1265131--3/17/2008--Hilltop_Holdings

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{operation, international, foreign}

{debt, indebtedness, cash}

{loss, insurance, financial}

{interest, director, officer}

{stock, price, share}

{acquisition, growth, future}

{operation, natural, condition}

{investment, property, distribution}

{product, liability, claim}

{system, service, information}

{stock, price, operating}

{competitive, industry, competition}

{provision, law, control}

{property, intellectual, protect}

{personnel, key, retain}

{tax, income, asset}

Risks Related to Our Substantial Cash Position and Related Strategies for its Use We intend to use a substantial portion of the proceeds from the Farallon Transaction to make acquisitions or effect a business combination. Since we have not definitively selected a particular target business to acquire or combine with, our stockholders are unable to currently ascertain the merits or risks of the industry or business in which we may ultimately primarily operate. We may change our primary lines of business without stockholder approval, which may result in riskier lines of business than our current lines of business. Resources could be expended in researching acquisitions that are not consummated, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. Competition from other motivated purchasers may hinder our ability to consummate an acquisition in the near term. Subsequent to our consummation of an acquisition, we may be required to subsequently take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price. We may issue additional common or preferred shares to complete an acquisition or combination or under an employee incentive plan after consummation of an acquisition or combination, which would dilute the interest of our stockholder and likely present other risks. We may be unable to obtain additional financing to complete an acquisition or business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular acquisition or business combination. There may be tax consequences with respect to an acquisition or business combinations that may adversely affect us. If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete strategic acquisitions or combinations. Risks Related to NLASCO's Business and NLASCO's Industry Our management has limited prior experience operating an insurance company like NLASCO, and therefore, may have difficulty in successfully and profitably operating NLASCO or complying with regulatory requirements applicable to insurance companies. The occurrence of severe catastrophic events may have a material adverse effect on NLASCO, particularly because NLASCO conducts business in a concentrated geographic area. NLASCO is exposed to claims related to severe weather and the occurrence of severe weather may result in an increase in claims frequency and exposure amount and could materially adversely affect its financial condition. Due to the inherent inability to accurately predict the severity and frequency of catastrophe losses, higher than expected catastrophe losses could materially adversely affect NLASCO's financial condition. If NLASCO cannot price its business accurately, its profitability and the profitability of its insurance companies could be materially adversely affected. If NLASCO's actual losses and loss adjustment expenses exceed its loss and expense estimates, its financial condition and results of operations could be materially adversely affected. If NLASCO cannot obtain adequate reinsurance protection for the risks it underwrites, NLASCO may be exposed to greater losses from these risks or may reduce the amount of business it underwrites, which may materially adversely affect its financial condition and results of operations. NLASCO could face unanticipated losses from war, terrorism and political unrest, and these or other unanticipated losses could have a material adverse effect on NLASCO's financial condition and results of operations. If NLASCO's reinsurers do not pay losses in a timely fashion, or at all, NLASCO may incur substantial losses that could materially adversely affect its financial condition and results of operations. NLASCO relies on independent insurance agents to distribute its products, and if the agents do not promote NLASCO's products successfully, NLASCO's results of operations and financial condition could be adversely affected. Because NLASCO relies on managing general agents, referred to as MGAs, to underwrite some of its products and to administer claims, such managing general agents could expose NLASCO to liability or allocate business away from NLASCO, which could cause NLASCO's financial condition and results of operations to be adversely affected. A decline in NLIC's and/or ASIC's financial strength ratings by A.M. Best could cause either of their sales or earnings, or both, to decrease. A decline in NLASCO's ratings, coupled with a change of control, could result in a default under one of its debt agreements. The failure of any of the loss limitation methods NLASCO employs could have a material adverse effect on its financial condition and results of operations. The effects of emerging claim and coverage issues on NLASCO's business are uncertain. Because NLASCO's main source of premiums written is in Texas, unfavorable changes in the economic and/or regulatory environment in that state may have a material adverse effect on its financial condition and results of operations. If NLASCO is unsuccessful in competing against other competitors in the insurance industry, its financial condition and results of operations could be adversely affected. NLASCO's investment performance may suffer as a result of adverse capital market developments or other factors, which may affect its financial results and ability to conduct business. NLASCO's investment results may be adversely affected by interest rate changes. The debt agreements of NLASCO and its controlled affiliates contain financial covenants and impose restrictions on its business. The regulatory system under which NLIC and ASIC operate, and potential changes to that system, could have a material adverse effect on their respective business activities. If the states in which NLIC and ASIC write insurance drastically increase the assessments that insurance companies are required to pay, their and NLASCO's financial condition and results of operations will suffer. NLASCO may be subject to high retaliatory taxes in several states as a result of its multistate operations, which could have a material adverse impact on its financial condition and results of operations. NLASCO's ability to meet ongoing cash requirements and pay dividends may be limited by its holding company structure and regulatory constraints. Current legal and regulatory activities, investigations, litigation proceedings or other activities relating to the insurance industry, including investigations into contingent commission arrangements and insurance quotes regarding NLIC and ASIC, could affect NLASCO's business, financial condition and results of operations. NLIC and ASIC are subject to periodic financial and market conduct examinations by state insurance departments. If these examinations identify significant findings or recommend significant changes to its operations, either insurance company could lose its licenses and/or its financial condition and results of operations could be affected. NLASCO relies on its information technology and telecommunications systems, and the failure or disruption of these systems could disrupt its operations and adversely affect its results of operations. Failures in NLASCO's electronic underwriting system could adversely affect its financial condition and results of operations. Failure to develop an adequate knowledge transfer or a succession plan for NLASCO's information technology personnel could adversely affect its financial condition and results of operations. Claims by third parties that NLASCO infringes their proprietary technology could adversely affect NLASCO's financial condition and results of operations. Acquisitions could result in operating difficulties, dilution and other harmful consequences. Risks Related to Ownership of the Senior Exchangeable Notes, or the Notes The Notes are effectively subordinated to our existing and future secured indebtedness. There are no restrictive covenants in the indenture relating to our ability to incur future indebtedness or complete other financing transactions. An adverse rating of the Notes may cause their trading price to fall. The failure of our results to meet the estimates of market analysis could adversely affect the trading price of the Notes and our common stock. Risks Related to the Securities Markets and Ownership of Our Common Stock The transfer of our securities is restricted through the inclusion of transfer restrictions in our charter. Applicable insurance laws may make it difficult to effect a change of control of Hilltop. Additional issuances of equity securities and exchange of the Notes for our common stock will dilute the ownership interest of our existing stockholders, including former Note holders who had previously exchanged their Notes for common stock. Our common stock price may experience substantial volatility, which may affect your ability, following any exchange, to sell our common stock at an advantageous price and could impact the market price, if any, of the Notes. Our rights and the rights of our stockholders to take action against our directors and officers are limited.

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1265131--3/17/2008--Hilltop_Holdings_Inc.