 about the sale of insurance and financial services in the Internet age entitled Death of an Insurance Salesman?.

Leland G. Orr, Director, Chief Financial Officer, Treasurer and Assistant Secretary, has served as a director and officer since our inception in 1986. Mr. Orr has been our Chief Financial Officer since 1995, Treasurer since 1986, and Assistant Secretary since 2001. He served as our President from 2003 until January 2005 and as Secretary from 1986 until 2001. In addition to his other responsibilities, Mr. Orr manages our processing center in Phillipsburg, Kansas. Prior to assuming the role of our Chief Financial Officer, Mr. Orr served as President of Brooke State Bank, Jewell, Kansas, and as an accountant with Kennedy, McKee & Company, LLP (formerly Fox & Company) in Dodge City, Kansas. He is a Certified Public Accountant and a

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member of each of the American Institute of Certified Public Accountants and the Kansas Society of Certified Public Accountants. Mr. Orr received a Bachelor of Science Degree in Accounting from Fort Hays State University in Hays, Kansas.

Anita F. Larson, Director, President and Chief Operating Officer, joined us in 1999. In January 2005, Ms. Larson was elected to our board of directors and appointed as our President and Chief Operating Officer. She was our General Counsel from 1999 until January 2005, Vice President from 2001 until January 2005, Secretary from 2001 until January 2005, and Assistant Secretary from 2000 until 2001. Prior to joining us, Ms. Larson was Vice President and Counsel of The Equitable Life Assurance Society of the United States, New York, New York, Chief Administrative Officer of First Security Benefit Life Insurance and Annuity Company of New York, and Second Vice President and Counsel of Security Benefit Group, Inc., Topeka, Kansas. Ms. Larson received a Bachelor of Arts Degree in English from the University of Kansas and a Juris Doctorate Degree from the University of Kansas School of Law.

James H. Ingraham has served as our General Counsel and Secretary since January 2005, having joined us in November 2004 as Counsel. Mr. Ingraham previously worked for 24 years for H&R Block, Inc., a tax and financial services company in Kansas City, Missouri, most recently serving as Senior Vice President and General Counsel from 2001 until 2004, Vice President and General Counsel from 1996 to 2001, and Secretary from 1990 until 2002. He received a Bachelor of Science Degree in Business Administration from the University of Kansas and a Juris Doctorate Degree from the University of Kansas School of Law.

Michael S. Hess, President of Brooke Brokerage Corporation and CJD and Associates, L.L.C., two of our subsidiaries, was one of our original investors. Mr. Hess served on our board of directors from 1990 until January 2005, as our President from 1996 until 2003, and as our Vice President from 1988 until 1996. In 2002, Mr. Hess became President and a director of CJD and Associates, L.L.C., a Kansas limited liability company and wholesale insurance broker, upon its acquisition by us. He became President and a director of Brooke Brokerage Corporation, a holding company that owns CJD and Associates, L.L.C. and its subsidiaries, upon its formation in late 2004, and continues to focus his efforts on the wholesale broker segment of our business. Prior to joining us, Mr. Hess was employed by Western Resources, Inc. (now Westar Energy, Inc.), a utility company in Topeka, Kansas.

Shawn T. Lowry, President of Brooke Franchise Corporation, one of our subsidiaries, has served in such capacity and as a director of such corporation since April 2003. Mr. Lowry joined Brooke Corporation in 1996 as Corporate Sales Representative, was appointed Vice President and Missouri State Manager in 1998, became Vice President and Regional Manager in January 2000 and served as Vice President and National Sales Manager from August 2000 until April 2003. Mr. Lowry was appointed Vice President of Brooke Franchise Corporation after its acquisition by us in June 2000 and served as such until his appointment as President in 2003.

Michael S. Lowry, President of Brooke Credit Corporation, one of our subsidiaries, has served in such capacity and as a director of such corporation since February 2003. Mr. Lowry joined Brooke Credit Corporation as a loan officer in 1998 and was appointed its Vice President in 2000. He also served as Vice President of Brooke Corporation from 2000 until 2003. Prior to employment by us, Mr. Lowry was an Assistant Vice President of Sunflower Bank in Salina, Kansas.

Kyle L. Garst, Senior Vice President of Brooke Franchise Corporation, has served in such capacity since September 1, 2004. Mr. Garst has direct responsibility for managing Brooke Franchise Corporation’s funeral and financial services specialty franchise activities. Mr. Garst joined us as a sales representative in 1994. From 1997 to 1999, he was a sales representative and profit center leader for Koch Industries in Phoenix, Arizona. In March 1999, Mr. Garst returned as our State Manager for Oklahoma and, in August 2000, he was named Vice President and Regional Sales Manager for Texas, Oklahoma and Louisiana. In December 2001, Mr. Garst became our Vice President and Investment Sales Manager, as well as our Investor Relations Manager, and served in those capacities until September 2004 when he assumed his current position. Mr. Garst has a Bachelor of Science Degree in Business Finance from Kansas State University.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information.

Our common stock, $.01 par value, has been traded on the American Stock Exchange (“AMEX”) since May 29, 2003 under the symbol “BXX.” From November 1, 2002, until May 28, 2003, the common stock was traded on the OTC Bulletin Board (“OTCBB”). Prior to November 2002, there was no public trading market for our common stock.

During the first quarter of 2003, our board of directors declared a common stock dividend pursuant to which all common stockholders of record as of March 3, 2003, received six shares of common stock for each share held. On April 22, 2004, our board of directors declared a common stock dividend pursuant to which all common stockholders of record as of May 26, 2004, received two shares of common stock for each share held.

The par value of our common stock was reduced from $1.00 per share to $.01 per share pursuant to an amendment to our Articles of Incorporation approved by our shareholders on April 22, 2004.

During the two most recently completed fiscal years, the high and low prices for our common stock for each quarter have been as follows on a split-adjusted basis:

Quarter	Ending	Market	High Bid/Sale	Low Bid/Sale
First	March 31, 2003	OTCBB	$5.025	$1.835
Second	June 30, 2003	AMEX	$5.25	$2.375
Third	September 30, 2003	AMEX	$4.545	$4.075
Fourth	December 31, 2003	AMEX	$5.065	$4.125
First	March 31, 2004	AMEX	$11.40	$5.03
Second	June 30, 2004	AMEX	$20.00	$8.875
Third	September 30, 2004	AMEX	$19.95	$14.57
Fourth	December 31, 2004	AMEX	$31.50	$18.01

As of February 28, 2005, the 52-week high and low prices were $31.50 and $8.875, on a split-adjusted basis. On February 28, 2005, the closing price for our common stock on AMEX was $19.31 per share.

Holders of Common Stock.

On February 28, 2005, there were 405 shareholders of record of our common stock and an indeterminate number of shareholders whose shares are held by brokers or “nominees” in street name.

Dividends.

During the last two fiscal years, we paid quarterly cash dividends in the amount $0.0125, $0.04, $0.05, and $0.05 per split-adjusted share of common stock, respectively for the first, second, third, and fourth quarters of the fiscal year ended December 31, 2003, and $0.10, $0.10, $0.10, and $0.10 per split-adjusted share of common stock, respectively for the first, second, third, and fourth quarters of the fiscal year ended December 31, 2004. In addition, we paid a special cash dividend of $0.15 per share during the third quarter of the 2004 fiscal year.

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Securities Authorized for Issuance under Equity Compensation Plans.

The following table shows information related to the stock options that have been granted and the number of shares remaining available for grant under the Plan as of December 31, 2004.

Equity Compensation Plan Information

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column)
Equity compensation plans approved by security holders	562,550	$	3.07	414,620
Equity compensation plans not approved by security holders	—		—	—
Total	562,550	$	3.07	414,620

Recent Sales of Unregistered Equity Securities.

We did not sell any unregistered equity securities during the fiscal year ended December 31, 2004.

In February 2001, we commenced the offering of 100,000 shares of our 2002 Convertible Preferred Stock, par value $25.00 per share (the “2002 Convertible Preferred Stock”), and sold all 100,000 shares for an aggregate purchase price of $2,500,000. The offering terminated in February 2002 and no shares were sold thereafter. A total of 51,153 shares of 2002 Convertible Preferred Stock were converted into 51,153 shares of common stock in 2002 prior to the expiration of conversion rights in April 2002. We have the option to redeem the remaining shares of 2002 Convertible Preferred Stock by paying $27.50 for each share held.

In January 2002, we commenced the offering of 10,000 shares of our 2002A Convertible Preferred Stock, par value $25.00 per share (the “2002A Convertible Preferred Stock”), and sold all 10,000 shares for an aggregate purchase price of $250,000. The offering terminated in February 2002 and no shares were sold thereafter. A total of 9,180 shares of 2002A Convertible Preferred Stock were converted into 9,180 shares of common stock prior to the expiration of conversion rights in April 2002. We have the option to redeem the remaining 2002A Convertible Preferred Stock by paying $27.50 for each share held.

In March 2002, we commenced the offering of 34,375 shares of our 2002B Convertible Preferred Stock, par value $32.00 per share (the “2002B Convertible Preferred Stock”), and sold 34,153 shares for an aggregate purchase price of $1,092,896. The offering terminated in April 2002 and no shares were sold thereafter. A total of 9,822 shares of 2002B Convertible Preferred Stock were converted to 9,822 shares of common stock prior to the expiration of conversion rights in May 2002. We have the option to redeem the remaining 2002B Convertible Preferred Stock by paying $35.20 for each share held.

The sales of shares of 2002, 2002A and 2002B Convertible Preferred Stock did not involve underwriters and were sold in transactions exempt from registration under the Securities Act of 1933 under Section 3(a)(11) and Rule 147. The fact that we relied upon to claim the exemptions was that the securities were only offered and sold to residents of the State of Kansas, including business entities whose principal places of business were within the State of Kansas.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

During the fourth quarter of the fiscal year ended December 31, 2004, there were no purchases of equity securities by us or any affiliated purchaser of shares or other units of any class of equity securities registered by us pursuant to section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”).

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ITEM 6. SELECTED FINANCIAL DATA.

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected historical consolidated financial information for the periods ended and as of the dates indicated.

The following income statement data for the years ended December 31, 2004, 2003 and 2002 and balance sheet data as of December 31, 2004 and 2003 are derived from our audited financial statements, which are included elsewhere in this report. The following income statement data for the years ended December 31, 2001 and 2000 and balance sheet data as of December 31, 2002, 2001 and 2000 are derived from our audited financial statements not included in this report. You should read this data together with our financial statements and related notes included elsewhere in this report and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	Year Ended December 31,
	2004			2003		2002		2001			2000
	(in thousands, except per share data and number of franchises)
Statement of Operations Data:
Operating Income
Insurance commissions	$	63,904		$	45,706	$	30,540	$	20,895		$	13,751
Interest income (net)		5,072			1,819		737		418			289
Seller consulting fees		5,236			4,109		1,589		450
Gain on sale of businesses		5,261			418		165		676			18
Initial franchise fees for basic services		8,795			425		—		0			—
Initial franchise fees for buyer assistance plans		8,122			8,147		3,954		1,590			—
Gain on sale of notes receivable		2,475			4,368		2,762		508			—
Gain on extinguishment of debt		57			5		439		—			—
Loss on sale of fixed assets		—			—		—		(47	)		—
Insurance premiums earned		401			283		—		—			—
Policy fee income		2,003			610		173		—			—
Other income		597			77		36		4			—
Total Operating Income		101,923			65,967		40,395		24,494			14,058
Operating Expenses
Commissions expense		47,261			35,949		25,355		16,220			10,036
Payroll expense		20,151			11,355		7,014		4,113			2,757
Depreciation and amortization		2,504			1,423		809		440			406
Other operating expenses		18,783			9,679		4,271		1,991			1,459
Insurance loss expense incurred		(17	)		77		—		—			—
Other operating interest expense		927			665		497		344			184
Total Operating Expenses		89,609			59,148		37,946		23,108			14,842
Impairment Loss		—			—		—		163			300
Income from Operations		12,314			6,819		2,449		1,223			(1,084	)
Other Expenses
Interest Expense		2,340			576		252		170			201
Total Other Expenses		2,340			576		252		170			201
Income Before Income Taxes		9,974			6,243		2,197		1,053			(1,285	)
Income tax expense		3,280			2,083		747		358			(437	)
Net Income	$	6,694		$	4,160	$	1,450	$	695		$	(848	)
Net Income per Share
Basic net income per share	$	0.69		$	0.42	$	0.14	$	0.07		$	(0.10	)
Diluted net income per share		0.65			0.41		0.14		0.07			(0.10	)
Weighted average of shares—basic outstanding		9,362			9,293		9,079		8,437			8,437
Weighted average of shares—diluted outstanding		9,925			9,615		9,597		9,443			8,559

The weighted average number of shares has been adjusted to reflect a 2 for 1 stock split in 2004 and a 6 for 1 stock split in 2003.

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	As of December 31,
	2004	2003		2002		2001		2000
Balance Sheet and Other Data:
Total Current Assets	94,073	$	46,930	$	21,670	$	14,194	$	5,053
Cash and cash equivalents	19,761		13,741		7,210		4,788		1,684
Accounts and notes receivable, net	51,803		16,005		9,237		7,811		2,705
Securities	17,889		11,381		1		1		1
Total Assets	108,330		56,858		28,355		17,868		7,515
Total Liabilities	100,994		51,079		25,314		17,388		8,938
Total stockholders’ equity	7,336		5,779		3,041		479		(1,423	)
Loans outstanding	183,384		112,732		60,353		37,943		21,251
# of franchise locations	370		234		163		105		96

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

Amounts in this section have been rounded to the nearest thousand, except per share data. Unless otherwise indicated, or unless the context otherwise requires, references to years in this section mean our fiscal years ended December 31.

General

Our primary business activity is insurance sales through franchisees and most of our revenues are generated from commissions paid on the sale of insurance. Commission revenues typically represent a percentage of insurance premiums paid by policyholders. Premium amounts and commission percentage rates are established by insurance companies, so we have little or no control of the commission amount generated from the sale of a specific insurance policy. Our business also includes lending to businesses that sell insurance and related services. Unlike commission revenues, lending interest rates are typically set by us, although competitive forces are important limiting factors when establishing rates.

Brooke Franchise Most of our revenues are from commissions paid to Brooke Franchise, our wholly owned franchise subsidiary, by insurance companies for the sale of insurance policies on a retail basis through exclusive franchisees. Brooke Franchise primarily relies on the recruitment of additional franchisees to increase retail insurance commission revenues. Brooke Franchise’s franchisees specialize in general insurance sales, auto insurance sales, financial services and final expense/funeral services. Brooke Franchise also consults with business sellers and lenders.

Brooke Credit Brooke Credit, our wholly owned finance subsidiary, generates most of its revenues from interest income resulting from loans held on our balance sheet in the form of inventory loans held for sale, which are mostly made to Brooke Franchise’s franchisees. Brooke Credit also generates revenues from gains on the sale of franchisee loans when they are removed from our balance sheet. Brooke Credit funds its loan portfolio primarily through the sale of loan participation interests to other lenders, commercial bank loans secured by loan assets and the sale of securities, backed by loan assets, to accredited investors. During 2003 and 2004, Brooke Credit sold three issues of asset backed securities totaling approximately $52,000,000. During 2004, Brooke Credit secured a $50,000,000 line of credit with DZ Bank AG Deutsche Zentral-Genossenschaftsbank (DZ Bank) for the purpose of warehousing loans until securitized.

Brooke Brokerage We also generate revenues from commissions paid to Brooke Brokerage, our wholly owned brokerage subsidiary, by insurance companies for the sale of hard to place and niche insurance policies on a wholesale basis through non-exclusive agents and our own franchise agents. Brooke Brokerage primarily relies on the recruitment of additional broker agents to increase wholesale commission revenues.

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Results of Operations

Our consolidated results of operations have been significantly impacted by our expansion of territory and personnel in recent years. The following table shows income and expenses (in thousands, except percentages and per share data) for the years ended December 31, 2004, 2003 and 2002, and the percentage change from year to year.

	Year Ended December 31, 2004			2004 % Increase (decrease) over 2003		Year Ended December 31, 2003		2003 % Increase (decrease) over 2002		Year Ended December 31, 2002
Revenues
Insurance commissions	$	63,904		40		$	45,706	50		$	30,540
Interest income (net)		5,072		179			1,819	147			737
Seller consulting fees		5,236		27			4,109	159			1,589
Gain on sale of businesses		5,261		1,159			418	153			165
Initial franchise fees for basic services		8,795		1,969			425	—			—
Initial franchise fees for buyers assistance plans		8,122		—			8,147	106			3,954
Gain on sale of notes receivable		2,475		(43	)		4,368	58			2,762
Gain on extinguishment of debt		57		1,040			5	(99	)		439
Insurance premiums earned		401		42			283	—			—
Policy fee income		2,003		228			610	253			173
Other income		597		675			77	114			36
Total Operating Revenue		101,923		55			65,967	63			40,395
Expenses
Commission expense		47,261		31			35,949	42			25,355
Payroll expenses		20,151		77			11,355	62			7,014
Depreciation and amortization expense		2,504		76			1,423	76			809
Insurance loss and loss expense incurred		(17	)	(122	)		77	—			—
Other operating expenses		18,783		94			9,679	127			4,271
Other operating interest expenses		927		39			665	34			497
Total Operating Expenses		89,609		51			59,148	56			37,946
Income from operations		12,314		81			6,819	178			2,449
Interest expense		2,340		306			576	129			252
Income before income taxes		9,974		60			6,243	184			2,197
Income tax expenses		3,280		57			2,083	179			747
Net income	$	6,694		61		$	4,160	187		$	1,450
Basic net income per share	$	0.69		64		$	0.42	200		$	0.14
Diluted net income per share	$	0.65		59		$	0.41	193		$	0.14

Operating revenue is expected to continue to increase as a result of opening new franchise locations in 2005. The 2003 and 2004 increases in total operating revenues, and most of the individual revenue categories that make up total operating revenues, are primarily attributable to the expansion of our franchise operations in 2003 and 2004. The 2003 and 2004 increases in interest income (net), which includes interest income we receive on loans less interest expense paid to those purchasing participation interests in our loans, are primarily attributable to our decision to hold more loans on our balance sheet for longer periods of time.

Expenses are also expected to continue to increase as a result of opening new franchise locations in 2005. The increase of commission expense in 2004 is primarily attributable to increases in insurance commissions

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received from insurance companies, because a share of insurance commissions is typically paid to franchisees. Payroll expenses, which include wages, salaries, payroll taxes and compensated absences expenses, and other operating expenses, which includes advertising, rent, travel, lodging, office supplies and insurance expenses, increased primarily as a result of the expansion of our franchise operations, the opening of additional service/sales centers and the acquisition of Texas All Risk General Agency in 2003. Payroll expenses, as a percentage of total operating revenue, were approximately 20% in 2004, 17% in 2003, and 17% in 2002. Other operating expenses, as a percentage of total operating revenue, were approximately 18% in 2004, 15% in 2003, and 11% in 2002.

Amortization expense increased in 2003 and 2004 primarily as a result of amortization of the servicing asset, which increased significantly as a result of Brooke Credit’s participation loan sales activities.

Depreciation expense increased in 2004 primarily as a result of the renovation of our national office facility in Overland Park, Kansas in the third quarter of 2003. Depreciation expense also increased as the result of equipment purchases associated with the acquisition of Texas All Risk General Agency in 2003. In 2003, depreciation expense increased primarily as a result of the acquisition/renovation of our processing center facility in Phillipsburg, Kansas in the last quarter of 2002.

The increase in other operating interest expenses in 2004 is primarily attributable to interest paid on the DZ Bank line of credit for the warehousing of loans until securitized. The increase in 2003 is primarily attributable to the sale of $1,069,000 in unsecured 8.0% Series A Brooke Corporation debentures and $1,340,000 in unsecured 9.25% Series B Brooke Corporation debentures. We consider bond and debenture interest expense to be an operating expense because the proceeds from the sale of such bonds and debentures are used to partially fund our lending activities.

We consider interest expense, other than bond and debenture interest expense, to be a non-operating expense. Interest expense increased significantly in 2004 as a result of increased debt to commercial banks, which was incurred primarily to capitalize our operating subsidiaries, and increased notes payable balances resulting from deferred payments to sellers on acquired businesses. In 2003, interest expense increased primarily as a result of increased notes payable balances resulting from deferred payments to sellers on acquired businesses.

Net income and net income per share have increased year over year primarily because we have increased the number of new franchises each year and a significant share of our revenues result from initial franchise fees associated with adding new franchise locations. Initial franchise fees typically have larger profit margins than those generated by our other activities.

Assets are expected to continue to increase in 2005 as a result of continued expansion and holding more loans for longer periods of time prior to the sale of participation interests in such loans or securitizing such loans in order to increase interest income. The following table shows selected assets and liabilities (in thousands, except percentages) as of December 31, 2004, 2003 and 2002, and the percentage change from year to year.

	As of December 31, 2004		2004 % Increase (decrease) over 2003		As of December 31, 2003		2003 % Increase (decrease) over 2002		As of December 31, 2002
Customer receivable	$	6,340	42		$	4,461	(44	)	$	7,970
Notes receivable		44,644	313			10,810	1,192			837
Interest earned not collected on notes		819	12			734	71			429
Other receivables		1,239	(27	)		1,698	(24	)		2,221
Securities		17,889	57			11,381	11,380			1
Deferred charges		839	179			301	15			261
Accounts payable		7,081	38			5,131	(1	)		5,182
Payable under participation agreements		2,452	500			409	—			—
Premiums payable		6,441	(10	)		7,153	62			4,415
Debt		80,482	130			34,976	156			13,670

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Customer receivables primarily include amounts owed to Brooke Franchise by our franchisees and, to a lesser extent, amounts owed to Brooke Brokerage for premiums billed by agents. Customer receivables increased in 2004 primarily from continued expansion of our franchise operations and decreased in 2003 primarily because Brooke Credit began to provide working capital financing to franchisees, which increased notes receivables and decreased customer receivables. A loss allowance was established for Brooke Franchise’s credit loss exposure to customer receivables (See Franchise Services Segment).

Notes receivables include loans made by Brooke Credit to franchisees and others. Notes receivables balances vary, sometimes significantly from year to year, as a result of our decision to temporarily retain more or fewer loans in our “held for sale” loan inventory based on the funds available to us. During 2004, Brooke Credit used its line of credit to increase its notes receivables balances. No loss allowance has been made for the notes receivables held in Brooke Credit’s loan inventory because we typically hold these assets for less than one year and, therefore, have a short term exposure to loss and we have experienced limited credit losses (See Lending Services Segment). Interest earned not collected on notes (accrued interest income) increased in 2004 and 2003 primarily because we are holding more loans for longer periods of time.

Customer receivables, notes receivables and interest earned not collected on notes are the three items above that comprise our accounts and notes receivable, net, as shown on our consolidated balance sheet.

Other receivables, which primarily include the estimated amounts due from franchisees for future policy cancellations, decreased in 2003 and 2004 primarily from repayment of amounts due to us from franchisees for certain commission advances.

The terms of our securitizations require the over-collateralization of the pool of loan assets that back the securities sold to investors. We retain ownership of the resulting subordinate interest in the loan pool, and the corresponding securities asset increased in 2003 and 2004 as the result of our securitization activity.

Deferred charges increased in 2004 primarily as a result of origination fees and other such expenses associated with acquiring the DZ Bank line of credit.

Accounts payable, which includes franchise payables, producer payables, payroll payables and other accrued expenses, increased in 2004 primarily from the continued expansion of our franchise operations, which significantly increased the accrual for estimated commission expense due franchisees.

Payable under participation agreements is the amount we owe to funding institutions who have purchased a participating interest in loans pursuant to transactions that do not meet the true sale test of SFAS 140 “Accounting for Transfers and Services of Financial Assets and Extinguishments of Liabilities.” Payable under participation agreements increased in 2004 because we sold more loans pursuant to transactions that did not meet the true sale test.

The premiums payable liability category is comprised primarily of amounts due to insurance companies for premiums that are billed and collected by our franchisees. Premiums payable decreased in 2004 primarily as a result of an increased emphasis on direct insurance company billing of policies. Premiums payable increased in 2003 primarily as a result of the acquisition of Texas All Risk General Agency, which sells more policies that are agent billed.

Debt increased in 2003 and 2004 primarily to fund increases in our notes receivables and securities.

During 2003, there was an extraordinary reduction in our retained earnings in the amount of $1,957,000 because our stock dividend of 3,820,000 shares at $1.00 par value per share exceeded our paid in capital of $1,863,000. The excess over the paid in capital was allocated to retained earnings.

The following tables provide information regarding our Notes Receivables, Notes Participations, Notes Payables and Bonds & Debentures Payables principal balances and the corresponding weighted interest rates as of

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the end of each quarter in 2004, 2003 and 2002 (excluding capitalized lease balances). Notes Receivables balances include the loans originated by Brooke Credit to our franchisees and others, even though the notes may no longer be on our balance sheet. Notes Participations are comprised of loan participation interests that we have sold to our funding institutions and that we typically no longer carry on our balance sheet. Notes Payables balances are comprised of borrowings to fund the loans that we have made to our franchisees and others and include primarily notes issued to sellers of agencies we have purchased, borrowings under our lines of credit and bank borrowings. Bonds and debentures payable include bonds and debentures that we have issued to primarily fund our lending and commission advance activities.

Notes Receivables (in thousands)

	2004 Principal		2004 Weighted Rate		2003 Principal		2003 Weighted Rate		2002 Principal		2002 Weighted Rate
1st Quarter	$	131,496	7.71	%	$	70,545	8.15	%	$	44,624	8.66	%
2nd Quarter		153,823	7.73	%		81,770	8.04	%		47,069	8.93	%
3rd Quarter		177,197	7.84	%		92,723	7.99	%		50,529	8.71	%
4th Quarter		199,889	8.08	%		115,880	7.78	%		60,353	8.70	%

Notes Participations (in thousands)

	2004 Principal		2004 Weighted Rate		2003 Principal		2003 Weighted Rate		2002 Principal		2002 Weighted Rate
1st Quarter	$	114,730	5.33	%	$	66,098	5.98	%	$	41,118	7.49	%
2nd Quarter		137,954	5.40	%		75,559	5.15	%		44,547	7.87	%
3rd Quarter		144,646	5.65	%		84,104	5.92	%		49,039	8.05	%
4th Quarter		157,697	6.02	%		105,479	5.43	%		59,516	8.49	%

Notes Payables (in thousands)

	2004 Principal		2004 Weighted Rate		2003 Principal		2003 Weighted Rate		2002 Principal		2002 Weighted Rate
1st Quarter	$	33,632	6.00	%	$	7,007	5.17	%	$	6,385	3.45	%
2nd Quarter		43,903	6.19	%		8,178	5.35	%		7,125	4.96	%
3rd Quarter		58,513	4.53	%		12,268	5.18	%		4,561	5.01	%
4th Quarter		73,093	4.47	%		26,812	5.79	%		6,385	5.79	%

Bonds & Debentures Payables (in thousands)

	2004 Principal		2004 Weighted Rate		2003 Principal		2003 Weighted Rate		2002 Principal		2002 Weighted Rate
1st Quarter	$	7,429	8.99	%	$	7,484	8.98	%	$	5,385	9.218	%
2nd Quarter		7,429	8.99	%		7,429	8.99	%		5,385	9.218	%
3rd Quarter		6,724	8.97	%		7,429	8.99	%		5,385	9.218	%
4th Quarter		6,724	8.97	%		7,429	8.99	%		6,490	9.077	%

Non-GAAP Financial Measures

GAAP refers to accounting principles generally accepted in the United States. In this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we discuss financial measures stated in accordance with GAAP and also those stated on a non-GAAP basis. A non-GAAP financial measure is a numerical measure of financial performance that excludes or includes amounts included or excluded from the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles. Management believes non-GAAP measures aid in the analysis and comparability of our financial results. Non-GAAP financial measures presented herein primarily relate to management’s efforts to identify our exposure to operating losses in the event that new franchise locations are not added and the associated revenues from non-recurring initial franchise fees not recorded. These non-GAAP financial measures

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include recurring revenues, recurring expenses, the ratio of recurring revenues to recurring expenses, non- recurring revenues and the ratio of gain on loan sales to net interest revenues. The following tables provide a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures for the years ended December 31, 2004, 2003 and 2002.

Recurring revenues, a non-GAAP financial measure, are defined as net franchise commissions, net interest income, net brokerage commissions and net brokerage underwriting profits. Because net revenues are used to calculate recurring revenues, gross commission income, gross interest income and gross insurance premium income are reduced by the corresponding amount of commission expense, other operating interest expense and insurance loss and loss expense incurred. Excluded from recurring revenues are non-recurring revenues including initial franchise fees, seller consulting fees, gains on sales of businesses and gains on extinguishment of debt. Recurring revenues are generally considered by us to be those revenues that are reasonably likely to be recorded in the next year if no new franchise locations are added. For the years ended December 31, 2004, 2003 and 2002, recurring revenues were $23,806,000, $11,804,000 and $5,634,000, respectively.

	Year Ended December 31, (in thousands)
	2004			2003			2002
Total Operating Revenue	$	101,923		$	65,967		$	40,395
Reconciling Items:
Seller consulting fees		(5,236	)		(4,109	)		(1,589	)
Gain on sale of businesses		(5,261	)		(418	)		(165	)
Initial franchise fees for basic services		(8,795	)		(425	)		0
Initial franchise fees for buyers assistance plans		(8,122	)		(8,147	)		(3,954	)
Gain on sale of notes receivable		(2,475	)		(4,368	)		(2,762	)
Gain on extinguishment of debt		(57	)		(5	)		(439	)
Commission expense		(47,261	)		(35,949	)		(25,355	)
Insurance loss and loss expense incurred		17			(77	)		0
Other operating interest expense		(927	)		(665	)		(497	)
Non-GAAP Recurring Revenues		23,806			11,804			5,634

Recurring expenses, a non-GAAP financial measure, are defined as payroll, other operating expenses and depreciation and amortization. Excluded from recurring expenses are commission expense, other operating interest expense and insurance loss and loss expense incurred because these expenses have been netted against the corresponding revenue. Recurring expenses are generally considered by us to be those expenses that are reasonably likely to be incurred in the next year if no new franchise locations are added. For the years ended December 31, 2004, 2003 and 2002, recurring expenses were $41,438,000, $22,457,000 and $12,094,000, respectively, resulting in ratios of recurring revenues to recurring expenses of 58%, 53% and 47%, respectively. The ratio of recurring revenues to recurring expenses is a non-GAAP financial measure important to us because it helps identify operating losses we would experience in the event that franchise locations are not added and the associated non-recurring initial franchise fees not recorded.

	Year Ended December 31 (in thousands)
	2004			2003			2002
Total Operating Expenses	$	89,609		$	59,148		$	37,946
Reconciling Items:
Commission Expense		(47,261	)		(35,949	)		(25,355	)
Insurance loss & loss expense incurred		17			(77	)		0
Other operating interest expenses		(927	)		(665	)		(497	)
Non-GAAP Recurring Expenses		41,438			22,457			12,094

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The amount of non-recurring revenues is another non-GAAP financial measure important to us because our profitability is largely determined by the amount of non-recurring revenues resulting from adding new franchise locations. Non-recurring revenues are defined as initial franchise fees, seller fees, gains on sales of businesses and gains on extinguishment of debt. Specifically excluded from non-recurring revenues are gains on loan sales because we intend to reduce the relative amount of revenues recorded from gains on loan sales. Non-recurring revenues are generally considered by us to be those revenues that are dependent on adding new franchise locations. For the years ended December 31, 2004, 2003 and 2002, non-recurring revenues totaled $27,471,000, $13,104,000 and $6,147,000, respectively. The increase in non-recurring revenues is primarily attributable to the increase in franchise locations and the associated initial franchise fees.

	Year Ended December 31 (in thousands)
	2004			2003			2002
Total Operating Revenue	$	101,923		$	65,967		$	40,395
Reconciling Items:
Insurance commissions		(63,904	)		(45,706	)		(30,540	)
Interest income (net)		(5,072	)		(1,819	)		(737	)
Gain on sale of notes receivable		(2,475	)		(4,368	)		(2,762	)
Insurance premiums earned		(401	)		(283	)		0
Policy fee income		(2,003	)		(610	)		(173	)
Other income		(597	)		(77	)		(36	)
Non-GAAP Non-Recurring Revenues		27,471			13,104			6,147

The ratio of gain on sales of notes receivable to net interest revenues is another non-GAAP financial measure important to us. It measures our success in decreasing the relative amount of revenues recorded from gains on sales of notes receivables, which are non-cash revenues and are based on our assumptions. For the years ended December 31, 2004, 2003 and 2002, revenues from gains on sales of notes receivables totaled $2,475,000, $4,368,000 and $2,762,000, respectively, and net interest revenues totaled $4,145,000, $1,154,000 and $240,000, respectively, resulting in ratios of 60%, 379% and 1,151%, respectively.

	Year Ended December 31 (in thousands)
	2004			2003			2002
Interest Income (Net)	$	5,072		$	1,819		$	737
Reconciling Items:
Other operating interest expenses		(927	)		(665	)		(497	)
Non-GAAP Net Interest Revenues		4,145			1,154			240

Income Taxes

For the years ended December 31, 2004, 2003 and 2002, we incurred income tax expenses of $3,280,000, $2,083,000 and $747,000, respectively, resulting in effective tax rates of 33%, 33% and 34%. As of December 31, 2004, 2003, and 2002, we had current income tax liabilities of $1,913,000, $1,624,000 and $0, respectively, and deferred income tax liabilities of $481,000, $189,000 and $0, respectively. The deferred tax liability is due to accumulated other comprehensive income that resulted from the sale of notes receivables to participating banks and accelerated depreciation for tax in 2004. We had recorded a deferred tax asset of $160,000 as of December 31, 2002, from the tax benefits resulting from prior period losses. During 2003, all such remaining tax benefits were used.

Analysis by Segment

Our three reportable segments are Franchise Services, Lending Services and Insurance Brokerage. The Franchise Services segment includes the sale of general insurance and related services to customers on a retail basis through franchisees by Brooke Franchise. The Lending Services Segment (formerly referred to as our Facilitator Services Segment) includes our lending activities through Brooke Credit. The Insurance Brokerage Segment includes the sale of hard to place and niche insurance on a wholesale basis by Brooke Brokerage.

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Contrary to previous disclosures, the Franchise Services Segment now includes initial franchise fees and seller related revenues because the associated services are performed by franchise personnel and included in revenues of Brooke Franchise. Previously, these franchise and seller related revenues were included in the Lending Services Segment. Each segment is assessed a shared services expense which is an internal allocation of legal, accounting, information technology and facilities management expenses based on our estimate of usage. Except as noted, separate audited financial statements are prepared for each segment. Segment income and expenses exclude consolidating entries and segment assets and liabilities include consolidating entries, except total assets listed in tables.

Franchise Services Segment

Financial Information Financial information relating to Brooke Franchise and our Franchise Services Segment is as follows (in thousands, except percentages):

	Year Ended December 31, 2004		2004 % Increase (decrease) over 2003	Year Ended December 31, 2003		2003 % Increase (decrease) over 2002		Year Ended December 31, 2002
Revenues
Insurance commissions	$	57,619	44	$	40,110	43		$	27,966
Seller consulting fees		5,236	27		4,109	159			1,589
Gain on sale of businesses		5,261	1,256		388	135			165
Initial franchise fees for basic services		8,795	1,969		425	—			—
Initial franchise fees for buyers assistance plans		8,122	—		8,147	106			3,954
Gain on extinguishment of debt		54	—		—	(100	)		439
Interest income, net		39	333		9	—			—
Other income		157	7,750		2	(94	)		36
Total revenues		85,283	60		53,190	56			34,149
Expenses
Commission expense		44,386	32		33,689	39			24,207
Payroll expense		11,262	107		5,433	(8	)		5,925
Amortization		429	1,029		38	(91	)		444
Other operating expenses		18,268	78		10,270	167			3,844
Total operating expenses		74,345	50		49,430	44			34,420
Income from operations		10,938	191		3,760	—			(271	)
Interest Expense		1,344	651		179	(84	)		1,122
Income before income taxes		9,594	168		3,581	—			(1,393	)
Total assets (at period end)		47,300	87		25,277	69			14,981

*2003 and 2004 actual financial data corresponds to subsidiary audited financial reports for Brooke Franchise. 2002 actual financial data was compiled using un-audited internal revenue and expense allocations.

Commission Revenues Insurance commissions, primarily from policies sold on an exclusive retail basis through franchisees, increased $17,509,000, or 44%, to $57,619,000, in 2004 and $12,144,000, or 43%, to $40,110,000 in 2003. Retail insurance commissions have increased primarily as a result of Brooke Franchise’s continued expansion of franchise operations. Brooke Franchise received commissions from the sale of investment securities and revenues from the sale of funeral services that are not directly related to insurance sales. However, these revenues are not sufficient to be considered material and are, therefore, combined with insurance commission revenues.

Commission expense paid to Brooke Franchise’s franchisees, increased $10,697,000, or 32%, to $44,386,000 in 2004 and $9,482,000, or 39%, to $33,689,000 in 2003. Commission expense increased because insurance commission income increased and franchisees are typically paid a share of insurance commission income. Commission expense represented approximately 77%, 84% and 86%, respectively, of Brooke Franchise’s insurance commissions for the years ended December 31, 2004, 2003 and 2002. Our service/sales centers allow our franchisees to share office space and overhead costs provided by Brooke Franchise in exchange for an additional share of commissions paid to Brooke Franchise.

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Profit sharing commissions, or Brooke Franchise’s share of insurance company profits paid by insurance companies on policies written by franchisees, increased $925,000, or 43%, to $3,087,000 in 2004 and $1,547,000, or 252%, to $2,162,000 in 2003. Profit sharing commissions increased in 2004 and 2003 primarily because overall insurance company profits increased on policies written by Brooke Franchise’s franchisees. Profit sharing commissions represented approximately 5% and 5%, respectively, of Brooke Franchise’s insurance commissions for the years ended December 31, 2004 and 2003. Franchisees do not receive any share of Brooke Franchises’ profit sharing commissions.

Net commission refund expense is our estimate of the amount of Brooke Franchise’s share of retail commission refunds due to policyholders resulting from future policy cancellations. This expense increased $35,000 in 2004 and $26,000 in 2003 primarily as a result of Brooke Franchise’s continued expansion of franchise operations. As of December 31, 2004, 2003, and 2002, Brooke Franchise recorded corresponding total commission refund liabilities of $521,000, $338,000 and $327,000, respectively.

Initial Franchise Fees for Basic Services A certain level of basic services is initially provided to all franchisees, whether they acquire an existing business and convert into a Brooke franchise or whether they start up a new Brooke franchise. These basic services include services usually provided by other franchisors, including a business model, use of a registered trade name, access to suppliers and license for an internet based management system. The amount of the initial franchise fees typically paid for basic services is currently $125,000.

Initial franchise fee revenues for basic services increased $8,370,000 in 2004 to $8,795,000 and was $425,000 in 2003. Prior to 2004, most initial franchise fees for basic services were accounted for as part of our initial franchise fees for buyers assistance plans (see Initial Franchise Fees for Buyers Assistance Plan below). None of the initial franchise fees collected by Brooke Franchise in 2002 was for basic services. Revenues from initial franchise fees for basic services are recognized immediately because Brooke Franchise has no continuing obligation.

Initial franchise fees for basic services are typically assessed once for each franchisee even though some franchisees operate multiple locations. A total of 156, 65 and 55 new franchise locations were added in 2004, 2003 and 2002, respectively.

Initial Franchise Fees for Buyers Assistance Plans The amount of the total initial franchise fees for all initial services typically varies based on the level of additional assistance provided by Brooke Franchise and as the result of negotiations with prospective franchisees. The amount of total initial franchise fees collected by Brooke Franchise that exceed $125,000 are for payment of additional services provided pursuant to a buyers assistance plan.

The most significant part of Brooke Franchise’s growth comes from acquisitions of existing businesses that are subsequently converted into Brooke franchises. Brooke Franchise provides assistance regarding the acquisition and conversion of businesses through a buyers assistance plan that provides initial franchise conversion assistance in addition to initial basic services. Initial franchise fees for buyers assistance plans decreased $25,000 in 2004 to $8,122,000 and increased $4,193,000, or 106%, to $8,147,000, in 2003. Beginning in the fourth quarter of 2003, we began to categorize a significantly greater share of initial franchise fees as initial franchise fees for basic services. As a result, in 2004, initial fees for buyers assistance plans were flat in comparison to 2003; however, total initial fees increased significantly in 2004. Combined together, initial franchise fees for basic services and initial franchise fees for buyers assistance plans were $16,917,000 in 2004 compared to $8,572,000 in 2003, an increase of 97%. The increase of initial franchise fees for buyers assistance plan services in 2003 resulted from continued expansion of Brooke Franchise’s franchise operations and the corresponding increase in business acquisitions and franchise conversions by Brooke franchisees.

Brooke Franchise records initial franchise fee revenues for buyers assistance plans using the percentage of completion accounting method, and $410,000, $771,000 and $1,666,000 of initial franchise fee revenues for

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buyers assistance plans were deferred as of December 31, 2004, 2003 and 2002, respectively. Buyers assistance plans provide initial conversion assistance for recently acquired businesses and buyers assistance plan services are, therefore, not provided to buyers of businesses that are already franchises. In addition, buyers assistance plans are not typically provided to franchisees selling to other franchisees and are not provided to franchisees purchasing businesses that had previously been purchased by Brooke Franchise in the past twenty-four months. A total of 115, 59 and 32 of the new franchise locations in 2004, 2003 and 2002, respectively, represent businesses that were converted into a Brooke franchise and received initial buyers assistance plan assistance.

Initial Franchise Fees for Start Up Assistance Plans Although Brooke Franchise expects to eventually receive additional initial franchise fees for start up assistance, no such initial franchise fees were received in 2004, 2003 or 2002. A total of 41, 1 and 1 of the new franchise locations in 2004, 2003 and 2002, respectively, represent businesses that were started up as a Brooke franchise and received initial start up assistance.

Seller Related Revenues Seller related revenues typically occur when a business is acquired by Brooke Franchise for sale to a franchisee or an agreement to purchase a business is assigned by Brooke Franchise to a franchisee. Seller related revenues include consulting fees paid directly by sellers, gains on extinguishment of debt to sellers and gains on sale of businesses directly acquired by Brooke Franchise from sellers. Seller related revenues increased $6,022,000, or 133%, to $10,554,000, in 2004 and $2,339,000, or 107%, to $4,532,000, in 2003. Seller related revenues increased in 2004 and 2003 primarily as the result of continued expansion of Brooke Franchise’s franchise operations and the corresponding increase in business acquisitions and franchise conversions by Brooke franchisees.

Consulting fees. Consulting fees paid directly by sellers include services provided by Brooke Franchise to help sellers prepare their businesses for sale by developing business profiles, tabulating revenues, sharing its legal library and general sale preparation. Revenues from consulting fees paid directly by sellers are recognized immediately because Brooke Franchise has no continuing obligation.

Gains on Sale of Businesses. Our business includes the buying and selling of insurance agencies, financial service firms and funeral homes and holding them in inventory. When purchasing an agency, we typically defer a portion of the purchase price, at a low or zero interest rate, to encourage the seller to assist in the transition of the agency to one of our franchisees. We carry our liability to the seller at a discount, to reflect the below-market interest rate. The carrying value of the agency reflects this discount. When we sell an acquired business to a franchisee (typically on the same day it is acquired), we generally sell it for the full nominal price (i.e. before the discount) paid to the seller. When the sale price exceeds the carrying value, the amount in excess of the carrying value is recognized as a gain. Gains on sale resulting primarily from discounted interest rates increased $536,000, or 87%, to $1,153,000 in 2004 and increased $381,000, or 162%, to $617,000 in 2003.

To a limited extent, we acquire businesses and hold them for a period of time. If these businesses are subsequently sold for a price greater than their carrying value, then we recognize a gain on sale of business. Unlike businesses held in inventory for resale, if we expect to hold businesses for a period of time before selling, then we treat the transactions as acquisitions and we apply purchase accounting methods, including booking and amortizing the intangible assets. In 2004, we acquired the stock or business assets of six auto insurance agencies for purchase prices totaling $8,258,000 with a carrying value of $7,931,000 and subsequently sold these six agencies during 2004 for a total of $11,847,000. We originally intended to hold these six agencies for a longer period of time and, therefore, we recorded intangible assets and the related amortization expenses in respect of such agencies in 2004. When we sold each of these agencies, the purchase price that we charged to the franchisee buyer included both the price that we paid for the agencies and the approximate amount of initial franchise fees that we would have charged if instead we had sold these agencies to one of our franchisees immediately after purchasing these agencies. The gain on sale that resulted from our sales of these six agencies primarily resulted from the recapture of amortization expenses (which amounted to $354,000) and the difference between our original aggregate purchase price for the agencies and the ultimate aggregate sales price (which amounted to $3,589,000).

Gains on Debt Extinguishment. In the event that we repay the deferred portion of the purchase price to the seller before maturity for an amount less than our carrying value, we recognize the difference between our

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carrying value and the amount repaid to the seller as a gain on debt extinguishment. Gains on extinguishment of debt are recognized immediately because Brooke Franchise has no continuing obligation. Such gains on debt extinguishment are not considered extraordinary income because they are considered a part of our normal business operations.

Income Before Income Taxes Brooke Franchise’s income before income taxes increased $6,013,000, or 168%, to $9,594,000 in 2004 and increased $4,974,000 to $3,581,000 in 2003. Income before taxes increased in 2003 and 2004 because revenues grew faster than expenses primarily as the result of significant increases in initial franchise fees and seller related revenues which have relatively high profit margins.

Inventory Management The number of total agencies purchased into inventory in 2004, 2003 and 2002 were 51, 50 and 25, respectively. At December 31, 2004, 2003 and 2002, Brooke Franchise held 2, 1 and 1, respectively, insurance agencies in inventory with total balances, at the lower of cost or market, of $1,022,000, $367,000 and $403,000, respectively.

The number of agencies twice-purchased within twenty four months is an important indicator of Brooke Franchise’s success in recruiting qualified buyers. Three of the agencies purchased by Brooke Franchise during 2004 had been first purchased by Brooke Franchise within twenty four months of Brooke Franchise’s second purchase. The purchase prices of those agencies twice-purchased by Brooke Franchise totaled $1,748,000 when first purchased into inventory and $2,153,000 when purchased into inventory the second time. As the result of the sale of twice-purchased agencies, Brooke Franchise recorded a net gain of $311,000 in 2004. None of the agencies purchased by Brooke Franchise during 2003 and 2002 were twice purchased within twenty four months. Brooke Franchise is not aware of any systemic adverse profitability or cash flow trends being experienced by buyers of businesses from its inventory.

Franchise Statement Balances Brooke Franchise assists franchisees by financing cyclical fluctuations of revenues, receivables and payables with commission advances recorded on franchisees’ monthly statements and granting temporary extensions of due dates for franchise statement balances owed by franchisees to Brooke Franchise. However, after expiration of the initial buyers assistance plan period, Brooke Franchise expects franchisees’ monthly statements to be repaid in full at least once every four months.

Franchise statement balances totaled $4,359,000, $2,505,000 and $5,130,000, respectively, as of December 31, 2004, 2003 and 2002, respectively. Of these total franchise statement balances as of December 31, 2004, Brooke Franchise identified statement balances totaling $1,576,000 which it categorizes as “watch” because the balances had not been repaid in full at least once in the previous four months. A similar identification of unpaid statement balances was not performed in 2003 and 2002.

The balance of Brooke Franchise’s Allowance for Doubtful Accounts was $575,000 and $45,000, respectively, on December 31, 2004 and 2003. The amount of the December 31, 2004 Allowance for Doubtful Accounts was determined based primarily on the amount of Brooke Franchise’s watch statement balances and our analysis of credit risk. Other factors in determining the Allowance for Doubtful Accounts were statement loss experience, Brooke Franchise’s evaluation of the potential for future losses and Brooke Franchise’s evaluation of the potential for future recoveries.

The following table summarizes the Allowance for Doubtful Accounts activity for the years ended December 31, 2004, 2003, and 2002 (in thousands). Additions to the allowance for doubtful accounts are charged to expense. Write offs in 2004 include commission advances to start up franchisees totaling $418,000, most of which we believe will be recovered.

	Balance at Beginning of Year		Charges to Expense		Write Offs		Balance at End of Year
Allowance for Doubtful Accounts
Year ended December 31, 2002	$	0	$	931	$	931	$	0
Year ended December 31, 2003		0		644		644		0
Year ended December 31, 2004		0		1,757		1,182		575

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Revenue generation, primarily commissions from insurance sales, is an important factor in franchise financial performance and revenue generation is carefully analyzed by Brooke Franchise. Although Brooke Franchise analyzes revenues during the first twenty four months after conversion or startup, it is difficult to make reliable comparisons of businesses during this period. Converted franchises typically experience revenue decreases during the first months of operation and start up franchises typically experience significant revenue increases during the first months of operation. Therefore, 24 months after initial conversion of an acquired business or the startup of a new Brooke franchise, Brooke Franchise considers the franchise “seasoned” and the comparison of current to prior year revenues as a more reliable indicator of franchise success. A total of 145 franchise locations began their franchise relationship with Brooke Franchise prior to December 31, 2002 and have not purchased or sold a business since starting.

Overall annual revenues of seasoned franchise locations in 2004 and 2003 increased 0% and 5%, to $28,212,000 and $12,187,000, respectively. The median annual revenue growth rate of individual seasoned franchise locations in 2004 and 2003 increased 1% and 6%, to $1,000 and $9,000, respectively and the average annual growth rates of individual seasoned franchise locations in 2004 and 2003 increased 2% and 6%, to $5,000 and $8,000, respectively. Brooke Franchise did not analyze revenues growth rates in 2002. All revenue generation calculations exclude profit sharing commissions. Brooke Franchise believes that the decrease in overall franchise revenue growth rates primarily results from softer industry pricing and a decline of property and casualty insurance premiums causing a corresponding decline in commissions. Brooke Franchise also believes that insurance premiums and commissions will not increase in 2005 and may decline further.

Lending Services Segment

Financial Information Financial information relating to Brooke Credit and our Lending Services Segment is as follows (in thousands, except percentages):

	Year Ended December 31, 2004			2004 % Increase (decrease) over 2003		Year Ended December 31, 2003			2003 % Increase (decrease) over 2002		Year Ended December 31, 2002
Revenues
Interest Income	$	12,507		81		$	6,922		43		$	4,824
Participating interest expense		(6,767	)	48			(4,587	)	40			(3,284	)
Gain on sale of notes receivable		2,448		(43	)		4,320		56			2,762
Other Income		64		482			11		—			—
Total revenues		8,252		24			6,666		55			4,302
Expenses
Other operating interest expense		717		57			458		(8	)		496
Payroll expense		1,441		72			838		87			449
Amortization		973		42			685		120			312
Other operating expenses		1,122		(18	)		1,363		1,075			116
Total operating expenses		4,253		27			3,344		144			1,373
Income from operations		3,999		20			3,322		13			2,929
Interest Expense		648		800			72		—			—
Income before income taxes		3,351		3			3,250		11			2,929
Total assets (at period end)		78,664		135			33,485		176			12,131

Actual financial data corresponds to subsidiary audited financial reports for Brooke Credit.

Loan Interest

Brooke Credit typically sells most of the business loans it originates to funding institutions as participation interests and to accredited investors as asset backed securities. Prior to either type of sale transaction, Brooke

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Credit holds these loans on its balance sheet and earns interest income from the loans. At the time of sale, we may recognize gains related to the portion of the interest income or asset backed securities that we retain. Once a sale is completed, we continue to earn interest income from any portion of the participation interest or asset backed security we retain. We also continue to provide servicing for the loan, including loan accounting, receipt and distribution of interest payments and loan monitoring, and receive compensation for these activities.

To increase recurring revenues from interest income, Brooke Credit retained more loans for longer periods of time prior to the sale of participation interests in such loans or securitizing such loans. Total Notes and interest receivables (net) increased 230% to $49,203,000 at December 31, 2004 from $14,888,000 at December 31, 2003.

Interest Income Brooke Credit earns interest income during the period it holds loans on its balance sheet and on that portion of the participation interest or those asset backed securities that it does not sell. In 2004, interest income increased 81% to $12,507,000 from $6,922,000 in 2003 due to the larger volume of loans that Brooke Credit originated in 2004 and the longer period of time that Brooke Credit held those loans on its balance sheet. In 2003, interest income increased 43% to $6,922,000 from $4,824,000 in 2002 due primarily to the increases in loan volumes from 2002 to 2003.

Participating Interest Expense A portion of the interest income that Brooke Credit receives on its loans is paid out to the holders of its participation interest. Those payments to these holders are accounted for as participating interest expense, which is netted against interest income. In 2004, participating interest expense increased 48% to $6,767,000 from $4,587,000 in 2003, primarily as a result of the increase in participation interests that were sold in 2004. In 2003, participating interest expense increased 40% to $4,587,000 from $3,284,000 in 2002 as Brooke Credit increased the amount of participation interests sold.

Gain on Sales of Notes Receivable When the sale of a loan is classified as a true sale pursuant to the criteria established by SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” gains or losses are recognized, loans are removed from the balance sheet and residual assets, representing the present value of future cash flows from the interest and servicing spread, are recorded. The interest and servicing spread is the difference between the rate paid by Brooke Credit to participating lenders and investors and the rate received by Brooke Credit from borrowers. When the sale is classified as a secured borrowing, no gain on sale is recognized, and the note receivable and the corresponding participation loan remain on the balance sheet. Revenues from gain on sales of notes receivables were $2,448,000, $4,320,000 and $2,762,000 in 2004, 2003 and 2002, respectively. The 43% year to year decrease in 2004 resulted from Brooke Credit’s reduction in the relative amount of gain on sales revenues by retaining more sales of notes receivables as secured borrowings.

One component of the gain on sales of notes receivable is the gain associated with our ongoing servicing responsibilities. When the sale of a loan participation interest is accounted for as a true sale, Brooke Credit retains servicing responsibilities for which it typically receives annual servicing fees ranging from .25% to 1.375% of the outstanding balance. A gain or loss is recognized immediately upon the sale of a loan participation based on whether the annual servicing fees are greater or less than the cost of servicing, which is estimated at .25% of the outstanding loan balance. The gain or loss associated with loan servicing is determined based on a present value calculation of future cash flows from servicing the underlying loans, net of prepayment assumptions. During 2004, 2003 and 2002, the net gains (losses) from loan servicing totaled $1,998,000, $1,077,000 and $1,262,000, respectively, which consisted of gains from servicing benefits. Losses from servicing liabilities totaled $27,000, $48,000 and $19,000 during 2004, 2003 and 2002, respectively. The decrease in net gains from loan servicing benefits and servicing losses in 2003 is primarily the result of securitization activity and the increase in 2004 is primarily the result of increased loan originations.

In a true sale, Brooke Credit also records a gain on sale for the interest benefit based on a present value calculation of future cash flows of the interest and servicing spread on the underlying loans sold, net of prepayment and credit loss assumptions. This spread is typically approximately 1.75% for participation loans and

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approximately 3.25% for securitized loan pools. During 2004, 2003 and 2002, the net gains (losses) from interest benefits totaled $477,000, $3,291,000 and $1,519,000, respectively, which included gross gains (losses) from interest benefits of $2,255,000, $4,199,000, $1,753,000, respectively, and losses from write down of retained interest asset to fair market value of $1,778,000, $908,000, $234,000, respectively. The decrease in net gains from interest benefits in 2004 is primarily the result of greater reductions in net gain income from marking to fair market value the increasing retained interest asset balances.

Gains (losses) from servicing and interest benefits are typically non-cash gains (losses) as Brooke Credit receives cash equal to the carrying value of the loans sold. A corresponding adjustment has been made on the Statement of Cash Flows to reconcile net income to net cash flows from operating activities. Gain-on-sale accounting requires us to make assumptions regarding prepayment speeds and credit losses for participated loans and asset backed securities. The performances of these loans are extensively monitored, and adjustments to these assumptions will be made if necessary. Underlying assumptions used in the initial determination of future cash flows on the participation loans and asset backed securities accounted for as sales include the following:

	Agency Loans (Adjustable Rate Stratum)	Agency Loans (Fixed-Rate Stratum)
Prepayment speed*	10%	8%
Weighted average life	137 months	61 months
Expected credit losses*	.5%	.21%
Discount Rate*	8.5%	8.5%

* Annual rates

The most significant impact from the sale of loan participations and asset backed securities has been the removal of loans from Brooke Credit’s balance sheet that Brooke Credit continues to service. As of December 31, 2004, December 31, 2003 and December 31, 2002, the balances of those off-balance sheet assets totaled $136,288,000, $101,514,000 and $59,516,000, respectively. The increased level of off-balance sheet assets is primarily the result of a larger loan portfolio and the resulting sale of loan participations and asset backed securities.

Loan Servicing Assets and Liabilities When we recognize non-cash gains for the servicing benefits of loan participation sales, we book that amount as a loan servicing asset on our balance sheet. This amount is equal to our estimate of the present value of future cash flows resulting from the servicing spread. We recognize such assets only when the income allocated to our servicing responsibilities exceeds our cost of servicing, which we typically estimate at 0.25% of the loan value being serviced. Components of the servicing asset as of December 31, 2004 were as follows:

Estimated cash flows from loan servicing fees	$	5,562
Less:
Servicing Expense		(1,116	)
Discount to present value		(1,537	)
Carrying Value of Retained Servicing Interest in Loan Participations	$	2,909

In connection with the recognition of non-cash losses for the servicing liabilities of loan participation sales, the present value of future cash flows were recorded as a servicing liabilities. Components of the servicing liability as of December 31, 2004 were as follows:

Estimated cash flows from loan servicing fees	$	0
Less:
Servicing expense		55
Discount to present value		(16	)
Carrying Value of Retained Servicing Liability in Loan Participations	$	39

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Loan Participations-Interest Receivable Asset To the extent that the difference between the rate paid by Brooke Credit to participating lenders and investors and the rate received by Brooke Credit from borrowers exceeds the maximum of 1.375% allocated to the servicing benefit, Brooke Credit recognizes a non-cash asset, called an “Interest Receivable Asset”, on its balance sheet. This amount is equal to our estimate of the present value of future cash flows resulting from this interest spread. Components of the interest receivable asset as of December 31, 2004 were as follows:

Estimated cash flows from interest income	$	2,793
Less:
Estimated credit losses*		(66	)
Discount to present value		(243	)
Carrying Value of Retained Interest in Loan Participations	$	2,484

* Estimated credit losses from liability on sold recourse loans with balances totaling $3,733,000 as of December 31, 2004. Credit loss estimates are based upon experience, delinquency rates, collateral adequacy, market conditions and other pertinent factors.

Securitization-Interest Receivable Asset The terms of Brooke Credit’s securitizations require the over-collateralization of the pool of loan assets that back the securities sold to investors. Brooke Credit retains ownership of the resulting subordinate interest in the loan pool and borrows money from commercial banks to fund this investment. Brooke Credit therefore retains a credit exposure in each loan pool. As of December 31, 2004 Brooke Credit had subordinate investment interest in loan pools totaling $13,707,000, part of which is the carrying value of our retained interest in asset backed securities, and has borrowed $7,871,000 as of December 31, 2004 from commercial banks to fund this investment.

In connection with the recognition of non-cash gains for the interest benefits of asset backed securities sales, the present value of future cash flows were recorded as an interest receivable asset and included on the balance sheet as part of the investment securities balance. Components of the interest receivable asset as of December 31, 2004 were as follows:

Estimated cash flows from interest income	$	5,332
Less:
Estimated credit losses		(783	)
Discount to present value		(1,140	)
Carrying Value of Retained Interest in Asset Backed Securities	$	3,409

Income Before Income Taxes Brooke Credit’s income before income taxes increased $101,000, or 3%, to $3,351,000 in 2004 and increased $321,000, or 11%, to $3,250,000 in 2003. Although total revenues increased $1,586,000, or 24%, to $8,252,000 in 2004, income before taxes increased marginally because total expenses increased by a similar amount of $1,485,000, or 43%, to $4,901,000. Total expenses in 2004 were significantly affected by a $576,000, or 800% increase in interest expense to $648,000 because Brooke Credit is holding more loans on its balance sheet for longer periods of time which is consistent with our plans to increase net interest revenues and to decrease the relative amount of gains on sale of note receivables. Correspondingly, gains on sale of notes receivable decreased $1,872,000, or 43%, in 2004 to $2,448,000. The increase in net interest revenues had an adverse impact on Brooke Credit’s income before taxes in 2004, but is expected to increase Brooke Credit’s income before taxes in future years. In 2003, gain on sale of notes receivable increased $1,558,000, or 56%, to $4,320,000 but this increase was partially offset in 2003 by the first time assessment of a shared services fee in the amount of $1,200,000.

Loan Quality

No amounts of recourse loans and loans associated with securitizations were charged off for the year ended December 31, 2004 and no loans were delinquent 30 days or more as of December 31, 2004, primarily because

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loan payments generally are deducted from commissions received by Brooke Franchise prior to payment of commissions to the borrower and most other creditors. We believe that credit problems on recourse and securitized loans are more likely to be identified when Brooke Franchise collects franchisees’ monthly statement account balance than by monitoring Brooke Credit’s loan delinquencies.

The terms of Brooke Credit’s securitizations (and a collateral preservation measure) require that payments on the pool of loan assets that back the securities sold to investors be paid from commissions received by Brooke Franchise prior to payment of commissions to the borrower and to most other creditors. As a result, we believe that our primary credit exposure generally results from Brooke Franchise’s collection of monthly franchisees’ statement balances rather than from loan defaults to Brooke Credit. Accordingly, Brooke Credit has not established credit loss reserves separate from the credit loss allowances made on recourse loans referenced above.

Perhaps a greater risk to Brooke Credit is the indirect exposure to credit losses that may be incurred by participating lenders and loan pool investors. Even if Brooke Credit does not bear any risk of direct credit losses, if losses by participating lenders and loan pool investors reach unacceptable levels, then Brooke Credit may not be able to sell loans in the future. Our business model requires that our franchisees have access to credit, so the inability to sell loans would have a significant adverse effect on Brooke Credit.

Insurance Brokerage Segment

Financial Information Financial information relating to Brooke Brokerage and our Insurance Brokerage Segment is as follows (in thousands, except percentages):

	Year Ended December 31, 2004			2004 % Increase (decrease) over 2003		Year Ended December 31, 2003		2003 % Increase (decrease) over 2002		Year Ended December 31, 2002
Revenues
Insurance commissions	$	6,285		12		$	5,596	117		$	2,574
Policy fee income		2,003		228			610	253			173
Insurance premiums earned		401		42			283	—			—
Interest income		52		(27	)		71	8			66
Other income		353		854			37	—			—
Total revenues		9,094		38			6,597	135			2,813
Expenses
Commission expense		2,875		27			2,260	97			1,148
Payroll expense		3,314		53			2,163	238			640
Depreciation and amortization		254		147			103	94			53
Insurance loss and loss expense incurred		(17	)	(122	)		77	—			—
Other operating expenses		2,047		26			1,624	422			311
Total operating expenses		8,473		36			6,227	189			2,152
Income from operations		621		68			370	(44	)		661
Interest Expense		330		104			162	—			—
Income before income taxes		291		40			208	(69	)		661
Total assets (at period end)		13,869		5			13,254	127			5,826

2003 and 2004 actual financial data corresponds to subsidiary audited financial reports for Brooke Brokerage. 2002 actual financial data was compiled using un-audited internal revenue and expense allocations.

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Commission Revenues Insurance commissions, primarily from policies sold on a non-exclusive wholesale basis through insurance agents, increased $689,000, or 12% to $6,285,000, in 2004 and $3,022,000, or 117% to $5,596,000, in 2003. Brokerage insurance commissions have increased in 2004 primarily as a result of our acquisition of Texas All Risk General Agency and in 2003 primarily as a result of our acquisition of CJD & Associates, L.L.C.

Commission expense paid to Brooke Brokerage’s non-exclusive insurance agents, increased $615,000, or 27% to $2,875,000, in 2004 and $1,112,000, or 97% to $2,260,000, in 2003. Commission expense increased because insurance commission income increased and insurance agents are typically paid a share of commission income. Commission expense represented approximately 46%, 40% and 45%, respectively, of Brooke Brokerage’s total insurance commission income for years ended December 31, 2004, 2003 and 2002. The increase in the rate of commission expense from 2003 to 2004 primarily results from payments to agents of a larger share of commissions by Texas All Risk General Agency.

Profit sharing commissions, or Brooke Brokerage’s share of insurance company profits paid by insurance companies on policies written by non-exclusive insurance agents, increased $519,000, or 283% to $703,000, in 2004 and $126,000, or 221% to $184,000, in 2003. Profit sharing commissions increased in 2004 primarily because overall insurance company profits increased on policies written by Brooke Brokerage’s non-exclusive insurance agents and the acquisition of Texas All Risk General Agency. Profit sharing commissions represented approximately 11% and 3%, respectively, of Brooke Brokerage’s insurance commissions for the years ended December 31, 2004 and 2003.

Policy fee income has increased primarily as a result of Brooke Brokerage’s acquisition of Texas All Risk General Agency. Policy fee income represented approximately 32%, 11% and 7%, respectively, of Brooke Brokerage’s insurance commissions for the years ended December 31, 2004, 2003 and 2002.

Net commission refund expense, or the estimated amount of Brooke Brokerage’s share of wholesale commission refunds due to policyholders resulting from future policy cancellations, increased $24,000, to $87,000, in 2004 and increased $6,000, to $63,000, in 2003. The net commission refund expense increased in 2003 primarily as the result of acquiring Texas All Risk General Agency. On December 31, 2004, 2003 and 2002, Brooke Brokerage recorded corresponding total commission refund liabilities of $455,000, $350,000 and $106,000, respectively.

Underwriting Revenues Part of Brooke Brokerage’s strategy for increasing long-term profitability is to reinsure selected hard to place and niche insurance policies placed by Brooke Brokerage with unaffiliated insurance companies to unaffiliated policyholders through The DB Group, LTD., a captive insurance company subsidiary wholly owned by Brooke Brokerage. As of December 31, 2004, Brooke Brokerage had not reinsured any policies written through The DB Group and no premium revenues were recorded by The DB Group.

Brooke Brokerage has also established DB Indemnity, LTD., a captive insurance company wholly owned by Brooke Brokerage, to insure a portion of Brooke Franchise’s professional liability exposure and to provide financial guaranty insurance for Brooke Credit. Although unlikely to have a significant effect on Brooke Brokerage’s long-term profitability, the issuance of policies through DB Indemnity to insure a portion of Brooke Franchise’s professional liability exposure is important to Brooke franchisees and the corresponding premiums are paid by Brooke franchisees. Also, the issuance of financial guaranty policies through DB Indemnity is important to Brooke Credit’s participating lender investors and the corresponding premiums are paid by Brooke Credit’s borrowers.

DB Indemnity premiums increased $746,000, or 250%, to $1,044,000 in 2004 from $298,000 in 2003, DB Indemnity’s first year of operation. Net premiums increased primarily because more financial guaranty policies were issued to Brooke Credit as the result of increased loan originations. DB Indemnity has not incurred any claims or loss expense since beginning operations. As of December 31, 2004, 2003, and 2002, DB Indemnity recorded corresponding total reserves of $719,000, $135,000 and 0, respectively.

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Income Before Income Taxes Brooke Brokerage’s income before income taxes increased $83,000, or 40%, to $291,000 in 2004 and decreased $453,000, or 69%, to $208,000 in 2003. Income before taxes increased in 2004 primarily as the result of acquiring Texas All Risk General Agency in the fourth quarter of 2003. Income before taxes decreased in 2003 primarily as the result of decreased revenues for CJD & Associates, L.L.C. because access to insurance companies for a niche insurance policy for Home Medical Equipment dealers was interrupted.

Liquidity and Capital Resources

Our cash and cash equivalents were $19,761,000, $13,741,000, and $7,210,000 as of December 31, 2004, 2003, and 2002, respectively. Our current ratios (current assets to current liabilities) were 1.49, 1.83, and 1.46 at December 31, 2004, 2003, and 2002, respectively. The decrease in our current ratio from 2003 to 2004 is primarily due to an increase in short term debt and current maturities of long term debt from deferred payments to sellers on acquired business inventory. The increase in our current ratio from 2002 to 2003 is primarily due to an increase in securities related to our loan securitizations in 2003, the purchase of which was primarily financed with long term debt. Our current ratio and cash balances will be adversely affected if business inventory increases, seller loan balances are prepaid, or additional notes are retained in our portfolio.

Our cash and cash equivalents increased a total of $6,020,000 from December 31, 2003 to December 31, 2004. During 2004, net cash of $5,281,000 was used in operating activities. Cash of $33,834,000 was used to fund an increase in notes receivable and cash of $24,092,000 was provided by an increase in line of credit loans resulting in $9,742,000 in increased notes receivable balances that were not funded by line of credit balances. This increase in notes receivable balances is the primary reason for our negative operating cash flow. Net cash of $9,331,000 was provided by investing activities. A large net cash inflow resulted from business, primarily insurance agency, inventory transactions as cash proceeds of $29,951,000 from sales of business inventory exceeded cash payments of $18,866,000 for purchases of business inventory primarily because cash payments for part of the business purchase prices were deferred. A cash inflow also resulted from the sale of subsidiaries and business assets, primarily auto insurance agencies, as cash proceeds of $12,977,000 from the sale of these assets exceeded corresponding cash purchases of $8,215,000. A cash outflow of $4,882,000 resulted from our purchase of securities related to our loan securitizations in 2004. Net cash of $1,970,000 was provided by financing activities with $19,785,000 of cash provided by loan proceeds from long-term debt and $10,591,000 of cash used to make payments on long term debt.

Our cash and cash equivalents increased a total of $6,531,000 from December 31, 2002 to December 31, 2003. During 2003, net cash of $3,047,000 was used in operating activities. Cash of $9,972,000 was used to fund an increase in notes receivable which is the primary reason for our negative operating cash flow. Cash of $3,509,000 was provided by an accounts receivable decrease which primarily resulted from increased loan balances to franchisees for payment of franchisee statement balances. Cash of $3,097,000 was provided by an increase in accounts and expenses payable which primarily resulted from a $2,739,000 increase in premiums due to insurance companies. Net cash of $4,123,000 was used to fund investing activities. A large net cash inflow resulted from business, primarily insurance agency, inventory transactions as cash proceeds of $17,315,000 from sales of business inventory exceeded cash payments of $10,014,000 for purchases of business inventory primarily because cash payments for part of the business purchase prices were deferred. A cash outflow of $8,516,000 resulted from our purchase of securities related to our loan securitizations in 2003. Net cash of $13,701,000 was provided by financing activities with $14,176,000 of cash provided by loan proceeds on long-term debt and $2,000,000 of cash provided by loan proceeds on short term line of credit borrowings.

If necessary, we believe that we can increase cash flow from operating activities within a relatively short period of time by liquidating our notes receivable portfolio through the sale of note, or loan, participations. Gains on sale of inventory have been excluded as an operating source of cash because changes in inventory have been classified as an investing activity. We believe that we can increase cash flow from investing activities within a relatively short period of time by liquidating our business inventory.

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Our “Other Assets” account balances totaled $8,719,000, $6,083,000, and $3,963,000 on December 31, 2004, 2003, and 2002 respectively and are comprised primarily of intangible accounts such as excess of cost over fair value of net asset and servicing assets. If our total assets are adjusted to exclude Other Assets, then our total liabilities exceeded our total adjusted assets by $1,383,000, $304,000, and $922,000 on December 31, 2004, 2003, and 2002, respectively. Future acquisitions by us will likely increase the Other Assets account balances and will likely result in total liabilities exceeding adjusted total assets in future periods. Our “Investment in Businesses” account balances of $1,022,000, $367,000, and $403,000 on December 31, 2004, 2003, and 2002, respectively, represent the cost, or market value if lower, of businesses, primarily insurance agencies, held in inventory for resale to franchisees. Although intangible, business inventory is not included in “Other Assets”. We believe that business inventory assets differ from other intangible assets, because business inventory is typically held for a relatively short period of time and has a recently demonstrated value.

We believe that our existing cash, cash equivalents and funds generated from operating, investing and financing activities will be sufficient to satisfy our normal financial needs. Additionally, we believe that funds generated from future operating, investing and financing activities will be sufficient to satisfy our future financing needs, including the required annual principal payments of our long-term debt and any future tax liabilities.

Capital Commitments

The following summarizes our contractual obligations as of December 31, 2004 and the effect those obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
Short-term borrowings	$	31,898	$	31,898		—		—		—
Long-term debt		47,919		11,124	$	20,969	$	7,778	$	8,048
Operating leases (facilities)		665		70		250		290		55
Capital leases (equipment)		6,039		1,448		4,064		527		—
Other contractual commitments		—		—		—		—		—
Total		86,521		44,540		25,283		8,595		8,103

Our principal capital commitments consist of bank lines of credit, term loans, secured bonds, deferred payments to business sellers and obligations under leases for our facilities. We have entered into enforceable, legally binding agreements that specify all significant terms with respect to the contractual commitment amounts in the table above.

Critical Accounting Policies

Our established accounting policies are summarized in footnote number 1 to our consolidated financial statements for the years ended December 31, 2004, 2003 and 2002. As part of our oversight responsibilities, we continually evaluate the propriety of our accounting methods as new events occur. We believe that our policies are applied in a manner that is intended to provide the user of our financial statements with a current, accurate and complete presentation of information in accordance with Generally Accepted Accounting Principles.

We believe that the following accounting policies are critical. These accounting policies are more fully explained in the referenced footnote number 1 to our consolidated financial statements.

• Revenue recognition is summarized in footnote 1(e).

• The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses. These significant accounting estimates are summarized in footnote 1(b).

• We regularly sell the loans that we originate to banks and finance companies. Accounting for the sale of loan participations and loan securitizations and the subsequent tests for impairment are summarized in footnote 2.

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• We sometimes acquire insurance agencies and other businesses. Accounting for the acquisitions and the subsequent tests for impairment are summarized in footnote 1(g).

With respect to the previously described critical accounting policies, we believe that the application of judgments and assumptions is consistently applied and produces financial information which fairly depicts the results of operations for all years presented.

Off Balance Sheet Arrangements

The sale of loan participations and loan securitizations to banks and finance companies has resulted in the removal of a significant amount of loans from our balance sheet. See footnote number 2 to our consolidated financial statements for a discussion of off balance sheet arrangements.

Recently Issued Accounting Pronouncements

See footnote number 18 to our consolidated financial statements for a discussion of the effects of the adoption of new accounting standards.

Related Party Transactions

See footnote number 11 to our consolidated financial statements for information about related party transactions.

Impact of Inflation and General Economic Conditions

Although inflation has not had a material adverse effect on our financial condition or results of operations, increases in the inflation rate are generally associated with increased interest rates. A significant and sustained increase in interest rates could adversely affect our franchisees’ ability to repay the variable rate loans that we have made to them and thereby adversely affect our profitability. Such an interest rate increase could also adversely affect our profitability by increasing our interest expenses and other operating expenses.

All other schedules have been omitted because they are either inapplicable or the required information has been provided in the consolidated financial statements or the notes thereto.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We originate loans which will generally be sold to funding institutions as participation interests or to accredited investors as asset-backed securities. The majority of the loans are adjustable-rate loans based on a prime rate plus a margin and interest rate changes will impact their value, and may impact credit losses and prepayments associated with the loans. A significant rise in interest rates may result in an increase in credit losses. A significant decrease in interest rates may result in an increase in prepayment speed. When loans are sold, and the sale of participation interests or asset-backed securities is classified as a true sale, we record a gain on sale for the interest benefit based on a present value calculation of future cash flows of the underlying loans, net of prepayment and credit loss assumptions. When the sale of a loan participation interest is accounted for as a true sale, we retain servicing responsibilities for which we receive annual servicing fees based on a percentage of the outstanding balance. The gain or loss associated with loan servicing is determined based on present value calculations of future cash flows from the servicing the underlying loans, net of prepayment assumptions. The present value calculations of future cash flows of underlying loans and future cash flows from the servicing of underlying loans are based in part on management’s estimates of discount rates. A significant rise in interest rates could adversely affect the Company’s business financial condition and results of operation. See footnote number 2 to our consolidated financial statements regarding Notes Receivable, fair value and the effect of an adverse change to the discount rate. At this time, we do not utilize derivative instruments to hedge against changes in interest rates or for any other purpose.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Brooke Corporation:

We have audited the accompanying consolidated balance sheets of BROOKE CORPORATION as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Brooke Corporation at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

Summers, Spencer & Callison, CPAs, Chartered

Topeka, Kansas

March 4, 2005

46

Brooke Corporation

Consolidated Balance Sheets

DECEMBER 31, 2004 AND 2003

(in thousands, except share amounts)

ASSETS

	2004			2003
Current Assets
Cash	$	19,761		$	13,741
Restricted cash		469			389
Accounts and notes receivable, net		51,803			16,005
Other receivables		1,239			1,698
Securities		17,889			11,381
Interest-only strip receivable		2,484			3,120
Deposits		186			363
Prepaid expenses		242			233
Total Current Assets		94,073			46,930
Investment in Businesses		1,022			367
Property and Equipment
Cost		6,696			6,055
Less: Accumulated depreciation		(2,180	)		(2,577	)
Net Property and Equipment		4,516			3,478
Other Assets
Amortizable intangible assets		5,793			4,166
Less: Accumulated amortization		(1,318	)		(774	)
Contract database		496			667
Servicing asset		2,909			1,723
Deferred charges		839			301
Net Other Assets		8,719			6,083
Total Assets	$	108,330		$	56,858

See accompanying summary of accounting policies and notes to financial statements.

47

Brooke Corporation

Consolidated Balance Sheets

DECEMBER 31, 2004 AND 2003

(in thousands, except share amounts)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	2004		2003
Current Liabilities
Accounts payable	$	7,081	$	5,131
Premiums payable to insurance companies		6,441		7,153
Payable under participation agreements		2,452		409
Unearned buyer consulting fees		410		771
Accrued commission refunds		976		688
IBNR loss reserve		60		77
Unearned insurance premiums		659		15
Income tax payable		1,913		1,624
Deferred income tax payable		258		189
Short-term debt		31,898		3,048
Current maturities of long-term debt		11,194		6,492
Total Current Liabilities		63,342		25,597
Non-current Liabilities
Deferred income tax payable		223		—
Servicing liability		39		46
Long-term debt less current maturities		37,390		25,436
Total Liabilities		100,994		51,079
Stockholders’ Equity
Common stock, $.01 par value, 99,500,000 shares authorized, 9,381,518 and 9,334,848 shares issued and outstanding		94		93
Preferred stock series 2002 and 2002A, $25 par value, 110,000 shares authorized, 49,667 shares issued outstanding		1,242		1,242
Preferred stock series 2002B, $32 par value, 34,375 authorized, 24,331 shares issued and outstanding		779		779
Additional paid-in capital		4,677		4,603
Retained earnings (deficit)		43		(1,304	)
Accumulated other comprehensive income		501		366
Total Stockholders’ Equity		7,336		5,779
Total Liabilities and Stockholders’ Equity	$	108,330	$	56,858

See accompanying summary of accounting policies and notes to financial statements.

48

Brooke Corporation

Consolidated Statements of Operations

YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

(in thousands, except per share data)

	2004			2003		2002
Operating Income
Insurance commissions	$	63,904		$	45,706	$	30,540
Interest income (net)		5,072			1,819		737
Seller consulting fees		5,236			4,109		1,589
Gain on sale of businesses		5,261			418		165
Initial franchise fees for basic services		8,795			425		—
Initial franchise fees for buyer assistance plans		8,122			8,147		3,954
Gain on sale of notes receivable		2,475			4,368		2,762
Gain on extinguishment of debt		57			5		439
Insurance premiums earned		401			283		—
Policy fee income		2,003			610		173
Other income		597			77		36
Total Operating Income		101,923			65,967		40,395
Operating Expenses
Commissions expense		47,261			35,949		25,355
Payroll expense		20,151			11,355		7,014
Depreciation and amortization		2,504			1,423		809
Insurance loss and loss expense incurred		(17	)		77		—
Other operating expenses		18,783			9,679		4,271
Other operating interest expense		927			665		497
Total Operating Expenses		89,609			59,148		37,946
Income from Operations		12,314			6,819		2,449
Other Expenses
Interest expense		2,340			576		252
Total Other Expenses		2,340			576		252
Income Before Income Taxes		9,974			6,243		2,197
Income tax expense		3,280			2,083		747
Net Income	$	6,694		$	4,160	$	1,450
Net Income per Share:
Basic	$	0.69		$	0.42	$	0.14
Diluted	$	0.65		$	0.41	$	0.14

See accompanying summary of accounting policies and notes to financial statements.

49

Brooke Corporation

Consolidated Statements of Changes in Stockholders’ Equity

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(in thousands, except common shares)

	Common Shares		Common Stock			Preferred Stock			Treasury Stock			Notes Rec for Common Stock			Add’l Paid-In Capital			Retained Earnings			Accum. Other Comprehensive Income		Total
Balances, December 31, 2001	704,018		$	704		$	1,900		$	(40	)	$	(8	)	$	703		$	(2,787	)	$	7	$	479
Dividends paid																			(532	)				(532	)
Equity issuance	800			1			2,002									19								2,022
Equity conversion	70,155			70			(1,823	)								1,752								—
Equity stock split 6:1 and 2:1*	8,524,703			85												(85	)							—
Equity change in par value*				(767	)											767								—
Fair market value of contributed services**																30								30
Loan proceeds for common stock issuances													8											8
Deferred charges																(629	)							(629	)
Comprehensive income:
Interest-only strip receivable, fair market value, net of income taxes																						213		213
Net income																			1,450					1,450
Total comprehensive income																								1,663
Balances, December 31, 2002	9,299,676		$	93		$	2,079		$	(40	)	$	—		$	2,557		$	(1,869	)	$	220	$	3,041
Balances, December 31, 2002	774,973		$	775		$	2,079		$	(40	)				$	1,875		$	(1,869	)	$	220	$	3,041
Dividends paid																			(1,610	)				(1,610	)
Equity stock split 6:1	3,819,615			3,819												(1,893	)		(1,957	)				(30	)
Equity issuance from stock options	23,280			23												49								72
Equity conversion	60,606			61			(58	)								(3	)							—
Retirement of treasury stock	(11,050	)		(11	)					40									(28	)				—
Equity change in par value*				(4,621	)											4,621								—
Equity stock split*	4,667,424			47												(46	)							—
Comprehensive income:
Interest-only strip receivable, fair market value, net of income taxes																						146		146
Net income																			4,160					4,160
Total comprehensive income																								4,306
Balances, December 31, 2003	9,334,848		$	93		$	2,021		$	—		$	—		$	4,603		$	(1,304	)	$	366	$	5,779
Balances, December 31, 2003	4,667,424		$	4,667		$	2,021		$	—		$	—		$	29		$	(1,304	)	$	366	$	5,779
Dividends paid																			(5,347	)				(5,347	)
Equity issuance from stock options	33,195			14												61								75
Equity change in par value				(4,634	)											4,634								—
Equity stock split 2:1	4,680,899			47												(47	)							—
Comprehensive income:
Interest-only strip receivable, fair market value, net of income taxes																						135		135
Net income																			6,694					6,694
Total comprehensive income																								6,829
Balances, December 31, 2004	9,381,518		$	94		$	2,021		$	—		$	—		$	4,677		$	43		$	501	$	7,336

* The par value of common stock was changed from $1 per share to $.01 per share in the 2^nd quarter of 2004. The Company issued a 6-for-1 stock split in 2003 and a 2-for-1 stock split in 2004. These entries are shown as if the transactions occurred in the 2^nd quarter of 2002 for comparative purposes. The reclassification does not affect total equity.

** For the year ended December 31, 2002, the fair value of Robert Orr’s services was estimated at $30,000 even though he did not receive direct compensation from the Company. This value was established after analysis of the time Robert Orr spent on Company activities and not necessarily the amount of contribution made by Robert Orr, the importance of Robert Orr’s contributions, or the Company’s dependence on Robert Orr. On October 1, 2002, Robert Orr began receiving direct compensation from the Company at the rate of $15,000 per month as a result of the increased commitment required from Robert Orr to implement the Company’s plans.

See accompanying summary of accounting policies and notes to financial statements.

50

Brooke Corporation

Consolidated Statements of Cash Flows

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(in thousands)

	2004			2003			2002
Cash flows from operating activities:
Net income	$	6,694		$	4,160		$	1,450
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation		629			433			303
Amortization		1,875			990			506
Fair market value of contributed services		—			—			30
Gain on sale of businesses		(5,261	)		(418	)		(165	)
Deferred income tax expense		292			160			747
Gain on sale of notes receivable		(2,475	)		(4,368	)		(2,763	)
(Increase) decrease in assets:
Accounts and notes receivables		(35,798	)		(6,768	)		(1,596	)
Other receivables		459			523			(1,342	)
Prepaid expenses and other assets		88			(336	)		(233	)
Increase (decrease) in liabilities:
Accounts and expenses payable		1,950			3,097			4,091
Other liabilities		26,266			(520	)		2,927
Net cash provided by (used in) operating activities		(5,281	)		(3,047	)		3,955
Cash flows from investing activities:
Cash payments for securities		(4,882	)		(8,516	)		—
Cash payments for property and equipment		(1,634	)		(1,421	)		(1,757	)
Purchase of subsidiary and business assets		(8,215	)		(1,487	)		(2,225	)
Sale of subsidiary and business assets		12,977			—			—
Purchase of business inventory		(18,866	)		(10,014	)		(7,084	)
Proceeds from sales of business inventory		29,951			17,315			12,400
Net cash provided by (used in) investing activities		9,331			(4,123	)		1,334
Cash flows from financing activities:
Deferred charges		—			—			(629	)
Dividends paid		(5,347	)		(1,610	)		(532	)
Cash proceeds from bond/debenture issuance		—			1,304			2,510
Cash proceeds from preferred stock issuance		—			—			2,002
Cash proceeds from common stock issuance		74			42			20
Loan proceeds on debt		19,785			16,176			1,019
Payments on bond maturities		(775	)		(425	)		(1,005	)
Payments on short-term borrowing		(1,176	)		(473	)		(696	)
Payments on long-term debt		(10,591	)		(1,313	)		(5,556	)
Net cash provided by (used in) financing activities		1,970			13,701			(2,867	)
Net increase in cash and cash equivalents		6,020			6,531			2,422
Cash and cash equivalents, beginning of period		13,741			7,210			4,788
Cash and cash equivalents, end of period	$	19,761		$	13,741		$	7,210

See accompanying summary of accounting policies and notes to financial statements.

51

Brooke Corporation

Notes to Consolidated Financial Statements

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

1. Summary of Significant Accounting Policies

(a) Organization

Brooke Corporation (the “Company”) was incorporated under the laws of the State of Kansas in January 1986. The Company’s registered office is located in Overland Park, Kansas. At December 31, 2004, Brooke Holdings, Inc. owned 63.06% of the Company’s common stock. The Company is primarily a holding company that owns directly, or indirectly through another subsidiary, 100% of the stock and ownership interests of all subsidiaries. The Company’s primary business operations are conducted by its subsidiaries and include franchising, franchise and insurance related lending and insurance brokerage.

Operating Subsidiaries:

Although the Company has multiple subsidiaries, the Company’s business operations are typically performed by one of three operating subsidiaries: Brooke Franchise Corporation, Brooke Credit Corporation and Brooke Brokerage Corporation. Separate annual audited financial statements are prepared for each operating subsidiary and each operates independently from the other two operating subsidiaries, and from the Company, to perform its specific business purpose. The Company provides accounting, administrative and legal support to its three operating subsidiaries for which it receives administrative fees. Company revenues are typically limited to dividends and administrative fees from these operating subsidiaries.

Brooke Franchise Corporation is a Missouri corporation. The primary business purpose of this subsidiary is franchising insurance and related businesses and providing services to its franchisees through its network of regional offices, service centers and sales centers. Another business purpose of this subsidiary is to provide consulting services to business sellers and collateral preservation assistance to lenders.

Brooke Credit Corporation, a Kansas corporation, is a licensed finance company that primarily originates loans to insurance related businesses including insurance agencies, financial services practices and funeral homes. Although most of this subsidiary’s loans are made to franchisees, it also makes loans to non-franchised businesses if collateral preservation assistance is provided by Brooke Franchise Corporation. Loans originated by Brooke Credit Corporation are sold on an individual basis to participating lenders or on a pooled basis to investors.

Brooke Brokerage Corporation, a Kansas corporation, was incorporated at the end of 2004 to serve as the parent holding company of the subsidiaries involved in the brokerage segment. It is the direct owner of 100% of the ownership interests of CJD & Associates, L.L.C. Although Brooke Brokerage Corporation is categorized as an operating subsidiary, all of its operations are conducted through CJD & Associates, L.L.C., a licensed insurance agency that sells hard to place and niche insurance on a wholesale basis, under the trade names of Davidson-Babcock, Texas All Risk and All Risk General Agency.

Acquisition Subsidiaries:

The Brooke Agency, Inc. and Brooke Investments, Inc. subsidiaries acquire businesses and real estate assets for long-term investment. The operations of each acquisition subsidiary are conducted by employees of an affiliated subsidiary of the Company. Separate unaudited financial statements are typically prepared for each acquisition subsidiary because each secures loans from Brooke Credit Corporation and other lenders to fund their acquisitions.

Brooke Agency, Inc. is a Kansas corporation. Brooke Agency sometimes acquires for investment those insurance agencies or funeral homes where local ownership is not considered critical to financial performance.

52

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Brooke Investments, Inc. is a Kansas corporation that acquires real estate for lease to franchisees or other purposes. In addition, to help preserve collateral interests, Brooke Investments enters into real estate leases that are subleased or licensed to franchisees.

Captive Subsidiaries:

The DB Group, LTD and DB Indemnity, LTD subsidiaries were incorporated in the country of Bermuda as captive insurance companies. Separate financial statements are prepared for Bermuda subsidiaries as required by the Bermuda government. The captive insurance company subsidiaries are wholly owned by CJD & Associates, L.L.C. and profits are not typically distributed as dividends.

The DB Group, LTD was incorporated under the laws of Bermuda and is licensed as a Class 3 insurer under the Insurance Act 1978 of Bermuda and related regulations for the purpose of underwriting, as a reinsurer, a portion of the hard to place and niche insurance written by CJD & Associates, L.L.C. There were no premiums written by this subsidiary in 2004 or 2003.

DB Indemnity, LTD was incorporated under the laws of Bermuda and is licensed as a Class 1 insurer under the Insurance Act 1978 of Bermuda and related regulations for the purpose of self-insuring a portion of the professional insurance agents’ liability exposure of Brooke Franchise Corporation, its affiliated companies and its franchisees and for the purpose of self-insuring financial guaranty policies to Brooke Credit Corporation and its participating lenders.

Securitization Subsidiaries:

As part of the process of securitizing Brooke Credit Corporation’s loan portfolio, limited liability companies are organized in Delaware as bankruptcy-remote qualifying special purpose entities. To the extent required by the securitization process, separate financial statements are prepared for each securitization subsidiary.

Brooke Agency Services Company LLC is licensed as an insurance agency and was created to offer property, casualty, life and health insurance through the Company’s network of franchisees. Brooke Agency Services Company LLC has acquired ownership of franchise agreements from the Company and/or Brooke Franchise Corporation as part of an arrangement to preserve collateral on behalf of Brooke Credit Corporation as required by the securitization process. Brooke Agency Services Company LLC has contracted with the Company and/or Brooke Franchise Corporation for performance of any obligations to agents associated with all such franchise agreements. The financial information of this subsidiary is consolidated with the Company’s financial information.

Brooke Acceptance Company LLC, Brooke Captive Credit Company 2003, LLC, and Brooke Securitization Company 2004A, LLC are the purchasers of Brooke Credit Corporation loans pursuant to a true sale and the issuer of certain floating rate asset backed notes issued pursuant to various agreements. Brooke Capital Company, LLC was organized in 2004 in anticipation of a 2005 securitization. The financial information of these subsidiaries is not consolidated with the Company’s financial information.

Other Subsidiaries:

Subsidiaries have been established for contractual operations but any revenues generated by these subsidiaries are assigned to one of the operating subsidiaries for performance of any associated obligations. These subsidiaries include Brooke Life and Health, Inc., The American Heritage, Inc., The American Agency, Inc., Texas All Risk General Agency, Inc., All Risk General Agency, Inc., Brooke Credit Funding LLC, and First Brooke Insurance and Financial Services, Inc.

53

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Subsidiaries have also been established for regulatory, licensing, security or other purposes and do not typically conduct any operations or own any assets. These subsidiaries include Brooke Bancshares, Inc., TAR Holding Company Inc., Brooke Funeral Services Company, LLC, and Brooke Agency Services Company of Nevada, LLC.

(b) Use of Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets, liabilities and disclosures. Accordingly, the actual amounts could differ from those estimates. Any adjustments applied to estimated amounts are recognized in the year in which such adjustments are determined.

The following are significant estimates made by management:

• Amount of future policy cancellations which may result in commission refunds and a corresponding reserve

• Share of future policy cancellations due from franchisees

• Amount of allowance for doubtful accounts

• Share of policy commissions due to franchisees for commissions received by the Company but not yet distributed to franchisees

• Useful lives of assets

• Amount of unearned initial franchise fees for Buyers Assistance Plans resulting from services and assistance not yet performed

• Amount of future insurance claim losses, loss expense, and earned premium percentages

• The discount, prepayment and credit loss rates used to calculate fair value of interest-only strip receivables, servicing assets and servicing liabilities resulting from loan participation sales

• The discount, prepayment and credit loss rates used to calculate fair value of securities resulting from asset backed securitizations

• Amortization

• Allocation of payroll and operating expenses associated with the origination and servicing of loans

It is at least reasonably possible these estimates will change in the near term.

(c) Cash Equivalents

For purposes of the statements of cash flows, the Company considers all cash on hand, cash in banks and short-term investments purchased with a maturity of three months or less to be cash and cash equivalents. Restricted cash is not included in cash equivalents.

(d) Allowance for Doubtful Accounts

Except for the credit loss allowances included in the calculations of retained interests in loans sold, no loss allowances have been made for loans originated by the Company’s finance subsidiary primarily because these loans are typically held for less than one year before sold to investors and therefore have a short term exposure to loss. Additionally, commissions received by the Company’s franchise subsidiary are typically distributed to the finance subsidiary for loan payments prior to distribution of commissions to the franchisee borrower and most other creditors. As a result, the Company’s primary credit exposure more likely results from the collection of franchisees’ account balances than from the collection of loan payments.

54

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

The Company estimates that a certain level of accounts receivable, primarily franchisee account balances, will be uncollectible, therefore an allowance has been recognized for uncollectible amounts. The Company’s franchise subsidiary has established allowances of $575,000 and $0 at December 31, 2004 and 2003 respectively, against commission advance amounts owed by franchisees. The Company’s franchise subsidiary regularly assists its franchisees by providing commission advances during months when commissions are less than expected, but expects repayment of all such advances within four months. At December 31, 2004, the amount of allowance was determined after specific analysis of all franchise advances that had not been re-paid in the four month period ended December 31, 2004.

The following schedule entitled “Valuation and Qualifying Accounts” summarizes the Allowance for Doubtful Accounts activity for the years ended December 31, 2004, 2003, and 2002 (in thousands). Additions to the allowance for doubtful accounts are charged to expense. Write offs in 2004 include commission advances to startup franchisees totaling $418,000, most of which we believe will be recovered.

Valuation and Qualifying Accounts

	Balance at Beginning of Year		Charges to Expenses		Write Offs		Balance at End of Year
Allowance for Doubtful Accounts
Year ended December 31, 2002	$	0	$	931	$	931	$	0
Year ended December 31, 2003		0		644		644		0
Year ended December 31, 2004		0		1,757		1,182		575

The Company’s brokerage subsidiary has established allowances of $52,000 and $23,000 at December 31, 2004 and 2003 respectively, against amounts owed by agents or insureds. Reserves of $60,000 and $77,000 at December 31, 2004 and 2003, respectively were established for loan loss coverage on financial guaranty policies issued by DB Indemnity, LTD on loans originated by the Company’s finance subsidiary.

The Company does not accrue interest on loans that are 90 days or more delinquent and payments received on all such loans are applied to principal. Loans and accounts receivables are written off when management determines that collection is unlikely. This determination is made based on management’s experience and evaluation of the debtor’s creditworthiness.

(e) Revenue Recognition

Commission revenue on insurance policy premiums is generally recognized as of the effective date of the policies or, in certain cases, as of the effective date or billing date, whichever is later. Contingent and profit sharing commissions are generally paid based on prior year performance and recognized when received. Premiums due from the insured to the Company are reported as assets of the Company and as corresponding liabilities, net of commissions, to the insurance carriers.

In the event of cancellation or reduction in premiums, for policies billed by an insurance carrier, a percentage of the commission revenue is often returned to the insurance carrier and revenues are correspondingly reduced. The commission refunds are calculated by the insurance carriers and are typically deducted from amounts due to the Company from insurance carriers. The Company has estimated and accrued a liability for commission refunds of $976,000 and $688,000 at December 31, 2004 and 2003, respectively.

The Company receives fees for the placement and issuance of policies that are in addition to, and separate from, any sales commissions paid by insurance companies. As these policy fees are not refundable and the

55

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Company has no continuing obligation, all such revenues are recognized on the effective date of the policies or, in certain cases, the billing date, whichever is later.

The Company recognizes interest income when earned.

Loan participation and loan securitizations represent the transfer of notes receivable, by sale, to “participating” lenders or special purpose entities. When transfers meet the criteria to be accounted for as a true sale, established by SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, the gain on sale of a note receivable is recognized when the note receivable is sold. When the Company sells notes receivables, it typically retains servicing rights and interest income. Gains or losses on sales of notes receivable depends, in part, on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interest and servicing assets based on their relative fair value at the date of transfer.

Loan origination fees charged to borrowers are offset against loan origination expenses incurred during the underwriting and placement of the loan.

As part of its initial services to franchisees, the Company sometimes assists franchisees with the conversion of acquired businesses into its franchise system pursuant to a Buyers Assistance Plan (“BAP”). If part of the initial franchise fees paid by franchisees to the Company is for BAP assistance then the BAP part of the initial franchise fee is allocated to each of the BAP related services provided by the Company and the fee associated with a particular service is recognized as revenue using the percentage of completion accounting method. Substantially all of the BAP services (inspection reports, operations analysis and marketing plan development) are provided by the Company before franchise acquisition. As such, in 2004 approximately 87% of those initial franchise fees related to BAP assistance were immediately recognized as revenue. Remaining BAP related fees are typically recognized throughout the four-month BAP period as the remaining BAP related services are performed.

The part of the initial franchise fees paid by franchisees to the Company that does not represent payment for BAP related services is for basic services that are substantially completed when the franchise location is opened and therefore, all such revenues are immediately recognized. Some of the basic services include access to the registered name “Brooke”, access to suppliers, and access to the Company’s Internet based management software program.

Revenues from seller consulting fees, gains on sale of businesses, and seller discounts are recognized immediately because the Company has no continuing obligation.

Through its subsidiary DB Indemnity LTD., excess liability premiums are recorded on the written basis and recorded as revenues on a pro-rata basis over the term of the policies. Unearned premium reserves are established to cover the unexpired portion of premiums written and assumed and revenues are correspondingly reduced.

(f) Property and Equipment

Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets. The following summarizes the estimated useful lives used by the Company for various asset categories:

Description	Useful Life
Furniture and fixtures	10 years
Airplanes	10 years
Office and computer equipment	5 years
Automobiles	5 years
Buildings	40 years

56

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(g) Amortizable Intangible Assets

Included in other assets are the unamortized costs of renewal rights purchased by the Company and through subsidiaries (Brooke Life and Health, Inc., The American Agency, Inc., CJD & Associates, L.L.C., TAR Holding Company, Inc. and Texas All Risk General Agency, Inc). The balance is being amortized over a 15-year period using an accelerated 150% declining balance switching to straight-line method. Amortization was $898,000, $291,000 and $163,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

On July 1, 2002, the Company acquired 100% of the outstanding ownership interests of CJD & Associates, L.L.C. and $1,417,000 of the initial purchase price was allocated to renewal rights. The sellers may be entitled to an increase of the initial purchase price based on the amount of monthly net revenues received in future periods. In accordance with FAS 141, “Business Combination,” any such payments for an increased purchase price shall be recorded as Amortizable Intangible Assets when made. Additional payments of the purchase price have been made in the amount of $993,000 since the initial purchase.

On August 1, 2002, the Company acquired insurance agency renewal rights operating under the trade-name of Bornstein Financial Group for an initial purchase price of $200,000. On August 8, 2003, an additional payment of $100,000 was made and the final total purchase price increased to $300,000 and was recorded as an Amortizable Intangible Asset in accordance with FAS 141, “Business Combinations”. The Company operates this business asset under Brooke Life and Health, Inc.

On November 30, 2003, CJD & Associates, L.L.C. acquired 100% of the outstanding shares of Texas All Risk General Agency, Inc. and TAR Holding Company, Inc. which collectively own 100% of the outstanding shares All Risk General Agency, Inc. $1,000,000 of the initial purchase price was allocated to Amortizable Intangible Assets. The sellers may be entitled to an increase of the initial purchase price based on the amount of monthly net revenues received in future periods. In accordance with FAS 141, “Business Combinations,” any such payments for an increased purchase price shall be recorded as Amortizable Intangible Assets when made. Additional payments of the purchase price have been made in the amount of $472,000 since the initial purchase.

As a result of the acquisition of CJD & Associates, L.L.C. on July 1, 2002, the Company recorded additional Amortizable Intangible Assets of $85,000 (net of accumulated amortization of $111,000).

In February 2003, the Company acquired the rights to the web-site “Agencies4Sale.com” for $25,000.

In February 2004, the Company acquired insurance agency renewal rights from Brent and Haeley Mowery for $499,000.

Subsequent to the initial recording at fair value, the amortizable intangible asset is evaluated and measured annually for impairment. The impairment testing is performed by two different methods of analysis. The first method is a cash flow analysis to determine if there is sufficient operating cash flows. The second method is a fair market value analysis based primarily on comparative sales data. If analysis indicates that operating cash flows are insufficient or the asset’s fair value is less than its book value, then an impairment has occurred and the Company writes down the asset to the estimated fair value. No impairment was recognized for the years ended December 31, 2004, 2003 or 2002.

(h) Income Taxes

Net income tax expense is the tax calculated for the year based on the Company’s effective tax rate plus the change in deferred income taxes during the year. During 2003, the deferred tax asset decreased to zero as the

57

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

result of using all net operating loss carryforwards available to the Company. Deferred tax liabilities were recorded in 2003 and 2004 to recognize the future tax consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect for the years in which the differences are expected to reverse.

(i) Investment in Businesses

The amount of assets included in the “Investment in Businesses” category is the total of purchase prices paid, or market prices if lower, for business assets that Brooke Franchise Corporation acquires to hold in inventory for sale to its franchisees. These assets are carried at the lower of cost or market because they are available for sale and not held for investment. Typically the Company acquires and sells the business assets simultaneously. If the assets are not sold simultaneously then the Company operates the business until sold and records the income and expense associated with the business. The number of businesses purchased for this purpose for the years ended December 31, 2004 and 2003 was 51 and 50, respectively. Correspondingly, the number of businesses sold from inventory for the year ended December 31, 2004 and 2003 was 50 and 50, respectively. At December 31, 2004 and 2003, the “Investment in Businesses” inventory consisted of 2 businesses and 1 business, respectively, with fair market values totaling $1,022,000 and $367,000, respectively.

(j) Gain or Loss on Sale of Businesses

“Investment in Businesses” gains or losses are the difference between the sales price and the book value of the business, which is carried at the lower of cost or fair value. Businesses are typically sold in the same units as purchased. However, in instances where a part of a business unit is sold, then management estimates the fair value of the portion of the business unit being sold and the difference between the sales price and the resulting fair value estimation is the amount of the gain or loss. Any such fair value estimation is evaluated for reasonableness by comparing the market value estimation of the portion being sold to the book value for the entire business unit. Fair value estimations are based on comparable sales information that takes into consideration business characteristics such as customer type, customer account size, supplier size and billing methods.

(k) Contract Database

The Contract Database asset consists of legal and professional fees associated with development of standardized documents relating to the creation of a new asset class for securitization and rating of insurance agency loan pools. The initial one time development cost of standardized documents for creating a new security asset class is non-recurring and securitization of subsequent insurance agency loan pools results in lower and routine transaction expenses. This asset is being amortized over a five-year period because the benefits of this new asset class are expected to last at least five years and because significant changes to the associated standardized documents will probably not be required for five years.

Also included in the Contract Database asset are the legal and professional fees associated with development of standardized loan documents. These contracts are available for sale to others that make these types of loans, by first purchasing a license from Brooke Credit Corporation. A complete review and revision is scheduled for all loan documents every five years, therefore, the asset is being amortized over a five-year period.

(l) Deferred Charges

Deferred charges include loan fees paid in 2004 to establish a line of credit with DZ BANK AG Deutsche Zentral-Genossenschaftsbank. Associated costs totaled $696,000 and are amortized over a period ending at the

58

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

maturity date of the line of credit. Net of amortization, the balance of all such prepaid expenses at December 31, 2004 was $649,000.

Deferred charges also include the costs associated with the a public offering of bonds and debentures. Selling expenses, auditor fees, legal costs and filing charges associated with the Company’s public offering of bonds and debentures totaled $615,000 and are amortized over a period ending at the bond and debenture maturities. Net of amortization, the balance of all such prepaid expenses at December 31, 2004 and 2003 was $190,000 and $301,000, respectively.

(m) Equity Rights and Privileges

All of the Company’s outstanding shares of the 9% cumulative convertible preferred stock were converted into 10,296 (20,592 split adjusted) shares of common stock during the year ended December 31, 2003.

The holders of the 2002 and 2002A convertible preferred stock are entitled to receive a cumulative dividend in cash at the rate of 10% of the liquidation value of such stock per share per annum if determined by the Board of Directors. The holders of 2002 and 2002A convertible preferred stock do not have any voting rights and their conversion rights have expired. In the case of liquidation or dissolution of the Company, the holders of the 2002 and 2002A convertible preferred stock shall be entitled to be paid in full the liquidation value, $25 per share before the holders of common stock.

The holders of 2002B convertible preferred stock are entitled to receive a cumulative dividend in cash at the rate of 9% of the liquidation value of such stock per share per annum if determined by the Board of Directors. The holders of 2002B convertible preferred stock do not have any voting rights and their conversion rights have expired. In the case of liquidation or dissolution of the Company, the holders of the 2002B convertible preferred stock shall be entitled to be paid in full the liquidation value, $32 per share, after payment of full liquidation value to the holders of 2002 convertible preferred stock, 2002A convertible preferred stock, and before the holders of common stock.

The Board of Directors designated 200,000 shares of preferred stock as 2003 convertible preferred stock; however, no shares of the 2003 convertible preferred stock have been issued and the Board of Directors has indicated that no such shares will be issued.

In the first quarter of 2003, the Company authorized the split of common stock at a ratio of 6-for-1 and in the second quarter of 2004, the Company authorized the split of common stock at a ratio of 2-for-1.

In April 2004, the Company’s shareholders approved the reduction of the common stock’s par value from $1.00 to $.01 per share. The Company’s shareholders also authorized an increase in the number of common shares from 9,500,000 to 99,500,000. The common stockholders shall possess all rights and privileges afforded to capital stock by law, subject to holders of convertible preferred stock.

(n) Per Share Data

Basic net income per share is calculated by dividing net income, less preferred stock dividends declared in the period (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned), by the average number of shares of the Company’s common stock outstanding. Diluted net income per share is calculated by including the probable conversion of preferred stock to common stock, and

59

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

then dividing net income, less preferred stock dividends declared on non-convertible stock during the period (whether or not paid) and the dividends accumulated for the period on non-convertible cumulative preferred stock (whether or not earned), by the adjusted average number of shares of the Company’s common stock outstanding. Total preferred stock dividends declared during the years ended December 31, 2004, 2003 and 2002 were $194,000, $196,000 and $214,000, respectively.

The prior year comparative average number of common stock shares has been adjusted to reflect the 2-for-1 stock split in 2004 and the 6-for-1 stock split in 2003.

(in thousands, except per share data)	December 31, 2004				December 31, 2003				December 31, 2002
Basic Earnings Per Share
Net Income		$	6,694			$	4,160				$	1,450
Less: Preferred Stock Dividends			(194	)			(196	)				(214	)
Income Available to Common Stockholders			6,500				3,964					1,236
Average Common Stock Shares	9,362				9,293				9,090
Less: Treasury Stock Shares	—		9,362		—		9,293		(11	)		9,079
Basic Earnings Per Share		$	.69			$	.42				$	.14

	December 31, 2004				December 31, 2003				December 31, 2002
Diluted Earnings Per Share
Net Income		$	6,694			$	4,160				$	1,450
Less: Preferred Stock Dividends on Non-Convertible Shares			(194	)			(196	)				(149	)
Income Available to Common Stockholders			6,500				3,964					1,301
Average Common Stock Shares	9,362				9,293				9,090
Less: Treasury Stock Shares	—								(11	)
Plus: Assumed Conversion of Convertible Preferred Shares	—								269
Plus: Assumed Exercise of 562,550 Stock Options	563		9,925		322		9,615		248			9,597
Diluted Earnings Per Share		$	.65			$	.41				$	.14

(o) Buyers Assistance Plans

As part of its initial services to franchisees, the Company sometimes assists franchisees with the conversion of acquired businesses into its franchise system pursuant to a Buyers Assistance Plan (“BAP”). Substantially all of the BAP services (inspection reports, operations analysis and marketing plan development) are typically provided by the Company before franchise acquisition. However, some BAP related services (advertising and training) are performed during the four months after acquisition and a portion of BAP fees are correspondingly deferred. Unearned Buyer Assistance Plan and other related fees were $410,000 and $771,000 at December 31, 2004 and 2003, respectively.

(p) Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries except for Brooke Acceptance Company LLC, Brooke Captive Credit Company 2003, LLC and Brooke Securitization

60

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Company 2004A, LLC. All significant intracompany accounts and transactions have been eliminated in consolidation of the financial statements.

(q) Accounts and Notes Receivable, Net

The net notes receivable included as part of the “Accounts and Notes Receivable, Net” asset category are available for sale and are carried at the lower of cost or market. Any changes in the net notes receivable balances are classified as an operating activity.

(r) Other Receivables

Included in Other Receivables are reimbursements due from franchisees and agents for possible cancellation of policies, and receivables from sellers for consulting fees and other services. Most of these amounts are collected within 30 days from franchisees, borrowers or agents and all amounts are collected within 12 months from date of recording.

(s) Advertising

The Company expenses the costs of advertising as they are incurred. Total advertising expense for the years ended December 31, 2004, 2003 and 2002 was $4,589,000, $2,098,000 and $843,000, respectively.

(t) Restricted Cash

Cash payments are made monthly to First National Bank of Phillipsburg as trustee for the Industrial Revenue Bonds. These funds are held by the trustee for payment of semi-annual interest and principal payments to bond holders on January 1^st and July 1^st. The amount of cash held at First National Bank of Phillipsburg at December 31, 2004 and 2003 was $59,000 and $63,000, respectively.

The Company holds insurance commissions for the special purpose entity Brooke Acceptance Company LLC for the purpose of making future loan payments and the use of these funds is restricted until the next monthly loan payment is made. The amount of commissions held at December 31, 2004 and 2003 was $410,000 and $326,000, respectively.

(u) Securities

Included in Securities are investments in loan securitizations which represents the transfer of notes receivable by sale, to a bankruptcy-remote special purpose entity that issues asset-backed notes to accredited investors. The carrying values of $17,115,000 and $10,608,000 at December 31, 2004 and 2003 respectively, for the marketable securities approximates the fair value as calculated by the Company using reasonable assumptions.

The Company acquired approximately 9% of the stock outstanding in First American Capital Corporation in October, 2003 for $772,000. This investment was subsequently sold in March, 2005 for $770,000.

(v) Insurance Losses and Loss Expenses

Insurance losses to be incurred and loss expenses to be paid by the DB Indemnity, LTD. subsidiary are estimated and recorded when advised by the insured. Outstanding losses and loss expense adjustments represent

61

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

the amounts needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred before the balance sheet date. These amounts are based upon estimates of losses reported by the insureds plus an estimate for losses incurred but not reported.

Management believes that the provision for outstanding losses and loss expenses will be adequate to cover the ultimate net cost of losses incurred to the balance sheet date but the provision is necessarily an estimate and may ultimately be settled for a significantly greater or lesser amount. It is at least reasonably possible that management will revise this estimate significantly in the near term. Any subsequent differences arising are recorded in the period in which they are determined.

(w) Other Operating Interest Expense

Operating interest expense includes interest paid by the finance subsidiary to DZ BANK AG Deutsche Zentral-Genossenschaftsbank on a line of credit loan for the purpose of originating insurance agency loans and is therefore an operating expense. The interest paid to DZ BANK AG for the year ending December 31, 2004 was $291,000. No interest was paid prior to 2004. The finance subsidiary also pays interest to bondholders. The funds received from the sale of the bonds were for the purpose of originating loans and the associated interest expense is therefore an operating expense. Bond interest expenses for the years ended December 31, 2004, 2003 and 2002 were $426,000, $458,000, and $496,000, respectively. The Company also pays interest to debenture holders. The funds received from the sale of debentures were used by the finance subsidiary to originate loans and the associated interest expense is therefore an operating expense. The debenture interest expenses for the years ended December 31, 2004, 2003, and 2002 were $209,000, $207,000, and $0, respectively.

(x) Stock-Based Compensation

The Company has granted stock options to employees of the Company pursuant to its 2001 Compensatory Stock Option Plan. The Company’s net income would have been reduced to $6,493,000, $3,952,000, and $1,311,000 for the years ended December 31, 2004, 2003, and 2002 respectively with the Company’s income per fully diluted share being reduced to $.64, $.39 and $.12 at December 31, 2004, 2003, and 2002 respectively, if the compensation cost for the stock options had been determined based on the fair value at the date of grant pursuant to the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”. The Company made the following assumptions when calculating the fair value of the stock option: the expected stock volatility of 30%, risk-free interest rate of 5%, and dividend rate of 1%. See footnote 13 for additional disclosures.

(in thousands, except per share data)	2004			2003			2002
Net income as reported	$	6,694		$	4,160		$	1,450
Total stock-based employee compensation cost determined under fair value method for all awards, net of related income tax effects		(201	)		(208	)		(139	)
Pro forma net income		6,493			3,952			1,311
Basic earnings per share:
As reported		.69			.42			.14
Pro forma		.67			.40			.12
Diluted earnings per share:
As reported		.65			.41			.14
Pro forma		.63			.39			.12

62

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

2. Notes Receivable

At December 31, 2004 and 2003, accounts and notes receivable consist of the following:

(in thousands)	12/31/2004			12/31/2003
Business loans	$	158,875		$	106,390
Less: Business loans sold		(124,720	)		(96,599	)
Commercial real estate loans		24,509			6,342
Less: Real estate loans sold		(16,472	)		(5,732	)
Loans with subsidiaries		16,505			3,148
Less: Subsidiaries loans sold		(16,505	)		(3,148	)
Plus: Loan participations not classified as a true sale		2,452			409
Total notes receivable, net		44,644			10,810
Interest earned not collected on notes*		819			734
Customer receivables		6,915			4,461
Allowance for doubtful accounts		(575	)		—
Total accounts and notes receivable, net	$	51,803		$	16,005

* The Company has a corresponding liability for interest payable to participating lenders in the amounts of $285,000 and $200,000 at December 31, 2004 and 2003, respectively.

Brooke Credit Corporation has loaned money to the Company and subsidiaries of the Company. These notes receivable have been eliminated in consolidation to the extent the notes receivable have not been sold to an unaffiliated third party. The sale of all or a portion of the intracompany notes receivable to an unaffiliated third party results in a notes payable, as discussed in footnote 4.

Loan participations and loan securitizations represent the transfer of notes receivable, by sale, to “participating” lenders or special purpose entities. The Company receives consideration from the transfer of note receivables, through retained interest and servicing assets. These transfers are accounted for by the criteria established by SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

The transfers that do not meet the criteria established by SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” are classified as secured borrowings and the balances recorded as both a note receivable asset and participation payable liability. At December 31, 2004 and 2003, secured borrowings totaled $2,452,000 and $409,000, respectively.

Of the note receivables sold, at December 31, 2004 and 2003, $136,288,000 and $101,514,000, respectively, were accounted for as sales because the transfers meet the criteria established by SFAS 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Purchasers of these note receivables obtained full control over the transferred assets (i.e. notes receivables) and obtained the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the notes receivables. Furthermore, the agreements to transfer assets do not entitle, or obligate, the Company to repurchase or redeem the notes receivable before their maturity except in the event of an uncured breach of warranty.

When the Company sells notes receivable, it generally retains interest and servicing income. Gain or loss on sales of the notes receivable depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interest and servicing assets based on their relative fair value at the date of transfer.

63

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

On loan participations, the Company is typically paid annual servicing fees ranging from .25% to 1.375% of the outstanding loan balance. In those instances whereby annual service fees paid to the Company are less than the minimum cost of servicing, which is estimated at .25% of the outstanding balance, a servicing liability is recorded. Additionally, the Company often retains interest income. The Company’s right to interest income is not subordinate to the purchaser’s interests and the Company shares interest income with purchasers on a prorata basis. Although not subordinate to purchaser’s interests, the Company’s retained interest is subject to credit and prepayment risks on the transferred assets. Additionally, on loan participations sold with recourse, the Company’s retained interest is subject to credit risk on the transferred assets.

On loan securitizations, the Company is typically paid annual servicing fees ranging from .10% to .25% of the outstanding securitized loan balances. Additionally, the Company often retains interest income. The Company’s right to interest income is subordinate to the investor’s interests. As such, the Company’s retained interest is subject to credit and prepayment risks on the transferred assets.

In April 2003, Brooke Credit Corporation sold $15,825,000 of loans to qualifying special purpose entity Brooke Acceptance Company LLC. This sale represents a loan securitization for which an interest receivable was retained. Of the loans sold, $13,350,000 of asset-backed securities were issued to accredited investors by Brooke Acceptance Company LLC. Brooke Credit Corporation received servicing income of $11,000 and $11,000, respectively from the primary servicer for the years ended December 31, 2004 and 2003. The fair value of the difference between loans sold and securities issued to accredited investors and the fair value of interest receivable retained were recorded on the Company’s books as a security with balances of $3,502,000 and $3,684,000, respectively on December 31, 2004 and 2003. This security is comprised of retained interest totaling $470,000 and retained equity in the special purchase entity totaling $3,032,000.

In November 2003, Brooke Credit Corporation sold $23,526,000 of loans to qualifying special purpose entity Brooke Captive Credit Company 2003, LLC. This sale represents a loan securitization for which an interest receivable was retained. Of the loans sold, $18,500,000 of asset backed securities were issued to accredited investors by Brooke Captive Credit Company 2003 LLC. Brooke Credit Corporation received servicing income of $17,000 and $2,000, respectively from the primary servicer for the year ending December 31, 2004 and 2003. The fair value of the difference between loans sold and securities issued to accredited investors and the fair value of interest receivable retained were recorded on the Company’s books as a security with balances of $6,955,000 and $6,924,000, respectively on December 31, 2004 and 2003. This security is comprised of retained interest totaling $984,000 and retained equity in the special purchase entity totaling $5,971,000.

In June 2004, Brooke Credit Corporation sold $24,832,000 of loans to qualifying special purpose entity Brooke Securitization Company 2004A, LLC. This sale represents a loan securitization for which an interest receivable was retained. Of the loans sold, $20,000,000 of asset backed securities were issued to accredited investors by Brooke Securitization Company 2004A, LLC. Brooke Credit Corporation received servicing income of $6,000 from the primary servicer for the year ending December 31, 2004. The fair value of the difference between loans sold and securities issued to accredited investors and the fair value of interest receivable retained were recorded on the Company’s books as a security with a balance of $6,658,000 on December 31, 2004. This security is comprised of retained interest totaling $1,955,000 and retained equity in the special purchase entity totaling $4,703,000.

At December 31, 2004 and 2003, the Company had transferred assets with balances totaling $136,288,000 and $101,514,000, respectively resulting in pre-tax gains for the years ended December 31, 2004, 2003 and 2002 of $2,475,000, $4,368,000 and $2,763,000, respectively.

64

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

The fair value of retained interest is calculated by estimating the net present value of interest income on loans sold using the discount rate and prepayment speeds noted in the following table. The fair value of the retained interest is also reduced by the amount of estimated credit losses on loans sold with recourse and loans sold in securitizations, which are calculated using the estimated credit loss percentage noted in the following table. At December 31, 2004 and 2003, the fair value of retained interest recorded by the Company was $5,893,000 and $5,212,000, respectively. Of the totals at December 31, 2004, $2,484,000 was listed as Interest-Only Strip Receivable on the Company’s balance sheet and $3,409,000 in retained interest carried in the Company’s securities. Of the totals at December 31, 2003, $3,120,000 was listed as Interest-Only Strip Receivable on the Company’s balance sheet and $2,092,000 in retained interest carried in the Company’s securities.

Of the business and real estate loans at December 31, 2004 and 2003, $3,733,000 and $14,131,000, respectively, in loans were sold to various participating lenders with recourse to Brooke Credit Corporation. Such recourse is limited to the amount of actual principal and interest loss incurred and any such loss is not due for payment to the participating lender until such time as all collateral is liquidated, all actions against the borrower are completed and all liquidation proceeds applied. However, participating lenders may be entitled to periodic advances from Brooke Credit Corporation against liquidation proceeds in the amount of regular loan payments. At December 31, 2004, all such recourse loans: a) had no balances more than 60 days past due; b) had adequate collateral; c) and were not in default.

To obtain fair values of retained interests, quoted market prices are used if available. However, quotes are generally not available for retained interests, so the Company typically estimates fair value based on the present value of future expected cash flows estimated using management’s best estimates of key assumptions, credit losses, prepayment speed and discount rates commensurate with the risks involved.

The value of the “Servicing Asset” is calculated by estimating the net present value of net servicing income (or expense) on loans sold using the discount rate and prepayment speeds noted in the following table. At December 31, 2004 and 2003, the value of the servicing asset recorded by the Company was $2,909,000 and $1,723,000, respectively. Subsequent to the initial recording at fair value, the servicing asset is amortized in proportion to and over the period of estimated net servicing income.

The value of the “Servicing Liability” is calculated by estimating the net present value of net servicing expense on loans sold using the discount rate and prepayment speeds noted in the following table. At December 31, 2004 and 2003, the value of the servicing liability recorded by the Company was $39,000 and $46,000, respectively.

The predominant risk characteristics of the underlying loans of the Company’s retained interest and servicing assets have been analyzed by management to identify how to stratify these assets for the purpose of evaluating and measuring impairment. The underlying loans are very similar in virtually all respects; however management has concluded that those underlying loans with adjustable interest rates should be evaluated separately from loans with fixed interest rates. Accordingly, different key economic assumptions are used when determining the fair value of retained interest and servicing assets resulted from fixed rate loans than have been used for adjustable rate loans. No valuation allowance has been established because the fair value for the adjustable rate loan stratum is not less than the carrying amount of the servicing assets.

Although substantially all of the Company’s loans are adjustable, a discount rate has been applied to reflect the net present value of future revenue streams. As such, changes in the net present value rate, or discount rate, resulting from interest rate variations, would adversely affect the asset’s fair value.

65

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Impairment of retained interest and servicing asset are evaluated and measured annually. The impairment testing is performed by taking the current interest and servicing revenue stream and valuing the new revenue stream with the same assumptions as were used in the initial recording of the assets. The new revenue stream is based on the loan balances at the date the impairment test is completed which will include all prepayments on loans and any credit losses for those loans. The new discounted revenue stream is then compared to the carrying value on the Company’s books and if the new value is greater than the value on the books no impairment has occurred. If the new discounted revenue stream is less than the value on the books an impairment has occurred and the Company would write the asset down to the new discounted revenue stream. No impairment was recognized in the years ended December 31, 2004, 2003 and 2002.

At December 31, 2004, key economic assumptions used in measuring the retained interests and servicing assets when loans were sold or securitized during the year were as follows (rates per annum):

	Business Loans (Adjustable Rate Stratum)*		Business Loans (Fixed-Rate Stratum)
Prepayment speed	10	%	8	%
Weighted average life (months)	137		61
Expected credit losses	.5	%	.21	%
Discount rate	8.5	%	8.5	%

* Rates for these loans are adjusted based on an index (for most loans, the New York prime rate plus 3.50%). Contract terms vary but, for most loans, the rate is adjusted annually on December 31^st. Beginning in the third quarter of 2004, contract terms on new loans are adjusted monthly or daily to an index as noted above.

At December 31, 2004, key economic assumptions and the sensitivity of the current fair value of residual cash flows to immediate 10 percent and 20 percent adverse changes in those assumptions are as follows:

(in thousands)	Business Loans (Adjustable Rate Stratum)		Business Loans (Fixed Rate Stratum)
Prepayment speed assumption (annual rate)	10	%	8	%
Impact on fair value of 10% adverse change	(196	)	(1	)
Impact on fair value of 20% adverse change	(385	)	(2	)
Expected credit losses (annual rate)	.5	%	.21	%
Impact on fair value of 10% adverse change	(72	)	(0	)
Impact on fair value of 20% adverse change	(110	)	(1	)
Discount rate (annual)	8.5	%	8.5	%
Impact on fair value of 10% adverse change	(192	)	(2	)
Impact on fair value of 20% adverse change	(371	)	(4	)

These sensitivities are hypothetical and should be used with caution. The effect of a variation in a particular assumption on the value of the retained interests and servicing assets is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.

The above adverse changes for prepayment speed and discount rate are calculated on the Company’s retained interests and servicing assets on loans sold totaling $136,288,000. The above adverse changes for expected credit losses are calculated on the Company’s retained interests in loans sold with recourse to participating lenders and loans sold in securitizations.

66

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

The following illustrate how the changes in fair values were calculated for 10% and 20% adverse changes in key economic assumptions.

Effect of Increases in Assumed Prepayment Speed on Servicing Asset

(in thousands)	Adj Rate Stratum						Fixed Rate Stratum
	10% Prepayment Increase			20% Prepayment Increase			10% Prepayment Increase			20% Prepayment Increase
Estimated cash flows from loan servicing fees	$	5,222		$	5,065		$	171		$	170
Servicing expense		(923	)		(890	)		(156	)		(154	)
Discount of estimated cash flows at 8.5% rate		(1,470	)		(1,416	)		(10	)		(10	)
Carrying value of servicing asset after effect of increases		2,829			2,759			5			6
Carrying value of servicing asset before effect of increases		2,904			2,904			5			5
Decrease of carrying value due to increase in prepayments	$	(75	)	$	(145	)	$	0		$	1

Effect of Increases in Assumed Prepayment Speed on Retained Interest (Interest Only Strip Receivable, including retained interest carried in Securities balance)

(in thousands)	Adj Rate Stratum						Fixed Rate Stratum
	10% Prepayment Increase			20% Prepayment Increase			10% Prepayment Increase			20% Prepayment Increase
Estimated cash flows from interest income	$	7,747		$	7,531		$	202			200
Estimated credit losses		(820	)		(794	)		(3	)		(3	)
Discount of estimated cash flows at 8.5% rate		(1,336	)		(1,264	)		(18	)		(18	)
Carrying value of retained interests after effect of increases		5,591			5,473			181			179
Carrying value of retained interests before effect of increases		5,712			5,712			181			181
Decrease of carrying value due to increase in prepayments	$	(121	)	$	(239	)	$	0		$	(2	)

Effect of Increases in Assumed Credit Loss Rate on Retained Interest (Interest Only Strip Receivable, including retained interest carried in Securities balance)

(in thousands)	Adj Rate Stratum						Fixed Rate Stratum
	10% Credit Loss Increase			20% Credit Loss Increase			10% Credit Loss Increase			20% Credit Loss Increase
Estimated cash flows from interest income	$	7,967		$	7,967		$	203		$	203
Estimated credit losses		(878	)		(927	)		(4	)		(4	)
Discount of estimated cash flows at 8.5% rate		(1,448	)		(1,438	)		(19	)		(18	)
Carrying value of retained interests after effect of increases		5,641			5,602			180			181
Carrying value of retained interests before effect of increases		5,712			5,712			181			181
Decrease of carrying value due to increase in credit losses	$	(71	)	$	(110	)	$	(1	)	$	0

67

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Effect of Increases in Assumed Discount Rate on Servicing Asset

(in thousands)	Adj Rate Stratum						Fixed Rate Stratum
	10% Discount Rate Increase			20% Discount Rate Increase			10% Discount Rate Increase			20% Discount Rate Increase
Estimated cash flows from loan servicing fees	$	5,390		$	5,390		$	173		$	173
Servicing expense		(958	)		(958	)		(158	)		(158	)
Discount of estimated cash flows		(1,610	)		(1,685	)		(10	)		(10	)
Carrying value of servicing asset after effect of increases		2,822			2,747			5			5
Carrying value of servicing asset before effect of increases		2,904			2,904			5			5
Decrease of carrying value due to increase in discount rate	$	(82	)	$	(157	)	$	0		$	0

Effect of Increases in Assumed Discount Rate on Retained Interest (Interest Only Strip Receivable, including retained interest carried in Securities balance)

(in thousands)	Adj Rate Stratum						Fixed Rate Stratum
	10% Discount Rate Increase			20% Discount Rate Increase			10% Discount Rate Increase			20% Discount Rate Increase
Estimated cash flows from interest income	$	7,967		$	7,967		$	203		$	203
Estimated credit losses		(845	)		(845	)		(4	)		(4	)
Discount of estimated cash flows		(1,518	)		(1,622	)		(20	)		(22	)
Carrying value of retained interests after effect of increases		5,604			5,500			179			177
Carrying value of retained interests before effect of increases		5,712			5,712			181			181
Decrease of carrying value due to increase in discount rate	$	(108	)	$	(212	)	$	(2	)	$	(4	)

The following is an illustration of disclosure of expected static pool credit losses to the Company for loan participations sold with recourse and loans sold in securitizations. “Static pool credit loss” is an analytical tool that matches credit losses with the corresponding loans so that loan growth does not distort or minimize actual loss rates. The Company discloses static pool loss rates by measuring credit losses for loans originated in each of the last three years.

	Recourse & Securitized Loans Sold in
	2004	2003	2002
Actual & Projected Credit Losses (%) at:
December 31, 2004	0	0	0
December 31, 2003		0	0
December 31, 2002			0

68

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

The following table presents quantitative information about delinquencies, net credit losses and components of loan participations sold with recourse, unsold, or inventoried, loans and the equity interest carried in securities balance at and for the years ended December 31, 2004 and 2003:

(in thousands)	Total Principal Amount of Loans				Principal Amounts 60 or More Days Past Due*				Net Credit Losses**
	2004		2003		2004		2003		2004		2003
Type of Loan
Participations sold with recourse	$	3,733	$	14,131	$	0	$	0	$	0	$	0
Inventory loans		44,644		10,810		135		0		0		0
Equity interest in securities balance		13,706		8,516		0		0		0		0
Total loans managed	$	62,083	$	33,457	$	135	$	0	$	0	$	0

* Loans 60 days or more past due are based on end of period total loans

** Net credit losses are charge-offs and are based on total loans outstanding

3. Property and Equipment

A summary of property and equipment and depreciation is as follows:

(in thousands)	December 31, 2004			December 31, 2003
Furniture	$	1,311		$	1,420
Office and computer equipment		2,285			1,976
Automobiles and airplanes		1,169			1,439
Building and leasehold improvements		1,514			1,220
Land		417			—
		6,696			6,055
Less: Accumulated depreciation		(2,180	)		(2,577	)
Property and equipment, net	$	4,516		$	3,478
Depreciation expense	$	629		$	433

69

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

4. Bank Loans, Notes Payable, and Other Long-Term Obligations

(in thousands)	2004			2003
Seller notes payable. These notes are payable to the seller of businesses that the Company has purchased and are collateralized by assets of the businesses purchased. Some of these notes have an interest rate of 0% and have been discounted at a rate of 5.50% to 6.75%. Interest rates on these notes range from 4.00% to 8.00% and maturities range from January 2005 to January 2013.	$	20,980		$	11,122
Line of credit. Maximum line of credit available of $4,000,000. Collateralized by notes receivable. Line of credit due October 2005. Interest rate is 7.25% with interest and principal due monthly.		3,005			2,000
DZ BANK AG Deutsche Zentral-Genossenschaftsbank line of credit. Maximum line of credit available of $50,000,000. Collateralized by notes receivable. Line of credit due August 2009. Interest rate is 1.75% with interest due monthly.		24,092			—
Company debt with banks. These notes are payable to banks and collateralized by various assets of the company. Interest rates on these notes range from 5.5% to 11.75%. Maturities range from January 2005 to September 2015.		24,780			13,455
Company automobile notes payable. The Company uses Chrysler Credit Corporation to finance the company fleet. These loans are collateralized by the automobiles financed. The interest rates range from 5.75% to 7.65%. Maturities range from March 2005 to January 2008.		236			235
Total bank loans and notes payable		73,093			26,812
Bonds and debentures payable and capital lease obligation (See Notes 5 and 6)		7,389			8,164
Total bank loans, notes payable and other long-term obligations		80,482			34,976
Less: Current maturities and short-term debt		(43,092	)		(9,540	)
Total long-term debt	$	37,390		$	25,436

Three notes payable to banks for Company debt require the Company to maintain minimum financial ratios or net worth and restrict dividend payments from Brooke Credit Corporation to the Company.

The note payable to DZ BANK AG Deutsche Zentral-Genossenschaftsbank also requires the Company and Brooke Credit Corporation to maintain minimum stockholders’ equity. The covenants do not restrict management’s ability to pay dividends (if minimum stockholders’ equity is maintained) or restrict management’s ability to incur additional debt. The note is subject to up front fees which have been paid and are included in the deferred charges account. The note is also subject to recurring fees based on the use of the line of credit (monthly program fee and a non-use fee). The Company records the balance on this loan as a current obligation as the intent is to securitize the loans collateralized within twelve months. This line of credit matures August 2009 with the Company being able to advance and pay down the principal balance until maturity.

The other bank loans, notes payable and other long term obligations do not contain covenants that: require the Company to maintain minimum financial ratios or net worth; restrict management’s ability to pay dividends; restrict management’s ability to buy or sell assets; restrict management’s ability to incur additional debt; or include any subjective acceleration clauses.

Interest incurred on bank loans, notes payable and other long-term obligations for the years ended December 31, 2004, 2003 and 2002 is $3,267,000, $1,241,000 and $749,000, respectively.

70

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Short-term debt represents the DZ BANK AG Deutsche Zentral-Genossenschaftsbank line of credit, the line of credit listed in the preceding table and non-cash investing transactions utilized to purchase business assets.

Bank loans, notes payable and other long-term obligations mature as follows:

Twelve Months Ended Dec 31 (in thousands)	Bank Loans & Notes Payable		Capital Lease		Bonds & Debentures Payable		Total
2005	$	41,953	$	70	$	1,069	$	43,092
2006		9,096		80		4,315		13,491
2007		6,219		80		1,340		7,639
2008		3,815		90		—		3,905
2009		3,963		90		—		4,053
Thereafter		8,047		255		—		8,302
	$	73,093	$	665	$	6,724	$	80,482

5. Long-Term Debt, Bonds Payable

Brooke Credit Corporation offered secured bonds (series 2000F) for sale to the public in $5,000 denominations. The bonds were issued in registered form with interest payable semi-annually on January 1^st and July 1^st of each year. Holders of series 2000F bonds representing $4,315,000 in principal value elected to modify the terms of their bonds by extending the maturity date to July 1, 2006 and permitting the bonds to be called by Brooke Credit Corporation during the period from the original maturity date to the extended maturity date. Holders of series 2000F bonds representing the remaining $705,000 in principal value elected not to modify the terms of their bonds and were paid in full at maturity. Brooke Credit Corporation covenants not to incur debt or obligations superior to its obligations to bondholders or pay dividends to shareholders.

The Company offered unsecured debentures (Series A and Series B) for sale to the public in denominations of $1,000 with a minimum purchase amount of $5,000. The bonds were issued in book-entry form and registered in the name of The Depository Trust Company or its nominee. Interest is paid semi-annually on December 1^st and June 1^st. The Series B debentures are callable on the third anniversary of the date of issuance of the debentures. The Company used the debenture sale proceeds to acquire insurance agencies for inventory, make corporate acquisitions, purchase loan participation certificates and make short-term working capital loans to insurance agents or other Company subsidiaries.

The prior year comparative principal value was adjusted to reflect the proper grouping of bondholders electing to extend the maturity date to July 1, 2006.

At December 31, 2004 and 2003, the bonds and debentures payable consist of:

Series (in thousands)	Rate		Maturity	2004 Principal Value		2003 Principal Value
2000F Bonds	9.125	%	Jul 1, 2004	$	—	$	705
2000F Bonds	9.125	%	Jul 1, 2006		4,315		4,315
Series A Debentures	8.000	%	Dec 1, 2005		1,069		1,069
Series B Debentures	9.250	%	Dec 1, 2007		1,340		1,340
Total				$	6,724	$	7,429

Interest payable is $214,000 and $246,000 at December 31, 2004 and 2003, respectively.

71

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

6. Long-Term Debt, Capital Leases

Phillips County, Kansas issued Industrial Revenue Bonds in February 2002 for the purpose of purchasing, renovating, and equipping an office building in Phillipsburg, Kansas for use as a processing center. The total bonds issued were $825,000 with various maturities through 2012. The Company leases the building from Phillips County, Kansas although it may be purchased by the Company for a nominal amount at the expiration of the lease agreement. Under the criteria established by SFAS 13, “Accounting for Leases” this asset has been capitalized in the Company’s financial statements.

Future capital lease payments and long term operating lease payments are as follows:

Twelve Months Ended December 31 (in thousands)	Capital Real Estate			Operating Real Estate			Total
2005	$	117		$	1,448		$	1,565
2006		123			1,596			1,719
2007		117			1,465			1,582
2008		121			1,003			1,124
2009		115			347			462
2010		118			180			298
2011 and thereafter		168			—			168
Total minimum lease payments		879		$	6,039		$	6,918
Less amount representing interest		(214	)
				2003
Total obligations under capital leases		665		$	735
Less current maturities of obligations under capital leases		(70	)		(70	)
Obligations under capital leases payable after one year	$	595		$	665

7. Income Taxes

Net income tax expense is the tax calculated for the year based on the Company’s effective tax rate plus the change in deferred income taxes during the year. The elements of income tax expense are as follows:

(in thousands)	December 31, 2004		December 31, 2003		December 31 2002
Current	$	3,057	$	1,923	$	—
Deferred		223		160		747
	$	3,280	$	2,083	$	747

During 2003, the deferred tax asset decreased to zero as the result of using all net operating loss carryforwards available to the Company.

For the year ended December 31, 2004, income of $323,000 was earned in Bermuda and is excluded from the U.S. Federal Tax. Under current Bermuda law, DB Indemnity, LTD and DB Group, LTD are not required to pay any taxes in Bermuda on either income or capital gains. They have received an undertaking from the

72

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Minister of Finance in Bermuda that in the event of any such taxes being imposed they will be exempted from taxation until March 28, 2016.

Reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate on pretax income, based on the dollar impact of this major component on the current income tax expense:

	December 31, 2004		December 31, 2003		December 31, 2002
U.S. federal statutory tax rate	34	%	34	%	34	%
State statutory tax rate	4	%	4	%	4	%
Effect of the utilization of net operating loss carryforwards	(3	)%	(3	)%	(3	)%
Miscellaneous	(2	)%	(2	)%	(1	)%
Effective tax rate	33	%	33	%	34	%

Reconciliation of deferred tax asset:

(in thousands)	2004		2003
Beginning balance, January 1	$	—	$	160
Deferred income tax expense		—		(160	)
Balance, December 31	$	—	$	—

During 2003, the deferred tax asset decreased to zero as the result of using all net operating loss carryforwards available to the Company.

Reconciliation of deferred tax liability:

(in thousands)	2004		2003
Beginning balance, January 1	$	189	$	—
Accumulated other comprehensive income, unrealized gain on interest only strip receivables		69		189
Accelerated tax depreciation		223		—
Balance, December 31	$	481	$	189

Deferred tax liabilities were recorded for the years ended December 31, 2003 and 2004 to recognize the future tax consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect for the years in which the differences are expected to reverse.

8. Employee Benefit Plans

The Company has a defined contribution retirement plan covering substantially all employees. Employees may contribute up to the maximum amount allowed pursuant to the Internal Revenue Code, as amended. The Company may contribute an additional amount to the plan at the discretion of the Board of Directors. No employer contributions were charged to expense for years ended December 31, 2004, 2003 and 2002.

73

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

9. Concentration of Credit Risk

The Company maintains cash balances at several banks. At December 31, 2004, the Company had account balances of $14,188,000 that exceeded the insurance limit of the Federal Deposit Insurance Corporation.

The Company sells participation interests in loans to numerous banks and finance companies. At December 31, 2004, the Company had sold participation interests in loans totaling $34,091,000 to one financial institution. This represents 33% of the participation interests sold at December 31, 2004, excluding loans sold for securitization.

10. Segment and Related Information

The Company’s three reportable segments as of and for the years ended December 31, 2004 and 2003 consisted of its Franchise Services Business, Insurance Brokerage Business and its Lending (formerly Facilitator) Services Business. In a change from previous periods, the Company includes all initial franchise fees for basic services, initial franchise fees for buyers assistance plans and seller related fees in its Franchise Services Business segment instead of the Lending Services Business segment because the associated activities are an integral part of franchise services.

The Franchise Services Business segment includes the sale of insurance, financial, funeral and credit services on a retail basis through franchisees. The Insurance Brokerage Business segment includes the sale of hard to place and niche insurance policies on a wholesale basis and the operation of offshore insurance companies. The Lending Services Business segment includes the solicitation, underwriting, origination, sale and servicing of loans. The results of each segment are separately audited and the segments’ accounting policies are the same as those described in the summary of significant accounting policies. The Company assesses administrative fees to each business segment for legal, corporate and administrative services. Administrative fees for Franchise Services, Insurance Brokerage and Lending Services for the year ended December 31, 2004 totaled $5,100,000, $60,000 and $900,000, respectively and for the year ended December 31, 2003 totaled $5,100,000, $600,000 and $1,200,000, respectively. No administrative fees were recorded for the year ended December 31, 2002. Administrative fees are reported as an expense for the individual business segment and reported as “other operating expenses” in the reconciliation of the segment totals to the related consolidated totals. Unallocated corporate-level expenses are reported in the reconciliation of the segment totals to the related consolidated totals as “other operating expenses”.

74

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

The tables below reflects summarized financial information concerning the Company’s reportable segments for the years ended December 31, 2004, 2003 and 2002:

2004 (in thousands)	Franchise Services Business		Insurance Brokerage Business			Lending Services Business		Unallocated Amounts			Elimination of Intersegment Activity			Consolidated Totals
Insurance commissions	$	57,619	$	6,285		$	—	$	—		$	—		$	63,904
Policy fee income		—		2,003			—		—						2,003
Insurance premiums earned		—		401			—		—			—			401
Interest income		39		52			5,740		—			(759	)		5,072
Gain on sale of notes receivable		—		—			2,448		—			27			2,475
Seller consulting fees		5,236		—			—		—			—			5,236
Initial franchise fees for basic services		8,795		—			—		—			—			8,795
Initial franchise fees for buyers assistance plans		8,122		—			—		—			—			8,122
Gain on sale of businesses		5,261		—			—		—			—			5,261
Gain on extinguishment of debt		54		—			—		3			—			57
Other income		157		353			64		176			(153	)		597
Interest expense		1,344		330			1,365		1,034			(806	)		3,267
Commissions expense		44,386		2,875			—		—			—			47,261
Payroll expense		11,262		3,314			1,441		4,134			—			20,151
Insurance loss and loss expense incurred		—		(17	)		—		—			—			(17	)
Depreciation and amortization		429		254			973		849			—			2,504
Other operating expenses		18,268		2,047			1,122		(2,085	)		(568	)		18,783
Segment assets		47,300		13,869			78,664		11,048			(42,551	)		108,330
Expenditures for segment assets		27,081		2,488			2,393		1,634			—			33,596
2003 (in thousands)	Franchise Services Business		Insurance Brokerage Business			Lending Services Business		Unallocated Amounts			Elimination of Intersegment Activity			Consolidated Totals
Insurance commissions	$	40,110	$	5,596		$	—	$	—		$	—		$	45,706
Policy fee income		—		610			—		—			—			610
Insurance premiums earned		—		283			—		—			—			283
Interest income		9		71			2,335		61			(657	)		1,819
Gain on sale of notes receivable		—		—			4,320		—			48			4,368
Seller consulting fees		4,109		—			—		—			—			4,109
Initial franchise fees for basic services		425		—			—		—			—			425
Initial franchise fees for buyers assistance plans		8,147		—			—		—			—			8,147
Gain on sale of businesses		388		—			—		30			—			418
Gain on extinguishment of debt		—		—			—		5			—			5
Other income		2		37			11		27						77
Interest expense		179		162			530		1,027			(657	)		1,241
Commissions expense		33,689		2,260			—					—			35,949
Payroll expense		5,433		2,163			838		2,921			—			11,355
Insurance loss and loss expense incurred		—		77			—		—			—			77
Depreciation and amortization		38		103			685		597			—			1,423
Other operating expenses		10,270		1,624			1,363		(3,578	)		—			9,679
Segment assets		25,277		13,254			33,485		2,604			(17,762	)		56,858
Expenditures for segment assets		1,381		41			—		—			—			1,422

75

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

2002 (in thousands)	Franchise Services Business		Insurance Brokerage Business		Lending Services Business		Unallocated Amounts		Elimination of Intersegment Activity			Consolidated Totals
Insurance commissions	$	27,966	$	2,574	$	—	$	—	$	—		$	30,540
Policy fee income		—		173		—		—		—			173
Insurance premiums earned		—		—		—		—		—			—
Interest income		—		66		1,540		—		(869	)		737
Gain on sale of notes receivable		—		—		2,762		—		—			2,762
Seller consulting fees		1,589		—		—		—		—			1,589
Initial franchise fees for buyers assistance plans		3,954		—		—		—		—			3,954
Gain on sale of businesses		165		—		—		—		—			165
Gain on extinguishment of debt		439		—		—		—		—			439
Other income		36		—		—		—		—			36
Interest expense		1,122		—		496		—		(869	)		749
Commissions expense		24,207		1,148		—		—		—			25,355
Payroll expense		5,925		640		449		—		—			7,014
Depreciation and amortization		444		53		312		—		—			809
Other operating expenses		3,844		311		116		—		—			4,271
Segment assets		14,981		5,826		12,131		—		(4,583	)		28,355
Expenditures for segment assets		1,642		115		—		—		—			1,757

Profit (Loss) (in thousands)	December 31, 2004			December 31, 2003			December 31, 2002
Franchise Services profit	$	9,594		$	3,581		$	(1,393	)
Insurance Brokerage profit		291			208			661
Lending Services profit		3,351			3,250			2,929
Total segment profit		13,236			7,039			2,197
Unallocated & eliminated expenses		(3,262	)		(796	)		—
Income before income taxes	$	9,974		$	6,243		$	2,197

76

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

11. Related Party Information

In May 2000, Robert Orr, CEO of Brooke Corporation, Leland Orr, CFO of Brooke Corporation, Michael Hess, President of CJD & Associates, LLC, and Shawn T. Lowry, President of Brooke Franchise Corporation, each personally guaranteed repayment of a Brooke Credit Corporation loan to Austin Agency, Inc., Brownsville, Texas and each received 6.25% of the outstanding stock of Austin Agency, Inc. as consideration. During the fourth quarter of 2004, Orr, Orr, Hess and Lowry were released from their guarantees and surrendered ownership of their Austin Agency stock.

Robert D. Orr and Leland G. Orr own 100% of the voting stock of GI Agency, Inc. Although GI Agency was a franchise agent for the Company in previous years, it is not currently a franchise agent and its business operations do not include insurance sales. Brooke Credit Corporation made loans to GI Agency upon the same general terms as loans made to franchise agencies. During the fourth quarter of 2004, GI Agency repaid its loans in full to Brooke Credit Corporation and, at December 31, 2004, Brooke Credit Corporation had no loans outstanding to GI Agency.

Robert D. Orr and Leland G. Orr own a controlling interest in Brooke Holdings, Inc. which owned 63.06% of the Company’s common stock at December 31, 2004.

Shawn T. Lowry and Michael S. Lowry, President of Brooke Credit Corporation, are the co-members of First Financial Group, L.C. In June 2001, First Financial Group, L.C., guaranteed 65% of a Brooke Credit Corporation loan to Palmer, L.L.C. of Baxter Springs, Kansas and received a 15% profit interest in Palmer, L.L.C. as consideration. The loan was originated on June 1, 2001 and is scheduled to mature on September 1, 2011. At December 31, 2004, the entire loan principal balance of $603,000 was sold to unaffiliated lenders. The Company’s exposure to loss on this loan totals $324,000, which is the recourse obligation by Brooke Credit Corporation on a loan participation balance.

Kyle L. Garst, Senior Vice President of Brooke Franchise Corporation is the sole manager and sole member of American Financial Group, L.C. In October 2001, First Financial Group, L.C. and American Financial Group, L.C. each guaranteed 50% of a Brooke Credit Corporation loan to The Wallace Agency, L.L.C. of Wanette, Oklahoma and each received a 7.5% profit interest in The Wallace Agency. The loan was originated on October 15, 2001 and is scheduled to mature on January 1, 2014. At December 31, 2004 the entire loan principal balance of $369,000 had been sold to unaffiliated lenders. The Company’s exposure to loss on this loan is limited to a recourse obligation by Brooke Credit Corporation on $254,000 of the loan participation balances.

Anita F. Larson, President and Chief Operating Officer of Brooke Corporation, is married to John Arensberg, a partner in Arensberg Insurance of Overland Park, Kansas. Arensberg Insurance is a franchisee of Brooke Franchise Corporation pursuant to a standard form franchise agreement, and utilizes the administrative and processing services of Brooke Franchise Corporation’s service center employees pursuant to a standard form service center agreement. Brooke Franchise Corporation receives in excess of $60,000 in fees from the franchisee in connection with each of these agreements. Prior to 2004, Brooke Credit Corporation made two loans to Arensberg Insurance upon substantially the same terms and conditions as loans were made to other franchise agents. During the fourth quarter of 2004, the loans were paid in full by Arensberg Insurance and, at December 31, 2004, there were no outstanding loan balances.

Anita Lowry is the sister of Robert D. Orr and Leland G. Orr and the mother of Shawn T. Lowry and Michael S. Lowry and is married to Don Lowry. Don and Anita Lowry are shareholders of American Heritage

77

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

Agency, Inc. of Hays, Kansas. The Company and American Heritage Agency, Inc. entered into a franchise agreement in February, 1999 pursuant to which American Heritage Agency, Inc. participates in the Company’s franchise program. At December 31, 2004, Brooke Credit Corporation had two loans outstanding to American Heritage Agency with total principal balances of $660,000, of which $547,000 were sold to unaffiliated lenders. Such loans were made on substantially the same terms and conditions as provided to other franchisees and are scheduled to mature on June 15, 2016. The Company’s exposure to loss equals the retained principal balances of $113,000.

Pursuant to an announced personal financial planning process, in July, 2004 Robert D. Orr transferred Brooke Corporation stock into Brooke Holdings, Inc. and in September, 2004 Brooke Holdings, Inc. transferred Brooke Corporation stock to a Brooke Holdings, Inc. minority shareholder. The Securities Exchange Act of 1934, Rule 16(b) interprets these transfers by Brooke Holdings, Inc. as “purchases” and “sales” and the resulting short-swing profit of $196,000 was paid by Brooke Holdings, Inc. to Brooke Corporation in the fourth quarter of 2004.

12. Acquisitions and Divestitures

In November 2003, CJD & Associates, L.L.C. acquired 100% of the outstanding shares of Texas All Risk General Agency, Inc. and TAR Holding Company, Inc. for an initial purchase price of $1,000,000. All of the initial purchase price has been allocated to Amortizable Intangible Assets as disclosed in footnote 1 (g). The sellers are entitled to an increase of the initial purchase price equal to 25% of Texas All Risk’s monthly net revenues during the contingency period of November, 2004 to October, 2008. Any such purchase price increase shall be paid to the sellers monthly during the contingency period and, in accordance with paragraph 28 of FAS 141, “Business Combinations”, the payment shall be recorded as an asset when made. Additional payments of the purchase price have been made in the amount of $472,000 since the initial purchase. Texas All Risk offers hard-to-place and niche insurance as a wholesaler under the trade names of Texas All Risk General Agency and All Risk General Agency.

In February 2004, the Company acquired insurance agency assets from Brent and Haeley Mowery for a total purchase price of $499,000. The Company operates this business asset under the trade name of Brooke Auto Insurance Services of San Leandro, California. Its primary business activities include the sale of auto insurance.

In February 2003, the Company acquired 100% of the common stock of Ace Insurance Services, Inc. for $568,000. In May 2003, the Company sold all of its shares of Ace Insurance Services, Inc. for a total purchase price of $616,000.

In August 2002, the Company acquired insurance agency assets operating under the trade-name of Bornstein Financial Group for an initial purchase price of $200,000. In August 2003, an additional payment of $100,000 was made and the purchase price increased to $300,000. The seller is not entitled to any additional increases in purchase price based on future revenues. In accordance with FAS 141, “Business Combinations”, this additional payment was recorded as Amortizable Intangible Asset as disclosed in footnote 1 (g). The Company operates this business asset under Brooke Life and Health, Inc. Its primary business activities include the sale of annuities, long term care and final expense insurance to senior citizens.

In July 2002, the Company acquired 100% of the outstanding ownership interest of CJD & Associates, L.L.C. for an initial purchase price of $2,025,000. A portion of the initial purchase price has been allocated to Amortizable Intangible Assets as disclosed in footnote 1 (g). The sellers are entitled to an increase of the initial

78

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

purchase price equal to 30% CJD & Associates monthly net revenues during the contingency period of September 1, 2003 to September 1, 2007. Any such purchase price increase shall be paid to the sellers monthly during the contingency period and, in accordance with paragraph 28 of FAS 141, “Business Combinations”, the payment shall be recorded as an asset when made. Additional payments of the purchase price have been made in the amount of $993,000 since the initial purchase. CJD & Associates, L.L.C. offers hard-to-place and niche insurance as a wholesaler under the trade name of Davidson Babcock.

The Company acquired the stock or business assets of six auto insurance agencies for the year ended December 31, 2004 for purchase prices totaling $7,931,000 and subsequently sold these six agencies for the year ended December 31, 2004 for a total of $11,847,000. The Company originally intended to hold these six agencies for longer periods of time and therefore recorded amortization expenses. The gain on sale resulting from divestiture of these six agencies primarily results from recapturing amortization expenses and increasing the sales price to the approximate amount of initial franchise fees that would have been otherwise recorded if originally sold to franchisees.

13. Stock-Based Compensation

The Company’s net income and net income per common share would have been reduced to the pro forma amounts indicated below if compensation cost for the Company’s stock option plan had been determined based on the fair value at the grant date for awards in accordance with the provisions of No. 123, “Accounting for Stock-Based Compensation”: The earnings per share has been adjusted to reflect the 2-for-1 stock split in 2004 and the 6-for-1 stock split in 2003.

(in thousands, except per share data)	2004		2003		2002
Net income:
As reported	$	6,694	$	4,160	$	1,450
Pro forma		6,493		3,952		1,311
Basic earnings per share:
As reported		.69		.42		.14
Pro forma		.67		.40		.12
Diluted earnings per share:
As reported		.65		.41		.14
Pro forma		.63		.39		.12

The fair value of the options granted for the years ended December 31, 2004 and 2003 is estimated on the date of grant using the binomial option pricing model. The weighted-average assumptions used and the estimated fair value are as follows:

	2004			2003			2002
Expected term		2			2			2.1
Expected stock volatility		30	%		30	%		30	%
Risk-free interest rate		5	%		5	%		5	%
Dividend		1	%		1	%		1	%
Fair value per share	$	.57		$	1.02		$	5.10

The Company has granted stock options to officers, certain key employees, and directors for the purchase of its common stock under a shareholder-approved plan. Pursuant to resolutions dated February 18, 2003 and

79

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

April 22, 2004, the Compensation Committee of the Board of Directors adjusted the number of shares authorized for issuance under the 2001 Compensatory Stock Option Plan pursuant to the anti-dilution provisions of the Plan. Accordingly, at December 31, 2004 the Brooke Corporation 2001 Compensatory Stock Option Plan authorizes the issuance of up to 1,080,000 shares of the Company’s common stock for use in paying incentive compensation awards in the form of stock options. Unless otherwise required by law, the options are granted at fair value at the date of grant and, except for stock options awarded to selected officers, directors and employees, generally have become partially exercisable immediately. The options expire one to ten years from the date of grant. At December 31, 2004, there were 415,000 additional shares available for granting stock options under the stock plan.

	Shares Under Option		Weighted Average Exercise Price
Outstanding, January 1, 2002	—		$	—
Granted	570,000			2.09
Exercised	(9,600	)		2.09
Relinquished	(24,000	)		2.29
Terminated and expired	(30,600	)		2.09
Outstanding December 31, 2002	505,800			2.09
Granted	220,680			5.00
Exercised	(46,560	)		2.09
Terminated and expired	(36,480	)		2.09
Outstanding, December 31, 2003	643,440			2.84
Granted	16,000			9.45
Exercised	(46,670	)		2.09
Terminated and expired	(50,220	)		2.09
Outstanding December 31, 2004	562,550		$	3.07

129,760 options to purchase shares were exercisable at December 31, 2004. The following table summarizes information concerning outstanding and exercisable options at December 31, 2004.

	Options Outstanding				Options Exercisable
Range of Exercisable Prices	Number Outstanding	Remaining Contractual Life in Years	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$1.21 – $9.45	562,550	5.68	$	3.07	129,760	$	2.17

14. Intangible Assets

There are no intangible assets with indefinite useful lives at of December 31, 2004, and December 31, 2003. The intangible assets with definite useful lives have a value of $7,880,000 and $5,782,000 at December 31, 2004, and December 31, 2003, respectively. Of these assets $2,909,000 and $1,723,000 are recorded as a servicing asset on the balance sheet. The remaining assets are included in “Other Assets” on the balance sheet. Amortization expense was $1,875,000, $990,000 and $506,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

Amortization expense for amortizable intangible assets for the years ended December 31, 2005, 2006, 2007, 2008 and 2009 is estimated to be $1,758,000, $1,568,000, $1,401,000, $1,158,000, and $978,000, respectively.

80

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

15. Supplemental Cash Flow Disclosures

	2004		2003		2002
Supplemental disclosures: (in thousands)
Cash paid for interest	$	2,586	$	751	$	726
Cash paid for income tax	$	2,857	$	300	$	—
Non cash financing activity—additional paid-in capital for contributed services	$	—	$	—	$	30

Business inventory increased from December 31, 2003 to December 31, 2004 and decreased from December 31, 2002 to December 31, 2003. During the years ended December 31, 2004, 2003 and 2002, the statements of cash flows reflect the purchase of businesses into inventory totaling $18,866,000, $10,014,000 and $7,083,000, respectively, and the sale of businesses from inventory totaling $29,951,000, $17,315,000 and $12,400,000, respectively. During the years ended December 31, 2004, 2003 and 2002, net cash of $11,085,000, $7,301,000 and $5,317,000, respectively, was provided by the Company’s business inventory activities because $11,610,000, $6,999,000 and $4,852,000, respectively, of the purchase price of business inventory was provided by sellers per table below.

(in thousands)	December 31, 2004			December 31, 2003			December 31, 2002
Purchase of business inventory	$	(18,866	)	$	(10,014	)	$	(7,083	)
Sale of business inventory		29,951			17,315			12,400
Net cash provided from sale of business inventory		11,085			7,301			5,317
Cash provided by sellers of business inventory		(11,610	)		(6,999	)		(4,852	)
Write down to realizable value of inventory		(130	)		(266	)		—
(Increase) decrease in inventory on balance sheet	$	(655	)	$	36		$	465

16. Statutory Requirements

DB Indemnity, LTD. is required by its license to maintain statutory capital and surplus greater than a minimum amount determined as the greater of $120,000, a percentage of outstanding losses or a given fraction of net written premiums. At December 31, 2004 the Company is required to maintain a statutory capital and surplus of $120,000. Actual statutory capital and surplus is $1,053,000 and $301,000 at December 31, 2004, and 2003, respectively. Of the actual statutory capital $120,000 and $120,000 is fully paid up share capital, and accordingly all of the retained earnings and contributed surplus is available for payment of dividends to shareholders.

DB Indemnity, LTD. is also required to maintain a minimum liquidity ratio whereby the value of its relevant assets are not less than 75% of the amount of its relevant liabilities. Relevant assets include cash and deposits, investment income accrued and insurance balances receivable. Certain categories of assets do not qualify as relevant assets under the statute. The relevant liabilities are total general business insurance reserves and total other liabilities, less sundry liabilities. DB Indemnity, LTD. was required to maintain relevant assets of at least $587,000 and $120,000 at December 31, 2004, and 2003 respectively. At December 31, 2004 and 2003, relevant assets were $1,790,000 and $448,000, respectively. The minimum liquidity ratio was therefore met.

DB Group, LTD. is required by its license to maintain statutory capital and surplus greater than a minimum amount determined as the greater of $1,000,000, a percentage of outstanding losses or a given fraction of net

81

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

written premiums. At December 31, 2004 the Company is required to maintain a statutory capital and surplus of $1,000,000. Actual statutory capital and surplus is $1,035,000 and $1,067,000 at December 31, 2004, and 2003, respectively. Of the actual statutory capital $1,000,000 and $1,000,000 is fully paid up share capital, and accordingly all of the retained earnings and contributed surplus is available for payment of dividends to shareholders.

DB Group, LTD. is also required to maintain a minimum liquidity ratio whereby the value of its relevant assets are not less than 75% of the amount of its relevant liabilities. Relevant assets include cash and deposits, investment income accrued and insurance balances receivable. Certain categories of assets do not quality as relevant assets under the statute. The relevant liabilities are total general business insurance reserves and total other liabilities, less sundry liabilities.

DB Group, LTD. was required to maintain relevant assets of at least $562 and $169 at December 31, 2004, and 2003 respectively. At December 31, 2004 and 2003, relevant assets were $1,036,000 and $1,050,000, respectively. The minimum liquidity ratio was therefore met.

17. Contingencies

The Company had guaranteed the payment of a promissory note in the amount of $500,000 to a funeral home seller on behalf of a franchisee. The contingency was eliminated when the promissory note was paid by the franchisee in February 2005.

18. New Accounting Standards

On December 16, 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires companies to expense the value of employee stock options and similar awards. The cost of the awards will be measured at the fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest. Compensation cost for awards that vest would not be reversed if the awards expire without being exercised. When measuring fair value, companies can choose an option-pricing model like Black-Scholes or binominal models. The effective date for public companies is interim and annual periods beginning after June 15, 2005, and applies to all outstanding and unvested share based payment awards at a company’s adoption date. The adoption of SFAS No. 123R for estimated unvested options at the adoption date may have a material effect on our consolidated financial statements. The Company’s compensation committee is considering various options in response to this new pronouncement. As a result, the impact to our consolidated financial statements for future share based payment awards has not been determined.

19. Subsequent Events

In March 2005, Brooke Capital Company, LLC, a special purpose entity wholly owned by Brooke Credit Corporation, issued $32,000,000 in asset-backed securities to accredited investors.

In March 2005, the Company sold its investment in First American Capital Corporation stock for $770,000 which was the approximate original cost of the Company’s investment.

The Company acquired the assets of four Indiana funeral homes in February 2005 from a former franchisee for a total purchase price of $1,776,000. The acquisition was recorded as an Investment in Businesses because the Company expects to sell these assets prior to year end.

82

Brooke Corporation

Notes to Consolidated Financial Statements—(Continued)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

20. Quarterly Operating Results (unaudited)

Operating results for the quarters ended 2004 and 2003 were as follows:

(in thousands, except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2004
Total revenues	$	22,304	$	23,594	$	26,170	$	29,856
Total expenses		19,019		21,214		24,028		27,689
Income before income taxes		3,285		2,380		2,142		2,167
Net income per share:
Basic*		.23		.16		.15		.15
Diluted*		.22		.15		.14		.14
2003
Total revenues	$	15,675	$	15,369	$	17,725	$	17,198
Total expenses		13,264		14,226		16,486		15,748
Income before income taxes		2,411		1,143		1,239		1,450
Net income per share:
Basic*		.17		.07		.08		.10
Diluted*		.16		.07		.08		.10

* For comparative purposes the earnings per share were adjusted to reflect the 2-for-1 stock split in the 2^nd quarter of 2004.

Quarterly financial information is affected by seasonal variations. The timing of contingent commissions, policy renewals and acquisitions may cause revenues, expenses and net income to vary significantly between quarters.

21. Reclassifications

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

There have been no changes in our independent accountant during the two most recent fiscal years and no disagreements with our independent accountant requiring disclosure under the rules of the Securities and Exchange Commission.

ITEM 9A. CONTROLS AND PROCEDURES.

We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the Securities and Exchange Commission’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, we have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

There is no information required to be reported in a current report on Form 8-K during the fourth quarter of the fiscal year ended December 31, 2004 that was not reported in a Form 8-K during such quarter.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information called for by this item with respect to our directors, a code of ethics and compliance with Section 16(a) of the Securities Exchange Act of 1934 is included under the captions “Elections of Directors,” “Corporate Governance and Board Matters,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in our definitive proxy statement filed pursuant to Regulation 14A not later than 120 days after December 31, 2004, and is incorporated herein by reference. Information called for by this item with respect to our executive officers is included in Item 4A, “Executive Officers of the Registrant,” in this report on Form 10-K and is incorporated herein by reference.

We have adopted several policies with respect to corporate governance including a General Governance policy and procedure, a Conflicts of Interest policy, an Insider Trading policy, a Whistle Blowing policy and an Ethics policy. The Ethics policy contains a “code of ethics” designed to promote compliance with applicable laws and regulations, and to promote integrity in business operations, decision-making and communications with the public. The “code of ethics” applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and to all officers, directors and all of our employees. A copy of these written policies will be provided free of charge by writing to: Brooke Corporation, Attention: Secretary, 10950 Grandview Drive, Suite 600, Overland Park, Kansas 66210.

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ITEM 11. EXECUTIVE COMPENSATION.

The information called for by this item is contained in our definitive proxy statement filed pursuant to Regulation 14A not later than 120 days after December 31, 2004, in the sections entitled “Corporate Governance and Board Matters,” and “Executive Compensation,” and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information called for by this item is contained in our definitive proxy statement filed pursuant to Regulation 14A not later than 120 days after December 31, 2004, in the section entitled “Principal Stockholders and Security Ownership of Management,” and in Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” in this report on Form 10-K in the section entitled “Securities Authorized for Issuance under Equity Compensation Plans,” and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information called for by this item is contained in our definitive proxy statement filed pursuant to Regulation 14A not later than 120 days after December 31, 2004, in the section entitled “Certain Relationships and Related Transactions,” and is incorporated herein by this reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information called for by this item is contained in our definitive proxy statement filed pursuant to Regulation 14A not later than 120 days after December 31, 2004, in the section entitled “Ratification of Appointment of Independent Auditor,” under the subsection entitled “Fees of Independent Auditor,” and is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

Documents filed as a part of this report:

1. The following financial statements appearing in Item 8, Financial Statements and Supplementary Data: Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Changes in Stockholders’ Equity, and Consolidated Statements of Cash Flows.

2. All financial statement schedules are omitted since they are not required, are inapplicable, or the required information is included in the financial statements or the notes thereto.

3. The following is a complete list of exhibits filed as part of this Form 10-K. Exhibits shown as previously filed are incorporated by reference. Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K:

Exhibit No.	Description
3.1	Amendment and Restatement to the Articles of Incorporation.
3.2	Certificate of Amendment to and Restatement of the Bylaws filed as Exhibit 3.(ii) to the registrant’s current report on Form 8-K filed on February 1, 2005.
3.3	Certificate of Designation pertaining to the Series 2002A Convertible Preferred Stock filed with the Secretary of State of Kansas on January 25, 2002.

85

Exhibit No.	Description
3.4	Certificate of Designation pertaining to the Series 2002B Convertible Preferred Stock filed with the Secretary of State of Kansas on January 25, 2002.
3.5	Certificate of Designation pertaining to the Series 2003 Convertible Preferred stock filed with the Secretary of State of Kansas on May 1, 2003.
4.1	Indenture dated as of July 31, 1997 (the “Indenture”), by and between Brooke Credit Corporation and The First National Bank and Trust Company, relating to the issuance of the Brooke Credit Corporation, Series 1997A, Series 1997B and Series 1997C Bonds, filed as Exhibit 3.01 to the registrant’s registration statement on Form 10-SB filed on October 18, 2000.
4.2	Addendum to the Indenture dated as of November 13, 1997, relating to the issuance of the Brooke Credit Corporation, Series 1997D Bonds, filed as Exhibit 3.02 to the registrant’s registration statement on Form 10-SB filed on October 18, 2000.
4.3	Addendum to the Indenture dated as of August 28, 1998, relating to the issuance of the Brooke Credit Corporation, Series 1997E Bonds, filed as Exhibit 3.03 to the registrant’s registration statement on Form 10-SB filed on October 18, 2000.
4.4	Addendum to Indenture dated as of November 20, 2000, relating to the issuance of the Brooke Credit Corporation, Series 2000F Bonds.
4.5	Addendum to Indenture dated as of June 25, 2001, relating to an amendment to the security interest provision of the Indenture.
4.6	Addendum to Indenture dated as of December 31, 2003, relating to the extension of the maturity date of Brooke Credit Corporation Series 2000F Bonds, filed as Exhibit 10.31 to the registrant’s annual report on Form 10-KSB for the fiscal year ended December 31, 2003.
4.7	Guaranty dated as of December 18, 1997, executed by Brooke Corporation and guaranteeing payment of principal and interest on the Brooke Credit Corporation, Series 1997A, Series 1997B, Series 1997C and Series 1997D Bonds, filed as Exhibit 3.04 to the registrant’s registration statement on Form 10-SB filed on October 18, 2000.
4.8	Form of Brooke Credit Corporation 9.125% Bond Series 2000F due July 1, 2004.
4.9	Form of Subordinated Indenture by and between Brooke Corporation and Wells Fargo Bank Minnesota, N.A., relating to the issuance of the Brooke Corporation Unsecured Subordinated Debentures, Series A and Series B, including the form of Debenture as Exhibit A thereto, filed as Exhibit 4.01 to post-effective amendment number 1 to the registration statement on Form SB-2 filed on December 11, 2002.
10.1*	Brooke Corporation 2001 Compensatory Stock Option Plan filed as Exhibit 99.01 to the registrant’s registration statement on Form S-8 filed on February 26, 2002.
10.2*	Executive Employment Agreement between Brooke Corporation and Robert D. Orr filed as Exhibit 10.1 to the registrant’s current report on Form 8-K filed on March 4, 2005.
10.3*	Executive Employment Agreement between Brooke Corporation and Leland G. Orr filed as Exhibit 10.2 to the registrant’s current report on Form 8-K filed on March 4, 2005.
10.4*	Executive Employment Agreement between Brooke Corporation and Anita F. Larson filed as Exhibit 10.3 to the registrant’s current report on Form 8-K filed on March 4, 2005.
10.5*	Executive Employment Agreement between Brooke Credit Corporation and Michael S. Lowry filed as Exhibit 10.4 to the registrant’s current report on Form 8-K filed on March 4, 2005.
10.6*	Executive Employment Agreement between Brooke Franchise Corporation and Shawn T. Lowry filed as Exhibit 10.1 to the registrant’s current report on Form 8-K filed on March 1, 2005.
10.7*	Executive Employment Agreement between CJD & Associates, L.L.C. and Michael S. Hess filed as Exhibit 10.2 to the registrant’s current report on Form 8-K filed on March 1, 2005.

86

Exhibit No.	Description
10.8*	Executive Employment Agreement between Brooke Franchise Corporation and Kyle L. Garst filed as Exhibit 10.1 to the registrant’s current report on Form 8-K filed on March 30, 2005.
10.9	Credit and Security Agreement among Brooke Credit Funding, LLC, as Borrower, Brooke Credit Corporation, as Seller and Subservicer, Brooke Corporation, as Master Agent Servicer and Performance Guarantor, Autobahn Funding Company LLC, as the Lender, and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, as the Agent, dated as of August 27, 2004 (“Credit and Security Agreement”).
10.10	Amendment No. 1 dated as of November 27, 2004 to Credit and Security Agreement.
10.11	Amendment No. 2 dated as of February 24, 2005 to Credit and Security Agreement.
10.12	Amendment No. 3 dated as of March 29, 2005 to Credit and Security Agreement.
10.13	Note dated August 27, 2004 of Brooke Credit Funding, LLC to Autobahn Funding Company LLC relating to the Credit and Security Agreement.
21.1	Subsidiaries of Brooke Corporation.
23.1	Consent of Independent Registered Public Accounting Firm.
31.1	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

* - Indicates management contract or compensatory plan or arrangement.

87

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BROOKE CORPORATION

/s/    ROBERT D. ORR        

Robert D. Orr,

Chairman of the Board,
Chief Executive Officer and Director

Date: March 30, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/    ROBERT D. ORR         Robert D. Orr	Chairman of the Board, Chief Executive Officer and Director	March 30, 2005
/s/    ANITA F. LARSON         Anita F. Larson	President, Chief Operating Officer and Director	March 28, 2005
/s/    LELAND G. ORR         Leland G. Orr	Chief Financial Officer, Treasurer, Assistant Secretary and Director	March 30, 2005
/s/    JOHN L. ALLEN         John L. Allen	Director	March 28, 2005
/s/    JOE L. BARNES           Joe L. Barnes	Director	March 29, 2005
/s/    DERROL D. HUBBARD         Derrol D. Hubbard	Director	March 29, 2005

88

INDEX TO EXHIBITS

The following exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K. Exhibits shown as previously filed are incorporated by reference.

Exhibit No.	Description
3.1	Amendment and Restatement to the Articles of Incorporation.
3.2	Certificate of Amendment to and Restatement of the Bylaws filed as Exhibit 3.(ii) to the registrant’s current report on Form 8-K filed on February 1, 2005.
3.3	Certificate of Designation pertaining to the Series 2002A Convertible Preferred Stock filed with the Secretary of State of Kansas on January 25, 2002.
3.4	Certificate of Designation pertaining to the Series 2002B Convertible Preferred Stock filed with the Secretary of State of Kansas on January 25, 2002.
3.5	Certificate of Designation pertaining to the Series 2003 Convertible Preferred stock filed with the Secretary of State of Kansas on May 1, 2003.
4.1	Indenture dated as of July 31, 1997 (the “Indenture”), by and between Brooke Credit Corporation and The First National Bank and Trust Company, relating to the issuance of the Brooke Credit Corporation, Series 1997A, Series 1997B and Series 1997C Bonds, filed as Exhibit 3.01 to the registrant’s registration statement on Form 10-SB filed on October 18, 2000.
4.2	Addendum to the Indenture dated as of November 13, 1997, relating to the issuance of the Brooke Credit Corporation, Series 1997D Bonds, filed as Exhibit 3.02 to the registrant’s registration statement on Form 10-SB filed on October 18, 2000.
4.3	Addendum to the Indenture dated as of August 28, 1998, relating to the issuance of the Brooke Credit Corporation, Series 1997E Bonds, filed as Exhibit 3.03 to the registrant’s registration statement on Form 10-SB filed on October 18, 2000.
4.4	Addendum to Indenture dated as of November 20, 2000, relating to the issuance of the Brooke Credit Corporation, Series 2000F Bonds.
4.5	Addendum to Indenture dated as of June 25, 2001, relating to an amendment to the security interest provision of the Indenture.
4.6	Addendum to Indenture dated as of December 31, 2003, relating to the extension of the maturity date of Brooke Credit Corporation Series 2000F Bonds, filed as Exhibit 10.31 to the registrant’s annual report on Form 10-KSB for the fiscal year ended December 31, 2003.
4.7	Guaranty dated as of December 18, 1997, executed by Brooke Corporation and guaranteeing payment of principal and interest on the Brooke Credit Corporation, Series 1997A, Series 1997B, Series 1997C and Series 1997D Bonds, filed as Exhibit 3.04 to the registrant’s registration statement on Form 10-SB filed on October 18, 2000.
4.8	Form of Brooke Credit Corporation 9.125% Bond Series 2000F due July 1, 2004.
4.9	Form of Subordinated Indenture by and between Brooke Corporation and Wells Fargo Bank Minnesota, N.A., relating to the issuance of the Brooke Corporation Unsecured Subordinated Debentures, Series A and Series B, including the form of Debenture as Exhibit A thereto, filed as Exhibit 4.01 to post-effective amendment number 1 to the registration statement on Form SB-2 filed on December 11, 2002.
10.1*	Brooke Corporation 2001 Compensatory Stock Option Plan filed as Exhibit 99.01 to the registrant’s registration statement on Form S-8 filed on February 26, 2002.
10.2*	Executive Employment Agreement between Brooke Corporation and Robert D. Orr filed as Exhibit 10.1 to the registrant’s current report on Form 8-K filed on March 4, 2005.
10.3*	Executive Employment Agreement between Brooke Corporation and Leland G. Orr filed as Exhibit 10.2 to the registrant’s current report on Form 8-K filed on March 4, 2005.

Exhibit No.	Description
10.4*	Executive Employment Agreement between Brooke Corporation and Anita F. Larson filed as Exhibit 10.3 to the registrant’s current report on Form 8-K filed on March 4, 2005.
10.5*	Executive Employment Agreement between Brooke Credit Corporation and Michael S. Lowry filed as Exhibit 10.4 to the registrant’s current report on Form 8-K filed on March 4, 2005.
10.6*	Executive Employment Agreement between Brooke Franchise Corporation and Shawn T. Lowry filed as Exhibit 10.1 to the registrant’s current report on Form 8-K filed on March 1, 2005.
10.7*	Executive Employment Agreement between CJD & Associates, L.L.C. and Michael S. Hess filed as Exhibit 10.2 to the registrant’s current report on Form 8-K filed on March 1, 2005.
10.8*	Executive Employment Agreement between Brooke Franchise Corporation and Kyle L. Garst filed as Exhibit 10.1 to the registrant’s current report on Form 8-K filed on March 30, 2005.
10.9	Credit and Security Agreement among Brooke Credit Funding, LLC, as Borrower, Brooke Credit Corporation, as Seller and Subservicer, Brooke Corporation, as Master Agent Servicer and Performance Guarantor, Autobahn Funding Company LLC, as the Lender, and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, as the Agent, dated as of August 27, 2004 (“Credit and Security Agreement”).
10.10	Amendment No. 1 dated as of November 27, 2004 to Credit and Security Agreement.
10.11	Amendment No. 2 dated as of February 24, 2005 to Credit and Security Agreement.
10.12	Amendment No. 3 dated as of March 29, 2005 to Credit and Security Agreement.
10.13	Note dated August 27, 2004 of Brooke Credit Funding, LLC to Autobahn Funding Company LLC relating to the Credit and Security Agreement.
21.1	Subsidiaries of Brooke Corporation.
23.1	Consent of Independent Registered Public Accounting Firm.
31.1	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

* - Indicates management contract or compensatory plan or arrangement.

EX-3.1

Exhibit 3.1

AMENDMENT AND RESTATEMENT

TO THE

ARTICLES OF INCORPORATION

BROOKE CORPORATION

ARTICLE I

The name of this corporation is BROOKE CORPORATION.

ARTICLE II

The registered office of the Corporation in the State of Kansas, county of Harvey, is at 414 Main, P.O. Box 627, Newton, Kansas 67114. The resident agent at that address is Leland G. Orr.

ARTICLE III

This Corporation is organized for profit and the nature of its business or purposes to be conducted or promoted are:

1. To engage in the business of purchasing, acquiring, soliciting, selling, negotiating and otherwise dealing in the business of insurance through the use of agents employed by said corporation, which agents are lawfully licensed and authorized to transact insurance business within the state of Kansas.

2. To engage in any lawful conduct or activity for which corporations may be organized under the Kansas Corporation Code.

ARTICLE IV

The aggregate shares of which the Corporation shall have authority to issue shall be One Hundred million (100,000,000) and said shares shall be divided into Ninety-nine million five hundred thousand (99,500,000) shares of Common Stock, one thousand (1,000) shares of Convertible Preferred Stock, one hundred thousand (100,000) shares of 2002 Convertible Preferred Stock and three hundred ninety-nine thousand (399,000) shares of Undesignated Preferred Stock.

1. The Common Stock shall consist of Ninety-nine million five hundred thousand (99,500,000) shares of par value of No/100 dollars and One Cent ($0.01) per share. The preferences, qualifications, limitations and special or relative rights in respect to shares of Common Stock are as follows:

(a) Subject to the rights provided in this Article IV to holders of Convertible Preferred Stock, 2002 Convertible Preferred Stock and Undesignated Preferred Stock (as such rights may be determined by the Board of Directors in its sole discretion), the Common Stock shall possess all rights and privileges afforded to capital stock by applicable law in the absence of any express grant of rights or privileges in the Corporation’s Articles of Incorporation.

2. The Convertible Preferred Stock shall consist of one thousand (1,000) shares of par value of Seventy-Five and No/100 Dollars ($75.00) per share. The preferences, qualifications, limitations and special or relative rights in respect to shares of Convertible Preferred Stock are as follows:

(a) Except as this paragraph otherwise provides, the Convertible Preferred Stock will have no voting rights. As long as any shares of the Convertible Preferred Stock are outstanding, the Corporation shall not without the consent of a majority of the holders of the Convertible Preferred Stock then outstanding: (i) create or authorize any shares or series of shares ranking prior to or on a parity with the Convertible Preferred Stock; (ii) amend, alter or repeal any of the express terms of the Convertible Preferred Stock.

(b) The holders of Convertible Preferred Stock shall be entitled to receive, out of funds at the time legally available for payments of dividends under the General Business Corporation Act of Kansas, a non cumulative dividend in cash at the rate of Nine Percent (9%) of the liquidation value of such stock per share per annum payable, if as and when determined by the Board of Directors, due and payable on March 31, June 30, September 30 and December 31 of each year, before any dividend shall be set apart or paid on the Common Stock in any fiscal year of the Corporation.

(c) The holders of Convertible Preferred Stock shall have the right, at their option, to convert all or part of their Convertible Preferred Stock holdings to Common Stock. In the event that the holders of Convertible Preferred Stock elect to convert their shares to Common Stock, one share of Convertible Preferred Stock shall be exchanged for Thirteen (13) shares of Common Stock. The conversion of shares shall occur immediately upon written notice to the Corporation.

(d) Upon the occurrence of: (i) the issuance of Common Stock for a price per share less than the current fair market value of such shares; (ii) the issuance of rights or options to purchase Common Stock or issuance of securities convertible into Common Stock where the exercise or conversion price is less then the fair market value of such shares; (iii) stock dividends; (iv) stock splits, the Corporation shall appoint a firm of independent certified public accountants, which shall give their opinion upon the adjustment, if any, which must be made in the number of shares of Common Stock for which Convertible Preferred Stock shall be convertible, necessary to preserve, without dilution, the conversion right of the holders of Convertible Preferred Stock. Upon receipt of such opinion, the Corporation shall forthwith make the adjustments described therein.

(e) The Convertible Preferred Stock shall be subject to redemption at the option of the Corporation at a liquidation value of Seventy-Five and No/100 Dollars ($75.00) per share upon thirty (30) days proper written notice to the holders of Convertible Preferred Stock. Notice of redemption shall not preclude the holders of Convertible Preferred Stock from exercising their right to convert Convertible Preferred Stock to Common Stock prior to the end of such 30-day period.

(f) In the case of liquidation or dissolution of the Corporation, the holders of the Convertible Preferred Stock shall be entitled to be paid in full the liquidation value (Seventy-Five and No/100 (75.00) per share) of their shares before any amounts shall be paid to the holders of the 2002 Convertible Preferred Stock, Undesignated Preferred Stock and/or Common Stock, but on any such liquidation or dissolution after the payment to the holders of the Convertible Preferred Stock of the liquidation value thereof, the remaining assets of the Corporation shall be divided and paid to the holders of the 2002 Convertible Preferred Stock, Undesignated Preferred Stock and Common Stock according to their respective interests set forth herein, or with respect to the Undesignated Preferred Stock, as the Board of Directors may determine in its sole discretion.

3. The 2002 Convertible Preferred Stock, shall consist of One Hundred Thousand (100,000) shares of par value of Twenty-five and No/100 Dollars ($25.00) per share. The preferences, qualifications, limitations and special or relative rights in respect to shares of 2002 Convertible Preferred Stock are as follows:

(a) Except as this paragraph otherwise provides, the 2002 Convertible Preferred Stock will have no voting rights. As long as any shares of the 2002 Convertible Preferred Stock are outstanding, the Corporation shall not, without the consent of a majority of the holders of the 2002 Convertible Preferred Stock then outstanding, (i) create or authorize any additional shares or additional series of shares ranking prior to or on a parity with the 2002 Convertible Preferred Stock; (ii) amend, alter or repeal any of the express terms of the 2002 Convertible Preferred Stock.

(b) The rights of the holders of 2002 Convertible Preferred Stock are subordinate to the rights of the holders of Convertible Preferred Stock except to the extent that holders of 2002 Convertible Preferred Stock are entitled to cumulative dividends and the holders of Convertible Preferred Stock are not entitled to cumulative dividends.

(c) The holders of 2002 Convertible Preferred Stock shall be entitled to receive, out of funds at the time legally available for payments of dividends under the General Business Corporation Act of Kansas, a cumulative dividend in cash at the rate of Ten Percent (10%) of the liquidation value of such stock per share per annum payable, if as and when determined by the Board of Directors, due and payable on March 31, June 30, September 30, and December 31 of each year, after any dividend shall be set apart or paid on the Convertible Preferred Stock for the current fiscal year but before any dividend shall be set apart or paid on Undesignated Preferred Stock or the Common Stock in and for any fiscal year of the Corporation.

(d) On or prior to April 1, 2002, the holders of 2002 Convertible Preferred Stock shall have the right, at their option, to convert all or part of their 2002 Convertible Preferred Stock holdings to Common Stock. In the event that the holders of 2002 Convertible Preferred Stock elect to convert their shares to Common Stock, one share of 2002 Convertible Preferred Stock shall be exchanged for one share of Common Stock. The conversion of shares shall occur immediately upon written notice to the Corporation.

(e) On or prior to April 1, 2002 and upon the occurrence of: (i) the issuance of Common Stock for a price per share less than the current fair market value of such shares; (ii) the issuance of rights or options to purchase Common Stock or issuance of securities convertible into Common Stock where the exercise or conversion price is less then the fair market value of such shares; (iii) stock dividends; (iv) stock splits, the Corporation shall appoint a firm of independent certified public accountants, which shall give their opinion upon the adjustment, if any, which must be made in the number of shares of Common Stock for which 2002 Convertible Preferred Stock shall be convertible, necessary to preserve, without dilution, the conversion rights of the holders of 2002 Convertible Preferred Stock. Upon receipt of such opinion, the Corporation shall forthwith make the adjustments described therein.

(f) After April 1, 2002, the 2002 Convertible Preferred Stock shall be subject to redemption at the option of the Corporation at a redemption value of Twenty Seven and 50\100 Dollars ($27.50) per share on any dividend payment date.

(g) In the case of liquidation or dissolution of the Corporation, the holders of the 2002 Convertible Preferred Stock shall be entitled to be paid in full the liquidation value (Twenty-five and No/100 ($25.00) per share) of their shares after payment of full liquidation value to the holders of Convertible Preferred Stock and before any amounts shall be paid to the holders of the Undesignated Preferred Stock and/or Common Stock, but on any such liquidation or dissolution after the payment to the holders of Convertible Preferred Stock and 2002 Convertible Preferred Stock of the liquidation value thereof, the remaining assets of the Corporation shall be divided and paid to the holders of Undesignated Preferred Stock and the Common Stock according to their respective interests set forth herein, or with respect to the Undesignated Preferred Stock, as the Board of Directors may determine in its sole discretion.

4. The Undesignated Preferred Stock, shall consist of three hundred ninety-nine thousand (399,000) shares for which the designations, preferences, conversion rights, and cumulative, relative, participating, optional or other rights, including voting rights, qualifications, limitations or restrictions thereof, may be determined by the Board Of Directors on some future date without any further authorization by the Corporation’s shareholders.

The only other preferences, qualification, limitations, restrictions and special relative rights with respect to the Corporation’s shares shall be as provided in this Article IV hereof and such restrictions on transferability as are provided in the By-Laws of the Corporation or by agreement of the shareholders.

ARTICLE V

The power to adopt, repeal and amend the bylaws of this Corporation shall reside in the Board of Directors of the Corporation.

ARTICLE VI

The stockholders of this Corporation shall not be personally liable for the payment of the Corporation’s debts, except as they may be liable for the reason of their own conduct or acts.

ARTICLE VII

1. The Corporation reserves the right to make any amendment of the articles, now or hereafter authorized by law, including any amendment which alters the contract rights, as expressly set forth in the articles, of any shares of outstanding stock.

2. Authority is hereby expressly granted to and vested in the board of directors to establish from time to time, by resolution or resolutions and filing of all required documents pursuant to the applicable provisions of Kansas corporate law, for the issuance of preferred stock in series, to establish from time to time the number of shares to be included in each such series, and to fix the voting, powers, designations, preferences and relative, participating, optional or other rights, if any or the qualifications, limitations or restrictions thereof.

3. The board of directors of the corporation may, by articles supplementary, classify or reclassify any unissued stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends qualifications, or terms or conditions of redemption of the stock.

ARTICLE VIII

1. The Corporation will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorney’s fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

2. The Corporation will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the

Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including attorney’s fees, actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the court in which the action or suit was brought determines upon application that, despite the adjudication of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

3. To the extent that a Director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceedings referred to in subsections 1 and 2 of this section, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with the action, suit or proceeding.

4. Any indemnification under subsections 1 and 2 of this section, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee or agent is proper in the circumstances because he has made the applicable standard of conduct set forth in this section. The determination shall be made by the Board of Directors of the Corporation by a majority vote of a quorum consisting of Directors who were not parties to the action, suit or proceeding, or, if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Directors so directs, by legal counsel in a written opinion, or by the Stockholders of the Corporation.

5. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of the action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this section.

6. The indemnification provided in this section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any By-Law, agreement, vote of Stockholders or disinterested Directors or otherwise; both as to action in his official capacity and as to action in another capacity while holding such office; and shall continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.

7. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this section.

8. In no event shall, the Corporation indemnify any person against expenses, penalties, or other payments incurred in an administrative proceeding or action that results in a final order assessing civil money penalties or requiring affirmative action by such individual or individuals in the form of payments to the corporation.

ARTICLE IX

The term for which this corporation is to exist is perpetual.

EX-3.3

Exhibit 3.3

[BROOKE LOGO]

“A Family of Financial Services”

CERTIFICATE OF DESIGNATION

PURSUANT to K.S.A. 17-6401(g) and K.S.A. 17-6003 Brooke Corporation is providing the following information with regard to its issue of 2002A Convertible Preferred Stock.

NUMBER OF SHARES:

10,000 Preferred Shares have been approved for issue by Brooke’s Board of Directors from 399,000 “Undesignated Stock” originally authorized by Brooke shareholders and directors. The issue will be designated as “2002A Convertible Preferred Stock”. Registration with the Kansas Office of the Security Commissioner will be sought for this issue with following information:

Description of Securities	Offering Price		Total Offering Shares or Units	Amount		Shares or Units	Amount
2002A Convertible Preferred Stock		$25.00	10,000	$	250,000	10,000	$	250,000

SIGNATURES:

/s/ Michael Hess

Michael Hess

President, Brooke Corporation

/s/ Anita Larson

Anita Larson

Secretary

2002 JAN 25 PM 4:24

FILED

SECRETARY OF STATE

KANSAS

P.O. Box 42008, Kansas City, MO 64141-2008

Phone: (913) 661-0123 Fax: (913) 451-3183

UNANIMOUS WRITTEN CONSENT

OF THE

MINUTES OF THE MEETING OF

THE BOARD OF DIRECTORS OF BROOKE CORPORATION

January 21, 2002

The undersigned being all of the members of the Board of Directors of Brooke Corporation, a Kansas Corporation, do hereby unanimously consent to, ratify, approve and adopt as of the date hereof, the following to be given the same force and effect as if unanimously consented to, ratified, approved and adopted at a special meeting of the Board of Directors of the Company, called by the President and duly held and attended by all such members.

WHEREAS, during a special meeting of the shareholders held on February 27, 2001, the Company’s shareholders authorized 399,000 shares of undesignated preferred stock.

WHEREAS, at this meeting the shareholders authorized the board to determine, in its sole discretion, the designations, preferences, conversion rights, and cumulative, relative, participating and other rights including voting rights, qualifications, limitation or restrictions thereof.

WHEREAS, pursuant to shareholder approval, the board is entitled to authorize the creation and issuance of 399,000 shares of preferred stock in series with such limitations and restrictions as may be determined in the sole discretion of the Board of Directors without further authorization by the Company’s stockholders.

WHEREAS, on February 27, 2001, the Company registered 100,000 shares of its 2002 Convertible Preferred Stock with the Kansas Securities Commissioner;

WHEREAS, the sales of 2002 Convertible Preferred Stock have exceeded the amount registered with the Kansas Securities Commissioner and authorized by the Company;

WHEREAS, the Board of Directors believes that the authorization and issuance of 10,000 shares of preferred stock with terms and conditions similar to the 2002 Convertible Preferred Stock to sell to individuals to which the 2002 Convertible Preferred Stock was sold but for which the 2002 Convertible Preferred Stock is not available for issuance is in the best interest of the Company and its stockholders and believes it is advisable to authorize such shares to have them available for such individuals;

THEREFORE, BE IT RESOLVED, pursuant to the authority granted it by the shareholders, the Board of Directors authorizes the creation, issuance and sale by this Company of 10,000 shares of 2002A Convertible Preferred Stock with the same par value, designations, preferences, conversion rights, purpose and cumulative, relative, participating and other rights including voting rights, qualifications, limitation or restrictions thereof as the Company’s 2002 Convertible Preferred Stock except the 2002A Convertible Preferred Stock shall be subordinate to the 2002 Convertible Preferred Stock;

WHEREAS, the board adopted a resolution on January 15, 2002 in the form attached hereto;

WHEREAS, no Certificate of Designations of the shares referenced in such resolution has been filed with the State of Kansas, no such shares have been issued, and no such shares have been registered;

WHEREAS, pursuant to K.S.A 17-6401, if no shares of the convertible preferred stock referenced in the resolution have been issued, the Board may adopt a resolution amending the voting powers, designations, preferences and relative, participating, option or other rights, if any, or the qualifications, limitations or restrictions thereof;

WHEREAS, the Board deems it advisable and necessary to take action to amend the terms and conditions of the convertible preferred stock referenced in the attached resolution to accommodate the authorization, issuance and registration of 10,000 shares of 2002A Convertible Preferred Stock;

RESOLVED, pursuant to the authority granted it by the shareholders, the Board of Directors authorizes the creation, issuance and sale by this Company of 2002B Convertible Preferred Stock at a price of $32.00 per share.

RESOLVED, that the 2002B Convertible Preferred Stock, shall consist of no more than Forty Thousand (40,000) shares of par value of Thirty-two and No/100 Dollars ($32.00) per share. The preferences, qualifications, limitations and special or relative rights in respect to shares of 2002B Convertible Preferred Stock are as follows:

(a) Except as this paragraph otherwise provides, the 2002B Convertible Preferred Stock will have no voting rights. As long as any shares of the 2002B Convertible Preferred Stock are outstanding, the Corporation shall not, without the consent of a majority of the holders of the 2002B Convertible Preferred Stock then outstanding, (i) create or authorize any additional shares or additional series of shares ranking prior to or on a parity with the 2002B Convertible Preferred Stock; (ii) amend, alter or repeal any of the express terms of the 2002B Convertible Preferred Stock.

(b) The rights of the holders of 2002B Convertible Preferred Stock are subordinate to the rights of the holders of Convertible Preferred Stock, the 2002 Convertible Preferred Stock and the 2002A Convertible Preferred Stock except to the extent that holders of 2002B Convertible Preferred Stock are entitled to cumulative dividends and the holders of Convertible Preferred Stock are not entitled to cumulative dividends.

(c) The holders of 2002B Convertible Preferred Stock shall be entitled to receive, out of funds at the time legally available for payments of dividends under the General Business Corporation Act of Kansas, a cumulative dividend in cash at the rate of Nine Percent (9%) of the liquidation value of such stock per share per annum payable, if, as and when determined by the Board of Directors, due and payable on March 31, June 30, September 30, and December 31 of each year, after any dividend shall be set apart or paid on the Convertible Preferred Stock for the current fiscal year and after any dividend shall be set apart or paid on the 2002 Convertible Preferred Stock and 2002A Convertible Preferred Stock for the current and prior fiscal years but before any dividend shall be set apart or paid on Undesignated Preferred Stock or the Common Stock in and for any fiscal year of the Corporation.

(d) On or prior to May 15, 2002, the holders of 2002B Convertible Preferred Stock shall have the right, at their option, to convert all or part of their 2002B Convertible Preferred Stock holdings to Common Stock. In the event that the holders of 2002B Convertible Preferred Stock elect to convert their shares to Common Stock, one share of 2002B Convertible Preferred Stock shall be exchanged for one share of Common Stock. The conversion of shares shall occur immediately upon written notice to the Corporation.

(e) On or prior to May 15, 2002 and upon the occurrence of: (i) the issuance of Common Stock for a price per share less than the current fair market value of such shares; (ii) the issuance of rights or options to purchase Common Stock or issuance of securities convertible into Common Stock where the exercise or conversion price is less then the fair market value of such shares; (iii) stock dividends; (iv) stock splits, the Corporation shall appoint a firm of independent certified public accountants, which shall give their opinion upon the adjustment, if any, which must be made in the number of shares of Common Stock for which 2002B Convertible Preferred Stock shall be convertible, necessary to preserve, without dilution, the conversion rights of the holders of 2002B Convertible Preferred Stock. Upon receipt of such opinion, the Corporation shall forthwith make the adjustments described therein.

(f) After May 15, 2002, the 2002B Convertible Preferred Stock shall be subject to redemption at the option of the Corporation at a redemption value of Thirty Five and 20/100 Dollars ($35.20) per share on any dividend payment date.

(g) In the case of liquidation or dissolution of the Corporation, the holders of the 2002B Convertible Preferred Stock shall be entitled to be paid in full the liquidation value (Thirty Two Dollars ($32.00) per share) of their shares after payment of full liquidation value to the holders of Convertible Preferred Stock, 2002 Convertible Preferred Stock and 2002A Convertible Preferred Stock, and before any amounts shall be paid to the holders of the Undesignated Preferred Stock and/or Common Stock, but on any such liquidation or dissolution after the payment to the holders of Convertible Preferred Stock, 2002 Convertible Preferred Stock, 2002A Convertible Preferred Stock and 2002B Convertible Preferred Stock of the liquidation value thereof, the remaining assets of the Corporation shall be divided and paid to the holders of Undesignated Preferred Stock and the Common Stock according to their respective interests set forth herein, or with respect to the Undesignated Preferred Stock, as the Board of Directors may determine in its sole discretion.

RESOLVED, that it is advisable and in the best interest of this Company that its 2002B Convertible Preferred Shares be qualified or registered for sale in the State of Kansas; that the President, Chief Executive Officer, the Secretary or either of them, is hereby authorized to determine the jurisdictions in which appropriate action shall be taken to qualify or register for sale all or such part of said securities of this Company as such officers may deem advisable; that such officers are hereby authorized to perform on behalf of this Company any and all such acts as they may deem necessary or advisable in order to comply with the applicable laws of any such jurisdictions, and in connection therewith to execute and file all requisite papers and documents, including, but not limited to, applications, reports, surety bonds, irrevocable consents and appointments of attorneys for service of processes; and that the execution by such officers of any such papers or documents or the doing by them of any act in connection with the foregoing matters shall conclusively establish their authority therefore from this Company and the approval and ratification by the Company of the instruments and documents so executed and the action so taken.

RESOLVED, that the President, Chief Executive Officer, the Secretary, or any of them, is hereby authorized and directed to execute, acknowledge, verify, deliver, file and/or publish in the name and on behalf of this Company and under its corporate seal, attested by its Secretary or otherwise, any and all applications, reports, statements, issuer’s covenants, resolutions, consents to service of process, powers of attorney, appointments, designations, waivers of hearing, bonds, and such other documents and instruments as may be required, appropriate or advisable under the Blue Sky Laws or securities acts of such jurisdictions as such officers or any one of them may deem necessary, appropriate or advisable for the purpose of registering, qualifying, exempting and/or permitting the issue of sale by the Company of the Shares and/or for the purpose of qualifying, registering, licensing and/or exempting this Company as a dealer or broker in connection with the sale of such securities, and to make any and all payments of examination, filing, registration and/or other fees, costs, and expenses and to take any and all further action which such officers or any one or more of them deem necessary or advisable in connection with any of the foregoing.

RESOLVED, that each of the officers of this Company is hereby authorized to take all such steps and do all such acts and things as they or any one or more of them shall deem necessary or advisable to proceed with the plan as presented to this Board of Directors, including, but not limited to, the making of any and all payments, the making and execution of any necessary or advisable instruments, certificates, affidavits, or other documents in connection therewith, the signing and endorsement of any checks, the posting of any bonds, and the payment of any fees in such connection, and from time to time to take any and all action to make, execute, verify and file all applications, certificates, documents, or other instruments and to do any and all acts and things which any one or more of them shall deem necessary, advisable, or appropriate in order to carry out the intent and purpose of any and all the foregoing resolutions.

IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written Consent of the Board of Directors (which may be executed separately, each of which shall be deemed an original, but all of

which together shall constitute one and the same instrument) to be filed as part of the record of the Company as of the 21^st day of January 2002.

/s/ Robert Orr

Robert Orr

/s/ Leland Orr

Leland Orr

/s/ Michael Hess

Michael Hess

/s/ Derrol D. Hubbard

Derrol Hubbard

/s/ John Allen

John Allen

EX-3.4

Exhibit 3.4

[BROOKE LOGO]

“A Family of Financial Services”

CERTIFICATE OF DESIGNATION

PURSUANT to K.S.A. 17-6401(g) and K.S.A. 17-6003 Brooke Corporation is providing the following information with regard to its issue of 2002B Convertible Preferred Stock.

NUMBER OF SHARES:

40,000 Preferred Shares have been approved for issue by Brooke’s Board of Directors from 389,000 “Undesignated Stock” originally authorized by Brooke shareholders and directors. The issue will be designated as “2002B Convertible Preferred Stock”. Registration with the Kansas Office of the Security Commissioner will be sought for this issue with following information:

Description of Securities	Offering Price		Total Offering Shares or Units	Amount		Shares or Units	Amount
2002B Convertible Preferred Stock	$	32.00	31,250	$	1,000,000	31,250	$	1,000,000

SIGNATURES:

/s/ Michael Hess

Michael Hess

President, Brooke Corporation

/s/ Anita Larson

Anita Larson

Secretary

2002 JAN 25 PM 4:24

FILED

SECRETARY OF STATE

KANSAS

P.O. Box 42008, Kansas City, MO 64141-2008

Phone: (913) 661-0123 Fax: (913) 451-3183

UNANIMOUS WRITTEN CONSENT

OF THE

MINUTES OF THE MEETING OF

THE BOARD OF DIRECTORS OF BROOKE CORPORATION

January 21, 2002

The undersigned being all of the members of the Board of Directors of Brooke Corporation, a Kansas Corporation, do hereby unanimously consent to, ratify, approve and adopt as of the date hereof, the following to be given the same force and effect as if unanimously consented to, ratified, approved and adopted at a special meeting of the Board of Directors of the Company, called by the President and duly held and attended by all such members.

WHEREAS, during a special meeting of the shareholders held on February 27, 2001, the Company’s shareholders authorized 399,000 shares of undesignated preferred stock.

WHEREAS, at this meeting the shareholders authorized the board to determine, in its sole discretion, the designations, preferences, conversion rights, and cumulative, relative, participating and other rights including voting rights, qualifications, limitation or restrictions thereof.

WHEREAS, pursuant to shareholder approval, the board is entitled to authorize the creation and issuance of 399,000 shares of preferred stock in series with such limitations and restrictions as may be determined in the sole discretion of the Board of Directors without further authorization by the Company’s stockholders.

WHEREAS, on February 27, 2001, the Company registered 100,000 shares of its 2002 Convertible Preferred Stock with the Kansas Securities Commissioner;

WHEREAS, the sales of 2002 Convertible Preferred Stock have exceeded the amount registered with the Kansas Securities Commissioner and authorized by the Company;

WHEREAS, the Board of Directors believes that the authorization and issuance of 10,000 shares of preferred stock with terms and conditions similar to the 2002 Convertible Preferred Stock to sell to individuals to which the 2002 Convertible Preferred Stock was sold but for which the 2002 Convertible Preferred Stock is not available for issuance is in the best interest of the Company and its stockholders and believes it is advisable to authorize such shares to have them available for such individuals;

THEREFORE, BE IT RESOLVED, pursuant to the authority granted it by the shareholders, the Board of Directors authorizes the creation, issuance and sale by this Company of 10,000 shares of 2002A Convertible Preferred Stock with the same par value, designations, preferences, conversion rights, purpose and cumulative, relative, participating and other rights including voting rights, qualifications, limitation or restrictions thereof as the Company’s 2002 Convertible Preferred Stock except the 2002A Convertible Preferred Stock shall be subordinate to the 2002 Convertible Preferred Stock;

WHEREAS, the board adopted a resolution on January 15, 2002 in the form attached hereto;

WHEREAS, no Certificate of Designations of the shares referenced in such resolution has been filed with the State of Kansas, no such shares have been issued, and no such shares have been registered;

WHEREAS, pursuant to K.S.A 17-6401, if no shares of the convertible preferred stock referenced in the resolution have been issued, the Board may adopt a resolution amending the voting powers, designations, preferences and relative, participating, option or other rights, if any, or the qualifications, limitations or restrictions thereof;

WHEREAS, the Board deems it advisable and necessary to take action to amend the terms and conditions of the convertible preferred stock referenced in the attached resolution to accommodate the authorization, issuance and registration of 10,000 shares of 2002A Convertible Preferred Stock;

RESOLVED, pursuant to the authority granted it by the shareholders, the Board of Directors authorizes the creation, issuance and sale by this Company of 2002B Convertible Preferred Stock at a price of $32.00 per share.

RESOLVED, that the 2002B Convertible Preferred Stock, shall consist of no more than Forty Thousand (40,000) shares of par value of Thirty-two and No/100 Dollars ($32.00) per share. The preferences, qualifications, limitations and special or relative rights in respect to shares of 2002B Convertible Preferred Stock are as follows:

(a) Except as this paragraph otherwise provides, the 2002B Convertible Preferred Stock will have no voting rights. As long as any shares of the 2002B Convertible Preferred Stock are outstanding, the Corporation shall not, without the consent of a majority of the holders of the 2002B Convertible Preferred Stock then outstanding, (i) create or authorize any additional shares or additional series of shares ranking prior to or on a parity with the 2002B Convertible Preferred Stock; (ii) amend, alter or repeal any of the express terms of the 2002B Convertible Preferred Stock.

(b) The rights of the holders of 2002B Convertible Preferred Stock are subordinate to the rights of the holders of Convertible Preferred Stock, the 2002 Convertible Preferred Stock and the 2002A Convertible Preferred Stock except to the extent that holders of 2002B Convertible Preferred Stock are entitled to cumulative dividends and the holders of Convertible Preferred Stock are not entitled to cumulative dividends.

(c) The holders of 2002B Convertible Preferred Stock shall be entitled to receive, out of funds at the time legally available for payments of dividends under the General Business Corporation Act of Kansas, a cumulative dividend in cash at the rate of Nine Percent (9%) of the liquidation value of such stock per share per annum payable, if, as and when determined by the Board of Directors, due and payable on March 31, June 30, September 30, and December 31 of each year, after any dividend shall be set apart or paid on the Convertible Preferred Stock for the current fiscal year and after any dividend shall be set apart or paid on the 2002 Convertible Preferred Stock and 2002A Convertible Preferred Stock for the current and prior fiscal years but before any dividend shall be set apart or paid on Undesignated Preferred Stock or the Common Stock in and for any fiscal year of the Corporation.

(d) On or prior to May 15, 2002, the holders of 2002B Convertible Preferred Stock shall have the right, at their option, to convert all or part of their 2002B Convertible Preferred Stock holdings to Common Stock. In the event that the holders of 2002B Convertible Preferred Stock elect to convert their shares to Common Stock, one share of 2002B Convertible Preferred Stock shall be exchanged for one share of Common Stock. The conversion of shares shall occur immediately upon written notice to the Corporation.

(e) On or prior to May 15, 2002 and upon the occurrence of: (i) the issuance of Common Stock for a price per share less than the current fair market value of such shares; (ii) the issuance of rights or options to purchase Common Stock or issuance of securities convertible into Common Stock where the exercise or conversion price is less then the fair market value of such shares; (iii) stock dividends; (iv) stock splits, the Corporation shall appoint a firm of independent certified public accountants, which shall give their opinion upon the adjustment, if any, which must be made in the number of shares of Common Stock for which 2002B Convertible Preferred Stock shall be convertible, necessary to preserve, without dilution, the conversion rights of the holders of 2002B Convertible Preferred Stock. Upon receipt of such opinion, the Corporation shall forthwith make the adjustments described therein.

(f) After May 15, 2002, the 2002B Convertible Preferred Stock shall be subject to redemption at the option of the Corporation at a redemption value of Thirty Five and 20/100 Dollars ($35.20) per share on any dividend payment date.

(g) In the case of liquidation or dissolution of the Corporation, the holders of the 2002B Convertible Preferred Stock shall be entitled to be paid in full the liquidation value (Thirty Two Dollars ($32.00) per share) of their shares after payment of full liquidation value to the holders of Convertible Preferred Stock, 2002 Convertible Preferred Stock and 2002A Convertible Preferred Stock, and before any amounts shall be paid to the holders of the Undesignated Preferred Stock and/or Common Stock, but on any such liquidation or dissolution after the payment to the holders of Convertible Preferred Stock, 2002 Convertible Preferred Stock, 2002A Convertible Preferred Stock and 2002B Convertible Preferred Stock of the liquidation value thereof, the remaining assets of the Corporation shall be divided and paid to the holders of Undesignated Preferred Stock and the Common Stock according to their respective interests set forth herein, or with respect to the Undesignated Preferred Stock, as the Board of Directors may determine in its sole discretion.

RESOLVED, that it is advisable and in the best interest of this Company that its 2002B Convertible Preferred Shares be qualified or registered for sale in the State of Kansas; that the President, Chief Executive Officer, the Secretary or either of them, is hereby authorized to determine the jurisdictions in which appropriate action shall be taken to qualify or register for sale all or such part of said securities of this Company as such officers may deem advisable; that such officers are hereby authorized to perform on behalf of this Company any and all such acts as they may deem necessary or advisable in order to comply with the applicable laws of any such jurisdictions, and in connection therewith to execute and file all requisite papers and documents, including, but not limited to, applications, reports, surety bonds, irrevocable consents and appointments of attorneys for service of processes; and that the execution by such officers of any such papers or documents or the doing by them of any act in connection with the foregoing matters shall conclusively establish their authority therefore from this Company and the approval and ratification by the Company of the instruments and documents so executed and the action so taken.

RESOLVED, that the President, Chief Executive Officer, the Secretary, or any of them, is hereby authorized and directed to execute, acknowledge, verify, deliver, file and/or publish in the name and on behalf of this Company and under its corporate seal, attested by its Secretary or otherwise, any and all applications, reports, statements, issuer’s covenants, resolutions, consents to service of process, powers of attorney, appointments, designations, waivers of hearing, bonds, and such other documents and instruments as may be required, appropriate or advisable under the Blue Sky Laws or securities acts of such jurisdictions as such officers or any one of them may deem necessary, appropriate or advisable for the purpose of registering, qualifying, exempting and/or permitting the issue of sale by the Company of the Shares and/or for the purpose of qualifying, registering, licensing and/or exempting this Company as a dealer or broker in connection with the sale of such securities, and to make any and all payments of examination, filing, registration and/or other fees, costs, and expenses and to take any and all further action which such officers or any one or more of them deem necessary or advisable in connection with any of the foregoing.

RESOLVED, that each of the officers of this Company is hereby authorized to take all such steps and do all such acts and things as they or any one or more of them shall deem necessary or advisable to proceed with the plan as presented to this Board of Directors, including, but not limited to, the making of any and all payments, the making and execution of any necessary or advisable instruments, certificates, affidavits, or other documents in connection therewith, the signing and endorsement of any checks, the posting of any bonds, and the payment of any fees in such connection, and from time to time to take any and all action to make, execute, verify and file all applications, certificates, documents, or other instruments and to do any and all acts and things which any one or more of them shall deem necessary, advisable, or appropriate in order to carry out the intent and purpose of any and all the foregoing resolutions.

IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written Consent of the Board of Directors (which may be executed separately, each of which shall be deemed an original, but all of

which together shall constitute one and the same instrument) to be filed as part of the record of the Company as of the 21^st day of January 2002.

/s/ Robert Orr

Robert Orr

/s/ Leland Orr

Leland Orr

/s/ Michael Hess

Michael Hess

/s/ Derrol D. Hubbard

Derrol Hubbard

/s/ John Allen

John Allen

EX-3.5

Exhibit 3.5

[BROOKE LOGO]

“A Family of Financial Services”

CERTIFICATE OF DESIGNATION

PURSUANT to K.S.A. 17-6401(g) and K.S.A. 17-6003 Brooke Corporation is providing the following information with regard to its issue of 2003 Convertible Preferred Stock.

NUMBER OF SHARES:

200,000 Preferred Shares have been approved for issue by Brooke’s Board of Directors from 399,000 “Undesignated Stock” originally authorized by Brooke shareholders and directors. The issue will be designated as “2003 Convertible Preferred Stock”. Registration with the Kansas Office of the Security Commissioner will be sought for this issue with following information:

Description of Securities	Offering Price		Total Offering Shares or Units	Amount		Shares or Units	Amount
2003 Convertible Preferred Stock	$	50.00	200,000	$	10,000,000	200,000	$	10,000,000

SIGNATURES:

/s/ Michael Hess

Michael Hess

President, Brooke Corporation

/s/ Anita Larson

Anita Larson

Secretary

’03 MAY 1 PM 4:15

FILED

SECRETARY OF STATE

KANSAS

CORPORATE AUTHORIZATION RESOLUTION

BROOKE CORPORATION

I, Anita Larson, certify that I am Secretary of the above named corporation organized under the laws of Kansas and that the resolution on this document is a correct copy of the resolution adopted at a meeting of the Board of Directors of the Corporation duly and properly called and held on February 18, 2003. This resolution appears in the minutes of this meeting and have not been rescinded or modified.

WHEREAS, during a special meeting of the shareholders held on February 27, 2001, the Company’s shareholders authorized 399,000 shares of undesignated preferred stock.

WHEREAS, at such meeting the shareholders authorized the board to determine, in its sole discretion, the designations, preferences, conversion rights, and cumulative, relative, participating and other rights including voting rights, qualifications, limitation or restrictions thereof.

WHEREAS, pursuant to shareholder approval, the board is entitled to authorize the creation and issuance of shares of preferred stock in series with such limitations and restrictions as may be determined in the sole discretion of the Board of Directors without further authorization by the Company’s stockholders.

WHEREAS, the Board of Directors believes that the authorization and issuance of an additional $10,000,000 of preferred stock is in the best interest of the Company and its stockholders and believes it is advisable to authorize such shares to have them available for, among other things, corporate acquisitions.

WHEREAS, proceeds will be used to make investments, which may include the acquisition of insurance agencies for inventory, corporate acquisitions, or other investments, including temporary investments in loans originated by the Company’s finance company subsidiary, Brooke Credit Company.

RESOLVED, pursuant to the authority granted it by the shareholders, the Board of Directors hereby authorizes the creation, issuance and sale by this Company of 2003 Convertible Preferred Stock at a price of $50.00 per share.

RESOLVED, that the 2003 Convertible Preferred Stock, shall consist of no more than Two Hundred Thousand (200,000) shares of par value of Fifty and No/100 Dollars ($50.00) per share. The preferences, qualifications, limitations and special or relative rights in respect to shares of 2003 Convertible Preferred Stock are as follows:

(a) Except as this paragraph otherwise provides, the 2003 Convertible Preferred Stock will have no voting rights. As long as any shares of the 2003 Convertible Preferred Stock are outstanding, the Corporation shall not, without the consent of a majority of the holders of the 2003 Convertible Preferred Stock then outstanding, (i) create or authorize any additional shares or additional series of shares ranking prior to or on a parity with the 2003 Convertible Preferred Stock; (ii) amend, alter or repeal any of the express terms of the 2003 Convertible Preferred Stock.

(b) The rights of the holders of 2003 Convertible Preferred Stock are subordinate to the rights of the holders of Convertible Preferred Stock, the 2002 Convertible Preferred Stock, the 2002A Convertible Preferred Stock, and the 2002B Convertible Preferred Stock except to the extent that holders of 2003 Convertible Preferred Stock are entitled to cumulative dividends and the holders of Convertible Preferred Stock are not entitled to cumulative dividends.

(c) The holders of 2003 Convertible Preferred Stock shall be entitled to receive, out of funds at the time legally available for payments of dividends under the General Business Corporation Act of Kansas, a cumulative dividend in cash at the rate of up to [ten] Percent [(10%)] of the liquidation value of such stock per share per annum payable, if, as and when determined by the Board of Directors, due and payable on March 31, June 30, September 30, and December 31 of each year, after any dividend shall be set apart or paid on the Convertible Preferred Stock for the current fiscal year and after any dividend shall be set apart or paid on the 2002 Convertible Preferred Stock, 2002A Convertible Preferred Stock and 2002B Convertible Preferred Stock for the current and prior fiscal years but before any dividend shall be set apart or paid on Undesignated Preferred Stock or the Common Stock in and for any fiscal year of the Corporation.

(d) On or prior to April 15, 2004 the holders of 2003 Convertible Preferred Stock shall have the right, at their option, to convert all or part of their 2003 Convertible Preferred Stock holdings to Common Stock. In the event that the holders of 2003 Convertible Preferred Stock elect to convert their shares to Common Stock, one share of 2003 Convertible Preferred Stock shall be exchanged for five shares of Common Stock. The conversion of shares shall occur immediately upon written notice to the Corporation.

(e) On or prior to April 15, 2004 and upon the occurrence of: (i) the issuance of Common Stock for a price per share less than the current fair market value of such shares; (ii) the issuance of rights or options to purchase Common Stock or issuance of securities convertible into Common Stock where the exercise or conversion price is less then the fair market value of such shares; (iii) stock dividends; or (iv) stock splits, the Corporation shall appoint a firm of independent certified public accountants, which shall give their opinion upon the adjustment, if any, which must be made in the number of shares of Common Stock for which 2003 Convertible Preferred Stock shall be convertible, necessary to preserve, without dilution, the conversion rights of the holders of 2003 Convertible Preferred Stock. Upon receipt of such opinion, the Corporation shall forthwith make the adjustments described therein.

(f) After April 15, 2004, the 2003 Convertible Preferred Stock shall be subject to redemption at the option of the Corporation at a redemption value of Fifty-two and 50/100 Dollars ($52.50) per share on any dividend payment date.

(g) In the case of liquidation or dissolution of the Corporation, the holders of the 2003 Convertible Preferred Stock shall be entitled to be paid in full the liquidation value (Fifty Dollars ($50.00) per share) of their shares after payment of full liquidation value to the holders of Convertible Preferred Stock, 2002 Convertible Preferred Stock, 2002A Convertible Preferred Stock, and 2002B Convertible Preferred Stock and before any amounts shall be paid to the holders of the Undesignated Preferred Stock and/or Common Stock, but on any such liquidation or dissolution after the payment to the holders of Convertible Preferred Stock, 2002 Convertible Preferred Stock, 2002A Convertible Preferred Stock, 2002B Convertible Preferred Stock and 2003 Convertible Preferred Stock of the liquidation value thereof, the remaining assets of the Corporation shall be divided and paid to the holders of Undesignated Preferred Stock and the Common Stock according to their respective interests set forth herein, or with respect to the Undesignated Preferred Stock, as the Board of Directors may determine in its sole discretion.

RESOLVED, that the Company is authorized to engage a placement agent to facilitate the sale of such 2003 Convertible Preferred Stock;

RESOLVED, that it is desirable and in the best interest of the Company that the 2003 Convertible Preferred Stock be qualified or registered for sale in various states; that the president, or any vice president and the secretary or any assistant secretary hereby are authorized to determine the states in which appropriate actions shall be taken to qualify or register for sale all or such part of the

2003 Convertible Preferred Stock of this Company as said officers may deem advisable; that said officers are hereby authorized to perform on behalf of this Company any and all such acts as they deem necessary or advisable in order to comply with the applicable laws of any such states, and in connection therewith to execute and file all requisite papers and documents, including, but not limited to, applications, reports, surety bonds, powers of attorneys, irrevocable consents and appointments of attorneys for service of process; and the execution by such officers of any such paper or document or the doing by them of any act in connection with the foregoing matters shall conclusively establish their authority from this Company and the approval and ratification by this Company of the papers and documents so executed and the action so taken;

RESOLVED, that the registration of the 2003 Convertible Preferred Stock on Form SB-2 or such other form recommended by counsel is authorized and ratified;

RESOLVED, that each of the officers of this Corporation is hereby authorized to take all such steps and do all such acts and things as they and any one or more of them shall deem necessary or advisable to proceed with the offering of up to $10,000,000 of 2003 Convertible Preferred Stock, and to do any and all acts and things which any one or more of them shall deem necessary, advisable or appropriate in order to carry out the intent and purpose of this resolution including, but not limited to, the making of any and all payments, the making and execution of any necessary or advisable instruments, certificates, affidavits, or other documents in connection therewith, the signing and endorsement of any checks, the posting of any bonds, and the payment of any fees in such connection, and from time to time to take any and all action to make, execute, verify and file all applications, certificates, documents, or other instruments and to do any and all acts and things which any one or more of them shall deem necessary, advisable, or appropriate in order to carry out the intent and purpose of any and all the foregoing resolutions.

RESOLVED, that the Board of Directors reserves the right to redesignate the unsold shares.

/s/ Anita Larson

Anita Larson, Secretary

EX-4.4

Exhibit 4.4

ADDENDUM

TO

INDENTURE

OF

JULY 31, 1997

Between

Brooke Credit Corporation and First National Bank and Trust

Now on this 20th day of November, 2000, comes Brooke Credit Corporation, a corporation duly organized and existing under the laws of the State of Kansas (hereinafter called the “Company”), having a principal office in Phillipsburg, Kansas and First National Bank and Trust, a national banking association, having its principal corporate office at 225 State Street, Phillipsburg, Kansas 67661, and authorized to accept and execute trusts (hereinafter referred to as “Trustee”) and do hereby, amend the Indenture Agreement dated July 31, 1997, pursuant to the authority contained in Article 12.01 of said agreement, as follows:

Pursuant to the authority of Article 12.01 (d), the terms and provisions of such Trust Agreement and all amendments thereto, are hereby extended to an additional series of bonds, denominated Series 200F, in the total principal sum of $5,000,000 and denominations of $5,000.00 with interest payable semi-annually on January 1st and July 1st of each year, commencing on January 1, 2001, at the rate of 9.125% per annum and maturing on July 1, 2004.

IN WITNESS WHEREOF, Brooke Credit Corporation, the Company, has caused this Addendum to be signed by its President and its corporate seal to be affixed hereunto and attested by its Chairman, and First National Bank and Trust, Trustee, has caused this Addendum to be signed by its Trust Officer and its corporate seal to be affixed hereunto and attested by its Secretary, all as of the day and year first above written.

Brooke Credit Corporation
By:	/s/ Leland G. Orr
	Leland G. Orr, President

(Corporate Seal)

Attest:

/s/ Robert D. Orr

Robert D. Orr, Chairman & CEO

First National Bank and Trust
By:	/s/ David C. Cooper
	David C. Cooper	(name)
	Trust Officer	(title)

(Corporate Seal)

Attest:

/s/ Stacye Redlinger

Secretary

EX-4.5

Exhibit 4.5

ADDENDUM

TO

INDENTURE

OF

JULY 31, 1997

Between

Brooke Credit Corporation and First National Bank and Trust

Now on this 25^th day of June, 2001, comes Brooke Credit Corporation, a corporation duly organized and existing under the laws of the State of Kansas (hereinafter called the “Company”), having a principal office in Phillipsburg, Kansas and First National Bank and Trust, a national banking association, having its principal corporate office at 225 State Street, Phillipsburg, Kansas 67661, and authorized to accept and execute trusts (hereinafter referred to as “Trustee”) and do hereby, amend the Indenture Agreement dated July 31, 1997, pursuant to the authority contained in Article 12.02 of said agreement as follows:

Pursuant to the authority of Article 12.02, the provisions of Section 4.04 of said Indenture Agreement is hereby modified by adding the following sentences: “The Trustee is specifically authorized to accept as security, promissory notes payable to the Company by Brooke Corporation. Furthermore, the Trustee is specifically authorized to accept as security accounts and commissions receivables from Brooke Corporation.”

IN WITNESS WHEREOF, Brooke Credit Corporation, the Company, has caused this Addendum to be signed by its President and its corporate seal to be affixed hereunto and attested by its Chairman, and First National Bank and Trust, Trustee, has caused this Addendum to be signed by its Trust Officer and its corporate seal to be affixed hereunto and attested by its Secretary, all as of the day and year first above written.

Brooke Credit Corporation
By	/s/ Leland G. Orr
	Leland G. Orr, President

(Corporate Seal)

Attest:

/s/ Robert D. Orr

Robert D. Orr, Chairman & CEO

	First National Bank and Trust
(Corporate Seal)	By:	/s/ David C. Cooper
		David C. Cooper         (name)
Attest:		Trust Officer                (title)
/s/ Stacye Redlinger
Secretary

EX-4.8

Exhibit 4.8

No.                     $5,000.00

BROOKE CREDIT CORPORATION

9.125% BOND SERIES 2000F DUE JULY 1, 2004

BROOKE CREDIT CORPORATION, a corporation duly organized and existing under the laws of the State of Kansas (hereinafter referred to as the “Company”), for value received, hereby promises to pay the registered holder hereof, the principal sum of

FIVE THOUSAND DOLLARS ($5,000.00)

On the 1^st day of July, 2004, in such coin or currency of the United States of America at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest thereon at the last known address of the registered holder from the date hereof at the rate of nine and one-hundred twenty-five thousandths percent (9.125%) per annum, semi-annually on January 1^st and July 1^st of each year, commencing on January 1, 2001 or the next payment date following issue if issued thereafter.

This bond is one of a duly authorized issue of bonds of the Company limited to the aggregate principal amount of $5,000,000.00 issued or to be issued. The Company covenants not to pay dividends to its stockholders, except as to bondholders, not voluntarily secure or otherwise encumber Company’s assets; not to issue any bonds debentures or notes senior to this issue, although it may issue bonds of equal seniority, not hold assets acquired through foreclosure for more than thirty-six (36) months; and not use bonds proceeds for any purposes other than funding loans or purchasing accounts and commissions receivables, nor to redeem stock of the Company. Principal shall not be paid until maturity and are not, therefore, callable by the Company and are not puttable by the holder.

This bond may be registered as to principal, in the holder’s name, on the books of the Company, at its office such registration being noted hereon, after which no transfer hereof shall be valid unless made at the Company’s office by the registered holder hereof, or by the holder’s attorney-in-fact duly authorized in writing and similarly noted hereon.

Payment to the registered holder hereof of principal or interest shall be a complete discharge of the Company’s liability with respect such payment.

No Recourse shall be had for the payment of the principal of, or interest upon this bond, or for any claim based thereon or otherwise against any incorporator, shareholder, officer, director or attorney, past, present or future, of the Company, whether by virtue of any constitution, statute, rule of law, enforcement of any assessment or penalty or by reason of any matter prior to the delivery of this note or otherwise, all such liability, by the acceptance hereof and as part of the consideration of the issue hereof, being expressly waived.

This Bond is one of an authorized issue of Bonds of the Company, all issued and to be issued under an Indenture executed by the Company to the First National Bank & Trust Company, Phillipsburg, Kansas, as Trustee, dated as of July 31, 1997, to which Indenture reference is hereby made for a description of the rights, obligations, duties and immunities thereunder of the Trustee and the rights and limitations of rights thereunder of the bondholders, and the rights and obligations thereunder of the Company. As provided in the Indenture, said Bonds will be issued in denominations of $5,000, may bear interest at the different rates and have different maturity dates.

ALTHOUGH REGISTERED UNDER STATE SECURITIES LAWS, THIS BOND HAS NOT BEEN REGISTERED UNDER FEDERAL LAW PURSUANT TO CERTAIN EXEMPTIONS THEREUNDER. THIS BOND HAS NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY, AND NO REGULATORY BODY HAS PASSED UPON OR ENDORSED THE ACCURACY, ADEQUACY OR COMPLETENESS OF THIS BOND. THIS BOND MAY NOT BE SOLD, GYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. AS AMENDED (THE “SECURITIES ACT”) AND APPLICABLE STATE SECURITIES LAWS OR IN THE OPINION OF COUNSEL TO THE COMPANY AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND STATE SECURITIES LAWS IS AVAILABLE. TRANSFER OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTION. PRIOR TO THE DATE NINE MONTHS FROM THE DATE OF THE LAST SALE OF SECURITIES OF THE ISSUE OF WHICH THIS SECURITY IS A PART, NO TRANSFERS, SALES OR ASSIGNMENTS OF THE SECURITY OR ANY INTEREST THEREIN SHALL OCCUR TO NON-RESIDENTS OF THE STATE OF KANSAS.

IN WITNESS WHEREOF, the Company has signed and sealed this Bond on this      day of             , 20    

	BROOKE CREDIT CORPORATION
	BY:
SEAL		President
	Attest:
		Secretary
The First National Bank & Trust Co., Phillipsburg, Kansas, hereby authenticates this bond as one of the Bonds described in the within mentioned Indenture.
	By:
		Authorized Officer

BROOKE CREDIT CORPORATION

CONFIRMATION OF OFFER TO PURCHASE

Offer to Purchase The undersigned (the Purchaser) hereby offers to purchase bonds of Brooke Credit Corporation, a Kansas corporation (the Company), under the terms of this agreement (Agreement) and the Prospectus dated December 18, 2000 (Prospectus). Purchaser understands that the Bonds are offered subject to prior sale and to withdrawal, cancellation or modification of the offer and subject to the right of the Company to reject this offer in whole or in part.

2. Representations by Purchaser The Purchaser hereby represents to the Company that:

a. The bonds for which this offer is made will be acquired solely for the Purchaser’s own account for investment and not on behalf of other persons and not with a view to or for resale, fractionalization, division, or distribution thereof, or grant of any participation therein, and it has no present intent of distributing or selling to any other person any of the Bonds or granting any participation therein;

b. The Purchaser will not sell, transfer or otherwise dispose of all or any part of the Bonds without receipt of an unqualified opinion of counsel acceptable to the Company that neither the transfer nor any offering in connection therewith was required to be registered under either the Securities Act of 1933, as amended (the Act) or any applicable state securities laws if such an opinion is required by the Company.

c. The Purchaser is aware that currently no public market exists for the sale of the bonds and that no public market is expected to develop as a result of this offering, and that for nine months from and after purchase, it may sell or dispose of the Bonds only to another resident of the state of Kansas, and that it understands that its right to transfer the Bonds will be so restricted as set forth in the Prospectus.

d. The Purchaser is aware of each certificate evidencing the Bonds will contain conspicuous legend referencing the transfer restrictions imposed by the securities laws as set forth in the Prospectus and agrees that a stop transfer order shall be placed on the transfer books maintained with respect to the Bonds which gives effect to such transfer restrictions.

e. The Purchaser recognizes that an investment in the Bonds involves risks, including those set forth under the caption “Risk Factors” in the Prospectus, and that Subscriber understands such risk;

f. The Purchaser has received a copy of the prospectus dated December 18, 2000.

g. The Purchaser has such knowledge and experience in business and financial matters as to be capable of evaluating the Company and the proposed activities thereof and the risks and merits of an investment in the Bond and making an informed investment decision thereon;

h. The Purchaser certifies that (i) no other person has any direct or indirect beneficial interest in the Bonds, (ii) it is not acting as an underwriter or directly or indirectly participating in any underwriting of the Bonds, (iii) it has not formed any entity for the purpose of making the investments in the Bonds, and (iv) it does not have any contract, undertaking, agreement, arrangement or understanding with any person which is contrary to the representations, warranties and agreements contained herein.

i. The Purchaser has not distributed the Prospectus to anyone other than the Purchaser or its advisors, if any, had access to the Prospectus nor has Purchaser made any copies of the Prospectus.

j. Purchaser is an adult resident of the state of Kansas and has been a resident of Kansas for nine (9) or more months immediately proceeding the purchase hereof.

k. The Purchaser has a net worth, exclusive of personal residence, furnishings and automobiles, of at least $100,000 or an annual income of at least $50,000 and the principal amount of bonds purchased does not exceed 10% of net worth, exclusive of personal residence, furnishings and automobiles.

3. Additional Representations, The Purchaser is duly organized and validly existing under the laws of the state of formation, (ii) it is authorized and otherwise duly empowered to acquire and own the Bonds subscribed hereby and to execute this agreement, (iii) it was not formed for the specific purpose of acquiring an investment in the Company. (iv) this agreement is a valid and binding obligation of Purchaser, enforceable against it in accordance with its terms, and (v) it has its principal place of business within the State designated under its name below.

4. Indemnification. The Purchaser agrees to indemnify and hold harmless the Company, its officers, directors, employees, shareholders and affiliates, and any person acting on behalf of the Company, from and against any and all damage, loss, liability, cost and expense (including attorney’s fees) which any of them may incur by reason of the failure by the Purchaser to fulfill any of the terms or conditions of this agreement, or by reason of any breach of the representations and warranties made by the Purchaser herein. All representation, warranties and covenants contained in this agreement, and the indemnification contained in the Section 4 shall survive the acceptance of this agreement.

5. Verification. The Purchaser hereby authorizes the Company to verify any of the information set forth in this agreement. The Purchaser understands that it may be required to furnish additional information.

6. Applicable Law. This agreement shall be construed in accordance with and governed by the laws of the State of Kansas.

7. Binding Effect. This agreement shall be binding upon the insure to the benefit of the parties hereto, its legal representatives, successors and permitted assigns.

8. Entire Agreement; Modification. The agreement constitutes the entire agreement among the parties pertaining to the purchase of the bonds, as set forth herein, and supersedes any prior understanding, and neither this agreement nor any provisions hereof shall be waived, modified or terminated except by an instrument in writing signed by the party against whom any waiver, modification or termination is sought.

9. Assignability. The Purchaser agrees not to transfer or assign this agreement or any of the Purchaser’s interest therein.

MUST BE COMPLETED BY PURCHASER

Series and Number Bonds, the Purchaser hereby offers to purchase Bonds in the series and following principal amounts. (Must by evenly divisible by $5,000.00 as bonds are in $5,000.00 denominations)

$                    Series 200F 9.125% Bonds due July 1, 2004.

Title of Ownership. The Name in which the Bonds are to be held is:

Name:                                                                                                                       

Mailing Address                                                              City:                                

State:                                          Zip                         SSAN:                                    

Delivery Instructions. This offer must be executed by the Purchaser and forwarded to the Company at its address, 205 F Street, P.O. Box 426, Phillipsburg, KS, 67661. The principal amount for bonds purchased must be paid on the next business day following execution. Payment shall be made check or money order payable to First National Bank & Trust, Phillipsburg, KS, and attached to this confirmation. The offer by Purchaser will be deemed to have been accepted by the Company unless the Company returns said funds to purchaser prior to the conclusion of the next regular business day following receipt thereof. The Company shall deliver the bond (s) to Purchaser within thirty (30) days of receipt of this agreement.

Signature
Date
Title
	(If business entity)

EX-10.9

Exhibit 10.9

EXECUTION COPY

CREDIT AND SECURITY AGREEMENT

among

BROOKE CREDIT FUNDING, LLC,

as Borrower

BROOKE CREDIT CORPORATION,

as Seller and Subservicer

BROOKE CORPORATION,

as Master Agent Servicer and Performance Guarantor

AUTOBAHN FUNDING COMPANY LLC,

as the Lender

and

DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK,

as the Agent

Dated as of August 27, 2004

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS
Section 1.01.	Certain Defined Terms	2
Section 1.02.	Other Terms	24
Section 1.03.	Computation of Time Periods	25
ARTICLE II
THE FACILITY
Section 2.01.	Borrowings	25
Section 2.02.	Procedures for Borrowings	25
Section 2.03.	Termination, Reduction or Increase of the Borrowing Limit	25
Section 2.04.	Use of Proceeds	26
Section 2.05.	Settlement Procedures	26
Section 2.06.	Interest Rate Hedges	28
Section 2.07.	Payments and Computations, Etc.	30
Section 2.08.	Fees	31
Section 2.09.	Prepayments	31
Section 2.10.	Increased Costs; Capital Adequacy; Eurodollar Disruption Event	32
Section 2.11.	Taxes	33
Section 2.12.	Collateral Assignment of the Related Documents	34
Section 2.13.	Grant of a Security Interest	35
Section 2.14.	Releases of Collateral	36
Section 2.15.	Evidence of Debt	37
Section 2.16.	Minimum Utilization	37
ARTICLE III
CONDITIONS OF LOANS
Section 3.01.	Conditions Precedent to Initial Borrowing	37
Section 3.02.	Conditions Precedent to All Borrowings	38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01.	Representations and Warranties	39

ARTICLE V
COVENANTS
Section 5.01.	Affirmative Covenants	44
Section 5.02.	Negative Covenants	52
Section 5.03.	Financial Covenants	55
ARTICLE VI
EVENTS OF DEFAULT; MASTER AGENT SERVICER DEFAULTS; TERMINATION EVENTS
Section 6.01.	Events of Default	56
Section 6.02.	Master Agent Servicer Default	59
Section 6.03.	Termination Events	60
ARTICLE VII
THE AGENT
Section 7.01.	Authorization and Action	61
Section 7.02.	Delegation of Duties	62
Section 7.03.	Exculpatory Provisions	62
Section 7.04.	Reliance by Agent	63
Section 7.05.	Non-Reliance on Agent and Other Secured Parties	63
Section 7.06.	Agent in Its Individual Capacity	63
Section 7.07.	Successor Agent	63
ARTICLE VIII
INDEMNIFICATION
Section 8.01.	Indemnities by the Borrower	64
Section 8.02.	Indemnities by BCC and Parent	66
Section 8.03.	Other Costs and Expenses	67
ARTICLE IX
MISCELLANEOUS
Section 9.01.	Amendments and Waivers	68
Section 9.02.	Notices, Etc.	68
Section 9.03.	No Waiver; Remedies	68
Section 9.04.	Binding Effect; Assignability	69
Section 9.05.	Term of This Agreement	69

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Section 9.06.	Governing Law; Jury Waiver	69
Section 9.07.	Consent to Jurisdiction	70
Section 9.08.	Further Assurances	70
Section 9.09.	Limitation of Liability	70
Section 9.10.	No Proceedings	71
Section 9.11.	Recourse Against Certain Parties	71
Section 9.12.	Execution in Counterparts; Severability; Integration	71
Section 9.13.	Confidentiality	72
Section 9.14.	Limitation on Payments	73

LIST OF SCHEDULES AND EXHIBITS

Schedules
SCHEDULE I	ELIGIBILITY CRITERIA; PERFECTION REPRESENTATIONS
SCHEDULE II	CHIEF EXECUTIVE OFFICES; FEDERAL TAX I.D. NUMBERS; LIST OF TRUST ACCOUNTS; NAMES OF BROOKE PARTIES
SCHEDULE III	CREDIT AND COLLECTION POLICY
SCHEDULE IV	CONDITION PRECEDENT DOCUMENTS FOR THE INITIAL BORROWING
Exhibits
EXHIBIT A	FORM OF BORROWING BASE CERTIFICATE
EXHIBIT B	FORM OF COLLATERAL PRESERVATION AGREEMENT
EXHIBIT C	FORM OF FRANCHISE AGREEMENT
EXHIBIT D	FORM OF LENDER PROTECTION ADDENDUM
EXHIBIT E-1	FORM OF LOAN AGREEMENT
EXHIBIT E-2	FORM OF SECURITY AGREEMENT
EXHIBIT E-3	FORM OF FINANCING STATEMENT
EXHIBIT E-4	FORM OF PROMISSORY NOTE
EXHIBIT F	FORM OF RECEIPTS TRUST AGREEMENT
EXHIBIT G	FORM OF TRUST ACCOUNT CONTROL AGREEMENT
EXHIBIT H	FORM OF NOTE
EXHIBIT I	FORM OF COMPLIANCE CERTIFICATE

iii

THIS CREDIT AND SECURITY AGREEMENT is made as of August 27, 2004, among BROOKE CREDIT FUNDING, LLC, a Delaware limited liability company, as Borrower, BROOKE CREDIT CORPORATION, a Kansas corporation, as Seller and Subservicer, BROOKE CORPORATION, a Kansas corporation, as Master Agent Servicer and Performance Guarantor, AUTOBAHN FUNDING COMPANY LLC, a Delaware limited liability company, as the Lender, and DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, as the Agent.

PRELIMINARY STATEMENTS

A. The Borrower may from time to time request the Lender to make Advances hereunder, the proceeds of which will be used to purchase Loans from the Seller pursuant to the Sale and Servicing Agreement. The Lender has agreed to make such Advances on the terms and conditions set forth herein in an aggregate amount not to exceed at any one time outstanding the Borrowing Limit.

B. To secure its obligations hereunder and under the other Related Documents, the Borrower has agreed to grant to the Agent, for the benefit of the Secured Parties, a security interest in the Loans and the other Collateral.

C. Textron Business Services, Inc. has been appointed to act as the Servicer of the Loans pursuant to the Sale and Servicing Agreement.

D. Brooke Credit Corporation has been appointed to act as the Subservicer of the Loans pursuant to the Subservicing Agreement.

E. The Loans are secured by, among other things, Sales Commissions remitted to Brooke Agency Services Company LLC, as Master Agent.

F. Brooke Corporation has been appointed to act as Master Agent Servicer for the Master Agent and has agreed to guaranty the obligations of Brooke Credit Corporation under the Related Documents pursuant to the Performance Guaranty on the terms set forth therein.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Certain Defined Terms.

As used in this Agreement and its schedules and exhibits, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Actual Annualized Net Loss Rate” means a percentage determined as of the last day of each Monthly Period (the “Determination Date”) equal to (i) the product of (a) the aggregate Outstanding Principal Balance of all Loans that became Defaulted Loans during the third preceding Monthly Period (such Outstanding Principal Balance being determined as of the last day of such third preceding Monthly Period without giving effect to any charge-off of such Loans), less the amount of recoveries on such Defaulted Loans actually received by the Borrower from the last day of the third preceding Monthly Period through the Determination Date and (b) 12, divided by (ii) the Eligible Loan Balance as of the first day of such third preceding Monthly Period.

“Additional Loan” means any Loan originated by the Seller after August 30, 2004.

“Advance” means a loan made by the Lender to the Borrower pursuant to Article II.

“Adverse Claim” means a lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person’s assets or properties in favor of any other Person.

“Affected Party” has the meaning specified in Section 2.10.

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Agency’s Assets” when used in reference to any Loan has the meaning specified in the related Collateral Preservation Agreement.

“Agency Market Value” means, at any time with respect to any Loan, the value of the Agency’s Assets securing such Loan, as most recently determined by the Seller in accordance with the Credit and Collection Policy based on the Seller’s analysis of weighted Sales Commissions and account durability; provided that if the Agent shall reasonably determine that such valuation was not made in accordance with the Credit and Collection Policy, then the Agency Market Value with respect to such Loan shall be determined by the Agent acting in its good faith discretion, which determination shall be conclusive and binding absent manifest error.

2

“Agent” means DZ Bank, in its capacity as agent for the Secured Parties hereunder, and any successor thereto in such capacity appointed pursuant to Section 7.07.

“Agreement” means this Credit and Security Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time hereafter.

“Alternative Rate” means, with respect to any Alternative Rate Interest Period, an interest rate per annum equal to LIBOR plus the Applicable Margin; provided, however, that the “Alternative Rate” for any Alternative Rate Interest Period shall be the Base Rate plus the Applicable Margin (a) if a Eurodollar Disruption Event has occurred, (b) if such Advance is less than $250,000 or (c) for the first three Business Days of such Alternative Rate Interest Period, if the Agent does not receive notice, by the third Business Day preceding the first day of such Alternative Rate Interest Period, that such Advance will not be funded through the issuance of the Lender’s commercial paper.

“Alternative Rate Interest Period” means any Interest Period (or portion thereof) during which an Advance is not funded through the issuance of the Lender’s commercial paper or during which such Advance is otherwise to accrue Interest by reference to the Alternative Rate.

“Annualized Default Rate” means a percentage determined as of the last day of each Monthly Period equal to (i) the product of (a) the aggregate Outstanding Principal Balance of all Loans that became Defaulted Loans during such Monthly Period (such Outstanding Principal Balance being determined without giving effect to any charge-off of such Loans) and (b) 12, divided by (ii) the Eligible Loan Balance as of the first day of such Monthly Period.

“Applicable Margin” means 2.75%; provided that, so long as no Event of Default has occurred and is continuing, if Interest for any Advance is determined by reference to the Alternative Rate as a result of (i) the Lender’s inability to issue commercial paper solely due to the downgrade of a Funding Source by Moody’s or Fitch or (ii) a Termination Event of the type described in Section 6.03(a), then the Applicable Margin shall be equal to 2.25%.

“Assignment” has the meaning specified in the Sale and Servicing Agreement.

“Assignment and Acceptance” means an assignment agreement entered into by the Lender and an assignee pursuant to Section 9.04 in form and substance reasonably satisfactory to the Agent.

“Available Funds” means, with respect to any Payment Date, the sum of the following:

(a) all Collections received in respect of the Loans or any Other Conveyed Property during the most recently ended Monthly Period including, without limitation, all proceeds of Loans sold or otherwise disposed of in connection with any Term Securitization or otherwise during such Monthly Period, but excluding any amounts described in clause (b) below;

3

(b) all amounts paid by the Seller in respect of Loans repurchased by it pursuant to the Sale and Servicing Agreement during the period from the second Determination Date immediately preceding such Payment Date to the Determination Date immediately preceding such Payment Date;

(c) all investment earnings earned on investments in the Collection Account during the most recently ended Monthly Period;

(d) all amounts received by the Borrower from each Hedge Counterparty since the immediately preceding Payment Date; and

(e) all other amounts deposited to the Collection Account during the most recently ended Monthly Period pursuant to this Agreement or any other Related Document and not enumerated above;

provided that if (i) on any Payment Date, there would not be sufficient funds, after application of Available Funds, as defined above, to pay the items specified in (i) through (ix) of Section 2.05(a), then Available Funds for that Payment Date will include, in addition to the Available Funds as defined above, amounts on deposit in the Collection Account which would have constituted Available Funds for the Payment Date immediately succeeding that Payment Date, up to the amount necessary to pay such items, and the Available Funds for the immediately succeeding Payment Date will be adjusted accordingly.

“Backup Master Agent Servicer” means TBS Insurance Agency Services, Inc., in its capacity as backup master agent servicer under the Backup Master Agent Servicing Agreement, and any successor thereto in such capacity.

“Backup Master Agent Servicing Fee” means the fees payable to the Backup Master Agent Servicer pursuant to the Backup Master Agent Servicing Agreement.

“Backup Master Agent Servicing Agreement” means that certain Backup Master Agent Servicing Agreement of even date herewith between the Backup Master Agent Servicer and the Master Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Backup Servicer” means Portfolio Financial Servicing Company, in its capacity as backup servicer under the Backup Servicing Agreement, and any successor thereto in such capacity.

“Backup Servicer Fee” means the fees payable to the Backup Servicer pursuant to the Backup Servicing Agreement.

“Backup Servicing Agreement” means that certain Backup Servicing Agreement of even date herewith among the Backup Servicer, the Servicer and the Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time.

4

“Bankruptcy Code” means Title 11 of the United States Code (11 U.S.C. Section 101 et seq.), as amended from time to time, and any successor statute.

“Base Rate” means, on any date, a fluctuating rate of interest per annum equal to the rate of interest announced by JPMorgan Chase Bank (or any successor thereto) from time to time as its prime or base commercial lending (or equivalent) rate. The prime or base commercial lending (or equivalent) rate used in computing the Base Rate is not intended to be the lowest rate of interest charged by JPMorgan Chase Bank (or such successor) in connection with extensions of credit to debtors. The Base Rate shall change as and when the prime or base commercial lending (or equivalent) rate of JPMorgan Chase Bank (or such successor) changes.

“BCC” means Brooke Credit Corporation, a Kansas corporation.

“Borrower” means Brooke Credit Funding, LLC, a Delaware limited liability company.

“Borrowing” means a borrowing consisting of one or more Advances made on the same date.

“Borrowing Base Certificate” means a certificate, in substantially the form of Exhibit A, executed by the Subservicer and the Borrower and delivered to the Agent pursuant to Section 3.02 on a Borrowing Date or pursuant to Section 2.05(c) on the date of any withdrawal from the Collection Account.

“Borrowing Date” means the date of any Borrowing hereunder.

“Borrowing Limit” means $50,000,000, as such amount may be adjusted from time to time pursuant to Section 2.03; provided, however, that at all times on or after the Termination Date, the “Borrowing Limit” shall equal the aggregate outstanding principal balance of the Advances at such time.

“Brooke Party” means BCC, the Parent, the Master Agent and the Borrower (in each case acting in any capacity in connection with the Related Documents).

“Business Day” means a day of the year (other than a Saturday or a Sunday) on which (a) banks are not authorized or required to close in New York City and The Depositary Trust Company of New York is open for business and (b) if the term “Business Day” is used in connection with the determination of LIBOR, dealings in dollar deposits are carried on in the London interbank market.

“Capital Limit” means, at any time, an amount equal to the sum of (a) the product of the Maximum Advance Rate and the Net Eligible Loan Balance and (b) all Collections on the Eligible Loans then on deposit in the Collection Account (net of any accrued but unpaid Interest and Facility Fees).

“Change of Control” means the occurrence of any of the following: (i) the Seller shall cease to own, free and clear of all Adverse Claims, all of the outstanding membership interests

5

and other equity of the Borrower; or (ii) the Parent shall cease to own, free and clear of all Adverse Claims, at least a majority of all of the outstanding capital stock and other equity interests of the Seller (such that the Seller is under the “control” of the Parent as such term is defined in the definition of “Affiliate”) and all of the outstanding membership interests and other equity of the Master Agent; or (iii) Brooke Holdings Inc. shall cease to own, free and clear of all Adverse Claims, at least a majority of the outstanding capital stock and other equity interests of the Parent (such that the Parent is under the “control” of Brooke Holdings Inc. as such term is defined in the definition of “Affiliate”) or (iv) the owners of a majority of the outstanding capital stock and other equity interests of Brooke Holdings Inc. as of the date hereof (the “Current Majority Owners”) shall cease to own, free and clear of all Adverse Claims, at least a majority of the outstanding capital stock and other equity interests of Brooke Holdings Inc. (such that Brooke Holdings Inc. is under the “control” of the Current Majority Owners as such term is defined in the definition of “Affiliate”).

“Closing Date” means August 27, 2004.

“Code” means the Internal Revenue Code of 1986, as amended or any successor statute.

“Collateral” has the meaning specified in Section 2.13.

“Collateral Preservation Agreement” means a collateral preservation agreement entered into between the Master Agent and the Seller in substantially the form attached hereto as Exhibit B pursuant to which the Master Agent has agreed to preserve the collateral interest of the Seller (and its assigns) in certain assets of a Franchise Agent in the event of a Franchise Agent’s default on its obligations in respect of a Loan.

“Collection Account” has the meaning specified in the Sale and Servicing Agreement.

“Collection Account Agreement” means the Collection Account Agreement of even date herewith among the Borrower, the Servicer, the Agent and the Collection Account Bank, as the same may be amended, restated, supplemented or otherwise modified from time to time, and any successor agreement entered into by the Borrower, the Servicer, the Agent and any successor Collection Account Bank.

“Collection Account Bank” means the bank at which the Collection Account is maintained.

“Collection Bank Fees” means the fees payable to the Collection Account Bank pursuant to the Collection Account Agreement.

“Collections” means (a) all cash collections and other cash proceeds of any Loan or any Other Conveyed Property relating to any Loan with respect thereto (other than cash collections due to and required to be paid to parties other than the Lender, the Agent, the Servicer or the Brooke Parties in accordance with the Master Agent Security Agreement), including, without limitation, all payments of principal and Finance Charges with respect to such Loan and all Sales Commissions, prepayments, recoveries, investment earnings, insurance proceeds, fees,

6

Liquidation Proceeds and other cash proceeds of any Other Conveyed Property with respect to such Loan available for application to amounts payable in respect of such Loan, (b) any amounts paid to or for the account of the Borrower pursuant to the terms of any Related Document and (c) all other cash collections and other cash proceeds of the Collateral.

“Consolidated Net Income” means, with reference to any period and any Person, the net income (or loss) of such Person and its Subsidiaries calculated on a consolidated basis for such period in accordance with GAAP.

“Consolidated Receipts Trust Account” means that certain bank account numbered 144789 maintained with First National Bank & Trust and owned by the Master Agent to which all Sales Commissions deposited to each Receipts Trust Account are deposited.

“Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a letter of credit.

“CP Interest Period” means any Interest Period (or portion thereof) during which an Advance is funded through the issuance of the Lender’s commercial paper.

“CP Rate” means, for any CP Interest Period for any Advance, the per annum rate equivalent to the weighted average cost of or related to the issuance of commercial paper by the Lender (as determined by the Agent, and which shall include (without duplication) interest or discount on such commercial paper, the fees and commissions of placement agents and dealers, incremental carrying costs incurred with respect to commercial paper maturing on dates other than those on which corresponding funds are received by the Lender and other borrowings by the Lender to fund small or odd dollar amounts that are not easily accommodated in the commercial paper market) to the extent such commercial paper is allocated, in whole or in part, by the Lender or the Agent on its behalf to fund or maintain such Advance during such CP Interest Period; provided, however, that if any component of any such rate is a discount rate, in calculating the “CP Rate” the Agent shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum.

“Credit and Collection Policy” means those credit and collection policies and practices relating to Loans described in Schedule III, as modified in compliance with this Agreement.

“Custodian” has the meaning specified in the Sale and Servicing Agreement.

“Custodian Fees” has the meaning specified in the Sale and Servicing Agreement.

“Custodian File” has the meaning specified in the Sale and Servicing Agreement.

7

“Custodian Receipt” means a certification in substantially the form of Exhibit D to the Sale and Servicing Agreement certifying the Custodian’s receipt of a complete Custodian File.

“Customer Files” with respect to any Loan has the meaning set forth in the related Collateral Preservation Agreement.

“Defaulted Loan” means any Loan as to which one or more of the following has occurred:

(a) the related Obligor failed to make when due the first payment due thereunder;

(b) 10% or more of the payments due thereunder remain unpaid 90 or more days past the original due date for such payment;

(c) the payment terms of such Loan have been restructured or modified in any way for credit reasons after the date on which such Loan was transferred to the Borrower (it being understood that Permitted Loan Modifications of the type described in clauses (a) through (e) of the definition thereof are not done for “credit reasons”);

(d) such Loan has become a Liquidated Loan; or

(e) such Loan has been assigned a rating of “fail” pursuant to the Credit and Collection Policy.

As used in this definition, the term “Loan” shall include any loan that has been repurchased by the Seller, or for which the Seller has made a substitution, pursuant to the Sale and Servicing Agreement if, within 60 days of such repurchase or substitution, such loan becomes a Defaulted Loan or Delinquent Loan.

“Default Funding Rate” means the Base Rate plus 2.75%.

“Delinquency Rate” means a percentage determined as of the last day of any Monthly Period, equal to (i) the aggregate Outstanding Principal Balance of all Eligible Loans that are Delinquent Loans as of such last day, divided by (ii) the aggregate Outstanding Principal Balance of all Eligible Loans as of such last day.

“Delinquent Loan” means a Loan as to which 10% or more of the payments due thereunder remain unpaid 30 or more days, but less than 90 days, past the original due date for such payment. As used in this definition, the term “Loan” shall include any loan that has been repurchased by the Seller, or for which the Seller has made a substitution, pursuant to the Sale and Servicing Agreement if, within 60 days of such repurchase or substitution, such loan becomes a Delinquent Loan.

“Determination Date” means, with respect to any Payment Date, the third Business Day immediately preceding such Payment Date.

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“DZ Bank” means DZ Bank AG Deutsche Zentral-Genossenschaftbank and any successor thereto.

“Electronic Ledger” means the electronic master record of BCC and the Servicer with respect to all their loans and receivables.

“Eligible Hedge Counterparty” means a Hedge Counterparty that (i) has a long-term unsecured, non-credit enhanced debt rating of not less than “A” by Fitch and “A2” by Moody’s (or has its obligations under the relevant Hedge Agreement guaranteed by another Person that has such ratings pursuant to a guaranty in form and substance satisfactory to the Agent) and (ii) has been approved by the Agent as an Eligible Hedge Counterparty hereunder.

“Eligible Investments” means any one or more of the following types of investments, excluding any security with the “r” symbol attached to the rating from Standard & Poor’s and all mortgage-backed securities:

(a) direct interest-bearing obligations of, and interest-bearing obligations guaranteed as to timely payment of principal and interest by, the United States or any agency or instrumentality of the United States the obligations of which are backed by the full faith and credit of the United States;

(b) demand or time deposits in, certificates of deposit of, demand notes of, or bankers’ acceptances issued by any depository institution or trust company having the Required Rating (as defined below) (at the time of such investment or contractual commitment providing for such investment) organized under the laws of the United States or any state and subject to supervision and examination by federal and/or state banking authorities (including, if applicable, the Agent, or any agent of the Agent acting in its commercial capacity);

(c) short-term repurchase obligations pursuant to a written agreement (i) with respect to any obligation described in clause (a) above, where the Agent has taken actual or constructive delivery of such obligation in accordance with Section 4.1 of the Servicing Agreement, and (ii) entered into with the corporate trust department of a depository institution or trust company having the Required Rating (at the time of such investment or contractual commitment providing for such investment) organized under the laws of the United States or any state thereof, the deposits of which are insured by the Federal Deposit Insurance Corporation (including, if applicable, the Agent, or any agent of the Agent acting in its commercial capacity);

(d) short-term securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States or any state having the Required Rating (at the time of such investment or contractual commitment providing for such investment);

(e) commercial paper that (i) is payable in United States dollars and (ii) has the Required Rating;

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(f) freely redeemable shares in money market funds rated in the highest applicable rating category by Moody’s, Standard & Poor’s and (if rated by Fitch) by Fitch; or

(g) debt obligations of any corporation maturing or putable at par or better not more than one week from the date of acquisition and backed by a letter of credit as to principal and interest issued by a banking institution having the Required Rating (at the time of such investment or contractual commitment providing for such investment).

Eligible Investments may be purchased by or through the Agent or any of its Affiliates. For purposes of this definition “Required Rating” shall mean a short-term unsecured debt rating of at least “A-1” by Standard & Poor’s, “P-1” by Moody’s and, if rated by Fitch, “F1” by Fitch.

“Eligible Loan” has the meaning specified on Schedule I; provided that, from and after February 28, 2005, the term Eligible Loan shall exclude all Existing Loans. After the Closing Date, the Borrower may request the ability to finance assets other than Loans to Franchise Agents, including other insurance related receivables and funeral home loans, and the Lender and the Agent may, in their sole and absolute discretion, approve such request. In the event any such request is so approved, the Related Documents shall be amended in a manner mutually satisfactory to the parties as appropriate to effectuate such request.

“Eligible Loan Balance” means, at any time, the aggregate Outstanding Principal Balance of the Eligible Loans at such time.

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

“ERISA Affiliate” means (a) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as any Brooke Party; (b) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with any Brooke Party or (c) a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as any Brooke Party, any corporation described in clause (a) above or any trade or business described in clause (b) above.

“Estimated Annualized Net Loss Rate” means a percentage determined as of the last day of each Monthly Period equal to (i) the product of (a) the aggregate Outstanding Principal Balance of all Loans that became Defaulted Loans during such Monthly Period (such Outstanding Principal Balance being determined without giving effect to any charge-off of such Loans), less the amount of recoveries on such Defaulted Loans reasonably expected to be received by the Borrower from the sale of the related Agency’s assets as determined by the Subservicer in good faith in accordance with its customary practices and (b) 12, divided by (ii) the Eligible Loan Balance as of the first day of such Monthly Period.

“Eurodollar Disruption Event” means, with respect to any Interest Period, any of the following: (a) a determination by the Lender or any Funding Source that it would be contrary to law or to the directive of any central bank or other Governmental Authority (whether or not

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having the force of law) to obtain United States dollars in the London interbank market to make, fund or maintain any Advance for such Interest Period, (b) a determination by the Agent that the rate at which deposits of United States dollars are being offered to the Lender or any Funding Source in the London interbank market does not accurately reflect the cost to the Lender or such Funding Source of making, funding or maintaining any Advance for such Interest Period, (c) the inability of the Lender or any Funding Source to obtain United States dollars in the London interbank market to make, fund or maintain any Advance for such Interest Period or (d) a determination by the Agent that adequate and reasonable means do not exist for ascertaining a rate for LIBOR as provided in the definition thereof for such Interest Period.

“Event of Default” has the meaning assigned to that term in Section 6.01.

“Exception Period” means (a) the period from and including the Closing Date to but excluding the earlier of (i) the date occurring three months after the Closing Date and (ii) the date on which Advances in a cumulative amount of $25,000,000 or more have been made hereunder and (b) if any Term Securitization closes that results in a reduction of at least 75% of the aggregate outstanding principal balance of the Advances hereunder that were outstanding immediately prior to such closing, the period from and including the date of such closing to but excluding the earlier of (i) the date falling three months after the date of such closing and (ii) the first date after such closing on which the aggregate outstanding principal balance of the Advances hereunder equals or exceeds $25,000,000.

“Excess Concentration Amount” means:

(a) at any time (other than an Exception Period), the sum (without duplication) of:

(i) the aggregate, for all Obligors, of the amount (if any) by which (x) the aggregate Outstanding Principal Balance of the Eligible Loans owing by such Obligor (treating each Obligor and its Affiliates as a single Obligor) exceeds (y) the lesser of (x) 5% of the Eligible Loan Balance and (y) $1,500,000;

(ii) the amount (if any) by which (x) the five largest Obligor Concentrations exceeds (y) 15% of the Eligible Loan Balance;

(iii) the sum of (x) the amount, if any, by which the largest Individual State Concentration exceeds 25% of the Eligible Loan Balance, (y) the amount, if any, by which the second largest Individual State Concentration exceeds 20% of the Eligible Loan Balance and (z) the aggregate, for all other Individual State Concentrations, of the amount, if any, by which such Individual State Concentration exceeds 15% of the Eligible Loan Balance;

(iv) the amount (if any) by which (x) the aggregate Outstanding Principal Balance of the Eligible Loans that have been placed on “watch” pursuant to the Credit and Collection Policy, exceeds (y) 6% of the Eligible Loan Balance; and

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(b) during any Exception Period, the aggregate, for all Obligors, of the amount (if any) by which (x) the aggregate Outstanding Principal Balance of the Eligible Loans owing by such Obligor (treating each Obligor and its Affiliates as a single Obligor) exceeds (y) $1,500,000.

“Existing Loan” means any Loan originated by the Seller on or before August 30, 2004.

“Exit Fee” has the meaning specified in the Fee Letter.

“Facility Amount” means, at any time, the sum of (i) the aggregate face amount of all commercial paper notes issued by the Lender to fund or maintain Advances hereunder (net of all unearned discount with respect to any such notes issued on a discount basis), plus (ii) the aggregate outstanding principal amount of Advances hereunder that were not funded through the issuance of the Lender’s commercial paper notes, plus (iii) the aggregate accrued and unpaid Interest and Facility Fees hereunder (without duplication of amounts described in clause (i)).

“Facility Fees” means, collectively, the Program Fees and the Non-Use Fees.

“Fee Letter” means that certain letter agreement dated as of the date hereof among the Seller, the Parent, the Borrower and the Agent, as it may be amended or modified and in effect from time to time.

“Final Payout Date” means the date following the Termination Date on which all Advances, all Interest thereon and all other Obligations have been paid in full in cash.

“Finance Charges” means, with respect to any Loan, any interest, late charges, fees and other amounts owing by an Obligor pursuant to the related Loan Documents (excluding the Outstanding Principal Balance of such Loan).

“Fitch” means Fitch Ratings or its successor.

“Franchise Agent” means any duly licensed insurance agent or insurance agency party to a Franchise Agreement.

“Franchise Agreement” means a franchise agreement between the Master Agent (as assignee of Brooke Franchise Corporation) and a Franchise Agent in substantially the form attached hereto as Exhibit C (with appropriate state law modifications) or such other form as the Agent may approve in writing (such approval not to be unreasonably withheld), pursuant to which the Master Agent is obligated to perform various services and the Franchise Agent is obligated, among other things, to provide competent and qualified personnel for the sale, renewal, service and delivery of insurance policies.

“Funding Agreement” means this Agreement and any liquidity agreement, credit support agreement, purchase agreement or other agreement or instrument executed by any Funding Source with or for the benefit of the Lender.

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“Funding Source” means (i) DZ Bank and (ii) any other insurance company, bank or other financial institution providing liquidity, credit enhancement or back-up purchase support or facilities to the Lender.

“GAAP” means generally accepted accounting principles as in effect from time to time in the United States, applied in a manner consistent with that used in preparing the financial statements of the Parent referred to in Section 4.01(z).

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

“Hedge Agreement” means an agreement between the Borrower and a Hedge Counterparty that governs one or more Hedge Transactions entered into pursuant to Section 2.06, which agreement shall consist of a “Master Agreement” in a form published by the International Swaps and Derivatives Association, Inc., together with a “Schedule” thereto and one or more “Confirmations” thereunder confirming the specific terms of each such Hedge Transaction. Each Hedge Agreement shall be consistent with customary rating agency criteria for “swap-dependent” transactions and shall otherwise be in form and substance satisfactory to the Agent.

“Hedge Breakage Costs” means, for any Hedge Transaction, any amount payable by the Borrower upon the early termination (in whole or in part) of that Hedge Transaction.

“Hedge Counterparty” means a counterparty that enters into a Hedge Transaction with the Borrower. Each Hedge Counterparty must be an Eligible Hedge Counterparty at the time the relevant Hedge Transaction is entered into.

“Hedge Notional Amount Requirement” means (i) with respect to the Existing Loans, for any date following the occurrence of a Hedge Trigger Event relating to the Existing Loans, a scheduled amortizing notional amount for such date and each Payment Date thereafter specified by the Agent in consultation with the Subservicer and (ii) with respect to the Additional Loans, for any date following the occurrence of a Hedge Trigger Event relating to the Additional Loans, a scheduled amortizing notional amount for such date and each Payment Date thereafter, such schedule to match the estimated aggregate outstanding principal balance of the Advances as of such date and each such subsequent Payment Date (based on the scheduled amortization of the Additional Loans and assuming no further Advances are made hereunder after such date), as determined by the Agent in consultation with the Subservicer; provided that so long as any Existing Loans are included in the Collateral, the Hedge Notional Amount Requirement for the Additional Loans shall be reduced as appropriate (in the sole judgment of the Agent) to take into account the hedging requirements for the Existing Loans hereunder.

“Hedge Transaction” means each interest rate hedge transaction (including, without limitation, any interest rate swap, interest rate cap or other hedge transaction acceptable to the Agent) between the Borrower and a Hedge Counterparty that is entered into pursuant to Section 2.06 and is governed by a Hedge Agreement.

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“Hedge Trigger Event” means (i) with respect to the Existing Loans, that the Net Existing WAC, is less than either one-month LIBOR or the Swap Rate as of any Borrowing Date or Payment Date, as determined by the Agent and (ii) with respect to the Additional Loans, that the Base Rate does not exceed one-month LIBOR by more than 1.00% as of any Borrowing Date or Payment Date, as determined by the Agent. Any such Hedge Trigger Event shall be deemed to be continuing unless and until the circumstance described in clause (i) or (ii), as applicable, ceases to exist as of any subsequent Borrowing Date or Payment Date, as determined by the Agent.

“Increase Fee” has the meaning specified in the Fee Letter.

“Indebtedness” of a Person means such Person’s (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person’s business), (iii) obligations, whether or not assumed, secured by liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) obligations of such Person to purchase securities or other property arising out of or in connection with the sale of the same or substantially similar securities or property, (vi) capitalized lease obligations, (vii) net liabilities under interest rate swap, exchange or cap agreements, (viii) Contingent Obligations, (ix) Off Balance Sheet Liabilities, (x) liabilities in respect of unfunded vested benefits under plans covered by Title IV of ERISA and (xi) any other obligation for borrowed money or other financial accommodation which in accordance with GAAP would be shown as a liability on the consolidated balance sheet of such Person.

“Indemnified Amounts” has the meaning assigned to that term in Section 8.01.

“Indemnified Party” has the meaning assigned to that term in Section 8.01.

“Independent Director” means an individual who (a) qualifies as an “Independent Director” (as defined in the limited liability company agreement of the Borrower as in effect on the date of this Agreement), (b) has prior experience as an independent director for a corporation or limited liability company whose charter documents required the unanimous consent of all independent directors thereof before such corporation or limited liability company could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy and (c) has at least three years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities.

“Individual State Concentration” means, with respect to any State, the aggregate Outstanding Principal Balance of the Eligible Loans owing by Obligors located in such State (determined by reference to the location of the chief executive office of such Obligor).

“Insolvency Event” means, with respect to a specified Person, (a) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of such Person or any

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substantial part of its property in an involuntary case under any applicable Federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or ordering the winding-up or liquidation of such Person’s affairs, or the commencement of an involuntary case under the federal bankruptcy laws, as now or hereafter in effect, or another present or future federal or state bankruptcy, insolvency or similar law and such case is not dismissed or stayed within 60 days; or (b) the commencement by such Person of a voluntary case under any applicable Federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by such Person to the entry of an order for relief in an involuntary case under any such law, or the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or the making by such Person of any general assignment for the benefit of creditors, or the failure by such Person generally to pay its debts as such debts become due, or the taking of action by such Person in furtherance of any of the foregoing.

“Insurance Company Concentration” means, at any time with respect to any insurance company, the percentage of the total monthly commissions paid to the Master Agent in respect of the Loans during the preceding six calendar month period (or in, the case of the first six months following the Closing Date, since the Closing Date) represented by commissions payable in respect of policies issued by such insurance company. For purposes of the foregoing, each insurance company and its Affiliates shall be treated as a single insurance company.

“Insurance Company Concentration Limit” means (i) with respect to any insurance company that has a long-term senior unsecured debt rating of at least “A2” from Moody’s and “A” from Fitch, 30% and (ii) with respect to any other insurance company, 5%; provided that in the case of Bristol West Casualty Insurance Company, the Insurance Company Concentration Limit specified in clause (ii) shall be 7% rather than 5% for so long as Bristol West Casualty Insurance Company maintains a long-term senior unsecured debt rating of not less than “Baa1” from Moody’s.

“Insurance Company Trigger” means, with respect to any insurance company, that the Insurance Company Concentration for such insurance company exceeds the applicable Insurance Company Concentration Limit and such circumstance shall have remained unremedied for more than eighth months.

“Intercreditor Agreement” means the Intercreditor Agreement of even date herewith among the Seller, the Master Agent, the Borrower, the Master Agent Servicer and the Agent, as amended, restated, supplemented or otherwise modified from time to time.

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“Interest” means, for any Advance and any Interest Period, the sum for each day during such Interest Period of the following:

IR x PB

360

where:

IR	=	the Interest Rate for such Advance for such day
PB	=	the outstanding principal balance of such Advance on such day

provided that no provision of this Agreement shall require the payment or permit the collection of Interest in excess of the maximum permitted by applicable law; and provided further that Interest for any Advance shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason.

“Interest Payment Date” means (i) for any Advance allocated to an Alternative Rate Interest Period, the next succeeding Payment Date following the first day of such Alternative Rate Interest Period and (ii) for any Advance allocated to a CP Interest Period, the Payment Date requested by the Borrower and approved by the Agent not later than 11:00 a.m. (New York time) on the Business Day immediately preceding the first day of such CP Interest Period; provided that (i) no CP Interest Period may be more than 90 days and (ii) if the Agent and the Borrower have not mutually agreed on the Interest Payment Date with respect to any Advance by 11:00 a.m. (New York time) on the Business Day immediately preceding the first day of such CP Interest Period, then the Interest Payment Date for such CP Interest Period will be the next succeeding Payment Date.

“Interest Period” means, with respect to any Advance, (i) initially, the period from and including the applicable Borrowing Date to but excluding the next succeeding Interest Payment Date for such Advance, and (ii) thereafter, each successive period from and including an Interest Payment Date to but excluding the next succeeding Interest Payment Date for such Advance.

“Interest Rate” means, for each day during any Interest Period and any Advance, a per annum rate equal to (a) to the extent the Lender funds such Advance on such day through the issuance of its commercial paper, the CP Rate and (b) to the extent the Lender does not fund such Advance on such day through the issuance of its commercial paper, the Alternative Rate; provided that from and after the occurrence of a Termination Event (other than an Event of Default or a Termination Event described in Section 6.03(a)), the Interest Rate for all Advances and all Interest Periods shall be equal to the Alternative Rate unless otherwise directed by the Agent in its sole discretion; and provided further that from and after the occurrence of an Event of Default, the Interest Rate for all Advances and all Interest Periods shall be equal to Default Funding Rate.

“Key Employees” means Mick Lowry, Anita Larson and Shawn Lowry; provided that if any such Person is replaced by a successor that has been approved in writing by the Agent, then such successor shall be deemed to be a Key Employee and the replaced Person shall cease to be a Key Employee.

“Lender” means Autobahn Funding Company LLC and its successors and assigns.

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“Lender Protection Addendum” means an “Agent Agreement Addendum Regarding Lender Protection” entered into by the Master Agent (or Brooke Franchise Corporation as its predecessor) and a Franchise Agent in connection with a Franchise Agreement in substantially the form attached hereto as Exhibit D or such other form as the Agent may approve in writing (such approval not to be unreasonably withheld).

“LIBOR” means, with respect to any Alternative Rate Interest Period, the interest rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) reported at or about 11:00 a.m., on the date two Business Days prior to the first day of such Alternative Rate Interest Period, on Page 3750 of the Telerate Service (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Agent from time to time, for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) as the London Interbank Offered Rate for United States dollar deposits having a term equal to such Alternative Rate Interest Period and in a principal amount of $1,000,000 or more (or, if such Page shall cease to be publicly available or, if the information contained on such Page, in the Agent’s sole judgment, shall cease to accurately reflect such London Interbank Offered Rate, such rate as reported by any publicly available recognized source of similar market data selected by the Agent that, in the Agent’s sole judgment, accurately reflects such London Interbank Offered Rate); provided further that if no such rate is available for such Alternative Rate Interest Period, “LIBOR” shall be a rate per annum at which deposits in United States dollars are offered by the Agent to prime banks in the London interbank market at or about 11:00 A.M. (London time) two Business Days before the first day of such Alternative Rate Interest Period for delivery on such first day and for a period equal to such Alternative Rate Interest Period. If no such rate can be determined as set forth above for a period equal to such Alternative Rate Interest Period, LIBOR for such Alternative Rate Interest Period shall be determined through the use of straight-line interpolation by reference to two rates determined as set forth above, one of which shall be determined as if the Alternative Rate Interest Period were the period of time for which rates are available next shorter than the length of such Alternative Rate Interest Period and the other of which shall be determined as if the Alternative Rate Interest Period were the period of time for which rates are available next longer than the length of such Alternative Rate Interest Period.

“Liquidated Loan” means any Loan (i) that is owed by an Obligor which has suffered an Insolvency Event (after origination of such Loan), (ii) that the Servicer has determined in good faith should be charged-off in accordance with its Servicing Policy and Procedures or (iii) that has been liquidated through the sale of the related collateral (such Loan shall become a Liquidated Loan as of the earliest date on which any of the foregoing has occurred).

“Liquidation Proceeds” means, with respect to a Liquidated Loan, all amounts realized with respect to such Liquidated Loan after it became a Liquidated Loan net of (i) reasonable out-of-pocket expenses incurred by the Servicer in connection with the collection thereof and the repossession and disposition of the related collateral, and (ii) amounts that are required to be refunded to the Obligor on such Liquidated Loan; provided, however, that the Liquidation Proceeds with respect to any Liquidated Loan shall in no event be less than zero.

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“Liquidation Fee” means for (i) any Advance for which Interest is computed by reference to the CP Rate and a reduction of the outstanding principal balance thereof is made for any reason or (ii) any Advance for which Interest is computed by reference to LIBOR and a reduction of the outstanding principal balance of such Advance is made for any reason on any day other than a Payment Date, the amount, if any, by which (A) the additional Interest (calculated without taking into account any Liquidation Fee) which would have accrued during the Interest Period in which such reduction occurs (or, in the case of clause (i) above, during the period until the maturity of the underlying commercial paper tranches) on such Advance had such reduction not occurred, exceeds (B) the income, if any, received by the Lender from the investment of the proceeds of such reduction of principal. A certificate as to the amount of any Liquidation Fee (including the computation of such amount) shall be submitted by the Lender (or the Agent on its behalf) to the Borrower and shall be conclusive and binding for all purposes, absent manifest error.

“Loan” means a loan that is included in the Schedule of Loans, and all rights and obligations under such loan, whether constituting an account, chattel paper, instrument, investment property or general intangible, and including, without limitation, the obligation of any related Obligor to pay any Finance Charges with respect thereto; provided that, except as otherwise expressly provided herein, the term “Loan” shall exclude any loan that has been released from the Collateral pursuant to Section 2.14 hereof.

“Loan Agreement” means a loan agreement entered into by and between the Seller and a Franchise Agent in substantially the form attached hereto as Exhibit E-1 or such other form as the Agent may approve in writing (such approval not to be unreasonably withheld).

“Loan Documents” means, with respect to any Loan, collectively, (i) the executed original counterpart of the Loan that constitutes “tangible chattel paper” or an “instrument” for purposes of Article 9 of the UCC and, with respect to each instrument, an allonge duly endorsing such instrument in blank or to the Agent, (ii) the related Loan Agreement, (iii) the related Franchise Agreement, (iv) the related Lender Protection Addendum, (v) the related Customer Files, (vi) the related Receipts Trust Agreement, (vii) the related Collateral Preservation Agreement, (viii) the related Security Agreement and the related financing statement in substantially the form attached as Exhibit E-3, (ix) any related Insurance Agreements (to the extent that such Insurance Agreements apply to such Loan) and all other insurance policies maintained by the Master Agent or any Affiliate thereof or any Franchise Agent, including without limitation all professional errors and omissions policies, (x) all guarantees relating to such Loan and (xi) all other instruments, documents and agreements executed and/or delivered under or in connection with any of the foregoing, in each case as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.

“Make-Whole Fee” has the meaning specified in the Fee Letter.

“Master Agent” means Brooke Agency Services Company LLC, a Delaware limited liability company.

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“Master Agent Event of Default” has the meaning specified in the Master Agent Security Agreement.

“Master Agent Security Agreement” means the Master Agent Security Agreement of even date herewith between the Master Agent and the Master Agent Trustee, as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.

“Master Agent Servicer” means the Parent, in its capacity as master agent servicer under the Master Agent Servicing Agreement, and any successor thereto in such capacity.

“Master Agent Servicer Default” has the meaning specified in Section 6.02.

“Master Agent Servicing Agreement” means the Master Agent Servicing Agreement of even date herewith, by and between the Master Agent and Master Agent Servicer, as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.

“Master Agent Trustee” means The Bank of New York, in its capacity as master agent trustee under the Master Agent Security Agreement, and any successor thereto in such capacity.

“Master Receipts Trust Account” means that certain segregated non-interest bearing trust account numbered 718354 maintained with The Bank of New York and owned by the Master Agent to which all Sales Commissions deposited to the Receipts Trust Accounts and the Consolidated Receipts Trust Account are deposited.

“Material Adverse Effect” means a material adverse effect on (i) the financial condition, business or operations of any Brooke Party, (ii) the ability of any Brooke Party to perform its obligations under any Related Document, (iii) the legality, validity or enforceability of this Agreement or any other Related Document, (iv) the Borrower’s or the Agent’s interest in the Collateral or in any significant portion of the Loans, the Other Conveyed Property or the Collections with respect thereto or the perfection of any such interest or (v) the collectibility of the Loans generally or of any material portion of the Loans.

“Maximum Advance Rate” means the lesser of (i) 83% and (ii) such lower percentage as is necessary in order to obtain the Minimum Shadow Rating pursuant to Section 5.01(o), as determined by the Agent and notified to the Borrower; provided that in no event shall the Maximum Advance Rate be less than 75%.

“Minimum Shadow Rating” means “A2” by Moody’s or “A” by Fitch (or the equivalent from any alternative rating agency approved by the Agent pursuant to Section 5.01(o)).

“Minimum Utilization Requirement” has the meaning specified in Section 2.16.

“Monthly Period” has the meaning specified in the Sale and Servicing Agreement.

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“Moody’s” means Moody’s Investors Service, Inc. or its successor.

“Net Eligible Loan Balance” means, at any time, (i) the Eligible Loan Balance at such time, minus (ii) the Excess Concentration Amount at such time.

“Net Existing WAC” means, as of any date, a rate per annum equal to (i) the weighted average interest rate on the Existing Loans minus (ii) 4.21%.

“Non-Use Fee” has the meaning specified in the Fee Letter.

“Note” has the meaning specified in Section 2.15.

“Obligations” means all present and future indebtedness and other liabilities and obligations (howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or due or to become due) of the Borrower to the Lender, the Agent, the Servicer, the Backup Servicer, any Hedge Counterparty, any Affected Party and/or any other Secured Party, arising under or in connection with this Agreement or any other Related Document or the transactions contemplated hereby or thereby and shall include, without limitation, all liability for principal of and interest on the Advances, Program Fees, Non-Use Fees, Exit Fees, Increase Fees, Prepayment Fees, Make-Whole Fees, audit fees, expense reimbursements, indemnifications, and other amounts due or to become due under the Related Documents, including, without limitation, interest, fees and other obligations that accrue after the commencement of a bankruptcy, insolvency or similar proceeding (in each case whether or not allowed as a claim in such proceeding).

“Obligor” means the Person or Persons who are primarily or secondarily obligated to make payments under a Loan.

“Obligor Concentration” means, at any time with respect to any Obligor, the aggregate Outstanding Principal Balance of the Eligible Loans owing by such Obligor or any Affiliate of such Obligor.

“Off Balance Sheet Liabilities” of a Person means (a) any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to accounts or notes receivable sold by such Person or any of its Subsidiaries, (b) any liability under any sale and leaseback transactions which do not create a liability on the consolidated balance sheet of such Person prepared in accordance with GAAP, (c) any liability under any financing lease or so-called “synthetic” lease transaction, or (d) any obligations arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries, prepared in accordance with GAAP.

“Other Conveyed Property” has the meaning specified in the Sale and Servicing Agreement.

“Other Taxes” has the meaning specified in Section 2.11(b).

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“Outstanding Principal Balance” means, with respect to any Loan, as of any date of determination, the original principal balance of such Loan minus the portion of all amounts received on or prior to such date and allocable to principal in accordance with the term of such Loan.

“Parent” means Brooke Corporation, a Kansas corporation.

“Parent Group Member” means, collectively, Parent, BCC, the Master Agent and their respective Affiliates (other than the Borrower).

“Payment Date” means the 15^th day of each calendar month or, if such day is not a Business Day, the next succeeding Business Day.

“Performance Guaranty” means the performance guaranty of even date herewith executed by the Parent in favor of the Borrower and the Agent, as amended, restated, supplemented or otherwise modified from time to time.

“Permitted Lien” means (a) any Adverse Claim created in favor of the Agent pursuant to this Agreement, (b) any Adverse Claim which is subordinated to the respective interests of the Borrower and the Agent, for the benefit of the Secured Parties, pursuant to the Subordination Agreement or (c) Adverse Claims for taxes, assessments or similar governmental charges or levies incurred in the ordinary course of business that are not yet due and payable or as to which any applicable grace period shall not have expired, or that are being contested in good faith by proper proceedings and for which adequate reserves have been established but only so long as foreclosure with respect to such Adverse Claim (in either clause (b) or (c) above) is not imminent and the use and value of the property to which the Adverse Claim attaches is not impaired during the pendency of such proceeding.

“Permitted Loan Modification” has the meaning specified in Sale and Servicing Agreement.

“Permitted Sale Transaction” has the meaning specified in Section 2.14.

“Person” means an individual, partnership, corporation, limited liability company, joint stock company, trust (including a business or statutory trust), unincorporated association, joint venture, government (or any agency or political subdivision thereof) or other entity.

“Potential Event of Default” means an event which, with the passage of time or the giving of notice, or both, would constitute an Event of Default.

“Prepayment Fee” has the meaning specified in the Fee Letter.

“Program Deficiency” means, at any time the amount, if any, by which (a) the Facility Amount exceeds (b) the Capital Limit.

“Program Fee” has the meaning specified in the Fee Letter.

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“Program Maturity Date” means the earlier of (i) the Scheduled Program Maturity Date and (ii) the Termination Date.

“Receipts Trust Account” has the meaning specified in the Master Agent Security Agreement.

“Receipts Trust Agreement” means a receipts trust agreement between the Master Agent (as assignee of Brooke Franchise Corporation) and First National Bank and Trust, as trustee, in substantially the form attached hereto as Exhibit F (or such other form as the Agent may approve in writing (such approval not to be unreasonably withheld)).

“Records” means, with respect to any Loan, all Loan Documents and other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) relating to such Loan, any Other Conveyed Property therefor and the related Obligor.

“Related Documents” means, collectively, this Agreement, the Note, the Fee Letter, the Sale and Servicing Agreement, the Master Agent Servicing Agreement, the Master Agent Security Agreement, the Subordination Agreement, the Intercreditor Agreement, the Performance Guaranty, the Backup Servicing Agreement, the Backup Master Agent Servicing Agreement, each Trust Account Control Agreement, each Assignment, the Collection Account Agreement, the Trust Account Intercreditor Agreement, each Hedge Agreement and all other instruments, documents and agreements executed in connection with any of the foregoing. The Related Documents executed by any party are referred to herein as “such party’s Related Documents,” “its Related Documents” or by a similar expression.

“Sale and Servicing Agreement” means that certain Sale and Servicing Agreement of even date herewith among the Seller, the Servicer and the Borrower, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Sales Commissions” means, with respect to a Loan, all of the related Franchise Agent’s right, title and interest in the “Sales Commissions” as such term is defined in the related Franchise Agreement.

“Schedule of Loans” has the meaning specified in the Sale and Servicing Agreement.

“Scheduled Program Maturity Date” means August 27, 2009.

“Secured Parties” means, collectively, the Lender, the Agent, the Servicer, the Backup Servicer, the Affected Parties, the Hedge Counterparties, the Indemnified Parties and their respective successors and assigns.

“Security Agreement” means a security agreement entered into by and between the Seller and a Franchise Agent in substantially the form attached hereto as Exhibit E-2 or such other form as the Agent may approve in writing (such approval not to be unreasonably withheld).

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“Seller” means BCC.

“Servicer” means Textron Business Services, Inc., in its capacity as servicer pursuant to the Sale and Servicing Agreement, and any successor thereto in such capacity.

“Servicer Default” has the meaning specified in the Sale and Servicing Agreement.

“Servicer’s Certificate” has the meaning specified in the Sale and Servicing Agreement.

“Servicing Fee” has the meaning specified in the Sale and Servicing Agreement.

“Servicing Policy and Procedures” has the meaning specified in the Sale and Servicing Agreement.

“Standard & Poor’s” means Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc.

“Subordination Agreement” means the Subordination Agreement of even date herewith executed by the Seller in favor of the Borrower and the Agent, for the benefit of the Secured Parties, as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.

“Subservicer” means BCC, in its capacity as subservicer under the Subservicing Agreement, and any successor thereto in such capacity.

“Subservicing Agreement” means the Subservicing Agreement of even date herewith between BCC and the Servicer, as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof.

“Subsidiary” of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a “Subsidiary” shall mean a Subsidiary of the Parent.

“Swap Rate” means, on any date, the fixed rate that would be payable under an interest rate swap transaction in exchange for a floating one-month LIBOR payment from the counterparty thereunder through the end of the current calendar year, as determined by the Agent.

“Taxes” has the meaning specified in Section 2.11(a).

“Termination Date” means the earliest of (a) the Program Maturity Date, (b) the date of the declaration or automatic occurrence of the Termination Date pursuant to Article VI and (c) the date any prepayment of all Advances is made in accordance with Section 2.09(c) hereof.

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“Termination Event” has the meaning specified in Section 6.03.

“Term Securitization” means a transaction undertaken by the Seller or any of its Affiliates involving the direct or indirect sale or other conveyance of loans originated by the Seller to a Person that shall privately or publicly sell term securities (including, without limitation, notes and pass-through certificates) backed by such loans to third party investors.

“Treasury Regulations” means any regulations promulgated by the Internal Revenue Service interpreting the provisions of the Code.

“Trust Accounts” means, collectively, each Receipts Trust Account, the Consolidated Receipts Trust Account and the Master Receipts Trust Account.

“Trust Account Control Agreement” means, with respect to any Trust Account, an agreement in substantially the form attached hereto as Exhibit G covering such Trust Account duly executed by the Master Agent, the Master Agent Trustee and the bank at which such account is maintained.

“Trust Account Intercreditor Agreement” means the Trust Account Intercreditor Agreement of even date herewith among the Master Agent, the Bank of New York and the Agent, as amended, restated, supplemented or otherwise modified from time to time.

“UCC” means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction.

“United States” means the United States of America.

“Utilization Period” means (i) initially, the period from and including the Closing Date to but excluding the first anniversary of the Closing Date and (ii) thereafter, each successive period from and including the first day following the immediately preceding Utilization Period to but excluding the next succeeding anniversary of the Closing Date; provided that for purposes of determining whether the Minimum Utilization Requirement has been satisfied, each Utilization Period shall exclude any Exception Period.

“Weighted Average Life” means, with respect to all Eligible Loans, the weighted average maturity of the Eligible Loans determined pursuant to a methodology agreed to by the Seller and the Agent prior to the Closing Date.

Section 1.02. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, as in effect on the date hereof and not specifically defined herein, are used herein as defined in such Article 9. Unless otherwise expressly indicated, all references herein to “Article,” “Section,” “Schedule” or “Exhibit” means articles and sections of, and schedules and exhibits to, this Agreement. Headings are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. Any reference to any law, rule or regulation shall be deemed to be a reference to such law, rule or regulation as the same may be

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amended or re-enacted from time to time. Any reference to any Person shall include its successors and permitted assigns.

Section 1.03. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding.”

ARTICLE II

THE FACILITY

Section 2.01. Borrowings. On the terms and conditions hereinafter set forth, the Lender shall make loans (each such loan, an “Advance”) to the Borrower from time to time during the period from the date hereof until the Termination Date in an aggregate amount not to exceed, at any one time outstanding, the Borrowing Limit. Under no circumstances shall the Lender be required to make an Advance if, after giving effect to such Advance, a Program Deficiency would exist.

Section 2.02. Procedures for Borrowings.

(a) Until the occurrence of the Termination Date, the Lender will make Advances on any Business Day at the request of the Borrower, subject to and in accordance with the terms and conditions of this Article II and Article III.

(b) The initial Borrowing and each subsequent Borrowing shall be made on not less than two Business Days’ notice from the Borrower to the Agent. Each such notice shall specify (A) the aggregate amount of such Borrowing, which shall be in an amount equal to or greater than $250,000 and (B) the date of such Borrowing. Any such notice received by the Agent after 11:00 am New York time will be deemed to have been delivered on the following Business Day. On the date of such Borrowing, the Lender shall, upon satisfaction of the applicable conditions set forth in Article III, make available to the Borrower in same day funds, the amount of such Borrowing by payment to the account which the Borrower has designated in writing.

Section 2.03. Termination, Reduction or Increase of the Borrowing Limit.

(a) Subject to the terms of the Fee Letter and the payment of any Prepayment Fee required in connection therewith, the Borrower may, upon at least 30 Business Days’ written notice to the Agent, terminate in whole or reduce in part the portion of the Borrowing Limit that exceeds the outstanding Advances; provided, however, that each partial reduction of the Borrowing Limit shall be in an aggregate amount equal to $5,000,000 or an integral multiple thereof.

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(b) Subject to the terms and conditions of the Fee Letter, the Borrower may from time to time, in its discretion, request an increase in the Borrowing Limit and the Agent and the Lender may, in the sole and absolute discretion of each, agree to any such increase. No such increase shall become effective unless and until the Borrower pays to the Agent the Increase Fee with respect to such increase in accordance with the Fee Letter.

Section 2.04. Use of Proceeds. The Borrower will use the proceeds of Advances hereunder solely to purchase Eligible Loans from the Seller in accordance with the terms of the Sale and Servicing Agreement.

Section 2.05. Settlement Procedures. Pursuant to the Sale and Servicing Agreement, the Servicer shall establish and maintain, or cause to be established and maintained, the Collection Account in the name of the Agent. The Collection Account shall at all times be under the exclusive dominion and control of the Agent and no Brooke Party shall have any access thereto or right to make any withdrawal therefrom.

(a) Payment Date Distributions. On each Payment Date, the Agent will direct the Collection Account Bank to transfer the Available Funds on deposit in the Collection Account in the following amounts and priority (based on the Servicer’s Certificate furnished to it by the Servicer pursuant to Section 3.8 of the Sale and Servicing Agreement, on which certificate the Agent may conclusively rely):

(i) first, pay, on a pari passu basis, (A) to the Backup Servicer an amount equal to the Backup Servicer Fees then due and payable, (B) to the Collection Account Bank an amount equal to the Collection Bank Fees then due and payable, and (C) to the Custodian an amount equal to the Custodian Fees then due and payable;

(ii) second, if none of the Brooke Parties nor any of their respective Affiliates is the Servicer, pay to the Servicer an amount equal to the accrued and unpaid Servicing Fee;

(iii) third, pay to each Hedge Counterparty, on a pari passu basis, an amount equal to any net payments (other than fees, expenses and Hedge Breakage Costs) which are then due and payable under the Hedge Agreements (if any);

(iv) fourth, pay to the Agent for the account of the Lender an amount equal to the accrued and unpaid Interest and Facility Fees;

(v) fifth, pay to the Agent an amount equal to the Program Deficiency (if any) as of such Payment Date (determined as if no funds were on deposit in the Collection Account), for application to the repayment of the Advances;

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(vi) sixth, on and after the Termination Date, pay all remaining Available Funds to the Agent for the account of the Lender until the Advances have been repaid in full;

(vii) seventh, pay to each Hedge Counterparty, on a pari passu basis, an amount equal to any fees, expenses and Hedge Breakage Costs which are then due and payable under the Hedge Agreements (if any);

(viii) eighth, pay to the Agent for the account of the applicable Persons entitled thereto an amount equal to the aggregate amount of all other Obligations of the Borrower hereunder which are then due and payable;

(ix) ninth, pay to the Servicer (if the Servicer is a Brooke Party or any of their respective Affiliates) an amount equal to the accrued and unpaid Servicer Fee;

(x) tenth, if any Advances are to be prepaid on such Payment Date pursuant to Section 2.09, transfer to the Agent the amount of such prepayment;

(xi) eleventh, reimburse the Servicer for any taxes paid by it pursuant to Section 3.3 of the Sale and Servicing Agreement that remain unreimbursed;

(xii) twelfth, so long as no Program Deficiency exists or would be created thereby, transfer to the Borrower or its designee the remaining Available Funds for such Payment Date (or such lesser amount as the Borrower may specify); and

(xiii) set aside in the Collection Account any remaining Available Funds for future application in accordance with this Section 2.05.

(b) Eligible Investments. All funds held in the Collection Account or any subaccount thereof (including, without limitation, investment earnings thereon), shall be invested at the direction of the Servicer in Eligible Investments in accordance with the Sale and Servicing Agreement.

(c) Interim Withdrawals From Collection Account. The Borrower may, on any Business Day other than a Payment Date, request the Agent to withdraw and transfer to the Borrower all or any portion of the funds on deposit in the Collection Account solely for the purpose of purchasing new Loans from the Seller pursuant to the Sale and Servicing Agreement; provided that no such withdrawal shall be made unless (i) the Agent has received, in form and substance reasonably satisfactory to the Agent, a completed Borrowing Base Certificate duly executed by the Subservicer and the Borrower and containing information accurate as of a date no more than two (2) Business Days prior to the date of such withdrawal and confirming that no Program Deficiency would exist after giving effect to such withdrawal and (ii) the following statements are

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true (and each Brooke Party shall be deemed to have represented and warranted that the following statements are and shall be true as of the date of such withdrawal):

(i) the representations and warranties contained in Section 4.01 and the representations of the other Brooke Parties contained in the other Related Documents are true and correct on and as of the date of such withdrawal as though made on and as of such date,

(ii) no event has occurred and is continuing, or would result from such withdrawal, which constitutes an Event of Default, a Potential Event of Default or a Termination Event,

(iii) no Program Deficiency would exist after giving effect to such withdrawal,

(iv) the Available Funds remaining in the Collection Account for the next succeeding Payment Date are sufficient to pay in full all amounts described in clauses (i) through (ix) of Section 2.05(a) on such Payment Date;

(v) the Agent has received such other approvals, opinions, documents or information as the Agent may reasonably request in order to confirm (A) the satisfaction of the conditions set forth above and (B) that each Loan to be purchased by the Borrower with the proceeds of such withdrawal is an Eligible Loan; and

(vi) the Termination Date has not occurred.

Upon confirmation by the Agent that the foregoing conditions precedent are satisfied, the Agent shall authorize the Collection Account Bank to make the withdrawal and transfer so requested by the Borrower. On any Business Day the Borrower may request the Agent to withdraw and transfer to the Borrower any portion of the funds on deposit in the Collection Account that were improperly deposited in the Collection Account. Upon receipt by the Agent of evidence reasonably satisfactory to it of the nature and amount of such improper deposit, the Agent shall authorize the Collection Account Bank to make the withdrawal and transfer so requested by the Borrower.

(d) Application of Funds Released to Borrower. The Subservicer and the Borrower will cause all funds released to the Borrower pursuant to this Section 2.05 on any date to be applied: first, to pay the purchase price for Loans to be sold to the Borrower on such date pursuant to the Sale and Servicing Agreement (if any); and second, in such other manner as the Borrower may direct.

Section 2.06. Interest Rate Hedges.

(a) The Subservicer shall, at the expense of the Borrower, take such actions on behalf of the Borrower as are necessary in order to hedge the Loans owned by the

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Borrower against any interest rate risk, such that the interest payable to the Borrower on the Loans (after taking into account all hedging arrangements implemented by the Subservicer) will be sufficient to make complete and timely payments of Interest and Facility Fees. The Subservicer shall have no obligation to arrange for the Borrower to enter into any Hedge Transaction unless a Hedge Trigger Event has occurred and is continuing, but the Subservicer will be liable to the Indemnified Parties hereunder in the event it is determined at any time that the interest payable to the Borrower on the Loans is not sufficient to make complete and timely payments of Interest, Facility Fees and other Obligations of the Borrower under the Transaction Documents (except to the extent such insufficiency is due to a failure to pay by, or an Insolvency Event to occur with respect to, any Obligor). In the event any such insufficiency arises (the amount and existence of which shall be determined by the Agent, which determination shall be conclusive and binding absent manifest error), the Subservicer shall deposit into the Collection Account the amount of such insufficiency within one Business Day of the Agent’s demand therefor.

(b) Within five Business Days following the occurrence of a Hedge Trigger Event relating to either the Existing Loans or the Additional Loans, and on each Borrowing Date thereafter so long as such Hedge Trigger Event is continuing, the Subservicer will, at the expense of the Borrower, arrange for the Borrower to enter into one or more Hedge Transactions satisfying the requirements of this Section 2.06(b). Each Hedge Transaction shall (i) have a scheduled amortizing notional amount which, when combined with all other Hedge Transactions then in effect relating to the Existing Loans or the Additional Loans (as applicable), satisfies the related Hedge Notional Amount Requirement for such Loans, (ii) provide that the payments to be made by the Hedge Counterparty thereunder will be based on a one-month London interbank offered rate selected by the Subservicer and approved in writing by the Agent (or such other rate as the Subservicer may select with the prior written consent of the Agent), (iii) provide that the payments required to be made by the Borrower thereunder (if any) will be based on either (A) in the case of a Hedge Transaction relating to the Existing Loans, a Swap Rate, as selected by the Agent in consultation with the Subservicer and (B) in the case of a Hedge Transaction relating to the Additional Loans, a bank “prime rate” selected by the Subservicer and approved in writing by the Agent (or such other rate as the Subservicer may select with the prior written consent of the Agent) and (iv) incorporate such other terms as the Agent may reasonably direct in consultation with the Subservicer.

(c) If on any Payment Date following the occurrence and during the continuation of a Hedge Trigger Event the actual aggregate notional amount of all Hedge Transactions relating to the Existing Loans or the Additional Loans, as applicable, is not equal to the applicable Hedge Notional Amount Requirement, the Subservicer shall, at the request of the Agent, arrange for the Borrower to enter into an additional Hedge Transaction or terminate an existing Hedge Transaction in whole or in part, as necessary in order to ensure that the actual aggregate notional amount of all Hedge Transactions relating to such Loans after giving effect to such addition or termination is equal to the Hedge Notional Amount Requirement for such Loans as re-calculated by the Agent on

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such date. Each additional Hedge Transaction entered into by the Borrower pursuant to this Section 2.06(c) must satisfy the conditions set forth in Section 2.06(b) above.

(d) On each date that a repayment of the principal amount of the Advances is made hereunder (other than with regularly scheduled payments of principal on the Loans), the aggregate notional amounts of the Hedge Transactions shall, at the request of the Agent, be reduced such that, after giving effect to such reduction, the aggregate notional amount of all Hedge Transactions relating to the Existing Loans and the Additional Loans, respectively, after giving effect to such addition or termination is equal to the Hedge Notional Amount Requirement for such Loans as re-calculated by the Agent on such date.

(e) In the event that a termination payment is paid by the Hedge Counterparty to the Borrower, that termination payment shall either be paid directly to the replacement counterparty who is entering into the replacement Hedge Transaction or deposited into the Collection Account and applied as Available Funds on the next Payment Date.

(f) The Borrower shall not enter into any Hedge Transaction, and the Subservicer will not arrange for the Borrower to enter into any Hedge Transaction unless (i) the Hedge Counterparty thereunder is, at the time such Hedge Transaction is entered into by the Borrower, an Eligible Hedge Counterparty and (ii) the Agent has reviewed and approved the form and content of the Hedge Agreement governing such Hedge Transaction.

Section 2.07. Payments and Computations, Etc.

(a) The Advances shall accrue interest on each day during each Interest Period at the applicable Interest Rate. The accrued and unpaid Interest for each Advance shall be due and payable in full on each Interest Payment Date for such Advance.

(b) All amounts to be paid or deposited by any Brooke Party hereunder shall be paid or deposited in accordance with the terms hereof no later than 11:00 a.m. (New York City time) on the day when due in lawful money of the United States in immediately available funds in accordance with the Agent’s instructions. If any Brooke Party fails to make any payment or deposit required to be made by it hereunder when due, such Brooke Party shall, to the extent permitted by law, pay to the Agent interest on such amount at the Default Funding Rate, payable on demand; provided, however, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. Any Obligation hereunder shall not be reduced by any distribution if such distribution is rescinded or required to be returned to the Borrower or any other Person for any reason. All computations of Interest, Facility Fees, and other interest and fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. All such computations shall be made by the Agent, which computations by the Agent shall be conclusive and binding absent manifest error.

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(c) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of Interest, Facility Fees or any other interest or fee payable hereunder, as the case may be.

(d) If any Borrowing requested by the Borrower pursuant to Section 2.02 is not for any reason whatsoever made or effectuated (other than through the gross negligence or willful misconduct of the Lender and/or Agent) on the date specified therefor in such request, the Borrower shall indemnify the Lender and each Funding Source against any loss, cost or expense incurred by the Lender or such Funding Source in connection therewith, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits, commercial paper proceeds or other funds acquired by the Lender or such Funding Source to fund or maintain such Advances during such Interest Period.

Section 2.08. Fees.

(a) The Borrower shall pay the Agent the accrued and unpaid Program Fees, Non-Use Fees, Increase Fees, Make-Whole Fees, Prepayment Fees, Exit Fees and other fees in the amounts and on the dates set forth in the Fee Letter.

(b) The Borrower shall pay to the Agent, upon the Agent’s demand, for the benefit of the Lender, all Liquidation Fees with respect to any repayment of an Advance.

(c) (i) To the extent not already included in the computation of the CP Rate, the Borrower shall pay on demand any and all commissions of placement agents and dealers in respect of commercial paper notes issued to fund the Advances. (ii) In addition, the Borrower shall also pay on demand any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement, any other Related Document or any agreement or other document providing liquidity support, credit enhancement or other similar support to the Lender in connection with this Agreement or the funding or maintenance of Advances hereunder.

Section 2.09. Prepayments.

(a) Subject to Section 2.16, the Borrower shall have the right to prepay any Advance, in whole or in part, on any Interest Payment Date for such Advance upon at least three Business Days’ written notice to the Agent, which notice shall specify the proposed prepayment date and the amount of such prepayment, provided that any partial prepayment of less than all the Advances shall be equal to an integral multiple of $500,000. Each notice of prepayment shall be irrevocable and binding on the Borrower.

(b) If, on any Business Day (i) the Facility Amount shall exceed the Borrowing Limit or (ii) a Program Deficiency exists, then, the Borrower shall remit to the

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Agent, prior to any Borrowing and in any event no later than the close of business of the Agent on the next succeeding Business Day, a payment (to be applied by the Agent to repay Advances) in such amount as may be necessary (A) to reduce the Facility Amount to an amount less than or equal to the Borrowing Limit and (B) to eliminate such Program Deficiency.

(c) If, as result of any payments required to be paid by the Borrower pursuant to Sections 2.08(c)(ii), 2.10 and 2.11 or by the Seller to the Agent or the Lender pursuant to Section 2.10(b) of the Sale and Servicing Agreement, the effective interest rate on the Advances is increased by 0.50% per annum or more, and such increased rate continues to be in effect for period of 30 consecutive days, then the Borrower shall have the right to prepay all Advances in full without any Prepayment Fee, and to declare the Termination Date hereunder, on the first Interest Payment Date following the expiration of such 30 day period. Any such prepayment and declaration shall be made upon at least five Business Days’ written notice to the Agent, which notice shall specify the proposed Termination Date.

Section 2.10. Increased Costs; Capital Adequacy; Eurodollar Disruption Event.

(a) If after the date hereof, the Lender, the Agent, any Funding Source or any of their respective Affiliates (each an “Affected Party”) shall be charged any fee, expense or increased cost on account of the adoption of any applicable law, rule or regulation or any accounting principle (including, without limitation, any applicable law, rule or regulation or accounting principle regarding or affecting capital adequacy) or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority or accounting body charged with the interpretation or administration thereof, or compliance with any request or directive (whether or not having the force of law) of any such Governmental Authority or accounting body (a “Regulatory Change”): (i) which subjects any Affected Party to any charge or withholding on or with respect to any Funding Agreement or an Affected Party’s obligations under a Funding Agreement, or on or with respect to the Loans, or changes the basis of taxation of payments to any Affected Party of any amounts payable under any Funding Agreement (except for changes in the rate of tax on the overall net income of an Affected Party) or (ii) which imposes, modifies or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of a Affected Party, or credit extended by a Affected Party pursuant to a Funding Agreement or (iii) which imposes any other condition the result of which is to increase the cost to an Affected Party of performing its obligations under a Funding Agreement, or to reduce the rate of return on an Affected Party’s capital as a consequence of its obligations under a Funding Agreement, or to reduce the amount of any sum received or receivable by a Affected Party under a Funding Agreement or to require any payment calculated by reference to the amount of interests or loans held or interest received by it, then, upon demand by the Agent by the submission of the certificate described below, the Borrower shall pay to the Agent, for the benefit of the relevant Affected Party, such amounts as are necessary to compensate such Affected

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Party for such increased cost, reduction or payment. A certificate from the relevant Affected Party setting forth in reasonable detail the amounts so required to compensate such Affected Party submitted to the Borrower shall be conclusive and binding for all purposes, absent manifest error.

(b) If the Lender shall notify the Agent that a Eurodollar Disruption Event as described in clause (a) of the definition of “Eurodollar Disruption Event” has occurred, the Agent shall in turn so notify the Borrower, whereupon all Advances in respect of which Interest accrues at an Interest Rate determined by reference to LIBOR for the then current Interest Period shall immediately be converted into Advances in respect of which Interest accrues by reference to the Base Rate for the remainder of such Interest Period.

Section 2.11. Taxes.

(a) Any and all payments and deposits required to be made hereunder or under any other Related Document by any Brooke Party shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding net income taxes that are imposed by the United States and franchise taxes and net income taxes that are imposed on any Affected Party by the state or foreign jurisdiction under the laws of which such Affected Party is organized or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If any Brooke Party or the Agent shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Affected Party, (i) the Borrower shall make an additional payment to such Affected Party, in an amount sufficient so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11), such Affected Party receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Brooke Party or the Agent, as the case may be, shall make such deductions and (iii) such Brooke Party or the Agent, as the case may be, shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.

(b) In addition, the Borrower agrees to pay any present or future stamp or other documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any other Related Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Related Document (hereinafter referred to as “Other Taxes”).

(c) The Borrower will indemnify each Affected Party for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.11) paid by such Affected Party and any liability (including, without limitation, penalties, interest and expenses) arising therefrom or with respect thereto whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty days from the date the Affected Party makes written demand therefor (and a copy of such demand

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shall be delivered to the Agent). A certificate as to the amount of such indemnification submitted to the Borrower and the Agent by such Affected Party, setting forth, in reasonable detail, the basis for and the calculation thereof, shall be conclusive and binding for all purposes absent manifest error.

(d) Each Funding Source who is organized outside the United States shall, prior to the date hereof (or, in the case of any Person who becomes a Funding Source after the date hereof, prior to the date on which it so becomes a Funding Source), deliver to the Borrower and the Agent such certificates, documents or other evidence, as required by the IRC or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form W-8BEN or Form W-8ECI and any other certificate or statement of exemption required by Treasury Regulation Section 1.1441-1(a) or Section 1.1441-6(c) or any subsequent version thereof, properly completed and duly executed by such Funding Source establishing that such payment is (i) not subject to withholding under the IRC because such payment is effectively connected with the conduct by such Funding Source of a trade or business in the United States or (ii) totally exempt from United States tax under a provision of an applicable tax treaty. Each such Funding Source that changes its funding office shall promptly notify the Borrower and the Agent of such change and, upon written request from the Borrower or the Agent, shall deliver any new certificates, documents or other evidence required pursuant to the preceding sentence prior to the immediately following due date of any payment by the Borrower hereunder. Unless the Borrower and the Agent have received forms or other documents satisfactory to them indicating that payments hereunder are not subject to United States withholding tax, notwithstanding paragraph (a), the Borrower or the Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Funding Source organized under the laws of a jurisdiction outside the United States.

(e) The Borrower shall not be required to pay any amounts to any Affected Party in respect of Taxes and Other Taxes pursuant to paragraphs (a), (b) and (c) above if the obligation to pay such amounts would not have arisen but for a failure by such Affected Party to comply with the provisions of paragraph (d) above unless such Affected Party is unable to comply with paragraph (d) because of (i) a change in applicable law, regulation or official interpretation thereof or (ii) an amendment, modification or revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case after the date hereof (or, in the case of any Person who became an Affected Party after the date hereof, after the date on which it so became an Affected Party).

Section 2.12. Collateral Assignment of the Related Documents. To secure the prompt and complete payment when due of the Obligations and the performance by the Borrower of all of the covenants and obligations to be performed by it pursuant to this Agreement and each other Related Document, the Borrower hereby assigns to the Agent, for the benefit of the Secured Parties (and their respective successors and assigns), all of the Borrower’s right and title to and interest in the Related Documents, including, without limitation, (i) all rights of the Borrower to receive moneys due or to become due under or pursuant to the Related

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Documents, (ii) all security interests and property subject thereto from time to time purporting to secure payment of monies due or to become due under or pursuant to the Related Documents, (iii) all rights of the Borrower to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Related Documents, (iv) all claims of the Borrower for damages arising out of or for breach of or default under the Related Documents, and (v) the right to compel performance and otherwise exercise all remedies and enforce all rights of the Borrower under the Related Documents.

Section 2.13. Grant of a Security Interest. To secure the prompt and complete payment when due of the Obligations and the performance by the Borrower of all of the covenants and obligations to be performed by it pursuant to this Agreement and each other Related Document, the Borrower hereby grants to the Agent, on behalf of the Secured Parties (and their respective successors and assigns), a security interest in all of the Borrower’s right, title and interest in and to all of the following property and interests in property (collectively, the “Collateral”), in each case whether tangible or intangible and whether now owned or existing or hereafter arising or acquired and wheresoever located:

(a) all Loans, together with all Other Conveyed Property, Records and other property and interests in property related thereto or pledged as collateral therefor, including, without limitation, all Collections and other moneys due and to become due under or in connection with any of the foregoing (whether in respect of principal, interest, fees, expenses, indemnities or otherwise);

(b) all right, title and interest of the Borrower in, to and under all Loan Documents and Related Documents, including, without limitation, and all other moneys due and to become due under or in connection with any of the foregoing (whether in respect of principal, interest, fees, expenses, indemnities, or otherwise);

(c) all right, title and interest of the Borrower in, to and under the Collection Account, each Trust Account and all other bank and similar accounts and lock-boxes relating to the collection of Loans and other Collateral and all funds held therein or in such other accounts, and all investments made with funds in the Collection Account, the Trust Accounts and such other accounts and lock-boxes;

(d) all equipment, inventory, accounts, general intangibles, payment intangibles, instruments, investment property, documents, chattel paper, goods, moneys, letters of credit, letter of credit rights, certificates of deposit, deposit accounts and all other property and interests in property of the Borrower, whether tangible or intangible and whether now owned or existing or hereafter arising or acquired and wheresoever located; and

(e) all proceeds of the foregoing property described in clauses (a) through (d) above, including, without limitation, proceeds which constitute property of the type described in clauses (a) through (d) above and, to the extent not otherwise included, all (i) payments under any insurance policy (whether or not the Agent or the Lender is the loss payee thereof), indemnity, warranty or guaranty payable by reason of loss or damage to

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or otherwise with respect to any of the foregoing and (ii) interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for or on account of the sale or other disposition of any or all of the then existing Collateral.

Section 2.14. Releases of Collateral. The Borrower may, upon not less than ten (10) Business Days’ prior written notice to the Agent, request the Agent to release its security interest in one or more Loans to the extent such release is necessary in connection with (i) any repurchase of such Loans pursuant to and in accordance with the Sale and Servicing Agreement, (ii) any sale of such Loans at fair market value on a “whole-loan” basis to a party that is not an Affiliate of any Brooke Party or (iii) any sale of such Loans to a bankruptcy-remote subsidiary of the Seller or the Parent pursuant to a Term Securitization; provided any such sale or repurchase shall be made pursuant to documentation reasonably satisfactory to the Agent, which documentation (x) shall specify that such sale or repurchase is being made without recourse to the Borrower and without representation or warranty of any kind on the part of the Borrower, other than a representation and warranty that such sale or repurchase is being made free and clear of any Adverse Claim created by the Borrower and (y) shall not impose any liabilities or obligations on the Borrower other than customary obligations necessary to effectuate the transfer of title of the relevant Loans, which obligations the Borrower is then capable of performing. Any sale or repurchase satisfying the requirements specified in the preceding sentence is hereinafter referred to as a “Permitted Sale Transaction”. The release of the Agent’s security interest in any such Loan in connection with a Permitted Sale Transaction shall be subject to the satisfaction of the following conditions precedent:

(i) all proceeds arising from such Permitted Sale Transaction have been (or will be contemporaneously with such release) deposited into the Collection Account,

(ii) after giving effect to such release and the deposit of the proceeds referred to in clause (i), (A) no Event of Default, Potential Event of Default or Termination Event shall have occurred and be continuing, and (B) no Program Deficiency would exist;

(iii) if a Hedge Trigger Event has occurred, the Borrower shall have terminated one or more Hedge Transactions (in whole or in part), such that after giving effect to such termination and all prepayments of the Advances to be made on or prior to the next Payment Date, the aggregate notional amount of the Hedge Transactions is equal to the Hedge Notional Amount Requirement, and all Hedge Breakage Costs associated with such termination have been (or will be, on or prior to the date when such Hedge Breakage Costs are due) paid in full;

(iv) all Exit Fees payable in connection with such release have been (or will be, by the next Payment Date) paid in full;

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(v) on or prior to such release, the Borrower shall have deposited into the Collection Account sufficient cash in order to comply with the conditions above; and

(vi) the Agent shall have received all instruments, documents, opinions and other information as the Agent may reasonably request in order to confirm (A) the satisfaction of the foregoing conditions and (B) that such release is being effected pursuant to a Permitted Sale Transaction.

Upon the written request of the Borrower following the satisfaction of the conditions precedent specified above, and at the cost and expense of Borrower, the Agent shall deliver and, if necessary, execute such instruments and documents as the Borrower may reasonably request for purposes of effectuating any release permitted pursuant to this Section 2.14.

Section 2.15. Evidence of Debt. The Lender shall maintain an account or accounts evidencing the indebtedness of the Borrower to the Lender resulting from each Advance owing to the Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The entries made in such account(s) of the Lender shall be conclusive and binding for all purposes, absent manifest error. The Advances shall also be evidenced by a promissory note in the form attached hereto as Exhibit H (the “Note”) having a stated principal amount equal to the Borrowing Limit.

Section 2.16. Minimum Utilization. The Borrower shall cause the average daily outstanding principal balance of the Advances hereunder for each Utilization Period to equal or exceed $25,000,000 (the “Minimum Utilization Requirement”). If the Minimum Utilization Requirement is not satisfied for any Utilization Period (whether by reason of the failure of the conditions to Advances hereunder to be satisfied or for any other reason whatsoever), then the Borrower shall pay to the Agent the Make-Whole Fee in accordance with the terms of the Fee Letter.

ARTICLE III

CONDITIONS OF LOANS

Section 3.01. Conditions Precedent to Initial Borrowing. The initial Borrowing hereunder is subject to the condition precedent that the Agent shall have received on or before the date of such Borrowing each of the following:

(a) the instruments, documents, agreements and opinions listed in Schedule IV, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Agent and the Lender;

(b) confirmation from each of Moody’s and Fitch that the execution and delivery of this Agreement will not result in the reduction or withdrawal of the then current ratings of the Lender’s commercial paper notes;

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(c) payment of all fees required to be paid on or before the Closing Date pursuant to the Fee Letter; and

(d) such other approvals, opinions or documents as the Agent may reasonably request.

Section 3.02. Conditions Precedent to All Borrowings. Each Borrowing (including the initial Borrowing) shall be subject to the further conditions precedent that:

(a) no later than the Business Day prior to the date of such Borrowing, the Brooke Parties shall have delivered to the Agent, in form and substance reasonably satisfactory to the Agent, a completed Borrowing Base Certificate containing information accurate as of a date no more than two (2) Business Days prior to the date of such Borrowing and confirming that no Program Deficiency would exist after giving effect to such Borrowing;

(b) if a Hedge Trigger Event has occurred, any Hedge Transaction required to be entered into pursuant to Section 2.06 with respect to the Borrowing has been entered into by the Borrower and an Eligible Hedge Counterparty;

(c) on the date of such Borrowing, the following statements shall be true and correct as of the date of such Borrowing (and each Brooke Party shall be deemed to have represented and warranted that the following statements are true and correct as of the date of such Borrowing):

(i) the representations contained in Section 4.01 and the representations of the other Brooke Parties contained in the other Related Documents are true and correct on and as of such date as though made on and as of such date;

(ii) no event has occurred and is continuing, or would result from such Borrowing, which constitutes an Event of Default, a Potential Event of Default or a Termination Event;

(iii) on and as of such day, after giving effect to such Borrowing, (A) the Facility Amount would not exceed the Borrowing Limit, and (B) no Program Deficiency would exist;

(iv) the Termination Date has not occurred; and

(v) no law or regulation shall prohibit, and no order, judgment or decree of any federal, state or local court or governmental body, agency or instrumentality shall prohibit or enjoin, the making of such Advances by the Lender in accordance with the provisions hereof;

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(vi) no Insurance Company Trigger shall have occurred and be continuing; and

(d) the Agent shall have received such other approvals, opinions, documents or information as the Agent may reasonably request in order to confirm (A) the satisfaction of the conditions set forth above and (B) that each Loan to be purchased by the Borrower with the proceeds of such Borrowing is an Eligible Loan.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01. Representations and Warranties. Each of the Borrower, BCC and the Parent (in each case solely as to itself) hereby represents and warrants to the Lender and the Agent as follows as of the Closing Date and each Borrowing Date:

(a) Organization and Good Standing. Such Brooke Party has been duly organized and is validly existing as a corporation (or, in the case of the Borrower, a limited liability company) in good standing under the laws of the State of Kansas (or, in the case of the Borrower, the State of Delaware), and is not organized under the laws of any other jurisdiction or Governmental Authority. Such Brooke Party has the power and authority to own its properties and to conduct its business as such properties are currently owned and such business is currently conducted. Each of the Seller and the Borrower had at all relevant times, and now has, the power, authority and legal right to acquire, own and sell, and to grant security interests in, the Loans and Other Conveyed Property as contemplated by the Related Documents.

(b) Due Qualification. Each Brooke Party is duly qualified to do business as a foreign corporation in good standing, has filed on a timely basis all required tax returns, and has obtained all necessary licenses and approvals in all jurisdictions where the failure to do so would have a Material Adverse Effect.

(c) Power and Authority. Such Brooke Party has the power and authority to execute and deliver this Agreement and the other Related Documents to which it is named as a party and to carry out its terms and their terms, respectively; and the execution, delivery and performance of this Agreement and the other Related Documents to which it is named as a party have been duly authorized by such Brooke Party by all necessary corporate or limited liability company action and this Agreement and each other Related Document to which it is named as a party have been duly executed and delivered by such Brooke Party.

(d) Valid and Binding Obligations. This Agreement and each other Related Document to which such Brooke Party is named as a party, when duly executed and delivered by the other parties thereto, shall constitute the legal, valid and binding obligations of such Brooke Party enforceable in accordance with their respective terms,

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except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by equitable limitations on the availability of specific remedies, regardless of whether such enforceability is considered in a proceeding in equity or at law.

(e) No Violation. The consummation of the transactions contemplated by this Agreement and the other Related Documents and the fulfillment of the terms of this Agreement and the other Related Documents shall not conflict with, result in any breach of any of the terms and provisions of or constitute (with or without notice, lapse of time or both) a default under the organizational documents of such Brooke Party, or any material indenture, agreement, mortgage, deed of trust or other instrument to which such Brooke Party is a party or by which it or its properties are bound, or result in the creation or imposition of any Adverse Claim upon any of its properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument (other than this Agreement, the Sale and Servicing Agreement and the Master Agent Security Agreement), or violate in any material respect any law, order, rule or regulation applicable to such Brooke Party of any court or of any federal or state regulatory body, administrative agency or other Governmental Authority having jurisdiction over such Brooke Party or any of its properties. Such Brooke Party is not in default with respect to any order of any court, arbitrator or Governmental Authority.

(f) No Proceedings. There are no proceedings or investigations pending or, to the best of such Brooke Party’s knowledge, threatened against it before any court, regulatory body, administrative agency or other tribunal or Governmental Authority having jurisdiction over such Brooke Party or its properties (A) asserting the invalidity of this Agreement or any of the Related Documents, (B) seeking to prevent the making of any Advance or the consummation of any of the transactions contemplated by this Agreement or any of the Related Documents, (C) seeking any judgment or other legal or equitable relief from the Borrower or the Master Agent, (D) seeking any other determination or ruling that would be reasonably likely to have a Material Adverse Effect, or (E) seeking to materially and adversely affect the federal income tax or other federal, state or local tax attributes of the Advances.

(g) No Consents. No consent, approval, license, authorization or order of or declaration or registration or filing with any Governmental Authority is required to be made by such Brooke Party in connection with the execution, delivery or performance of this Agreement or any other Related Document or the consummation of the transactions contemplated hereby or thereby, except such as have been duly made, effected or obtained.

(h) Chief Executive Office; Tax ID; Jurisdiction of Organization. The chief executive office of such Brooke Party is located at 10950 Grandview Dr., Overland Park, Kansas 66210. During the past five years, such Brooke Party has not had its chief executive office located in a state other than the State of Kansas. The Federal Employer Identification Number for each Brooke Party is correctly set forth on Schedule II. The

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Borrower’s sole jurisdiction of organization is the State of Delaware, and the Seller’s sole jurisdiction of organization is the State of Kansas.

(i) Legal Name. The legal name of such Brooke Party is as set forth in Schedule II of this Agreement. Except as set forth in Schedule II of this Agreement, such Brooke Party has not changed its name during the preceding six years and does not have any trade names, fictitious names, assumed names or “doing business” names.

(j) Solvency. Such Brooke Party is solvent and will not become insolvent after giving effect to the transactions contemplated by the Related Documents. Such Brooke Party is paying its debts as they become due and after giving effect to the transactions contemplated by the Related Documents will have adequate capital to conduct its business.

(k) Pension Plans. The Borrower does not have any pension or profit sharing plans. To the extent any other Brooke Party has any pension or profit sharing plans, such plans have been fully funded in accordance with all applicable laws, rules and regulations and the terms of such plans.

(l) Nonconsolidation. The statements contained under (i) “Section I – Facts and Assumptions” in the opinion of Polsinelli Shalton Welte Suelthaus P.C. regarding substantive consolidation matters delivered to the Agent and others on the Closing Date and (ii) “Section I – Facts and Assumptions” in the opinion of Polsinelli Shalton Welte Suelthaus P.C. regarding true sale matters delivered to the Agent and others on the Closing Date are, in each case, true and correct with respect to itself, and such Brooke Party will comply with any covenants or obligations assumed to be complied with by it in such opinion as if such covenants and obligations were set forth herein.

(m) Notes to Financial Statements. All audited financial statements of the Parent or the Seller (or any Affiliate thereof) that are consolidated to include the Borrower will contain notes clearly stating that (A) all of the Loans are owned by the Borrower and (B) the Borrower is a separate legal entity.

(n) Ownership of the Seller and the Borrower. The Parent is the legal and beneficial owner of at least a majority of the capital stock of the Seller (such that the Seller is under the “control” of the Parent as such term is defined in the definition of “Affiliate”) and 100% of the membership interests of the Master Agent; and all of such capital stock and membership interests have been fully paid and are owned by the Parent free and clear of all warrants, options, rights to purchase and other Adverse Claims. The Parent will not transfer any stock or membership interests of or other interest in the Seller or the Master Agent in a manner that would cause the representation set forth in the immediately preceding sentence to cease to be true without the prior written consent of the Agent. The Seller is the legal and beneficial owner of 100% of the membership interests of the Borrower; and all of such membership interests have been fully paid and are owned by the Seller free and clear of all warrants, options, rights to purchase and

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other Adverse Claims. The Seller will not transfer any membership or other interest in the Borrower without the prior written consent of the Agent.

(o) Accuracy of Information. All information heretofore furnished by any Brooke Party to the Agent or the Lender for purposes of or in connection with this Agreement, any of the other Related Documents or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by such Brooke Party to the Agent or the Lender will be, true and accurate in all material respects, on the date as of which such information is stated or certified and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein, taken as a whole and in context, not misleading.

(p) Title to Loans Purchased From Seller. Each Loan has been purchased by the Borrower from the Seller in accordance with the terms of the Sale and Servicing Agreement, and the Borrower has thereby irrevocably acquired all legal and equitable title to such Loan and the Other Conveyed Property free and clear of any Adverse Claims other than Permitted Liens. Without limiting the foregoing, all actions (including, without limitation, the filing of all financing statements or other similar instruments or documents under the UCC of all applicable jurisdictions and the giving of all notices that may be required under the laws of any applicable jurisdiction) required in order to perfect and protect the Borrower’s interest in the Loans and Other Conveyed Property with respect thereto as against any purchasers from, or creditors of, the Seller have been duly taken.

(q) Perfection. This Agreement (together with the financing statements filed on or prior to the Closing Date) is effective to create a valid and perfected first priority security interest in the Collateral now existing or hereafter arising. Without limiting the foregoing, all actions (including, without limitation, the filing of all financing statements or other similar instruments or documents under the UCC of all applicable jurisdictions and the giving of all notices that may be required under the laws of any applicable jurisdiction) required in order to perfect and protect the interests of the Agent and the Lender in the Collateral as against any purchasers from, or creditors of, any Brooke Party have been duly taken. The representations and warranties set forth in Part B of Schedule I are true and correct.

(r) Trust Accounts. All Obligors have been instructed to pay all Collections directly to a Trust Account or to the Collection Account. The names, addresses and account numbers of all Trust Accounts are as set forth on Schedule II. Neither the Master Agent nor any Brooke Party has granted any Person, other than the Master Agent Trustee as contemplated by the Master Agent Security Agreement, the Trust Account Control Agreements and the Trust Account Intercreditor Agreement, dominion and control of any Trust Account, or the right to take dominion and control of any Trust Account at a future time or upon the occurrence of a future event. Each bank at which a Receipts Trust Account is maintained has been instructed to sweep all available funds to the Consolidated Receipts Trust Account on a daily basis, and the bank at which

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the Consolidated Receipts Trust Account is maintained has been instructed to sweep all available funds to the Master Receipts Trust Account on a daily basis. All Collections remitted to the Master Receipts Trust Account have been and will continue to be transferred to the Collection Account within two Business Days of receipt in accordance with the Master Agent Security Agreement.

(s) Credit and Collection Policies. With respect to each Loan, each Brooke Party has complied in all material respects with, and has not made any material changes in, the Credit and Collection Policy except as permitted hereunder.

(t) Payments to Seller. With respect to each Loan transferred to the Borrower under the Sale and Servicing Agreement, the Borrower has given reasonably equivalent value to the Seller in consideration for such transfer of such Loan and the Other Conveyed Property with respect thereto and such transfer was not made for or on account of an antecedent debt. No transfer by the Seller to the Borrower of any Loan is or may be voidable under any section of the Bankruptcy Code.

(u) Not an Investment Company. Such Brooke Party is not an “investment company” within the meaning of the Investment Company Act of 1940, as amended from time to time, or any successor statute.

(v) Taxes. Such Brooke Party has paid when due all taxes payable by it in connection with the Loans other than those taxes which are being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained in accordance with GAAP.

(w) No Program Deficiency. No Program Deficiency exists.

(x) No Event of Default, Etc. No Event of Default, Potential Event of Default or Termination Event has occurred and is continuing.

(y) Eligible Loans. Each Loan was an Eligible Loan (i) as of the date on which such Loan was sold by the Seller to the Borrower and (ii) as of each other date on which such Loan was included in the calculation of Net Eligible Loan Balance in any Servicer’s Certificate or Borrowing Base Certificate.

(z) Financial Statements of Parent. The consolidated balance sheets of the Parent and its consolidated Subsidiaries as at December 31, 2003, and the related statements of income and retained earnings of the Parent and its consolidated Subsidiaries for the fiscal year then ended, certified by Summers, Spencer & Callison, independent public accountants, copies of which have been furnished to the Agent, fairly present in all material respects the consolidated financial condition of the Parent and its consolidated Subsidiaries as at such date and the consolidated results of the operations of the Parent and its consolidated Subsidiaries for the period ended on such date, all in accordance with GAAP consistently applied, and since December 31, 2003 there has been no material adverse change in the financial condition, business or operations of the Parent.

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(aa) Use of Proceeds. No proceeds of any purchase hereunder will be used (i) for a purpose which violates, or would be inconsistent with, Regulation T, U or X promulgated by the Board of Governors of the Federal Reserve System from time to time or (ii) to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended.

(bb) Material Adverse Effect. Since December 31, 2003 no event has occurred which would have a Material Adverse Effect.

(cc) Representations in other Related Documents. All other representations and warranties made by any Brooke Party in the Related Documents are true and correct as of such date as though made on and as of such date.

ARTICLE V

COVENANTS

Section 5.01. Affirmative Covenants.

Until the Final Payout Date, each of the Borrower, BCC and the Parent agrees on behalf of itself that it will (and, in the case of the Parent, that it will cause the Master Agent to) perform and observe the covenants and agreements set forth in this Section 5.01.

(a) Reporting. Each Brooke Party will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with GAAP, and will furnish to the Agent (at its own expense):

(i) Annual Financial Reporting. Within 120 days after the close of each of its fiscal years, audited financial statements for such Brooke Party for such fiscal year prepared in accordance with GAAP and certified in a manner acceptable to the Agent by nationally recognized independent public accountants acceptable to the Agent.

(ii) Quarterly Reporting. Within 45 days after the close of each quarterly period of each of its fiscal years, balance sheets for such Brooke Party as at the close of each such period and statements of income and retained earnings and a statement of cash flows for such Brooke Party for the period from the beginning of such fiscal year to the end of such quarter, all prepared in accordance with GAAP (subject to normal year-end adjustments and without footnotes) and certified by such Brooke Party’s president, executive vice president, chief executive officer or chief financial officer.

(iii) Monthly Reporting. Within 30 days after the close of each calendar month (other than the last calendar month of any fiscal quarter), balance sheets for such Brooke Party as at the close of each such month and statements of

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income and retained earnings and a statement of cash flows for such Brooke Party for the period from the beginning of the fiscal quarter in which such month occurs to the end of such calendar month, all prepared in accordance with GAAP (subject to normal year-end adjustments and without footnotes) and certified by such Brooke Party’s president, executive vice president, chief executive officer or chief financial officer; provided that for BCC and the Parent, the first such monthly financial statements shall be for the month of January 2005.

(iv) Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit I signed by such Brooke Party’s corporate comptroller president, executive vice president, chief executive officer or chief financial officer and dated the date of such annual financial statement, quarterly financial statement or monthly financial statement, as the case may be.

(v) S.E.C. Filings. Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which any Brooke Party or any Affiliate of a Brooke Party files with the Securities and Exchange Commission, if any.

(vi) Notices Under Related Documents. Forthwith upon its receipt of any notice, request for consent, financial statements, certification, report or other communication under or in connection with any Related Document from any Person other than the Agent, copies of the same.

(vii) Change in Credit and Collection Policy. At least ten Business Days prior to the effectiveness of any material change in or amendment to the Credit and Collection Policy, a copy of the Credit and Collection Policy then in effect and a notice indicating such change or amendment.

(viii) Other Information. Such other information (including Obligor names and addresses) as the Agent may from time to time reasonably request.

All financial statements required to be delivered in respect of the Parent pursuant to this Section 5.01 must be delivered on both a consolidated (with its consolidated subsidiaries) and a consolidating basis. All financial statements required to be delivered in respect of the other Brooke Parties pursuant to this Section 5.01 must be delivered on a stand-alone basis.

(b) Notices. Each Brooke Party will notify the Agent in writing of any of the following immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto:

(i) Events of Default, Potential Events of Default and Termination Events. The occurrence of each Event of Default, each Potential Event of Default and each Termination Event, by a statement of the corporate

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comptroller president, executive vice president, chief executive officer or chief financial officer of such Brooke Party.

(ii) Judgment. The entry of (A) any judgment or decree against the Borrower or the Master Agent or (B) any judgment or decree against any other Brooke Party or any of their respective Subsidiaries if the aggregate amount of all judgments and decrees then outstanding against the Brooke Parties and their respective Subsidiaries exceeds $100,000 (net of any insurance proceeds actually received by the applicable Brooke Parties or their Subsidiaries with respect to such judgment) or such judgment or decree would otherwise be reasonably likely to have a Material Adverse Effect.

(iii) Litigation. The institution of any litigation, arbitration proceeding or governmental proceeding (A) against the Borrower or the Master Agent or to which the Borrower or the Master Agent becomes a party or (B) against any other Brooke Party or any Subsidiary of a Brooke Party if such litigation, arbitration proceeding or governmental proceeding, if adversely determined against such Brooke Party or such Subsidiary, would be reasonably likely to have a Material Adverse Effect.

(c) Compliance With Laws. Each Brooke Party will comply in all material respects with all applicable laws, rules, regulations, orders writs, judgments, injunctions, decrees or awards to which it may be subject. Each Brooke Party will pay when due any taxes payable by it when due other than those taxes which are being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained in accordance with GAAP.

(d) Audits. Each Brooke Party will furnish to the Agent from time to time such information with respect to it, the Loans and the Other Conveyed Property with respect thereto as the Agent may reasonably request. Each such Brooke Party shall, from time to time during regular business hours as requested by the Agent, permit the Agent, or its agents or representatives at the Borrower’s expense, (i) to examine and make copies of and abstracts from all Records in the possession or under the control of any Brooke Party relating to the Collateral, including, without limitation, the related Loan Documents and other Records, and (ii) to visit the offices and properties of any Brooke Party for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to any Brooke Party’s financial condition or the Loans and the Other Conveyed Property or any Brooke Party’s performance under the Related Documents to which it is a party or under the Loan Documents with any of the officers or employees of such Brooke Party having knowledge of such matters; provided that, so long as no Event of Default has occurred and is continuing, the Agent shall conduct no more than four audits during the first twelve months after the Closing Date and no more than two audits during any twelve-month period thereafter; and provided further that, so long as no Event of Default has occurred and is continuing, the Borrower’s obligation to reimburse the Agent for expenses incurred in connection with the audits performed in any single calendar

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year, including expenses incurred in the review of the Servicer’s and the Backup Master Agent Servicer’s books and records in connection therewith, shall not exceed $25,000. In addition, the Agent may, at the expense of the Borrower, (i) perform or direct the Seller or the Parent to perform background checks on any material personnel hired by BCC or the Parent after the Closing Date and (ii) contact Obligors directly for the purpose of confirming information relating to the Loans. Each Brooke Party shall cooperate with the Agent in any such background check or Obligor confirmation and shall furnish to the Agent all information that the Agent may reasonably request in connection therewith.

(e) Keeping and Marking of Records and Books.

(i) Each Brooke Party will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate Records relating to the Loans in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable in light of industry practice for the collection of all Loans (including, without limitation, records adequate to permit the immediate identification of each new Loan and all Collections of and adjustments to each existing Loan). Each such Brooke Party will give the Agent notice of any material change in the administrative and operating procedures referred to in the previous sentence.

(ii) Each Brooke Party will (a) on or prior to the date hereof, mark its master data processing records relating to the Loans with a legend, acceptable to the Agent, describing the security interest of the Agent and (b) upon the request of the Agent following the occurrence of any Event of Default, deliver to the Agent or its designee all Loan Documents in its possession or under its control (including, without limitation, all multiple originals of any such Loan Documents).

(f) Compliance With Loan Documents and Credit and Collection Policy. Each Brooke Party will timely and fully (i) perform and comply in all material respects with all provisions, covenants and other promises required to be observed by it under the Loan Documents related to the Loans, and (ii) comply in all material respects with the Credit and Collection Policy in regard to each Loan, the Other Conveyed Property with respect thereto and the related Loan Documents.

(g) Purchase of Loans From the Seller. With respect to each Loan purchased under the Sale and Servicing Agreement, each Brooke Party shall take (or cause to be taken) all actions necessary to vest legal and equitable title to such Loan and the Other Conveyed Property and Collections with respect thereto irrevocably in the Borrower, including, without limitation, (i) the giving of all notices and the filing of all financing statements or other similar instruments or documents reasonably necessary under the UCC of all appropriate jurisdictions or any other law to perfect and protect the Borrower’s interest in such Loan and Other Conveyed Property as against any purchasers from, or creditors of, any other Brooke Party and (ii) such other actions to perfect, protect

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or more fully evidence the interest of the Borrower in such Loan or Other Conveyed Property as the Agent or any Secured Party may reasonably request.

(h) Security Interest. Each Brooke Party shall take all necessary actions to establish and maintain a valid and perfected first priority security interest in the Collateral, to the full extent contemplated herein, in favor of the Agent for the benefit of the Secured Parties, including, without limitation, (i) the giving of all notices and the filing of all financing statements or other similar instruments or documents reasonably necessary under the UCC of all appropriate jurisdictions or any other law to perfect and protect the security interest of the Agent in the Collateral as against any purchasers from, or creditors of, any Brooke Party and (ii) such other actions to perfect, protect or more fully evidence the respective interests of the Agent and the Secured Parties in the Collateral as the Agent or the Lender may reasonably request.

(i) Payment to Seller. With respect to any Loan purchased by the Borrower from the Seller, each Brooke Party shall cause such sale to be effected under, and in strict compliance with the terms of, the Sale and Servicing Agreement, including, without limitation, the terms relating to the amount and timing of payments to be made to such Seller in respect of the purchase price for such Loan.

(j) Enforcement of Related Documents. The Borrower will (i) maintain each such Related Document in full force and effect, and (ii) take any action required or permitted to be taken by it under any Related Document as reasonably directed by the Agent, including, without limitation, (A) making claims to which it may be entitled under any indemnity reimbursement or similar provision contained in any Related Document, (B) enforcing its rights and remedies (and the rights and remedies of the Agent and the Lender, as assignees of the Borrower) under any Related Document and (C) making demands or requests for information or reports or for action from the other party or parties to such Related Documents.

(k) Corporate Separateness. Each Brooke Party acknowledges that the Lender is entering into the transactions contemplated by this Agreement in reliance upon the Borrower’s identity as a separate legal entity from the Parent Group Members. Therefore, from and after the date of execution and delivery of this Agreement, each Brooke Party shall take all reasonable steps including, without limitation, all steps that the Agent or the Lender may from time to time reasonably request to maintain the Borrower’s identity as a separate legal entity and to make it manifest to third parties that the Borrower is an entity with assets and liabilities distinct from those of the Parent Group Members. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, the Borrower shall:

(i) conduct its own business in its own name and require that all full-time employees of the Borrower (if any) identify themselves as such and not as employees of any Parent Group Member (including, without limitation, by means of providing appropriate employees with business or identification cards identifying such employees as the Borrower’s employees);

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(ii) to the extent any employee, consultant or agent of the Borrower is also an employee, consultant or agent of any Parent Group Member, allocate, on a reasonable basis the compensation of such employee, consultant or agent between the Borrower and such Parent Group Member;

(iii) clearly identify its offices (by signage or otherwise) as its offices and, if such office is located in the offices of any Parent Group Member, the Borrower shall lease such office at a fair market rent;

(iv) conduct all transactions with any Parent Group Member (including, without limitation, any delegation of its obligations hereunder as Servicer) strictly on an arm’s-length basis, allocate all overhead expenses (including, without limitation, telephone and other utility charges) for items shared between the Borrower and such Parent Group Member on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use;

(v) at all times have at least one director who is an Independent Director; and promptly reimburse any Parent Group Member in respect of any losses or expenses which are claimed by such Independent Director in his or her capacity as Independent Director and which are paid by such Parent Group Member.

(vi) observe all limited liability company formalities as a distinct entity, and ensure that all limited liability company actions relating to (A) the selection, maintenance or replacement of the Independent Director, (B) the dissolution or liquidation of the Borrower and (C) the initiation or participation in, acquiescence in or consent to any bankruptcy, insolvency, reorganization or similar proceeding involving the Borrower, are duly authorized by unanimous vote of its Board of Directors (including the Independent Director);

(vii) maintain the Borrower’s books and records separate from those of each Parent Group Member and otherwise readily identifiable as its own assets rather than assets of any Parent Group Member;

(viii) prepare its financial statements separately from those of the Parent Group Members and insure that any consolidated financial statements of any Parent Group Member that include Borrower have detailed notes clearly stating that the Borrower is the owner of the Loans, is a separate legal entity and that its assets will be available first and foremost to satisfy the claims of the creditors of the Borrower;

(ix) except as herein specifically otherwise provided, not commingle funds or other assets of the Borrower with those of any Parent Group Member and not maintain bank accounts or other depository accounts to which any Parent Group Member is an account party, into which any Parent Group

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Member makes deposits or from which any Parent Group Member has the power to make withdrawals;

(x) not permit any Parent Group Member to pay any of the Borrower’s operating expenses (except pursuant to allocation arrangements that comply with the requirements of this Section 5.01(k));

(xi) not hold itself out as responsible for the debts of any Parent Group Member;

(xii) not permit any Parent Group Member to hold itself out as responsible for the debts of the Borrower; and

(xiii) take such other actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion issued by Polsinelli Shalton Welte Suelthaus P.C., as counsel for the Brooke Parties, in connection with the closing under this Agreement and relating to substantive consolidation issues, and in the certificates accompanying such opinion, remain true and correct at all times.

Each Brooke Party other than the Borrower shall take all actions necessary on its part in order to ensure (x) compliance with the covenants of the Borrower set forth in this Section 5.01(m) and (y) that the facts and assumptions set forth in the opinion issued by Polsinelli Shalton Welte Suelthaus P.C., as counsel for the Brooke Parties, in connection with the closing under this Agreement and relating to substantive consolidation issues, and in the certificates accompanying such opinion, remain true and correct at all times.

(l) True Sale. Each Brooke Party shall take all such actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion of Polsinelli Shalton Welte Suelthaus P.C., counsel for the Brooke Parties, in connection with the closing under this Agreement and relating to true sale issues under the Sale and Servicing Agreement, and in the certificates accompanying such opinion, remain true and correct at all times.

(m) Collections. Each Brooke Party shall, to the extent such Brooke Party has the right or obligation to do so pursuant to the Related Documents (i) instruct all Obligors and all applicable insurance companies to make all payments in respect of the Loans (including any Sales Commissions or other collateral securing any such Loan) (A) directly to the Master Receipts Trust Account or the Collection Account (if possible) or (B) if direct remittance to the Master Receipts Trust Account or the Collection Account is not possible, to a Receipts Trust Account, (ii) cause all Collections remitted to each Receipts Trust Account to be deposited to the Consolidated Receipts Trust Account within one Business Day of receipt, (ii) cause all Collections remitted to the Consolidated Receipts Trust Account to be remitted to the Master Receipts Trust Account within two Business Days of receipt, (iii) cause all Collections remitted to the Master Receipts Trust Account to be remitted to the Collection Account within two Business Days of receipt

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pursuant to, and in accordance with, the Master Agent Security Agreement, (iv) cause each Receipts Trust Account to be maintained solely in the name of the Master Agent and (v) cause the Master Receipts Trust Account and the Consolidated Receipts Trust Account to be subject at all times to a Trust Account Control Agreement. If any Collections are received by any Brooke Party or any of their respective Affiliates, the Master Agent Servicer shall cause such Collections to be remitted directly to the Collection Account not later than two Business Days immediately following the date of such Brooke Party’s or such Affiliate’s receipt of same, and, at all times prior to such remittance, such Brooke Party or such Affiliate shall hold such Collections in trust, for the exclusive benefit of the Agent on behalf of the Secured Parties. The Master Agent Servicer agrees that it will use its best efforts (and will cause each of its Affiliates to use their best efforts) not to permit any check or other funds to be deposited into any Trust Account or the Collection Account other than (i) Collections on the Collateral, (ii) collections on other loans remitted to a Trust Account, but only to the extent such collections are subject to the Trust Account Intercreditor Agreement and (iii) “Other Receipts” remitted to a Receipts Trust Account (as such term is defined in the related Receipts Trust Agreement). To the extent any such “Other Receipts” or other funds that are not Collections are deposited into any Trust Account, the Master Agent Servicer shall promptly (and in any event within two Business Days) identify such funds and cause such funds to be segregated from the Collections on the Collateral in accordance with the Master Agent Security Agreement. To the extent any funds other than Collections are deposited into the Collection Account, the Master Agent Servicer shall promptly (and in any event within two Business Days) identify such funds and notify the Agent of the same and direct the Agent to remit such funds the Person entitled thereto. The Agent may at any time following the occurrence of an Event of Default (other than an Event of Default that has been waived in writing by the Agent) request each Brooke Party to, and each Brooke Party thereupon promptly shall, direct all Obligors to remit all payments with respect to Loans and Other Conveyed Property with respect thereto to a new depository account or lock-box specified by the Agent (which new account shall, if so directed by the Agent, be established in the Agent’s own name).

(n) Fidelity and E&O Insurance. Each of the Seller and the Parent shall maintain at all times (i) an employee dishonesty policy providing an indemnity for losses caused by the fraudulent or dishonest acts of the Seller’s or the Parent’s officers and employees in an amount no less than $1,000,000 and (ii) “errors and omissions” insurance in form and scope reasonably satisfactory to the Agent in an amount no less than $1,000,000. Each such insurance policy shall name the Agent as loss payee and additional insured, and shall provide that the insurance company or bond issuer, as applicable, will give the Agent at least thirty (30) days’ written notice before such policy shall be altered adversely to the interests of the Secured Parties or canceled or not renewed. Each of the Seller and the Master Agent Servicer shall provide to the Agent, not less than annually, evidence reasonably satisfactory to the Agent demonstrating that each insurance policy required to be maintained by it hereunder has been so maintained and all premiums required to be paid with respect thereto have been so paid.

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(o) Minimum Shadow Rating. The Borrower, BCC and the Master Agent Servicer shall, in consultation with the Agent, make a good faith effort to obtain a long-term shadow rating for the Advances from Moody’s (or, to the extent the Agent determines that such a shadow rating is not available from Moody’s, from Fitch) of not less than the Minimum Shadow Rating within one year of the Closing Date. In connection therewith, each such Brooke Party shall from time to time, upon the Agent’s request, (A) execute, acknowledge and deliver, or cause to be executed, acknowledged or delivered, such amendments or supplements to this Agreement and the other Related Documents as may be necessary to implement any reduction in the Maximum Advance Rate required in order to obtain the Minimum Shadow Rating; provided that in no event with the Maximum Advance Rate be reduced below 75% and (B) take such further action, in each case, as may be reasonably necessary (as determined by the Agent in consultation with such Brooke Parties), to obtain the Minimum Shadow Rating. In furtherance of the foregoing and thereafter from time to time as may be necessary, each of the Borrower, BCC and the Master Agent Servicer shall (A) cooperate with each applicable rating agency in connection with any review of the Related Documents which may be undertaken by such rating agency and (B) provide each rating agency with such information or access to such information as they may reasonably request in connection with any future review of the Minimum Shadow Rating. In the event the Borrower, BCC and the Master Agent Servicer, in consultation with the Agent, are unable to obtain the Minimum Shadow Rating from either Moody’s or Fitch within one year of the Closing Date, such Brooke Parties will make a good faith effort to obtain the Minimum Shadow Rating from Standard & Poor’s. Notwithstanding the foregoing, it is understood and agreed that, so long as the Borrower, BCC and the Master Agent Servicer make a good faith effort to obtain a Minimum Shadow Rating in accordance with the provisions of this paragraph, the failure to obtain such Minimum Shadow Rating will not constitute an Event of Default hereunder. The cost of obtaining a Minimum Shadow Rating shall be borne solely by the Seller.

(p) Covenants under Other Related Documents. Each Brooke Party will timely and fully perform, observe and comply with all of the provisions, covenants and other terms required to be performed or observed by it under each Related Document to which it is a party in accordance with its terms.

Section 5.02. Negative Covenants.

Until the Final Payout Date, each of the Borrower, BCC and the Parent agrees on behalf of itself that it will (and, in the case of the Parent, that it will cause the Master Agent to) perform and observe the covenants and agreements set forth in this Section 5.02.

(a) Name Change, Offices, Records and Books of Accounts; Jurisdiction of Organization. No Brooke Party will change its name, identity or corporate structure or relocate its chief executive office or jurisdiction of organization or any office where Records are kept unless it shall have: (i) given the Agent at least 30 days prior notice thereof and (ii) delivered to the Agent all financing statements, instruments and other

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documents requested by the Agent in connection with such change or relocation. Neither the Borrower nor the Master Agent will change its jurisdiction of organization to a jurisdiction other than the State of Delaware. Neither the Seller nor the Parent will change its jurisdiction of organization to a jurisdiction outside of the United States.

(b) Change in Payment Instructions to Obligors. No Brooke Party will add or terminate any Trust Account relating to the Loans from those listed in Schedule II, or make any change in its instructions to Obligors or insurance companies regarding payments to be made to any Brooke Party or payments to be made to any Trust Account, unless (i) the Agent shall have received written notice of such addition, termination or change together with an amended Schedule II and (ii) with respect to any change relating to the Consolidated Receipts Trust Account or the Master Receipts Trust Account, such change shall have been approved in writing by the Agent.

(c) Modifications to Loan Documents and Credit and Collection Policy. No Brooke Party will make any change to the Credit and Collection Policy which would be reasonably likely to adversely affect the collectibility of any Loan in any material respect or decrease the credit quality of any newly created Loans in any material respect. No Brooke Party will make any material change to the Credit and Collection Policy without the prior consent of the Agent, which consent shall not be unreasonably withheld. Except as expressly permitted under the Sale and Servicing Agreement, no Brooke Party will extend, amend or otherwise modify the terms of any Loan or any Loan Document related thereto.

(d) Merger. (i) Except for acquisitions under the Sale and Servicing Agreement and Permitted Sale Transactions, the Borrower shall not merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and except as otherwise contemplated herein) all or any material part of its assets (whether now owned or hereafter acquired) to, or acquire all or any material part of the assets of, any Person. (ii) The Master Agent shall not merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and except as otherwise contemplated herein) all or any material part of its assets (whether now owned or hereafter acquired) to, or acquire all or any material part of the assets of, any Person. (iii) Neither the Seller nor the Parent shall merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and except as otherwise contemplated in the Sale and Servicing Agreement) all or any material part of its assets (whether now owned or hereafter acquired) outside of the ordinary course of business to any Person, or acquire all or any material part of the assets of any Person, or permit of any its Subsidiaries to do any of the foregoing, except that (i) any Subsidiary of the Parent (other than the Borrower and the Master Agent) may merge or consolidate with or transfer assets to or acquire assets from any other Subsidiary of the Parent (other than the Borrower and the Master Agent) and (ii) the Parent or any of its Subsidiaries (other than the Borrower and the Master Agent) may merge with or acquire all or any part of the assets of any other Person, provided in each case of clauses (i) and (ii) that (x)

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immediately after giving effect to such proposed transaction, no Event of Default or Potential Event of Default would exist, (y) in the case of any such merger to which the Parent or the Seller is a party, the Parent or the Seller, as the case may be, is the surviving corporation and (z) no Loan acquired by the Seller or any of its Subsidiaries in connection with any such transaction shall be considered an Eligible Loan hereunder without the Agent’s prior written consent.

(e) Sales, Liens, Etc. The Borrower shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Collateral or any other asset of the Borrower or assign any right to receive income in respect thereof (in each case other than Permitted Liens), and the Borrower shall defend the right, title and interest of the Agent and the Secured Parties in, to and under any of the foregoing property, against all claims of third parties claiming through or under the Borrower.

(f) Amendments to the Related Documents. The Borrower shall not, without the prior written consent of the Agent, (i) cancel or terminate any Related Document, (ii) give any consent, waiver, directive or approval under any Related Document, (iii) waive any default, action, omission or breach under any Related Document, or otherwise grant any indulgence thereunder, or (iv) amend, supplement or otherwise modify any of the terms of any Related Document.

(g) Nature of Business; Other Agreements. Neither the Borrower nor the Master Agent shall engage in any business or activity of any kind or enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking other than (i) the transactions contemplated and authorized by this Agreement and the other Related Documents and (ii) in the case of the Master Agent, Term Securitizations that impose substantially the same obligations on the Master Agent as were imposed in the Term Securitizations effected prior to the Closing Date.

(h) Indebtedness. Neither the Borrower nor the Master Agent shall create, incur, guarantee, assume or suffer to exist any Indebtedness or other liabilities, whether direct or contingent, other than (i) as a result of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) the incurrence of obligations under this Agreement and the Sale and Servicing Agreement and, in the case of the Master Agent, under Term Securitizations satisfying the requirements set forth in Section 5.02(g) above, and (iii) the incurrence of operating expenses in the ordinary course of business of the type otherwise contemplated in Section 5.01(k) of this Agreement.

(i) Amendments to Organizational Documents. Neither the Borrower nor the Master Agent shall amend its certificate of formation or limited liability company agreement in any material respect without the prior written consent of the Agent, provided that (x) the Borrower or the Master Agent will provide not less than five (5) Business Days’ prior written notice to the Agent of any such amendment and (y) no such

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amendment that requires the consent of the “Independent Director” of the Borrower or the Master Agent (as such term is defined in the limited liability company agreement of the Borrower or the Master Agent, as the case may be, as in effect on the date hereof) shall be made without the prior written consent of the Agent.

(j) Distributions and Investments. The Borrower will not make any loans or advances to or other investments in any other Person, or declare or pay any dividends or other distributions in respect of its membership interests, except that the Borrower may declare and pay dividends to the Seller if both before and after such declaration, payment or repayment, no Event of Default, Potential Event of Default or Termination Event is continuing or would result therefrom.

(k) Subsidiaries. Neither the Borrower nor the Master Agent shall establish, create or permit to exist any subsidiary.

Section 5.03. Financial Covenants. Until the Final Payout Date:

(a) The Parent agrees that it will maintain, at all times, a minimum stockholders equity (determined in accordance with GAAP) of not less than the sum of (i) $5,800,000, plus (ii) 75% of the cumulative positive Consolidated Net Income of the Parent for all fiscal quarters ending on or after the Closing Date (after adjustment for distributions to the Parent’s shareholders, and excluding any such fiscal quarter for which Consolidated Net Income was negative), plus (iii) 75% of all equity and subordinated debt issued or incurred by the Parent or any of its subsidiaries since the Closing Date.

(b) The Seller agrees that it will maintain, at all times, a minimum stockholders equity (determined in accordance with GAAP) of not less than the sum of (i) $6,000,000, plus (ii) 75% of the cumulative positive Consolidated Net Income of the Seller for all fiscal quarters ending on or after the Closing Date (after adjustment for distributions to the Parent as the Seller’s sole shareholder, and excluding any such fiscal quarter for which Consolidated Net Income was negative), plus (iii) 75% of all equity and subordinated debt issued or incurred by the Seller or any of its subsidiaries since the Closing Date.

(c) Each of the Seller and the Parent agrees that it will maintain, as at the end of each fiscal quarter, a positive Consolidated Net Income for the four fiscal quarter period then ending.

(d) For purposes of Sections 5.03(a) and (b), distributions to shareholders shall include, but are not limited to, any cash, stock or in-kind dividends and any other distributions to shareholders permitted by applicable law.

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ARTICLE VI

EVENTS OF DEFAULT; MASTER AGENT SERVICER DEFAULTS; TERMINATION

EVENTS

Section 6.01. Events of Default. If any of the following events (each an “Event of Default”) shall occur:

(a) any Brooke Party shall fail to make any payment or deposit as and when required under this Agreement or any other Related Document and such failure shall remain unremedied for two Business Days; or

(b) a Program Deficiency shall occur and shall remain unremedied for two consecutive Business Days; or

(c) any representation, warranty, certification or statement made by any Brooke Party pursuant to or in connection with this Agreement or any other Related Document shall prove to have been incorrect in any material respect when made or deemed made; provided that if such breach is capable of being cured, then such breach will not constitute an Event of Default hereunder unless such breach remains unremedied for fifteen (15) Business Days after the earlier to occur of (x) the date on which such Brooke Party knows of such breach and (y) the date on which the Agent or any Secured Party notifies such Brooke Party of such breach; or

(d) the Parent or the Seller shall fail to perform or observe any term, covenant or agreement set forth in Section 5.03; or

(e) any Brooke Party shall fail to perform or observe any term, covenant or agreement hereunder or under any other Related Document (other than as referred to in paragraphs (a) and (d) above) and such failure shall remain unremedied for five Business Days after the earlier to occur of (x) the date on which such Brooke Party knows of such failure and (y) the date on which the Agent or any Secured Party notifies such Brooke Party of such failure; or

(f) (i) any Brooke Party shall generally not pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Brooke Party seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property and, in the case of any such proceeding instituted against a Brooke Party (but not instituted by such Brooke Party), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur or (ii) any Brooke Party shall take any corporate or limited

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liability company action to authorize any of the actions set forth in clause (i) above in this subsection (f); or

(g) the Agent, for the benefit of the Secured Parties, shall, for any reason, fail to have a valid and perfected first priority security interest in all of the Collateral; or any Adverse Claims shall exist with respect to the Collateral other than Permitted Liens; or the Borrower shall, for any reason, fail to have a valid and perfected first priority ownership interest in each Loan and the Other Conveyed Property and Collections with respect thereto, free and clear of all Adverse Claims (other than Permitted Liens); or

(h) any Brooke Party or Affiliate of a Brooke Party shall fail to pay any Indebtedness in excess of $250,000 when due; or any Brooke Party or Affiliate of a Brooke Party shall default in the performance of any term, provision or condition contained in any agreement under which any such Indebtedness was created or is governed, the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any Indebtedness in excess of $250,000 of any Brooke Party shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity thereof; provided that the failure of a Brooke Party or Affiliate of a Brooke Party to make a particular payment in respect of any such Indebtedness shall not constitute an Event of Default under this paragraph (h) if such Brooke Party’s or such Affiliate’s obligation to make such payment is being contested in good faith by appropriate proceedings and such Brooke Party or Affiliate has established appropriate reserves for such disputed payment in accordance with GAAP; or

(i) any default shall occur under the terms of, or otherwise in respect of, any agreement, security, note or certificate related to any Term Securitization (whether such Term Securitization was entered into before or after the Closing Date) and such default shall remain unremedied after the expiration of any applicable grace period with respect to such default; or

(j) a Master Agent Servicer Default or Master Agent Event of Default shall occur; or

(k) a Servicer Default shall occur and the Servicer is not immediately replaced by the Backup Servicer on the date on which such replacement is requested by the Agent; or

(l) there shall have been any material adverse change in the financial condition or operations of any Brooke Party since December 31, 2003, which in the judgment of the Agent, has or could reasonably be expected to have an adverse effect on the collectibility of the Loans or the ability of any Brooke Party to perform its obligations under any Related Document; or

(m) a Change of Control shall occur; or

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(n) the Borrower or the Master Agent shall enter into any merger transaction without the prior written consent of the Agent; or any other Brooke Party shall enter into any merger transaction in violation of Section 5.02(d); or

(o) the annual audited financial statements for any Brooke Party are qualified in any material manner; or

(p) any Hedge Counterparty fails or ceases to be an Eligible Hedge Counterparty and such Hedge Counterparty is not replaced by an Eligible Hedge Counterparty under all Hedge Transactions to which it is a party within 30 days (or such longer period, not to exceed 60 days, as may be approved by any rating agency that has issued a Minimum Shadow Rating to the Agent in respect of the Advances) following the date on which such Hedge Counterparty ceased to be an Eligible Hedge Counterparty, such replacement to be made pursuant to documentation in form and substance reasonably satisfactory to the Agent; or

(q) the Borrower fails to maintain in full force and effect all Hedge Transactions required to be maintained by it pursuant to Section 2.06 or any “Event of Default” or “Termination Event” shall occur under any such Hedge Transaction with the Borrower as the “Defaulting Party” or “Affected Party”; or

(r) any two Key Employees shall cease to be actively employed by the Seller or shall cease to have primary responsibility for managing the operations of the Seller and shall not have been replaced by successors satisfactory to the Agent within 30 days; or

(s) the Performance Guaranty shall cease to be in full force and effect or the Parent shall so assert;

then, and in any such event, the Agent may by notice to the Borrower, declare the Termination Date to have occurred, whereupon all of the Obligations shall become immediately due and payable, except that, in the case of any event described in clause (f) above, the Termination Date shall be deemed to have occurred automatically upon the occurrence of such event and all of the Obligations shall automatically become and be immediately due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. Upon any such declaration or automatic occurrence, the Secured Parties shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided to a secured party under the UCC of the applicable jurisdiction and other applicable laws, which rights shall be cumulative. The rights and remedies of a secured party which may be exercised by the Lender or the Agent pursuant to this Article VI shall include, without limitation, the right, without notice except as specified below, to solicit and accept bids for and sell the Collateral or any part thereof in one or more parcels at a public or private sale, at any exchange, broker’s board or at any of the Lender or the Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Lender or the Agent may deem commercially reasonable. The Borrower agrees that, to the extent notice of sale shall be required by law, 10 Business Days’ notice to the Borrower of the time and place of

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any public sale or the time after which any private sale is to be made shall constitute reasonable notification and that it shall be commercially reasonable for the Lender or the Agent to sell the Collateral on an “as is” basis, without representation or warranty of any kind. Neither the Lender nor the Agent shall be obligated to make any sale of Collateral regardless of notice of sale having been given and may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. If the Termination Date is declared by the Agent as a result of an event of the type described in Section 6.01(l), the Borrower shall have the right to repay all Advances in full without any Prepayment Fee.

At any time following the occurrence of an Event of Default:

(i) At the Agent’s request and at the Borrower’s expense, each Brooke Party shall notify each Obligor of the Agent’s security interest in the Loans under this Agreement and direct that payments be made directly to the Agent or its designee;

(ii) At the Agent’s request and at the Borrower’s expense, each Brooke Party shall (A) assemble all of the documents, instruments and other Records (including, without limitation, computer tapes and disks) that evidence or relate to the Collateral, or that are otherwise necessary or desirable to collect the Collateral, and shall make the same available to the Agent at a place selected by the Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Collateral in a manner acceptable to the Agent and, promptly upon receipt, remit all such cash, checks and instruments, duly indorsed or with duly executed instruments of transfer, to the Agent or its designee.

Each Brooke Party hereby authorizes the Agent, and hereby irrevocably appoints the Agent as its attorney-in-fact coupled with an interest, with full power of substitution and with full authority in place of such Brooke Party, following the occurrence and during the continuation of an Event of Default, to take any and all steps in such Brooke Party’s name and on behalf of such Brooke Party that are necessary or desirable, in the determination of the Agent, to collect amounts due under the Collateral, including, without limitation, (i) endorsing such Brooke Party’s name on checks and other instruments representing Collections of Collateral, (ii) enforcing the Loans, the Other Conveyed Property and the Related Documents, including to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with therewith and to file any claims or take any action or institute any proceedings that the Agent (or such designee) may deem to be necessary or desirable for the collection thereof or to enforce compliance with the terms and conditions of, or to perform any obligations or enforce any rights of the Borrower in respect of, the Loans and the Other Conveyed Property and the Related Documents.

Section 6.02. Master Agent Servicer Default. Each of the following events shall constitute a “Master Agent Servicer Default” hereunder:

(a) the Master Agent Servicer shall fail to make any payment, transfer or deposit (or, if applicable, to give instructions or notice to any other Person to make any

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payment, transfer or deposit) required under this Agreement or any other Related Document and such failure shall remain unremedied for two Business Days; or

(b) the Master Agent Servicer shall fail to perform or observe any material term, covenant or agreement hereunder or under any other Related Document (other than as referred to in paragraph (a)) and such failure shall remain unremedied for five (5) Business Days after the earlier to occur of (x) the date on which the Master Agent Servicer knows of such failure and (y) the date on which the Agent or any Secured Party notifies the Master Agent Servicer of such failure; or

(c) any representation, warranty, certification or statement made by the Master Agent Servicer pursuant to or in connection with this Agreement or any other Related Document shall prove to have been incorrect in any material respect when made or deemed made; provided that if such breach is capable of being cured, then such breach will not constitute a Master Agent Servicer Default hereunder unless such breach remains unremedied for thirty (30) days after the earlier to occur of (x) the date on which the Master Agent Servicer knows of such breach and (y) the date on which the Agent or any Secured Party notifies the Master Agent Servicer of such breach; or

(d) any Event of Default; or

(e) any Termination Event of the type described in Section 6.03(b), (d), (e) or (f).

Section 6.03. Termination Events. If any of the following events (each a “Termination Event”) shall occur:

(a) a Governmental Authority has directed that the activities of the Agent or the Lender, or any Affiliate of the Lender or the Agent, contemplated hereby be terminated (whether or not such direction has the force of law); or

(b) any Event of Default; or

(c) any Obligations shall remain outstanding as of the Program Maturity Date; or

(d) as at the end of any Monthly Period, the average of the Annualized Default Rates for such Monthly Period and the two immediately preceding Monthly Periods shall exceed 3.5%; or

(e) as at the end of any Monthly Period, the average of the Delinquency Rates for such Monthly Period and the two immediately preceding Monthly Periods shall exceed 6.0%; or

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(f) as at the end of any Monthly Period, the average of the Estimated Annualized Net Loss Rates for such Monthly Period and the two immediately preceding Monthly Periods shall exceed 1.0%;

(g) as at the end of any Monthly Period, the average of the Actual Annualized Net Loss Rates for such Monthly Period and the two immediately preceding Monthly Periods shall exceed 1.0%;

(h) an Insurance Company Trigger shall have occurred and be continuing for two or more insurance companies;

(i) the Backup Master Agent Servicer shall have delivered a notice of resignation under the Backup Master Agent Servicing Agreement and shall not have been replaced with a successor Backup Master Agent Servicer satisfactory to the Agent in its sole discretion within 180 days of the date such notice is so delivered, or the Backup Master Agent Servicing Agreement shall otherwise cease to be in full force and effect;

then, and in any such event, the Agent may by notice to the Borrower, declare the Termination Date to have occurred, whereupon the Lender shall have no further obligation to make any Advances hereunder; provided, however, that if the Termination Event set forth in clause (d) occurs at any time when the Eligible Loan Balance is not more than $25,000,000, and such event occurs solely because a single Loan that has an Outstanding Principal Balance that is (i) not more than $1,000,000 and (ii) less than 4% of the Eligible Loan Balances becomes a Defaulted Loan, then such Termination Event shall be deemed not to have occurred, provided further, however, that if during the 12 month period following the occurrence of any such Termination Event that is deemed not to have occurred, any other Loan becomes a Defaulted Loan, then a Termination Event will be deemed to have occurred on the date such other Loan became a Defaulted Loan. If the Termination Date is declared by the Agent as a result of an event of the type described in Section 6.03(h) or (i), the Borrower shall have the right to repay all Advances in full without any Prepayment Fee.

ARTICLE VII

THE AGENT

Section 7.01. Authorization and Action. (a) By accepting the benefits of this Agreement, each Secured Party hereby designates and appoints DZ Bank to act as its agent hereunder and under each other Related Document, and authorizes the Agent to take such actions as agent on its behalf and to exercise such powers as are delegated to the Agent by the terms of this Agreement and the other Related Documents together with such powers as are reasonably incidental thereto. The Agent shall not have any duties or responsibilities, except those expressly set forth herein or in any other Related Document, or any fiduciary relationship with any Secured Party, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Agent shall be read into this Agreement or any other Related Document or otherwise exist for the Agent. In performing its functions and duties hereunder and under the

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other Related Documents, the Agent shall act solely as agent for the Secured Parties and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for any Brooke Party. The Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement, any other Related Document or applicable law. The appointment and authority of the Agent hereunder shall terminate on the Final Payout Date. Each Secured Party hereby authorizes the Agent to execute each of the Uniform Commercial Code financing statements, together with such other instruments or documents determined by the Agent to be necessary or desirable in order to perfect, evidence or more fully protect the interest of the Secured Parties contemplated hereunder, on behalf of such Secured Party (the terms of which shall be binding on such Secured Party). The Borrower may in any event act in accordance with the instructions of the Agent without further inquiry into the authority of the Agent to give such instructions.

(b) Without limiting the generality of the foregoing, the Agent is authorized (but not required) to act on behalf of the Secured Parties in connection with providing such instructions, approvals, waivers or consents as may from time to time be required hereunder or under the other Related Documents to permit or authorize or direct the Borrower to take or refrain from taking any action under the Related Documents; provided that the Agent may at any time, in its sole discretion, elect to refrain from providing any such instructions, approvals, waivers or consents until such time as it shall have received the consent thereto of the Lender.

Section 7.02. Delegation of Duties. The Agent may execute any of its duties under this Agreement and each other Related Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

Section 7.03. Exculpatory Provisions. Neither the Agent nor any of its directors, officers, agents or employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement or any other Related Document (except for its, their or such Person’s own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Secured Parties for any recitals, statements, representations or warranties made by any Brooke Party contained in this Agreement, any other Related Document or any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement, or any other Related Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or any other Related Document or any other document furnished in connection herewith or therewith, or for any failure of any Brooke Party to perform its obligations hereunder or thereunder, or for the satisfaction of any condition specified in Article III, or for the perfection, priority, condition, value or sufficiency or any Collateral pledged in connection herewith. The Agent shall not be under any obligation to any Secured Party to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, this Agreement or any other Related Document, or to inspect the properties, books or records of any Brooke Party. The Agent shall not be deemed to have knowledge of any Event of Default, Servicer Default or Termination Event or any event which, with the giving of

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notice or the passage of time, or both, would constitute an Event of Default, Servicer Default or Termination Event, unless the Agent has received notice from the Borrower, the Servicer or a Secured Party.

Section 7.04. Reliance by Agent. The Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any 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 any Brooke Party), independent accountants and other experts selected by the Agent. The Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement or any other Transaction Document unless it shall first receive such advice or concurrence of the Lender as it deems appropriate and it shall first be indemnified to its satisfaction by the Secured Parties, provided that unless and until the Agent shall have received such advice, the Agent may take or refrain from taking any action, as the Agent shall deem advisable and in the best interests of the Secured Parties. The Agent shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a request of the Lender, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Secured Parties.

Section 7.05. Non-Reliance on Agent and Other Secured Parties. Each Secured Party expressly acknowledges that neither the 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 Agent hereafter taken, including, without limitation, any review of the affairs of the Brooke Parties, shall be deemed to constitute any representation or warranty by the Agent. Each Secured Party represents and warrants to the Agent that it has and will, independently and without reliance upon the Agent or any other Secured Party and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Brooke Parties and made its own decision to enter into this Agreement, the other Related Documents and all other documents related hereto or thereto.

Section 7.06. Agent in Its Individual Capacity. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower or any Affiliate of the Borrower as though the Agent were not the Agent hereunder. With respect to the Obligations owing to the Agent hereunder, the Agent shall have the same rights and powers under this Agreement as any other Secured Party and may exercise the same as though it were not the Agent, and the term “Secured Party” shall include the Agent in its individual capacity.

Section 7.07. Successor Agent. The Agent may, upon five days’ notice to the Borrower and the Secured Parties, resign as Agent. If the Agent shall resign, then the Lender during such five-day period shall appoint from among the Secured Parties a successor agent. If for any reason no successor Agent is appointed by the Lender during such five-day period, then effective upon the termination of such five day period, the Lender shall perform all of the duties of the Agent hereunder. After the effectiveness of any retiring Agent’s resignation hereunder as Agent, the retiring Agent shall be discharged from its duties and obligations hereunder and under

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the other Related Documents and the provisions of this Article VII and Article VIII shall continue in effect for its benefit with respect to any actions taken or omitted to be taken by it while it was Agent under this Agreement and under the other Related Documents.

ARTICLE VIII

INDEMNIFICATION

Section 8.01. Indemnities by the Borrower.

Without limiting any other rights which any Indemnified Party (as defined below) may have hereunder or under applicable law, the Borrower hereby agrees to indemnify the Agent, the Lender, each Affected Party, each Hedge Counterparty and each other Secured Party and their respective officers, directors, agents and employees (each an “Indemnified Party”) from and against any and all damages, losses, claims, liabilities, costs, expenses and for all other amounts payable, including reasonable attorneys’ fees (which attorneys may be employees of the Agent or the Lender) and disbursements (all of the foregoing being collectively referred to as “Indemnified Amounts”) awarded against or reasonably incurred by any of them arising out of or as a result of this Agreement or the acquisition, either directly or indirectly, by any Secured Party of an interest in the Loans, excluding, however, Indemnified Amounts to the extent final judgment of a court of competent jurisdiction holds such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of such Indemnified Party. Without limiting the generality of the foregoing indemnification, the Borrower shall indemnify the Indemnified Parties for Indemnified Amounts (including, without limitation, losses in respect of uncollectible Loans, regardless of whether reimbursement therefor would constitute recourse to the Borrower, but excluding Indemnified Amounts to the extent final judgment of a court of competent jurisdiction holds such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of such Indemnified Party) relating to or resulting from:

(i) any representation or warranty made by any Brooke Party or the Servicer (or any officer of a Brooke Party or the Servicer) under or in connection with this Agreement, any Servicer’s Certificate, any Borrowing Base Certificate or any other Related Document or any other information or report delivered by any Brooke Party or the Servicer pursuant to any Related Document, which shall have been false or incorrect when made or deemed made;

(ii) the failure by any Brooke Party or the Servicer to comply with any applicable law, rule or regulation with respect to any Loan, Other Conveyed Property or Loan Documents related thereto, or the nonconformity of any Loan, Other Conveyed Property or Loan Documents related thereto with any such applicable law, rule or regulation;

(iii) any failure of any Brooke Party or the Servicer to perform its duties or obligations in accordance with the provisions of this Agreement, any

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other Related Document, any Loan Documents, or any other contract or agreement related to a Loan or Other Conveyed Property with respect thereto;

(iv) any damage suit or other claim arising out of or in connection with any transaction which is the subject of any Loan Document, any Loan or any Other Conveyed Property with respect thereto;

(v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of any Obligor to the payment of any Loan (including, without limitation, a defense based on such Loan or the related Loan Documents not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim relating to a Loan,

(vi) the commingling of Collections at any time with other funds;

(vii) any investigation, litigation or proceeding related to or arising from this Agreement or any other Related Document, the transactions contemplated hereby or thereby, the use of the proceeds of Advances, the holding of the security interest created hereunder or any other investigation, litigation or proceeding relating to any Brooke Party, the Loans or Other Conveyed Property in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby or thereby;

(viii) any Event of Default described in Section 6.01(f);

(ix) any failure to vest and maintain vested in the Agent, for the benefit of the Secured Parties, a first priority perfected security interest in the Collateral or the existence of any Adverse Claim upon or with respect to the Collateral; or

(x) any failure to vest and maintain vested in the Borrower legal and equitable title to, and ownership of, the Loans, the Other Conveyed Property and the Collections, free and clear of any Adverse Claim (other than Adverse Claims created pursuant to this Agreement); or any failure of the Borrower to give reasonably equivalent value to the Seller under the Sale and Servicing Agreement in consideration of the transfer by the Seller of any Loan or any Other Conveyed Property with respect thereto; or any attempt by any Person to void any such transfer under statutory provisions or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code.

Notwithstanding anything to the contrary in this Agreement, solely for purposes of the indemnification obligations set forth in this Section 8.01, any representations, warranties and covenants made by any Brooke Party in this Agreement or the other Related Documents which are qualified by or limited to events or circumstances which have, or are reasonably likely to have, given rise to a Material Adverse Effect or are qualified or limited by other concepts of materiality, shall not be deemed to be so qualified or limited.

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Section 8.02. Indemnities by BCC and Parent.

Without limiting any other rights which the Agent or the Lender may have hereunder or under applicable law, each of BCC and the Parent hereby agrees to indemnify each Indemnified Party and the Issuer from and against any and all Indemnified Amounts awarded against or incurred by any of them arising out of or as a result of:

(i) any representation or warranty made by such Brooke Party (or any officer of such Brooke Party) under or in connection with this Agreement, any Servicer’s Certificate, any Borrowing Base Certificate or any other Related Document or any other information or report delivered by such Brooke Party pursuant to any Related Document, which shall have been false or incorrect when made or deemed made;

(ii) the failure by such Brooke Party to comply with any applicable law, rule or regulation with respect to any Loan, Other Conveyed Property or Loan Documents related thereto, or the nonconformity of any Loan, Other Conveyed Property or Loan Documents related thereto with any such applicable law, rule or regulation;

(iii) any failure such Brooke Party to perform its duties or obligations in accordance with the provisions of this Agreement, any other Related Document, any Loan Documents, or any other contract or agreement related to a Loan or Other Conveyed Property with respect thereto;

(iv) any damage suit or other claim arising out of or in connection with any transaction which is the subject of any Loan Document, any Loan or any Other Conveyed Property with respect thereto;

(v) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of any Obligor to the payment of any Loan (including, without limitation, a defense based on such Loan or the related Loan Documents not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim relating to a Loan,

(vi) the commingling by such Brooke Party of Collections at any time with other funds;

(vii) any investigation, litigation or proceeding related to or arising from this Agreement or any other Related Document, the transactions contemplated hereby or thereby, the use of the proceeds of Advances, the holding of the security interest created hereunder or any other investigation, litigation or proceeding relating to any Brooke Party, the Loans or Other Conveyed Property in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby or thereby;

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(viii) any Event of Default described in Section 6.01(f) relating to such Brooke Party;

(ix) any failure to vest and maintain vested in the Agent, for the benefit of the Secured Parties, a first priority perfected security interest in the Collateral or the existence of any Adverse Claim upon or with respect to the Collateral; or

(x) any failure to vest and maintain vested in the Borrower legal and equitable title to, and ownership of, the Loans, the Other Conveyed Property and the Collections, free and clear of any Adverse Claim (other than Adverse Claims created pursuant to this Agreement); or any failure of the Borrower to give reasonably equivalent value to the Seller under the Sale and Servicing Agreement in consideration of the transfer by the Seller of any Loan or any Other Conveyed Property with respect thereto; or any attempt by any Person to void any such transfer under statutory provisions or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code.

Notwithstanding anything to the contrary in this Agreement, solely for purposes of the indemnification obligations set forth in this Section 8.02, any representations, warranties and covenants made by any Brooke Party in this Agreement or the other Related Documents which are qualified by or limited to events or circumstances which have, or are reasonably likely to have, given rise to a Material Adverse Effect or are qualified or limited by other concepts of materiality, shall not be deemed to be so qualified or limited.

Section 8.03. Other Costs and Expenses.

Subject to Section 5.01(d), the Borrower shall pay to the Agent and the Lender on demand and, if requested by the Borrower, presentation of reasonable documentation therefor all reasonable costs and out-of-pocket expenses in connection with the preparation, execution, delivery and administration of this Agreement and the other Related Documents, the transactions contemplated hereby and the other documents to be delivered hereunder, including without limitation, the reasonable and documented cost of the Lender’s auditors auditing the books, records and procedures of the Servicer, the Backup Servicer, the Backup Master Agent Servicer and the Brooke Parties, reasonable and documented fees and out-of-pocket expenses of legal counsel for the Lender and the Agent (which counsel may be employees of the Lender or the Agent) with respect thereto and with respect to advising the Lender and the Agent as to their respective rights and remedies under this Agreement, all rating agency fees incurred by or on behalf of the Lender (including, without limitation, any rating agency fees incurred for the purpose of obtaining a “shadow rating” of the Advances from any rating agency before or after closing) and any fees and expenses incurred in connection with any background check referred to in Section 5.01(d). The Borrower shall pay to the Agent on demand and, if requested by the Borrower, presentation of reasonable documentation therefor any and all costs and expenses of the Agent and the Lender, if any, including reasonable counsel fees and expenses in connection with the enforcement of this Agreement and the other documents delivered hereunder and in connection with any restructuring or workout of this Agreement or such documents, or the administration of this Agreement following a Termination Event.

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ARTICLE IX

MISCELLANEOUS

Section 9.01. Amendments and Waivers. No amendment or modification of any provision of this Agreement shall be effective without the written agreement of the Borrower, BCC, the Parent, the Agent and the Lender, and no termination or waiver of any provision of this Agreement or consent to any departure therefrom by the Borrower, BCC or the Parent shall be effective without the written concurrence of the Agent and the Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

Section 9.02. Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including communication by facsimile copy) and mailed, transmitted or delivered, as to each party hereto, at its address set forth as follows: (i) if to the Borrower: Brooke Credit Funding, LLC, 10950 Grandview Drive, Suite 600 Overland Park, Kansas 66210, Attention: President, Facsimile: (913) 339-6328, Telephone: (913) 661-0123, or specified in the Borrower’s Assignment and Acceptance or at such other address as shall be designated by such party in a written notice to the other parties hereto; (ii) if to the Seller: Brooke Credit Corporation, 10950 Grandview Drive, Suite 600 Overland Park, Kansas 66210, Attention: President, Facsimile: (913) 339-6328, Telephone: (913) 661-0123, or specified in the Seller’s Assignment and Acceptance or at such other address as shall be designated by such party in a written notice to the other parties hereto; (iii) if to the Master Agent Servicer: Brooke Corporation, 10950 Grandview Drive, Suite 600 Overland Park, Kansas 66210, Attention: President, Facsimile: (913) 339-6328, Telephone: (913) 661-0123, or specified in the Master Agent Servicer’s Assignment and Acceptance or at such other address as shall be designated by such party in a written notice to the other parties hereto; (iv) if to the Agent: DZ BANK AG Deutsche Zentral-Genossenschaftsbank, New York, Branch, 609 5^th Avenue, New York, New York 10017-1021, Attention: Asset Securitization Group, Facsimile: (212) 745-1651, Confirmation No.: (212) 745-1656, or specified in the Agent’s Assignment and Acceptance or at such other address as shall be designated by such party in a written notice to the other parties hereto; (v) if to the Lender: Autobahn Funding Company LLC, c/o DZ BANK AG Deutsche Zentral-Genossenschaftsbank, New York, Branch, 609 5^th Avenue, New York, New York 10017-1021, Attention: Asset Securitization Group, Facsimile: (212) 745-1651, Confirmation No.: (212) 745-1656, or specified in the Lender’s Assignment and Acceptance or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of (x) notice by mail, five days after being deposited in the United States mails, first-class postage prepaid, (y) notice by facsimile copy, when verbal communication of receipt is obtained or (z) in the case of personal delivery or overnight mail, when delivered, except that notices and communications pursuant to Article II shall not be effective until received.

Section 9.03. No Waiver; Remedies. No failure on the part of the Agent or the Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or

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further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

Section 9.04. Binding Effect; Assignability. This Agreement shall be binding upon and inure to the benefit of the Borrower, BCC, the Parent, the Agent, the Lender and their respective successors and permitted assigns. This Agreement and the Lender’s rights and obligations hereunder and interest herein shall be assignable in whole or in part (including, without limitation, by way of the sale of participation interests therein) by the Lender and its successors and assigns. None of the Borrower, BCC or the Parent may assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the Lender and the Agent. The parties to each assignment or participation made by the Lender pursuant to this Section 9.04 shall execute and deliver to the Agent for its acceptance and recording in its books and records, an Assignment and Acceptance or a participation agreement or other transfer instrument reasonably satisfactory in form and substance to the Agent. Each such assignment or participation shall be effective as of the date specified in the applicable Assignment and Acceptance or other agreement or instrument only after the execution, delivery, acceptance and recording as described in the preceding sentence. The Agent shall notify the Borrower of any assignment or participation thereof made pursuant to this Section 9.04. Subject to Section 9.11, the Lender may, in connection with any assignment or participation or any proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Brooke Parties and the Collateral furnished to the Lender by or on behalf of the Brooke Parties, the Servicer or any other Person.

Section 9.05. Term of This Agreement. This Agreement, including, without limitation, each Brooke Party’s obligation to observe its covenants set forth in Article V, shall remain in full force and effect until the Final Payout Date; provided, however, that the rights and remedies with respect to any breach of any representation and warranty made or deemed made by any Brooke Party pursuant to Articles III and IV and the indemnification and payment provisions of Article VIII and Article IX and the provisions of Sections 9.09, 9.10, 9.11, 9.13 and 9.14 shall be continuing and shall survive any termination of this Agreement.

Section 9.06. Governing Law; Jury Waiver.

(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).

(b) EACH OF THE PARTIES HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREUNDER.

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Section 9.07. Consent to Jurisdiction. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY OR, TO THE EXTENT SUCH COURT LACKS JURISDICTION, THE COURTS OF THE STATE OF NEW YORK, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 9.07 SHALL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ANY PARTY’S RIGHT TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.

Section 9.08. Further Assurances. If any Brooke Party fails to perform any of its obligations hereunder, the Agent or the Lender may (but shall not be required to) perform, or cause performance of, such obligation; and the Agent’s or the Lender’s reasonable costs and expenses incurred in connection therewith shall be payable by such Brooke Party. Each of the Borrower and the Seller irrevocably authorizes the Agent at any time and from time to time in the sole discretion of the Agent, and appoints the Agent as its attorney-in-fact, to act on behalf of the Borrower or the Seller (i) to execute on behalf of the Borrower or the Seller as debtor and to file financing statements necessary or desirable in the Agent’s sole discretion to perfect and to maintain the perfection and priority of the interest of the Agent in the Collateral and (ii) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Collateral as a financing statement in such offices as the Agent in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the interests of the Agent in the Collateral. This appointment is coupled with an interest and is irrevocable. The Borrower hereby authorizes the Agent to file one or more financing statements against the Borrower in such jurisdictions as the Agent may select identifying the collateral as “all assets”, “all property” or words of similar import.

Section 9.09. Limitation of Liability. Except with respect to any claim arising out of the willful misconduct or gross negligence of the Lender, the Agent or a Secured Party, no claim may be made by any Brooke Party or any other Person against the Lender, the Agent, any Secured Party or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and each of the Borrower, BCC and the Parent (on behalf of itself and all of its Subsidiaries and Affiliates) hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or

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not accrued and whether or not known or suspected to exist in its favor. The provisions of this Section 9.09 shall survive the termination of this Agreement.

Section 9.10. No Proceedings. Each of the parties hereto (other than the Lender) hereby agrees that it will not institute against, or join any other Person in instituting against, the Lender any bankruptcy, insolvency or similar proceeding so long as any commercial paper issued by the Lender shall be outstanding or there shall not have elapsed one year and one day since the last day on which any such commercial paper shall have been outstanding. The provisions of this Section 9.10 shall survive the termination of this Agreement.

Section 9.11. Recourse Against Certain Parties. No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of the Lender as contained in this Agreement or any other agreement, instrument or document entered into by it pursuant hereto or in connection herewith shall be had against any administrator of the Lender or any incorporator, affiliate, stockholder, officer, employee or director of the Lender or of any such administrator, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that the agreements of the Lender contained in this Agreement and all of the other agreements, instruments and documents entered into by it pursuant hereto or in connection herewith are, in each case, solely the limited liability company obligations of the Lender, and that no personal liability whatsoever shall attach to or be incurred by any administrator of the Lender or any organizer, member, affiliate, officer, employee or director of the Lender or of any such administrator, as such, or any other them, under or by reason of any of the obligations, covenants or agreements of the Lender contained in this Agreement or in any other such instruments, documents or agreements, or which are implied therefrom, and that any and all personal liability of every such administrator of the Lender and each organizer, member, affiliate, officer, employee or director of the Lender or of any such administrator, or any of them, for breaches by the Lender of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, by statute or constitution, or otherwise, is hereby expressly waived as a condition of and in consideration for the execution of this Agreement. The provisions of this Section 9.11 shall survive the termination of this Agreement.

Section 9.12. Execution in Counterparts; Severability; Integration. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written

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understandings other than the Related Documents executed as of the date hereof to which the Agent is a party.

Section 9.13. Confidentiality.

(a) Each of the Borrower, BCC and the Parent shall maintain and shall cause each of its Affiliates, employees and officers and agents to maintain the confidentiality of this Agreement and the other Related Documents and the other confidential proprietary information with respect to the Agent and the Lender and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein and therein, except that the Borrower, BCC and the Parent and their respective Affiliates, officers and employees may disclose such information (i) to any rating agency or to such Brooke Party’s external accountants and attorneys, (ii) to any Person that is proposed to be an investor in any Brooke Party or a party to any prospective merger or consolidation or asset purchase with a Brooke Party who agrees to hold such information confidential in accordance with the terms of this Section 9.13 and (iii) as required by any applicable law or order of any judicial or administrative proceeding. In addition, each Brooke Party may disclose any such nonpublic information pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of law).

(b) The Agent and the Lender shall maintain and shall cause each of its employees and officers and agents to maintain the confidentiality of all confidential proprietary information with respect to the Brooke Parties and their businesses obtained by them in connection with the structuring, negotiating and execution of the transactions contemplated herein and therein to the extent such information has been identified as being confidential; provided that any such information may be disclosed (i) to the Agent, the Lender and the other Secured Parties by each other, (ii) by the Agent, the Lender or any other Secured Party to any prospective or actual assignee or participant of any of them who agrees to hold such information confidential in accordance with the terms of this Section 9.13, (iii) by the Agent to any rating agency, provided that such disclosure is made to such rating agency in a manner consistent with the Agent’s general practices for disclosing confidential information to such rating agency, (iv) by the Agent to any commercial paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to the Lender or any entity organized for the purpose of purchasing, or making loans secured by, financial assets for which DZ Bank acts as the administrative agent and (v) to any officers, directors, employees, outside accountants and attorneys of any of the foregoing; provided that each such Person described in clause (iv) above is informed of the confidential nature of such information in a manner consistent with the practice of the Agent for making such disclosure generally to Persons of such type and has agreed to hold such information confidential on terms substantially similar in substance to those set forth in this Section 9.13. In addition, the Secured Parties and the Agent may disclose any such nonpublic information pursuant to any law, rule, regulation,

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direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of law).

Section 9.14. Limitation on Payments. Notwithstanding any provisions contained in this Agreement to the contrary, the Lender shall not, and shall not be obligated to, pay any amount pursuant to this Agreement unless the Lender has received funds which may be used to make such payment and which funds are not required to repay commercial paper notes issued by the Lender when due. Any amount which the Lender does not pay hereunder pursuant to the operation of the preceding sentence shall not constitute a claim (as defined in §101 of the Bankruptcy Code) against or corporate obligation of the Lender for any such insufficiency. The provisions of this Section 9.14 shall survive the termination of this Agreement.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

BORROWER:
BROOKE CREDIT FUNDING, LLC
By	/s/ Michael Lowry
Name	Michael Lowry
Title	President
SELLER:
BROOKE CREDIT CORPORATION
By	/s/ Michael Lowry
Name	Michael Lowry
Title	President
MASTER AGENT SERVICER:
BROOKE CORPORATION
By	/s/ Robert D. Orr
Name	Robert D. Orr
Title	Chief Executive Officer

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DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, as Agent
By	/s/ Patrick Preece
Name	Patrick Preece
Title	VP
By	/s/ Vincent Salerno
Name	Vincent Salerno
Title	VP
AUTOBAHN FUNDING COMPANY LLC, as Lender
By: DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, its Attorney-in-Fact
By	/s/ Patrick Preece
Name	Patrick Preece
Title	VP
By	/s/ Vincent Salerno
Name	Vincent Salerno
Title	VP

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SCHEDULE I TO CREDIT AND SECURITY AGREEMENT

ELIGIBILITY CRITERIA; PERFECTION REPRESENTATIONS

A. Eligibility Criteria

“Eligible Loan” means, at any time, a Loan made to a Franchise Agent that satisfies each of the following criteria:

(i) such Loan, and each related Loan Document, constitutes the legal, valid and binding obligation of each related Obligor, enforceable against each such Obligor in accordance with its terms, except as such enforcement may be limited by (a) bankruptcy, insolvency, fraudulent transfer, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and (b) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law), and except that certain provisions in the Loan Documents may be further limited or rendered unenforceable by applicable law, but (subject to the limitations set forth in the foregoing clauses (a) and (b)) such limitations or unenforceability will not render such Loan Documents invalid as a whole or materially and adversely interfere with the Borrower’s realization of the principal benefits and/or security provided thereby. All parties to such Loan, and each related Loan Document, had full legal capacity to execute and deliver such Loan and such Loan Documents and to grant the security interest purported to be granted thereby;

(ii) such Loan was originated in the ordinary course of the Seller’s business in accordance with and through the application of the Credit and Collection Policy and the Seller’s standard credit underwriting procedures;

(iii) such Loan accrues interest at (i) in the case of an Existing Loan, a rate per annum equal to or greater than the sum of (1) the “prime rate” published in the “Money Rates” section of the Wall Street Journal as of the first Business Day of the current calendar year plus (2) 3.00% or (ii) in the case of any Additional Loan, a floating rate per annum equal to or greater than (a) the sum of (1) the “prime rate” most recently published in the “Money Rates” section of the Wall Street Journal or, if such rate ceases to be published, the Base Rate plus (2) 3.00%, (b) one-month LIBOR plus a spread acceptable to the Agent or (c) an equivalent monthly adjustable interest rate acceptable to the Agent;

(iv) such Loan (a) has not had any of its terms, conditions or provisions amended, modified, waived or rescinded other than in compliance with the Credit and Collection Policy, (b) has not been restructured for credit reasons at any time, (c) has not been satisfied, subordinated or rescinded and (d) has not had any material collateral securing such Loan released from the lien granted by the related Loan Documents, other than, in the case of (b) and (d) of this clause (iv), other Permitted Loan Modifications described in clauses (b) and (d) of the definition thereof;

(v) such Loan does not provide for substitution, exchange or addition of assets, the effect of which would be to reduce or extend payments due under such Loan;

(vi) such Loan is payable in equal monthly installments (with all accrued interest being payable in full each month), which monthly installments will fully amortize such Loan over its term;

(vii) none of such Loan, any related Loan Document, the sale of the related collateral security for such Loan, the sale of any related insurance products or any related service contract, contravenes in any material respect any law, rule or regulation applicable thereto (including, without limitation, any law, rule and regulation relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, privacy or usury) and none of the Loan Documents were created, solicited or entered into in violation of any such law, rule or regulation in any material respect;

(viii) such Loan and the related Loan Documents are not subject to, nor has there been asserted, any litigation or any right of rescission, set off, counterclaim or other defense of the related Obligor;

(ix) such Loan is not a Defaulted Loan and, as of the date such Loan is first included in the Collateral, such Loan is not a Delinquent Loan and is not a Loan that has been placed on “watch” pursuant to the Credit and Collection Policy;

(x) such Loan has an original term to maturity of not more than 180 months;

(xi) as of the date such Loan is first included in the Collateral, and after giving effect to such inclusion, the Weighted Average Life of all Eligible Loans does not exceed seven (7) years;

(xii) such Loan has an original principal balance less than or equal to $1,500,000;

(xiii) the Outstanding Principal Balance of such Loan does not exceed 90% of the most recently calculated Agency Market Value of the Agency’s Assets securing such Loan;

(xiv) no Obligor on such Loan (a) is a Governmental Authority, (b) is an Affiliate of any Brooke Party or (c) is the subject of any Insolvency Event;

(xv) such Loan is denominated and payable only in United States dollars in the United States by an Obligor located in the United States and is governed by the law of a jurisdiction within the United States;

(xvi) such Loan constitutes “tangible chattel paper,” an “instrument” or a “payment intangible” within the meaning of Article 9 of the UCC of all applicable

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jurisdictions, there is only one original of any such chattel paper or instrument and such original is in the possession of the Custodian;

(xvii) (A) such Loan is secured by a valid and perfected security interest in substantially all the assets of the related Franchise Agent (including, without limitation, such Franchise Agent’s rights under the related Franchise Agreement and all rights of such Franchise Agent in and to Sales Commissions), which security interest is a first priority security with respect to any such assets in which a security interest can be created under Article 9 of the UCC of the applicable jurisdiction, (b) no further action is required under the UCC to continue the perfected status of such security interest against creditors of and transferees from the original Obligor and (c) there are no Adverse Claims, except for Permitted Liens, prior or subordinate to, or equal with, the security interest of the Seller and its assigns in the collateral securing such Loan;

(xviii) the related Obligor has paid in full all expenses in connection with the maintenance and operation of the related insurance agency, including, without limitation, property insurance and taxes;

(xix) the Loan Documents relating to such Loan include a Collateral Preservation Agreement, a Franchise Agreement, a Lender Protection Addendum, a Loan Agreement and a Receipts Trust Agreement substantially in the forms attached hereto as Exhibits B, C, D, E and F, respectively, or otherwise approved by the Agent in writing (which approval shall not be unreasonably withheld);

(xx) the Loan Documents relating to such Loan (a) require the related Franchise Agent to continue to make all scheduled payments originally due under such Loan notwithstanding the occurrence of any casualty loss with respect to the assets of such Franchise Agent and (b) incorporate customary and enforceable provisions permitting the holder of such Loan to accelerate the maturity date thereof and to enforce its security interest in the collateral securing such Loan upon the occurrence of an event of default thereunder (after giving effect to any applicable grace period), and the Borrower, and its respective successors and assigns, shall be entitled to enforce all such rights under the related Loan Documents;

(xxi) all of the representations and warranties set forth in Sections 4.01(p) and 4.01(q) of this Agreement and in Part B of this Schedule I with respect to such Loan and the Other Conveyed Property with respect thereto are true and correct,

(xxii) none of the Loan Agreement under which such Loan arises, any other Loan Document related to such Loan or any applicable law, rule or regulation applicable to such Loan or such Loan Documents (a) requires the consent of any party to the transfer, sale or assignment of such Loan or the rights of the Seller (or its assignees) under any Loan Document (unless such consent shall have been obtained) or (b) contains a confidentiality provision that purports to restrict the ability of the Borrower, the Agent or the Lender to exercise its rights under any Related Document, including, without limitation, its right to review all Loan Documents;

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(xxiii) the Master Agent is the “agent of record” for all insurance policies issued by or through the related Franchise Agent and has the right to receive all Sales Commissions arising in connection with the sale or renewal of insurance products through such Franchise Agent;

(xxiv) such Loan is a “closed-end loan” and the related Loan Documents do not provide for any further extensions of credit;

(xxv) the Seller and each other Affiliate of the Seller at any time owning an interest in, or servicing, such Loan had all licenses and permits necessary to originate, own and/or service, as applicable, such Loan;

(xxvi) a complete Custodian File for such Loan has been delivered to the Custodian and the Agent has received a Custodian Receipt certifying such receipt;

(xxvii) the information with respect to such Loan set forth in the Schedule of Loans has been produced from the Electronic Ledger and is true and correct in all material respects as of the close of business on the date such Loan is first included in the Collateral;

(xxviii) no selection procedures having an adverse effect on the Borrower, the Lender or the Agent have been utilized in selecting the Loans from those loans owned by the Seller which met the eligibility criteria specified herein;

(xxix) such Loan was originated by the Seller without fraud or material misrepresentation on the part of the Seller or any Affiliate thereof;

(xxx) such Loan is not assumable by another Person in a manner which would release the Obligor thereof from such Obligor’s obligations with respect to such Loan;

(xxxi) neither the Seller nor any Affiliate thereof has done anything to convey any right to any Person (other than the Borrower, the Lender or the Agent) that would result in such Person having a right to payments due under such Loan or otherwise to impair the rights of the Borrower, the Agent or the Lender in such Loan or the proceeds thereof, and prior to the sale by the Seller of its interest in the Loans and the Other Conveyed Property with respect thereto to the Borrower, neither the Seller nor the Borrower had any constructive or actual knowledge that its interest in such Loans or Other Conveyed Property were subject to the actual or claimed interest of any Person (which were not released or subordinate to such interest) other than the ownership interest of the related Obligor and Permitted Liens;

(xxxii) as of the date such Loan is first included in the Collateral, except for payment delinquencies continuing for a period of not more than 15 days as of such date, no default, breach, violation or event permitting acceleration under the terms of such Loan has occurred; to Seller’s knowledge no continuing condition that with notice or the lapse of time would constitute a default, breach, violation, or event permitting

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acceleration under the terms of such Loan has arisen; neither Seller nor any Affiliate thereof shall waive or has waived any of the foregoing; and no collateral securing such Loan shall have been repossessed as of such date;

(xxxiii) the Seller has caused the portions of its Electronic Ledger relating to such Loan to be clearly and unambiguously marked to show that such Loans has been sold to the Borrower in accordance with the terms of the Sale and Servicing Agreement and a security interest therein has been granted by the Borrower to the Agent for the benefit of the Secured Parties in accordance with the terms of this Agreement;

(xxxiv) all Obligors are enrolled in the Brooke Corporation “master agent program;”

(xxxv) such Loan was entered into with and executed by an officer or director of the Obligor, and is either a full recourse loan to such officer or director or the payment in full of such Loan is guaranteed by such officer or director; and

(xxxvi) the Seller has not made and will not make any other loans to the related Obligor (or to any Person that is an Affiliate of such Obligor, or in which such Obligor otherwise has a direct or indirect interest) unless (A) such other loan is subordinated to the Loan included in the Collateral pursuant to the Subordination Agreement or (B) the Agent shall have received evidence reasonably satisfactory to it that (1) each such other loan is either subject to the Intercreditor Agreement or is an Eligible Loan and (2) the loan-to-value ratio of each such other loan is equal to or lower than the loan-to-value ratio of the Loan included in the Collateral (with such loan-to-value ratio being determined, in each case, based on the ratio that the outstanding principal balance of such loan bears to the Agency Market Value of the Agency’s Assets securing such loan).

Notwithstanding the foregoing, from and after February 28, 2005, no Existing Loan may be considered an Eligible Loan.

B. Additional UCC Representations

1. Lawful Assignment. No Loan has been originated in, or is subject to the laws of, any jurisdiction under which the sale, transfer, and assignment of such Loan to the Borrower under the Sale and Servicing Agreement or the grant of a security interest in such Loan under this Agreement shall be unlawful, void, or voidable. None of the Brooke Parties nor any of their respective Affiliates has entered into any agreement with any account debtor that prohibits, restricts or conditions the assignment of any portion of the Loans.

2. All Filings Made. All filings or other action (including, without limitation, UCC filings) necessary in any jurisdiction to give the Borrower a first priority perfected ownership interest in the Loans and the Other Conveyed Property and to give the Agent a first priority perfected security interest in the Collateral have been made.

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3. Tax Liens. As of the date on which any Loan is first included in the Collateral, there is no lien against any collateral, if any, securing such Loan for delinquent taxes.

4. Creation. The Sale and Servicing Agreement creates a valid and continuing security interest (as defined in UCC Section 1-201) in the Loans in favor of the Borrower which security interest is prior to all other Adverse Claims, and is enforceable as such as against creditors of and purchasers from the Seller; and this Agreement creates a valid and continuing security interest in the Loans in favor of the Agent (for the benefit of the Secured Parties), which security interest is prior to all other Adverse Claims, and is enforceable as such as against creditors of and purchasers from the Borrower.

5. Good Title. No Loan has been sold, transferred, assigned, or pledged by the Seller or any Affiliate thereof to any Person other than directly to the Borrower pursuant to the Sale and Servicing agreement. Immediately prior to the transfer and assignment contemplated by the Sale and Servicing Agreement, the Seller had good and marketable title to each Loan, and was the sole owner thereof, free and clear of all Adverse Claims (except for those released on or before the date on which such Loan first became a Loan and Permitted Liens) and, immediately upon the transfer thereof to the Borrower under the Sale and Servicing Agreement, the Borrower shall have acquired good and marketable title to each such Loan, and will be the sole owner thereof, free and clear of all Adverse Claims (other than Permitted Liens), and the transfer has been perfected under the UCC. No Person has a participation in, or other right to receive, proceeds of any Loan except as provided in this Agreement. Neither the Seller nor any Affiliate thereof has taken any action to convey any right to any Person, other than the Borrower, the Agent or the Master Agent, that would result in such Person having a right to payments due under such Loan.

6. Perfection. Each of the Seller and the Borrower has caused or will have caused, on or prior to the Closing Date, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the sale of the Loans from the Seller to the Borrower and the security interest in the Loans granted by the Borrower to the Agent (for the benefit of the Secured Parties) under this Agreement.

7. No Other Interest. Other than the transfer of the Loans to Borrower under the Sale and Servicing Agreement and the security interest granted to the Agent (for the benefit of the Secured Parties) pursuant to this Agreement, none of the Borrower, the Seller or any of their respective Affiliates has pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Loans (unless such interest has been released). None of the Borrower, the Seller or their Affiliates has authorized the filing of, or is aware of any financing statements there against that include a description of collateral covering the Loans other than any financing statement relating to the sale to the Borrower under the Sale and Servicing Agreement or the security interest granted to the Agent (for the benefit of the Secured Parties) under this Agreement or that has been released or terminated or is a Permitted Lien.

8. No Notations. None of the tangible chattel paper or instruments that constitute or evidence the Loans has any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than the Borrower and the Agent (for the benefit of the Secured Parties).

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EX-10.10

Exhibit 10.10

AMENDMENT NO. 1

Dated as of November 27, 2004

to

CREDIT AND SECURITY AGREEMENT

Dated as of August 27, 2004

THIS AMENDMENT NO. 1 (this “Amendment”) dated as of November 27, 2004 is entered into by and among BROOKE CREDIT FUNDING, LLC, a Delaware limited liability company (the “Borrower”), BROOKE CREDIT CORPORATION, a Kansas corporation (“BCC”), BROOKE CORPORATION, a Kansas corporation (“Brooke Corporation”), AUTOBAHN FUNDING COMPANY LLC, a Delaware limited liability company (the “Lender”), and DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, as agent (the “Agent”).

PRELIMINARY STATEMENTS

A. Reference is made to the Credit and Security Agreement dated as of August 27, 2004 among the Borrower, BCC, Brooke Corporation, the Lender and the Agent (the “Credit Agreement”). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.

B. The parties hereto have agreed to amend the Credit Agreement on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises set forth above, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Amendments. Effective as of the Effective Date (as defined below), the definition of “Excess Concentration Amount” in Section 1.01 of the Credit Agreement is amended as follows:

1.1 Clause (a)(i) of such definition is amended to add the following proviso at the end of such clause immediately after the semi-colon:

“provided that, solely during the Temporary Waiver Period (as defined below), the amount described in this clause (i) shall be equal to the aggregate, for all Obligors, of the amount (if any) by which (x) the aggregate Outstanding Principal Balance of the Eligible Loans owing by such Obligor (treating each Obligor and its Affiliates as a single Obligor) exceeds (y) $1,500,000”;

1.2 Clause (a)(ii) of such definition is amended to add the following proviso at the end of such clause immediately after the semi-colon:

“provided that, solely during the Temporary Waiver Period, the percentage specified in clause (y) shall be deemed to be equal to 30% rather than 15%;”.

1.3 Clause (a)(iii) of such definition is amended to add the following proviso at the end of such clause immediately after the semi-colon:

“provided that, solely during the Temporary Waiver Period, the percentage specified in clause (x) shall be deemed to be equal to 30% rather than 25%, the percentage specified in clause (y) shall be deemed to be equal to 25% rather than 20% and the percentage specified in clause (z) shall be deemed to be equal to 20% rather than 15%;”.

1.4 The following text is added at the end of such definition:

As used herein, “Temporary Waiver Period” means the period from and including November 27, 2004 to but excluding the earlier of (x) January 31, 2005 and (y) the date on which any Term Securitization closes.

SECTION 2. Conditions Precedent. This Amendment shall become effective as of November 27, 2004 (the “Effective Date”) upon receipt by the Agent of a copy of this Amendment duly executed by the Borrower, BCC, Brooke Corporation, the Lender and the Agent.

SECTION 3. Reference to and Effect on the Credit Agreement.

3.1 Except as specifically provided herein, the Credit Agreement, the other Related Documents and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.

3.2 Except as specifically provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or the Lender under the Credit Agreement, the Related Documents or any other document, instrument, or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein.

SECTION 4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).

SECTION 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken

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together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment.

SECTION 6. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first written above.

BROOKE CREDIT FUNDING, LLC
By	/s/ Michael Lowry
Name
Title

BROOKE CREDIT CORPORATION
By	/s/ Michael Lowry
Name
Title

BROOKE CORPORATION
By	/S/ ANITA LARSON
Name	Anita Larson
Title	Vice President

Signature Page to Amendment No. 1

DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, as Agent
By	/S/ VINCENT A. SALERNO
Name	Vincent A. Salerno
Title	VP

By	/S/ DOMINICK RUGGIERO
Name	Dominick Ruggiero
Title	VP

AUTOBAHN FUNDING COMPANY LLC, as Lender By: DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, its Attorney-in-Fact
By	/S/ VINCENT A. SALERNO
Name	Vincent A. Salerno
Title	VP
By	/S/ DOMINICK RUGGIERO
Name	Dominick Ruggiero
Title	VP

Signature Page to Amendment No. 1

EX-10.11

Exhibit 10.11

AMENDMENT NO. 2

Dated as of February 24, 2005

to

CREDIT AND SECURITY AGREEMENT

Dated as of August 27, 2004

THIS AMENDMENT NO. 2 (this “Amendment”) dated as of February 24, 2005 is entered into by and among BROOKE CREDIT FUNDING, LLC, a Delaware limited liability company (the “Borrower”), BROOKE CREDIT CORPORATION, a Kansas corporation (“BCC”), BROOKE CORPORATION, a Kansas corporation (“Brooke Corporation”), AUTOBAHN FUNDING COMPANY LLC, a Delaware limited liability company (the “Lender”), and DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, as agent (the “Agent”).

PRELIMINARY STATEMENTS

A. Reference is made to the Credit and Security Agreement dated as of August 27, 2004 among the Borrower, BCC, Brooke Corporation, the Lender and the Agent (as amended or otherwise modified prior to the date hereof, the “Credit Agreement”). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.

B. The parties hereto have agreed to amend the Credit Agreement on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises set forth above, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Amendments. Effective as of the Effective Date (as defined below), the Credit Agreement is amended as follows:

1.1 The definition of “Interest Payment Date” in Section 1.01 of the Credit Agreement is amended to add the following text at the end of clause (ii) immediately prior to the semi-colon:

“or such other date as the Borrower may request and the Agent may approve in its sole discretion not later than 11:00 a.m. (New York time) on the Business Day immediately preceding the first day of such CP Interest Period”.

1.2 The first sentence of Section 2.05(c) is amended to delete the text appearing prior to the first semi-colon and to substitute therefor the following:

“The Borrower (x) shall, on each Interest Payment Date for any Advance that is not a Payment Date, request the Agent to withdraw funds on deposit in the Collection Account in an amount equal to, and for application to the payment of, the accrued Interest then due and payable on such Advance, the amount of any prepayment of such Advance to be made on such date pursuant to Section 2.09 and any Exit Fees then due and payable and (y) may, on any Business Day other than a Payment Date, request the Agent to withdraw and transfer to the Borrower all or any portion of the funds on deposit in the Collection Account solely for the purpose of purchasing new Loans from the Seller pursuant to the Sale and Servicing Agreement”.

SECTION 2. Conditions Precedent. This Amendment shall become effective as of February 24, 2005 (the “Effective Date”) upon receipt by the Agent of a copy of this Amendment duly executed by the Borrower, BCC, Brooke Corporation, the Lender and the Agent.

SECTION 3. Reference to and Effect on the Credit Agreement.

3.1 Except as specifically provided herein, the Credit Agreement, the other Related Documents and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.

3.2 Except as specifically provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or the Lender under the Credit Agreement, the Related Documents or any other document, instrument, or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein.

SECTION 4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).

SECTION 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment.

SECTION 6. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

2

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first written above.

BROOKE CREDIT FUNDING, LLC
By	/s/ Michael Lowry
Name	Michael Lowry
Title	President

BROOKE CREDIT CORPORATION
By	/s/ Michael Lowry
Name	Michael Lowry
Title	President

BROOKE CORPORATION
By	/s/ Anita Larson
Name	Anita Larson
Title	President

Signature Page to Amendment No. 2

DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, as Agent
By	/S/ VINCENT SALERNO
Name	Vincent Salerno
Title	Vice President
By	/S/ DOMINICK RUGGIERO
Name	Dominick Ruggiero
Title	Vice President

AUTOBAHN FUNDING COMPANY LLC, as Lender By: DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, its Attorney-in-Fact
By	/S/ VINCENT SALERNO
Name	Vincent Salerno
Title	Vice President
By	/S/ DOMINICK RUGGIERO
Name	Dominick Ruggiero
Title	Vice President

Signature Page to Amendment No. 2

EX-10.12

Exhibit 10.12

AMENDMENT NO. 3

Dated as of March 29, 2005

to

CREDIT AND SECURITY AGREEMENT

Dated as of August 27, 2004

THIS AMENDMENT NO. 3 (this “Amendment”) dated as of March 29, 2005 is entered into by and among BROOKE CREDIT FUNDING, LLC, a Delaware limited liability company (the “Borrower”), BROOKE CREDIT CORPORATION, a Kansas corporation (“BCC”), BROOKE CORPORATION, a Kansas corporation (“Brooke Corporation”), AUTOBAHN FUNDING COMPANY LLC, a Delaware limited liability company (the “Lender”), and DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, as agent (the “Agent”).

PRELIMINARY STATEMENTS

A. Reference is made to the Credit and Security Agreement dated as of August 27, 2004 among the Borrower, BCC, Brooke Corporation, the Lender and the Agent (as amended or otherwise modified prior to the date hereof, the “Credit Agreement”). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.

B. The parties hereto have agreed to amend the Credit Agreement on the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises set forth above, and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1. Amendment. Effective as of the Effective Date (as defined below), clause (y) of the first sentence of Section 2.05(c) of the Credit Agreement is amended to the words “solely for the purpose of purchasing new Loans from the Seller pursuant to the Sale and Servicing Agreement”.

SECTION 2. Conditions Precedent. This Amendment shall become effective as of March 29, 2005 (the “Effective Date”) upon receipt by the Agent of a copy of this Amendment duly executed by the Borrower, BCC, Brooke Corporation, the Lender and the Agent.

SECTION 3. Reference to and Effect on the Credit Agreement.

3.1 Except as specifically provided herein, the Credit Agreement, the other Related Documents and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.

3.2 Except as specifically provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or the Lender under the Credit Agreement, the Related Documents or any other document, instrument, or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein.

SECTION 4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).

SECTION 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment.

SECTION 6. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

2

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first written above.

BROOKE CREDIT FUNDING, LLC
By	/s/ Michael Lowry

Name	Michael Lowry
Title	President
BROOKE CREDIT CORPORATION
By	/s/ Michael Lowry

Name	Michael Lowry
Title	President
BROOKE CORPORATION
By	/s/ Anita Larson

Name	Anita Larson
Title	President

Signature Page to Amendment No. 3

DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, as Agent
By	/s/ Vincent Salerno
Name	Vincent Salerno
Title	VP
By	/s/ Patrick Preece
Name	Patrick Preece
Title	First VP
AUTOBAHN FUNDING COMPANY LLC, as Lender
By: DZ BANK AG DEUTSCHE ZENTRAL-GENOSSENSCHAFTSBANK, its Attorney-in-Fact
By	/s/ Vincent Salerno
Name	Vincent Salerno
Title	VP
By	/s/ Patrick Preece
Name	Patrick Preece
Title	First VP

Signature Page to Amendment No. 3

EX-10.13

Exhibit 10.13

NOTE

$50,000,000.00 August 27, 2004

FOR VALUE RECEIVED, BROOKE CREDIT FUNDING, LLC, a Delaware limited liability company (the “Borrower”), promises to pay to AUTOBAHN FUNDING COMPANY LLC (the “Lender”) the principal sum of FIFTY MILLION DOLLARS ($50,000,000.00) or, if less, the aggregate unpaid principal amount of the loans (the “Advances”) made by the Lender to the Borrower pursuant to the Credit Agreement (as defined below) on the dates specified in Article II of the Credit Agreement, and to pay the Interest (as defined in the Credit Agreement) on the unpaid principal amount of this Note on the dates specified in Article II of the Credit Agreement.

This Note is issued pursuant to Section 2.15 of the Credit and Security Agreement dated as of August 27, 2004 (as amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”) among the Borrower, Brooke Corporation, Brooke Credit Corporation, the Lender and DZ Bank AG Deutsche Zentrale-Genossenschaftsbank, as agent (the “Agent”). Capitalized terms used but not defined in this Note are used with the meanings ascribed to them in the Credit Agreement.

Notwithstanding any other provisions contained in this Note, if at any time the Interest payable by the Borrower under this Note, when combined with any and all other charges provided for in this Note, in the Credit Agreement or in any other document (to the extent such other charges would constitute interest for the purpose of any applicable law limiting interest that may be charged on this Note), exceeds the highest rate of interest permissible under applicable law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be exceeded the rate of interest under this Note shall be equal to the Maximum Lawful Rate. If at any time thereafter the rate of interest payable under this Note is less than the Maximum Lawful Rate, the Borrower shall continue to pay interest under this Note at the Maximum Lawful Rate until such time as the total interest paid by the Borrower is equal to the total interest that would have been paid had applicable law not limited the interest rate payable under this Note. In no event shall the total interest received by the Lender under this Note exceed the amount which the Lender could lawfully have received had the interest due under this Note been calculated since the date of this Note at the Maximum Lawful Rate.

Payments of the principal of, premium, if any, and Interest on this Note shall be made by the Borrower to the holder hereof by wire transfer of immediately available funds in the manner and at the times specified in the Credit Agreement, or in such manner or at such other address as the holder of this Note shall have specified in writing to the Borrower for such purpose, without the presentation or surrender of this Note or the making of any notation on this Note.

If any payment under this Note falls due on a day which is not a Business Day, then such due date shall be extended to the next succeeding Business Day and Interest shall be payable on any principal so extended.

1

The Borrower expressly waives presentment, demand, diligence, protest and all notices of any kind whatsoever with respect to this Note.

This Note is secured by the security interests granted to the Agent pursuant to the Credit Agreement, the holder of this Note is entitled to the benefits of the Credit Agreement and may enforce the agreements of the Borrower contained in the Credit Agreement and exercise the remedies provided for by, or otherwise available in respect of, the Credit Agreement, all in accordance with the terms of the Credit Agreement. If an Event of Default shall occur and be continuing, the unpaid balance of the principal of this Note, together with accrued Interest, may be declared and become due and payable in the manner and with the effect provided in the Credit Agreement.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (WITHOUT APPLICATION OF ITS CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the Borrower has caused this Note to be signed and delivered by its duly authorized officer as of the date set forth above.

BROOKE CREDIT FUNDING, LLC
By:	/s/ Michael Lowry
	Name:	Michael Lowry
	Title:	President

Schedule to Note

Date of Advance or Repayment Principal Amount of Advance Principal Amount of Repayment Outstanding
Principal Amount

4

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF BROOKE CORPORATION

The following is a list of the direct and indirect subsidiaries of Brooke Corporation, a Kansas corporation. All active subsidiaries do business under their corporate names listed above or close derivatives thereof, except as indicated in the notes:

Subsidiary Name		Jurisdiction in which organized
1)	Brooke Franchise Corporation	Missouri (1)
2)	Brooke Credit Corporation	Kansas (1)
3)	Brooke Brokerage Corporation	Kansas (1)
4)	Brooke Agency Services Company LLC	Kansas (1)
5)	Brooke Agency Services Company of Nevada, LLC	Nevada (1)
6)	Brooke Investments, Inc.	Kansas (1)
7)	Brooke Bancshares, Inc.	Kansas (1)
8)	Brooke Agency Services Corporation	Kansas (1)
9)	Brooke Agency, Inc.	Kansas (2)
10)	The American Heritage, Inc.	Kansas (2)
11)	The American Agency, Inc.	Kansas (3)
12)	Brooke Funeral Services Company, LLC	Delaware (2)
13)	Brooke Life and Health, Inc.	Kansas (2)
14)	First Brooke Insurance and Financial Services, Inc.	Texas (2)
15)	Brooke Acceptance Company LLC	Delaware (4)
16)	Brooke Capital Company, LLC	Delaware (4)
17)	Brooke Captive Credit Company 2003, LLC	Delaware (4)
18)	Brooke Credit Funding, LLC	Delaware (4)
19)	Brooke Securitization Company 2004A, LLC	Delaware (4)
20)	CJD & Associates, L.L.C.	Kansas (5)
21)	Texas All Risk General Agency, Inc.	Texas (6)
22)	T.A.R. Holding Co., Inc.	Texas (6)
23)	All Risk General Agency, Inc.	Louisiana (7)
24)	The DB Group, LTD.	Bermuda (6)
25)	DB Indemnity, LTD.	Bermuda (6)

Notes to Subsidiaries of Brooke Corporation:

(1) Wholly owned subsidiary of Brooke Corporation.

(2) Wholly owned subsidiary of Brooke Franchise Corporation.

(3) Wholly owned subsidiary of Brooke Franchise Corporation that conducts business under the name Agency Business Consultants.

(4) Wholly owned subsidiary of Brooke Credit Corporation.

(5) Wholly owned subsidiary of Brooke Brokerage Corporation that conducts business under the names Davidson-Babcock, Texas All Risk General Agency and All Risk General Agency.

(6) Wholly owned subsidiary of CJD & Associates, L.L.C.

(7) Subsidiary of T.A.R. Holding Co., Inc. (51% interest) and CJD & Associates, L.L.C. (49% interest).

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8, File No. 333-83380, of Brooke Corporation of our report dated March 4, 2005, with respect to the financial statements of Brooke Corporation included in the annual report on Form 10-K for the year ended December 31, 2004.

/s/ SUMMERS, SPENCER & CALLISON, CPAs, CHARTERED

Summers, Spencer & Callison, CPAs, Chartered

Topeka, Kansas

March 30, 2005

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert D. Orr, Chief Executive Officer of Brooke Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of Brooke Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclose controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2005	/s/ Robert D. Orr
	Robert D. Orr
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Leland G. Orr, Chief Financial Officer of Brooke Corporation, certify that:

1. I have reviewed this annual report on Form 10-K of Brooke Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclose controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2005	/s/ Leland G. Orr
	Leland G. Orr
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Brooke Corporation (the “Company”) on Form 10-K for the period ending December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert D. Orr, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert D. Orr	Date: March 31, 2005
Robert D. Orr
Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Brooke Corporation (the “Company”) on Form 10-K for the period ending December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Leland G. Orr, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Leland G. Orr	Date: March 31, 2005
Leland G. Orr
Chief Financial Officer