Document:

EXHIBIT 4.2

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into as of June 25, 2014, between State National Companies, Inc., a Delaware corporation (together with any successor entity thereto, the “Company”), Lonnie Ledbetter, Terry Ledbetter, Kendall Kaye Hohmann, Lonnie K. Ledbetter, III, The Terry Lee Ledbetter and Reta Laurie Ledbetter 2000 Revocable Trust, dated April 10, 2000, as amended: The Terry Lee Ledbetter, Jr. 1999 Grantor Trust, dated November 5, 1999; The Bradford Luke Ledbetter 1999 Grantor Trust, dated November 5, 1999; The Terry Lee Ledbetter, Jr. 2006 Grantor Trust, dated February 28, 2006; The Bradford Luke Ledbetter 2006 Grantor Trust, dated February 28, 2006; The Terry Lee Ledbetter, Jr. 2010 Grantor Trust, dated September 1, 2010; The Bradford Luke Ledbetter 2010 Grantor Trust, dated September 1, 2010; The Ledbetter Descendants Irrevocable 2012 Trust, dated December 28, 2012; The Ledbetter Family and Charitable Irrevocable 2012 Trust, dated December 28, 2012; The Lonnie K. Ledbetter, Jr. and Saundra Lee Ledbetter 2000 Revocable Trust, dated July 17, 2000, as amended; Lonnie K. Ledbetter III 1999 Grantor Trust, dated November 5, 1999; Kendall Kay Ledbetter 1999 Grantor Trust, dated November 5, 1999; the Lonnie K. Ledbetter III 2006 Grantor Trust, dated February 28, 2006; The Kendall Kay Ledbetter 2006 Grantor Trust, dated February 28, 2006; The Lonnie K. Ledbetter III 2010 Grantor Exempt Trust, dated June 28, 2013; and The Kendall Kaye Ledbetter 2010 Grantor Exempt Trust, dated June 28, 2013, and FBR Capital Markets & Co., a Delaware corporation, as the initial purchaser/placement agent (“FBR”) for the benefit of FBR, the purchasers of the Company’s common stock, $0.001 par value per share (“Common Stock”), as participants (“Participants”) in the private placement by the Company of shares of its Common Stock, and the direct and indirect transferees of FBR, and each of the Participants.

 

This Agreement is made pursuant to the Purchase/Placement Agreement (the “Purchase/Placement Agreement”), dated as of June 18, 2014, between the Company and FBR in connection with the purchase and sale or placement of an aggregate of 27,000,000 shares of Common Stock (plus an additional 4,050,000 shares to cover additional allotments, if any). In order to induce FBR to enter into the Purchase/Placement Agreement, the Company has agreed to provide the registration rights provided for in this Agreement to FBR, the Participants, and their respective direct and indirect transferees. The execution of this Agreement is a condition to the closing of the transactions contemplated by the Purchase/Placement Agreement.

 

The parties hereby agree as follows:

 

1.                                 Definitions

 

As used in this Agreement, the following terms shall have the following meanings:

 

Accredited Investor Shares: Shares initially sold by the Company to “accredited investors” (within the meaning of Rule 501(a) promulgated under the Securities Act) as Participants.

 

Affiliate: As to any specified Person, (i) any Person directly or indirectly owning, controlling or holding, with power to vote, ten percent or more of the outstanding voting securities of such other Person, (ii) any Person, ten percent or more of whose outstanding voting

 

 

securities are directly or indirectly owned, controlled or held, with power to vote, by such other Person, (iii) any Person directly or indirectly controlling, controlled by or under common control with such other Person, (iv) any executive officer, director, trustee or general partner of such Person and (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner. An indirect relationship shall include circumstances in which a Person’s spouse, children, parents, siblings or mother, father, sister- or brother-in-law is or has been associated with a Person.

 

Agreement: As defined in the preamble.

 

Board of Directors: As defined in Section 6(a) hereof.

 

Business Day: With respect to any act to be performed hereunder, each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York, New York or other applicable places where such act is to occur are authorized or obligated by applicable law, regulation or executive order to close.

 

Closing Date: June 25, 2014, or such other time or such other date as FBR and the Company may agree.

 

Commission: The Securities and Exchange Commission.

 

Common Stock: As defined in the preamble.

 

Company: As defined in the preamble.

 

Controlling Person: As defined in Section 7(a) hereof.

 

End of Suspension Notice: As defined in Section 6(b) hereof.

 

Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission pursuant thereto.

 

FBR: As defined in the preamble.

 

FINRA: The Financial Industry Regulatory Authority, formerly the National Association of Securities Dealers, Inc.

 

Holder: Each record owner of any Registrable Shares from time to time, including FBR and its Affiliates to the extent FBR or any such Affiliate holds any Registrable Shares.

 

Indemnified Party: As defined in Section 7(c) hereof. 

 

Indemnifying Party: As defined in Section 7(c) hereof.

 

IPO Registration Statement: As defined in Section 2(b) hereof.

 

JOBS Act: The Jumpstart Our Business Startups Act, as amended, and the rules and regulations promulgated by the Commission thereunder.

 

 

Issuer Free Writing Prospectus: As defined in Section 2(c) hereof.

 

Liabilities: As defined in Section 7(a) hereof.

 

No Objections Letter: As defined in Section 5(t) hereof.

 

Nominee: As defined in Section 3(c) hereof.

 

Participants: As defined in the preamble.

 

Person: An individual, partnership, corporation, limited liability company, trust, unincorporated organization, government or agency or political subdivision thereof, or any other legal entity.

 

Proceeding: An action (including a class action), claim, suit or proceeding (including without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or, to the knowledge of the Person subject thereto, threatened.

 

Prospectus: The prospectus included in any Registration Statement, including any preliminary prospectus at the “time of sale” within the meaning of Rule 159 under the Securities Act and all other amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus.

 

Purchase/Placement Agreement: As defined in the preamble. 

 

Purchaser Indemnitee: As defined in Section 7(a) hereof.

 

Registrable Shares: The Rule 144A Shares, the Accredited Investor Shares, the Regulation S Shares, upon original issuance thereof, and at all times subsequent thereto, including upon the transfer thereof by the original holder or any subsequent holder and any shares or other securities issued in respect of such Registrable Shares by reason of or in connection with any stock dividend, stock distribution, stock split, purchase in any rights offering or in connection with any exchange for or replacement of such Registrable Shares or any combination of shares, recapitalization, merger or consolidation, or any other equity securities issued pursuant to any other pro rata distribution with respect to the Common Stock, until, in the case of any such Rule 144A Share, Accredited Investor Share or Regulation S Share, the earliest to occur of (i) the date on which the resale of such share has been registered pursuant to the Securities Act and it has been disposed of in accordance with the Registration Statement relating to it, (ii) the date on which such share either has been transferred pursuant to Rule 144 (or any similar provision then in effect) or is freely saleable, without condition pursuant to Rule 144, including any current public information requirements, and are listed for trading on the New York Stock Exchange, the Nasdaq Global Market or a similar national securities exchange or (iii) the date on which it is sold to the Company.

 

Registration Default: As defined in Section 2(f) hereof.

 

 

Registration Expenses: Any and all fees and expenses incident to the performance of or compliance with this Agreement, including, without limitation: (i) all Commission, securities exchange, FINRA or other registration, listing, inclusion and filing fees; (ii) all fees and expenses incurred in connection with compliance with international, federal or state securities or blue sky laws (including, without limitation, any registration, listing and filing fees and fees and disbursements of counsel in connection with blue sky qualification of any of the Registrable Shares and the preparation of a blue sky memorandum and compliance with the rules of FINRA); (iii) all expenses in preparing or assisting in preparing, word processing, duplicating, printing, delivering and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements, certificates and any other documents relating to the performance under and compliance with this Agreement; (iv) all fees and expenses incurred in connection with the listing or inclusion of any of the Registrable Shares on any securities exchange pursuant to Section 5(n) of this Agreement; (v) the fees and disbursements of counsel for the Company and of the independent registered public accounting firm of the Company (including, without limitation, the expenses of any special audit and “cold comfort” letters required by or incident to the performance of this Agreement); (vi) reasonable fees and disbursements, not to exceed $75,000, of Sidley Austin LLP (or Hunton & Williams LLP (if Sidley Austin LLP is unable or unwilling to so serve) or another nationally-recognized securities law counsel, reasonably acceptable to the Company and FBR, if both of such firms is unable or unwilling to so serve, with respect to a review of the registration statement and other offering arrangements with respect to the Holders (such counsel, “Review Counsel,” it being understood that such Review Counsel shall not be deemed to representing one or more Holders unless such firm and such Holder or Holders so agree in writing); provided, however, that Holders holding a majority of the Registrable Shares (or, in the case of an Underwritten Offering in which Holders elect to sell Registrable Shares, Holders holding a majority of the Registrable Shares held by the Holders who have elected to sell Registrable Shares in such Underwritten Offering) may object to the appointment of Review Counsel and appoint a new Review Counsel; provided, however, that if Holders electing to sell Registrable Shares in an Underwritten Offering object to the appointment of such original Review Counsel and appoint a new Review Counsel, such objection and appointment shall only be applicable to such Underwritten Offering; and (vii) any fees and disbursements customarily paid in issues and sales of securities (including the fees and expenses of any experts retained by the Company in connection with any Registration Statement); provided, however, that Registration Expenses shall exclude brokers’ or underwriters’ discounts and commissions, if any, relating to the sale or disposition of Registrable Shares by a Holder and any other fees, disbursements and expenses not specifically agreed to in this Agreement.

 

Registration Statement: Any registration statement of the Company that covers the resale of Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference, if any, in such registration statement.

 

Regulation S: Regulation S (Rules 901-905) promulgated by the Commission under the Securities Act, as such rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such regulation.

 

 

Regulation S Shares. Shares initially resold by FBR pursuant to the Purchase/Placement Agreement to “non-U.S. persons” (in accordance with Regulation S) in an “offshore transaction” (in accordance with Regulation S).

 

Review Counsel. As defined in paragraph (vi) of the definition for Registration Expenses.

 

Rule 144. Rule 144 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

Rule 144A. Rule 144A promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

Rule 144A Shares. Shares initially resold by FBR pursuant to the Purchase/Placement Agreement to “qualified institutional buyers” (as such term is defined in Rule 144A).

 

Rule 158. Rule 158 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

Rule 159. Rule 159 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

Rule 405. Rule 405 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

Rule 415. Rule 415 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

Rule 424. Rule 424 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

Rule 429. Rule 429 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

Rule 433. Rule 433 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission as a replacement thereto having substantially the same effect as such rule.

 

 

Securities Act: The Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder.

 

Shares: The shares of Common Stock being offered and sold pursuant to the terms and conditions of the Purchase/Placement Agreement.

 

Shelf Registration Statement: As defined in Section 2(a) hereof. Special Election Meeting: As defined in Section 3(a) hereof.

 

Specified Executive Officers: For purposes of Section 2(f) hereof, Terry Ledbetter, David Hale and David Cleff.

 

Suspension Event: As defined in Section 6(b) hereof.

 

Suspension Notice: As defined in Section 6(b) hereof.

 

Trigger Date: As defined in Section 3(a) hereof.

 

Underwritten Offering: A sale of securities of the Company to an underwriter or underwriters for re-offering to the public.

 

2.                                 Registration Rights

 

(a)                                 Mandatory Shelf Registration. As set forth in Section 5 hereof, the Company agrees to file with the Commission as soon as reasonably practicable following the date of this Agreement (but in no event later than the date that is ninety (90) days after the date of this Agreement) a shelf Registration Statement on Form S-1 or such other form under the Securities Act then available to the Company providing for the resale of any Registrable Shares pursuant to Rule 415 from time to time by the Holders (a “Shelf Registration Statement”). The Company shall use its commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective by the Commission as soon as practicable after the initial filing thereof but in any event within two hundred and seventy (270) days after the date of this Agreement. Any Shelf Registration Statement shall provide for the resale from time to time, and pursuant to any method or combination of methods legally available (including, without limitation, an Underwritten Offering, a direct sale to purchasers or a sale through brokers or agents, which may include sales over the internet) by the Holders of any and all Registrable Shares.

 

(b)                                 IPO Registration. If the Company proposes to file a registration statement on Form S-1 or such other form under the Securities Act providing for the initial public offering of shares of Common Stock (the “IPO Registration Statement”), the Company will notify in writing each Holder of the filing before (but no earlier than 10 Business Days before) or within five (5) Business Days after the initial filing and afford each Holder an opportunity to include in the IPO Registration Statement all or any part of the Registrable Shares then held by such Holder; it being understood that that any registration statement filed after the Shelf Registration Statement having been declared effective by the Commission is not an IPO Registration Statement. Each Holder desiring to include in the IPO Registration Statement all or part of the Registrable Shares held by such Holder shall, within twenty (20) days after receipt of the above-described notice

 

 

from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Shares such Holder wishes to include in the IPO Registration Statement. Any election by any Holder to include any Registrable Shares in the IPO Registration Statement will not affect the inclusion of such Registrable Shares in the Shelf Registration Statement until such Registrable Shares have been sold under the IPO Registration Statement.

 

(i)                                    Right to Terminate IPO Registration. The Company shall have the right to terminate or withdraw the IPO Registration Statement initiated by it and referred to in this Section 2(b) prior to the effectiveness of such registration whether or not any Holder has elected to include Registrable Shares in such registration; provided, however, the Company must provide each Holder that elected to include any Registrable Shares in such IPO Registration Statement prompt written notice of such termination or withdrawal. Furthermore, in the event the IPO Registration Statement is not declared effective within one hundred twenty (120) days following the initial filing of the IPO Registration Statement, unless a road show for the Underwritten Offering pursuant to the IPO Registration Statement is actually in progress at such time, the Company shall promptly provide a new written notice to all Holders giving them another opportunity to elect to include Registrable Shares in the pending IPO Registration Statement. Each Holder receiving such notice shall have the same election rights afforded such Holder as described in clause (b) above.

 

(ii)                                Selection of Underwriter. Subject to the terms and conditions set forth in that certain engagement letter, dated April 11, 2014, by and between FBR and the Company, and any rights of FBR set forth therein, the Company shall have the sole right to select the managing underwriter(s) for its initial public offering, regardless of whether any Registrable Shares are included in the IPO Registration Statement or otherwise.

 

(iii)                            Shelf Registration not Impacted by IPO Registration Statement. The Company’s obligation to file the Shelf Registration Statement pursuant to Section 2(a) hereof shall not be affected by the filing or effectiveness of the IPO Registration Statement. In addition, the Company’s obligation to file and use its commercially reasonable efforts to cause to become and keep effective the Shelf Registration Statement pursuant to Section 2(a) hereof shall not be affected by the filing or effectiveness of an IPO Registration Statement; provided, however, if the Company files an IPO Registration Statement before the effective date of the Shelf Registration Statement and the Company has used and is using commercially reasonable efforts to pursue the completion of such initial public offering, the Company shall have the right to defer causing the Commission to declare such Shelf Registration Statement effective until up to 60 days after the closing date of its initial public offering pursuant to the IPO Registration Statement. Notwithstanding any other provision in this Agreement to the contrary, if the Company files an IPO Registration Statement before the effective date of the Shelf Registration Statement and the deadline for causing such Shelf Registration Statement to go effective is after the 60 day period beginning on the closing date of the Company’s initial public offering pursuant to the IPO Registration Statement, the Company shall cause the Shelf Registration Statement to be declared effective no later than 60 days after the closing date of the Company’s initial public offering pursuant to the IPO Registration Statement.

 

 

(c)                                  Issuer Free Writing Prospectus. The Company represents and agrees that, unless it obtains the prior consent of Holders of a majority of the Registrable Shares that are registered under a Registration Statement at such time or the consent of the managing underwriter in connection with any Underwritten Offering of Registrable Shares, and each Holder represents and agrees that, unless it obtains the prior consent of the Company and any such underwriter, it will not make any offer relating to the Shares that would constitute an “issuer free writing prospectus,” as defined in Rule 433 (an “Issuer Free Writing Prospectus”), or that would otherwise constitute a “free writing prospectus,” as defined in Rule 405, required to be filed with the Commission. The Company represents that any Issuer Free Writing Prospectus will not include any information that conflicts with the information contained in any Registration Statement or the related Prospectus, and any Issuer Free Writing Prospectus, when taken together with the information in such Registration Statement and the related Prospectus, will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

(d)                                 Underwriting. The Company shall advise all Holders of the lead managing underwriter for the Underwritten Offering proposed under the IPO Registration Statement. The right of any such Holder’s Registrable Shares to be included in the IPO Registration Statement pursuant to Section 2(b) shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Shares in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Shares through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter(s) selected for such underwriting and complete and execute any questionnaires, powers of attorney, indemnities, custody agreements, securities escrow agreements and other documents, including opinions of counsel, reasonably required under the terms of such underwriting, and furnish to the Company such information as the Company may reasonably request in writing for inclusion in the Registration Statement; provided, however, that no Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder and such Holder’s intended method of distribution and any other representation required by law or reasonably requested by the underwriters. Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation on the number of shares to be included, then the managing underwriter(s) may exclude shares (including Registrable Shares) from the IPO Registration Statement and Underwritten Offering, and any shares included in such IPO Registration Statement and Underwritten Offering shall be allocated first, to the Company, and second, to each of the Holders requesting inclusion of their Registrable Shares in such IPO Registration Statement (on a pro rata basis based on the total number of Registrable Shares then held by each such Holder who is requesting inclusion); provided, however, that the number of Registrable Shares to be included in the IPO Registration Statement shall not be reduced unless all other securities of the Company held by (i) officers, directors, other employees of the Company and consultants and (ii) other holders of the Company’s capital stock with registration rights that are inferior (with respect to such reduction) to the registration rights of the Holders set forth herein, are first entirely excluded from the underwriting and registration; provided, further, however, that Holders of Registrable Shares shall be permitted to include Registrable Shares comprising at

 

 

least 25% of the total securities included in the Underwritten Offering proposed under the IPO Registration Statement.

 

By electing to include the Registrable Shares in the IPO Registration Statement, the Holder of such Registrable Shares shall be deemed to have agreed not to effect any public sale or distribution of securities of the Company of the same or similar class or classes of the securities included in the IPO Registration Statement or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 or Rule 144A under the Securities Act, during such periods as reasonably requested (but in no event for a period longer than thirty (30) days prior to and one hundred eighty (180) days following the effective date of the IPO Registration Statement) by the representatives of the underwriters, if an Underwritten Offering, or by the Company in any other registration.

 

If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter(s), delivered by the later of (i) two (2) Business Days after the IPO price range is communicated by the Company to such Holder and (ii) ten (10) Business Days prior to the effective date of the IPO Registration Statement. Any Registrable Shares excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration.

 

(e)                                  Expenses. The Company shall pay all Registration Expenses in connection with the registration of the Registrable Shares pursuant to this Agreement. Each Holder participating in a registration pursuant to this Section 2 shall bear such Holder’s proportionate share (based on the total number of Registrable Shares sold in such registration) of all discounts and commissions payable to underwriters or brokers and all transfer taxes and transfer fees in connection with a registration of Registrable Shares pursuant to this Agreement.

 

(f)                                    Penalty Provisions. If the Company does not file a Shelf Registration Statement registering the resale of the Registrable Shares in accordance with Section 2(a) hereof within ninety (90) days after the date of this Agreement, other than as a result of the Commission being unable to accept such filing (in which case such 90-day period shall be extended until such date as the Commission is first able to accept such filing) (a “Registration Default”), then (i) the Company agrees not to authorize, award or pay, and each Specified Executive Officer shall lose and forfeit his right to (or his opportunity to earn) 50% of such Specified Executive Officer’s bonus for his service, performance or employment for the year 2014 (whether in cash, equity or other compensation and whether such bonus is paid in during 2014 or thereafter) and, (ii) for each additional 30-day period following the Registration Default for which the Registration Default shall have not been cured, the Company agrees not to authorize, award or pay, and each Specified Executive Officer shall lose and forfeit his right to (or his opportunity to earn) an additional 10% of such bonus, such that each Specified Executive Officer will lose and forfeit his entire 2014 bonus if the Registration Default continues for five full consecutive 30-day periods following the initial date of default. The Company agrees to abide by the provisions of this Section 2(f) in good faith and shall not take any action to circumvent the purpose and spirit hereof, including but not limited to, renaming a Specified Executive Officer’s 2014 bonus as something else, or creating, awarding or granting a new or difference bonus or other form of compensation to replace or compensate for all or any portion of a Specified Executive Officer’s 2014 bonus which has been forfeited in accordance with the provisions of this Section 2(f).

 

 

(g)                                  JOBS ACT Submissions. For purposes of this Agreement, if the Company elects to confidentially submit a draft of the Shelf Registration Statement with the Commission pursuant to the JOBS Act, the date on which the Company makes such confidential submission will be deemed the initial filing date of such Shelf Registration Statement.

 

3.                                      Special Election Meeting.

 

(a)                                 Unless a Registration Statement registering the resale of the Registrable Shares has been declared effective by the Commission and the Registrable Shares have been listed for trading on a national securities exchange, (i) on a date that is 270 days after the Closing Date or (ii), if the Company completes its initial public offering pursuant to the IPO Registration Statement prior to 270 days after the Closing Date, on a date that is 60 days after the completion of such initial public offering (each, a “Trigger Date”), a special meeting of stockholders (the “Special Election Meeting”) shall be called in accordance with the Bylaws of the Company. The Special Election Meeting shall occur as soon as possible following the Trigger Date but in no event more than thirty (30) days after the Trigger Date.

 

(b)                                 Purposes of Meeting. The Special Election Meeting shall be called solely for the purposes of: (i) considering and voting upon proposals to remove each then-serving director of the Company; and (ii) electing such number of directors as there are then vacancies on the Board of Directors of the Company (including any vacancies created by the removal of any director pursuant to this Section 3(b)). The removal of any director pursuant to Section 3(b)(i) hereof shall be effective immediately upon the receipt of the final report of the Inspector of Elections for the Special Election Meeting of the result of the vote on the proposal to remove such director.

 

(c)                                  Nominations. Nominations of individuals for election to the Board of Directors of the Company at the Special Election Meeting may only be made (i) by or at the direction of the Board of Directors or (ii) upon receipt by the Company of written notice of Holders entitled to cast, or direct the casting of, not less than 20% of all the votes entitled to be cast at the Special Election Meeting and containing the information specified by Section 3(d) hereof. Each individual whose nomination is made in accordance with this Section 3(c) is hereinafter referred to as a “Nominee.”

 

(d)                                 Procedure for Stockholder Nominations. For nominations of individuals for election to the Board of Directors to be properly brought before the Special Election Meeting by Holders pursuant to Section 3(c) hereof, the Holders must have given notice thereof in writing to the Secretary of the Company not later than 5:00 p.m., Eastern Time, on the 10th day after the Trigger Date. Such notice shall include each such proposed Nominee’s written consent to serve as a director, if elected, and shall specify:

 

(i)                                     as to each proposed Nominee, the name, age, business address and residence address of such proposed Nominee and all other information relating to such proposed Nominee that would be required, pursuant to Regulation 14A promulgated under the Exchange Act (or any successor provision), to be disclosed in a contested solicitation of proxies with respect to the election of such individual as a director; and

 

 

(ii)                                  as to each Holder giving the notice, the class, series and number of all shares of beneficial interest of the Company that are owned by such Holder, beneficially or of record.

 

(e)                             Notice. Not less than fifteen (15) nor more than twenty-five (25) days before the Special Election Meeting, the Secretary of the Company shall give to each stockholder entitled to vote at, or to receive notice of, such meeting at such stockholder’s address as it appears in the share transfer records of the Company, notice in writing setting forth (i) the time and place of the Special Election Meeting, (ii) the purposes for which the Special Election Meeting has been called and (iii) the name of each Nominee.

 

(f)                               Voting. Each of Lonnie Ledbetter, Terry Ledbetter, Kendall Kaye Hohmann, Lonnie K. Ledbetter, III, The Terry Lee Ledbetter and Reta Laurie Ledbetter 2000 Revocable Trust, dated April 10, 2000, as amended: The Terry Lee Ledbetter, Jr. 1999 Grantor Trust, dated November 5, 1999; The Bradford Luke Ledbetter 1999 Grantor Trust, dated November 5, 1999; The Terry Lee Ledbetter, Jr. 2006 Grantor Trust, dated February 28, 2006; The Bradford Luke Ledbetter 2006 Grantor Trust, dated February 28, 2006; The Terry Lee Ledbetter, Jr. 2010 Grantor Trust, dated September 1, 2010; The Bradford Luke Ledbetter 2010 Grantor Trust, dated September 1, 2010; The Ledbetter Descendants Irrevocable 2012 Trust, dated December 28, 2012; The Ledbetter Family and Charitable Irrevocable 2012 Trust, dated December 28, 2012; The Lonnie K. Ledbetter, Jr. and Saundra Lee Ledbetter 2000 Revocable Trust, dated July 17, 2000, as amended; Lonnie K. Ledbetter III 1999 Grantor Trust, dated November 5, 1999; Kendall Kay Ledbetter 1999 Grantor Trust, dated November 5, 1999; the Lonnie K. Ledbetter III 2006 Grantor Trust, dated February 28, 2006; The Kendall Kay Ledbetter 2006 Grantor Trust, dated February 28, 2006; The Lonnie K. Ledbetter III 2010 Grantor Exempt Trust, dated June 28, 2013; and The Kendall Kaye Ledbetter 2010 Grantor Exempt Trust, dated June 28, 2013, shall vote or not vote (or cause to be voted or not voted) or give consent with respect to (or cause consent to be given with respect to) any and all securities of the Company beneficially owned by him or it and entitled to vote at the Special Election Meeting in the same relative proportions as to which other holders entitled to vote at the Special Election Meeting vote or not vote at such Special Election Meeting. Each of Lonnie Ledbetter, Terry Ledbetter, Kendall Kaye Hohmann, Lonnie K. Ledbetter, III, The Terry Lee Ledbetter and Reta Laurie Ledbetter 2000 Revocable Trust, dated April 10, 2000, as amended: The Terry Lee Ledbetter, Jr. 1999 Grantor Trust, dated November 5, 1999; The Bradford Luke Ledbetter 1999 Grantor Trust, dated November 5, 1999; The Terry Lee Ledbetter, Jr. 2006 Grantor Trust, dated February 28, 2006; The Bradford Luke Ledbetter 2006 Grantor Trust, dated February 28, 2006; The Terry Lee Ledbetter, Jr. 2010 Grantor Trust, dated September 1, 2010; The Bradford Luke Ledbetter 2010 Grantor Trust, dated September 1, 2010; The Ledbetter Descendants Irrevocable 2012 Trust, dated December 28, 2012; The Ledbetter Family and Charitable Irrevocable 2012 Trust, dated December 28, 2012; The Lonnie K. Ledbetter, Jr. and Saundra Lee Ledbetter 2000 Revocable Trust, dated July 17, 2000, as amended; Lonnie K. Ledbetter III 1999 Grantor Trust, dated November 5, 1999; Kendall Kay Ledbetter 1999 Grantor Trust, dated November 5, 1999; the Lonnie K. Ledbetter III 2006 Grantor Trust, dated February 28, 2006; The Kendall Kay Ledbetter 2006 Grantor Trust, dated February 28, 2006; The Lonnie K. Ledbetter III 2010 Grantor Exempt Trust, dated June 28, 2013; and The Kendall Kaye Ledbetter 2010 Grantor Exempt Trust, dated June 28, 2013, agrees that he or it will not (A) grant any proxy, power-of-attorney or other authorization, in or with respect to any securities of the Company beneficially owned by him or it and entitled to

 

 

vote at the Special Election Meeting, or take any other action that would in any way restrict, limit or interfere with the performance of his obligations hereunder, or (B) directly or indirectly, solicit, initiate, seek, encourage or support or take any other action the effect of which would be inconsistent with or violative of any provision contained in this Section 3(f).

 

4.                                      Rules 144 and 144A Reporting

 

With a view to making available the benefits of certain rules and regulations of the Commission that may at any time permit the sale of the Registrable Shares to the public without registration, the Company agrees to:

 

(a)                                 make and keep current public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration statement under the Securities Act filed by the Company for an offering of its securities to the general public;

 

(b)                                 use commercially reasonable efforts to file with the Commission in a timely manner all reports and other documents required to be filed by the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements);

 

(c)                                  so long as a Holder owns any Registrable Shares, if the Company is not required to file reports and other documents under the Securities Act and the Exchange Act, it will make available other information as required by, and so long as necessary to permit sales of Registrable Shares pursuant to, Rule 144 or Rule 144A, and in any event shall make available (either by mailing a copy thereof, by posting on the Company’s website, or by press release) to each Holder a copy of:

 

(i)                                     the Company’s annual consolidated financial statements (including at least balance sheets, statements of profit and loss, statements of stockholders’ equity and statements of cash flows) prepared in accordance with U.S. generally accepted accounting principles in the United States, accompanied by an audit report of the Company’s independent accountants, no later than ninety (90) days after the end of each fiscal year of the Company (or if such 90th day is not a Business Day, the immediately following Business Day); and

 

(ii)                                  the Company’s unaudited quarterly financial statements (including at least balance sheets, statements of profit and loss, statements of stockholders’ equity and statements of cash flows) prepared in a manner consistent with the preparation of the Company’s annual financial statements, no later than forty-five (45) days after the end of each of the first three fiscal quarters of the Company (or if such 45th day is not a Business Day, the immediately following Business Day);

 

(d)                                 hold, a reasonable time after the availability of such financial statements and upon reasonable notice to the Holders and FBR (either by mail, by posting on the Company’s website, or by press release), a quarterly investor conference call to discuss such financial statements, which call will also include an opportunity for the Holders to ask questions of management with regard to such financial statements, and will also cooperate with, and make management

 

 

reasonably available to, FBR personnel in connection with making Company information available to investors; and

 

(e)                                  so long as a Holder owns any Registrable Shares, to furnish to the Holder promptly upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to the reporting requirements of the Exchange Act), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company, and take such further actions, as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such Registrable Shares without registration.

 

5.                                      Registration Procedures

 

In connection with the obligations of the Company with respect to any registration pursuant to this Agreement, the Company shall use its commercially reasonable efforts to effect or cause to be effected the registration of the Registrable Shares under the Securities Act to permit the sale of such Registrable Shares by the Holder or Holders in accordance with the Holder’s or Holders’ intended method or methods of distribution, and the Company shall:

 

(a)                                 notify FBR and Review Counsel, in writing, at least ten (10) Business Days prior to filing a Registration Statement, of its intention to file a Registration Statement with the Commission and, at least five (5) Business Days prior to filing, provide a copy of the Registration Statement to FBR, its counsel and Review Counsel for review and comment; prepare and file with the Commission, as specified in this Agreement, a Registration Statement(s), which Registration Statement(s) shall (x) comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith and (y) be reasonably acceptable to FBR, its counsel and Review Counsel; notify FBR and Review Counsel in writing, at least five (5) Business Days prior to filing of any amendment or supplement to such Registration Statement and, at least three (3) Business Days prior to filing, provide a copy of such amendment or supplement to FBR, its counsel and Review Counsel for review and comment; promptly following receipt from the Commission, provide to FBR, its counsel and Review Counsel copies of any comments made by the staff of the Commission relating to such Registration Statement and of the Company’s responses thereto for review and comment; and use its commercially reasonable efforts to cause such Registration Statement to become effective as soon as practicable after filing and to remain effective, subject to Section 6 hereof, until the earlier of (i) such time as all Registrable Shares covered thereby have been sold in accordance with the intended distribution of such Registrable Shares, (ii) there are no Registrable Shares outstanding or (iii) the first anniversary of the effective date of such Registration Statement (subject to extension as provided in Section 6(c) hereof and the condition that the Registrable Shares have been transferred to an unrestricted CUSIP, are listed or included on the New York Stock Exchange or the Nasdaq Global Market, pursuant to Section 5(n) of this Agreement, or on an alternative trading system with the Registrable Shares qualified under the applicable state securities or “blue sky” laws of all fifty (50) states), and can be sold under Rule 144 without limitation as to manner of sale or volume;

 

 

provided, however, that the Company shall not be required to cause the IPO Registration Statement to remain effective for any period longer than ninety (90) days following the effective date of the IPO Registration Statement (subject to extension as provided in Section 6(c) hereof) provided, further, that if the Company has an effective Shelf Registration Statement on Form S-1 (or other form then available to the Company) under the Securities Act and becomes eligible to use Form S-3 or such other short-form registration statement form under the Securities Act, the Company may either (1) file a post effective amendment on Form S-3 to such registration statement on Form S-1, so long as there is no lapse in effectiveness of the Shelf Registration Statement, or (2) upon thirty (30) Business Days prior written notice to all Holders, register any Registrable Shares registered but not yet distributed under the effective Shelf Registration Statement on such a short-form Shelf Registration Statement and, once the short-form Shelf Registration Statement is declared effective, de-register such shares under the previous Registration Statement or transfer the filing fees from the previous Registration Statement (such transfer pursuant to Rule 429, if applicable) unless any Holder registered under the initial Shelf Registration Statement notifies the Company within fifteen (15) Business Days of receipt of the Company notice that such a registration under a new Registration Statement and de-registration of the initial Shelf Registration Statement would interfere with its distribution of Registrable Shares already in progress, in which case, the Company shall delay the effectiveness of the short-form Registration Statement and termination of the then-effective initial Registration Statement or any short-form Registration Statement for a period of not less than thirty (30) days from the date that the Company receives the notice from such Holders requesting a delay;

 

(b)                            subject to Section 5(i) hereof, (i) prepare and file with the Commission such amendments and post-effective amendments to each such Registration Statement as may be necessary to keep such Registration Statement effective for the period described in Section 5(a) hereof; (ii) cause each Prospectus contained therein to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 or any similar rule that may be adopted under the Securities Act; and (iii) comply with the provisions of the Securities Act with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof;

 

(c)                             furnish to the Holders, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Shares; the Company consents, subject to Section 6 hereof, to the use of such Prospectus, including each preliminary Prospectus, by the Holders, if any, in connection with the offering and sale of the Registrable Shares covered by any such Prospectus;

 

(d)                            use its commercially reasonable efforts to register or qualify, or obtain exemption from registration or qualification for, all Registrable Shares by the time the applicable Registration Statement is declared effective by the Commission under all applicable state securities or “blue sky” laws of such jurisdictions as FBR or any Holder of Registrable Shares covered by a Registration Statement shall reasonably request in writing, keep each such registration or qualification or exemption effective during the period such Registration Statement is required to be kept effective pursuant to Section 5(a) and do any and all other acts and things that may be reasonably necessary or advisable to enable such Holder to consummate the

 

 

disposition in each such jurisdiction of such Registrable Shares owned by such Holder; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction or to register as a broker or dealer in such jurisdiction where it would not otherwise be required to qualify but for this Section 5(d) and except as may be required by the Securities Act, (ii) subject itself to taxation in any such jurisdiction, or (iii) submit to the general service of process in any such jurisdiction;

 

(e)                                  use its commercially reasonable efforts to cause all Registrable Shares covered by such Registration Statement to be registered and approved by such other governmental agencies or authorities as may be necessary to enable the Holders thereof to consummate the disposition of such Registrable Shares;

 

(f)                                   notify FBR and each Holder promptly and, if requested by FBR or any Holder, confirm such advice in writing (1) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (2) of the issuance by the Commission or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any Proceeding for that purpose, (3) of any request by the Commission or any other federal, state or foreign governmental authority for (A)  amendments or supplements to a Registration Statement or related Prospectus or (B)  additional information and (4) of the happening of any event during the period a Registration Statement is effective as a result of which such Registration Statement or the related Prospectus or any document incorporated by reference therein contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading (which information shall be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) and (5) at the request of any such Holder, promptly to furnish to such Holder a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchaser of such securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(g)                                  use its commercially reasonable efforts to avoid the issuance of, or if issued, to obtain the withdrawal of, any order enjoining or suspending the use or effectiveness of a Registration Statement or suspending the qualification of (or exemption from qualification of) any of the Registrable Shares for sale in any jurisdiction, as promptly as practicable;

 

(h)                                 upon request, furnish to each requesting Holder of Registrable Shares covered by a Registration Statement, without charge, one conformed copy of such Registration Statement and any post-effective amendment or supplement thereto (without documents incorporated therein by reference or exhibits thereto, unless requested);

 

(i)                                     except as provided in Section 6 hereof, upon the occurrence of any event contemplated by Section 5(f)(4) hereof, use its commercially reasonable efforts to promptly prepare a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Shares, such

 

Annex VT-15

 

 

Prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(j)                                    if requested by the representative of the underwriters, if any, or any Holders of Registrable Shares being sold in connection with such offering, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the representative of the underwriters, if any, or such Holders indicate relates to them or that they reasonably request be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as reasonably practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment;

 

(k)                                 in the case of an Underwritten Offering, use its commercially reasonable efforts to furnish to the underwriters a signed counterpart addressed to the underwriters and each Holder of Registrable Shares covered by such Registration Statement, of: (i) an opinion of counsel for the Company, dated the date of each closing under the underwriting agreement, reasonably satisfactory to and the underwriters; and (ii) a “comfort” letter, dated the effective date of such Registration Statement and the date of each closing under the underwriting agreement, signed by the independent public accountants who have certified the Company’s financial statements included in such Registration Statement, covering substantially the same matters with respect to such Registration Statement (and the Prospectus included therein) and with respect to events subsequent to the date of such financial statements, as are customarily covered in accountants’ letters delivered to underwriters in underwritten public offerings of securities and such other financial matters as the underwriters may reasonably request and are customarily obtained by underwriters in underwritten offerings and deliver a signed counterpart to Review Counsel for the benefit of such Holders;

 

(l)                                     enter into customary agreements (including in the case of an Underwritten Offering, an underwriting agreement in customary form and reasonably satisfactory to the Company) and take all other reasonable action in connection therewith in order to expedite or facilitate the distribution of the Registrable Shares included in such Registration Statement and, in the case of an Underwritten Offering, make representations and warranties to the Holders covered by such Registration Statement and to the underwriters in such form and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same to the extent customary if and when requested;

 

(m)                             make available for inspection by representatives of the Holders and the representative of any underwriters participating in any disposition pursuant to a Registration Statement and any special counsel or accountants retained by such Holders or underwriters, all financial and other records, pertinent corporate documents and properties of the Company and cause the respective officers, directors and employees of the Company to supply all information reasonably requested by any such representatives, the representative of the underwriters, counsel thereto or accountants in connection with a Registration Statement; provided, however, that such records, documents or information that the Company determines, in good faith, to be confidential and notifies such representatives, representative of the underwriters, counsel thereto or accountants are confidential shall not be disclosed by such representatives, representative of the

 

 

underwriters, counsel thereto or accountants unless (i) the disclosure of such records, documents or information is necessary to avoid or correct a misstatement or omission in a Registration Statement or Prospectus, (ii) the release of such records, documents or information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (iii) such records, documents or information have been generally made available to the public; provided, further, that the representatives of the Holders and any underwriters will use commercially reasonable efforts, to the extent practicable, to coordinate the foregoing inspection and information gathering and not materially disrupt the Company’s business operations;

 

(n)                            use its commercially reasonable efforts (including, without limitation, seeking to cure any deficiencies cited by the exchange or market in the Company’s listing or inclusion application) to list or include all Registrable Shares on the New York Stock Exchange or the Nasdaq Global Market;

 

(o)                            prepare and file in a timely manner all documents and reports required by the Exchange Act and, to the extent the Company’s obligation to file such reports pursuant to Section 15(d) of the Exchange Act expires prior to the expiration of the effectiveness period of the Registration Statement as required by Section 5(a) hereof, the Company shall register the Registrable Shares under the Exchange Act and shall maintain such registration through the effectiveness period required by Section 5(a) hereof;

 

(p)                            provide a CUSIP number for all Registrable Shares, not later than the effective date of the Registration Statement;

 

(q)                            (i) otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, (ii) make generally available to its stockholders, as soon as reasonably practicable, earnings statements covering at least twelve (12) months beginning after the effective date of the Registration Statement that satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, but in no event later than forty-five (45) days after the end of each fiscal year of the Company and (iii) not file any Registration Statement or Prospectus or amendment or supplement to such Registration Statement or Prospectus to which Review Counsel on behalf of any Holder of Registrable Shares covered by any Registration Statement shall have reasonably objected on the grounds that such Registration Statement or Prospectus or amendment or supplement does not comply in all material respects with the requirements of the Securities Act, Review Counsel having been furnished with a copy thereof at least two (2) Business Days prior to the filing thereof;

 

(r)                               provide and cause to be maintained a registrar and transfer agent for all Registrable Shares covered by any Registration Statement from and after a date not later than the effective date of such Registration Statement;

 

(s)                              in connection with any sale or transfer of the Registrable Shares (whether or not pursuant to a Registration Statement) that will result in the securities being delivered no longer being Registrable Shares, cooperate with the Holders and the representative of the underwriters, if any, to facilitate (unless any Registrable Shares shall be in book entry only form) the timely preparation and delivery of certificates representing the Registrable Shares to be sold, which certificates shall not bear any restrictive transfer legends (other than as required by the

 

 

Company’s organizational documents) and to enable such Registrable Shares to be in such denominations and registered in such names as the representative of the underwriters, if any, or the Holders may request at least three (3) Business Days prior to any sale of the Registrable Shares;

 

(t)                                    in connection with the initial filing of a Shelf Registration Statement and each amendment thereto with the Commission pursuant to Section 2(a) hereof, cooperate with FBR in connection with the filing with FINRA of all forms and information required or requested by FINRA in order to obtain written confirmation from FINRA that FINRA does not object to the fairness and reasonableness of the underwriting terms and arrangements (or any deemed underwriting terms and arrangements) (each such written confirmation, a “No Objections Letter”) relating to the resale of Registrable Shares pursuant to the Shelf Registration Statement, including, without limitation, information provided to FINRA through its Public Offering System, and pay all costs, fees and expenses incident to FINRA’s review of the Shelf Registration Statement and the related underwriting terms and arrangements, including, without limitation, all filing fees associated with any filings or submissions to FINRA and the legal expenses, filing fees and other disbursements of FBR and any other FINRA member that is the Holder of, or is affiliated or associated with an owner of, Registrable Shares included in the Shelf Registration Statement (including in connection with any initial or subsequent member filing);

 

(u)                                 in connection with the initial filing of a Shelf Registration Statement and each amendment thereto with the Commission pursuant to Section 2(a) hereof, provide to FBR and its representatives, the opportunity to conduct due diligence, including, without limitation, an inquiry of the Company’s financial and other records, and make available members of its management for questions regarding information which FBR may request in order to fulfill any due diligence obligation on its part;

 

(v)                                 upon effectiveness of the first Registration Statement filed under this Agreement, take such actions and make such filings as are necessary to effect the registration of the Common Stock under the Exchange Act simultaneously with or immediately following the effectiveness of the Registration Statement; and

 

(w)                               in the case of an Underwritten Offering, use its commercially reasonable efforts to cooperate and assist in any filings required to be made with FINRA and in the performance of any due diligence investigation by any underwriter and its counsel (including any “qualified independent underwriter,” if applicable) that is required to be retained in accordance with the rules and regulations of FINRA.

 

The Company may require the Holders to furnish (and each Holder shall furnish) to the Company such information regarding the proposed distribution by such Holder of such Registrable Shares as the Company may from time to time reasonably request in writing or as shall be required to effect the registration of the Registrable Shares, and no Holder shall be entitled to be named as a selling stockholder in any Registration Statement and no Holder shall be entitled to use the Prospectus forming a part thereof if such Holder does not provide such information to the Company. Any Holder that sells Registrable Shares pursuant to a Registration Statement or as a selling security holder pursuant to an Underwritten Offering shall be required to be named as a selling shareholder in the related prospectus and to deliver a prospectus to

 

 

purchasers. Each Holder further agrees to furnish promptly to the Company in writing all information required from time to time to make the information previously furnished by such Holder not misleading.

 

Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(f)(3) or 5(f)(4) hereof, such Holder will immediately discontinue disposition of Registrable Shares pursuant to a Registration Statement until such Holder’s receipt of the copies of the supplemented or amended Prospectus. If so directed by the Company, such Holder will deliver to the Company (at the expense of the Company) all copies in its possession, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Shares current at the time of receipt of such notice.

 

6.                                      Black-Out Period

 

(a)                                 Subject to the provisions of this Section 6 and a good faith determination by a majority of the independent members of the board of directors of the Company (the “Board of Directors”) that it is in the best interests of the Company to suspend the use of the Registration Statement, following the effectiveness of a Registration Statement (and the filings with any international, federal or state securities commissions), the Company, by written notice to FBR and the Holders, may direct the Holders to suspend sales of the Registrable Shares pursuant to a Registration Statement for such times as the Company reasonably may determine is necessary and advisable (but in no event for more than an aggregate of ninety (90) days in any rolling twelve (12) month period commencing on the Closing Date or more than sixty (60) days in any rolling ninety (90) day period), if any of the following events shall occur: (i) the representative of the underwriters of an Underwritten Offering of primary shares by the Company has advised the Company that the sale of Registrable Shares pursuant to the Registration Statement would have a material adverse effect on the Company’s primary Underwritten Offering; (ii) the majority of the independent members of the Board of Directors of the Company shall have determined in good faith that (A) the offer or sale of any Registrable Shares would materially impede, delay or interfere with any proposed financing, offer or sale of securities, acquisition, corporate reorganization or other significant transaction involving the Company, (B) after the advice of counsel, the sale of Registrable Shares pursuant to the Registration Statement would require disclosure of non-public material information not otherwise required to be disclosed under applicable law, and (C) (x) the Company has a bona fide business purpose for preserving the confidentiality of such transaction, (y) disclosure would have a material adverse effect on the Company or the Company’s ability to consummate such transaction, or (z) the proposed transaction renders the Company unable to comply with Commission requirements, in each case under circumstances that would make it impractical or inadvisable to cause the Registration Statement (or such filings) to become effective or to promptly amend or supplement the Registration Statement on a post-effective basis, as applicable; or (iii) the majority of the independent members of the Board of Directors of the Company shall have determined in good faith, after the advice of counsel, that it is required by law, rule or regulation or that it is in the best interests of the Company to supplement the Registration Statement or file a post-effective amendment to the Registration Statement in order to incorporate information into the Registration Statement for the purpose of (1) including in the Registration Statement any prospectus required under Section 10(a)(3) of the Securities Act; (2) reflecting in the prospectus

 

 

included in the Registration Statement any facts or events arising after the effective date of the Registration Statement (or of the most recent post-effective amendment) that, individually or in the aggregate, represent a fundamental change in the information set forth therein; or (3) including in the prospectus included in the Registration Statement any material information with respect to the plan of distribution not disclosed in the Registration Statement or any material change to such information. Upon the occurrence of any such suspension, the Company shall use its commercially reasonable efforts to cause the Registration Statement to become effective or to promptly amend or supplement the Registration Statement on a post-effective basis or to take such action as is necessary to make resumed use of the Registration Statement compatible with the Company’s best interests, as applicable, so as to permit the Holders to resume sales of the Registrable Shares as soon as possible.

 

(b)                                 In the case of an event that causes the Company to suspend the use of a Registration Statement (a “Suspension Event”), the Company shall give written notice (a “Suspension Notice”) to FBR and the Holders to suspend sales of the Registrable Shares and such notice shall state generally the basis for the notice and that such suspension shall continue only for so long as the Suspension Event or its effect is continuing and the Company is using its best efforts and taking all reasonable steps to terminate suspension of the use of the Registration Statement as promptly as possible. The Holders shall not effect any sales of the Registrable Shares pursuant to such Registration Statement (or such filings) at any time after it has received a Suspension Notice from the Company and prior to receipt of an End of Suspension Notice (as defined below). If so directed by the Company, each Holder will deliver to the Company (at the expense of the Company) all copies other than permanent file copies then in such Holder’s possession of the Prospectus covering the Registrable Shares at the time of receipt of the Suspension Notice. The Holders may recommence effecting sales of the Registrable Shares pursuant to the Registration Statement (or such filings) following further notice to such effect (an “End of Suspension Notice”) from the Company, which End of Suspension Notice shall be given by the Company to the Holders and FBR in the manner described above promptly following the conclusion of any Suspension Event and its effect.

 

(c)                                  Notwithstanding any provision herein to the contrary, if the Company shall give a Suspension Notice pursuant to this Section 6, the Company agrees that it shall extend the period of time during which the applicable Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from the date of receipt by the Holders of the Suspension Notice to and including the date of receipt by the Holders of the End of Suspension Notice and copies of the supplemented or amended Prospectus necessary to resume sales.

 

7.                                      Indemnification and Contribution

 

(a)                                 The Company agrees to indemnify and hold harmless (i) each Holder of Registrable Shares and any underwriter (as determined in the Securities Act) for such Holder (including, if applicable, FBR), (ii) each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) any such Person described in clause (i) (any of the Persons referred to in this clause (ii) being hereinafter referred to as a “Controlling Person”), and (iii) the respective officers, directors, partners, members, employees, representatives and agents of any such Person or any Controlling Person (any Person referred to

 

 

in clause (i), (ii) or (iii) above may hereinafter be referred to as a “Purchaser Indemnitee”), to the fullest extent lawful, from and against any and all losses, claims, damages, judgments, actions, out-of-pocket expenses, and other liabilities (the “Liabilities”), including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or Proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Purchaser Indemnitee, joint or several, directly or indirectly related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto), any Prospectus (or any amendment or supplement thereto) or any Issuer Free Writing Prospectus (or any amendment or supplement thereto), or any preliminary Prospectus or any other document used to sell the Shares, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such Liabilities arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Purchaser Indemnitee furnished to the Company, or any underwriter in writing by such Purchaser Indemnitee expressly for use therein. The Company shall notify the Holders promptly of the institution, threat or assertion of any claim, Proceeding (including any governmental investigation), or litigation of which it shall have become aware in connection with the matters addressed by this Agreement which involves the Company or a Purchaser Indemnitee. The indemnity provided for herein shall remain in full force and effect regardless of any investigation made by or on behalf of any Purchaser Indemnitee.

 

(b)                            In connection with any Registration Statement in which a Holder of Registrable Shares is participating, and as a condition to such participation, such Holder agrees, severally and not jointly, to indemnify and hold harmless the Company and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and their respective officers, directors, partners, members, employees, representatives and agents of such Person or Controlling Person to the same extent as the foregoing indemnity from the Company to each Purchaser Indemnitee, but only with reference to untrue statements or omissions or alleged untrue statements or omissions made in reliance upon and in strict conformity with information relating to such Holder furnished to the Company in writing by such Holder expressly for use in such Registration Statement (or any amendment thereto), Prospectus (or any amendment or supplement thereto), Issuer Free Writing Prospectus (or any amendment or supplement thereto) or any preliminary Prospectus. Absent gross negligence or willful misconduct, the liability of any Holder pursuant to this paragraph shall in no event exceed the net proceeds received by such Holder from sales of Registrable Shares pursuant to such Registration Statement (or any amendment thereto), Prospectus (or any amendment or supplement thereto), Issuer Free Writing Prospectus (or any amendment or supplement thereto) or any preliminary Prospectus.

 

(c)                             If any suit, action, Proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to paragraph (a) or (b) above, such Person (the “Indemnified Party”) shall promptly notify the Person against whom such indemnity may be sought (the “Indemnifying Party”) in writing of the commencement thereof (but the failure to so

 

 

notify an Indemnifying Party shall not relieve it from any liability which it may have under this Section 7, except to the extent the Indemnifying Party is materially prejudiced by the failure to give notice), and the Indemnifying Party, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and any others the Indemnifying Party may reasonably designate in such Proceeding and shall pay the reasonable fees and expenses actually incurred by such counsel related to such Proceeding. Notwithstanding the foregoing, in any such Proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party, unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Party failed within a reasonable time after notice of commencement of the action to assume the defense and employ counsel reasonably satisfactory to the Indemnified Party, (iii) the Indemnifying Party and its counsel do not actively pursue the defense of such action or (iv) the named parties to any such action (including any impleaded parties) include both such Indemnified Party and Indemnifying Party, or any Affiliate of the Indemnifying Party, and such Indemnified Party shall have been reasonably advised by counsel that, either (x) there may be one or more legal defenses available to it which are different from or additional to those available to the Indemnifying Party or such Affiliate of the Indemnifying Party or (y) a conflict may exist between such Indemnified Party and the Indemnifying Party or such Affiliate of the Indemnifying Party (in which case the Indemnifying Party shall not have the right to assume nor direct the defense of such action on behalf of such Indemnified Party; it being understood, however, that the Indemnifying Party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all such Indemnified Parties, which firm shall be designated in writing by those Indemnified Parties who sold a majority of the Registrable Shares sold by all such Indemnified Parties and any such separate firm for the Company, the directors, the officers and such control Persons of the Company as shall be designated in writing by the Company). The Indemnifying Party shall not be liable for any settlement of any Proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent or if there is a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify any Indemnified Party from and against any Liability for which such Indemnified Party would be liable under paragraph (a) or (b) , as applicable, of this Section 7 by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement (i) includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding and (ii) does not include a statement as to or an admission of, fault, culpability or a failure to act by or on behalf of the Indemnified Party.

 

(d)                                 If the indemnification provided for in paragraphs (a) and (b) of this Section 7 is for any reason held to be unavailable to an Indemnified Party in respect of any Liabilities referred to therein (other than by reason of the exceptions provided therein) or is insufficient to hold harmless a party indemnified thereunder, then each Indemnifying Party under such paragraphs, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Liabilities (i) in such

 

 

proportion as is appropriate to reflect the relative benefits of the Indemnified Party on the one hand and the Indemnifying Party(ies) on the other in connection with the statements or omissions that resulted in such Liabilities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Party(ies) and the Indemnified Party, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and any Purchaser Indemnitees on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by such Purchaser Indemnitees and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

(e)                                  The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if such Indemnified Parties were treated as one entity for such purpose), or by any other method of allocation that does not take account of the equitable considerations referred to in Section 7(d) above. The amount paid or payable by an Indemnified Party as a result of any Liabilities referred to in Section 7(d) above shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Purchaser Indemnitee be required to contribute any amount in excess of the amount by which the net proceeds received by such Purchaser Indemnitee from sales of Registrable Shares exceeds the amount of any damages that such Purchaser Indemnitee has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. For purposes of this Section 7, each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) FBR or a Holder of Registrable Shares shall have the same rights to contribution as FBR or such Holder, as the case may be, and each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) the Company, and each officer, director, partner, employee, representative, agent or manager of the Company shall have the same rights to contribution as the Company. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or Proceeding against such party in respect of which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 7 or otherwise, except to the extent that any party is materially prejudiced by the failure to give notice. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

(f)                                   The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Parties may otherwise have to the Indemnified Parties referred to above. The Purchaser Indemnitee’s obligations to contribute pursuant to this Section 7 are several in proportion to the respective number of Registrable Shares sold by each of the Purchaser Indemnitees hereunder and not joint.

 

 

8.                                      Market Stand-off Agreement

 

Each Holder hereby agrees that it shall not, to the extent requested by the Company or an underwriter of securities of the Company, directly or indirectly sell, offer to sell (including without limitation any short sale), grant any option or otherwise transfer or dispose of any Registrable Shares or other shares of Common Stock of the Company or any securities convertible into or exchangeable or exercisable for shares of Common Stock of the Company then owned by such Holder (other than to donees or partners of the Holder who agree to be similarly bound) (i) in the case of the Company and each of its officers, directors, managers and employees, in each case to the extent such person or entity holds shares of Common Stock or securities convertible into or exchangeable or exercisable for shares of Common Stock, for a period beginning on the effective date of, and continuing for one hundred eighty (180) days following the effective date of, the IPO Registration Statement of the Company; (ii) in the case of all other Holders who include Registrable Shares in the IPO Registration Statement, beginning on the effective date of, and continuing for one hundred eighty (180) days following the effective date of the IPO Registration Statement of the Company, and (iii) in the case of all other Holders who do not include Registrable Shares in the IPO Registration Statement, for a period of sixty (60) days following the effective date of an IPO Registration Statement of the Company filed under the Securities Act; provided, however, if (1) during the last 17 days of the applicable restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (2) prior to the expiration of the applicable restricted period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the applicable restricted period, then, in each case, the restrictions imposed by this Agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or event, unless the managing underwriter in an Underwritten Offering waives, in writing, such extension or the Company is then an Emerging Growth Company (as defined under the Securities Act); and provided, further, however, that:

 

(a)                            the restrictions above shall not apply to Registrable Shares sold pursuant to the IPO Registration Statement;

 

(b)                            all executive officers and directors of the Company then holding shares of Common Stock of the Company or securities convertible into or exchangeable or exercisable for shares of Common Stock of the Company enter into agreements that are no less restrictive;

 

(c)                             the Holders shall be allowed any concession or proportionate release allowed to any officer or director that entered into agreements that are no less restrictive (with such proportion being determined by dividing the number of shares being released with respect to such officer or director by the total number of issued and outstanding shares held by such officer or director); provided, that nothing in this Section 8(c) shall be construed as a right to proportionate release for the executive officers and directors of the Company upon the expiration of the sixty (60) day period applicable to all Holders other than the executive officers and directors of the Company; and

 

(d)                            this Section 8 shall not be applicable if a Shelf Registration Statement of the Company filed under the Securities Act has been declared effective prior to the filing of an IPO Registration Statement.

 

 

In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the securities subject to this Section 8 and to impose stop transfer instructions with respect to the Registrable Shares and such other securities of each Holder (and the securities of every other Person subject to the foregoing restriction) until the end of such period.

 

9.                                           Termination of the Company’s Obligation

 

The Company shall have no obligation pursuant to this Agreement with respect to any Registrable Shares proposed to be sold by a Holder in a registration pursuant to this Agreement if, in the opinion of counsel to the Company, (i) all such Registrable Shares proposed to be sold by a Holder may be sold in a single transaction without registration under the Securities Act pursuant to Rule 144, (ii) the Company has become subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for a period of at least ninety (90) days and is current in the filing of all such required reports, and (iii) the Registrable Shares have been listed for trading on a national securities exchange.

 

10.                                    Limitations on Subsequent Registration Rights

 

From and after the date of this Agreement, the Company shall not, without the prior written consent of Holders beneficially owning not less than a majority of the then outstanding Registrable Shares (provided, however, that for purposes of this Section 10, Registrable Shares that are owned, directly or indirectly, by an Affiliate of the Company shall not be deemed to be outstanding), enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include such securities in any Registration Statement filed pursuant to the terms hereof, unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its securities will not reduce the amount of Registrable Shares of the Holders that is included, or (b) to have its securities registered on a registration statement that could be declared effective prior to, or within one hundred eighty (180) days of, the effective date of any registration statement filed pursuant to this Agreement.

 

11.                                    Miscellaneous

 

(a)                            Remedies. In the event of a breach by the Company of any of its obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights provided herein or, in the case of FBR, in the Purchase/Placement Agreement, or granted by law, including the rights granted in Section 2(f) hereof and recovery of damages, will be entitled to specific performance of its rights under this Agreement. Subject to Section 7, the Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

 

(b)                            Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, without the written

 

 

consent of the Company and Holders beneficially owning not less than a majority of the then outstanding Registrable Shares; provided, however, that for purposes of this Section 11(b), Registrable Shares that are owned, directly or indirectly, by an Affiliate of the Company shall not be deemed to be outstanding; provided, further, however, that (i) Sections 2(a), 2(f) and 3 may not be amended, modified or supplemented, and waivers or consents thereto or departures therefrom may not be given, without the written consent of the Holders beneficially owning not less than 67% of the then outstanding Registrable Shares and (ii) any amendments, modifications or supplements to, or any waivers or consents to departures from, the provisions of Section 8 hereof that would have the effect of extending the sixty (60) or one hundred eighty (180) day periods referenced therein shall be approved by, and shall only be applicable to, those Holders who provide written consent to such extension to the Company. Except as provided in clause (ii) of the preceding sentence, no amendment shall be deemed effective unless it applies uniformly to all Holders. Notwithstanding the foregoing, a waiver or consent to or departure from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders may be given by such Holder; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the first and second sentences of this paragraph.

 

(c)                                  Notices. All notices and other communications, provided for or permitted hereunder, shall be made in writing and delivered by facsimile (with receipt confirmed), overnight courier or registered or certified mail, return receipt requested, or by telegram:

 

(i)                                if to a Holder, at the most current address given by the transfer agent and registrar of the Shares to the Company; and

 

(ii)                             if to the Company, at the offices of the Company at 1900 L. Don Dodson Drive, Bedford, Texas 76021, Attention: David Cleff (facsimile: 877-295-5247); and

 

(iii)                          if to FBR, at the offices of FBR at 1001 Nineteenth Street North, Arlington, Virginia 22209, Attention: Gavin Beske, Esq. (facsimile: 703-469-1012).

 

(d)                                 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including, without limitation and without the need for an express assignment or assumption, subsequent Holders. The Company agrees that FBR shall be third party beneficiary to the agreements made hereunder by the Participants and the Company, and FBR shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder.

 

(e)                                  Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

 

 

(f)                               Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

(g)                            Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE COURT IN THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING IN NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE PARTIES WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT.

 

(h)                            Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties hereto that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(i)                               Entire Agreement. This Agreement, together with the Purchase/Placement Agreement, is intended by the parties hereto as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein.

 

(j)                               Registrable Shares Held by the Company or its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Shares is required hereunder, Registrable Shares held by the Company or its Affiliates shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

 

(k)                             Adjustment for Stock Splits, etc. Wherever in this Agreement there is a reference to a specific number of shares, then upon the occurrence of any subdivision, combination, or stock dividend of such shares, the specific number of shares so referenced in this Agreement

 

 

shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or series of stock by such subdivision, combination, or stock dividend.

 

(l)                               Survival. This Agreement is intended to survive the consummation of the transactions contemplated by the Purchase/Placement Agreement. The indemnification and contribution obligations under Section 7 of this Agreement shall survive the termination of the Company’s obligations under Section 2 of this Agreement.

 

(m)                          Attorneys’ Fees. In any action or Proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover its reasonable attorneys’ fees in addition to any other available remedy.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

 

	
 
    	
STATE NATIONAL   COMPANIES, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By: 
    	
/s/   Terry Ledbetter
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Name: 
    	
Terry   Ledbetter 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title: 
    	
President
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
/s/   Lonnie Ledbetter
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
/s/   Terry Ledbetter
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
/s/   Kendall Kaye Hohmann
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
/s/   Lonnie K. Ledbetter, III
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/   Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Terry
    
	
 
    	
 
    	
 
    	
Lee   Ledbetter, Jr. 1999 Grantor
    
	
 
    	
 
    	
 
    	
Trust,   dated November 5, 1999
    

 

 

	
 
    	
 
    	
 
    	
/s/   Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Terry Lee 
    
	
 
    	
 
    	
 
    	
Ledbetter   and Reta Laurie Ledbetter 
    
	
 
    	
 
    	
 
    	
2000   Revocable Trust, dated April 
    
	
 
    	
 
    	
 
    	
10,   2000, as amended
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The 
    
	
 
    	
 
    	
 
    	
Terry   Lee Ledbetter, Jr. 2006 Grantor
    
	
 
    	
 
    	
 
    	
Trust,   dated February 28, 2006
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Bradford 
    
	
 
    	
 
    	
 
    	
Luke   Ledbetter 1999 Grantor 
    
	
 
    	
 
    	
 
    	
Trust,   dated November 5, 1999
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The 
    
	
 
    	
 
    	
 
    	
Terry   Lee Ledbetter, Jr. 2010 Grantor
    
	
 
    	
 
    	
 
    	
Trust,   dated September 1, 2010
    

 

 

	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Bradford 
    
	
 
    	
 
    	
 
    	
Luke   Ledbetter 2006 Grantor 
    
	
 
    	
 
    	
 
    	
Trust,   dated February 28, 2006
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Bradford 
    
	
 
    	
 
    	
 
    	
Luke   Ledbetter 2010 Grantor 
    
	
 
    	
 
    	
 
    	
Trust,   dated September 1, 2010
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Ledbetter 
    
	
 
    	
 
    	
 
    	
Descendants   Irrevocable 2012 Trust, 
    
	
 
    	
 
    	
 
    	
dated   December 28, 2012
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Lonnie 
    
	
 
    	
 
    	
 
    	
K.   Ledbetter, Jr. and Saundra Lea 
    
	
 
    	
 
    	
 
    	
Ledbetter   2000 Revocable Trust, 
    
	
 
    	
 
    	
 
    	
dated   July 17, 2000, as amended
    

 

 

	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Ledbetter 
    
	
 
    	
 
    	
 
    	
Family   and Charitable Irrevocable 
    
	
 
    	
 
    	
 
    	
2012   Trust, dated December 28, 2012
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of the Kendall Kay 
    
	
 
    	
 
    	
 
    	
Ledbetter   1999 Grantor Trust, dated 
    
	
 
    	
 
    	
 
    	
November 5,   1999
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of the Lonnie K.
    
	
 
    	
 
    	
 
    	
Ledbetter   III 1999 Grantor Trust, 
    
	
 
    	
 
    	
 
    	
dated   November 5, 1999
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Kendall 
    
	
 
    	
 
    	
 
    	
Kay   Ledbetter 2006 Grantor Trust, 
    
	
 
    	
 
    	
 
    	
dated   February 28, 2006
    

 

 

	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Lonnie K.
    
	
 
    	
 
    	
 
    	
Ledbetter   III 2006 Grantor Trust, 
    
	
 
    	
 
    	
 
    	
dated   February 28, 2006
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Kendall 
    
	
 
    	
 
    	
 
    	
Kaye   Ledbetter 2010 Grantor Exempt 
    
	
 
    	
 
    	
 
    	
Trust,   dated June 28, 2013
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
/s/ Jennifer Kenning
    
	
 
    	
 
    	
 
    	
Jennifer Kenning, Trustee of The Lonnie K. 
    
	
 
    	
 
    	
 
    	
Ledbetter   III 2010 Grantor Exempt 
    
	
 
    	
 
    	
 
    	
Trust,   dated June 28, 2013
    

 

 

	
 
    	
FBR CAPITAL MARKETS &   CO.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By: 
    	
/s/   Paul Dellisola
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Name: 
    	
Paul   Dellisola
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title: 
    	
Senior   Managing DirectorExhibit 10.1

 

COLLATERAL PROTECTION ALLIANCE AGREEMENT

 

BY AND AMONG

 

CUMIS INSURANCE SOCIETY, INC.

 

AND

 

STATE NATIONAL INSURANCE COMPANY, INC.

 

 

COLLATERAL PROTECTION ALLIANCE AGREEMENT

 

THIS COLLATERAL PROTECTION ALLIANCE AGREEMENT (“Agreement”)  is made effective as of the 24th day of July, 2009 (the “Effective Date”), by and among CUMIS INSURANCE SOCIETY, INC., an Iowa stock insurance company (“CUMIS”) and STATE NATIONAL INSURANCE COMPANY, INC., a Texas insurance company (“State National”  and, collectively with CUMIS, the “Parties”).

 

RECITALS

 

The Parties acknowledge that this Agreement is based on the following:

 

A.                                    CUMIS and its ultimate parent company, CUNA Mutual Insurance Society (“CUNA Mutual”)  and their respective subsidiaries and affiliates (hereinafter, CUMIS, CUNA Mutual and such subsidiaries and affiliates shall be referred to as the “CUNA Mutual Group”) underwrite and market financial and insurance products and services to Credit Union Organizations (as defined below) and their members in all fifty states and elsewhere throughout the world.

 

B.                                    The CUNA Mutual Group currently underwrites and markets consumer tracked collateral products insurance, and provides related tracking services, to Credit Union Organizations doing business in all fifty states and the District of Columbia (the “Territory”).  Subject to receipt of applicable government and customer approvals, the CUNA Mutual Group plans (i) to cease underwriting consumer tracked collateral products insurance products, (ii) to transition a portion of its existing block of business to State National, (iii) to market comparable products underwritten by State National to the credit union marketplace throughout the Territory, and (iv) to enter into a reinsurance arrangement with State National with respect to the business which transitions to State National.

 

C.                                            State National and its affiliates (hereinafter, the “State National Group”) currently issue and administer consumer tracked collateral products insurance, and provide related tracking services, throughout the Territory.

 

D.                                            CUMIS and State National have agreed to enter into a relationship to make consumer tracked collateral products insurance and related services available to the credit union marketplace, and to enter into the reinsurance arrangements contemplated hereby, on the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, for good and valuable consideration, including the mutual covenants contained in this Agreement, the receipt and sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

 

2

 

ARTICLE I

GENERAL PROVISIONS

 

1.1                                       Purpose.   The purpose of this Agreement is to set forth the terms of the relationship between CUNA Mutual Group and State National Group pursuant to which Covered Products issued by State National will be made available to Credit Union Organizations in the Territory through the distribution methods set forth in this Agreement. “Covered Products”  shall mean collateral protection insurance policies issued in connection with an insurance program (a “Tracked CP Program”)  for a Credit Union Organization pursuant to which an insurer (or its designee) tracks whether Members receiving Eligible Loans from such Credit Union Organization maintain required physical damage insurance coverage for the collateral securing such Eligible Loans and, if not, issues forced-placed certificates of insurance to Members covering physical damage to such collateral. The term “Covered Products”  shall also include any lender coverages associated with those policies. For the avoidance of doubt, the term “Covered Products”  shall not include (w) blanket collateral protection insurance policies or other “non-tracked” collateral protection coverage, (x) immediate issue collateral protection insurance policies (insurance policies of the types referred to in clauses (w) and (x) shall be referred to as “Non-Tracked CP Policies”), (y) collateral protection insurance policies covering risks relating to flood or title or (z) collateral protection insurance policies where the underlying collateral consists of real estate or improvements thereto (or any rights relating thereto). State National acknowledges that the CUNA Mutual Group is engaged in the business of offering collateral protection insurance products of the types referred to in items (w)-(z) of the preceding sentence, and that the CUNA Mutual Group may continue to offer such products without any restrictions and with CUNA Mutual Group retaining all of the risk and revenue associated therewith. The Covered Products insurance program and associated tracking services offered to Credit Union Organizations by CUNA Mutual Group and State National Group hereunder shall be referred to as the “Program.”

 

1.2                                        Program Participants.   With the exception of Pre-Existing State National Policyholders and Pre-Existing State National Target Opportunities, all CUMIS Policyholders and other Credit Union Organizations (a) with Eligible Loan counts of 1500 or more (or such lesser number of Eligible Loans as the Parties may agree) or annual aggregate premiums of $50,000 or more for existing Covered Products coverage, shall be “Eligible Program Participants”  hereunder and (b) that agree to accept State National Policies during the term of this Agreement shall be “Program Participants”  hereunder. “Pre-Existing State National Target Opportunities”  shall mean Credit Union Organizations identified by State National, and listed on Schedule 9.l(D), where (a) State National has initiated sales discussions prior to the Effective Date and (b) State National contracts with such Credit Union Organization within six (6) months of the Effective Date.

 

1.3                                        Program Offering.   The Program will be offered throughout the Territory during the term of this Agreement. In addition, the Parties may agree to add Puerto Rico to the Program territory at some future date, in which event the term “Territory” shall thereafter be deemed to include Puerto Rico. If State National completely ceases to write Covered Products coverage in a

 

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particular jurisdiction, State National may, by providing CUMIS with at least one hundred twenty (120) days notice, elect to have the Program no longer offer Covered Products in such jurisdiction. In that event, however, CUNA Mutual Group may offer or distribute Covered Products in such jurisdiction outside of the Program notwithstanding anything herein to the contrary.

 

1.4                               Performance of Functions.

 

1.4(a)                Resources.   Each Party will provide (or arrange for a member of its affiliated group to provide) the necessary financial and human resource investment, operational activities, technology and facilities needed to develop and implement the arrangements provided for under this Agreement and applicable Laws. Each Party agrees to cooperate with the staff of the other Party (and its affiliated group) in the performance of obligations under this Agreement and to respond to requests for input or approval in a timely manner.

 

1.4(b)                Functions Performed by Others.   Each of CUMIS and State National, without the prior approval of the other Party, may have any member of its affiliated group perform its obligations under a Program Agreement, provided, however, that neither Party shall be entitled to have an unaffiliated entity perform any such obligations unless it shall first have obtained the prior written consent of the other Party (such consent not to be unreasonably withheld or delayed) and CUMIS acknowledges that TBA Insurance Group may retain unaffiliated sub-agents to provide product specialists and retention relationship managers in connection with the Program (it being understood that the arrangements with such sub-agents will not affect the CUNA Mutual Group’s rights hereunder, including (without limitation) the compensation payable to CMIA pursuant to the Agency Agreement, which shall be determined without reference to any commissions or other amounts due to or withheld by such sub-agents). In particular, each of the Parties acknowledges that the other Party will rely upon CUNA Mutual and CMIA (in the case of CUMIS) and TBA Insurance Group (in the case of State National) to provide certain functions contemplated hereby and by the other Program Agreements. Nevertheless, each Party will continue to be responsible for the performance of any of its obligations performed by another entity pursuant to this Section, including compliance with applicable Laws. CUMIS and State National agree to cause the members of the CUNA Mutual Group and the State National Group, respectively, to comply with the terms of this Agreement applicable to such affiliated group.

 

1.5                               Definitions.   The definitions set forth in Schedule 1.5 to this Agreement will apply unless the context clearly indicates otherwise.

 

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1.6                               Conditions Precedent.   This Agreement and each Party’s rights and obligations are contingent upon the execution and delivery of the Reinsurance Agreement and the Agency Agreement by the respective parties thereto.

 

ARTICLE II

TRANSITION MATTERS

 

2.1                               Cessation of Underwriting.   Except as may otherwise be agreed by State National (which agreement shall not be unreasonably withheld or delayed), as soon as reasonably possible after the execution of this Agreement, CUMIS will contact the Department of Insurance or equivalent state regulatory authority in each state (or equivalent jurisdiction) in the Territory where prior notice or regulatory approval is required in order to allow CUMIS to cease underwriting and issuing Covered Products insurance coverage and to nonrenew CUMIS Policies.

 

2.2                               Endorsement; Account Transitions.   Following the expiration of any applicable notice period, and/or the receipt of any required regulatory approvals, CUMIS will provide notification to CUMIS Policyholders confirming that coverage under the CUMIS Policies will terminate as of a particular termination date and that CUMIS will no longer underwrite the Covered Products as of such date, and requesting that those CUMIS Policyholders which qualify as Eligible Program Participants agree to voluntary cancellations of their CUMIS Policies and a full cancellation of any individual certificates issued pursuant thereto, in each case as of a termination date specified by CUMIS, it being understood that the actual termination dates for each such CUMIS Policyholder may vary, depending on the underlying policy terms, applicable market exit rules and other factors relating to such CUMIS Policyholder and its domiciliary jurisdiction. CUMIS will issue notices of nonrenewal in a manner that complies with applicable Law and give proper notice of termination of any other contracts that relate to the Tracking Services. The notification will be accompanied by a communication in which CUMIS recommends that CUMIS Policyholders either replace their existing Covered Products coverage with one of the State National Policies or convert their coverage to a Non-Tracked CP Policy issued by CUMIS. The form of communication will be approved in writing by the Parties. The Parties will cooperate and coordinate the preparation of quotes on available State National products that will be delivered by CUNA Mutual Group sales representatives to CUMIS Policyholders. CUMIS will use reasonable commercial efforts to gain the consent of CUMIS Policyholders to an early termination of the existing CUMIS Policies (and a full cancellation of individual certificates issued pursuant thereto) and either (i) the issuance of replacement coverage by State National (including replacement coverage for the individual certificates that are cancelled as of the termination date) or (ii) the conversion to a Non-Tracked CP Policy issued by CUMIS, provided, however, that the Parties acknowledge that CUMIS Policyholders may elect to convert to another carrier or to wait until the end of their existing policy period before allowing their coverage to lapse, and that no member of the CUNA Mutual Group will have any liability to State National in such event. State National will cooperate with CUMIS in obtaining the consent of CUMIS Policyholders to accept State National Policies, and State National agrees

 

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to issue replacement certificates for the individual certificates outstanding under a CUMIS Policy as of the termination date in consideration for payment to State National (by the relevant policyholder, or by CUMIS on behalf of such policyholder) of an amount equal to all of the unearned premiums under the CUMIS Policy with respect thereto. CUMIS and State National acknowledge and agree that while the replacement policies and certificates issued by State National may not have identical coverages to those policies and certificates previously issued by CUMIS, they will be substantially similar. Certain additional matters relating to the transition of CUMIS Policyholders to a replacement State National Policy shall be as separately agreed in writing from time to time by the Parties’ respective senior representatives on the Advisory Committee.

 

2.3                               Policy Liabilities.   CUMIS will be solely responsible for all claims accruing under the CUMIS Policies in accordance with the terms and conditions of those policies, as well as for any claims of any third party for liabilities and/or obligations of CUMIS arising out of transactions or events occurring prior to the termination of a CUMIS Policy (collectively, the “CUMIS Policy Liabilities”). State National will have no liability or responsibility for the CUMIS Policy Liabilities. Except as provided below, State National will be solely responsible for all claims accruing under the State National Policies in accordance with the terms and conditions of those policies, as well as for any claims of any third party for liabilities and/or obligations of State National arising out of transactions or events occurring prior to the termination of a State National Policy (collectively, the “State National Policy Liabilities”). Except as provided for under the indemnification provisions of Article XIV or the reinsurance agreement executed pursuant to Section 5.2, no member of the CUNA Mutual Group will have any liability or responsibility for State National Policy Liabilities.

 

2.4                               Employee Transitions.

 

2.4(a)                It is the Parties’ intention that a portion of the CUNA Mutual Group employees who service CUMIS’ Tracked CP Program will be offered employment by State National Group. CUMIS will permit the CUNA Mutual Group employees who service CUMIS’ Tracked CP Program (“Eligible Employees”) to apply for employment with State National Group. State National Group will communicate to CUMIS the terms of any employment offers to Eligible Employees. For those Eligible Employees offered employment by State National Group, CUMIS will from time to time identify their available start dates.  CUMIS will coordinate with State National in arranging job fairs and interviews at mutually convenient times and locations. State National and CUMIS will cooperate in developing presentations and other materials for the Eligible Employees, including comparisons of the Parties’ respective salaries, benefit packages and other employment terms. State National will give due consideration to any qualified applicants from CUNA Mutual Group, provided that all final hiring decisions shall be made by State National Group, in its sole discretion. For those Eligible Employees who are ultimately offered employment by State National Group, State National will credit them with their years of service at CUNA Mutual Group for eligibility and vesting purposes with respect to State National Group’s benefit plans (including, without limitation, for purposes of eligibility for, and calculation of the amount

 

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and/or period of, severance and retirement benefits). CUMIS will use commercially reasonable efforts to assist State National Group in its efforts to recruit Eligible Employees, but CUMIS shall not be responsible for ensuring that such employees apply for positions with State National Group or accept any offers of employment. Additional procedures for identifying those CUNA Mutual Group employees who may be considered for employment by State National, coordinating State National’s recruitment of such persons, and otherwise relating to such employee transitions shall be as separately agreed in writing from time to time by the Parties’ respective senior representatives on the Advisory Committee.

 

2.4(b)                Except for Eligible Employees, during the Transition Period and for six (6) months thereafter, neither of the Parties (nor their affiliates) will, directly or indirectly, recruit, solicit or suggest or encourage employment of any of the employees of the other Party (or its affiliates). Notwithstanding the foregoing, the Parties and their affiliates may make general solicitations to the public (including solicitations by way of job-posting web sites) or solicitations by a retained third party so long as the third party is not directed by the Party (or its affiliates) to make such solicitation to employees of the other to which the foregoing limitations apply, and may hire any such person that responds to such a solicitation. Furthermore, notwithstanding the foregoing, either of the Parties may engage in discussions with and hire any employee of the other Party (or an affiliate) who voluntarily approaches that Party of his or her own accord without solicitation.

 

2.5                               Data Transfers.   As of the Effective Date of this Agreement, CUMIS provides virtually all of its tracking services to CUMIS Policyholders through its “Insured Value Policy Administration” system and TOTAL TRAC MX system (for purposes of this Agreement, such systems shall collectively constitute the “CUMIS Tracking Systems”). CUMIS shall, according to such schedule and in a format mutually agreeable to the Parties, transmit to State National the data elements, relating to the periods identified on Schedule 2.5 hereto (as the same may be modified from time to time by mutual agreement of the Parties, such agreement not to be unreasonably withheld), for each CUMIS Policyholder electing to become a Program Participant that have been entered into the CUMIS Tracking Systems (the “Required Policyholder Data”  or “RPD”). The Parties acknowledge that there is a certain level of inaccuracy inherent in the data received, entered, stored, modified and maintained as part of a Tracked CP Program; CUMIS agrees that it shall use commercially reasonable efforts to ensure that the transmitted RPD is sufficiently accurate to enable State National to conduct the Program for each CUMIS Policyholder which becomes a Program Participant with substantially the same level of accuracy as the tracking services CUMIS provided for such CUMIS Policyholder prior to its acceptance of a State National Policy. CUMIS shall not be required to transmit any data elements to State National not constituting RPD. The Parties acknowledge that State National may request other data elements relating to Program Participants [e.g., data elements that have never been entered into the CUMIS Tracking Systems, and/or that pertain entirely to periods prior to those referred to on Schedule 2.5]; to the extent the Parties agree that CUMIS shall transmit any other data elements to State National, State National acknowledges, agrees and accepts that CUMIS provides no representation or warranty as to the accuracy or completeness thereof.  The Parties will use commercially reasonable efforts to develop an

 

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implementation plan for the transmission of RPD by no later than August 31, 2009; they agree that in developing said implementation plan, they shall take into account, among other factors, the time frames CUMIS shall reasonably require to provide the efforts required to ensure the level of RPD accuracy set forth herein and the resources State National has available to efficiently and effectively undertake the administration of a State National Policy for each Program Participant. The implementation plan may thereafter by modified from time to time by the Parties’ respective senior representatives on the Advisory Committee.

 

2.6                               Processing Customer Periodic Data Files.   The parties acknowledge: that as of the Effective Date of this Agreement, CUMIS Policyholders periodically transmit files containing their respective then-current loan data (the “Periodic Data Files”)  to CUMIS in order to enable CUMIS to provide accurate and effective Tracking Services; that the Periodic Data Files are transmitted to CUMIS by CUMIS Policyholders in hundreds of different formats; and that in order for State National to meet the service standards for the Program Participants set forth in Schedule 4.1, it shall need efficient and effective means to receive, enter, store, process, modify, and maintain in the State National tracking system the Periodic Data Files transmitted by Program Participants. Accordingly, the Parties agree as follows:

 

2.6(a)                Not later than fifteen (15) days following the Effective Date of this Agreement, CUMIS shall provide to State National the manual format information and business rules used by CUMIS as of the Effective Date to reformat CUMIS Policyholders’ Periodic Data Files for entry, storage, processing, modification, and maintenance through the CUMIS Tracking Systems. CUMIS hereby grants State National a nonexclusive license to use such format information and business rules to develop those reformatting programs necessary to facilitate the entry, storage, processing, modification, and maintenance of the Periodic Data Files through the State National tracking system (the “Reformatting Programs”).

 

2.6(b)                State National shall in accord with the transition process time frames agreed to by the parties (i.e., the “Waves”) develop the specifications for and create the Reformatting Programs required to effect an efficient, effective, and complete transition to a State National Policy of each CUMIS Policyholder electing to become a Program Participant. CUMIS agrees to participate in review of the specifications and the testing of the Reformatting Programs to the extent reasonably requested by State National.

 

2.6(c)                 To simplify the transition for those CUMIS Policyholders electing to become Program Participants, the Parties agree that they shall initially direct said Program Participants (except for those CUMIS Policyholders, described below, for whom CUMIS does not have format information or business rules) to continue to send their Periodic Data Files to CUMIS in the same manner as they had prior to their transition to State National Policies. State National hereby authorizes CUMIS to, and CUMIS agrees to, receive the Periodic Data Files from such Program Participants. The parties agree that CUMIS shall exert commercially reasonable efforts to transmit the Periodic Data Files of such Program Participants to State National within one (1) business day of receipt in the same form as CUMIS receives same from such Program Participants.

 

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If there are any errors/issues with a Periodic Data File, State National shall identify the errors/issues, report them to CUMIS and CUMIS shall facilitate initial communication between the appropriate representatives of State National and the given Program Participant. As part of its Program administration responsibilities, State National shall then work directly with the Program Participant to resolve the errors/issues in a commercially reasonable timeframe. All other Program Participants (e.g., Credit Union Organizations obtaining State National Policies through the Program following the Effective Date of this Agreement) shall be directed to transmit their Periodic Data Files directly to State National. At such time as the Parties mutually agree, which agreement shall not be unreasonably withheld, CUMIS and State National shall direct CUMIS Policyholders electing to become Program Participants to send their Periodic Data Files to State National.

 

2.6(d)                The parties acknowledge that as of the Effective Date, there are some CUMIS Policyholders for which CUMIS has not developed format information and/or business rules to facilitate the entry, storage, processing, modification, and maintenance of said CUMIS Policyholders’ information through the CUMIS Tracking Systems. The parties agree: that CUMIS shall have no obligation or responsibility to develop format information and/or business rules relating to such CUMIS Policyholders; that State National shall have the entire obligation and responsibility to develop Reformatting Programs for such CUMIS Policyholders electing to become Program Participants; and that such Program Participants shall be directed to transmit their Periodic Data Files directly to State National rather than through CUMIS.

 

2.6(e)                 The Parties acknowledge that the Periodic Data Files provided by some CUMIS Policyholders electing to become Program Participants will contain information pertaining to collateral protection insurance policies administered by CUMIS that are not included in the Program (e.g., flood, title, real estate collateral). Prior to its transmission of such Periodic Data Files to State National, CUMIS shall remove such non-Program information from the Periodic Data Files. CUMIS acknowledges, however, that it shall remain obligated to transmit all information in the Periodic Data Files relating to the Program to State National in the same form as CUMIS receives same from the Program Participant(s).

 

2.6(f)                  If during the term of this Agreement, for reasons such as efficiency or customer relationship, the Parties agree with any Program Participant that such Program Participant may transmit a single Periodic Data File containing both Program information and information pertaining to collateral protection insurance policies administered by CUMIS that are not included in the Program, CUMIS may, at its sole discretion, elect to receive such transmission directly from such Program Participant; in such event, the Parties’ processes and CUMIS’ obligation for transmission of Program information to State National shall be as provided in subsection (e) of this Section 2.6.

 

2.6(g)                State National acknowledges and agrees that CUMIS’ obligation in relation to the matters contemplated by this Section 2.6 is limited to the accurate and complete

 

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transmission to State National of Program-related information in the form and to the extent such is received from the Program Participant; CUMIS does not warrant or represent, nor is otherwise accountable for, the substantive accuracy, consistency, or completeness of the information received from any Program Participant.

 

2.6(h)                State National agrees that upon completion of a Reformatting Program, State National shall have the entire obligation and responsibility for maintenance and support of the Reformatting Program. The parties agree that to the extent that a Program Participant alters the format(s) it uses to transmit Periodic Data Files during the term of this Agreement, State National shall have the entire obligation and responsibility to develop the specifications for and create a replacement Reformatting Program for said Program Participant.

 

2.6(i)                   State National agrees that it shall have the entire obligation and responsibility for accurate, timely, and complete transmission to the Program Participants of their respective posting files resulting from the processing of the Periodic Data Files by the State National tracking system.

 

ARTICLE III

ADMINISTRATIVE PROVISIONS

 

3.1                               Advisory Committee.

 

3.l(a)                   Establishment.   CUMIS and State National will establish an “Advisory Committee”  to facilitate development and implementation of the Program. The Advisory Committee will be comprised of representatives designated by CUMIS and State National.

 

3.l(b)                   Purposes.   The Advisory Committee will discuss and provide input into the critical elements of the Program including product offerings, product design, pricing, credit union reimbursements and expense allowances, underwriting, marketing, sales and distribution, sales results, service (including the monitoring of compliance with service level standards), administration, claims, transition, technology, and finance, provided that the foregoing shall not otherwise limit the Parties’ respective responsibilities hereunder. In particular, the Advisory Committee will discuss the impact of pricing, credit union reimbursements and expense allowances, underwriting, claims and other decisions on the marketing of the Program, and will, with reasonable frequency, compare performance projections set forth in the Business Plan against actual results and also review actual operating results. The Advisory Committee will review the Underwriting Guidelines at least once per year.  The Advisory Committee will have no formal decision-making authority, but will serve only as a mechanism for facilitating communication between the Parties with respect to the Program. Nothing set forth in this Article III will in any manner modify or supersede the provisions of Article IV hereof, and to the extent that any of the provisions of this Article III are in conflict or are inconsistent with the provisions of Article IV, the latter will govern.

 

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3.1(c)                 Meetings.   The Advisory Committee will meet, in person or telephonically, at least monthly during the Transition Period and thereafter will consult on a regular basis, including by means of participating in a regular quarterly meeting and other special meetings from time to time as mutually agreed by the Parties, at locations as may be mutually agreed by the Parties. The Advisory Committee will report to appropriate senior management staff of CUNA Mutual Group and State National Group, including reporting results of operations with respect to the Program.

 

3.2                               Business Plan.   The Parties shall develop three-year business plans for the Program which, unless otherwise agreed, will be updated annually (the “Business Plan”).  State National will have primary responsibility (together with consultative input from CUMIS) to develop the initial Business Plan for the Program by no later than December 1, 2009 and to develop further updates at least 30 days prior to the commencement of each subsequent calendar year. The Business Plan will contain guidelines related to the solicitation and provision of Covered Products to Credit Union Organizations, including implementation timelines, sales targets and financial goals. The Business Plan will be a non-binding statement of the Parties’ mutual goals with respect to the growth and implementation of the Program, and be used to facilitate the implementation of the Parties’ obligations hereunder; provided, however, that all binding contractual obligations, representations, warranties, and covenants of the Parties with respect to the subject matter of this Agreement are contained in this Agreement. The Parties will make revisions and adjustments to the Business Plan as mutually agreed to be necessary or advisable from time to time.

 

3.3                               Systems.   With respect to any systems or technology used by State National which the CUNA Mutual Group may be required to access in connection with the Program, State National agrees that CUNA Mutual Group may use such systems and technology in connection with the Program during the term hereof, at no cost to CUNA Mutual Group unless State National incurs material out-of-pocket costs in making such systems and technology available to the CUNA Mutual Group, in which case the Parties shall mutually agree on an equitable allocation of such costs. If requested, State National shall enter into a formal license for the use of such systems and technology by CUNA Mutual Group in connection with the Program, pursuant to a technology agreement (the “Technology Agreement”)  in form and substance reasonably satisfactory to the Parties.

 

Article IV

PROGRAM RESPONSIBILITIES

 

4.1                               Product Issuance and Administration.   Except as otherwise expressly set forth in this Agreement, State National will issue all policies for Covered Products under the Program, shall enter into (or cause TBA Insurance Group to enter into) reimbursement and/or expense allowance agreements with Program Participants, and shall be responsible for all product development (consistent with applicable legal and regulatory requirements), policy change,

 

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product pricing, billing and collection, records management, premium audit, loss prevention, and claims handling with respect to all Covered Products made available through the Program. These functions will be performed in a competent, professional and commercially reasonable manner consistent with process and service standards mutually agreed upon by the Parties from time to time, including (without limitation) the Service Standards set forth on Schedule 4.1 hereto, as the same may be amended from time to time by mutual agreement of the Parties. In the event of any repeated failure by State National to meet the service level standards for the Program, the Parties shall cooperate in the development of a mutually acceptable remediation plan. If State National fails to comply with the terms of any remediation plan, such failure shall be considered a material breach of this Agreement entitling CUMIS to exercise its rights under and in accordance with the terms of Article XII hereof.

 

Product design, pricing and expense reimbursement allowances shall be determined by State National in consultation with CUNA Mutual Representatives and otherwise be in accordance with the Underwriting Guidelines. It is the intent of the Parties that the pricing for the Program will reflect actual experience of Program business as soon as practicable. State National will monitor the experience of the Program business to determine the point at which the pricing can be based on the actual claims, loss adjustment and underwriting expense of the Program Business.

 

State National will utilize State National policy forms and the forms of reimbursement/expense allowance agreements in force on the Effective Date, with material amendments thereto subject to CUNA Mutual’s prior written consent (except where required in order to comply with applicable Law), which consent shall not be unreasonably withheld or delayed (it being understood that CUMIS will use its best efforts to respond to any request within ten (10) business days). Upon request, State National shall provide CUNA Mutual with copies of all policy forms and reimbursement agreements in effect from time to time.

 

4.2                               Underwriting Guidelines.   The Parties acknowledge and agree that the applicable rating plans, premiums and expense reimbursement allowances with respect to the State National Policies, and certain other matters relating to underwriting of the State National Policies, will be determined in accordance with the underwriting guidelines agreed to by the Parties (the “Underwriting Guidelines”)  and attached as Schedule 4.2 hereto. The Underwriting Guidelines may be revised by mutual agreement of the Parties.

 

4.3                               Marketing Functions.   The Parties shall perform the marketing functions for the Program in accordance with the following principles.

 

For all Credit Union Organizations other than those which qualify as Pre-Existing State National Policyholders, Pre-Existing State National Target Accounts or State National Lead Opportunities (as defined below), CMIA will provide the single point of contact for the Credit Union Organization, State National will provide subject matter experts and retention relationship

 

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managers, and CMIA and State National will use a mutually agreed process to jointly assess, propose and close transition and new sale opportunities, which joint activities shall include: (i) determination of the Credit Union Organizations to be targeted; (ii) determination of the marketing and sales distribution methods to be used for the Program; (iii) soliciting Credit Union Organizations to participate in the Program; (iv) development of all marketing materials and marketing programs; (v) determination of the nature, extent, timing and implementation of the various marketing activities; and (vi) performance of any testing (of effectiveness or otherwise) of the marketing and sales methods and programs. Set forth in Schedule 4.3 is the bonus structure for the CMIA single point of contact for Covered Products. Such bonus structure may be revised by mutual agreement of the Parties.

 

For all State National Lead Opportunities, State National will provide the single point of contact, subject mater experts and relationship managers for the Credit Union Organization, and State National will assess, propose and close new sale opportunities. Upon State National contracting with a State National Lead Opportunity, such Credit Union Organization shall be considered a Pre-Existing State National Policyholder and not a Program Participant. “State National Lead Opportunities”  shall mean Eligible Program Participants first identified by State National as candidates for the Program and with which CUNA Mutual Group has no pre-existing core product relationship. In the event of any dispute over whether a Credit Union Organization qualifies as a State National Lead Opportunity, the dispute shall be referred to the Advisory Committee for final resolution.

 

The Parties will cooperate to establish an electronic link on CUNA Mutual’s website to allow Credit Union Organizations to access Program-related information and State National’s service functions through the CUNA Mutual website.

 

State National acknowledges that CMIA’s marketing of the Program will be coordinated with the other marketing activities of the CUNA Mutual Group and that CUNA Mutual Group shall have the right to market the Program with other products and services offered by the CUNA Mutual Group and/or coordinate the timing and other aspects of the marketing of such products and services with the marketing of the Program, but consistent with the Business Plan. However, all marketing materials containing references to the Program shall be subject to the approval of the Parties and such references may only be revised by mutual agreement of the Parties. CUMIS shall submit all such materials to State National for prior review. State National shall provide CUMIS with any requested changes within ten (10) business days.

 

4.4                               Marketing Materials.   State National will, at its annual expense of not greater than $10,000 (or such greater amount as State National may agree), provide CUNA Mutual Group with State National’s standard product brochures and related marketing materials with respect to the Covered Products. These brochures and materials shall be made available to Credit Union Organizations, together with mutually developed marketing materials which are Program-specific. State National will file and secure approval of all advertising or marketing materials and marketing programs to be used for the Program that require filing or approval under any

 

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Laws and will respond to inquiries regarding those documents received from any governmental authority.

 

No materials that State National sends to Program applicants or policyholders, or otherwise provides to CUNA Mutual Group hereunder, will contain any promotional or other information about products not sold through the Program. State National shall submit all materials to CUMIS for prior approval. CUMIS shall provide State National with any requested changes within ten (10) business days. CUMIS understands that initially State National may unintentionally violate the requirements of this paragraph while necessary systems changes are made and, for that reason, unintentional violations during the first twelve months from the Effective Date will not be considered a breach provided State National takes all reasonable actions it can to remedy the violation.

 

Each Party shall have the right to approve the use of its (or its affiliated group’s) name, trademark, service mark, logo or other identification in all marketing materials, as well as any representations in any marketing materials that relate to the performance of its obligations with respect to a Covered Product.  State National agrees to respond to requests for approval within ten (10) days. The use of such identification and materials and the ownership of such marketing materials is governed by Article VII of this Agreement.

 

4.5                               Product Filings.   State National will make all filings State National determines are required by any Laws in connection with the issuance of the Covered Products, including all rate and policy form filings, and will respond to inquiries regarding those documents.

 

4.6                               Policyholder Service.   Without limiting the foregoing, State National will perform the tele-servicing functions for the Program, including answering policyholder questions and handling policyholder requests. These functions shall be performed in a competent, professional and commercially reasonable manner in accordance with mutually agreed upon service standards (including those set forth in Schedule 4.1 hereto). State National will transfer all non-Program telephone calls from Credit Union Organizations (other than those relating to Permitted Activities) to a toll-free number provided by CUMIS and refer all requests for non-Program products and services to CUNA Mutual Group (other than those relating to Permitted Activities). State National also agrees to perform the tele-servicing function in a manner that focuses on the unique nature of credit unions and embraces the affinity relationship between CUNA Mutual Group and the credit union. In particular, State National will maintain a dedicated toll-free number for claims reporting and will handle calls in a manner that identifies the Program. CUMIS will, at its expense, provide agreed-upon on-site training and support to State National’s staff related to the credit union philosophies and methods to capitalize on these factors under the Program. CUMIS will have the right, at its expense, to monitor and audit on-site State National’s performance of tele-servicing functions at such times and in such manner as CUMIS reasonably requests.

 

4.7                               Training.   State National will, at its own expense, provide periodic training (on a “train the trainer” basis) to certain of CUNA Mutual’s home office and field personnel to

 

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facilitate implementation of the Program, including training with respect to: terms of the Covered Products; accessing State National’s quoting and new business data entry systems; and other issues as agreed upon by the Advisory Committee.

 

4.8                               Claims Functions.   State National shall perform in a competent, professional and commercially reasonable manner all claims-handling functions for the Program. The claims-handling function includes, but is not limited to, handling of all physical damage matters, subrogation and salvage activities, bodily injury matters, liability claims and litigation.

 

State National shall provide CUMIS with a monthly report of any claim or loss for which the claimed amount is at least $25,000 (or such other amount as the Parties may agree in writing), which monthly report shall include the estimated amount of the net loss and adjustment expense in connection with each such claim or loss and of any subsequent changes in such estimates.

 

From time to time, CUMIS may request that State National give special consideration to the claims made by one or more Program Participants in relation to the Program, and State National agrees to consider such matters in good faith, it being understood that State National may, in its discretion, elect whether to make any associated claims payments. Alternatively, in the event that State National intends to give special consideration to any other Program Participant, State National shall first provide CUMIS with prior written notice thereof, and with the reasons for doing so. In such event the total aggregate claims for which CUMIS is proportionally liable under the Reinsurance Agreement shall not exceed (a) one percent (1%) of Net Premium in any calendar year or (b) $10,000 for any one claim payment.

 

4.9                               Compliance.   Each Party agrees to comply with any Laws relating to the performance of its obligations hereunder and, whenever necessary, to maintain (or to cause the applicable member of its affiliated group to maintain) at its own expense, all licenses, certificates of authority to transact business or other regulatory approvals necessary to perform its duties and obligations hereunder. If CUMIS or State National is prohibited by Laws from performing any functions under this Agreement that are permissible for CMIA or TBA Insurance Group to perform, those functions shall be performed by CMIA or TBA Insurance Group, as applicable. Each Party agrees to provide reasonable cooperation as necessary to achieve compliance hereunder but neither Party will be responsible for the other Party’s compliance. Each Party will forward to the other, as soon as possible but in any event prior to the date a response is due (if possible) and within ten (10) Business Days after receipt, any written communication from a state or federal regulatory agency relating to the imposition of any fines or other sanctions with respect to, or the revocation or suspension of any license or other authority required in connection with, the Party’s performance of its duties and obligations under this Agreement. If any legal action is brought against any member of the State National Group or the CUNA Mutual Group, and the affected Party believes an adverse outcome under that legal action could have a material adverse effect on the ability of the affected Party, respectively, to fulfill its obligations hereunder, then the affected Party will promptly communicate to the other Party the receipt of notice of the action and provide such details as may be requested by the other Party.  A Party may

 

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withhold information which it believes is subject to attorney/client or other privilege. A Party will not be obligated to make any disclosure that would violate any securities, Blue Sky, or similar Laws.

 

ARTICLE V

FINANCIAL ALLOCATIONS

 

5.1                               Commissions.   State National confirms that TBA Insurance Group, and its sub-agents, have been appointed as State National’s exclusive agents to solicit Credit Union Organizations in connection with Covered Products, and that such appointment shall remain in effect throughout the term hereof (including during any run-off period). State National agrees to cause TBA Insurance Group to enter into the Agency Agreement in the form attached as Exhibit A hereto, simultaneously with the Parties’ entry into this Agreement, and to ensure that sales commissions are paid to CMIA for Program Business in accordance with the terms thereof. CUMIS agrees to cause CMIA to enter into the Agency Agreement in the form attached as Exhibit A hereto, simultaneously with the Parties’ entry into this Agreement.

 

5.2                               Reinsurance.   State National and CUMIS shall enter into the Reinsurance Agreement in the form attached as Exhibit B hereto, as a condition precedent to the Parties’ entry into this Agreement.

 

5.3                               Credit Union Reimbursements.   State National shall determine expense reimbursement allowance arrangements with Program Participants in consultation with CUNA Mutual Representatives and otherwise in accordance with the terms of Section 4.1 hereof. State National will cause TBA Insurance Group to pay any expense reimbursement amounts due to Credit Union Organizations in connection with the Program, and TBA Insurance Group shall be entitled to fund such payments with the commission payments due to CMIA pursuant to the Agency Agreements on the terms and otherwise subject to the conditions set forth on Exhibit A thereto.

 

5.4                               Credit Union Leagues.   All fees to be paid to credit union leagues in connection with the Program shall be determined by CUMIS, in its discretion. CUMIS shall pay such amounts directly to the credit union leagues.

 

ARTICLE VI

RECORDS AND REPORTS

 

6.1                               Records and Recordkeeping Systems.   The Parties shall determine what records and recordkeeping systems shall be used by State National Group in the administration of the Program. At a minimum, the Parties shall keep such records necessary to meet all legal and regulatory requirements and to fulfill the requirements of this Agreement.

 

6.2                               Provision of Claims and Other Information.   On a periodic basis no less frequently than monthly (or upon such other frequency as the Parties mutually agree), and as of

 

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the effective date of termination of this Agreement, State National will provide claims information in the format attached hereto as Schedule 6.2 (with such changes thereto as the Parties may agree from time to time). In furtherance of the foregoing, the Parties shall implement a monthly claims review meeting at which State National shall provide claims development information in such detail as CUMIS may reasonably request.

 

6.3                               Access to Records.

 

6.3(a)                CUMIS Access.   CUMIS (or its designee) shall have the right, at its sole expense, to examine the records of State National Group, wherever located, related to the CUNA Mutual Group’s rights and interests under the Program Agreements. This right includes the right for itself and its designated representatives and agents to audit such records at its sole expense during business hours by providing at least five (5) days notice setting forth the items to be examined. In particular, CUMIS (or its designee) shall have a right to access and review all State National Group records relating to claims, premiums, reserves, losses, loss adjustment expenses, expense reimbursements payable to Credit Union Organizations, and other account history information for Program Business, as well as information relating to any costs or expenses or other items of a type which State National Group attempts to charge to CUNA Mutual Group (it being understood that CUMIS shall not be entitled to audit State National’s general expense records, except with respect to any items therein which State National Group attempts to charge to the CUNA Mutual Group).

 

6.3(b)                State National Access.   State National shall have the right, at its sole expense, to examine the records of CUNA Mutual Group related to the Program activities of CUNA Mutual Group’s representatives by providing CUMIS with at least five (5) days notice setting forth the items to be examined.

 

6.4                               Rights to Information.

 

6.4(a)                Generally.   State National, on behalf of itself and all members of the State National Group, agrees that CUNA Mutual Group will have, subject to its obligations under the provisions of Section 12.4(f) if it is the selling Party, the perpetual, worldwide, irrevocable right to use, store, and reproduce any lists or records of Credit Union Organizations and their Members that are obtained for processing or other purposes as a result of the Program, including quotes, claims information and other information related thereto and will (during the term of this Agreement and until the expiration of all liabilities related to the Program Business), have the right to access any such items that are in the possession of the State National Group, provided, however, that in the event that CUMIS is the selling Party in a buy-out pursuant to Article XII, for a period of five years following the conclusion of such buy-out, CUMIS shall not use any premium history, rate information, or coverage information that it received from State National with respect to a Program Participant during the term hereof (and that is not generally known in the industry or known to the un-aided memories of CUNA Mutual Group employees) in a manner that is adverse to the interests of State National, should CUMIS seek to distribute

 

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Covered Products to Program Participants following the termination of this Agreement and the non-compete period referred to in Section 12.4(f). CUMIS acknowledges that privacy and confidentiality Laws and requirements may apply.

 

6.4(b)                No Cross-Selling.   State National, on behalf of itself and all members of the State National Group, further agrees that all of the lists and records referred to in Section 6.4 (a) that it may at any time possess will not be used by it or any member of the State National Group or any third party performing any function on its behalf for any purpose or to whom such information was provided by State National, for any reason except as may be necessary to carry out its obligations under a Program Agreement or applicable Law or as may be expressly permitted under a Program Agreement. Notwithstanding the foregoing and the provisions of Section 9.2, after the expiration of the non-compete set forth in Section 9.2, State National may use the names of Program Participants and their Members for Permitted Activities if State National obtains permission for such activity from the applicable Program Participants.

 

6.5                                      Disaster Recovery.   With respect to its systems that support Program Business, State National Group shall perform automatic and regularly scheduled backup of data and maintenance of procedures for restoration of such backups, with such backups stored at a location different from that of the receiving server pursuant to usual and customary practices. State National will, upon request, provide up-to-date disaster recovery plans along with its disaster recovery-testing schedule. From time to time but not more than once in every twelve-month period and at the cost and expense of CUMIS, CUMIS or its authorized representative may audit the disaster recovery plans of State National Group in connection with systems that support Program Business. State National Group shall cooperate reasonably with any such audit. State National Group shall apply all disaster protection and recovery mechanisms set forth in such plans (as same are updated by State National from time to time) to avoid and/or minimize  the loss of service and/or damage arising from any impairment caused by and/or resulting from a “Disaster”.  For the purposes herein, a “Disaster”  shall be defined as any threatened or actual interruption or shutdown (of any duration) of any State National Group or subcontractor facility that directly or indirectly affects State National Group’s performance of its obligations under a Program Agreement. A Disaster may be “declared” by mutual agreement or by either Party individually acting in good faith and with reasonable judgment. State National represents and warrants that the plan(s) will be actively reviewed, updated, and tested on at least an annual basis, that it will provide CUMIS thirty (30) days’ advance notice of said testing and a reasonable opportunity to witness and/or participate in said test, and that it will provide evidence of the said testing (and the results thereof) as requested by or on behalf of CUMIS. Insofar as it affects State National Group’s performance of its obligations under a Program Agreement, State National Group is responsible for ensuring required plans for its authorized subcontractors are installed and actively reviewed, updated, and tested at least annually and shall secure the consent of said subcontractors for CUMIS to witness and/or participate in said testing and to receive evidence of the testing (and results thereof) as requested by or on behalf of CUMIS. The recovery time objective for full resumption and continuation of services following declaration of a Disaster shall be set forth in the plans and shall constitute the full force majeure period relating to any declared Disaster.

 

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ARTICLE VII

INTELLECTUAL PROPERTY

 

7.1                               Trademarks and Advertising.   State National, on behalf of itself and all members of the State National Group, and CUMIS, on behalf of itself and all members of CUNA Mutual Group, each agrees that it shall not use the corporate name, trade name, trademark, service mark, or other identifier of any member of the other Party’s group or its products or services, without the written consent of the other. Each Party hereby acknowledges the validity, and shall not attack the validity, of the other Party’s (or its Group) corporate name, tradenames, trademarks, service marks or other identifiers. When this consent is given for any of the foregoing items, the Party given consent shall limit the use of the item to the specific purposes for which authority was given and to the extent necessary for the performance under the Program Agreements and subject to any other limitations and conditions (including graphics depictions and rights of product quality assurance) imposed as a consideration for the use. Any such authorization shall be non-exclusive and inure to the benefit of the Party granting the consent. The Party given the right to use the item shall not acquire any other right or interest in the item as a result or consequence of the consent or the use of the item, and all rights to its usage shall terminate when the other Party terminates its consent or, at the latest, when its use is no longer required for purposes necessary to its performance under the Program Agreements. If requested, State National shall enter into a license agreement, in form and substance reasonably satisfactory to the Parties, confirming that the CUNA Mutual Group enjoys a royalty free license to use the “State National” name and logo in connection with the Program.

 

7.2                               Advertising.   All advertising materials for the Program or mentioning the Program shall accurately disclose each party’s respective role in providing the Covered Products and otherwise comply with truth in advertising requirements of applicable Law. The term “Advertising”  means printed and published material or any material broadcast by radio, television, computer or other electronic means designed to create interest in the Program or to induce Credit Union Organizations to purchase, increase, modify, reinstate or retain Covered Products under the Program or to participate in the Program.

 

7.3                               Ownership of Advertising and Promotional Material.   All trade names, trademarks, campaign themes and service marks developed by the Parties during the term of this Agreement for the specific purpose of soliciting Credit Union Organizations to participate in the Program will be the exclusive property of the Party exercising the Buy-Out Right. Each Party will retain all right, title and interest in any pre-existing materials forming a part of or incorporated into such Program-specific materials.

 

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ARTICLE VIII

RELATIONSHIP BETWEEN THE PARTIES

 

8.1                               Contractual Relationship.   The relationship between the Parties (and their affiliates) established in, and as a result of, the Program Agreements is exclusively a contractual relationship.

 

8.2                               No Entity.   The Parties agree that the Program Agreements are not intended to and do not create any separate entity, any joint assets or joint interests of any form or nature; give rise to any rights based on partnership or partnership principles, equitable or otherwise; or create any other principles, equitable or otherwise, or any other rights which are not expressly provided for in this Agreement or another Program Agreement.

 

8.3                               Independent Contractors.   Under this Agreement, and each of the other Program Agreements, each Party intends to be and is an independent contractor engaged in its own and entirely separate business and shall at all times represent itself only as an independent contractor who has entered into a contract with the other Party as expressly provided in this Agreement and the other Program Agreements.

 

8.4                               Control.   Each Party is interested only in the operational results obtained by the other Party and, except as may be otherwise expressly provided in a Program Agreement, obtains no control over the other Party with respect to its organization, affairs, operations, business or the manner, means or methods by which it conducts its business, performs its obligations or obtains the results called for under the applicable Program Agreement.

 

8.5                               Representation.   The Parties agree that, except with respect to the marketing functions to be performed by CUNA Mutual Group as a representative of State National Group in accordance with the terms hereof and of the Agency Agreement, nothing in this Agreement establishes, or shall be construed or interpreted to constitute, either Party (or any affiliate thereof) as a partner, co-venturer, agent or representative of the other Party and, except as aforesaid, neither Party shall have, nor represent to any person that it has, any right, power or authority to bind the other Party, transact any business in the other Party’s name or on its behalf, or make any promises or representations on behalf of the other Party, except in each case, as may be expressly authorized in writing by the other Party.

 

8.6                               Employees.   Each Party shall be the sole employer of its employees.

 

ARTICLE IX

EXCLUSIVITY; COVENANT NOT TO COMPETE

 

9.1                               CUNA Mutual Group Non-Compete.   During the term of this Agreement, CUMIS shall not permit any member of the CUNA Mutual Group to sell, promote the sale of, or distribute, whether directly or indirectly, (i) any Covered Product to any Credit Union

 

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Organization located in the Territory, except pursuant to the Program (it being understood that the foregoing shall not limit the CUNA Mutual Group’s rights under Section 1.3 or CUMIS’ right to maintain any CUMIS Policies with CUMIS Policyholders until the end of current policy periods or such longer period as may be required under applicable Law) or (ii) any credit disability/credit life/debt cancellation product, GAP insurance product, accidental death and dismemberment coverage, or mechanical breakdown/vehicle repair warranty program product to any Credit Union Organization which is an existing customer of State National with respect to such product on the Effective Date or a Pre-Existing State National Target Opportunity (in each case, as identified on Schedule 9.1); provided, however, that (a) in the event a Trigger Event occurs and State National makes the election referred to in Section 9.2, then the restrictions referred to in this clause (ii) shall no longer apply, and (b) the foregoing shall not limit the CUNA Mutual Group’s right to acquire an entity with a line of business involved in the sale or distribution of Covered Products to Credit Union Organizations and thereafter (if CUMIS so elects) to operate such acquired line of business independent from the Program provided that the aggregate number of loans which such acquired entity tracks for Credit Union Organizations does not exceed 1,000,000 at the time of acquisition.

 

9.2                               State National Group Non-Compete.   Set forth in the Disclosure Letter is a list of those Credit Union Organizations to which the CUNA Mutual Group sells or distributes one or more of the following core products as of the Effective Date: credit union protection (CUP) products or their equivalent; credit disability/credit life/debt cancellation products; retirement/wealth management products; and any personal lines auto/home/life products. State National shall not permit any member of the State National Group to sell, promote or otherwise distribute, whether directly or indirectly, any insurance products, financial products or services, or any other products or services, to any Credit Union Organization listed in the Disclosure Letter that is located in the Territory (as such list may be modified from time to time by CUMIS during the term of this Agreement, to reflect changes in CUNA Mutual Group’s core product customers) or to any of its Members, employees or affiliates, except on a brokered basis for a member of the CUNA Mutual Group. The foregoing obligation shall apply during the term of this Agreement and thereafter for two years, provided, however, that in the event a “Trigger Event” occurs on or after December 31, 2010, then State National may elect (on thirty (30) days’ written notice) for its non-compete obligation under this paragraph to apply only to (x) those Credit Union Organizations which are then (or were previously) included as Program Participants hereunder and (y) those Credit Union Organization that were introduced or referred to State National by a member of the CUNA Mutual Group. However, nothing contained in this Section 9.2 shall limit State National’s right (i) to provide Covered Products to Program Participants through the Program or, with respect to any Credit Union Organizations which are Pre-Existing State National Customers or Pre-Existing State National Target Opportunities, through State National’s existing distribution channels, (ii) to continue to provide credit disability/credit life/debt cancellation products, GAP insurance products, accidental death and dismemberment coverage, or mechanical breakdown/vehicle repair warranty program products to any existing customer of State National with respect to such product(s) on the Effective Date or to any Pre-Existing State National Target Opportunities, (iii) to continue to operate, and provide insurance

 

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products through, its Program Services Division, on substantially the same basis as it does so today (i.e., where an unaffiliated party markets and underwrites the business and provides other customary services of a managing general agent, and State National Group’s net retention does not exceed ten percent (10%) of the covered business), or (iv) to acquire an entity which brokers or underwrites a Tracked CP Program for Credit Union Organizations and to continue to operate the existing book of business of such acquired entity independent from the Program, provided that the aggregate number of loans which such acquired entity tracks for Credit Union Organizations does not exceed 1,000,000 at the time of acquisition.

 

For any other Credit Union Organizations not referred to in the preceding paragraph, State National shall not permit any member of the State National Group to sell, promote or otherwise distribute, whether directly or indirectly, any products or services of a type which are provided to such Credit Union Organization, its members, employees or affiliates by the CUNA Mutual Group as of the Effective Date (as listed in the Disclosure Letter and as the same may modified from time to time). This non-compete obligation shall apply during the term of the Program and thereafter for two years provided, however, that in the event that a Trigger Event occurs and State National makes the election referred to in the preceding paragraph of this Section 9.2, then the restrictions referred to in the preceding sentence shall no longer apply.

 

9.3                               Trigger Event.   A “Trigger Event”  shall arise if (i) during any calendar year (starting with calendar year 2010), the Parties do not originate Covered Product sales with new Program Participant accounts which together have at least 100,000 Eligible Loans in the aggregate (calculated on the basis of the Eligible Loans data first supplied by such Program Participants after entry into the Program) or (ii) during any two consecutive calendar years (starting with calendar years 2010-2011), the Parties do not originate Covered Product sales with new Program Participant accounts which together have at least 400,000 Eligible Loans in the aggregate (calculated as described above). In the event widespread credit union mergers and consolidations significantly impact the pool of remaining Eligible Loans for non-Program Participants, the Parties shall reconsider the foregoing Trigger Event thresholds and make appropriate adjustments.

 

9.4                               No Further Restrictions.   Except as provided for above, each Party shall be entitled to compete for the business of any Credit Union Organization, its Members, employees and affiliates.

 

9.5                               Permitted Activity.   Any activity that is not otherwise prohibited under this Article IX shall qualify as a “Permitted Activity”.

 

9.6                               Requests for Exceptions.   Until termination of this Agreement each Party shall, in good faith, consider any proposal by or on behalf of the other Party to engage in any activities that do not qualify as Permitted Activities hereunder.

 

9.7                               Indirect Activities.   The restrictions contained in this Article apply to any of the

 

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stated activities, whether performed by the restricted Party through any type of ownership (other than ownership purely of an investment nature which does not allow a Party to exert any significant influence or control) or as a principal, agent, employer, adviser, consultant, partner, or in any individual or representative capacity whatsoever, either for its own benefit or for the benefit of others.

 

ARTICLE X

CONFIDENTIALITY

 

10.1                        Confidentiality.   The terms and conditions of the Confidentiality Agreement dated April 29, 2009 between CUNA Mutual and State National (the “Confidentiality Agreement”) shall remain in full force and effect and continue to bind the CUNA Mutual Group and State National Group. The Parties agree to treat all Confidential Information exchanged by the Parties in connection with the Program (whether before or after the Effective Date) in the manner contemplated by the Confidentiality Agreement, on the understanding that the “Business Purpose” referred to therein shall hereafter be construed to include the conduct of the Program in accordance with the terms of this Agreement and the other Program Agreements, and any other activities permitted hereby or thereby.

 

10.2                        Survival.   In the event this Agreement is terminated for any reason, the covenants and agreements referred to in this Article shall survive indefinitely thereafter.

 

ARTICLE XI

SPECIFIC ENFORCEMENT OF COVENANTS

 

11.1                        Enforcement of Covenants.   Each Party agrees that a violation or threatened violation on its part of any covenant contained in Article VII (Trademarks and Advertising), Article IX (Exclusivity; Covenant Not to Compete), and Article X (Confidentiality) would cause such damage to the other as would be irreparable, and that each such covenant is material, and, for that reason, each further agrees that the other shall be entitled as a matter of right, without need to post a bond, to an injunction or specific performance from any court of competent jurisdiction restraining any further violation of such covenants. This right to an injunction or specific enforcement shall be cumulative and in addition to whatever other remedies a Party may be entitled to at law or in equity. Any actions associated with a breach of these covenants including enforcement of a covenant shall not be subject to arbitration under Article XIII.

 

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ARTICLE XII

TERM AND TERMINATION

 

12.1                        Term of Agreement.   The initial term of this Agreement shall commence as of the Effective Date and, unless terminated sooner in accordance with this Section, shall remain in effect for three (3) years. Thereafter, the term of this Agreement shall be automatically extended indefinitely for consecutive three (3) year renewal terms. This Agreement may be terminated at any time by the written agreement of both Parties.

 

12.2                        Termination of Agreement Without Cause.   CUMIS or State National may terminate this Agreement without cause effective at the expiration of the initial term or any renewal term by notifying the other Party of its intention in writing (a “Notice of Termination”) at least twelve (12) months in advance.

 

12.3                        Termination of Agreement for Cause.

 

12.3(a) Causes Defined.   A Party shall be entitled to terminate this Agreement in accordance with this Article whenever one of the following shall occur with respect to the other Party:

 

12.3(a)(i)   Whenever the other Party (or any affiliate thereof which is a party to any of the Program Agreements) becomes insolvent or has been placed in liquidation or receivership (either voluntary or involuntary) or if there has been instituted against the other Party (or such affiliate) proceedings for the appointment of a receiver, rehabilitator, conservator in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations;

 

12.3(a)(ii)   Whenever the other Party or a member of its affiliated group breaches a material obligation under this Agreement or one of the other Program Agreements;

 

12.3(a)(iii)   In the event of a material misrepresentation by the other Party (or any affiliate thereof which is a party to any of the Program Agreements);

 

12.3(a)(iv)   Whenever there is a substantial and material negative change in the financial condition of the other Party as evidenced by a decline below “A-” in the financial strength rating (as determined by A.M. Best) of the other Party that continues for more than one hundred eighty (180) consecutive days or whenever such Party ceases to be rated by A.M. Best (for purposes of this Section 12.3(a)(iv), in the case of CUMIS, the financial condition and strength rating of CUNA Mutual shall represent the financial strength of CUMIS), provided, however, that in the event of any such ratings decline or withdrawal of ratings on the part of CUNA Mutual, CUMIS shall be entitled to prevent termination of this Agreement by posting security in the manner contemplated by the Reinsurance Agreement;

 

12.3(a)(v)   Whenever any director, officer, employee, affiliate or agent of

 

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the other Party commits any fraudulent or criminal acts or omissions arising out of or connected in any way with that Party’s (or its affiliate’s) performance under a Program Agreement and the terminating Party reasonably believes that the act or omission could have a material adverse effect on the ability of either Party to perform its respective obligations under a Program Agreement (and the Parties acknowledge and agree that any such acts or omissions committed by any officer of the non-terminating Party at the level of seniority of “Vice President” (or its equivalent by whatever name) or higher will be deemed to give rise to a right of termination in favor of the other Party);

 

12.3(a)(vi)   Upon termination of any Program Agreement as a result of a breach or omission by, or circumstance relating to, the other Party or its affiliated group;

 

12.3(a)(vii)   In addition, CUMIS shall be entitled to terminate this Agreement upon the occurrence of a Change of Control or Material Corporate Event.

 

12.3(b)   Cure of Material Breach.   A party (the “notifying party”) asserting a material breach under Section 12.3(a)(ii) shall notify the other party (the “notified party”) of its assertion in writing. The notified party shall have sixty (60) days from the date notice is received in which to cure the breach identified to the reasonable satisfaction of the notifying party. In the event the breach is not cured within such sixty (60) days, the notifying party may elect to terminate this Agreement in accordance with the procedures set forth in Section 12.3(c). State National agrees that, because of CUNA Mutual Group’s unique relationship with credit unions, a material breach by State National of the provisions of Article IX (Exclusivity; Covenant Not to Compete) is a material breach that would cause irreparable damage and that cannot be cured.

 

12.3(c)   Termination Notice. A Party electing termination for any uncured material breach under Section 12.3(a)(ii) or for cause under any other provision of Section 12.3 shall notify the other Party of its intention in writing by providing a ‘‘Notice of Termination” specifying the date of termination (which shall be no more than 120 days after the date on which the Notice of Termination is provided).

 

12.4                                Effect of Termination.

 

12.4(a)   Reinsurance after Termination.   Any Party that elects to terminate this Agreement shall be entitled to terminate the Reinsurance Agreement in accordance with the terms thereof, in which event the reinsurance thereunder shall only apply on a run-off basis to the business in force at the time of termination (which business shall remain in force throughout the run-off period).

 

12.4(b)   Costs, Pricing and Underwriting of New Business.   State National agrees that once a Notice of Termination is given, it will manage the Program Business in a manner consistent with its other business. State National agrees that it will continue to perform functions for and allocate costs to Program Business in a manner consistent with prior years.

 

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12.4(c)  Continuing Obligations; Cooperation.   The Program (i.e., the issuance of Program Business) shall continue through the Termination Date. Except as otherwise provided in Section 12.4(a), each Party shall continue to perform through the Termination Date the same functions it performed immediately prior to the Notice of Termination. During any continuation of the Program Business after the Termination Date, such provisions of this Agreement as are necessary to carry out the intent of this Agreement shall continue in full force and effect, but solely as they relate to the continuing relationship.

 

In the event a Notice of Termination is provided by CUMIS hereunder, State National shall no longer be entitled to provide a Trigger Event notice under Section 9.2 and no member of the CUNA Mutual Group shall be liable for any subsequent decline in new Program Business originated by the CUNA Mutual Group.

 

Upon and after termination of this Agreement, each Party agrees to cooperate with the other in performing any of its continuing obligations to Program Participants in connection with the Program Business.

 

12.4(d)  Run-Off; Buy-Out.   Upon termination of this Agreement, whether pursuant to Section 12.2, 12.3 or otherwise, the existing Program Business written prior to the Termination Date shall be run-off in the manner contemplated by the Reinsurance Agreement. Except in the case of a termination of this Agreement as a result of an act or omission by, or circumstance relating to, State National Group that is referred to in Section 12.3(a)(i), (iv) or (v), upon termination of the Agreement, State National Group shall buy out CUMIS’ right to participate in future Program Business on the terms set forth in Section 12.4(e) below. In the case of a termination of this Agreement as a result of an act or omission by, or circumstance relating to, State National Group that is referred to in Section 12.3(a)(i), (iv) or (v), CUMIS may elect to acquire State National’s right to participate in future Program Business by giving notice of such election within thirty (30) days of the termination date (or, if State National is then the subject of proceedings of a type referred to in Section 12.3(a)(i) and CUMIS is legally stayed from giving notice of such election as a result of such proceedings, then CUMIS shall be entitled to make such election at any time prior to the date which is thirty (30) days after the lifting of any such stay); provided, however, that if CUMIS does not make such election as aforesaid, State National Group shall buy out CUMIS’ right to participate in future Program Business on the terms set forth in Section 12.4(e) below. In the event of a significant change in the regulatory, legal and/or legislative environment which reduces the value of the Program Business by 30% or more, State National may elect not to buy out CUMIS’ rights in future Program Business by giving CUMIS written notice of such election within thirty (30) days of the termination of this Agreement, in which case State National shall be relieved of such obligation, on the understanding that in such circumstances both Parties shall (following termination of this Agreement) be entitled to distribute Covered Products to Program Participants and the non-compete restrictions of Section 12.4(f) shall not apply. In the event CUMIS acquires State National’s right to participate in future Program Business or State National elects not to acquire CUMIS’ rights in future Program Business in the circumstances referred to in the preceding sentence, State National shall continue to afford CUNA Mutual Group

 

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with reasonable access to State National Group’s Program files and related records following termination of the Agreement.

 

12.4(e) Buy-out Procedures.   In the event of termination of this Agreement, the acquiring Party shall purchase the other Party’s right to participate in future Program Business for a cash purchase price equal to the previous twelve (12) months Net Premium (as defined in the Reinsurance Agreement and measured as of the month end immediately preceding the Termination Date and annualized in the case of a termination during the first 12 months of the Program)(the “Adjusted Premium Amount”) multiplied by a percentage rate determined based on the Loss Ratio (as defined in the Reinsurance Agreement) for Program Business during such twelve (12) month (or shorter) period, which percentage rate shall be determined as follows:

 

If the Loss Ratio for Program Business during the twelve (12) month period (or such shorter period as may be applicable) immediately preceding the Termination Date (calculated as of the month end immediately preceding Termination Date) is fifty percent (50%), the purchase price shall equal thirty percent (30%) times the Adjusted Premium Amount.

 

If the Loss Ratio for Program Business during the twelve (12) month period (or such shorter period as may be applicable) immediately preceding the Termination Date (calculated as of the month end immediately preceding the Termination Date) is greater than fifty percent (50%), the percentage rate used to determine the buy out price will be reduced by two (2) percentage points for each percentage point by which the Loss Ratio exceeds fifty percent (50%). For example, at a Loss Ratio of fifty two and one half percent (52.5%) the purchase price shall equal twenty five percent (25%) (i.e., 30% minus 5%) times the Adjusted Premium Amount.

 

If the Loss Ratio for Program Business during the twelve (12) month period (or such shorter period as may be applicable) immediately preceding the Termination Date (calculated as of the month end immediately preceding the Termination Date) is less than fifty percent (50%), the percentage rate used to determine the buy out price will be increased by two (2) percentage points for each percentage point by which the Loss Ratio is less than fifty percent (50%). For example, at a Loss Ratio of forty four and one half percent (44.5%) the purchase price shall equal forty one percent (41%) (i.e., 30% plus 11%) times the Adjusted Premium Amount.

 

In the event that the definitive Loss Ratio for the applicable period is ultimately determined to be different than that previously used by the Parties to calculate the buy out price, a true up payment shall be made by one Party to the other.

 

Except as provided below, the cash purchase price payable in connection with a buy-out shall be due in full no later than the Termination Date (or, if the Adjusted Premium Amount is not yet finally determined by such date due to a bona fide dispute between the Parties, then on the date the Adjusted Premium Amount is finally determined); provided, however, in the event of a termination of this Agreement by either Party pursuant to Section 12.2, or by State National following a material breach of a Program Agreement by a member of the CUNA Mutual Group, the acquiring

 

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Party will be entitled to pay the cash purchase price in installments, as follows:

 

25% of purchase price due and payable on the Termination Date (or, if later, the date on which the Adjusted Premium Amount is determined);

 

25% of the purchase price due and payable on the first anniversary of the Termination Date;

 

25% of the purchase price due and payable on the second anniversary of the Termination Date; and 

 

Balance of the purchase price due and payable on the third anniversary of the Termination Date.

 

However, if at any time the acquiring Party breaches its non-compete obligations or any other continuing obligations hereunder, fails to make a payment when due, or is the subject of proceedings of the type referred to in Section 12.3(a)(i), the balance of the purchase price shall become due immediately.

 

Interest on the unpaid balance shall accrue from the Termination Date at the prime lending rate of Bank of America N.A. (or its successor), as in effect from time to time, with interest payable quarterly in arrears (and to the extent not paid on a timely basis, interest shall be capitalized).

 

12.4(f)   Covered Products Offerings Following Termination.    Except as provided below, upon termination of this Agreement, the Party which sells its participation interest in future Program Business shall not sell, promote or distribute, or otherwise permit any member of its affiliated group to sell, promote or otherwise distribute, Covered Products to Credit Union Organizations which were Program Participants on the Termination Date for a period of twelve (12) months thereafter; provided, however, that in the event State National buys out CUMIS’ right to participate in future Program Business following termination of this Agreement, State National agrees that CUNA Mutual Group shall be entitled to broker State National’s Covered Products for any CUNA Mutual Group customers seeking a Tracked CP Program, on terms and conditions reasonably acceptable to State National.

 

ARTICLE XIII

DISPUTE RESOLUTION

 

13.1                                Dispute Resolution.   In the event of any controversy or dispute relating to this Agreement or any other Program Agreement or the performance of any party hereunder or thereunder, CUMIS and State National shall refer the matter to their respective senior management for resolution. Senior management shall in good faith attempt to resolve the matter, but if they are not able to do so after a period of fifteen (15) business days, then, the matter shall be referred to their respective chief executive officers for resolution. If the chief executive officers cannot resolve the matter within fifteen (15) business days, then the Parties agree that the exclusive means by which any such dispute shall be resolved shall be arbitration in accordance with the terms of this Article XIII, and, except for those matters set forth in Article XI of this Agreement which shall not be subject to arbitration, either Party may elect to initiate arbitration proceedings.

 

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Any arbitration pursuant to this Section shall be conducted in accordance with the commercial rules of the American Arbitration Association then in effect. The duty to arbitrate shall survive the cancellation or termination of this Agreement. All applicable statutes of limitation shall be tolled while the procedures specified in this Article XIII are pending. The Parties will take such actions, if any, required to effectuate such tolling.

 

The fact that the dispute resolution procedures specified in this Article shall have been invoked shall not excuse any Party from performing its obligations under this Agreement and, during the pendency of any such procedure, all parties shall continue to perform their respective obligations in good faith, subject to any rights to terminate this Agreement that may be available to any Party.

 

13.2                        Arbitrator.   If a matter is referred to arbitration as provided in Section 13.1, CUMIS and State National shall jointly agree upon an arbitrator. If they are unable to agree upon a single arbitrator within twenty (20) days of the election to refer the matter to arbitration, they shall each select one arbitrator and those two arbitrators shall select a third arbitrator. If a Party fails to select its own arbitrator within thirty (30) days following a written request by the other Party to do so, the Party who has chosen its arbitrator may select the arbitrator on the other Party’s behalf. If the two Party-selected arbitrators are unable to agree upon the third arbitrator within thirty (30) days following their appointment, each arbitrator shall identify three nominees of whom the other shall decline two, and the final selection shall be made by drawing lots. If the Parties are unable to agree upon a single arbitrator and there are three arbitrators, a majority vote of the arbitrators shall be the decision of the arbitrators.

 

13.3                        Arbitration Procedure.   Unless the Parties agree otherwise, the arbitration shall be held in Dallas, Texas. The arbitrator(s) shall allow such discovery as the arbitrator(s) determine appropriate under the circumstances and shall resolve the dispute as expeditiously as practicable, and if reasonably practicable, within one hundred twenty (120) days after the selection of the arbitrator(s). The arbitrator(s) shall give the Parties written notice of the decision, which shall include the arbitrator’s(s’) findings of fact and conclusions of law. The decision of the arbitrator(s) shall be final and binding and nonappealable with respect to all persons, including without limitations, persons who fail or refuse to participate in the arbitration process.

 

13.4                        Arbitration Expenses.   All expenses incurred in connection with an arbitration under this Article (including the expenses and fees of the arbitrator(s) and of the Parties) shall be borne by the Party that does not prevail in the decision thus rendered. However, if the arbitrator(s) does not decide entirely in one Party’s favor, the arbitrator(s) shall decide which Party is to bear the expenses or how they are to be allocated between them unless the Parties themselves agree on how the expenses are to be handled.

 

13.5                        Consolidation.   In the event of multiple controversies or disputes relating to this Agreement or to any of the Program Agreements or the performance of any party thereunder, then (except for the matters referred to in Article XI hereof), the entire dispute among the parties shall be

 

29

 

subject to single arbitration proceedings commenced in accordance with any of the Program Agreements, and CUMIS and State National shall not object to the consolidation of such disputes with the proceedings first commenced.

 

ARTICLE XIV

INDEMNIFICATION

 

14.1                        By CUMIS.   CUMIS agrees to indemnify and hold the members of the State National Group and their respective directors, officers, employees, agents, successors and assigns harmless from, against and in respect of the following if such amounts aggregate more than $25,000 during any twelve (12) month period:

 

14.l(a)   any and all liability, losses, damages and deficiencies resulting from or arising out of any failure or breach of any representation or warranty, or any breach or nonfulfillment of any covenant or agreement, of any member of the CUNA Mutual Group made in a Program Agreement;

 

14.l(b)   any and all liability, losses, damages and deficiencies resulting from or arising out of the gross negligence, willful misconduct or fraudulent, malicious or criminal acts or omissions of any member of the CUNA Mutual Group or its representatives or employees arising out of or connected in any way with a Program Agreement; or

 

14.l(c)   all actions, suits, proceedings, claims, demands, assessments, judgments, fines, penalties or amounts paid in settlement, costs or expenses (including reasonable attorneys fees and expenses) incident to any of the foregoing.

 

14.2                        By State National.   State National agrees to indemnify and hold the members of CUNA Mutual Group and their respective directors, officers, employees, agents, successors and assigns harmless from, against and in respect of the following if such amounts aggregate more than $25,000 during any twelve (12) month period:

 

14.2(a)   any and all liability, losses, damages and deficiencies resulting from or arising out of any failure or breach of any representation or warranty, or any breach or nonfulfillment of any covenant or agreement, of any member of the State National Group made in a Program Agreement;

 

14.2(b)   any and all liability, losses, damages and deficiencies resulting from or arising out of the gross negligence, willful misconduct or fraudulent, malicious or criminal acts or omissions of any member of the State National Group or its representatives or employees arising out of or connected in any way with a Program Agreement;

 

14.2(c)   liabilities under any policy issued by State National to a Program Participant, subject to the Reinsurance Agreement, except with respect to liabilities arising out of the negligence of any member of the CUNA Mutual Group acting in the capacity as insurance

 

30

 

producer; or

 

14.2(d)   all actions, suits, proceedings, claims, demands, assessments, judgments, fines, penalties, or amounts paid in settlement, costs or expenses (including reasonable attorneys fees and expenses) incident to any of the foregoing.

 

14.3                        Waiver of Consequential Damages.   Notwithstanding anything herein to the contrary, neither Party (nor any affiliate thereof) shall be liable to the other Party (or any affiliate thereof) for any indirect, incidental, special, exemplary or consequential damages in connection with the Program or any other matters contemplated by the Program Agreements, whether in an action in contract, tort or otherwise, except to the extent the same are the result of the gross negligence, willful misconduct or fraudulent, malicious or criminal acts or omissions of the other Party or its affiliates or any representative or employee thereof.

 

14.4                        Defense of Claim.   The indemnified party shall promptly notify the indemnifying party of the existence of any loss, claim, demand, assessment or other matter (“Claim”)  as to which the indemnification would apply and give the indemnifying party reasonable opportunity to defend the Claim at its own expense. Failure to give such notice shall not affect the indemnifying party’s obligation under this Article except to the extent the indemnifying party is prejudiced thereby. If the indemnifying party shall, within a reasonable time after notice, fail to defend, the indemnified party shall have the right, but not the obligation, to undertake the defense of, and to compromise or settle (exercising reasonable business judgment), the Claim on behalf, for the account, and at the risk of the indemnifying party. The indemnified party shall make available all information and assistance that the indemnifying party may reasonably request in connection with such defense and shall at all times have the right to participate in the defense at its own expense. The indemnified party shall make available to the indemnifying party or its representatives all records and other materials required by them and in the possession or under the control of the indemnified party for the use of the indemnifying party and its representatives in defending any such Claim and shall in other respects give reasonable cooperation in such defense. In the event the parties disagree regarding which is the indemnifying party and which is the indemnified party, then each party shall defend itself and both parties agree to reasonably assist the other party in the defense and to act reasonably in the settlement or other disposition of the Claim.

 

Notwithstanding anything in this Article to the contrary, (i) if there is a reasonable probability that a Claim may materially and adversely affect the indemnified party, the indemnified party shall have the right to defend, compromise or settle such Claim, and (ii) the indemnifying party shall not, without the written consent of the indemnified party, settle or compromise any Claim or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the indemnified party of a release from all liability in respect of such Claim.

 

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ARTICLE XV
 REPRESENTATIONS AND WARRANTIES

 

15.1                        Representations and Warranties of CUMIS.   CUMIS makes the following representations and warranties to State National with respect to itself:

 

15.1(a)         CUMIS Policies.   CUMIS is fully licensed and authorized to underwrite, distribute and administer the CUMIS Policies in each state where CUMIS is conducting these activities. CUMIS has complied in all material respects with all applicable state and federal laws, rules and regulations to which it is subject in relation to the conduct of these activities.

 

15.1(b)         Authority.   The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action. No other or further act or proceeding on the part of CUMIS is necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement constitutes a valid and binding agreement of CUMIS, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization or other Laws affecting creditors’ rights generally, and by general equitable principles.

 

15.1(c)          No Violation.   Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby:   (a) will violate any Law or Order; (b) will require any authorization, consent, approval, exemption or other action by or notice to any government entity (other than the authorizations and/or notices referenced in Article II or any other provision of this Agreement); or (c) will violate or conflict with, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, the Articles of Incorporation or Bylaws of CUMIS, or any contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which CUMIS is a party or by which CUMIS or any of its assets or properties may be bound or affected.

 

15.2                        Representations and Warranties of State National.   State National makes the following representations and warranties to CUMIS with respect to the State National Group:

 

15.2(a)         Authority.   The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action. No other or further act or proceeding on the part of State National is necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement constitutes a valid and binding agreement of State National, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization or other Laws affecting creditors’ rights generally, and by general equitable principles.

 

15.2(b)         No Violation.   Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby:   (a) will violate any Law or Order;

 

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(b) will require any authorization, consent, approval, exemption or other action by or notice to any government entity; or (c) will violate or conflict with, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, the Articles of Incorporation or Bylaws of State National or any contract, commitment, understanding, arrangement, agreement or restriction of any kind or character to which State National Group is a party or by which State National Group or any of its assets or properties may be bound or affected.

 

15.2(c)          Licensing; Compliance.   Each member of the State National Group that will issue or distribute insurance policies in connection with the Program possesses all appropriate insurance and other licenses pursuant to the Laws of each jurisdiction in the Territory that are necessary to issue Covered Products in that jurisdiction or otherwise to perform its obligations hereunder. Each of those members of the State National Group has complied in all material respects with all applicable Laws to which it is subject in relation to the conduct of these activities.

 

ARTICLE XVI
 MISCELLANEOUS

 

16.1                        Delays and Waivers.   The rights and remedies of the Parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any Party in exercising any right, power, or privilege under this Agreement will operate as a waiver of the right, power or privilege, and no single or partial exercise of any right, power or privilege will preclude any other or further exercise of the right, power or privilege or the exercise of any other right, power or privilege.

 

16.2                        Notices.   Any notice, request, demand or other communication required or permitted under this Agreement shall be in writing and shall be given by personal delivery, registered or certified mail (return receipt requested), by private overnight courier service or sent via facsimile transmission or other electronic means of transmitting written documents addressed as follows:

 

	
If to State National:
    	
State National Insurance Company, Inc.
    
	
 
    	
Attn: Chief Financial Officer
   1900 L. Don Dodson Drive
   Bedford, TX 76021
    
	
 
    	
 
    
	
 
    	
 
    
	
With a copy to:
    	
State National Insurance Company, Inc.
    
	
 
    	
Attn: General Counsel
   1900 L. Don Dodson Drive
   Bedford, TX 76021
    

 

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If to CUMIS:
    	
CUMIS Insurance Society 
    
	
 
    	
Attn.: Chief Operating Officer
   5910 Mineral Point Road
   Madison, WI  53705
   Facsimile:  (608) 236-8242
    
	
 
    	
 
    
	
 
    	
 
    
	
With a copy to:
    	
CUNA Mutual Insurance Society
    
	
 
    	
Attn.: General Counsel
   5910 Mineral Point Road
   Madison, WI  53705
   Facsimile:  (608) 231-8717
    

 

Except as may be specifically provided otherwise, all notices shall be effective upon receipt. Either Party may change its address for purposes of this Agreement by giving notice thereof in accordance with this Section.

 

16.3                        Entire Agreement.   This Agreement, the other Program Agreements and all exhibits hereto and thereto, as well as any and all agreements and other documents referred to in this Agreement, constitute the entire agreement between the Parties with respect to the subject matter hereof and thereof. Except as otherwise expressly provided in Article X or elsewhere in this Agreement, this Agreement supersedes all previous agreements between the Parties with respect to the subject matter hereof. There are no agreements, representations or warranties between the Parties with respect to the subject matter hereof other than those set forth or provided for herein. No amendment, modification or supplement to this Agreement will be binding on either Party unless it is in writing and signed by the Parties.

 

16.4                        Parties Bound.   This Agreement shall be binding upon and inure to the benefit of CUMIS and State National, members of CUNA Mutual Group and State National Group as indicated herein, and their respective successors and permitted assigns. Neither Party may assign any rights or delegate any duties hereunder without the prior written consent of the other Party except to the extent allowed by Section 1.4(b). Any such assignment or delegation without written consent is void. Notwithstanding the foregoing, this Agreement shall remain in full force and effect in the event of any sale of assets, merger or consolidation of either Party unless terminated by the other Party pursuant to Section 12.3.

 

16.5                        Governing Law.   This Agreement shall be governed by, and construed and interpreted in accordance with, the internal law of the State of Texas, excluding any choice of law rules that may direct the application of the laws of another jurisdiction.

 

16.6                        Further Assurances.   Each Party forthwith upon reasonable request and without further consideration from the other shall execute and deliver such documents and take such action as may be reasonably necessary in order to carry out fully the intended purpose of this Agreement.

 

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16.7                        Headings; References.   The headings used in this Agreement are for convenience only and shall not constitute a part of this Agreement. Unless the context clearly requires otherwise, all references to “Articles,” “Sections” and other subdivisions are to the articles, sections and subdivisions of this Agreement.

 

16.8                        Severability.   If any term or provision of this Agreement is determined to be illegal, unenforceable, or invalid in whole or in part for any reason, such illegal, unenforceable, or invalid provision or part thereof shall be stricken form this Agreement, and such provision shall not affect the legality, enforceability, or validity of the remainder of this Agreement. If any provision or part thereof of this Agreement is stricken in accordance with the provisions of this Section, then the stricken provision shall be replaced, to the extent possible, with a legal, enforceable, and valid provision that is as similar in tenor to the stricken provision as is legally possible. However, if a Party in good faith determines that the finding of illegality or unenforceability materially adversely affects the material consideration for its performance under this Agreement, then such Party may, at its option, by giving written notice to the other Party, terminate the Agreement and such termination shall trigger the buy-out provisions in Article XII.

 

16.9                        Attorneys Fees.   In the event that legal or equitable action is instituted to enforce any of the provisions of this Agreement, the prevailing Party in such action shall be entitled to recover all costs of such action, including reasonable attorneys fees.

 

16.10                 Remedies.   Unless expressly provided to the contrary in this Agreement, the rights and remedies specified in this Agreement are cumulative and not exclusive of any other rights or remedies that either Party may have in this Agreement or otherwise and may be exercised concurrently therewith.

 

16.11                 Force Majeure.   Neither Party shall be deemed to be in violation of this Agreement if such Party is prevented from performing any of its obligations hereunder for any reason beyond its control, including, without limitation, acts of God or of any public enemy, elements, flood, or strikes.

 

16.12                 Construction.   This Agreement is intended to express the mutual intent of the Parties and they agree that it was mutually drafted by them. The terms of this Agreement have been negotiated by the Parties hereto and the language used in this Agreement shall be deemed to be the language chosen by the Parties hereto to express their mutual interest. This Agreement shall be construed without regard to any presumption or rule requiring construction against the Party causing such instrument or any portion thereof to be drafted, or in favor of the Party receiving a particular benefit under the Agreement. No rule of strict construction will be applied against any person.

 

16.13                 Counterparts.   This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

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16.14                 Time of Essence.   Time is of the essence in respect to all provisions of this Agreement in which a definite time for performance is specified.

 

16.15                 Expenses.   Except as otherwise expressly set forth in this Agreement, each of the Parties will be responsible for and bear all of its own costs and expenses incurred at any time in connection with pursuing or consummating the transactions contemplated by this Agreement.

 

16.16                 Survival of Obligations.   All obligations of the Parties that either expressly or by their nature survive expiration or termination of this Agreement will continue in full force and effect subsequent to, and regardless of, this Agreement’s expiration or termination and until they are fully satisfied or by their nature expire. Without limitation of the generality of the foregoing, the Parties agree that the covenants and agreements contained in Sections 1.4(b), 6, 7, 9, 10, 11, 12, 13, 14, 16.5, 16.9, 16.10, and 16.16 shall survive the termination of this Agreement indefinitely.

 

16.17                 Announcements.   No press release or other public announcement concerning the Program shall be made by either Party (or its affiliated group) without the other’s prior written consent. However, if either Party notifies the other of its intention to terminate this Agreement, (i) CUNA Mutual shall be allowed to communicate to Credit Union Organizations that the Agreement and the Program will terminate, and (ii) unless CUMIS has elected to buy out State National’s future participation rights in the Program pursuant to Section 12.4(e), State National shall be allowed to notify Program Participants that their policies may continue in effect and be renewed with State National after termination.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above.

 

 

	
CUMIS   INSURANCE SOCIETY
    	
 
    	
STATE   NATIONAL INSURANCE
    
	
 
    	
 
    	
COMPANY, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/ Jeffrey H. Post
    	
 
    	
By:
    	
/s/ Lonnie K. Ledbetter
    
	
Name:
    	
Jeffrey   H. Post
    	
 
    	
Name:
    	
Lonnie   K. Ledbetter
    
	
Title:
    	
Chief   Executive Officer
    	
 
    	
Title:
    	
CEO
    

 

36

 

Schedule 1.5

 

Definitions

 

Definitions. The following definitions apply unless the context clearly indicates otherwise:

 

“Adjusted Premium Amount”  shall have the meaning set forth in Section 12.4(e) of this Agreement.

 

“Advertising”  shall have the meaning set forth in Section 7.2 of this Agreement.

 

“Advisory Committee”  shall have the meaning set forth in Section 3.1 of this Agreement.

 

“Agency Agreement”  shall mean the Agency Agreement dated as of the Effective Date between TBA Insurance Group and CMIA substantially in the form attached as Exhibit A hereto, as the same may be modified from time to time in accordance with its terms.

 

“Business Day”  shall mean any day other than a Saturday, Sunday or federal bank holiday.

 

“Business Plan”  shall mean the business plan described in Section 3.2.

 

“Change of Control”  shall mean that the “Family Group”  no longer owns and controls, directly or indirectly, a majority of the voting and economic interests in any of State National, TBA Insurance Group, or State National Companies, Inc.  “Family Group”  shall mean members of the Lonnie Ledbetter Jr. and Terry Ledbetter families, any trust(s) under the control of such families, and any senior executives of the State National Group.

 

“Claim”  shall have the meaning set forth in Section 14.4 of this Agreement.

 

“CMIA”  shall mean CUNA Mutual Insurance Agency, Inc.

 

“Confidential Information”  shall have the meaning set forth in Section 2 of the Confidentiality Agreement.

 

“Confidentiality Agreement”  shall have the meaning set forth in Section 10.1 of this Agreement.

 

“Covered Products”  shall have the meaning set forth in Section 1.1 of this Agreement.

 

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“Credit Union Organization”  shall mean any federally or state-chartered credit union, credit union service organization, national, state or special interest credit union trade association or league and their respective service organizations, and other credit union organizations located anywhere in the Territory. Credit Union Organizations shall also include any successor organizations which are formed following the conversion of a credit union and/or its affiliates to a mutual savings bank or other type of financial institution.

 

“CUMIS Policy”  shall mean a Covered Products insurance policy issued by CUMIS in connection with CUMIS’ Tracked CP Program in force as of the Effective Date.

 

“CUMIS Policy Liabilities”  shall have the meaning set forth in Section 2.3 of this Agreement.

 

“CUMIS Policyholders”  shall mean those Credit Union Organizations that are insureds under CUMIS Policies as of the Effective Date.

 

“CUMIS Tracking Systems”  shall have the meaning set forth in Section 2.5 of this Agreement.

 

“CUNA Mutual”  shall mean CUNA Mutual Insurance Society.

 

“CUNA Mutual Group”  shall have the meaning set forth in the Recitals hereto.

 

“CUNA Mutual Representatives”  shall mean all licensed insurance agents and brokers of the CUNA Mutual Group.

 

“Disaster”  shall have the meaning set forth in Section 6.5 of this Agreement.

 

“Disclosure Letter”  shall mean the letter dated as of the Effective Date delivered by CUMIS to the Chief Executive Officer of State National and containing customer lists and certain other information referred to in Section 9.2 hereto.

 

“Effective Date”  shall mean the effective date of this Agreement first set forth above.

 

“Eligible Employee”  shall have the meaning set forth in Section 2.4(a) of this Agreement.

 

“Eligible Loan”  shall mean a loan or other consumer financing made by a Credit Union Organization to a person that is secured by personal property.

 

“Eligible Program Participant”  shall have the meaning set forth in Section 1.2 of

 

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this Agreement.

 

“Laws”  shall mean any applicable statute, law, ordinance, rule or regulation.

 

“Loss Ratio”  shall have the meaning set forth in the Reinsurance Agreement.

 

“Material Corporate Event”  shall mean one or a series of transactions involving the winding up, liquidation, dissolution, merger, consolidation, or sale of all or substantially all of the assets of any of State National, TBA Insurance Group or State National Companies, Inc.

 

“Member”  shall mean a member/depositor of a Credit Union Organization which, in the case of a credit union service organization, trade association, or league, shall mean the members/depositors of any affiliated credit union(s).

 

“Net Premium”  shall have the meaning set forth in the Reinsurance Agreement.

 

“Non-Tracked CP Policies”  shall have the meaning set forth in Section 1.1 of this Agreement.

 

“Order”  shall mean any applicable order, writ, injunction, judgment, plan or decree issued by any governmental authority or court of competent jurisdiction.

 

“Party”  shall have the meaning set forth in the introductory paragraph of this Agreement. 

 

“Permitted Activity”  shall have the meaning set forth in Section 9.5 of this Agreement. 

 

“Pre-Existing State National Target Opportunities”  shall have the meaning set forth in Section 1.2 of this Agreement.

 

“Pre-Existing State National Policyholders”  shall mean those Credit Union Organizations that were insureds under State National Covered Products insurance policies first issued at any time prior to the Effective Date of this Agreement, as listed on Schedule 9.1 hereto. In the event of any merger, amalgamation, or other consolidation involving a Pre-Existing State National Policyholder and another Credit Union Organization, the surviving entity shall continue to be treated as a Pre-Existing State National Policyholder only if, immediately before giving effect to such consolidation, the aggregate shareholders equity (or the equivalent) of the Pre-Existing State National Policyholder exceeded that of the other Credit Union Organization.

 

“Program”  shall have the meaning set forth in Section 1.1 of this Agreement.

 

“Program Agreements”  shall mean this Agreement, the Agency Agreement, the

 

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Reinsurance Agreement, and any other agreements entered into from time to time by a member of the State National Group and a member of the CUNA Mutual Group with respect to the Program.

 

“Program Business” shall mean the policies for Covered Products issued pursuant to this Agreement by State National.

 

“Program Participant”  shall have the meaning set forth in Section 1.2 of this Agreement.

 

“Reinsurance Agreement” shall mean the Quota Share Reinsurance Agreement dated as of the Effective Date between State National and CUMIS, substantially in the form attached as Exhibit B hereto, as the same may be modified from time to time in accordance with its terms.

 

“Required Policyholder Data” or “RPD” shall have the meaning set forth in Section 5.2 of this Agreement.

 

“State National Group” shall have the meaning set forth in the Recitals hereto.

 

“State National Lead Opportunities” shall have the meaning set forth in Section 4.3 of this Agreement.

 

“State National Policy” shall mean any State National policy with respect to any Covered Product that is initially purchased on or after the Effective Date by a former CUMIS Policyholder or by any other Credit Union Organization; it being understood that policies (or policy renewals) issued by State National to Pre-Existing State National Policyholders and Pre-Existing State National Target Opportunities shall not be considered “State National Policies” for purposes of this Agreement.

 

“State National Policy Liabilities” shall have the meaning set forth in Section 2.3 of this Agreement.

 

“TBA Insurance Group” shall mean T.B.A. Insurance Group, Ltd., a limited partnership, which is a member of the State National Group and which performs general agency and other servicing functions for the State National Group.

 

“Technology Agreement” shall have the meaning set forth in Section 3.3 of this Agreement.

 

“Territory” shall have the meaning set forth in the Recitals hereto.

 

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“Tracked CP Program” shall have the meaning set forth in Section 1.1 of this Agreement.

 

“Tracking Services” shall mean the collateral product tracking services provided by CMIA to holders of CUMIS Policies.

 

“Transition Period” shall mean the period from the Effective Date until the first anniversary thereof.

 

“Termination Date” shall mean the effective date of the termination of this Agreement in accordance with the terms and provisions of Article XII of this Agreement.

 

“Trigger Event” shall have the meaning set forth in Section 9.3 of this Agreement.

 

“Underwriting Guidelines” shall have the meaning set forth in Section 4.2 of this Agreement.

 

Construction.  Unless the context plainly requires otherwise, the plural of words defined in the singular shall mean one or more of the same, the singular of words defined in the plural shall mean one of the same, and all words used in any gender shall extend to and include the other gender.  The terms “includes” and “including” will not be construed to imply any limitation.

 

41

 

FIRST AMENDMENT TO

THE COLLATERAL PROTECTION ALLIANCE AGREEMENT

 

THIS FIRST AMENDMENT TO THE COLLATERAL PROTECTION ALLIANCE AGREEMENT (“Amendment”), dated as of June 18, 2010, amends the Collateral Protection Alliance Agreement dated as of July 24, 2009 (the “Agreement”), by and between STATE NATIONAL INSURANCE COMPANY, INC. (“State National”) and CUMIS INSURANCE SOCIETY, INC. (“CUMIS”).

 

WHEREAS, this Amendment is fully incorporated into the Agreement; and

 

WHEREAS, the parties wish to amend certain terms of the Agreement;

 

NOW, THEREFORE, in consideration of the responsibilities respectively assumed by the parties under the terms and conditions of the Agreement, the parties hereto intending to be legally bound hereby agree that the provisions of this Amendment shall control the terms and conditions of the Agreement to the extent set forth herein:

 

Article I

Defined Terms

 

1.1                                         The following terms shall have the following meanings for all purposes of this Amendment:

 

a.                                      unless otherwise expressly provided, all references herein to Articles or other subdivisions refer to the corresponding Articles and other subdivisions of this Amendment;

 

b.                                      the terms “hereof”, “herein”, “hereby”, “hereto”, “hereunder”, “hereinafter” and “herewith” refer to this Amendment; and

 

c.                                       unless otherwise expressly indicated, capitalized terms used in this Amendment, and not otherwise defined herein, will have the meanings set forth in the Agreement.

 

Article Il

Amendments to the Collateral Protection Alliance Agreement

 

The Agreement is hereby amended as follows:

 

2.1                                        The Parties acknowledge and agree that State National’s participation in the State National MPI Program in accordance with the Real Estate Program Agreement between the Parties shall be construed as a “Permitted Activity” under this Agreement.

 

2.2                                        Section 3.3 of the Agreement is hereby deleted in its entirety and replaced with the following:

 

3.3.                            Systems.  With respect to any systems or technology used by one Party (“Systems Owner”) which the other Party (“Systems User”) may be required to access in connection with the Program, the Systems Owner agrees that the Systems User may use such systems and technology in connection with the Program during the term hereof, at no cost to the Systems User unless the Systems Owner incurs material out-of-pocket costs in making such systems and technology available to the Systems User, in which case the Parties shall mutually

 

	
© CUNA Mutual Group. All   Rights Reserved.
    	
 
    	
CUNA   Mutual Group Confidential Information
    

 

1

 

agree on an equitable allocation of such costs. If requested, the Systems Owner shall enter into a formal license for the use of such systems and technology by Systems User in connection with the Program, pursuant to a technology agreement (the “Technology Agreement”)  in form and substance reasonably satisfactory to the Parties.

 

2.3                                          The following Section 5.5 is hereby added in its entirety as follows:

 

5.5                               Transition Costs.  The Parties have agreed upon mutual reimbursement to certain Program Participants to cover their transition costs to transfer the servicing of their Tracked CP Program from CUMIS to State National. Such reimbursement is a one-time, per loan or bulk payment that State National shall pay to the mutually agreed-upon Program Participants, and CUMIS shall pay its agreed upon portion of such reimbursements to State National (“One-Time Administrative Reimbursement Payments”). The Parties have also agreed to require these mutually agreed upon recipients of the One-Time Administrative Reimbursement Payments to repay a portion of such amounts if such recipients terminate the State National Tracked CP Program before a set number of years have passed; this required repayment decreases as more time passes and is set forth in a formula described in State National’s “Administrative Reimbursement Agreement.”  The One-Time Administrative Reimbursement Payments are to be paid, divided between the Patties, and administered as set forth in Schedule 5.5 hereto, which may be amended from time to time upon mutual agreement of the Parties.

 

2.4                                         Section 12.3(a)(ii) of the Agreement is hereby deleted in its entirety and replaced by the following new Section 12.3(a)(ii). All references to Section 12.3(a)(ii) and/or the contents therein in the Agreement shall be deemed instead to be a reference to the following:

 

12.3(a)(ii)                                                   Whenever the other Party or a member of its affiliated group breaches a material obligation under this Agreement, one of the other Program Agreements, or one of the Real Estate Program Agreements or any agreement relating thereto.

 

2.5                                        Section 12.3(a)(iii) of the Agreement is hereby deleted in its entirety and replaced by the following new Section 12.3(a)(iii). All references to Section 12.3(a)(iii) and/or the contents therein in the Agreement shall be deemed instead to be a reference to the following:

 

12.3(a)(iii)                                        In the event of a material misrepresentation by the other Party (or any affiliate thereof) under this Agreement, one of the other Program Agreements, or one of the Real Estate Program Agreements or any agreement relating thereto.

 

2.6                                        Section 12.3(a)(vi) of the Agreement is hereby deleted in its entirety and replaced by the following new Section 12.3(a)(vi). All references to Section 12.3(a)(vi) and/or the contents therein in the Agreement shall be deemed instead to be a reference to the following:

 

12.3(a)(vi)                                       Upon termination of any Program Agreement or one of the Real Estate Program Agreements or any agreement relating thereto, as a result of a breach or omission by, or circumstance relating to, the other Patty or its affiliated group.

 

2

 

Article III

Miscellaneous

 

3.1                                         Unless the context otherwise requires, each reference in the Agreement to “this Agreement,” “the Alliance Agreement,” “herein,” “hereunder,” “hereof” or other words of like import referring to the Agreement shall mean the Alliance Agreement, as supplemented and amended by this Amendment.

 

3.2                                         This Amendment may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

 

3.3                                         This Amendment shall be interpreted, construed, and enforced in accordance with the internal laws of the State of Texas, excluding any choice of law rules that may direct the application of the laws of another jurisdiction.

 

3.4                                        All other terms and conditions of the Agreement not materially affected by this Amendment shall remain in full force and effect.

 

IN WITNESS WHEREOF, the parties have caused this First Amendment to the Alliance Agreement to be executed by their duly-authorized representatives on the date set forth above.

 

	
STATE NATIONAL INSURANCE   COMPANY, INC.
    	
 
    	
CUMIS INSURANCE SOCIETY, INC.
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Trace Ledbetter
    	
 
    	
By:
    	
/s/   James M. Power
    
	
Print Name:
    	
Trace Ledbetter
    	
 
    	
Print Name:
    	
James M. Power
    
	
Title:
    	
SVP
    	
 
    	
Title:
    	
SVP/Chief Product Officer
    
	
Date:
    	
2/9/11
    	
 
    	
Date:
    	
2/21/11
    

 

3

 

SECOND AMENDMENT TO

THE COLLATERAL PROTECTION ALLIANCE AGREEMENT

 

THIS SECOND AMENDMENT TO THE COLLATERAL PROTECTION ALLIANCE AGREEMENT, together with all attachments hereto (“Amendment”), effective as of the date last executed below, amends the Collateral Protection Alliance Agreement dated as of July 24, 2009, by and among CUMIS INSURANCE SOCIETY, INC. (“CUMIS”) and STATE NATIONAL INSURANCE COMPANY, INC. (“State National,” and, collectively with CUMIS, the “Parties”) (the “Agreement”)

 

WHEREAS, this Amendment is fully incorporated into the Agreement; and 

 

WHEREAS, the parties wish to amend certain terms of the Agreement;

 

NOW, THEREFORE, in consideration of the responsibilities respectively assumed by the parties under the terms and conditions of the Agreement, the parties hereto intending to be legally bound hereby agree that the provisions of this Amendment shall control the terms and conditions of the Agreement to the extent set forth herein:

 

Article I

Defined Terms

 

1.1                               The following terms shall have the following meanings for all purposes of this Amendment:

 

a.                                      unless otherwise expressly provided, all references herein to Articles or other subdivisions refer to the corresponding Articles and other subdivisions of this Amendment;

 

b                                         the terms “hereof”, “herein”, “hereby”, “ hereto”, “hereunder”, “hereafter”, and “herewith” refer to this Amendment; and

 

c                                          unless otherwise expressly indicated, capitalized terms used in this Amendment, and not otherwise defined herein, will have the meanings set forth in the Agreement

 

Article II

Amendments to the Collateral Protection Alliance Agreement 

 

The Agreement is hereby amended as follows:

 

2.1                               The Parties agree that neither party shall be entitled to submit a Notice of Termination to the other without Cause prior to July 24, 2014

 

2.2                               As of January 1, 2012, Section 5.3 is deleted in its entirety and is replaced by the following new Section 5.3. All references to Section 5.3 and/or the contents therein in the Agreement shall be deemed instend to be a reference to the following:

 

5.3                               Credit Union Reimbursements/Commissions. State National shall determine expense reimbursement allowance and/or commission arrangements with Program Participants in consultation with CUNA Mutual, Representatives and otherwise in accordance with the terms of Section 4.1 hereof State National will cause TBA Insurance Group to pay any expense reimbursements  and/for commission amounts due to Credit Union Organizations in connection with the Program, and TBA Insurance Group will fund fifty percent (50%) of such payments with amounts otherwise due and payable to CUMIS

 

1

 

pursuant to the Quota Share Reinsurance Agreement between the Parties on the terms and otherwise subject to the conditions set forth therein

 

Article III

Miscellaneous

 

3.l                                   Unless the context otherwise requires, each reference in the Agreement to “this Agreement”, “the Collateral Protection Alliance Agreement”, “herein”, “hereunder”, “hereof” or other words of like import referring to the Agreement shall mean the Collateral Protection Alliance Agreement, as supplemented and amended by this Amendment

 

3.2                               This Amendment may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

 

3.3                               This Amendment shall in all respects be governed by, and construed in accordance with, the laws of the State of Texas, including all matters of construction, validity and performance, without regards to its conflict of law provisions

 

3.4                               All other terms and conditions of the Agreement not materially affected by this Amendment shall remain in full force and effect

 

IN WITNESS WHEREOF, the parties have caused this Second Amendment to the Collateral Protection Alliance Agreement to be executed by their duly-authorized representatives on the date set forth above

 

	
STATE   NATIONAL INSURANCE COMPANY, INC.
    	
CUMIS   INSURANCE SOCIETY, INC.
    
	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
By:
    	
/s/   David Hale
    	
 
    	
By:
    	
/s/   James M. Power
    
	
Print   Name:
    	
David   Hale
    	
 
    	
Print   Name:
    	
James   M. Power
    
	
Title:
    	
EVP & CFO
    	
 
    	
Title:
    	
SVP/   Chief Product Officer
    
	
Date:
    	
7/15/11
    	
 
    	
Date:
    	
7/17/11
    

 

2

 

THIRD AMENDMENT 

TO

COLLATERAL PROTECTION ALLIANCE AGREEMENT

 

THIS THIRD AMENDMENT TO COLLATERAL PROTECTION ALLIANCE AGREEMENT (this “Third Amendment”), effective as of May [*], 2014, is by and between CUMIS INSURANCE SOCIETY, INC. (“CUMIS”) and STATE NATIONAL INSURANCE COMPANY, INC. (“State National”).

 

RECITALS

 

A.                                    CUMIS and State National are parties to that certain Collateral Protection Alliance Agreement dated July 24, 2009, as amended by that certain First Amendment to Collateral Protection Alliance Agreement dated June 18, 2010, and by that certain Second Amendment to Collateral Protection Alliance Agreement dated July 15, 2011 (as amended, the “Alliance Agreement”). Capitalized terms used in this Third Amendment and not otherwise defined herein will have the meanings set forth in the Alliance Agreement.

 

B.                                    CUMIS and State National are parties to that certain Quota Share Reinsurance Agreement dated July 24, 2009, as amended by that certain Amendment Number One to Quota Share Reinsurance Agreement dated December 1, 2009, and by that certain Second Amendment to Quota Share Reinsurance Agreement dated July 15, 2011 (as amended, the “Reinsurance Agreement”). Contemporaneously with the execution and delivery of this Third Amendment to Collateral Protection Alliance Agreement, the parties are also entering into a Third Amendment to Quota Share Reinsurance Agreement.

 

C.                                    The parties wish to modify the Alliance Agreement to make certain mutually agreeable changes, all as provided in this Third Amendment.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties intending to be legally bound hereby agree as follows:

 

1.                                      Lump Sum Payments. In addition to the amounts otherwise payable under the Alliance Agreement and/or the Reinsurance Agreement, in consideration of the execution and delivery of this Third Amendment, State National will, on or before July 8, 2014:

 

(a)                                 make a one-time, lump sum payment to CUMIS, via wire transfer pursuant to instructions provided by CUMIS, in the amount of Fourteen Million Eight Hundred Thousand Dollars ($14,800,000), which amount shall not be subject to any future adjustment; and

 

1

 

(b)                                 make a one-time, lump sum payment to CUMIS, via wire transfer pursuant to instructions provided by CUMIS, in the amount of Three Million Dollars ($3,000,000), which amount shall be subject to potential future adjustment as set forth below.

 

This $3,000,000 figure is derived as follows:

 

$78,000,000 (estimated “Net Premium” [as such term is defined in the Reinsurance Agreement] anticipated to be generated during the period July 1, 2014 to June 30, 2015)

 

Multiplied by 20% (assumed profit margin of 20%, based upon an assumed “Loss Ratio” [as such term is defined in the Reinsurance Agreement] of 40% and a deemed expense ratio, not subject to adjustment, for all other expenses in the amount of 40% in aggregate)

 

Equals $15,600,000 (aggregate profit estimated to be generated during the 12-month period ending June 30, 2015)

 

Multiplied by 50% (CUMIS’ quota share participation)

 

Equals $7,800,000 (CUMIS’ share of projected profit during the measurement period)

 

Multiplied by 40% (proportional reduction in CUMIS’ quota share participation, assuming quota share reduced from 50% to 30%)

 

Equals $3,120,000 (“undiscounted value” to CUMIS)

 

Reduced to $3,000,000 (discounted present value to CUMIS after application of a discount rate of approximately four percent)

 

On or before July 31, 2015, the Parties will determine actual “Net Premium” and actual “Loss Ratio” (as such terms are defined in the Reinsurance Agreement) for the 12-month period ending June 30, 2015, and apply such actual Net Premium and Loss Ratio figures into the foregoing calculation (and all other inputs to the calculation, including the deemed expense ratio of 40%, will remain unchanged). In the event that the resulting calculation yields an “actual figure” that is: (i) not less than Two Million Eight Hundred Eight Thousand Dollars ($2,808,000) nor greater than Three Million Four Hundred Thirty-Two Thousand Dollars ($3,432,000), then no adjustment will be made; (ii) less than Two Million Eight Hundred Eight Thousand Dollars ($2,808,000), then on or before August 7, 2015, CUMIS will pay State National the amount by which Three Million One Hundred Twenty Thousand Dollars ($3,120,000) exceeds such actual figure; and (iii) greater than Three Million Four Hundred Thirty-Two Thousand Dollars ($3,432,000), then on or before August 7, 2015, State National will pay CUMIS the amount by which such actual figure exceeds Three Million One Hundred Twenty Thousand Dollars

 

2

 

($3,120,000). The provisions of Article IX (Access to Records) and Article IX (Arbitration) of the Reinsurance Agreement shall apply to the foregoing calculation and any resulting payment.

 

2.                                      Extension of Term of Alliance Agreement. The Parties acknowledge and agree that: the current renewal term shall continue through July 31, 2015; the Alliance Agreement will automatically renew for another three-year renewal term commencing August 1, 2015 and ending July 31, 2018; and thereafter will be automatically extended indefinitely for consecutive (three) 3-year renewal terms, unless earlier terminated in accordance with the terms and conditions of the Alliance Agreement. Without limiting the foregoing, CUMIS and State National each hereby waives its respective right to terminate “without cause” effective July 2015 (as currently provided in Section 12.2 of the Alliance Agreement). In the event that State National completes its contemplated Rule 144A equity offering later this year, resulting in a Change of Control, CUMIS hereby waives its right to terminate “for cause” following such Change in Control (as currently provided in Section 12.3(a)(vii) of the Alliance Agreement); provided, however CUMIS shall retain its right to terminate “for cause” following any potential Change in Control (other than the proposed Rule 144A equity offering) that may occur in the future.

 

3.                                      Change of Control Resulting from Senior Management Change. The definition of “Change of Control” set forth in Schedule 1.5 of the Alliance Agreement is hereby amended to add the following new last sentence:

 

The term “Change in Control” shall also include a substantial change in the senior management team of State National involving the departure, within any twelve (12)-month period, of two or more of the following three individuals: John Pearson; Trace Ledbetter and/or David Hale.

 

4.                                      Potential Change in Regulatory or Legislative Environment. The fourth sentence of Section 12.4(d) of the Alliance Agreement is hereby deleted and replaced with the following:

 

In the event that, at any time during the twelve (12)-month period immediately preceding termination of the Alliance Agreement, State National is required by regulatory or legislative mandate to: (x) increase the minimum loss ratio on its policies in certain states (the “LR Impacted States”) to a level that exceeds the minimum loss ratio actually experienced in those states during such period; and/or (y) cease writing and/or reduce premium associated with certain types of policies, coverages or services in certain states (the “Coverage Impacted States”); which mandates, if implemented throughout such measurement period, would have reduced Net Premium (as defined in the Reinsurance Agreement) by thirty percent (30%) or more, then the calculation of the buy-out purchase price contemplated by Section 12.4(e) hereof would be modified as set forth immediately below. The Loss Ratio with respect to the LR Impacted States would be calculated on a pro forma basis “as if” the newly mandated loss ratio had applied to the LR Impacted States throughout the measurement period. Premium (and associated losses) with respect to the Coverage Impacted States would be calculated on a pro forma basis “as if” the newly mandated restrictions in policy type or coverage scope had applied to the Coverage Impacted States throughout the measurement period.

 

3

 

5.                                      Amendment to Buy-Out Procedures. The second, third and fourth paragraphs of Section 12.4(e) of the Alliance Agreement are hereby amended and restated in their entirety as follows:

 

If the Loss Ratio for Program Business during the twelve (12) month period immediately preceding the Termination Date (calculated as of the month end immediately preceding the Termination Date) is fifty percent (50%), the purchase price shall equal eighteen percent (18%) times the Adjusted Premium Amount.

 

If the Loss Ratio for Program Business during the twelve (12) month period immediately preceding the Termination Date (calculated as of the month end immediately preceding the Termination Date) is greater than fifty percent (50%), the percentage rate used to determine the buy-out price will be reduced by one and two tenths (1.2) percentage points for each percentage point by which the Loss Ratio exceeds fifty percent (50%). For example, at a Loss Ratio of fifty-two and one half percent (52.5%), the purchase price shall equal fifteen percent (15%) (i.e., 18% minus 3% equals 15%; where 3% is the product of 2.5% multiplied by 1.2) times the Adjusted Premium Amount.

 

If the Loss Ratio for Program Business during the twelve (12) month period immediately preceding the Termination Date (calculated as of the month end immediately preceding the Termination Date) is less than fifty percent (50%), the percentage rate used to determine the buy-out price will be increased by one and two tenths (1.2) percentage points for each percentage point by which the Loss Ratio is less than fifty percent (50%). For example, at a Loss Ratio of forty-four and one half percent (44.5%), the purchase price shall equal twenty-four and six-tenths percent (24.6%) (i.e., 18% plus 6.6% equals 24.6%; where 6.6% is the product of 5.5% multiplied by 1.2) times the Adjusted Premium Amount.

 

6.                                      No Other Changes. Except as amended by this Third Amendment, the Alliance Agreement will be and remain in full force and effect in accordance with its terms. This Third Amendment may be executed in two or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument. Either party may deliver its signed counterpart of this Third Amendment to the other party by means of facsimile or any other electronic medium, and such delivery will have the same legal effect as hand delivery of an originally executed counterpart.

 

[The remainder of this page is intentionally left blank.

Signatures appear on the following page.]

 

4

 

IN WITNESS WHEREOF, the parties have executed this Third Amendment to Collateral Protection Alliance Agreement as of the date first set forth above.

 

	
CUMIS:
    	
CUMIS INSURANCE SOCIETY, INC.
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Robert N. Trunzo
    
	
 
    	
Name: 
    	
Robert N. Trunzo
    
	
 
    	
Title: 
    	
President
    
	
 
    	
 
    
	
STATE NATIONAL:
    	
STATE NATIONAL INSURANCE COMPANY, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Lonnie “Trace” K. Ledbetter III
    
	
 
    	
Name:   
    	
Lonnie   “Trace” K. Ledbetter III
    
	
 
    	
Title: 
    	
Secretary
    
				

 

5

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