0001144204-13-037208.txt : 20130628 0001144204-13-037208.hdr.sgml : 20130628 20130628153748 ACCESSION NUMBER: 0001144204-13-037208 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 45 FILED AS OF DATE: 20130628 DATE AS OF CHANGE: 20130628 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Homeowners of America Holding Corp CENTRAL INDEX KEY: 0001346922 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-189686 FILM NUMBER: 13940787 BUSINESS ADDRESS: STREET 1: 5021 BRAIR TREE DR CITY: DALLAS STATE: TX ZIP: 75247 MAIL ADDRESS: STREET 1: 5021 BRAIR TREE DR CITY: DALLAS STATE: TX ZIP: 75247 S-1 1 v347100_s1.htm FORM S-1

As filed with the Securities and Exchange Commission on June 28, 2013

Registration No. 333-1.22.13

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

Homeowners of America Holding Corporation
(Exact Name of Registrant as Specified in Its Charter)

Delaware	6331	57-1219329

(State or Other	(Primary Standard Industrial	(I.R.S. Employer
Jurisdiction of Incorporation or	Classification Code Number)	Identification Number)
Organization)

Homeowners of America Holding

Corporation

1333 Corporate Drive, Suite 325

Irving, TX 75038

(972) 607-4241

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal

Executive Officers)

Spencer W. Tucker

President and Chief Executive Officer

Homeowners of America Holding

Corporation

1333 Corporate Drive, Suite 325

Irving, TX 75038

(972) 607-4241

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

Copies to:

William N. Haddad, Esq.

Reed Smith LLP

599 Lexington Avenue

New York, NY 10022

(212) 521-5400

(212) 521-5450 (facsimile)

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 Exchange Act. (Check one)

¨ Large accelerated filer	¨ Accelerated filer
¨ Non-accelerated files (Do not check if a smaller reporting company)	x Smaller reporting company

CALCULATION OF REGISTRATION FEE

Title

of Each Class

Proposed

of Securities

Proposed

Maximum

to Be

Amount To Be

Maximum Offering

Aggregate Offering

Amount

Registered

Registered(1)

Price Per Share

Price

of Registration Fee

Common Stock, par value $0.0001 per share

15,739,182

0.50

7,869,591

1,073.41

(3)

(1)

Pursuant to Rule 416 of the Securities Act of 1933, as amended, this Registration Statement also registers such additional shares of common stock as may become issuable to prevent dilution as a result of stock splits, stock dividends or similar transactions.

(2)

Based on a price of $0.50 per share (the exercise price of the registrant’s proposed stock options to be issued upon the effective date of this Registration Statement.

(3)

Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, dated June 28, 2013

15,739,182 Shares

Common Stock

This prospectus relates to the resale by selling stockholders named herein of up to an aggregate of 15,739,182 shares of common stock, par value $0.0001 per share, of Homeowners of America Holding Corporation.

There is no public market for our common stock. We intend to seek a qualification for our common stock to be quoted on the Over-the-Counter Bulletin Board; however, no assurance can be given as to our success in qualifying for quotation on the OTCBB. The selling stockholders may sell their shares of our common stock in privately negotiated transactions until our common stock is quoted on the OTCBB, and thereafter in a variety of transactions as described under the heading “Plan of Distribution” beginning on page 66, including transactions on any stock exchange, market or facility on which our common stock may be traded, in privately negotiated transactions or otherwise at market prices prevailing at the time of sale, at prices related to such market prices or at negotiated prices. We have no basis for estimating either the number of shares of our common stock that will ultimately be sold by the selling stockholders or the prices at which such shares will be sold.

All of the shares of common stock are being sold by the selling stockholders named in this prospectus. We will not receive any of the proceeds from the sale of the shares of common stock being sold by the selling stockholders. We are bearing all of the expenses in connection with the registration of the shares of common stock, but all selling and other expenses incurred by the selling stockholders, including commissions and discounts, if any, attributable to the sale or disposition of the shares will be borne by them.

We are an ‘‘emerging growth company’’ as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for future filings.

You should read this prospectus, the applicable prospectus supplement, if any, and other offering materials carefully before you invest.

An investment in our common stock involves substantial risks. See “Risk Factors” beginning on page 6 of this prospectus.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is , 2013

TABLE OF CONTENTS

Prospectus

	Page

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	1

SUMMARY	2

RISK FACTORS	6

USE OF PROCEEDS	18

DIVIDEND POLICY	18

DETERMINATION OF OFFERING PRICE	18

DILUTION	18

CAPITALIZATION	19

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20

BUSINESS	29

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	46

SELLING SHAREHOLDERS	48

MANAGEMENT	50

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	55

DESCRIPTION OF SECURITIES	56

FEDERAL INCOME TAX CONSEQUENCES	62

PLAN OF DISTRIBUTION	66

LEGAL MATTERS	68

EXPERTS	68

WHERE YOU CAN FIND MORE INFORMATION	68

INDEX TO FINANCIAL STATEMENTS	F-1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. These forward looking statements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects. All statements other than statements of historical fact included in this prospectus, including statements regarding our future activities, events or developments, including such things as future revenues, product development, market acceptance, responses from competitors, capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success, projected performance and trends, and other such matters, are forward-looking statements. The words “believe,” “expect,” “intend,” “anticipates,” or “propose,” and other similar words and phrases, are intended to identify forward-looking statements. The forward-looking statements made in this prospectus are based on certain historical trends, current conditions and expected future developments as well as other factors we believe are appropriate in the circumstances. These statements relate only to events as of the date on which the statements are made and we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. All of the forward-looking statements made in this prospectus are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to or effects on us or our business or operations. Whether actual results will conform to our expectations and predictions is subject to a number of risks and uncertainties that may cause actual results to differ materially. Risks and uncertainties, the occurrence of which could adversely affect our business, include the risks identified in this prospectus under the caption “Risk Factors” beginning on page 6.

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SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus, including the section entitled “Risk Factors,” and our financial statements and the notes thereto before deciding to invest in our common stock. Unless the context otherwise requires, the terms “we”, “our”, “ours” and “us”, refer to Homeowners of America Holding Corporation, a Delaware corporation.

Our Business

Overview

We had, until recently, offered private passenger automobile policies to homeowners in Texas. The Texas private passenger automobile business is currently being non-renewed. The Texas private passenger automobile program was discontinued because we were unable to capture a sufficient portion of the market at pricing which we deemed adequate to cover our expenses and provide a margin for profits.

As of March 31, 2013 we had 56,911 policyholders, total assets of $67,344,137 and stockholders’ equity of $5,509,103. Of the 56,911 policyholders, 489 were private passenger automobile policyholders. The balance, 56,422, were Texas residential property policyholders.

We offer products with competitive prices in segments of the business that have proven long-term profitability. We are heavily invested in automated underwriting tools and use a variety of underwriting methods to select risks. Efficiency is achieved through automation. All business is sourced and processed through internet-enabled applications. Our user-friendly agent portal enables agents to rapidly quote and issue policies. Automation, a highly responsive and experienced underwriting and customer service staff, and local knowledge of the market all give us a competitive advantage.

In 2010, we formed a managing general agency, Homeowners of America MGA, Inc., or HAMGA. HAMGA provides underwriting, policy administration and claims services to our insurance company.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, and will continue to be an emerging growth company until: (i) the last day of our fiscal year following the fifth anniversary of this prospectus, (ii) the date on which we become a large accelerated filer, or (iii) the date on which we have issued an aggregate of $1 billion in non-convertible debt during the preceding 3 years. As an emerging growth company, we are entitled to rely on certain scaled disclosure requirements and other exemptions, including an exemption from the requirement to provide an auditor attestation to management’s assessment of its internal controls as required by Section 404(b) of the Sarbanes-Oxley Act of 2002. We may at any time voluntarily elect to cease to avail ourselves of the scaled disclosure and other exemptions available to us as an emerging growth company, and have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. See the risk factor entitled “We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act which allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.” As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

The JOBS Act is intended to reduce the regulatory burden on emerging growth companies. As long as we qualify as an emerging growth company, we will also, among other things:

	·	be exempt from the “say on pay” provisions (requiring a non-binding vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements certain executive officers in connection with mergers and certain other business combinations) of The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, and certain disclosure requirements of the Dodd-Frank Act relating to compensation of Chief Executive Officers;
	·	be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities Exchange Act of 1934, as amended and instead provide a reduced level of disclosure concerning executive compensation; and
	·	be exempt from any rules that may be adopted by the Public Company Oversight Board, or PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor's report on the financial statements.

Although we are still evaluating the JOBS Act, we currently intend to take advantage of all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an emerging growth company.

Notwithstanding the above, we are also currently a “smaller reporting company” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a smaller reporting company, at such time are we cease being an emerging growth company, the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not considered either an emerging growth company or a smaller reporting company. Specifically, similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports.

Our Market and Opportunity

On December 31, 2012, HAIC’s market share for Texas homeowners business was estimated by SNL Financial at .65% of an estimated $6.4 billion market, expressed in terms of premiums. SNL ranked HAIC as the 19th largest Texas homeowners company in terms of Texas premiums.

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The Texas residential property market is dominated by large, national insurance companies that market through captive agents. However, the Texas market is large enough, at $6.4 billion, to accommodate a smaller company providing local knowledge and service, able to focus its attention on the more profitable segments of the Texas market and the needs of Texas independent agents.

Further, as a consequence of the catastrophic losses in Texas over the last several years, a large part of the Texas residential property market is experiencing a degree of dysfunction, which creates an opportunity for a smaller company to select business in profitable segments.

In recent years, including 2008, 2009, 2011 and 2012, Texas has experienced numerous catastrophic severe convective thunderstorms, among other catastrophes. In 2011 and 2012 alone, thunderstorms have caused insureds catastrophic losses estimated at $5.36 billion. This has created a hard market in North Texas (where many of these storms have occurred) for residential property insurance as companies begin to withdraw, restrict sales, and increase prices.

The Texas Gulf Coast continues to be a hard market as well for residential property products for similar reasons, but related more to anticipated hurricane losses as well as losses sustained during hurricane Ike.

Competitive Strengths

All of our business is sourced through internet-enabled applications. Our agents use the internet to quote and issue policies, conduct other transactions, and look up policyholder information. The agent portal or interface, and the actions required by the agents, are designed to be simple and rapid to use. Our commitment to technology has enabled us to grow rapidly without a loss in efficiency, while providing our agents with a highly satisfactory transactional experience.

Although automated underwriting tools are used extensively to qualify and price policies, some polices cannot be automatically underwritten, as they are outside the acceptable “underwriting box”. To support our agents and our policyholders, we have local, experienced, and responsive underwriting and customer service personnel. Our timely responsiveness to our agents and the underwriting support we give them is an important component of our business philosophy. We consider our relationships with our agents to be excellent as a result.

We have long-standing relationships with a large number of successful and productive independent agents in Texas. Many of these relationships predate the founding of our company.

Competitive Weaknesses

We are a new company competing against larger, well-established companies. Most of our competitors and all of the large competitors that dominate the personal lines insurance market in Texas and elsewhere are well-recognized and respected brands, such as State Farm, Allstate, Farmers, Nationwide, Travelers, USAA, Liberty Mutual, and others. These companies are known to independent agents and consumers alike. These brands continue to advertise heavily on television and through other media, while we do not.

Most of our competitors, again all the large, well-known brands, have a satisfactory financial stability rating from A.B. Best of B+ or higher, whereas we are not rated by A.M. Best and must rely on our Demotech, Inc. rating to compete. This puts us in an inferior competitive position as A.M. Best is better known and more highly regarded among independent agents, lenders, and consumers. A Demotech, Inc. rated company is generally acceptable to lenders throughout the United States, but Demotech tends to be unknown to independent agents in many parts of the United States, especially those who market insurance products away from the Gulf and Atlantic coasts.

Unlike our established competitors we must rely heavily on reinsurers for financial support in order to achieve our revenue objectives. This reliance may adversely affect our ability to compete price-wise, should our reinsurance costs significantly increase.

Our larger competitors have the advantage of spreading their risks over a more diverse insurance product offering and broader geographical markets than we can. This can give them a competitive advantage through efficient allocation of risks and costs as well as reduced operating costs through economies of scale.

Further, the ability of our main competitors to be able to offer a number of consumer focused insurance products including private passenger automobile, personal liability umbrellas and even life, health as well as various commercial coverages and other financial services products while we offer only residential property coverage, appeals to consumers who prefer to consolidate their insurance solutions with a single supplier. Broader product offerings also make our competitors more appealing to independent agents.

Our Strategies

Our long-term strategy in the Houston metropolitan area is to increase the proportion of business we write there. We believe that hard-market conditions in that area present an unusual opportunity to write business with a greater profit potential. At the same time, we must also limit growth in Gulf Coast counties in order to avoid undue exposure to hurricane risks or uneconomical increases in our cost of reinsurance. We are exploring ways to utilize our MGA to take greater advantage of the existing Houston market. HAMGA is positioned to write business with unaffiliated insurers, which would allow us to generate fee income without the attendant underwriting risks.

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We will continue to manage our business through automated and non-automated selective underwriting processes and through creative pricing and product design. This allows us to attract and select the most potentially profitable segments of the market.

We will continue to take advantage of technological changes. As an example, with the help of our technology provider, IDMI, Inc., we are developing a “consumer portal”, which will enable consumers to make payments, view their policy information, and conduct other transactions through the internet. We are also developing, along with IDMI, a “direct business” portal, which would allow us to quote prices to potential customers shopping the internet. In Texas our intent is to use this means to drive new business to our agents. If and when we expand beyond Texas, we may also use this portal to do business directly with policyholders.

Corporate Information

Our principal executive offices are located at 1333 Corporate Drive, Suite 325, Irving, TX 75038 and our telephone number is (972) 607-4241. Our website address is www.hoaic.com. Information contained on our website or that can be accessed through our website does not constitute a part of this prospectus and is not incorporated herein by reference.

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The Offering

Common stock offered by the selling stockholders:		15,739,182 shares, including 14,839,182 shares of common stock issuable upon the conversion of our Series A Preferred Stock and Series B Preferred Stock, and the conversion of convertible promissory notes.

Common stock outstanding:		15,739,182 shares as of the effective date of the Registration Statement, excluding shares of common stock issuable upon exercise of outstanding warrants and stock options.

Trading market:		There is currently no market for our common stock and we can offer no assurances that a market for our shares of common stock will develop in the future. We intend to seek a qualification for our common stock to be quoted on the OTCBB; however, no assurance can be given as to our success in qualifying for quotation on the OTCBB.

Price per share:		If our common stock is quoted on the OTCBB, it will be sold at prevailing market prices or privately negotiated prices.

Use of proceeds:		We will not receive any of the proceeds from the sale or other disposition of the shares of common stock offered hereby.

Risk factors:		We are subject to a number of risks that you should be aware of before you decide to purchase our common stock. These risks are discussed more fully in the section captioned “Risk Factors,” beginning on page 6 of this prospectus.

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RISK FACTORS

An investment in our securities involves a high degree of risk and many uncertainties. You should carefully consider the specific factors listed below together with the other information included in this prospectus before purchasing our securities in this offering. If any of the possibilities described as risks below actually occurs, our operating results and financial condition would likely suffer and the trading price of our securities could fall, causing you to lose some or all of your investment in the securities we are offering. The following is a description of what we consider the key challenges and material risks to our business and an investment in our securities.

Risks Related to Our Business

Because our insurance subsidiary currently conducts business in only one state, any single catastrophic event or other condition affecting losses in that particular state could adversely affect our insurance subsidiary’s business, financial condition, and results of operations.

Our insurance subsidiary conducts business in only one state, the State of Texas. While our insurance subsidiary actively manages its exposure to catastrophic events through its underwriting process and the purchase of reinsurance, a single catastrophic event, destructive weather pattern, general economic trend, regulatory development or other condition specifically affecting the State of Texas could have a disproportionately adverse impact on our insurance subsidiary’s business, financial condition, and results of operations. In addition, the fact that our insurance subsidiary’s business is concentrated in the State of Texas subjects it to increased exposure to certain catastrophic events and destructive weather patterns such as severe thunderstorms, hurricanes, tropical storms, and floods. Changes in the prevailing regulatory, legal, economic, political, demographic, competitive, and other conditions in the State of Texas could also make it less attractive for our insurance subsidiary to do business in the State of Texas and would have a more pronounced effect on our insurance subsidiary than it would on other insurance companies that are more geographically diversified. Because our insurance subsidiary’s business is concentrated in this manner, the occurrence of one or more catastrophic events or other conditions affecting losses in the State of Texas could have an adverse effect on its business, financial condition, and results of operations.

Our results may fluctuate based on many factors including cyclical changes in the insurance industry.

The insurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity, as well as periods when shortages of capacity permitted an increase in pricing and, thus, more favorable underwriting profits. An increase in premium levels is often over time offset by an increasing supply of insurance capacity, either by capital provided by new entrants or by the commitment of additional capital by existing insurers, which may cause prices to decrease. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms and fewer opportunities to underwrite insurance risks, which could have a material adverse effect on our results of operations and cash flows. In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance business significantly. These factors may also cause the price of our common stock to be volatile.

We cannot predict whether market conditions will improve, remain constant or deteriorate. Negative market conditions may impair our ability to write insurance at rates that we consider appropriate relative to the risk assumed. If we cannot write insurance at appropriate rates, our ability to transact business would be materially and adversely affected.

Increased competition, competitive pressures, industry developments and market conditions could affect the growth of our business and adversely impact our financial results.

The property and casualty insurance industry is cyclical and, during times of increased capacity, highly competitive. We compete not only with other stock companies but also with mutual companies, other underwriting organizations and alternative risk sharing mechanisms. Our principal competitors cannot be easily classified. Our principal lines of business are written by numerous other insurance companies. Competition for any one account may come from very large, well-established national companies, smaller regional companies, other specialty insurers in our field, and other companies that write insurance only in Texas. Many of these competitors have greater financial resources, larger agency networks and greater name recognition than our company. We compete for business not only on the basis of price, but also on the basis of financial strength, types of coverages offered, availability of coverage desired by customers, commission structure and quality of service. We may have difficulty continuing to compete successfully on any of these bases in the future. Competitive pressures coupled with market conditions may affect our rate of premium growth and financial results.

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Our ability to compete in the property and casualty insurance industry and our ability to expand our business may be negatively affected by the fact that we are not rated by A.M. Best. We are Rated by Demotech, Inc. Mortgage companies and independent agents operating in the state of Texas generally accept a Demotech rating. However, in some states, mortgage companies require homeowners to obtain property insurance from an insurance company with a certain minimum A.M. Best rating. Further, some independent agents are reluctant to do business with a company that is not rated by A.M. Best. As a result, the minimum A.M. Best rating requirement may prevent us from expanding our business into other states or into certain independent agencies, which may in turn limit our ability to compete with large, national insurance companies and certain regional insurance companies.

In addition, industry developments could further increase competition in our industry. These developments could include:

an influx of new capital in the marketplace as existing companies attempt to expand their businesses and new companies attempt to enter the insurance business as a result of better pricing and/or terms;

programs in which state-sponsored entities provide property insurance in catastrophe-prone areas or other alternative markets types of coverage;

changing practices caused by the Internet, which has led to greater competition in the insurance business;

changes in Texas’ regulatory climate; and

the passage of federal proposals for an optional federal charter that would allow some competing insurers to operate under regulations different or less stringent than those applicable to our insurance subsidiary.

These developments and others could make the property and casualty insurance marketplace more competitive by increasing the supply of insurance available.

If competition limits our ability to write new business at adequate rates, our future results of operations would be adversely affected.

If our actual losses from insured claims exceed our loss reserves, our financial results would be adversely affected.

We record reserves for specific claims incurred and reported and reserves for claims incurred but not reported. The estimates of losses for reported claims are established judgmentally on an individual case basis. Such estimates are based on our particular experience with the type of risk involved and our knowledge of the circumstances surrounding each individual claim. Reserves for reported claims consider our estimate of the ultimate cost to settle the claim, including investigation and defense of the claim, and may be adjusted for differences between costs originally estimated and costs re-estimated or incurred. Reserves for incurred but not reported claims are based on the estimated ultimate cost of settling claims, including the effects of inflation and other social and economic factors, using past experience adjusted for current trends and any other factors that would modify past experience. We use a variety of statistical and actuarial techniques to analyze current claim costs, frequency and severity data, and prevailing economic, social and legal factors. While management believes that amounts included in the consolidated financial statements are adequate, there can be no assurance that future changes in loss development, favorable or unfavorable, will not occur. The estimates are periodically reviewed and any changes are reflected in current operations.

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Our objective is to set reserves that are adequate and represent management’s best estimate; that is, the amounts originally recorded as reserves should at least equal the ultimate cost to investigate and settle claims. However, the process of establishing adequate reserves is inherently uncertain, and the ultimate cost of a claim may vary materially from the amounts reserved. We regularly monitor and evaluate loss and loss adjustment expense reserve development to verify reserve adequacy. Any adjustment to reserves is reflected in underwriting results for the accounting period in which the adjustment is made.

Due to the uncertainties discussed above, the ultimate losses may vary materially from current loss reserves which could have a material adverse effect on our future financial condition, results of operations and cash flows. To date, loss reserves have been adequate to cover losses incurred, including losses incurred but not reported. We have had no difficulty in establishing and maintaining adequate reserves for losses.

The effects of emerging claim and coverage issues on our business are uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until some time after we have issued insurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued and renewed, and our financial position and results of operations may be adversely affected.

If we are unable to expand our business because our capital must be used to pay greater than anticipated claims, our financial results may suffer.

Our future growth will depend on our ability to expand the number of insurance policies we write in Texas, to expand the kinds of insurance products we offer, and to expand the geographic markets in which we do business, all balanced by the business risks we choose to assume and cede. Unexpected catastrophic events in our market areas, such as the severe thunderstorms experienced in Texas in recent years, may result in greater claims losses than anticipated, which could require us to limit or halt our growth while we redeploy our capital to pay these unanticipated claims unless we are able to raise additional capital.

We may require additional capital in the future which may not be available or may only be available on unfavorable terms.

Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. To the extent that our present capital is insufficient to meet future operating requirements or to cover losses, we may need to raise additional funds through financings or curtail our growth. Based on our current operating plan, we believe current capital together with our anticipated retained earnings will support our operations without the need to raise additional capital. However, we cannot provide any assurance in that regard, since many factors will affect our capital needs and their amount and timing, including our growth, profitability, and the availability of reinsurance, as well as possible acquisition opportunities, market disruptions and other unforeseeable developments. If we had to raise additional capital, equity or debt financing may not be available at all or may be available only on terms that are not favorable to us. In the case of equity financings, dilution to our stockholders could result, and in any case such securities may have rights, preferences and privileges that are senior to those of existing stockholders. If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition or results of operations could be materially adversely affected. At present we have adequate capital to meet current levels of new business production and anticipated growth within the markets we serve and the products we offer. However, additional capital may be needed if we decide to expand operations into additional states or if we decide to immediately and significantly reduce our need for and reliance on reinsurance.

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Our financial results may be negatively affected by the fact that a portion of our income is generated by the investment of our company’s capital and surplus, premiums and loss reserves.

A portion of our income is, and likely will continue to be, generated by the investment of our company’s capital and surplus, premiums and loss reserves. The amount of income so generated is a function of our investment policy, available investment opportunities, and the amount of capital and surplus, premium and loss reserves invested. As we continue to grow and to deploy our capital, the proportion of income invested will decrease, and investment income will make up a smaller percentage of our net revenue. Currently, all of our capital is invested in money market funds or in bank deposits (i.e., certificates of deposit) that mature in no more than eighteen months. Fluctuating interest rates and other economic factors make it impossible to estimate accurately the amount of investment income that will be realized. In fact, we may realize losses on our investments.

We have exposure to unpredictable catastrophes, which can materially and adversely affect our financial results.

We write insurance policies that cover homeowners, condominium owners, and tenants for losses that result from, among other things, catastrophes. We are therefore subject to claims arising out of catastrophes that may have a significant effect on our business, results of operations, and/or financial condition. Catastrophes can be caused by various events, including hurricanes, tropical storms, tornadoes, windstorms, earthquakes, hailstorms, explosions, power outages, fires and by man-made events, such as terrorist attacks. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event, the type of catastrophe and the severity of the event. Our policyholders are currently concentrated in Texas, which is especially subject to adverse weather conditions such as severe thunderstorms, hurricanes and tropical storms. Insurance companies are not permitted to reserve for catastrophes until such event takes place. Therefore, although we attempt to manage our exposure to catastrophes through our underwriting process and the purchase of reinsurance protection, an especially severe catastrophe or series of catastrophes could exceed our reinsurance protection and may have a material adverse impact on our results of operations and financial condition. See the risk factor below entitled “Although we follow the industry practice of reinsuring a portion of our risks, our costs of obtaining reinsurance may increase and we may not be able to successfully alleviate risk through reinsurance arrangements” for a discussion of our reinsurance coverage.

Industry trends, such as increased litigation against the insurance industry and individual insurers, the willingness of courts to expand covered causes of loss, rising jury awards, and the escalation of loss severity may contribute to increased costs and to the deterioration of the reserves of our insurance subsidiary.

Litigation against property and casualty insurance insurers in Texas has increased in recent years. The propensity of policyholders and third party claimants to litigate and the willingness of courts to expand causes of loss and the size of awards may render the loss reserves of our insurance subsidiary inadequate for current and future losses.

Although we follow the industry practice of reinsuring a portion of our risks we may not be able to successfully alleviate risk through reinsurance arrangements.

Reinsurance is the practice of transferring part of an insurance company’s liability and premium under an insurance policy to another insurance company. We use reinsurance arrangements to limit and manage the amount of risk we retain, to stabilize our underwriting results and to increase our underwriting capacity. Our reinsurance structure is comprised of numerous reinsurance companies with varying levels of participation providing coverage for loss and loss adjustment expense, or LAE, at pre-established minimum and maximum amounts. In accordance with our minimum requirements, our amount of reinsurance coverage is determined by subjecting our homeowner exposures to statistical forecasting models that are designed to quantify a catastrophic event in terms of the amount of our probable maximum loss from a storm of severity that occurs once in every 100 years or greater. Our amount of losses retained (our deductible) in connection with a catastrophic event is determined by market capacity, pricing conditions and surplus preservation. Losses incurred in connection with a catastrophic event below the minimum and above the maximum are the responsibility of our insurance subsidiary. For the 2012-2013 treaty period, we retain an aggregate of $300,000 in loss and LAE for each of the first two catastrophic events. We have purchased reinsurance treaties to insure our insurance subsidiary to the standard which consists of first and second event coverage greater than the 1- in -100 year level, as required by us. We purchased coverage totaling $65 million of aggregate loss and LAE. Single catastrophe losses and LAE exceeding $65 million are our responsibility. For the 2013 – 2014 treaty period, which began on April 1, 2013, we retain an aggregate of $400,000 in loss and LAE for each of the first two catastrophic events. We have purchased reinsurance treaties to insure our insurance subsidiary to the standard which consists of first and second event coverage greater than 1-in 100 year level, as required by us. We purchased coverage totaling $80.0 million of aggregate loss and LAE. Single catastrophe losses and LAE exceeding $80.0 million are our responsibility.

Although we follow the industry practice of reinsuring a portion of our risk through various types of reinsurance programs, including quota share, excess of loss and catastrophe excess of loss, we may not be able to successfully alleviate risk through such reinsurance arrangements. The pricing for these types of reinsurance is based on both on the experience of HAIC’s book of business as well as the overall experience of the global property and casualty insurance industry. The cost of the quota share reinsurance is reflected in the amount of the ceding commission allowance reinsurers pay HAIC of the production of the business. Should the allowance offered to HAIC by reinsurers not reflect the actual cost of producing the business, this would create a risk to the current business model and adversely affect the business. Both types of excess of loss reinsurance used by HAIC allows the sharing of losses on both a per risk and per occurrence basis, allowing HAIC to underwrite larger amounts of business than it would be able to, without this coverage. Reinsurers charge for this type of coverage by taking a percentage of the premium earned on each policy included in the program. The rising cost of this type of coverage, which could limit HAIC’s ability to obtain adequate levels of coverage could limit HAIC’s ability to write policies with certain risk limits and or limit its ability to take on additional business over concerns of risk concentration. Both instances would mean a reduction in business volume and would adversely affect the operating results of the company.

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We face a risk of non-availability of reinsurance, which could materially and adversely affect our ability to write business and our results of operations and financial condition.

Market conditions beyond our control, such as the amount of capital in the reinsurance market and natural and man-made catastrophes, determine the availability and cost of the reinsurance protection we purchase. We cannot be assured that reinsurance will remain continuously available to the same extent and on the same terms and rates as are currently available. If we are unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that are considered sufficient, we may have to accept an increase in our net exposures and we may have to reduce our insurance writings. Either of these potential developments could have a material adverse effect on our financial position, results of operations and cash flows.

We face a risk of non-collectability of reinsurance, which could materially and adversely affect our business, results of operations and/or financial condition.

As is common practice within the insurance industry, we transfer a portion of the risks insured under our policies to other companies through the purchase of reinsurance. This reinsurance is maintained to protect our insurance subsidiary against the severity of losses on individual claims, unusually serious occurrences in which a number of claims produce an aggregate extraordinary loss and catastrophic events. Although reinsurance does not discharge our insurance subsidiary from its primary obligation to pay for losses insured under the policies it issues, reinsurance does make the assuming reinsurer liable to the insurance subsidiary for the reinsured portion of the risk. A credit exposure exists with respect to ceded losses to the extent that any reinsurer is unable or unwilling to meet the obligations assumed under the reinsurance contracts. The collectability of reinsurance is subject to the solvency of the reinsurers, interpretation of contract language and other factors. We are selective with regard to our reinsurers, placing reinsurance with those reinsurers with strong financial strength ratings from A.M. Best, Standard & Poor’s, or a combination thereof, although the financial condition of a reinsurer may change based on market conditions. We perform credit reviews on our reinsurers, focusing on, among other things, financial condition, stability, trends and commitment to the reinsurance business. We may require assets in trust, letters of credit or other acceptable collateral to support balances due from reinsurers not authorized to transact business in the applicable jurisdictions. It has not always been standard business practice to require security for balances due; therefore, certain balances are not collateralized. A reinsurer’s insolvency or inability to make payments under the terms of a reinsurance contract could have a material adverse effect on our results of operations and financial condition.

The failure of the risk mitigation strategies we utilize could have a material adverse effect on our financial condition or results of operations.

We utilize a number of strategies to mitigate our risk exposure including:

engaging in vigorous underwriting;

carefully evaluating terms and conditions of our policies;

focusing on our risk aggregations by geographic zones, credit exposure and other bases; and

ceding insurance risk to reinsurance companies.

However, there are inherent limitations in all of these tactics. No assurance can be given that an event or series of unanticipated events will not result in loss levels which could have a material adverse effect on our financial condition or results of operations.

The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or our results of operations.

Various provisions of our policies, such as limitations or exclusions from coverage which have been negotiated to limit our risks, may not be enforceable in the manner we intend. At the present time, we employ a variety of endorsements to our policies that limit exposure to known risks, including but not limited to weather exclusions relating to homes in close proximity to the coast line.

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While our insurance product exclusions and limitations reduce the loss exposure to us and help eliminate known exposures to certain risks, it is possible that a court or regulatory authority could nullify or void an exclusion or legislation could be enacted modifying or barring the use of such endorsements and limitations in a way that would adversely effect our loss experience, which could have a material adverse effect on our financial condition or results of operations.

We may be unable to attract and retain qualified employees.

We depend on our ability to attract and retain experienced underwriting talent and other skilled employees who are knowledgeable about our business. If the quality of our underwriters and other personnel decreases, we may be unable to maintain our current competitive position in the specialized markets in which we operate and be unable to expand our operations, which could adversely affect our results.

Because we have relatively few employees, the loss of, or failure to attract, key personnel could also significantly impede the financial plans, growth, marketing and other objectives of our insurance subsidiary. Our insurance subsidiary’s success depends to a substantial extent on the ability and experience of the members of its senior management team. Our insurance subsidiary believes that its ability to grow and future success will depend in large part on its ability to attract and retain additional skilled and qualified personnel and to expand, train and manage its employees. Our insurance subsidiary may not be successful in doing so, because the competition for experienced personnel in the insurance industry is intense. We have employment agreements with some but not all key personnel.

To date we have had no difficulty attracting qualified personnel to support our operations. None of our personnel have indicated that they will resign or retire.

Our information technology systems may fail or suffer a loss of security which could adversely affect our business.

Our business is highly dependent upon the successful and uninterrupted functioning of our computer and data processing systems. We rely on these systems to perform actuarial and other modeling functions necessary for writing business, as well as to handle our policy administration process (i.e., quoting and issuing our policies, billing and applying payments, the printing and mailing of our policies, endorsements, renewal notices, etc). The failure of these systems could interrupt our operations. This could result in a material adverse effect on our business results.

The development and expansion of our business is dependent upon the successful development and implementation of advanced computer and data processing systems. The failure of these systems to function as planned could slow our growth and adversely affect our future business volume and results of operations. We license the software used in our policy administration process (PTS) from a third party, IDMI, Inc. IDMI also maintains PTS. In addition, we outsource the hosting and operating of our policy administration system with another third party, Primoris, Inc. Primoris Services, L.L.C., an affiliate of IDMI, hosts PTS on its servers located in Warner Robbins, GA, with a mirror processor hosting both system and policy records in Atlanta, GA. Through this “mirror processing environment” the Company has established a data security protocol which provides instant “off-site” back-up of both its operating software and data. In addition, the Company has offsite storage of the IDMI operating software with Iron Mountain Intellectual Property Management, Inc.

The Company’s insurance subsidiary is highly dependent on the successful and uninterrupted functioning of its computer systems. We rely on these systems to quote and underwrite our business, bill premium and issue policies to customers as well as provide financial data. The failure of the system through natural disaster and or power outages could disrupt our operations and could result in a material adverse effect on our business. The Company has addressed this risk through the establishment of back up facilities for data and source code built to DOD anti-terrorism force protection codes, at one of the most physically secure commercial data centers in the country. The Company will enhance its backup / data recovery capabilities by bringing on-line the mirror processing systems.

The license and maintenance agreement with IDMI may be terminated by us with 45 days written notice or by IDMI in the event of a material breach of the agreement (such as non-payment) by us. If termination of the IDMI agreement occurs, we may be required to spend significant capital and other resources to purchase and implement PTS or a replacement software system, and to staff and support the technologists that would be needed to maintain and operate our processing system. Alternatively, we could outsource our policy administration process with another third party, which would also require significant expenditures.

The hosting and operating agreement with Primoris may be terminated by us with 90 days written notice or by Primoris in the event of a material breach by us of the agreement. If termination of this agreement occurs, we may be required to spend significant capital and other resources to purchase and implement the hardware needed to host and operate PTS, and possibly to staff and support the technologists that would be needed to maintain and operate our processing system. Alternatively, we could outsource our PTS hosting and operating functions with another third party, which could also require significant expenditures.

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Any failure on the part of a third party to properly maintain our policy administration system (PTS), or to host and operate PTS could lead to material litigation, undermine our reputation in the marketplace, impair our image and negatively affect our financial results.

In addition, a security breach of our computer systems could damage our reputation or result in liability. We retain confidential information regarding our business dealings in our computer systems. We may be required to spend significant capital and other resources to protect against security breaches or to alleviate problems caused by such breaches. It is critical that these facilities and infrastructure remain secure. Despite the implementation of security measures, this infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. In addition, we could be subject to liability if hackers were able to penetrate our network security or otherwise misappropriate confidential information.

We rely on independent agents to write our insurance policies, and if we are not able to attract and retain independent agents, our revenues would be negatively affected.

We write insurance policies through approximately 800 independent agents in Texas, some of whom write a significant amount of business with us. We rely on these independent agents as the only source for our property insurance policies.

Many of our competitors also rely on independent agents. As a result, we must compete with other insurers for independent agents’ business. Our competitors may offer a greater variety of insurance products, lower premiums for insurance coverage, or higher commissions to their agents. If our products, pricing and commissions do not remain competitive, we may find it more difficult to attract business from independent agents to sell our products. A material reduction in the amount of our products that independent agents sell would negatively affect our revenues. To date we have not experienced difficulty attracting new independent agents to support our new business and growth objectives.

We are only rated by Demotech, Inc. and do not have a rating from A.M. Best. The Demotech rating alone may not be sufficient to allow us to expand into parts of the United States where Demotech is not as well known or as widely used.

We are not rated by A.M. Best, although we are rated “A, Excellent” by Demotech, Inc. We have never been reviewed by A.M. Best and do not intend to seek a rating from A.M. Best until we believe we can secure a minimum rating of B+, that being the minimum accepted by most lenders as well as many independent agents. Our analysis, applying known A.M. Best rating criteria, shows that we will need additional capital before we can qualify for an acceptable A.M. Best rating. Unlike Demotech, A.M. Best tends to penalize companies that are highly leveraged, i.e. that utilize reinsurance to support premium writings. HAIC has a gross premium to capital ratio of approximately 7.6 to 1, although our net premium to capital ratio is less than 1-to-1. We would need to reduce our gross ratio to approximately 2-to-1, either by increasing capital (the denominator) or decreasing premium writings (the numerator). Capital is expected to grow over time, but in order to achieve our premium revenue objectives and maintain size efficiency, we must continue to rely on reinsurers to ameliorate risks and provide financial support. In summary, we do not plan to give up revenues or efficiency of size as a means to qualify for an acceptable A.M. Best rating. Our Demotech rating has proved satisfactory to date in attracting an acceptable amount of business from independent agent and satisfies lenders as to our financial stability.

A rating by A.M Best is more widely accepted by lenders, independent agents and consumers than a Demotech rating. A.M. Best has been the rating standard relied upon to rate insurance companies in the United States for many years. The Demotech rating alone may not be sufficient to allow us to expand into parts of the United States where Demotech is not as well known or as widely used. However, Demotech’s rating has been sufficient in Texas and we expect it to be sufficient in expansion states that the Company has under study.

Our success depends on our ability to accurately price the risks we underwrite.

The results of our operations and the financial condition of our insurance subsidiary depend on our ability to underwrite and set premium rates accurately for a wide variety of risks. Rate adequacy is necessary to generate sufficient premiums to pay losses, LAE and underwriting expenses and to earn a profit. In order to price our products accurately, we must collect and properly analyze a substantial amount of data; develop, test and apply appropriate rating formulas; closely monitor and timely recognize changes in trends; and project both severity and frequency of losses with reasonable accuracy. Our ability to undertake these efforts successfully, and as a result price our products accurately, is subject to a number of risks and uncertainties, some of which are outside our control, including:

the availability of sufficient reliable data and our ability to properly analyze available data;

the uncertainties that inherently characterize estimates and assumptions;

our selection and application of appropriate rating and pricing techniques;

changes in legal standards, claim settlement practices, and restoration costs; and

legislatively imposed consumer initiatives.

A failure to adequately price risks will negatively affect future underwriting profits. We could also overprice risks, which could reduce our sales volume and competitiveness. In either event, the profitability of our insurance subsidiary could be materially and adversely affected.

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We will incur additional costs as a result of being a public company, which could reduce our profits.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in the corporate governance practices of public companies, including rules requiring public companies to include a report of management on the company’s internal control over financial reporting in their annual reports on Form 10-K. Compliance with these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs, which could increase our operating costs and reduce our profits.

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act which allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

We are an emerging growth company as defined in the JOBS Act, and will continue to be an emerging growth company until: (i) the last day of our fiscal year following the fifth anniversary of this prospectus, (ii) the date on which we become a large accelerated filer, or (iii) the date on which we have issued an aggregate of $1 billion in non-convertible debt during the preceding 3 years. As an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

Risks Related to Regulation of our Insurance Operations

As an insurance holding company, we are currently subject to regulation by the State of Texas and in the future may become subject to regulation by certain other states or a federal regulator.

All states regulate insurance holding company systems. State statutes and administrative rules generally require each insurance company in the holding company group to register with the department of insurance in its state of domicile and to furnish information concerning the operations of the companies within the holding company system which may materially affect the operations, management or financial condition of the insurers within the group. As part of its registration, each insurance company must identify material agreements, relationships and transactions with affiliates, including without limitation loans, investments, asset transfers, transactions outside of the ordinary course of business, certain management, service, and cost sharing agreements, reinsurance transactions, dividends, and consolidated tax allocation agreements.

Insurance holding company regulations generally provide that transactions between an insurance company and its affiliates must be fair and equitable, allocated between the parties in accordance with customary accounting practices, and fully disclosed in the records of the respective parties. Many types of transactions between an insurance company and its affiliates, such as transfers of assets among such affiliated companies, certain dividend payments from insurance subsidiaries and certain material transactions between companies within the system, may be subject to prior notice to, or prior approval by, state regulatory authorities. If we are unable to obtain the requisite prior approval for a specific transaction, we would be precluded from taking the action which could adversely affect our operations.

Our insurance subsidiary currently operates only in the State of Texas. In the future, our insurance subsidiary may become authorized to transact business in other states and therefore will become subject to the laws and regulatory requirements of those states. These regulations may vary from state to state, and states occasionally may have conflicting regulations. Currently, the federal government’s role in regulating or dictating the policies of insurance companies is limited. However, Congress, from time to time, considers proposals that would increase the role of the federal government in insurance regulation, either in addition to or in lieu of state regulation. The impact of any future federal insurance regulation on our insurance operations is unclear and may adversely impact our business or competitive position.

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Our insurance subsidiary is subject to extensive regulation which may reduce our profitability or inhibit our growth. Moreover, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.

The insurance industry is highly regulated and supervised. Our insurance subsidiary is subject to the supervision and regulation of the state in which it is domiciled (Texas) and the state(s) in which it does business (currently only Texas). Such supervision and regulation is primarily designed to protect our policyholders rather than our stockholders. These regulations are generally administered by a department of insurance in each state and relate to, among other things:

the content and timing of required notices and other policyholder information;

the amount of premiums the insurer may write in relation to its surplus;

the amount and nature of reinsurance a company is required to purchase;

participation in guaranty funds and other statutorily-created markets or organizations;

business operations and claims practices;

approval of policy forms and premium rates;

standards of solvency, including risk-based capital measurements;

licensing of insurers and their products;

restrictions on the nature, quality and concentration of investments;

restrictions on the ability of our insurance company subsidiary to pay dividends to us;

restrictions on transactions between insurance company subsidiaries and their affiliates;

restrictions on the size of risks insurable under a single policy;

requiring deposits for the benefit of policyholders;

requiring certain methods of accounting;

periodic examinations of our operations and finances;

prescribing the form and content of records of financial condition required to be filed; and

requiring reserves as required by statutory accounting rules.

The Texas Department of Insurance and regulators in other jurisdictions where our insurance subsidiary may become licensed conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial condition, holding company issues and other matters. These regulatory requirements may adversely affect or inhibit our ability to achieve some or all of our business objectives. These regulatory authorities also conduct periodic examinations into insurers’ business practices. These reviews may reveal deficiencies in our insurance operations or differences between our interpretations of regulatory requirements and those of the regulators.

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In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us. This could adversely affect our ability to operate our business.

The Company's insurance subsidiary, HAIC is not currently subject to any regulatory investigations or settlements.

Finally, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could adversely affect our ability to operate our business.

Changes in regulation may reduce our profitability and limit our growth.

We are subject to extensive regulation in the state in which we conduct business (currently only Texas). This regulation is generally designed to protect the interests of policyholders, as opposed to stockholders and other investors in the insurance company or its affiliates, and relates to authorization for lines of business, capital and surplus requirements, investment limitations, underwriting limitations, transactions with affiliates, dividend limitations, trade practices and claims practices, participation in guaranty funds and other statutorily-created markets or organizations, changes in control, premium rates and a variety of other financial and non-financial components of an insurance company’s business. The National Association of Insurance Commissioners (“NAIC”) and state insurance regulators are constantly reexamining existing laws and regulations, generally focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws.

From time to time, states consider and/or enact laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. States also consider and/or enact laws that impact the competitive environment and marketplace for property and casualty insurance. Texas lawmakers may enact legislation that reduces our profitability, limits our growth, or otherwise adversely affects our operations.

During the past several years, various regulatory and legislative bodies have adopted or proposed new laws or regulations to address the cyclical nature of the insurance industry, catastrophic events and insurance capacity and pricing. These regulations include (i) the creation of “market assistance plans” under which insurers are induced to provide certain coverages, (ii) restrictions on the ability of insurers to rescind or otherwise cancel certain policies in mid-term or to nonrenew policies at their scheduled expirations, (iii) advance notice requirements or limitations imposed for certain policy non-renewals, (iv) limitations upon or decreases in rates permitted to be charged, (v) expansion of governmental involvement in the insurance market, and (vi) increased regulation of insurers’ policy administration and claims handling practices.

Currently, the federal government does not directly regulate the insurance business. However, in recent years the state insurance regulatory framework has come under increased federal scrutiny. Congress and some federal agencies from time to time investigate the current condition of insurance regulation in the United States to determine whether to impose federal regulation or to allow an optional federal charter, similar to banks. In addition, changes in federal legislation and administrative policies in several areas, including changes in the Gramm-Leach-Bliley Act, financial services regulation and federal taxation, can significantly impact the insurance industry and us.

We cannot predict with certainty the effect any enacted, proposed or future state or federal legislation or NAIC initiatives may have on the conduct of our business. Furthermore, there can be no assurance that the regulatory requirements applicable to our business will not become more stringent in the future or result in materially higher costs than current requirements, or that creation of a federal insurance regulatory system will not adversely affect our business or disproportionately benefit our competitors. Changes in the regulation of our business may reduce our profitability, limit our growth or otherwise adversely affect our operations.

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Our insurance subsidiary is subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to regulatory action.

Our insurance subsidiary is subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws, including the laws of Texas. The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the NAIC, require our insurance subsidiary to report its results of risk-based capital calculations to state departments of insurance and the NAIC. These risk-based capital standards provide for different levels of regulatory attention depending upon the ratio of an insurance company’s total adjusted capital, as calculated in accordance with NAIC guidelines, to its authorized control level risk-based capital. Authorized control level risk-based capital is the number determined by applying the NAIC’s risk-based capital formula, which measures the minimum amount of capital that an insurance company needs to support its overall business operations.

Since beginning operations in 2006 the Company has not been dependent on the receipt of dividends from its operating subsidiaries to pay dividends to its stockholders. Neither HAIC, the Company’s insurance subsidiary nor HAMGA paid any dividend through December 31, 2011. The Company was able to finance its operations and maintain the statutory required capital of its insurance subsidiary from its original organizational financing and the small amount of interest income earned on invested assets. This was possible through careful expense management by the Company and through very limited debt obligations (primarily for the purchase of its policy maintenance system), which was serviced through the operations of its insurance subsidiary. In 2012, HAMGA paid two dividends to the Company totaling $800,000. These funds were used to increase the capital of the Company’s insurance subsidiary by $500,000 and to finance the expenses of the stock registration project.

In addition, our insurance subsidiary is required to maintain certain minimum capital and surplus and to limit its net written premiums (direct premiums net of reinsurance premiums) to specified multiples of its capital and surplus. The insurance subsidiary could exceed these ratios if its volume increases faster than anticipated, if it cannot purchase adequate reinsurance, or if its surplus declines due to catastrophe or non-catastrophe losses or excessive underwriting and operational expenses.

Any failure by our insurance subsidiary to meet the applicable risk-based capital or minimum statutory capital requirements or the writings ratio limitations imposed by the laws of Texas (or other states where we may eventually conduct business) could subject it to further examination or corrective action imposed by state regulators, including limitations on our writing of additional business, state supervision or liquidation.

Any changes in existing risk-based capital requirements, minimum statutory capital requirements, or applicable writings ratios may require us to increase our statutory capital levels, which we may be unable to do.

Our status as an insurance holding company could adversely affect our ability to meet our obligations and pay dividends.

As an insurance holding company, we are in part dependent on dividends and other permitted payments from our insurance subsidiary to pay any cash dividends to our stockholders, to service debt and for our operating capital. The ability of our insurance subsidiary to pay dividends to us is subject to certain restrictions imposed under Texas insurance law. Business and regulatory considerations may impact the amount of dividends actually paid, and prior approval of dividend payments may be required.

Risks Related to an Investment in Our Securities

There has been no established public trading market for our securities and your investment may be illiquid for an indefinite amount of time.

Prior to this offering, there has been no public market for our securities. There can be no assurance that an active, public trading market will ever develop even if we are successful with this offering. The market price of the securities is subject to significant fluctuation in response to variations in quarterly and annual operating results, general trends in our company’s industry, actions taken by competitors, the overall performance of the stock market, and other factors.

The offering may result in a dilution of your interests in our Company.

Our Amended and Restated Articles of Incorporation as effective upon the effective date of this Registration Statement authorize the issuance of up to 65,500,000 shares of stock, 0.0001 par value, consisting of 40,000,000 shares of common stock and 20,500,000 shares of preferred stock. After the effective date of this Registration Statement and the conversion of Series A Preferred Stock, Series B Preferred Stock and the convertible promissory notes, we will have a maximum of approximately 24,260,818 authorized but un-issued shares of common stock and 20,500,000 authorized but un-issued shares of preferred stock available for issuance to stockholders. Our Board of Directors in a variety of circumstances may, subject to applicable securities laws, decide to issue additional shares up to the amounts authorized in our Articles of Incorporation. Existing stockholders who are unwilling or ineligible to purchase subsequently offered shares may experience a dilution of their interests in our company.

If our common stock is subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.

Unless our securities are listed on a national securities exchange, or we have net tangible assets of $5.0 million or more and our common stock has a market price per share of $5.00 or more, transactions in our common stock will be subject to the SEC’s “penny stock” rules. If our common stock remains subject to the “penny stock” rules promulgated under the Exchange Act, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must: make a special written suitability determination for the purchaser; receive the purchaser’s written agreement to the transaction prior to sale; provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these "penny stocks" as well as a purchaser’s legal remedies; and obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a "penny stock" can be completed. As a result, if our common stock becomes subject to the penny stock rules, the market price of our securities may be depressed, and you may find it more difficult to sell shares of our common stock.

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We have never paid dividends on our common stock and do not anticipate paying dividends on our common stock for the foreseeable future; therefore, returns on your investment may only be realized by the appreciation in value of our securities.

We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We plan to retain any future earnings to finance growth. Because of this, investors who purchase common stock may only realize a return on their investment if the value of our common stock appreciates. If we determine that we will pay dividends to the holders of our common stock, there is no assurance or guarantee that such dividends will be paid on a timely basis.

In addition, the declaration and payment of dividends will be at the discretion of our Board of Directors and will be dependent upon the profits and financial requirements of our company and other factors, including legal and regulatory restrictions on the payment of dividends, general business conditions and such other factors as our Board of Directors deems relevant.

Future issuances or sales, or the potential for future issuances or sales, of shares of our common stock may cause the trading price of our securities to decline and could impair our ability to raise capital through subsequent equity offerings.

Future sales of a substantial number of shares of our common stock or other securities in the public markets, or the perception that these sales may occur, could cause the market price of our common stock to decline, and could materially impair our ability to raise capital through the sale of additional securities. In addition, there are outstanding options to purchase 313,500 shares of our common stock. Actual sales, or the prospect of sales by our present stockholders, may have a negative effect on the market price of our common stock.

Provisions in our Amended and Restated Certificate of Incorporation, as effective upon the effective date of this Registration Statement, may restrict the voting rights of our stock and may restrict the transferability of our stock.

Our Amended and Restated Certificate of Incorporation, as effective upon the effective date of this Registration Statement, generally provide that if any person owns, directly, indirectly or by attribution, more than 9.9% of the total combined voting power of our stock entitled to vote, the voting rights attached to such stock will be reduced so that such person may not exercise and is not attributed more than 9.9% of the total combined voting power. In addition, our board of directors may limit a stockholder’s exercise of voting rights where it deems it necessary to do so to avoid non-de minimis adverse tax, legal or regulatory consequences to us, any of our subsidiaries or any of our stockholders.

Under our Amended and Restated Certificate of Incorporation, as effective upon the effective date of this Registration Statement, subject to waiver by our board of directors, no transfer of our stock is permitted if such transfer would result in a stockholder controlling more than 9.9% determined by value or by voting power of our outstanding stock. Our Amended and Restated Certificate of Incorporation, as effective upon the effective date of this Registration Statement, also provide that if our board of directors determines that stock ownership by a person may result in (i) stockholder owning directly, indirectly or by retribution, more than 9.9% of the total combined voting power of our stock entitled to vote, or (ii) any non-de minimis adverse tax, legal or regulatory consequences to us, any of our subsidiaries or any of our stockholders, then we have the option, but not the obligation, to require that stockholder to sell to us for fair market value the minimum number of shares of stock held by such person which is necessary so that after such purchase such stockholder will not own more than 9.9% of the total combined voting power, or is necessary to eliminate the non-de minimis adverse tax, legal or regulatory consequences.

Delaware law may discourage takeover attempts and may result in entrenchment of management.

Our certificate of incorporation, bylaws, and Delaware law contain provisions which could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions; - authorizing "blank check" preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock; - limiting the liability of, and providing indemnification to, our directors and officers; - limiting the ability of our stockholders to call and bring business before special meetings; - controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and - providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock. Any provision of our certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

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USE OF PROCEEDS

We will not receive any of the proceeds from the sale or other disposition of the shares of common stock offered hereby.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the foreseeable future. Any cash that might be available for payment of dividends will be used to expand our business. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant to our board of directors.

The holders of both our Series A and Series B Preferred Stock are entitled to receive dividends prior to and in preference to any declaration or payment of any dividends on our common stock. Dividends accrue at the rate of 12.5% from the issue date of the preferred stock, which was November 11, 2005. The dividend accrues from day to day, whether or not earned or declared and shall be cumulative and compounded annually. As specified by the vote or written consent at any time of at least 66 2/3% of the outstanding shares of each series of preferred stock, shares are convertible into fully paid non-assessable shares of common stock at a price to be determined by dividing one dollar ($1) by the original issue price of the preferred stock.

In addition, the two holders of Convertible Promissory Notes issued by the Company, dated December 26, 2013, have the right to convert their notes into Series A Preferred Stock at the rate of $1.00 (principal plus accrued interest) to 0.9090 shares on any day after the issue date of the Convertible Promissory Note. Upon conversion, the newly issued Series A Preferred Stock accrues dividends at the same rate from the original issue date of existing Series A Preferred Shares (November 11, 2006).

As of the effective date of this Registration Statement all accrued dividend on our Series A and Series B Preferred Stock and Convertible Promissory Notes will have been distributed and all preferred stock distributed as dividend will have been converted into an aggregate of 14,839,132 shares of common stock.

DETERMINATION OF OFFERING PRICE

The offering price of $0.50 was determined on the basis of the exercise price per share of our last issued stock options. If our common stock becomes quoted on the OTCBB, the selling stockholders will sell their shares of our common stock at prevailing market prices or privately negotiated prices. There is currently no public market for our common stock. Although we intend to seek a qualification for our common stock to be quoted on the OTCBB; no assurance can be given as to our success in qualifying for quotation on the OTCBB.

DILUTION

The common stock to be sold by the selling stockholders is common stock that is issued and outstanding. Accordingly, there will be no dilution to our existing stockholders.

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CAPITALIZATION

The table below sets forth our cash, cash equivalents and capitalization on an unaudited basis as of March 31, 2013 on an actual basis. You should read this table together with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

	As of March 31,
	2013
	(unaudited)
	Actual
Cash and cash equivalents	$	1,430,735

Stockholders’ equity

Preferred stock, convertible; 12.5% cumulative; $0.0001 value per share;
Series A 4,500,000 shares authorized; 4,500,000 shares issued and outstanding;	$	450
Series B 1,000,000 shares authorized; 500,000 shares issued and outstanding	$	50
Common stock, $0.0001 par value per share; 10,000,000 shares authorized; 900,000 shares issued and outstanding	$	90
Additional paid-in-capital		4,906,000
Accumulated earnings		602,513

Total stockholders’ equity	$	5,509,103

Total capitalization	$	5,509,103

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Homeowners of America Holding Corporation HAHC, was organized in 2005 to be an insurance holding company for our subsidiaries: Homeowners of America Insurance Company or HAIC, and Homeowners of America MGA, Inc. or HAMGA. We commenced insurance underwriting operations in May 2006, however the consolidated entity began business operations in March 2006.

HAIC, our insurance subsidiary is a Texas insurance company that provides property and casualty insurance to homeowners, condominium owners, tenants, and to owners of single family rental properties in Texas. HAMGA provides underwriting policy administration, marketing, claims and other services to HAIC. HAIC contracts with our independent agents for sales services.

Our level of profitability is primarily determined by how adequately our premium rates, policy fees and investment income cover our expenses, which consist of reinsurance, losses (policy claims), commissions, overhead and taxes. Most of our expense categories can be measured and managed. The largest potential variable expense is the cost of losses, the most variable of which are weather-related losses (mainly catastrophic and non-catastrophic severe thunderstorms, hurricanes and tropical storms). Our results of operations are further subject to significant variations due to factors affecting the property and casualty insurance industry in general, which include competition, weather, catastrophic events, regulation, general economic conditions, judicial trends, fluctuations in interest rates and other changes in the investment environment.

Our premium growth and underwriting results have been, and will continue to be, influenced by market conditions. Premium rate levels are related to the availability of insurance coverage, which varies according to the level of surplus in the insurance industry and other factors. The level of surplus in the industry varies with returns on capital and regulatory barriers to the withdrawal of surplus. Increases in surplus have generally been accompanied by increased price competition among property and casualty insurers. Pricing in the property and casualty insurance business historically has been cyclical. During a weakening market cycle, price competition makes it difficult to attract and retain properly priced personal lines of business. During a weak insurance market, regulatory rate approval requirements and concerns regarding retention of existing policies may limit our insurance subsidiary's ability to increase prices.

If our insurance subsidiary was to find it necessary to reduce premiums or limit premium increases due to other competitive pressures on pricing, our insurance subsidiary could experience a reduction in profit margins and revenues, an increase in ratios of losses and expenses to premiums and, therefore, lower profitability. The cyclicality of the insurance market and its potential impact on our results is difficult to predict with any significant reliability.

However, we intend to promote and maintain our disciplined underwriting approach and pricing standards during these weaker markets, even if it leads to slower premium growth.

We currently invest our excess cash in FDIC insured certificates of deposit and money market accounts. Therefore, our investment income is subject to change based on general interest rate levels. We may change our investment policy in the future, which could subject our investment income to a variety of factors, including adverse events affecting the issuers of debt obligations that we may purchase and changes in pricing of equity securities.

As a public company following consummation of this registration, we expect that we will incur additional operating expenses such as increased expenses related to hiring additional financial personnel, legal fees, audit fees, Sarbanes-Oxley compliance preparation fees, other professional fees, directors' and officers' insurance costs. Many of these expenses were not incurred or were incurred at a lower level by us as a private company and are not included in our historical results of operations.

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The JOBS Act is intended to reduce the regulatory burden on emerging growth companies. As long as we qualify as an emerging growth company, we will also, among other things:

be exempt from the “say on pay” provisions (requiring a non-binding vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements certain executive officers in connection with mergers and certain other business combinations) of The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, and certain disclosure requirements of the Dodd-Frank Act relating to compensation of Chief Executive Officers;

be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities Exchange Act of 1934, as amended and instead provide a reduced level of disclosure concerning executive compensation; and

be exempt from any rules that may be adopted by the Public Company Oversight Board, or PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor's report on the financial statements.

Critical Accounting Policies and Estimates

General

We are required to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related footnotes. We continually evaluate these estimates and assumptions based on historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to our estimates and assumptions, and that reported results of operation will not be materially adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. We believe the following reserve liabilities are the most sensitive to estimates and judgments.

Reserves for Loss and Loss Adjustment Expenses

We establish reserves for the estimated total unpaid costs of losses including loss adjustment expenses, or LAE. Unless otherwise specified below, the term "loss reserves" shall encompass reserves for both losses and LAE. Loss reserves reflect management's best estimate of the total cost of (i) claims that have been incurred, but not yet paid, and (ii) claims that have been "incurred but not yet reported" ("IBNR"). Loss reserves established by us are not an exact calculation of our liability. Rather, loss reserves represent management's best estimate of our company's liability based on application of actuarial techniques and other projection methodology, taking into consideration other facts and circumstances known at the balance sheet date. The process of establishing loss reserves is complex and necessarily imprecise, as it involves judgment which is affected by many variables such as past loss experience, current claim trends and the prevailing social, economic and legal environments. The impact of both internal and external variables on ultimate loss and LAE costs is difficult to estimate. Our exposure is impacted by both the risk characteristics of the physical locations where we write policies, such as weather-related risks, as well as risks associated with varying social, judicial and legislative characteristics in Texas, the state in which we operate. In determining loss reserves, we give careful consideration to all available data and actuarial analyses, however this process involves significant judgment.

Case reserves on reported claims are established on a claim by claim basis. Supported by a property damage estimate software package, more fully described later, our experienced claim personnel estimate the ultimate expected loss amount as soon as possible after the claim event, but in no case greater than 30 days from receipt of the notice of loss. Being primarily a property insurance company, our case loss reserves are “short-tail”, meaning that ultimate loss values are known and settled comparatively quickly. Most often, claims are paid out within 60 to 90 days of their reporting. Factoring into the claim cost is only damage to tangible property, requiring either its repair or replacement. The setting of case reserves for property related short-tail claims is far less complex. Claims rarely include coverage elements which routinely take many years to develop and are often paid out over long periods of time. As such, there is very little impact resulting from the “time value of money” on our reserve values, nor are there estimates of long term medical expenses, educational expenses and or the valuation of the loss of companionship, etc.

Assisting us in setting the case reserves, after first reviewing the elements of the claim and the coverage afforded under the policy, the Company uses a damage estimating software package called Xactimate, developed and owned by the industry leader, Insurance Service Office. The estimating software researches and reports on estimates of structural repair pricing and compares it to actual completed bids and market surveys. The research includes over 40,000 providers of materials, equipment and labor and over 80,000 surveys each year.

IBNR reserves are developed separately for non-catastrophe losses and catastrophe based claims. Both types of IBNR reserves contain factors for case development on known claims:

IBNR Factor Development – Non-Catastrophe Events:

Reserves are developed by using accident month / reported month grids, which are then rolled up into a cumulative incurred loss triangle. Loss factors are calculated based on aggregating the month to month diagonals (i.e. month 2 incurred / initial accident month incurred, month 3 incurred / month 2 incurred). For each accident month, development is reviewed for consistency, and outlying results (on the high and the low side) as well as the most recent couple of months, for which data is considered immature, are deleted from the data for smoothing purposes. Period to period development factors are then calculated, from which period to ultimate loss incurred factors are calculated. Factors are reviewed quarterly and adjusted as needed. Factor changes for the periods under review, from period to period, are considered to be insignificant. Therefore the methodology used is considered to be consistent from period to period. IBNR reserve calculations used during the 2011 year were extended from 13 months past the accident month to 24 months past the accident month to improve upon the estimation of the final loss incurred.

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IBNR Factor Development –Catastrophe Events:

Traditional monthly loss reserving factors are not deemed appropriate for determining IBNR estimates for catastrophic events as these events do not occur evenly throughout a month, as regular loss events do. So an alternative approach to loss development has to be used, one that takes into consideration development and reporting from a specific loss date, rather than from the end of a specific month. In addition, since the HAIC is subject to catastrophic loss events (hurricane and convectional thunderstorms) which have differing cycles for loss reporting and claim development, calculations need to be made for each type event. Each analysis is made by projecting the ultimate loss value into the future and subtracting it from the known incurred losses. The Company’s claim system has the ability to track incurred claims on a “days to report” basis, so that we can look at incurred claim values for claims reported in the following bands:

`Incident to Report Date

Same Day

1 > 5

6 > 15

16 > 30

31 > 60

61 > 90

91 > 120

121 > 360

>360

Data can be pulled in by event and by accident period. However, since events individually behave inconsistently, data is pulled on an accident year basis (so that variability could be reviewed), and rolled up to an ITD basis for this evaluation. For each of the above bands, the $ incurred and % of total incurred from claims reported during those time frames is calculated by accident year, as were cumulative values. This data is then spread out into days from the event (so that 1-5 band became individual days 1, 2, 3, 4, 5 and so on for the other bands) on a straight line basis, which is then adjusted to scale over the time period so that claim reporting was greater earlier in the bands than later in the bands (so for the 1-5 band, proportionally more was reported on day 1 than day 2, etc.). Initially, this is done on a daily basis for days 0-30, with subsequent periods grouped broken into bands of 5, 15 and 30 days. These factors are then rolled up into cumulative factors and further scaled so that reporting is maxed out at 365 days, when the vast majority of reported claims are thought to be known. In application, the factors are stratified to a daily scale, so that actual days from event are used to select the specific factor to be used.

Lastly, event losses are capped based on the company’s catastrophe reinsurance coverage, so that no more than $3.0 million per event is included. Once the projected event limit reaches $3.0 million, no further retained IBNR is projected for the event, only gross and ceded IBNR. Effective April 1, 2013, the Company’s reinsurance coverage caps losses at $4.0 million per event. As such, for events occurring after April 1, 2013, once the event projected losses reach $4.0 million, no further retained IBNR is projected for the event.

IBNR Factor Development –Automobile:

Virtually all auto claims are reported within 3 months, and most within 30 days. HAIC has had negligible liability losses experience since beginning to write private passenger automobile insurance (monthly average liability loss under $3,000). As such, virtually all claims reported are for physical damage. Inasmuch as auto physical damage claims typically develops very quickly, an IBNR calculation for this line of business using traditional factors produces exceptionally low results and does not provide a reasonable amount of IBNR for the most recent month and for accidents occurring during the last part of the month. Therefore, an alternative approach was taken.

Similar data is used to determine automobile IBNR as is used to do catastrophe events so that historically, reported incurred losses are looked at based on the number of days from the incident. For this analysis, all auto claims, cat and non-cat, are included. Catastrophe claims for auto coverages are minimal. In addition, total loss development is determined using traditional loss triangles. Our factors are developed so that the most recent month’s incurred is split into 3 parts: 1^st half of the month, days 16-25, and the last 5 days of the month. Factors are calculated for each of these periods, and the most recent month’s incurred losses are split proportionally across the month. In this way, the vast majority of IBNR losses come from the last week of the month, where one would expect them, given the very short reporting period for auto claims.

The liability for losses and LAE represents estimates of the ultimate unpaid cost of all losses incurred, including losses for claims that have not yet been reported to our insurance company. The amount of loss reserves for reported claims is based primarily upon a case-by-case evaluation of the kind of loss involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss. The amounts of loss reserves for unreported claims and LAE are determined using historical information by line of insurance as adjusted to current conditions. Inflation is ordinarily implicitly provided for in the reserving function through analysis of costs, trends and reviews of results of historical reserving estimates over multiple years.

Reserves are closely monitored and are recalculated periodically using the most recent information on reported claims and a variety of actuarial techniques. Specifically, management continuously reviews existing reserves, making changes to existing case reserves as indicated. As we develop historical data regarding paid and incurred losses, we use this data to develop expected ultimate loss and loss adjustment expenses which we use to establish IBNR reserves. In connection with the determination of IBNR reserves, we will also consider other specific factors such as recent weather-related losses, trends in historical paid losses, and legal and judicial trends regarding liability.

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When a claim is reported to us, our claims personnel establish a "case reserve" for the estimated amount of the ultimate payment. This estimate reflects HAIC’s historical loss experience as it relates to the type of loss, informed judgment based upon general insurance reserving practices and on the experience and knowledge of the estimator. The individual estimating the reserve considers the nature and value of the specific claim, the severity of injury or damage, location, and the policy provisions relating to the type of loss. Case reserves are adjusted by us as more information becomes available. It is our policy to settle each claim as expeditiously as possible.

We maintain IBNR reserves to provide for already incurred claims that have not yet been reported as well as developments on reported claims. The IBNR reserve is determined by estimating our insurance company's ultimate net liability for both reported and IBNR claims and then subtracting the case reserves and payments made to date for reported claims.

Because the establishment of loss reserves is an inherently uncertain process, we cannot be certain that ultimate losses will not exceed the established loss reserves and have a material adverse effect on our results of operations and financial condition. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.

The following table sets forth the amount of the gross reserves for loss and loss adjustment expense:

	September 2011		December 2011		March 2012		September 2012		December 2012		March 2013
Loss Reserves	$	7,357,028	$	6,191,432	$	7,211,906	$	6,380,234	$	5,265,200	$	5,333,223
Loss Adjustment Expense Reserves
Legal Defence Reserves		588,195		487,156		401,678		617,491		1,610,315		3,489,276
Claim Adjusting Reserves		244,338		202,369		296,718		198,027		168,690		166,416

Loss Reserves, Before IBNR	$	8,189,561	$	6,880,957	$	7,910,301	$	7,195,752	$	7,044,205	$	8,988,915

IBNR		2,391,412		2,428,017		6,786,321		5,616,421		4,597,091		4,103,389

Total Loss & Loss Adjustment Reserves	$	10,580,973	$	9,308,974	$	14,696,622	$	12,812,173	$	11,641,296	$	13,092,304

Our independent actuary who reviews our loss reserves at calendar year ends has not required, nor suggested, there be an increase to loss reserves established by management.

Reinsurance

Reinsurance recoverables recorded with respect to insurance losses ceded to reinsurers under reinsurance contracts are also subject to estimation error. The value of ceded losses are determined using the same methods as described above, and therefore, are subject to the same uncertainties as reserves for direct losses and LAE. Additionally, estimates of reinsurance recoverables may prove uncollectible if the reinsurer is unable or unwilling to perform under the contract. The ceding of insurance does not legally discharge the ceding company from its primary liability for the full amount of the policies, and the ceding company is required to pay the loss and bear collection risk if the reinsurer fails to meet its obligation under the reinsurance agreement. We evaluate the balances due from reinsurance companies for collectability, and when indicated, in management's opinion, issues of collectability exist, establish an allowance for doubtful accounts. For information about the risks of non-collectability of reinsurance, see the risk factor on page 10 entitled "We face a risk of non-collectability of reinsurance, which could materially and adversely affect our business, results of operations and/or financial condition"

Deferred Policy Acquisition Costs Recoverability

Deferred policy acquisitions costs (“DAC”) consist of commissions, premium taxes and policy underwriting and production expenses which are incurred through and vary directly with, the level of production of new and renewal insurance business and are amortized over the terms of the policies they relate to. The method used in calculating DAC limits the amount of the deferred cost to their estimated realizable value, which gives effect to allocating their expense along with other period costs associated with the insurance business, in relation to the amount of gross premium earned on policies to which they relate and investment income. DAC is reviewed to determine if it is recoverable from future income, including investment income. The amount of DAC considered recoverable could be reduced in the near term if estimates of future premium income from their related lines of insurance are revised.

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities. Deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years. Deferred tax assets are recognized for deductible temporary differences and tax operating loss and tax credit carry forwards and carry backs. The deferred tax assets and liabilities are measured by applying the enacted tax rates and laws in effect for the years in which such differences are expected to reverse.

Realization of any carry forward component of deferred tax assets depends upon our generation of sufficient taxable income in the future to recover tax benefits that cannot be recovered from taxes paid in the carryback period, generally two years.

Recently Issued Accounting Pronouncements

Accounting Standards Update No. 2012-04. In October 2012, the FASB issued Accounting Standard Update (“ASU) No. 2012-04 (“ASU 2012-04”), Technical Corrections and Improvement. The section of the update is organized into three subsections: a) Source literature amendments. These amendments arose because of differences between source literature and the codification. Many times either the writing style or phrasing of the source literature did not directly translate into the codification format and style. As a result, the meaning of the guidance might have been unintentionally altered. Alternatively, amendments in this section relate to guidance that, when originally codified, was missing words, references, or phrasing that, upon review, was deemed important to the guidance; b) Guidance clarification and or/or reference corrections. These amendments provide clarification through updating wording, correcting references, or a combination of both; and c) Relocated guidance. These amendments principally move guidance from its current location in the codification to a more appropriate location. Many times these changes related to the scope of guidance. Codification either unintentionally narrows or unintentionally broadens its scope when compared with the legacy literature. The amendments in ASU 2012-04 that are subject to the transition guidance will be effective for fiscal periods, beginning after December 15, 2012. The Company does not expect the adoption of ASU 2012-04 will have a material impact on its consolidated financial statements.

Accounting Standards Update No. 2011-12. In December 2011, the FASB issued Accounting Standard Update No. 2011-12 (“ASU 2011-12”), Comprehensive Income (FASB ASC 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update 2011-05 (“ASU 2011-05”). Stakeholders raised concerns that the new presentation requirements about reclassifications out of accumulated other comprehensive income would be difficult for preparers and may add unnecessary complexity to financial statements. In addition, it is difficult for some stakeholders to change systems in time to gather the information for the new presentation requirements by the effective date of Update 2011-05. All other requirements in ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The amendments in ASU 2011-12 are effective on a retrospective basis for public entities for annual periods beginning after December 15, 2011 and interim periods within those years. An entity should provide the disclosures required by ASU 2011-12 retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-12 will have a material impact on it consolidated financial statements.

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Accounting Standards Update No. 2011-11. In December 2011, the FASB issued ASU No. 2011-11 (“ASU 2011-11”) Balance Sheet (FASB ASC 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by US GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Sections 815-10-45 or (2) subject to enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangement on an entity’s financial position. The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annuals periods. An entity should provide the disclosures requited by ASU 2011-11 retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-11 will have a material impact on its consolidated financial statements.

Accounting Standards Update No. 2011-05. In June 2011, the FASB issued ASU No. 2011-05 (“ASU 2011-05”) Comprehensive Income (FASB ASC 220), Presentation of Comprehensive Income. The objective of ASU 2011-05 is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To achieve this goal and to facilitate convergence of the US generally accepted accounting principles (GAAP) and International Financial Reporting Standard (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the consolidated statement of changes in stockholders equity. The amendments in ASU 2011-05 require that all non-owner changes on stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 should be applied retrospectively. For public entities the amendments are effective for fiscals years and interim periods within those years beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The Company does not expect the adoption of ASU 2011-05 will have a material impact on its consolidated financial statement.

Accounting Standards Update No. 2011-04. In May 2011 the FASB issued ASU no. 2011-04 (ASU 2011-04”), Fair Value Measurement (FASB ASC 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs” The objective of ASU 2011-04 is to provide clarification of topic 820 and, also, to ensure that fair value has the same meaning in US general accepted accounting principles (“GAAP”) and in international financial reporting standards (“IFRSs”) and that their respective fair value measurement and disclosure requirements are generally the same. Thus this update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. Early application is not permitted. The Company does not expect the adoption of ASU 2011-04 will have a material impact on its consolidated financial statements.

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Accounting Standards Update No. 2010-26. In October 2010, FASB issued ASU No. 2010-26 (“ASU 2010-26”), Financial Services – Insurance (FASB ASC 944) Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of the amendments in ASU 2010-26 is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments in ASU 2010-26 specify which costs should be capitalized. The amendments in ASU 2016-26 are effective for fiscal years and interim periods within the fiscal years beginning after December 15, 2011 and can be applied prospectively upon adoption. Retrospective or prospective application is permitted. Early adoption is permitted, but only at the beginning of an entity’s annual reporting period. The Company adopted ASU 2010-26 effective January 1, 2012 on prospective basis. As a result of the Company’s methodologies utilized in accounting for deferred acquisition costs, there was no material impact on it’s consolidated financial statements due to the adopting of ASU 2010-26.

Results of Operations

The following discussion of our operating results explains material changes in our results of operations for the three months ended March 31, 2013 and 2012 and the fiscal years ended December 31, 2012 and December 31, 2011. The discussion should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and the financial statements and related notes included in the prospectus.

From our incorporation in March 2006 through March 31, 2013, HAHC generated net revenues of $78.3 million of which $22.1 million was a result of net premiums earned. HAHC earned an additional $38 million in reinsurance fee income, $14.6 million in policy related fees, $1.9 million in loss adjustment fees, $926,000 in premium collection fees, $711,000 in interest and dividend income and $141,000 of miscellaneous income items during this time period.

From March 2006 through March 31, 2013, we incurred a total of $77.7 million in expenses for a pre-tax income of $1.5 million. Of the $77.7 million of expenses, $39.1 million were due to policy acquisition expenses, such as external and internal commissions paid for sold policies, and $15.8 million of net expenses resulted from losses related to claims and loss adjustment expenses. We expect that these expenses will increase as we continue to expand the number of underwritten policies. We also incurred $22.7 million of expenses related to management costs, including salaries, taxes (other than income) and licensing fees, which were 9.7% of our total direct premium revenue.

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

For the three months ended March 31, 2013, our net income after taxes was $265,697 compared to net loss of $116,073 for the same period in 2012, primarily the results of less severe early spring storms in 2013 as compared to 2012.

Net revenues (revenues after deduction of reinsurance costs), were $5.0 million for the three months ended March 31, 2013, compared to $4.7 million for the same period in 2012. Net earned premiums for the three months ended March 31, 2013 were $1.1 million compared to $1.0 million for same three months in 2012. Policy fees for the three months ended March 31, 2013 were $978,000 and $961,000 for the same three months in 2012. Revenue growth from the first three months of 2013 compared to the first three months of 2012 is mainly attributed to an increased number of policyholders, higher premiums charged per policy, and higher policy fees. Other income and fees increased $27,000 during the quarter primarily due to increase in loss adjustment fees of $18,000 and an increase in miscellaneous income of $13,000.

Policy acquisition expenses increased from $2.4 million in the first three months of 2012 to $2.7 million in the three months ended March 31, 2013. Increases in these expenses from the first three months of 2012 to the first three months of 2013 are attributed mainly to growth of the customer base. For the three months ended March 31, 2013, underwriting expenses increased by $202,000 from $1.1 million during the three months ended March 31, 2012. This is primarily due to higher volumes of net written premiums and its share registration process incurring a cost of $22,251.

Net losses related to claims decreased from $1.3 million to $532,000 period to period. The decrease of $768,000 in claims expense from period to period is the result of a lower number of catastrophic and other weather-related events in the first three months of 2013.

Stockholders’ equity increased by $1.5 million from $4.0 million at March 31, 2012 to $5.5 million at March 31, 2013.

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Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

From 2011 to 2012, our net income after taxes increased from $849,000 to $1,103,000 in 2012. Stockholders’ equity increased from $4.1 million at December 31, 2011 to $5.2 million at December 31, 2012.

Net revenues (revenues after deduction of reinsurance costs), increased from $18.2 million in 2011 to $20.4 million in 2012. Net earned premiums increased from $3.8 million 2011 to $4.9 million in 2012, the result of an increase in net written premium of $1.3 million. Policy related fees increased $300,000 during the same period from $4.1 million to $4.4 million.

Direct premium production in 2012 showed an increase of $6.9 million from 2011, as mentioned above, a result of HAIC increasing its focus on the Texas property insurance market. During this period, HAIC auto insurance written premium decreased from $4.3 million to $2.0 million, while property insurance written premium increased $9.2 million. Our increase in property premium is due both to an increase in the number of policy holders as well as higher premiums charged per policy.

Underwriting and policy acquisition expenses increased from $13.5 million in 2011 to $15.5 million in 2012. Net losses related to claims increased from $3.4 million in 2011 to $4.0 million in 2012.

Increases in total expenses from $16.9 million in 2011 to $19.5 million in 2012 are attributed mainly to growth of the customer base.

Liquidity and Capital Resources

Since inception, we have financed our cash flow requirements through net premiums received and investment income. We believe our cash from net premiums and investment income will be sufficient to cover our cash outflows for at least the next 12 months.

In the future, our primary cash flow sources will be premiums and investment income. Our primary cash outflows are claims payments and operating expenses. In the insurance industry cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and loss and settlement expenses are paid out over a period of years. This period of time varies by the circumstances surrounding each claim. A substantial portion of our loss and loss expenses are paid out over more than one year. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll and general overhead expenses.

Our prospects must be considered in light of the risks, expenses and difficulties encountered by property and casualty insurance companies. To address these risks, we must, among other things, target an appropriate base of insureds, implement and successfully execute our business and marketing strategy, continually develop and upgrade our risk-control procedures, respond to competitive pressures, meet the needs of our customers and attract, retain and motivate qualified personnel and agents. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and result of operations. In addition, there can be no assurance that our business will not be affected by risks or market conditions that we do not currently foresee.

We have tailored our investment policy in an effort to minimize risk in the current financial market, particularly the debt securities market therefore; we currently invest our excess cash in money market accounts or in FDIC insured certificates of deposit (i.e., CDs) that mature in no more than eighteen months. It is our current policy to (i) purchase CD’s in an amount that their principal is insured by the FDIC, and (ii) maintain other cash deposit in banks with high financial ratings. We classify our investment portfolio as available for sale; therefore, all investments are reported at fair market value, with unrealized gains and losses, net of tax, being reported as a component of stockholders' equity. In the future we may alter our investment policy to include investments such as federal, state and municipal obligations, corporate bonds, preferred and common equity securities and real estate mortgages, as permitted by applicable law.

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Our insurance subsidiary requires liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. From the beginning of our operations in March 2006 through March 31, 2013, liquidity generated from our operations and investment income were sufficient to meet obligations. Adequate levels of liquidity and surplus are maintained to manage the risks inherent with any differences between the duration of our liabilities and such invested assets. We believe that we maintain sufficient liquidity to pay our insurance subsidiary's claims and expenses, as well as satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies.

We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position To the extent that reinsurance costs cannot be passed on to our customers through our rates, our reinsurance program could have a negative impact on our liquidity.

Our insurance subsidiary must maintain certain levels of policyholders' surplus to support premium writings. The Texas Insurance Code requires, and the Guidelines of the National Association of Insurance Commissioners suggests, that a property and casualty insurer's ratio of annual statutory net premium written to policyholders' surplus may not exceed 3-to-1. The ratio of annualized statutory net premium written by our insurance subsidiary to combined policyholders' surplus was 0.55 to 1 as of March 31, 2013. Our current levels of policyholders' surplus are adequate to support current premium writings, based on this standard. We monitor premium and statutory surplus levels of our insurance subsidiary in an effort to ensure that the subsidiary maintains adequate premium to surplus ratios. Failure of our insurance subsidiary to maintain adequate levels of policyholders' surplus could negatively impact our ability to write additional premiums.

Net premiums, as used above, is defined as our direct premiums written, net of reinsurance premiums. Our ability to maintain a net premium to surplus ratio of less than 3-to-1 at current premium revenue levels therefore depends on our ability to purchase an adequate amount of reinsurance. Failure of our insurance subsidiary to acquire and maintain adequate levels of reinsurance could negatively impact our ability to write premiums.

In addition, regulators and rating agencies utilize a risk based capital, or RBC test designed to measure the acceptable amount of surplus an insurer should maintain, based on specific inherent risks of each insurer. If we fail to meet the benchmark level, we may be subject to scrutiny by the Texas Department of Insurance, which could potentially result in rehabilitation or liquidation. At December 31, 2012, the total adjusted capital of our insurance subsidiary exceeded the minimum levels required under RBC. We continually monitor the RBC ratios and will implement strategies to maintain ratios above the regulatory minimums.

Loss Reserve Development Table (in $000)

	2006			2007			2008		2009		2010			2011			2012
Reserves for Claims & Loss Adjustment Expenses		241			686			2,517		2,723		6,000			7,339			9,362

Cumulative paid claims and claim expenses

One year later		132			364			2,390		3,383		4,528			7,784
Two years later		132			453			2,791		3,494		4,946
Three years later		132			522			3,135		3,256
Four years later		132			523			3,643
Five years later		132			523
Six years later		132

Reserves re-estimated
One year later		0			0			580		930		972			1,519
Two years later		0			10			272		135		345
Three years later		0			0			863		15
Four years later		0			0			398
Five years later		0			0
Six years later		0

Deficiency (redundancy)		(109	)		(163	)		728		518		(1,399	)		(1,074	)

Credit Risk

Credit risk is a major factor in operating our business. We review credit risk from a variety of sources: financial institutions in regard to cash deposits; investment risk; counter-party risk from reinsurers; premium receivables; notes receivable and long-term investment assets; loss sensitive underwriting accounts; and key vendor relationships. We have established specific guidelines and procedures to evaluate our exposure, particularly with regard to our excess cash and investment holdings, and our receivable balances from insureds and reinsurers.

In regard to our investments and cash deposits, we currently limit our credit exposure to financial instruments by investing and holding our excess cash in bank demand and time deposits (i.e., CDs) as well as money market accounts which are covered by FDIC insurance. To meet liquidity needs, all deposit mature in no more than eighteen months.

The credit risk we are exposed to on ceded premium and losses recoverable from reinsurers is managed through the careful selection of reinsurance companies. When selecting reinsurance coverage, we consider the financial strength and stability of the providers, their history of responding to claims, and their overall reputation. We require that all reinsurers have an A.M. Best rating of A- (Excellent), or better, or an S&P rating of AA- or better, in order to minimize the risk of uncollectable balances. HAIC continually monitors the financial condition of its reinsurers with the aid of its reinsurance brokers, AON, and Guy Carpenter. As of March 31, 2013, no reinsurance receivable balance is outstanding beyond 30 days. We do not use credit default swaps to mitigate our credit exposure from either investments or counterparties.

Our key vendor (agent) and insured credit risk centers around the collectability of policy premium. Initially, overall premium collection credit risk is limited by our collection of approximately 62% of our property insurance policies through property mortgagee escrow accounts. Agent credit risk is limited through the daily sweep of all premiums paid directly to the agent by the insured. Finally, on any premium collected directly from an insured, we require a 17% down payment and limit the period over which the balance is collected to a maximum of 8 months. Policies are cancelled as soon as any installment is past due, where the policy is out of equity.

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Off-Balance Sheet Arrangements

As of March 31, 2013, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

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BUSINESS

Overview

Homeowners of America Holding Corporation is a property and casualty insurance holding company incorporated in Delaware in 2005. In May of 2006 we began selling property and casualty insurance products in Texas through our subsidiary, Homeowners of America Insurance Company. We currently offer products in Texas only. Our products are sold to the public through independent insurance agents. At present we offer homeowners, dwelling fire and extended coverage, tenant, and condominium owners policies. We had, until recently, offered private passenger automobile policies to homeowners in Texas and had offered residential property policies in Oklahoma. The Texas private passenger automobile business is currently being non-renewed. Our withdrawal from Oklahoma was completed during the third quarter of 2012. The Texas private passenger automobile program was discontinued because we were unable to capture a sufficient portion of the market at pricing which we deemed adequate to cover our expenses and provide a margin for profits. We left the Oklahoma residential property market because of unprecedented, continual severe convective thunderstorm activity resulting in excessive hail, windstorm and tornado losses which contributed to unacceptable uncertainty as to future results in that state.

As of March 31, 2013 we had 56,911 policyholders, total assets of $67,344,137 and stockholders’ equity of $5,509,103. Of this total, 489 of the 56,911 policyholders were private passenger automobile policyholders, and the balance, 56,422, were Texas residential property policyholders.

In 2010, we formed a managing general agency, Homeowners of America MGA, Inc., HAMGA. HAMGA provides underwriting, policy administration and claims services to our insurance company.

We have an experienced team led by the founder of the Company, Spencer W. Tucker, our President and Chief Executive Officer. Mr. Tucker has 50 years of experience in the insurance industry and has held numerous senior management and top executive positions nationally, with the majority of his experience operating in Texas. The years of insurance industry experience of the balance of the senior staff range from 19 to 29 years, most of which are years operating in Texas.

Our Corporate Structure

The chart below illustrates the corporate structure of the Company as of the effective date of the Registration Statement.

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Our Corporate Structure

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Homeowners of America Holding Corporation (or “HAHC”). HAHC holds all of the capital stock of our two subsidiaries, Homeowners of America Insurance Company, and Homeowners of America MGA, Inc. As a holding company for these subsidiaries, HAHC is subject to regulation by the Texas Department of Insurance.

Homeowners of America MGA, Inc. ( or “HAMGA”). HAMGA provides underwriting, policy administration, and claims services to Homeowners of America Insurance Company. HAMGA is subject to regulation by the Texas Department of Insurance. HAMGA has the authority to receive and accept on behalf of Homeowners of America Insurance Company (HAIC), all proposals for insurance which HAIC is authorized to write. In connection with its authorization to receive and accept business on behalf of HAIC, specific responsibilities include, but are not limited to:

Charge or cause to be charged premiums and to collect and receive all premiums written through it. In addition, issue non-renewal or cancellation notices on business written through it.

Develop and maintain underwriting guidelines.

Underwriting risks and determining rates to be charged in accordance with HAIC’s rating memorandum.

Preparation of all information required by law to be filed with the Texas Department of Insurance to enable HAIC to file rates.

Create marketing and advertising materials, subject to HAIC’s approval.

Manage the agency network including their appointment and termination.

Issuance of policy documentation to insured on all business written.

Provide claims administration services for HAIC including the original assignment of claims to adjusters, review of the progress of all claim adjustments and make recommendation on the settlement of claims.

Since its inception in 2010, HAMGA has received the following amounts in service fees from HAIC:

Year Ended

3 Months
Ended

12/31/2010

12/31/2011

12/31/2012

3/21/2013

$ 1,239,307

$ 4,319,119

$ 4,628,766

$ 1,022,532

Homeowners of America Insurance Company (or “HAIC”). HAIC is a Texas-domiciled property and casualty insurance company. HAIC is licensed to sell personal lines in Arizona, Oklahoma and Texas. HAIC is currently offering residential property coverage to homeowners, tenants, and landlords in Texas through approximately 800 independent agents. HAIC is subject to regulation by the Texas Department of Insurance.

Our Market

On December 31, 2012, HAIC’s market share of Texas homeowners business was estimated by SNL Financial at .65% of an estimated $6.4 billion market, expressed in terms of premiums. SNL ranked HAIC as the 19^th largest Texas homeowners company in terms of Texas premiums. HAIC is the 5th largest private Texas-based homeowners insurance company.

The Texas residential property market is dominated by large, national insurance companies, who market through captive agents. However, the Texas market is large enough, at $6.4 billion, to accommodate a smaller company providing local knowledge and service, able to focus its attention on the more profitable segments of the Texas market and the needs of Texas independent agents.

Further, as a consequence of the catastrophic losses (shown below) in Texas over the last several years, a large part of the Texas residential property market is experiencing a degree of dysfunction, which creates an opportunity for a smaller company to select business in profitable segments. This dysfunction has manifested itself through the production of hard markets in the two most populous areas of Texas: the areas in and around Dallas and Houston. The hard markets are characterized by higher pricing, reductions in coverage features, and in some cases the complete withdrawal of competitors from the market. In recent years, including 2008, 2009, 2011 and 2012, Texas has experienced numerous catastrophic severe convective thunderstorms, among other catastrophes. In 2011 and 2012 alone thunderstorms have caused insureds catastrophic losses estimated at $4.65 billion. This has created a hard market in North Texas (where many of these storms have occurred) for residential property insurance as companies begin to withdraw, restrict sales, and increase prices.

ISO’s Property Claims Services (PCS), has identified the catastrophic-level events that occurred in Texas. Shown below are catastrophic losses that have occurred since HAIC began business in 2006 and through December 31, 2012 (the latest date for which industry data is available) with development through March 31, 2013. (PCS now defines a catastrophe as an event that causes at least $25 million in insured losses). Catastrophes in years prior to 2009 below that threshold are not shown.

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Year	Cat. Number	Description	Main Area of Texas Affected	Estimated Industry Losses (in $Millions)	HAIC Losses (in $Millions)
2006	64	Hail, Wind	Texas-wide	50.0	.000
	68	Hail, Wind	Central Texas	160.0	.000
	70	Hail, Wind	Central Texas	43.5	.000
	71	Hail, Wind	Texas-wide	315.0	.000
	72	Hail, Wind	Northwest Texas	40.0	.000
	74	Hail, Wind	Southwest Texas	65.0	.000
	TOTAL			673.5	.000

2007	95	Freezing, Ice, Snow, Hail, Wind	Northeast Texas	135.0	.000
	98	Hail, Wind	North Texas	400.0	.000
	99	Hail, Wind	North Texas	100.0	.000
	TOTAL			635.0	.000

2008	27	Hail, Wind	Central Texas	95.0	.037
	29	Hail, Wind	North Texas	80.0	.182
	33	Hail, Wind	Central and North Texas	95.0	.009
	34	Hail, Wind	Northeast Texas	125.0	.047
	35	Hail, Wind	North Texas	330.0	.301
	36	Hail, Wind	Central Texas	470.0	.750
	39	Hail, Wind	Central Texas	30.0	.011
	40	Hail, Wind	Central Texas	117.0	.013
	53	Hurricane Dolly	Southwest Texas	515.0	.422
	60	Hurricane Ike	Southeast Texas	9,800.0	11.305
	TOTAL			11,657.0	13.077

2009	63	Hail, Wind	Central and North Texas	106.0	.236
	66	Hail, Wind	Central Texas	935.5	.745
	67	Hail, Wind	Central and North Texas	145.0	.930
	70	Hail, Wind	North Texas	180.0	.199
	71	Hail, Wind	South Texas	134.5	.116
	72	Hail, Wind	North Texas	52.5	.123
	73	Hail, Wind	North and West Texas	42.0	.006
	78	Hail, Wind	North Texas	400.0	1.242
	81	Hail, Wind	South Texas	72.5	.000
	87	Hail, Wind	West Texas	390.0	.225
	TOTAL			2,458.0	3.822

2010	90	Freezing, Wind	Central and North Texas	37.5	.118
	99	Hail, Wind	Texas-wide	60.0	.034
	14	Hail, Wind	North and West Texas	65.0	.000
	16	Hail, Wind	North Texas	54.5	.067
	26	Tropical Storm Hermine	Texas-wide	120.0	.332
	32	Hail, Wind	West Texas	75.0	.061
	TOTAL			412.0	.612

2011	35	Freezing, Ice, Snow, Wind	North Texas	395.0	.110
	36	Freezing, Ice	North Texas	205.0	.385
	43	Hail, Wind	North Texas	219.0	2.941
	44	Hail, Wind	North Texas	250.0	1.578
	45	Hail, Wind	North Texas	90.0	.560
	46	Hail, Wind	North Texas	590.0	.999
	48	Hail, Wind	North Texas	975.0	10.399
	53	Hail, Wind	North Texas	389.0	1.745
	62	Wildfire	Central Texas	530.0	.256
	TOTAL			3,643.0	18.973

2012	69	Hail, Wind	North Texas	110.0	.515
	70	Hail, Wind	Southwest Texas	260.0	7.620
	71	Hail, Wind, Tornados	North Texas	775.0	5.071
	73	Hail, Wind	Southwest Texas	65.0	2.781
	74	Hail, Wind	West Texas	117.0	.000
	76	Hail, Wind	Texas-wide	101.0	.441
	78	Hail, Wind	North Texas	890.0	6.066
	TOTAL			2,318.0	21.539

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Our Business

As of March 31, 2013, HAIC had 56,911 active policyholders. 56,422 of those were Texas residential property policyholders, and 489 were Texas private passenger automobile policyholders. HAIC no longer accepts new private passenger automobile polices, nor does it accept new business in Oklahoma. As of March 31, 2013 HOAIC does not have any property policyholders in Oklahoma. All private passenger automobile policies will expire by October 31, 2013.

Our management team has many years of experience selling, pricing, underwriting, and administering residential property business in Texas.

Our familiarity with independent agents throughout Texas has allowed us to rapidly grow our business in areas where it is most economical to solicit agents, and to maintain agent relationships. We focus our attention on geographical areas where price competition is such that we are most able to realize a profit, where business can be sold with adequate margins for profits. Further, because of our selective pricing of market segments, we tend to attract policyholders with newer homes. Selective pricing involves the use of surcharges and discounts based on expected claim frequency and severity ascribed to attributes of the property and of the insured. These attributes include, among other things, the insured’s credit history; the residence’s built-in security measures, such as a monitored burglar alarm; and the year of construction of the residence. We heavily discount prices for newer homes. As a result of this discounting, in the current Texas homeowners market our new business includes a disproportionate number of newer homes.

Because of these factors, our business and our distribution network tends to be “urban”. It is more economical to solicit and maintain agents in large population centers. Price competition and incumbent company loyalty make it more difficult to penetrate rural areas. In these areas, we would compete not only with well-known, dominant companies, but with established companies who specialize in rural business, such as numerous farm mutual insurance companies, and the Texas Farm Bureau.

We sell our policies through approximately 800 independent agents throughout Texas, generally located in more populated areas. This results in a largely urban mix of policyholders. As of March 31, 2013, HAIC’s Texas residential property policyholders were located in the following areas:

Geographical Area	Percentage of Texas Business
Dallas-Fort Worth Metropolitan Area		29	%
Houston Metropolitan Area		26	%
San Antonio/Austin		16	%
Southwest Texas		7	%
Gulf Coast (excluding windstorm coverage)		7	%
Other		15	%

Because our pricing tends to attract policyholders with newer homes, this also contributes to the urbanization of our business. The large population centers in Texas attract a large number of new home buyers and new home builders.

During 2012, 69% of our homeowners policies were sold to policyholders owning homes 10 years old or less. As of December 31, 2012, 63% of our existing homeowners policies insured homes 10 years old or less, so the trend as we grow is towards newer homes.

Our residential property policies may be broken down by product: homeowners; dwelling fire and extended coverage; tenant; and condominium owners. Homeowners policies are the most familiar, mainly covering the dwelling, other structures, personal property, and comprehensive homeowners’ personal liability. Dwelling fire and extended coverage polices may be purchased by homeowners, but generally are purchased to cover rental property, consisting mainly of the dwelling and other structures. HAIC also sells comprehensive person liability policies in conjunction with dwelling fire and extended coverage policies. Tenant polices and condominium owners policies cover personal property and, in the case of condominium owners policies, internal improvements of the owner. Liability coverage is also included in tenant and condominium owners policies.

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Breaking down our residential property business by policy count, as of March 31, 2013, 81% is homeowners business, 17% is dwelling fire and extended coverage business, and 2% is tenant and condominium owners business.

We use automated insurance scores, which are similar to credit scores, to differentiate our business. The insurance score, the age of the home, and the geographical area are the most important price components. As of December 31, 2012, 93% of our policyholders had insurance scores of 676 or better, as compared to the overall Texas population, 88% of whom have insurance scores of 676 or better, according to the vendor who provides these scores, TransUnion Corp. The insurance score as determined by TransUnion will range from 240 to 950. Generally, the higher the insurance score the lower the expected claim loss frequency and loss severity. These scores are similar to credit scores in that they are based on the customer’s credit history and level of credit utilization. However, payment delinquencies or non-payments related to medical bills are not considered in developing the insurance score.

Importance of Rating Agencies

The financial strength and stability of insurance companies are rated by a variety of rating agencies. The two most prominent in the insurance industry are A.M. Best Company and Demotech, Inc. The ratings assigned by these and other rating agencies are used by lenders to help determine whether an insurer is a satisfactory provider of homeowners insurance; by agents to help determine which insurance companies are the most reliable to do business with; and by consumers and others to judge the ability of an insurance company to meet its obligations.

We are not rated by A.M. Best, although we are rated A, Excellent by Demotech, Inc. We have never been reviewed by A.M. Best and do not intend to seek a rating from A.M. Best until we believe we can secure a minimum rating of B+, that being the minimum accepted by most lenders as well as many independent agents. Our analysis, applying known A.M. Best rating criteria, shows that we will need additional capital before we can qualify for an acceptable A.M. Best rating. Unlike Demotech, A.M. Best tends to penalize companies that are highly leveraged, i.e. that utilize reinsurance to support premium writings. HAIC has a gross premium to capital ratio of nearly 7.6-to-1, although our net premium to capital ratio is less than 1-to-1. We would need to reduce our gross ratio to approximately 2-to-1, either by increasing capital (the denominator) or decreasing premium writings (the numerator). Capital is expected to grow over time, but in order to achieve our premium revenue objective and size efficiency, we must continue to rely on reinsurers to ameliorate risks and provide financial support. In summary, we do not plan to give up revenues or efficiency of size as a means to qualify for an acceptable A.M. Best rating. Our Demotech rating has proved satisfactory to date in attracting an acceptable amount of business from independent agent and satisfies lenders as to our financial stability.

A rating by A.M Best is more widely accepted than a Demotech rating. A.M. Best has been the rating standard relied upon to rate insurance companies in the United States for many years. The Demotech rating alone may not be sufficient to allow us to expand into parts of the United States where it is not as well known or as widely used. However, it has been sufficient in Texas and we expect it to be sufficient in expansion states that the company has under study. Demotech has eight Financial Stability Ratings: A” (Unsurpassed), A’ (also Unsurpassed), A (Exceptional, S (Substantial), M (Moderate), L (Licensed), NR (Not Rated), and I (Ineligible). This rating is subject to review by Demotech at least annually. Demotech is provided with public financial information as well as requested information to assist them in their evaluation. The absence of a sufficient minimum rating of A- from Demotech, in the absence of a rating of B+ or better from A.M. Best, would have a significant negative effect on HAIC’s sales, business retention, and ability to appoint or retain agents.

Competitive Strengths

Although automated underwriting tools are used extensively to qualify and price policies, approximately 10-15% of all polices cannot be automatically underwritten, as they are outside the acceptable “underwriting box”. These polices may require closer scrutiny because of prior loss history, a low insurance score, an insured home value outside a normal range based on square feet, a high home value, a location that may be subject to flooding or tidal surge, large acreage, unacceptable animals on premises, or a variety of other underwriting criteria. Additional information may be solicited to evaluate the overall risk, such as additional details relating to prior losses. Additional underwriting tools may be employed, such as Risk-Meter, which is a tool used to evaluate exposure to tidal surge. In addition, the policy may be endorsed to exclude certain risks, such as saddle animals. Actions by underwriters generally do not affect pricing (other than corrections of input errors) but are designed to accept or decline business.

To support our agents and our policyholders, we have local, experienced, and responsive underwriting and customer service personnel. Our timely responsiveness to our agents and the underwriting support we give them is an important component of our business philosophy. We consider our relationships with our agents to be excellent as a result.

Our management team has many years of insurance experience in Texas. Our knowledge of the Texas market helps us to better identify those market segments known by us to produce superior profit opportunities, and to avoid those that do not. Our pricing philosophy is to maximize profit margins within segments of the market that have shown superior and more predictable results, while avoiding segments of the market where opportunities for profit are limited. This allows us to set prices competitively within self-selected (based on price) market segments. This approach is an advantage insofar as we are not seeking a large market share nor are we in a position that we are required to maintain a large market share for the sake of efficiency or customer retention. By way of example, many of our competitors give substantial price discounts to homeowners customers who place other business with them, automobile insurance business in particular. We have seen no industry data to support such a discount, so the implication is that “stand alone” homeowners business is either overpriced or that homeowners business that is not stand alone business is underpriced. By focusing on a single line of business and specific segments of the market, as distinct from a more inclusive strategy that maximizes market share, we believe our pricing gives us a better profit opportunity.

We have long-standing relationships with a large number of successful and productive independent agents in Texas. Many of these relationships predate the founding of our company.

We are a Texas-based company focusing on residential property business. As such, we can spend virtually all of our time researching and developing ways to improve our core business. This specialization, our use of technology, and our relatively small size, allow us to swiftly identify and react to opportunities and changes in the Texas market. If and when we expand into additional significant markets, we will staff the company with personnel who are intimately familiar with each new market. Such personnel would be identified and recruited through industry connections or by using firms who specialize in sourcing and recruiting insurance industry personnel. We have successfully used both approaches to build our present staff.

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Our Strategies

Our long-term strategy in the Houston metropolitan area is to increase the proportion of business we write there. We believe that hard-market conditions in that area present an unusual opportunity to write business with a greater profit potential. These “hard market’ conditions include historically high prices, higher deductibles, and restricted product availability. A number of competitors limit the amount of business they will accept in this area. At the same time, we must also limit growth in Gulf Coast counties in order to avoid undue exposure to hurricane risks or uneconomical increases in our cost of reinsurance. We are exploring ways to utilize our MGA to take greater advantage of the existing Houston market. HAMGA is positioned to write business with unaffiliated insurers, which would allow us to generate fee income without the attendant underwriting risks.

We will continue to segment business through automated and non-automated selective underwriting processes and through creative pricing and product design. This allows us to attract and select the most potentially profitable segments of the market.

Our long-term growth strategy includes continued growth of our Texas residential property business and expansion of our residential property business into other states, but within the constraints imposed by our pricing philosophy, our competitors, and our capital resources. We have tentatively selected four southeastern states for further study and possible expansion: Virginia, North Carolina, South Carolina, and Georgia. These states were tentatively selected based on their history of losses, their regulatory environment, their relative ease of entry, and the fact that catastrophic losses on the Atlantic coast would tend to be unconnected to tropical cyclone or severe thunderstorm losses in Texas (providing a greater spread of weather risk).

Underwriting

General

We limit the business we write within geographical areas in order to avoid undue concentration of risk and to reduce the uncertainty inherent in weather-related risks. For example, many coastal zip codes are closed to new business either to avoid undue concentrations of homes to catastrophic loss, or because of the proximity to the coastline.

Automated underwriting tools are used to select and price business. These automated tools include insurance scores derived from the applicant’s financial history; the applicant’s prior loss history; exposure of the property to tidal surge; and underwriting questionnaires. Third-party property inspections and other, non-automated underwriting tools are also used to verify underwriting information and to select business.

An experienced, local underwriting staff of sufficient size, supervision and quality is maintained in order to properly select risks and to provide a rapid and knowledgeable response to agents and policyholders.

All underwriting functions are performed by our employees. As of December 31, 2012 and March 31, 2013, respectively, our underwriting department had 7 staff members.

Use of Computer Models to Assess Catastrophic Loss Risk

Property and casualty insurance companies writing business in areas subject to catastrophic losses routinely use highly sophisticated computer simulation models to assess the probabilities of catastrophic losses. These models are generally licensed by providers who specialize in the development and maintenance of these models. The two most prominent providers of models affecting property insurers in the United States are AIR Worldwide (“AIR”) and Risk Management Solutions, Inc. (“RMS”). HAIC relies on the AIR hurricane model results, applied quarterly to HAIC’s active policies, to help determine how much catastrophe reinsurance to purchase, how to properly price business that is subject to significant hurricane losses, and how to most economically and prudently allocate business geographically. HAIC does not license any models, but relies on its reinsurance broker to provide this service, which is customary for smaller companies who cannot economically license and operate these models.

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Claims Administration

The Texas Department of Insurance regulates the minimum content and timeliness of various claims notices and transactions. We strive to exceed those requirements and to adjust claims fairly.

A variety of independent, licensed third-party field adjusters are used to physically examine and evaluate claims on-site, and to provide estimates of damages or loss. We plan to hire a limited number of field adjusters as employees in heavily-populated areas. HAMGA has relationships with a number of large, independent claims adjusting firms who are committed to provide field adjusters in the event of a large-scare catastrophic event. Claims are processed internally by our employees, who are experienced, local claims personnel. All decisions regarding the payment or non-payment of claims are made by us.

Policy Administration

The Texas Department of Insurance regulates the minimum content and timeliness of various policyholder notices and transactions, including the issuance of policies, cancellations, and renewals. We strive to exceed those requirements and to treat all customers fairly.

Policies are maintained by the Policy Transaction System , or PTS, licensed by a third party, IDMI, Inc., or IDMI. Most policyholder transactions are automated, including policyholder billing, policy issuance, cancellation, expiration and renewal notices, and late payment notices. Endorsements or policy changes are made by agents or underwriting personnel utilizing PTS. Our employees perform all customary company policy administration functions, with the exception of the mailing of policy documents to new and renewal policyholders. The printing and mailing of these documents is conducted by a third party, Primoris Services LLC of Warner-Robbins, GA.

Technology

Policy processing and administration is conducted using the PTS. PTS enables agents, our employees and other users to input and complete transactions, review policy information, and otherwise perform customary duties by accessing PTS through the internet. Policy quoting and issuing, policy billing and administration, claims processing and payment, agent commission maintenance and payment, and various other tasks are initiated and completed using PTS.

PTS is licensed by HAIC, but is owned by an outside vendor IDMI. IDMI specializes in providing software to insurance companies throughout the United States. HAIC pays IDMI a monthly fee to maintain PTS and pays fees to IDMI for custom system modifications, based on estimated man hours.

Primoris Services L.L.C., an affiliate of IDMI, hosts PTS on its servers located in Warner Robbins, GA, with a mirror processor hosting both system and policy records in Atlanta, GA. Through this “mirror processing environment” the Company has establish a data security protocol which provides instant “off-site” back-up of both its operating software and data. In addition, the Company has offsite storage of the IDMI operating software with Iron Mountain Intellectual Property Management, Inc.

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Our accounting general ledger is run on Sage Peachtree 50 Quantum software. The software is hosted on a server located in our offices in Irving, Texas and is backed up offsite nightly through the resources of an outside vendor, VersaTrust (formerly American Integration, Inc.) Dallas, TX., or VersaTrust Beginning in the second quarter of 2013 the Company will convert its accounting general ledger system to Flexi International. This software will be hosted on a server located in our offices in Irving, Texas and will be backed up offsite nightly through an outside vendor VersaTrust.

Local area network services (LAN) functions including access to our policy maintenance system, accounting general ledger, e-mail and connection to the internet is hosted / supported on servers in our offices located in Irving, Texas. We use an outside vendor, American Integration, Inc., Dallas, Texas, to assist in the maintenance of our network, to provide technology consulting services, support our communications systems as well as supply backup to our locally housed servers.

Reinsurance

Our insurance company uses a number of reinsurers to minimize or avoid the risk of adverse loss results, particularly weather-related losses. By utilizing reinsurance an insurance company can “cede” a portion of its potential claims and claims expense to another insurance company specializing in “assuming” insurance risks from “primary” companies. “Quota share” and “excess” reinsurance programs are used, more fully described below. When selecting reinsurance coverage, HAIC considers the financial strength and stability of the providers, their history of responding to claims, and their overall reputation. HAIC requires that all reinsurers have an A.M. Best rating of A- (Excellent), or better, or an S&P rating of AA- or better. HAIC continually monitors the financial condition of its reinsurers with the aid of its reinsurance brokers, AON, and Guy Carpenter. The following table shows the A.M. Best and S&P ratings of each of our reinsurers at the time of our most recent placement, April 1, 2013.

Reinsurer	A.M. Best Rating	S&P or S&P Lloyds Rating
Arch Reinsurance Company	A+	A+
Endurance Reinsurance Corporation of America	A	A
Everest Reinsurance Company	A+	A+
SCOR Reinsurance Company	A	A+
Hannover Rueckversicherung-Aktiengesellschaft	A+	AA-
R+V Versicherung AG	NR-5	AA-
Sirius International Insurance Group	A	A-
Odyssey Reinsurance Company	A	A-
Lloyds Syndicate No. 1274 Antares (AUL)	A	A+
Lloyds Syndicate No. 2001 Amlin Underwriting Limited (AML)	A	A+
Lloyds Syndicate No. 2791 MAP Underwriting (MAP)	A	A+
Lloyds Syndicate No. 2987 BRIT (BRIT)	A	A+
Lloyds Syndicate No. 0510 RJ Kiln & Company	A	A+
Lloyds Syndicate No. 4000 Pembroke	A	A+
Houston Casualty Company (UK Branch)	A+	AA
NGM Insurance Company	A	A
Taiping Reinsurance Co. Ltd.	A-	A-
American Standard Insurance Company of Wisconsin	A	NR

Best’s Financial Strength Ratings (FSR) represents the rating agency’s assessment of an insurer’s ability to meet its obligations to policy holders. The rating process involves quantitative and qualitative reviews of company’s balance sheet, operating performance and business profile, including comparisons to peers and industry standards and assessment of insurers operating plans, philosophy and management.

The ratings scale includes six “Secure” ratings:

A++, A+ (Superior)

A, A- (Excellent)

B++, B+ (Good)

The scale also includes ten ratings for companies deemed “Vulnerable”

B, B- (Fair)

C++, C+ (Marginal)

C, C- (Weak)

D (Poor)

E (under regulatory supervision)

F (in liquidation)

S (rating suspended)

Standard & Poors (S&P) credit ratings are forward looking opinions about credit risk. The rating represents the rating agency opinion about the ability and willingness of an insurer to meet its financial obligations in full and on time.

The ratings scale is as follows:

AAA – Extremely strong capacity to meet financial commitments

AA – Very strong capacity to meet financial commitments

A – Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances

BBB – Adequate capacity to meet financial commitments, but more subject to adverse economic conditions

BBB- - Considered lowest investment grade by market participants

Additional ratings complete the scale, but all are considered below investment grade and have not been shown

Quota Share Reinsurance. HAIC uses “quota share” reinsurance to share the risk of loss for its residential property and private passenger automobile lines with unaffiliated companies. Quota share or “proportional” reinsurance programs provide that the reinsurer share a proportional percentage of the insurance company’s claims and claim expenses. For residential property an “occurrence cap” limiting a gross reinsured loss (claims and claims expenses before reinsurance recoveries) to the lesser of $80,000,000. This limits the amount that can be recovered for a single catastrophe or occurrence. The reinsurer receives a proportional percentage of the insurance company’s collected premiums, less a “ceding commission” to cover the insurance company’s expenses. The ceding commission is subject to adjustment, with a stipulated minimum, depending on the insurance company’s claims level in relation to its earned premiums (loss ratio).

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HAIC also uses quota share reinsurance as a means to write more business than its capital resources might otherwise allow. The State of Texas limits the amount of “net written premiums” written by a property and casualty insurance company to 300% of its capital and surplus. Net written premiums are determined by deducting premiums paid to reinsurers from premiums received from policyholders. Thus, an insurance company with limited capital can expand its business activity beyond what otherwise might be achieved by reinsuring a portion of its business. As of March 31, 2013, HAIC reinsured 90% of its residential property business and 50% of its private passenger automobile business through quota share reinsurance programs.

For residential property, the following table shows the proportion or share of premiums and losses assumed by each reinsurer:

Reinsurer	Reinsurer’s Share
Arch Reinsurance Company		24	%
Endurance Reinsurance Corporation of America		10	%
Everest Reinsurance Company		20	%
SCOR Reinsurance Company		10	%
R+V Versicherung AG *		13	%
Odyssey Reinsurance Company		10	%
Taiping Reinsurance Company		3	%

*this reinsurer does not assume the personal liability risks associated with residential property policies.

A total of 90% of the insurance company’s residential property business is subject to the quota share program.

HAIC’s residential property quota share contracts are reviewed annually, on April 1,and are subject to termination as to new business or renegotiation as to terms.

HAIC’s private passenger automobile business is subject to a 50% quota share contract with NGM Insurance Company. HAIC’s private passenger automobile contract was terminated effective July 1, 2012 as to new business, and is in runoff status.

Excess of Loss Reinsurance. HAIC also uses “excess of loss” reinsurance for its residential property and private passenger automobile lines of business. This type of reinsurance covers losses, consisting of claims and claim expenses, above a certain retained amount per occurrence, subject to a maximum limit.

Currently, HAIC has two excess programs that limit residential property losses. One of the programs protect the insurance company against large numbers of individual losses originating from single loss events - weather or other catastrophes. The second program provides coverage for individual risks, generally limited to losses from fire.

Under the largest of the per event programs, HAIC purchases reinsurance covering an occurrence or catastrophe with a gross loss (claims and claims expenses before reinsurance recoveries) in excess of $3,000,000 ($4,000,000 effective April 1, 2013) with a maximum gross loss of $60,000,000 ($80,000,000 effective April 1, 2013). This reinsurance applies to HAIC 10% retained share of the business and does not apply to the losses assumed by the quota share reinsurers, although the quota share reinsurers may elect to purchase excess reinsurance on their own. Thus, under this program, the insurance company limits its maximum net loss under this program to $300,000 (10% of $3,000,000) per occurrence ($400,000 (10% of $4,000,000 effective April 1, 2013)), unless the gross loss exceeds $60,000,000 ($80,000,000 of effective April 1, 2013), in which occurrence HAIC may be subject to all losses above the $60,000,000 ($80,000,000 of effective April 1, 2013) limit. This excess of loss coverage is purchased in layers, as shown in the table below.

This same program includes private passenger automobile coverage, as applied to HAIC’s retained 50% quota share portion. The limits for private passenger automobile are different than those for residential property. Here, the maximum amount retained by HAIC is $200,000 with an upper limit of $800,000. In the event that a catastrophe causes both residential property and automobile losses, there is a “basket clause” that limits HAIC’s net loss to $300,000 for all losses combined.

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The reinsurers who participate in this program as of April 1, 2013 and their percentages of participation as it relates to HAIC’s 10% of gross retained losses are as follows:

Layer/Reinsurer	Participation
$6,000,000 excess of $4,000,000
R+V Versicherung AG		100.0	%

$20,000,000 excess of $10,000,000
Sirius International Corporation		10.0	%
Lloyds Syndicate No. 0510 R.J. Kiln & Company		15.0	%
Lloyds Syndicate No. 2001 Amlin Underwriting Limited (AML) (4UZ)		10.0	%
Lloyds Syndicate No. 2791 MAP Underwriting (MAP) (4LF)		7.5	%
Lloyds Syndicate No. 2791 MAP Underwriting (MAP) ((4NZ)		17.5	%
Lloyds Syndicate No. 2987 BRIT (BRIT) (4MK)		20.0	%
Lloyds Syndicate No. 4000 Pembroke		20.0	%

$20,000,000 excess of $30,000,000
R+V		30.0	%
Sirius International Corporation		15.0	%
Houston Casualty Company; UK Branch		5.0	%
Lloyds Syndicate No. 1274 Antares (AU) (4OZ)		10.0	%
Lloyds Syndicate No. 2001 Amlin Underwriting Limited (AML) (4UZ)		5.0	%
Lloyds Syndicate No. 2987 BRIT (BRIT) (4MK)		2.0	%
Lloyds Syndicate No. 4000 pembroke		10.0	%
Lloyds Syndicate No. 0510 R.J. Kiln		5.0	%

$30,000,000 excess of $50,000,000
American Standard Insurance Company of Wisconsin		25.0	%
R+V Versicherung AG		20.0	%
Sirius International Corporation		15.0	%
Houston Casualty Company, UK Branch		10.0	%
Lloyds Syndicate No. 2987 (BRIT)		20.0	%
Lloyds Syndicate No. 4000 Pembroke		10.0	%

This larger excess of loss program is purchased annually with an April 1^st anniversary.

The catastrophe amount purchased is largely determined by subjecting HAIC’s business to a computer model which runs numerous simulations and arrives at levels of Probable Maximum Loss, or PML, based on levels of probability. The model used by HAIC to estimate PML’s to assist catastrophe reinsurance purchase decisions is the AIR Worldwide Hurricane Historical model. The background of models is described more fully in the Underwriting section on page 35.

HAIC’s business is modeled quarterly, and the amount of reinsurance purchased is selected so that a sufficient amount of insurance is in place to, at minimum, cover a PML that equates to a hurricane that might be expected to occur in any given year approximately 1% of the time or less. This decision is made annually, for inception at each April 1^st. The amount purchased is meant to exceed the amount calculated so that it will allow for business growth in hurricane-exposed areas, and the cost of handling claims. HAIC also estimates and includes an amount that is likely to be assessed by the Texas Windstorm Insurance Association, or TWIA, for a similar storm. The latter is included because a storm effecting HAIC would likely affect TWIA, both having business in many of the same geographical areas. TWIA is more fully described on page 44.

HAIC also purchases residential property excess of loss coverage on a “per risk” basis, reinsuring large losses that may occur on individual residential properties. The perils covered are other than weather-related losses. Thus, this coverage is principally meant to cover losses from fire on more expensive homes. Losses are covered in excess of $500,000 per occurrence per insured property

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The reinsurers who participate in this program and their percentages of participations are shown below:

Reinsurer	Participation
Hannover Rueckversicherung-Aktiengesellschaft		20.0	%
Everest Reinsurance Company		80.0	%

The per risk excess of loss program is purchased annually with an April 1st anniversary.

In addition to protection from excess residential property losses, HAIC also purchases per risk excess of loss reinsurance for private passenger automobile claims. This reinsurance covers HAIC’s net retained losses (after deducting quota share reinsurance) above $20,000 per accident. Thus, HAIC is protected from larger individual losses on the 50% of the private passenger automobile business retained by HAIC. This contract was terminated as to new business July 1, 2012 and is in runoff.

HAIC relies heavily on quota share and catastrophe reinsurance to support its growth and continued operations and to protect it from adverse risk. The unavailability, limited availability, or increased cost of reinsurance could have a material adverse effect on our business, results of operations and financial condition.

Investments

As directed by its board of directors, HAIC follows an extremely conservative investment policy, where it only invests in federally insured certificate of deposits or holds deposits in federally insured demand deposit accounts. While this strategy has led to marginal investment returns over the past several years due to historically low yields on these types of investments, this investment strategy supports HAIC’s liquidity needs as a mainly property insurer. This strategy also provides operating expense savings by siginificantly reducing transactional bank charges, through compensating balance offsets at our depository institutions

The following are the historical investment returns for the Company:

	2006			2007			2008			2009			2010			2011			2012
Gross Investment Income	$	190,399		$	234,992		$	119,934		$	64,345		$	45,666		$	26,376		$	17,980
Average Invested Assets		2,283,441			5,338,068			6,032,126			5,891,583			4,932,617			3,716,264			5,085,977
Investment Yield		8.34	%		4.40	%		1.99	%		1.09	%		0.93	%		0.71	%		0.35	%

Competition

SNL Financial ranked 74 companies writing homeowners insurance in Texas as of December 31, 2012. At that time HAIC ranked 19th in terms of premium volume.

Large, national companies have a large share of the Texas homeowners market. State Farm Mutual, Allstate Corp., and Farmers Insurance Group together had a market share of 49.72% as of December 31, 2012. These companies are categorized as “captive agency” companies as their business is conducted largely through agents who are obligated by contract to place their business, with some exceptions, with a specific company. There are also companies who do business directly with policyholders, including USAA Insurance Group, and Amica Mutual Insurance Group. These two companies collectively had a 9.82% market share as of December 31, 2012.

We conduct our business through independent agents. Independent agents typically represent several insurance companies. Our “direct” competition tends to consist of other insurance companies who do business through independent agents, although all companies compete for the same ultimate customers.

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Direct competitors include Liberty Mutual, Travelers Companies, Inc., ASI Lloyds, Hartford Financial Services, MetLife Inc., Universal Group, State Auto Insurance Companies, Cypress Insurance Group Inc., and Kemper Corp.

The large, established national companies have a number of advantages over smaller, younger companies. The larger competitors who we compete directly with, such as Liberty Mutual and Travelers, and those who use captive agencies or market directly have the advantages of wide name recognition, extensive advertising, superior ratings from rating agencies, and customer loyalty. Nonetheless, smaller, younger companies can compete successfully by providing high-quality, responsive customer service, to both agents and policyholders, using robust automation, and offering competitive prices in selected market segments.

According to SNL, Financial our Texas homeowners market share at December 31, 2012 was .64%. Although this market share is relatively small, it is part of the large $6.4 billion Texas homeowners market.

Competition could have a material adverse effect on our business, results of operations and financial condition.

Government Regulation

General

We are subject to the laws and regulations of the State of Texas and the regulations of any other states in which we do business. State regulations cover all aspects of our business and are generally designed to protect the interests of insurance policyholders, as opposed to the interests of stockholders. Such regulations relate to authorized lines of business, capital and surplus requirements, allowable rates and forms, investment parameters, underwriting limitations, transactions with affiliates, dividend limitations, changes in control, market conduct, and a variety of other financial and non-financial components of our business. Our failure to comply with certain provisions of applicable insurance laws and regulations could have a material adverse effect on our business, results of operations or financial condition.

Many states, including Texas, have enacted laws which restrict an insurer’s underwriting discretion, ability to increase rates, ability to maintain rate adequacy, ability to terminate policies, terminate agents or reject insurance coverage applications. These laws may adversely affect the ability of an insurer to earn a profit on its underwriting operations.

All states require regulatory approval before an insurance company is allowed to do business in that state. Although we have no immediate plans to enter any new states, regulatory authorities in those states may disapprove or delay expansion of HAIC into new markets.

Insurance companies must file quarterly and annual statements with certain regulatory agencies and are subject to regular and special examinations by those agencies. The Texas Department of Insurance requires that an insurer’s annual statement filing be supported by audited financial statements as well as an independent actuary’s certification loss reserves. The latest state regulatory financial exam of HAIC was completed by the Texas Department of Insurance in September, 2011 for the year ended December 31, 2010. In addition, the Texas Department of Insurance completed its latest market conduct examination of HAIC in May, 2011, for the twelve month period ended August 31, 2010. A market conduct examination reviews and tests the insurance company’s adherence to legal and regulatory requirements as respects policies issued, policies cancelled, claims paid, and other policyholder transactions, and as respects requirements to file approved rates and forms. No material changes to the company’ accounts or business conduct were indicated or required as a result of any of these examinations. No market conduct examination of HAIC is scheduled. The next scheduled financial examination of HAIC will be for the year ending December 31, 2015.

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States routinely require deposits of assets for the protection of policyholders either in those states or for all policyholders. HAIC currently has investments on deposit of $1 million for benefit of the State of Texas.

Restrictions on Payments of Dividends by a Texas Insurance Company

The Texas Insurance Code limits dividends from insurance companies to their stockholders to net income accumulated in the company’s surplus account, or “earned surplus”. Further, dividends are classified as Extraordinary Dividends, if a distribution including the payment of dividend or distribution of cash or other property, the fair market value of which combined with the fair market value of each other dividend or distribution made in the preceding 12 months exceeds the greater of: (1) 10 percent of the insurer's policyholders' surplus, as of December 31 of the year preceding the year in which the fair market value is being determined, or (2) the net income for the calendar year preceding the year in which the fair market value is being determined, require the prior approval of the Texas Commissioner of Insurance. The Texas Commissioner must be given 30 days notice before an insurer may pay an extraordinary dividend. If the Commissioner does not disapprove such dividend during the 30 day notice period, it is deemed approved. The Texas Insurance Code does not regulate dividends to stockholders from non-insurance entities, such as HAMGA.

HAIC has not, from inception to date, declared or paid a dividend to its stockholder, HAHC, or to any other stockholder.

The Texas Insurance Code limits dividends from insurance companies to their stockholders to net income accumulated in the company’s surplus account, or “earned surplus”. The maximum dividend that may be paid without approval of the Insurance Commissioner (Ordinary Dividend) is limited to the greater of 10% of the statutory surplus at the end of the preceding calendar year or the statutory net income of the preceding calendar year. No dividends were paid by HAIC in 2012 or 2011. Any amount in excess of this would be considered an Extraordinary Dividend, which would require the approval of the Commissioner of Insurance. The highest amount HAIC would currently be able to pay to HAHC as of December 31, 2012 and December 31, 2011, in accordance with the Texas Insurance Code, would be as follows:

	December 31, 2012				Limitation
2012 Retained Earnings	$	909,167

Statutory Surplus	$	6,716,222	10	%	$	671,622
Statutory Net Income	$	394,044	100	%	$	394,044
Maximum Dividend Permitted							$	394,044

		December 31, 2011				Limitation
2011 Retained Earnings	$	677,742

Statutory Surplus	$	4,984,797	10	%	$	498,480
Statutory Net Income	$	716,638	100	%	$	716,638
Maximum Dividend Permitted							$	716,638

The Texas Department of Insurance, under its holding company regulations, must pre-approve an insurer’s arrangements with its affiliates, including but not limited to, any service or management agreements. These agreements must be, in the opinion of the Texas Department of Insurance, fair and equitable to the insurer. Such regulation may indirectly limit the distribution of profits among HAHC’s affiliates.

HAMGA has paid dividends to HAHC. HAHC has used these funds to pay operating expenses, and to provide additional operating capital to HAIC. A dividend in the amount of $500,000 was paid in March, 2012 and a dividend in the amount of $300,000 was paid in December, 2012.

NAIC Risk Based Capital Requirements

In order to aid the regulation of insurer solvency, the NAIC established risk-based capital, or RBC requirements for insurance companies. The RBC requirement is designed to assess capital adequacy and to raise the level of protection that statutory capital and surplus provides to policyholders. These requirements measure three major areas of risk facing property and casualty insurers: (1) underwriting risks, which encompass the risk of adverse loss developments and inadequate pricing, (2) declines in asset values arising from credit risk, and (3) other business risks from investments. Insurers having less statutory capital and surplus than required will be subject to varying degrees (action levels) of required company action and/or regulatory action by the Texas Department of Insurance, depending on the level of inadequacy.

Based upon the 2012 statutory financial statements of HAIC, its statutory capital and surplus exceeded all company and regulatory action levels established by the State of Texas. HAIC's authorized control level risk based capital capital under the NAIC's RBC calculation was $1,815,758 at December 31, 2012. HAIC's statutory surplus at December 31, 2012 was $6,716,222, exceeding the required level of capital by $4,900,464.

NAIC Insurance Regulatory Information Systems (“IRIS”) Ratios

For property and casualty insurance companies, the NAIC has developed a set of 13 financial ratios focusing on the overall operations, profitability, liquidity and claim reserve adequacy to assist state insurance departments in identifying companies which may be developing performance or solvency problems as signaled by changes in the companies’ operations. Such changes may not necessarily result from a specific problem within an insurance company, but may merely indicate changes in the operational results of that company, which cause certain ratios to fall outside the ranges defined as ”usual” by the NAIC. A ratio outside the usual range is not considered failing, as the ratios are set as averages for all types of companies. However, when an insurance company has a number of ratios falling outside “usual ranges”, state regulators may investigate to determine the reasons for the variance and decide whether corrective action is warranted. Ratios outside the usual ranges for HAIC, reported by the NAIC for the year 2012 are as follows:

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Investment Yield, calculated as net investment income/average invested assets (usual range from 3% - 6.5%)

HAIC’s investment yield for the year ending December 31, 2012 was 0.10% as a result of historically low rates on federally insured deposits. As dictated by its extremely conservative investment policy, HAIC is required to invest only in FDIC insured demand deposit accounts or certificates of deposit. This investment policy provides HAIC with a high level of liquidity, which supports the rapid payment of its claims, while at the same time providing HAIC with operational cost savings by reducing transactional banking expenses (by approximately $12,000 in 2012).

Insurance Holding Company Regulation

We are subject to laws governing insurance holding companies in Texas, where HAHC has its corporate headquarters. These laws, among other things, (1) require us to file periodic information with the Texas Department of Insurance, including information concerning our capital structure, ownership, financial condition and general business operations, (2) regulates certain transactions between us and our affiliates, including service or management agreements, and (3) restrict the ability of any one person to acquire a certain level of our voting securities without prior regulatory approval.

Any purchaser of 10% or more of the outstanding voting shares of our common stock will be considered a “controlling person”, and such purchase will be considered a change in control (unless the purchaser is already a controlling person). Such a purchase will require prior approval of the Texas Commissioner of Insurance. Such a purchaser will be required to file satisfactory information with the Texas Department of Insurance, including financial and biographical information. In the event of a change in control, the Commissioner may require an increase in the minimum acceptable capital and surplus of HAIC.

Managing General Agency Regulation

HAMGA is subject to the laws governing managing general agents in Texas which include among others, (1) allow the Texas Department of Insurance to conduct a financial examination of HAMGA, (2) require that separate records be kept for each insurer doing business with HAMGA, (3) set minimum reporting requirements to insurers by HAMGA, (4) require that insurer funds be kept in a separate escrow account for each insurer, (5) require a written contract with each insurer doing business with HAMGA, with stipulated provisions relating to annual examinations of HAMGA by each insurer, recordkeeping for and reporting to insurers, reporting HAMGA ownership changes to insurers, HAMGA duties and limits of authority, and the remittance of funds, among other required provisions, and (6) require notice to the Texas Department of Insurance by HAMGA in the event of overdue balances due insurers, withdrawal by an insurer of claims settlement authority, or the cancellation of a contract between HAMGA and an insurer.

Privacy

As mandated by the Gramm-Leach-Bliley Act, states, including Texas, have promulgated and refined laws and regulations that require financial institutions, including insurance companies, to take steps to protect the privacy of certain consumer and customer information relating to products or services primarily for personal, family or household purposes.

Future Legislation and Regulation

From time to time, new regulations and legislation are proposed by federal and state legislatures and agencies. It is not possible to predict whether, in what form or in what jurisdictions, any proposal might be adopted, or the effect, if any, on us.

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The Texas Windstorm Insurance Association or TWIA

HAIC, as a company writing residential property insurance in Texas is a member of and is subject to assessments by TWIA. TWIA is a so-called “residual market”, providing coverage for windstorm, hurricane, hail, and other weather-related perils in the Texas counties that face the Gulf of Mexico. The principal purpose of TWIA is to provide insurance protection from tropical cyclones to residential and commercial property owners along the Gulf of Mexico who would otherwise find it difficult or impossible to secure coverage from private companies.

Assessments are determined based on a formula largely determined by the market share of the member company in the property lines covered by TWIA. Potential assessments may be offset by windstorm business voluntarily written in the affected areas by the member company. HAIC has, up to the date of this prospectus, written insurance within the first tier including wind coverage, however not in amounts material enough to offset exposure to assessments. HAIC’s assessment percentage for the loss year 2012 was 0.679% of assessable losses.

Losses incurred by TWIA are funded in a number of ways, of which assessments are a part. The first $300M of losses are expected to be funded by premiums charged Coastal consumers and accumulated in a Premium and Catastrophe Reserve Fund. The next $500M in losses is to be funded by a Bond Anticipation Note/Class 1 Public Securities, repaid by future premiums collected by TWIA from Coastal residents.

The next $1B in losses is to be funded by Class 2 Post-Event Bonds. Policyholders in the catastrophe area are to repay 70% of the amount funded through surcharges on future premiums. Member companies are to repay 30% of the amount funded through member assessments. The next $500M in losses is to be funded by member assessments. If losses exceed the $2.3B provided for by the aforementioned means, TWIA has purchased an additional $850M of insurance from private sector reinsurers. Thus, TWIA member companies are subject to a potential assessment of their portion of $800M (30% of $1B + $500M).

HAIC’s property reinsurance programs all include these potential assessments in the definition of a covered loss.

The funding mechanisms available to TWIA do not address losses in excess of the $3.15B outlined above, whether caused by a single event or multiple events. The funding of TWIA is governed by Texas law. It is unknown if the State of Texas would, through legislation or otherwise, provide additional funding or what funding methods would be used .

The Texas FAIR Plan

The FAIR Plan was established to provide a market for consumers in those cases when property insurance is not available from the private sector. This does not include consumers in coastal counties. To qualify, a potential insured must provide proof of two declinations of their applications to private insurers. Companies writing residential property in Texas are required to participate in any financial deficit in the FAIR Plan in proportion to their market share. HAIC’s market share as calculated by the FAIR Plan for 2012 is .62%. The Company expects to be advised of any change to this rate during the third quarter of 2013.

HAIC’s property reinsurance programs all include these potential participation payments in the definition of a covered loss, provided that the deficit causing the payment is caused by a covered occurrence.

Texas Property and Casualty Insurance Guarantee Association

Insurance companies admitted to do business in Texas are subject to assessments in the event of a company insolvency. The purpose of the association is to guarantee the payment of claims, up to certain maximums, to consumers in the event that an admitted company can no longer meet its financial obligations. Expenses associated with the maintenance of policies, orderly liquidation of the insolvent company, and claims expenses are also assessable. A member company’s assessment is determined in proportion of the member company’s lines of business to the same lines of business of the insolvent company. Thus, by way of example, an insolvent life insurance company would trigger no assessment of any property and casualty insurance company. As another example, an insolvent property and casualty insurance company writing only workers’ compensation insurance would trigger no assessment of a company that did not write workers compensation insurance.

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Any Guarantee Association assessment may be offset against the participating company’s Texas premium taxes, to be spread equally over 10 years. Amounts yet to be recovered, to be offset against premium taxes in future years, may be set up as an admitted asset on the company’s books, for regulatory purposes. Assessments in any given year are subject to a maximum of 2% of the net written premium of the assessable line of a company’s business.

HAIC’s reinsurance programs do not include potential Guarantee Association assessments as a recoverable loss.

Employees

As of March 31, 2013 we had 36 employees, all but one of whom are full time employees, including five executive officers. We are not a party to any collective bargaining agreement and have not experienced any work stoppages or strikes as a result of labor disputes. We consider relations with our employees to be satisfactory.

Facilities

We lease 4,286 square feet of office space in Irving, Texas. The lease for this office space expires on May 31, 2016. As of March 31, 2013 the monthly rent for this space is 8,457.76 payable in equal monthly installments. Rent may be increased each December 31^st, with a maximum increase equal to 95% of our pro rata share, based on occupancy, of any increase in the landlord’s operating costs. The cost of utilities is charged separately, prorated based on occupancy.

Legal Proceedings

We are subject to routine legal proceedings in the ordinary course of business. We believe that the ultimate resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to us regarding beneficial ownership of our common stock as of June 26, 2013 by our executive officers and directors (individually and as a group) and each person who is known by us to beneficially own more than five percent of our common stock.

Except as otherwise indicated, we believe that each of the beneficial owners and selling stockholders listed below has sole voting and investment power with respect to such shares, subject to community property laws, where applicable. Unless otherwise noted, the address of each stockholder is c/o Homeowners of America Holding Corporation, 1333 Corporate Drive, Suite 325, Irving, TX 75038.

Beneficial ownership is determined in accordance with the rules of the SEC, and includes any shares of common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement.

	Common Stock
Name of Beneficial Owner	Shares Beneficially Owned (1)		Percent of Class (2)
Executive Officers and Directors:
Spencer Tucker (3)		1,173,226		7.45	%
Michael C. Rosentraub (14)		12,500			*
Debbie L Carter (4)		162,204		1.02	%
Michael S. Cox (5)		25,000			*
Brent W. Parker (6)		22,500			*
Brett Baris (7)		13,475,219		85.62	%
Frederick Hammer (8)		13,475,219		85.62	%
Luther H. Hodges Jr. (9)		371,195		2.36	%
Albert R. Dowden (10)		3,500			*
James F. Leary (11)		1,875			*
Richard L. Viton		-		-
Andrew Lerner (12)		13,475,219		85.62	%
Officers and Directors as a Group (12 persons)		15,247,219		96.87	%
Principal Stockholders:
Inter-Atlantic Fund, L.P. (13)		13,475,219		85.62	%

*less than 1%

(1) In determining beneficial ownership, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares (1) voting power which includes the power to vote, or to direct the voting of, such securities and/or (2) investment power which includes the power to dispose, or to direct the disposition, of such security. In addition, for the purposes of this chart, a person is deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days, including, but not limited to, any right to acquire: (a) through exercise of an option, warrant or right; (b) through the conversion of security; (c) pursuant to the power to revoke a trust, discretionary account or similar arrangement; or (d) pursuant to the automatic termination of a trust, discretionary account or similar arrangement.

(2) Based upon 15,739,182 shares of common stock issued and outstanding as of the conversion of our Series A Preferred Stock, Series B Preferred Stock and convertible promissory notes into 14,839,182 shares of common stock assuming the conversion of all our 4,500,000 outstanding Series A Preferred stock and 500,000 outstanding Series B Preferred stock to common stock. Shares of common stock that are subject to options currently exercisable within 60 days of June 26, 2013 are deemed outstanding for computing the percentage ownership of the person holding such options but not deemed outstanding for computing the percentage ownership of any other person.

(3) Includes 373,226 shares of Series B Preferred stock convertible to common stock at any time.

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(4) Includes 100,000 shares underlying options that are exercisable on or within 60 days of June 26, 2013 and 62,204 shares of Series B Preferred stock convertible to common stock at any time.

(5) Includes 25,000 shares underlying options that are exercisable on or within 60 days of June 26, 2013.

(6) Includes 22,500 shares underlying options that are exercisable on or within 60 days of June 26, 2013.

(7) Includes 11,196,768 shares of Series A Preferred stock convertible to common stock at any time and a convertible promissory note convertible into 2,278,451 Series A Preferred Stock, which is then convertible into common stock at any time held by Inter-Atlantic Fund, L.P for which Mr. Baris has shared voting and investment power. Mr. Baris disclaims beneficial ownership of the shares held by Inter-Atlantic Fund, L.P.

(8) Includes 11,196,768 shares of Series A Preferred stock convertible to common stock at any time and a convertible promissory note convertible into 2,278,451 Series A Preferred Stock, which is then convertible into common stock at any time owned by Inter-Atlantic Fund, L.P for which Mr. Hammer has shared voting and investment power. Mr. Hammer disclaims beneficial ownership of the shares held by Inter-Atlantic Fund, L.P.

(9) Includes 2,500 shares underlying options that are exercisable on or within 60 days of June 26, 2013 and 248,817 share of Series B Preferred Stock convertible to common stock at any time and a convertible promissory note convertible into 119,878 Series A Preferred Stock, which is then convertible into common stock at any time.

(10) Includes 3,500 shares underlying options that are exercisable on or within 60 days of June 26, 2013.

(11) Includes 1,875 shares underlying options that are exercisable on or within 60 days of June 26, 2013.

(12) Includes 11,196,768 shares of Series A Preferred stock convertible to common stock at any time and a convertible promissory note convertible into 2,278,451 Series A Preferred Stock, which is then convertible into common stock at any time held by Inter-Atlantic Fund, L.P for which Mr. Lerner has shared voting and investment power. Mr. Lerner disclaims beneficial ownership of the shares held by Inter-Atlantic Fund, L.P.

(13) Includes 11,196,768 Series A Preferred stock convertible to common stock at any time and a convertible promissory note convertible into 2,278,451 Series A Preferred Stock, which is then convertible into common stock at any time. The general partner of Inter-Atlantic Fund, LP is Inter-Atlantic Advisors, Ltd. The directors of Inter-Atlantic Advisors, Ltd are Andrew Lerner, Brett Baris, Frederick Hammer, Robert Lichten, and Michael Esposito. The beneficial owners of Inter-Atlantic Advisors, Ltd. are Andrew Lerner, Robert Lichten, Frederick Hammer, Michael Esposito Jr., Brett Baris, Mike Mazzola, Thomas Donahue, Eduardo Bohorquez, and Joseph Vadapalas. The directors and beneficial owners of Inter-Atlantic Advisors, Ltd share voting and investment power over the shares held by Inter-Atlantic Fund, LP. The address of Inter-Atlantic Fund, LP is 142 West 57th Street, Floor 11, New York, New York 10019.

(14) Includes 12,500 shares underlying options that are exercisable within 60 days of June 26, 2013.

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SELLING STOCKHOLDERS

Up to 15,739,182 shares of common stock are being offered by this prospectus, all of which are being registered for sale for the account of the selling stockholders.

The table below sets forth certain information regarding the selling stockholders and the shares of our common stock offered by them in this prospectus. The selling stockholders have not had a material relationship with us within the past three years other than as described in the footnotes to the table below or as a result of acquisition of our shares or other securities. None of the following selling stockholders are registered broker-dealers or affiliated with registered broker dealers.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. The selling stockholders’ percentage of ownership of our outstanding shares in the table below is based upon 15,739,182 shares of common stock issued and outstanding as of the effective date of this Registration Statement and includes 900,000 currently outstanding common shares and 14,839,182 that will be issued in connection with conversion of the Company’s outstanding Series A and Series B Preferred Stock.

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	Ownership Before Offering				Ownership After Offering (1)
Selling Stockholder	Number of shares of common stock beneficially owned		Number of shares offered		Number of shares of common stock beneficially owned		Percentage of common stock beneficially owned
Inter-Atlantic Fund, L.P. (2)		13,475,219		13,475,219		-		-	%
Spencer Tucker (3)		1,173,226		1,173,226		-		-	%
Debbie L Carter (4)		62,204		62,204		-		-	%
Richard Backus		411,021		411,021		-		-	%
Luther H. Hodges Jr. (5)		368,695		368,695		-		-	%
James Ard		124,409		124,409		-		-	%
Ray Robbins Jr.		62,204		62,204		-		-	%
Sandra Jannette		62,204		62,204		-		-	%
TOTAL		15,739,182		15,739,182		-		-	%

*represents less than 1%

(1) Represents the amount of shares that will be held by the selling stockholders after completion of this offering based on the assumptions that (a) all shares registered for sale by the registration statement of which this prospectus is part will be sold and (b) that no other shares of our common stock beneficially owned by the selling stockholders are acquired or are sold prior to completion of this offering by the selling stockholders

(2) Our directors Andrew Lerner, Brett Baris and Frederick Hammer are among the beneficial owners of Inter-Atlantic Fund L.P.’s general partner, Inter-Atlantic Advisors, Ltd.

(3) Mr. Tucker is our Chief Executive Officer and a director on our board of directors.

(4) Ms. Carter is our Senior Vice President of Operations, and a director of HAIC.

(5) Mr. Hodges is a director on our board of directors.

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MANAGEMENT

The following is a list of the names, ages and positions of our directors and executive officers. The directors hold office for one year terms and until their successors have been elected and qualified. The executive officers hold office for one year terms or until their successors are elected by the board of directors. The executive officers and directors of Homeowners of America Insurance Company are the same as our executive officers and directors, except that Debbie L. Carter is a director of Homeowners of America Insurance Company, but not the Company.

Name	Age	Position
Spencer W. Tucker	67	Director and Chief Executive Officer
Frederick S. Hammer	77	Director
Brett G. Baris	38	Director
Luther H. Hodges Jr.	76	Director
Albert R. Dowden	71	Director
James F. Leary	83	Director
Richard L. Viton	48	Director
Andrew S. Lerner	48	Director
Michael C. Rosentraub	59	Chief Financial Officer
Debbie L. Carter	48	Senior Vice President of Operations
Michael S. Cox	45	Vice President, Director of Sales & Marketing
Brent W. Parker	46	Vice President, Director of Claims

Directors and Executive Officers

Spencer W. Tucker is the President and Chief Executive Officer and Founder of HOAIC and has served on our board of directors since 2005. Mr. Tucker has been our Chief Executive Officer since April 2006. He has over 40 years of insurance industry experience. Before starting HOAIC, Mr. Tucker started and managed the Texas programs of ASI Lloyds as an officer of that company. Mr. Tucker has been President of American Capitol Insurance Company (Houston), Associates Insurance Group (Dallas), Associates Life Insurance Company (Dallas), Associates Property and Casualty Insurance Company (Dallas), Southeast Surplus Underwriters (Beaumont). He has also served in executive capacities with Vesta County Mutual (Dallas), Ranchers and Farmers Mutual (Beaumont), AVCO Financial Services (Newport Beach, California), and Pacific Standard Life Insurance Company (Davis, California),. Mr. Tucker is a Fellow of the Life Management Institute with specialties.in Accounting and Finance. Mr. Tucker has a BS in Business Administration from Cal-State University, Hayward, California. Mr. Tucker’s extensive experience in the insurance business, including in an executive capacity with various insurers, makes him qualified to serve on our board of directors.

Frederick S. Hammer has served on our board of directors since 2005. Mr. Hammer has been the Co-Chairman of Inter-Atlantic Group since 1994 and is a member of the firm’s investment committee. Mr. Hammer served as Executive Vice President of The Chase Manhattan Bank, where he was responsible for the bank's global consumer activities including its retail branch network and consumer lending and deposit businesses. He also served as Chairman, President and Chief Executive Officer of Mutual of America Capital Management Corporation where he directed a $7 billion investment portfolio. Other positions held include President of SEI Asset Management Group, where he originated their multi-manager investment operations; Chairman and Chief Executive Officer of Meritor Financial Group; Executive Vice President of Associates Corp. of North America; and Vice President of Bankers Trust Co. where he was secretary of the Asset/Liability Management Committee. Mr. Hammer is a former Director of VISA and VISA International. Mr. Hammer holds an A.B. degree in Mathematics, magna cum laude, from Colgate University and received his M.S. and Ph.D. degrees in Economics from Carnegie-Mellon University. He taught Finance and Banking at The Wharton School, The University of Indiana, and New York University's Graduate School of Business Administration. Mr. Hammer’s extensive knowledge and experience in the area of finance and investment, as well as his experience as a director of a publicly held company, makes him qualified to serve on our board of directors.

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Brett G. Baris has served on our board of directors since 2005. Mr. Baris is a Partner of Inter-Atlantic Group, where he has been employed since 1998. Mr. Baris is responsible for sourcing, analyzing, negotiating, structuring and monitoring private equity investments, and is a member of Inter-Atlantic Group’s investment committee. From 2007-2009, Mr. Baris was also the Executive Vice President of special purpose acquisition company Inter-Atlantic Financial, Inc. Mr. Baris was a Vice President of Guggenheim Securities, LLC, Inter-Atlantic Group’s former NASD broker-dealer operation, until 2003, and held series 7, series 24 and series 63 NASD licenses. Prior to joining Inter-Atlantic Group, Mr. Baris spent two years as an analyst in the Financial Institutions Group of Salomon Smith Barney Inc. At Salomon Smith Barney, Mr. Baris worked predominantly on collateralized debt offerings and securitizations in the student loan finance area. Mr. Baris is a Director of Ceannate Corp. and an advisory board member of Tio Networks, Inc., all Inter-Atlantic Group portfolio companies. Mr. Baris holds a B.A. in Economics, magna cum laude, from Tufts University and an M.B.A. from Columbia Business School. He is a member of the Phi Beta Kappa National Honor Society and the Beta Gamma Sigma International Honor Society. Mr. Baris extensive experience in finances and investments, as well as prior board experience, makes him qualified to serve on our board.

Luther H. Hodges, Jr., has served on our board of directors since 2005. Mr. Hodges is a former Undersecretary and Deputy Secretary of the U.S. Department of Commerce from the Carter Administration and manages two investment partnerships. In addition he is a managing partner of Hotel Santa Fe, Santa Fe, NM. During his career at North Carolina National Bank, now Bank of America, he rose to the position of Chairman of the Board. Later he was Chairman and Chief Executive Officer of Washington Bancorporation, a major regional bank holding company. He also served as CEO of its chief subsidiary, National Bank of Washington. Mr. Hodges has been a candidate for the U.S. Senate in North Carolina. He also has been on the faculty of the University of North Carolina, Duke University and the University of New Mexico. Mr. Hodges received his undergraduate degree in 1957 from the University of North Carolina and is a graduate of the Harvard Graduate School of Business Administration. Mr. Hodges extensive experience working with banks in an executive capacity, his government experience and prior director and chairmanships, makes him qualified to serve on our board.

Albert R. Dowden has served on our board of directors since 2005. Mr. Dowden served in various capacities with Volvo companies in North America from 1967-1998, retiring as President, Chief Executive Officer and Director of Volvo Group North America, Inc. He was also at that time Senior Vice President of parent company AB Volvo, Gothenburg, Sweden. Prior to joining Volvo, Mr. Dowden practiced law with Rogers & Wells (now Clifford, Chance) in New York City. Mr. Dowden is a director of Invesco Funds, Nature’s Sunshine Products, Reich & Tang Funds and The Boss Group. Mr. Dowden has also served on the Boards of The Hertz Corporation, Genmar Corporation, and National Media Corporation, as well as numerous Volvo Boards. Mr. Dowden received a B.A. degree from Middlebury College, Middlebury, VT and a J.D. from New York University School of Law in 1966. Mr. Dowden’s many years of executive experience for a large international company, as well as his legal background and experience serving on numerous boards, makes him qualified to serve on our board of directors.

In April 2013, the Company was advised that Albert Dowden will resign for personal reasons from the Board of Directors both of HAHC and HAIC, effective June 30, 2013.

James F. Leary has served on our board of directors since 2005. Mr. Leary has been Managing Director of Benefit Capital SouthWest, Inc., an investment banking firm located in Dallas, TX since 1999. Previously, he founded and was Managing General Partner of Sunwestern Investment Group, Dallas, TX, one of the largest venture capital groups in the Southwest. Under his leadership Sunwestern formed domestic limited partnerships as well as offshore investment companies to invest in portfolio companies. Sunwestern was one of the first venture groups to use Small Business Investment Companies, partially funded by the U.S. government, to complement the Group’s investments. During his professional career, Mr. Leary has held high level executive positions including Senior Executive Vice President, Director and Chief Financial Officer of The Associates First Capital Corporation, a large financial services conglomerate and now part of Citigroup, Inc. Before joining The Associates, Mr. Leary was employed by CIT Financial Corporation, New York, NY, as well as its banking subsidiary, National Bank of North America. Mr. Leary is a Director of several funds managed by Capstone Asset Management Company, Houston, TX, as well as others managed by Highland Capital Management, L.P. of Dallas, TX. He also serves on the Board of Pacesetter Capital Group’s Minority Equity Small Business Investment Company. Mr. Leary earned his Undergraduate Degree from the School of Foreign Service, Georgetown University, and his Masters Degree in Banking and Finance from New York University. He also attended the advanced Management Program at the Graduate School of Business Administration at Harvard University. Mr. Lerner’s background in investment banking, extensive executive experience with a large financial services corporation, as well as his prior board experience, makes him qualified to serve on our board of directors.

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Richard L. Vitón has served on our board of directors since 2009. Mr. Vitón is a Partner of Inter-Atlantic Group which he joined in 2008 and is a member of Inter-Atlantic Group’s investment committee. With over 25 years of financial services experience as a senior level investment banker and previously in a corporate finance role, Mr. Vitón has significant industry client relationships and extensive transaction execution experience. Mr. Vitón specialized in the insurance sector with particular strength in its cross-over with other financial services sectors including asset management, transaction processing, finance companies and banking and is a senior advisor with the largest Hispanic-owned investment bank. Mr. Vitón was most recently a Managing Director in the Financial Institutions Group of Credit Suisse from 2005 to 2007, where he was recruited to rebuild Credit Suisse’s insurance practice with a focus on cross-divisional coordination with the Fixed Income and Asset-Backed Securities areas. Prior to joining Credit Suisse, Mr. Vitón was a Managing Director at UBS Investment Bank from 1997 to 2005, having founded a Chicago office and Insurance Group for Dillon Read prior to its acquisition by Swiss Bank and merger with UBS. In addition to senior client relationship responsibilities for the insurance sector Mr. Vitón also served for a period as Chief Operating Officer of the Financial Institutions Group assisting in managing and growing the group from 10 to 50 professionals. At UBS Mr. Vitón completed over 150 financing and merger and acquisition transactions totaling over $60 billion, including a variety of large cap, small cap, cross border and structured products transactions. Prior to joining Dillon Read, Mr. Vitón was in the Chicago office of Dean Witter Reynolds from 1990 to 1997, where he was a Midwest region generalist and a founding member of the Insurance Industry Group within Investment Banking. Mr. Vitón started his career as Senior Corporate Finance Analyst at Sears, Roebuck and Co. where he was a member of a small team with responsibilities for Sears’ global capital markets activities and financial strategies. Mr. Vitón holds a Master of Management degree from the J.L. Kellogg School of Management and a Bachelor of Arts in Economics from Northwestern University. Mr. Vitón is a member of the Association of Insurance and Financial Analysts. Mr. Vitón’s over 20 years of experiences of investment banking and corporate finance, his significant industry relationships and experience with the insurance industry, makes him qualified to serve on our board of directors.

Andrew S. Lerner was appointed to our board of directors in October 2012. Mr. Lerner is the Managing Partner of Inter-Atlantic Group, where he has been employed since 1995. Mr. Lerner is responsible for the day-to-day activities of Inter-Atlantic Group, and is a member of Inter-Atlantic Group’s investment committee. From 2007-2009, Mr. Lerner was also the Chief Executive Officer of special purpose acquisition company Inter-Atlantic Financial, Inc. In 2000, he launched Inter-Atlantic Group’s private equity business which is now the core activity of the organization. Mr. Lerner was also President and Managing Director of Guggenheim Securities, LLC, Inter-Atlantic Group’s former broker-dealer operation, until 2003. He was responsible for its day-to-day affairs including all supervisory, financial, regulatory, compliance and broker-dealer activities. Mr. Lerner is a Director of HedgeCo Networks, LLC, a Director of Ceannate Corp. and an advisory board member of Tio Networks, Inc., which are portfolio companies of Inter-Atlantic. He is a former Director of Higher One Holdings, Inc. and several other Inter-Atlantic Group current and past portfolio companies. Mr. Lerner has over 20 years of experience in the financial services industry. Prior to joining Inter-Atlantic Group, he served as an investment banker in the Financial Institutions Group of Smith Barney Inc. for four years and in its Mortgage and Asset Finance Group for two years. Mr. Lerner holds a B.S.E. in Electrical Engineering and Computer Science from Princeton University and an M.B.A. in Finance from The Wharton School, University of Pennsylvania. Mr. Lerner’s extensive experience in the financial services industry, understanding of regulatory and compliance matters, as well as his executive experience and prior board memberships, makes him qualified to serve on our board of directors.

Michael C. Rosentraub is the Chief Financial Officer of HOAIC since May, 2011. Mr. Rosentraub graduated from The University at Albany with a Bachelor of Science degree in Accounting and Business Administration. Mr. Rosentraub has over 20 years of experience in the insurance and financial services industries within the United States, Europe, and Asia. Prior to joining Homeowners of America, Michael held senior management positions with Citibank, CitiFinancial, The Associates and Associates Insurance Group in finance, insurance product and program development, claims, risk management and vendor management.

Debbie L. Carter is the Senior Vice President, Operations of HOAIC since April 2006. Ms. Carter received her Bachelors of Business Administration in Business Management from the University of Texas at Arlington. Ms. Carter began working in the insurance industry while attending college and has spent most of her career in the personal lines area of property and casualty insurance. Just prior to joining Homeowners of America, Ms. Carter held a supervisory underwriting position with Wellington Financial Services. Ms. Carter served several years as Operations Manager for Clark & Co., Inc., a Texas MGA, where she obtained valuable experience in many aspects of insurance operations with a special emphasis on underwriting and claims.

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Michael S. Cox is the Vice President, Director of Sales and Marketing of HOAIC since February 2009. Mr. Cox is a graduate of Stephen F. Austin State University where he received his Bachelor of Business Administration degree in Marketing. Mr. Cox has over 14 years of insurance industry experience with most of his career spent in property and casualty focused on personal lines. Prior to joining Homeowners of America, Mr. Cox worked with Safeco Insurance as a Regional Sales Manager in the Louisiana and Oklahoma markets. In addition, Mr. Cox worked for AIG Agency Auto as a Regional Sales and Marketing Manager overseeing the Texas, Colorado and New Mexico markets.

Brent W. Parker is the Vice President, Director of Claims of HOAIC since April 2010. Mr. Parker attended college at Texas Tech University and graduated from Tarleton State University where he received his Bachelor of Business Administration degree in General Business. Mr. Parker has over 20 years of insurance industry experience with property and casualty claims in both commercial and personal lines. Prior to joining Homeowners of America, Mr. Parker was a Claims Consultant with American Contractors Insurance Group. Before joining ACIG, he was a Vice President and Claims Manager with Beacon Insurance Group. Mr. Parker has claims experience in Texas and Oklahoma in addition to his experience in over 20 other states. Mr. Parker has served on the Dallas/Fort Worth Claims Managers Council, as an officer for the Dallas Claims Association, a member of the Texas Claims Association, and has served on the Loss Committee for the Association of Fire and Casualty Companies of Texas. Mr. Parker currently has the professional designations of CRIS as a Construction Risk and Insurance Specialist and MLIS as a Management Liability Insurance Specialist.

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Director Compensation

Our non-employee Directors received the following annual compensation in 2012:

Name	Fees Earned or paid in cash ($)		All Other (1) Compensation		Total Compensation
Albert R. Dowden	$	25,000	$	2,905	$	27,905
Frederick S. Hammer (2)		25,000		10,409		35,409
Luther H. Hodges, Jr.		25,000		1,801		26,801
James F. Leary		25,000		739		25,739
Richard L. Viton (3)		25,000		4,504		29,504
Brett G. Baris (4)		25,000		5,647		30,647
John Madden (6)		18,750		-		18,750
Andy Lerner (5)		6,250		-		6,250

(1) Reflects reimbursed expenses relating to participation in board meetings

(2) Homeowners of America Insurance Company paid compensation for Mr. Hammer’s board membership on the Company’s board to Inter-Atlantic Group.

(3) Homeowners of America Insurance Company paid compensation for Mr. Viton’s board membership on the Company’s board to Inter-Atlantic Group.

(4) Homeowners of America Insurance Company paid compensation for Mr. Baris’ board membership on the Company’s board to Inter-Atlantic Group.

(5) Homeowners of America Insurance Company paid compensation for Mr. Lerner’s board membership on the Company’s board to Inter-Atlantic Group.

(6) No longer a director effective August 13, 2012.

Executive Compensation

Summary Compensation Table

The following table sets forth the 2012 and 2011 compensation for our named executive officers.

Name and Principal Position	Year		Salary		Bonus		All Other Compensation			Total
Spencer W. Tucker		2012	$	180,476		-		-		$	180,476
Chief Executive Officer		2011	$	161,666		-		-		$	161,666

Debbie L. Carter		2012	$	122,011		-		-		$	122,011
Senior Vice President of Operations		2011	$	116,666		-		-		$	116,666

Michael S. Cox		2012	$	120,126	$	-	$	5,400	(1)	$	125,526
Vice President, Director of Sales & Marketing		2011	$	113,333	$	1,500	$	5,400	(1)	$	120,233

(1) Reflects a yearly auto allowance of $5,400 paid by us.

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Outstanding Equity Awards At Fiscal Year End

The following table sets forth all outstanding equity awards held by our named executive officers as of the end of last fiscal year.

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)		Option Expiration Date
Spencer W. Tucker		-		-	$	-		-
Debbie L. Carter		10,000		-	$	1.00		1-9-2017
		25,000		-		1.25		4-10-2017
		65,000		-		2.00		12-19-2017
Michael S. Cox		27,500		22,500	$	2.50		4-30-2019

Employment Agreements

We entered into an employment agreement with Mr. Tucker on November 11, 2005, pursuant to which Mr. Tucker agreed to serve as chief executive officer of the Company. Mr. Tucker’s employment agreement provides for an annual base salary of $100,000, which shall be reviewed by the board of directors annually and may be increased based on such factors the board considers relevant, and the board may also, in its sole discretion, provide an annual bonus. The employment agreement further entitles Mr. Tucker to participate in the Company’s stock option, pension, retirement, deferred compensation, savings, life, medical, dental, disability or other welfare benefit plans maintained by the Company for its employees. Mr. Tucker may also participate in any perquisite programs determined by the board and be reimbursed for reasonable business travel. The agreement is terminable by the Company for cause with no severance payment. If the agreement is terminated without cause the Company shall pay a severance payment equal to the amount of the base salary, in the rate in effect immediately prior to the termination, for an 18 month period and the Company shall continue to provide any other benefits provided under the agreement for such time period. If the agreement is terminated due to death or disability, there is no severance payment. The agreement may also be terminated by Mr. Tucker for “good reason” (including assignment of significantly different duties, failure of Company to obtain assumption of the agreement upon change in control, certain relocation of place of business and material, sustained reduction in base salary) upon 30 days prior written notice. If the agreement is not renewed by the Company, (other than as a result of the executive’s death, disability, termination for cause) or if the executive terminates the agreement for “good reason,” the severance period shall be one (1) year. Mr. Tucker is subject to non-confidentially and non-disparagement obligations both during and after employment with the Company. He is further subject to non-solicitation obligation for 2 years after termination and non-compete obligations for a restriction period of 18 months from termination.

We have not entered into employment agreements with any of our other current executive officers.

Compensation Committee Interlocks and Insider Participation

No member of our board of directors during 2011 had any relationship that would be considered a compensation committee interlock.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Inter-Atlantic Fund, L.P. Promissory Note

In December 26, 2012, we entered into a Convertible Promissory Note agreement with Inter-Atlantic Fund, L.P, who is the beneficial owner of more than 5% of our outstanding shares of common stock. The general partner of Inter-Atlantic Fund, L.P. is Inter-Atlantic Advisors, Ltd. Our directors Andrew Lerner, Brett Barris and Fredrick Hammer are among the beneficial owners of Inter-Atlantic Advisors, Ltd. The promissory note is in the amounts of $950,000 and accrues interest at the rate of 10% per annum (in the event of a default, the interest rate shall increase to 12.5% per annum). The promissory note is due and payable on December 26, 2013. At any date the holders of the majority interest in the note has the right to convert all or a portion of the note, plus accrued interest into that number of shares of the our Series A Preferred Stock equal to a ratio of 1 share per $1.10 of the promissory note’s principal plus accrued interest. Upon the effective date of this Registration Statement, Inter-Atlantic’s promissory note and accrued interest will have been converted into Series A Preferred Stock, which will then have been converted into shares of common stock.

Advisory Agreement with Inter-Atlantic Advisors III, Ltd.

As of the effective date of this Registration Statement, we will enter into an advisory agreement with Inter-Atlantic Advisors III, Ltd., or the Advisory Agreement, an affiliate of the general partner of Inter-Atlantic Fund L.P., who is the beneficial owner of more than 5% of our outstanding shares of common stock. In addition, our directors Andrew Lerner, Brett Barris and Fredrick Hammer are among the beneficial owners of Inter-Atlantic Advisors III, Ltd., or Inter-Atlantic. The Advisory Agreement has a term of six years, which will be automatically renewed from year-to-year, unless terminated by either party upon 60 days’ notice prior to the termination of the initial or any renewal term. Under the terms of the Advisory Agreement, Inter-Atlantic will perform certain management services for us, including, but not limited to, assisting on an ongoing basis in reviewing our strategic and capital structure alternatives as a publicly registered company, assisting us in retaining investment banks as may be desirable in connection with a potential capital raising or merger and acquisition strategy, and performing or supervising certain insurance-related services, as may be requested by us from time to time. For its services, we will pay Inter-Atlantic an annual fee of $300,000, reimburse Inter-Atlantic’s expenses incurred in connection with the performance of its service and annually grant Inter-Atlantic shares of our common stock with an aggregate fair market value of $150,000 at the time of grant. As long as the Advisory Agreement is in effect and the fees and expense reimbursements are paid, the directors of the Company that are affiliated with Inter-Atlantic have agreed to waive any other compensation for their service as our directors.

Other than the agreements mentioned above and any compensation agreements and other arrangements which are described under “Executive Compensation,” there have been no transactions or proposed transactions in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years in which any of our directors, executive officers or beneficial holders of more than 5% of the outstanding shares of our common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest.

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DESCRIPTION OF CAPITAL STOCK

General

The following is a description of the material terms of our capital stock and provisions of our amended and restated certificate of incorporation and bylaws. Copies of the amended and restated certificate of incorporation and bylaws have been filed with the SEC as exhibits to our registration statement of which this prospectus forms a part.

Common Stock

As of the effective date of this Registration Statement 40,000,000 shares of common stock, $0.0001 par value per share, were authorized and 15,739,182 shares of common stock were issued and outstanding, held of record by eight stockholders.

The holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders and do not have any cumulative voting rights. Holders of common stock are entitled to receive proportionally any dividends declared by the board of directors out of funds legally available therefore, subject to the preferential dividend of the Series A and Series B preferred stock.

In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment of all debts and other liabilities, subject to the prior rights of the outstanding Series A and Series B preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. All outstanding shares of common stock are validly issued, fully paid and nonassessable.

The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of holders of shares of any additional series of preferred stock that we may designate and issue in the future.

Preferred Stock

Under the terms of our amended and restated certificate of incorporation, the board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. The board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock, any or all of which may be greater than or senior to the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and reduce the likelihood that such holders will receive dividend payments or payments on liquidation. In certain circumstances, an issuance of preferred stock could have the effect of decreasing the market price of the common stock.

Authorizing the board of directors to issue preferred stock and determine its rights and preferences has the effect of eliminating delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third-party to acquire, or could discourage a third-party from seeking to acquire, a majority of our outstanding stock.

As of the effective date of this Registration Statement 20,000,000 shares of preferred stock, $0.0001 par value per share, were authorized. None is issued or outstanding.

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Series A Preferred Stock

Under the terms of our amended and restated certificate of incorporation, the Company has designated a Series A Preferred Stock. Holders of the Series A Preferred Stock have the right to vote on any matter presented to the stockholders for a vote at any meeting (or written consent in lieu of meeting) and shall be entitled to cast the number of votes equal to the number of common shares into which such Series A Preferred Stock are convertible into on the record date for such vote. The holders of Series A Preferred Stock vote together with the holders of common stock or any other series of preferred stock, as a single class. The Company cannot grant any class or series of securities voting rights that are superior or on more favorable terms than the rights afforded the Series A Preferred Shares. The holders of the Series A Preferred Stock are entitled to elect four directors to the Company’s board of directors, exclusively and as a separate class. The holders of the Series A Preferred Stock may also, together with the holders of the common stock, voting as one class, elect one independent director to the board of directors of the Company.

Each share of the Series A Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock of the Company determined by dividing $1 with the applicable conversion price, which initially is equal to the Preferred Stock original issues price ($1) but that is subject to adjustment in certain cases of issuance of additional options or convertible securities, issuance of additional common stock, stock splits and combinations, dividend or distributions or mergers and other reorganizations, under the terms described in the Company’s amended and restated certificate of incorporation. On the earlier of a closing of a sale of the shares of Company Common Stock at a public price of at least $5 per share in a firm commitment underwritten public offering resulting in at least $50 million of proceeds, or a date specified by the vote or written consent of at least 66 2/3% of the outstanding shares of each series of Preferred Stock, all Preferred Shares will be subject to mandatory conversion into Common Stock at the then effective conversion rate. Any Series A Preferred Stock held by Inter-Atlantic or their permitted transferees shall not be automatically converted without the consent of Inter-Atlantic unless the conversion is due to a liquidation event.

The holders of the Series A Preferred Stock are entitled to receive dividends out of any assets legally available for payment of dividends, prior and in preferences to any declaration or payment of any dividends on the Company’s Common Stock, at the rate of 12.5% of the Preferred Stock original issue price of $1 per share of Preferred Stock per annum. The dividend accrues from day to day, whether or not earned or declared, shall be cumulative and compounded annually. The Company may declare, pay or set aside any dividends on any other shares of capital stock of the Company unless the holders of shares of Preferred Stock then outstanding first or simultaneously receive the accrued dividend described not previously paid, plus, in the case of a dividend on Common Stock on any class or series that is convertible into Common Stock, that dividend per share of Preferred Stock, as applicable, as would equal the product of (1) the dividend payable on each share of such class or series determined as if any such shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such a dividend, or in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Preferred Stock determined by dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock and multiplying such fraction by an amount equal to 1.00 per share, subject to certain adjustments.

The holders of Series A Preferred Stock also have preferential rights in case of liquidations, dissolution or winding up of the Company, and shall be entitled to payment of its accrued dividend out of the assets or surplus funds of the Company legally available for distribution to its stockholders, before any payment shall be made to the holders of Common Stock, the Series B Preferred Stock or any other class or series of stock ranking on liquidation junior to the Series A Preferred Stock. The Series A Preferred Stock holders are further entitled to payment of a liquidation amount of an amount equal to $1.00 per share of Series A Preferred Stock after any dividend payments to the Series A and Series B Preferred Stock holders have been made, but before any payment shall be made to the holders of Common Stock or any other class or series of stock ranking on liquidation junior to the Series A Preferred Stock.

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The amended and restated certificate of incorporation also includes protective provisions for the Series A Preferred Stock, providing that at any time 1,000,000 or more shares of Series A Preferred Stock are outstanding, the Company may not without the consent of or affirmative vote of the holders of the Series A Preferred Stock by amendment, merger, consolidation or otherwise take certain actions, including, but not limited to liquidate or dissolve the Company, effect a reorganization, amend the certificate of incorporation or bylaws, create any additional class of shares that does not rank junior to the Series A Preferred Stock, pay dividend or make any distribution on any shares other than on the Preferred Stock, reclassify or recapitalize the outstanding capital stock, alter any voting powers or other privileges of the Series A preferred Stock holders, make any asset acquisition outside the ordinary course of business, form subsidiaries or make material changes in the nature or scope of the business of the Company. Further, the Company may not, when 1,000,000 or more shares of Series A Preferred Stock are outstanding, without the consent of or affirmative vote of the directors elected by the Series A Preferred Stock, acquire or sell assets or business of a value greater than $50,000, incur any indebtedness other than trade payables, secured credit lines in the ordinary course of business or indebtedness provided for in the annual budget, enter into any joint venture or similar arrangements, or any material IP related agreements, appoint a CEO or other executive officer reporting to the CEO, or approve senior officer compensation, remove any senior officer, approve the annual budget, incur capital expenditure exceeding $50,000, establish or amend any cash investment policy, create any encumbrances exceeding $50,000, grant loans or indemnify third parties outside ordinary course of business, enter into or materially alter leases or similar arrangements exceeding $50,000, enter into customer contracts with a price variation of more than 15% from normal arrangements of the Company, appoint or remove the Company’s auditor or legal counsel, commence or settle any legal proceeding outside the ordinary course of business in excess of $50,000, make any material department from accepted U.S. accounting principles or create any subsidiary or issue ownership interest for a subsidiary to a third party. In addition, at any time 1,000,000 or more shares of Series A Preferred Stock are outstanding, the Company may not without the affirmative vote of at least two of the directors appointed by Inter-Atlantic, enter into any contract or arrangement with a director, executive officer, or member of family of a director or executive officer, make or authorize any material change in the nature or scope of business, reduce the quota share reinsurance for non-catastrophic coverage to an amount below 50% of the risk exposure written by the Company or terminate the employment of Spencer Tucker.

Each holder of Series A Preferred Stock have the right to request redemption of its shares by the Company for a redemption price of $1 per share, plus in certain cases any accrued dividend. The redemption period for the shares of Series A Preferred Stock is either: (i) any time on or after the first anniversary of the original issuance date of the shares, if neither the Company nor any of its subsidiaries has obtained a license or certificate of authority from the Texas Department of Insurance to conduct insurance operations, (ii) the 1 year period commencing 15 months after the original issuance date of the shares, if the board of directors that the financial performance for the Company during the preceding 12 months is materially less than budgeted, if such redemption is requested by Inter-Atlantic, or (iii) after the 5^th anniversary of the original issuance date.

Series B Preferred Stock

Under the terms of our amended and restated certificate of incorporation, the Company has designated a Series B Preferred Stock. Holders of the Series B Preferred Stock have the right to vote on any matter presented to the stockholders for a vote at any meeting (or written consent in lieu of meeting) and shall be entitled to cast the number of votes equal to the number of common shares into which such Series B Preferred Stock are convertible into on the record date for such vote. The holders of Series B Preferred Stock vote together with the holders of common stock or any other series of preferred stock, as a single class. The holders of the Series B Preferred Stock are entitled to elect one director to the Company’s board of directors, exclusively and as a separate class.

Each share of the Series B Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock of the Company determined by dividing $1 with the applicable conversion price, which initially is equal to the Preferred Stock original issues price ($1) but that is subject to adjustment in certain cases of issuance of additional options or convertible securities, issuance of additional common stock, stock splits and combinations, dividend or distributions or mergers and other reorganizations, under the terms described in the Company’s amended and restated certificate of incorporation. On the earlier of a closing of a sale of the shares of Company Common Stock at a public price of at least $5 per share in a firm commitment underwritten public offering resulting in at least $50 million of proceeds, or a date specified by the vote or written consent of at least 66 2/3% of the outstanding shares of each series of Preferred Stock, all Preferred Shares will be subject to mandatory conversion into Common Stock at the then effective conversion rate.

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The holders of the Series B Preferred Stock are entitled to receive dividends out of any assets legally available for payment of dividends, prior and in preferences to any declaration or payment of any dividends on the Company’s Common Stock, at the rate of 12.5% of the Preferred Stock original issue price of $1 per share of Preferred Stock per annum. The dividend accrues from day to day, whether or not earned or declared, shall be cumulative and compounded annually. The Company may declare, pay or set aside any dividends on any other shares of capital stock of the Company unless the holders of shares of Preferred Stock then outstanding first or simultaneously receive the accrued dividend described not previously paid, plus, in the case of a dividend on Common Stock on any class or series that in convertible into Common Stock, that dividend per share of Preferred Stock, as applicable, as would equal the product of (1) the dividend payable on each share of such class or series determined as if any such shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Preferred Stock in each case calculated on the record date for determination of holders entitled to receive such a dividend, or in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Preferred Stock determined by dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock and multiplying such fraction by an amount equal to 1.00 per, subject to certain adjustments.

The holders of Series B Preferred Stock also have preferential rights in case of liquidations, dissolution or winding up of the Company, and shall be shall be entitled to payment of its accrued dividend out of the assets or surplus funds of the Company legally available for distribution to its stockholders, after payment of the Series A Preferred Stock but before any payment shall be made to the holders of Common Stock or any other class or series of stock ranking on liquidation junior to the Series B Preferred Stock. The Series B Preferred Stock holders are further entitled to payment of a liquidation amount of an amount equal to $1.00 per share of Series B Preferred Stock after any dividend and liquidation payments to the Series A Preferred Stock Holders and dividend payments to the Series B Preferred Stock holders have been made, but before any payment shall be made to the holders of Common Stock or any other class or series of stock ranking on liquidation junior to the Series B Preferred Stock.

The amended and restated certificate of incorporation also includes protective provisions for the Series B Preferred Stock, providing that at any time 250,000 or more shares of Series B Preferred Stock are outstanding, the Company may not without the consent of or affirmative vote of the holders of the Series B Preferred Stock by amendment, merger, consolidation or otherwise take certain actions, including, alter or change the voting or other power or privileges of the Series B Preferred Stock, increase the number of Series B Preferred Stock or authorize any material change in scope of the business of the corporation. The Series B Preferred Stock holders have no redemption rights.

Stock Options

We maintain the 2005 Management Incentive Plan, which we refer to as the plan, to provide a means for us and our related entities to attract key personnel to provide services to us and our related entities, as well as to provide a means by which those key persons can acquire and maintain stock ownership, resulting in a strengthening of their commitment to our welfare and the welfare of our related entities and promoting the mutuality of interests between participants and our stockholders. The plan provides participants with additional incentive and reward opportunities designed to enhance our profitable growth and provide the participants with long term performance incentives to expend their maximum efforts in the creation of stockholder value. The plan provides for the issuance of stock options. We have reserved 313,500 shares of common stock for issuance under the plan.

The following table sets forth information as of June 28, 2013 regarding securities authorized for issuance under the 2005 Management Incentive Plan, which has been approved by our stockholders.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders(1)		313,500	$	1.96		2,290
Equity compensation plans not approved by security holders		—		—		—
Total		313,500	$	1.96		2,290

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(1) Represents shares issuable upon the exercise of outstanding stock options issued under the 2005 Management Incentive Plan.

The total number of shares of common stock subject to outstanding options to purchase common stock as of June 27, 2013 was 313,500 shares.

Registration Rights

On November 11, 2005, we entered into an investor rights agreement with certain holders of our preferred stock and common stock, which provide such holders with registration rights with respect to certain shares of our common stock, including shares of our common stock into which the shares of our preferred stock are convertible. The summary of the registration rights below is qualified by reference to the investor rights agreement, a copy of which is attached as an exhibit to the registration statement of which this prospectus is a part. As of June 27, 2013, an aggregate of 5,000,000 shares of outstanding common stock and shares of common stock underlying our preferred stock would be registrable securities pursuant to the terms of the registration rights.

Demand Registration Rights. Any time after the Company’s first underwritten public offering of its Common Stock, 25% or more of the holders of certain registrable securities have the right to demand that the Company file a registration statement under the Securities Act covering the registration of all or portion of the registrable securities with an aggregate offering price, net of underwriting cost and commissions, of at least $10 million. We may be required to effect up to two registrations in accordance with such demand registration rights. Stockholders with these registration rights who are not part of an initial registration demand are entitled to notice and are entitled to include their registrable shares in the registration. Under certain limited circumstances, we may deny registration of the securities.

Piggyback Registration Rights. In the event that we propose to register any of our securities under the Securities Act either for our own account or for the account of other stockholders (other than in connection with a registration effected under the demand registration rights described above) in connection with a public offering of such securities solely for cash, the holders of the registrable shares will be entitled to certain “piggyback” registration rights allowing the holders to include their shares in such registration, subject to certain limitations. As a result, whenever we propose to file a registration statement under the Securities Act, the holders of these shares of our common and preferred stock are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their shares in the registration.

We have agreed to pay certain registration expenses of the holders of the shares registered pursuant to any demand or piggyback registrations described above.

Limitations on Transfer and Ownership

Our Amended and Restated Certificate of Incorporation, as effective upon the effective date of this Registration Statement, provides that, subject to waiver by our board of directors, no person may acquire ownership of our stock, if such purchase would result in (1) such person owning or controlling more than 9.9% of our outstanding stock (as determined by value) or (2) such person becoming a holder of more than 9.9% of the total combined voting power of all classes of our stock entitled to vote at a general meeting of our stockholders or in any other circumstance in which our stockholders are entitled to vote (a “Ten Percent Stockholder”). A transferee will be permitted to dispose of any stock purchased which violates the restriction and as to the transfer of which registration is refused. In the case of (2) above, the votes conferred by the controlled stock will be automatically reduced by whatever amount is necessary so that after any such reduction such person will not be a Ten Percent Stockholder. The voting rights with respect to all stock held by such person in excess of the 9.9% limitation will be allocated to the other holders of stock, pro rata based on the number of shares of stock held by all such other stockholders, subject only to the further limitation that no stockholder allocated such voting rights may exceed the 9.9% limitation as a result of such allocation. For these purposes, references to “ownership” or “control” of our stock mean “ownership” within the meaning of Section 958 of the Internal Revenue Code.

Anti-Takeover Effects of Delaware Law and Our Charter and Bylaws

Certificate of Incorporation and Bylaws

Blank Check Preferred Stock. Our board of directors, without stockholder approval, has the authority under our certificate of incorporation to issue preferred stock with rights superior to the rights of the holders of common stock. As a result, preferred stock could be issued quickly and easily, could impair the rights of holders of common stock and could be issued with terms calculated to delay or prevent a change of control or make removal of management more difficult.

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Election of Directors. Our bylaws provide that a majority of directors then in office may fill any vacancy occurring on the board of directors, even though less than a quorum may then be in office. These provisions may discourage a third-party from voting to remove incumbent directors and simultaneously gaining control of the board of directors by filling the vacancies created by that removal with its own nominees.

Stockholder Action. Our bylaws provide that stockholders may act at meetings of stockholders or by written consent in lieu of a stockholders’ meeting.

Stockholder Meetings. Our bylaws provide that the only business that may be conducted at a special meeting of stockholders is such business as was specified in the notice of the meeting. These provisions may discourage another person or entity from making a tender offer, even if it acquired a majority of our outstanding voting stock, because the person or entity could only take action at a duly called stockholders’ meeting relating to the business specified in the notice of meeting and not by written consent.

Voting Rights Limitations. Our Amended and Restated Certificate of Incorporation, as effective upon the effective date of this Registration Statement, provide that the voting rights with respect to stock owned or controlled by a Ten Percent Stockholder will be limited to voting power of 9.9%. The voting rights with respect to all stock held by such Ten Percent Stockholder will be allocated to the other holders of stock pro rata based on the number of shares of stock held by all such other stockholders, subject only to the further limitation that no stockholder allocated any such voting rights may exceed the 9.9% limitation as a result of such allocation.

Delaware Anti-Takeover Statute

We are a Delaware corporation subject to Section 203 of the Delaware General Corporation Law, or the DGCL. Under Section 203, some business combinations between a Delaware corporation whose stock generally is publicly-traded or held of record by more than 2,000 stockholders and an interested stockholder are prohibited for a three-year period following the date that the stockholder became an interested stockholder, unless:

• the corporation has elected in its restated certificate of incorporation not to be governed by Section 203;

• the board of directors of the corporation approved the transaction which resulted in the stockholder becoming an interested stockholder before the stockholder became an interested stockholder;

• upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction, excluding voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender stock held by the plan in a tender or exchange offer; or

• the board of directors approves the business combination and holders of two-thirds of the voting stock which the interested stockholder did not own authorize the business combination at a meeting.

We have not made an election in our certificate of incorporation to opt out of Section 203. In addition to the above exceptions to Section 203, the three-year prohibition does not apply to some business combinations proposed by an interested stockholder following the announcement or notification of an extraordinary transaction involving the corporation and a person who was not an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation’s directors. For the purposes of Section 203, a business combination generally includes mergers or consolidations, transactions involving the assets or stock of the corporation or its majority-owned subsidiaries and transactions which increase an interested stockholder’s percentage ownership of stock. Also, an interested stockholder generally includes a stockholder who becomes beneficial owner of 15% or more of a Delaware corporation’s voting stock, together with the affiliates or associates of that stockholder.

Transfer Agent and Registrar

[·] serves as transfer agent and registrar for our common stock.

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FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes certain U.S. federal income tax consequences to a purchaser of a share of common stock. This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, the applicable Treasury regulations promulgated or proposed thereunder, administrative pronouncements of the Internal Revenue Service, or IRS, and judicial decisions, in each case as of the date hereof, all of which are subject to change at any time, possibly retroactively. There can be no assurance that the IRS will not take a view contrary to that set forth herein which may be upheld by a court. No ruling from the IRS or opinion of counsel has been or will be sought as to any of the matters discussed below.

This summary is for general information purposes only and does not constitute tax advice. This summary applies only to an initial purchaser who acquires shares of common stock as a capital asset within the meaning of section 1221 of the Code. It does not purport to address all tax consequences that may be relevant to any particular investor or to an investor subject to special tax rules (including, for example, a financial institution, dealer or trader in stocks or securities, insurance company, regulated investment company, personal holding company, S corporation, tax-exempt organization, a person who holds common shares in a hedging transaction or as part of a “straddle”, “conversion transaction” or other risk reduction transaction, a person subject to the alternative minimum tax, an individual subject to the U.S. expatriation tax regime, a “controlled foreign corporation,” or a “passive foreign investment company”). In addition, this summary does not address any aspect of state, local or foreign taxation.

EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS URGED TO CONSULT THE PURCHASER’S TAX ADVISER CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE PURCHASER OF ACQUIRING, OWNING AND DISPOSING OF SHARES OF COMMON STOCK, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS. As used herein, the term “U.S. Holder” means a beneficial owner of a share of common stock that for U.S. federal income tax purposes is:

• an individual who is a citizen or individual resident of the United States;

• a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the law of the United States or of any political subdivision thereof;

• an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

• a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust, and one or more United States persons have the authority to control all substantial decisions of the trust, or (ii) the trust was in existence on August 20, 1996 and properly elected to continue to be treated as a United States person.

The term “non-U.S. Holder” means a beneficial owner of a share of common stock that is not a U.S. Holder.

If a partnership holds shares of our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding shares of our common stock should consult his, her, or its own tax advisors.

U.S. Holders

Distributions

A distribution on a share of common stock will be includible in the gross income of a U.S. Holder as ordinary income to the extent the distribution is out of our current or accumulated earnings and profits (as computed for U.S. federal income tax purposes). To the extent distributions with respect to a share of common stock in any taxable year are not paid out of current or accumulated earnings and profits, they will be treated as a non-taxable return (and reduction) of basis in that share of common stock to the extent thereof, and if and to the extent they exceed earnings and profits and basis, they will be treated as gain from the sale of the share of common stock (see “—Disposition of Shares of Common Stock”).

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The rate of federal income tax that a non-corporate taxpayor generally pays on dividends, provided certain conditions and requirements are satisfied, such as minimum holding period requirements, is 15% for taxable years beginning before January 1, 2013, after which dividends are taxable as ordinary income. To qualify for the reduced rate, the non-corporate stockholder must satisfy certain holding period and other requirements. Dividends received by a corporation are generally eligible for the dividends received deduction, subject to the limitations under section 1059 of the Code relating to extraordinary dividends.

Disposition of Shares of Common Stock

Upon a sale or other taxable disposition of a share of common stock, a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the share of common stock. A U.S. Holder’s adjusted tax basis in its common stock generally would equal the amount paid for such common stock. That gain or loss will be long-term capital gain or loss if the holding period for that share of common stock was more than one year on the date of sale or other disposition. The maximum rate of federal income tax applicable to a long-term capital gain of a non-corporate taxpayor in a taxable year beginning before January 1, 2013 is generally 15%. In later taxable years, that 15% reverts to 20%. The deductibility of capital losses is subject to limitations.

Newly enacted legislation requires certain U.S. Holders who are individuals, estates or trusts to pay an additional 3.8% tax on, among other things, dividends and capital gains from the sale or other disposition of common stock for taxable years beginning after December 31, 2012. U.S. Holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our common stock.

Backup Withholding

A U.S. Holder may be subject to backup withholding in respect of dividends on common stock and the proceeds from a sale, exchange or redemption of common stock unless the holder (a) is a corporation or other exempt recipient or (b) provides, when required, the U.S. Holder’s taxpayor identification number to the payor, certifies that the U.S. Holder is not subject to backup withholding and otherwise complies with the backup withholding rules. Backup withholding is not an additional tax; any amount so withheld is creditable against the U.S. Holder’s U.S. federal income tax liability or is refundable, provided the required information is furnished to the IRS.

Non-U.S. Holders Distributions

A distribution on a share of our common stock made to a non-U.S. Holder out of our current or accumulated earnings and profits generally will constitute a dividend for U.S. tax purposes. Dividends paid to a non-U.S. Holder generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. A non-U.S. Holder who wishes to claim the benefit of an applicable treaty rate is required to satisfy applicable certification and other requirements. Dividends that are effectively connected with the conduct of a trade or business within the United States and, if certain tax treaties apply, are attributable to a permanent establishment in the United States, are not subject to the withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable graduated individual or corporate rates. Certain certification requirements and disclosure requirements must be complied with in order for effectively connected income to be exempt from withholding. Any such effectively connected income received by a foreign corporation may, under certain circumstances, be subject to an additional branch profits tax at a 30% rate (or lower applicable income tax treaty rate).

To the extent distributions exceed our current and accumulated earnings and profits, they will generally constitute a return of capital and will first reduce the non-U.S. Holder’s basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock as discussed below under “—Disposition of Shares of Common Stock.”

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Disposition of Shares of Common Stock

A non-U.S. Holder generally will not be subject to U.S. federal income tax or withholding with respect to any gain recognized on a sale, exchange or other taxable disposition of our common stock unless:

• certain circumstances exist under which the gain is treated as effectively connected with the conduct by the non-U.S. Holder of a trade or business in the United States, and, if certain tax treaties apply, is attributable to a permanent establishment maintained by the non-U.S. Holder in the United States;

• the non-U.S. Holder is an individual and is present in the United States for 183 or more days in the taxable year of the sale, exchange or other taxable disposition, and meets certain other requirements; or

• our common stock constitutes a “United States real property interest” by reason of our status as a U.S. real property holding corporation, or USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the non-U.S. Holder’s holding period for our common stock.

If the first exception applies, the non-U.S. Holder generally will be subject to U.S. federal income tax with respect to such item on a net basis in the same manner as a U.S. Holder unless otherwise provided in an applicable income tax treaty; a non-U.S. Holder that is a corporation for U.S. federal income tax purposes may also be subject to a branch profits tax with respect to such item at a rate of 30% (or at a reduced rate under an applicable income tax treaty). If the second exception applies, the non-U.S. Holder generally will be subject to U.S. federal income tax at a rate of 30% (or at a reduced rate under an applicable income tax treaty) on the amount by which such non-U.S. Holder’s capital gains allocable to U.S. sources exceed capital losses allocable to U.S. sources during the taxable year of disposition of the common shares.

With respect to the third exception, we believe we are not currently and do not anticipate becoming a USRPHC for United States federal income tax purposes. However, because the determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other trade or business assets and our non-United States real property interests, there can be no assurance that we are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale, exchange or other taxable disposition by a non-U.S. Holder of our common stock will not be subject to tax if such class of stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, and such non-U.S. Holder owned, actually or constructively, 5% or less of such class of our stock throughout the shorter of the five-year period ending on the date of the sale or exchange or the non-U.S. Holder’s holding period for such stock. If gain on the sale, exchange, or other taxable disposition of our stock were subject to taxation under the third exception above, the non-U.S. Holder would be subject to regular United States federal income tax with respect to such gain in generally the same manner as a United States person.

Federal Estate Tax

Our common stock held by an individual non-U.S. Holder at the time of death, or by certain entities (for example, certain trusts) will be included in such holder’s gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding

Generally, we must report to the IRS and to the non-U.S. Holder the amount of dividends paid to a non-U.S. Holder and the amount of tax, if any, withheld with respect to those payments. Copies of the information returns reporting such dividend payments and any withholding may also be made available to the tax authorities in the country in which the non-U.S. Holder resides under the provisions of an applicable treaty. No information reporting or backup withholding will be required regarding the proceeds of the sale of shares of our common stock made within the United States or conducted through certain U.S.-related financial intermediaries, if the payor receives the certification that the holder is not a U.S. person, as defined under the Code, and does not have actual knowledge or reason to know the holder is a U.S. person, as defined under the Code, who is not an exempt recipient, or the holder otherwise establishes an exemption. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.

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Recently Enacted Legislation Relating to Foreign Accounts

Under recently enacted legislation, a relevant withholding agent may be required to withhold 30% of any dividends and the proceeds of a sale of our common stock paid after December 31, 2012 (subject to certain delayed effective dates established by the U.S. Treasury or IRS) to (i) a foreign financial institution (as specially defined for this purpose) unless such foreign financial institution agrees to verify, report and disclose its U.S. accountholders and meets certain other specified requirements, or (ii) a non-financial foreign entity that is the beneficial owner of the payment unless such entity certifies that it does not have any substantial U.S. owners or provides the name, address and taxpayor identification number of each substantial U.S. owner and such entity meets certain other specified requirements. Holders of our common stock should consult their tax advisors regarding the effect, if any, of this legislation on their ownership of our common stock.

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PLAN OF DISTRIBUTION

The selling stockholders, which as used herein, includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer.

The selling stockholders may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.

The selling stockholders may use any one or more of the following methods when disposing of shares or interests

therein:

•

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

•

block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

•

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

•

an exchange distribution in accordance with the rules of the applicable exchange;

•

privately negotiated transactions;

•

short sales effected after the date the registration statement of which this prospectus is a part is declared effective by the SEC;

•

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

•

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

•

a combination of any such methods of sale; and

•

any other method allowed by law.

We intend for our common stock to be quoted on the OTCBB, but no assurance can be given that this will occur.

The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

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In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.

The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be underwriters within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are underwriters within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which the shares may be sold without restriction pursuant to Rule 144 of the Securities Act.

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LEGAL MATTERS

The legality of the securities offered by this prospectus is being passed upon by Reed Smith LLP, New York, New York.

EXPERTS

The audited consolidated financial statements of Homeowners of America Holding Corporation included in this prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Weaver and Tidwell, L.L.P., independent registered public accountants, upon the authority of said firm as experts in accounting and auditing in giving said report.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some items of which are contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits and the consolidated financial statements and notes filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. The exhibits to the registration statement should be reviewed for the complete contents of these contracts and documents. A copy of the registration statement, including the exhibits and the financial statements and notes filed as a part of the registration statement, may be inspected without charge at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon the payment of fees prescribed by it. You may call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference facilities. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with it.

As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above.

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HOMEOWNERS OF AMERICA HOLDING CORPORATION

INDEX TO FINANCIAL STATEMENTS

For the Years Ended December 31, 2012 and 2011

Report of Independent Registered Public Accounting Firm	F-2

Financial Statements:	F-3

Consolidated Balance Sheets	F-3

Consolidated Statements of Operations	F-5

Consolidated Statements of Stockholders’ Equity	F-6

Consolidated Statements of Cash Flows	F-7

Notes to Consolidated Financial Statements	F-8

For the Three Months Ended March 31, 2013 and 2012 (Unaudited)

Financial Statements:	F-27

Consolidated Balance Sheets	F-27

Consolidated Statements of Operations	F-28

Consolidated Statements of Stockholders’ Equity	F-29

Consolidated Statements of Cash Flows	F-30

Notes to Consolidated Financial Statements	F-31

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Homeowners of America Holding Corporation

Irving, Texas

We have audited the accompanying consolidated balance sheets of Homeowners of America Holding Corporation and Subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Homeowners of America Holding Corporation and Subsidiaries as of December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ WEAVER AND TIDWELL, L.L.P.

Dallas, Texas

June 28, 2013

F-2

Homeowners of America Holding Corporation

CONSOLIDATED BALANCE SHEETS

December 31, 2012 and 2011

Assets:	2012		2011

Cash and cash equivalents		10,194,375	$	7,193,402
Short-term investments		3,853,353		2,162,906
Restricted certificates of deposits		1,000,000		1,000,000
Long-term investments		2,155,695		-
Accrued investment income		8,435		9,056
Due and deferred premiums		3,643,136		3,553,629
Amounts recoverable from reinsurance companies		36,080,628		33,610,459
Property, equipment and software, net		234,156		119,192
Deferred policy acquisition costs		5,274,515		4,429,744
Deferred ceding commissions		683,914		1,439,587
TWIA assessments, net of ceded amounts		80,040		160,080
Prepaid expenses and other		130,296		109,350
Deferred tax assets, net		816,811		200,981

Total Assets	$	64,155,354	$	53,988,386

See accompanying notes to consolidated financial statements.

F-3

Homeowners of America Holding Corporation

CONSOLIDATED BALANCE SHEETS

December 31, 2012 and 2011

Liabilities and Stockholders’ Equity

Liabilities:	2012		2011

Losses and loss adjustment expenses	$	11,641,296	$	9,308,974
Advance premiums		36,499		67,592
Ceded reinsurance premiums payable		2,782,190		4,656,099
Unearned premiums		26,578,928		22,466,254
Ceded deferred premiums		2,381,906		2,752,181
Unearned ceding commissions		6,826,778		5,769,275
Commissions payable		6,117,170		4,246,516
General and other accrued expenses payable		729,441		401,194
Income tax payable		349,785		40,527
Taxes, licenses and other fees payable		431,382		139,365
Funds held under reinsurance treaty		36,573		-
Convertible notes payable		1,000,000		-

Total liabilities		58,911,948		49,847,977

Stockholders’ equity:

Preferred stock, convertible; 12.5% cumulative; $0.0001 par value per share;
Series A 4,500,000 shares authorized; 4,500,000 Shares issued and outstanding		450		450
Series B 1,000,000 shares authorized; 500,000 Shares issued and outstanding		50		50
Common stock, $0.0001 par value per share; 10,000,000 shares authorized; 900,000 shares issued and outstanding		90		90
Additional paid-in-capital		4,906,000		4,906,000
Accumulated earnings (deficit)		336,816		(766,181	)

Total stockholders’ equity		5,243,406		4,140,409

Total liabilities and stockholders’ equity	$	64,155,354	$	53,988,386

See accompanying notes to consolidated financial statements.

F-4

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2012 and 2011

Revenues:	2012			2011

Premiums earned	$	47,185,700		$	43,330,707
Ceded premiums		(42,207,361	)		(39,453,849	)
Net premiums earned		4,978,339			3,876,858
Policy fees		4,442,069			4,103,273
Ceding commissions		9,601,837			9,534,508
Gross investment income		17,980			26,376
Reinsurance profit sharing, installment fees and other income		1,392,732			673,610

Total Revenue		20,432,957			18,214,625

Expenses:

Losses and loss adjustment expenses		4,064,797			3,424,274
Policy acquisition expenses		10,178,892			9,241,675
Underwriting expenses		5,325,414			4,223,190

Total Expenses		19,569,103			16,889,139

Income before income taxes		863,854			1,325,486

Provision (benefit) for income taxes:
Current		376,688			677,732
Deferred		(615,830	)		(200,981	)
Total income taxes		(239,142	)		476,751

Net income	$	1,102,996		$	848,735

Cumulative preferred stock dividends		(1,288,750	)		(1,149,734	)

Net income (loss) available to common stockholders	$	(185,754	)	$	(300,999	)

Basic earnings per common share	$	(0.21	)	$	(0.33	)
Weighted average number of common shares outstanding - basic		900,000			900,000
Diluted earnings per common share	$	(0.21	)	$	(0.33	)
Weighted average number of common shares outstanding – diluted		900,000			900,000
Cash dividend declared per common share	$	0.00		$	0.00

See accompanying notes to consolidated financial statements.

F-5

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2012 and 2011

	Common Stock		Series A Preferred Stock		Series B Preferred Stock		Additional Paid-In Capital		Accumulated Earnings (Deficit)			Total Stockholders’ Equity

Balance, December 31, 2010		90		450		50		4,906,000		(1,614,916	)		3,291,674
Net Income		-		-		-		-		848,735			848,735
Balance, December 31, 2011	$	90	$	450	$	50	$	4,906,000	$	(766,181	)	$	4,140,409
Net income		-		-		-		-		1,102,996			1,102,996
Balance, December 31, 2012	$	90	$	450	$	50	$	4,906,000	$	336,816		$	5,243,406

See accompanying notes to consolidated financial statements.

F-6

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2012 and 2011

	2012			2011
Cash Flows from operating activities:
Net income	$	1,102,996		$	848,735
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization		72,704			75,753
Deferred tax assets		(615,830	)		(200,981	)
(Increase) decrease in:
Restricted cash		-			100,000
Accrued investment income		621			11,310
Due and deferred premiums		(89,507	)		208,741
Amounts recoverable from reinsurance companies		(2,470,169	)		(7,313,343	)
Deferred policy acquisition costs		(844,771	)		(209,367	)
Deferred ceding commissions		755,673			108,057
TWIA assessments, net		80,040			80,040
Prepaid and other		(20,946	)		(60,614	)
Increase (decrease) in:
Losses and loss adjustment expenses		2,332,322			2,384,410
Advance premiums		(31,093	)		21,634
Ceded reinsurance premiums payable		(1,873,909	)		1,830,266
Unearned premiums		4,112,674			1,043,185
Ceded deferred premiums		(370,275	)		37,758
Unearned ceding commissions		1,057,503			288,831
Commissions payable		1,870,654			3,550,498
General and other accrued expenses		328,248			(100,861	)
Funds held under reinsurance treaty		36,573			-
Income tax payable		309,258			40,527
Taxes, licenses and other fees payable		292,017			(401,552	)

Net cash provided by operating activities		6,034,783			2,343,027

Cash flows from investing activities:
Additions or purchases of short-term investments		(1,814,142	)		(5,595	)
Withdrawal or maturities of short-term investments		-			506,306
Additions or purchases of long-term investments		(2,032,000	)		-
Maturity of long-term investment		-			123,695
Additions to furniture, equipment and software		(187,668	)		(89,223	)

Net cash provided by (used in) investing activities		(4,033,810	)		535,183

Cash flows from financing activities:
Payment on notes payable		-			(100,000	)
Proceeds from convertible notes payable		1,000,000			-
Net cash provided by (used in) in financing activities		1,000,000			(100,000	)

Net increase in cash and cash equivalents		3,000,973			2,778,210

Cash and cash equivalents, beginning of the year		7,193,402			4,415,192

Cash and cash equivalents, end of the year	$	10,194,375		$	7,193,402

Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes	$	70,000		$	610,000
Cash paid during the year for interest	$	-		$	5,210

See accompanying notes to consolidated financial statements.

F-7

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Homeowners of America Holding Corporation (“HAHC”) is a privately owned insurance holding company established to hold insurance entities for the purpose of marketing homeowners insurance products on a national basis. HAHC owns 100% of Homeowners of America Insurance Company (“HAIC”). HAIC is domiciled in Texas, licensed in multiple states and is authorized to write various forms of homeowners and auto insurance. Most coverage is concentrated in Texas. HAHC also owns 100% of Homeowners of America MGA, Inc. (“MGA”), a Texas Corporation, formed as a captive managing general agency to produce business for HAIC. HAHC, along with its subsidiaries HAIC and MGA, are collectively referred to as “the Company”

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Homeowners of America Holding Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid short-term investments, with original maturities of three months or less. The amount is carried at cost, which approximates fair value. At December 31, 2012 and 2011, cash and cash equivalents consist of cash on deposit with financial institutions.

Investments

The Company’s investments are comprised of short-term investments, restricted certificates of deposit and long-term investments. Restricted certificates of deposit and long-term investments are described below. Short-term investments, which include money market accounts held at financial institutions, money market mutual funds, and certificates of deposit with original maturities greater than three months and maturities of one year or less. Due to the short-term nature of these investments, significant changes in prevailing interest rates and economic conditions should not adversely affect the timing and amount of cash flows on such investments or their related values. Accordingly, money market accounts and certificates of deposit are carried at cost, which approximates fair value, while money market mutual funds are measured at fair value on a recurring basis.

Certificates of deposit totaling $1 million have been pledged to the Texas Department of Insurance for the purpose of meeting state regulatory requirements. These certificates of deposit are shown separately in the accompanying consolidated balance sheets as “Restricted certificates of deposit”. Although the Company, with the approval of the Texas Department of Insurance, may replace the certificates of deposit with other funds or investments, management intends to hold the certificates of deposit to maturity. As such, the restricted certificates of deposit are carried at cost which approximates fair value. Interest earned on these investments inures to the benefit of the Company.

F-8

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s long-term investments include certificates of deposit that mature more than one year after the balance sheet date and are reflected on the consolidated balance sheets as “Long-term investments.” Based on management’s intent to hold to maturity, these investments are carried at cost. Cost approximates fair value based on the rates currently offered for deposits of similar remaining maturities.

The Company’s investments in certificates of deposits and money market accounts do not qualify as securities as defined in FASB ASC 320, Investment – Debt and Equity Securities. Accordingly, the fair value disclosures required by FASB ASC 820, Fair Value Measurements and Disclosures are not provided.

Where applicable, the Company assesses investments of an issuer currently carrying a net unrealized loss. If in management’s judgment, the decline in value is other than temporary, the cost of the investment is written down to fair value with a corresponding charge to earnings. Factors considered in determining whether an impairment exists include financial condition, business prospects and creditworthiness of the issuer, the length of time and magnitude that the asset value has been less than cost, and the ability and intent to hold such investments until the fair value recovers.

Comprehensive Income

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 220 - Comprehensive Income, requires that recognized revenues, expenses, gains and losses be included in net income (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, these items, along with net income (loss), are components of comprehensive income. The Company characterizes their fixed income portfolio as available-for-sale securities, with appropriate adjustments to other comprehensive income. There were no qualifying items reported in comprehensive income for 2012 or 2011.

Recognition of Premium Revenues

Premiums are recognized as revenue on a daily pro rata basis over the policy term. The portion of premiums related to the unexpired term of policies in force as of December 31, 2012 and 2011 and to be earned over the remaining term of those polices, is deferred and reported as unearned premiums.

Ceding Commission

Ceding commissions represent acquisition costs associated with insurance risk ceded to other reinsurance partners and is earned on a pro-rata basis over the life of the associated policy.

Policy Fees

Policy fee income includes application fees which are intended to reimburse the Company for a portion of the costs incurred in establishing the insurance. Policy fees on policies where premium is traditionally paid in full upon inception of the policy are recognized when written, while fees charged on policies where premiums are paid in installments, are recognized when collected.

Reinsurance Profit Sharing, Installments and Other Income

Reinsurance profit share income is recognized when earned. Installments and other fees associated with the collection of installment premium payments are recognized as income when collected. There is no amount over 5% of total revenue within this classification on the consolidated statement of operations for the years ended December 31, 2012 and December 31, 2011.

Property, Equipment and Software

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight- line method over the estimated useful lives of the assets, which range from three to five years. The cost and related accumulated depreciation of assets sold or disposed are removed from the accounts and the resulting gain or loss is included in the consolidated statements of operations. Maintenance and repairs are expensed as incurred.

F-9

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Software installation and development is stated at cost, net of accumulated amortization. Amortization is calculated on a straight-line basis method over three years.

Impairment of Long-Lived Assets

Long-lived assets, such as property, equipment and software, are reviewed for impairment whenever business events or circumstances could lead to or indicate that the value of the asset is in factor may not be recoverable. The assessment of possible impairment is based on whether the carrying amount of the assets exceeds its fair value. The Company uses estimates of undiscounted future cash flows in determining the recoverability of long-lived assets. As of December 31, 2012 and 2011, no impairment has been recorded.

Deferred Policy Acquisition Costs/Deferred Ceding Commissions

Deferred policy acquisitions costs (“DAC”) as of December 31, 2012 and 2011, consist of commissions, premium taxes and policy underwriting and production expenses which are incurred through and vary directly with, the level of production of new and renewal insurance business and are amortized over the terms of the policies they relate to. The method used in calculating DAC limits the amount of the deferred cost to their estimated realizable value, which gives effect to allocating their expense along with other period costs associated with the insurance business, in relation to the amount of gross premium earned on policies to which they relate and investment income. DAC is reviewed to determine if it is recoverable from future income, including investment income. The amount of DAC considered recoverable could be reduced in the near term if estimates of future premium income from their related lines of insurance are revised.

Reserve for Losses and Loss Adjustment Expenses

The liability for losses and loss adjustment expenses (“LAE”) are estimates of the amounts required to cover known incurred losses and LAE, developed through the review and assessment of loss reports, along with the development of known claims. In addition, loss and loss adjustment expense reserves include management’s estimate of an amount for losses incurred but not reported (“IBNR”), determined from reviewing overall loss reporting patterns as well as the loss development cycles of individual claim cases. Such liabilities are necessarily based on estimates and while management believes that the amount is adequate, the ultimate liability may be more or less than the amounts provided. The approach and methods for making such estimates and for establishing the resulting liability are continually reviewed and any adjustments are reflected in current earnings.

Due and Deferred Premiums

Due and deferred premiums consist of uncollateralized premiums and agents’ balances in the course of collection as well as premiums booked but not yet due.

Reinsurance

In the normal course of business, the Company seeks to reduce the overall exposure to losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk with other insurance enterprises or reinsurers. The Company uses only quality, financially rated reinsurers and continually monitors the financial ratings of these companies through its brokers. The amount and type of reinsurance purchased each year is based on management’s estimate of its maximum projected loss potential and the conditions within the reinsurance market. The Company continually monitors its risk exposure through the use of the AIR modeling system and other modeling tools provided by its reinsurance brokers. Reinsurance premiums, expense reimbursements, and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums paid for reinsurance are reported as reductions of earned premium income.

F-10

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss carryforwards, and liabilities are measured using enacted tax rates expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

In assessing the realizable value of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

Uncertain Tax Positions

The Company recognizes uncertain tax positions in the consolidated financial statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns, and that its accruals for tax liabilities are adequate for all open tax years based on an assessment of many factors including experience and interpretations of tax laws applied to the facts of each matter. At December 31, 2012, the Company’s tax years from 2009 through 2012 remain subject to examination.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s primary areas of estimate are for liabilities for unpaid losses and loss adjustment expenses, deferred policy acquisition costs, deferred tax asset valuation, and reinsurance. Actual results could differ significantly from those estimates.

Fair Value of Financial Instruments

The carrying value for the Company’s cash and cash equivalents and short-term investments approximate fair values as of December 31, 2012 and December 31, 2011 due to their short-term nature. Restricted certificates of deposit and long-term certificates of deposits are also carried at cost which approximates fair value based on the rates currently offered for deposits with similar remaining maturities. Fair value for securities are based on the framework for measuring fair value established by FASB ASC 820, Fair Value Measurements and Disclosures.

Convertible Notes Payable

The Company accounts for convertible notes payable under FASB ASC Topic 470-20 – Debt with Conversion and Other Options, which requires issuers to assess whether or not an embedded conversion feature is required to be separately accounted for as a derivative liability for liability and equity components and if the conversion feature is beneficial to the holder.

Stock Based Compensation

The Company accounts for stock-based compensation under the fair value recognition provisions of FASB ASC Topic 718 – Compensation – Stock Compensation”, which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with FASB ASC 718, the Company recognizes stock-based compensation, if any, in the consolidated statements of operations on a straight line basis over the vesting period of the stock award.

F-11

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings (Loss) Per Share

Basic earnings (loss) per share of common stock is computed by dividing net income or loss, less cumulative Preferred Stock dividends for the period whether or not earned or paid, by the weighted-average number of common shares outstanding during the period. For the year ended December 31, 2012, net income attributable to common stockholders was decreased for cumulative dividends on Preferred Stock during the year of $1,288,750. For the year ended December 31, 2011, the net income attributable to common stockholders was decreased for cumulative dividends on Preferred Stock during the year of $1,149,734.

Diluted earnings (loss) per share of common stock is computed by dividing income or loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding convertible Preferred Stock and stock options.

For the years ended December 31, 2012 and 2011, all of the Company’s potentially dilutive securities were excluded from the computation of diluted earnings per share as they were anti-dilutive. The total number of potentially dilutive shares of common stock that were excluded totaled 13,958,121 and 10,521,377 at December 31, 2012 and 2011, respectively.

F-12

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update No. 2013-02. In February 2013, the FASB issued Accounting Standards Update No. 2013-02 (“ASU 2013-02”), Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for public entities for reporting periods beginning after December 15, 2012. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2013-01. In January 2013, the FASB issued Accounting Standards Update No. 2013-01 (“ASU 2013-01”), Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2012-04. In Oct 2012, the FASB issued Accounting Standard Update No. 2012-04 (“ASU 2012-04”), Technical Corrections and Improvement. The section of the update is organized into three subsections: a) Source literature amendments. These amendments arose because of differences between source literature and the codification. Many times either the writing style or phrasing of the source literature did not directly translate into the codification format and style. As a result, the meaning of the guidance might have been unintentionally altered. Alternatively, amendments in this section relate to guidance that, when originally codified, was missing words, references, or phrasing that, upon review, was deemed important to the guidance; b) Guidance clarification and or/or reference corrections. These amendments provide clarification through updating wording, correcting references, or a combination of both; and c) Relocated guidance. These amendments principally move guidance from its current location in the codification to a more appropriate location. Many times these changes related to the scope of guidance. Codification either unintentionally narrows or unintentionally broadens its scope when compared with the legacy literature. The amendments in ASU 2012-04 that are subject to the transition guidance will be effective for fiscal periods, beginning after December 15, 2012. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annuals periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-11 will have a material impact on its consolidated financial statements.

F-13

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounting Standards Update No. 2011-04. In May 2011 the FASB issued ASU no. 2011-04 (ASU 2011-04”), Fair Value Measurement (FASB ASC 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs”. The objective of ASU 2011-04 is to provide clarification of Topic 820 and, also, to ensure that fair value has the same meaning in US general accepted accounting principles (“GAAP”) and in international financial reporting standards (“IFRSs”) and that their respective fair value measurement and disclosure requirements are generally the same. Thus this update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. Early application is not permitted. The Company does not expect the adoption of ASU 2011-04 will have a material impact on its consolidated financial statements.

Accounting Standards Update No. 2010-26. In October 2010, FASB issued ASU No. 2010-26 (“ASU 2010-26”), Financial Services – Insurance (FASB ASC 944) Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of the amendments in ASU 2010-26 is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments in ASU 2010-26 specify which costs should be capitalized. The amendments in ASU 2016-26 are effective for fiscal years and interim periods within the fiscal years beginning after December 15, 2011 and can be applied prospectively upon adoption. Retrospective or prospective application is permitted. Early adoption is permitted, but only at the beginning of an entity’s annual reporting period. The Company adopted ASU 2010-26 effective January 1, 2012 on a prospective basis. As a result of the Company’s methodologies utilized in accounting for deferred acquisition costs, there was no material impact on its consolidated financial statements due to the adoption of ASU 2010-26.

RELATED PARTY TRANSACTIONS

MGA commenced operations September 1, 2010. As a captive insurance agency formed to service HAIC, MGA has the authority to receive and accept proposals for insurance, charge and collect premiums, maintain underwriting guidelines, prepare rate filings, appoint agents and create marketing materials and advertising. As compensation for these services MGA retains the policy fees charged on each policy ranging from $50 to $75, as well as installment and delinquent collection fees. The policy fees and other miscellaneous charges were previously a component of HAIC operations.

In conjunction with the retention of certain policy fees at MGA, HAIC allocates a significant portion of its general expense base to MGA. HAIC allocated $4,862,218 and $3,949,776 of general expenses and taxes, licenses and fees to MGA during 2012 and 2011. The expense allocation agreement has been approved by the Texas Department of Insurance. On a consolidated company basis these transactions are eliminated.

During 2012 and 2011, MGA collected policy fees in the amount of $4,442,069 and $4,103,273, respectively.

In December 2012, HAHC entered into a Convertible Promissory Note with Inter-Atlantic and Phoenix Associates, Inc (a company controlled by a shareholder and director). See Convertible Notes Payable for additional disclosure.

INVESTMENTS

Investment income from investments totaled $17,980 and $26,376 for the years ended December 31, 2012 and 2011, respectively. There were no realized or unrealized gains or losses recognized during 2012 and 2011 due to the short-term nature of the investments held and the intent is to hold to maturity certificates of deposit carried at amortized cost.

F-14

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the Company’s investment holdings by type of financial instrument:

	December 31, 2012				December 31, 2011
	Book Value		Fair Value/ Carrying Value		Book Value		Fair Value / Carrying Value
Financial Assets:
Restricted certificates of deposit	$	1,000,000	$	1,000,000	$	1,000,000	$	1,000,000
Long-term investments		2,155,695		2,155,695		-		-
Short-term investments		3,853,353		3,853,353		2,162,906		2,162,906
	$	7,009,048	$	7,009,048	$	3,162,906	$	3,162,906

	Range of Maturities	Interest Rates	Range of Maturities	Interest Rates

Restricted certificates of deposit	Less than 1 year	0.25% - 0.35%	Less than 1 year	0.25% - 0.85%
Long-term investments	More than 1 year	.35% - 1.24%	-	-
Short-term investments	Less than 1 year	0.25% - 0.85%	Less than 1 year	0.25% - 1.1%

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial assets carried at fair value have been classified, for disclosure purposes, based on a hierarchy established within FASB ASC 820-10 - Fair Value Measurements and Disclosures. When market prices are not available, fair value is generally estimated utilizing valuation techniques that vary by asset class and incorporate available trade, bid and other market information, when available. The acceptable valuation techniques include (a) the Market Approach, which uses prices or relevant information derived from market transactions for identical or comparable assets or liabilities, (b) the Income Approach, which converts future amounts such as cash flows or earnings to a single present value amount based on current market expectations about those future amounts, and (c) the Cost Approach, which is based on the amount that currently would be required to replace the service capacity of an asset. In certain circumstances, these valuation techniques may involve some level of management estimation and judgment which becomes significant with increasingly complex instruments or pricing models. Where appropriate, adjustments are included to reflect the risk premium inherent in a particular methodology, model or input used. The fair value hierarchy is used to prioritize valuation inputs into three levels:

Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities. These inputs are considered to be the most reliable evidence of fair value.

Level 2 – quoted prices for similar assets in active markets, quoted process from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the investment. Such inputs include market interest rates and volatilities, spreads and yield curves.

Level 3 – termed unobservable inputs which are utilized in situations where there is little or no market activity for the asset or liability at the measurement date. The approach typically involves a significant subjective management judgment toward the pricing of the security.

The Company’s short-term investments comprise money market accounts and certificates of deposit held at financial institutions which are not measured at fair value, as well as money market mutual funds which are measured at fair value on a recurring basis. The following tables provide information as of December 31, 2012 and 2011, about the Company’s financial assets measured at fair value on a recurring basis:

Assets at fair value – December 31, 2012

	Level 1		Level 2		Level 3		Total
Short-term investments
Money market mutual funds	$	60,855		-		-	$	60,855

Total	$	60,855	$	-	$	-	$	60,855

F-15

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assets at fair value – December 31, 2011

	Level 1		Level 2		Level 3		Total
Short-term investments
Money market mutual funds	$	58,996		-		-	$	58,996

Total	$	58,996	$	-	$	-	$	58,996

The following methods and assumptions were used to estimate the fair value disclosures for financial instruments:

Money market mutual funds – valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above.

PROPERTY, EQUIPMENT AND SOFTWARE, NET

Property, equipment, and software, net consists of the following as of December 31, 2012 and 2011, respectively:

	2012			2011			Useful Life
Computer equipment	$	200,786		$	140,685		3 years
Office equipment		13,999			13,999		5 years
Furniture and fixtures		95,022			88,322		5 years
Software installation and development		684,011			563,144		3 years
Total, at cost		993,818			806,150
Less accumulated depreciation and amortization		(759,662	)		(686,958	)
Property, equipment and software, net	$	234,156		$	119,192

Depreciation and amortization expense for property, equipment and software totaled $72,704 and $75,753 for the years ended December 31, 2012 and 2011, respectively.

DEFERRED POLICY ACQUISITION COSTS AND CEDING COMMISSIONS

Total gross capitalized deferred policy acquisition costs at December 31, 2012 and 2011, comprised of commissions, premium taxes and costs associated with underwriting and issuing policies, were $5,274,515 and $4,429,744, respectively.

Changes in deferred policy acquisition costs for the years ended December 31, 2012 and 2011 are as follows:

	2012			2011
Deferred policy acquisition costs, beginning of the year	$	4,429,744		$	4,220,377
Capitalized costs		9,680,833			8,741,177
Amortized costs		(8,836,062	)		(8,531,810	)
Deferred policy acquisition costs, end of the year	$	5,274,515		$	4,429,744

Deferred ceding commissions, which represent acquisition costs associated with insurance risk ceded to other reinsurance partners, were $683,914 and $1,439,587 at December 31, 2012 and 2011, respectively.

F-16

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in deferred ceding commissions for the years ended December 31, 2012 and 2011 are as follows:

	2012			2011
Deferred ceding commissions, beginning of the year	$	1,439,587		$	1,547,644
Capitalized costs		12,971,433			11,161,064
Amortized costs		(13,727,106	)		(11,269,121	)
Deferred ceding commissions, end of the year	$	683,914		$	1,439,587

TWIA ASSESSMENTS

From time to time, assessments are levied on a company by the Guaranty Association of the State of Texas. Such assessments are made to cover the losses of policyholders of insolvent or rehabilitated insurers. On September 17, 2008, an assessment was levied against HAIC by the Texas Windstorm Insurance Association (“TWIA”) in the aftermath of Hurricane Ike. HAIC’s portion of the overall statutory assessment was $748,200. HAIC received an immediate premium tax credit of $400,200 for a portion of the assessment paid and established an asset for possible future recoverables under the terms of the reinsurance agreement. No further TWIA assessments have been levied against HAIC since 2008.

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Losses and loss adjustment expenses (LAE), less related reinsurance and deductibles are charged to operations as incurred. Unpaid losses and LAE are based on claims adjusters’ estimates of the cost of settlement plus an estimate for losses IBNR based upon historical experience, industry loss experience, and management’s estimates. Estimates made by management were reviewed by an independent actuary. Comparing management’s selected reserve estimate to the actuarial central estimate and range of reasonable reserves independently determined by the independent appointed actuary continues to be an important step in the reserving process of the Company, however, where differences exist and the Company believes the internally developed reserve estimate to be more accurate, management’s estimate will not change. We believe this to be consistent with industry practice. The claim reserves are continually reviewed and modified to reflect changes in status of claim costs and severity. Any resulting adjustments are charged to operations in the period in which they are determined. The total reserves for unpaid losses and LAE, net of reinsurance recoverables, were $1,023,264 and $839,974 at December 31, 2012 and 2011, respectively. On a gross basis, before reinsurance recoverable, the liability for losses and LAE was $11,641,296 and $9,308,974 at December 31, 2012 and 2011, respectively. The carrying value of the liability for unpaid claims and loss adjustment expenses does not take into consideration the time value of money.

Losses and Loss Adjustment Expenses

The following table provides a reconciliation of the beginning and ending reserve balances for losses and LAE, gross of reinsurance for 2012 and 2011:

	2012			2011
Loss and loss adjustment expenses, beginning of year	$	9,308,974		$	6,924,564
Reinsurance recoverables on losses and LAE		(8,469,000	)		(6,151,000	)
Reserve for losses and LAE, net of reinsurance recoverables, at beginning of year		839,974			773,564
Add provision for claims and LAE occurring in:

Current year		3,904,000			3,337,276
Prior years		160,000			87,000

Net Incurred losses and LAE during the current year		4,064,000			3,424,276

Deduct payments for claims and LAE occurring in

Current year		3,057,000			2,794,866
Prior years		823,710			563,000

Net claim and LAE payments during the current year		3,880,710			3,357,866

Reserve for losses and LAE, net of reinsurance recoverables, at end of year		1,023,264			839,974

Reinsurance recoverables on losses and LAE		10,618,032			8,469,000

Losses and loss adjustment expenses at December 31	$	11,641,296		$	9,308,974

F-17

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a result of additional information on claims occurring in prior years becoming available to management, changes in estimates of provision of claims and claim adjustment expenses were made resulting in an increase of $160,000 and $87,000 for the years ended December 31, 2012 and 2011, respectively.

10.

FUNDS HELD BY COMPANIES UNDER REINSURANCE TREATY

The funds held under reinsurance treaties totaling $36,573 represent the cash deposits furnished to Company by Partners Reinsurance Europe plc, Paris Branch in lieu of a letter of credit.

11.

CONVERTIBLE NOTES PAYABLE

In December 26, 2012 the Company entered into Convertible Promissory Note agreements with Inter-Atlantic Fund, L.P. and Phoenix Associates, Inc. (a company controlled by a shareholder and director) in the amounts of $950,000 and $50,000 respectively. Both notes accrue interest at the rate of 10% per annum (in the event of a default, the interest rate shall increase to 12.5% per annum) and are due and payable on December 26, 2013. At any date, the holders of the majority interest of these notes has the right to convert all or a portion of the notes, plus accrued interest into that number of shares of the Company’s Series A Convertible Preferred Stock, identical in all respects to existing Series A Preferred Stock issued in November 2005, equal to a ratio of 1 share per $1.10 of the note’s principal plus accrued interest plus, the amount of cumulative unpaid Series A Preferred Stock dividends the note holders would have received since 2005. To the extent the existing Series A Convertible Preferred Stock is no longer outstanding at the time of conversion, the notes shall be convertible, using the above ratio, into stock or other consideration received for the existing Series A Convertible Preferred Stock. During the year ended December 31, 2012, the interest expense on these notes totaled $1,644.The number of shares of Series A Preferred Stock that would be issued if the convertible notes had been converted as of December 31, 2012 totaled 2,112,119. Based upon management’s assessment, no value was attributable to the conversion feature.

In December 2010, the Company entered into a variable rate loan agreement with a bank in the amount of $100,000, with a minimum interest rate of 5.5% per annum. The required monthly interest payments were $465 through the maturity date of December 2011. In December 2011, the note was paid in full. Interest expense paid during 2012 and 2011 was $0 and $5,210, respectively. Security on this loan included the restriction of $100,000 on depository accounts at the bank.

12.

STOCKHOLDERS’ EQUITY

As of December 31, 2012 and 2011, the Company has 10,000,000 shares authorized and 900,000 shares issued and outstanding of $0.0001 par value common stock. Holders of common stock are entitled to one (1) vote for each share of common stock held at all meetings of stockholders.

In addition, the Company has authorized, issued and outstanding 4,500,000 shares of 12.5% cumulative convertible series A preferred stock and 500,000 outstanding shares of 1,000,000 authorized and issued shares of 12.5% cumulative convertible series B stock all with a $0.0001 par value. The Company’s convertible preferred stock also contains the following salient features:

Series A Preferred Stock

Holders of the Series A Preferred Stock have the right to vote on any matter presented to the stockholders for a vote at any meeting (or written consent in lieu of meeting) and shall be entitled to cast the number of votes equal to the number of common shares into which such Series A Preferred Stock are convertible into on the record date for such vote. The holders of Series A Preferred Stock vote together with the holders of common stock or any other series of preferred stock, as a single class. The Company cannot grant any class or series of securities voting rights that are superior or on more favorable terms than the rights afforded the Series A Preferred Shares.

declares or sets aside any dividends on any other shares of capital stock of the company;

voluntarily or involuntarily enters into a liquidation, dissolution or is otherwise wound up;

makes payment of dividend to holders of Series B Preferred Stock

or, if any of the following takes place:

Voluntary Conversion – at any time at the option of the holder and without the payment of additional consideration, shares are converted into fully paid non-assessable shares of Common Stock at a price to be determined by dividing one dollar ($1.00) by the original issue price of the preferred stock.

Mandatory Conversion - upon the earlier of (A) the closing sale of shares of Common Stock to the public at a price of at least five dollars ($5.00) per share (subject to appropriate adjustment in the event of any stock dividends, stock split, reclassification or other similar type recapitalization affecting such shares) in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least fifty ($50) million dollars of proceeds, or a date specified by vote or written consent of the holders of at least 66.67% of the then outstanding shares of each Series of Preferred Stock, all such Series voting or consenting together as one class.

F-18

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Redemption – during the redemption period, defined as any date on or after the 5^thanniversary of the Series A Preferred Shares original issue date. Once the Series A shares are fully redeemed, then the holders of Series B Preferred Stock shall thereafter be entitled to redeem all the issued and outstanding shares of Series B Preferred Stock on the same terms and conditions with respect to the Series A Preferred Stock. The redemption price shall be the original issue price per share plus any and all accruing dividends that remain unpaid. If the Company does not have sufficient funds legally available to redeem shares on a redemption date, the Company shall redeem a pro rata portion of each series of preferred stock out of funds legally available.

Each holder of Series A Preferred Stock have the right to request redemption of its shares by the Company for a redemption price of $1 per share, plus in certain cases any accrued dividend. The redemption period for the shares of Series A Preferred Stock is either: (i) any time on or after the first anniversary of the original issuance date of the shares, if neither the Company nor any of its subsidiaries has obtained a license or certificate of authority from the Texas Department of Insurance to conduct insurance operations, (ii) the 1 year period commencing 15 months after the original issuance date of the shares, if the board of directors that the financial performance for the Company during the preceding 12 months is materially less than budgeted, or (iii) after the 5^th anniversary of the original issuance date.

Series B Preferred Stock

Holders of the Series B Preferred Stock have the right to vote on any matter presented to the stockholders for a vote at any meeting (or written consent in lieu of meeting) and shall be entitled to cast the number of votes equal to the number of common shares into which such Series B Preferred Stock are convertible into on the record date for such vote. The holders of Series B Preferred Stock vote together with the holders of common stock or any other series of preferred stock, as a single class.

declares or sets aside any dividends on any other shares of capital stock of the company;

voluntarily or involuntarily enters into a liquidation, dissolution or is otherwise wound up;

makes payment of dividend to holders of Series A Preferred Stock

F-19

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

or, if any of the following takes place:

As of December 31, 2012 and 2011, the Preferred Stock holders have not elected to convert or redeem their Preferred Stock. As of December 31, 2012 and 2011, the cumulative Preferred Stock dividends in arrears totaled $6,598,752 and $5,310,002, respectively.

F-20

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.

STOCK BASED COMPENSATION

The Company accounts for stock-based compensation under the fair value recognition provision of FASB ASC Topic 718 – “Compensation – Stock Compensation”.

The Company’s 2005 Management Incentive Plan (the “Plan”) provides for granting of stock options to enable the Company to obtain and retain the services of selected persons, both employees and directors, considered to be essential to the long-range success of the Company. Under the Plan, options may be granted to purchase a total not to exceed 315,790 shares in the aggregate, made up of original issue shares, treasury share or a combination of the two. At December 31, 2012 and 2011, options to purchase 313,500 shares have been granted under the Plan. Options have a life of 10 years and vest at a rate of 25% per year, beginning 12 months from their date of issue.

A summary of the activity of the Company’s stock option plan is as follows:

	Number of Options		Weighted Avg. Exercise Price		Weighted Avg. Remaining Cont. Term		Aggregate Intrinsic Value

Outstanding at December 31, 2010		263,500	$	2.05		7.51	$	100
Granted		50,000	$	1.50
Outstanding at December 31, 2011		313,500	$	1.96		6.79	$	11
Granted		-
Outstanding at December 31, 2012		313,500	$	1.97		6.79	$	11

Exercisable at December 31, 2012		247,250	$	1.97		5.83	$	9

The fair value of options granted is estimated using a market value approach and the Black-Scholes option pricing model using the following assumptions as of December 31, 2012 and 2011:

	Years Ending December 31,
	2012			2011
Dividend Yield		0.00	%		0.00	%
Expected Volatility		30	%		30	%
Risk-free interest rate		0.25	%		0.25	%
Expected life (in years)		2			2
Weighted average fair value per option granted	$	0.0000392		$	0.0000392

No compensation expense was recognized for the years ended December 31, 2012 and 2011 as the amounts were deemed not to be material.

14.

INCOME TAXES

The Company files a consolidated federal income tax return. Allocation of tax expense or refunds among the consolidated group is based on separate return calculations.

F-21

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	2012		2011
Gross Deferred Tax Assets:
Loss reserve discount	$	19,159	$	15,727
Unearned premium reserve discount		205,368		171,728
Organization costs (net of amortization)		-		67,990
Unearned ceding commissions		2,321,104		1,961,555
Deferred ceding commissions		-		3,712
Premium taxes payable		-		5,130
Total Deferred Tax Assets		2,545,631		2,225,842
Valuation allowance		-		498,301
Total Adjusted Deferred Tax Assets		2,545,631		1,727,541

Deferred Tax Liabilities
Organization cost (net of amortization)		6,561		-
Deferred policy acquisition costs		1,719,805		1,506,113
Deferred ceding commisson		-		-
Property, equipment and software		2,454		20,447
Total deferred tax liabilities		1,728,820		1,526,560
Net deferred tax assets	$	816,811	$	200,981

As of December 31, 2012, it was determined that no valuation allowance against deferred tax assets was required. As of December 31, 2011, a valuation allowance was established in the amount of $498,301 against the deferred tax assets.

The valuation allowance is based on management’s assessment as to whether it is more likely than not that some portion of the deferred tax assets may not be realized.

The total income tax provision (benefit) incurred is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The significant items causing this difference for 2012 and 2011 are as follows:

2012	Tax Effect			Tax Rate
Income before taxes at statutory rate	$	293,710			34.00	%
Meals and entertainment		5,747			0.67	%
Valuation allowance adjustment		(477,765	)		-55.31	%
Other		(60,834	)		-7.04	%
Total	$	(239,142	)		-27.68	%

2011	Tax Effect		Tax Rate
Income before taxes at statutory rate	$	450,665		34.00	%
Meals and entertainment		8,816		0.67	%
other, including valuation allowance adjustment		17,270		1.30	%

Total	$	476,751		35.97	%

F-22

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.

REINSURANCE

Certain premiums and benefits are ceded to other insurance companies under various reinsurance agreements. The reinsurance agreements provide HAIC with increased capacity to write larger risks and maintain its exposure to loss within its capital resources.

Ceded reinsurance contracts do not relieve HAIC from its obligations to policyholders. HAIC remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements. To minimize its exposure to significant losses from reinsurer insolvencies, HAIC evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers.

From April 1, 2012 through March 31, 2013, the Company reinsured with various reinsurers under homeowners quota share reinsurance treaties ceding 90% of its risk to reinsurers. The total insured value is subject to a maximum limit of $1,612,500, inclusive of all additional and optional coverage. The reinsurers’ liability under the quota share arrangement beginning April 1, 2012, in respect to any one loss occurrence shall not exceed $60,000,000. Property catastrophe treaties in effect at the end of 2012 develop over four layers and cover a gross loss of $62,000,000 excess of $3,000,000 per occurrence. The Company’s net retention is $300,000 per occurrence.

From April 1, 2011 through March 31, 2012, the Company reinsured with various reinsurers under homeowners quota share reinsurance treaties ceding 90% of its risk to reinsurers. The quota share agreement was renewed on April 1, 2011 on the same terms as expiring at March 31, 2011. The total insured value is subject to a maximum limit of $1,612,500, inclusive of all additional and optional coverage. The reinsurers’ liability under the quota share arrangement beginning April 1, 2011, in respect to any one loss occurrence shall not exceed $60,000,000. Property catastrophe treaties in effect at the end of 2011 develop over three layers and cover a gross loss of $57,000,000 excess of $3,000,000 per occurrence. The Company’s net retention is $300,000 per occurrence.

From April 1, 2010, through March 31, 2011, HAIC reinsured with various reinsurers under homeowners quota share reinsurance treaties ceding 90% of its risk to reinsurers. The quota share agreement was renewed on April 1, 2011, with expiration of March 31, 2012, ceding 90% of HAIC’s risk. The total insured value is subject to a maximum limit of $1,612,500, inclusive of all additional and optional coverage. The reinsurers’ liability under the quota share arrangement beginning April 1, 2011, with respect to any one loss occurrence, shall not exceed $60,000,000. Property catastrophe treaties in effect at the end of 2011 develop over three layers and cover a gross loss of $57,000,000 excess of $3,000,000 per occurrence. HAIC’s net retention was $300,000 per occurrence.

The Company also purchases reinsurance covering non-weather losses (two occurrences) in excess of a gross loss of $500,000 per occurrence for all coverage lines (a net loss of $50,000). This coverage which was enforced during 2011 and 2012 has been obtained principally to protect the Company in the event of a large fire loss.

Effective June 1, 2011 through May 31, 2012, the Company’s private passenger auto reinsurance program reinsures 90% of physical damage and liability losses emanating from private passenger automobile policies written by the Company. This coverage was extended through July 31, 2012 in respect to policies written during the term of the contract. With effect from August 1, 2012, the Company stopped writing new policies. Per the terms of the reinsurance contract the reinsurance coverage remains in force on policies the Company is required to issue, renew or keep in force by any state regulator until the first time the Company can lawfully cancel or non-renew such policies. The maximum coverage period for subject policies is deemed to be 12 months, plus odd time, not to exceed 18 months. The company also purchases excess of loss insurance on its private passenger automobile program, covering 90% of losses from physical damage and liability claim in excess of $40,000. This coverage reinsurance program has the same run-off provisions.

From June 1, 2010 through May 31, 2011 the Company reinsured 90% of physical damage and liability losses emanating from private passenger automobile policies written during the term of the reinsurance contract and all required renewals of policies in effect at the time of its expiration.

The effects of reinsurance on premiums written and earned were as follows:

	2012						2011
	Written			Earned			Written			Earned
Direct premiums	$	51,298,374		$	47,185,700		$	44,373,892		$	43,330,707
Ceded premiums		(45,040,512	)		(42,207,361	)		(40,177,240	)		(39,453,849	)
Net Premiums	$	6,257,862		$	4,978,339		$	4,196,652		$	3,876,858

F-23

Following is a summary of HAIC’s reinsurance balances under the above described reinsurance treaties for the year ended December 31, 2012 and 2011:

	2012		2011

Ceded premiums payable	$	2,782,190	$	4,656,099
Ceded loss adjustment expenses		3,944,270		5,219,061
Ceded loss and loss adjustment expense reserve		10,618,032		8,469,000
Ceded unearned premium reserve		23,595,317		20,008,432
Ceded earned premiums		42,207,361		39,453,849

The following is a summary of the names of each of HAIC’s significant reinsurer and the amount due from each for paid losses, LAE and unearned premium.

	2011						2012
	Paid Losses & LAE		Unearned Premium		Total Receivable		Paid Losses & LAE			Unearned Premium		Total Receivable
Maiden Reinsurance Company	$	2,041,274	$	6,245,481	$	8,286,755	$	130,739		$	-	$	130,739
NGM Insurance Company		140,021		257,433		397,454		139,541			150,990		290,531
Arch Reinsurance Company		859,637		4,321,764		5,181,401		483,262			9,299,583		9,782,845
Endurance Reinsurance Corp. of America		542,491		2,701,104		3,243,595		156,687			2,657,023		2,813,710
Catlin RE		13,662		-		13,662		(1,059	)		-		(1,059	)
Montpelier Insurance Company		4,148		-		4,148		(314	)		-		(314	)
RLI Insurance Company		611,696		3,241,324		3,853,020		225,091			3,985,536		4,210,627
SCOR Reinsurance Company		655,565		3,241,324		3,896,889		225,125			3,985,536		4,210,661
Endurance Specialty		-		-		-		(123	)		-		(123	)
Houston Casualty		-		-		-		(9	)		-		(9	)
R+V Versicherung AG		109,875		-		109,875		279,534			3,516,649		3,796,183
SCOR Switzerland		-		-		-		2,553			-		2,553
Paladin CAT Management		4,741		-		4,741		(416	)		-		(416	)
Odyssey RE		4,741		-		4,741		2,823			-		2,823
SCOR Global		-		-		-		(114	)		-		(114	)
Lloyds Syndicates		12,326		-		12,326		4,607			-		4,607
Partner RE Europe LTD (France)		9,059		-		9,059		6,023			-		6,023
Total	$	5,009,236	$	20,008,430	$	25,017,666	$	1,653,950		$	23,595,317	$	25,249,267

F-24

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.

CONCENTRATION OF CREDIT RISK

The Company has exposure and remains liable in the event of an insolvency of one of its primary reinsurers. Management and its reinsurance intermediary regularly assess the credit quality and ratings of its reinsurer base companies.

Financial instruments which potentially subject the Company to credit risk consist principally of cash and money market accounts on deposit with financial institutions, money market funds, certificates of deposit and premium balance in the course of collection. With respect to cash and money market accounts, Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act provides temporary (to December 31, 2012) Federal Deposit Insurance Corporation (“FDIC”) insurance coverage on all balances held in non-interest bearing accounts. Insurance coverage on interest bearing accounts continues at $250,000 per bank. At times, the Company’s bank deposits may exceed the FDIC limit.

Concentration of credit risk with respect to premium balances in the course of collection is limited, due to the large number of insureds comprising the Company’s customer base. However, substantially all of the Company’s revenues are derived from customers in Texas, which could be adversely affected by economic conditions, an increase in competition, or other environmental changes.

17.

COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its corporate office space and certain office equipment under non-cancelable operating leases which expire at various dates through 2016. Future minimum lease payments required under the non-cancelable operating leases are as follows for the years ending December 31:

2013 -	$	113,043
2014 -		105,438
2015 -		90,291
2016 -		36,890
	$	345,662

Rent expense under such leases was $101,746 and $109,590 for the years ended December 31, 2012 and 2011, respectively.

Litigation

The Company is the defendant in routine litigation involving matters that are incidental to the claims aspect of the Company’s business for which estimated losses are included in unpaid loss and loss adjustment expense reserves in the Company’s consolidated financial statements. It is management’s opinion that these lawsuits are not material individually or in the aggregate to the Company’s financial position, results of operations, or cash flows.

18.

REGULATORY REQUIREMENTS AND RESTRICTIONS

HAIC is subject to the laws and regulations of the State of Texas and the regulations of any other states in which HAIC conducts business. State regulations cover all aspects of HAIC’s business and are generally designed to protect the interests of insurance policyholders, as opposed to the interests of stockholders. The Texas Insurance Code requires all property and casualty insurers to have a minimum of $2.5 million in capital stock and $2.5 million in surplus. Companies already authorized to do business in Texas as of September 1, 2009, which included HAIC, are able to increase their capital and surplus to these levels incrementally, with compliance with the new requirements by December 31, 2019. As of December 31, 2012, HAIC’s total statutory surplus was $6,716,222 (capital stock of $1,500,000; surplus of $5,216,222). The incremental adjustments within the plan require HAIC to have 130% of its December 31, 2009 value of common stock in place by December 31, 2012 or $1,300,000. As of December 31, 2012 and December 31, 2011 the value of HAIC’s common stock is $1,500,000. HAIC’s surplus as of December 31, 2012 was already in excess of the December 31, 2019 requirements. As such, HAIC has complied with the minimum statutory requirements of the Texas Insurance Code.

HAIC’s statutory net income is as follows:

Year ended December 31, 2012: $394,044

Year ended December 31, 2011: $716,638

States routinely require deposits of assets for the protection of policyholders. As of December 31, 2012 and December 31, 2011, HAIC had certificates of deposits totaling of $1 million which had been pledged to the Texas Department of Insurance for the benefit of the State of Texas (see note 1).

F-25

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amount of retained earnings that may not be transferred to the Company as of December 31, 2012 and December 31, 2011 is as follows:

	December 31, 2012				Limitation
2012 Retained Earnings	$	909,167

Statutory Surplus	$	6,716,222	10	%	$	671,622
Statutory Net Income	$	394,044	100	%	$	394,044

Maximum Dividend Permitted							$	394,044

Restricted Value of Retained Earnings							$	-

	December 31, 2011				Limitation
2011 Retained Earnings	$	677,742

Statutory Surplus	$	4,984,797	10	%	$	498,480
Statutory Net Income	$	716,638	100	%	$	716,638

Maximum Dividend Permitted							$	716,638

Restricted Value of Retained Earnings							$	-

HAIC’s Risk Based Capital (RBC) calculation performed for the years ended December 31, 2012 and December 31, 2011 did not trigger any regulatory event. The results of the RBC calculation were not adversely impacted by the use of Permitted Accounting Principles, in that they did not trigger a regulatory event.

HAIC prepares its statutory-based financial statements in conformity with accounting practices prescribed or permitted by the Texas Department of Insurance. Prescribed statutory accounting practices primarily include those published as statements of SAP by the NAIC, as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practice not so prescribed. As of December 31, 2012 and 2011 there were no material permitted statutory accounting practice utilized by HAIC.

19. SUBSEQUENT EVENTS

The Company performed an evaluation of subsequent events through the date that these consolidated financial statements were issued and determined there were no recognized or unrecognized events that would require an adjustment or additional disclosure in the consolidated financial statements as of December 31, 2012, except for the following:

Effective April 1, 2013 the Company’s property quota share reinsurance program was renewed with identical limits and retentions as the expiring program, with unaffiliated third party reinsurers as an open market purchase.

Effective April 1, 2013 the Company renewed its catastrophe excess of loss reinsurance program with unaffiliated third party reinsurers as an open market purchase. With this placement, the Company’s retention per catastrophic event is now $400,000, compared to $300,000 under the expiring contract, with a maximum limit of $80.0 million compared to a maximum limit of $60.0 million under the expiring program.

As a result of management’s decision to focus entirely on its property insurance book of business, effective from April 30, 2013, the Company ceased writing private passenger automobile insurance policies.

F-26

Homeowners of America Holding Corporation

CONSOLIDATED BALANCE SHEETS

March 31, 2013

	March 31,		December 31,
	2013 (Unaudited)		2012
Assets:
Cash and cash equivalents		1,430,735		10,194,375
Short-term investments		10,994,564		3,853,353
Restricted certificates of deposit		1,000,000		1,000,000
Long-term investments		3,897,000		2,155,695
Accrued investment income		11,396		8,435
Due and deferred premiums		3,232,357		3,643,136
Amounts recoverable from reinsurance companies		39,556,769		36,080,628
Property, equipment and software, net		211,903		234,156
Deferred policy acquision costs		5,142,365		5,274,515
Deferred ceding comissions		683,914		683,914
TWIA assessments, net of ceded amounts		80,040		80,040
Prepaid expenses and other		299,636		130,296
Deferred tax assets, net		803,458		816,811

Total Assets	$	67,344,137	$	64,155,354

Liabilities

Loss and loss adjustment expenses	$	13,092,304	$	11,641,296
Advance Premiums		92,416		36,499
Ceded reinsurance premiums payable		5,196,050		2,782,190
Unearned premiums		25,844,990		26,578,928
Ceded deferred premiums		2,379,182		2,381,906
Unearned ceding commissions		6,658,539		6,826,778
Commissions payable		6,678,073		6,117,170
General and other accrued expenses payable		722,884		729,441
Funds held under reinsurance treaty		36,573		36,573
Income tax payable		134,023		349,785
Taxes, licenses and other fees payable		-		431,382
Convertible notes payable		1,000,000		1,000,000

Total liabilities		61,835,034		58,911,948

Stockholders’ equity:

Preferred stock, convertible; 12.5% cumulative; $0.0001 par value per share;
Series A 4,500,000 shares authorized; 4,500,000 Shares issued and outstanding		450		450
Series B 1,000,000 shares authorized; 500,000 shares issued and outstanding		50		50
Common Stock, $0.0001 par value per share; 10,000,000 shares authorized; 900,000 shares issued and outstanding		90		90
Additional paid-in-capital		4,906,000		4,906,000
Accumulated earnings		602,513		336,816

Total stockholders’ equity		5,509,103		5,243,406

Total liabilities and stockholders’ equity	$	67,344,137	$	64,155,354

See accompanying notes to consolidated financial statements.

F-27

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

March 31, 2013 and 2012

	March 31,			March 31,
	2013 (Unaudited)			2012 (Unaudited)
Revenues:

Premiums earned	$	12,510,863		$	11,002,558
Ceded premims		(11,406,965	)		(9,963,578	)
Net premiums		1,103,898			1,038,980
Policy fees		977,651			960,751
Ceding commissions		2,544,494			2,361,679
Gross investment income		11,316			4,194
Reinsurance profit sharing, installment fees and other income		324,161			297,323

Total Revenue		4,961,520			4,662,927

Expenses:

Losses and loss adjustment expenses		532,417			1,273,297
Policy acquisition expenses		2,676,813			2,425,726
Underwriting expenses		1,339,223			1,137,345

Total Expenses		4,548,453			4,836,368

Income (loss) before income taxes		413,067			(173,441	)

Provision for income taxes:
Current		134,017			(57,368	)
Deferred		13,353			-
Total income taxes		147,370			(57,368	)

Net income (loss)	$	265,697		$	(116,073	)

Cumulative preferred stock dividends		(357,496	)		(321,305	)

Net Income (loss) available to common stockholders	$	(91,799	)	$	(437,378	)

Basic earning per common share	$	(0.10	)	$	(0.49	)
Weighted average number of common shares outstanding - basic		900,000			900,000
Diluted earning per common share	$	(0.10	)	$	(0.49	)
Weighted average number of common shares outstanding - diluted		900,000			900,000
Cash dividend declared per common share	$	-		$	-

See accompanying notes to consolidated financial statements.

F-28

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Three Months Ended

March 31, 2013

			Series A		Series B		Additional				Total
	Common		Preferred		Preferred		Paid-In		Accumulated		Shareholders
	Stock		Stock		Stock		Capital		Earnings		Equity
Balance December 31, 2012	$	90	$	450	$	50	$	4,906,000	$	336,816	$	5,243,406

Net Income		-		-		-		-		265,697		265,697

Balance March 31, 2013	$	90	$	450	$	50	$	4,906,000	$	602,513	$	5,509,103

See accompanying notes to consolidated financial statements.

F-29

Homeowners of America Holding Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Three Months Ended

March 31, 2013 and 2012

	March 31,			March 31,
	2013 (Unaudited)			2012 (Unaudited)
Cash flows from operating activities:
Net income (loss)	$	265,697		$	(116,073	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization		19,854			18,600
(Increase) decrease in:
Accrued investment income		(2,961	)		510
Due and deferred premiums		410,779			504,310
Amounts recoverable from reinsurance companies		(3,476,141	)		(6,368,179	)
Deferred policy acquisition costs		132,150			53,934
TWIA assessments, net		-			80,040
Prepaid and other		(169,339	)		(318,897	)
Deferred tax assets		13,353			-
Increase (decrease) in:
Losses and loss adjustment expenses		1,451,007			5,387,648
Advance premiums		55,917			(67,592	)
Ceded reinsurance premiums payable		2,413,860			1,324,918
Unearned premiums		(733,938	)		(186,716	)
Ceded deferred premiums		(2,724	)		(142,057	)
Unearned ceding commissions		(168,239	)		(47,302	)
Commissions payable		560,902			372,144
General and other accrued expenses		(6,556	)		469,450
Income tax payable		(215,762	)		(127,368	)
Taxes, licenses and other fees payable		(431,382	)		(139,365	)
Net cash provided by operating activities		116,477			698,005

Cash flows from investing activities:
Maturites (Purchases) of long-term certificate of deposit		(1,617,610	)		(123,695	)
Withdrawals or maturities of short-term investments		-			123,695
Maturities (Purchases) of short-term investments		(7,264,905	)		(3,937	)
Additions to furniture, equipment and software		2,398			(32,698	)
Net cash used in investing activities		(8,880,117	)		(36,635	)

Net increase (decrease) in cash and cash equivalents		(8,763,640	)		661,370

Cash and cash equivalents, beginning of period		10,194,375			7,193,402

Cash and cash equivalents, end of the period	$	1,430,735		$	7,854,772

Supplemental disclosure of cash flow information:

Cash paid during the year for income tax	$	215,595		$	70,000

Cash paid during the year for interest expense	$	-		$	-

See accompanying notes to consolidated financial statements.

F-30

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Homeowners of America Holding Corporation (HAHC) is a privately owned insurance holding company established to hold insurance entities for the purpose of marketing homeowners insurance products on a national basis. HAHC owns 100% of Homeowners of America Insurance Company (“HAIC”). HAIC is domiciled in Texas, licensed in multiple states and is authorized to write various forms of homeowners and auto insurance. Most coverage is concentrated in Texas. HAHC also owns 100% of Homeowners of America MGA, Inc. (“MGA”), a Texas Corporation, formed as a captive managing general agency to produce business for HAIC. HAHC, along with its subsidiaries HAIC and MGA, are collectively referred to as “the Company”

Principles of Consolidation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid short-term investments, with original maturities of three months or less. The amount is carried as cost, which approximates fair value. At March 31, 2013 and December 31, 2012, cash and cash equivalents consist of cash on deposit with financial institutions.

Investments

The Company’s investments are comprised of short-term investments, restricted certificates of deposit and long-term investments. Restricted certiicates of deposit and long-term investments are described below. Short-term investments, including money market accounts held at financial institutions, money market mutual funds, and certificates of deposit with original maturities greater than three months and maturities of one year or less. Due to the short-term nature of these investments, significant changes in prevailing interest rates and economic conditions should not adversely affect the timing and amount of cash flows on such investments or their related values. Accordingly, money market accounts and certificates of deposit are carried at cost, which approximates fair value, while money market mutual funds are measured at fair value on a recurring basis.

The Company’s investments also include certificates of deposit that mature more than one year after the balance sheet date and are reflected on the consolidated balance sheets as Long-term investments. Based on management’s intent to hold to maturity, this investment is carried at cost. Cost approximates fair value based on the rates currently offered for deposits of similar remaining maturities.

The company’s investments in certificates of deposits and money market accounts do not qualify as securities as defined in FASB ASC 320, Investment – Debt and Equity Securities. Accordingly, the fair value disclosures required by FASB ASC 820, Fair Value Measurements and Disclosures are not provided.

F-31

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Comprehensive Income

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 220 - Comprehensive Income, requires that recognized revenues, expenses, gains and losses be included in net income (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, these items, along with net income (loss), are components of comprehensive income. The Company characterizes their fixed income portfolio as available-for-sale securities, with appropriate adjustments to other comprehensive income. There were no qualifying items reported in comprehensive income for the three months ended March 31, 2013 or 2012.

Recognition of Premium Revenues

Premiums are recognized as revenue on a daily pro rata basis over the policy term. The portion of premiums related to the unexpired term of policies in force as of the end of the measurement period and to be earned over the remaining term of those polices, is deferred and reported as unearned premiums.

Ceding Commission

Ceding commissions represent acquisition costs associated with insurance risk ceded to other reinsurance partners and is earned on a pro-rata basis over the life of the associated policy.

Policy Fees

Reinsurance Profit Sharing, Installments and Other Income

Reinsurance profit share income is recognized when earned. Installments and other fees associated with the collection of installment premium payments are recognized as income when collected. There is no amount over 5% of total revenue within this classification on the consolidated statement of operations for the three months ended March 31, 2013 and March 31, 2012.

Property, Equipment and Software

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated on the straight- line method over the estimated useful lives of the assets, which range from three to five years. The cost and related accumulated depreciation of assets sold or disposed are removed from the accounts and the resulting gain or loss is included in the consolidated statement of operations. Maintenance and repairs are expensed as incurred.

Software installation and development is stated at cost, net of accumulated amortization. Amortization is calculated on a straight-line basis method over three years.

Impairment of Long-Lived Assets

Long-lived assets, such as property, equipment and software, are reviewed for impairment whenever business events or circumstances could lead to or indicate that the value of the asset is in fact may not be recoverable. The assessment of possible impairment is based on whether the carrying amount of the assets exceeds its fair value. The Company uses estimates of undiscounted future cash flows in determining the recoverability of long-lived assets. As of March 31, 2013 and December 31, 2012, no impairment has been recorded.

F-32

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Policy Acquisition Costs/Deferred Ceding Commissions

Deferred policy acquisitions costs (“DAC”) as of March 31, 2013 and December 31, 2012, consist of commissions, premium taxes and policy underwriting and production expenses which are incurred through and vary directly with, the level of production of new and renewal insurance business and are amortized over the terms of the policies they relate to. The method used in calculating DAC limits the amount of the deferred cost to their estimated realizable value, which gives effect to allocating their expense along with other period costs associated with the insurance business, in relation to the amount of gross premium earned on policies to which they relate and investment income. DAC is reviewed to determine if it is recoverable from future income, including investment income. The amount of DAC considered recoverable could be reduced in the near term if estimates of future premium income from their related lines of insurance are revised.

Reserve for Losses and Loss Adjustment Expenses

Due and Deferred Premiums

Due and deferred premiums consist of uncollateralized premiums and agents’ balances in the course of collection as well as premiums booked but not yet due.

Reinsurance

In the normal course of business, the Company seeks to reduce the overall exposure to losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk with other insurance enterprises or reinsurers. The Company uses only quality, financially rated reinsurers and continually monitors the financial ratings of these companies through its brokers. The amount and type of reinsurance purchased each year is based management’s estimate of its maximum projected loss potential and the conditions within the reinsurance market. The Company continually monitors its risk exposure through the use of the AIR modeling system and other modeling tools provided by its reinsurance brokers. Reinsurance premiums, expense reimbursements, and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums paid for reinsurance are reported as reductions of earned premium income.

Income Taxes

F-33

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Uncertain Tax Positions

The Company recognizes uncertain tax positions in the consolidated financial statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns, and that its accruals for tax liabilities are adequate for all open tax years based on an assessment of many factors including experience and interpretations of tax laws applied to the facts of each matter. At March 31, 2013, the Company’s tax years from 2009 through 2012 remain subject to examination.

Estimates

of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s primary areas of estimate are for liabilities for unpaid losses and loss adjustment expenses, deferred policy acquisition costs, deferred tax and asset valuation, and reinsurance. Actual results could differ significantly from those estimates.

Fair Value of Financial Instruments

The carrying value for the Company’s cash and cash equivalents and short-term investments approximate fair values as of March 31, 2013 and December 31, 2012 due to their short-term nature. Fair value for securities are based on the framework for measuring fair value established by FASB ASC Topic 820, Fair Value Measurements and Disclosures.

Convertible Notes Payable

Stock Based Compensation

The Company accounts for stock-based compensation under the fair value recognition provisions of FASB ASC Topic 718 – Compensation – Stock Compensation”, which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with FASB ASC Topic 718, the Company recognizes stock-based compensation, if any, in the consolidated statements of operations on a straight line basis over the vesting period of the stock award.

Earnings (Loss) Per Share

Basic earnings (loss) per share of common stock is computed by dividing net income or loss, less cumulative Preferred Stock dividends for the period whether or not earned or paid, by the weighted-average number of common shares during the period. For the three months ended March 31, 2013, the net income attributable to common stockholders was decreased for cumulative dividends on Preferred Stock during the year of $357,496. For the three months ended March 31, 2012, net loss attributable to common stockholders was increased for cumulative dividends on Preferred Stock during the year of $321,305.

For the three months ended March 31, 2013 and 2012, all of the Company’s potentially dilutive securities were excluded from the computation of diluted earnings per share as they were anti-dilutive. The total number of potentially dilutive shares of common stock that were excluded totaled 14,434,313 and 10,842,682 at March 31, 2013 and March 31, 2012, respectively.

F-34

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update No. 2013-02. In February 2013, the FASB issued Accounting Standards Update No. 2013-02 (“ASU 2013-02”), Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for public entities for reporting periods beginning after December 15, 2012. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2013-01. In January 2013, the FASB issued Accounting Standards Update No. 2013-01 (“ASU 2013-01”), Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2012-04. In Oct 2012, the FASB issued Accounting Standard Update No. 2012-04 (“ASU 2012-04”), Technical Corrections and Improvement. The section of the update is organized into three subsections: a) Source literature amendments. These amendments arose because of differences between source literature and the codification. Many times either the writing style or phrasing of the source literature did not directly translate into the codification format and style. As a result, the meaning of the guidance might have been unintentionally altered. Alternatively, amendments in this section relate to guidance that, when originally codified, was missing words, references, or phrasing that, upon review, was deemed important to the guidance; b) Guidance clarification and or/or reference corrections. These amendments provide clarification through updating wording, correcting references, or a combination of both; and c) Relocated guidance. These amendments principally move guidance from its current location in the codification to a more appropriate location. Many times these changes related to the scope of guidance. Codification either unintentionally narrows or unintentionally broadens its scope when compared with the legacy literature. The amendments in ASU 2012-04 that are subject to the transition guidance will be effective for fiscal periods, beginning after December 15, 2012. The Company does not expect the adoption of ASU 2012-04 will have a material impact on its consolidated financial statements.

Accounting Standards Update No. 2011-11. In December 2011, the FASB issued ASU No. 2011-11 (“ASU 2011-11”) Balance Sheet (FASB ASC 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by US GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Sections 815-10-45 or (2) subject to enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangement on an entity’s financial position. The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures requited by ASU 2011-11 retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-11 will have a material impact on its consolidated financial statements.

F-35

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTY TRANSACTIONS

In conjunction with the retention of certain policy fees at MGA, HAIC allocates a significant portion of its general expense base to MGA. HAIC allocated $1,213,862 and $1,137,345 of general expenses and taxes, licenses and fees to MGA during the three months ended March 2013 and 2012, respectively. The expense allocation agreement has been approved by the Texas Department of Insurance. On a consolidated company basis these transactions are eliminated.

During the first three months of 2013 and 2012, MGA collected policy fees in the amount of $977,651 and $960,751, respectively.

In December 2012, HAHC entered into a Convertible Promissory Note with Inter-Atlantic and Phoenix Associates, Inc., (a company controlled by a shareholder and director). See Convertible Notes Payable for additional disclosure.

F-36

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INVESTMENTS

Investment income from investments totaled $11,316 and $4,194 for the three months ended March 31, 2013 and 2012, respectively. There were no realized or unrealized gains or losses recognized for the periods due to the short term nature of the investments held and the intent is to hold to maturity certificates of deposit carried at amortized cost.

The following table provides the Company’s investment holdings by type of financial instruments that were used to estimate the fair value disclosures for financial instruments:

	March 31, 2013				December 31, 2012
	Book Value		Fair Value / Carrying Value		Book Value		Fair Value / Carrying Value
Financial Assets:
Restricted certificates of deposit	$	1,000,000	$	1,000,000	$	1,000,000	$	1,000,000
Long-term investments		3,897,000		3,897,000		2,155,695		2,155,695
Short-term investments		10,994,564		10,994,564		3,853,353		3,853,353
	$	15,891,564	$	15,891,564	$	7,009,048	$	7,009,048

	Range of Maturities	Interest Rates			Range of Maturities	Interest Rates
Restricted certifcate of deposit	Less than 1 year		0.20% - 0.25	%	Less than 1 year		0.25% - 0.35	%
Long-term certificate of deposit	More than 1 year		0.25% - 0.80	%	More than 1 year		-
Short-term investments	Less than 1 year		0.25% - 0.80	%	Less than 1 year		0.25% - .85	%

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial assets carried at fair value have been classified, for disclosure purposes, based on hierarchy established within FASB ASC 820-10 – Fair Value Measurements and Disclosures. When market prices are not available, fair value is generally estimated utilizing valuation techniques that vary by asset class and incorporate available trade, bid and other market information, when available. The acceptable valuation techniques include (a) market approach, which uses prices or relevant information derived from market transactions for identical or comparable assets or liabilities, (b) the Income Approach, which converts future amounts such as cash flows or earnings to a single present value amount based on current market expectations about those future amounts, and (c) the Cost Approach, which is based on the amount that currently would be required to replace the service capacity of an asset. In certain circumstances, these valuation techniques may involve some level of management estimation and judgment which becomes significant with increasingly complex instruments or pricing models. Where appropriate, adjustments are included to reflect the risk premium inherent in a particular methodology, model or input used.

The fair value hierarchy is used to prioritize valuation inputs into three levels:

Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities. These inputs are considered to be the most reliable evidence of fair value.

Level 2 – quoted prices for similar assets in active markets, quoted process from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the investment. Such inputs include market interest rates and volatilities, spreads and yield curves.

Level 3 – termed unobservable inputs which are utilized in situations where there is little or no market activity for the asset or liability at the measurement date. The approach typically involves a significant subjective management judgment toward the pricing of the security.

F-37

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The company’s short-term investments comprise money market accounts and certificates of deposit held at financial institutions which are not measured at fair value, on a recurring basis, as well as money market mutual funds which are measured at fair value on a recurring basis. The following tables provide information as March 31, 2013 and December 31, 2012, about the Company’s financial assets measured at fair value on a recurring basis:

Assets at fair value - March 31, 2013

	Level 1		Level 2		Level 3		Total
Short-term investment
Money market mutual funds	$	8,293,766		-		-	$	8,293,766
Total	$	8,293,766	$	-	$	-	$	8,293,766

Assets at fair value - December 31, 2012

Short-term investment
Money market mutual funds	$	60,855		-		-	$	60,855
Total	$	60,855	$	-	$	-	$	60,855

The following methods and assumptions were used to estimate the fair value disclosures for financial instruments:

Money market mutual funds valued at the closing price reported by the fund sponsor from an actively traded exchange. As the funds are generally maintained at a net asset value which does not fluctuate, cost approximates fair value. These are included as a Level 1 measurement in the table above.

F-38

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PROPERTY AND EQUIPMENT, AND SOFTWARE NET

Property, equipment, and software net consist of the following as of March 31, 2013 and December 31, 2012, respectively:

	March 31,			December 31,
	2013			2012			Useful Life
Computer equipment	$	204,977		$	200,786		3 years
Office equipment		13,999			13,999		5 years
Furniture and fixtures		96,200			95,022		5 years
Software installation and development		676,244			684,011		3 years
Total, at cost		991,419			993,818
Less accumulated depreciation and amortization		(779,516	)		(759,662	)
Property and equipment, net	$	211,903		$	234,156

Depreciation and amortization expense for property, equipment and software totaled $19,854 and $18,600 for the three months ended March 31, 2013 and 2012, respectively.

DEFERRED POLICY ACQUISION COSTS AND CEDING COMMISSIONS

Total gross capitalized deferred policy acquisition costs as of March 31, 2013 and December 31, 2012, comprised of commissions, premium taxes and costs associated with underwriting and issuing policies were $5,142,365 and $5,274,515, respectively.

Total gross capitalized deferred policy acquisition costs as of March 31, 2012 and December 31, 2011 were $4,375,810 and $4,429,744, respectively.

Changes in deferred policy acquisition costs for the three months ended March 31, 2013 and 2012, and for the years ended December 31, 2012 and 2011, are as follows:

	March 31,			December 31,			March 31,			December 31,
	2013			2012			2012			2011
Deferred Policy Acquisition Charges, beginning of the period	$	5,274,515		$	4,429,744		$	4,429,744		$	4,220,377
Capitalized costs		2,232,767			9,680,833			2,036,461			8,741,177
Amortized costs		(2,364,917	)		(8,836,062	)		(2,090,395	)		(8,531,810	)
Deferred Policy Acquisition Charges, end of the period	$	5,142,365		$	5,274,515		$	4,375,810		$	4,429,744

F-39

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred ceding commissions, which represent acquisition costs associated with insurance risk ceded to other reinsurance partners, were $683,914 and $1,439,587 at March 31, 2013 and 2012, respectively.

Deferred ceding commissions were $683,914 and $1,439,587 at December 31, 2012 and 2011, respectively.

Changes in deferred ceding commissions for the three months ended March 31, 2013 and 2012, and for the years ended December 31, 2012 and 2011 are as follows:

	March 31,			December 31,			March 31,			December 31,
	2013			2012			2012			2011
Deferred ceding commission, beginning of the period	$	683,914		$	1,439,587		$	1,439,587		$	1,547,644
Capitalized costs		3,025,410			12,971,433			2,710,511			11,161,064
Amortized costs		(3,025,410	)		(13,727,106	)		(2,710,511	)		(11,269,121	)
Deferred ceding commission, end of the period	$	683,914		$	683,914		$	1,439,587		$	1,439,587

TWIA ASSESSMENTS

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Losses and loss adjustment expenses (LAE), less related reinsurance and deductibles are charged to operations as incurred. Unpaid losses and LAE are based on claims adjusters’ estimates of the cost of settlement plus an estimate for losses IBNR based upon historical experience, industry loss experience, and management’s estimates. Estimates made by management were reviewed by an independent actuary. Comparing management’s selected reserve estimate to the actuarial central estimate and range of reasonable reserves independently determined by the independent appointed actuary continues to be an important step in the reserving process of the Company, however, where differences exist and the Company believes the internally developed reserve estimate to be more accurate, management’s estimate will not change. We believe this to be consistent with industry practice. The claim reserves are continually reviewed and modified to reflect changes in status of claim costs and severity. Any resulting adjustments are charged to operations in the period in which they are determined. The total reserves for unpaid losses and LAE, net of reinsurance Recoverables were $996,530 at March 31, 2013 and $1,023,264 at December 31, 2012, respectively. On a gross basis, before reinsurance recoverable, the liability for losses and LAE was $13,092,304 at March 31, 2013 and $11,641,296 at December 31, 2012, respectively. The carrying value of the liability for unpaid claims and loss adjustment expenses does not take into consideration the time value of money.

F-40

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Losses and Loss Adjustment Expenses

The following table provides a reconciliation of the beginning and ending reserve balances for losses and LAE, gross of reinsurance for the three months ended March 31, 2013 and for the year ended December 31, 2012:

	March 31,			December 31,			March 31,			December 31,
	2013			2012			2012			2011
Reserve for losses and LAE, at start of the period	$	11,641,296		$	9,308,974		$	9,308,974		$	6,924,564
Reinsurance recoverables on losses and LAE		(10,618,032	)		(8,469,000	)		(8,469,000	)		(6,151,000	)
Reserve for losses and LAE, net of reinsurance recoverables at beginning of year		1,023,264			839,974			839,974			773,564

Incurred for claims and LAE occurring in:
Current year		620,417			3,904,000			1,333,297			3,337,276
Prior years		(88,000	)		160,000			(60,000	)		87,000

Net Incurred losses and LAE during the current period		532,417			4,064,000			1,273,297			3,424,276

Deduct payments for claims and LAE occuring in:
Current year		297,000			3,057,000			418,375			2,794,866
Prior years		262,151			823,710			431,000			563,000

Net claim and LAE reserves during the current year		559,151			3,880,710			849,375			3,357,866

Reserve for losses and LAE, net of reinsurance recoverables, at end of period		996,530			1,023,264			1,263,896			839,974

Reinsurance recoverables on losses and LAE		12,095,774			10,618,032			13,432,726			8,469,000

Losses and LAE reserves at end of period	$	13,092,304		$	11,641,296		$	14,696,622		$	9,308,974

As a result of additional information on claims occurring in prior years becoming available to management, changes in estimates of provisions of claims and claim adjustment expenses were made resulting in a decrease of $88,000 for the three months ended March 31, 2013 and an increase of $160,000 for the year ended December 31, 2012.

10.

CONVERTIBLE NOTES PAYABLE

On December 26, 2012 the Company entered into Convertible Promissory Note agreements with Inter-Atlantic Fund, L.P. and Phoenix Associates, Inc. (a company controlled by a shareholder and director) in the amounts of $950,000 and $50,000 respectively. Both notes accrue interest at the rate of 10% per annum (in the event of a default, the interest rate shall increase to 12.5% per annum) and are due and payable on December 26, 2013. At any date, the holders of the majority interest of these notes has the right to convert all or a portion of the notes, plus accrued interest into that number of shares of the Company’s Series A Convertible Preferred Stock, identical in all respects to existing Series A Preferred Stock issued in November 2005, equal to a ratio of 1 share per $1.10 of the note’s principal plus accrued interest plus, the amount of cumulative unpaid Series A Preferred Stock dividends the note holders would have received since 2005. To the extent the existing Series A Convertible Preferred Stock is no longer outstanding at the time of conversion, the notes shall be convertible, using the above ratio, into stock or other consideration received for the existing Series A Convertible Preferred Stock. During the three months ended March 31, 2013, the interest expense on these notes totaled $24,658. The number of shares of Series A Preferred Stock that would be issued if the convertible notes had been converted as of March 31, 2013 and December 31, 2012 totaled 2,230,816 and 2,112,119. Based upon management’s assessment, no value was attributed to the conversion feature.

F-41

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. STOCKHOLDERS’ EQUITY

As of March 31, 2013 and December 31, 2012, the Company has 10,000,000 shares authorized and 900,000 shares issued and outstanding of $0.0001 par value common stock. Holders of common stock are entitled to one (1) vote for each share of common stock held at all meetings of stockholders.

In addition, the Company has authorized, issued and outstanding 4,500,000 shares of 12.5% cumulative convertible Series A Preferred Stock and 500,000 outstanding shares of 1,000,000 authorized and issued shares of 12.5% cumulative convertible Series B stock all with $0.0001 par value. The company’s convertible preferred stock also contains the following salient features:

Series A Preferred Stock

Holders of the Series A Preferred Stock have the right to vote on any matter presented to the stockholders for a vote at any meeting (or written consent in lieu of meeting) and shall be entitled to cast the number of votes equal to the number of common shares into which such Series A Preferred Stock are convertible into on the record date for such vote. The holders of Series A Preferred Stock vote together with the holders of common stock or any other series of preferred stock, as a single class. The company cannot grant any class or series of securities voting rights that are superior or on more favorable terms than the rights afforded the Series A Preferred Shares.

Each share of the Series A Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock of the Company determined by dividing $1 with the applicable conversion price, which initially is equal to the Preferred Stock original issue price ($1) but that is subject to adjustment in certain cases of issuance of additional options or convertible securities, issuance of additional common stock, stock splits and combinations, dividend or distributions or mergers and other reorganizations,, under the terms described in the Company’s amended and restated certificate of incorporation. On the earlier of a closing of a sale of the shares of Company Common Stock at a public price of at least $5 per share in a firm commitment underwritten public offering resulting in at least $50 million of proceeds, or a date specified by the vote or written consent of at least 66 2/3% of the outstanding shares of each series of Preferred Stock, all Preferred Shares will be subject to mandatory conversion into Common Stock at the then effective conversion rate.

declares or sets aside any dividends on any other shares of capital stock of the company;

voluntarily or involuntarily enters into a liquidation, dissolution or is otherwise wound up;

makes payment of dividend to holders of Series B Preferred Stock

or, if any of the following takes place:

Voluntary Conversion – at any time at the option of the holder and without the payment of additional consideration, shares are converted into fully paid non-assessable shares of Common Stock at a price to be determined by dividing one dollar $1.00) by the original issue price of the preferred stock.

Mandatory Conversion – upon earlier of (A) the closing sale of shares of Common Stock to the public at a price of at least five dollars ($5.00) per share (subject to appropriate adjustment in the event of any stock dividends, stock split, reclassification or other similar type recapitalization affective such shares) in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least fifty ($50) million dollars of proceeds, or a date specified by vote or written consent of the holders of at least 66.67% of the then outstanding shares of each Series of Preferred Stock, all such Series voting or consenting together as one class.

F-42

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Redemption – sharing the redemption period, defined as nay date on or after the 5^th anniversary of the Series A Preferred Shares original issue date. Once the Series A shares are fully redeemed, then the holders of Series B Preferred Stock shall thereafter be entitled to redeem all the issued and outstanding shares of the Series B Preferred Stock on the same terms and conditions with respect to the Series A Preferred Stock. The redemption price shall be the original issue price per share plus any and all accruing dividends that remain unpaid. If the Company does not have sufficient funds legally available to redeem shares on a redemption date, the Company shall redeem a pro rate portion of each series of preferred stock out of funds legally available.

Each holder of Series A Preferred Stock have the right to request redemption of its shares by the Company for a redemption price of $1 per share, plus in certain cases any accrued dividend. The redemption period of the shares of Series A Preferred Stock is either (i): any time on or after the first anniversary of the original issuance date of the shares, if neither the Company nor any of its subsidiaries has obtained a license or certificate of authority from the Texas Department of Insurance to conduct insurance operations, (ii) the 1 year period commencing 15 months after the original issuance date of the shares, if the board of directors that the financial performance for the Company during the preceding 12 months is materially less than budgeted, or (iii) after the 5^th anniversary of the original issuance date

Series B Preferred Stock

Each share of the Series A Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock of the Company determined by dividing $1 with the applicable conversion price, which initially is equal to the Preferred Stock original issues price ($1) but that is subject to adjustment in certain cases of issuance of additional options or convertible securities, issuance of additional common stock, stock splits and combinations, dividend or distributions or mergers and other reorganizations, under the terms described in the Company’s amended and restated certificate of incorporation. On the earlier of a closing of a sale of the shares of Company common stock at a public price of at least $5 per share in a firm commitment underwritten public offering resulting in at least $50 million of proceeds, or a date specified by the vote or written consent of at least 66 2/3% of the outstanding shares of each series of Preferred Stock, all Preferred Shares will be subject to mandatory conversion into common stock at the then effective conversion rate.

declares or sets aside any dividends on any other shares of capital stock of the company;

voluntarily or involuntarily enters into a liquidation, dissolution or is otherwise wound up;

makes payment of dividend to holders of Series A Preferred Stock

F-43

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

or, if any of the following takes place:

Voluntary Conversion - at any time at the option of the holder and without the payment of additional consideration, can be converted into fully paid non-assessable shares of Common Stock at a price to be determined by dividing one dollar ($1.00) by the original issue price of the preferred stock.

Mandatory Conversion – upon the earlier of (A) the closing sale of shares of Common Stock to the public at a price of at least five dollars ($5.00) per share (subject to appropriate adjustment in the event of any stock dividends, stock split, reclassification or other similar type recapitalization affecting such shares) in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least fifty ($50) million dollars of proceeds, or a date specified by vote or written consent of the holders of at least 66.67% of the then outstanding shares of each Series of Preferred Stock, all such Series voting or consenting together as one class.

Redemption – during the redemption period, defined as any date on or after the 5^th anniversary of the Series A Preferred Shares original issue date. Once the Series A shares are fully redeemed, then the holders of Series B Preferred Stock shall thereafter be entitled to redeem all the issued and outstanding shares of Series B Preferred Stock on the same terms and conditions with respect to the Series A Preferred Stock. The redemption price shall be the original issue price per share plus any and all accruing dividends that remain unpaid. If the Company does not have sufficient funds legally available to redeem shares on a redemption date, the Company shall redeem a pro rata portion of each series of preferred stock out of funds legally available.

The holders of Series B Preferred Stock also have preferential rights in case of liquidations, dissolution or winding up of the Company, and shall be entitled to payment of its accrued dividend out of the assets or surplus funds of the Company legally available for distribution to its stockholders, after payment of the Series A Preferred Stock but before any payment shall be made to the holders of Common Stock or any other class or series of stock ranking on liquidation junior to the Series B Preferred Stock. The Series B Preferred Stock holders are further entitled to payment of a liquidation amount of an amount equal to $1.00 per share of Series B Preferred Stock after any dividend and liquidation payments to the Series A Preferred Stock holders and dividend payments to the Series B Preferred Stock holders have been made, but before any payment shall be made to the holders of Common Stock or any other class or series of stock ranking junior to the Series B Preferred Stock.

The amended and restated certificate of incorporation also includes protective provisions for the Series B Preferred Stock, providing that at any time 250,000 or more shares of Series B Preferred Stock are outstanding, the Company may not without the consent of or affirmative vote of the holders of the Series B Preferred Stock by amendment merger, consolidation or otherwise take certain actions, including alter or change the voting or other power or privileges of the Series B Preferred Stock, increase the number of Series B Preferred Stock or authorize any material change in scope of the business of the corporation. The Series B Preferred Stock holders have no redemption rights.

As of March 31, 2013 and 2012, the Preferred Stock holders have not elected to convert or redeem their Preferred Stock. As of March 31, 2013 and 2012, the cumulative Preferred Stock dividends in arrears totaled $6,956,248 and $5,631,307, respectively.

12.

STOCK BASED COMPENSATION

The Company accounts for stock-based compensation under the fair value recognition provision of FASB ASC Topic 718 – “Compensation – Stock Compensation”.

The Company’s 2005 Management Incentive Plan (the “Plan”) provides for granting of stock options to enable the Company to obtain and retain the services of selected persons, both employees and directors, considered to be essential to the long-range success of the Company. Under the Plan, options may be granted to purchase a total not to exceed 315,790 shares in the aggregate, made up of original issue shares, treasury share or a combination of the two. At March 31, 2013 and December 31, 2012, options to purchase 313,500 shares have been granted under the plan. Options have a life of 10 years and vest at a rate of 25% per year, beginning 12 months from their date of issue.

F-44

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the activity of the Company’s stock option plan is as follows:

	Number of Options		Weighted Avg Exercise Price		Weighted Avg Remaining Cont. Term		Aggregate Intrinsic Value
Outstanding at December 31, 2012		313,500	$	1.97		6.08	$	11
Outstanding at March 31, 2013		313,500	$	1.96		5.58	$	11
Exercisable at March 31, 2013		247,250	$	1.95		5.13	$	9

Outstanding at December 21, 2011		313,500	$	1.96		6.79	$	11
Outstanding at March 31, 2012		313,500	$	1.96		5.83	$	11
Exercisable at March 31, 2012		211,375	$	1.94		6.30	$	8

The fair value of options granted is estimated using a market value approach and the Black-Scholes option pricing model using the following assumptions as of March 31, 2013 and 2012:

	Three Month Ended March 31,
	2013			2012
Dividend Yield		0.00	%		0.00	%
Expected Volatility		30	%		30	%
Risk-free interest rate		0.25	%		0.33	%
Expected life (in years)		2			2
Weighted average fair value per options granted	$	0.00		$	0.00

No compensation expense was recognized for the three months ended March 31, 2013 and 2012 as the amounts were deemed not to be material.

F-45

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. INCOME TAXES

The Company’s federal income tax return is consolidated with HAIC and MGA. Allocation of tax expense or refunds among the consolidated group is based on separate return calculations.

Taxable income differs from pretax income primarily due to discounting of loss reserves, unearned premium reserves and GAAP deferred policy acquisition costs for tax purposes at the subsidiary level. For the calculation of March 31, 2013 deferred tax, a valuation allowance has been established in the amount of $0 against the net DTA of $803,458.

The consolidated recorded tax expense (benefit) of $139,967 and ($57,368) as of March 31, 2013 and 2012, respectively. The Company’s had no tax basis net operating loss carryforwards as of March 31, 2013 or 2012.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	March 31, 2013		March 31, 2012
Gross Deferred Tax Assets:
Loss reserve discount	$	18,659	$	23,665
Unearned premium reserve discount		200,147		179,633
Organization costs (net of amortization)		65,786		66,808
Unearned ceding commissions		2,263,903		1,945,470
Deferred ceding commissions		-		3,712
Fixed assets		3,366		-
Premium taxes payable		-		5,130
Total gross deferred tax assets		2,551,861		2,224,418
Valuation allowance		-		518,760

Total Adjusted Deferred tax assets		2,551,861		1,705,658

Deferred Tax Liabilities
Deferred policy acquisition costs		1,748,403		1,487,775
Property, equipment and software		-		16,902
Total DTL		1,748,403		1,504,677
Net deferred tax assets	$	803,458	$	200,981

The total income tax provision (benefit) for the three months ended March 31, 2013 and 2012 was as follows:

	3/31/2013		3/31/2012
Income tax	$	147,370	$	(57,355	)
Less valuation allowance adjustment		-		(13	)
Total income tax expense (benefit)	$	147,370	$	(57,368	)

As of March 31, 2013, it was detemined that no valuation allowance against deferred tax assets was required. As of March 31, 2012, a valuation allowance was established in the amount of $518,760, against the deferred tax assets. The valuation allowance is based on management’s assessment as to whether it is more likely than not that some portion of the deferred tax assets may not be realized.

F-46

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The significant items causing this difference for March 31, 2013 and March 31, 2012 are as follows:

March 31, 2013	Amount		Tax Effect		Tax Rate
Income before taxes	$	413,067		140,443		34.00	%
Permanent differences		6,003		2,041		.50
Other, including valuation allowance adjustment		14,371		4,886		1.18
Total income tax expense	$	433,441	$	147,370		35.68	%

March 31, 2012	Amount			Tax Effect			Tax Rate
Income before taxes	$	(173,441	)		(58,970	)		34.00	%
Permanent differences		4,752			1,616			(0.93	)
Other, including valuation allowance adjustment		(41	)		(14	)		0.01
Total income tax expense	$	(168,730	)	$	(57,368	)		33.08	%

14.

REINSURANCE

From April 1, 2012 through March 31, 2013, the Company reinsured with various reinsurers under homeowners quotashare reinsurance treaties ceding 90% of its risk to reinsurers. The total insured value is subject to a maximum limit of $1,612,500, inclusive of all additional and optional coverage. The reinsurers’ liability under the quota share arrangement beginning April 1, 2012, in respect to any one loss occurrence shall not exceed $60,000,000. Property catastrophe treaties in effect at the end of 2012 develop over four layers and cover a gross loss of $62,000,000 excess of $3,000,000 per occurrence. The Company’s net retention is $300,000 per occurrence.

F-47

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effects of reinsurance on premiums written and earned were as follows, for the three month period ending:

	March 31, 2013						March 31, 2012
	Written			Earned			Written			Earned

Direct premiums	$	11,776,925		$	12,510,863		$	10,815,842		$	11,002,558
Ceded premiums		(10,452,707	)		(11,406,965	)		(9,452,823	)		(9,963,578	)

Net Premiums	$	1,324,218		$	1,103,898		$	1,363,019		$	1,038,980

Following is a summary of HAIC’s reinsurance balances under the above described reinsurance treaties as of and for the three months ended March 31, 2013 and, as of and for the year ended December 31, 2012:

	March 31, 2013		December 31, 2012

Ceded premiums payable	$	5,196,050	$	2,782,190
Ceded loss adjustment expenses		2,710,021		3,944,270
Ceded loss and loss adjustment expense reserve		8,322,678		10,618,032
Ceded unearned premium reserve		22,994,062		23,595,317
Ceded earned premiums		11,406,965		42,207,361

15.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to credit risk consist principally of cash and money market accounts on deposit with financial institutions, money market funds, certificates of deposit and premium balance in the course of collection. With respect to cash and money market accounts. Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act provides temporary (to December 31, 2012) Federal Deposit Insurance Corporation (“FDIC”) insurance coverage on all balances held in non-interest bearing accounts. Insurance coverage on interest bearing accounts continues at $250,000 per bank. At times, the Company’s bank deposits may exceed the FDIC limit.

The Concentration of credit risk with respect to premium balances in the course of collection is limited, due to the large number of insureds comprising the Company’s customer base. However, substantially all of the Company’s revenues are derived from customers in Texas, which could be adversely affected by economic conditions, an increase in competition, or other environmental changes.

F-48

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of credit risk with respect to premium balances in the course of collection is limited, due to the large number of insureds comprising the Company’s customer base. Howeve revenues are derived from customers in Texas, which could be adversely affected by economic conditions, an increase in competition, or other environmental changes.

16. COMMITMENTS AND CONTINGENCIES

Operating Leases

2013 (9 months)	$	84,617
2014		105,438
2015		90,291
2016		36,890
	$	317,236

Rent expense under such leases was $28,426 for the three months ended March 31, 2013 and $27,569 for the three months ended March 31, 2012.

Litigation

17.

REGULATORY REQUIREMENTS AND RESTRICTIONS

HAIC is subject to the laws and regulations of the State of Texas and the regulations of any other states in which HAIC conducts business. State regulations cover all aspects of HAIC’s business and are generally designed to protect the interests of insurance policyholders, as opposed to the interests of stockholders. The Texas Insurance Code requires all property and casualty insurers to have a minimum of $2.5 million in capital stock and $2.5 million in surplus. Companies already authorized to do business in Texas as of September 1, 2009, which includes HAIC, are able to increase their capital and surplus to these levels incrementally, with compliance with the new requirements by December 31, 2019. As of December 31, 2012, HAIC’s total statutory surplus was $6,716,222 (capital stock of $1,500,000 and surplus of $5,216,222). As of March 31, 2013, HAIC’s total statutory surplus was $6,966,401 (capital stock of $1,500,000 and surplus of $5,466,401).

States routinely require deposits of assets for the protection of policyholders. As of March 31, 2013 and December 31, 2012, HAIC had certificates of deposits totaling of $1 million which had been pledged to the Texas Department of Insurance for the benefit of the State of Texas (see note 1).

F-49

Homeowners of America Holding Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Texas Insurance Code limits dividends from insurance companies to their stockholders to net income accumulated in the company’s surplus account, or “earned surplus”.

The maximum dividend that may be paid without approval of the Insurance Commissioner is limited to the greater of 10% of the statutory surplus at the end of the preceding calendar year or the statutory net income of the preceding calendar year. No dividends were paid by HAIC in 2012 or 2011.

HAIC prepares its statutory-based financial statements in conformity with accounting practices prescribed or permitted by the Texas Department of Insurance. Prescribed statutory accounting practices primarily include those published as statements of SAP by the NAIC, as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practice not so prescribed. As of March 31, 2013 and December 31, 2012, there were no material permitted statutory accounting practice utilized by HAIC.

18.

SUBSEQUENT EVENTS

As a result of management’s decision to focus entirely on the further growth and profitability of its property insurance book of business, with effective from April 30, 2013, the Company ceased writing private passenger automobile insurance policies.

F-50

HOMEOWNERS OF AMERICA HOLDING CORPORATION

Common Stock

PROSPECTUS

, 2013

PART TWO

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth an estimate of the fees and expenses payable by us in connection with the registration of our securities offered hereby. All of such fees and expenses, except for the SEC Registration Fee, are estimated:

SEC Registration and Filing Fee	$	1,073

Legal Fees and Expenses	$	125,000

Accounting Fees and Expenses	$	90,000

Printing Fees and Expenses	$	13,500

Miscellaneous	$	17,100

TOTAL	$	246,673

Item 14. Indemnification of Directors and Officers.

Homeowners of America Holding Corporation was incorporated in the State of Delaware and is subject to the Delaware General Corporation Law (the “DGCL”). Section 145 of the DGCL empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. A corporation may, in advance of the final action of any civil, criminal, administrative or investigative action, suit or proceeding, pay the expenses (including attorneys’ fees) incurred by any officer, director, employee or agent in defending such action, provided that the director or officer undertakes to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. A corporation may indemnify such person against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation to procure a judgment in its favor under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) which he or she actually and reasonably incurred in connection therewith. The indemnification provided is not deemed to be exclusive of any other rights to which an officer or director may be entitled under any corporation’s by-law, agreement, vote or otherwise.

Our certificate of incorporation provides that the Company shall, to the fullest extent permitted by the law, indemnify and advance expenses to any person serving as a member of the Board of Directors against any expenses, liabilities or other matters referenced to in or covered by the DGCL. The Company may also indemnify and advance expenses to any officer, employee or agent of the Company or other person permitted by the DGCL to indemnify. The indemnification and advances provided for by the Certificate of Incorporation shall not be deemed exclusive of any other rights to anyone seeking indemnification may be entitled to under any bylaw, agreement, vote of the stockholders or disinterested directors, or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding such office and shall continue after a person ceases to be a director, officer, employee or agent and shall inure the benefit of the heirs, executors and administrators of such person.

Our Certificate of Incorporation further provides that a director of the Company shall not be liable to the Company or its stockholders for any monetary damages for breach of fiduciary duties as a director. To the extent the DGCL is amended to authorize the further elimination or limitation of the liability of directors, then the liability of one of our directors, in addition to the limitation on personal liability provided by our certificate of incorporation, shall be limited to the fullest extent permitted by the amended DGCL.

We have obtained and maintain insurance policies insuring our directors and officers and the directors and officers of our subsidiaries against certain liabilities they may incur in their capacity as directors and officers. Under such policies, the insurer, on our behalf, may also pay amounts for which we have granted indemnification to the directors or officers.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we understand that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Item 15. Recent Sales of Unregistered Securities

In the three years preceding June 26, 2013, there have been no sales of Company securities that were not registered under the Securities Act:

Item 16. Exhibits

Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation of Homeowners of America Holding Corporation.
3.2		Bylaws of Homeowners of America Holding Corporation.
4.1		Specimen Certificate Evidencing Shares of Common Stock
4.2		Specimen Certificate Evidencing Shares of Series A Preferred Stock
4.3		Specimen Certificate Evidencing Shares of Series B Preferred Stock
4.4		Investor Rights Agreement, dated November 11, 2005, between Homeowners of America Holding Corporation and certain of its security holders.
4.5		Stock Restriction Agreement, dated November 11, 2005, between Homeowners of America Holding Corporation and Spencer W. Tucker
5.1		Opinion of Reed Smith LLP (1)
10.1		2005 Management Incentive Plan
10.2		Stock Purchase Agreement, dated September 15, 2005, between Homeowners of America Holding and Richard P. Backus
10.3		Amendment No. 1 to Stock Purchase Agreement, dated November 11, 2005, between Homeowners of America Holding and Richard P. Backus
10.4		Securities Purchase Agreement, dated November 11, 2005, between Homeowners of America Holding Corporation and certain investors. .
10.5		Employment Agreement, dated November 11, 2005, between Homeowners of America Holding Corporation and Spencer W. Tucker
10.6		Property Catastrophe Excess of Loss Reinsurance Contract, between Homeowners of America Insurance Company and participants American Standard Insurance Company of Wisconsin, Sirius International Insurance Group, Underwriters at Lloyds and SCOR Global P&C SE Paris.
10.7		Property Per Risk Excess of Loss Reinsurance Contract, between Homeowners of America Insurance Company and participants Hannover Rueckversicherung-Aktiengesellschaft, Lloyds Syndicate No. 2791 MAP Underwriting (MAP), Lloyds Syndicate No. 2001 Amlin Underwriting Limited (AML) and Lloyds Syndicate No. 2987 BRIT (BRIT), effective April 1, 2012
10.8		Residential Quota Share Reinsurance Contract, between Homeowners of America Insurance Company and participants Arch Reinsurance Company, Endurance Reinsurance Corporation of America, SCOR Reinsurance Company and RLI Insurance Company, effective April 1, 2012

10.9		Residential Property Quota Share Reinsurance Contract, between Homeowners of America Insurance Company and participant R+V Versicherung AG, effective April 1, 2011
10.10		Private Passenger Automobile Excess of Loss Reinsurance Contract, between Homeowners of America Insurance Company and Maiden Reinsurance Services LLC, effective June 1, 2011
10.11		Addendum No. 1 to Private Passenger Automobile Excess of Loss Reinsurance Contract, between Homeowners of America Insurance Company and Maiden Reinsurance Services LLC, effective June 1, 2011
10.12		Private Passenger Automobile Quota Share Reinsurance Contract, between Homeowners of America Insurance Company, Maiden Reinsurance Services, LLC and NGM Insurance Company,effective June 1, 2011
10.13		Top Layer Property Catastrophe Excess of Loss Reinsurance Contract between Homeowners of America Insurance Company, Participants R+V Versicherung AG, Houston Casualty Company; UK Branch, SCOR Global P&C SE Paris, Lloyds Syndicate No. 1274 Antares (AUL), Lloyds Syndicate No. 2001 Amlin Underwriting Limited (AML), Lloyds Syndicate No.2987 BRIT (BRIT) and Walbaoum International/Sirius International Insurance Group, effective August 15, 2012
10.14		Top Layer Property Catastrophe Excess of Loss Reinsurance Contract between Homeowners of America Insurance Company and participants Houston Casualty Company; UK Branch, SCOR Global P&C SE Paris, Lloyds Syndicate No. 2001 Amlin Underwriting Limited (AML), Lloyds Syndicate No. 2791 MAP Underwriting (MAP) and Lloyds Syndicate No.2987 BRIT (BRIT), effective August 15, 2012.
10.15		Underlying Property Catastrophe Excess Reinsurance Contract, between Homeowners of America Insurance Company and participant R+V Versicherung AG effective April 1, 2012
10.16		Print/Mail Service Contract, dated September 1, 2006, between Homeowners of America Insurance Company and PRIMORIS Services LLC.
10.17		Policy Tracking System (PTS) Product and Service Agreement, dated January 12, 2006, between Homeowners of America Holding Corporation and Information Distribution & Marketing, Inc.
10.18		Contract Addendum for Auto Line Business to PTS Contract, dated February 9, 2008, between Homeowners of America Holding Corporation and Information Distribution & Marketing, Inc.
10.19		Underlying Property Catastrophe Excess of Loss Reinsurance Contract between Homeowners of America Insurance Company and R+V Veraicherung A.G., effective April 1, 2013.
10.20		Property Catastrophe Excess of Reinsurance Contract, between Homeowners of America Insurance Company and participants Sirius International Insurance Company, Lloyd’s Underwriters and Companies and R+V Veraicherung A.G., effective April 1, 2013.
10.21		Property Per Risk Excess of Loss Reinsurance Contract between Homeowners of America Insurance Company , Everest Reinsurance Company and Hannover Rück SE, effective April 1, 2013.
10.22		Residential Quota Share Reinsurance Contract between Homeowners of America Insurance Company and Odyssey Reinsurance Company, effective April 1, 2013.
10.23		Residential Property Quota Share Reinsurance Contract between Homeowners of America Insurance Company and R+V Veraicherung A.G., effective April 1, 2013.
10.24		Residential Quota Share Reinsurance Contract between Homeowners of America Insurance Company and participants Arch Reinsurance Company, Endurance Specialty Insurance Ltd., Everest Reinsurance Company, SCOR Reinsurance Company, ad Taiping Reinsurance Co. Ltd., effective April 1, 2013.
10.25		Advisory agreement between Homeowners of America Holding Company and Inter-Atlantic Advisors III, Ltd., effective on the effective date of this Registration Statement.
21.1		Subsidiaries of Homeowners of America Holding Corporation
23.1		Consent of Weaver and Tidwell, L.L.P
23.2		Consent of Reed Smith LLP (included in Exhibit 5.1)
24.1		Power of Attorney (included on signature page of this Registration Statement)

(1) To be filed by amendment.

Item 17. Undertakings

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the registrant undertakes that in a primary offering of securities of the registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the registrant or its securities provided by or on behalf of the registrant; and

(iv) Any other communication that is an offer in the offering made by the registrant to the purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, State of Texas on June 28, 2013.

HOMEOWNERS OF AMERICA HOLDING CORPORATION
(Registrant)

By:	/s/ Spencer Tucker
Name:	Spencer Tucker
Title:	Chief Executive Officer

POWER OF ATTORNEY

Each individual whose signature appears below constitutes and appoints each of Spencer Tucker and Michael Rosentraub, such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Spencer Tucker	Chief Executive Officer	June 28, 2013
Spencer Tucker	(Principal Executive Officer)

/s/Michael Rosentraub	Chief Financial Officer (Principal Financial Officer	June 28, 2013
Michael Rosentraub	and Principal Accounting Officer)

/s/ Frederick S. Hammer	Director	June 28, 2013
Frederick S. Hammer

/s/ Brett G. Baris	Director	June 28, 2013
Brett G. Baris

/s/ Luther H. Hodges Jr.	Director	June 28, 2013
Luther H. Hodges Jr.

/s/ Albert R. Dowden	Director	June 28, 2013
Albert R. Dowden

/s/ James F. Leary	Director	June 28, 2013
James F. Leary

/s/ Richard L. Viton	Director	June 28, 2013
Richard L. Viton

/s/ Andrew S. Lerner	Director	June 28, 2013
Andrew S. Lerner

EXHIBIT INDEX

Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation of Homeowners of America Holding Corporation.
3.2		Bylaws of Homeowners of America Holding Corporation.
4.1		Specimen Certificate Evidencing Shares of Common Stock
4.2		Specimen Certificate Evidencing Shares of Series A Preferred Stock
4.3		Specimen Certificate Evidencing Shares of Series B Preferred Stock
4.4		Investor Rights Agreement, dated November 11, 2005, between Homeowners of America Holding Corporation and certain of its security holders.
4.5		Stock Restriction Agreement, dated November 11, 2005, between Homeowners of America Holding Corporation and Spencer W. Tucker
5.1		Opinion of Reed Smith LLP (1)
10.1		2005 Management Incentive Plan
10.2		Stock Purchase Agreement, dated September 15, 2005, between Homeowners of America Holding and Richard P. Backus
10.3		Amendment No. 1 to Stock Purchase Agreement, dated November 11, 2005, between Homeowners of America Holding and Richard P. Backus
10.4		Securities Purchase Agreement, dated November 11, 2005, between Homeowners of America Holding Corporation and certain investors. .
10.5		Employment Agreement, dated November 11, 2005, between Homeowners of America Holding Corporation and Spencer W. Tucker
10.6		Property Catastrophe Excess of Loss Reinsurance Contract, between Homeowners of America Insurance Company and participants American Standard Insurance Company of Wisconsin, Sirius International Insurance Group, Underwriters at Lloyds and SCOR Global P&C SE Paris.
10.7		Property Per Risk Excess of Loss Reinsurance Contract, between Homeowners of America Insurance Company and participants Hannover Rueckversicherung-Aktiengesellschaft, Lloyds Syndicate No. 2791 MAP Underwriting (MAP), Lloyds Syndicate No. 2001 Amlin Underwriting Limited (AML) and Lloyds Syndicate No. 2987 BRIT (BRIT), effective April 1, 2012
10.8		Residential Quota Share Reinsurance Contract, between Homeowners of America Insurance Company and participants Arch Reinsurance Company, Endurance Reinsurance Corporation of America, SCOR Reinsurance Company and RLI Insurance Company, effective April 1, 2012
10.9		Residential Property Quota Share Reinsurance Contract, between Homeowners of America Insurance Company and participant R+V Versicherung AG, effective April 1, 2011
10.10		Private Passenger Automobile Excess of Loss Reinsurance Contract, between Homeowners of America Insurance Company and Maiden Reinsurance Services LLC, effective June 1, 2011
10.11		Addendum No. 1 to Private Passenger Automobile Excess of Loss Reinsurance Contract, between Homeowners of America Insurance Company and Maiden Reinsurance Services LLC, effective June 1, 2011
10.12		Private Passenger Automobile Quota Share Reinsurance Contract, between Homeowners of America Insurance Company, Maiden Reinsurance Services, LLC and NGM Insurance Company,effective June 1, 2011
10.13		Top Layer Property Catastrophe Excess of Loss Reinsurance Contract between Homeowners of America Insurance Company, Participants R+V Versicherung AG, Houston Casualty Company; UK Branch, SCOR Global P&C SE Paris, Lloyds Syndicate No. 1274 Antares (AUL), Lloyds Syndicate No. 2001 Amlin Underwriting Limited (AML), Lloyds Syndicate No.2987 BRIT (BRIT) and Walbaoum International/Sirius International Insurance Group, effective August 15, 2012
10.14		Top Layer Property Catastrophe Excess of Loss Reinsurance Contract between Homeowners of America Insurance Company and participants Houston Casualty Company; UK Branch, SCOR Global P&C SE Paris, Lloyds Syndicate No. 2001 Amlin Underwriting Limited (AML), Lloyds Syndicate No. 2791 MAP Underwriting (MAP) and Lloyds Syndicate No.2987 BRIT (BRIT), effective August 15, 2012.
10.15		Underlying Property Catastrophe Excess Reinsurance Contract, between Homeowners of America Insurance Company and participant R+V Versicherung AG effective April 1, 2012
10.16		Print/Mail Service Contract, dated September 1, 2006, between Homeowners of America Insurance Company and PRIMORIS Services LLC.
10.17		Policy Tracking System (PTS) Product and Service Agreement, dated January 12, 2006, between Homeowners of America Holding Corporation and Information Distribution & Marketing, Inc.
10.18		Contract Addendum for Auto Line Business to PTS Contract, dated February 9, 2008, between Homeowners of America Holding Corporation and Information Distribution & Marketing, Inc.
10.19		Underlying Property Catastrophe Excess of Loss Reinsurance Contract between Homeowners of America Insurance Company and R+V Veraicherung A.G., effective April 1, 2013.
10.20		Property Catastrophe Excess of Reinsurance Contract, between Homeowners of America Insurance Company and participants Sirius International Insurance Company, Lloyd’s Underwriters and Companies and R+V Veraicherung A.G., effective April 1, 2013.
10.21		Property Per Risk Excess of Loss Reinsurance Contract between Homeowners of America Insurance Company , Everest Reinsurance Company and Hannover Rück SE, effective April 1, 2013.
10.22		Residential Quota Share Reinsurance Contract between Homeowners of America Insurance Company and Odyssey Reinsurance Company, effective April 1, 2013.
10.23		Residential Property Quota Share Reinsurance Contract between Homeowners of America Insurance Company and R+V Veraicherung A.G., effective April 1, 2013.
10.24		Residential Quota Share Reinsurance Contract between Homeowners of America Insurance Company and participants Arch Reinsurance Company, Endurance Specialty Insurance Ltd., Everest Reinsurance Company, SCOR Reinsurance Company, ad Taiping Reinsurance Co. Ltd., effective April 1, 2013.
10.25		Advisory Agreement between Homeowners of America Holding Company and Inter-Atlantic Advisors III, Ltd., effective on the effective date of this Registration Statement.
21.1		Subsidiaries of Homeowners of America Holding Corporation
23.1		Consent of Weaver and Tidwell, L.L.P
23.2		Consent of Reed Smith LLP (included in Exhibit 5.1)
24.1		Power of Attorney (included on signature page of this Registration Statement)

_________________________

(1) To be filed by amendment.

EX-3.1 2 v347100_ex3-1.htm EXHIBIT 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

HOMEOWNERS OF AMERICA HOLDING CORPORATION

(Pursuant to Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware)

Homeowners of America Holding Corporation, a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (“General Corporation Law”), hereby certifies as follows:

1. That the name of this corporation is Homeowners of America Holding Corporation and that this corporation was originally incorporated pursuant to the General Corporation Law on March 31, 2005 the name Homeowners of America Holding Corporation.

2. Pursuant to Section 228, 242 and 245 of the General Corporation Law, this-Amended and Restated Certificate of Incorporation has been duly adopted and restates, integrates and further amends the provisions of the Certificate of Incorporation of the Corporation.

3. That the Certificate of Incorporation of this corporation is hereby amended and restated in its entirety to read as follows:

FIRST: The name of this corporation is Homeowners of America Holding Corporation (the “Corporation”).

SECOND: The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street County of New Castle, Wilmington, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.

THIRD: The nature of the business or purposes to he conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General

FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 10,000,000 shares of Common Stock, $0.0001 par value per share (“Common Stock”), and (ii) 5,500,000 shares of Preferred Stock, $0.0001 par value per share (“Preferred Stock”).

The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation. Unless otherwise indicated, references to “Sections” or “Subsections” in this Article refer to sections and subsections of this Article FOURTH.

A. COMMON STOCK

1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein and as may be designated by resolution of the Board of Directors of the Corporation (the “Board”) with respect to any series of Preferred Stock as authorized herein.

2. Voting. The holders of the Common Stock are entitled to one (1) vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. The number of authorized shares of common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of stock of the Corporation representing a majority of the votes represented by all outstanding shares of stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.

B. PREFERRED STOCK

1. Issuance. Preferred Stock may be issued from time to time in one or more series, each of such series to consist of such number of shares and to have such terms, rights, powers and preferences, and the qualifications and limitations with respect thereto, as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board as hereinafter provided.

2 Blank Check Preferred. Subject to any vote expressly required by the Certificate of Incorporation, authority is hereby expressly granted to the Board from time to time to issue Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix the number of shares thereof; such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation thereof, dividend rights, special voting rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation law. Without limiting the generality of the foregoing, and subject to the rights of any series of Preferred Stock then outstanding, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to Preferred Stock of any other series to the extent permitted by law and as set forth herein.

C. SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK

There is hereby designated the following series of Preferred Stock: (i) a series of Preferred Stock consisting of 4,500,000 shares of Preferred Stock that is designated as Series A Convertible Preferred Stock (“Series A Preferred Stock”); and (ii) a series of Preferred Stock consisting of 1,000,000 shares of Preferred Stock that is designated Series B Convertible Preformed Stock (“Series B Preformed Stock”). Each of the Series A Preferred Stock and the Series B Preferred Stock are referred to herein individually as a “Series”. Each Series will have the following rights, preferences, powers, privileges and restrictions, qualifications and limitations.

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1. Dividends. The holders of shares of Preferred Stock shall be entitled to receive, on parl passu basis, dividends, out of any assets legally available therefore, prior and in preference to any declaration or payment of any dividend on the Common Stock of the Corporation, at the rate of 12.5% of the Preferred Stock Original Issue Price (subject to the compounding of dividends as set forth below and appropriate adjustment in the event of any stock dividend, stock split, reclassification, combination or other similar recapitalization affecting such shares) per share of Preferred Stock per annum (the “Accruing Dividend”). The Accruing Dividend shall accrue from day to day, whether or not earned or declared, shall be cumulative and shall be compounded annually; provided however, that except as set forth in the following sentence of this Section 1 or in Sections 2(a), 2(b), 4.5 and 6, the Corporation shall be under no obligation to declare or pay any such Accruing Dividend. Other than on shares of Preferred Stock as set forth in Sections 2(a) and 2(b) below, the Corporation shall not declare, pay or set aside any dividends on any other shares of capital stock of the Corporation unless the holders of shares of Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock in an amount at least equal to (i) the amount of the aggregate Accruing Dividend then accrued on each such share of Preferred Stock, and not previously paid, plus (ii) (A) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Preferred Stock, as applicable, as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all such shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Preferred Stock, as applicable, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Preferred Stock determined by dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock and multiplying such fraction by an amount equal to one dollar ($1.00) per share (such $1.00 per share amount subject to appropriate adjustment in the event of any stock dividend, stock split, reclassification, combination or other similar recapitalization affecting such shares).

2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.

(a) Preferential Payments to Holders of Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets or surplus funds of the Corporation legally available for distribution to its stockholders, before any payment shall be made to the holders of Common Stock, the Series B Preferred Stock (including without limitation, before payment of the Series B Liquidation Amount (as defined below) or any other class or series of stock ranking on liquidation junior to the Series A Preferred Stock (collectively, “Junior Stock”), by reason of their ownership thereof, an amount per share of Series A Preferred A Stock equal to the Accruing Dividend accrued but unpaid thereon (the “Series A Dividend Payment”). If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full Series A Dividend Payment to which they shall be entitled, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the remaining assets legally available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares of Series A Preferred Stock held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

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(b) Payments to Holders of Series B Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after payment in full of the Series A Dividend Payment provided for in paragraph (a) above, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets or surplus funds of the Corporation legally available for distribution to its stockholders, before any payment shall be made to the holders of Common Stock or any other class or series of stock ranking on liquidation junior to the Series B Preferred Stock, by reason of their ownership thereof, an amount per share of Series B Preferred Stock equal to the Accruing Dividend accrued but unpaid thereon (the “Series B Dividend Payment”). If upon any such liquidation, dissolution or winding up of the Corporation, after payment in full of the Series A Dividend Payment provided for in paragraph (a) above, the remaining assets available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series B Preferred Stock the full Series B Dividend Payment to which they shall be entitled in accordance with the previous sentence, the holders of shares of Series B Preferred Stock shall share ratably in any distribution of the remaining assets legally available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares of Series B Preferred Stock held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

(c) Additional Payment to Holders of Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment in hill of the Series A Dividend Payment and the Series B Dividend Payment, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets or surplus funds of the Corporation legally available for distribution to its stockholders ratably, and before any payment shall be made to the holders of Junior Stock (other than the Series B Dividend Payment pursuant to subsection 2(b) above), by reason of their ownership thereof, an amount equal to 51.00 (subject to appropriate adjustment in the event of any stock dividend, stock split, reclassification, combination or other similar recapitalization affecting such shares) per share of Series A Preferred Stock (the “Preferred Stock Original Issue Price”) (the amount payable pursuant to this sentence, together with the Series A Dividend Payment, is hereinafter referred to as the “Series A Liquidation Amount”). If upon any such liquidation, dissolution or winding up of the Corporation the assets available for distribution to its stockholders, after the payment of the Series A Dividend Payment and the Series B Dividend Payment due pursuant to subsections 2(a) and 2(b) above shall be insufficient to pay the holders of shares of Series A Preferred Stock the full Series A Liquidation Amount to which they shall be entitled pursuant to this subsection 2(c), the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets legally available for distribution in proportion to the respective amounts which would otherwise he payable in respect of the shares of Series A Preferred Stock held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

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(d) Additional Payment to Holders of Series B Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment in full of the Series A Liquidation Amount, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets or surplus funds of the Corporation legally available for distribution to its stockholders, ratably, and before any payment shall be made to the holders of any other class or series of capital stock of the corporation ranking junior to the Series B Preferred Stock, by reason of their ownership thereof, an amount per share of Series B Preferred Stock equal to the Preferred Stock Original Issue Price (the aggregate amount payable pursuant to this sentence, together with the Series B Dividend Payment, is hereinafter referred to as the “Series B Liquidation Amount”). If upon any such liquidation, dissolution or winding up of the Corporation the assets available for distribution to its stockholders, after the payment of the Series A Liquidation Amount and Series B Dividend Payment due pursuant to subsections 2(a), 2(b) and 2(c) above shall be insufficient to pay the holders of shares of Series B Preferred Stock the full Series B Liquidation Amount to which they shall be entitled pursuant to this subsection 2(d), the holders of shares of Series B Preferred Stock shall share ratably in any distribution of the assets legally available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares of Series B Preferred Stock held by them upon such distribution dell amounts payable on or with respect to such shares were paid in full.

(e) Payments to Holders of Common Stock. After the payment of the Series A Liquidation Amount and the Series B Liquidation Amount pursuant to subsections 2(a), 20), 2(c) and 2(d1 above, the remaining assets or surplus funds of the Corporation legally available for distribution to its stockholders shall be distributed to the holders of Common Stock pro rata based on the number of shares of Common Stock held by each.

(f) Deemed Liquidation Events.

(i) The following events shall be deemed to be a liquidation of the Corporation for purposes of this Section 2 (a “Deemed Liquidation Event”), unless the holders of a majority of the shares of Preferred Stock then outstanding elect otherwise by written notice given to the Corporation at least five (5) days prior to the effective date of any such event:

(A) a merger or consolidation in which

(I)

the Corporation is a constituent party, or

(II)

a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,

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except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted or exchanged for shares of capital stock that represent, immediately following such merger or consolidation at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or

(B) the sale, lease, transfer, exclusive license, or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the exclusive license of all or substantially all of the intangible assets of the Corporation, except where such sale, lease, transfer, exclusive license, or other disposition is to a wholly owned subsidiary of the Corporation.

(ii) The Corporation shall not have the power to effect any transaction constituting a Deemed Liquidation Event pursuant to Section 2(f)(i)(A)(I) above unless the agreement or plan of merger or consolidation provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Sections 2(a), 2(b), 2(c), 2(d) and 2(e) above, unless otherwise approved by the written consent or vote of the holders representing a majority of the Preferred Stock, voting together as a single class on an as-converted to Common Stock basis.

(iii) In the event of a Deemed Liquidation Event pursuant to Section 2(e)(i)(A)(II) or (B) above, if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within sixty (60) days after such Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each holder of Preferred Stock no later than the sixtieth (60^th) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such shares of Preferred Stock, and (B) if the holders of at least a majority of the then outstanding shares of Preferred Stock (determined on an as-converted to Common Stock basis) so request in a written instrument delivered to the Corporation not later than seventy-five (75) days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation with respect to such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or licensed, as determined in good faith by the Board) (the “Net Proceeds”) to redeem, to the extent legally available therefor, on the ninetieth (90^th) day after such Deemed Liquidation Event (the “Liquidation Redemption Date”), all outstanding shares of Preferred Stock at a price per share equal to the Series A Liquidation Amount and Series B Liquidation Amount, as applicable. In the event of a redemption pursuant to the preceding sentence, if the Net Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, or if the Corporation does not have sufficient lawfully available funds to effect such redemption, the Corporation shall redeem a pro rata portion of each holder’s shares of Preferred Stock to the fullest extent of such Net Proceeds or such lawfully available funds, as the case may be, and, where such redemption is limited by the amount of lawfully available funds, the Corporation shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. The provisions of Sections 6(b) through 6(e) below shall apply, with such necessary changes in the details thereof as are necessitated by the context, to the redemption of Preferred Stock pursuant to this Section 2(e)(iii). Prior to the distribution or redemption provided for in this Section 2(d)(iii), the Corporation shall not expend or dissipate the Net Proceeds received with respect to such Deemed Liquidation Event, except to discharge expenses incurred in the ordinary course of business or to redeem shams of Preferred Stock, in accordance with this Section 2(d)(ii).

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(g) The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such Deemed Liquidation Event or redemption shall be the cash or the value of the property, rights, or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights, or securities shall be determined in good faith by the Board, including the affirmative vote or consent of a majority of the Series A Directors (as defined below, if any).

3. Voting; Board Composition; Protective Provisions.

(a) General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of a Series of Preferred Stock shall be entitled to cast that number of votes equal to the number of whole shares of Common Stock into which the shares of such Series of Preferred Stock held by such holder are convertible as of the record dated for determining stockholders entitled to vote on such matter. Except as provided by law or by the provisions of Section 3(c), (d) and (e) hereof and with the holders of any other Series of Preferred Stock the terms of which so provide, as a single class. No other class or series of securities shall be granted any voting rights superior to or on more favourable terms than the rights afforded to Series A Preferred Stock hereunder and any rights purported to be granted shall be either (i) void and of no force or effect or (ii) if such rights cannot be legally voided, the rights of the series A Preferred stock shall automatically be amended to provide equivalent voting rights.

(b) Board Composition.

(i) Series A Directors. Subject to the provisions of Sections 6(a) and 6(b) regarding default on redemption and as further provided in Article sixth, the holders of record of the shares of Series A Preferred Stock, exclusively and as a separate class, shall be entitled to elect four (4) directors of the Corporation (each a “Series A Director” and, collectively, the “Series A Directors”).

(A) As long as Inter-Atlantic Fund, L.P. (“Inter-Atlantic”) or any Permitted Transferees (as defined in that certain stockholders Agreement entered into in accordance with the Purchase Agreement by and between the Corporation and certain stock holders thereof (the “Stockholders Agreement”)) owns at least a majority of the Series A Preferred stock purchased by Inter-Atlantic pursuant to that certain Purchase agreement by and between the Corporation and certain investors dated as of November 11, 2005 (the “Purchase Agreement”), at each election of directors in which the holders of Series A Preferred Stock, voting as a separate class, are entitled to elect directors of the Corporation, Inter-Atlantic (or such Permitted Transferees thereof which acquired at least a majority of the Series A Preferred Stock purchased by Inter-Atlantic pursuant to the Purchase Agreement) shall be entitled to elect three (3) Series A Directors (the “IA Directors”).

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(B) As long as Sequel Homeowners Investment, L.P. (“Sequel”) or any Permitted Transferees, thereof owns at least a majority of the Series A Preferred Stock purchased by Sequel pursuant to the Purchase Agreement, at each election of directors in which the holders of Series A Preferred Stock, voting as a separate class, are entitled to elect directors of the Corporation, Sequel (or such Permitted Transferees thereof which acquired at least a majority of the Series A Preferred stock purchased by Sequel pursuant to the Purchase Agreement) shall be entitled to elect one (1) Series A Director (the “SV Director”).

(ii) Series B Director. Subject to the provisions of Article Sixth, the holders of record of the shares of Series B Preferred Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation (the “Series B Director”).

(iii) Independent Director. The holders of record of the shares of Series A Preferred Stock and Common Stock, voting together as a class on an as converted to Common Stock basis, shall he entitled to elect one (1) director of the Corporation (the “Independent Director”).

(iv) Any director elected as provided in the preceding subsections (i), (ii) and (iii) may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders.

(v) At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. A vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3(b).

(c) Series A Protective Provisions. At any time when at least one million (1,000,000) shares of Series A Preferred Stock are outstanding (subject to appropriate adjustment in the event of any stock dividend, stock split, reclassification, combination or other similar recapitalization events), in addition to any other vote required by law or the Certificate of Incorporation, without the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series A preferred Stock, the Corporation shall not, either directly or by amendment, merger, consolidation or otherwise:

(i) liquidate, dissolve, or wind-up the business and affairs of the Corporation, effect any Deemed Liquidation Event, or consent to any of the foregoing;

(ii) effectuate any reorganization of the Corporation or enter into any agreement to do any of the foregoing:

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(iii) amend, alter, or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation (including any filing of, or amendment to, a Certificate of Designation);

(iv) authorize, create, or designate any additional class or series of shares of stock unless the same ranks junior to the Series A Preferred Stock with respect to the distribution of assets on the liquidation, dissolution, or winding up of the Corporation and with respect to the payment of dividends and redemption rights, or increase or decrease the authorized number of shares of Series A Preferred Stock, Series B Preferred Stock, or Common Stock, or increase or decrease the authorized number of shares of any additional class or series of shares of stock, or create or authorize any obligation or security convertible into shares of any class or series of stock;

(v) purchase or redeem or pay or set aside or declare any dividend or make any distribution on, any shares of stock other than the Preferred Stock as expressly authorized herein, or permit any subsidiary of the Corporation to take any such action, except for (1) securities repurchased from former employees, officers, directors, consultants, or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service or (2) securities repurchased upon the exercise of the Corporation’s right of first refusal to purchase such securities, each as approved by the

(vi) effectuate any reclassification or recapitalization of the outstanding capital stock of the Corporation, including any subdivision, consolidation, or conversion of any outstanding capital stock;

(vii) alter or change the voting or other powers, preferences, or other rights, privileges, or restrictions of the Series A Preferred Stock contained herein;

(viii) make any acquisition of the assets of any corporation, partnership, joint venture, or other business association or entity other than the purchase of assets in the ordinary course of business of the Corporation as the business of the Corporation is proposed to be conducted on the date hereof;

(ix) form any subsidiary of the Corporation or acquire or permit the issuance or acquisition of any equity, debt (other than accounts payable or receivable or other loans that are current assets arising in the ordinary course of business), or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity, debt, or similar interest in, any corporation, partnership, joint venture, or other business association or entity, other than any subsidiary of the Corporation contemplated by the Corporation’s Business Plan (as defined in that certain Securities Purchase Agreement by and among the Corporation, Spencer W. Tucker and certain investors dated as of April 27, 2005);

(x) issue any shares of capital stock or other equity interests, or any security or instrument may be convertible into or exercisable or exchangeable for shares of capital stock or other equity interest, of any subsidiary of the Corporation;

(xi) make or authorize, or permit the authorization of, any material change in the nature or scope of the business of the Corporation;

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(xii) make or authorize and change in the Corporation’s tax status; or

(xiii) cause or authorize, or permit any of its subsidiaries to authorize or take any of the foregoing actions.

For purposes of this Section 3(c) and Section 3(d) below, “subsidiary” means any entity of which securities or other ownership interests having voting power to elect a majority of the board of directors or other persons performing similar functions or otherwise granting the holder Control are directly or indirectly beneficially owned by the Corporation, and for purposes of this Certificate of Incorporation, “Control” means the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities, by agreement or otherwise).

(d) At any time when at least one million (1,000,000) shares of Series A Preferred Stock are outstanding (subject to appropriate adjustment in the event of any stock dividend, stock split, reclassification, combination or other similar recapitalization events), and in addition to any other vote required by this Certificate of Incorporation, without the written consent or affirmative vote of a majority of the members of the Board, including the affirmative vote or consent of at least a majority of the Series A Directors, the Corporation shall not, either directly or by amendment, merger, consolidation, or otherwise:

(i) acquire or sell any assets (either tangible or intangible) or business having a value greater than fifty thousand dollars ($50,000);

(ii) incur any indebtedness for borrowed money other than (A) trade payables, (B) indebtedness under a secured credit line incurred in the ordinary course of business or (C) indebtedness provided for in an annual budget approved by the Board, including the affirmative vote or consent of at least a majority of the Series A Directors (such budget. the “Budget”);

(iii) enter into any joint venture, partnership, profit sharing arrangement or franchising agreement;

(iv) enter into any material licensing, trademark, copyright or know-how agreement with any third party;

(v) appoint any chief executive officer or any officer of the Corporation who reports directly to the chief executive officer of the Corporation (a “Senior Officer”) or approve any compensation and/or incentive program applicable to Senior officers, including without limitation any stock option plan;

(vi) remove any Senior Officer of the Corporation;

(vii) approve the annual Budget or any amendments thereto;

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(viii) incur capital expenditures which (A) individually exceed fifty thousand dollars ($50,000), or (B) individually or in the aggregate exceed those provided for in the approved Budget;

(ix) establish or amend any cash investment policy;

(x) create or allow the creation of any encumbrance on any asset or undertaking that is not provided for in the approved Budget or that is not in the ordinary course of business where the amount required to discharge such encumbrance or undertaking may exceed filly thousand dollars ($50,000);

(xi) grant any loan, advance, guarantee, pledge of assets or agree to indemnify any third party outside of the ordinary course of business;

(xii) enter into, make any material modification to, or terminate any contract, lease agreement, or arrangement the annual dollar cost of which would be greater than fifty thousand dollars ($50,000);

(xiii) enter into any customer contract whereby the pricing varies by more than fifteen percent (15%) from the Corporation’s normal arrangements or the annual revenue is more than twenty percent (20%) of the planned revenue for that fiscal year;

(xiv) appoint or remove the Corporation’s auditors or legal counsel;

(xv) commence or settle any litigation, arbitration or other legal proceeding relating to any claim or assessment outside of the ordinary course of the Corporation’s business in excess of fifty thousand dollars ($50,000);

(xvi) make any material departure from United States generally accepted accounting principles, implement any additional standards recommended to the Corporation by its auditors for the preparation and presentation of financial statements, or change any accounting principles used in the preparation of the Corporation’s financial statements even if such changes are consistent with United States generally accepted accounting principles, unless required to do so by law; or

(xvii) create any subsidiary or issue any ownership interest therein to any third party.

(e) Additional Series A Protective Provisions. At any time when at least one million (1,000,000) shares of the Series A Preferred Stock are outstanding (subject to appropriate adjustment in the event of any stock dividend, stock split, reclassification, combination or other similar recapitalization events), and in addition to any other vote by this Certificate of Incorporation, without the written consent or affirmative vote of the members of the Board, including the affirmative vote or consent of the Sequel Director (if one then exists) and at least one (1) IA Director (if one then exists), the Corporation shall not, either directly or by amendment, merger, consolidation or otherwise

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(i) enter into a contract, agreement or other arrangement with a director, executive officer, or a member of the family or an affiliate of any of the foregoing;

(ii) make or authorize, or permit the authorization of, any material change in the nature or scope of the business of the Corporation as described in the Business Plan dated April 15, 2005;

(iii) reduce the quota share reinsurance for non-catastrophic coverage to an amount that is below fifty percent (50%) of the risk exposure written by the Corporation;

(iv) reduce catastrophic reinsurance coverage to an amount that is below seventy-five percent (75%) of the Corporation’s “Probable Maximum Loss” for (x) a 1000 year “Estimated Return Period” for the first two years of the Corporation’s operations; and (y) a 250 year “Estimated Return Period” thereafter, as those terms are as defined in the Corporation’s business plan, initially dated October 18, 2005, with such changes to the business plan as are approved by a majority of the Corporation’s Board of Directors (including with respect to the definition of “Probable Maximum Loss” and “Estimated Return Period” the affirmative consent of the Sequel Director (if one then exists) and at least one of the IA Directors (if one then exists)); or

(v) terminate the employment of Spencer Tucker “Without Cause” as defined in that certain Employment Agreement by and between the Corporation and Spencer Tucker entered into in accordance with the Purchase Agreement.

(f) Series B Protective Provisions. At any time when at least 250,000 shares of Series B Preferred Stock are outstanding (subject to appropriate adjustment in the event of any stock dividend, stock split, reclassification, combination or other similar recapitalization event), except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by this Certificate of Incorporation, and in addition to any other vote required by law or the Corporation’s Certificate of Incorporation, without the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series B Preferred Stock given in writing or by vote at a meeting, consenting or voting (as the case may be) as a separate class, the Corporation shall not, either directly or by amendment, merger, consolidation, or otherwise:

(i) alter or change the voting or other powers, preferences, or other rights, privileges, or restrictions of the Series B Preferred Stock contained herein;

(ii) increase the number of authorized shares of Series B Preferred Stock; or

(iii) make or authorize, or permit the authorization of, any material change in the nature or scope of the business of the Corporation.

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4. Optional Conversion.

The holders of each Series of Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

(a) Right to Convert. Each share of Series A Preferred Stock and Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and unassessable shares of Common Stock as is determined by dividing one dollar ($1.00) by the Applicable Conversion Price (as defined below) in effect at the time of conversion. The “Applicable Conversion Price” shall initially be equal to the Preferred Stock Original Issue Price. Each such initial Applicable Conversion Price, and the rate at which shares of each series of Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

In the event of a notice of redemption of any shares of any Series of Preferred Stock pursuant to Section 6 hereof~ the Conversion Rights of the shares of such Series designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of the applicable Series of Preferred Stock.

(b) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of any shares of any Series of 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 marl et value of a share of Common Stock as determined in good faith by the Board. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of 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.

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(i) In order for a holder of Preferred Stock to voluntarily convert shares of such Series of Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of such Series of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for such Series of Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series of Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form reasonably satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent of such certificates (or lost certificate affidavit and agreement) and notice (or by the Corporation if the Corporation serves as its own transfer agent) shall be the time of conversion (the “Conversion Time”), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, issue and deliver at such office to such holder of shares of such Series of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share and payment of an amount equal to all accrued and unpaid dividends thereon (as provided in Section I).

(ii) The Corporation shall at all times when any shares of any Series of Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the applicable Series of Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of each applicable Series; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of each series of Preferred Stock, the Corporation shall take such corporate actions as may be necessary to increase its authorized but unissued shares of Common Stock to such umber of shares as shall be sufficient for such purposes, including without limitation, engaging in commercially reasonable efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation. Before taking any action which would cause an adjustment reducing he Applicable Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of any Series of Preferred Stock, the Corporation will take any corporate action and legally issue fully paid and nonassessable shares of Common Stock at such adjusted applicable Conversion Price.

(iii) All shares of any Series of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, and to receive payment of any dividends occurred or declared but unpaid thereon or any redemption or liquidation payment with respect to such shares shall immediately cease and terminate at the Conversion rime, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor. Any shares of such Series of Preferred Stock so converted shall be retired and cancelled and shall not be reissued as shares of such Series, and the Corporation (without the need for stockholder action) may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of such Series accordingly.

(iv) Upon any such conversion, no adjustment to the Applicable Conversion Price shall be made for any accrued or declared but unpaid dividends on the Series of Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.

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(v) The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of any Series of Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of any Series of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

(d) Adjustments to Applicable Conversion Price for Diluting Issues.

(i) Special Definitions. For purposes of this Section 4 the

following definitions shall apply:

(A) “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(B) “Series A Original Issue Date” shall mean the date on which the first share of Series A Preferred Stock was issued. “Series B Original Issue Date” shall mean the date on which the first share of Series B Preferred Stock was issued. “Applicable Original Issue Date” shall mean (i) in the case of the Series A Preferred Stock, the Series A Original Issue Date and (ii) in the case of the Series 13 Preferred Stock, the Series B Original Issue Date.

(C) “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

(D) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below, deemed to be issued) by the Corporation after the Applicable Original Issue Date, other than the following (“Exempted Securities”):

(I)

shares of Common Stock issued or deemed issued as a dividend or distribution on shares of any Series of Preferred Stock;

(II)

shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection 4€ or 4(f) below;

(III)

up to 315,790 shares of Common Stock issued or deemed issued to employees or directors of, or consultants to, the Corporation or any of its subsidiaries pursuant to the 2005 Homeowners of America Holding Corporation Management Incentive Plan or any other plan, agreement or arrangement approved by the Board, including at least the affirmative vote or consent of a majority of the Series A Directors;

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(IV)

shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case, provided the issuance is pursuant to the terms of such Option or Convertible Security; or

(V)

shares of Common Stock issued or issuable to in connection with a bona fide joint venture, lease financing or business acquisition of or by the Corporation, whether by merger, consolidation, sale of assets, sale or exchange of stock, or otherwise; provided that, any such issuance is approved by the Board, including the affirmative vote or consent of a majority of the Series A Directors.

(ii) No Adjustment of Applicable Conversion Price. No adjustment in the Applicable Conversion Price shall be made as the result of the issuance of Additional shares of Common Stock if (a) the consideration per share (determined pursuant to Subsection 4(d)(v) for such Additional Shares of Common Stock issued or deemed to be issued by the Corporation is equal to or greater than the Applicable Conversion Price in effect immediately prior to the issuance or deemed issuance of such Additional Shares of Common Stock, or (b) prior to such issuance or deemed issuance, the Corporation receives written notice from the holders of at least a majority of the then outstanding shares of the applicable Series of Preferred Stock agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.

(iii) Deemed Issue of Additional Shares of Common Stock.

(A) If the Corporation at any time or from time to time after the Applicable Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible securities which, upon exercise, conversion or exchange thereof, would entitle the holder thereof to receive Exempted securities pursuant to Subsections 4(d)(i)(D)(I), (II), (III), (IV) or (V)) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

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(B) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4(d)(iv) or (v) below, as the case may be, are revised (either automatically pursuant to the provisions contained therein or as a result of an amendment to such terms) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then, effective upon such increase or decrease becoming effective, the Applicable Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Applicable Conversion Price as would have been obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security Notwithstanding the foregoing, no adjustment pursuant to this clause (3) shall have the effect of increasing the Applicable Conversion Price to an amount which exceeds the lower of (ii) the Applicable Conversion Price on the original adjustment date, or (ii) the Applicable Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock between the original adjustment date and such readjustment date.

(C) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which, upon exercise, conversion or exchange thereof; would entitle the holder thereof to receive Exempted Securities pursuant to Subsections 4(d)(i)(D)(I), (II), (III), (IV), or (V)), the issuance of which did not result in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4(d)(iv) below, as the case may tic (either because the consideration per share (determined pursuant to Subsection 4(d)(v) hereof) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Applicable Conversion Price then in effect, or because such Option or Convertible Security was issued before the Applicable Original Issue Date), are revised after the Applicable Original Issue Date (either automatically pursuant to the provisions contained therein or as a result of an amendment to such terms) to provide for either (I) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4(d)(iii)(A) above) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

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(D) Upon the expiration or termination of any unexercised Option or unconverted or unexchangcd Convertible Security which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4(d)(iv) below (as the case may be), the Applicable Conversion Price shall be readjusted to such Applicable Conversion Price as would have obtained had such Option or Convertible Security never been issued.

(iv) Adjustment of Applicable Conversion Price Upon Issuance of Additional Shares. If the Corporation shall at any time after the Applicable Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4(d)(iii), without consideration or for a consideration per share less than the Applicable Conversion Price in effect immediately prior to such issue, then the Applicable Conversion Price shall be reduced, concurrently with such issue, to the consideration per share received by the Corporation for such issue or deemed issue of the Additional Shares of Common Stock; provided that if such issuance or deemed issuance was without consideration, then the Corporation shall be deemed to have received an aggregate of $0.0001 of consideration for each such Additional Shares of Common Stock issued or deemed to be issued.

(v) Determination of Consideration. For purposes of this Subsection 4(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

(A) Cash and Property: Such consideration shall:

(I)

insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;

(II)

insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in god faith by the Board; and

(III)

in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (H) above, as determined in good faith by the Board.

(B) Option and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii), relating to Options and Convertible Securities, shall be determined by dividing

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(I)

the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by

(II)

the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

(vi) Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Applicable Conversion Price pursuant to the terms of Subsection 4(d)(iv) above, and such issuance dates occur within a period of no more than ninety (90) days from the first such issuance to the final such issuance, then, upon the final such issuance, the Applicable Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without additionally giving effect to any adjustments as a result of any subsequent issuances within such period).

(e) Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Applicable Original Issue Date effect a subdivision of the outstanding Common Stock without a comparable subdivision of a Series of Preferred Stock or combine the outstanding shares of a Series of Preferred Stock without a comparable combination of the Common Stock, the Applicable Conversion Price in effect immediately before that subdivision or combination shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such Series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Applicable Original Issue Date combine the outstanding shares of Common Stock without a comparable combination of a Series of Preferred Stock or effect a subdivision of the outstanding shares of a Series of Preferred Stock without a comparable subdivision of the Common Stock, the Applicable Conversion Price in effect immediately before the combination or subdivision shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such Series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.

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(f) Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Applicable Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Applicable Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Applicable Conversion Price then in effect by a fraction:

(i) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution;

provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Applicable Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Applicable Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and provided further, however, that no such adjustment shall be made if the holders of such Series of Preferred Stock simultaneously receive (i) a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received Wall outstanding shares of the Series of Preferred Stock had been converted into Common Stock on the date of such event or (ii) a dividend or other distribution of shares of the Series of Preferred Stock which are convertible, as of the date of such event, into such number of shares of Common Stock as is equal to the number of additional shares of Common Stock being issued with respect to each share of Common Stock in such dividend or distribution.

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(g) Adjustment for Mercer or Reorganization, etc. Subject to the provisions of Subsection 2, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not a particular Series of Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by subsections (e) or (f) of this Section 4), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of applicable Series of Preferred Stock that remains outstanding, if any, shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of such Series of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of such Series of Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Applicable Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the applicable Series of Preferred Stock.

(h) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of an Applicable Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series of Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of a Series of Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Applicable Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of such Series of Preferred Stock.

(i) Notice of Record Date. In the event:

(i) the Corporation shall take a record of the holders of its Common Stock (or other stock or securities at the time issuable upon conversion of a Series of Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or

(ii) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or

(iii) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,

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then, and in each such case, the Corporation will send or cause to be sent to the holders of the applicable Series of Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the anticipated effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time issuable upon the conversion of the applicable Series of Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, Deemed Liquidation Event, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series of Preferred Stock and the Common Stock Such notice shall be sent at least 10 days prior to the record date or anticipated effective date for the event specified in such notice. Any notice required by the provisions hereof to be given to a holder of shares of Preferred Stock shall be deemed sent to such holder if deposited in the United States mail, postage prepaid, and addressed to such holder at his, her or its address appearing on the books of the Corporation.

5. Mandatory Conversion.

(a) Upon the earlier of (A) the closing of the sale of shares of Common Stock to the public at a price of at least five dollars ($5.00) per share (subject to appropriate adjustment in the event of any stock dividends, stock split, reclassification, combination or other similar recapitalization affecting such shares) in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least fifty million dollars ($50,000,000) of proceeds, net of underwriting discounts and commissions to the Corporation (a “Qualifying Public Offering”), or (B) a date specified by vote or written consent of the holders of at least 66 2/3% of the then outstanding shares of each Series of Preferred Stock, all such Series voting or consenting together as one class; provided, however, if at the time of such conversion there is not either a contingent or contemporaneous Deemed Liquidation Event, then the Series A Preferred Stock held by Sequel or its Permitted Transferees and Inter-Atlantic or its Permitted Transferees shall not be automatically converted to Common Stock without the consent of both Inter-Atlantic and Sequel (the “Mandatory Conversion Date”), (i) all outstanding shares of each Series of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate and (ii) such shares may not be reissued by the Corporation as shares of such series.

(b) All holders of record of shares of each Series of Preferred Stock shall be given written notice of the Mandatory Conversion Date and the place designated for mandatory conversion of all such shares of each Series of Preferred Stock pursuant to this Section 5. Such notice need not be given in advance of the occurrence of the Mandatory Conversion Date. Such notice shall be sent by first class or registered mail, postage prepaid, or given by electronic communication in compliance with the provisions of the General Corporation Law, to each record holder of each Series of Preferred Stock. Upon receipt of such notice, each holder of shares of each Series of Preferred Stock shall surrender his, her or its certificate or certificates for all such shares to the Corporation at the place designated in such notice. On the Mandatory Conversion Date, all outstanding shares of each Series of Preferred Stock shall be deemed to have been converted into shares of Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to each Series of Preferred Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefor, to receive certificates for the number of shares of Common Stock into which such Series of Preferred Stock has been converted. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Mandatory Conversion Date and the surrender of the certificate or certificates for Preferred Stock, the Corporation shall cause to be issued and delivered to such holder, or on his, her or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Subsection 4(b) in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion.

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(c) All certificates evidencing shares of each Series of Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the Mandatory Conversion Date, be deemed to have been retired and cancelled and the shares of Preferred Stock represented thereby converted into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. Such converted shares of each Series of Preferred Stock may not be reissued as shares of such Series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of such Series of Preferred Stock accordingly.

6. Redemption.

(a) During any Redemption Period, upon receipt by the Corporation from one or more holders of Series A Preferred Stock (the “Requesting Holders”) of written notice requesting redemption of all of such Requesting Holders shares of Series A Preferred Stock (the “Redemption Shares”), and concurrently with surrender by such holder of the certificates representing such Redemption Shares, the Corporation shall, to the extent it lawfully do so, redeem the Redemption Shares by paying a price per share equal to the applicable Redemption Price (such date of redemption, a “Redemption Date”). If the Corporation does not have sufficient funds legally available to redeem on any Redemption Date all Redemption Shares, the Corporation shall redeem a pro rata portion of each Requesting Holder’s redeemable Redemption Shares out of funds legally available therefor, based on the respective amounts that would otherwise be payable in respect of the Redemption Shares to be redeemed if the legally available funds were sufficient to redeem all such Redemption Shares, and shall redeem the remaining Redemption Shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. If any such Redemption Shares are not redeemed on or prior to a Redemption Date, then commencing the day immediately after such Redemption Date and for so long as any such Redemption Shares have not been redeemed, (i) the holders of a majority of such Redemption Shares shall be entitled, in addition to the voting rights set forth in Section 3(b), to elect such number of additional directors of the Corporation (which directors shall, for all purposes herein, he deemed to be “Series A Directors”) so that, immediately following any such election, a majority of the Board is comprised of Series A Directors, and (ii) each such Requesting Holder shall he issued a one-year note on the unpaid amount, which note shall bear at a per annum rate equal to ten percent (10%), compounded daily, until such amount is paid in full to the Requesting Holder.

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For purposes of this Section 6, a “Redemption Period” shall mean any of the following periods: (1) any time on or after the first (1^st) anniversary of the Series A Original Issue Date, if neither the Corporation nor any of its subsidiaries has obtained a license or certificate of authority from the Texas Department of Insurance to conduct insurance operations (the “Required License”), (2) the one (1) year period commencing on the day that is fifteen (15) months following the Series A Original Issue Date (the “Special Redemption Date”) upon a determination by the Board of Directors of the Corporation that the financial performance of the Corporation for the preceding twelve (12) month period is materially less than the budgeted financial performance set forth in the most current applicable Budget for such period so long as such redemption is requested by both of Sequel and Inter-Atlantic; or (3) on or after the fifth (5”) anniversary of the Series A Original Issue Date. Within fifteen (15) days following the Special Redemption Date, the Board shall make a determination as of the Special Redemption Date as to whether the financial performance of the Corporation for the preceding twelve (12) month period is materially less than the budgeted financial performance set forth in the most current applicable Budget for such period and shall promptly, but in no event later than ten (10) days after such determination, provide written notice of such determination to both of Sequel and Inter-Atlantic. lithe Board of Directors determines that the financial performance of the Corporation for such twelve (12) month period is not materially less than the budgeted financial performance set forth in the most current applicable Budget, than the Redemption Period set forth in clause (2) of the first sentence of this paragraph shall immediately expire and no holder of Preferred Stock shall have a right to redeem such holder’s shares of Preferred Stock during such period.

To the extent the Corporation has filly redeemed all of the issued and outstanding shares of Series A Preferred Stock, then holders of the Series B Preferred Stock shall thereafter be entitled to redeem all of the issued and outstanding shares of Series B Preferred Stock on the same terms and conditions as set forth in this Section 6 with respect to the Series A Preferred Stock.

The “Redemption Price” shall be as follows: (y) in the case of a redemption pursuant to clause (1) of this Subsection 6(a). the Redemption Price shall be equal to the Preferred Stock Original Issue Price per share, and (z) in the case of a redemption pursuant to clauses (2) or 3 of this Subsection 6(a). the Redemption Price shall be equal to the Preferred Stock Original Issue Price per share, plus any and all Accruing Dividends unpaid thereon.

(b) Redemption Notice. Written notice of the redemption of Redemption Shares pursuant to any of Section 6(a)(1), (2),r (3) (the “Redemption Notice”) shall be mailed, postage prepaid, to each Requesting Holder, at its post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, not less than five days prior to each Redemption Date. Each Redemption Notice shall state:

(i) the number of shares of Preferred Stock held by the holder that the Corporation shall redeem on the Redemption Date specified in the Redemption Notice;

(ii) the Redemption Date and the Redemption Price;

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(iii) the date upon which the holder’s right to convert such shares terminates (as determined in accordance with Section 4(a)); and

(iv) that the holder is to surrender to the Corporation, in the manner and at the place designated, his, her, or its certificate or certificates representing the shares of Preferred Stock to be redeemed.

(c) Surrender of Certificates: Payment. On or before the applicable Redemption Date, each Requesting Holder of shares of Preferred Stock to be redeemed on such Redemption Date, unless such holder has exercised his, her, or its right to convert such shares as provided in Section 4 hereof shall surrender the certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. If less than all of the shares of Preferred Stock represented by a certificate are redeemed, a new certificate representing the unredeemed shares of Series A Preferred Stock shall promptly be issued to such holder.

(d) Rights Subsequent to Redemption. If a Redemption Notice shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the shares of Preferred Stock to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor, then notwithstanding that the certificates evidencing any of the shares of Preferred Stock so called for redemption shall not have been surrendered, dividends with respect to such shares of Preferred Stock shall cease to accrue after such Redemption Date and all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of their certificate or certificates therefor.

(e) Redeemed or Otherwise Acquired Shares. Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately canceled and shall not be reissued, sold, or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.

7. Waiver. Any of the rights, powers or preferences of the holders of a Series of Preferred Stock set forth herein may be waived by the affirmative consent or vote of the holders of at least a majority of the shares of such Series of Preferred Stock then outstanding.

FIFTH: Subject to any additional vote required by this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

SIXTH: Subject to any additional vote required by this Certificate of Incorporation, the number of directors of the Corporation shall be determined as follows:

(i) The Board of Directors of the Corporation shall consist of seven (7) directors.

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(ii) In the event of a default on redemption as described in Article FOURTH. Section 6(a) or (b), the number of directors constituting the Board of Directors may be increased as provided in such Sections 6(a) and 6(b).

SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

NINTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth le authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.

Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

TENTH: The Corporation shall, to the fullest extent permitted by the General Corporation Law, as it may be amended and supplemented from time to time, indemnify, and advance expenses to, any and all persons serving as members of the Board of Directors whom it shall have the power to indemnify under such law against any expenses, liabilities or other matters referred to in or covered by the General Corporation Law. The Corporation may indemnify, and advance expenses to any officer, employee or agent of the corporation or any other person the General Corporation Law permits the corporation to indemnify. The indemnification and advancement of expenses provided for in this Article Tenth shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in their official capacities and as to action in another capacity while holding such office. and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

ELEVENTH: Subject to any additional vote required by this Certificate of incorporation, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

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TWELFTH: The Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation.

* * *

IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of the Corporation on this 8th day of November, 2005.

	By:
		Spencer Tucker, President and
		Chief Executive Officer

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EX-3.2 3 v347100_ex3-2.htm EXHIBIT 3.2

BYLAWS

HOMEOWNERS OF AMERICA HOLDING CORPORATION,
a Delaware corporation

As of March 31, 2005

BYLAWS

HOMEOWNERS OF AMERICA HOLDING CORPORATION,
a Delaware corporation

ARTICLE I
OFFICES

1.1 Registered Office. The registered office shall be at the office of The Corporation Trust Company, 1209 Orange Street the City of Wilmington, County of New Castle, State of Delaware.

1.2 Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II
MEETINGS OF STOCKHOLDERS

2.1 Annual Meeting. An annual meeting of the stockholders for the election of directors shall be held at such place, if any, either within or without the State of Delaware, as shall be designated on an annual basis by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, if any, either within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Any other proper business may be transacted at the annual meeting.

2.2 Notice of Annual Meeting. Written notice of the annual meeting stating the place, if any, date and hour of the meeting, and the means of remote communications, if any, by which the stockholder may be deemed to be present in person and vote at such meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting.

2.3 Voting List. The officer who has charge of the stock ledger of the corporation shall prepare and make, or cause a third party to prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the corporation. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

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2.4 Special Meetings. Special meetings of the stockholders of this corporation, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, shall be called by the President or Secretary at the request in writing of a majority of the members of the Board of Directors or holders of a majority of the total voting power of all outstanding shares of stock of this corporation then entitled to vote, and may not be called absent such a request. Such request shall state the purpose or purposes of the proposed meeting.

2.5 Notice of Special Meetings. As soon as reasonably practicable after receipt of a request as provided in Section 2.04, written notice of a special meeting, stating the place, if any, date (which shall be not less than ten nor more than sixty days from the date of the notice) and hour of the special meeting, the means of remote communications, if any, by which the stockholder may be deemed to be present in person and vote at such special meeting, and the purpose or purposes for which the special meeting is called, shall be given to each stockholder entitled to vote at such special meeting.

2.6 Scope of Business at Special Meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

2.7 Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting or the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting as provided in Section 5 of this Article II.

2.8 Qualifications to Vote. The stockholders of record on the books of the corporation at the close of business on the record date as determined by the Board of Directors and only such stockholders shall be entitled to vote at any meeting of stockholders or any adjournment thereof.

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2.9 Record Date. The Board of Directors may fix a record date for the determination of the stockholders entitled to notice of or to vote at any stockholders' meeting and at any adjournment thereof, or to express consent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action. The record date shall not be more than sixty nor less than ten days before the date of such meeting, and not more than sixty days prior to any other action. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

2.10 Action at Meetings. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of applicable law or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question.

2.11 Voting and Proxies. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless it is coupled with an interest sufficient in law to support an irrevocable power.

2.12 Action by Stockholders Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware (by hand or by certified or registered mail, return receipt requested), to its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded; provided, however, that action by written consent to elect directors, if less than unanimous, shall be in lieu of holding an annual meeting only if all the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were delivered to the corporation by delivery to its registered office in Delaware (by hand or by certified or registered mail, return receipt requested), to its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings or meetings of stockholders are recorded.

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An electronic transmission consenting to an action to be taken and transmitted by a stockholder or by a person authorized to act for a stockholder, shall be deemed to be written, signed and dated for the purposes of this Section 2.12, provided that such electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the electronic transmission was transmitted by the stockholder or by a person authorized to act for the stockholder and (ii) the date on which such stockholder or authorized person transmitted such electronic transmission. The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its principal place of business or an officer or agent of the corporation having custody of the books in which proceedings of meetings of stockholders are recorded, to the extent and in the manner in which the Board of Directors may from time to time determine.

2.13 Meeting by Remote Communication. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, stockholders may participate in a meeting of stockholders by means of remote communication and shall be deemed present in person and permitted to vote at such meeting, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at such meeting by means of remote communication is a stockholder, (ii) the corporation shall implement reasonable measures to provide such stockholders a reasonable opportunity to participate in such meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of such meeting substantially concurrently with such proceedings, and (iii) if any stockholder votes or takes other action at such meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.

ARTICLE III
DIRECTORS

3.1 Powers. The business of the corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by applicable law or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.

3.2 Number; Election; Tenure and Qualification. The number of directors which shall constitute the whole board shall be fixed from time to time by resolution of the Board of Directors or by the stockholders at an annual meeting of the stockholders (unless the directors are elected by written consent in lieu of an annual meeting as provided in Section 2.12); provided that the number of directors shall be not less than one. With the exception of the first Board of Directors, which shall be elected by the incorporator, and except as provided in the corporation's Certificate of Incorporation or in Section 3.03, the directors shall be elected at the annual meeting of the stockholders by a plurality vote of the shares represented in person or by proxy and each director elected shall hold office until his successor is elected and qualified unless he shall resign, become disqualified, disabled, or otherwise removed. Directors need not be stockholders.

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3.3 Vacancies and Newly Created Directorships. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly-created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. The directors so chosen shall serve until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office.

3.4 Location of Meetings. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware.

3.5 Meeting of Newly Elected Board of Directors. The first meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of stockholders and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at such time, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.

3.6 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of such location.

3.7 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board on 24 hours' notice to each director by mail, overnight courier service or facsimile; special meetings shall be called by the President or Secretary in a like manner and on like notice on the written request of two directors unless the Board of Directors consists of only one director, in which case special meetings shall be called by the President or Secretary in a like manner and on like notice on the written request of the sole director. Notice may be waived in accordance with Section 229 of the Delaware General Corporation Law.

3.8 Quorum and Action at Meetings. At all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

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3.9 Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

3.10 Telephonic Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.11 Committees. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

3.12 Committee Authority. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (a) approving, adopting or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval, or (b) adopting, amending or repealing any Bylaw of the corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.

3.13 Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required to do so by the Board of Directors.

3.14 Directors Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

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3.15 Resignation. Any director or officer of the corporation may resign at any time. Each such resignation shall be made in writing or by electronic transmission and shall take effect at the time specified therein, or, if no time is specified, at the time of its receipt by either the Board of Directors, the President or the Secretary. The acceptance of a resignation shall not be necessary to make it effective unless expressly so provided in the resignation.

3.16 Removal. Unless otherwise restricted by the Certificate of Incorporation, these Bylaws or applicable law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors.

ARTICLE IV
NOTICES

4.1 Notice to Directors and Stockholders. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given (i) by electronic transmission when such director or stockholder has consented to the delivery of notice in such form, and such notice shall be deemed to be given when directed to the proper facsimile number, electronic mail address or other proper electronic destination or (ii) in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the corporation that the notice has been given shall in the absence of fraud, be prima facie evidence of the facts stated therein. Notice to directors may also be given by telephone (with confirmation of receipt).

4.2 Waiver. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, a written waiver thereof, signed by the person or persons entitled to said notice, or a waiver by electronic transmission by the person entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. The written or electronic waiver need not specify the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Attendance at the meeting is not a waiver of any right to object to the consideration of matters required by the Delaware General Corporation Law to be included in the notice of the meeting but not so included, if such objection is expressly made at the meeting.

ARTICLE V
OFFICERS

5.1 Enumeration. The officers of the corporation shall be chosen by the Board of Directors and shall include a President, a Secretary, a Treasurer and/or Chief Financial Officer and such other officers with such other titles as the Board of Directors shall determine. The Board of Directors may elect from among its members a Chairman or Chairmen of the Board and a Vice Chairman of the Board. The Board of Directors may also choose one or more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents (each referred to as a, "Vice President"), Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws otherwise provide.

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5.2 Election. The Board of Directors at its first meeting after each annual meeting of stockholders shall elect a President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine.

5.3 Appointment of Other Agents. The Board of Directors may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

5.4 Compensation. The salaries of all officers of the corporation shall be fixed by the Board of Directors or a committee thereof. The salaries of agents of the corporation shall, unless fixed by the Board of Directors, be fixed by the President or any Vice President of the corporation.

5.5 Tenure. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the directors of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors.

5.6 Chairman of the Board and Vice Chairman of the Board. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which the Chairman shall be present. The Chairman shall have and may exercise such powers as are, from time to time, assigned to the Chairman by the Board of Directors and as may be provided by law. In the absence of the Chairman of the Board, the Vice Chairman of the Board, if any, shall preside at all meetings of the Board of Directors and of the stockholders at which the Vice Chairman shall be present. The Vice Chairman shall have and may exercise such powers as are, from time to time, assigned to such person by the Board of Directors and as may be provided by law.

5.7 President. The President shall be the Chief Executive Officer of the corporation unless such title is assigned to another officer of the corporation; in the absence of a Chairman and Vice Chairman of the Board, the President shall preside as the chairman of meetings of the stockholders and the Board of Directors; and the President shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President or any Vice President shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation.

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5.8 Vice President. In the absence of the President or in the event of the President's inability or refusal to act, the Vice President, if any (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Vice President shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

5.9 Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision the Secretary shall be subject. The Secretary shall have custody of the corporate seal of the corporation and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the Secretary's signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by such officer's signature.

5.10 Assistant Secretary. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

5.11 Treasurer or Chief Financial Officer. The Treasurer and/or Chief Financial Officer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. The Treasurer and/or Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, President or Chief Executive Officer, taking proper vouchers for such disbursements, and shall render to the President, Chief Executive Officer and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all such transactions as Treasurer and/or Chief Financial Officer and of the financial condition of the corporation. If required by the Board of Directors, the Treasurer and/or Chief Financial Officer shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the Treasurer's and/or Chief Financial Officer's office and for the restoration to the corporation, in case of the Treasurer's and/or Chief Financial Officer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under the control of the Treasurer and/or Chief Financial Officer that belongs to the corporation.

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5.12 Assistant Treasurer. The Assistant Treasurer, or if there be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

ARTICLE VI
CAPITAL STOCK

6.1 Certificates. The shares of the corporation shall be represented by a certificate, unless and until the Board of Directors adopts a resolution permitting shares to be uncertificated. Certificates shall be signed by, or in the name of the corporation by, (a) the Chairman of the Board, the Vice Chairman of the Board, the President or a Vice President, and (b) the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, certifying the number of shares owned by such stockholder in the corporation.

6.2 Class or Series. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the Delaware Corporation Law or a statement that the corporation will furnish without charge, to each stockholder who so requests, the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

6.3 Signature. Any of or all of the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

6.4 Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such owner's legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

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6.5 Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the corporation.

6.6 Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholder or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

6.7 Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VII
GENERAL PROVISIONS

7.1 Dividends. Dividends upon the capital stock of the corporation, subject to the applicable provisions, if any, of the Certificate of Incorporation, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purposes as the Board of Directors shall think conducive to the interest of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

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7.2 Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

7.3 Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

7.4 Seal. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

7.5 Loans. The Board of Directors of this corporation may, without stockholder approval, authorize loans to, or guaranty obligations of, or otherwise assist, including, without limitation, the adoption of employee benefit plans under which loans and guarantees may be made, any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the Board of Directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation.

ARTICLE VIII
AMENDMENTS

Except as otherwise provided in the Certificate of Incorporation, these Bylaws may be altered, amended or repealed, or new Bylaws may be adopted, by the holders of a majority of the outstanding voting shares or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such special meeting. If the power to adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the Certificate of Incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal Bylaws.

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CERTIFICATE OF SECRETARY OF

HOMEOWNERS OF AMERICA HOLDING CORPORATION

The undersigned certifies:

1. That the undersigned is the duly elected and acting Secretary of Homeowners of America Holding Corporation, a Delaware corporation (the "Corporation"); and

2. That the foregoing Bylaws constitute the Bylaws of the Corporation as duly adopted by the Unanimous Written Consent of the Board of Directors of Homeowners of America Holding Corporation, dated the 31st day of March, 2005.

IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of the Corporation as of this 31'1 day of March, 2005.


	Spencer Tucker
	Secretary

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EX-4.1 4 v347100_ex4-1.htm EXHIBIT 4.1

EX-4.2 5 v347100_ex4-2.htm EXHIBIT 4.2

EX-4.3 6 v347100_ex4-3.htm EXHIBIT 4.3

EX-4.4 7 v347100_ex4-4.htm EXHIBIT 4.4

Execution Version

INVESTOR RIGHTS AGREEMENT

by and among

HOMEOWNERS OF AMERICA HOLDING CORPORATION

and

THE INVESTORS LISTED ON SCHEDULE A

Dated as of November 11, 2005

Schedules

Schedule A-1 Schedule of Series A Investors

Schedule A-2 Schedule of Series B Investors

INVESTOR RIGHTS AGREEMENT

This INVESTOR RIGHTS AGREEMENT (this “Agreement”) is entered into as of November 11, 2005 by and among (i) Homeowners of America Holding Corporation, a Delaware corporation (the “Company”); (ii) Inter-Atlantic Fund, L.P., a partnership organized under the laws of Bermuda (“Inter-Atlantic”) and Sequel Homeowners Investment, L.P., a Texas limited partnership (“Sequel”, and together with Inter-Atlantic, the “Series A Investors”); (iii) Spencer W. Tucker (the “Founder”); and (iv) the Persons identified as Series B investors on Schedule A-2 attached to this Agreement (the “Series B Investors”).

RECITALS

The Founder purchased Founder Shares (as defined in Section 1 below), which shares are subject to the restrictions contained in the Founder Stock Purchase Agreement, dated as of April 27, 2005 (as amended or modified from time to time, the “Founder Stock Agreement”). The Company and the Series A Investors are parties to the Securities Purchase Agreement of even date herewith (the “Purchase Agreement”) and the Series B Investors are parties to the various Subscription Agreements of even date herewith (collectively, the “Subscription Agreements,” and together with the Purchase Agreement, the “Investor Agreements”). To induce the Company to enter into the Investor Agreements and to induce the Series A Investors and Series B Investors to invest funds in the Company pursuant to the Purchase Agreement and Subscription Agreements, respectively, the Series A Investors, the Series B Investors, the Founder and the Company hereby agree that this Agreement shall govern the rights of the Investors (as defined in Section 1 below) to cause the Company to register shares of Common Stock issuable to the Series A Investors and the Series B Investors, to receive certain information from the Company, to participate in future equity offerings by the Company, and to certain other matters as set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing recitals and for good and other valuable consideration hereinafter set forth, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Definitions. For purposes of this Agreement:

“Affiliate” means with respect to any individual, corporation, partnership, limited liability company, association, trust, or any other entity (in each case, a “Person”), any Person that, directly or indirectly, Controls, is Controlled by, or is under common Control with such Person, including without limitation, any general partner, executive officer, or director of such Person or any holder of ten percent or more of the outstanding equity or voting power of such Person.

“Common Stock” means shares of the Company’s common stock, par value $0.0001 per share.

“Control” means the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities, by agreement or otherwise).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents the Company has filed with the SEC.

“Founder Shares” means any and all shares of capital stock of the Company (i) issued to the Founder pursuant to the Founder Stock Agreement, and (ii) otherwise acquired by the Founder hereafter.

“GAAP” means generally accepted accounting principles in the United States.

“Holder” means any Investor owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 2.12 hereof.

“IA Director” means any of the directors that Inter-Atlantic shall be entitled to appoint to the Company’s Board of Directors pursuant to the Stockholders’ Agreement.

“Immediate Family Member” means a child, grandchild, parent, stepparent, grandparent; spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive and “step” relationships, of a person referred to herein.

“Initiating Holders” means, collectively, any Holders who properly initiate a registration request under this Agreement.

“Investor” means the Series A Investors, the Series B Investors, the Founder (but only if the Founder is no longer employed by the Company or any of its subsidiaries and only with respect to Series B Preferred Stock then owned by the Founder), and their respective successors and assigns.

“IPO” means the Company’s first underwritten public offering of its Common Stock under the Securities Act.

“Key Employee” means any executive-level employee (including and officers appointed by the Company’s Board of Directors).

“Major Investor” means (i) each Series A Investor so long as such Series A Investor continues to own at least ten percent (10%) of Series A Preferred Stock (or underlying common stock) initially purchased by it pursuant to the Purchase Agreement; and (ii) the Founder so long as the Founder is employed by the Company and has not terminated his employment therewith nor has been terminated thereby for any reason or no reason.

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“New Securities” means equity securities of the Company, whether now authorized or not, or rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible into or exchangeable into or exercisable for such equity securities.

“Preferred Stock” means, collectively, shares of the Company’s Series A Preferred Stock and Series B Preferred Stock, including without limitation any sub-series of Series A Preferred or Series B Preferred Stock.

“register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

“Registrable Securities” means, as applicable, (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock and Series B Preferred Stock, (ii) the Founder Shares, provided such shares have become fully vested in accordance with their terms and conditions, (iii) any shares of Common Stock acquired by an Investor pursuant to any right of first refusal or pre-emptive right, whether such right applies to the Company, the Founder or another Investor and (iv) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i), and (iii) above, excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which its rights under Section 2 hereof are not assigned or any shares for which registration rights have terminated pursuant to Section 2.16 of this Agreement.

“Registrable Securities then outstanding” means the number of shares determined by adding the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities.

“SEC” means the Securities and Exchange Commission.

“SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.

“SEC Rule 144(k)” means Rule 144(k) promulgated by the SEC under the Securities Act.

“SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Series A Preferred Stock” means shares of the Company’s Series A Preferred Stock, par value $0.0001 per share, including without limitation any sub-series thereof.

“Series B Preferred Stock” means shares of the Company’s Series B Preferred Stock, par value $0.0001 per share, including without limitation any sub-series thereof.

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“Stockholders’ Agreement” means the Stockholders’ Agreement dated as of the date hereof, by and among the Company, the investors listed on Schedule A thereto, and the Key Holders of Common Stock listed on Schedule B thereto.

“Subsidiary” means (i) any corporation, of which a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote generally in the election of directors thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more of the other Subsidiaries of the Company or a combination thereof or (ii) any limited liability company, partnership, association or other business entity, of which a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more Subsidiaries of the Company or a combination thereof. For purposes of this definition, the Company will be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if the Company will be allocated a majority of limited liability company, partnership, association or other business entity gains or losses, or is or controls the managing member, manager or general partner, or similar management or decision-making body, of such limited liability company, partnership, association or other business entity.

“Violation” means losses, claims, damages, or liabilities (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by any other party hereto of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.

2. Registration Rights. The Company covenants and agrees as follows:

2.1 Request for Registration.

(a) If the Company shall receive at any time after an IPO a written request from the Holders of at least 25% of the Registrable Securities then outstanding (not including as Registrable Securities for the purpose of providing such written request the Founder Shares and shares issued or issuable to the Founder upon conversion of Series B Preferred Stock (together with the Founder Shares, the “Founder Securities”)), that the Company file a registration statement under the Securities Act covering the registration of all or a portion of the Registrable Securities with an aggregate offering price, net of underwriting discounts and commissions of at least $10,000,000, then the Company shall: (i) within 10 days of the receipt thereof, give written notice of such request to all Holders (including the Founder); (ii) as soon as practicable, and in any event, within 60 days of the receipt of such request, file a registration statement under the Securities Act covering all Registrable Securities that the Holders request to be registered, subject to the limitations of Section 2.1(b); and (iii) use its best efforts to cause such registration statement to be declared effective by the SEC as soon as practicable but in no event later than 90 days after such request.

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(b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2.1(a), and the Company shall include such information in the written notice referred to in Section 2.1(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include the Holder’s Registrable Securities in such registration shall be conditioned upon the Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided in this Agreement. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 2.3(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 2.1, if the underwriter advises the Initiating Holders in writing that marketing factors require limiting the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant to this Agreement, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless (x) all other securities are first entirely excluded from the underwriting and (y) all Founder Shares are excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round down the number of shares allocated to any Holder to the nearest 100 shares.

(c) The Company shall not be obligated to effect, or to take any action to effect, any registration (i) pursuant to this Section 2.1(A) in any particular jurisdiction where the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Securities Act; (B) after the Company has effected two registrations pursuant to this Section 2.1 and such registrations have been declared or ordered effective; (C) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.11 below; or (D) if all of the Registrable Securities to be included in the registration statement could be sold without restriction under SEC Rule 144(k) within a 90 day period and the Company is currently subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act.

(d) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.1 a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the. Company it would be materially detrimental to the Company and its stockholders for such registration statement to become effective at such time, then the Company shall have the right to defer taking action with respect to such filing for a period of not more than 90 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any rolling 12 month period.

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(e) A registration shall not be counted for purposes of the limitations in Section 2.1(c) until such time as such registration statement has (i) been declared effective by the SEC (unless the Initiating Holders withdraw their request for such registration (other than as a result of information concerning the business or financial condition of the Company that is made known to the Investors after the date on which such registration was requested) and elect not to pay the registration expenses therefor pursuant to Section 2.5) and (ii) remained continuously effective for the shorter of (A) 180 days or (B) until such time as all Registrable Securities included in such registration statement have been sold pursuant to such registration statement. A registration also shall not be counted for purposes of the limitations in Section 2.1(c) if, as a result of an exercise of the underwriter’s cut-back provisions, fewer than 50% of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.

2.2 Company Registration. If the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase, or similar plan or an SEC Rule 145 transaction), the Company shall, at such time, promptly give each Holder written notice of such- registration. Upon the written request of each Holder given within 20 days after mailing of such notice by the Company in accordance with Section 6.5, the Company shall, subject to the provisions of Section 2.7, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. The Company shall have the right to terminate or withdraw any registration it initiates under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Company shall bear the expenses of such withdrawn registration in accordance with Section 2.6 hereof.

2.3 Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to 120 days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3, subject to compliance with applicable SEC rules, such 120-day period shall be extended for up to an additional 245 days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;

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(b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;

(c) furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request to facilitate the disposition of Registrable Securities owned by them;

(d) use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the - Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;

(f) cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or quoted on a quotation system and each securities exchange and quotation system on which similar securities issued by the Company are then listed;

(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and a CUSIP number for all such Registrable Securities, in each case, not later than the effective date of such registration; and

(h) use commercially reasonable efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 2, on the date on which such Registrable Securities are sold to the underwriter, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a “comfort” letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any.

2.4 Furnish Information.

(a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of such Holder’s Registrable Securities.

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(b) The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 2.11 if, due to the operation of subsection 2.4(a), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company’s obligation to initiate such registration as specified in subsection 1.2(a) or subsection 2.11(b)(2), whichever is applicable.

2.5 Expenses of Demand Registration. All expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with respect to registrations pursuant to Section 2.1, including (without limitation) all registration, filing, qualification, printer’s, and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holder or Holders, but excluding underwriting discounts and commissions relating to the. Registrable Securities, shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 2.1; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 2.1.

2.6 Expenses of Company Registration. All expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with respect to registrations pursuant to Section 2.2, including (without limitation) all registration, filing, qualification, printer’s, and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holder or Holders, but excluding underwriting discounts and commissions relating to Registrable Securities, shall be borne by the Company.

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2.7 Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Section 2.2, the Company shall not be required to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities to be sold other than by the Company that the underwriters determine in their reasonable discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters and the Board of Directors of the Company determine in their reasonable discretion will not jeopardize the success of the offering. In no event shall any Registrable Securities be excluded from such offering unless all other stockholders’ securities have been first excluded. In the event that the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be apportioned pro rata among the selling Holders based on the number of Registrable Securities held by all selling Holders or in such other proportions as shall mutually be agreed to by all such selling Holders. Notwithstanding the foregoing, in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below 30% of the total amount of securities included in such offering or (ii) notwithstanding (i) above, any Registrable Securities described in clause (i) of the definition of Registrable Securities be excluded from such underwriting unless all Founder Shares are first excluded from such offering. For purposes of the provisions concerning-apportionment of Registrable Securities in the case of a cut-back required by underwriters under this Section 2.7 and under Section 2.1(b) of this Agreement, for any selling stockholder that is a Holder of Registrable Securities and that is an investment fund, partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and family members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling Holder,” and any pro-rata reduction with respect to such “selling Holder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “selling Holder,” as defined in this sentence.

2.8 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

2.9 Indemnification. If any Registrable Securities are included in a registration statement under this Section 2:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers, directors, and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Securities Act) for such Holder, and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Violation and the Company will pay to each such Holder, underwriter, controlling person, or other aforementioned person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter, controlling person, or other aforementioned person.

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(b) To the extent permitted by law, each selling Holder will severally and not jointly indemnify and hold harmless the Company, each of its directors, each of its officers, each person, if any, who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement, and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 2.9(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 2.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that, in no event shall any indemnity under this Section 2.9(b) exceed the net proceeds from the offering received by such Holder, except in the case of fraud or willful misconduct by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.9.

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(d) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 2.9 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.9 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 2.9, then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages, or liabilities to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party 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 indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case, (A) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation; provided further, that in no event shall a Holder’s liability pursuant to this Section 2.9(d), when combined with the amounts paid or payable by such holder pursuant to Section 2.9(b), exceed the proceeds from the offering (net of any underwriting discounts or commissions) received by such Holder, except in the case of fraud or willful misconduct by such Holder.

(e) Unless otherwise superseded by an underwriting agreement that the Company and the Holders entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 2.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 2, and otherwise and shall survive the termination of this Agreement.

Unless otherwise superseded by an underwriting agreement that the Company and the Holders entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 2.9 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.

2.10 Reports Under Exchange Act. With a view to making available to the Holders the benefits of Sec Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

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

(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company-and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC-that permits the selling of any such securities without registration or pursuant to such form.

2.11 Form S-3 Registration. In case the Company shall receive from Holders of at least 25% of all Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities-owned by such Holder or Holders, the Company will:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification, or compliance, pursuant to this Section 2.11 (1) if Form S-3 is not then available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions) of less than $750,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 60 days after receipt of the request of the Holder or Holders under this Section 2.11; provided, however, that the Company shall not utilize this right more than once in any rolling 12 month period, and provided further, that the Company shall not register any securities for the account of itself or any other stockholder during such 60 day period (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase, or similar plan or an SEC Rule 145 transaction), (4) if the Company has, within the 12 month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 2.11; (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; or (6) during the period ending 180 days after the effective date of a registration statement subject to Section 2.2 hereof.

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(c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with respect to registrations pursuant to this Section 2.11, including (without limitation) all registration, filing, qualification, printer’s, and accounting fees, the reasonable fees and disbursements of one counsel for the selling Holder or Holders, but excluding underwriting discounts and commissions related to Registrable Securities, shall be borne by the Company. Registrations effected pursuant to this Section 2.11 shall not be counted as demands for registration or registrations effected pursuant to Sections 2.1.

(d) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 2.11, and the Company shall include such information in the written notice referred to in Section 2.11(a). The provisions of Section 2.1(b) shall be applicable to such request (with the substitution of Section 2.11 for references to Section 2.1).

2.12 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities that (i) is a subsidiary, Affiliate, parent, partner, member, limited partner, retired partner, retired member, or stockholder of a Holder, (ii) is a Holder’s Immediate Family Member or trust for the benefit of an individual Holder, or (iii) after such assignment or transfer, holds at least 500,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations), provided that: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 2.14 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act.

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2.13 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding (not including Founder Securities as Registrable Securities for this purpose), 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 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 such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (b) to demand registration of any securities held by such holder or prospective holder. Notwithstanding anything to the contrary in this Section 2.13, additional purchasers that purchase Series A Preferred Stock or Series B Preferred Stock may become a party to this Agreement in accordance with Section 6.10 below.

2.14 “Market Stand-Off” Agreement. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s IPO and ending on the date specified by the Company and the managing underwriter (such period not to exceed 180 days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right-or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock held immediately prior to the effectiveness of the Registration Statement for such offering, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise. The foregoing provisions of this Section 2.14 shall apply only to the Company’s IPO, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers, directors and greater than 1% stockholders of the. Company enter into similar agreements. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s IPO that are consistent with this Section 2.14 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements. To enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period, and any underwriter of the Offering is an express and intended third party beneficiary only of this Section 2.14 and shall be entitled to enforce the provisions of this Section 2.14 for its benefit as if a party hereto.

2.15 Company Loans. All loans made by the Company to any officer of the Company or any Subsidiary shall become due and payable immediately upon an IPO.

2.16 Termination of Registration Rights. The rights set forth in this Section 2 shall terminate as to any Holder when the Registrable Securities held by such Holder (together with any Affiliate of such Holder with whom such Holder must aggregate its sales under SEC Rule 144) could be sold without restriction under SEC Rule 144(k) within a 90 day period.

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3. Information Rights.

3.1 Delivery of Financial Statements.

(a) The Company shall deliver to each Major Investor:

(i) as soon as practicable after the end of each fiscal year, and in any event within 90 days thereafter, an audited consolidated balance sheet of the Company and its Subsidiaries, if any, as of the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its Subsidiaries, if any, for such year, prepared in accordance with GAAP and certified by the independent public accountants of nationally recognized standing selected by the Company;

(ii) as soon as practicable after the end of each fiscal month and quarter, and in any event within 30 days of the end of each month and 45 days after each quarter, as applicable, an unaudited consolidated balance sheet of the Company and its Subsidiaries, if any, as of the end of such period, and consolidated statements of income and cash flows of the Company and its Subsidiaries, if any, for such periods, prepared in accordance with GAAP (with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made) and all in reasonable detail, including year-to-date figures, comparisons to the Budget (as defined below), the immediately preceding period and the comparable period in the immediately preceding fiscal year;

(iii) as soon as practicable, but in any event within ten days after filing with the applicable insurance regulatory authority, a copy of the statutory financial statements as filed with such authority, including all exhibits, interrogatories, notes, schedules, and any actuarial opinions, affirmations, or certifications or other supporting documents filed in connection therewith, prepared in conformity with statutory accounting practices (“SAP”) prescribed or permitted by the applicable insurance regulatory authority consistently applied for the periods covered thereby and presenting fairly in all material respects the statutory financial position of the Company’s insurance Subsidiaries for the respective periods then ended;

(iv) as soon as practicable, but in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock of the Company and securities convertible into or exercisable for shares of such capital stock outstanding at the end of the period, the number of common shares of the Company issuable upon conversion or exercise of any outstanding securities convertible or exercisable for common shares and the exchange ratio or exercise price applicable thereto, and the number of shares of the Company’s issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail to permit the Major Investors to calculate their percentage equity ownership in the Company and certified by the Chief Financial Officer or Chief Executive Officer of the Company as being true, complete, and correct;

(v) as soon as practicable, but in any event within 60 days prior to the end of each fiscal year, a budget for the next fiscal year (the “Budget”), prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company;

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(vi) with respect to the financial statements called for in Sections 3.1(a)(i), (ii), and (iii), an instrument executed by the Chief Financial Officer and President or Chief Executive Officer of the Company and certifying that such financials were prepared in accordance with GAAP or SAP, as the case may be, consistently applied with prior practice for earlier periods (with the exception of footnote omissions in fmancial statements referenced in Section 3.1(a)(ii) that may be required by GAAP) and fairly present the financial condition of the Company and its consolidated subsidiaries and its results of operation for the periods specified therein, subject to year-end audit adjustments in the case of monthly or quarterly statements;

(vii) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as a Major Investor may from time to time reasonably request, provided, however, that the Company shall not be obligated under this Section 3.1(a)(vii) or any other subsection of this Section 3.1 to (i) provide information that the Company reasonably deems in good faith to be a trade secret or similar confidential information (unless covered by an enforceable confidentiality agreement, in form reasonably acceptable to the Company) or (ii) would adversely affect the attorney-client privilege between the Company and its counsel.

(b) The Company shall deliver to each Investor (including without limitation, an Investor who has ceased to be a Major Investor) other than a Major Investor and the Founder if not a Major Investor:

(ii) as soon as practicable after the end of each fiscal quarter, and in any event within 45 days after each quarter, as applicable, an unaudited consolidated balance sheet of the Company and its Subsidiaries, if any, as of the end of such period, and consolidated statements of income and cash flows of the Company and its Subsidiaries, if any, for such periods, prepared in accordance with GAAP (with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made) and all in reasonable detail, including year-to-date figures and comparisons to the immediately preceding period and the comparable period in the immediately preceding fiscal year.

(c) Notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date 60 days prior to the Company’s good faith estimate of the date of filing of, and ending on a date 180 days after the effective date of the registration effecting the IPO; provided that the Company is actively employing its best efforts to cause such registration statement to become effective.

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3.2 Inspection. The Company shall permit each Major Investor, at such. Major Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records, and to discuss the Company’s affairs, finances, and accounts with its officers, all at such reasonable times as may be reasonably requested by the Major Investor; provided; however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information or would adversely affect the attorney-client privilege between the Company and its counsel.

3.3 Books and Records. The Company shall keep true books of account and records in which full, true, and correct entries will be made of all dealings or transactions in relation to its business and affairs so as to permit the preparation of financial statements in accordance with GAAP.

3.4 Termination of Information and Inspection. The covenants set forth in Sections 3.1 and 3.2 shall terminate as to Investors and be of no further force or effect immediately prior to the consummation of the sale of shares of Common Stock in the Company’s IPO or when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act, whichever event shall first occur.

3.5 Confidentiality. Each Investor will keep confidential and will not disclose, divulge, or use for any purpose, other than to monitor its investment in the Company, any confidential information obtained from the Company pursuant to the terms of this Agreement, unless such confidential information (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.5 by such Investor), (ii) is or has been independently developed or conceived by the Investor without use of the Company’s confidential information or (iii) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that a Investor may disclose confidential information (a) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company, (b) to any prospective purchaser of any Registrable Securities from such Investor as long as such prospective purchaser agrees to be bound by the provisions of this Section 3.5, (c) to any Affiliate, partner, member, stockholder or wholly owned subsidiary of such Investor in the ordinary course of business, or (d) as may otherwise be required by law, provided that, the Investor takes reasonable steps to minimize the extent of any such required disclosure. The Company acknowledges that at least some of the Investors are in the business of venture capital investing and therefore review the business plans and related proprietary information of many enterprises, including enterprises that may have products or services that compete directly or indirectly with those of the Company. Nothing in this Agreement shall preclude or in any way restrict the Investors from investing or participating in any particular enterprise whether or not such enterprise has products or services that compete with those of the Company.

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4. Right of First Offer.

4.1 Company Right of First Offer. Subject to the terms and conditions specified in this Section 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first make an offering of such New Securities to each Major Investor in accordance with the following provisions of this Section 4.1. A Major Investor shall be entitled to apportion the right of first offer hereby granted to it among itself and its partners, members, and Affiliates in such proportions as it deems appropriate subject to any applicable securities laws limitations and subject to such Persons who acquire New Securities becoming a party to this Agreement and the Stockholders’ Agreement.

(a) The Company shall deliver a notice in accordance with the provisions of Section 6.5 hereof (the “Offer Notice”) to each of the Major Investors stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.

(b) By written notification received by the Company, within 20 calendar days after mailing of the Offer Notice, each of the Major Investors may elect to purchase or obtain, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities that equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Preferred Stock (and any other securities convertible into, or otherwise exercisable or exchangeable for, shares of Common Stock) then held, by such Major Investor bears to the total number of shares of Common Stock of the Company issued and held, or issuable upon conversion of the Preferred Stock then held, by all stockholders of the Company. The Company promptly shall inform in writing each Major Investor that elects to purchase all the shares available to it (each, a “Fully-Exercising Investor”) of any other Major Investor’s failure to do likewise. During the 10 day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the New Securities for which Major Investors were entitled to subscribe but for which the Major Investors did not subscribe that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of Preferred Stock then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of the Preferred Stock then held, by all Fully-Exercising Investors who wish to purchase such unsubscribed shares.

(c) If all New Securities referred to in the Offer Notice are not elected to be purchased or obtained as provided in Section 4.1(b) hereof, the Company may, during the 60 day period following the expiration of the period provided in Section 4.1(b) hereof, offer the remaining unsubscribed portion of such New Securities (collectively, the “Refused Securities”) to any Person(s) at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within 30 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Section 4.1.

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(d) The right of first offer in this Section 4.1 shall not be applicable to: (i) up to 315,790 shares of Common Stock issued or deemed issued to employees or directors of, or consultants to, the Company or any of its Subsidiaries pursuant to the Management Incentive Plan of any other plan, agreement, or arrangement approved by the Board of Directors of the Company, including the affirmative vote or consent of at least one IA Director; (ii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities; (iii) securities issued in connection with any stock split or stock dividend of the Company; (iv) the issuance of securities in connection with a bona fide lease line, bank financing, strategic partnership, joint venture, or business acquisition of or by the Company or acquisitions of assets or product lines approved by the Board of Directors, including the affirmative vote or consent at least one IA Director, whether by merger, consolidation, sale of assets, sale or exchange of stock, or otherwise; provided that, in the case of this clause (iv), at the time of any such issuance, the aggregate of such issuance and similar issuances in the preceding 12 month period shall not exceed 2% of the then outstanding Common Stock of the Company (assuming full conversion and exercise of all convertible and exercisable securities); and (v) shares issued in additional closings under the Investor Agreements and approved by the holders of a majority in interest of the Series A Preferred Stock.

(e) In lieu of complying with the provisions of this Section 4.1, the Company may elect to give notice to the Major Investors within 30 days after the issuance of New Securities. The notice shall describe the type, price, and terms of the New Securities. Each Major Investor shall have 20 days from the date of receipt of such notice to elect to purchase up to the number of New Securities that would, if purchased by such Major Investor, maintain that Major Investor’s percentage ownership position, calculated as set forth in Section 4.1(b) prior to giving effect to the issuance of the New Securities. The closing of such sale shall occur within 60 days of the date of notice to the Major Investors.

4.2 Investor Right of First Offer.

(a) Any Investor (“Selling Investor”) who proposes to offer or sell any shares of Preferred Stock (the “Investor Securities”) shall first make an offer to sell such Investor Securities to each Investor who is not a Selling Investor (a “Non-selling Investor”) by delivering a written notice, in accordance with the provisions of Section 6.5 hereof to each of the Non-selling Investors stating (i) its bona fide intention to offer such Investor Securities, (ii) the number of such Investor Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Investor Securities (the “Investor Notice”). Notwithstanding the foregoing, to the extent that the Investor Securities proposed to be sold by a Selling Investor are comprised of shares of Series A Preferred Stock then only those Non-selling Investors’ that are holders of Series A Preferred Stock shall be deemed Non-Selling Investors entitled to the right of first offer provided in this Section 4.2 with respect to any such Investor Securities and such right shall be limited solely to the shares of Series A Preferred Stock owned thereby. For purposes of clarity, in no event shall holders of Series B Preferred Stock be entitled to any right of first offer under this Section 4.2, by virtue of their ownership thereof, to the extent that Investor Securities proposed to be sold by a Selling Investor are comprised of shares of Series A Preferred Stock.

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(b) By written notification received by the Non-selling Investor within 10 calendar days after mailing of the Investor Notice, each Non-selling Investor may elect to purchase or obtain, at the price and on the terms specified in the Investor Notice, up to that portion of Investor Securities that equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Preferred Stock (and any other securities convertible into, or otherwise exercisable or exchangeable for, shares of Common Stock) then held, by such Non-selling Investor bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of the Preferred Stock then held, by all the Investors. The Selling Investor promptly shall inform in writing each Non-selling Investor that elects to purchase all the shares available to it (each, a “Exercising Investor”) of any other Non-selling Investor’s failure to do likewise. During the 10 day period commencing after receipt of such information, each Exercising Investor shall be entitled to obtain that portion of the Investor Securities for which the Non-selling Investors were entitled.to subscribe but for which the Non-selling Investors did not subscribe that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of Preferred Stock then held, by such Exercising Investor bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of the Preferred Stock then held, by all Exercising Investors who wish to purchase such unsubscribed shares (each, a “Re-exercising Investor”). If, after such 10 day period, there remain any Investor Securities for which there are no subscriptions, then each Re-exercising Investor shall be entitled to obtain its pro rata portion of all of such remaining unsubscribed Investor Securities.

(c) If all Investor Securities referred to in the Investor Notice are not elected to be purchased or obtained as provided in Section 4.2(b), the Selling Investor may offer all or any portion of the Investor Securities to any Person(s) at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Investor Notice. If the Selling Investor does not enter into an agreement for the sale of the Investor Securities within 90 days, or if such agreement is not consummated within 30 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Investor Securities shall not be offered unless first reoffered to the Investors in accordance with this Section 4.2.

4.3 Assignment. The rights of first offer set forth in Sections 4.1 and 42 may not be assigned or transferred except that (i) such right is assignable by each Investor to any Affiliate of such Investor or to an Investor’s Immediate Family Member or a trust for the benefit of the Investor or an Immediate Family Member established for estate planning purposes, and (ii) such right is assignable by any Investor to any other Investor or to any transferee of an Investor who (after giving effect to such transfer) holds at least 500,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations).

4.4 Termination. The provisions of this Section 4 shall terminate upon the consummation of the Company’s IPO.

5. Additional Covenants.

5.1 Key-Man Insurance. The Company shall use commercially reasonable efforts to obtain from financially sound and reputable insurers term “key-person” insurance on the Founder, in an amount equal to $2,000,000. The “key person” policy shall name the Company as loss payee and shall not be cancelable by the Company without prior approval of the Board of Directors, including at least one IA Director.

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5.2 Employee Agreements. Unless otherwise approved by the Board of Directors of the Company, including the affirmative vote or consent of at least one IA Director, the Company will cause (i) each person now or hereafter employed by it or any Subsidiary (or engaged by the Company or any Subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a non-disclosure and assignment of developments agreement and (ii) each executive officer and strategic advisor to enter into a non-competition and non-solicitation agreement effective for 12 months following such person’s termination of employment with the Company (24 months with respect to non-solicitation), each substantially in the form approved by the Board of Directors, including the affirmative vote or consent of at least one IA Director. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any above-referenced agreement between the Company and any employee without the consent of the Board of Directors, including the affirmative vote or consent of at least one IA Director.

5.3 Employee Vesting. Unless approved by the Board of Directors of the Company, including the affirmative vote or consent of at least one IA Director, (i) all options or stock granted to employees or consultants shall be at an exercise/purchase price of at least $1 per share and (ii) all employees and consultants of the Company who shall purchase, or receive options to purchase, shares of the Company’s capital stock following the date hereof shall be required to execute stock purchase or option agreements providing for (i) vesting of shares over a four-year period with the first 25% of such shares vesting following 12 months of continued employment or services, and the remaining shares vesting in installments of 2.08% per month thereafter and (ii) a 180-day lockup period in connection with a public offering by the Company. The Company shall retain a “right of first refusal” on employee transfers until the Company’s IPO and the right to repurchase unvested shares at cost.

5.4 Successor Indemnification. If the Company or any of its successors or assigns (i) consolidates with or merges into any other entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person or entity, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately prior to such transaction, whether in the Company’s bylaws, Certificate of Incorporation, or elsewhere, as the case may be.

5.5 Limitation on Issuance of Series B Preferred Stock. The Company shall not issue additional shares of Series B Preferred Stock after the initial purchase of Series A Preferred Stock under the Purchase Agreement except at a purchase price of no less than $1.00 per share, or at a purchase price less than $1.00 per share if such price is approved by the Board of Directors, including at least one IA Director.

5.6 Termination of Covenants. The covenants set forth in this Section 5, except for Section 5.4, shall terminate and be of no further force or effect upon (a) the consummation of the IPO and (b) the Company first becoming subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act, whichever event shall first occur.

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6. Miscellaneous.

6.1 Transfers, Successors, and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

6.2 Governing Law; Consent to Jurisdiction. This Agreement and all matters arising directly and indirectly herefrom, shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to the choice of law principles thereof. Any legal action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or thereby shall only be instituted, heard and adjudicated (excluding appeals) in a state or federal court located in the Southern District of New York, and each party hereto knowingly, voluntarily and intentionally waives any objection which such party may now or hereafter have to the laying of the venue of any such action, suit or proceeding, and irrevocably submits to the exclusive personal jurisdiction of any such court in any such action, suit or proceeding. Service of process in connection with any such action, suit or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement.

6.3 Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document, and all counterparts shall be construed together and shall constitute one instrument. This Agreement may be executed by any party by delivery of a facsimile signature, which signature shall have the same force as an original signature. A facsimile or photocopied signature shall be deemed to be the functional equivalent of an original for all purposes.

6.4 Headings. The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof.

6.5 Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on the signature page or Schedule A hereto, or to such address or facsimile number as subsequently modified by written notice given in accordance with this Section 6.5. All notices to the Company shall be sent to:

Homeowners of America Holding Corporation
5021 Briar Tree Drive
Dallas, Texas 75248

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Attention: Spencer W. Tucker
Fax: 972-267-0315

with a copy (which shall not constitute notice) sent at the same time and by the same means to:

Jones Day
2727 North Harwood Street
Dallas, Texas 75201-1515
Attention: Mark T. Goglia, Esq.
Tel: 214.959.5043
Fax: 214.969.5100

6.6 Costs of Enforcement. If any party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings, the non-prevailing party shall pay all costs and expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys’ fees.

6.7 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities (not including Founder Shares as Registrable Securities for this purpose) then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereunder may not be waived with respect to any holder of Series A Preferred Stock or holder of Series B Preferred Stock or the Common Stock issued upon conversion of such Preferred Stock or the Founder Shares without the written consent of such holder, unless such amendment, termination, or waiver applies to all such holders in the same fashion. The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination, or waiver effected in accordance with this Section 6.7 shall be binding on all parties hereto, even if they do not execute such consent. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition, or provision.

6.8 Severability. The invalidity of unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

6.9 Aggregation of Stock. All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

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6.10 Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Company’s Preferred Stock after the date hereof, any purchaser of such shares shall become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter, shall be deemed an “Investor” for all purposes hereunder.

6.11 Entire Agreement. This Agreement (including the schedules hereto), the Company’s Certificate of Incorporation and bylaws, the Investor Agreements, and the other Related Agreements (as defined in the Purchase Agreement) constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly canceled.

6.12 Transfers of Rights and Obligations.

(a) Except as otherwise expressly contemplated herein, each Investor and the Founder hereby agrees that it will not and may not transfer or assign any of its rights and obligations hereunder, unless such rights and obligations are assigned by such party to (a) any Person to which Registrable Securities are transferred by such party, or (b) to any Affiliate of such party, and, in each case, such transferee shall be deemed an “Investor” or “Founder”, as applicable, for purposes of this Agreement; provided that such assignment of rights shall be contingent upon the transferee providing a written instrument to the Company notifying the Company of such transfer and assignment and agreeing in writing to be bound by the terms of this Agreement.

(b) Notwithstanding the foregoing, the Founder hereby agrees and covenants that the Founder will not and may not transfer or assign any of his rights and obligations hereunder, notwithstanding Section 6.12(a) above, during such time as he remains an employee of the Company or any of its Subsidiaries or has any outstanding loan repayment obligation to the Company, other than transfers to Immediate Family Members or a trust for estate planning purposes.

(c) The Founder further agrees that each of the Investors and their respective successors and assigns that are permitted in accordance with this Agreement are intended to be and shall be third party beneficiaries with respect to the transfer restrictions contained in the Founder Stock Agreement.

6.13 Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

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6.14 Investor Proceedings Against the Company. If any Investor or group of Investors commences any claim, action, suit, or other proceeding against the Company (“Investor Action”) and obtains a monetary judgment against the Company (“Investor Award”), each Investor agrees that any funds received in connection with such Investor Award shall be paid to the Investors in accordance with their liquidation preferences as set forth in the Company’s Certificate of Incorporation without regard to whether an Investor was a party to the Investor Action. Any Investor that receives funds as a result of an Investor Award who is not entitled to retain any or all of such funds pursuant to the preceding sentence shall pay over such funds to the Investor holding the greatest number of shares of capital stock of the Company with the most senior liquidation preference, and such Investor shall redistribute any such funds to other Investors, if required to give effect to the first sentence of this Section 6.14. Notwithstanding the foregoing, this Section 6.14 shall not apply to any Investor Action arising out of a commercial relationship between an Investor and the Company unrelated to such Investor’s status as an Investor.

[Remainder of Page Intentionally Left Blank]

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

	COMPANY:

	HOMEOWNERS OF AMERICA HOLDING CORPORATION

	By:
	Name: Spencer W. Tucker
	Title: Chief Executive Officer

	SERIES A INVESTORS:
	INTER-ATLANTIC FUND, L.P.

	By:	Inter-Atlantic Advisors, Ltd.,
		its general partner

	By:
	Name:
	Title:

	SEQUEL HOMEOWNERS INVESTMENT, L.P.

	By:	Sequel Holdings, L.P.,
		its general partner
	By:	Sequel Industries, Inc.,
		its general partner

	FOUNDER:


	Spencer W. Tucker, individually

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	SERIES B INVESTORS:


	James E. Ard, Jr.


	Richard P. Backus


	Luther Hartwell Hodges, Jr.


	Alvin M. Johnston


	Sean Lee Pitcher


	Ray C. Robbins Revocable Trust dated 2/18/75


	Name:
	Title:

[SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT]

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SCHEDULE A-1

SCHEDULE OF SERIES A INVESTORS

Name, Address, Facsimile Number, and E-mail

Inter-Atlantic Fund, L.P.
do Inter-Atlantic Advisors, Ltd.
400 Madison Avenue
New York, New York 10017
Attn: Brett G. Buis
Tel: 212.581.2188
Fax: 212.581.2433
E-mail: brett@interatlanticgroup.com

Sequel Homeowners Investment, L.P.
8080 N. Central Expressway
Suite 1490
Dallas, Texas 75206
Attn: John Madden
Tel: 214.292.4150
Fax: 214.292.4155
Email: jmadden@sequelholdings.com

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SCHEDULE A-2

SCHEDULE OF SERIES B INVESTORS

Name, Address, Facsimile Number, and E-mail

James E. Ard
5200 Keller Springs Rd., No. 822
Dallas, TX 75248
Tel: 972.581.4988
Fax: 972.581.4989
jard@bellgroup.com

Richard P. Backus
5200 Keller Springs Rd., No. 226
Dallas, TX 75248
Tel. 972.726.0091
esopbiz@usa.net

Luther Hartwell Hodges, Jr.
20114 Scott
Chapel Hill, NC 22517
Tel: 919.942.4180
Fax: 919.668.1850
lhhodges@bellsouth.net

Alvin M. Johnston
6355 David Rd.
Fort Worth, TX 76140
Tel: 817.483.6257
Fax: 972.308.8568
amjohnston@direcway.com

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EX-4.5 8 v347100_ex4-5.htm EXHIBIT 4.5

STOCK RESTRICTION AGREEMENT

This Stock Restriction-Agreement (this “Agreement”) is made as of November 11, 2005, by and between Homeowners of America Holding Corporation, a Delaware corporation (the “Company”), an individual residing at 5021 Briartree Dr., Dallas, TX 75248 (the “Founder”)

WHEREAS, the Founder currently owns 800,000 shares (the “Founder Shares”) of the Company’s common stock, par value $0.0001 per share (the “Common Stock”);

WHEREAS, simultaneously herewith the Company and the Founder are entering into an Employment Agreement regarding the Founder’s continued employment with the Company (the “Employment Agreement”);

WHEREAS, Inter-Atlantic Fund, L.P. and Sequel Homeowners Investment, L.P. (the “Investors”) are acquiring in the aggregate 4,500,000 shares of the Company’s Series A Preferred Stock, par value $0.00001 per share (the “Series A Preferred Stock”) pursuant to the Securities Purchase Agreement dated as of the date hereof, by and among the Investors, the Company and certain other investor signatories thereto (the “Purchase Agreement”); and

WHEREAS, the execution and delivery of this Agreement is a condition to the closing of the issuance, sale and purchase of the Series A Preferred Stock pursuant to the Purchase Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Founder agree as follows:

Section 1. Unvested Shares.

(a) Vesting. All of the Founder Shares shall initially be unvested (the “Unvested Shares”) and subject to a right of repurchase by the Company as set forth in Section 2 below (the “Repurchase Right”), such that (i) twenty-five percent (25%) of the Unvested Shares shall vest upon Closing (as defined in the Purchase Agreement), (ii) twenty-five percent (25%) of the Unvested Shares shall vest upon the first anniversary of the Closing; and (iii) 2.08% of the Unvested Shares_ shall vest monthly thereafter. Vesting of the Unvested Shares will accelerate in the event of (i) a Change in Control (as defined below); or (ii) a Qualified Public Offering (as defined below) such that upon any Change in Control or Qualified Public Offering all remaining Unvested Shares shall vest in the Founder and no longer be subject to the Repurchase Right.

(b) Change in Control. For purposes of this Agreement, the term “Change in Control” shall mean any of the following transactions: (i) any person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than the Company, any employee benefit plan of the Company or any entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) becomes the beneficial owner or owners (as defined in Rule 13d-3 and 13d-5 promulgated under the Exchange Act), directly or indirectly, of more than fifty percent (50%) of the outstanding Common Stock of the Company, or otherwise becomes entitled to vote more than fifty percent (50%) of the voting power entitled to be cast at elections for directors (“Voting Power”) of the Company; (ii) a consolidation or merger of the Company pursuant to which the holders of the Company’s voting shares immediately prior to such merger or consolidation would not be the holders, directly or indirectly, immediately after such merger or consolidation of more than fifty percent (50%) of the Voting Power of the entity surviving such transaction; (iii) the sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (iv) the liquidation or dissolution of the Company or the Company ceasing to do business.

(c) Qualified Public Offering. For purposes of this Agreement, the term “Qualified Public Offering” shall mean a firm commitment underwritten public offering registered under the Securities Act covering the offer and sale by the Company of its Common Stock (a) in which (i) the aggregate proceeds to the Company equal or exceed $50,000,000, net of underwriting discounts, commissions, and fees, and (ii) the price per share of such Common Stock equals or exceeds $5.00 (subject to appropriate adjustment in the event of any stock dividend, stock split, reclassification, combination or other similar recapitalization affecting such shares), and (b) that results in the securities so offered being listed on a national securities exchange or quoted on the NASDAQ National Market.

Section 2. The Company’s Repurchase Right.

(a) Triggering Events. Upon the termination of the Founder’s employment with the Company (whether such employment is terminated by the Founder or the Company, and for any reason or no reason) the Company shall have the right to repurchase up to all of the Unvested Shares at the lower of (i) initial cost of such Unvested Shares to the Founder; or (ii) the book value thereof. In the event of a voluntary termination by the Founder without Good Reason (as defined in the Employment Agreement) prior to the third (3rd) anniversary of the Closing, the Company shall have the right to repurchase up to all of the vested Founder Shares at the lower of (i) initial cost of such vested Founder. Shares; or (ii) the book value thereof. In the event of termination of the Founder’s employment with the Company Without Cause (as defined in the Employment Agreement) by the Company or for Good Reason (as defined in the Employment Agreement) by the Founder or due to the Founder’s death or disability, the Company may repurchase up to all of the vested Founder Shares from the Founder or the Founder’s personal representative(s), estate, heir(s) or legatee (the “Founder’s Representative”), as the case may be, at Fair Market Value (as defined below). The Company’s repurchase right as set forth in this Section 2 shall expire with regard to the Founder Shares first offered to the Company and subsequently sold to a non-affiliate of the Founder in accordance with Section 4 of the Founder’s Stock Purchase Agreement by and between the Company and the Founder dated as of April 27, 2005 (the “Founder’s Stock Purchase Agreement”).

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(b) Fair Market Value. For purposes of this Section 2, the “Fair Market Value” of any Founder Shares shall be the fair market value thereof (on a per share basis) at the time that the Company’s Repurchase Right is triggered pursuant to Section 2(a) hereof as determined in good faith by the Board of Directors of the. Company, provided that such fair market value must approximate the price that a willing buyer and a willing seller would arrive at in an arms-length transaction. If the Founder or the Founder’s Representative disagrees with the valuation as determined by the Board of Directors, each of the Purchaser or the Purchaser’s Representative, on the one hand, and the Board of Directors, on the other hand, shall cause an appraiser to determine the Fair Market Value on a basis consistent with the terms hereof within twenty (20) days. The cost of both appraisers shall be borne by the Company. In the event that the determination by each appraiser differs by less than ten percent (10%) from the determination by the other appraiser, the Fair Market Value shall be the average of the two. In the event that the determination by either appraiser differs by ten percent (10%) or more from the determination of the other appraiser, then the two appraisers shall select a third appraiser within five (5) days, the fees and expenses of which third appraiser shall be shared equally by the parties. The third appraiser shall, within ten (10) days of its selection, designate which of the two determinations most accurately reflects the Fair Market Value or designate a Fair Market Value between the two determinations which the third appraiser determines most accurately reflects the Fair Market Value. The determination made in accordance with the foregoing shall be final and binding on all parties hereto.

(c) Additional Shares. If the Company shall pay a stock dividend or declare a stock split on or with respect to any of its Common Stock, or otherwise distribute securities of the Company to the holders of its Common Stock, the number of shares of stock or other securities of the Company issued with respect to the Vested Shares shall be deemed “Vested Shares” herein. If the Company shall distribute to its stockholders securities of another corporation, the securities of such other corporation, distributed with respect to the Vested Shares shall be deemed “Vested Shares” herein. If the outstanding shares of the Company’s Common Stock shall be subdivided into a greater number of shares or combined into a smaller number of shares, or in the event of a reclassification of outstanding shares of the Company’s Common Stock, or if the Company shall be a party to a merger, consolidation or capital reorganization, there shall be substituted for the Vested Shares of the Common Stock then subject to this Agreement such amount and kind-of securities as are issued in such subdivision, combination, reclassification, merger, consolidation or capital reorganization in respect of the Vested Shares subject to this Agreement immediately prior thereto .

(d) Notice and Closing. The Company may exercise its. Repurchase Right by sending Founder written notice, within fifteen days (15) days after’any triggering event set forth in Section 2(a), specifying the number of Founder Shares the Company elects to repurchase pursuant to the Repurchase Right and a date for the closing, which date shall be as soon as practicable but no later than forty-five (45) days after the date of such notice. The closing shall take place at the principal office of the Company or at such other location as the Company and the Founder shall agree. At the closing, Founder shall transfer to the Company the number of Founder Shares specified in the Company’s notice, free of all liens, encumbrances and rights of others, by delivery of certificates representing such number of Founder Shares, duly endorsed for transfer or accompanied by duly executed stock powers. Concurrent with such transfer and its receipt of such certificates so endorsed and subject to Section 3 below, the Company shall pay for such Founder Shares by any of the following methods: (i) by delivery to Founder of a check in the amount of the aggregate purchase price for such Founder Shares, (ii) by cancellation of indebtedness of Founder to the Company in such amount, (iii) by wire transfer of immediately available funds to one or more accounts designated by Founder, or (iv) by any combination of the above methods. The method or methods of payment for such Founders Shares shall be chosen by the Company in its sole discretion.

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(e) No Further Obligations. Upon delivery by the Company of notice of exercise of the Repurchase Right, the Company’s sole obligation with respect to the Founders Shares as to which the Repurchase Right is being exercised shall be to make payment of the purchase price therefor. The Company shall not be required after delivery of such notice to treat the Founder as owner of such Founders Shares, to accord the right to vote to the Founder with respect thereto or to pay dividends thereon and the Founder shall have no rights with respect thereto other than to receive such payment of the repurchase price therefor.

Section 3. Company’s Right to Defer Payments. Notwithstanding anything herein to the contrary, no payment shall be made under this Agreement that would cause the Company to violate any banking agreement or loan or other financial covenant or cause default of any indebtedness of the Company, regardless of when such agreement, covenant, or indebtedness was created, incurred, or assumed. Any payment under this Agreement that would cause such violation or default shall be deferred until, in the sole discretion of the Board of Directors of the Company, such payment shall no longer cause any such violation or default. Any payment deferred in consequence of the provisions of the preceding sentence shall bear simple interest from the date such payment otherwise would have been made to the date when such payment actually is made, at a rate that is equal to the prime rate of interest published in the Eastern Edition of the Wall Street Journal from time to time during the period of such deferral, but in no event shall such rate of interest exceed eight percent (8%) per annum. The Company shall pay interest at the same time as it makes the payment to which such interest relates.

Section 4. Restrictive Legend. All certificates representing Founder Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under federal or state securities laws:

THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION TO PURCHASE SET FORTH IN A CERTAIN STOCK RESTRICTION AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED OWNER OF THIS CERTIFICATE (OR HIS PREDECESSOR IN INTEREST), AND NO TRANSFER OF SUCH SHARES MAY BE MADE WITHOUT COMPLIANCE WITH THAT AGREEMENT. A COPY OF THAT AGREEMENT IS AVAILABLE FOR INSPECTION AT THE OFFICE OF THE COMPANY UPON APPROPRIATE REQUEST AND WITHOUT CHARGE.

Section 5. Withholding Taxes. Founder acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to Founder any federal, state, or local taxes of any kind required by law to be withheld with respect to the issuance of the Founder Shares.

Section 6. Invalidity or Unenforceability. It is the intention of the Company and Founder that this Agreement shall be enforceable to the fullest extent allowed by law. In the event that a court having jurisdiction holds any provision of this Agreement to be invalid or unenforceable, in whole or in part, the Company and Founder agree that, if allowed by law, that provision shall be reduced only to the degree necessary to render it valid and enforceable without affecting the rest of this Agreement, which shall be enforced to the fullest extent permitted by law.

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Section 7. Waiver. No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

Section 8. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and Founder and their respective heirs, executors, administrators, legal representatives, successors, and permitted assigns, subject to the terms, conditions and restrictions on transfer set forth in this Agreement. The Company may assign its rights under this Agreement to a third party, provided such assignee agrees to be bound by all of the Company’s obligations under this Agreement.

Section 9. No Rights To Employment. Nothing contained in this Agreement shall be construed as giving Founder any right to be retained, in any position, as an employee or consultant of the Company for .any period of time or to restrict the Company’s right to terminate his employment or consulting relationship at any time with or without cause or notice.

Section 10. Notices. Any notices required or permitted by the terms of this Agreement shall be in writing and given by nationally recognized courier service, or by registered or certified mail, return receipt requested, postage prepaid, or by facsimile, addressed as follows:

If to the Company:	Homeowners of America Corporation
	5021 Briar Tree Drive
	Dallas, Texas 75248
	Attention: ________________

and a copy (which shall not be deemed effective notice) to

	Lowenstein Sandler PC
	65 Livingston Avenue
	Roseland, New Jersey 07068
	Attention:Anthony O. Pergola
	Fax No. (973) 597-2500

If to Founder:	Mr. Spencer W. Tucker
	5021 Briar Tree Drive
	Dallas, Texas 75248
	Fax No.

or to such other address of which notice in the same manner has previously been given. Any such notice shall be deemed to have been given on the earliest of receipt, one (1) business day following delivery by the sender to a nationally recognized courier service, or five (5) business days following mailing by registered or certified mail.

Section 11. Entire Agreement. This Agreement, together with the Founder’s Stock Purchase Agreement and the Employment Agreement, constitute the entire agreement between the parties, and supersedes all prior agreements and understandings, written or oral, relating to the subject matter of this Agreement.

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Section 12. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and Founder.

Section 13. Governing Law. All matters arising directly or indirectly from this Agreement, in whatever form, including, without limitation, tort claims, shall be construed and enforced in accordance with the laws of the State of Texas without giving effect to the conflict of law principles thereof.

Section 14. Consent of Spouse. If Founder is married as of the date of this Agreement, Founder’s spouse shall execute a Consent of Spouse in the form of Exhibit A hereto (the “Consent of Spouse”), effective as of the date hereof. Such consent shall not be deemed to confer or convey to the spouse any rights in the Founder Shares that do not otherwise exist by operation of law or the agreement of the parties. If Founder marries or remarries subsequent to the date hereof, Founder shall, not later than sixty (60) days thereafter, obtain his new spouse’s acknowledgment of and consent to the existence and binding effect of all restrictions contained in this Agreement by such spouse’s executing and delivering the Consent of Spouse.

Section 15. Counterparts. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Section 16. Acknowledgement. FOUNDER ACKNOWLEDGES THAT HE IS AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN THE AGREEMENT ARE COMPLEX AND THAT HE IS FREE TO SEEK INDEPENDENT PROFESSIONAL GUIDANCE OR COUNSEL WITH RESPECT TO THIS AGREEMENT, AND THAT HE HAS EITHER SOUGHT SUCH GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT CAREFULLY THAT HE WILL WAIVE SUCH RIGHT.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.


	Spencer W. Tucker

	HOMEOWNERS OF AMERICA
	HOLDING CORPORATION


	Name:
	Title:

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ANNEX A

Sale of Common Stock

RESOLVED, that subject to prior compliance with federal and state securities laws (the “Securities Laws”), the proper officers of the Company be, and each of them hereby is, authorized, for and on behalf of the Company, to sell an aggregate of 200,000 shares of its common stock, par value $0.0001 per share (“Common Stock”), to the following persons (each, a “Purchaser,” and collectively, the “Purchasers”):

Name	Number of Shares

Richard P. Backus		100,000

Alvin M. Johnston		100,000

and further;

RESOLVED, that the sale and issuance of Common Stock to the Purchasers was for consideration equal to $0.0001 per share pursuant to a Stock Purchase Agreement (the “Purchase Agreement”) in substantially the form attached hereto as Exhibit A; and further

RESOLVED, that the sale and issuance of Common Stock to each of the Purchasers shall be conditioned upon the receipt by the Company from each Purchaser of the purchase price of $0.0001 per share and the execution by the Purchaser and the Company of the Purchase Agreement; and further

RESOLVED, that upon the issuance and sale in accordance with the foregoing resolutions, such shares of Common Stock shall be fully paid and nonassessable shares of the Company; and further

RESOLVED, that the appropriate officers of the Company be, and each of them hereby is, authorized, for and on behalf of the Company, (a) to take all actions necessary to comply with the Securities Laws with respect to the above-described issuance of shares, (b) to thereafter issue on behalf of this Company pursuant to the authorization above, the shares of Common Stock described above, and (c) to take such other action as they may deem necessary or appropriate to carry out the issuance of the shares and the intent of these resolutions; and further

RESOLVED, that, in accordance with each Purchase Agreement, the Common Stock to be sold to the Purchasers shall be subject to repurchase by the Company, at the original exercise price paid per share, upon the Purchasers cessation of service prior to vesting in those shares. So long (and only for so long) as the Purchaser remains continuously employed by the Company or any subsidiary or parent of the Company, such repurchase right shall lapse with respect to the shares, and each Purchaser shall vest in his shares, as follows: (a) 25% of the shares on the Qualified Financing Closing Date (as defined in the Purchase Agreement); (b) 25% of the balance of the shares upon the first anniversary of the Qualified Financing Closing Date; and (c) 2.0833% of the balance of the shares upon the expiration of each full month elapsed after the first anniversary of the Qualified Financing Closing Date; and further

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RESOLVED, that the shares purchased under each Purchase Agreement shall be subject to the Company’s right of first refusal, exercisable in the event the Purchaser should decide to sell or otherwise transfer any of the shares purchased under such Purchase Agreement prior to the initial public offering of the Common Stock; and further

RESOLVED, that the terms pursuant to which the shares purchased under the Purchase Agreement may be repurchased by the Company under the repurchase and first refusal rights specified above shall be substantially as set forth in the Purchase Agreement.

Miscellaneous

RESOLVED, that all prior lawful acts taken or caused to be taken by or on behalf of the Company by its officers and authorized agents, including, but not limited to, any and all acts taken or caused to be taken in connection with the forgoing resolutions, and the negotiation and preparation of documents and actions ancillary thereto are hereby ratified, approved and confirmed in all respects and adopted as the acts of the Company; and further

RESOLVED, that the officers of the Company be, and each such officer hereby is, authorized and empowered, for and on behalf of the Company, to prepare and deliver or cause to be prepared and delivered and to execute all documents and take or cause to be taken such further actions as they may deem necessary, appropriate or advisable to fully effectuate the intent of the foregoing recitals and resolutions and to comply with the provisions of any of the documents or instruments approved or authorized hereby.

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EX-10.1 9 v347100_ex10-1.htm EXHIBIT 10.1

HOMEOWNERS OF AMERICA HOLDING CORPORATION

2005 MANAGEMENT INCENTIVE PLAN

Homeowners of America Holding Corporation, a Delaware corporation (the “Company”), hereby establishes the Homeowners of America Holding Corporation 2005 Management Incentive Plan (the “Plan”), effective as of November 8, 2005, subject to stockholder approval.

1. Purpose. The purpose of the Plan is to enable the Company to obtain and retain the services of selected persons considered essential to the long-range success of the Company by providing and offering them an opportunity to become owners of the Common Stock of the Company through stock options, including options intended to qualify as “incentive stock options” under Section 422 of the Code.

2. Definitions. In addition to terms elsewhere defined in the Plan, the following terms will have the following meanings when used with initial capital letters:

(a) “Board”: the Board of Directors of the Company.

(b) “Certificate”: the Amended and Restated Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware, and as further amended from time to time.

(d) “Committee”: the Compensation Committee of the Board and, to the extent the administration of the Plan has been assumed by the Board pursuant to Paragraph 10, the Board.

(e) “Common Stock”: the common stock, par value $.0001 per share, of the Company.

(f) “Date of Grant”: the date specified by the Committee on which a grant of Stock Options will become effective..

(g) “Incentive Stock Option”: a Stock Option that is intended to qualify as an “incentive stock option” under Section 422 of the Code.

(h) “Management Objectives”: the measurable performance objectives, if any, established by the Committee for a Performance Period that are to be achieved with respect to a Stock Option granted to a Participant under the Plan. Management Objectives may be described in terms of Company-wide objectives or in terms of objectives that are related to performance of a division, Subsidiary, department or function within the Company or a Subsidiary in which the Participant receiving the Stock Option is employed or on which the Participant’s efforts have the most influence. The achievement of the Management Objectives established by the Committee for any Performance Period will, unless determined otherwise by the Committee, be determined without regard to the effect on such Management Objectives of any acquisition or disposition by the Company of a trade or business, or of substantially all of the assets of a trade or business, during the Performance Period and without regard to any change in accounting standards by the Financial Accounting Standards Board or any successor entity. The Management Objectives established by the Committee for any Performance Period under the Plan may consist of one or more of the following:

(i) gross profits and/or growth in gross profits in relation to target objectives;

(ii) pre-tax profit and revenue and/or growth in pre-tax profit and revenue in relation to target objectives;

(iii) earnings per share and/or growth in earnings per share in relation to target objectives, excluding the effect of extraordinary or nonrecurring items;

(iv) operating cash flow and/or growth in operating cash flow in relation to target objectives;

(v) net income and/or growth in net income in relation to target objectives, excluding the effect of extraordinary or nonrecurring items;

(vi) revenue and/or growth in revenue in relation to target objectives;

(vii) total stockholder return (measured as the total of the appreciation of and dividends declared on the Common Stock) in relation to target objectives;

(viii) return on invested capital in relation to target objectives;

(ix) return on stockholder equity in relation to target objectives; or

(x) return on assets in relation to target objectives.

If the Committee determines that, as a result of a change in the business, operations, corporate structure or capital structure of the. Company, or the manner in which the Company conducts its business, or any other events or circumstances, the Management Objectives are no longer suitable, the Committee may in its discretion modify such Management Objectives or the related minimum acceptable level of achievement, in whole or in part, with respect to a Performance Period as the Committee deems appropriate and equitable, except where such action would result in the loss of the otherwise available exemption of the Stock Option under Section 162(m) of the Code. In such case, the Committee will not make any modification of the Management Objectives or minimum acceptable level of achievement, in each such case to the extent it would cause such a result.

(i) “Market Value Per Share”: at any date, (i) the volume weighted average sales price (regular way) of the Common Stock on the principal exchange on which shares of Common Stock are then trading, if any, on that date, or, if shares were not traded on that date, then on the next preceding trading day during which a sale occurred; or (ii) if such Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, (A) the volume weighted average sales price (regular way) (if the Common Stock is then listed as a National Market Issue under the NASDAQ National Market System) or (B) the mean between the closing representative bid and asked prices (in all cases) for the Common Stock on that date as reported by NASDAQ or such successor trading system; or (iii) if the Common Stock is not traded in any market or quoted on NASDAQ, the fair market value of a share of Common Stock established by the Board.

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(j) “Option Price”: the purchase price per share payable on exercise of a Stock Option.

(k) “Participant”: a person who is selected by the Committee to receive benefits under the Plan and who is at that time an executive officer, a non-employee member of the Board or the board of directors of any Subsidiary, a consultant or other independent advisor who provides services to the Company (or any Subsidiary) or a key employee of the Company or any Subsidiary.

(l) “Performance Period”: a period of time within which the Management Objectives relating to a Stock Option are to be measured. The Performance Period will be established by the Committee at the time the Stock Option is granted.

(m) “Qualified Public Offering”: a firm commitment underwritten public offering registered under the Securities Act covering the offer and sale by the Company of its Common Stock (a) in which (i) the aggregate proceeds to the Company equal or exceed $50,000,000, net of underwriting discounts, commissions, and fees, and (ii) the price per share of such Common Stock equals or exceeds $5.00, and (b) that results in the securities so offered being listed on a national securities exchange or quoted on the NASDAQ.

(n) “Rule 16b-3”: Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934, as amended (or any successor rule to the same effect), as in effect from time to time.

(o) “Securities Act”: the Securities Act of 1933, as amended.

(p) “Stock Purchase Agreement”: the Stock Purchase Agreement, dated as of November 11, 2005, by and among the Company, Spencer W. Tucker, and the entities listed on Schedule A thereto.

(q) “Stockholders’ Agreement”: that certain Stockholders’ Agreement dated as of November 11, 2005, by and among the Company, the investors listed on Schedule A thereto, and the holders of the Common Stock listed on Schedule B thereto, as amended and in effect from time to time.

(r) “Stock Option”: the right to purchase one or more shares of Common Stock upon exercise of an option granted pursuant to Paragraph 4.

(s) “Subsidiary”: means (i) any corporation, of which a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote generally in the election of directors thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more of the other Subsidiaries of the Company or a combination thereof or (ii) any limited liability company, partnership, association or other business entity, of which a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more Subsidiaries of the Company or a combination thereof. For purposes of this definition, the Company will be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if the Company will be allocated a majority of limited liability company, partnership, association or other business entity gains or losses, or is or controls the managing member or general partner of such limited liability company, partnership, association or other business entity.

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3. Shares Available Under Plan. Subject to adjustment as provided in Paragraph 7, the shares of Common Stock that may be issued or transferred and covered by outstanding Stock Options granted under the Plan (including Incentive Stock Options) will not exceed in the aggregate 315,790 shares. Such shares may be shares of original issuance or treasury shares or a combination of the foregoing. Any shares of Common Stock that are subject to Stock Options that expire or are canceled without having been fully exercised will again be available for issuance under the Plan. Upon payment by the Company in cash of the benefit provided by any Stock Option granted under the Plan, any shares that were covered by that Stock Option will again be available for issuance or transfer under the Plan.

4. Stock Options for Participants. The Committee may from time to time authorize grants to any Participant of Stock Options to purchase shares of Common Stock upon such terms and conditions as it may determine in accordance with this Paragraph 4. Each grant of Stock Options may utilize any or all of the authorizations, and will be subject to all of the requirements, contained in the following provisions:

(a) Each grant will be evidenced by a written award agreement, which will be executed on behalf of the Company by an authorized officer of the Company and which will contain such terms and conditions as determined by the Committee, consistent with the Plan.

(b) Each grant will specify the number of shares of Common Stock to which it pertains.

(c) Each grant will specify the Option Price, which will not be less than 100% of the Market Value Per Share on the Date of Grant.

(d) Each grant will specify whether the Option Price will be payable (i) in cash or by check acceptable to the Company, (ii) by the actual or constructive transfer to the Company Of shares of Common Stock owned by the Participant for at least six months (or, with the consent of the Committee, for less than six months) having an aggregate Market Value Per Share at the date of exercise equal to the aggregate Option Price, (iii) with the consent of the Committee, by authorizing the Company to withhold a number of shares of Common Stock otherwise issuable to the Participant having an aggregate Market Value Per Share on the date of exercise equal to the aggregate Option Price, or (iv) by a combination of such methods of payment; provided that the payment methods described in clauses (ii), (iii) and (iv) will not be available at any time that the Company is prohibited from purchasing or acquiring such shares of Common Stock.

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(e) Any grant may provide for deferred payment of the Option Price from the proceeds of sale through a bank or broker of some or all of the shares to which such exercise relates.

(f) Successive grants may be made to the same. Participant whether or not any Stock Options previously granted to such Participant remain unexercised.

(g) Each grant will specify the required period or periods of continuous service by the Participant with the Company or any Subsidiary that are necessary before the Stock Options or installments thereof will become exercisable, and may include such other conditions as the Committee deems appropriate.

(h) Any grant may specify the Management Objectives, if any, that must be achieved as a condition to the exercise of the Stock Options.

(i) Any grant may provide for the earlier exercise of the Stock Options in the event of a change in control of the Company or other similar transaction or event.

(j) Stock Options granted under this Paragraph 4 may be Incentive Stock Options, options that are not intended to be Incentive Stock Options, or combinations of the foregoing. Incentive Stock Options may be granted only to individuals who are employees of the Company _or a Subsidiary. The aggregate number of shares of Common Stock issued or transferred by the Company upon the exercise of Incentive Stock Options will not exceed 315,790 shares.

(k) Any grant may provide for the payment to the Participant of dividend equivalents thereon in cash or Common Stock on a current, deferred or contingent basis.

(l) No Stock Option will be exercisable more than 10 years from the Date of Grant.

(m) If a Participant terminates employment by reason of permanent disability (as determined by the Committee) or death, the vested portion of the Participant’s Stock Options may be exercised for a period of 180 days after the date of termination of employment and to the extent not previously exercised will expire on the first anniversary of the date the Participant terminates employment. The nonvested portion of the Participant’s Stock Options will be forfeited upon the Participant’s termination of employment.

(n) If the employment of a Participant is terminated for other than cause, as determined-by the Committee in its sole discretion, the vested portion of the Participant’s Stock Options may be exercised for a period of 90 days after the date of termination of employment and to the extent not previously exercised will expire 90 after the date of the termination of employment. The nonvested portion of the Participant’s Stock Options will be forfeited upon the Participant’s termination of employment.

(o) If a Participant terminates employment other than as set forth in Paragraphs 4(m) and 4(n), the Participant’s Stock Options will expire immediately and all nexercised Stock Options will be forfeited on the date of the Participant’s termination of employment.

(p) For purposes of any provision in the Plan or a stock option agreement relating to the effect on a Stock Option of a Participant’s ceasing to perform services for the Company or any Subsidiary, a termination of employment or other separation from service will occur when the Participant permanently ceases to perform services for the Company and all Subsidiaries or when the entity for which the Participant is performing services ceases to be a Subsidiary, unless the Participant immediately becomes employed by the Company or another Subsidiary.

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5. Transferability.

(a) Except as otherwise provided in the Stockholders’ Agreement or the agreement evidencing a Participant’s award of Stock Options, (i) no Stock Option will be transferable by the Participant other than by will or the laws of descent and distribution, and then only in accordance with the Stockholders’ Agreement, and (ii) no Stock Option granted to the Participant will be exercisable during the Participant’s lifetime by any person other than the Participant, or such person’s guardian or legal representative.

(b) All of the Stock Options issued under the Plan and all shares of Common Stock issued pursuant to the exercise of a Stock Option will be subject to the terms and restrictions of (including restrictions on transfer), and entitled to the benefits under, the Stockholders’ Agreement, and the Participant will as a condition to the effectiveness of a grant of Stock Options under the Plan, execute and deliver to the Company documentation necessary for the Participant to become a party to the Stockholders’ Agreement. In the event of a conflict between the terms of the Plan and the Stockholders’ Agreement, the terms of the Stockholders’ Agreement will govern.

6. Company’s Repurchase Right.

(a) Subject to the terms of this Paragraph 6 and the Stockholders’ Agreement, upon the occurrence of any Repurchase Event (as defined herein) the Company will have the right to repurchase all or any vested and unexercised Stock Options and all or any portion of the shares. of Common Stock issued to such Participant upon the exercise of a Stock Option (the “Option Shares”). The repurchase right may be exercised by the Company at any time following the date of a Repurchase Event by giving the holder of the Stock Options and the Option Shares written notice of its intention to exercise such right. Unless otherwise provided in the Stockholders’ Agreement, the purchase price for each Stock Option will be the Market Value Per Share less the exercise price of the relevant Stock Option, and the purchase price per Option Share will be the Market Value Per Share on the date of such notice.

(b) Within 30 days following the date of delivery by the Company of a written notice of its election to exercise its repurchase right pursuant to this Paragraph 6, the Company will pay to the Participant or other holder of the Stock Options or Option Shares the full amount of the purchase price in cash, and the Participant or holder will deliver to the Company the evidence of the award of the Stock Option or the stock certificate or certificates representing the Option Shares being purchased, in each case duly endorsed and free and clear of any and all liens, charges and encumbrances.

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(c) For purposes of the Plan, “Repurchase Event” means (i) the termination of the Participant’s employment with the Company and its Subsidiaries for any reason whatsoever, regardless of the circumstances thereof, and including without limitation death, disability, retirement, discharge or resignation for any reason, whether voluntary or involuntary; (ii) the filing of a voluntary petition under any bankruptcy or insolvency law, or a petition for the appointment of a receiver or the making of an assignment for the benefit of creditors, with respect to the Participant or other holder of the Stock Options or Option Shares; (iii) the Participant or other holder of Stock Options or Option Shares being subjected involuntarily to a petition or assignment or to an attachment or other legal or equitable interest with respect to his or her assets, which involuntary petition or assignment or attachment is not discharged within 60 days after its date; or (iv) the Participant or other holder of the Stock Options or Option Shares being subject to a transfer by operation of law.

(d) If any change in the Common Stock of the Company occurs as a result of any transaction or event described in Paragraph 7, the restrictions contained in this Paragraph 6 will apply with equal force to additional and/or substitute securities, if any, received by the Participant in exchange for, or by virtue of his or her ownership of, Stock Options or Option Shares.

(e) If the Participant or holder fails or refuses to deliver on a timely basis duly endorsed awards evidencing Stock Options or certificates representing Option Shares purchased by the Company pursuant to this Paragraph 6, the Company will have the right to deposit the purchase price for such Stock Options and Option Shares in a special account with any bank or trust company, giving notice of such deposit to the Participant or holder, whereupon (i) such Stock Options and Option Shares will be deemed to have been purchased by the Company and (ii) the Company shall make an appropriate notation on its books and records reflecting such repurchase and may place stop-transfer or similar instructions with respect to such Stock Options and Option Shares with any transfer agent for the Common Stock. All such monies will be held by the bank or trust company for the benefit of the Participant or holder. All monies deposited with the bank or trust company but remaining unclaimed for two years after the date of deposit will be repaid by the bank or trust company to the Company on demand and become general funds of the Company, and the Participant or holder will thereafter look only to the Company for payment.

(f) The repurchase right of the Company set forth above will remain in effect until the closing of a Qualified Public Offering, and will be binding upon any transferee of Stock Options and Option Shares. The Company may place a legend on any award evidencing Stock Options or certificate for Option Shares, delivered to the Participant reflecting the repurchase rights provided in the Plan.

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7. Adjustments. The Committee will make or provide for such adjustments in the maximum number of shares specified in Paragraph 3 and Paragraph 4, in the numbers of shares of Common Stock covered by outstanding Stock Options granted hereunder, in the Option Price applicable to any such Stock Options, and/or in the kind of shares covered thereby (including shares of another issuer), as the Committee in its sole discretion, exercised in good faith, may determine is equitably required to maintain the intent of the Plan or to prevent dilution or enlargement of the rights of Participants that otherwise would result from (i) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (ii) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (iii) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee, in its discretion, may provide in substitution for any or all outstanding Stock Options under the Plan such alternative consideration as it, in good faith, may determine to be equitable in the circumstances and may require in connection with such substitution the surrender of all Stock Options so replaced.

8. Fractional Shares. The Company will not be required to issue any fractional share of Common Stock pursuant to the Plan. The Committee may provide for the elimination of fractions or for the settlement of fractions in cash.

9. Withholding Taxes. To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any payment made or benefit realized by a Participant or other person under the Plan (including as a result of the repurchase or exercise of any Stock Option), and the amounts available to the Company for such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required to be withheld. In addition, if permitted by the Committee, the Participant or such other person may elect to have any withholding obligation of the Company satisfied with shares of Common Stock (valued at the Market Value Per Share at such time) that would otherwise be transferred to the Participant or such other person in payment of the aggregate Option Price. In no event, however, will shares of Common Stock be withheld in excess of the minimum number of shares required to satisfy the Company’s withholding obligation.

10. Administration of the Plan.

(a) Following the Company’s initial registration of Common Stock under Section 12 of the Securities Exchange Act of 1934, as amended, unless the Board determines otherwise, the Committee will consist of two or more directors appointed by the Board, all of whom will qualify as “non-employee directors” as defined in Rule 16b-3 and as “outside directors” as defined in regulations adopted under Section 162(m) of the Code, as such terms may be amended from time to time, and its size and members will otherwise satisfy applicable requirements of any exchange or market system upon which shares of Common Stock are listed or admitted to trading. Appointment of Committee members will be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee will be filled by the Board.

(b) Unless the administration of the Plan has been expressly assumed by the Board pursuant to a resolution of the Board, the Committee has the full authority and discretion to administer the Plan and to take any action that is necessary or advisable in connection with the administration of the Plan, including without limitation the authority and discretion to interpret and construe any provision of the Plan or of any agreement, notification or document evidencing the grant of a Stock Option, and to determine whether a Participant’s termination of employment resulted from discharge for cause or any other reason. The interpretation and construction by the Committee of any such provision and any determination by the Committee pursuant to any provision of the Plan or of any such agreement, notification or document will be final and conclusive. No member of the Committee will be liable for any such action or determination made in good faith.

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(c) The Committee will act by a majority of the votes of its members in office and the Committee may act either by vote at a meeting or by a memorandum or other written instrument signed by directors constituting a voting majority of the Committee.

(d) If the administration of the Plan is assumed by the Board pursuant to Section 10(b), the Board will have the same authority, power, duties, responsibilities and discretion given to the Committee under the terms of the Plan.

11. Other Provisions.

(a) The Plan may be amended from time to time by the Committee or the Board but may not be amended without further approval by the stockholders of the Company if such amendment would result in the Plan no longer satisfying any applicable requirements of the New York Stock Exchange (or any other exchange or market system upon which shares of Common Stock are listed or quoted or admitted to trading), Rule 16b-3 or Section 162(m) of the Code.

(b) Neither the Committee nor the Board will authorize the amendment of any outstanding Stock Option to reduce the Option Price without the further approval of each class of stockholders of the Company. Furthermore, no Stock Option will be cancelled and replaced with Stock Options having a lower Option Price without further approval of each class of the stockholders of the Company. This Paragraph 11(b) is intended to prohibit the repricing of “underwater” Stock Options and will not be construed to prohibit the adjustments provided for in Paragraph 7.

(c) The Committee may also permit Participants to elect to defer the issuance of Common Stock under the Plan pursuant to such rules, procedures or programs as it may establish for purposes of the Plan. The Committee also may provide that deferred issuances include the payment or crediting of dividend equivalents or interest on the deferral amounts.

(d) The Plan will terminate automatically 10 years after its adoption by the Board and may be terminated at any earlier time by the majority approval of the Board. The termination of the Plan will not adversely affect the terms of any outstanding Stock Option.

(e) The Plan does not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time.

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(f) If the Committee determines, with the advice of legal counsel, that any provision of the Plan would prevent the payment of any Stock Option intended to qualify as performance-based compensation within the meaning of Section 162(m) of the Code from so qualifying, such Plan provision will be invalid and cease to have any effect without affecting the validity or effectiveness of any other provision of the Plan.

(g) The Plan, all awards and all actions taken under the Plan and the awards will be governed in all respects in accordance with the laws of the State of Delaware, including without limitation, the Delaware statute of limitations, but without giving effect to the principles of conflicts of laws of such State.

[Signature Page Follows]

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As adopted by the Board and Company’s stockholders as of the date first set forth above.

HOMEOWNERS OF AMERICA HOLDING CORPORATION

	By:
		Spencer W. Tucker
		President

[Signature Page To The Management Incentive Plan]

EX-10.2 10 v347100_ex10-2.htm EXHIBIT 10.2

STOCK PURCHASE AGREEMENT

This Agreement is made and entered into as of August ______, 2005 (the “Effective Date”) by and between Homeowners of America Holding Corporation, a Delaware corporation (the “Company”) and Richard P. Backus (the “Purchaser”).

1. PURCHASE OF SHARES. On the Effective Date and subject to the terms and conditions of this Agreement, Purchaser hereby purchases from the Company, and Company hereby sells to Purchaser, an aggregate of One Hundred Thousand (100,000) shares of the Company’s Common Stock, par value $0.0001 per share (the “Shares”), at the purchase price of $0.0001 per share (the “Purchase Price Per Share”), for a total of $10.00 (the “Purchase Price”). As used in this Agreement, the term “Shares” refers to the Shares purchased under this Agreement and includes all securities received (i) in replacement of the Shares, (ii) as a result of stock dividends or stock splits with respect to the Shares, and (iii) in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction.

2. PAYMENT OF PURCHASE PRICE; CLOSING.

2.1 Deliveries by Purchaser. Purchaser hereby delivers to the Company: (i) a duly executed copy of this Agreement, (ii) two (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached hereto (the “Stock Powers”), both executed by Purchaser (and Purchaser’s spouse, if any), (iii) if Purchaser is married, a Spouse Consent in the form of Exhibit 2 attached hereto (the “Spouse Consent”) duly executed by Purchaser’s spouse and (iv) the Purchase Price.

2.2 Deliveries by the Company. Upon its receipt of the Purchase Price and all the documents to be executed and delivered by Purchaser to the Company under Section 2, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, with such certificate to be placed in escrow as provided in Section 7 until expiration or termination of both the Company’s Repurchase Option and Right of First Refusal described in Sections 4 and 5.

3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to the Company that:

3.1 Purchase for Own Account for Investment. Purchaser is purchasing the Shares for Purchaser’s own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the “1933 Act”). Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares.

3.2 Access to Information. Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company’s representatives concerning such matters and this investment.

3.3 Understanding of Risks. Purchaser is fully aware of (i) the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares.

3.4 Purchaser’s Qualifications. Purchaser has a preexisting personal or business relationship with the Company and/or certain of its officers and/or directors of a nature and duration sufficient to make Purchaser aware of the character, business acumen and general business and financial circumstances of the Company and/or such officers and directors. By reason of Purchaser’s business or financial experience, Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser’s own interests in this transaction and is financially capable of bearing a total loss of this investment.

3.5 No General Solicitation. At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares.

3.6 Compliance with Securities Laws. Purchaser understands and acknowledges that, in reliance upon the representations and warranties made by Purchaser herein, the Shares are not being registered with the Securities and Exchange Commission (“SEC”) under the 1933 Act or being qualified under the Texas Securities Act, as amended (the “Act”), or under the blue sky laws of any other state, but instead are being issued under an exemption or exemptions from the registration and qualification requirements of the 1933 Act, the Act and the applicable blue sky laws of any other state in which such registration and qualification is or may be necessary, which exemptions impose certain restrictions on Purchaser’s ability to transfer the Shares.

3.7 Restrictions on Transfer. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the 1933 Act and qualified under the Act and the blue sky laws of any other state in which such qualification is or may be necessary or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC, the Texas Securities Commissioner or the securities commissioner of any other state and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser.

3.8 Rule 144. In addition, Purchaser has been advised that SEC Rule 144 promulgated under the 1933 Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the Shares be held for a minimum of one (1) year, and in certain cases two (2) years, after they have been purchased and paid for (within the meaning of Rule 144), before they may be resold under Rule 144. Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an “affiliate” of the Company and “current public information” about the Company (as defined in Rule 144) is not publicly available.

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4. COMPANY’S REPURCHASE OPTION. The Company or its assignees shall have the option to repurchase all or a portion of the Unvested Shares (as defined below) on the terms and conditions set forth in this Section (the “Repurchase Option”) if Purchaser ceases to be employed by the Company (as defined herein) for any reason, or no reason, including without limitation Purchaser’s death, disability, voluntary resignation or termination by the Company with or without cause.

4.1 Definition of “Employed by the Company”; “Termination Date”. For purposes of this Agreement, Purchaser will be considered to be “employed by the Company” if the Board of Directors of the Company determines that Purchaser is rendering substantial services as a director, officer, employee, consultant or independent contractor to the Company or to any parent, subsidiary or affiliate of the Company. In case of any dispute as to whether Purchaser is employed by the Company, the Board of Directors of the Company shall have sole discretion to determine whether Purchaser has ceased to be employed by the Company or any parent, subsidiary or affiliate of the Company and the effective date on which Purchaser’s employment terminated (the “Termination Date”).

4.2 Unvested and Vested Shares. Shares that are vested pursuant to the schedule set forth herein are “Vested Shares”. Shares that are not vested pursuant to the schedule set forth herein are “Unvested Shares”. Unvested Shares may not be sold or otherwise transferred by Purchaser without the Company’s prior written consent. On the Effective Date, all of the Shares will be Unvested Shares. Upon the closing of the Company’s first sale of its preferred stock in one transaction or a series of related transactions for an aggregate purchase price to the Company of not less than $1,000,000 (the “Qualified Financing Closing Date”), 25% of the Shares will become Vested Shares. Thereafter, for so long (and only for so long) as Purchaser remains continuously employed by the Company or any subsidiary or parent of the Company, at all times after the Qualified Financing Closing Date, an additional 25% of the Shares will become Vested Shares upon the first anniversary of the Qualified Financing Closing Date and an additional 2.0833% of the Shares will become Vested Shares upon the expiration of each full month elapsed after the first anniversary of the Qualified Financing Closing Date. No Shares will become Vested Shares after the Termination Date. If the application of the vesting percentage results in a fractional share, such share shall be rounded up to the nearest whole share for each month except for the last month in such vesting period, at the end of which last month the balance of Unvested Shares shall become fully Vested Shares.

4.3 Adjustments. The number of Shares that are Vested Shares or Unvested Shares will be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split, combination or other similar recapitalization effecting the common stock of the Company occurring after the Effective Date.

4.4 Exercise of Repurchase Option at Original Price. At any time within ninety (90) days after the Termination Date, the Company may elect to repurchase any or all of the Unvested Shares by giving Purchaser written notice of exercise of the Repurchase Option. The Company and/or its assignee(s) will then have the option to repurchase from Purchaser (or from Purchaser’s personal representative as the case may be) any or all of the Unvested Shares at the Purchase Price Per Share specified in Section 1 -above, as adjusted to reflect any stock dividend, stock split, reverse stock split, combination or other similar recapitalization effecting the common stock of the Company occurring after the Effective Date (the “Repurchase Option Price”).

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4.5 Payment of Repurchase Price. The Repurchase Option Price will be payable, at the option of the Company or its assignee(s), by check or by cancellation of all or a portion of any outstanding indebtedness owed by Purchaser to the Company (or to such assignee) or by any combination thereof. The Repurchase Option Price will be paid without interest within ninety (90) days after the Company gives the Purchaser written notice of the exercise of its Repurchase Option.

4.6 Right of Termination Unaffected. Nothing in this Agreement will be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any parent, subsidiary or affiliate of the Company) to terminate Purchaser’s employment with the Company (or any parent, subsidiary or affiliate of the Company) at any time for any reason or no reason, with or without cause.

5. RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise transferred by Purchaser without the Company’s prior written consent. Before any Vested Shares held by Purchaser or any transferee of such Vested Shares (either sometimes referred to herein as the “Holder”) may be sold or otherwise transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Shares to be sold or transferred (the “Offered Shares”) on the terms and conditions set forth in this Section (the “Right of First Refusal”).

5.1 Notice of Proposed Transfer. The Holder of the Offered Shares will deliver to the Company a written notice (the “Notice”) stating: (i) the Holder’s bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name and address of each proposed purchaser or other transferee (the “Proposed Transferee”); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the “Offered Price”); and (v) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Company’s Right of First Refusal at the Offered Price as provided for in this Agreement.

5.2 Exercise or Right of First Refusal. At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined in accordance with subsection 5.3 below.

5.3 Purchase Price. The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift), the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Company’s Board of Directors. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Company’s Board of Directors, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.

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5.4 Payment. Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company’s receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.

5.5 Holder’s Right to Transfer. If Holder has not consented to the purchase of less than all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer all such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price (and if Holder consented to the purchase of less than all the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer any remaining Offered Shares to each Proposed Transferee at the Offered Price or at a higher price), provided that (i) such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice, (ii) any such sale or other transfer is effected in compliance with all applicable securities laws, and (iii) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such one hundred twenty (120) day period, then a new Notice must be given to the Company, pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.

5.6 Exempt Transfers. Notwithstanding anything to the contrary in this Section, the following transfers of Vested Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Vested Shares during Purchaser’s lifetime by gift or on Purchaser’s death by will or intestacy to Purchaser’s “Immediate Family” (as defined below) or to a trust for the benefit of Purchaser or Purchaser’s Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee or other recipient: (ii) the transfer of any or all of the Vested Shares to an individual retirement account or other tax deferred retirement plan in the name of or for the benefit of Purchaser, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee or other recipient; (iii) the transfer of any and all Vested Shares by a partnership to the partners of the partnership or by a limited liability company to the members of the limited liability company, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee or other recipient; (iv) any grant of a lien or security interest in. or pledge, hypothecation or encumbrance of, Vested Shares in accordance with and subject to the provisions of Section 5.8; (v) any transfer of Vested Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations; (vi) any transfer of Shares to the Company; or (vii) any transfer of Vested Shares pursuant to the winding up and dissolution of the Company. As used herein, the term “Immediate Family” will mean Purchaser’s spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child or grandchild or adopted grandchild of Purchaser or Purchaser’s spouse, or the spouse of any child, adopted child, grandchild or adopted grandchild of Purchaser or Purchaser’s spouse.

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5.7 Termination of Right of First Refusal. The Right of First Refusal will terminate as to all Shares on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the 1933 Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan).

5.8 Encumbrances on Vested Shares. Purchaser may grant a lien or security interest in, or pledge, hypothecate or encumber Vested Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Section will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Purchaser may not grant a lien or security interest in, or pledge, hypothecate or encumber, any Unvested Shares.

6. RIGHTS AS STOCKHOLDER. Subject to the terms and conditions of this Agreement, Purchaser will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Purchaser delivers the Purchase Price until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option or Right of First Refusal. Upon an exercise of the Repurchase Option or Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, except the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.

7. ESCROW. As security for Purchaser’s faithful performance of this Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser’s spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company (the “Escrow Holder”), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Escrow Holder will act solely for the Company as its agent and not as a fiduciary. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement. The Shares will be released from escrow upon termination of the Repurchase Option and the Right of First Refusal.

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8. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER’S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS (i) THAT PURCHASER HAS CONSULTED WITH A TAX ADVISER THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND (ii) THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. Purchaser hereby acknowledges that Purchaser has been informed that, unless an election is filed by the Purchaser with the Internal Revenue Service (and, if necessary, the proper state taxing authorities) within 30 days of the purchase of the Shares to be effective, electing pursuant to Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Purchase Price of the Shares and their fair market value on the date of purchase, there will be a recognition of taxable income to the Purchaser, measured by the excess, if any, of the fair market value of the Shares, at the time they cease to be Unvested Shares, over the Purchase Price for such Shares. Purchaser represents that Purchaser has consulted any tax advisors Purchaser deems advisable in connection with Purchaser’s purchase of the Shares and the filing of the election under Section 83(b) and similar tax provisions. A form of Election under Section 83(b) is attached hereto as Exhibit 3 for reference. PURCHASER HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR FROM FAILURE TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF THE REPURCHASE RESTRICTIONS ON THE UNVESTED SHARES.

9. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.

9.1 Legends. Purchaser understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Company’s Certificate of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, INCLUDING THE RIGHTS OF REPURCHASE AND FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS, INCLUDING THE RIGHTS OF REPURCHASE AND FIRST REFUSAL, ARE BINDING ON TRANSFEREES OF THESE SHARES.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A 180 DAY MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.

9.2 Stop-Transfer Instructions. Purchaser agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate “stop-transfer” instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

9.3 Refusal to Transfer. The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends, to any purchaser or other transferee to whom such Shares have been so transferred.

10. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any registration of the Company’s securities under the 1933 Act that, upon the request of the Company or the underwriters managing any registered public offering of the Company’s securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) alter the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-stockholders generally. Purchaser further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing.

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11. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

12. GENERAL PROVISIONS.

12.1 Assignments; Successors and Assigns. The Company may assign any of its rights and obligations under this Agreement, including its rights to repurchase Shares under the Repurchase Option and the Right of First Refusal. Any assignment of rights and obligations by any other party to this Agreement requires the Company’s prior written consent. This Agreement, and the rights and obligations of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives.

12.2 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Texas, without giving effect to that body of laws pertaining to conflict of laws.

12.3 Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iii) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States; or (iv) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries.

All notices for delivery outside the United States will be sent by facsimile or by express courier. All notices not delivered personally or by facsimile will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address or facsimile number set forth below the signature lines of this Agreement or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other party hereto. Notices by facsimile shall be machine verified as received.

12.4 Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may he reasonably necessary to carry out the purposes and intent of this Agreement.

12.5 Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Agreement.

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12.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.

12.7 Severability. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.

12.8 Facsimile Signatures. This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.

12.9 Amendment and Waivers. This Agreement may be amended only by a written agreement executed by each of the parties hereto. No amendment of or waiver of, or modification of any obligation under this Agreement will be enforceable unless set forth in a writing signed by the party against which enforcement is sought. Any amendment effected in accordance with this section will be binding upon all parties hereto and each of their respective successors and assigns. No delay or failure to require performance of any provision of this Agreement shall constitute a waiver of that provision as to that or any other instance. No waiver granted under this Agreement as to any one provision herein shall constitute a subsequent waiver of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual performance specifically waived.

13. ENTIRE AGREEMENT. This Agreement and the documents referred to herein constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized representative and Purchaser has executed this Agreement, as of the Effective Date.

	COMPANY

	HOMEOWNERS OF AMERICA HOLDING CORPORATION

	By:
		Spence Tucker, President
		5021 Briar Tree Drive
		Dallas, Texas 75248
		Fax:
		Phone: (972) 407-9896

	PURCHASER


		Richard P. Backus

		Fax:
		Phone:

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EX-10.3 11 v347100_ex10-3.htm EXHIBIT 10.3

AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT

This Amendment No. 1 to that certain Stock Purchase Agreement (this “Amendment”), by and between Homeowners of America Holding Corporation, a Delaware corporation (the “Company”), and Richard P. Backus, an individual residing at 5200 Keller Springs Rd., No. 226, Dallas, Texas 75248 (the “Purchaser”), a, dated as of September 15, 2005 (the “Agreement”), shall be effective as of November 11, 2005.

WHEREAS, the Purchaser currently owns One Hundred Thousand (100,000) shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share (the “Common Stock”);

WHEREAS, simultaneously herewith the Company and the Purchaser are entering into an Employment Agreement regarding the Purchaser’s employment with the Company (the “Employment Agreement”);

WHEREAS, Inter-Atlantic Fund, L.P. and Sequel Homeowners Investment, L.P. the “Investors”) are acquiring in the aggregate 4,500,000 shares of the Company’s Series A Preferred Stock, par value $0.00001 per share (the “Series A Preferred Stock”) pursuant to the Securities Purchase Agreement dated as of the date hereof, by and among the Investors, the Company and certain other investor signatories thereto (the “Purchase Agreement”);

WHEREAS, the execution and delivery of this Amendment is a condition to the closing of the issuance, sale and purchase of the Series A Preferred Stock pursuant to the Purchase Agreement; and

WHEREAS, the Purchaser and the Company have agreed that the Agreement be amended in the manner provided for in this Amendment.

NOW THEREFORE, it is agreed as follows:

1. Amendment of Section 4. Section 4 of the Agreement is deleted in its entirety and replaced with the following:

“4. VESTING; REPURCHASE OPTION.

4.1. Vesting of Shares.

(a) Vesting. All of the Purchaser’s Shares shall initially be unvested (the “Unvested Shares”) and subject to a right of repurchase by the Company as set forth in Section 4.2 below (the “Repurchase Option”), such that (i) twenty-five percent (25%) of the Unvested Shares shall vest upon Closing (as defined in the Purchase Agreement), (ii) twenty-five percent (25%) of the Unvested Shares shall vest upon the first (1st) anniversary of the Closing; and (iii) 2.08% of the Unvested Shares shall vest monthly thereafter. Vesting of the Unvested Shares will accelerate in the event of (i) a Change in Control (as defined below); or (ii) a Qualified Public Offering (as defined below) such that upon any Change in Control or Qualified Public Offering all remaining Unvested Shares shall vest in the Purchaser and no longer be subject to the Repurchase Option.

(b) Change in Control. For purposes of this Agreement, the term “Change in Control” shall mean any of the following transactions: (i) any person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than the Company, any employee benefit plan of the Company or any entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) becomes the beneficial owner or owners (as defined in Rule 13d-3 and 13d-5 promulgated under the Exchange Act), directly or indirectly, of more than fifty percent (50%) of the outstanding Common Stock of the Company, or otherwise becomes entitled to vote more than fifty percent (50%) of the voting power entitled to be cast at elections for directors (“Voting Power”) of the Company; (ii) a consolidation or merger of the Company pursuant to which the holders of the Company’s voting shares immediately prior to such merger or consolidation would not be the holders, directly or indirectly, immediately after such merger or consolidation of more than fifty percent (50%) of the Voting Power of the entity surviving such transaction; (iii) the sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (iv) the liquidation or dissolution of the Company or the Company ceasing to do business.

(c) Qualified Public Offering. For purposes of this Agreement, the term “Qualified Public Offering” shall mean a firm commitment underwritten public offering registered under the Securities Act covering the offer and sale by the Company of its Common Stock (a) in which (i) the aggregate proceeds to the Company equal or exceed $50,000,000, net of underwriting discounts, commissions, and fees, and (ii) the price per share of such Common Stock equals or exceeds $5.00 (subject to appropriate adjustment in the event of any stock dividend, stock split, reclassification, combination or other similar recapitalization affecting such shares), and (b) that results in the securities so offered being listed on a national securities exchange or quoted on the NASDAQ National Market.

4.2 Repurchase Option.

(a) Triggering Events. Upon the termination of the Purchaser’s employment with the Company (whether such employment is terminated by the Purchaser or the Company, and for any reason or no reason) the Company shall have the right to repurchase up to all of the Unvested Shares at the lower of (i) initial cost of such Unvested Shares to the Purchaser; or (ii) the book value thereof In the event of a voluntary termination by the Purchaser without Good Reason (as defined in the Employment Agreement) prior to the third (3rd) anniversary of the Closing, the Company shall have the right to repurchase up to all of the vested Shares at the lower of (i) initial cost of such vested Shares; or (ii) the book value thereof In the event of termination of the Purchaser’s employment with the Company Without Cause (as defined in the Employment Agreement) by the Company or for Good Reason by the Purchaser or due to the Purchaser’s death or disability, the Company may repurchase up to all of the vested Shares from the Purchaser or the Purchaser’s personal representative(s), estate, heir(s) or legatee (the “Purchaser’s Representative”), as the case may be, at Fair Market Value (as defined below). The Company’s repurchase right as set forth in this Section 4.2 shall expire with regard to Shares first offered to the Company and subsequently sold to a non-affiliate of the Purchaser in accordance with Section 5 below.

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(b) Fair Market Value. For purposes of this Section 4, the “Fair Market Value” of any Shares shall be the fair market value thereof (on a per share basis) at the time that the Repurchase Option is triggered pursuant to Section 4.2(a) hereof as determined in good faith by the Board of Directors of the Company, provided that such fair market value must approximate the price that a willing buyer and a willing seller would arrive at in an arms-length transaction. If the Purchaser or the Purchaser’s Representative disagrees with the valuation as determined by the Board of Directors, each of the Purchaser or the Purchaser’s Representative, on the one hand, and the Board of Directors, on the other hand, shall cause an appraiser to determine the Fair Market Value on a basis consistent with the terms hereof within twenty (20) days. The cost of both appraisers shall be borne by the Company. In the event that the determination by each appraiser differs by less than ten percent (10%) from the determination by the other appraiser, the Fair Market Value shall be the average of the two. In the event that the determination by either appraiser differs by ten percent (10%) or more from the determination of the other appraiser, then the two appraisers shall select a third appraiser within five (5) days, the fees and expenses of which third appraiser shall be shared equally by the parties. The third appraiser shall, within ten (10) days of its selection, designate which of the two determinations most accurately reflects the Fair Market Value or designate a Fair Market Value between the two determinations which the third appraiser determines most accurately reflects the Fair Market Value. The determination made in accordance with the foregoing shall be final and binding on all parties hereto.

(c) Additional Shares. If the Company shall pay a stock dividend or declare a stock split on or with respect to any of its Common Stock, or otherwise distribute securities of the Company to the holders of its Common Stock, the number of shares of stock or other securities of the Company issued with respect to the Vested Shares shall be deemed “Vested Shares” herein. If the Company shall distribute to its stockholders securities of another corporation, the securities of such other corporation, distributed with respect to the Vested Shares shall be deemed “Vested Shares” herein. If the outstanding shares of the Company’s Common Stock shall be subdivided into a greater number of shares or combined into a smaller number of shares, or in the event of a reclassification of the outstanding shares of the Company’s Common Stock, or if the Company shall be a party to a merger, consolidation or capital reorganization, there shall be substituted for the Vested Shares of the Common Stock then subject to this Agreement such amount and kind of securities as are issued in such subdivision, combination, reclassification, merger, consolidation or capital reorganization in respect of the Vested Shares subject to this Agreement immediately prior thereto.

(d) Notice and Closing. The Company may exercise its Repurchase Option by sending the Purchaser written notice, within fifteen days (15) days after any triggering event set forth in Section 4.2(a), specifying the number of Shares the Company elects to repurchase pursuant to the Repurchase Option and a date for the closing, which date shall be as soon as practicable but no later than forty-five (45) days after the date of such notice. The closing shall take place at the principal office of the Company or at such other location as the Company and the Purchaser shall agree. At the closing, the Purchaser shall transfer to the Company the number of Shares specified in the Company’s notice, free of all liens, encumbrances and rights of others, by delivery of certificates representing such number of Shares, duly endorsed for transfer or accompanied by duly executed stock powers. Concurrent with such transfer and its receipt of such certificates so endorsed and subject to Section 4.2(f) below, the Company shall pay for such Shares by any of the following methods: (i) by delivery to the Purchaser of a check in the amount of the aggregate purchase price for such Shares, (ii) by cancellation of indebtedness of the Purchaser to the Company in such amount, (iii) by wire transfer of immediately available funds to one or more accounts designated by the Purchaser, or (iv) by any combination of the above methods. The method or methods of payment for such Shares shall be chosen by the Company in its sole discretion.

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(e) No Further Obligations. Upon delivery by the Company of notice of exercise of the Repurchase Option, the Company’s sole obligation with respect to the Shares as to which the Repurchase Option is being exercised shall be to make payment of the purchase price therefor. The Company shall not be required after delivery of such notice to treat the Purchaser as owner of such Shares, to accord the right to vote to the Purchaser with respect thereto or to pay dividends thereon and the Purchaser shall have no rights with respect thereto other than to receive such payment of the repurchase price therefor.

(f) Company’s Right to Defer Payments. Notwithstanding anything herein to the contrary, no payment shall be made under this Agreement that would cause the Company to violate any banking agreement or loan or other financial covenant or cause default of any indebtedness of the Company, regardless of when such agreement, covenant, or indebtedness was created, incurred, or assumed. Any payment under this Agreement that would cause such violation or default shall be deferred until, in the sole discretion of the Board of Directors of the Company, such payment shall no longer cause any such violation or default. Any payment deferred in consequence of the provisions of the preceding sentence shall bear simple interest from the date such payment otherwise would have been made to the date when such payment actually is made, at a rate that is equal to the prime rate of interest published in the Eastern Edition of the Wall Street Journal from time to time during .the period of such deferral, but in no event shall such rate of interest exceed eight percent (8%) per annum. The Company shall pay interest at the same time as it makes the payment to which such interest relates.”

2. Amendment of Section 5.7. Section 5.7 of the Agreement is deleted in its entirety and replaced with the following:

“5.7 Termination of Right of First Refusal. The Right of First Refusal will terminate as to all Shares on the effective date of a Qualified Public Offering.”

3. Miscellaneous.

(a) This Amendment shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to the conflict of laws principles thereof.

(b) Except as expressly amended by this Amendment, the terms and provisions of the Agreement shall continue in full force and effect. No reference to this Amendment need be made in any instrument or document making reference to the Agreement; any reference to the Agreement in any such instrument or document shall be deemed a reference to the Agreement as amended hereby. The Agreement as amended hereby shall be binding upon the parties hereto and their respective assigns and successors.

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(c) This Amendment may be executed in separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.


	Richard P. Backus

	HOMEOWNERS OF AMERICA HOLDING CORPORATION


	Spence Tucker, President

[Signature Page to SPA Amendment - Backus]

EX-10.4 12 v347100_ex10-4.htm EXHIBIT 10.4

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is entered into as of November 11, 2005, by and among (i) Homeowners of America Holding Corporation, a Delaware corporation (the “Company”); (ii) Spencer W. Tucker (the “Founder”), and (iii) the entities listed on Schedule A hereto (each, an “Investor,” and collectively, the “Investors”).

RECITALS

The Company currently has outstanding an aggregate of 1,000,000 restricted shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”). Upon the terms and conditions stated in this Agreement, the Company desires to sell and issue to the Investors, and the Investors desires to purchase, an aggregate of 4,500,00 Company’s Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock” and collectively, the shares of such stock, the “Shares”). In addition, concurrently herewith, the Company is selling and issuing to certain investors (the “Series B Investors”) an aggregate of 450,000 shares of the Company’s Series B Preferred Stock, par value $0.0001 per share (the “Series. B Preferred Stock”) pursuant to subscription agreements (each, a “Series B Subscription Agreement”) in connection with the Company’s offering of such shares to the Series B Investors listed on Schedule B annexed hereto (the “Series B Offering”). In this Agreement, the Series A Preferred Stock and the Series B Preferred Stock are sometimes collectively referred to as the “Preferred Stock.”

ARTICLE I
AGREEMENT TO SELL AND PURCHASE

Section 1.1 Authorization of Securities.

(a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing Date (as defined in Section 2.1 below) the Amended and Restated Certificate of Incorporation in the form of Exhibit A attached to this Agreement (the “Amended Charter”).

(b) The Company has authorized (i) the sale and issuance to the Investors of the Shares and (ii) the issuance of such shares of Common Stock (including any increases therein resulting from any anti-dilution adjustments) to be issued upon conversion of the Shares (the “Conversion Shares”). The Shares and the Conversion Shares are collectively referred to herein as the “Securities.”

Section 1.2 Sale and Purchase of Shares. Subject to the terms and conditions of this Agreement, at the Closing, the Company shall issue and sell to each Investor, and each Investor shall purchase from the Company, that number of shares of Series A Preferred Stock set forth opposite each Investor’s name on Schedule A hereto at a price of $1.00 per share.

Simultaneously herewith, the Company is selling and issuing to the Series B Investors an aggregate of 450,000 shares of Series B Preferred Stock at a price of $1.00 per share.

ARTICLE II
CLOSING OF SALE AND PURCHASE

Section 2.1 Closing. The closing of the sale and purchase of the Shares pursuant to this Agreement (the “Closing”) shall take place at the offices of Lowenstein Sandler PC, 1251 Avenue of the Americas, 18 floor, New York, New York 10020 at 10:00AM on November 11, 2005, or at such other time or place as the Company and the Investors may mutually agree (the “Closing Date”). At the Closing, subject to the terms and conditions hereof, the Company will deliver to each Investor, among other things, a certificate representing the number of shares of Series A Preferred Stock that such Investor is purchasing against payment of the purchase price therefor by wire transfer to an account specified by Company.

Section 2.2 Conditions to Investors’ Closing Obligations and Deliveries by the Company. The obligations of each Investor to purchase Shares at the Closing is subject to the fulfillment, or the waiver by such Investor, of each of the following conditions on or before the Closing:

(a) Each representation and warranty contained in ARTICLE III shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representation and warranty had been made on and as of that date.

(b) The Company and the Founder shall have performed and complied in all material respects with all covenants, agreements, obligations, and conditions contained in this Agreement that are required to be performed or complied with by, as applicable, the Company or the Founder prior to or at the Closing.

(c) The Founder, signing individually and on behalf of the Company, shall have delivered to the Investors at the Closing a certificate certifying that the conditions specified in Section 2.2(a) and Section 2.2(b) have been fulfilled.

(d) All authorizations, approvals, permits, consents, waivers, and clearances, except for the licenses necessary to organize and operate the Company’s to-be-formed insurance Subsidiary (as defined below), of any governmental authority or other regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Shares pursuant to this Agreement shall have been obtained and effective as of the Closing.

(e) The Company shall have taken all actions necessary for the effectiveness of the private placement exemptions under the Securities Act of 1933, as amended (the “Securities Act”) and the state securities laws of each jurisdiction in which this offering of Series A Preferred Stock and the Series B Offering are being conducted and in which the shares of Preferred Stock are being sold at the Closing.

(f) All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory to the each Investor’s counsel, and each Investor and its counsel shall have received all such counterpart originals or certified or other copies of such documents as each may reasonably request.

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(g) The Investors shall have completed their due diligence investigation of the Company, and a majority in interest of the Investors shall have determined that they are satisfied with the scope and results of such due diligence investigation.

(h) Since the date of the Company’s inception, in the reasonable discretion of each of the Investors, there shall not have been a material adverse effect on the business, operations, properties, assets (including intangible assets), prospects, working capital, or condition (financial or otherwise) of the Company or any event, condition, or contingency that is likely to result in such a material adverse effect (a “Material Adverse Effect”).

(i) The authorized size of the board of directors of the Company and each Subsidiary shall be seven (7), and the board of directors of the Company and each Subsidiary shall consist of individuals elected in accordance with the provisions of the Stockholders’ Agreement (as defined in Section 2.2(i)).

(j) The Company shall have paid the Transaction Expenses (as defined in Section 6.1) in accordance with Section 6.1 hereof and the Structuring Fee (as defined in Section 3.21), as evidenced by summary invoices provided at the Closing.

(k) The Company shall have filed the Amended Charter with the Secretary of State of Delaware on or prior to the Closing, and the same shall continue to be in full force and effect as of the Closing.

(l) Each of the Company, the Founder and the Series B Investors shall have delivered to the Investors counterpart originals of the Investor Rights Agreement in substantially the form attached hereto as Exhibit B (the “Investor Rights Agreement”), and each of the Company and all other shareholders of the Company’s stock shall have delivered the Stockholders’ Agreement in substantially the form attached hereto as Exhibit C (the “Stockholders’ Agreement” and together with the Investors’ Rights Agreement, the “Related Agreements”).

(m) The Company shall have delivered to each Investor each of the following documents and/or evidence:

(i) A certificate of the Secretary of State of the State of Delaware, dated as of a date not more than five business days before the Closing Date, with respect to the good standing of the Company in the State of Delaware, and of the Secretary of State or equivalent official of each other jurisdiction where the Company is qualified to do business as a foreign corporation, dated not more than five business days before the Closing Date, with respect to such qualification and the good standing of the Company in such jurisdiction.

(ii) A certificate of the Secretary of the Company, dated the Closing Date, certifying (A) an attached copy of the Company’s Certificate of Incorporation, (B) an attached copy of the Company’s Bylaws, (C) resolutions of the Company’s board of directors approving this Agreement and the Related Agreements (as defined in Section 3.1), and (D) the incumbency of the Company’s officers.

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(iii) Employment and non-competition agreements (a) in substantially the form attached hereto as Exhibit D-1 executed by the Founder and (b) in substantially the form attached hereto as Exhibit D-2 executed by Richard P. Backus and Alvin M. Johnston (the “Employment and Non-Competition Agreements”).

(iv) The written legal opinion of Jones Day, addressed to the Investors, and substantially in the form of Exhibit E attached hereto.

(v) The business plan for the Company and its Subsidiaries, attached hereto as Exhibit F (the “Business Plan”).

(vi) Evidence that, at the Closing, at least 450,000 shares of Series B Preferred Stock are being sold to the Series B Investors at $1.00 per share.

(vii) Evidence satisfactory to each of the Investors that each Series B Investor has made payment in full of the aggregate purchase price payable pursuant to such Series B Investor’s Series B Subscription Agreement.

Section 2.3 Conditions to Closing Obligations of the Company and the Founder and Closing Deliveries by the Investors. The obligation of the Company to each Investor to sell the Shares at the Closing is subject to the fulfillment, or the waiver by the Company, of each of the following conditions on or before the Closing:

(a) Each representation and warranty contained in ARTICLE IV shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representation and warranty had been made on and as of that date.

(b) The Investor shall have performed and complied with in all material respects all covenants, agreements, obligations, and conditions contained in this Agreement that are required to be performed or complied with by the Investor on or before such Closing.

(c) The Investor shall have delivered to the Company and to the Founder counterpart originals of this Agreement, the Investor Rights Agreement, and the Stockholders’ Agreement, each duly executed by the Investor; and

(d) The Investor shall have delivered to the Company payment in full in accordance with Section 2.1 (subject to the rights of the Investor as set forth in Section 6.1) of the aggregate purchase price to be paid by the Investor specified in Section 1.2.

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Section 2.4 Use of Proceeds. All net proceeds that the Company receives from the sale of the shares of Series A Preferred Stock hereunder and the shares of Series B Preferred Stock pursuant to the Series B Subscription Agreement shall be used (i) to meet the minimum tangible net worth requirements and minimum reserve requirements required by the Texas Department of Insurance (the “Department”), and (ii) for sales, marketing, development, and technical support, working capital, and other general corporate purposes. The Company shall not use any part of the proceeds from the sale of the shares of Preferred Stock to purchase or carry any “margin security” or “margin stock” (as such terms are defined in any regulation, rule, or interpretation of the Board of Governors of the Federal Reserve System) or to pay any indebtedness of the Company or its Subsidiary, other than (i) the Structuring Fee, (ii) the Transaction Expenses; (iii) reimbursement to the Founder for all costs and expenses incurred by or on behalf of the Founder in connection with the organization of the Company and the negotiation, documentation and consummation of the investment by the Investors, including without limitation the Consulting Fees set forth on Schedule 2.4 (the “Consulting Fees”), attorney’s fees, travel and other out-of-pocket expenses, subject to the Investors’ approval as to amount, which approval shall not to be unreasonably withheld by Investors; and (v) to repay in full the Subordinated Convertible Promissory Note, dated April 1, 2005, issued to the Founder in the principal amount of $25,000. Notwithstanding the foregoing, the Company at all times shall hold at least $4,000,000 of such net proceeds in cash or in short-term investments of cash equivalents until such time as the Company’s to-be-formed insurance Subsidiary obtains a license to operate as an insurance company in the State of Texas.

Section 2.5 Consummation of Transactions. All acts, deliveries, and confirmations comprising the Closing, regardless of chronological sequence, shall be deemed to occur contemporaneously and simultaneously upon the occurrence of the last act, delivery, or confirmation of such Closing and none of such acts, deliveries, or confirmations shall be effective unless and until the last of the same shall have occurred.

ARTICLE IIIARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE FOUNDER

Except for the exceptions set forth on the Disclosure Schedule attached hereto as Exhibit G and set forth on any amendment to the Disclosure Schedule delivered to the Investors prior to Closing which exceptions shall be deemed to be part of the representations and warranties made hereunder, the Company and the Founder, in his individual capacity, jointly and severally, represent and warrant to each Investor that the following representations are true and complete as of the date hereof and as of the Closing Date, except as otherwise indicated. The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections and subsections contained in this Article III, and the disclosures in any section or subsection of the Disclosure Schedule shall qualify other sections and subsections in this Article III only to the extent it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other sections and subsections. The Disclosure Schedule may be amended by the Company after the date hereof but only to reflect events and circumstances that have arisen after the date hereof but prior to the Closing Date.

For the purposes of these representations and warranties, the phrase “to the Company’s knowledge” shall mean the actual conscience awareness, after due investigation, of the Founder.

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Section 3.1 Organization; Requisite Power. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority (a) to own and lease its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted; (b) to execute and deliver this Agreement and the Related Agreements; (c) to issue and sell the Shares at the Closing and the Conversion Shares issuable upon conversion of the Shares; and (d) to carry out the provisions of the Charter, this Agreement and the Related Agreements. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which a failure to be so qualified or authorized would not have a Material Adverse Effect. The Company has made available to the Investors a complete and correct copy of the Company’s and each Subsidiary’s certificate of incorporation and bylaws or other organizational documents, each as amended to and in effect as of the date hereof.

Section 3.2 Authorization; Binding Obligations. All corporate action on the part of the Company and its officers, directors, and stockholders necessary for (a) the authorization of this Agreement and the Related Agreements; (b) the performance of all obligations of the Company hereunder and thereunder; and (c) the authorization, sale, issuance, and delivery of the Shares and the issuance of the Conversion Shares upon the conversion of the Shares in accordance with the Charter have been taken. This Agreement and the Related Agreements, when executed and delivered, will be legal, valid, and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent conveyance, or other similar statutes, rules, regulations or other laws affecting the enforcement of creditor rights and remedies generally.

Section 3.3 Compliance with Laws and Other Instruments. The Company is not in violation of or default under (a) any term of its Charter or Bylaws; (b) any provision of any mortgage, indenture, agreement, instrument, or contract to which it is party or by which it is bound; or (c) any judgment, decree, order, writ, injunction, law, statute, rule, regulation, or restriction of any domestic or foreign government (whether federal, state, or local, including any political subdivision, department, instrumentality, commission, board, bureau, or agency thereof, and any other insurance, regulatory, or administrative body, a “Governmental Entity”) applicable to it, which violation or default could have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company is not in violation in any material respect of any applicable law, statute, rule, order, regulation, or restriction relating to any insurance body.

Section 3.4 Governmental Permits and Consents. The Company has all franchises, permits, licenses, authorizations, and approvals necessary for the conduct of its business as is now conducted or as proposed to be conducted as set forth in the Business Plan, and reasonably believes that it can obtain, without undue burden or expense, any other franchises, permits, licenses, authorizations, and approvals for the conduct of its business as presently conducted and as proposed to be conducted. No orders, permissions, consents, approvals, or authorizations of any Governmental Entity are required to be obtained, and no registrations or declarations with any Governmental Entity are required to be filed, in connection with the execution and delivery of this Agreement and the Related Agreements and the offer, sale, and issuance of the Securities, except such as have been duly and validly obtained or filed, or, with respect to any filings that must be made after the Closing, that will be filed in a timely manner.

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Section 3.5 No Conflicts. The execution, delivery, and performance of, and compliance with, this Agreement, the execution and delivery of the Related Agreements, and the issuance and sale of the Securities will not, with or without the passage of time or giving of notice, (a) violate, be in conflict with, or constitute a default under (i) any term of the Company’s Charter or Bylaws, (ii) any provision of any mortgage, indenture, contract, agreement, instrument, or contract to which the Company is party or by which it is bound, or (iii) any judgment, decree, order, writ, injunction, law, statute, rule, regulation, or restriction of any Governmental Entity applicable to the Company; or (b) result in (i) the creation of any mortgage, pledge, lien, claim, encumbrance, or charge (each, an “Encumbrance”) upon any of the properties or assets of the Company, or (ii) the suspension, revocation, impairment, forfeiture, or nonrenewal of any franchise, permit, license, authorization, or approval applicable to the Company, its business, or operations or any of its properties or assets.

Section 3.6 Capitalization.

(a) Immediately before the Closing, the authorized capital stock of the Company consists of: (i) 10,000,000 shares of Common Stock, of which (A) 1,000,000 shares are issued and outstanding and contain such restrictions as set forth in the applicable stock purchase agreements provided to each Investor and its counsel, (B) no shares of Common Stock held in treasury, (C) 315,790 shares of Common Stock reserved for issuance upon the exercise of options authorized for issuance under the Homeowners of America Holding Corporation 2005 Management Incentive Plan (the “Option Plan”), and (D) no shares (other than the shares to be issued upon conversion of the Preferred Stock) are reserved for issuance upon the conversion, exchange, or exercise of any share of capital stock or other security of the Company; and (ii) 5,500,000 shares of Preferred Stock, of which 4,500,000 shares have been designated as “Series A Preferred Stock” and 1,000,000 shares have been designated as “Series B Preferred Stock,” none of which are issued and outstanding, held in treasury, or reserved for issuance.

(b) Except as set forth in the Related Agreements, there are no outstanding options, warrants, rights (including conversion or preemptive rights, anti-dilution rights, and rights of first refusal), proxy or stockholder agreements, or other agreements of any kind (whether oral or written, contingent, or otherwise) relating to the issuance, conversion, registration, voting, sale, or transfer of any shares of capital stock or other securities of the Company or obligating the Company or any other person or entity to purchase or redeem any such capital stock or other securities.

(c) All issued and outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws. The Conversion Shares have been duly and validly reserved for issuance. The Shares, when issued in compliance with the provisions of this Agreement and the Conversion Shares (collectively, the “Securities”), when issued upon conversion of the Shares in compliance with the provisions of the Charter, will have been duly authorized and validly issued, will be fully paid and nonassessable, will have been issued in compliance with all applicable laws concerning the issuance of securities, and will be free and clear of any Encumbrances; provided, however, that the Securities may be subject to restrictions on transfer under applicable securities laws, the Stockholders’ Agreement, and the Investor Rights Agreement. The issuance and sale of the Securities are not subject to any preemptive rights or rights of first refusal.

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(d) The Company has delivered to the Investors its current capitalization table, a true and complete copy of which is attached hereto as Schedule 3.6, which sets forth the name of each holder of securities of the Company (including, without limitation, any options issued under the Option Plan) and the type and number of securities held by each such holder, both immediately prior to and immediately after the Closing (giving effect to the transactions contemplated hereby).

Section 3.7 Subsidiaries.

(a) The Company has no Subsidiaries. For purposes of this Agreement, “Subsidiary” means (i) any corporation, of which a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote generally in the election of directors thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more of the other Subsidiaries of the Company or a combination thereof or (ii) any limited liability company, partnership, association or other business entity, of which a majority of the partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more Subsidiaries of the Company or a combination thereof. For purposes of this definition, the Company will be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if the Company will be allocated a majority of limited liability company, partnership, association or other business entity gains or losses, or is or controls the managing member, manager or general partner, or similar management or decision-making body, of such limited liability company, partnership, association or other business entity.

(b) The Company does not directly or indirectly own any equity, debt (other than trade payables) or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity, debt or similar interest in, any corporation, partnership, joint venture, or other business association or entity.

Section 3.8 Projections. The Company has delivered to the Investors the projections of the Company’s operating results that have been prepared by the Company’s management (the “Projections”), a true and complete copy of which is attached as Schedule 3.8. The Projections reflect the good faith reasonable estimate of the Company’s management, at the time such projections were prepared, of expected results of operations in the periods covered thereby, and nothing has come to the attention of the Company’s management that would lead it to believe that such Projections are not still reasonable estimates.

Section 3.9 Liabilities. The Company has no liabilities or obligations of any nature, whether accrued, absolute, contingent, or otherwise, asserted or unasserted, known or unknown, except liabilities and obligations stated on Schedule 3.9.

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Section 3.10 Agreements.

(a) Schedule 3.10 sets forth a true and complete list of all agreements, understandings, instruments, and contracts, proposed transactions (including a description of those currently being negotiated), judgments, orders, writs, or decrees to which the Company or the Founder is a party or, to the Company’s knowledge, by which it is bound that may involve the sale of the Company’s products or services to any customer, vendor, or provider; obligations (contingent or otherwise) of, or payments to, the Company in excess of $10,000; the license of any Proprietary Rights (as defined in Section 3.13 below) to or from the Company (other than licenses arising from the purchase of “off the shelf’ or other standard products); (iv) the development, administration, or distribution of the Company’s products or services, including without limitation, any that involve any brokers or dealers; (v) provisions restricting or affecting the development, manufacture, or distribution of the Company’s products or services or the Company’s freedom to compete in any line of business; (vi) any joint venture or similar arrangement; (vii) any restriction or limitation on the ability of the Company to pay dividends or make any other distributions or to repurchase, redeem, or otherwise acquire any of its equity securities; or (viii) indemnification by the Company of any other person or entity (except as may be provided in this Agreement and the Related Documents (each, a “Material Contract”).

(b) The Company has delivered to the Investors true and complete copies of each Material Contract. Each Material Contract is in full force and effect and is binding and enforceable against the parties thereto in accordance with its terms, and the Company has performed in all material respects all obligations required to be performed by it under each Material Contract, and no condition exists or events have occurred that, with or without the passage of time or giving of notice, would constitute a default by the Company under any Material Contract.

Section 3.11 Obligations to Related Parties. Except as set forth on Schedule 3.11, there are no obligations of the Company to any officers, directors, stockholders, or employees of the Company, or any of their respective Immediate Family Members (as defined below), other than for (a) payment of salary for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company, and (c) other standard employee benefits made generally available to all employees of the same category (including stock option agreements outstanding under the Option Plan). None of the officers, directors, stockholders, or employees of the Company, or any of their respective Immediate Family Members, (i) is indebted to the Company; (ii) is a party to or otherwise interested in any Material Contract; (iii) owns or holds, directly or indirectly, in whole or in part, any interest in any Proprietary Rights that the Company uses, or that may be necessary for the Company to use, in its business as now conducted, or as proposed to be conducted, as set forth in the Business Plan; (iv) has notified the Company of any claim, charge, action or cause of action against the Company (and the Company has no knowledge that there is any such claim, charge, action, or cause of action); or (v) has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or has a business relationship or that competes with the Company (except for ownership interests of less than one percent in publicly traded companies). The Company is not a guarantor or indemnitor of any indebtedness of any officer, director, stockholder, or employee of the Company, or any of their respective Immediate Family Members. For purposes of this Agreement, “Immediate Family Member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a person referred to herein.

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Section 3.12 Title to Properties and Assets. The Company has (a) good and valid title to its properties and assets, which properties and assets constitute all of the properties and assets necessary for the Company to conduct its business as presently conducted; and (b) good title to its leasehold estates, subject to no Encumbrances other than (i) those resulting from taxes that have not yet become due; and (ii) minor Encumbrances arising in the ordinary course of business that do not, individually or in the aggregate, have a Material Adverse Effect. All facilities, machinery, equipment, fixtures, vehicles, and other properties and assets owned, leased, or used by the Company are in good operating condition and repair, are reasonably fit and usable for the purposes for which they are being used, ordinary wear and tear excepted, and are sufficient for the conduct of the Company’s business as now conducted and as presently proposed to be conducted as set forth in the Business Plan. The Company is in compliance with all material terms of each lease to which it is a party or is otherwise bound. The Company does not own any real property.

Section 3.13 Proprietary Rights. The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, inventions, developments, information, and other proprietary rights and processes (collectively, “Proprietary Rights”) necessary for its business as now conducted and as proposed to be conducted, without any known infringement of the rights of others. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses, or agreements of any kind with respect to the Proprietary Rights of any other person or entity, other than such licenses, or agreements arising from the purchase of “off the shelf’ or other standard products. The Company has not received any communications alleging that the Company has violated or, by conducting its business as now conducted or as presently proposed to be conducted pursuant to the Business Plan, any of the Proprietary Rights of any other person or entity. To the Company’s knowledge, it is not now necessary, nor will it become necessary, for the Company to utilize any Proprietary Rights of any of its employees made prior to any such employee’s employment by the Company, except for any such Proprietary Rights that have been validly assigned to the Company.

Section 3.14 Litigation. There is no claim, action, suit, proceeding, or investigation pending or, to the Company’s knowledge, currently threatened against the Company or the Founder including, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of the Founder or any of the Company’s employees, their use in connection with the Company’s business of any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with their former employers. Neither the Founder nor the Company is a party to, or subject to, the provisions of any judgment, decree, order, writ, or injunction of any court or Governmental Entity. There is no action, suit, proceeding, or investigation by the Company currently pending or that the Company intends to initiate.

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Section 3.15 Tax Returns and Payments. The Company has timely filed all tax returns, reports, declarations, statements, and other information required by law to be filed with or supplied to any taxing authority with respect to the Taxes (as defined below) owed by the Company (the “Tax Returns”). All Taxes due and payable on or before the Closing have been paid or will be paid prior to the time they become delinquent. All Taxes that the Company is or was required by law to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Entity. The Company has not been advised (a) that any of the Tax Returns have been or are being examined or audited as of the date hereof, (b) that any such examination or audit is currently threatened or contemplated, or (c) of any deficiency in assessment or proposed judgment to its Taxes. The Company has not elected pursuant to the Code, to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, respectively, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a material effect on the Company, its financial condition, its business as presently conducted or any of its properties or material assets. The Company has no knowledge of any liability for any Taxes to be imposed upon its properties or assets as of the date of this Agreement. The Company has delivered or made available to the Investors true and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies filed by, assessed against or agreed to by the Company in the past three years. The Company has never been a member of a consolidated or affiliated group of corporations filing a consolidated or combined income Tax Return, nor does the Company have any liability for Taxes of any other person or entity. The Company is not a party to any tax allocation or sharing arrangement or tax indemnity agreement. For purposes of this Agreement, the term “Taxes” shall mean all taxes, charges, fees, levies, or other similar assessments or liabilities, including, without limitation, income, gross receipts, ad valorem, premium, value-added, excise, real property, personal property, sales, use, transfer, withholding, employment, payroll, and franchise taxes imposed by the United States of America or any other Governmental Entity, and any interest, fines, penalties, assessments, or additions to tax resulting from, attributable to or incurred in connection with any tax or any contest or dispute thereof

Section 3.16 Employment Matters.

(a) Schedule 3.16 sets forth a true and complete list of all “employee benefit plans” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (including the rules and regulations promulgated thereunder and any successor statute of similar import, “ERISA”)) that are maintained or operated by either the Company or any other person or entity (each, an “ERISA Affiliate”) that is treated as a single employer with the Company under Section 414 of the Internal Revenue Code of 1986, as amended (including the regulations issued by the U.S. Department of the Treasury from time to time as final or temporary, the “Code”) (each such employee benefit plan so listed, an “Employee Benefit Plan”). Neither the Company nor any ERISA Affiliate maintains or contributes to any “employee pension benefit plan” (as defined in Section 3(2) of ERISA) or “multiemployer plan” (as defined in Section 3(37) of ERISA). To the extent applicable, (i) each such Employee Benefit Plan has been maintained and operated in all material respects in compliance with its terms and with all applicable provisions of ERISA, the Code and all applicable regulations, rulings and other authority issued thereunder; (ii) all contributions required by law to have been made under each such Employee Benefit Plan (without regard to any waivers granted under Section 412 of the Code) to any fund or trust established thereunder or in connection therewith have been made by the due date thereof; (iii) no such Employee Benefit Plan is subject to Title IV of ERISA or Section 412 of the Code; (iv) none of such Employee Benefit Plans that are “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) provides for continuing benefits or coverage for any participant or beneficiary of a participant after such participant’s termination of employment, except as required by applicable law, including Section 4980B of the Code or Section 601 of ERISA; (v) there are currently no, and during the past three years there have been no, inquiries, claims, actions, suits, or proceedings pending or, to the Company’s knowledge, threatened by any Governmental Entity or by any participant or beneficiary against (A) any such Employee Benefit Plan, (B) the assets of any of the trusts under any such Employee Benefit Plan, (C) the sponsor or administrator of any such Employee Benefit Plan, or (D) any fiduciary of any such Employee Benefit Plan with respect to the design or operation of such Employee Benefit Plan, other than routine claims for benefits; and (vi) all reports and information required to be filed with the U.S. Department of Labor, the Pension Benefit Guaranty Corporation, or any other Governmental Entity or to be furnished to plan participants and their beneficiaries with respect to each such Employee Benefit Plan have been so filed and/or furnished.

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(b) Except for the Option Plan and any other agreements listed on Schedule 3.16, neither the Company nor the Founder are parties to or bound by any other currently effective employment contracts, arrangements, or commitments (including, without limitation, those with respect to sick leave, vacation pay, severance pay, salary continuation for disability, consulting or similar compensation arrangements, retirement plans, deferred compensation arrangements, bonus plan, incentive compensation plans, profit sharing plans, medical, dental and vision plans, life insurance, educational assistance programs, and other employee compensation arrangements). Except as otherwise specifically set forth on Schedule 3.16, all employees of the Company are “at will” employees. No employee of the Company has been granted the right to continued employment by the Company or to any material compensation following termination of employment with the Company. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not (i) entitle any employee, officer, or director of, or any consultant to, the Company to severance pay, unemployment compensation, or any other payment; or (ii) accelerate the time of payment or vesting of, or increase the amount of, any compensation due to any employee, officer, or director of, or any consultant to, the Company (including under the Option Plan).

(c) To the Company’s and the Founder’s knowledge, (i) no employee, officer, or director of, nor any consultant to, the Company is in violation of any term of any employment contract, proprietary information agreement, or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business now conducted or presently proposed to be conducted by the Company; and (ii) the Company has not received any notice alleging that any such violation has occurred.

(d) (i) Neither the Company nor the Founder is aware that any officer or key employee intends to terminate his or her employment with the Company; (ii) the Company does not have a present intention to terminate the employment of any officer or key employee; (iii) each officer and key employee of the Company is currently devoting 100% of his or her business time to the conduct of the business of the Company; and (iv) neither the Company nor the Founder is aware that any officer or key employee is planning to devote less than 100% of his or her business time to the conduct of the business of the Company in the future.

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(e) The Founder is not obligated under, and neither the Company nor the Founder are aware that any of the Company’s employees, officers, directors, or consultants is obligated under, any contract, agreement, instrument, license, covenant, or other commitment of any nature, or subject to any judgment, decree, order, writ, or injunction of any court or Governmental Entity, that would interfere with any such person’s duties to the Company or that would conflict with the Company’s business as now conducted or as presently proposed to be conducted. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, and the conduct of the Company’s business as now conducted and as presently proposed to be conducted, will not conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, agreement, instrument, license, covenant, or other commitment under which any employee, officer, director, or consultant is now obligated.

(f) The execution and delivery of this Agreement, and entering into the transactions described herein, by the Founder does not and will not violate, conflict with, or result in any breach of any terms, conditions or provisions or constitute a default under, any agreement or arrangement to which the Founder is a party or by which he is bound (including, without limitation, any covenant against competition, employment agreement, non-disclosure agreement, or any other agreement relating to past or present employment by, or consulting services provided to, any person or entity). The Founder acknowledges and agrees that he was not induced to leave his prior employment through any explicit or implied promises by any of the Investors or any affiliate thereof. The Founder has not utilized, nor is not now necessary, nor will it become necessary, for the Company to utilize any confidential information of any prior employer of the Founder.

(g) The Company has no collective bargaining agreements with any of its employees, and there is no labor union organizing activity pending or, to the Company’s knowledge, threatened with respect to the Company.

Section 3.17 Insurance. The Company maintains property, casualty, and liability insurance policies with coverage that is customary for companies similarly situated to the Company. The Company and all such policies are in full force and effect and the Company has not received any notices of cancellation or termination with respect thereto.

Section 3.18 Changes. Except for the transactions contemplated by this Agreement and the Related Agreements, since the Company’s inception, the Company has not conducted its business in any manner that has resulted in a Material Adverse Effect and the Company has not operated its business in any manner whatsoever that is inconsistent in any material respect with the Business Plan.

Weather events in the State of Texas, including, without limitation, the effect of the September 2005 storm designated by the National Weather Service as “Hurricane Rita”, have not had a Material Adverse Effect and have not materially adversely affected the Company’s ability to operate its business in accordance with the Business Plan.

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Section 3.19 Environmental and Safety Laws. Except as could not reasonably be expected to have a Material Adverse Effect (a) the Company is and has been in compliance with all Environmental Laws; (b) there has been no release or threatened release of any pollutant, contaminant or toxic or hazardous material, substance or waste, or petroleum or any fraction thereof, (each a “Hazardous Substance”) on, upon, into or from any site currently or heretofore owned, leased or otherwise used by the Company; (c) there have been no Hazardous Substances generated by the Company that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any governmental authority in the United States; and (d) there are no underground storage tanks located on, no polychlorinated biphenyls (“PCBs”) or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource Conservation and Recovery Act, as amended, stored on, any site owned or operated by the Company, except for the storage of hazardous waste in compliance with Environmental Laws. The Company has made available to the Investors true and complete copies of all material environmental records, reports, notifications, certificates of need, permits, pending permit applications, correspondence, engineering studies, and environmental studies or assessments.

For purposes of this Section 3.19, “Environmental Laws” means any law, regulation, or other applicable requirement relating to (a) releases or threatened release of Hazardous Substance; (b) pollution or protection of employee health or safety, public health or the environment; or (c) the manufacture, handling, transport, use, treatment, storage, or disposal of Hazardous Substances.

Section 3.20 Offering Valid. Assuming the accuracy of the representations and warranties of the Investors contained in Section 4.3 hereof and of the Series B Investors in the Subscription Agreement, the offer, sale, and issuance of the shares of Series A Preferred Stock and shares of Series B Preferred Stock and the shares to be issued upon conversion of such shares will be exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit, or qualification requirements of all other applicable securities laws. None of the Company, the Founder, or any agent on their behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of such shares to any person or entity so as to bring the sale of such securities by the Company within the registration provisions of the Securities Act or any other applicable securities laws.

Section 3.21 Minute Books; Board and Stockholder Materials. The Company has delivered or made available to the Investors true and complete copies of the minute books of the Company, which minute books contain a complete summary of all meetings of directors and stockholders of the Company since the Company’s formation.

Section 3.22 Investment Company Act. The Company is not an “investment company,” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

Section 3.23 Consulting Fees. No agent, broker, investment banker, person, or firm acting on behalf of or under the authority of the Company is or will be entitled to any broker’s or finder’s fee or any other commission directly or indirectly in connection with the transactions contemplated hereby, except that the Company is obligated to pay to Inter-Atlantic Advisors, Ltd. a structuring fee of $50,000 at the Closing (the “Structuring Fee”) and the Company is obligated to pay on behalf of the Founder the Consulting Fees.

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Section 3.24 Full Disclosure. To the Company’s and Founder’s knowledge, this Agreement and the Schedules and Exhibits hereto, the Related Agreements, and all other documents delivered by the Company and the Founder to the Investors or their respective attorneys or agents in connection herewith or therewith or with the transactions contemplated hereby or thereby do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained herein or therein not misleading. To the Company’s and Founder’s knowledge, there are no facts that, either individually or in the aggregate, could have a Material Adverse Effect that have not been set forth in this Agreement and the Schedules and Exhibits hereto, the Related Agreements, or in other documents delivered to the Investors in connection with the transactions contemplated hereby.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

Each Investor hereby represents and warrants to the Company as of the date of this Agreement as follows:

Section 4.1 Organization; Requisite Power. With respect to Inter-Atlantic Fund, L.P. (“Inter-Atlantic”), such Investor is a limited partnership duly organized and validly existing under the laws of Bermuda. With respect to Sequel Homeowners Investment, L.P. (“Sequel”), such Investor is a limited partnership, duly organized and validly existing under the laws of Texas. Inter-Atlantic was not organized for the purpose of making an investment in the Company. The Investor has all requisite corporate, partnership, or limited liability company, as the case may be, power and authority to execute and deliver this Agreement, the Related Agreements, and any other agreements, documents, and instruments to be delivered by the Investor that are contemplated herein or delivered pursuant hereto and to carry out their respective provisions.

Section 4.2 Authorization; Binding Obligations. All action on the part of the Investor necessary for the authorization of this Agreement and the Related Agreements and the performance of all obligations of the Investor hereunder and thereunder has been taken. This Agreement and the Related Agreements, when executed and delivered, will be legal, valid, and binding obligations of the Investor enforceable against the Investor in accordance with their respective terms.

Section 4.3 Investment Representations. The Investor understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon the following representations of the Investor:

(a) The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company. The Investor must bear the economic risk of this investment indefinitely unless the Securities are registered pursuant to the Securities Act and applicable state securities laws, or an exemption from registration is available.

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(b) The Investor is acquiring the Securities for the Investor’s own account for investment only, and not with a view towards their distribution other than in compliance with all applicable securities laws.

(c) The Investor has had an opportunity to ask questions and receive answers from the Founder and representatives of the Company concerning the terms and conditions of the investment, the properties, assets, liabilities, business, operations, financial condition, and prospects of the Company and all other matters deemed relevant to the Investor. The Investor has independently evaluated the transactions contemplated by this Agreement and has reached its own decision to enter into this Agreement and the Related Agreements. However, notwithstanding the Investor’s investigation, the Investor is relying on the representations, warranties, and covenants of the Company and the Founder set forth herein and in the Related Agreements in making this investment.

(d) The Investor is an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act.

Section 4.4 Transfer Restrictions. Each Investor hereby understands that the securities such Investor is purchasing are subject to certain transfer restrictions as follows:

(a) The Investor understands that none of the Securities have been registered under the Securities Act or the laws of any state and may not be sold, transferred, or otherwise disposed of without registration under the Securities Act and applicable state securities laws or pursuant to an exemption therefrom. The Investor understands that the Securities are “restricted securities” under U.S. federal and state securities laws and that the Investor must hold the Securities indefinitely unless the Securities are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Investor acknowledges that the Company has no obligation to register or qualify the Securities for resale, except as set forth in the Investor Rights Agreement. The Investor further understands and acknowledges that the Securities are subject to restrictions on transfer as set forth in the Stockholders’ Agreement and in the Investor Rights Agreement.

(b) The Investor acknowledges and understands that the transfer of any of the Securities is subject to the Investor’s compliance with the provisions of the Securities Act and any applicable state securities laws in respect of any such transfer and that even if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company that are outside the Company’s control and that the Company is under no obligation to, and they may be unable to, satisfy. The Investor further acknowledges and understands that any Securities issued hereunder may bear a legend as set forth in Section 5.2(a) below or any other legend as may be required by the Stockholders’ Agreement, the Investor Rights Agreement, and any other Related Agreements or the securities laws of any state applicable to the Securities represented by such legended certificate. The Investor understands that any transfer of the Securities is subject to the Investor’s and the Company’s compliance with the covenants set forth in Section 5.2 below.

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ARTICLE V
COVENANTS

Section 5.1 Breach of Representation and Warranty Concerning Capitalization. In the event of a breach at any time of the representation and warranty concerning the capitalization of the Company in Section 3.6 hereof, the number of Shares purchasable by each Investor pursuant hereto (and the number of Conversion Shares issuable upon the conversion thereof) shall automatically, with no further action on the part of any party hereto, be adjusted upward, if appropriate, without the payment of any additional consideration by such Investor, to that amount of Shares (and corresponding Conversion Shares) that should have been issued had such representation and warranty been true and correct at the time made so that the Investor’s percentage interest in the Company is not less than that which it was intended to be based upon the incorrect representation and warranty.

Section 5.2 Compliance with Securities Laws.

(a) The certificate or certificates representing the Shares purchased by the Investors hereunder, any Conversion Shares acquired by an Investor upon conversion of such Investor’s Shares and any other securities issued in respect of any of the Securities upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall be stamped or otherwise imprinted with the following legend (unless such a legend is no longer required under the Securities Act):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION THAT IS NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.

(b) The Company shall not be required to register the transfer of any of the Securities on the books of the Company unless the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company that such Securities sought to be transferred are eligible for transfer without registration under the Securities Act. Notwithstanding the foregoing, no such opinion of counsel shall be necessary to effectuate a transfer of any of the Securities (i) in accordance with the provisions of Rule 144(k) promulgated under the Securities Act; (ii) in accordance with the intended method of disposition set forth in any registration statement covering such Securities; or (iii) from an Investor to its partners or former partners in accordance with their partnership interests.

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(c) The restrictions upon the transferability of the Securities described in this Section 5.2 shall cease and terminate as to any of the Securities upon the earliest to occur of the following: (i) such Securities shall have been registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition by the seller or sellers thereof set forth in the registration statement covering such Securities; (ii) the Company shall have been provided with an opinion of counsel in form and substance reasonably satisfactory to the Company to the effect that the restrictive legend on such Securities is no longer required to establish compliance with the provisions of the Securities Act; or (iii) such Securities are transferred pursuant to Rule 144 or become transferable in accordance with the provisions of Rule 144(k) promulgated under the Securities Act. Whenever these restrictions shall terminate as provided above with respect to any of the Shares or Conversion Shares, the holder of any such Securities bearing the legend set forth in Section 5.2(a) shall be entitled to receive from the Company, at the Company’s expense (except for the payment of any applicable transfer taxes) and as expeditiously as possible, new stock certificates not bearing such legend.

Section 5.3 Future and Current Investments and Activities; Exculpation.

(a) Each Investor and its affiliates (i) shall be permitted to: (A) engage in a wide variety of activities and have investments in many other companies; (B) continue to develop its current and future business and investment activities not involving the Company without any restriction arising from the investment in the Company by the Investor or its affiliates, the right of the Investor or its affiliates to designate directors of the Company, or any other relationship, contractual or otherwise, between the Investor and any of its affiliates, on the one hand, and the Company or any of its affiliates, on the other hand; (C) pursue any of the foregoing activities (collectively, the “Activities”) without the Company interfering with or imposing conditions or restrictions on any of the Activities; and (D) engage in the Activities in any capacity, whether active or passive, without any obligation or liability to the Company, the Founder, or to any of its other stockholders (including, without limitation, any obligation to offer the Company, the Founder, or any of the other stockholders of the Company a right to acquire, participate, or have any interest of any nature whatsoever in any of such Activities), and no director designated by the Investor shall have any liability solely by reason of any such Activities (it being understood that no action by any director so designated in connection with any such Activities shall be deemed to constitute as such a breach by such director of any duty owed to the Company); and (ii) may, from time to time, in connection with the foregoing Activities, have information that may be useful to the Company, the Founder, or its other stockholders (which information may or may not be known by any director designated by the Investor), and the Investor and its affiliates and any director so designated shall not have any duty to disclose any information known to such person or entity to the Company, the Founder, or any of its other stockholders; provided, however, that this Section 5.3 shall not relieve the Investor, its affiliates, or any director designated by the Investor of its, his, or her duty of confidentiality with respect to confidential information of the Company.

(b) The Company hereby waives, to the full extent that it may do so under applicable law, any claim against the Investor arising under the corporate opportunity doctrine. In this connection, the Company represents that the Charter includes, in conformance with Section 122(17) of the Delaware General Corporation Law, a provision renouncing any interest or expectancy of the Company in, or being offered an opportunity to participate in, any business opportunities presented to the Investor or any of their respective affiliates from whatever source other than the Company.

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(c) The Investor acknowledges that it is not relying upon any other Investor or such other Investor’s affiliates in making its investment or decision to invest in the Company.

Section 5.4 Reservation of Common Stock. The Company will at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Shares and issuing the Conversion Shares, such number of shares of Common Stock as shall be necessary from time to time to effect such conversion. If at any time, the number of authorized but unissued shares of Common Stock shall be insufficient to effect the conversion of the Shares, the Company shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient to authorize the issuance of the Conversion Shares.

Section 5.5 Formation of Insurance Subsidiary.

(a) The Company shall promptly file with the Department an application for a permit to organize a wholly-owned Subsidiary, to be named Homeowners of America Insurance Company, to operate as an insurance company and an application for a Certificate of Authority to operate it as an insurance company. The Company shall use its commercially reasonable efforts to cause the permit and the Certificate of Authority to be issued and to cause the Company’s insurance products to be approved by the Department, in each case within 180 days following the date hereof.

(b) Until the covenants in Section 5.5(a) have been fully and satisfactorily fulfilled, the Company shall segregate $4,000,000 of cash and/or securities from its other assets and shall not use such funds for any of its operations.

ARTICLE VI
EXPENSES; INDEMNIFICATION

Section 6.1 Expenses. If the sale of Series A Preferred Stock to the Investors is consummated and subject to approval by the Company’s board of directors, the Company shall reimburse (to the extent approved by the Company’s board of directors) out-of-pocket and due diligence expenses incurred by Inter-Atlantic and Sequel (capped at $10,000 with respect to Sequel) in connection with the transactions contemplated by this Agreement and due diligence related thereto (including without limitation the legal fees and charges for disbursements of Lowenstein Sandler PC, the fees and charges for disbursements of due diligence experts, the reference, background, and credit checks performed by Corporate Resolutions, Inc., and the travel and out-of-pocket expenses of the representatives of the Investors), as approved by the Company’s Board of Directors, which approval shall not be unreasonably withheld, delayed or conditioned (the “Transaction Expenses”); and (ii) in connection with any amendments, joinders, or waivers (whether or not the same become effective) of this Agreement, the Related Agreements, or any documents referred to herein or delivered to the Investor pursuant hereto from time to time. The costs and expenses to be reimbursed under this Section 6.1 include, without limitation, (a) the cost and expenses of preparing and duplicating this Agreement and the Securities; (b) the cost of delivering to each of the Investors’ principal offices, insured to each of the Investors’ satisfaction, the Securities sold to each of the Investors hereunder and any Securities delivered to the Investors in exchange therefor or upon any conversion, exercise, exchange, or substitution thereof; and (c) all taxes (other than taxes determined with respect to the income of any Investor), including any recording fees and filing fees and documentary stamp and similar taxes at any time payable in respect of this Agreement or the issuance of any of the Securities. The Company hereby authorizes Inter-Atlantic and Sequel (subject to the foregoing cap for Sequel) to deduct the amount of the Transaction Expenses and the Structuring Fee from the purchase price of the Shares otherwise payable hereunder upon the Closing, as applicable.

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Section 6.2 Damages. The Company and the Founder, jointly and severally, will indemnify, defend, and hold harmless each of the Investors, and any such Investor’s limited and general partners, officers, directors, employees, agents, and representatives (the “Investor Indemnified Parties”) , from and against any and all damages, losses, claims, demands, actions, causes of action, suits, litigations, arbitrations, liabilities, costs, and expenses, including without limitation court costs and the fees and expenses of counsel and experts (collectively, “Damages”) incurred or suffered by any of them in any capacity and resulting from or relating to a breach by the Company or the Founder of any of their representations or warranties contained in this Agreement or in the case of any of the covenants contained in this Agreement to the extent such covenants are to be performed at or before the Closing. The Company will indemnify, defend, and hold harmless the Investors, and each of the Investors’ limited and general partners, officers, directors, employees, agents, and representatives, from and against any and all Damages incurred or suffered by any of them in any capacity and resulting from or relating to the breach by the Company of any of its covenants or agreements contained in this Agreement that are to be performed after the Closing. Following the Closing, the sole and exclusive remedy for each of the Investor Indemnified Parties with respect to any and all claims relating to a breach of this Agreement by the Founder shall be pursuant to the indemnification provisions set forth in this Section 6.2.

Section 6.3 Survival. The obligations of the Company under this Article VI will survive transfer of the Securities and the termination of this Agreement.

ARTICLE VII
MISCELLANEOUS

Section 7.1 Governing Law; Consent to Jurisdiction. This Agreement and all matters arising directly and indirectly herefrom, shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to the choice of law principles thereof. Any legal action, suit or proceeding arising out of or relating to this Agreement, any of the other Related Agreement or the transactions contemplated hereby or thereby shall only be instituted, heard and adjudicated (excluding appeals) in a state or federal court located in the Southern District of New York, and each party hereto knowingly, voluntarily and intentionally waives any objection which such party may now or hereafter have to the laying of the venue of any such action, suit or proceeding, and irrevocably submits to the exclusive personal jurisdiction of any such court in any such action, suit or proceeding. Service of process in connection with any such action, suit or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement.

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Section 7.2 Waiver of Punitive and Other Damages and Jury Trial.

(a) Each party to this Agreement expressly waives and foregoes any right to recover consequential, special, punitive, exemplary or similar damages or lost profits, whether or not such party had notice thereof or the occurrence thereof was foreseeable, in any arbitration, lawsuit, litigation or proceeding arising out of or resulting from any controversy or claim arising out of or relating to this agreement or the transactions contemplated hereby.

(b) Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues. ACCORDINGLY, EACH SUCH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. Each party certifies and acknowledges that (i) no other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each such party understands and has considered the implications of this waiver, and (iii) each such party has been induced to enter into this Agreement by, among other things, the waivers and certifications in this Section 7.2.

Section 7.3 Prevailing Party’s Costs and Expenses. The prevailing party in any action or proceeding to enforce or interpret this Agreement shall be entitled to recover from the non-prevailing party all costs and expenses, including reasonable attorneys’ fees and disbursements, incurred in such action or proceeding.

Section 7.4 Cumulative Remedies; Failure to Pursue Remedies. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to use any or all other remedies. These rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance, or otherwise. Except where a time period is specified, no delay on the part of any party in the exercise of any right, power, privilege, or remedy under this Agreement shall operate as a waiver thereof, nor shall any exercise or partial exercise of any such right, power, privilege, or remedy preclude any further exercise thereof or the exercise of any other right, power, privilege, or remedy.

Section 7.5 Equitable Remedies. The parties hereto understand that irreparable harm would occur if any of the agreements and provisions of this Agreement were not performed fully by the parties hereto in accordance with their specific terms or conditions or were otherwise breached and that money damages are an inadequate remedy for breach of this Agreement or the because of the difficulty of ascertaining and quantifying the amount of damage that will be suffered by the parties hereto if this Agreement is not performed in accordance with its terms or conditions or is otherwise breached. The parties hereto shall be entitled to an injunction or injunctions to restrain, enjoin, and prevent breaches of this Agreement by the other parties and to enforce specifically such terms and provisions of this Agreement such remedy being in addition to and not in lieu of, any other rights and remedies to which the other parties are entitled to at law or in equity.

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Section 7.6 Amendment and Waiver. This Agreement may be amended or modified and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by the Company and the Founder, on the one hand, and Investors holding at least a majority of the then outstanding shares of Series A Preferred Stock, on the other hand, and for matters concerning the Founder in his individual capacity, the Founder. Any amendment or waiver so effected shall be binding upon the Company, the Investor, the Founder and all of their respective successors and permitted assigns, whether or not such party, assignee, or other shareholder has entered into, executed, or approved such amendment or waiver. The Company shall give prompt written notice of any amendment or termination of this Agreement or waiver hereunder to any party that did not consent in writing to such amendment, termination, or waiver. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition, or provision.

Section 7.7 Assignment; Binding Effect. The rights and obligations set forth in this Agreement may not be assigned or delegated by the Company or the Investors without the prior written consent of the other, except that prior to the Closing, the Investors may assign, in whole or in part, their rights and delegate their obligations hereunder (including, without limitation, the right to purchase any or all of the Shares and the obligation to pay all or any portion of the purchase price in respect thereto) to any affiliate of the Investors without obtaining the prior written consent of the Company, and after the Closing, the Investors may assign their rights hereunder to any person or entity who acquires any Securities from the Investors. This Agreement shall be binding upon and inure to the benefit of all of the parties and, to the extent permitted by this Agreement, their successors, legal representatives, and permitted assigns.

Section 7.8 Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth below, or to such address or facsimile number as subsequently modified by written notice given in accordance with this Section 7.8.

All notices to the Company shall be sent to:

Homeowners of America Holding Corporation

5021 Briar Tree Drive

Dallas, Texas 75248

Attention: Spencer W. Tucker

Fax: 972.267.0315

with a copy (which shall not constitute notice) sent at the same time and by the same means to:

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Jones Day

2727 North Harwood Street

Dallas, Texas 75201-1515

Attention: Mark T. Goglia, Esq.

Tel: 214.959.5043

Fax: 214.969.5100

All notices to the Investors shall be sent to:

Inter-Atlantic Fund, L.P.

do Inter-Atlantic Advisors, Ltd.

400 Madison Avenue

New York, New York 10017

Attn: Brett G. Buis

Tel: 212.581.2188

Fax: 212.581.2433

E-mail: brett@interatlanticgroup.com

with a copy (which shall not constitute notice) sent at the same time and by the same means to:

Lowenstein Sandler LP

65 Livingston Avenue

Roseland, New Jersey 07068

Attn: Anthony 0. Pergola, Esq.

Tel: 973.597.2444

Fax: 973.597.2445

E-mail: apergola@lowenstein.com

Sequel Homeowners Investment, L.P.

8080 N. Central Expressway

Suite 1490

Dallas, Texas 75206

Attn: John Madden

Tel: 214.292.4150

Fax: 214.292.4155

Email: jmadden@sequelholdings.com

with a copy (which shall not constitute notice) sent at the same time and by the same means to:

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Hallett & Perrin, P.C.

2001 Bryan Street

Suite 3900

Dallas, Texas 75201

Attn: Scot W. O’Brien

Tel: 214.922-4101

Fax: 214.922-4144

Email: sobrien@hallettperrin.com

Section 7.9 Severability. If any term or provision of this Agreement, or the application thereof to any person or circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or application to other persons or circumstances, shall not be affected thereby, and each term and provision of this Agreement shall be enforced to the fullest extent permitted by law.

Section 7.10 Survival. The representations, warranties, covenants, and agreements made in this Agreement and in the certificates, Schedules, and other documents delivered pursuant to this Agreement shall survive the Closing for a period of five (5) years with respect to the Company and for two (2) years with respect to the Founder. Anything in this Agreement to the contrary notwithstanding, the representations and warranties of the Company and the Founder hereunder shall not be affected by any investigation of the Company or the Founder made by the Investors or their respective agents or representatives.

Section 7.11 Construction. Whenever the context requires, the gender of any word used in this Agreement includes the masculine, feminine, or neuter, and the number of any word includes the singular or plural. Unless the context otherwise requires, all references to articles and sections refer to articles and sections of this Agreement, and all references to exhibits and schedules are to schedules attached hereto, each of which is made a part hereof for all purposes.

Section 7.12 Headings. The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof.

Section 7.13 Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document, and all counterparts shall be construed together and shall constitute one instrument. A facsimile or photocopied signature shall be deemed to be the functional equivalent of an original for all purposes.

Section 7.14 Entire Agreement. This Agreement and the attached Schedules and Exhibits, the Related Agreements, and the other documents delivered pursuant to this Agreement constitute the full and entire understanding and agreement among the parties hereto pertaining to the subject matter of this Agreement and supersede all prior understandings and agreements pertaining to such subject matter, whether oral or written, including the Letter Agreement, dated March 15, 2005, by and between Inter-Atlantic Fund, L.P. and Spencer W. Tucker.

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Section 7.15 Further Assurances. Each party hereto shall use its reasonable best efforts to comply with all requirements imposed hereby on such party and to cause the transactions contemplated hereby and by the other agreements contemplated herein to be consummated as contemplated hereby or thereby and shall, from time to time and without further consideration, either before or after the Closing, execute such further instruments and take such other actions as any other party hereto shall reasonably request in order to fulfill its obligations under this Agreement and such other agreements, to effectuate the purposes of this Agreement and such other agreements.

[The remainder of this page is intentionally left blank.]

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

	COMPANY:

	HOMEOWNERS OF AMERICA HOLDING CORPORATION

	By:
	Name: Spencer W. Tucker
	Title: Chief Executive Officer

	SERIES A INVESTORS:

	INTER-ATLANTIC FUND, L.P.

	By:	Inter-Atlantic Advisors, Ltd., its general partner

	By:
		Its

	By:
	Name:
	Title:

	FOUNDER:


	Spencer W. Tucker

[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

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EX-10.5 13 v347100_ex10-5.htm EXHIBIT 10.5

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of this 11th day of November, 2005, by and among Homeowners of America Holding Corporation, a Delaware corporation (the “Company”) and Spencer W. Tucker (the “Executive”).

WHEREAS, the Company desires to continue to employ Executive as its Chief Executive Officer on the terms and conditions set forth herein;

WHEREAS, Executive desires to accept such continued employment on the terms and conditions set forth herein; and

WHEREAS, (a) in the course of his employment with the Company, Executive has obtained and will obtain confidential and proprietary information and trade secrets concerning the business and operations of the Company and its Affiliates (as defined below); and (b) the covenants and restrictions contained in Sections 8 through Section 14, inclusive, are intended to protect the legitimate interests of the Company and its Affiliates in their respective goodwill, trade secrets and other confidential and proprietary information.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein and for other good and valuable consideration, the Company and Executive hereby agree as follows:

Section 1. Agreement to Employ; No Conflicts

Upon the terms and subject to the conditions of this Agreement, the Company hereby employs Executive, and Executive hereby accepts employment by the Company. Executive represents that (a) he is entering into this Agreement voluntarily, (b) he has not, and in connection with his employment with the Company will not, violate any non-compete, non-solicitation or other similar covenant, agreement or duty by which he is or may be bound or subject and (c) he has the legal capacity to enter into this agreement.

Section 2. Term; Position and Responsibilities

(a) Term of Employment. Unless Executive’s employment shall sooner terminate pursuant to Section 7, the Company shall employ Executive for a term commencing on the date hereof (the “Commencement Date”) and ending on the first anniversary of the Commencement Date (the “Initial Term”). Effective upon the expiration of the Initial Term and of each Additional Term (as defined below), Executive’s employment hereunder shall be deemed to be automatically extended, upon the same terms and conditions, for an additional period of one year (.each, an “Additional Term”), in each such case, commencing upon the expiration of the Initial Term or the then current Additional Term, as the case may be, unless the Company, at least thirty days prior to the expiration of the Initial Term or such Additional Term, shall give written notice (a “Non-Extension Notice”) to Executive of its intention not to extend this Agreement. The period during which Executive is employed pursuant to this Agreement, including any extension thereof in accordance with the preceding sentence, shall be referred to as the “Employment Period”.

(b) Position and Responsibilities. During the Employment Period, Executive shall serve as Chief Executive Officer of the Company and shall have such duties and responsibilities (including, without limitation, such positions, roles, duties and responsibilities with Subsidiaries and Affiliates of the Company) as are assigned to him by the Board of Directors of the Company (the “Board”) from time to time. Executive shall devote his skill, knowledge and full working time to the conscientious performance of the duties and responsibilities of such positions.

(c) Resignation upon termination. Upon termination of Executive’s employment for any reason, Executive shall immediately resign from any other office or offices within the Company and any Subsidiary of the Company that Executive may then hold, and from the Board and the board of any Subsidiary.

Section 3. Base Salary

As compensation for the services to be performed by Executive in any capacity, for the Company, any Subsidiary and any Affiliate, the Company shall pay Executive an aggregate base salary at an annualized rate of $100,000.00, payable in installments on the Company’s regular payroll dates; provided, however, that until the Company’s to-be-formed Texas insurance subsidiary has received all necessary licenses and approvals from the Texas Department of Insurance to operate in accordance with the business plan of such subsidiary as approved by the Board, the Executive’s base salary shall be at an annualized rate of $60,000.00. The Board shall review Executive’s base salary annually during the period of his employment hereunder and, in its sole discretion, may increase such base salary from time to time based upon such factors as the Board shall consider relevant, provided that such increase shall be affirmatively approved by at least one of the directors designated by Inter-Atlantic Fund, L.P. (the “IA Director”) to serve on the Board. (The annual base salary payable to Executive under this Section 3, as the same may be increased from time to time, shall hereinafter be referred to as the “Base Salary”.)

Section 4. Discretionary Bonus

During the Employment Period, the Executive shall be eligible to receive an annual bonus from the Company, in such amount, if any, as may be determined by the Board in its sole discretion

Section 5. Employee Benefits

During the Employment Period, Executive shall be entitled to participate in the stock option, pension, retirement, deferred compensation, savings, life, medical, dental, disability and other welfare benefit plans maintained by the Company for its employees in accordance with the terms thereof, as the same may be amended and in effect from time to time.

Section 6. Perquisites and Expenses

(a) General. During the Employment Period, Executive shall be entitled to participate in all perquisite programs as adopted by the Board and maintained by Company for its employees, as the same may be amended and in effect from time to time. The Company may amend, modify or rescind any employee benefit plan or program and change employee contribution amounts to benefit costs without notice in its discretion.

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(b) Business Travel, Lodging, etc. The Company shall reimburse Executive for reasonable travel, lodging, meal and other reasonable expenses incurred by him in connection with his performance of services hereunder upon submission of evidence, satisfactory to the Company, of the incurrence and purpose of each such expense and otherwise in accordance with the Company’s business travel and expense reimbursement policy applicable to its senior executives as adopted by the Board and in effect from time to time.

(c) Vacation. During the Employment Period, Executive shall be entitled to paid vacation in accordance with the Company’s vacation policy as in effect from time to time.

(d) Insurance. The Company may at its discretion and at any time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Executive in such amounts and in such form or forms as the Company may choose. Executive shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be required by the insurance company or companies to whom the Company has applied for such insurance. Executive shall have no interest whatsoever in any such policy or policies.

Section 7. Termination of Employment

(a) Termination by the Company for Cause. Executive may be terminated for Cause (as defined below) by the Company. “Cause” shall mean (i) the willful, deliberate, or reckless failure of Executive to substantially perform his duties hereunder, (ii) the commission by the Executive of an act of fraud against the Company, any Subsidiary or Affiliate, or any customer, client, vendor or business partner of the Company, any Subsidiary or Affiliate; (iii) the Executive knowingly or recklessly providing materially false information concerning the Company to the Board, the board or equivalent body of any Subsidiary or Affiliate, any governmental body, any regulatory agency, any lender or other financing source, or any shareholder of the Company; (iv) substantial underperformance by the Executive as evidenced by the Company and its Subsidiaries and Affiliates (on a consolidated basis) falling more than 50% below performance parameters established in good faith by the Board, provided, the initial parameters for performance shall be set by the Board within the first nine months from the date of this Agreement, and, reviewed and updated on a yearly basis by January 31 of each year thereafter; provided, further, in setting performance parameters the Board shall take into consideration, among other matters, the capitalization of the Company, the performance of similarly sized insurance companies, and the performance of the Company’s industry as a whole; (v) Executive’s engaging in willful and serious misconduct that has caused, or could reasonably be expected to result, in material injury to the business, prospects, operations or reputation of the Company or any of its Subsidiaries or Affiliates; (vi) Executive’s conviction of, or entering a plea of guilty or nolo contendere to, a crime that constitutes a felony; or (vii) failure to in any material respect perform Executive’s duties as assigned to Executive by the Board from time to time (after a written warning and a 10 day opportunity to cure) or any other material breach of this Agreement or any other Agreement between the Executive, on the one hand, and the Company or any of its Subsidiaries or Affiliates on the other.

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(b) Termination by Company Without Cause. Executive’s employment hereunder may be terminated by the Company for any or no reason. A termination “Without Cause” shall mean a termination of Executive’s employment by the Company other than due to (i) Disability as described in Section 7(d) or (ii) for Cause as described in Section 7(a).

(c) Termination by Executive. Executive may terminate his employment for any or no reason upon prior written notice delivered to the Company of not less than 30 days. A termination of employment by Executive for “Good Reason” shall mean a termination by Executive of his- employment with the Company, by written notice to the Company specifying in reasonable detail the circumstances claimed to provide the basis for such termination, within 20 days following the occurrence, without Executive’s consent, of any of the following events and the failure of the Company to correct the circumstances set forth in Executive’s notice of termination within 20 days of receipt of such notice: (i) the assignment to Executive of duties that are significantly different from, and that result in a substantial diminution of, the duties that he is to assume on the Commencement Date, (ii) the failure of the Company to obtain the assumption of this Agreement by any successor to the Company (including any purchaser of more than eighty (80%) of the assets of the Company), (up a relocation of the place of business at which the Executive must regularly report, from the current location in Dallas, Texas, to a location located more than 50 miles from such current location, or (iv) a material and sustained reduction in the rate of Executive’s Base Salary, other than in connection with a reduction in salary to all executive officers of the Company due to the Company’s financial condition. Notwithstanding anything herein to the contrary, placing Executive on paid leave for up to 90 days in any given 12 month period, pending a determination of whether there is a basis to terminate Executive for “Cause”, shall not constitute a “Good Reason.”

(d) Termination Due to Death or Disability. Executive’s employment hereunder terminates due to his death or is terminated by the Company due to Executive’s Disability (as defined below) no termination benefits shall be payable to or in respect of Executive except as provided in Section 7(f)(ii) purposes of this Agreement, “Disability” shall mean a physical or mental disability that prevents or is reasonably expected to prevent the performance by Executive of his duties hereunder for a continuous period of 90 days or longer or for 180 days or more in any 12-month period. The determination of Executive’s Disability shall (i) be made by an independent physician who is reasonably acceptable to the Company and Executive (or his representative), (ii) be final and binding on the parties hereto and (1) be made taking into account such competent medical evidence as shall be presented to such independent physician by Executive and/or the Company or by any physician or group of physicians or other competent medical experts employed by Executive and/or the Company to advise such independent physician.

(e) Notice of Termination. Any termination of Executive’s employment by Company pursuant to Section 7(a), 7(b) or 7(d), or by Executive pursuant to Section 7(c), shall be communicated by a written Notice of Termination addressed to the other party to this Agreement. A “Notice of Termination” shall mean a notice stating that Executive’s employment with Company has been or will be terminated and the specific provisions of this Section 7 under which such termination is being effected. A Non-Renewal Notice shall also be deemed “Notice of Termination.”

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(f) Payments Upon Certain Terminations.

(i) In the event of Executive’s employment termination by Company Without Cause (a “Qualifying Termination”), Company shall pay to Executive his full Base Salary through the Date of Termination and, as liquidated damages in respect of claims based on provisions of this Agreement, his Base Salary, at the rate in effect hereunder immediately prior to the Qualifying Termination, which shall be payable in installments on Company’s regular payroll dates, for an eighteen (18) month period (the “Severance Period”); provided, however, that if the event of termination of Executive’s employment occurs on or after September 30, 2010, and such event of termination is related to, occurs simultaneously with, or follows a liquidation of the Company or a Deemed Liquidation Event (as defined in the Company’s Certificate of Incorporation), there shall be no Severance Period and the Executive shall not be entitled to any severance payments.

If Executive’s employment shall terminate and he is entitled to receive continued payments of his Base Salary under this Section 7(f)(i), the Company shall continue to provide to Executive during the Severance Period the life, medical, dental, accidental death and dismemberment and prescription drug benefits referred to in Section 5 (the “Continued Benefits”).

Notwithstanding anything to the contrary contained in this Agreement, the Executive (or his estate) shall not be entitled to receive the payments and Continued Benefits set forth in this Section 7(f)(i) (other than Base Salary through the Date of Termination) prior to (1) the execution and delivery by the Executive to the Company of a valid and fully effective general release and nondisparagement agreement (in form and substance reasonably satisfactory to the Company) of all claims, including but not limited to the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, which the Executive might have at such time against the Company and (2) the resignation of the Executive from all positions of any nature which the Executive may then have held with the Company and any subsidiary of the Company.

(ii) If this Agreement is not renewed by the Company (other than as a result of the Executive’s death, Disability, termination by the Company for Cause, or a Qualifying Termination) or if Executive terminates his employment for Good Reason, Company shall pay to Executive his full Base Salary through the Date of Termination and, as liquidated damages in respect of claims based on provisions of this Agreement, his Base Salary, at the rate in effect hereunder immediately prior to such non-renewal or termination by Executive, which shall be payable in installments on Company’s regular payroll dates, for a one (1) year period, provided, however, that if the event of termination of Executive’s employment occurs on or after September 30, 2010, and such event of termination is related to, occurs simultaneously with, or follows a liquidation of the Company or a Deemed Liquidation Event (as defined in the Company’s Certificate of Incorporation), there shall be no severance period and the Executive shall not be entitled to any severance payments.

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(iii) If Executive’s employment shall terminate due to his death or Disability, or if Executive terminates his employment without Good Reason, or if the Company shall terminate Executive’s employment for Cause, Company shall pay Executive (or, in the event of his death, his beneficiaries), his full Base Salary through the Date of Termination, and the Executive shall not be entitled to any severance payments.

(g) Date of Termination. As used in this Agreement, the term “Date of Termination” shall mean (i) if Executive’s employment is terminated by his death, the date of his death, if Executive’s employment is terminated by the Company, the later of the date on which Notice of Termination is given as contemplated by Section 7(e), the date of termination specified in such notice and the date any applicable correction period ends, and (iii) if Executive’s employment is terminated due to Executive’s Disability or by Executive for any reason, the later of the date that is 30 days after the date on which Notice of Termination is given as contemplated by Section 7(e) and the date any applicable notice or correction period ends; and (iv) the expiration of the Initial Term or any Additional Term.

(h) Resignation upon Termination. If the Executive’s employment is terminated for any reason, then the Executive shall resign, in writing, from the Board and from the board of directors or similar body of each Subsidiary and Affiliate, if applicable, effective as of the Date of Termination.

Section 8. Unauthorized Disclosure

Executive shall not, either during or after the termination of Executive’s employment with the Company, without the prior written consent of the Board or its authorized representative, except to the extent required by an order of a court having jurisdiction or under subpoena from an appropriate government agency, in which event, Executive shall use his best efforts to consult with the Board prior to responding to any such order or subpoena, and except as required in the performance of his duties hereunder, directly or indirectly disclose any confidential or proprietary information (in any medium) and whether acquired by him before, during or after his employment by the Company, including but not limited to trade secrets, customer lists, sales agents, referral sources, providers and provider networks, information regarding product development, marketing plans, sales plans, manufacturing plans, management organization information (including but not limited to data and other information relating to members of the Board, the Company or any of their respective Affiliates or to management of the Company or any of their respective Affiliates), operating policies or manuals, business plans, financial records, packaging design or other financial, commercial, business or technical information (a) relating to the Company or any of its Affiliates or (12) that the Company or any of its Affiliates may receive belonging to suppliers, customers or others who do business with the Company or any of their respective Affiliates to any third person unless such information has been previously disclosed to the public or is in the public domain, other than by reason of Executive’s breach of this Section 8 (collectively, “Confidential Information”).

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Section 9. Non-Disparagement

Executive shall not, either during Executive’s employment with the Company or after the termination of his employment, directly or indirectly, engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way the Company, any Subsidiary, or any Affiliate of any of these, or any products or services offered by any of these, nor shall he engage in any other conduct or make any other statement that could be reasonably expected to impair the goodwill of the Company, any Subsidiary, or any Affiliate of these, the reputation of Company products or services or the marketing of Company products or services, in each case except to the extent required by law, and then only after consultation with the Company to the extent possible

Section 10. Non-Solicitation of Employees

During the period commencing on the date hereof and ending on the second anniversary of the Date of Termination, Executive shall not, directly or indirectly, for his own account or for the account of any other Person, solicit for employment, employ or otherwise interfere with the relationship of the Company or any of its Affiliates with any natural person who is or was employed by, or served as an agent of or consultant to, the Company or any of its Affiliates at any time during the two-year period preceding such solicitation, employment or interference.

Section 11. Non-Competition

(a) During the Restriction Period (as defined below), Executive shall not directly or indirectly, own, manage, operate, control, invest in, be employed by, participate in or be connected in any manner with the ownership, management, operation, finance or control of a Competitive Business (as defined below), including without limitation (i) accepting employment or engagement with or providing advisory services or financial assistance to any Competitive Business, (ii) soliciting (or assisting in the solicitation of), any person or business who was a customer or supplier of Company or its subsidiaries, or (iii) contacting any persons or businesses who were customers of Company or its subsidiaries for the purpose of soliciting orders or establishing relationships for any Competitive Business.

(b) The “Restriction Period” shall commence on the date hereof and end on the date that is eighteen (18) months following the Date of Termination.

(c) For purposes of this Agreement, “Competitive Business” means, whether acting as an agent, an insurance company, or otherwise, the sale or distribution of residential property and/or homeowner’s insurance within the State of Texas or any other states in which, on or prior to the Date of Termination, the Company either operates its business or has proposed to operate its business.

Section 12. Return of Documents

In the event of the termination of Executive’s employment for any reason, Executive shall deliver to the Company all of (a) the property of each of the Company and its Affiliates and the documents and data of any nature and in whatever medium of each of the Company and its Affiliates, and he shall not take with him any such property, documents or data or any reproduction thereof, or any documents containing or pertaining to any Confidential Information.

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Section 13. Inventions and Improvements

Until the Date of Termination, Executive shall promptly communicate to the Company all ideas, discoveries, and inventions that are or may be useful to the Company or its business. Executive acknowledges that all ideas, discoveries, inventions and improvements that have ever been or are made, conceived or reduced to practice by him relating to the Company’s business interests are the property of the Company, and Executive irrevocably assigns all such ideas, discoveries, inventions, and improvements to the Company for its sole use and benefit, without additional compensation. The provisions of this Section 13 shall apply whether such ideas, discoveries, inventions, and improvements are conceived, made or gained by him alone or with others, whether during or after usual working hours, whether on or off the job, whether applicable to matters directly or indirectly related to the Company’s business interests (including potential business interests), whether or not within the specific realm of his duties, and whether or not they were conceived, made or gained before or after the commencement of the Employment Period. Executive shall, upon request of the Company, at any time during or after his employment with the Company, sign all instruments and documents requested by the Company and otherwise cooperate with the Company to protect its right to such ideas, discoveries, inventions, and improvements, including applying for, obtaining and enforcing patents and copyrights thereon in any and all countries.

Section 14. Injunctive Relief with Respect to Covenants

(a) The Executive acknowledges that the restrictions contained in Sections 8, 9, 10, 11, 12 and 13 hereof are reasonable and necessary to protect the legitimate interests of the Company, that the Company would not have entered into this Agreement in the absence of such restrictions, and that any violation of any provision of those Sections will result in irreparable injury to the Company. The Executive represents that his experience and capabilities are such that the restrictions contained in Section 11 hereof will not prevent the Executive from obtaining employment or otherwise earning a living at the same general level of economic benefit as is anticipated by this Agreement. THE EXECUTIVE FURTHER REPRESENTS AND ACKNOWLEDGES THAT (i) HE HAS BEEN ADVISED BY THE COMPANY TO CONSULT HIS OWN LEGAL COUNSEL IN RESPECT OF THIS AGREEMENT, (ii) THAT HE HAS HAD FULL OPPORTUNITY, PRIOR TO EXECUTION OF THIS AGREEMENT, TO REVIEW THOROUGHLY THIS AGREEMENT WITH HIS COUNSEL, AND (iii) HE HAS READ AND FULLY UNDERSTANDS THE TERMS AND PROVISIONS OF THIS AGREEMENT.

(b) The Executive agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of Sections 8, 9, 10, 11, 12 or 13 hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled.

(c) The Executive agrees that he will provide a copy of Sections 8, 9, 10, 11, 12, 13 and 14 of this Agreement to any for-profit business or enterprise (i) which he may directly or indirectly own, manage, operate, finance, join, participate in the ownership, management, operation, financing, control or control of, or (ii) with which he may be connected with as an officer, director, employee, partner, principal, agent, representative, or consultant, or in connection-with which he may use or expressly permit his name to be used; provided, however, that this provision shall not apply in respect of Section 10 or 11 of this Agreement after expiration of the time periods set forth therein

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Section 15. Entire Agreement

This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. All prior correspondence and proposals (including but not limited to summaries of proposed terms) and all prior promises, representations, understandings, arrangements and agreements relating to such subject matter (including but not limited to those made to or with Executive by any other Person) are merged herein and superseded hereby. Notwithstanding the foregoing, Employee has executed a Confidentiality, Proprietary Information and Inventions Agreement effective as of May 12, 2005 (the “CPIIA”), and to extent this Agreement and the CPIIA conflict, this Agreement shall control.

Section 16. Miscellaneous

(a) Binding Effect; Assignment. This Agreement shall be binding on and inure to the benefit of the Company, and their respective successors and permitted assigns. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto, except as provided pursuant to this Section 16(a). The Company may effect such an assignment without prior written approval of Executive upon the transfer of all or substantially all of its business and/or assets (by whatever means), provided that the successor to the Company shall expressly assume and agree to perform this Agreement.

(b) Governing Law, etc.

(i) THIS AGREEMENT AND ALL MATTERS ARISING DIRECTLY OR INDIRECTLY HEREFROM SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS RULES THEREOF TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE COUNTY OF DALLAS SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS AGREEMENT, AND IN RESPECT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. EACH PARTY HEREBY WAIVES AND AGREES NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION AND ENFORCEMENT HEREOF, OR ANY SUCH DOCUMENT OR IN RESPECT OF ANY SUCH TRANSACTION, THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SUCH COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR THAT THIS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS. EACH PARTY HEREBY CONSENTS TO AND GRANTS ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF ANY SUCH DISPUTE AND AGREE THAT THE MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 16(g) OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE THEREOF.

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(ii) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OR ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT a) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (2) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (3) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (4) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 16(b).

(c) Taxes. The Company may withhold from any payments made under this Agreement all applicable taxes, including but not limited to income, employment and social insurance taxes, as shall be required by law.

(d) Amendments. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is approved by the Board or a Person authorized thereby and is agreed to in writing by Executive and, in the case of any such modification, waiver or discharge affecting the rights or obligations the Company, is approved by the Board or a Person authorized thereby. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No waiver of any provision of this Agreement shall be implied from any course of dealing between or among the parties hereto or from any failure by any party hereto to assert its rights hereunder on any occasion or series of occasions.

(e) Severability; Blue Pencil. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. If any court of competent jurisdiction shall at any time deem any provision of Sections 8, 9, 10 or 11 relating to the time period or the geographic area of the restrictive covenants contained therein to exceed the maximum time period or geographic area that such court deems reasonable and enforceable, the other provisions of Sections 8, 9, 10 and 11 shall nevertheless stand and such time period or geographic area shall be deemed to be the longest period or largest geographic area permissible by law under the circumstances. The court shall reduce the time period or geographic area to permissible duration or size.

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(f) Counterparts; Headings. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. The section and other headings contained in this Agreement are for the convenience of the parties only and are not intended to be a part hereof or to affect the meaning or interpretation hereof.

(g) Notices. Any notice or other communication required or permitted to be delivered under this Agreement shall be (i) in writing, (ii) delivered personally, by courier service or by certified or registered mail, first-class postage prepaid and return receipt requested, (iii) deemed to have been received on the date of delivery or, if so mailed, on the third business day after the mailing thereof, and (iv ) addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

(A) If to the Company:

Homeowners of America Holding Corporation

5021 Briar Tree Drive

Dallas, Texas 75248

(B) if to Executive, to him at his residential address as currently on file with the Company.

(h) Certain Definitions.

“Affiliate”: with respect to any Person, means any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with the first Person, including but not limited to a Subsidiary of the first Person, a Person of which the first Person is a Subsidiary, or another Subsidiary of a Person of which the first Person is also a Subsidiary.

“Control”: with respect to any Person, means the possession, directly or indirectly, severally or jointly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise.

“Person”: any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity.

“Subsidiary”: with respect to any Person, each corporation or other Person in which the first Person owns or Controls, directly or indirectly, capital stock or other ownership interests representing 50% or more of the combined voting power of the outstanding voting stock or other ownership interests of such corporation or other Person.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representative, and Executive has hereunto set his hand, in each case effective as of the date first above written.

	HOMEOWNERS OF AMERICA HOLDING CORPORATION

	By:
		Name:
		Title:

	Executive:


	Spencer W. Tucker

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IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representative, and Executive has hereunto set his hand, in each case effective as of the date first above written.

	HOMEOWNERS OF AMERICA HOLDING CORPORATION

	By:
		Name:
		Title:

	Executive:


	Spencer W. Tucker

[Signature Page to Employment Agreement – Tucker]

EX-10.6 14 v347100_ex10-6.htm EXHIBIT 10.6

Property Catastrophe Excess of Loss
Reinsurance Contract
Effective: April 1, 2012

Homeowners of America Insurance Company
Irving, Texas

Table of Contents

Article Preamble	Page

Preamble	4

Article 1 - Classes of Business Reinsured	4

Article 2 - Commencement and Termination	5

Article 3 - Territory (BRMA 51A)	6

Article 4 - Exclusions	6

Article 5 - Special Acceptances	8

Article 6 - Retention and Limit	8

Article 7 - Reinstatement	9

Article 8 - Definitions	9

Article 9 - Other Reinsurance	11

Article 10 - Loss Occurrence	11

Article 11 - Loss Notices and Settlements	13

Article 12 - Salvage and Subrogation	13

Article 13 - Reinsurance Premium	13

Article 14 - Late Payments	16

Article 15 - Offset (BRMA 36C)	17

Article 16 - Access to Records	18

Article 17 - Liability of the Reinsurer	18

Article 18 - Net Retained Lines	18

Article 19 - Errors and Omissions	18

Article 20 - Currency (BRMA 12A)	19

Article 21 - Taxes (BRMA 50B)	19

Article 22 - Federal Excise Tax (BRMA 17D)	19

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Article 23 - Reserves	19

Article 24 - Insolvency	21

Article 25 - Arbitration	22

Article 26 - Service of Suit (BRMA 49G)	23

Article 27 - Confidentiality	24

Article 28 - Agency Agreement	25

Article 29 - Governing Law (BRMA 71B)	25

Article 30 -Severability (BRMA 72E)	25

Article 31 - Entire Agreement	25

Article 32 - Notices and Contract Execution	25

Article 33 - Intermediary	26

Schedule A	27

Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)	30

Pools, Associations and Syndicates Exclusion Clause	32

Pollution and Seepage Exclusion Clause	35

Terrorism Exclusion (Property Treaty Reinsurance)	36

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Property Catastrophe Excess of Loss
Reinsurance Contract
Effective: April 1, 2012

entered into by and between

Homeowners of America Insurance Company
Irving, Texas

and

The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the “Reinsurer”)

Preamble

Whenever the word “Company” is used in this Contract, such term shall be held to include:

Any or all of the affiliated insurance companies of Homeowners of America Insurance Company, which are or may hereafter be under common control, provided that notice be given to the Reinsurer of any such newly affiliated insurance companies which may hereafter come under common control as soon as practicable with full particulars as to how such affiliation is likely to affect this Contract; and

Its Quota Share Reinsurers whose participation slips are attached hereto (hereinafter referred to as the “Quota Share Reinsurers”).

In the event of the Company or the Reinsurer maintaining that such affiliation calls for alteration in existing terms, and an agreement for alteration not being arrived at, then the business of such newly affiliated insurance company is covered at existing terms only for a period of 45 days after notice by either party that it does not wish to cover such business.

Article 1 - Classes of Business Reinsured

By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Dwelling and Homeowners business (property coverages only, including Dwelling coverage, Personal Property coverage and Extensions of Coverage as defined in the Company’s policies), subject to the terms, conditions and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

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Article 2 - Commencement and Termination

This Contract shall become effective at 12:01 a.m., Central Standard Time, April 1, 2012, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Central Standard Time, April 1, 2013.

Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer’s percentage share in this Contract in the event any of the following circumstances occur as clarified by public announcement or upon discovery:

The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) after the earlier of: (a) the inception of this Contract, or (b) the date lines are bound for this Contract, has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) at any time between the earlier of: (a) the inception of this Contract, or (b) the date lines are bound for this Contract, and the date of termination of this Contract has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer’s most recent financial statement filed with regulatory authorities and available to the public as of the date lines are bound; or

A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease assuming business; or

The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent; or

The A.M. Bests rating for the Subscribing Reinsurer has been assigned or downgraded below A- (inclusive of “Not Rated” ratings), or the published rating issued by Standard & Poor’s has been downgraded below BBB+ (inclusive of “Not Rated” ratings); or

The Subscribing Reinsurer has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer’s operations previously; or

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In the event a Subscribing Reinsurer experiences one or more of the circumstances specified in paragraph B above, the Subscribing Reinsurer shall notify the Company as promptly as possible and shall hereinafter be referred to as a “Special Circumstance Reinsurer.” To terminate a Special Circumstance Reinsurer’s percentage share in this Contract, the Company must provide the Special Circumstance Reinsurer with written notice as set forth in the Notices and Contract Execution Article. Such notice shall include the effective date of termination as selected by the Company and shall be one of the following:

The date of written notice provided by the Special Circumstance Reinsurer, or

The last day of the month prior to the date of written notice provided by the Special Circumstance Reinsurer; or

The last day of any month after the date of written notice provided by the Special Circumstance Reinsurer; or

The date of the Company’s written notice to the Special Circumstance Reinsurer advising of the termination.

In the event the Subscribing Reinsurer fails to immediately provide written notice to the Company of any event outlined in subparagraphs 1 through 8 of paragraph B above, the Company may elect to substitute the date of public announcement or discovery as the equivalent of written notice.

If any Subscribing Reinsurer’s percentage share in this Contract is terminated or if this Contract expires while a loss occurrence covered hereunder is in progress, the Reinsurer’s liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract.

Article 3 - Territory (BRMA 51A)

The territorial limits of this Contract shall be identical with those of the Company’s policies.

Article 4 - Exclusions

This Contract does not apply to and specifically excludes the following:

Financial guarantee and insolvency.

Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)” attached to and forming part of this Contract. confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage covered under a standard policy with a standard War Exclusion Clause.

Loss or damage caused by or resulting from war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage governed under a standard policy with a standard War Exclusion Clause.

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Loss or liability excluded under the provisions of the “Pools, Associations and Syndicates Exclusion Clause” attached to and forming part of this Contract.

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

All third party liability, including Section II of Homeowners.

Loss or damage to growing or standing crops.

Pollution and seepage coverages excluded under the provisions of the “Pollution and Seepage Exclusion Clause (BRMA 39A)” - attached to and forming part of this Contract.

Terrorism as described in the provisions of the “Terrorism Exclusion (NMA 29300” attached to and forming part of this Contract.

10.

Flood and/or earthquake when written as such.

11.

Loss, damage, cost or expense arising from fungi unless directly or indirectly caused by or contributed to by or arising from a covered peril under the Company’s original policy. Losses arising from fungi shall not in and of themselves constitute an event for the purposes of recovery hereunder. For the purposes of this Contract, “fungi” means any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or by products produced or released by “fungi.”

12.

Reinsurance assumed; however, this exclusion shall not apply to business assumed by the Quota Share Reinsurers.

13.

Growing, standing or drying crops or timber.

Any exclusion set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5, 6 and 9) shall be waived automatically when, in the opinion of the Company, the exposure excluded therein is incidental to the principal exposure on the risk in question.

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If the Company is bound, without the knowledge and contrary to the instructions of the Company’s supervisory underwriting personnel, on any business falling within the scope of one or more of the exclusions set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5, 6 and 9), the exclusion shall be suspended with respect to such business until 30 days after an underwriting supervisor of the Company acquires knowledge thereof or until the minimum amount of time required by the applicable statute or regulatory authority to cancel such a policy has elapsed, whichever is greater.

If the Company is required to accept an assigned risk which conflicts with one or more of the exclusions set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5, 6 and 9), reinsurance shall apply, but only for the difference between the Company’s retention and the minimum limit required by the applicable state statute, and in no event shall the Reinsurers liability exceed the applicable limits set forth in the Retention and Limit and Reinstatement Articles.

Article 5 - Special Acceptances

From time to time the Company may request a special acceptance of reinsurance falling outside the scope of the provisions of this Contract (except as respects the exclusions set forth in subparagraphs 1, 2, 3, 5, 6 and 9 of the Exclusions Article). Within 10 days of receipt of such a request, each Subscribing Reinsurer shall accept such request, ask for additional information, or reject the request. Any reinsurance that is specially accepted by the Reinsurer shall be covered under this Contract and shall be subject to the terms hereof, except as such terms shall be modified by the special acceptance.

In the event a reinsurer becomes a party to this Contract subsequent to one or more special acceptances hereunder, the new reinsurer shall automatically accept such special acceptance(s) as being covered hereunder. Further, if one or more Subscribing Reinsurers under this Contract agreed to special acceptance(s) under the contract being replaced by this Contract, such special acceptance(s) shall be automatically covered hereunder with respect to the Interests and liabilities of such Subscribing Reinsurer(s).

Article 6- Retention and Limit

As respects each excess layer of reinsurance coverage provided by this Contract, the Company shall retain and be liable for the first amount of ultimate net loss shown as “Company’s Retention” for that excess layer in Schedule A attached hereto, arising out of each loss occurrence. The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company’s applicable retention, but the liability of the Reinsurer under each excess layer shall not exceed the amount, shown as “Reinsurers Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects any one loss occurrence.

No claim shall be made hereunder in any one loss occurrence unless at least two risks insured by the Company are involved in such loss occurrence. For the purposes of this Contract, the Company shall be the sole judge of what constitutes “one risk.”

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Article 7 - Reinstatement

In the event all or any portion of the reinsurance under any excess layer of reinsurance coverage provided by this Contract is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the loss occurrence commences hereon. For each amount so reinstated, the Company agrees to pay additional premium in accordance with the provisions of the Reinsurance Premium Article.

Notwithstanding anything stated herein, the liability of the Reinsurer under any excess layer of reinsurance coverage provided by this Contract shall not exceed either of the following:

The amount, shown as “Reinsurers Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one loss occurrence; or

The amount, shown as “Reinsurers Tenn Limit” for that excess layer in Schedule A attached hereto, in all during the term of this Contract.

Article 8 - Definitions

“Loss adjustment expense” as used herein shall mean costs and expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes. Loss adjustment expense shall include, but not be limited to:

Interest on judgments (including post-judgment interest and pre-judgment interest unless included as part of an award or judgment);

Expenses of outside adjusters and adjuster expenses incurred by Homeowners of America MGA, Inc.;

Expenses and a pro rata share of salaries of the Company’s field employees, calculated in accordance with the time occupied in adjusting such loss, and expenses of other employees of the Company who have been temporarily diverted from their normal and customary duties and assigned to the adjustment of losses covered by this Contract;

Declaratory judgment expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto;

Court costs;

Costs of supersedeas and appeal bonds;

Monitoring counsel expenses.

However, loss adjustment expense shall not include normal office expenses and salaries of the Company’s regular employees, except as provided for in subparagraph 3 above.

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“Loss in excess of policy limits” and “extra contractual obligations” as used herein shall mean:

“Loss in excess of policy limits” shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company’s policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

“Extra contractual obligations” shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.

However, loss in excess of policy limits and extra contractual obligations arising out of each loss occurrence shall not exceed an amount equal to 25.0% of the Company’s Indemnity loss under each excess layer of reinsurance coverage provided by this Contract.

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting Individually or collectively or in collusion with any individual or corporation or any other organization or party Involved in the presentation, defense or settlement of any claim covered hereunder.

Savings Clause (Applicable only if the Subscribing Reinsurer is domiciled in the State of New York): In no event shall coverage be provided to the extent that such coverage is not permitted under New York law.

“Policies” as used herein shall mean all policies, contracts and binders of insurance, whether held covered provisionally or otherwise.

“Term of this Contract” as used herein shall mean the period from 12:01 am., Central Standard Time, April 1, 2012, to 12:01 am., Central Standard Time, April 1, 2013. However, if this Contract or the participation of a Subscribing Reinsurer is terminated, “term of this Contract” as used herein shall mean the period from 12:01 am., Central Standard Time, April 1, 2012, to the effective time and date of termination.

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“Ultimate net lose as used herein shall mean the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all claims on inuring reinsurance, whether collectible or not, and all salvage and other recoveries. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company’s ultimate net loss has been ascertained.

Notwithstanding the foregoing, it is understood and agreed that reinsurance, if any, effected by the Quota Share Reinsurers (except as respects reinsurance assumed by the Quota Share Reinsurers covering business set forth in the Classes of Business Reinsured Article) shall not be taken into account in computing the ultimate net loss, nor in any way affect the amount recoverable hereunder.

Article 9 - Other Reinsurance

The Company shall maintain in force property per risk excess of loss treaty reinsurance, recoveries under which shall inure to the benefit of this Contract.

The Company shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

Article 10 - Loss Occurrence

The term “loss occurrence” shall mean the sum of all Individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one loss occurrence” shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term “loss occurrence” shall be further defined as follows:

As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Company occurring during any period of 72 consecutive hours arising out of and directly occasioned by the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto.

As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Company occurring during any period of 72 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 72 consecutive hours may be extended in respect of individual losses which occur beyond such 72 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

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As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the introductory portion of this paragraph) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Company’s “loss occurrence.”

As regards “freeze,” only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting of frozen pipes and tanks or freezing and/or melting snow or sleet) may be included in the Company’s “loss occurrence.”

As regards firestorms, brush fires and any other fires or series of fires, Irrespective of origin (except as provided in subparagraphs 2 and 3 above) all individual losses sustained by the Company which commence during any period of 168 consecutive hours within a 150-mile radius of any fixed point selected by the Company may be included in the Company’s “loss occurrence.” However, an individual loss subject to this subparagraph cannot be included in more than one “loss occurrence?

For all those “loss occurrences” other than those referred to in subparagraph 2 above, the Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any “loss occurrence” referred to in subparagraph 1 of paragraph A above where only one such period of 72 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

As respects those “loss occurrences” referred to in subparagraph 2 above, if the disaster, accident or loss occasioned by the event is of greater duration than 72 consecutive hours, then the Company may divide that disaster, accident or loss into two or more “loss occurrences,” provided no two periods overlap and no individual loss is included in more than one such period and provided that no period commences earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss.

It is understood that losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one “loss occurrence.” Notwithstanding the foregoing, the hourly limitations as stated in paragraphs A, B and C shall not be exceeded as respects the applicable perils and no single “loss occurrence” shall encompass a time period greater than 168 consecutive hours.

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Article 11 - Loss Notices and Settlements

Whenever losses paid or reserved by the Company appear likely, in the opinion of the Company, to result in a claim hereunder, the Company shall notify the Reinsurer, and the Company shall notify the Reinsurer of all subsequent developments that may materially affect the position of the Reinsurer.

The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses subject to this Contract. The Reinsurer shall be bound by the judgment of the Company as to the obligations and liabilities of the Company under any policy.

All loss settlements made by the Company, whether under strict policy terms or by way of compromise (including loss in excess of policy limits and extra contractual obligations) shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, all amounts for which it may be liable immediately upon receipt of reasonable evidence of the amount paid (or scheduled to be paid) by the Company. The Company shall be the sole judge as to:

What constitutes a claim or loss covered under any policy;

The Company’s liability thereunder;

The amount or amounts proper for the Company to pay thereunder.

A Special Circumstance Reinsurer shall not have the right to deny payment of a claim if the sum of the percentage shares of Active Subscribing Reinsurers that have paid the claim exceeds 50.0% of the sum of the percentage shares of all Active Subscribing Reinsurers. “Active Subscribing Reinsurer as used herein shall mean a Subscribing Reinsurer that is not a Special Circumstance Reinsurer as of the due date of the claim (as specified in the Late Payments Article).

Article 12 - Salvage and Subrogation

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Company’s opinion, it is reasonable to do so.

Article 13 - Reinsurance Premium

As premium for each excess layer of reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer the greater of the following:

The amount, shown as “Annual Minimum Premium” for that excess layer in Schedule A attached hereto; or

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The percentage, shown as “Premium Rate” for that excess layer in Schedule A attached hereto, of the Company’s net earned premium for the term of this Contract.

The Company shall pay the Reinsurer an annual deposit premium for each excess layer of the amount, shown as “Annual Deposit Premium” for that excess layer In Schedule A attached hereto, in four equal installments of the amount, shown as “Quarterly Deposit Premium” for that excess layer in Schedule A attached hereto, on April 1, July 1 and October 1 of 2012, and on January 1, 2013.

Within 45 days after the expiration of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly.

As respects the First Excess Layer only, in addition to the reinsurance premium calculated in accordance with paragraph A above for the First Excess Layer, in the event the Company’s ultimate net loss arising out of Catastrophe Serial No. 48 (as defined in paragraph J below) exceeds $11,000,000, the Company shall pay the Reinsurer a supplemental premium of $100,000 for the First Excess Layer. Such supplemental premium shall be paid by the Company concurrently with the reinstatement premium paid by the Company under its Property Catastrophe Excess of Loss Reinsurance Contract, effective April 1, 2011, in respect of losses arising out of Catastrophe Serial No. 48 that cause the Company’s ultimate net loss to exceed $11,000,000 in that loss occurrence. Any return of supplemental premium in the event that the ultimate net loss arising out of Catastrophe Serial No. 48 drops below $11,000,000 at any time, shall be returned to the Company as promptly as possible. It is understood and agreed that this supplemental premium shall not be included in the calculation of any other reinsurance premium or reinstatement premium set forth in this Article.

For each amount of limit reinstated for each excess layer In accordance with the Reinstatement Article, the Company agrees to pay additional premium equal to the product of the following:

The percentage of the occurrence limit for the excess layer reinstated (based on the loss paid by the Reinsurer under that excess layer); times

The earned reinsurance premium, as calculated in accordance with paragraph C above, for the excess layer reinstated for the term of this Contract (exclusive of reinstatement premium).

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Whenever the Company requests payment by the Reinsurer of any loss under any excess layer hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer. If the earned reinsurance premium for any excess layer for the term of this Contract has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the annual deposit premium for that excess layer and shall be readjusted when the earned reinsurance premium for that excess layer for the term of this Contract has been finally determined. Any reinstatement premium shown to be due the Reinsurer for any excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Company concurrently with payment by the Reinsurer of the requested loss for that excess layer. Any return reinstatement premium shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company’s statement.

In the event a Subscribing Reinsurer’s participation in this Contract is terminated under the provisions of the Commencement and Termination Article, no deposit premium shall be due after the effective date of termination, the minimum premium shall be waived, and the reinsurance premium and reinstatement premium, if applicable, will be calculated in accordance with the following formulas:

Reinsurance premium shall be the number of days the Subscribing Reinsurer participates on this Contract divided by the number of days of the original term of this Contract and the quotient thereof shall be multiplied by the Subscribing Reinsures percentage share of the final adjusted premium reported in accordance with paragraph C above.

Reinstatement premium shall be the product of subparagraphs E(1) and G(1) above.

In the event the incurred loss for an excess layer in Schedule A attached hereto is greater than the sum of subparagraphs G(1) and G(2) above that is applicable to the same excess layer, in lieu of the provisions of subparagraphs G(1) and G(2) above, the Subscribing Reinsurer will receive premium equal to the lesser of:

An amount equal to the Subscribing Reinsurer’s percentage share of the full reinsurance premium calculated in accordance with paragraph A (without regard to the termination of the Subscribing Reinsurer’s share in accordance with the provisions of the Commencement and Termination Article) plus any reinstatement premium calculated in accordance with subparagraph G(2) above;

The Subscribing Reinsurer’s percentage share of the incurred loss for the same excess layer.

Within 45 days after the termination of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer, computed in accordance with paragraph G above, and any additional premium due the Reinsurer or return premium due the Company for each such excess layer shall be remitted promptly.

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“Net earned premium” as used herein shall mean the gross earned premium of the Company for the classes of business reinsured hereunder, less the earned portion of premiums ceded by the Company for reinsurance which inures to the benefit of this Contract.

“Catastrophe Serial No. 48” as used herein shall mean a wind and thunderstorm event that commenced on May 20, 2011, and ended on May 27, 2011, as defined by Property Claim Services.

“Incurred loss” as used herein shall mean the Company’s ceded ultimate net loss plus the Company’s ceded outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences as established by the Company).

Article 14- Late Payments

The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the Intermediary”) by the payment due date, the party to which payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows:

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of the sum of 1.0% and the U.S. prime rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary.

Notwithstanding the provisions of subparagraph 2 above and the immediately preceding sentence, the interest rate for a Special Circumstance Reinsurer will increase by 0.5% for every month that payment of the claim is past due, subject to a maximum annual interest rate of 7.0%.

If the interest rate provided under this Article exceeds the maximum interest rate allowed by any applicable law or is held unenforceable by a court of competent jurisdiction, such interest rate shall be modified to the highest rate permitted by the applicable law, and all remaining provisions of this Article and Contract shall remain in full force and effect without being impaired or invalidated in any way.

The establishment of the due date shall, for purposes of this Article, be determined as follows:

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As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment.

Any claim or loss payment due the Company hereunder shall be deemed due 30 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 30 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer.

As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of this paragraph, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days following transmittal of written notification that the provisions of this Article have been invoked.

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest charges due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest charge on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

Interest charges arising out of the application of this Article that are $250 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period.

Article 15 - Offset (BRMA 36C)

The Company and the Reinsurer shall have the right to offset any balance or amounts due from one party to the other under the terms of this Contract. The party asserting the right of offset may exercise such right any time whether the balances due are on account of premiums or losses or otherwise.

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Article 16 - Access to Records

Provided the Company has received at least five working days prior notice, the Reinsurer or Its designated representatives shall have access during regular business hours to all records of the Company which pertain in any way to this reinsurance. However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company. “Undisputed” as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company that specifies the reason(s) why the payments are disputed.

The provisions of this Article shall extend beyond the expiration or invalidation of this Contract, or the termination of a Subscribing Reinsurers percentage share In this Contract, until all claims and losses hereunder are settled.

Article 17 - Liability of the Reinsurer

The liability of the Reinsurer shall follow that of the Company in every case, including judicial interpretation and policy reformation, and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company’s policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

Article 18 - Net Retained Lines

This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included. For the purposes of this Contract, amounts ceded to Quota Share Reinsurers on business reinsured hereunder, if applicable, shall be considered retained net by the Company.

The amount of the Reinsurers liability hereunder In respect of any loss or losses shall not be increased by reason of the Inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

Article 19 - Errors and Omissions

Inadvertent delays, errors or omissions made in complying with this Contract or any transaction hereunder shall not relieve either patty from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

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Article 20 - Currency (BRMA 12A)

Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction Is entered on the books of the Company.

Article 21- Taxes (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

Article 22 - Federal Excise Tax (BRMA 17D)

The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government.

Article 23 - Reserves

The Reinsurer agrees to fund its share of the Company’s ceded outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences as established by the Company), and any other outstanding balances which it shall be required by applicable regulation or law to set up under this Contract (the “funding obligation”) by:

Clean, Irrevocable and unconditional letters of credit issued and confirmed, If confirmation is required by the Insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or

Escrow accounts for the benefit of the Company; and/or

Cash advances; if the Reinsurer:

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Is unauthorized in any state of the United States of America or the District of Columbia and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or

Is a Special Circumstance Reinsurer.

The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

Notwithstanding the provisions of the Arbitration Article, if a Special Circumstance Reinsurer fails to fund its share of the funding obligation as set forth above, the Company retains its right to apply to a court of competent jurisdiction for equitable or interim relief.

With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities Involved, will be issued for a term of at least one year and will include an “evergreen clause,” which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

To reimburse itself for the Reinsurer’s share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer;

To reimburse Itself for the Reinsurers share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer

To fund a cash account in an amount equal to the Reinsurer’s funding obligation funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;

To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurers funding obligation, if so requested by the Reinsurer.

In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1) or B(3), or in the case of B(2), the actual amount determined to be due, the Company shall promptly retum to the Reinsurer the excess amount so drawn.

If a Subscribing Reinsurer falls to fulfill its funding obligation (if any) under this Article, the Company may, at its option, require the Subscribing Reinsurer to pay, and the Subscribing Reinsurer agrees to pay, an interest charge on the funding obligation calculated on the last business day of each month as follows:

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The number of full days that have expired since the earliest of the applicable following dates:

As respects a Subscribing Reinsurer that is unauthorized in any state of the United States of America or District of Columbia having jurisdiction over the Company, December 31 of the calendar year in which the funding was required; Or

As respects a Special Circumstance Reinsurer, the first date such reinsurer becomes a Special Circumstance Reinsurer;

times:

1/365ths of the sum of 4.0% and the U.S. prime rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

The greater of (a) the funding obligation, less the amount, if any, funded by the Subscribing Reinsurer prior to the applicable date determined in subparagraph 1 above or (b) $100,000.

It is agreed that Interest shall accumulate until the full interest charge amount as provided for in this paragraph and the funding obligation are paid.

If the interest rate provided under this Article exceeds the maximum interest rate allowed by any applicable law or is held unenforceable by an arbitrator or a court of competent jurisdiction, such interest rate shall be modified to the highest rate permitted by the applicable law, and all remaining provisions of this Article and Contract shall remain in full force and effect without being impaired or invalidated in any way.

Article 24 - Insolvency

In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company Indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at Its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer.

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Where two or more reinsurers are involved in the same claim and a majority in interest elect to Interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the company.

It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the company to such payees.

Article 25 - Arbitration

As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd’s London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the Umpire will be appointed within 10 days thereafter according to the ARIAS-U.S. (Association Internationale de Droit des Assurances (AIDA) Reinsurance and Insurance Arbitration Society) Umpire Appointment Procedure in effect at such time. Notwithstanding the above, in the event the dispute or difference of opinion involves a Special Circumstance Reinsurer, the Company may, at its option, choose to forego arbitration and may bring an action in any court of competent jurisdiction.

Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction and the Arbiters are empowered to grant interim relief as they may deem appropriate.

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If more than one reinsurer is involved in the same dispute, all such reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

Any arbitration proceedings shall take place in Irving, Texas, or at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the State of Texas.

Article 26 - Service of Suit (BRMA 49G)

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities)

This Article will not be mad to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

In the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurers rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate Court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said Court jurisdiction and, in any suit instituted against any of the Subscribing Reinsurers upon this Contract, will abide by the final decision of such Court or of any Appellate Court in the event of an appeal.

Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his or her successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract.

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Article 27 - Confidentiality

The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (“Confidential Information”) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show:

Are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

Have been rightfully received from a third person without obligation of confidentiality; Or

Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, excluding any affiliated companies, except:

When required by retrocessionaires subject to the business ceded to this Contract;

When required by state regulators performing an audit of the Reinsurers records and/or financial condition;

When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

When required by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

Notwithstanding the above, in the event that the Reinsurer Is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use Its best efforts to assist the Company in maintaining the confidentiality provided for In this Article.

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The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

Article 28 - Agency Agreement

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

Article 29 - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Texas.

Article 30 -Severability (BRMA 72E)

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

Article 31- Entire Agreement

This written Contract constitutes the entire agreement between the parties hereto with respect to the business being reinsured hereunder, and there are no understandings between the parties hereto other than as expressed in this Contract. Any change or modification to this Contract will be made by amendment to this Contract and signed by the parties hereto.

Article 32 - Notices and Contract Execution

Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable.

The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

Paper documents with an original ink signature;

Facsimile or electronic copies of paper documents showing an original ink signature; and/or

Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms “electronic record,” “electronic signature” and “electronic agent” shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

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This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

Article 33 - Intermediary

Aon Benfield Inc., or one of Its affiliated corporations duly licensed as a reinsurance Intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary will be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company.

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Schedule A

Property Catastrophe Excess of Loss Reinsurance Contract
Effective: April 1, 2012

Homeowners of America Insurance Company Irving, Texas including any or all of the affiliated insurance companies of Homeowners of America Insurance Company and its Quota Share Reinsurers whose participation slips are attached hereto in accordance with the provisions of the Preamble to this Contract

	First Excess			Second Excess

Company’s Retention	$	10,000,000		$	30,000,000

Reinsurer’s Per Occurrence Limit	$	20,000,000		$	30,000,000

Reinsurer’s Term Limit	$	40,000,000		$	60,000,000

Annual Minimum Premium	$	2,480,000		$	1,380,000

Premium Rate		7 888	%		4.389	%

Annual Deposit Premium	$	3,100,000		$	1,725,000

Quarterly Deposit Premium	$	775,000		$	431,250

The figures listed above for each excess layer shall apply to each Subscribing Reinsurer in the percentage share for that excess layer as expressed in its Interests and Liabilities Agreement attached hereto.

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Participation Slip

attached to and forming part of the

Property Catastrophe Excess of Loss
Reinsurance Contract
Effective: April 1, 2012

entered into by and between

Homeowners of America Insurance Company
Irving, Texas
Including any or all of the affiliated Insurance companies of Homeowners of America Insurance Company and its Quota Share Reinsurers in accordance with the provisions of the Preamble to the attached Contract (hereinafter referred to collectively as the “Company,

and

Homeowners of America Insurance Company Irving, Texas Including any or all of the affiliated insurance companies of Homeowners of America Insurance Company in accordance with the provisions of the Preamble to the attached Contract
(hereinafter referred to collectively as the °Subscribing Company’)

The Subscribing Company hereby accepts the following percentage shares in
the interests and liabilities of the “Company” as set forth
In the attached Contract captioned above:

10.0% of the First Property Catastrophe Excess of Loss Reinsurance
10.0% of the Second Property Catastrophe Excess of Loss Reinsurance

This Participation Slip shall become effective at 12:01 sm., Central Standard Time, April 1, 2012, and shall continue in force until 12:01 am., Central Standard Time, April 1, 2013, unless earlier terminated in accordance with the provisions of this Contract.

The Subscribing Company’s share in the attached Contract shall be separate and apart from the shares of the other named reinsured companies, and shall not be joint with the shares of the other named reinsured companies, it being understood that the Subscribing Company shall in no event participate in the Interests and liabilities of the other named reinsured companies.

In Witness Whereof, the Subscribing Company by Its duly authorized representative has executed this Contract as of the date specified below:

This _________ day of __________________________ in the year _____________________.

Homeowners of America Insurance Company (for and on behalf of the “Company’)

_________________________________________

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Participation Slip

attached to and forming part of the

Property Catastrophe Excess of Loss
Reinsurance Contract
Effective: April 1, 2012

entered into by and between

Homeowners of America Insurance Company
Irving, Texas
including any or all of the affiliated insurance companies of
Homeowners of America Insurance Company and its Quota Share Reinsurers
in accordance with the provisions of the Preamble to the attached Contract
(hereinafter referred to collectively as the “Company’)

and

RLI Insurance Company
an Illinois Corporation
(hereinafter referred to as the “Subscribing Company”)

The Subscribing Company hereby accepts the following percentage shares in the interests and liabilities of the “Company” as set forth in the attached Contract captioned above:

0% of the First Property Catastrophe Excess of Loss Reinsurance 15.0% of the Second Property Catastrophe Excess of Loss Reinsurance

This Participation Slip shall become effective at 12:01 a.m., Central Standard Time, April 1, 2012, and shall continue in force until 12:01 am., Central Standard Time, April 1, 2013, unless earlier terminated in accordance with the provisions of this Contract.

The Subscribing Company’s share in the attached Contract shall be separate and apart from the shares of the other named reinsured companies, and shall not be joint with the shares of the other named reinsured companies, it being understood that the Subscribing Company shall in no event participate in the interests and liabilities of the other named reinsured companies.

In Witness Whereof, the Subscribing Company by its duly authorized representative has executed this Contract as of the date specified below day of in the year

This _________ day of __________________________ in the year _____________________.

RLI Insurance Company

_________________________________________

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Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)

This Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any Insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

Nuclear reactor power plants including all auxiliary property on the site, or

II.

Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and ‘critical facilities” as such, or

III.

Installations for fabricating complete fuel elements or for processing substantial quantifies of “special nuclear material; and for reprocessing, salvaging, chemically separating, storing or disposing of “spent” nuclear fuel or waste materials, or

IV.

Installations other than those listed in paragraph (2) Ill above using substantial quantities of radioactive isotopes or other products of nuclear fission.

Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear Installation, or

(b)

where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against.

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It is understood and agreed that this Clause shall not extend to risks using radioactive Isotopes In any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note:

Without In any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of This Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

(b)

with respect to any risk located in Canada policies issued by the Reassured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

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Pools, Associations and Syndicates Exclusion Clause

Section A:

Excluding:

(a) All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

(b) Any Pool or Scheme (whether voluntary or mandatory) formed after March 1, 1968 for the purpose of insuring property whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to SD-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage.

Section B:

It is agreed that business written by the Company for the same perils, which is known at the time to be insured by, or in excess of underlying amounts placed in the following Pools, Associations or Syndicates, whether by way of insurance or reinsurance, is excluded hereunder:

Industrial Risk Insurers,

Associated Factory Mutuals,

Improved Risk Mutuals,

Any Pool, Association or Syndicate formed for the purpose of writing

Oil Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs,

United States Aircraft Insurance Group,

Canadian Aircraft Insurance Group,

Associated Aviation Underwriters,

American Aviation Underwriters.

Section B does not apply:

(a)

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

(b)

To interests traditionally underwritten as Inland Marine or stock and/or contents written on a blanket basis.

(c)

To Contingent Business Interruption, except when the Company is aware that the key location is known at the time to be insured in any Pool, Association or Syndicate named above, other than as provided for under Section B(a).

(d)

To risks as follows:

Offices, Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities (other than railroad schedules) and builder’s risks on the classes of risks specified in this subsection (d) only.

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Where this clause attaches to Catastrophe Excesses, the following Section C is added:

Section C:

Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in residual market mechanisms including but not limited to:

(1)

The following so-called ‘Coastal Pools”‘

Alabama Insurance Underwriting Association

Louisiana Citizens Property Insurance Corporation

Mississippi Windstorm Underwriting Association

North Carolina Insurance Underwriting Association

South Carolina Windstorm and Hail Underwriting Association

Texas Windstorm Insurance Association

AND

(2)

All “Fair Plan” and “Rural Risk Plan” business

AND

(3)

Citizens Property Insurance Corporation (“CPIC”) and the California Earthquake Authority (“CEA’)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this reinsurance does not include any Increase in such liability resulting from:

(i)

The inability of any other participant in such “Coastal Poor and/or “Fair Plan” and/or ‘Rural Risk Plan” and/or Residual Market Mechanisms to meet Its liability.

(ii)

Any claim against such “Coastal Pod” and/or “Fair Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms, or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any insolvency fund.

Section D:

(1)

Notwithstanding Section C above, in respect of the CEA, where an assessment is made against the Company by the CEA, the Company may include in its Ultimate Net Loss only that assessment directly attributable to each separate loss occurrence covered hereunder. The Company’s initial capital contribution to the CEA shall not be included in the Ultimate Net Loss.

(2)

Notwithstanding Section C above, in respect of CPIC, where an assessment is made against the Company by CPIC, the maximum loss that the Company may Include in the Ultimate Net Loss in respect of any loss occurrence hereunder shall not exceed the lesser of:

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(a)

The Company’s assessment from CPIC for the amounting year in which the loss occurrence commenced, or

(b)

The product of the following:

(i)

The Company’s percentage participation in CPIC for the amounting year In which the loss occurrence commenced; and

(ii)

CPIC’s total losses in such loss occurrence.

Notwithstanding Section C above, in respect of CPIC. the Ultimate Net Loss hereunder shall not include any monies expended to purchase or retire bonds as a consequence of being a member of CPIC. For the purposes of this Contract, the Company may not include In the Ultimate Net Loss any assessment or any percentage assessment levied by CPIC to meet the obligations of an insolvent insurer member or other party, or to meet any obligations arising from the deferment by CPIC of the collection of monies.

NOTES:

Wherever used herein the terms:

“Company”

shall be understood to mean “Company,” “Reinsured,” “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”

shall be understood to mean “Agreement,” “Contract,” “Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”

shall be understood to mean “Reinsurers,” “Underwriters” or whatever other term is used in the attached reinsurance document to designate the reinsurer or reinsurers.

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Pollution and Seepage Exclusion Clause

This Contract excludes loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25% of the Company’s property loss under the applicable original policy.

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Terrorism Exclusion
(Property Treaty Reinsurance)

Notwithstanding any provision to the contrary within this Contract or any amendment thereto, it is agreed that this Contract excludes loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any act of terrorism, as defined herein, regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

An act of terrorism includes any act, or preparation in respect of action, or threat of action designed to influence the government de jure or de facto of any nation or any political division thereof, or in pursuit of political, religious, ideological or similar purposes to intimidate the public or a section of the public of any nation by any person or group(s) of persons whether acting alone or on behalf of or in connection with any organization(s) or govemment(s) de jure or de facto, and which:

Involves violence against one or more persons; or

Involves damage to property; or

Endangers life other than that of the person committing the action; or

Creates a risk to health or safety of the public or a section of the public; or

Is designed to interfere with or to disrupt an electronic system. This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any act of terrorism.

Notwithstanding the above and subject otherwise to the terms, conditions, and limitations of this Contract, in respect only of personal lines this Contract will pay actual loss or damage (but not related cost or expense) caused by any act of terrorism provided such act is not directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with biological, chemical, radioactive or nuclear pollution or contamination or explosion.

N.M.A. 2930c
22/11/02
Form approved by Lloyds Market Association [Non-Marine]

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EX-10.7 15 v347100_ex10-7.htm EXHIBIT 10.7

Property Per Risk Excess of Loss

Reinsurance Contract

Effective: April 1, 2012

Homeowners of America Insurance Company

Irving, Texas

Table of Contents

Article		Page

	Preamble	1
1	Classes of Business Reinsured	1
2	Commencement and Termination	1
3	Territory (BRMA 51A)	3
4	Exclusions	4
5	Special Acceptances	5
6	Retention and Limit	6
7	Reinstatement	6
8	Definitions	6
9	Other Reinsurance	8
10	Loss Notices and Settlements	8
11	Salvage and Subrogation	9
12	Reinsurance Premium	9
13	Late Payments	10
14	Offset	11
15	Access to Records	12
16	Liability of the Reinsurer	12
17	Net Retained Lines (BRMA 32B)	12
18	Errors and Omissions (BRMA 14F)	12
19	Currency (BRMA 12A)	13
20	Taxes (BRMA 508)	13
21	Federal Excise Tax (BRMA 17D)	13
22	Reserves	13
23	Insolvency	15
24	Arbitration	16
25	Service of Suit (BRMA 49G)	17
26	Confidentiality	18
27	Agency Agreement	19
28	Governing Law (BRMA 718)	19
29	Severability (BRMA 72E)	19
30	Entire Agreement	19
31	Notices and Contract Execution	19
32	Intermediary	20

Property Per Risk Excess of Loss

Reinsurance Contract

Effective: April 1, 2012

entered into by and between

Homeowners of America Insurance Company

Irving, Texas

And

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the “Reinsurer”)

Preamble

Whenever the word “Company” is used in this Contract, such term shall be held to include any or all of the affiliated insurance companies of Homeowners of America Insurance Company, which are or may hereafter be under common control, provided that notice be given to the Reinsurer of any such newly affiliated Insurance companies which may hereafter come under common control as soon as practicable with full particulars as to how such affiliation is likely to affect this Contract. In the event of either party maintaining that such affiliation calls for alteration in existing terms, and an agreement for alteration not being arrived at, then the business of such newly affiliated insurance company is covered at existing terms only for a period of 45 days after notice by either party that it does not wish to cover such business.

Article 1 - Classes of Business Reinsured

By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Homeowners business (property coverages only, including Personal Property coverage and Extensions of Coverage as defined in the Company’s policies) for risks with a total insured value (as defined in the Definitions Article) greater than $500,000, subject to the terms, conditions and limitations hereinafter set forth.

Article 2 - Commencement and Termination

This Contract shall become effective at 12:01 a.m., Central Standard Time, April 1, 2012, with respect to losses occurring at or after that time and date, and shall continue In force thereafter until terminated.

Either party may terminate this Contract at 12:01 am., Central Standard Time, on any April 1 by giving the other party not less than 90 days prior written notice as set forth in the Notices and Contract Execution Article.

Notwithstanding the provisions of paragraphs A and B above, the Company may terminate a Subscribing Reinsurer’s percentage share in this Contract in the event any of the following circumstances occur as clarified by public announcement or upon discovery:

A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease assuming business; or

The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent; or

The A.M. Best’s rating for the Subscribing Reinsurer has been assigned or downgraded below A- (inclusive of *Not Rated* ratings), or the published rating issued by Standard & Poor’s has been downgraded below BBB+ (inclusive of “Not Rated” ratings); or

The Subscribing Reinsurer has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer’s operations previously; or

The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or

The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

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In the event a Subscribing Reinsurer experiences one or more of the circumstances specified in paragraph C above, the Subscribing Reinsurer shall notify the Company as promptly as possible and shall hereinafter be referred to as a ‘‘Special Circumstance Reinsurer.” To terminate a Special Circumstance Reinsurers percentage share In this Contract, the Company must provide the Special Circumstance Reinsurer with written notice as set forth in the Notices and Contract Execution Article. Such notice shall Include the effective date of termination as selected by the Company and shall be one of the following:

The date of written notice provided by the Special Circumstance Reinsurer; or

The last day of the month prior to the date of written notice provided by the Special Circumstance Reinsurer; or

The last day of any month after the date of written notice provided by the Special Circumstance Reinsurer; or

The date of the Company’s written notice to the Special Circumstance Reinsurer advising of the termination.

In the event the Subscribing Reinsurer fails to immediately provide written notice to the Company of any event outlined in subparagraphs 1 through 9 of paragraph C above, the Company may elect to substitute the date of public announcement or discovery as the equivalent of written notice.

Unless the Company elects that the Reinsurer have no liability for losses occurring after the effective date of termination, and so notifies the Reinsurer prior to or as promptly as possible after the effective date of termination, reinsurance hereunder on business in force on the effective date of termination shall remain in full force and effect until expiration, cancellation or next premium anniversary of such business, whichever first occurs, but in no event beyond 12 months plus odd time following the effective date of termination.

Notwithstanding the provisions of paragraph E above, if the Company is prohibited or precluded by the appropriate regulatory authorities, or by law (in those states where applicable and enforced), from arranging mid-term cancellation or non-renewal of any policies subject to this Contract beyond their natural expiry, the Reinsurer agrees to extend coverage under this Contract until such policies may be terminated or non-renewed by the Company, but in no event beyond 18 months after the effective date of termination.

Article 3 - Territory (BRMA 51A)

The territorial limits of this Contract shall be identical with those of the Company’s policies.

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Article 4 - Exclusions

This Contract does not apply to and specifically excludes the following:

Financial guarantee and insolvency.

Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)” attached to and forming part of this Contract.

Loss or damage caused by or resulting from war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage covered under a standard policy with a standard War Exclusion Clause.

Loss or liability excluded under the provisions of the “Pools, Associations and Syndicates Exclusion Clause” attached to and forming part of this Contract.

All third party liability, including Section II of Homeowners.

Loss or damage to growing or standing crops.

Pollution and seepage coverages excluded under the provisions of the “Pollution and Seepage Exclusion Clause (BRMA 39A)” attached to and forming part of this Contract.

Terrorism, as described in the provisions of the “Terrorism Exclusion (NMA 2930c)” attached to and forming part of this Contract.

10.

Flood, but not excluding fire following flood.

11.

Loss, damage, cost or expense arising from fungi unless directly or indirectly caused by or contributed to by or arising from a covered peril under the Company’s original policy. Losses arising from fungi shall not In and of themselves constitute an event for the purposes of recovery hereunder. For the purposes of this Contract, “fungi” means any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or by products produced or released by “fungi.”

12.

Earthquake.

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13.

Loss or damage caused by the direct action of wind and/or the direct action of hail (whether wind driven or not) and any consequential loss or damage following directly thereon from any other peril.

14.

Reinsurance assumed.

Any exclusion set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5, 9, 10, 12 and 13) shall be waived automatically when, in the opinion of the Company, the exposure excluded therein is incidental to the principal exposure on the risk in question.

If the Company is bound, without the knowledge and contrary to the instructions of the Company’s supervisory underwriting personnel, on any business falling within the scope of one or more of the exclusions set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5, 9, 10, 12 and 13), the exclusion shall be suspended with respect to such business until 30 days after an underwriting supervisor of the Company acquires knowledge thereof or until the minimum amount of time required by the applicable statute or regulatory authority to cancel such a policy has elapsed, whichever is greater.

If the Company is required to accept an assigned risk which conflicts with one or more of the exclusions set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5, 9, 10, 12 and 13), reinsurance shall apply, but only for the difference between the Company’s retention and the minimum limit required by the applicable state statute, and in no event shall the Reinsurers liability exceed the limits set forth in the Retention and Limit and Reinstatement Articles.

Article 5 - Special Acceptances

From time to time the Company may request a special acceptance of reinsurance falling outside the scope of the provisions of this Contract (except as respects the exclusions set forth in subparagraphs 1, 2, 3, 5, 9, 10, 12 and 13 of the Exclusions Article). Within 10 days of receipt of such a request, each Subscribing Reinsurer shall accept such request, ask for additional information, or reject the request. Any reinsurance that is specially accepted by the Reinsurer shall be covered under this Contract and shall be subject to the terms hereof, except as such terms shall be modified by the special acceptance. If a Subscribing Reinsurer fails to respond to a special acceptance request within 10 days, the Subscribing Reinsurer will be deemed to have agreed to the special acceptance.

In the event a reinsurer becomes a party to this Contract subsequent to one or more special acceptances hereunder, the new reinsurer shall automatically accept such special acceptance(s) as being covered hereunder. Further, if one or more Subscribing Reinsurers under this Contract agreed to special acceptance(s) under the contract being replaced by this Contract, such special acceptance(s) shall be automatically covered hereunder with respect to the interests and liabilities of such Subscribing Reinsurer(s).

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Article 6 - Retention and Limit

The Company shall retain and be liable for the first $500,000 of ultimate net loss as respects any one risk, each loss. The Reinsurer shall then be liable for the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed $1,112,500 as respects any one risk, each loss.

Article 7 - Reinstatement

In the event all or any portion of the reinsurance hereunder is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the loss occurs hereon. For each amount so reinstated, the Company agrees to pay additional premium equal to the product of the following:

The percentage of the per risk limit reinstated (based on the ultimate net loss paid by the Reinsurer); times

The earned reinsurance premium for the contract year (disregarding the runoff period, if any) in which the loss occurs (exclusive of reinstatement premium).

Whenever the Company requests payment by the Reinsurer of any ultimate net loss hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer. If the earned reinsurance premium for the contract year (disregarding the runoff period, if any) has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due shall be based on the annual deposit premium and shall be readjusted when the earned reinsurance premium for the contract year (disregarding the runoff period, if any) under consideration has been finally determined. Any reinstatement premium shown to be due the Reinsurer as reflected by any such statement (less prior payments, if any) shall be payable by the Company concurrently with payment by the Reinsurer of the requested loss. Any return reinstatement premium shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company’s statement.

Notwithstanding anything stated herein, the liability of the Reinsurer hereunder for ultimate net loss shall not exceed $1,112,500 as respects any one risk, each loss, nor shall it exceed $3,337,500 in all during any one contract year.

Article 8 - Definitions

“Contract year as used herein shall mean the period from 12:01 am., Central Standard Time, April 1, 2012, to 12:01 a.m., Central Standard Time, April 1, 2013, and each respective 12-month period thereafter that this Contract continues in force shall be a separate contract year. However, if this Contract or the participation of a Subscribing Reinsurer is terminated, the final contract year, as applicable, shall be from the beginning of the then current contract year until the effective time and date of termination if this Contract is terminated on a “cutoff basis, or through the end of the runoff period if this Contract is terminated on a “runoff’ basis.

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Interest on judgments;

Expenses of outside adjusters and adjuster expenses incurred by Homeowners of America MGA, Inc.;

Expenses and a pro rata share of salaries of the Company’s field employees and expenses of other employees of the Company who have been temporarily diverted from their normal and customary duties and assigned to the adjustment of losses covered by this Contract;

Declaratory judgment expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto;

Court costs;

Costs of supersedeas and appeal bonds;

Monitoring counsel expenses.

However, loss adjustment expense shall not include normal office expenses and salaries of the Company’s regular employees, except as provided for in subparagraph 3 above.

“Loss in excess of policy limits” and “extra contractual obligations as used herein shall mean:

“Loss in excess of policy limits” shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company’s policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or in the preparation or prosecution of an appeal consequent upon such an action.

“Extra contractual obligations” shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or in the preparation or prosecution of an appeal consequent upon such an action. An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.

- 7 -

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

The Company shall be the sole judge of what constitutes “one risk,” except that in no event shall a building and its contents be considered more than one risk.

“Policies” as used herein shall mean all policies, contracts and binders of insurance, whether held covered provisionally or otherwise.

“Total insured value” shall mean the sum value of dwellings, other structures, contents and loss of use for each risk reinsured hereunder.

“Ultimate net loss as used herein shall mean the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all claims on inuring reinsurance, whether collectible or not, and all salvage and other recoveries. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company’s ultimate net loss has been ascertained.

Article 9 - Other Reinsurance

The Company shall be permitted to carry facultative reinsurance in excess of the limit set forth in the Retention and Limit Article, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

Article 10 - Loss Notices and Settlements

The Company shall advise the Reinsurer promptly of all losses that, in the opinion of the Company, may result in a claim hereunder and of all subsequent developments thereto that may materially affect the position of the Reinsurer.

The Company alone and at its full discretion shall adjust, settle or compromise all claims and losses hereunder.

- 8 -

As respects losses subject to this Contract, all loss settlements made by the Company, whether under strict policy terms or by way of compromise, and any loss in excess of policy limits and/or extra contractual obligations, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its sham of each such settlement immediately upon receipt of proof of loss.

As respects its share of any claims payable under this Contract, a Special Circumstance Reinsurer shall not have the right to hire an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

Article 11 - Salvage and Subrogation

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, In the Company’s opinion, it is reasonable to do so.

Article 12 - Reinsurance Premium

As premium for the reinsurance provided hereunder during each contract year, the Company shall pay the Reinsurer 3.213% of the Company’s net earned premium for the contract year, subject to a minimum premium of $120,000 (or a pro rata portion thereof In the event the contract year is less than 12 months) for the contract year.

The Company shall pay the Reinsurer an annual deposit premium of $150,000 in four equal installments of $37,500 on April 1, July 1, October 1 and January 1 of each contract year (disregarding the runoff period, If any). However, if this Contract (or any Subscribing Reinsurer’s percentage share in this Contract) is terminated, no deposit premium installments shall be due after the effective date of termination. If this Contract (or any Subscribing Reinsurer’s percentage share in this Contract) is terminated on a “runoff” basis, the Company shall pay the Reinsurer an additional deposit premium installment of $18,750 as promptly as possible after the beginning of the runoff period

Within 45 days after the end of each contract year, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for the contract year under consideration, computed in accordance with paragraph A above, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

- 9 -

“Net earned premium” as used herein is defined as gross earned premium of the Company for the classes of business reinsured hereunder less the earned portion of premiums ceded by the Company for reinsurance which inures to the benefit of this Contract.

Article 13 - Late Payments

The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the “Intermediary”) by the payment due date, the party to which payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest charge on the amount past due calculated for each such payment on the last business day of each month as follows:

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of the sum of 4.0% and the U.S. prime rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

The amount past due, Including accrued interest.

It Is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary.

Notwithstanding the provisions of subparagraph 2 above and the Immediately preceding sentence, the interest rate for a Special Circumstance Reinsurer will increase by 1.0% for every month that payment of the claim is past due, subject to a maximum annual interest rate of 10.0%.

The establishment of the due date shall, for purposes of this Article, be determined as follows:

- 10 -

Any claim or loss payment due the Company hereunder shall be deemed due 30 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment Is not received within the 30 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer.

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

Article 14 - Offset

The Company and the Reinsurer shall have the right to offset any balance or amounts due from one party to the other under the terms of this Contract or any other contracts between the parties. The party asserting the right of offset may exercise such right any time.

Notwithstanding the provisions of paragraph A above, a Special Circumstance Reinsurer shall not offset balances as outlined above without the prior consent of the Company.

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Article 15 - Access to Records

A Special Circumstance Reinsurer shall not have any right of access to the records of the Company without the Company’s prior consent; and

A Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company. “Undisputed” as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company that specifies the reason(s) why the payments are disputed.

Article 16 - Liability of the Reinsurer

Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

Article 17 - Net Retained Lines (BRMA 326)

This Contract applies only to that portion of any policy which the Company retains net for its own account, and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included.

The amount of the Reinsurers liability hereunder in respect of any loss or losses shall not be Increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such Inability arises from the insolvency of such other reinsurer(s) or otherwise.

Article 18 - Errors and Omissions (BRMA 149

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

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Article 19 - Currency (BRMA 12A)

Whenever the word “Dollars” or the “V sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Article 20 - Taxes (BRMA SOB)

Article 21 - Federal Excise Tax (BRMA 17D)

Article 22 - Reserves

The Reinsurer agrees to fund its share of the Company’s ceded outstanding loss and loss adjustment expense reserves (including incurred but not reported loss reserves as established by the Company), and any other outstanding balances which it shall be required by applicable regulation or law to set up under this Contract (the “funding obligation”) by:

Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or

Escrow accounts for the benefit of the Company; and/or

Cash advances;

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if the Reinsurer

Is unauthorized in any state of the United States of America or the District of Columbia and if without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities Involved; or

Is a Special Circumstance Reinsurer.

The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an “evergreen clause,” which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

To reimburse itself for the Reinsurer’s share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer;

To reimburse Itself for the Reinsurer’s share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer;

To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer’s funding obligation, if so requested by the Reinsurer.

If a Subscribing Reinsurer fails to fulfill its funding obligation (if any) under this Article, the Company may, at its option, require the Subscribing Reinsurer to pay, and the Subscribing Reinsurer agrees to pay, an interest charge on the funding obligation calculated on the last business day of each month as follows:

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The number of full days that have expired since the earliest of the applicable following dates:

As respects a Special Circumstance Reinsurer, the first date such reinsurer becomes a Special Circumstance Reinsurer;

times:

1/365ths of the sum of 4.0% and the U.S. prime rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

The greater of (a) the funding obligation, less the amount, if any, funded by the Subscribing Reinsurer prior to the applicable date determined in subparagraph 1 above or (b) $100,000.

It is agreed that interest shall accumulate until the full interest charge amount as provided for in this paragraph and the funding obligation are paid.

Article 23 - Insolvency

In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and Interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata sham of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer.

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Where two or more reinsurers are involved In the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the company.

It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the company or to Its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the company to such payees.

Article 24 - Arbitration

As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd’s London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. Notwithstanding the above, in the event the dispute or difference of opinion involves a Special Circumstance Reinsurer, the Company may, at its option, choose to forego arbitration and may bring an action in any court of competent jurisdiction.

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If more than one reinsurer is involved in the same dispute, all such reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the tights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

Article 25 - Service of Suit (BRMA 49G)

This Article will not be read to conflict with or ‘cyanide the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

In the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate Court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said Court jurisdiction and, In any suit instituted against any of the Subscribing Reinsurers upon this Contract, will abide by the final decision of such Court or of any Appellate Court in the event of an appeal.

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Article 26 - Confidentiality

The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, In connection with the placement and execution of this Contract (“Confidential Information”) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show:

Are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

Have been rightfully received from a third person without obligation of confidentiality; Or

Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except:

When required by retrocessionaires subject to the business ceded to this Contract;

When required by regulators performing an audit of the Reinsurers records and/or financial condition;

When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

When required by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.

The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and Its affiliates, and shall be binding upon their successors and assigns.

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Article 27 - Agency Agreement

Article 28 - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Texas.

Article 29 - Severability (BRMA 72E)

If any provision of this Contract shall be rendered Illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

Article 30 - Entire Agreement

Article 31 - Notices and Contract Execution

The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

Paper documents with an original ink signature;

Facsimile or electronic copies of paper documents showing an original ink signature; and/or

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This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

Article 32 - Intermediary

Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary. Payments by the Company to the Intermediary will be deemed payment to the Reinsurer. Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company.

In Witness Whereof, the Company by Its duly authorized representative has executed this Contract as of the date specified below:

This __________ day of ___________________ in the year __________.

Homeowners of America Insurance Company (for and on behalf of the “Company”)

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Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)

Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

Nuclear reactor power plants including all auxiliary property on the site, or

II.

Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III.

Installations for fabricating complete fuel elements or for processing substantial quantities of “special nuclear material,” and for reprocessing, salvaging, chemically separating, storing or disposing of “spent” nuclear fuel or waste materials, or

IV.

Installations other than those listed in paragraph (2) Ill above using substantial quantities of radioactive isotopes or other products of nuclear fission.

Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reassured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be Insured therewith except that this paragraph (3) shall not operate

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this subparagraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note. Without In any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

all policies issued by the Reassured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

(b)

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Pools, Associations and Syndicates Exclusion Clause

Section A:

Excluding:

(a)

All business derived directly or indirectly from any Pool, Association or Syndicate which maintains its own reinsurance facilities.

(b)

Any Pool or Scheme (whether voluntary or mandatory) formed after March 1. 1968 for the purpose of Insuring property whether on a country-wide basis or in respect of designated areas. This exclusion shall not apply to so-called Automobile Insurance Plans or other Pools formed to provide coverage for Automobile Physical Damage.

Section B:

Industrial Risk Insurers,

Associated Factory Mutuals,

Improved Risk Mutuals,

Any Pool, Association or Syndicate formed for the purpose of writing

Oil, Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs,

United States Aircraft Insurance Group,

Canadian Aircraft Insurance Group,

Associated Aviation Underwriters.

American Aviation Underwriters.

Section B does not apply:

(a)

Where the Total Insured Value over all interests of the risk in question is less than $250,000,000.

(b)

To interests traditionally underwritten as Inland Marine or stock and/or contents written on a blanket basis.

(c)

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(d)

To risks as follows:

Where This clause attaches to Catastrophe Excesses, the following Section C is added:

Section C:

Nevertheless the Reinsurer specifically agrees that liability accruing to the Company from its participation in residual market mechanisms including but not limited to:

(1)

The following so-called “Coastal Pools”:

Alabama Insurance Underwriting Association

Louisiana Citizens Property Insurance Corporation

Mississippi Windstorm Underwriting Association

North Carolina Insurance Underwriting Association

South Carolina Windstorm and Hail Underwriting Association

Texas Windstorm Insurance Association

AND

(2)

All “Fair Plan” and “Rural Risk Plan” business

AND

(3)

Citizens Property Insurance Corporation (“CPIC”) and the California Earthquake Authority (“CEA”)

for all perils otherwise protected hereunder shall not be excluded, except, however, that this reinsurance does not include any Increase in such liability resulting from:

(i)

The inability of any other participant in such “Coastal Pool” and/or “Fair Plan” and/or “Rural Risk Plan” and/or Residual Market Mechanisms to meet its liability.

(ii)

Section D:

(1)

- 4 -

(2)

Notwithstanding Section C above, in respect of CPIC, where an assessment is made against the Company by CPIC, the maximum loss that the Company may include in the Ultimate Net Loss in respect of any loss occurrence hereunder shall not exceed the lesser of:

(a)

The Company’s assessment from CPIC for the accounting year in which the loss occurrence commenced, or

(b)

The product of the following:

(i)

The Company’s percentage participation in CPIC for the accounting year in which the loss occurrence commenced; and

(ii)

CPIC’s total losses in such lass occurrence.

Any assessments for accounting years subsequent to that in which the loss occurrence commenced may not be included in the Ultimate Net Loss hereunder. Moreover, notwithstanding Section C above, in respect of CPIC, the Ultimate Net Loss hereunder shall not Include any monies expended to purchase or retire bonds as a consequence of being a member of CPIC. For the purposes of this Contract. the Company may not include in the Ultimate Net Loss any assessment or any percentage assessment levied by CPIC to meet the obligations of an insolvent insurer member or other party, or to meet any obligations arising from the deferment by CPIC of the collection of monies.

NOTES:

Wherever used herein the terms:

“Company”

shall be understood to mean “Company,” “Reinsured,” “Reassured” or whatever other term is used in the attached reinsurance document to designate the reinsured company or companies.

“Agreement”

shall be understood to mean “Agreement” “Contract,” ‘Policy” or whatever other term is used to designate the attached reinsurance document.

“Reinsurers”

shall be understood to mean “Reinsurers,” “Underwriters” or whatever other term Is used In the attached reinsurance document to designate the reinsurer or reinsurers.

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Pollution and Seepage Exclusion Clause

Terrorism Exclusion

(Property Treaty Reinsurance)

Involves violence against one or more persons; or

Involves damage to property; or

Endangers life other than that of the person committing the action; or

Creates a risk to hearth or safety of the public or a section of the public; or

Is designed to interfere with or to disrupt an electronic system.

This Contract also excludes loss, damage, cost, or expense directly or indirectly caused by, contributed to by, resulting from, or arising out of or in connection with any action in controlling, preventing, suppressing, retaliating against, or responding to any act of terrorism.

N.MA. 2930c

22/11/02

Form approved by Lloyd’s Market Association [Non-Marine]

EX-10.8 16 v347100_ex10-8.htm EXHIBIT 10.8

Residential Quota Share
Reinsurance Contract
Effective: April 1, 2012

Homeowners of America Insurance Company
Irving, Texas
including any and/or all companies that are or may hereafter become affiliated therewith

Table of Contents

	Page

Article

Article 1 - Classes of Business Reinsured	1

Article 2 - Commencement and Termination	1

Article 3 - Territory (BRMA 51A)	3

Article 4 - Exclusions	4

Article 5 - Special Acceptances	5

Article 6 - Retention and Limit	6

Article 7 - Loss in Excess of Policy Limits/Extra Contractual Obligations	8

Article 8 - Other Reinsurance	9

Article 9 - Claims and Loss Adjustment Expense	9

Article 10 - Special Commutation	11

Article 11 - Assessments	13

Article 12 - Salvage and Subrogation	13

Article 13 - Original Conditions	13

Article 14 - Sliding Scale Commission	14

Article 15 - Reports and Remittances	15

Article 16 - Late Payments	16

Article 17 - Access to Records	18

Article 18 - Errors, Omissions and Inadvertent Binding	18

Article 19 - Currency (BRMA 12A)	18

Article 20 - Federal Excise Tax (BRMA 17D)	19

Article 21 - Reserves	19

Article 22 - Insolvency	21

Article 23 - Arbitration	22

Article 24 - Service of Suit (BRMA 49G)	23

Article 25 - Confidentiality	23

Article 26 - Agency Agreement	24

Article 27 - Governing Law (BRMA 71B)	25

Article 28 - Severability (BRMA 72E)	25

Article 29 - Entire Agreement	25

Article 30 - Notices and Contract Execution	25

Article 31 - Intermediary	26

Residential Property Quota Share
Reinsurance Contract
Effective: April 1, 2012

entered into by and between

Homeowners of America Insurance Company
Irving, Texas
including any and/or all companies that are or may hereafter become affiliated therewith

(hereinafter referred to collectively as the “Company”)

and

The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the “Reinsurer”)

Article 1 - Classes of Business Reinsured

“Net liability” as used herein shall mean the Company’s gross liability remaining after cessions, if any, to other pro rata reinsurers.

The liability of the Reinsurer with respect to each cession hereunder shall commence obligatorily and simultaneously with that of the Company, subject to the terms, conditions and limitations hereinafter set forth.

“Policies” as used herein shall mean all policies, contracts and binders of insurance, whether held covered provisionally or otherwise.

Article 2 - Commencement and Termination

Either party may terminate this Contract at 12:01 a.m., Central Standard Time, on any April 1 by giving the other party not less than 90 days prior written notice as set forth in the Notices and Contract Execution Article.

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The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) after the earlier of: (a) the inception of this Contract, or (b) the date lines are bound for this Contract, has been reduced by more than 30.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) at any time between the earlier of: (a) the inception of this Contract, or (b) the date lines are bound for this Contract, and the date of termination of this Contract has been reduced by more than 30.0% of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer’s most recent financial statement filed with regulatory authorities and available to the public as of the date lines are bound; or

A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease assuming business; or

The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent; or

The A.M. Best’s rating for the Subscribing Reinsurer has been assigned or downgraded below A- (inclusive of “Not Rated” ratings), or the published rating issued by Standard & Poor’s has been downgraded below BBB+ (inclusive of “Not Rated” ratings); or

The Subscribing Reinsurer has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer’s operations previously; or

The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or

- 2 -

In the event a Subscribing Reinsurer experiences one or more of the circumstances specified in paragraph C above, the Subscribing Reinsurer shall notify the Company as promptly as possible and shall hereinafter be referred to as a “Special Circumstance Reinsurer.” To terminate a Special Circumstance Reinsurer’s percentage share in this Contract, the Company must provide the Special Circumstance Reinsurer with written notice as set forth in the Notices and Contract Execution Article. Such notice shall include the effective date of termination as selected by the Company and shall be one of the following:

The date of written notice provided by the Special Circumstance Reinsurer; or

The last day of the month prior to the date of written notice provided by the Special Circumstance Reinsurer; or

The last day of any month after the date of written notice provided by the Special Circumstance Reinsurer; or

The date of the Company’s written notice to the Special Circumstance Reinsurer advising of the termination.

Unless the Company elects to reassume the ceded unearned premium in force on the effective date of termination, and so notifies the Reinsurer prior to or as promptly as possible after the effective date of termination, reinsurance hereunder on business in force on the effective date of termination shall remain in full force and effect until expiration, cancellation or next premium anniversary of such business, whichever first occurs, but in no event beyond 12 months plus odd time following the effective date of termination.

Article 3 - Territory (BRMA 51A)

The territorial limits of this Contract shall be identical with those of the Company’s policies.

- 3 -

Article 4 - Exclusions

This Contract does not apply to and specifically excludes the following: 1. Financial guarantee and insolvency.

Financial guarantee and insolvency.

Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)” attached to and forming part of this Contract.

Loss or damage caused by or resulting from war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage covered under a standard policy with a standard War Exclusion Clause.

Liability as a member, subscriber or reinsurer of any Pool, Syndicate or Association; and any combination of insurers or reinsurers formed for the purpose of covering specific perils, specific classes of business or for the purpose of insuring risks located in specific geographical areas. However, this exclusion shall not apply to residual market mechanisms, including but not limited to FAIR Plans, Joint Underwriting Associations, or to Coastal Pools, Beach Plans or similar plans, however styled. It is understood and agreed, however, that this reinsurance does not include any increase in liability to the Company resulting from (a) the inability of any other participant in a residual market mechanism, including but not limited to a FAIR Plan, Joint Underwriting Association, Coastal Pool, Beach Plan or similar plan, to meet its liability, or (b) any claim against such a residual market mechanism, including but not limited to a FAIR Plan, Joint Underwriting Association, Coastal Pool, Beach Plan or similar plan, or any participant therein, including the Company, whether by way of subrogation or otherwise, brought by or on behalf of any insolvency fund.

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. However, this exclusion shall not apply to assessments from the Texas Property and Casualty Insurance Guaranty Association. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

All third party liability, except Section II of Homeowners and Comprehensive Personal Liability written as an optional coverage in conjunction with Dwelling policies.

Fidelity, Surety and Credit business.

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Loss or damage to growing or standing crops.

Livestock.

10.

Mortgage impairment.

11.

Pollution and seepage coverages excluded under the provisions of the “Pollution and Seepage Exclusion Clause (BRMA 39A)” attached to and forming part of this Contract.

12.

Terrorism, as described in the provisions of the “Terrorism Exclusion (NMA 2930c)” attached to and forming part of this Contract.

13.

Flood and/or earthquake when written as such.

14.

Title insurance.

15.

16.

Reinsurance assumed.

Any exclusion set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5 and 12) shall be waived automatically when, in the opinion of the Company, the exposure excluded therein is incidental to the principal exposure on the risk in question.

If the Company is required to accept an assigned risk which conflicts with one or more of the exclusions set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5 and 12), reinsurance shall apply, but in no event shall the Reinsurer’s liability exceed the applicable limits set forth in the Retention and Limit Article.

Article 5 - Special Acceptances

From time to time the Company may request a special acceptance of reinsurance falling outside the scope of the provisions of this Contract (except as respects the exclusions set forth in subparagraphs 1, 2, 3, 5 and 12 of the Exclusions Article). Within 10 days of receipt of such a request, each Subscribing Reinsurer shall accept such request, ask for additional information, or reject the request. Any reinsurance that is specially accepted by the Reinsurer shall be covered under this Contract and shall be subject to the terms hereof, except as such terms shall be modified by the special acceptance. If a Subscribing Reinsurer fails to respond to a special acceptance request within 10 days, the Subscribing Reinsurer will be deemed to have agreed to the special acceptance.

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If Subscribing Reinsurers with percentage shares totaling more than 50.0% in the interests and liabilities of the Reinsurer agree to a special acceptance, such special acceptance shall be binding on all Subscribing Reinsurers with respect to their respective shares. If such percentage agreement is not achieved, such special acceptance shall be made to this Contract only with respect to the interests and liabilities of each Subscribing Reinsurer that agrees to the special acceptance.

In the event a reinsurer becomes a party to this Contract subsequent to one or more special acceptances hereunder, the new reinsurer shall automatically accept such special acceptance(s) as being covered hereunder. Further, if one or more Subscribing Reinsurers under this Contract agreed to special acceptance(s) under the contract being replaced by this Contract, such special acceptance(s) shall be automatically covered hereunder with respect to the interests and liabilities of such Subscribing Reinsurer(s).

Article 6 - Retention and Limit

As respects business subject to this Contract, the Company shall cede to the Reinsurer and the Reinsurer agrees to accept 100% of the Company’s net liability.

The Company shall retain at least a 10.0% part of 100% share in the interests and liabilities of the Reinsurer hereunder.

The Company shall purchase or be deemed to have purchased inuring excess facultative reinsurance to limit its loss subject hereto from any one coverage, any one policy (exclusive of loss in excess of policy limits, extra contractual obligations and loss adjustment expense) to the following amounts:

Dwelling, $750,000;

Personal Property (contents) Homeowners policies, 75.0% of the Dwelling limit;

Personal Property (contents) Dwelling Fire policies, 40.0% of the Dwelling limit;

Other Structures, 20.0% of the Dwelling limit;

Loss of Use, 20.0% of the Dwelling limit;

Medical Payments, $5,000;

Comprehensive Personal Liability (Homeowners Section II) and Comprehensive Personal Liability written as an optional coverage in conjunction with Dwelling policies, $500,000.

The total insured value for any one property risk is subject to a maximum limit of $1,612,500, or so deemed, inclusive of all additional and optional coverages.

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Notwithstanding the provisions above, the liability of the Reinsurer hereunder as respects losses arising out of any one loss occurrence (including loss in excess of policy limits, extra contractual obligations, loss adjustment expense and any assessment, including but not limited to the Texas Windstorm Insurance Association, and any Guarantee Fund or any Fair Plan Assessment) during any one contract year shall not exceed the lesser of (1) $60,000,000, or (2) 150% of the premiums earned during the contract year. The liability of the Reinsurer for each such loss occurrence shall be adjusted as promptly as possible after the end of the contract year.

As respects Property business subject hereunder, the term “loss occurrence” shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one “loss occurrence” shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term “loss occurrence” shall be further defined as follows:

For all those “loss occurrences” other than those referred to in subparagraph 2 above, the Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any “loss occurrence” referred to in subparagraph 1 above where only one such period of 72 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

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It is understood that losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one “loss occurrence.” Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils and no single “loss occurrence” shall encompass a time period greater than 168 consecutive hours.

As respects Casualty business subject hereunder, “loss occurrence” as used herein shall mean an accident or occurrence or a series of accidents or occurrences arising out of or caused by one event.

“Total insured value” as used herein shall mean the sum value of dwellings, other structures, contents and loss of use for each property risk reinsured hereunder.

“Premiums earned” as used herein shall mean ceded unearned premiums at the beginning of the contract year under consideration, plus ceded net written premiums during the contract year, less ceded unearned premiums at the end of the contract year.

“Contract year” as used herein shall mean the period from 12:01 a.m., Central Standard Time, April 1, 2012, to 12:01 a.m., Central Standard Time, April 1, 2013, and each respective 12-month period thereafter that this Contract continues in force shall be a separate contract year. However, if this Contract or the participation of a Subscribing Reinsurer is terminated, the final contract year, as applicable, shall be from the beginning of the then current contract year until the effective time and date of termination if termination is on a “cutoff’ basis, or through the end of the runoff period if termination is on a “runoff’ basis.

Article 7 - Loss in Excess of Policy Limits/Extra Contractual Obligations

In the event the Company pays or is held liable to pay an amount of loss in excess of its policy limit, but otherwise within the terms of its policy (hereinafter called “loss in excess of policy limits”) or any punitive, exemplary, compensatory or consequential damages, other than loss in excess of policy limits (hereinafter called “extra contractual obligations”) because of alleged or actual bad faith, negligence or fraud on its part in rejecting an offer of settlement within policy limits, or in the preparation of the defense or in the trial of an action against its insured or in the preparation or prosecution of an appeal consequent upon such an action, or in otherwise handling a claim under a policy subject to this Contract, the loss in excess of policy limits and/or the extra contractual obligations shall be added to the Company’s loss, if any, under the policy involved, and the sum thereof shall be subject to the provisions of paragraph A of the Retention and Limit Article.

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An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

Article 8 - Other Reinsurance

The Company shall maintain in force or shall be deemed to have maintained in force $1,112,500 excess of $500,000 as respects any one risk, each loss (subject to a $3,337,500 aggregate limit) per risk treaty reinsurance, recoveries under which shall inure to the benefit of this Contract, for policies:

Classified by the Company as Homeowners business; and

Covering risks with a total insured value greater than $500,000 (property coverages only, including Personal Property coverage and Extensions of Coverage as defined in the Company’s policies), subject to the exclusions of such per risk treaty.

The Company shall be permitted to carry facultative reinsurance on any risk subject hereunder, recoveries under which shall inure to the benefit of this Contract.

The Company shall be permitted to carry other treaty reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

Article 9 - Claims and Loss Adjustment Expense

Losses shall be reported by the Company in summary form as hereinafter provided, but the Company alone and at its full discretion shall adjust, settle or compromise all claims and losses hereunder. The Company shall be the sole judge as to:

What constitutes a claim or loss covered under any policy;

The Company’s liability thereunder;

The amount or amounts proper for the Company to pay thereunder.

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The Reinsurer shall be bound by the judgment of the Company as to the obligations and liabilities of the Company under any policy.

All loss settlements made by the Company, whether under strict policy conditions or by way of compromise (including loss in excess of policy limits and extra contractual obligations), shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its proportion of each such settlement in accordance with the Reports and Remittances Article. It is agreed, however, that if the Reinsurer’s share of any loss is equal to or greater than $100,000, the Reinsurer, if requested by the Company, will pay its share of said loss within 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue (as specified in the Late Payments Article), from the date the proof of loss or demand for payment was transmitted to the Reinsurer.

In the event of a claim under a policy subject hereto, the Reinsurer shall be liable for its proportionate share of loss adjustment expense incurred by the Company in connection therewith, and shall be credited with its proportionate share of any recoveries of such expense.

A Special Circumstance Reinsurer shall not have the right to deny payment of a claim if the sum of the percentage shares of Active Subscribing Reinsurers that have paid the claim exceeds 50.0% of the sum of the percentage shares of all Active Subscribing Reinsurers. “Active Subscribing Reinsurer” as used herein shall mean a Subscribing Reinsurer that is not a Special Circumstance Reinsurer as of the due date of the claim (as specified in the Late Payments Article).

“Loss adjustment expense” as used herein shall mean costs and expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of claims, regardless of how such expenses are classified for statutory reporting purposes. Loss adjustment expense shall include, but not be limited to:

Interest on judgments;

Expenses of outside adjusters and adjuster expenses incurred by Homeowners of America MGA, Inc.;

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Expenses of the Company’s officials incurred in connection with losses covered by this Contract;

Declaratory judgment expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto;

Advertising or other extraordinary communication expenses incurred as a result of a covered loss;

Court costs;

Costs of supersedeas and appeal bonds;

Monitoring counsel expenses;

10.

Extraordinary expenses arising out of a loss, whether or not they are allocable to a specific “claim.”

However, loss adjustment expense shall not include normal office expenses or salaries of the Company’s regular employees, except as provided for in subparagraph 3 above.

Article 10 - Special Commutation

The Company may require commutation of that portion of any loss hereunder represented by any outstanding claim or claims, including any related loss adjustment expense, plus unearned premium hereunder, if any remains, if the Subscribing Reinsurer is a Special Circumstance Reinsurer.

“Outstanding claim or claims” shall include claims incurred but not reported, as established by the Company, including any billed yet unpaid claims.

If the Company elects to require commutation as provided in paragraph A above, the Company shall submit a Statement of Valuation of the outstanding claim or claims as of the last day of the month immediately preceding the month in which the Company elects to require commutation, as determined by the Company. Such Statement of Valuation shall include the elements considered reasonable to establish the loss and shall set forth or attach the information relied upon by the Company and the methodology employed to calculate the loss. The Subscribing Reinsurer shall then pay the amount requested within 10 days of receipt of such Statement of Valuation, unless the Subscribing Reinsurer needs additional information from the Company to assess the Company’s Statement of Valuation or contests such amount.

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If the Subscribing Reinsurer needs additional information from the Company to assess the Company’s Statement of Valuation or contests the amount requested, the Subscribing Reinsurer shall so notify the Company within 15 days of receipt of the Company’s Statement of Valuation. The Company shall supply any reasonably requested information to the Subscribing Reinsurer within 15 days of receipt of the notification. Within 30 days of the date of the notification or of the receipt of the information, whichever is later, the Subscribing Reinsurer shall provide the Company with its Statement of Valuation of the outstanding claim or claims as of the last day of the month immediately preceding the month in which the Company elects to require commutation, as determined by the Subscribing Reinsurer. Such Statement of Valuation shall include the elements considered reasonable to establish the loss and shall set forth or attach the information relied upon by the Subscribing Reinsurer and the methodology employed to calculate the loss. The Subscribing Reinsurer shall pay the amount due the Company, if any, plus any ceded unearned premium reserves with its Statement of Valuation.

In the event the Subscribing Reinsurer’s Statement of Valuation of the outstanding claim or claims is viewed as unacceptable to the Company, the Company may either abandon the commutation effort, or may seek to settle any difference by using an independent actuary agreed to by the parties.

If the parties cannot agree on an acceptable independent actuary within 15 days of the date of the Subscribing Reinsurer’s Statement of Valuation, then each party shall appoint an actuary as party actuaries for the limited and sole purpose of selecting an independent actuary. If the party actuaries fail to agree upon an acceptable independent actuary within 15 days following the date of their appointment, the Company shall supply the Subscribing Reinsurer with a list of at least five proposed independent actuaries, and the Subscribing Reinsurer shall select the independent actuary from that list.

Upon selection of the independent actuary, both parties shall present their respective written submissions to the independent actuary. The independent actuary may, at his or her discretion, request additional information. The independent actuary shall issue his or her decision within 45 days after the written submissions have been filed and any additional information has been provided. Any amount due the Company (including any ceded unearned premium reserves) shall be paid by the Subscribing Reinsurer within 15 calendar days after such decision has been issued.

The decision of the independent actuary shall be final and binding. The expense of the independent actuary shall be equally divided between the two parties. For the purposes of this Article, unless mutually agreed otherwise, an “independent actuary” shall be an actuary who satisfies each of the following criteria:

Is regularly engaged in the valuation of claims resulting from lines of business subject to this Contract; and

Is either a Fellow of the Casualty Actuarial Society or of the American Academy of Actuaries; and

Is disinterested and impartial regarding this commutation.

In the event that the Subscribing Reinsurer no longer meets the criteria set forth in paragraph A above, this commutation may continue on a mutually agreed basis.

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Payment by the Subscribing Reinsurer of the amount requested in accordance with paragraph B, C or F above, shall release the Subscribing Reinsurer from all further liability for outstanding claim or claims, known or unknown, and any unearned premium under this Contract and shall release the Company from all further liability for payments of salvage or subrogation amounts, known or unknown, to the Subscribing Reinsurer under this Contract.

In the event of any conflict between this Article and any other article of this Contract, the terms of this Article shall control.

This Article shall survive the termination of this Contract and/or a Subscribing Reinsurer’s percentage share in this Contract.

Article 11 - Assessments

The provisions of the quota share participation will apply to the proportion of any assessments made against the Company pursuant to those laws and regulations creating obligatory funds (excluding insurance guaranty and insolvency funds to the extent such costs are transferable to the policyholders), pools, joint underwriting associations, FAIR plans, and similar plans; said proportion to be the proportion of the Company’s total premiums causing the assessment which were or are subject to this Contract. All offsets from such assessments, if any, including credits allowed to the Company against its premium taxes, are subject to the provisions of the Salvage and Subrogation Article.

At the termination of this Contract, the provisions of the quota share participation shall continue to apply until the Company may legally terminate its liability for assessments that are a result of the business reinsured hereunder.

Article 12 - Salvage and Subrogation

The Reinsurer shall be credited with its proportionate share of salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Company’s opinion, it is reasonable to do so.

Article 13 - Original Conditions

All reinsurance under this Contract shall be subject to the same rates, terms, conditions, waivers and interpretations, including judicial interpretation and policy reformation, and to the same modifications and alterations as the respective policies of the Company. The Reinsurer shall be credited with its exact proportion of the original premiums received by the Company, prior to disbursement of any dividends, but after deduction of premiums, if any, ceded by the Company for inuring reinsurance.

Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

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Article 14 - Sliding Scale Commission

The Reinsurer shall allow the Company a 29.0% provisional commission on all premiums ceded to the Reinsurer hereunder. The Company shall allow the Reinsurer return commission on return premiums at the same rate.

The provisional commission allowed the Company shall be adjusted periodically in accordance with the provisions set forth herein. The adjusted commission rate shall be calculated as follows and be applied to premiums earned for the contract year under consideration:

If the ratio of losses incurred to premiums earned is 57.0% or greater, the adjusted commission rate for the contract year under consideration shall be 23.0%;

If the ratio of losses incurred to premiums earned is less than 57.0%, but not less than 47.0%, the adjusted commission rate for the contract year under consideration shall be 23.0%, plus 50.0% of the difference in percentage points between 57.0% and the actual ratio of losses incurred to premiums earned;

If the ratio of losses incurred to premiums earned is less than 47.0%, but not less than 37.0%, the adjusted commission rate for the contract year under consideration shall be 28.0%, plus 100% of the difference in percentage points between 47.0% and the actual ratio of losses incurred to premiums earned;

If the ratio of losses incurred to premiums earned is 37.0% or less, the adjusted commission rate for the contract year under consideration shall be 38.0%.

If the ratio of losses incurred to premiums earned for any contract year is greater than 57.0%, the difference in percentage points between the actual ratio of losses incurred to premiums earned and 57.0% shall be multiplied by premiums earned for the contract year and the product shall be carried forward to the next contract year as a debit to losses incurred. If the ratio of losses incurred to premiums earned for any contract year is less than 37.0%, the difference in percentage points between 37.0% and the actual ratio of losses incurred to premiums earned shall be multiplied by premiums earned for the contract year and the product shall be carried forward to the next contract year as a credit to losses incurred.

Except as provided in the next paragraph, the Company shall calculate and report the adjusted commission on premiums earned within 45 days after the end of each contract year, and within 45 days after the end of each 12-month period thereafter until all losses subject hereto have been finally settled. Each such calculation shall be based on cumulative transactions hereunder from the beginning of the contract year through the date of adjustment, including, as respects losses incurred, any debit or credit from the preceding contract year. If the adjusted commission on premiums earned for the contract year as of the date of adjustment is less than commissions previously allowed by the Reinsurer on premiums earned for the same contract year, the Company shall remit the difference to the Reinsurer with its report. If the adjusted commission on premiums earned for the contract year as of the date of adjustment is greater than commissions previously allowed by the Reinsurer on premiums earned for the same contract year, the Reinsurer shall remit the difference to the Company as promptly as possible after receipt and verification of the Company’s report.

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As respects the final contract year, the Company shall calculate and report the adjusted commission on premiums earned within 45 days after the date of termination of this Contract or the termination of a Subscribing Reinsurers percentage share in this Contract, and within 45 days after the end of each 12-month period thereafter until all losses subject hereto have been finally settled. Each such calculation shall be based on cumulative transactions hereunder from the beginning of the final contract year through the date of adjustment, including, as respects losses incurred, any debit or credit from the preceding contract year. If the adjusted commission on premiums earned for the final contract year as of the date of adjustment is less than commissions previously allowed by the Reinsurer on premiums earned for the same contract year, the Company shall remit the difference to the Reinsurer with its report. If the adjusted commission on premiums earned for the final contract year as of the date of adjustment is greater than commissions previously allowed by the Reinsurer on premiums earned for the same contract year, the Reinsurer shall remit the difference to the Company as promptly as possible after receipt and verification of the Company’s report.

“Losses incurred” as used herein shall mean ceded losses and loss adjustment expense paid as of the effective date of calculation, plus the ceded reserves for losses and loss adjustment expense outstanding as of the same date, all as respects losses occurring during the contract year under consideration, plus the debit or minus the credit from the preceding contract year.

As respects the first contract year hereunder, for any Subscribing Reinsurer participating under this Contract that also participated under the Company’s Residential Quota Share Reinsurance Contract, effective 12:01 a.m., Central Standard Time, April 1, 2011 (the “expired contract”), “losses incurred” as used herein shall also include each such Subscribing Reinsurer’s share of any debit or credit under the expired contract.

“Catastrophe event” as used herein shall mean any loss occurrence covered hereunder which has been assigned a catastrophe number by the Property Claim Services (hereinafter “PCS”).

It is expressly agreed that the ceding commission allowed the Company includes provision for all dividends, commissions, taxes, assessments, and all other expenses of whatever nature, except loss adjustment expense.

Article 15 - Reports and Remittances

As promptly as possible after the effective date of this Contract, the Company shall remit the Reinsurer’s share of the unearned premium (less provisional commission thereon) applicable to subject business in force at the effective date of this Contract.

Within 30 days after the end of each month, the Company shall report to the Reinsurer:

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Ceded net written premium billed during the month on a non-installment basis;

Ceded net written premium during the month accounted for on an installment premium basis;

Down payments and the portion of ceded net written premium billed during the month as respects installment premiums;

Provisional commission on (1) and (3) above;

Ceded losses and loss adjustment expense paid during the month (net of any recoveries during the month under the “cash call” provisions of the Claims and Loss Adjustment Expense Article);

The Reinsurer’s share of salvage and subrogation;

Premium (including reinstatement premium) for reinsurance which inures to the benefit of this Contract;

Recoveries from reinsurance which inures to the benefit of this Contract;

Ceded unearned premiums and ceded outstanding loss and loss adjustment expense reserves (including incurred but not reported loss reserves as established by the Company) as of the end of the month.

The positive balance of (1) plus (3) less (4) less (5) plus (6) less (7) plus (8) shall be remitted by the Company within 60 days after the end of the month of account. Any balance shown to be due the Company shall be remitted by the Reinsurer as promptly as possible (not exceeding 15 days, however) after receipt and verification of the Company’s report.

Furthermore, as respects subparagraph 5 above, the Company shall identify losses and loss adjustment expense by PCS catastrophe number, where applicable.

Annually, the Company shall furnish the Reinsurer with such information as the Reinsurer may require to complete its Annual Convention Statement.

Article 16 - Late Payments

The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

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The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

1/365ths of the sum of 4.0% and the U.S. prime rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary.

Notwithstanding the provisions of subparagraph 2 above and the immediately preceding sentence, the interest rate for a Special Circumstance Reinsurer will increase by 1.0% for every month that payment of the claim is past due, subject to a maximum annual interest rate of 10.0%.

The establishment of the due date shall, for purposes of this Article, be determined as follows:

As respects any routine payment, adjustment or return due either party, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment.

As respects any payment, adjustment or return due either party not otherwise provided for in subparagraph 1 of this paragraph, the due date shall be deemed due 30 days following transmittal of written notification that the provisions of this Article have been invoked.

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

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Article 17 - Access to Records

Provided the Company has received at least five working days prior notice, the Reinsurer or its designated representatives shall have access during regular business hours to all records of the Company which pertain in any way to this reinsurance. However, a Subscribing Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company. “Undisputed” as used herein shall mean any amount that the Subscribing Reinsurer has not contested in writing to the Company that specifies the reason(s) why the payments are disputed.

Article 18 - Errors, Omissions and Inadvertent Binding

If the Company is bound, without the knowledge and contrary to the instructions of the Company’s supervisory underwriting personnel, on any business falling outside the scope of this Contract, reinsurance shall apply to such business until 30 days after an underwriting supervisor of the Company acquires knowledge thereof or until the minimum amount of time required by the applicable statute or regulatory authority to cancel such a policy has elapsed, whichever is greater.

Article 19 - Currency (BRMA 12A)

Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Taxes (BRMA 50B)

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Article 20 - Federal Excise Tax (BRMA 17D)

Article 21 - Reserves

The Reinsurer agrees to fund its share of the Company’s ceded unearned premium, outstanding loss and loss adjustment expense reserves (including incurred but not reported loss reserves as established by the Company), and any other outstanding balances which it shall be required by applicable regulation or law to set up under this Contract (the “funding obligation”) by:

1. 1. Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or

Escrow accounts for the benefit of the Company; and/or

Cash advances;

if the Reinsurer:

Is a Special Circumstance Reinsurer.

The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

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To reimburse itself for the Reinsurer’s share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer;

To reimburse itself for the Reinsurer’s share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer;

To reimburse itself for the Reinsurer’s share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer;

To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurers funding obligation, if so requested by the Reinsurer.

In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.

The number of full days that have expired since the earliest of the applicable following dates:

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As respects a Special Circumstance Reinsurer, the first date such reinsurer becomes a Special Circumstance Reinsurer; times:

1/365ths of the sum of 4.0% and the U.S. prime rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

The greater of (a) the funding obligation, less the amount, if any, funded by the Subscribing Reinsurer prior to the applicable date determined in subparagraph 1 above or (b) $100,000.

It is agreed that interest shall accumulate until the full interest charge amount as provided for in this paragraph and the funding obligation are paid.

Article 22 - Insolvency

In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer.

Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the company.

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Article 23 - Arbitration

As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd’s London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. Notwithstanding the above, in the event the dispute or difference of opinion involves a Special Circumstance Reinsurer, the Company may, at its option, choose to forego arbitration and may bring an action in any court of competent jurisdiction.

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Article 24 - Service of Suit (BRMA 49G)

This Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

In the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate Court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said Court jurisdiction and, in any suit instituted against any of the Subscribing Reinsurers upon this Contract, will abide by the final decision of such Court or of any Appellate Court in the event of an appeal.

Article 25 - Confidentiality

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Are publicly known or have become publicly known through no unauthorized act of the Reinsurer;

Have been rightfully received from a third person without obligation of confidentiality; or

Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except:

When required by retrocessionaires subject to the business ceded to this Contract;

When required by state regulators performing an audit of the Reinsurer’s records and/or financial condition;

When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

When required by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

Article 26 - Agency Agreement

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Article 27 - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Texas.

Article 28 - Severability (BRMA 72E)

Article 29 - Entire Agreement

Article 30 - Notices and Contract Execution

The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

Paper documents with an original ink signature;

Facsimile or electronic copies of paper documents showing an original ink signature; and/or

This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

- 25 -

Article 31 - Intermediary

In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date specified below:

This ________________ day of ________________ in the year ________.

Homeowners of America Insurance Company (for and on behalf of the “Company”)

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Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)

Without in any way restricting the operation of paragraph (1) of this Clause, this Reinsurance does not cover any loss or liability accruing to the Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

Nuclear reactor power plants including all auxiliary property on the site, or

II.

Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III.

IV.

Installations other than those listed in paragraph (2) Ill above using substantial quantities of radioactive isotopes or other products of nuclear fission.

(a)

where Reassured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b)

- 27 -

It is understood and agreed that this Clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reassured to be the primary hazard.

The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

Reassured to be sole judge of what constitutes:

(a)

substantial quantities, and

(b)

the extent of installation, plant or site.

Note:-Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a)

(b)

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Nuclear Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)
(Approved by Lloyd’s Underwriters’ Fire and Non-Marine Association)

(1)

This reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers or reinsurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association.

(2)

Without in any way restricting the operation of paragraph (1) of this Clause it is understood and agreed that for all purposes of this reinsurance all the original policies of the Reassured (new, renewal and replacement) of the classes specified in Clause II of this paragraph (2) from the time specified in Clause III in this paragraph (2) shall be deemed to include the following provision (specified as the Limited Exclusion Provision):

Limited Exclusion Provision.*

It is agreed that the policy does not apply under any liability coverage, to (injury, sickness, disease, death or destruction (bodily injury or property damage with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability.

II.

Family Automobile Policies (liability only), Special Automobile Policies (private passenger automobiles, liability only), Farmers Comprehensive Personal Liability Policies (liability only), Comprehensive Personal Liability Policies (liability only) or policies of a similar nature; and the liability portion of combination forms related to the four classes of policies stated above, such as the Comprehensive Dwelling Policy and the applicable types of Homeowners Policies.

III.

The inception dates and thereafter of all original policies as described in II above, whether new, renewal or replacement, being policies which either

(a)

become effective on or after 1st May, 1960, or

(b)

become effective before that date and contain the Limited Exclusion Provision set out above;

provided this paragraph (2) shall not be applicable to Family Automobile Policies, Special Automobile Policies, or policies or combination policies of a similar nature, issued by the Reassured on New York risks, until 90 days following approval of the Limited Exclusion Provision by the Governmental Authority having jurisdiction thereof.

- 29 -

(3)

Except for those classes of policies specified in Clause II of paragraph (2) and without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that for all purposes of this reinsurance the original liability policies of the Reassured (new, renewal and replacement) affording the following coverages:

Owners, Landlords and Tenants Liability, Contractual Liability, Elevator Liability, Owners or Contractors (including railroad) Protective Liability, Manufacturers and Contractors Liability, Product Liability, Professional and Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts Motor Vehicle or Garage Liability)

shall be deemed to include, with respect to such coverages, from the time specified in Clause V of this paragraph (3), the following provision (specified as the Broad Exclusion Provision):

Broad Exclusion Provision.*

It is agreed that the policy does not apply:

Under any Liability Coverage to
(injury, sickness, disease, death or destruction
(bodily injury or property damage

(a)

with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability; or

(b)

resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or any agency thereof, under any agreement entered into by the United States of America, or any agency thereof, with any person or organization.

II.

Under any Medical Payments Coverage, or under any Supplementary Payments Provision relating to
(immediate medical or surgical relief
(first aid,
to expenses incurred with respect to
(bodily injury, sickness, disease or death
(bodily injury
resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization.

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III.

Under any Liability Coverage to
(injury, sickness, disease, death or destruction
(bodily injury or property damage
resulting from the hazardous properties of nuclear material, if

(a)

the nuclear material (1) is at any nuclear facility owned by, or operated by or on behalf of, an insured or (2) has been discharged or dispersed therefrom;

(b)

the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an insured; or

(c)

the
(injury, sickness, disease, death or destruction
(bodily injury or property damage
arises out of the furnishing by an insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories, or possessions or Canada, this exclusion (c) applies only to
(injury to or destruction of property at such nuclear facility
(property damage to such nuclear facility and any property thereat.

IV.

As used in this endorsement:

“hazardous properties” include radioactive, toxic or explosive properties; “nuclear material” means source material, special nuclear material or byproduct material; “source material”, “special nuclear material”, and “byproduct material” have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; “spent fuel” means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor, “waste” means any waste material (1) containing byproduct material and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (a) or (b) thereof; “nuclear facility” means

(a)

any nuclear reactor,

(b)

any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling processing or packaging waste,

(c)

any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235,

- 31 -

(d)

any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste, and includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations; “nuclear reactor” means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material;

(With respect to injury to or destruction of property, the word “injury” or “destruction,”
(“property damage” includes all forms of radioactive contamination of property,
(includes all forms of radioactive contamination of property.

The inception dates and thereafter of all original policies affording coverages specified in this paragraph (3), whether new, renewal or replacement, being policies which become effective on or after 1st May, 1960, provided this paragraph (3) shall not be applicable to

(i)

Garage and Automobile Policies issued by the Reassured on New York risks, or

(ii)

statutory liability insurance required under Chapter 90, General Laws of Massachusetts, until 90 days following approval of the Broad Exclusion Provision by the Governmental Authority having jurisdiction thereof.

(4)

Without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that paragraphs (2) and (3) above are not applicable to original liability policies of the Reassured in Canada and that with respect to such policies this Clause shall be deemed to include the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian Underwriters’ Association or the Independent Insurance Conference of Canada.

*NOTE.

The words printed in italics in the Limited Exclusion Provision and in the Broad Exclusion Provision shall apply only in relation to original liability policies which include a Limited Exclusion Provision or a Broad Exclusion Provision containing those words.

- 32 -

Pollution and Seepage Exclusion Clause

This Contract excludes loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25.0% of the Company’s property loss under the applicable original policy.

- 33 -

Terrorism Exclusion
(Property Treaty Reinsurance)

Involves violence against one or more persons; or

Involves damage to property; or

Endangers life other than that of the person committing the action; or

Creates a risk to health or safety of the public or a section of the public; or

Is designed to interfere with or to disrupt an electronic system.

- 34 -

EX-10.9 17 v347100_ex10-9.htm EXHIBIT 10.9

Residential Property Quota Share
Reinsurance Contract
Effective: April 1, 2012

Homeowners of America Insurance Company
Irving, Texas
including any and/or all companies that are or may hereafter become affiliated therewith

Table of Contents

Article	Page

Article 1 - Classes of Business Reinsured	3

Article 2 - Commencement and Termination	3

Article 3 - Territory (BRMA 51A)	6

Article 4 - Exclusions	6

Article 5 - Special Acceptances	8

Article 6 - Retention and Limit	8

Article 7 - Loss in Excess of Policy Limits/Extra Contractual Obligations	11

Article 8 - Other Reinsurance	11

Article 9 - Claims and Loss Adjustment Expense	12

Article 10 - Special Commutation	13

Article 11 - Assessments	15

Article 12 - Salvage and Subrogation	16

Article 13 - Original Conditions	16

Article 14 - Sliding Scale Commission	16

Article 15 - Reports and Remittances	18

Article 16 - Late Payments	19

Article 17 - Access to Records	21

Article 18 - Errors, Omissions and Inadvertent Binding	21

Article 19 - Currency (BRMA 12A)	21

Article 20 - Taxes (BRMA 50B)	21

Article 21 - Federal Excise Tax (BRMA 17D)	22

Article 22 - Reserves	22

Article 23 - Insolvency	24

Article 24 - Arbitration	25

Article 25 - Service of Suit (BRMA 49G)	26

Article 26 - Confidentiality	27

Article 27 - Agency Agreement	28

Article 28 - Governing Law (BRMA 71B)	28

Article 29 - Severability (BRMA 72E)	28

Article 30 - Entire Agreement	28

Article 31 - Notices and Contract Execution	28

Article 32 - Intermediary	29

Residential Property Quota Share
Reinsurance Contract
Effective: April 1, 2012

entered into by and between

Homeowners of America Insurance Company
Irving, Texas
including any and/or all companies that are or may hereafter become affiliated therewith
(hereinafter referred to collectively as the “Company”)

and

The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the “Reinsurer”)

Article 1 - Classes of Business Reinsured

By this Contract the Company obligates itself to cede to the Reinsurer and the Reinsurer obligates itself to accept quota share reinsurance of the Company’s net liability under policies in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Dwelling Fire and Homeowners business (property coverages only, including Dwelling coverage, Personal Property coverage and Extensions of Coverage as defined in the Company’s policies).

“Net liability” as used herein shall mean the Company’s gross liability remaining after cessions, if any, to other pro rata reinsurers.

“Policies” as used herein shall mean all policies, contracts and binders of insurance, whether held covered provisionally or otherwise.

Article 2 - Commencement and Termination

-3-

The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) after the earlier of: (a) the inception of this Contract, or (b) the date lines are bound for this Contract, has been reduced by more than 30.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) at any time between the earlier of: (a) the inception of this Contract, or (b) the date lines are bound for this Contract, and the date of termination of this Contract has been reduced by more than 30.0% of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer’s most recent financial statement filed with regulatory authorities and available to the public as of the date lines are bound; or

A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease assuming business; or

The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent; or

The Subscribing Reinsurer has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer’s operations previously; or

The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or

-4-

In the event a Subscribing Reinsurer experiences one or more of the circumstances specified in paragraph C above, the Subscribing Reinsurer shall notify the Company as promptly as possible and shall hereinafter be referred to as a “Special Circumstance Reinsurer.” To terminate a Special Circumstance Reinsurer’s percentage share in this Contract, the Company must provide the Special Circumstance Reinsurer with written notice as set forth in the Notices and Contract Execution Article. Such notice shall include the effective date of termination as selected by the Company and shall be one of the following:

The date of written notice provided by the Special Circumstance Reinsurer; or

The last day of the month prior to the date of written notice provided by the Special Circumstance Reinsurer; or

The last day of any month after the date of written notice provided by the Special Circumstance Reinsurer; or

The date of the Company’s written notice to the Special Circumstance Reinsurer advising of the termination.

-5-

Article 3 - Territory (BRMA 51A)

The territorial limits of this Contract shall be identical with those of the Company’s policies.

Article 4 - Exclusions

This Contract does not apply to and specifically excludes the following:

Financial guarantee and insolvency.

Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance (U.S.A.)” attached to and forming part of this Contract.

Loss or damage caused by or resulting from war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage covered under a standard policy with a standard War Exclusion Clause.

All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. However, this exclusion shall not apply to assessments from the Texas Property and Casualty Insurance Guaranty Association. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

-6-

All third party liability.

Fidelity, Surety and Credit business.

Loss or damage to growing or standing crops.

Livestock.

10.

Mortgage impairment.

11.

Pollution and seepage coverages excluded under the provisions of the “Pollution and Seepage Exclusion Clause (BRMA 39A)” attached to and forming part of this Contract.

12.

Terrorism, as described in the provisions of the “Terrorism Exclusion (NMA 2930c)” attached to and forming part of this Contract.

13.

Flood and/or earthquake when written as such.

14.

Title insurance.

15.

16.

Reinsurance assumed.

Any exclusion set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5, 6 and 12) shall be waived automatically when, in the opinion of the Company, the exposure excluded therein is incidental to the principal exposure on the risk in question.

If the Company is required to accept an assigned risk which conflicts with one or more of the exclusions set forth in paragraph A (except exclusions set forth in subparagraphs 1, 2, 3, 5, 6 and 12), reinsurance shall apply, but in no event shall the Reinsurer’s liability exceed the applicable limits set forth in the Retention and Limit Article.

-7-

Article 5 - Special Acceptances

From time to time the Company may request a special acceptance of reinsurance falling outside the scope of the provisions of this Contract (except as respects the exclusions set forth in subparagraphs 1, 2, 3, 5, 6 and 12 of the Exclusions Article). Within 10 days of receipt of such a request, each Subscribing Reinsurer shall accept such request, ask for additional information, or reject the request. Any reinsurance that is specially accepted by the Reinsurer shall be covered under this Contract and shall be subject to the terms hereof, except as such terms shall be modified by the special acceptance. If a Subscribing Reinsurer fails to respond to a special acceptance request within 10 days, the Subscribing Reinsurer will be deemed to have agreed to the special acceptance.

In the event a reinsurer becomes a party to this Contract subsequent to one or more special acceptances hereunder, the new reinsurer shall automatically accept such special acceptance(s) as being covered hereunder. Further, if one or more Subscribing Reinsurers under this Contract agreed to special acceptance(s) under the contract being replaced by this Contract, such special acceptance(s) shall be automatically covered hereunder with respect to the interests and liabilities of such Subscribing Reinsurer(s).

Article 6 - Retention and Limit

As respects business subject to this Contract, the Company shall cede to the Reinsurer and the Reinsurer agrees to accept 100% of the Company’s net liability.

Dwelling, $750,000;

Personal Property (contents) Homeowners policies, 75.0% of the Dwelling limit;

Personal Property (contents) Dwelling Fire policies, 40.0% of the Dwelling limit;

-8-

Other Structures, 20.0% of the Dwelling limit;

Loss of Use, 20.0% of the Dwelling limit.

The total insured value for any one property risk is subject to a maximum limit of $1,612,500, or so deemed, inclusive of all additional and optional coverages.

The term “loss occurrence” shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one “loss occurrence” shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event, except that the term “loss occurrence” shall be further defined as follows:

-9-

For all those “loss occurrences” other than those referred to in subparagraph 2 above, the Company may choose the date and time when any such period of consecutive hours commences, provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Company arising out of that disaster, accident or loss, and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any “loss occurrence” referred to in subparagraph 1 above where only one such period of 72 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

It is understood that losses arising from a combination of two or more perils as a result of the same event shall be considered as having arisen from one “loss occurrence.” Notwithstanding the foregoing, the hourly limitations as stated above shall not be exceeded as respects the applicable perils and no single “loss occurrence” shall encompass a time period greater than 168 consecutive hours.

“Total insured value” as used herein shall mean the sum value of dwellings, other structures, contents and loss of use for each property risk reinsured hereunder.

“Contract year” as used herein shall mean the period from 12:01 a.m., Central Standard Time, April 1, 2012, to 12:01 a.m., Central Standard Time, April 1, 2013, and each respective 12-month period thereafter that this Contract continues in force shall be a separate contract year. However, if this Contract or the participation of a Subscribing Reinsurer is terminated, the final contract year, as applicable, shall be from the beginning of the then current contract year until the effective time and date of termination if termination is on a “cutoff basis, or through the end of the runoff period if termination is on a “runoff’ basis.

-10-

Article 7 - Loss in Excess of Policy Limits/Extra Contractual Obligations

An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

Article 8 - Other Reinsurance

Classified by the Company as Homeowners business; and

The Company shall be permitted to carry facultative reinsurance on any risk subject hereunder, recoveries under which shall inure to the benefit of this Contract.

-11-

Article 9 - Claims and Loss Adjustment Expense

What constitutes a claim or loss covered under any policy;

The Company’s liability thereunder;

The amount or amounts proper for the Company to pay thereunder.

The Reinsurer shall be bound by the judgment of the Company as to the obligations and liabilities of the Company under any policy.

A Special Circumstance Reinsurer shall not have the right to deny payment of a claim if the sum of the percentage shares of Active Subscribing Reinsurers that have paid the claim exceeds 50.0% of the sum of the percentage shares of all Active Subscribing Reinsurers. “Active Subscribing Reinsurer” as used herein shall mean a Subscribing Reinsurer that is not a Special Circumstance Reinsurer as of the due date of the claim (as specified in the Late Payments Article).

-12-

“Loss adjustment expense” as used herein shall mean costs and expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of claims, regardless of how such expenses are classified for statutory reporting purposes. Loss adjustment expense shall include, but not be limited to:

Interest on judgments;

Expenses of outside adjusters and adjuster expenses incurred by Homeowners of America MGA, Inc.;

Expenses of the Company’s officials incurred in connection with losses covered by this Contract;

Declaratory judgment expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto;

Advertising or other extraordinary communication expenses incurred as a result of a covered loss;

Court costs;

Costs of supersedeas and appeal bonds;

Monitoring counsel expenses;

10.

Extraordinary expenses arising out of a loss, whether or not they are allocable to a specific “claim.”

However, loss adjustment expense shall not include normal office expenses or salaries of the Company’s regular employees, except as provided for in subparagraph 3 above.

Article 10 - Special Commutation

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“Outstanding claim or claims” shall include claims incurred but not reported, as established by the Company, including any billed yet unpaid claims.

-14-

Is regularly engaged in the valuation of claims resulting from lines of business subject to this Contract; and

Is either a Fellow of the Casualty Actuarial Society or of the American Academy of Actuaries; and

Is disinterested and impartial regarding this commutation.

In the event that the Subscribing Reinsurer no longer meets the criteria set forth in paragraph A above, this commutation may continue on a mutually agreed basis.

In the event of any conflict between this Article and any other article of this Contract, the terms of this Article shall control.

This Article shall survive the termination of this Contract and/or a Subscribing Reinsurer’s percentage share in this Contract.

Article 11 - Assessments

-15-

Article 12 - Salvage and Subrogation

Article 13 - Original Conditions

Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

Article 14 - Sliding Scale Commission

If the ratio of losses incurred to premiums earned is 57.0% or greater, the adjusted commission rate for the contract year under consideration shall be 23.0%;

-16-

If the ratio of losses incurred to premiums earned is 37.0% or less, the adjusted commission rate for the contract year under consideration shall be 38.0%.

As respects the final contract year, the Company shall calculate and report the adjusted commission on premiums earned within 45 days after the date of termination of this Contract or the termination of a Subscribing Reinsurer’s percentage share in this Contract, and within 45 days after the end of each 12-month period thereafter until all losses subject hereto have been finally settled. Each such calculation shall be based on cumulative transactions hereunder from the beginning of the final contract year through the date of adjustment, including, as respects losses incurred, any debit or credit from the preceding contract year. If the adjusted commission on premiums earned for the final contract year as of the date of adjustment is less than commissions previously allowed by the Reinsurer on premiums earned for the same contract year, the Company shall remit the difference to the Reinsurer with its report. If the adjusted commission on premiums earned for the final contract year as of the date of adjustment is greater than commissions previously allowed by the Reinsurer on premiums earned for the same contract year, the Reinsurer shall remit the difference to the Company as promptly as possible after receipt and verification of the Company’s report.

-17-

“Catastrophe event” as used herein shall mean any loss occurrence covered hereunder which has been assigned a catastrophe number by the Property Claim Services (hereinafter “PCS”).

Article 15 - Reports and Remittances

Within 30 days after the end of each month, the Company shall report to the Reinsurer:

Ceded net written premium billed during the month on a non-installment basis;

Ceded net written premium during the month accounted for on an installment premium basis;

-18-

Down payments and the portion of ceded net written premium billed during the month as respects installment premiums;

Provisional commission on (1) and (3) above;

Ceded losses and loss adjustment expense paid during the month (net of any recoveries during the month under the “cash call” provisions of the Claims and Loss Adjustment Expense Article);

The Reinsurer’s share of salvage and subrogation;

Premium (including reinstatement premium) for reinsurance which inures to the benefit of this Contract;

Recoveries from reinsurance which inures to the benefit of this Contract;

Ceded unearned premiums and ceded outstanding loss and loss adjustment expense reserves (including incurred but not reported loss reserves as established by the Company) as of the end of the month.

Furthermore, as respects subparagraph 5 above, the Company shall identify losses and loss adjustment expense by PCS catastrophe number, where applicable.

Annually, the Company shall furnish the Reinsurer with such information as the Reinsurer may require to complete its Annual Convention Statement.

Article 16 - Late Payments

The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

-19-

1/365ths of the sum of 4.0% and the U.S. prime rate as quoted in The Wall street Journal on the first business day of the month for which the calculation is made; times

The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest charges have been received by the Intermediary.

The establishment of the due date shall, for purposes of this Article, be determined as follows:

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

-20-

Article 17 - Access to Records

Article 18 - Errors, Omissions and Inadvertent Binding

Article 19 - Currency (BRMA 12A)

A. A.

Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Article 20 - Taxes (BRMA 50B)

-21-

Article 21 - Federal Excise Tax (BRMA 17D)

Article 22 - Reserves

Escrow accounts for the benefit of the Company; and/or

Cash advances;

if the Reinsurer:

Is a Special Circumstance Reinsurer.

The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

-22-

To reimburse itself for the Reinsurer’s share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer;

To reimburse itself for the Reinsurer’s share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer;

To reimburse itself for the Reinsurer’s share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer;

To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer’s funding obligation, if so requested by the Reinsurer.

The number of full days that have expired since the earliest of the applicable following dates:

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As respects a Special Circumstance Reinsurer, the first date such reinsurer becomes a Special Circumstance Reinsurer;

times:

1/365ths of the sum of 4.0% and the U.S. prime rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

The greater of (a) the funding obligation, less the amount, if any, funded by the Subscribing Reinsurer prior to the applicable date determined in subparagraph 1 above or (b) $100,000.

It is agreed that interest shall accumulate until the full interest charge amount as provided for in this paragraph and the funding obligation are paid.

Article 23 - Insolvency

In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer.

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Article 24 - Arbitration

As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd’s London Underwriters. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots. Notwithstanding the above, in the event the dispute or difference of opinion involves a Special Circumstance Reinsurer, the Company may, at its option, choose to forego arbitration and may bring an action in any court of competent jurisdiction.

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Article 25 - Service of Suit (BRMA 49G)

In the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate Court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said Court jurisdiction and, in any suit instituted against any of the Subscribing Reinsurers upon this Contract, will abide by the final decision of such Court or of any Appellate Court in the event of an appeal.

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Article 26 - Confidentiality