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AGREEMENT AND PLAN OF MERGER

by and among

MARKEL CORPORATION,

MARKELVERICK CORPORATION

and

STATE NATIONAL COMPANIES, INC.

Dated as of July 26, 2017

 

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TABLE OF CONTENTS

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (together with all annexes, letters, schedules and exhibits hereto, this "Agreement"), dated as of July 26, 2017, is by and among Markel Corporation, a Virginia corporation ("Parent"), Markelverick Corporation, a Delaware corporation and wholly-owned direct subsidiary of Parent ("Merger Sub"), and State National Companies, Inc., a Delaware corporation (the "Company").

W I T N E S S E T H:

WHEREAS, the Company and Merger Sub each has determined that it is advisable, fair to and in the best interests of its respective stockholders to effect a merger (the "Merger") of Merger Sub with and into the Company pursuant to the Delaware General Corporation Law (the "DGCL") upon the terms and subject to the conditions set forth in this Agreement, pursuant to which each issued and outstanding share of common stock, par value $0.001 per share, of the Company (the "Company Common Stock") shall be converted into the right to receive cash, as set forth herein, all upon the terms and subject to the conditions of this Agreement;

WHEREAS, the Board of Directors of the Company (the "Company Board of Directors") has unanimously adopted resolutions (i) determining that this Agreement, the Merger and the other transactions contemplated hereby are fair to, advisable and in the best interests of the Company and its stockholders (the "Company Stockholders"), (ii) approving this Agreement, the Merger and the other transactions contemplated hereby and (iii) declaring its advisability and recommending the adoption by the Company Stockholders of this Agreement, the Merger and the other transactions contemplated hereby;

WHEREAS, concurrently with the execution of this Agreement and as a material inducement to Parent and Merger Sub, each of the Supporting Stockholders is entering into a Voting Agreement with Parent (collectively, the "Voting Agreements");

WHEREAS, the Board of Directors of Merger Sub has adopted resolutions (i) determining that this Agreement, the Merger and the other transactions contemplated hereby are at a price and on terms that are fair to, advisable and in the best interests of Merger Sub and its sole stockholder, (ii) approving this Agreement, the Merger and the other transactions contemplated hereby and (iii) declaring its advisability and recommending the adoption by its sole stockholder of this Agreement, the Merger and the other transactions contemplated hereby; and

WHEREAS, the Board of Directors of Parent, and Parent, as the sole stockholder of Merger Sub, in each case has adopted this Agreement, the Merger and the other transactions contemplated hereby.

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, the parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND TERMS

"Action" means any action, suit or proceeding by or before any Governmental Authority.

"Adverse Recommendation Change" has the meaning set forth in Section 6.06(b).

"Affiliate" of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person.

"Agreement" has the meaning set forth in the Preamble.

"Appraisal Shares" means Shares issued and outstanding immediately prior to the Effective Time that are held by any holder who is entitled to demand and properly demands appraisal of such Shares pursuant to, and who complies with, the provisions of Section 262 of the DGCL.

"Benefit Plan" has the meaning set forth in Section 4.18(a).

"Book-Entry Share" means each entry in the books of the Company (or its transfer agent) representing uncertificated Shares.

"Burdensome Condition" has the meaning set forth in Section 6.03(c).

"Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or obligated by Law or executive order to be closed.

"Certificate" means each certificate representing one or more Shares or, in the case of uncertificated Shares, each Book-Entry Share.

"Certificate of Merger" means the certificate of merger with respect to the Merger, containing the provisions required by, and executed in accordance with, the DGCL.

"Certification Date" has the meaning set forth in Section 6.05.

"Change in Circumstance" means any material event or development or material change in circumstance that occurs on or after the date hereof with respect to the Company or its Subsidiaries that does not relate to a Takeover Proposal and was not known to or reasonably foreseeable by the Company Board of Directors prior to the date hereof.

"Closing" has the meaning set forth in Section 2.02.

"Closing Date" has the meaning set forth in Section 2.02.

"Code" means the Internal Revenue Code of 1986.

"Company" has the meaning set forth in the Preamble.

"Company 10-K" means the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (together with any amendments thereto filed with the SEC and publicly available on the SEC's EDGAR website at least two (2) Business Days prior to the date of this Agreement).

"Company Balance Sheet" means the consolidated balance sheet of the Company as of December 31, 2016 and the footnotes thereto set forth in the Company 10-K.

"Company Board of Directors" has the meaning set forth in the Recitals.

"Company Bylaws" means the Amended and Restated Bylaws of the Company as amended and restated and as in effect as of the date hereof.

"Company Certificate of Incorporation" means the Amended and Restated Certificate of Incorporation of the Company as amended and restated and as in effect as of the date hereof.

"Company Common Stock" has the meaning set forth in the Recitals.

"Company Disclosure Letter" means the Company Disclosure Letter dated the date hereof and delivered by the Company to Parent prior to the execution of this Agreement.

"Company Employee" has the meaning set forth in Section 6.08(a).

"Company Equity Plan" means the Company's 2014 Long-Term Incentive Plan.

"Company Financial Statements" means all of the financial statements of the Company and its Subsidiaries included in the Company Reports.

"Company Insurance Subsidiary" has the meaning set forth in Section 4.11.

"Company Lease" means any lease, sublease, sub-sublease, license and other agreement under which the Company or any of its Subsidiaries leases, subleases, licenses, uses or occupies (in each case whether as landlord, tenant, sublandlord, subtenant or by other occupancy arrangement), or has the right to use or occupy, now or in the future, any real property.

"Company Material Adverse Effect" means any change, event, effect or circumstance that has a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole; provided, however, that in no event shall any of the following changes, events, effects or circumstances, alone or in combination, be deemed to constitute, nor be taken into account in determining whether there has been or will be, a Company Material Adverse Effect: (a) any change, event, effect or circumstance that results from changes affecting the property and casualty insurance, insurance fronting or collateral protection industries, or the United States economy, or from changes affecting worldwide economic or capital market conditions, (b) any failure by the Company to meet any published

analyst estimates or expectations of the Company's revenues, earnings or other financial performance or results of operations for any period, in and of itself (but not the underlying cause thereof), or any failure by the Company to meet its internal or published projections, budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations or any change in the price or trading volume of the Company Common Stock, in and of itself (but not the underlying cause thereof), (c) other than in respect of Section 4.05 and Section 4.18(e) (and Section 7.02(a) solely as it relates to Section 4.05 and Section 4.18(e)), any change, event, effect or circumstance arising out of the announcement of this Agreement and the transactions contemplated hereby or the pendency of the Merger or the identity of the parties to this Agreement, including any termination of, reduction in or similar negative impact on relationships, contractual or otherwise, with any customers, suppliers, agents, policyholders, partners, counterparties or employees of the Company and its Subsidiaries (provided, that actions taken by the Company and its Subsidiaries in the ordinary course of business in accordance with the terms of Section 6.01(x)(1) shall not be excluded for purposes of the exclusion in this clause (c) solely by reason of the covenant set forth in Section 6.01(x)(1)), (d) other than in respect of Section 4.05 and Section 4.18(e) (and Section 7.02(a) solely as it relates to Section 4.05 and Section 4.18(e)), any actions expressly contemplated or permitted to be taken or omitted to be taken by this Agreement to obtain any consent, approval, authorization or waiver under applicable Law in connection with the Merger and the other transactions contemplated by this Agreement, (e) any changes in global or national political conditions (including the outbreak or escalation of war, military action, sabotage or acts of terrorism) or changes due to any pandemic, man-made disaster, natural disaster or other act of nature, (f) other than in respect of Section 4.05 and Section 4.18(e) (and Section 7.02(a) solely as it relates to Section 4.05 and Section 4.18(e)), the entering into and performance of this Agreement and the transactions contemplated hereby in accordance with the terms of this Agreement, including compliance with the covenants set forth herein, or any action taken or omitted to be taken by the Company at the request or with the prior written consent of Parent or Merger Sub (provided, that actions taken by the Company and its Subsidiaries in the ordinary course of business in accordance with the terms of Section 6.01(x)(1) shall not be excluded for purposes of the exclusion in this clause (f) solely by reason of the covenant set forth in Section 6.01(x)(1)), (g) the effects of any breach, violation or non-performance of any provision of this Agreement by Parent or any of its Affiliates, (h) changes in or adoption of any applicable Laws or regulations or applicable accounting regulations or principles or interpretations thereof by any Governmental Authority (including, changes in GAAP or in SAP prescribed or permitted by the applicable insurance regulatory authorities and accounting pronouncements by the SEC, the National Association of Insurance Commissioners and the Financial Accounting Standards Board), (i) any Action initiated or threatened on or after the date hereof against the Company, any of its Affiliates or any of their respective directors or officers arising out of this Agreement or the transactions contemplated hereby, (j) changes in the value of the investment assets owned by a Company Insurance Subsidiary, (k) any change or development in the credit, financial strength or other rating by any rating agency of the Company, any of its Subsidiaries, its outstanding debt or any other Person (but not the underlying cause thereof), or (l) any item set forth in the Company Disclosure Letter (but for the avoidance of doubt, not any effects with respect to such items after the date hereof); provided, however, that with respect to clauses (a), (e) and (h), such changes, events, effects or circumstances may be taken into account in determining whether a Company Material Adverse Effect has occurred if and only to the extent they disproportionately adversely affect the Company and its Subsidiaries,

taken as a whole, as compared to other companies operating in the industries in which the Company and its Subsidiaries operate.  For the avoidance of doubt, any actions required to be taken (or refrain from being taken) or any agreement required to be entered into or any other concession required to be made pursuant to Section 6.03, together with any effects relating thereto, shall be permitted to be taken into account in determining whether there has been or would reasonably be expected to be a Company Material Adverse Effect for purposes of the definition of Burdensome Condition.

"Company Permits" means all authorizations, licenses, permits, certificates, approvals and orders of all Governmental Authorities necessary for the lawful conduct of the businesses of the Company and its Subsidiaries.

"Company Reports" means all forms, reports, statements, information, registration statements and other documents (as supplemented and amended since the time of filing or furnishing) filed or furnished or required to be filed or furnished by the Company with the SEC since December 31, 2015.

"Company Required Vote" means the affirmative vote of the holders of at least a majority of the issued and outstanding Shares in favor of adoption of this Agreement, the Merger and the other transactions contemplated hereby.

"Company Restricted Stock" means each share of Company Common Stock that is then subject to a risk of forfeiture granted pursuant to the Company Equity Plan.

"Company Statutory Statements" has the meaning set forth in Section 4.12(a).

"Company Stock Option" means each option to purchase shares of Company Common Stock granted pursuant to the Company Equity Plan.

"Company Stock Rights" means any options, warrants, calls, redemption rights, preemptive rights, convertible securities, subscriptions, stock appreciation rights, phantom stock plans or stock equivalents or other rights, agreements, arrangements or commitments (contingent or otherwise) obligating the Company to issue or sell any shares of capital stock of, or options, warrants, convertible securities, subscriptions or other equity interests in, the Company.

"Company Stockholders" has the meaning set forth in the Recitals.

"Company Stockholders Meeting" means a meeting of the Company Stockholders to be called to consider the Merger, including giving effect to any adjournment or postponement thereof.

"Company Termination Fee" shall be $27,564,000; provided, however, that if the Company Termination Fee is payable solely under Section 8.02(b)(ii)(A)(3), the Company Termination Fee shall be $13,782,000.

"Confidentiality Agreement" means the Confidentiality Agreement between the Company and Parent dated April 7, 2017.

"Contract" has the meaning set forth in Section 4.05(a).

"control" means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise.

"CUMIS" means CUMIS Insurance Society, Inc. or any of its Affiliates.

"CUMIS Material Contract" has the meaning set forth in Section 4.10(c).

"Delaware Courts" has the meaning set forth in Section 9.07.

"Delaware Secretary" means the Secretary of State of the State of Delaware.

"DGCL" has the meaning set forth in the Recitals.

"Effective Time" means the effective time of the Merger, which shall be the time the Certificate of Merger is duly filed with and accepted by the Delaware Secretary, or such later time as agreed by the parties hereto and specified in such Certificate of Merger.

"Environmental Laws" means any Laws governing pollution or the protection of human health or the environment.

"ERISA" means the Employee Retirement Income Security Act of 1974.

"Exchange Act" means the Securities Exchange Act of 1934.

"Exchange Fund" has the meaning set forth in Section 3.01.

"GAAP" means United States generally accepted accounting principles in effect from time to time.

"Governmental Authority" means any United States federal, state or local or any foreign government or any court of competent jurisdiction, administrative or regulatory agency or commission or other governmental authority or agency or self-regulatory body, domestic or foreign.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

"Indebtedness" has the meaning set forth in Section 6.01(h).

"Indemnified Parties" has the meaning set forth in Section 6.09(a).

"Insurance Contract" means any insurance policy or Contract, in each case, together with all policies, binders, slips, certificates, applications, supplements, endorsements, riders and ancillary agreements in connection therewith that are issued by the Company Insurance Subsidiaries.

"Insurance Laws" means all Laws applicable to the business of insurance or the regulation of insurance companies and all applicable directives of, and market conduct recommendations resulting from market conduct examinations of, Insurance Regulators.

"Insurance Regulators" means all Governmental Authorities regulating the business of insurance under Insurance Laws.

"Intellectual Property" means (a) trademarks, service marks, trade names and trade dress, whether registered or unregistered, and all applications for registrations thereof, and all goodwill associated with or symbolized by any of the foregoing, (b) internet domain names, (c) patents, including pending applications, provisional applications, continuations, divisionals, reissues, and reexaminations thereof and therefor and (d) copyrights, whether registered or unregistered, and all applications for registration thereof.

"Investment Guidelines" means the investment guidelines of the Company in effect as of the date hereof (a copy of which has been made available to Parent) as amended, modified, supplemented or replaced in the ordinary course of business, subject to Section 6.01(k).

"IRS" means the Internal Revenue Service.

"Knowledge" means, with respect to (a) the Company as it relates to any fact or other matter, the actual knowledge of the natural Persons set forth in Section 1.01(a) of the Company Disclosure Letter of such fact or matter without obligation of inquiry, and (b) Parent as it relates to any fact or other matter, the actual knowledge of the natural Persons set forth in Section 1.01 of the Parent Disclosure Letter of such fact or matter without obligation of inquiry.

"Law" means any national, regional or local law, statute, ordinance, regulation, judgment, decree, injunction or other legally binding obligation imposed by or on behalf of a Governmental Authority.

"Lender Services Business" means the business segment through which the Company provides collateral protection insurance and certain ancillary insurance products to credit unions, banks and specialty finance companies.

"Letter of Transmittal" has the meaning set forth in Section 3.02(a).

"Lien" means any lien, mortgage, pledge, deed of trust, security interest, charge, encumbrance or hypothecation.

"Material Contract" has the meaning set forth in Section 4.10(a).

"Maximum Premium" has the meaning set forth in Section 6.09(b).

"Measurement Date" has the meaning set forth in Section 4.03(a).

"Merger" has the meaning set forth in the Recitals.

"Merger Consideration" has the meaning set forth in Section 2.04(a).

"Merger Sub" has the meaning set forth in the Preamble.

"Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

"Outside Termination Date" has the meaning set forth in Section 8.01(f).

"Owned Real Property" has the meaning set forth in Section 4.21(b).

"Parent" has the meaning set forth in the Preamble.

"Parent Audited Financial Statements" has the meaning set forth in Section 5.06(a).

"Parent Bylaws" means Parent's Bylaws as in effect as of the date hereof.

"Parent Disclosure Letter" means the Parent Disclosure Letter dated the date hereof and delivered by Parent to the Company prior to the execution of this Agreement.

"Parent Financial Statements" has the meaning set forth in Section 5.06(a).

"Parent Material Adverse Effect" means a failure of, or a material impairment or delay in, the ability of Parent to perform its material obligations under this Agreement.

"Parent Permits" means all authorizations, licenses, permits, certificates, approvals and orders of all Governmental Authorities necessary for the lawful conduct of the businesses of Parent and its Subsidiaries.

"Parent Regulatory Material Adverse Effect" has the meaning set forth in Section 6.03(c).

"Paying Agent" means a bank or trust company reasonably satisfactory to the Company that is organized and doing business under the Laws of the United States or any state thereof appointed by Parent to act as paying agent for payment of the Merger Consideration.

"Performance-Based Restricted Stock" has the meaning set forth in Section 2.07(b).

"Permitted Investments" has the meaning set forth in Section 3.01.

"Permitted Liens" means (a) statutory Liens for Taxes, assessments or other charges by Governmental Authorities not yet due and payable or the amount or validity of which is being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established on the most recent Company Financial Statements, (b) mechanics', materialmen's, carriers', workmen's, warehouseman's, repairmen's, landlords' and similar Liens granted or which arise in the ordinary course of business, (c) Liens securing payment, or any obligation, of the applicable Person or its Subsidiaries with respect to outstanding Indebtedness so long as there is no default under such Indebtedness, (d) Liens granted in the ordinary course of the insurance or reinsurance business of the applicable Person or its Subsidiaries on cash and cash equivalent instruments or other investments, including Liens granted (i) in connection with (A) pledges of such instruments or investments to collateralize

letters of credit delivered by the applicable Person or its Subsidiaries, (B) the creation of trust funds for the benefit of ceding companies, (C) underwriting activities of the applicable Person or its Subsidiaries, (D) deposit liabilities, (E) statutory deposits and (F) ordinary-course securities lending and short-sale transactions and (ii) with respect to investment securities held in the name of a nominee, custodian or other record owner, (e) pledges or deposits by the applicable Person or any of its Subsidiaries under workmen's compensation Laws, unemployment insurance Laws or similar legislation, or good faith deposits in connection with bids, tenders, Contracts (other than for the payment of Indebtedness) or leases to which such entity is a party, or deposits to secure public or statutory obligations of such entity or to secure surety or appeal bonds to which such entity is a party, or deposits as security for contested Taxes, in each case incurred or made in the ordinary course of business, (f) licenses granted to third parties in the ordinary course of business by the applicable Person or its Subsidiaries, (g) transfer restrictions imposed by Law, (h) easements, rights-of-way, encroachments, restrictions, conditions and other similar Liens incurred or suffered in the ordinary course of business and which, individually or in the aggregate, do not and would not reasonably be expected to materially impair the use (or contemplated use), utility or value of the applicable real property or otherwise materially impair the present or contemplated business operations at such location, (i) zoning, entitlement, building and other land-use regulations imposed by Governmental Authorities having jurisdiction over such real property and (j) such other Liens, encumbrances or imperfections that are not material in amount or do not materially detract from the value of or materially impair the existing use of the property affected by such Lien, encumbrance or imperfection.

"Person" means any individual, corporation, partnership (general or limited), limited liability company, limited liability partnership, trust, joint venture, joint-stock company, syndicate, association, entity, unincorporated organization or Governmental Authority.

"Producers" means the agents, general agents, managing general agents, sub-agents, brokers and producers or other Persons who sell Insurance Contracts (other than CUMIS).

"Program Services Business" means the business segment through which the Company provides access to the U.S. property and casualty insurance market to third parties in exchange for a ceding fee.

"Proxy Statement" means a definitive proxy statement, including the related preliminary proxy statement, and any amendment or supplement thereto, relating to the Merger and this Agreement to be mailed to the Company Stockholders in connection with the Company Stockholders Meeting.

"Related Party" means (a) any officer or director of the Company, (b) any individual who directly or indirectly owns 5% or more of the issued and outstanding Company Common Stock as of the date hereof, (c) any immediate family member of any of the individuals described in clause (a) or clause (b) and (d) any Affiliate of any of the individuals described in any of clause (a), (b) or (c).

"Related Party Agreement" means any Contract between the Company or any of its Subsidiaries, on the one hand, and any Related Party, on the other hand; excluding however, (a) Contracts to the extent relating to indemnification or contribution of any Related Party solely in

their capacity as a director or officer of the Company or any of its Subsidiaries, (b) employment or consulting Contracts, (c) Benefit Plans and (d) rights to indemnification or contribution under the organizational documents of the Company or any of its Subsidiaries.  For the avoidance of doubt, each of the Contracts set forth in Section 1.01(b) of the Company Disclosure Letter is a Related Party Agreement.

"Representatives" means directors, officers, employees, auditors, attorneys and financial advisors and other agents or advisors.

"SAP" means, as to any Company Insurance Subsidiary, the statutory accounting practices prescribed or permitted by the applicable Insurance Regulator of the jurisdiction in which it is domiciled.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933.

"Shares" has the meaning set forth in Section 2.04(a).

"Specified Company Reports" means the Company 10-K, all Quarterly Reports on Form 10-Q and all Current Reports on Form 8-K filed with, or furnished to, the SEC by the Company after the filing date of the Company 10-K and at least two (2) Business Days prior to the date of this Agreement (together with any amendments thereto filed with the SEC and publicly available on the SEC's EDGAR website at least two (2) Business Days prior to the date of this Agreement).

"Subsidiary" of any Person means any corporation, partnership, limited liability company, joint venture or other legal entity of which such Person (either directly or through or together with another Subsidiary of such Person) owns more than 50% of the voting stock, equity interests or general partnership interests of such corporation, partnership, limited liability company, joint venture or other legal entity, as the case may be.

"Subsidiary Stock Rights" means any options, warrants, calls, redemption rights, preemptive rights, convertible securities, subscriptions, stock appreciation rights, phantom stock plans or stock equivalents or other rights, agreements, arrangements or commitments (contingent or otherwise) of any character issued or authorized by the Company or any Subsidiary of the Company obligating the Company or any of its Subsidiaries to issue or sell any shares of capital stock of, or options, warrants, convertible securities, subscriptions or other equity interests in, any Subsidiary of the Company.

"Superior Proposal" means any proposal that constitutes a Takeover Proposal that the Company Board of Directors determines (after consultation with its financial advisor and outside counsel), considering such factors as the Company Board of Directors considers to be appropriate, would, if consummated, be more favorable to the stockholders of the Company than the Merger; provided, that for the purposes of the definition of "Superior Proposal", all references in the term Takeover Proposal to "15% or more" shall be deemed to be references to "more than 50%."

"Supporting Stockholders" means the "Stockholders" party to the Voting Agreements.

"Surviving Corporation" means the corporation surviving the Merger.

"Takeover Proposal" means any inquiry, proposal or offer from any Third Party relating to (a) any direct or indirect acquisition or purchase, in a single transaction or a series of transactions, of (i) 15% or more of the issued and outstanding shares of Company Common Stock or (ii) 15% or more of the assets (including capital stock of the Subsidiaries of the Company) of the Company and its Subsidiaries, taken as a whole, (b) any tender offer or exchange offer that, if consummated, would result in any Third Party owning, directly or indirectly, 15% or more of the issued and outstanding shares of Company Common Stock or (c) any merger, consolidation, business combination, recapitalization, liquidation, dissolution, binding share exchange or other transaction involving the Company pursuant to which any Third Party (or the shareholders of any Third Party) would own, directly or indirectly, 15% or more of any class of capital stock or other equity securities of the Company or of the surviving entity in a merger or the resulting direct or indirect parent of the Company or such surviving entity, other than, in each case, the transactions contemplated by this Agreement.

"Tax" (and, with correlative meaning, "Taxes") means any federal, state, local or non-United States income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, premium, withholding, alternative or added minimum, ad valorem, transfer or excise tax, or any other tax, governmental fee or other like assessment or charge, together with any interest or penalty or addition thereto, whether disputed or not, imposed by any Governmental Authority.

"Tax Return" means any return, report, information, filing, document or similar statement required to be filed with a Governmental Authority with respect to any Tax, including any information return, claim for refund, amended return or declaration of estimated Tax.

"Third Party" means any Person or group (as defined in Section 13(d)(3) of the Exchange Act) other than Parent, Merger Sub or any Affiliates thereof.

"Top 10 Program Counterparties" means each of the top 10 counterparties under the Program Services Business measured by the gross written premium of the Company Insurance Subsidiaries during the twelve (12) months ended June 30, 2017 as set forth in Section 1.01(c) of the Company Disclosure Letter.

"Top 10 Program Reinsurance Contracts" means each reinsurance Contract in respect of business fronted by the Company Insurance Subsidiaries on behalf of the Top 10 Program Counterparties as in effect on the date of this Agreement.

"Top 10 Program Reinsurer" means each reinsurer under a Top 10 Program Reinsurance Contract.

"Voting Agreements" has the meaning set forth in the Recitals.

"Willful Breach" means any material breach of a material term of this Agreement by a party hereto resulting from an intentional action or failure to act of such party that such party

knew (or should have known under the circumstances) was or would result in a material breach of a material term of this Agreement by such party.

determination of any period of time, unless otherwise set forth herein, the word "from" means "from and including" and the word "to" means "to but excluding."

ARTICLE II

THE MERGER

ARTICLE III

EXCHANGE OF CERTIFICATES

Exchange Fund shall be used solely for purposes of paying the Merger Consideration in accordance with this Article III and shall not be used to satisfy any other obligation of the Company or any of its Subsidiaries.  Pending distribution of the Exchange Fund in accordance with this Article III, Parent may direct the Paying Agent to invest such cash; provided, that (a) no such investment or losses thereon shall affect the Merger Consideration payable to the Company Stockholders and following any losses Parent shall promptly provide additional funds to the Paying Agent for the benefit of the Company Stockholders in the amount of any such losses and (b) such investments (i) shall be obligations of or guaranteed by the United States, commercial paper obligations receiving the highest rating from either Moody's Investors Services, Inc. or Standard & Poor's Corporation, or certificates of deposit, bank repurchase agreements or bankers acceptances of domestic commercial banks with capital exceeding $5 billion (collectively "Permitted Investments") or money market funds that are invested solely in Permitted Investments and (ii) shall have maturities that will not prevent or delay payments to be made pursuant to this Article III.  Any income from investment of the Exchange Fund will be payable solely to Parent.  The Surviving Corporation shall pay all charges and expenses, including those of the Paying Agent, in connection with the exchange of Shares for the Merger Consideration.

Entry Shares whose Shares were converted into the right to receive the Merger Consideration shall automatically upon the Effective Time (or, at any later time at which such Book-Entry Shares shall be so converted) be entitled to receive, and Parent shall cause the Paying Agent to pay and deliver as promptly as practicable and in any event within three (3) Business Days after the Effective Time, the Merger Consideration to which such holder is entitled to receive pursuant to this Article III.

case as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent shall issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration payable in respect of the number of Shares formerly represented by such Certificate pursuant to this Article III.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except (a) as disclosed in any report, schedule, form, statement or other document filed with, or furnished to, the SEC by the Company and publicly available on the SEC's EDGAR website from or after June 30, 2015 and prior to the date at least two (2) Business Days prior to the date of this Agreement (excluding any risk factor disclosures contained in the "Risk Factors" section thereof, any disclosure of risks contained in any "forward-looking statements" disclaimer, or any other disclosure or statements to the extent they are similarly predictive or forward-looking in nature) to the extent it is reasonably apparent on the face of such disclosure that such disclosure applies to such Section or subsection of this Agreement; provided, however, that the disclosures therein shall not be deemed to qualify any representations or warranties made in Section 4.03  or (b) set forth in the Company Disclosure Letter (it being understood that any information set forth in one section or subsection of the Company Disclosure Letter shall be deemed to apply to and qualify the Section or subsection of this Agreement to which it corresponds in number and each other Section or subsection of this Agreement or the Company Disclosure Letter to the extent it is reasonably apparent on the face of such disclosure that such disclosure applies to such other Section or subsection), the Company represents and warrants to each of the other parties hereto as follows:

to conduct its business as presently conducted, except where any failure to have such power or authority would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, and (iii) is duly qualified or licensed to do business as a foreign corporation or entity and is in good standing (with respect to jurisdictions that recognize such concept) in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

on July 19, 2017 (the "Measurement Date"), 42,173,561 shares of Company Common Stock are issued and outstanding of which (i) 489,866 shares are Company Restricted Stock (of which 489,866 shares are Performance-Based Restricted Stock) and (ii) no shares are held in the Company's treasury, no shares of preferred stock are issued and outstanding and no shares of Company Common Stock or preferred stock are held by a Subsidiary of the Company.  All outstanding Shares are, and any additional shares of Company Common Stock issued by the Company after the date hereof and prior to the Effective Time will be, duly authorized and validly issued, fully paid and nonassessable, and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or similar right.  Except as set forth in this Section 4.03(a) and for changes after the date hereof resulting from the vesting of awards granted pursuant to the Company Equity Plan outstanding on the date hereof, there are no issued and outstanding shares of capital stock of or other voting securities or ownership interests in the Company.

Material Adverse Effect.  The business of the Company and its Subsidiaries is not being conducted, and has not since June 30, 2015 been conducted, in violation of any Law or Order and the Company and its Subsidiaries have since June 30, 2015, complied with all Laws and Orders applicable to them or their business, except in each case for violations or failure to comply that would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.  Since December 31, 2016 through the Business Day prior to the date hereof, neither the Company nor any of its Subsidiaries has received any written notification or, to the Knowledge of the Company, oral notification from any Governmental Authority of any violation of Law applicable to the Company or any of its Subsidiaries, except for violations that would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

Business Day prior to the date of this Agreement.  The Company Financial Statements fairly present, in conformity in all material respects with GAAP, in each case, consistently applied for the periods involved, the consolidated financial position of the Company at the respective dates thereof and the consolidated results of its operations and changes in cash flows for the respective periods indicated (subject, in the case of unaudited statements, to normal year-end audit adjustments consistent with GAAP).

assertion or claim, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any of its Subsidiaries or their respective internal accounting controls, including any credible complaint, allegation, assertion or claim that the Company or any of its Subsidiaries has engaged in questionable accounting or auditing practices, and (ii) no attorney representing the Company or any of its Subsidiaries, whether or not employed by the Company or any of its Subsidiaries, has reported evidence of a material violation of securities Laws, breach of fiduciary duty or similar violation by the Company or any of its Subsidiaries or their respective officers, directors, employees or agents to the Company Board of Directors or any committee thereof or to any director or officer of the Company pursuant to the rules of the SEC adopted under Section 307 of the Sarbanes-Oxley Act of 2002.

any of its Subsidiaries, prohibiting the pledging of any capital stock or other equity securities of the Company or any of its Subsidiaries or prohibiting the issuance of guarantees by the Company or any of its Subsidiaries (other than pursuant to applicable Law or Order) except for any such Contract that may be canceled without material penalty by the Company or any of its Subsidiaries upon notice of seventy-five (75) days or less;

individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

applicable Top 10 Program Reinsurance Contract, (c) as of the date hereof, none of the Company Insurance Subsidiaries or, to the Knowledge of the Company as of the date of this Agreement, any Top 10 Program Reinsurer is insolvent or the subject of a rehabilitation, liquidation, conservatorship, receivership, bankruptcy or similar proceeding and the financial condition of any such reinsurer is not impaired to the extent that a default thereunder is reasonably anticipated and (d) as of the date hereof, no written notice of intended cancellation has been received by any Company Insurance Subsidiaries from any Top 10 Program Reinsurer under any Top 10 Program Reinsurance Contract and, to the Knowledge of the Company as of the date of this Agreement, there are no disputes with any Top 10 Program Reinsurer under an applicable Top 10 Program Reinsurance Contract.

would be required to be disclosed under Item 404 of Regulation S-K promulgated under the Securities Act.

in any "fair price," "moratorium," "control share acquisition" or other similar antitakeover statute or regulation (including Section 203 of the DGCL) enacted under state or federal laws in the United States applicable to the Company are applicable to this Agreement, the Voting Agreements and the Merger or the other transactions contemplated hereby.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub jointly and severally represent and warrant to the Company as follows:

of its jurisdiction of incorporation, except where any failure to be so organized, existing or in good standing would not, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect, (ii) has full corporate or similar power and authority and all necessary governmental approvals to own, lease and operate its properties and assets and to conduct its business as presently conducted, except where any failure to have such power or authority would not, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect, and (iii) is duly qualified or licensed to do business as a foreign corporation and is in good standing (with respect to jurisdictions that recognize such concept) in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect.

lapse of time or both) in triggering any payment or other obligations under, or result in the loss of any right or benefit to which Parent or any of its Subsidiaries is entitled under, any Contract to which Parent or any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries, or any property or asset of Parent or any of its Subsidiaries, is bound or affected or (iv) result (immediately or with notice or lapse of time or both) in the creation of a Lien on any property or asset of Parent or its Subsidiaries, except in the case of clauses (ii), (iii) and (iv) for any such conflicts, violations, breaches, defaults or other occurrences that would not, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect.

advised in writing by any Governmental Authority that it is considering issuing any Order that would, individually or in the aggregate, reasonably be expected to have a Parent Material Adverse Effect.

ARTICLE VI

COVENANTS

(1) to conduct their respective businesses and operations in the ordinary course of business in all material respects and (2) to the extent consistent with subsection (1), to use commercially reasonable efforts to preserve intact its business organization and, its assets, keep available the services of its current officers, employees and consultants and preserve its goodwill and its relationships with customers, reinsurers, agents, service providers and others having business dealings with it and (y) shall not and shall cause each of its Subsidiaries not to (it being understood that no action by the Company or any of its Subsidiaries with respect to the matters specifically addressed by any provision of this subsection (y) below shall be deemed to be a breach of subsection (x)):

of the Company, (ii) investment portfolio transactions not in violation of the Investment Guidelines, (iii) nonexclusive licenses of Intellectual Property in the ordinary course of business, (iv) sales or other dispositions of other assets in the ordinary course of business materially consistent with past practice or (v) sales of assets with a value not in excess of $1,000,000 individually or $5,000,000 in the aggregate;

properties, offices and other facilities, books and records of the Company.  Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries shall be obligated to provide any such access or information to the extent that doing so (i) would be reasonably be expected to cause a waiver of an attorney-client privilege or loss of attorney work product protection, (ii) would constitute a violation of any applicable Law, (iii) would violate any Contract to which the Company or any of its Subsidiaries is a party or bound or (iv) would interfere unreasonably with the business or operations of the Company or its Subsidiaries or would otherwise result in significant interference with the prompt and timely discharge by their respective employees of their normal duties. Without limiting the foregoing, in the event that the Company does not provide access or information in reliance on the immediately preceding sentence, it shall provide notice to Parent that it is withholding such access or information and shall use its reasonable best efforts to communicate, to the extent feasible, the applicable information in a way that would not risk waiver of such privilege, violate the applicable Law, Contract or interfere unreasonably.

HSR Act, within ten (10) Business Days of the date hereof, (iv) Parent shall file, or cause to be filed, any pre-acquisition notifications on "Form E" or similar market share notifications to be filed in each jurisdiction where required by applicable Laws with all required applicants, within ten (10) Business Days of the date hereof and (v) the Company shall provide, within ten (10) Business Days of the date hereof, applicable notice to the Insurance Commissioner of the State of Texas under Texas Insurance Code §823.161.  All filing fees payable in connection with the foregoing shall be borne by Parent.  Parent agrees promptly to provide, or cause to be provided, all agreements, documents, instruments or information that may be required or requested by any Governmental Authority relating to Parent or its Affiliates or its or their structure, ownership, businesses, operations, regulatory and legal compliance, assets, liabilities, financing, financial condition or results of operations, or any of its or their directors, officers, employees, partners, members or shareholders.  Prior to Closing, Parent and its Subsidiaries, in connection with the transactions contemplated by this Agreement, shall not file or submit any application with or request for non-disapproval by any Governmental Authority with respect to any inter-affiliate agreement or transaction between any Company Insurance Subsidiary, on the one hand, and Parent or any of its Subsidiaries, on the other hand, that would require approval or non-disapproval under applicable Law or include reference to any such transaction in the "Form A" Acquisition of Control filings.

information.  For the avoidance of doubt, this Section 6.03(e) shall not apply with respect to Tax matters.

the party which discovers such information shall promptly notify the other parties, and an appropriate amendment or supplement describing such information promptly shall be filed with the SEC and, to the extent required by Law, disseminated to the stockholders of the Company.  The Company shall use its reasonable best efforts to have the Proxy Statement cleared by the SEC as promptly as practicable and shall use its reasonable best efforts to cause the Proxy Statement to be mailed to the Company Stockholders as promptly as practicable thereafter.

demanded pursuant to the provisions of, and in compliance with, Section 262 of the DGCL (the date of delivery of such certificate to Parent, the "Certification Date").

confidentiality agreement need not contain a standstill), provided that all such information has previously been provided to Parent or is provided to Parent prior to or substantially concurrently with the time it is provided to such Person or any of its Representatives, and (y) participate in discussions and negotiations with the Person making such Takeover Proposal (and its Representatives) regarding such Takeover Proposal.

a copy of all proposed documents to effect such Superior Proposal in the possession of the Company or any of its Representatives (it being understood and agreed that (1) any amendment to the financial terms of such Superior Proposal shall require a new notice and an additional two (2) Business Day period prior to taking any specified action and (2) in determining whether to make an Adverse Recommendation Change or to cause or permit the Company to so terminate this Agreement, the Company Board of Directors shall take into account any changes to the terms of this Agreement proposed by Parent in writing to the Company in response to any such notice or otherwise within the periods described above) or (B) the material event or development or material change in circumstance constituting such Change in Circumstances;

any of the actions referred to in clause (ii) of Section 6.06(b) except, in each case, to the extent permitted by Section 6.06(b) and (B) any disclosure made pursuant to this clause (ii) relating to any Takeover Proposal or Change in Circumstances shall be deemed to be an Adverse Recommendation Change unless it includes a reaffirmation by the Company Board of Directors that the Company Board of Directors continues to recommend that the Company Stockholders adopt this Agreement, the Merger and the other transactions contemplated by this Agreement and that the Company Board of Directors believes this Agreement, the Merger and the other transactions contemplated by this Agreement are fair to, advisable and in the best interests of the Company and the Company Stockholders.

severance benefits that are no less favorable than the severance payments and severance benefits to which such employee would have been entitled with respect to such termination under the severance policies of the Company as in effect immediately prior to the Closing Date.

reason of this Agreement or any other related agreement, or any right to a particular term or condition of employment.

ARTICLE VII

CONDITIONS TO CLOSING

applicable waiting periods, together with any extensions thereof, under the HSR Act shall have expired or been terminated.

correct would not, individually or in the aggregate, reasonably be expected to result in a failure of the ability of Parent or Merger Sub to effect the Closing; provided, however, that for purposes of determining the satisfaction of clause (ii) of this condition, no effect shall be given to any exception or qualification in such representations and warranties relating to "material," "materiality" or "Parent Material Adverse Effect."  The Company shall have received a certificate to such effect dated the Closing Date and executed by a duly authorized executive officer of Parent.

ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER

The party desiring to terminate this Agreement pursuant to subsection (b), (c), (d), (e), (f), (g), (h) or (i) of this Section 8.01 shall give written notice of such termination to the other party in

accordance with Section 9.02, specifying the provision or provisions hereof pursuant to which such termination is effected.

Proposal described in clause (B) involves the Person who made the Takeover Proposal described in clause (A)(3) or an Affiliate of such Person.

adoption.  This Agreement may not be amended, changed or supplemented or otherwise modified except by an instrument in writing signed on behalf of all of the parties.

ARTICLE IX

GENERAL PROVISIONS

if to Parent or Merger Sub, to

Markel Corporation
4521 Highwoods Parkway
Glen Allen, Virginia 23060
Facsimile:  804-527-3810
Email:  rgrinnan@MarkelCorp.com
Attention:  Richard R. Grinnan

with a copy to (which shall not constitute notice):

Sidley Austin LLP
One South Dearborn
Chicago, Illinois 60603
Facsimile:  312-853-7036
Email:  bfahrney@sidley.com
Attention:  Brian J. Fahrney
Email:  swilliams@sidley.com
Attention:  Scott R. Williams

if to the Company, to

State National Companies, Inc.
1900 L. Don Dodson Drive
Bedford, Texas 76021
Facsimile:  877-295-5247
Email:  dcleff@statenational.com
Attention:  David M. Cleff

with a copy to (which shall not constitute notice):

Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Facsimile:  212-735-2000
Email:  todd.freed@skadden.com
Attention:  Todd E. Freed
Email:  jon.hlafter@skadden.com
Attention:  Jon A. Hlafter

brought by the Company, damages from Parent in the event of a breach of this Agreement by Parent, in which event the damages recoverable by the Company for itself and on behalf of the Company Stockholders and the holders of Company Stock Options and Company Restricted Stock shall be determined by reference to the total amount that would have been recoverable by such holders if all such holders brought an action against Parent and were recognized as third party beneficiaries hereunder.  The representations, warranties, covenants and agreements in this Agreement are the product of negotiations among the parties and are for the sole benefit of the parties and may, in certain instances, be qualified, limited or changed by confidential disclosure letters.  Any inaccuracies in such representations or warranties or failure to perform or breach of such covenants or agreements are subject to waiver by the parties in accordance with Section 8.05 without notice or liability to any other Person.  In some instances, the representations, warranties, covenants and agreements in this Agreement may represent an allocation among the parties of risk associated with particular matters regardless of the knowledge of any of the parties.  Consequently, Persons other than the parties may not rely upon the representations, warranties, covenants and agreements in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.

Action shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.  Each of the parties consents and agrees that service of process, summons, notice or document for any action permitted hereunder may be delivered by registered mail addressed to it at the applicable address set forth in Section 9.02 or in any other manner permitted by applicable Law.

ten (10) Business Days or (ii) by such other time period established by the court presiding over such action on good cause shown, as the case may be.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.

[Signature Page to Agreement and Plan of Merger]

[Signature Page to Agreement and Plan of Merger]