restructureagreement






    CHAR1\1899805v81  MASTER RESTRUCTURE AGREEMENT    This MASTER RESTRUCTURE AGREEMENT (this “Agreement”) is entered into as of May  13, 2022 by and among Monarch National Insurance Company, a Florida corporation (“MNIC”),  FedNat Insurance Company, a Florida corporation (“FNIC”), FedNat Holding Company, a Florida  corporation and FNIC’s parent (“FNHC” and, together with FNHC, “FedNat”), Hale Partnership  Capital Management, LLC, a North Carolina limited liability company (“HPCM”) and the Hale Investors  (as defined in the Appendix) (collectively, all of the foregoing, the “Parties” and each, a “Party”).  Reference is made to the Appendix attached hereto for the meaning of certain capitalized terms  used herein.    RECITALS     A. FNIC owns 300,000 shares (the “Existing Shares”) of the common stock of MNIC,  par value $10 per share (“Common Stock”), being all of the currently-authorized, issued and  outstanding shares of capital stock of MNIC.  B. FNHC owns 100% of the authorized, issued and outstanding shares of capital stock of  FNIC and controls the boards of directors of both FNIC and MNIC.     C. Hale Partnership Capital Advisors, LLC, a North Carolina limited liability company, is  the general partner of each of the Hale Investors other than National Consumer Title Insurance  Company, a Florida corporation wholly owned by HG Holdings, Inc., a publicly listed corporation with  a common control person, Steven A. Hale, II, as chairman and Chief Executive Officer.    D. HPCM holds the dispositive power to vote all equity of any entity owned by the Hale  Investors other than National Consumer Title Insurance Company, where Steven A. Hale, II is  chairman and Chief Executive Officer.    E. FNIC is in the business of originating, underwriting, placing or selling property and  casualty insurance in respect of real property (including residential real property and commercial real  property) including for itself and through MNIC, in the State of Florida.    F. A recent downgrade in FNIC’s financial stability rating to “Substantial” by Demotech,  Inc. puts FNIC at risk of its policies not being allowed for mortgaged homes as well as reducing the  probability of FNIC’s ability to place reinsurance.    G. As part of an overall initiative by FNIC to regain and maintain a financial strength rating  acceptable to the secondary mortgage market and assure stability for the holders of its existing policies,  (i) its Board of Directors has approved, and the Parties have agreed upon, a restructuring of MNIC  pursuant to which the Hale Investors will invest $15,000,000 into MNIC in exchange for newly-issued  Common Stock to constitute at least 60% of the post-restructuring Common Stock, (ii) FNHC will  also invest $10,000,000 into MNIC in exchange for newly-issued Common Stock to constitute 40% of  the post-restructuring Common Stock and (iii) MNIC will redeem the Common Stock held by FNIC in  exchange for a note in principal amount equal to 15.0% of MNIC’s surplus at the closing of the  restructuring, all on the terms and subject to the conditions set forth herein and in the additional  agreements referenced herein.    





 






      CHAR1\1899805v81  2   NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of  which are hereby acknowledged, and in consideration of the agreements herein contained, the parties  hereby agree as follows:    ARTICLE I  RESTRUCTURING ACTIONS AND RELATED MATTERS    Section 1.1. Submission of “Form A”.  The Hale Investors have, prior to the date hereof,  submitted to the Florida Office of Insurance Regulation (“FOIR”) the “Form A” required in order to  acquire controlling stock of a Florida domestic insurer.  The Hale Investors covenant and hereby agree to  supplement the same by submission of this Agreement, the Shareholders Agreement, the Redemption  Note (each as defined below and in the Appendix) and such other material agreements as requested by  FOIR.    Section 1.2. Affiliate Agreement Review. The Parties acknowledge and agree that MNIC  has entered into a number of agreements with FNHC subsidiaries (the “Affiliate Service Agreements”),  including without limitation, Century Risk Services, Inc. (for certain brokerage services) and FedNat  Underwriters, Inc. (as managing general agent), which relationships the Parties intend to cause to  continue following the Closing; provided, however, that the Parties acknowledge and agree that that  certain Tax Allocation Agreement, dated February 4, 2013, by and between FNHC and FNIC, as  amended on May 11, 2018 and January 1, 2020 (the “Tax Allocation Agreement”), will be terminated  with respect to MNIC.  The currently-identified Affiliate Service Agreements are set forth on Schedule  1.2 attached hereto. Between the date hereof and the Closing, HPCM will review each Affiliate Service  Agreement (including any additional Affiliate Service Agreements identified beyond those on Schedule  1.2) and, to the extent such Affiliate Service Agreements do not accurately reflect current practice in  such relationships as described to HPCM by FNHC’s management team, or require additional detail (e.g.  surrounding the rate of reimbursement for services performed by employees of FedNat Underwriters,  Inc.), the Parties will, at Closing, cause MNIC and the applicable FNHC subsidiary to execute one or  more Affiliate Service Agreement amendments to ensure such contracts mirror current practice as so  described.    Section 1.3. Unsecured Notes Redemption. Between the date hereof and Closing, FNHC  shall negotiate with the noteholders currently holding outstanding FNHC unsecured notes in the  aggregate principal amount of $121,000,000 to allow the redemption of a portion of such unsecured  notes in the aggregate amount of not less than $75,000,000 on or before August 31, 2022 at a discount  of at least 85% to the par value thereof and to (a) waive any prepayment premium associated with  such redemption and all future prepayments under the associated indenture, (b) consent to the  transactions contemplated hereunder, and (c) waive all existing events of default under such indentures  (the “Noteholder Consent and Redemption Agreement”), such Noteholder Consent and Redemption  Agreement to be effective prior to Closing.   Section 1.4. Demotech Rating.  Between the date hereof and Closing, MNIC shall  confidentially share with Demotech, Inc. its intended assumption of policies as set forth in Section 1.8  below and the additional capitalization to come from FedNat and the Hale Investors as described in  Sections 1.6 and 1.7 below and shall confirm with Demotech, Inc. that the “A” Financial Stability Rating  currently assigned to MNIC will continue following such policy assumption.  





 






      CHAR1\1899805v81  3  Section 1.5. Articles Amendment; Agreed Per Share Value.    (a) The Articles of Incorporation of MNIC shall (and FedNat shall ensure  that MNIC shall), immediately prior to the transactions contemplated below, be amended via a  filing with the Secretary of State of the State of Florida (the “Articles Amendment”) to (a)  change MNIC’s legal name to “FedNat Property and Casualty” and (b) increase the number of  authorized shares of Common Stock such that there will be sufficient authorized shares  available to issue to the Hale Investors and FHNC or FNIC, as applicable, in consideration of  their respective investments, that number of shares of Common Stock at the Agreed Per Share  Value to cause the Hale Investors to hold 60%, and the applicable FedNat entity, 40%, of the  outstanding MNIC Common following the closing of the transactions contemplated herein.   (b) The Parties acknowledge and agree that FOIR and, perhaps, the Florida  Department of Financial Services, approval of the fair market value of MNIC and the post- closing ownership of MNIC shall be a condition to Closing, and the Articles Amendment will  not be filed until such approval has been received.    (c) FNHC, as the owner of the federally registered trademark for “FedNat”  (USPTO Registration No. 4709044) and various trade names, trademarks and service marks  used in connection therewith (the “Proprietary Marks”), hereby grants to MNIC, its successor  and assigns, and MNIC hereby accepts, an exclusive, royalty-free, perpetual license to the  Proprietary Marks, including, for avoidance of doubt the “FedNat” word and design mark, in  each case for use in connection with the underwriting, issuance and administration of  insurance policies, the collection of insurance premiums and the processing and adjustment of  insurance claims; provided, however, that those FNHC subsidiaries using the “FedNat” name  and related Proprietary Marks as of the date hereof may continue to do so without violation of  such license.  Section 1.6. FedNat Capital Commitment and Subscription.  Effective as of the Closing,  FedNat hereby irrevocably agrees to contribute capital to MNIC in the aggregate amount of $10,000,000  in exchange for Common Stock to equal 40% of the outstanding Common Stock immediately following  the Closing, such funds to be wired by the FedNat entity electing to be or continue as a shareholder of  MNIC following the Closing.  FNHC or FNIC, as the holder of the Common Stock so received, shall,  pursuant to that certain Shareholders Agreement to be made effective as of (and as a condition to) the  Closing in the form attached hereto as Exhibit A (the “Shareholders Agreement”), have the right to  designate two (2) members of the Board of Directors of MNIC and be subject to the transfer restrictions  set forth therein. The Parties acknowledge and agree that the initial Directors designated by FedNat via  the Shareholders Agreement are David Michelson and Jennifer Kimbrough.  Section 1.7. Hale Investor Capital Commitment and Subscription. Effective as of the  Closing, but subject to the terms and conditions of that certain Stock Investment and Subscription  Agreement of even date herewith in the form of Exhibit B attached hereto (the “Hale Investment &  Subscription Agreement”), the Hale Investors hereby irrevocably agree to contribute capital to MNIC in  the aggregate amount of $15,000,000 in exchange for Common Stock to equal 60% of the outstanding  Common Stock immediately following the Closing.  Schedule 1.7 attached hereto indicates the  percentage contribution committed by each Hale Investor. Each Hale Investor shall wire such funds to  MNIC at Closing. Each Hale Investor is a party to the Shareholders Agreement, is subject to certain  transfer restrictions and has certain additional rights thereunder.  The Hale Investors have the right  





 






      CHAR1\1899805v81  4  collectively thereunder to designate three (3) members of the Board of Directors and, in the event the  holders of a majority of the Common Stock approve a sale of at least a majority of the Common Stock,  to require all other holders of Common Stock to sell such Common Stock to the proposed purchaser on  the terms agreed by the notifying majority.  The Parties acknowledge and agree that the initial directors  designated by the Hale Investors are Bradley G. Garner III, Anthony Sciacca and Peter Sherman.    Section 1.8. Policy Assignment and Cancellation. Effective as of Closing and with the  consent of FOIR, FNIC shall, pursuant to an assumption agreement to be entered into between FNIC  and MNIC substantially in the form of Exhibit C attached hereto (the “Assumption Agreement”), transfer  and assign to MNIC all contractual and other rights of approximately 77,000 FNIC in-force Florida  policies and MNIC shall take assignment of and perform all contractual promises made by FNIC with  respect to such policies, in each case, except for the liabilities associated with the periods prior to  assumption.  Under the Assumption Agreement, FNIC shall transfer to MNIC cash and premium  receivables equal to 100% of the amount of the gross liability for the amount of collected premium and  receivables for uncollected premium corresponding to the unexpired portion of such policies and shall  further agree to collect from any agent producer or broker those commissions due from such persons as  a result of returned premiums paid by MNIC. Furthermore, at Closing, MNIC shall, with the consent of  FOIR, cancel approximately 9,000 of the Florida in-force policies issued by MNIC.  Section 1.9. Replacement of Management Agreement.  Effective as of Closing, (a) that  certain Management Agreement dated March 1, 2018, by and between FNHC and MNIC is terminated  and replaced by (b) that certain Management Agreement by and between Hale Partnership Capital  Management, LLC, the investment advisor to those limited partnerships which are Hale Investors and  MNIC, substantially in the form of Exhibit D attached hereto.   Section 1.10. Termination of Investment Management Agreements. Effective as of Closing,  all asset management agreements to which MNIC is a party shall be terminated, including that certain  Investment Management Agreement dated September 13, 2018, by and between MNIC and Pacific  Investment Management Company LLC.  Section 1.11. Bylaws Amendment.  Effective as of Closing, Section III of the Bylaws of  MNIC, originally adopted March 6, 2015, shall be amended and restated in the form attached hereto as  Exhibit E.  Section 1.12. Redemption of Outstanding Stock Held by FNIC. Effective simultaneously with  or immediately following the transactions described in Sections 1.5 and 1.6, MNIC shall, pursuant to a  Stock Redemption Agreement in the form of Exhibit F attached hereto, redeem the Existing Shares from  FNIC in exchange for a surplus note substantially in the form of Exhibit G attached hereto (the  “Redemption Note”) in principal amount equal to 15% of the surplus of MNIC at Closing, such principal  amount not to exceed $2,798,408 (which the Parties acknowledge was 15% of the 3/31/21 estimated  surplus of MNIC).  Section 1.13. Right of First Refusal. Effective as of the Closing, MNIC shall have, and FNIC  hereby grants to MNIC, a right of first refusal to assume (a) FNIC’s flood book of business and (b)  FNIC’s commercial general liability book in runoff (each a “Book” and together, “Books”).  In the event  FNIC receives a bona fide offer for the purchase and assumption of all or part of a Book, it shall  promptly deliver written notice of the proposed sale and transfer to MNIC (a “ROFR Notice”), such  notice to include the name of the proposed purchaser, the Book, Books or portion thereof to be  





 






      CHAR1\1899805v81  5  transferred (the “Subject Book”) and the terms and conditions of the proposed purchase, sale, transfer  and assumption.  Within fifteen (15) days after receipt of such notice, MNIC shall give written notice (a  “Response Notice”) to FNIC stating whether or not it elects to exercise its option to purchase the  Subject Book on the terms and conditions described in the ROFR Notice.  Failure timely to provide a  Response Notice shall be deemed an election not to purchase the Subject Book. If MNIC does not elect  to purchase the Subject Book, FNIC shall have the right to sell and transfer the Subject Book to the  proposed third party purchaser on the terms and conditions originally described in the ROFR Notice.  If  MNIC elects to purchase the Subject Book on the terms and conditions described in the ROFR Notice,  then FNIC shall sell and transfer, and MNIC shall purchase and assume the Subject Book on such terms  and conditions at the date and time agreed between FNIC and MNIC, which shall be not more than  forty-five (45) days after delivery of the Response Notice.  Unless otherwise agreed between the parties,  the place of closing shall be the principal office of the Corporation.  For avoidance of doubt, if, after  MNIC declines to purchase the Subject Book, FNIC does not transfer the Subject Book to the proposed  third party purchaser, FNIC shall again be obligated to satisfy the terms of this Section 1.13 before  selling the Subject Book (or a Book containing such Subject Book) to another third party.    Section 1.14. Transfer of Unearned Premiums. For avoidance of doubt, as required under the  terms of the Assumption Agreement, FNIC will, effective as of Closing, transfer all unearned premiums  on policies assumed by MNIC directly to MNIC.    Section 1.15. Unearned Commission.  Effective as of Closing and consistent with that certain  Amended and Restated Managing General Agency and Claims Administration Agreement dated March 2,  2018 by and between FNIC and FedNat Underwriters, Inc., FedNat Underwriters, Inc. is responsible for  returning any unearned agent commissions to FNIC.  MNIC is in no way responsible for agent  commissions on policies assumed.   Section 1.16. Reinsurance.  On June 1, 2022, but effective June 30, 2022, MNIC shall have  placed reinsurance and the Florida Hurricane Catastrophe Fund (“FHCF”) will have agreed that the  Company’s policies will count towards MNIC’s exposure for FHCF reinsurance purposes at June 30,  2022.  ARTICLE II.  REPRESENTATIONS    Section 2.1. Investor Representations.  In connection with the capital commitment and  subscription set forth in Section 1.6 above and the redemption transaction described in Section 1.12  above, FNIC, with respect to the Redemption Note, and each of FNHC and FNIC (in recognition that  either entity could at Closing contribute the required $10,000,000 pursuant to Section 1.6 and receive in  exchange a commensurate number of MNIC’s newly-issued shares of Common Stock (the “Shares”; the  Shares and the Redemption Note collectively referred to herein as the “New Securities”) hereby  represents and warrants to the other Parties hereto, as of the date hereof and as of the Closing, as  follows:  (a) Such Person is acquiring the New Securities contemplated hereby for its own  account for investment only, and not with a view to the resale or distribution thereof.  





 






      CHAR1\1899805v81  6  (b) Such Person is an “accredited investor” as that term is defined in Rule 501  promulgated under the Securities Act of 1933, as amended (the “Act”) and such Person’s  status that qualifies such Person as an “accredited investor” is set forth below such Person’s  name on the signature page to this Agreement.  Such Person has such knowledge and  experience in financial and business matters that such Person is capable of evaluating the  merits and risks of the investment to be made by such Person hereunder.  Such Person  understands and has taken cognizance of all the risk factors related to the investment in the  New Securities.  (c) Such Person acknowledges that such Person is able to bear the economic risk  associated with the loss of any or all value of the New Securities.  Such Person understands  that the foregoing investment lacks liquidity and such Person is able to bear the economic risk  of holding such New Securities.  (d) Such Person understands that none of the New Securities is registered under  the Act or any applicable state securities or “blue sky” laws and may not be sold or otherwise  transferred or disposed of in the absence of an effective registration statement under the Act  and under any applicable state securities or “blue sky” laws (or exemptions from the  registration requirements thereof).  (e) Such Person understands that the Shares are subject to the provisions of the  Shareholders Agreement (as defined in Section 1.6), including, without limitation, restrictions  on transfer of the Shares.  Such Person acknowledges that as a result of such limitations and  restrictions, it might not be possible to liquidate an investment in such securities readily and  that it may be necessary to hold such investment for an indefinite period.  (f) Such Person has had a reasonable opportunity to obtain, and has received, all  information deemed necessary by such Person with respect to MNIC, including, without  limitation, financial statements and information respecting its current and contemplated assets,  liabilities, prospects, customers and vendors, in order to enter into this Agreement.  (g) The New Securities were not offered to such Person by means of any general  solicitation, publicly disseminated advertisement or sales literature.    (h) None of the “Bad Actor” disqualifying events described in Rule 506(d)(1)(i) to  (viii) promulgated under the Act (each, a “Disqualification Event”), including without limitation,  (a) criminal convictions occurring in the last ten (10) years or court injunctions or restraining  orders issued in the last five (5) years in connection with the purchase or sale of a security or a  false filing with the Securities and Exchange Commission (the “SEC”), (b) currently effective  SEC disciplinary orders relating to brokers, dealers, municipal securities dealers, investment  companies and investment advisors, (c) SEC cease-and-desist orders arising out of any  knowing anti-fraud violation or violation of Section 5 of the Act, (d) currently effective  suspension or expulsion from membership in a self-regulatory organization, (e) SEC stop  orders and orders suspending an exemption under Regulation A of the Act issued in the last  five (5) years and (f) final orders from state securities, insurance, banking, savings  associations or credit union regulators or federal banking agencies, the Commodity Futures  





 






      CHAR1\1899805v81  7  Trading Commission or the National Credit Union Administration barring association with a  regulated entity, engagement in the business of securities, insurance or banking, engagement in  savings association or credit union activities or, if issued in the last ten (10) years, which are  based on fraudulent, manipulative or deceptive conduct, is applicable to the Investor or any of  such Investor’s Rule 506(d) Related Parties, except, if applicable, for a Disqualification Event  as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) of the Act is applicable.  For purposes of this  subpart (h), a “Rule 506(d) Related Party” is, with respect to any Person acquiring New  Securities, a Person that is a beneficial owner of such New Securities for purposes of Rule  506(d) of the Act.    (g) Such Person’s principal place of business is in the state set forth after the  Person’s name on the signature page to this Agreement.   (h) Such Person has the requisite corporate power and authority to execute and  deliver this Agreement, to perform its obligations hereunder and to consummate the  transactions contemplated hereby.  This Agreement has been duly authorized, executed and  delivered by such Person and represents the legal, valid and binding obligation of such Person,  enforceable against such Person in accordance with its terms, subject to applicable  bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent conveyance and  other similar laws and principles of equity affecting creditors’ rights and remedies generally.   None of the execution and delivery by such Person of this Agreement, the performance by  such Person of its obligations hereunder or the consummation by such Person of the  transactions contemplated hereby will violate or conflict with such Person’s  organizational  documents or any applicable contractual obligation, law or order, except for such violations or  conflicts as will not materially and adversely affect the validity of this Agreement or any of the  transactions contemplated hereby.  No consent, approval or authorization of any governmental  authority or third party is required in connection with the execution and delivery by such  Person of this Agreement, the performance by such Person of its obligations hereunder or the  consummation by such Person of the transactions contemplated by this Agreement, except for  such consents, approvals or authorizations as have been obtained and are in full force and  effect or the failure of which to obtain will not materially and adversely affect the validity of  this Agreement or any of the transactions contemplated hereby.  (i) (1) Except as expressly provided for in this Agreement, no representations or  warranties have been made to such Person by MNIC, its existing direct or indirect owners, or  by any director, officer, agent, employee or affiliate thereof, or any other Person with respect  to such Person’s investment in the New Securities, (2) except for this Agreement, the  Shareholders Agreement and the Redemption Note, as applicable, there are no agreements,  contracts, understandings or commitments between such Person on the one hand and MNIC  or any manager, director, officer, agent, employee or affiliate of MNIC on the other hand, with  respect to such Person’s investment in the New Securities, and (3) such Person’s investment  in the Shares is subject to dilution by the issuance of additional equity of MNIC and such  Person is not entitled to any preemptive, tag-along, information or other minority investor  rights with respect to the Shares, other than as expressly set forth in the Shareholders  Agreement.    





 






      CHAR1\1899805v81  8  (i) With respect to the redemption transaction, FNIC owns the Existing Shares  that it is exchanging pursuant to this Agreement free and clear of all claims, liens or  encumbrances.  Section 2.2. Hale Investor Representations.  Each Hale Investor hereby represents and  warrants to the other Parties hereto, as of the date hereof and as of the Closing, as follows:  (a) Such Person has the requisite corporate power and authority to execute and  deliver this Agreement, to perform its obligations hereunder and to consummate the  transactions contemplated hereby.  This Agreement has been duly authorized, executed and  delivered by such Person and represents the legal, valid and binding obligation of such Person,  enforceable against such Person in accordance with its terms, subject to applicable  bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent conveyance and  other similar laws and principles of equity affecting creditors’ rights and remedies generally.    (b) None of the execution and delivery by such Person of this Agreement, the  performance by such Person of its obligations hereunder or the consummation by such Person  of the transactions contemplated hereby will violate or conflict with such Person’s  organizational documents or any applicable contractual obligation, law or order, except for  such violations or conflicts as will not materially and adversely affect the validity of this  Agreement or any of the transactions contemplated hereby.  No consent, approval or  authorization of any governmental authority or third party is required in connection with the  execution and delivery by such Person of this Agreement, the performance by such Person of  its obligations hereunder or the consummation by such Person of the transactions  contemplated by this Agreement, except for such consents, approvals or authorizations as have  been obtained and are in full force and effect or the failure of which to obtain will not  materially and adversely affect the validity of this Agreement or any of the transactions  contemplated hereby.  The Parties acknowledge that the Hale Investors are making parallel securities representations in the  Hale Investment & Subscription Agreement.  Section 2.3. Issuer Representations.  In connection with the subscriptions and exchanges  contemplated above, MNIC hereby represents and warrants to FedNat and the Hale Parties as of the date  hereof and as of the Closing as follows:  (a) MNIC is a corporation duly incorporated, validly existing and in good standing  under the laws of the State of Florida.  (b) MNIC has the requisite corporate power and authority to execute and deliver  this Agreement, to perform its obligations hereunder and to consummate the transactions  contemplated hereby, including, the issuance of the Redemption Note and the New Shares.    (c) This Agreement has been duly authorized, executed and delivered by MNIC  and represents the legal, valid and binding obligation of MNIC, enforceable against MNIC in  accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization,  moratorium, liquidation, fraudulent conveyance and other similar laws and principles of equity  affecting creditors’ rights and remedies generally.  





 






      CHAR1\1899805v81  9  (d) None of the execution and delivery by MNIC of this Agreement, the  performance by MNIC of its obligations hereunder or the consummation by MNIC of the  transactions contemplated hereby will violate or conflict with MNIC’s organizational  documents or any applicable contractual obligation, law or order, except for such violations or  conflicts as will not adversely affect the validity of this Agreement or any of the transactions  contemplated hereby and will not have or reasonably be expected to have, individually or in the  aggregate, a material adverse effect on the business, financial condition or results of operations  of MNIC.   (e) Except for FOIR approval, noteholder approval and, potentially the approval of  the Florida Department of Financial Services, no consent, approval or authorization of any  governmental authority or third party is required in connection with the execution and delivery  by MNIC of this Agreement, the performance by MNIC of its obligations hereunder or the  consummation by MNIC of the transactions contemplated by this Agreement, except for such  consents, approvals or authorizations as have been obtained and are in full force and effect or  the failure of which to obtain will not adversely affect the validity of this Agreement or any of  the transactions contemplated hereby and will not have or reasonably be expected to have,  individually or in the aggregate, a material adverse effect on the business, financial condition or  results of operations of MNIC.  (f) There are no judicial or administrative actions, proceedings or investigations  pending or, to the knowledge of MNIC, threatened against MNIC that question the validity of  this Agreement or any of the transactions contemplated hereby.  (g) As of Closing and after giving effect to the transactions contemplated hereby,  the Hale Investors will hold 60% of the outstanding Common Stock of MNIC and either FNHC  or FNIC will hold the other 40% of the outstanding Common Stock of MNIC.  As of Closing,  MNIC will not have issued or granted any outstanding options, warrants, rights or other  securities convertible into or exchangeable or exercisable for shares of Common Stock or any  other securities of MNIC or entered into any outstanding commitment to issue or grant any  such options, warrants, rights or other securities.  (h) Upon the issuance of the Shares pursuant to this Agreement and the shares of  Common Stock pursuant to the Hale Investment and Subscription Agreement, such shares will  be duly authorized, validly issued and fully paid and nonassessable and free and clear of all  liens, charges, encumbrances, rights or claims of any kind other than those provided in or  contemplated by the Shareholders Agreement.  (i) MNIC has not granted preemptive, registration or similar rights with respect to  its shares of capital stock or any other MNIC security to any person or entity.     ARTICLE III.  CLOSING    Section 3.1. Closing.  The closing of the transactions contemplated hereby (the “Closing”)  and, specifically, the investments in MNIC and the issuance of shares of Common Stock in exchange  





 






      CHAR1\1899805v81  10  therefor described in Sections 1.6 and 1.7, the assignment and cancellation of policies described in  Section 1.8 and the redemption of the Existing Shares in exchange for the Redemption Note described in  Section 1.12 shall occur three (3) Business Days after the date on which the third parties whose  agreement or action is required pursuant to Sections 1.3, 1.4 and 1.8 have provided such agreement or  taken such action, and the Parties hereto shall have duly executed, and provided to the counterparties  thereto each of the agreements described in Article I or at such other time and place as the Parties may  mutually agree in writing.  The Parties acknowledge and agree that the intended date of Closing is June 1,  2022.  The date on which the Closing actually occurs is referred to in this Agreement as the “Closing  Date” and shall be deemed effective as of 12:01 a.m. on the Closing Date.  ARTICLE IV.  RELEASES    Section 4.1. Release of MNIC.  Effective as of the Closing, each of FNIC and FNHC, on  behalf of itself and each of its subsidiaries, hereby releases MNIC and its officers, directors, employees,  representatives and agents from any and all actions, causes of action, claims, demands, damages and  liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or  unsuspected to the extent arising from any action or failure to act of MNIC prior to the Closing Date,  including, without limitation, any breach or alleged breach under any Affiliate Service Agreement and any  claim arising out of the payment or non-payment of dividends with respect to the Existing Shares.     ARTICLE V.  MISCELLANEOUS    Section 5.1. Counterparts/Electronic Signature.  This Agreement and each additional  agreement contemplated herein may be executed in any number of counterparts, each of which when so  executed and delivered shall be an original, but all of which shall constitute one and the same instrument.   Delivery of an executed signature page by facsimile or other electronic transmission (e.g. “pdf” or “tif”  format) shall be effective as delivery of a manually executed counterpart hereof and may be used in lieu  of the original agreement for all purposes.  Without limiting the foregoing, the words “execution,”  “execute,” “signed,” “signature,” and words of like import in or related to this Agreement shall be  deemed to include electronic signatures (e.g., through DocuSign© or other similar electronic e-signature  application), each of which shall be of the same legal effect, validity or enforceability as a manually  executed signature, to the extent and as provided for in any applicable law, including the Federal  Electronic Signatures in Global and National Commerce Act or any other similar state laws based on the  Uniform Electronic Transactions Act.  Section 5.2. GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND  CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF  FLORIDA WITHOUT REFERENCE TO ANY CONFLICTS OF LAW PRINCIPLES THEREOF.  Section 5.3. Entirety.  This Agreement and the documents referred to herein embody the  entire agreement between the Parties and supersede all prior agreements and understandings, if any,  relating to the subject matter hereof.  These documents represent the final agreement between the Parties  





 






      CHAR1\1899805v81  11  and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of  the Parties.  There are no oral agreements between the Parties.  Section 5.4. Severability of Provisions.  Each provision of this Agreement shall be severable  from every other provision of this Agreement for the purpose of determining the legal enforceability of  any specific provision.  Section 5.5. Successors and Assigns.  This Agreement shall be binding upon and inure to  the benefit of each of the Parties and their respective successors and assigns.  Section 5.6. No Third-Party Beneficiaries. This Agreement is for the benefit only of the  Parties hereto, and there are no third-party beneficiaries of this Agreement.  Section 5.7. Headings.  The headings of the sections, paragraphs and subsections of this  Agreement are inserted for convenience only and shall not affect the interpretation hereof.  Section 5.8. Tax Consequences.  None of the Parties hereto shall be liable or responsible in  any way for the tax consequences to any other Party to this Agreement of the transactions contemplated  by this Agreement.  Each Party to this Agreement agrees to determine and be responsible for any and all  tax benefits or consequences to such Party related to such transactions.  [Signature pages follow] 





 






  MASTER RESTRUCTURE AGREEMENT     CHAR1\1899805v81   IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their  respective authorized officers as of the day and year first above written.    FEDNAT INSURANCE COMPANY      By:         /s/ Michael Braun      Name:   Michael Braun       Title:     President                         In accordance with Section 2.1(b) and 2.1(g) of this Agreement, upon execution of this Agreement,  the above-named Person further represent and warrant to each other Party to this Agreement that such  Person (please check all applicable boxes):    ☒ Is an insurance company as defined in Section 2(a)(13) of the Act.   Is an investment company registered under the Investment Company Act of 1940, as amended  (the “Investment Company Act”).   Has total assets in excess of $5,000,000, was not formed for the specific purpose of acquiring  New Securities and is one or more of the following:  (a) an organization described in  Section 501(c)(3) of the Internal Revenue Code, (b) a corporation or a limited liability  company, (c) a Massachusetts or similar business trust or (d) a partnership.   Is a corporation with total assets exceeding $5,000,000, which was not formed for the specific  purpose of acquiring New Securities and whose purchase is directed by a person who has  such knowledge and experience in financial and business matters that he or she is capable of  evaluating the merits and risks of the investment in the New Securities.    Such Person’s principal place of business is located in the State of Florida.  





 






  MASTER RESTRUCTURE AGREEMENT     CHAR1\1899805v81   IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their  respective authorized officers as of the day and year first above written.            FEDNAT HOLDING COMPANY      By:       /s/ Bruce F. Simberg      Name:  Bruce F. Simberg      Title:     Chairman of the Board                    In accordance with Section 2.1(b) and 2.1(g) of this Agreement, upon execution of this Agreement,  the above-named Person further represent and warrant to each other Party to this Agreement that such  Person (please check all applicable boxes):     Is an insurance company as defined in Section 2(a)(13) of the Act.   Is an investment company registered under the Investment Company Act of 1940, as amended  (the “Investment Company Act”).   Has total assets in excess of $5,000,000, was not formed for the specific purpose of acquiring  New Securities and is one or more of the following:  (a) an organization described in  Section 501(c)(3) of the Internal Revenue Code, (b) a corporation or a limited liability  company, (c) a Massachusetts or similar business trust or (d) a partnership.  ☒ Is a corporation with total assets exceeding $5,000,000, which was not formed for the specific  purpose of acquiring New Securities and whose purchase is directed by a person who has  such knowledge and experience in financial and business matters that he or she is capable of  evaluating the merits and risks of the investment in the New Securities.    Such Person’s principal place of business is located in the State of Florida.        





 






  MASTER RESTRUCTURE AGREEMENT     CHAR1\1899805v81    IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their  respective authorized officers as of the day and year first above written.    HPCM:    HALE PARTNERSHIP CAPITAL MANAGEMENT, LLC    By: /s/ Steven A. Hale II         Steven A. Hale II, Manager        HALE INVESTORS:    HALE PARTNERSHIP FUND, LP    By:  Hale Partnership Capital Management, LLC, its  Investment Advisor    By: /s/ Steven A. Hale II             Steven A. Hale II, Manager      MGEN II – HALE FUND, LP    By:  Hale Partnership Capital Management, LLC, its  Investment Advisor    By: /s/ Steven A. Hale II             Steven A. Hale II, Manager      CLARK – HALE FUND, LP    By:  Hale Partnership Capital Management, LLC, its  Investment Advisor    By: /s/ Steven A. Hale II             Steven A. Hale II, Manager          





 






  MASTER RESTRUCTURE AGREEMENT     CHAR1\1899805v81  IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their  respective authorized officers as of the day and year first above written.    HALE INVESTORS:    SMITH – HALE FUND, LP    By:  Hale Partnership Capital Management, LLC, its   Investment Advisor    By: /s/ Steven A. Hale II             Steven A. Hale II, Manager    DICKINSON – HALE FUND, LP    By:  Hale Partnership Capital Management, LLC, its  Investment Advisor      By: /s/ Steven A. Hale II             Steven A. Hale II, Manager      THE VANDERBILT UNIVERSITY “VUA HALE SMA”    By:  Hale Partnership Capital Management, LLC, its  Investment Advisor      By: /s/ Steven A. Hale II             Steven A. Hale II, Manager      HALE ICFG FUND, LP    By:  Hale Partnership Capital Management, LLC, its  Investment Advisor    By: /s/ Steven A. Hale II             Steven A. Hale II, Manager      NATIONAL CONSUMER TITLE INSURANCE  COMPANY      





 






  MASTER RESTRUCTURE AGREEMENT     CHAR1\1899805v81  By:  /s/ Steven A. Hale II       Name:  Steven A. Hale II       Title:  Chairman and CEO      





 






  MASTER RESTRUCTURE AGREEMENT     CHAR1\1899805v81  IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their  respective authorized officers as of the day and year first above written.      MNIC:    MONARCH NATIONAL INSURANCE COMPANY      By:  /s/ Michael Braun       Name:  Michael Braun       Title:  President        





 






      CHAR1\1899805v81  Appendix  Act is defined in Section 2.1(b).  Agreed Per Share Value means (a) the fair market value of MNIC as approved by the FOIR  (determined at 10% of book value of its surplus less any debt of MNIC) divided by the number of  shares of Common Stock required to be authorized to enable the issuances to the Hale Investors and  FedNat of MNIC Common Stock on the terms and in the amounts set forth herein.  Affiliate Service Agreements is defined in Section 1.2.  Articles Amendment is defined in Section 1.5.  Assignment Agreement is defined in Section 1.8.  Book is defined in Section 1.13.  Business Day means a day other than a Saturday, Sunday or other day on which the Federal Reserve  Bank of New York is closed.  Closing is defined in Section 3.1.  Closing Date is defined in Section 3.1.  Common Stock is defined in Recital A.  Existing Shares is defined in Recital A.  FedNat  is defined in the Preamble.  FNHC is defined in the Preamble.  FNIC is defined in the Preamble.  Hale Investment & Subscription Agreement is defined in Section 1.7.  Hale Investors means Hale Partnership Fund, LP; MGEN II – Hale Fund, LP; Clark - Hale Fund, LP;  Smith - Hale Fund, LP, Dickinson - Hale Fund, LP; The Vanderbilt University “VUA Hale SMA”; Hale  ICFG Fund, LP and National Consumer Title Insurance Company.  MNIC is defined in the Preamble.  New Securities is defined in Section 2.1.  Person means any natural person, corporation, limited liability company, trust, joint venture  association, company, partnership, governmental authority or other entity.  Redemption Agreement is defined in Section 1.12.  Redemption Note is defined in Section 1.12.  





 






      CHAR1\1899805v81  Response Notice is defined in Section 1.13.    ROFR Notice  is defined in Section 1.13.    Shareholders Agreement is defined in Section 1.6.  Shares is defined in Section 2.1.  Subject Book is defined in Section 1.13.  





 






      CHAR1\1899805v81  Schedule 1.2    Omitted pursuant to Item 601(a)(5) of Regulation S-K.        





 






      CHAR1\1899805v81  Schedule 1.7    Omitted pursuant to Item 601(a)(5) of Regulation S-K.            





 






      CHAR1\1899805v81  EXHIBIT A  Shareholders Agreement      Omitted pursuant to Item 601(a)(5) of Regulation S-K.    





 






      CHAR1\1899805v81  EXHIBIT B  Hale Investment & Subscription Agreement      Omitted pursuant to Item 601(a)(5) of Regulation S-K.      





 






      CHAR1\1899805v81  EXHIBIT C  Assumption Agreement      Omitted pursuant to Item 601(a)(5) of Regulation S-K.  





 






      CHAR1\1899805v81  EXHIBIT D  Management Agreement      Omitted pursuant to Item 601(a)(5) of Regulation S-K.    





 






      CHAR1\1899805v81  EXHIBIT E  Restated Bylaws      Omitted pursuant to Item 601(a)(5) of Regulation S-K.        





 






      CHAR1\1899805v81  EXHIBIT F  Redemption Agreement      Omitted pursuant to Item 601(a)(5) of Regulation S-K.    





 






      CHAR1\1899805v81  EXHIBIT G  Redemption Note      Omitted pursuant to Item 601(a)(5) of Regulation S-K.