Document:

Exhibit 10.5

 

FIFTH AMENDMENT TO SECOND LIEN CREDIT AGREEMENT

This FIFTH AMENDMENT TO SECOND LIEN CREDIT AGREEMENT (this “Amendment”) is dated and effective as of April 10, 2015, and entered into by and among AFFIRMATIVE INSURANCE HOLDINGS, INC., a Delaware corporation (the “Borrower”), the lenders listed on the signature pages hereto, JCF AFFM DEBT HOLDINGS L.P., as Administrative Agent (in such capacity, the “Administrative Agent”) and as Collateral Agent (in such capacity, the “Collateral Agent”), and for purposes of Section 6 hereof, the other Loan Parties listed on the signature pages hereto.  Capitalized terms used but not defined herein having the meaning given them in the Credit Agreement (as hereinafter defined).

Recitals

Whereas, the Borrower, the Lenders from time to time party thereto, the Agents and the other parties thereto have entered into that certain Second Lien Credit Agreement dated as of September 30, 2013, as amended by that certain First Amendment to Second Lien Credit Agreement dated as of December 31, 2013, as amended by that certain Second Amendment to Second Lien Credit Agreement dated as of May 14, 2014, as amended by that certain Third Amendment and Waiver to Second Lien Credit Agreement dated as of November 14, 2014, and as amended by that certain Fourth Amendment and Waiver to Second Lien Credit Agreement dated as of March 31, 2015 (as amended, amended and restated, extended, supplemented or otherwise modified prior to the date hereof, the “Credit Agreement”);

Whereas, the Borrower has requested an amendment to and consent under the Credit Agreement, pursuant to and in accordance with Section 9.08(a) of the Credit Agreement; and

Whereas, the Lenders and the Agents are willing to agree to the amendment and consent requested by the Borrower, on the terms and conditions set forth in this Amendment;

Now Therefore, in consideration of the premises and the mutual agreements set forth herein, the Borrower, Lenders and Agents agree as follows:

1.AMENDMENTS TO CREDIT AGREEMENT.  Subject to the conditions and upon the terms set forth in this Amendment and in reliance on the representations and warranties of the Borrower set forth in this Amendment, the Credit Agreement is hereby amended as follows: 

1.1.Amendment to Section 1.01.

(a)Section 1.01 of the Credit Agreement shall be amended to add the following definitions in the appropriate alphabetical order:

“Fifth Amendment” shall mean that certain Fifth Amendment to Second Lien Credit Agreement, dated and effective as of April 10, 2015, by and among the Borrower, the Loan Parties, the Lenders party thereto, and JCF AFFM Debt Holdings L.P., as administrative agent and collateral agent.

“Fifth Amendment Effective Date” shall have the meaning set forth in Section 5 of the Fifth Amendment.

 

 

1.2.Amendments to Section 2.20.  

(a)Section 2.20 of the Credit Agreement shall be amended by adding the following new clause (j) immediately after clause (i):

“(j)For purposes of determining withholding Taxes imposed under FATCA, from and after each of the Third Amendment Effective Date, the Fourth Amendment Effective Date and the Fifth Amendment Effective Date, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Loans as not qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).”

(b)Each reference in Section 2.20 of the Credit Agreement to “IRS Form W-8BEN” is hereby deleted in its entirety and replaced with the following:   “IRS Form W-8BEN (or W-8BEN-E, as applicable)”.

2.CONSENT.  

2.1.Consent.  Notwithstanding anything in the Credit Agreement to the contrary, the Lenders hereby consent to the Borrower entering into that certain amendment to capital contribution agreement in the form provided to the Lenders at 4:28 PM (New York time) on April 9, 2015.

3.REPRESENTATIONS AND WARRANTIES OF THE BORROWER.  In order to induce the Lenders and the Agents to enter into this Amendment, the Borrower represents and warrants to each Lender and the Agents that the following statements are true, correct and complete:

3.1.Power and Authority.  Each of the Loan Parties has all requisite corporate or limited liability company power and authority to enter into this Amendment and to carry out the transactions contemplated by, and to perform its obligations under or in respect of, the Credit Agreement as amended hereby.

3.2.Corporate Action.  The execution and delivery of this Amendment and the performance of the obligations of each of the Loan Parties under or in respect of the Credit Agreement as amended hereby have been duly authorized by all necessary corporate or limited liability company action on the part of each of the Loan Parties.

3.3.No Conflict or Violation or Required Consent or Approval.  The execution and delivery of this Amendment and the performance of the obligations of each of the Loan Parties under or in respect of the Credit Agreement as amended hereby do not and will not conflict with or violate (a) any provision of the certificate or articles of incorporation or other constitutive documents or by-laws of any Loan Party or any of its Subsidiaries, (b) any provision of any law or any governmental rule or regulation applicable to any Loan Party or any of its Subsidiaries, (c) any order of any Governmental Authority or arbitrator binding on any Loan Party or any of its Subsidiaries, or (d) any indenture, agreement or instrument to which any Loan Party or any of its Subsidiaries is a party or by which any Loan Party or any of its Subsidiaries, or any property of any of them, is bound (except where such violation could not reasonably be expected to have a Material Adverse Effect), and do not and will not require any consent or approval of any Person (other than any approval or consent obtained and is in full force and effect or approvals or consents the failure to obtain could not reasonably be expected to have a Material Adverse Effect or which are not material to the consummation of the transaction contemplated hereby).

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3.4.Execution, Delivery and Enforceability.  This Amendment has been duly executed and delivered by each Loan Party which is a party hereto and is the legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, except as enforceability may be affected by applicable bankruptcy, insolvency, and similar proceedings affecting the rights of creditors generally, and general principles of equity.  The Agents’ Liens in all Collateral continue to be valid, binding and enforceable Liens which secure the Obligations to the extent valid, binding and enforceable on the Closing Date, except as enforceability may be affected by applicable bankruptcy, insolvency and similar proceedings affecting the rights of creditors generally, and general principles of equity.

3.5.No Default or Event of Default.  After giving effect to this Amendment, no event has occurred and is continuing or will result from the execution and delivery of this Amendment that would constitute a Default or an Event of Default.

3.6.No Material Adverse Effect.  No event, change or condition has occurred since the Closing Date that has caused, or could reasonably be expected to cause, a Material Adverse Effect.

3.7.Representations and Warranties.  Each of the representations and warranties contained herein and in the Loan Documents is and will be true and correct in all material respects (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects) on and as of the date hereof and as of the effective date of this Amendment, except to the extent that such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects as of such earlier date (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects as of such earlier date).

4.CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT.  This Amendment, and the consents and approvals contained herein, shall be effective only if and when signed by, and when counterparts hereof shall have been delivered to the Agents (by hand delivery, mail, telecopy or other electronic transmission) by each Loan Party and each Lender, and only if and when each of the following conditions is satisfied or waived:

4.1.No Default or Event of Default; Accuracy of Representations and Warranties. At the time of and immediately after giving effect to this Amendment, no Default or Event of Default shall exist and each of the representations and warranties made by the Loan Parties herein and in or pursuant to the Loan Documents shall be true and correct in all material respects (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects) as if made on and as of the date on which this Amendment becomes effective (except that any such representation or warranty that is expressly stated as being made only as of a specified earlier date shall be true and correct in all material respects as of such earlier date (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects as of such earlier date)). 

4.2.Amendment to First Lien Credit Agreement.  The Administrative Agent shall have received a duly executed copy of an amendment to the First Lien Credit Agreement substantially in the form attached as Exhibit A hereto, making amendments thereto that correspond to those made herein and otherwise in form and substance reasonably satisfactory to the Administrative Agent.

4.3.Fees and Expenses.  The Administrative Agent shall have received on the Fifth Amendment Effective Date all reasonable and documented out-of-pocket costs and expenses of the Administrative Agent incurred in connection with this Amendment, any other documents prepared in connection herewith and the transactions contemplated hereby (in the case of legal fees and expenses, 

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limited to the reasonable fees, charges and disbursements of Debevoise & Plimpton LLP, counsel for the Administrative Agent); provided that, the Administrative Agent and/or Debevoise & Plimpton LLP shall have provided to the Borrower reasonably detailed supporting backup documentation.

5.EFFECTIVE DATE.  This Amendment shall become effective (the “Fifth Amendment Effective Date”) as of April 10, 2015 once the conditions set forth in Section 4 of this Amendment are satisfied or waived.

6.EFFECT OF AMENDMENT; RATIFICATION.  This Amendment is a Loan Document.  From and after the date on which this Amendment becomes effective, all references in the Loan Documents to the Credit Agreement and other Loan Documents shall mean the Credit Agreement as amended hereby.  Except as expressly amended or waived hereby, the Credit Agreement and the other Loan Documents, including the Liens granted thereunder, shall remain in full force and effect, and all terms and provisions thereof are hereby ratified and confirmed.  Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders or the Administrative Agent under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of the Credit Agreement or of any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect.  Except as expressly set forth herein, nothing herein shall be deemed to be a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances. 

7.MISCELLANEOUS.  Each of the Loan Parties confirms that as amended hereby, each of the Loan Documents to which it is a party is in full force and effect, and that as of the date hereof, none of the Loan Parties has any defenses, setoffs or counterclaims to its Obligations.

8.APPLICABLE LAW.  THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

9.NO WAIVER.  The execution, delivery and effectiveness of this Amendment does not constitute a waiver of any Default or Event of Default, amend or modify any provision of any Loan Document except as expressly set forth herein or constitute a course of dealing or any other basis for altering the Obligations of any Loan Party.

10.COMPLETE AGREEMENT.  This Amendment sets forth the complete agreement of the parties in respect of any amendment to any of the provisions of any Loan Document.  

11.CAPTIONS; COUNTERPARTS.  The catchlines and captions herein are intended solely for convenience of reference and shall not be used to interpret or construe the provisions hereof.  This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts (including by telecopy or other electronic transmission), all of which taken together shall constitute but one and the same instrument.  Delivery of an executed counterpart of a signature page of this Amendment by facsimile transmission or pdf electronic delivery shall be effective as delivery of a manually executed counterpart hereof.

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12.RELEASE.  

12.1.In consideration of the Administrative Agent’s and the Lenders’ execution and delivery of this Amendment, each of Borrower and the other Loan Parties, on behalf of itself and its agents, representatives, officers, directors, advisors, employees, subsidiaries, affiliates, successors and assigns (collectively, “Releasors”), hereby forever agrees and covenants not to sue or prosecute against any Releasee (as hereinafter defined) and hereby forever waives, releases and discharges, to the fullest extent permitted by law, each Releasee from any and all claims (including, without limitation, crossclaims, counterclaims, rights of set-off and recoupment), actions, causes of action, suits, debts, accounts, interests, liens, promises, warranties, damages and consequential damages, demands, agreements, bonds, bills, specialties, covenants, controversies, variances, trespasses, judgments, executions, costs, expenses or claims whatsoever, that such Releasor now has or hereafter may have, of whatsoever nature and kind, whether known or unknown, whether now existing or hereafter arising, whether arising at law or in equity (collectively, the “Claims”), against any or all of the Secured Parties in any capacity and their respective affiliates, subsidiaries, shareholders and “controlling persons” (within the meaning of the federal securities laws), and their respective successors and assigns and each and all of the officers, directors, employees, agents, attorneys, advisors and other representatives of each of the foregoing (collectively, the “Releasees”), based in whole or in part on facts, whether or not now known, existing on or before the Fifth Amendment Effective Date, that relate to, arise out of or otherwise are in connection with: (i) any or all of the Loan Documents (including this Amendment) or transactions contemplated thereby or hereby or any actions or omissions in connection therewith or herewith, or (ii) any aspect of the dealings between or among any state insurance department or other regulatory body with authority over the Borrower, the Loan Parties or any of their respective Regulated Insurance Subsidiaries, on the one hand, and any one or more of the Releasees, on the other hand, but only to the extent such dealings relate to any or all of the documents, transactions, actions or omissions referenced in clause (i) hereof.  In entering into this Amendment, Borrower and each other Loan Party consulted with, and has been represented by, legal counsel and expressly disclaims any reliance on any representations, acts or omissions by any of the Releasees and hereby agrees and acknowledges that the validity and effectiveness of the releases set forth above do not depend in any way on any such representations, acts and/or omissions or the accuracy, completeness or validity thereof.  The provisions of this Section shall survive the termination of this Amendment, the Credit Agreement, the other Loan Documents and payment in full of the Obligations.

12.2.Each of Borrower and other Loan Parties, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remissed and discharged by Borrower or any other Loan Party pursuant to Section 12.1 hereof.

[signatures follow; remainder of page intentionally left blank]

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IN WITNESS WHEREOF, each of the undersigned has duly executed this Fifth Amendment to Credit Agreement as of the date set forth above.

	
 
	
AFFIRMATIVE INSURANCE HOLDINGS, INC., 

	
 
	
as Borrower

	
 
	
By:
	
/s/ Michael J. McClure

	
 
	
 
	
Name:  Michael J. McClure

	
 
	
 
	
Title:  CEO

	
 
	
LOAN PARTIES:

	
 
	
AFFIRMATIVE INSURANCE HOLDINGS, INC.

	
 
	
AFFIRMATIVE MANAGEMENT SERVICES, INC. 

	
 
	
AFFIRMATIVE SERVICES, INC. 

	
 
	
AFFIRMATIVE INSURANCE GROUP, INC. 

	
 
	
AFFIRMATIVE UNDERWRITING SERVICES, INC.

	
 
	
AFFIRMATIVE INSURANCE SERVICES, INC. 

	
 
	
AFFIRMATIVE, L.L.C., (f/k/a USAgencies, L.L.C.) 

	
 
	
AFFIRMATIVE GENERAL AGENCY, INC., (f/k/a USagencies Management Services, Inc.)

	
 
	
 

	
 
	
 

	
 
	
 

	
 
	
By:
	
/s/ Michael J. McClure

	
 
	
 
	
Name:  Michael J. McClure

	
 
	
 
	
Title:  CEO

 

 

 

	
 
	
JCF AFFM DEBT HOLDINGS L.P.,

	
 
	
as Administrative Agent, and as Collateral Agent and Lender

	
 
	
 

	
 
	
 

	
 
	
By: JCF AFFM DEBT HOLDING GP LTD., its General Partner

	
 
	
 

	
 
	
By:
	
/s/ J. Christopher Flowers
	
 

	
 
	
 
	
Name: J. Christopher Flowers
	
 

	
 
	
 
	
Title: DirectorCERTIFICATE OF DESIGNATIONS

OF
PREFERRED STOCK, SERIES A

OF
INDEPENDENCE BANCSHARES,
INC. 

Independence Bancshares, Inc.,
a corporation organized and existing under the laws of the State of South
Carolina (the “Corporation”), in accordance with the provisions of Sections
33-6-102 and 33-10-106 of the South Carolina Business Corporation Act of 1988,
as amended, does hereby certify as follows: 

The board of directors of the
Corporation (the “Board of Directors”), in accordance with the articles of
incorporation and bylaws of the Corporation and applicable law, adopted the
following resolution on April 13, 2015, creating a series of 10,000 shares of
Preferred Stock of the Corporation designated as “Preferred Stock, Series A”.

RESOLVED, that pursuant to the
provisions of the articles of incorporation and the bylaws of the Corporation
and applicable law, a series of Preferred Stock, $.01 par value per share, of
the Corporation be and hereby is created, and that the designation and number of
shares of such series, and the voting and other powers, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations and restrictions thereof, of the shares of such series, are as
follows: 

Section 1. Designation. The
designation of the series of Preferred Stock created hereby shall be Preferred
Stock, Series A, with $.01 par value and a liquidation preference of $1,000.00
per share (hereinafter referred to as the “Designated Preferred Stock”). Each
share of Designated Preferred Stock shall be identical in all respects to every
other share of Designated Preferred Stock. The Designated Preferred Stock will
rank equally with any Parity Stock (as defined below) with respect to the
distribution of assets in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, if any, and will
rank senior to the Common Stock (as defined below) with respect to the
distribution of assets in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation. 

Section 2. Number of Shares.
The number of shares of Designated Preferred Stock shall be 10,000. 

Section 3. Definitions. As
used herein with respect to the Designated Preferred Stock: 

“Applicable Dividend Rate”
shall mean 6% per annum.

“Articles of Incorporation”
shall mean the Corporation’s articles of incorporation, as they may be amended,
restated, supplemented or modified from time to time. 

“Bylaws” shall mean the bylaws
of the Corporation, as they may be amended, restated, supplemented or modified
from time to time. 

“Certificate of Designations”
shall mean the Certificate of Designations of the Designated Preferred Stock of
the Corporation, as it may be amended, restated, supplemented or modified from
time to time. 

“Common Stock” shall mean the
common stock, $0.01 par value per share, of the Corporation. 

“Designated Preferred Stock”
shall have the meaning set forth in Section 1 of this Certificate of
Designations. 

“Dividend Payment Commencement
Date” shall mean September 30, 2016. 

“Dividend Payment Date” shall
mean June 15 and December 15 of each year. 

“Junior Stock” shall mean the
Common Stock and any other class or series of capital stock of the Corporation
the terms of which expressly provide that it ranks junior to the Designated
Preferred Stock with respect to the distribution of assets in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation. 

“Parity Stock” shall mean any
class or series of capital stock of the Corporation (other than the Designated
Preferred Stock) the terms of which do not expressly provide that it ranks
senior or junior to the Designated Preferred Stock with respect to the
distribution of assets in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation. 

“Record Date” shall mean the
1st day of the calendar month in which the applicable Dividend Payment Date
falls on or such other record date, not more than thirty calendar days nor less
than ten calendar days preceding the applicable Dividend Payment Date, as is
fixed by the Board of Directors.

“ROA Calculation” shall mean
the percentage calculated by dividing (i) the Corporation’s reported GAAP net income for any two
consecutive quarters, as adjusted for any extraordinary non-recurring charges or
gains relating to securities gains and gains on the sale of assets or their
equivalent (provided, that if any single upfront payments are received during
that quarter, the amount of the upfront payment shall be amortized over the life
of the contract to which such payment relates), and (ii) the Corporation’s
reported average consolidated assets, the average of which will be calculated by
averaging the beginning of the period asset balance and the end of period asset
balance.

“ROA Test” shall be satisfied
when the ROA Calculation exceeds 2.00% (on an annualized basis calculated by
multiplying the quarterly amount by four) as reported under GAAP for any
calendar reporting period.

“SCBCA” shall mean the South
Carolina Business Corporation Act of 1988, as amended. 

Section 4. Dividends. Holders
of Designated Preferred Stock shall be entitled to receive, on each share of
Designated Preferred Stock if, as and when declared by the Board of Directors or
any duly authorized committee of the Board of Directors, but only out of assets
legally available therefor, cash dividends in arrears at a rate per annum equal
to the Applicable Dividend Rate. Such dividends shall be payable Holders of
Designated Preferred Stock on each Dividend Payment Date (except that if any
such date is a Saturday, Sunday or legal holiday, then such dividend shall be
payable on the next day that is not a Saturday, Sunday or legal holiday),
commencing with the first such Dividend Payment Date to occur after the Dividend
Payment Commencement Date to holders of record as they appear upon the stock
transfer books of the Corporation on the Record Date. Dividends shall be
non-cumulative. After the Dividend Payment Commencement Date, the Corporation
shall not declare, pay or set aside any dividends on shares of any Junior Stock
unless (in addition to the obtaining of any consents required elsewhere in the
Certificate of Designations) the holders of the Designated Preferred Stock then
outstanding first receive, or simultaneously receive, a cash dividend in arrears
on each outstanding share of Designated Preferred Stock in an amount no less
than the Applicable Dividend Rate.

Section 5. Liquidation Rights.

(a) Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
Designated Preferred Stock shall be entitled to receive for each share of
Designated Preferred Stock, (i) any declared but unpaid dividends, and (ii) out
of the assets of the Corporation or proceeds thereof (whether capital or
surplus) available for distribution to shareholders of the Corporation, subject
to the rights of the holders of any class or series of securities ranking senior
to the Designated Preferred Stock, the rights of the holders of any Parity Stock
and the rights of the Corporation’s creditors, before any distribution of such
assets or proceeds is made to or set aside for the holders of any Junior Stock
as to such distribution, payment in full of an amount equal to $1,000.00 per
share of Designated Preferred Stock (the “Liquidation Preference”). The holders
of Designated Preferred Stock shall not be entitled to any further payments in
the event of any such voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation other than what is expressly
provided for in this Section 5. 

(b) Partial Payment. If in any distribution described in Section 5(a) above
the assets of the Corporation or proceeds thereof are not sufficient to pay in
full the Liquidation Preference to all holders of Designated Preferred Stock and
the corresponding amounts payable with respect to any Parity Stock as to such
distribution to all holders of such Parity Stock, the holders of Designated
Preferred Stock and the holders of such Parity Stock shall share ratably in any
such distribution in proportion to the full respective distributions to which
they are entitled. 

(c) Residual Distributions. If the Liquidation Preference has been paid in
full to all holders of Designated Preferred Stock and the corresponding amounts
payable with respect of any Parity Stock as to such distribution have been paid
in full to the holders of such Parity Stock, the holders of other capital stock
of the Corporation shall be entitled to receive all remaining assets of the
Corporation according to their respective rights and preferences. 

(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of
this Section 5, the sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property and assets of the Corporation shall not be deemed a voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Corporation, nor shall the merger, consolidation or any other business
combination transaction of the Corporation into or with any other corporation or
person or the merger, consolidation or any other business combination
transaction of any other corporation or person into or with the Corporation be
deemed to be a voluntary or involuntary dissolution, liquidation or winding up
of the affairs of the Corporation. 

Section 6. Redemption.

(a) Optional Redemption by the Corporation. The Corporation, at the option of
its board of directors, may redeem the shares of Designated Preferred Stock at a
redemption price equal to the Liquidation Preference per share of Designated
Preferred Stock (the “Redemption Price”) at any time, provided such redemption
is conducted per this Section 6 (b) and the holder has the option to elect
conversion prior to such redemption. The Corporation may require the holder of
shares of Designated Preferred Stock to effect the conversion of its shares of
Designated Preferred Stock as provided for in Section 8 hereof. Any written
request by the Corporation in respect of the foregoing shall be deemed to have
the same force and effect as the notice of redemption described in Section
6(b).

(b) Notice
by the Corporation of Redemption. Notice of redemption of the shares of
Designated Preferred Stock shall be mailed by first class mail, postage prepaid,
addressed to each holder of record of such shares at its last address appearing
on the books of the Corporation. Such mailing shall be at least 30 days and not
more than 60 days before the date fixed for redemption. Any such notice mailed
as provided in this Section 6(b) shall be conclusively presumed to have been
duly given, whether or not the holders receive such notice. Each notice shall
state (i) the redemption date; and (ii) the number of shares of Designated
Preferred Stock held by the holder that the Corporation shall redeem on the
redemption date specified in the notice; and (iii) the place where the
Designated Preferred Stock is to be redeemed. A Holder will have 10 business
days following the date notice is deemed given to elect optional conversion per
Section 8 herein.

(c) Effectiveness of Redemption. Subject to Section 8(f), if notice of
redemption has been duly given by the Corporation and if on or before the
redemption date specified in the notice all funds necessary for such redemption
have been set aside by the Corporation, separate and apart from its other funds,
in trust for the benefit of the holders of such shares, so as to be and continue
to be available therefor, then, notwithstanding that the certificate for the
shares so called for redemption has not been surrendered for cancellation, on
and after the redemption date such shares shall cease to be outstanding, and all
rights with respect to such shares shall forthwith on such redemption date cease
and terminate, except only the right of the holders thereof to receive the
amount payable on such redemption.

(d) Status of Redeemed Shares.
Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise
acquired by the Corporation shall revert to authorized but unissued shares of
Preferred Stock (provided that any such cancelled shares of Designated Preferred
Stock may be reissued only as shares of any series of preferred stock other than
Designated Preferred Stock). 

(e) Partial Redemption. In
case of the redemption of less than all of the then-outstanding shares of
Designated Preferred Stock, the Corporation shall have the discretion to
designate the shares to be redeemed pro rata, by lot or by a substantially
equivalent method selected by the Board of Directors. The right of the
Corporation to redeem all or a portion of the Designated Preferred Stock is
subject to the Corporation having received prior approval from the Federal
Reserve Board (or other applicable federal agency) if such approval is required
under applicable capital guidelines or policies of the Federal Reserve Board (or
other applicable federal agency).

Section 7. Voting
Rights.

(a) General. The holders of
Designated Preferred Stock shall have such voting rights as set forth below or
as otherwise required by law.

(b) Voting with the Common
Stock as a Single Class. Except as provided by law or by Section 7(c) below and
so long as any shares of Designated Preferred Stock are outstanding, (i) holders
of Designated Preferred Stock shall vote together with the holders of Common
Stock as a single class, and (ii) on any matter that is presented to the
shareholders of the Corporation for their action or consideration at any meeting
of shareholders of the Corporation (or by written consent of shareholders in
lieu of meeting), each holder of outstanding shares of Designated Preferred
Stock shall be entitled to cast the number of votes equal to the number of whole
shares of Common Stock into which the shares of Designated Preferred Stock held
by such holder are convertible as of the record date for determining
shareholders entitled to vote on such matter.

(c) Class Voting Rights as to
Particular Matters. So long as any shares of Designated Preferred Stock are
outstanding, in addition to any other vote or consent of shareholders required
by law or by the Articles of Incorporation, without the vote or consent of the
holders of at least a 66 2/3% of the shares of Designated Preferred Stock at the
time outstanding, voting as a separate class, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called for the
purpose, the Corporation shall not amend, alter or repeal any provision of the
Certificate of Designations, the Articles of Incorporation or the Bylaws in any
respect (including any amendment, alteration or repeal by means of a merger,
consolidation or otherwise) so as to significantly and adversely affect the
rights, preferences, privileges or voting powers of the Designated Preferred
Stock; provided, however, that the authorization of Designated Preferred Stock,
Parity Stock or Junior Stock shall not be deemed to adversely affect the rights,
preferences, privileges or voting powers of the Holders of outstanding
Designated Preferred Stock and shall not require affirmative vote or consent of
the Holders of outstanding Designated Preferred Stock. On each matter voted on
by the holders of Designated Preferred Stock voting as a separate class as
provided in this Section 7(c), each share of Designated Preferred Stock is
entitled to one vote. 

(d) Changes after Provision
for Redemption. No vote or consent of the holders of Designated Preferred Stock
shall be required pursuant to Sections 7(a) through 7(c) above if, at or prior
to the time when any such vote or consent would otherwise be required pursuant
to such Section, all outstanding shares of the Designated Preferred Stock shall
have been redeemed, or shall have been called for redemption upon proper notice
and sufficient funds shall have been deposited in trust for such redemption, in
each case pursuant to Section 6 above.

(e) Procedures for Voting and
Consents. The rules and procedures for calling and conducting any meeting of the
holders of Designated Preferred Stock (including, without limitation, the fixing
of a Record Date in connection therewith), the solicitation and use of proxies
at such a meeting, the obtaining of written consents and any other aspect or
matter with regard to such a meeting or such consents shall be governed by any
rules of the Board of Directors or any duly authorized committee of the Board of
Directors, in its discretion, may adopt from time to time, which rules and
procedures shall conform to the requirements of the Articles of Incorporation,
the Bylaws, and applicable law and the rules of any national securities exchange
or other trading facility on which Designated Preferred Stock is listed or
traded at the time.

Section 8. Conversion.

(a) General. Subject to Section 8(g), each share of Designated Preferred
Stock shall be convertible, at the option of the holder thereof , into 1,250
fully paid and non-assessable shares of Common Stock (“Conversion Rate”). If the
Corporation effects a stock split, this Conversion Rate will be adjusted
proportionally to such split and will be reflected in the Corporation’s books
and records and applicable stock registers.

(b) Rights
upon Conversion. Immediately upon conversion, the rights of a holder with
respect to such holder’s shares of Designated Preferred Stock so converted shall
cease and the person entitled to receive the shares of Common Stock upon the
conversion of such shares of Designated Preferred Stock shall be treated for all
purposes as having become the record and beneficial owner of such shares of
Common Stock. 

(c) Notice
and Effectiveness of Conversion. A holder of any shares of Designated Preferred
Stock may exercise the conversion rights in whole or in part as to any such
shares of Designated Preferred Stock by delivering to the Corporation during
regular business hours, at the principal office of the Corporation with notice
to the attention of Corporate Secretary, the certificate or certificates for the
shares to be converted, duly endorsed for transfer to the Corporation (if
required by it), accompanied by written notice stating that such holder elects
to convert such shares. Conversion shall be deemed to have been effected on the
date when such delivery is made, and such date is referred to herein as the
“Conversion Date.” As promptly as practicable thereafter, the Corporation shall
issue and deliver to such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder is entitled. The holder shall be
deemed to have become a shareholder of record on the applicable Conversion Date
unless the transfer books of the Corporation are closed on such date, in which
event he shall be deemed to have become a Common Stock shareholder of record on
the next succeeding date on which the transfer books are open. Upon conversion
of only a portion of the number of shares of Designated Preferred Stock
represented by a certificate surrendered for conversion, the Corporation shall
issue and deliver upon the written order of the holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new certificate
covering the number of shares of Designated Preferred Stock representing the
unconverted shares of the certificate so surrendered. 

(d) Reservation of Shares. The Corporation shall at all times reserve and
keep available, out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of Designated Preferred Stock as provided
for herein, the full number of shares of Common Stock deliverable upon the
conversion of all Designated Preferred Stock from time to time outstanding.

(e) Automatic Conversion. The Designated Preferred will automatically convert
to Common Stock (i) in full if the Corporation’s Common Stock becomes listed on
the NASDAQ (or equivalent nationally recognized exchange) and the market
capitalization of the Common Stock (including all shares of Common Stock on an
as-converted basis), measured by the volume weighted average price for the 30
calendar days preceding the date of conversion, exceeds each of (A) the
liquidation value of the Designated Preferred Stock and (B) 20% of the prior
period reported GAAP balance sheet total assets; (ii) in full if the Corporation
has satisfied the ROA Test; or (iii) in full or in part (proportionally based on
the outstanding shares of Designated Preferred Stock) upon the cash investment
by the Corporation (“Invested Amount”) in any of the Corporation’s subsidiary
federally insured depository institution(s), in which case the number of
converted shares will be equal to the Invested Amount divided by the Conversion
Rate. Notice of conversion of the shares of Designated Preferred Stock shall (x)
be mailed by first class mail, postage prepaid, addressed to each holder of
record of such shares at its last address appearing on the books of the
Corporation, with instruction on how to receive the converted shares in
certificate or book entry form, (x) shall be recorded in the stock register of
the Corporation and (z) notice provided to the Corporation’s applicable stock
transfer agent.

(f) Conversion and Redemption subject to Regulatory Requirements. To the
extent a holder of any shares of the Designated Preferred Stock is required by
federal banking laws to receive regulatory approval or nonobjection from the
Federal Reserve Board (or other applicable federal agency) to own shares of the
Corporation’s Common Stock issuable upon conversion of one or more shares of
Designated Preferred Stock or hold shares of Designated Preferred Stock
following a redemption of Designated Preferred Stock, the Corporation shall not
effect such conversion to Common Stock or redemption until the holder of such
shares of Designated Preferred Stock shall have received such approval or
nonobjection.

(g) Partial Conversion. In the event some but not all of the Designated
Preferred Stock represented by a certificate or certificates surrendered by the
holder of the Designated Preferred Stock are converted, the Corporation shall
execute and deliver to or on the order of the holder of the Designated Preferred
Stock, at the expense of the Corporation, a new certificate representing the
shares of the Designated Preferred Stock not converted. 

(h) Fractional Shares. No fractional shares of Common Stock shall be issued
upon conversion of the Designated Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value of a share
of Common Stock as determined in good faith by the Board of Directors of the
Corporation. Whether or not fractional shares would be issuable upon such
conversion shall be determined on the basis of the total number of shares of
Designated Preferred Stock the holder is at the time converting into Common
Stock and the aggregate number of shares of Common Stock issuable upon such
conversion. 

Section 9. No Sinking Fund.
The shares of Designated Preferred Stock are not subject to the operation of a
sinking fund. 

Section 10. No Preemptive
Rights. No share of Designated Preferred Stock shall have any rights of
preemption whatsoever as to any securities of the Corporation, or any warrants,
rights or options issued or granted with respect thereto, regardless of how such
securities, or such warrants, rights or options, may be designated, issued or
granted.

Section 11. Transfer. Subject
to applicable securities laws, regulation and restrictions, the holders of
Designated Preferred Stock shall be able to sell, assign, transfer, or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the direct or indirect sale, assignment, transfer,
encumbrance or other disposition of, the Designated Preferred Stock. 

Section 12. Record Holders. To
the fullest extent permitted by applicable law, the Corporation may deem and treat the record holder
of any share of Designated Preferred Stock as the true and lawful owner thereof
for all purposes, and the Corporation shall not be affected by any notice to the
contrary. 

Section 13. Notices. Except as
otherwise expressly set forth herein, all notices or communications in respect
of the Designated Preferred Stock shall be sufficiently given if given in
writing and delivered in person or by first class mail, postage prepaid, or if
given in such other manner as may be permitted in the Certificate of
Designations, the Articles of Incorporation or Bylaws or by applicable
law.

Section 14. Replacement
Certificates. The Corporation shall replace any mutilated certificate at the
holder’s expense upon surrender of that certificate to the Corporation. The
Corporation shall replace certificates that become destroyed, stolen or lost at
the holder’s expense upon delivery to the Corporation of reasonably satisfactory
evidence that the certificate has been destroyed, stolen or lost, together with
any indemnity that may be reasonably required by the Corporation. 

Section 15. Directors of the
Bank. So long as any shares of Designated Preferred Stock are outstanding, the
Corporation shall take such action as is necessary to ensure that at all times
no less than two directors of the Corporation (the “Appointed Bank Directors”)
are serving as directors of Independence National Bank, the wholly-owned banking
subsidiary of the Corporation. Further, the Appointed Bank Directors shall both
serve on the credit committee and the investment committee of Independence
National Bank. 

Section 16. Other Rights. The
shares of Designated Preferred Stock shall not have any rights, preferences,
privileges or voting powers or relative, participating, optional or other
special rights, or qualifications, limitations or restrictions thereof, other
than as set forth herein or in the Articles of Incorporation or as provided by
applicable law.

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