Document:

exv10w1

 

FIRST AMENDMENT TO SECOND AMENDED AND RESTATED

REVOLVING CREDIT FACILITY AGREEMENT

     This FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT FACILITY AGREEMENT
(“Amendment”) is made effective as of the 17th day of August, 2006 (the
“Amendment Effective Date”), by and between LENNOX INTERNATIONAL INC., a Delaware
corporation (“Borrower”), Lennox Industries Inc., Armstrong Air Conditioning Inc., Excel
Comfort Systems Inc., Service Experts Inc. and Lennox Global Ltd. (collectively, the
“Guarantors”), BANK OF AMERICA, N.A. (“Bank of America”), as Administrative Agent
for the Lenders (in such capacity, the “Administrative Agent”) and JPMORGAN CHASE BANK,
N.A., as syndication agent and the Lenders which are parties hereto.

W I T N E S S E T H:

     WHEREAS, Borrower on July 8, 2005 entered into that certain Second Amended and Restated
Revolving Credit Facility Agreement (as amended, restated, supplemented or otherwise modified from
time to time, the “Credit Agreement”) with Administrative Agent and the Lenders governing
the loans described therein (collectively, the “Loan”);

     WHEREAS, the Second Amended and Restated Subsidiary Guaranty Agreement (as amended, restated,
supplemented or otherwise modified from time to time, the “Guaranty”) was executed by each
of the Guarantors, dated July 8, 2005, guarantying the Loan;

     WHEREAS, a Second Amended and Restated Pledge Agreement (as amended, restated, supplemented or
otherwise modified from time to time, the “Pledge Agreement”) was executed by Borrower as
Pledgor on July 8, 2005 to secure the Loan;

     WHEREAS, to evidence the Loan, Borrower executed certain Promissory Notes (collectively, the
“Notes”) in the aggregate amount of the Total Commitment dated of even date with the Credit
Agreement and made payable to the order of each of the Lenders;

     WHEREAS, the Credit Agreement, the Guaranty, the Pledge Agreement, the Notes and all other
documents representing, evidencing or securing the Loan are collectively referred to as the
“Loan Documents”; and

     WHEREAS, Borrower desires to amend the Credit Agreement for the purpose of providing for an
additional amount for the repurchase of its issued and outstanding stock in an aggregate amount not
to exceed Two Hundred Million Dollars ($200,000,000) and for other matters as set forth herein.

     NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and
agreements contained herein and in the Credit Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this
Agreement hereby agree as follows.

 

 

ARTICLE I.

Definitions and References

     1.1 Terms Defined in the Credit Agreement. Unless the context otherwise requires or
unless otherwise expressly defined herein, the terms defined in the Credit Agreement shall have the
same meanings whenever used in this Amendment.

ARTICLE II.

Amendments to Credit Agreement

     2.1 Section 5.14. Section 5.14 of the Credit Agreement is hereby amended in
its entirety to read as follows:

     “Restricted Payments. The Borrower will not, and will not permit any
of its Subsidiaries to, declare or make, or incur any liability to declare or make,
any Restricted Payment, except: (a) Subsidiaries may declare and pay dividends
ratably with respect to the Equity Interests they have issued and (b) the Borrower
may declare and pay dividends and repurchase shares of its common stock during any
fiscal quarter as long as on the date of determination:

   (i) no Default or Event of Default exists or would result therefrom; and

   (ii) the sum of (A) the amount of the dividends or repurchases proposed to
be made in such fiscal quarter, plus (B) the aggregate amount of the dividends
and repurchases previously made by Borrower in the same fiscal quarter, and (C)
the aggregate amount of all dividends and repurchases made in the prior three
fiscal quarters does not exceed an amount equal to the greater of (1)
fifty percent (50%) of Consolidated Net Income (calculated for the four fiscal
quarters then most recently ended prior to the date of determination) or (2)
$40,000,000.

     In addition to the share repurchases permitted by clause (ii) above, Borrower
may make additional repurchases of its issued and outstanding common stock (a) in
the event of the conversion of Subordinated Notes, in an amount not to exceed fifty
percent (50%) of the principal amount of the Subordinated Notes so converted, plus
(b) on or after August 17, 2006, in an aggregate amount not to exceed $200,000,000
(exclusive of any share repurchase by the Borrower upon the conversion of
Subordinated Notes pursuant to clause (a) above).”

     2.2 Section 5.15. Subpart (c) of Section 5.15 of the Credit Agreement is
hereby amended in its entirety to read as follows:

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     ”(c) Consolidated Net Worth. The Borrower will not permit Consolidated Net
Worth as of any date to be less than the sum of (i) $396,624,000.00; plus
(ii) 50% of the sum of (A) its aggregate Consolidated Net Income (but only if a
positive number) for the period beginning April 1, 2005 and ending as of the most
recently completed fiscal quarter prior to the date of determination minus (B) any
non-recurring and non-cash charges not included in determining such Consolidated Net
Income under clause (g) of the definition thereof; plus (iii) 100% of the
net proceeds from issuance of any Equity Interests by Borrower occurring after the
Effective Date (including, or in addition, any increase in equity attributable to
the conversion of the Borrower’s Subordinated Notes to common stock); minus
(iv) the total aggregate amount expended by the Borrower for the repurchase of
shares of its common stock on or after August 17, 2006 under the additional
$200,000,000 provided for in Section 5.14.”

ARTICLE III.

Conditions to Effectiveness; Representations; Warranties and Acknowledgements 

     3.1 Effective Date. This Amendment shall become effective as of the date first above
written when and only when (i) Administrative Agent and Lenders shall have received copies of all
documents or other evidence which the Administrative Agent, Lenders or their counsel may reasonably
request in connection herewith, including duly executed counterparts of this Amendment signed by
the Borrower, Guarantors, Administrative Agent, and the Required Lenders, and (ii) Borrower shall
have paid to each Lender who delivers a duly executed counterpart to this Amendment an amendment
fee in an amount equal to five basis points (.05%) of such Lender’s Commitment on the Amendment
Effective Date.

     3.2 Representations and Warranties; Acknowledgments by Borrower and Guarantors.
Except as otherwise specified herein, the terms and provisions of the Credit Agreement and other
Loan Documents are ratified and confirmed and shall remain in full force and effect, enforceable in
accordance with their terms. Borrower and each Guarantor hereby acknowledge, agree and represent
that (i) Borrower and each Guarantor are indebted to Lenders pursuant to the terms of the Notes and
Loan Documents as amended hereby; (ii) contemporaneously with the effectiveness of this Amendment,
the representations and warranties contained in the Loan Documents are true and correct
representations and warranties of Borrower and each Guarantor, as applicable, except to the extent
that such representations and warranties specifically refer to an earlier date, in which case they
are true and correct as of such earlier date; (iii) no condition exists which presently constitutes
or, with the giving of notice or lapse of time, or both, would constitute an Event of Default; and
(iv) this Amendment, the Credit Agreement (as amended hereby), and each of the other Loan Documents
have been duly authorized by all necessary organizational action of the Borrower and each Guarantor
and constitute legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.

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ARTICLE IV.

Miscellaneous

     4.1 Reference to and Effect on the Loan Documents.

     (a) Upon the effectiveness of this Amendment, on and after the Amendment Effective Date, each
reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like
import referring to the Credit Agreement and, and each reference in the other Loan Documents to
“the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended hereby.

     (b) Except as expressly amended, modified or supplemented by this Amendment, the Credit
Agreement and all of the other Loan Documents, are and shall continue to be in full force and
effect, enforceable against the Borrower in accordance with their respective terms, and are hereby
ratified and confirmed by the Borrower in all respects. Without limiting the generality of the
foregoing, the Pledge Agreement and all of the Collateral described therein do and shall continue
to secure the payment of all of the obligations under the Credit Agreement and the other Loan
Documents.

     (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or remedy of the Administrative Agent or
any Lender under any of the Loan Documents, nor constitute a waiver of any provision of any of the
Loan Documents.

     4.2 Amendment as a Loan Document. This Amendment is and shall be a “Loan
Document” in all respects and for all purposes.

     4.3 Costs and Expenses. Contemporaneously with the execution and delivery hereof,
Borrower shall pay, or cause to be paid, all costs and expenses incident to the preparation hereof
and the consummation of the transaction contemplated hereby, including, but not limited to,
reasonable fees and expenses of legal counsel to Administrative Agent (which fees and expenses, as
to legal counsel of Administrative Agent, shall be paid directly to legal counsel of Administrative
Agent immediately upon presentation of a bill for legal services rendered).

     4.4 Governing Law. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

     4.5 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE CREDIT
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO

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REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER
AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.

     4.6 Time is of the Essence. Time is of the essence in the performance of the
covenants contained herein and in the Loan Documents.

     4.7 Binding Agreement. This Amendment shall be binding upon the successors and
assigns of the parties hereto; provided, however, the foregoing shall not be deemed or construed to
(i) permit, sanction, authorize or condone the assignment of all or any part of any interest in and
to Borrower or any Guarantor except as expressly authorized in the Loan Documents, or (ii) confer
any right, title, benefit, cause of action or remedy upon any person or entity not a party hereto,
which such party would not or did not otherwise possess.

     4.8 Headings. The section headings hereof are inserted for convenience of reference
only and shall in no way alter, amend, define or be used in the construction or interpretation of
the text of such section.

     4.9 Construction. Whenever the context hereof so required, reference to the singular
shall include the plural and likewise, the plural shall include the singular; words denoting gender
shall be construed to mean the masculine, feminine or neuter, as appropriate; and specific
enumeration shall not exclude the general but shall be construed as cumulative of the general
recitation.

     4.10 Counterparts. To facilitate execution, this Amendment may be executed in as many
counterparts as may be convenient or required. It shall not be necessary that the signature of, or
on behalf of, each party or that the signature of all persons required to bind any party appear on
each counterpart. All counterparts shall collectively constitute a single counterpart containing
the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to
any counterpart may be detached from such counterpart without impairing the legal effect of the
signatures thereon and thereafter attached to another counterpart identical thereto except having
attached to it additional signature pages. Signatures hereto transmitted by facsimile or other
electronic medium shall be effective as originals.

     4.11 No Reliance. In executing this Amendment, Borrower warrants and represents that
Borrower is not relying on any statement or representation other than those in this Amendment and
the other Loan Documents and is relying upon its own judgment and advice of its attorneys.

     THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT

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ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[Signature Pages Follow]

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     IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective as of the date
first set forth above.

	 	 	 	 	 	 	 
	 	 	BORROWER:	 	 
	 
	 	 	 	 	 	 
	 	 	LENNOX INTERNATIONAL, INC.,

a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	     Gary A. Larson,

      Vice President and

      Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	GUARANTORS:	 	 
	 
	 	 	 	 	 	 
	 	 	LENNOX INDUSTRIES INC.

ARMSTRONG AIR CONDITIONING INC.

EXCEL COMFORT SYSTEMS INC., SERVICE EXPERTS INC.

LENNOX GLOBAL LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	     Gary A. Larson

     Treasurer	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	ADMINISTRATIVE AGENT	 	 
	 
	 	 	 	 	 	 
	 	 	BANK OF AMERICA, N.A., in its capacity as

Administrative Agent for the Lenders	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	      David A. Johnson

     Vice President	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 
	 	 	BANK OF AMERICA, N.A., as a Lender, as an

Issuing Bank and as Swingline Lender
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Steven A. Mackenzie

Senior Vice President

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	JPMORGAN CHASE BANK, N.A.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	THE BANK OF NOVA SCOTIA
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	WELLS FARGO BANK, N.A.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	THE ROYAL BANK OF SCOTLAND plc
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	WACHOVIA BANK, NA
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	BANK OF TEXAS, N.A.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	U.S. BANK NATIONAL ASSOCIATION
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	COMPASS BANK
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	THE NORTHERN TRUST COMPANY
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	COMERICA BANK
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	AMEGY BANK NATIONAL ASSOCIATION
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	UBS LOAN FINANCE LLC
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	CALYON NEW YORK BRANCH
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	FIRST TENNESSEE BANK NATIONAL ASSOCIATION
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	REGIONS BANK
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreement

 

 

	 	 	 	 	 	 	 
	 	 	THE BANK OF NEW YORK
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

Signature Page — First Amendment to Second Amended and Restated Credit Facility Agreementexv10w1

 

Exhibit 10.1

STATE NATIONAL BANCSHARES, INC.

August 4, 2006

Mr. Eddie Schulz

5412 76th Street

Lubbock, Texas 79424

Re: Retention Incentive Award & Non-Competition Agreement

Dear Mr. Schulz:

          As you know, on June 12, 2006, State National Bancshares, Inc. (the “Company”) entered into an
Agreement and Plan of Merger By and Between Banco Bilbao Vizcaya Argentaria, S.A. and the Company
(the “Merger Agreement”) whereby a subsidiary of Banco Bilbao will be merged with and into the
Company (the “Merger”).

          We are pleased to inform you that you have been selected to participate in the Company’s
executive retention and severance protection program, subject to the terms and conditions set forth
below. Pursuant to the program, you will have an opportunity to earn either a retention bonus
(“Retention Incentive”) or a Severance Payment (“Severance Payment”), as described below.

          You acknowledge that you have had and will continue to have a prominent role in the Company in
and the development of goodwill of the Company and its subsidiaries, and that you have established
and developed and will continue to establish and develop relations and contacts with the principal
customers and suppliers of the Company and its subsidiaries in Texas and New Mexico, all of which
constitute valuable goodwill of, and could be used by you to complete fairly with, the Company and
its affiliates. Furthermore, in the course of your employment with the Company, you have obtained
and will continue to obtain confidential and proprietary information and trade secrets concerning
the business and operations of the Company and its affiliates that could be used to complete
unfairly with the Company and its affiliates. Accordingly, you agree to comply with the covenants
relating to non-competition, non-solicitation and non-disclosure contained in this letter
agreement.

RETENTION INCENTIVE AWARD OR SEVERANCE PAYMENTS ON A TERMINATION WITHOUT CAUSE 

          Retention Incentive. In consideration of your continued employment with the Company and your
execution and compliance with the non-competition, non-solicitation and non-disclosure restrictions
below, you are eligible to receive a Retention Incentive payment equal to $75,000. In all cases,
payment of the Retention Payments will be subject to your continued employment with the Company
until the one-year anniversary of the closing of the Merger. Provided you remain so employed, your
Retention Incentive payment will be made to you in one lump sum as soon as reasonably practicable
following the one year anniversary of the closing. In the event of your employment with the
Company terminates for any reason prior to the one year anniversary of the Merger, you will not be
entitled to payment of any portion of the Retention Incentive.

          Severance Payment. In the event that your employment with the Company is terminated by the
Company without Cause (as defined below) prior to the first anniversary of the closing of the
Merger, you will be entitled to receive a Severance Payment in lieu of the Retention Incentive
Payment equal to $75,000. Payment of the Severance Payment will be

1

 

made in one lump sum within 30 days following your termination of employment. Such Severance
Payment shall replace and supersede in its entirety any other severance plans, policies or programs
maintained by the Company. In the event of your termination for any reason at any time after the
one year period following the closing of the merger by the Company without Cause, you will not be
entitled to any severance or other payment or benefit under this letter agreement.

NON-COMPETITION, NON-SOLICITATION & NON-DISCLOSURE RESTRICTIONS

          During the period of your employment with the Company (the “Restriction Period”), you shall
not, directly or indirectly, for your own account or for the account of any other person, firm or
entity:

(i) become employed by, engage in business with, serve as an agent or consultant
to, or become a partner, member, principal or stockholder (other than a holder of
less than 5% of the outstanding voting shares of any publicly held company) of, any
person, firm or entity that competes or has a reasonable potential for competing
with any part of the business of the Company or any of its subsidiaries, anywhere
in Texas or New Mexico where the Company or any of its subsidiaries conducts
business during your employment with the Company;

(ii) solicit for employment, employ or otherwise interfere with the relationship of
the Company or any of its affiliates with any person who is or was employed by or
otherwise engaged to perform services for the Company or any of its affiliates at
any time during which you are employed by the Company; and

(iii) solicit or otherwise attempt to establish any business relationship of a
nature that is competitive with the business or relationship of the Company or any
of its affiliates with any person, firm or entity which is or was a customer,
client or distributor of the Company or any of its affiliates at any time during
which you are employed by the Company, other than any such solicitation on behalf
of the Company or any of its affiliates during your employment with the Company.

          Unauthorized Disclosure. During the Restriction Period and following the term of this
Agreement, except where required by law, statute, regulation or rule of any governmental body or
agency, or pursuant to a subpoena or court order, you shall not, directly or indirectly, for your
own account or for the account of any other person, firm or entity, use or disclose any
confidential or proprietary trade secrets, customer lists, drawings, designs, information regarding
product development, marketing plans, sales plans, management organization information (including
but not limited to data and other information relating to members of the Board or the Board of
Directors of any of the Company’s affiliates or to management of the Company or any of its
affiliates), operating policies or manuals, business plans, financial records, packaging design or
other financial, commercial, business or technical information (a) relating to the Company or any
of its affiliates or (b) that the Company or any of its affiliates may receive belonging to
suppliers, customers or others who do business with the Company or any of its affiliates
(collectively, “Confidential Information”) to any third person unless such Confidential Information
has been previously disclosed to the public or is in the public domain (other than by reason of
your breach of this paragraph).

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          For purposes of this letter agreement, the term “Cause” means any one or more of the following
conduct by you: (i) dishonesty, fraud, gross negligence in the performance of your duties hereunder
or engaging in willful misconduct (ii) willful and continued failure to perform your duties
assigned to you (iii) the commission of a felony or any crime involving moral turpitude, or (iv)
any breach by you of any of the restrictive covenants in this or any other agreement between the
you and the Company; provided that (x) the Company shall have delivered written notice to
you of the Company’s intention to terminate your employment for Cause, which notice specifies the
circumstances claimed to give rise to the Company’s right to terminate your employment for Cause,
and you shall have failed to cure such circumstances (if such circumstances are reasonably
susceptible to cure) to the reasonable satisfaction of the Company within 10 days of the date of
such notice and (y) the Company delivers a notice of termination of employment to you within 10
days following your failure to cure such circumstances within the time period specified above.

* * * * * * * * * *

          Your employment pursuant to this letter agreement is not a guarantee of employment. The
Company may terminate your employment with or without cause and at any time. You are an at-will
employee of the Company.

          This letter agreement constitutes the entire agreement between the parties hereto with respect
to the subject matter hereof, and all promises, representations, understandings, arrangements and
prior arrangements relating to such subject matter are merged herein and superseded hereby.

          This letter agreement shall be binding on and inure to the benefit of the Company and its
successors and permitted assigns. This letter agreement shall also be binding on and inure to the
benefit of you and your heirs, executors, administrators and legal representatives.

          This letter agreement shall be governed by and construed in accordance with the laws of the
State of Texas without reference to principles of conflicts of laws which would require the
application of the laws of another jurisdiction.

          If you are in agreement with the foregoing, please sign the enclosed copy of this letter
agreement indicated below and return a signed copy to Tom Nichols, at 4500 Mercantile Plaza, Suite
300, Fort Worth, Texas 76160 within 10 days of your receipt of this letter agreement. This letter
agreement shall become effective upon receipt by the Company of the executed copy of this letter
agreement.

	 	 	 	 	 
	 	STATE NATIONAL BANCSHARES, INC.

 	 
	 	By:  	/s/ Tom Nichols
 	 
	 	 	Tom Nichols 	 
	 	 	Chairman & CEO 	 
	 

Accepted and agreed this

17th day of August, 2006

/s/ Eddie Schulz

 

Mr. Eddie Schulz

5412 7th Street

Lubbock, Texas 79424

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STATE NATIONAL BANCSHARES, INC.

August 8, 2006

Re: Amendment of the Retention Incentive Award & Non-Competition Agreement

To Whom It May Concern:

     You are receiving this letter (the “Letter”) because you have been selected to participate in
State National Bancshares’ (the “Company”) executive retention and severance protection program,
the terms and conditions of which are set forth in the Retention Incentive Award & Non-Competition
Agreement (the “Agreement”), dated August 4, 2006, of which you acknowledge you are in receipt.
This Letter amends the definition of “Cause” under the Agreement.

     The paragraph beginning “For purposes of this letter agreement, the term “Cause” means any one or
more of the following conduct...” is hereby amended by inserting the following at the end of the
first sentence of that paragraph:

“Notwithstanding the foregoing, the following shall not constitute “Cause”: (i) your failure
to accept a Company-requested relocation of your principal place of business to more than 50
miles from your current place of place of business, or (ii) your failure to accept a
substantial and significant diminution in compensation, job title or position from your
current compensation, job title or position.”

Accordingly, if your employment is terminated by the Company prior to the one year anniversary of
the closing of the Merger (as defined in the Agreement) pursuant to (i) or (ii) as stated above,
you will be entitled to the Severance Payment specified in the Agreement.

This Letter, together with the Agreement, shall contain the entire understanding of the parties
with respect to its subject matter. There are no restrictions, agreements, promises,
representations, warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein and in the Agreement.

* * * * * * * * * *

	 	 	 	 	 
	 	STATE NATIONAL BANCSHARES, INC.

 	 
	 	By:  	/s/ Tom Nichols
 	 
	 	 	Name:  	Tom Nichols 	 
	 	 	Title:  	Chairman & CEO

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