Exhibit 10.2
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (this "Agreement") is made effective as of March
30, 2011, among HRM ACQUISITION CORP., a Delaware corporation (the "Company"),
and the purchasers set forth on Schedule I attached hereto (each individually a
"Purchaser" and collectively the "Purchasers"), Definitions of, and section
references to definitions of, certain capitalized terms used in this Agreement
are set forth in Appendix I attached hereto,
WITNESSETH
WHEREAS, the Company desires to issue up to an aggregate of $3,000,000 of senior
promissory notes, the proceeds of which will be used for working capital
purposes following the Company's purchase of all of the outstanding capital
stock (the "Stock") of Hamilton Risk Management Co,, a Florida holding company
("HRM"), from Kingsway America Inc, a Delaware corporation ("Kingsway") pursuant
to a certain Stock Purchase Agreement dated the date hereof (the "Purchase
Agreement"); and
WHEREAS, United Property & Casualty Insurance Company ("United"), the initial
Purchaser, has agreed to purchase a Promissory Note from the Company in the
amount opposite its name as indicated on Schedule I; and
WHEREAS, the Company may issue additional Notes (as defined below) after the
date hereof, but only in connection with the admission of additional Limited
Partners of Acadia with the consent of the Partners of Acadia as provided in
Acadia's Agreement of Limited Partnership;
NOW THEREFORE, in consideration of the mutual promises and covenants set forth
herein, the parties hereto agree as follows:
SECTION 1.
SALE OF THE NOTES
 
1.1. Sale of the Notes. On the date hereof, the Company shall issue and sell to
United, and United shall subscribe to and purchase from the Company, a senior
promissory note, the form of which is attached hereto as Exhibit A (the "Note",
and collectively with any Notes issued after the date hereof, the "Notes"), in
the original principal amount set forth opposite United's name on Schedule I
hereto. The proceeds for the Note shall be delivered by United to the Company by
wire transfer to an account of HRM designated by the Company, The Company may
sell up to an aggregate $750,000 in additional Notes to additional Purchasers
after the date hereof at any time(s) in connection with the admission of
additional Limited Partners of Acadia. Upon the issuance of any additional Note
to an additional Purchaser, such Additional Note shall be deemed a "Note"
hereunder and such Additional Purchaser shall be deemed a "Purchaser" hereunder.
1.2 Notes Equal in Priority; Acts by Majority Purchasers. Each Purchaser hereby
agrees that its Note shall rank equally and ratably without priority over the
other Notes, pro rata based on the then respective outstanding principal amount
of each Note, As such:

 

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(i) no Purchaser shall individually issue any default or acceleration notice its
Note, but, rather, upon an Event of Default (as defined herein and/or in the
Notes), default and acceleration notices shall be issued only by the Majority
Purchasers pursuant to the terms of the Notes and the Financing Documents;
(ii) any required approvals from the Purchaser under the terms of any the
Financing Documents shall only be effected via the Majority Purchasers;
 
(iii) any payments made by the Company with respect to the Notes for any reason
shall be made pro ratably to the Purchasers based upon the then respective
outstanding principal amount of each Note, and none of the Purchasers shall have
the right to retain more than its pro rated amount of any such payment; and
(iv) the Majority Purchasers shall have the right on behalf of all Purchasers to
waive any Event of Default and shall otherwise have the exclusive right to take
any and all actions on the part of the Purchasers.
1.3 Closing. The closing (the "Closing") of the purchase and sale of the Notes
hereunder is being held on the date hereof (the "Closing Date"). The Closing
(including the place of delivery to the Purchasers by the Company of the Notes
and the place of delivery to the Company by the Purchasers of the original
principal amounts of the Notes) shah be at the offices of Updike, Kelly &
Spellacy, P.C, 100 Pearl Street, 17* Floor, Hartford, Connecticut 06103, or such
other place as shall have been agreed to by the Company and the Purchasers; or
shall take place remotely by exchanging executed counterparts of this Agreement,
the Notes, the Security Agreement, the Intercreditor Agreement and the other
agreements to be entered into in connection herewith or therewith on the date
thereof (collectively, the "Financing Documents").
SECTION 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
The Company hereby makes the representations and warranties set forth in this
Section 2 to the Purchasers, which shall be true and correct as of the Closing
Date both before and after giving effect to this Agreement and the other
Financing Documents, subject to the exceptions thereto set forth in the
Disclosure Schedule attached hereto, which Disclosure Schedule shall be deemed
to be part of the representations and warranties as if made hereunder. The term
"knowledge," when used in this Section 2 with respect to the Company, means the
actual knowledge of the Company's president.
2.1 Organization, Qualification, and Corporate Power. The Company is duly
formed, validly existing and in good standing in the State of Delaware, and is
qualified to do business as a foreign corporation and in good standing in all
other jurisdictions in which the failure to so qualify or be in good standing
would, individually or in the aggregate, have a Material Adverse Effect on the
Company. The Company has all requisite legal and corporate power and authority
to execute and deliver each Financing Document, and to issue and sell the Notes
hereunder, and to carry out and perform its obligations under the terms of the
Financing Documents.

 

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2.2 Authorization; Noncontravention. All corporate action on the part of the
Company, and its directors and/or shareholders, necessary for the authorization,
execution, delivery and performance oft he Financing Documents by the Company,
the authorization, issuance, sale and delivery of the Notes by the Company, and
the performance by the Company of all of the Company's obligations under the
Financing Documents has been taken. Each Financing Document, when executed and
delivered by the Company, will constitute a valid and legally binding obligation
of the Company, enforceable against the Company in accordance with its terms,
subject to (a) the effect of applicable bankruptcy, insolvency, reorganization
or moratorium, or other similar laws, statutes or rules of general application
relating to, or affecting, the enforcement of creditors' rights generally, now
or hereafter in effect, and (b) rules of law governing specific performance,
injunctive relief or other equitable remedies. The Notes, when issued, will be
free of any liens, claims, encumbrances or restrictions on transfer other than
restrictions on transfer under any Financing Document or under any applicable
laws. The Company's execution, delivery and performance of the Financing
Documents, the Company's consummation of the transactions contemplated by the
Financing Documents, the Company's fulfillment of the terms of the Financing
Documents will not conflict with, or result in a violation of or breach under,
the Company's Certificate of Limited Partnership or Limited Partnership
Agreement, any constitution, statute, rule or regulation of United States
federal or Delaware law applicable to the Company, any judgment or Order
applicable to the Company, and will not constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under, any document, agreement or other
instrument to which the Company is a party or by which it is bound or to which
any of its assets or property is subject. No consent, approval or authorization
of or designation, declaration or filing with, any United States federal,
Delaware limited partnership or state Governmental Agency on the part of the
Company is required in connection with the valid execution, delivery and
performance of the Financing Documents, or the offer, sale or issuance of the
Notes, except the registration or qualification (or taking of such action as may
be necessary to secure an exemption from registration or qualification, if
available) of the offer and sale of such Notes under applicable federal
securities laws or state Blue Sky laws, as described in Section 2.4.
2.3 Litigation. There are neither pending nor, to the knowledge of the Company,
threatened any actions, suits, claims, investigations or legal or administrative
or arbitration proceedings, whether or not purportedly on behalf of the Company
or its subsidiaries, to which the Company or its subsidiaries is named as a
party or to which the property of the Company or its subsidiaries is subject,
whether at law or in equity, whether civil or criminal in nature or whether
before or by any Governmental Agency, the Company has no knowledge of any
unasserted claim, the assertion of which is likely and which, if asserted, will
seek damages, an injunction or other legal, equitable, monetary or non-monetary
relief which if granted would have a Material Adverse Effect on the Company or
its subsidiaries. There are no Orders, judgments or decrees of any court or
Governmental Agency which, to the knowledge of the Company, apply to it or its
subsidiaries.
2.4 Offering. Subject to the accuracy and completeness of Purchasers'
representations and warranties in Section 3, and upon completion of all required
filings pursuant to Regulation D promulgated under the Securities Act, and
applicable state securities laws, which have been made or will be made in a
timely manner pursuant to applicable laws, the offer, sale and issuance of the
Notes to the Purchasers as contemplated by this Agreement (and the Notes) are
exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and neither the Company nor anyone acting on
its behalf will take any action hereafter that would cause the loss of such
exemption.

 

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2.5 Compliance with Other Instruments. The Company and its subsidiaries are not
in default (a) under their organizational documents, in each case as amended as
of the Closing Date, or (b) under any agreement or other instrument to which
they are a party or by which they are bound or any of their assets or property
are subject, or (c) with respect to any Order, writ, injunction or decree of any
court or any Governmental Agency applicable to the Company or its subsidiaries.
To the knowledge of the Company, there exists no condition, event or act which
constitutes, or which after notice, lapse of time or both could constitute, any
of the aforementioned defaults.
 
2.6 Applicability of, and Compliance With, Other Laws. The Company and its
subsidiaries are presently and at all times since inception have been in all
material respects in compliance with all federal, state and local constitutions,
statutes, laws, and all ordinances, regulations and Orders applicable to them or
their business.
2.7 Closing under the Purchase Agreement. The Company has consummated the
purchase under the Purchase Agreement in substantially the form and substance of
the Purchase Agreement provided to the Purchasers.
2.8 Insolvency. The Company and its subsidiaries have not (i) made a general
assignment for the benefit of creditors; (ii) filed any voluntary petition in
bankruptcy or suffered the filing of any involuntary petition by its creditors;
(iii) suffered the appointment of a receiver to take possession of all, or
substantially all, of their assets; (iv) suffered the attachment or other
judicial seizure of all, or substantially all, of their assets; (v) admitted in
writing their inability to pay their debts as they come due; or (vi) made an
offer of settlement, extension or composition to their creditors generally.
2.9 HRM. The Company makes the following representations and warranties
regarding HRM, which representations and warranties shall be true and accurate
in all material respects as of the Closing Date.
(a) Organization and Qualification. HRM is a holding company duly organized and
validly existing and in good standing under the laws of the State of Florida and
has the requisite legal and corporate power and authority to own, lease and
operate its properties and to carry on the Business as it is now being
conducted. HRM is duly qualified as a foreign corporation to do business and is
in good standing in each jurisdiction where the character of its properties or
the conduct of the Business requires such qualification, except where the
failure to be so qualified, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on HRM. Upon the
request therefor by any Purchaser, the Company has made available to such
Purchaser copies of the following, which are true, correct and complete copies
of the originals of such documents in all material respects as of the Closing:
(a) the Certificate of Incorporation and the Bylaws of HRM, including all
amendments thereto, (b) the minute books containing all material consents,
actions and meeting of the stockholders of HRM and HRM's Board of Directors and
any committees thereof, and (c) the stock transfer books or stock option ledger
of HRM setting forth all issuances or transfers of any capital stock or stock
options of HRM. The corporate record books of HRM accurately reflect all
material corporate action taken by its stockholders and board of directors and
committees.
 
(b) Capital Stock of HRM. The Company owns all of the capital stock of HRM,
which consists of 1,000 authorized shares of common stock, $1.00 par value, of
which all 1,000 shares are issued and outstanding and owned by the Company.
Except as otherwise set forth in the Purchase Agreement (including schedules
thereto), the Company shall have acquired valid and marketable title to the
Stock, free and clear of any Liens.

 

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(c) Consents. HRM and its subsidiaries have received all consents, approvals,
orders, permits or authorizations from any applicable Governmental Agency or
other third party necessary to consummate the transactions contemplated hereby,
by the Financing Documents, by the Kingsway Notes and by the Purchase Agreement,
without the imposition of any material conditions and has provided true and
correct copies of such consents, approvals, orders, permits or authorizations to
each Purchaser.
 
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
 
Each Purchaser hereby severally, but not jointly, makes the representations and
warranties in this Section 3 to the Company, which shall be true and correct in
all material respects as of the Closing Date. The term "knowledge," when used in
this Section 3 with respect to each Purchaser, means the actual knowledge of
such Purchaser.
3.1. Authorization. All action (which in the case of a corporate Purchaser shall
mean all corporate action) on the part of such Purchaser necessary for the
authorization, execution, delivery and performance by such Purchaser of this
Agreement and the other Financing Documents and for the consummation of the
transactions contemplated herein and therein has been taken or will be taken
prior to Closing. This Agreement and the other Financing Documents are each a
valid and binding obligation of such Purchaser, enforceable against such
Purchaser in accordance with their respective terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of specific performance, injunctive relief or other equitable remedies.
3.2. Government Authorizations. Such Purchaser is not required to obtain any
authorization, consent, or approval of any Governmental Agency in order to
consummate the transactions contemplated by this Agreement.
3.3. Noncontravention. Neither the execution and the delivery of this Agreement
and the other Financing Documents, nor the consummation of the transactions
contemplated hereby or thereby, will conflict with, result in a material
violation of or breach under (a) any constitution, statute, regulation, rule,
injunction, judgment, Order, decree, ruling, charge, or other restriction of any
Governmental Agency, or court to which the Purchaser is subject or (b) any
agreement, contract, lease, license, instrument, or other arrangement to which
such Purchaser is a party or by which it is bound or to which any of its assets
is subject (or result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any of the
foregoing), except for such violations or breaches that, individually or in the
aggregate, would not have a material adverse effect on such Purchaser.

 

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3.4. Securities Laws. Such Purchaser is acquiring the Notes with the present
intention of holding the Notes for the purpose of investment for such
Purchaser's own account and not with the view to, or for resale in connection
with, any distribution thereof; provided, however, such Purchaser reserves the
right at any time to assign the Notes to any of such Purchaser's Affiliates
which are "controlled" by such Purchaser. For purposes hereof, the term
"control" means, with respect to any Affiliate of any Purchaser, the possession
by such Purchaser, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Affiliate, whether through the
ownership of voting securities, by contract or otherwise. Such Purchaser
acknowledges that the Notes have not been registered under the Securities Act or
applicable state securities laws and may not be transferred, sold or otherwise
disposed of in the absence of an effective registration statement with respect
to the security, filed and made effective under the Securities Act and such
applicable state securities laws, or unless the Company receives an opinion of
counsel reasonably satisfactory to the issuer to the effect that registration
under such Act and such applicable state securities laws is not required. Such
Purchaser has been advised or is aware of the provisions of Rule 144 promulgated
under the Securities Act, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions (which
conditions cannot presently be satisfied).
3.5. Access to Data. Such Purchaser has had an opportunity to discuss the
business, management and financial affairs of the Company and HRM with the
Company's management, and such Purchaser has been furnished with copies of the
Purchase Agreement, and such documents, financial statements, and information
regarding the Company or HRM, which such Purchaser has requested, and has been
provided the opportunity to ask questions and receive answers pertaining
thereto.
3.6. Accredited Investor. Such Purchaser is an "accredited investor" within the
meaning of Regulation D (Rule 501) promulgated under the Securities Act.
 
SECTION 4.
AMENDMENTS
 
4.1. Amendments, Modifications and Waivers. Any of the provisions of this
Agreement, any Note or any other Financing Document may be waived, modified or
amended by written agreement or agreements entered into by the Company and the
Majority Purchasers. Notwithstanding the foregoing, no amendment which changes
the definition of Majority Purchasers shall be effective without the written
agreement of each Purchaser affected thereby.

 

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SECTION 5.
COVENANTS
 
The Company hereby covenants and agrees, that, except as otherwise required
hereby, until the date upon which all outstanding amounts under the Notes are
fully repaid:
 
5.1. Compliance with Requirements of Governmental Agencies. The Company and its
subsidiaries shall duly observe and conform to all requirements of Governmental
Agencies relating to the conduct of its business or to its property or assets.
5.2. KAIC Surplus. The KAIC Surplus shall not be less than $ 13,000,000.
5.3. Protective Provisions. The Company shall not, directly or indirectly:
(a) declare or pay any cash dividend or other distribution in property on its
capital stock, other than, if no Event of Default shall have occurred and be
continuing under Section 7.1(a) below, distributions may be made to Acadia so
that it may make tax distributions provided for in Section 6.5 of the Agreement
of Limited Partnership of Acadia; or
(b) authorize or effect a Sale, as defined in Acadia's Agreement of Limited
Partnership (except that, for purposes hereof, "Partnership" and "Partnership
Interests" in such definition in the Agreement of Limited Partnership shall mean
"the Company" and "the stock of the Company" respectively), except that the
Purchasers hereby consent to the merger of the Company with and into HRM
promptly following the closing under the Purchase Agreement.
 
SECTION 6.
GENERAL PROVISIONS
 
6.1. Confidentiality. Each Purchaser agrees that such Purchaser shall keep
confidential and shall not disclose, divulge or use for any purpose (other than
to monitor its investment in the Company) any confidential information of the
Company or HRM obtained from the Company pursuant to the terms of this Agreement
(including notice of the Company's intention to file a registration statement),
unless such confidential information (a) is known or becomes known to the public
in general (other than as a result of a breach of this Section 6.1 by such
Purchaser), (b) is or has been independently developed or conceived by such
Purchaser without use of the Company's confidential information or (c) is or has
been made known or disclosed to such Purchaser by a third party without a breach
of any obligation of confidentiality such third party may have to the Company;
provided, however, that such Purchaser may disclose confidential information (i)
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, or (ii) as may otherwise be required by law, provided that such
Purchaser promptly notifies the Company of such disclosure and takes reasonable
steps to minimize the extent of any such required disclosure.
6.2. Governing Law. This Agreement and each other Financing Document shall be
governed by and construed according to the laws of the State of Delaware without
regard to its conflicts of laws principles. Any case, controversy, suit, action,
or proceeding arising out of, in connection with, or related to, this Agreement
or any other Financing Document shall be resolved in the applicable state or
federal courts of Illinois. The parties consent to the jurisdiction of such
courts, agree to accept service of process by mail and waive any jurisdictional
or venue defenses available.

 

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6.3. Successors and Assigns; Third Party Beneficiaries. Except as otherwise
expressly limited herein, the provisions hereof shall inure to the benefit of
and be binding upon, the successors (including successor trustees, in the case
of a trustee), and permitted assigns, heirs, executors and administrators of the
parties hereto. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party other than the parties hereto and their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
6.4. Notices, etc. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be (i) delivered
either by hand or by recognized overnight courier (in each case with signature
required) or (h) sent via computer mail followed by a copy mailed by first class
mail, postage prepaid, addressed (A) if to the Company, at 150 NW Point Blvd,
Elk Grove Village, Illinois 60007, Attn: Larry G. Swets, Jr., Email:
lswets(a)kfscap.com, or at such other address/number as the Company shall have
furnished to the Purchasers in writing, with a copy to Updike, Kelly & Spellacy,
P.C, 100 Pearl Street, P.O. Box 23177, Hartford, CT 06123, Attn: David E.
Sturgess, Email: dsturgess@uks.com, and (B) if to a Purchaser at such address as
indicated on Schedule I hereto, or at such other address/number as such
Purchaser shall have furnished to the Company in writing. Any notice or other
communications so addressed and mailed, postage prepaid, by registered or
certified mail (in each case, with return receipt requested) shall be deemed to
be given three (3) days after the date when so mailed. Any notice so addressed
and otherwise delivered shall be deemed to be given when actually received by
the addressee.
6.5. Severability. If any provision of this Agreement is held to be
unenforceable under applicable law, then such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shah be enforceable in accordance with its terms.
6.6. Entire Agreement. This Agreement (including the appendices, schedules and
exhibits hereto) and the other Financing Documents delivered constitute the full
and entire understanding and agreement among the parties with regard to the
subjects hereof and thereof and supersede all prior arrangements or
understandings.
6.7. Delays or Omissions. No delay or omission to exercise any right, power or
remedy accruing to any holder of any Note, upon any breach or default of the
Company under this Agreement or any of the other Financing Documents, shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in 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 holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be made in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or any of the other Financing Documents or
by law or otherwise afforded to any holder, shall be cumulative and not
alternative.
6.8. Indemnification.
(a) The Company with respect to the representations, warranties and agreements
made by the Company, shall indemnify, defend and hold each Purchaser harmless
against all liability, loss or damage, together with all reasonable costs and
expenses related thereto (including reasonable legal and accounting fees and
expenses and any expenses relating to the exercise or enforcement of any rights
of Purchasers hereunder or under any other Financing Documents, but not
including punitive, consequential, special or incidental damages or lost profits
(except interest payable on the outstanding principal amount of the Notes)), (a
"Loss"), arising from the untruth, inaccuracy or breach (or any facts or
circumstances constituting such untruth, inaccuracy or breach) of any such
representations, warranties or agreements made by the Company. Each Purchaser
shall use good faith efforts to mitigate any Losses for which such Purchaser is
entitled to indemnification under this Section 6.8(a).

 

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(b) Each Purchaser, severally and not jointly, with respect to the
representations, warranties and agreements made by such Purchaser herein, shall
indemnify, defend and hold the Company harmless against all Losses arising from
the material untruth, inaccuracy or breach (or any facts or circumstances
constituting such untruth, inaccuracy or breach) of any such representations,
warranties or agreements made by such Purchaser. No Purchaser shall be liable
under this Section for Losses hereunder unless the aggregate of all Losses of
the Company for which such Purchaser would, but for this sentence, be liable on
a cumulative basis is an amount equal to or in excess of $100,000. Except with
respect to Losses arising from fraud or knowing and intentional material
misrepresentations of any Purchaser, the aggregate amount of Losses of the
Company for which such Purchaser shall be liable pursuant to this Section shall
not exceed an amount equal to the original principal amount of the Note issued
to such Purchaser, the Company shall use good faith efforts to mitigate any
Losses for which it is entitled to indemnification under this Section.
 
6.9. Remedies. In case any one or more of the covenants set forth in this
Agreement shall have been breached by any party, the other parties hereto may
proceed to protect and enforce its rights either by suit in equity or by action
at law, including, but not limited to, an action for damages as a result of any
such breach or an action for specific performance of any such covenant contained
in this Agreement. Any party acting pursuant to this Section shall be
indemnified against all liability, loss or damage, together with all reasonable
costs and expenses related thereto (including legal and accounting fees and
expenses) in accordance with Section 6.8.
6.10. Trial by Jury. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO CLAIM
A TRIAL BY JURY WITH RESPECT TO ANY ACTION BY OR AGAINST SUCH PARTY ARISING
HEREUNDER.
 
6.11. Fees and Expenses. Except as specifically provided otherwise in any Note,
each party shall bear such party's own expenses (legal and otherwise) in
connection with the transactions contemplated hereby. The Company shall pay all
documentary stamp taxes or other taxes, fees, or levies payable on the
execution, issuance, and delivery of the Notes.
6.12. Counterparts; Facsimile and Electronic Signatures. This Agreement may be
executed in any number of counterparts, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement (notwithstanding that all of the parties are not
signatories to the original or the same counterpart, or that signature pages
from different counterparts are combined), and it shall not be necessary when
making proof of this Agreement or any counterpart thereof to account for any
other counterpart, and the signature of any party to any counterpart shall be
deemed to be a signature to and may be appended to any other counterpart. For
purposes of this Agreement, a document (or signature page thereto) signed and
transmitted by facsimile machine or other electronic means is to be treated as
an original document. The signature of any party on any such document, for
purposes hereof and thereof, is to be considered as an original signature, and
the document transmitted is to be considered to have the same binding effect as
an original signature on an original document. At the request of any party, any
facsimile or other electronic signature is to be re-executed in original form by
the parties which executed the facsimile or other electronic signature. No party
may raise the use of a facsimile machine or other electronic means, or the fact
that any signature was transmitted through the use of a facsimile machine or
other electronic means, as a defense to the enforcement of this Agreement.
6.13. No Strict Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement and the other Financing
Documents. In the event an ambiguity or question of intent or interpretation
arises under any provision of this Agreement or any Financing Document, this
Agreement or such other Financing Document shall be construed as if drafted
jointly by the parties thereto, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement or any other Financing Document.

 

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SECTION 7.
EVENTS OF DEFAULT; REMEDIES AND RIGHTS OF PURCHASERS
 
7.1. Events of Default. The occurrence of any of the following shall constitute
an "Event of Default" hereunder:
 
(a) Monetary Default. The Company shall fail to pay any part of the principal of
or interest on any Note as and when the same shall be due and payable.
 
(b) Default of Covenants. The Company shall fail or refuse duly to observe or
perform any of the other covenants or agreements of the Company in any Financing
Document, other than monetary obligations or covenants described in Section
7.1(a), for a period of thirty (30) days after the date on which written notice
specifying such failure, stating that such notice is a "Notice of Default"
hereunder and demanding that the Company remedy the same, shall have been given
to the Company.
 
(c) False Representations. Any representation, warranty or statement of fact
made by the Company in this Agreement or in any other Financing Document shall
be false or misleading in any material respect when made or when otherwise
required by the terms of this Agreement or any Financing Document to be true and
accurate; provided, however, that such failure shall not result in an Event of
Default to the extent it is corrected by the Company within a period of thirty
(30) days after the date on which written notice specifying such failure,
stating that such notice is a "Notice of Default" hereunder and demanding that
the Company remedy same, shall have been given to the Company.
 
(d) Voluntary Insolvency. The Company or any of its direct or indirect
subsidiaries, pursuant to or within the meaning of any Bankruptcy Law, (i)
commences a voluntary case or proceeding seeking liquidation, reorganization, or
other relief with respect to itself or its debts, (ii) consents to the entry of
an order for relief against it in an involuntary case or proceeding, (iii)
consents to the appointment of a custodian for it or for all or substantially
all of the property of the Company or any subsidiary, (iv) makes a general
assignment for the benefit of its creditors, or (v) generally does not pay its
debts as they become due, or admits in writing its inability to pay its debts as
they become due.
 
(e) Involuntary Insolvency or State Regulatory Proceeding. (x) Pursuant to or
within the meaning of any Bankruptcy Law, an involuntary case or proceeding is
commenced against the Company or any of its direct or indirect subsidiaries
seeking (i) liquidation, reorganization, or other relief with respect to it or
its debts, (ii) appointment of a Custodian for the Company or any subsidiary or
for all or substantially all of the property of the Company or any subsidiary,
or (iii) the liquidation of the Company or any subsidiary; and such involuntary
case or other proceeding remains undismissed and unstayed and in effect after
the expiration of ninety (90) days from its date of commencement, or a trustee,
receiver, custodian, or other similar official shall be appointed in such
involuntary case or (y) the Company shall become subject to a State Regulatory
Proceeding.
 
(f) Default under Kingsway Notes. It shall constitute an Event of Default
hereunder if a default or event of default shall occur under (i) either Kingsway
Note or (ii) any agreements executed in connection with either Kingsway Note;
and any such default or event described in the foregoing clauses (i) and (ii)
shall continue for a period of time sufficient to permit the acceleration of the
maturity of such indebtedness of the Company or any subsidiary outstanding
thereunder and Kingsway shall in fact have accelerated such indebtedness.

 

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(g) Failure to Merge. The Company shall not have merged into HRM, with HRM as
the surviving entity, within three business days from the date hereof
7.2. Remedies of Purchasers. When an Event of Default has occurred and is
continuing under Sections 7.1(a), 7.1(d), 7.1(e) or 7.1(f), the entire
outstanding principal amount and all accrued and unpaid interest thereon under
the Notes, and any applicable penalties or premiums, shall automatically and
without any action on the part of the Purchasers become due and payable, without
any presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Company. Upon any such acceleration, the Company
will forthwith pay to the Purchasers all such amounts. When an Event of Default
has occurred and is continuing under Sections 7.1(b) or 7.1(c), the Majority
Purchasers, by notice in writing to the Company (the "Acceleration Notice"), may
declare the entire outstanding principal amount hereof and all accrued and
unpaid interest on the Notes to be due and payable immediately, and upon any
such declaration the same shall become immediately due and payable. No course of
dealing on the Purchasers' part nor any delay or failure on their part to
exercise any right shall operate as a waiver of such right or otherwise
prejudice the Purchasers' rights, powers and remedies.
[intentionally left blank - signature page follows]

 

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[signature page to Note Purchase Agreement]
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above,
HRM ACQUISITION CORP.
By: /s/ William A. Hickey, Jr.
William A. Hickey, Jr.
Its president
 
 
INITIAL PURCHASER:
 
UNITED PROPERTY & CASUALTY
INSURANCE COMPANY
 
By:_______________________
Its

 

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[signature page to Note Purchase Agreement]
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
HRM ACQUISITION CORP.
By:___________________
William A, Hickey, Jr,
Its President
INITIAL PURCHASER:
 
UNITED PROPERTY & CASUALTY
INSURANCE COMPANY
 
By:/s/ Donald J. Cronin
Its CEO
 
 
 

 

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Appendix I
Definitions
Acadia means Acadia Acquisition Partners, L.P., of which the Company is a
wholly-owned subsidiary.
Affiliate means "affiliate" as defined in Rule 405 promulgated under the
Securities Act of 1933, as amended.
Agreement is defined in the preamble.
Bankruptcy Law means title 11, U.S, Code or any similar federal or state law for
the relief of debtors.
Business means the business and operations of HRM as conducted on the closing
date of the transactions contemplated under the Purchase Agreement.
Closing is defined in Section 1,3,
Closing Date is defined in Section 1,3.
Company is defined in the preamble.
Custodian means any receiver, trustee, assignee, liquidator or similar official
under any bankruptcy Law.
Financing Documents is defined in Section 1.4,
Governmental Agency means (a) any federal, state, county, local or municipal
government or administrative agency or political subdivision thereof, (b) any
governmental agency, authority, board, bureau, commission, department or
instrumentality, (c) any court or administrative tribunal, (d) any
non-governmental agency, tribunal or entity that is vested by a governmental
agency with applicable jurisdiction or (e) any arbitration tribunal or other
non-governmental authority with applicable jurisdiction,
HRM is defined in the recitals.
Intercreditor Agreement means an Intercreditor Agreement dated on or about the
date hereof between Kingsway, the Company and each Purchaser with respect to the
Notes and the Kingsway Notes.
KAIC Annual Statement means at any time the most recent Annual Statement of
Kingsway Amigo Insurance Company, an indirect subsidiary of the Company, filed
with the Florida Office of Insurance Regulation,
KAIC Surplus means the dollar amount found on line 37 - Surplus as regards
policyholders - of the page titled "LIABILITIES, SURPLUS AND OTHER FUNDS" in the
KAIC Annual Statement.
 
Kingsway is defined in the recitals.
 
Kingsway Notes means (i) Senior Kingsway Note and (ii) a $5,000,000 Junior
Promissory Note dated on or about the date hereof, issued by the Company to
Kingsway.
 
Lien means any mortgage, charge, adverse claim, lien, option, pledge, security
interest, encumbrance or restriction of any kind, including any restriction on
use, voting, transfer, receipt of income, or exercise of any other attribute of
ownership.

 

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-2-
Majority Purchasers means Purchasers holding a majority of the then aggregate
outstanding principal amount of the Notes.
Material Adverse Effect means, with respect to the Company or HRM (as
applicable) a material adverse change in or effect with respect to the business,
results of operations or financial condition of the Company or HRM (as
applicable) taken as a whole, other than to the extent caused by or arising out
of (a) any announcement relating to the transactions contemplated by this
Agreement or the Purchase Agreement; (b) any change in general economic or
political conditions or in the industry of the Company or HRM (as applicable) in
general or (c) any changes in any applicable legal requirements.
Note and Notes are defined in Section 1.1.
Notice of Default is defined Section 7.1.
Order means any decision, injunction, judgment, order, decree, ruling, charge,
restriction or verdict entered, issued, made, or rendered by any court,
administrative agency. Governmental Agency or by any arbitrator, in each case,
having applicable jurisdiction.
Person means any individual, corporation, limited liability company,
association, partnership, limited partnership, trust or estate, government (or
any agency or political subdivision thereof) or any other entity.
Purchase Agreement is defined in the recitals.
Purchaser and Purchasers are defined in the preamble.
Securities Act means, individually and collectively, as the context so requires,
the U.S,
Securities Act of 1933, as amended from time to time, and any comparable laws
and regulations
of any applicable foreign jurisdiction.
Senior Kingsway Note means a $10,000,000 Senior Promissory Note dated on or
about the date
hereof, issued by the Company to Kingsway,
State Regulatory Event means a Person or any of its direct or indirect insurance
subsidiaries, pursuant to or within the meaning of the applicable state
insurance statutes, (i) finds itself subject to an authorized control event or
mandatory control event as a result of the filing of a risk-based capital
report, (ii) voluntarily suspends its operations or (iii) has any other type of
administrative supervision imposed upon it by its domiciliary state insurance
regulator.
 
Stock is defined in the recitals.

 

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Schedule I
 
Purchasers
 
Name, Address and Email                    Note Principal Amount
 
United Property & Casualty Insurance                    $2,250,000
Company
360 Central Avenue
Suite 900
St. Petersburg, FL 33701
Email: dcronin@upcic.com
 
 
 

 

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Exhibit A
 
Form of Senior Promissory Note

 

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PROMISSORY NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT TO THE SECURITY, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND SUCH APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE
ISSUER RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT REGISTRATION UNDER SUCH ACT AND SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED.
$2,250,000,00
 
HRM ACQUISITION CORP.
March 30, 2011
HRM ACQUISITION CORP., a Delaware corporation (together with its successors and
assigns, "Issuer"), for value received, hereby promises to pay to UNITED
PROPERTY & CASUALTY INSURANCE COMPANY, a Florida corporation, and its
successors, permitted transferees and assigns (the "Holder"), on March 30, 2014
(the "Maturity Date"), subject to acceleration as provided in Section 7,2 of the
Note Purchase Agreement (as defined below), by wire transfer of immediately
available funds to an account designated by the Holder by written notice to the
Issuer signed by the Holder, the principal sum of Two MILLION TWO HUNDRED FIFTY
THOUSAND AND No/100 DOLLARS ($2,250,000.00), or such lesser principal amount as
may be outstanding under this Note on the Maturity Date, in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts.
 
The outstanding principal hereunder shall bear interest accruing from the date
that such principal is provided to the Issuer at the rate of two percent (2%o)
per annum (the "Interest Rate"). Overdue principal and, to the extent permitted
by applicable law, overdue interest and fees or any other amounts payable under
this Note shall bear interest from and including the due date thereof until
paid, payable on demand, at a rate per annum equal to the rate which would
otherwise be in effect plus three percentage points (3%) or the highest interest
rate permitted by applicable law, whichever is lower (the "Default Rate"). Upon
an Event of Default, the outstanding principal amount hereof shall bear interest
at the Default Rate until such time as the Event of Default has been cured. AU
computations of interest payable hereunder shall be on the basis of a 365-day
year and actual days elapsed in the period for which such interest is payable.
 
This Note is one of the several Promissory Notes being issued pursuant to that
certain Note Purchase Agreement dated as of March 30, 2011 (as amended and in
effect, the "Note Purchase Agreement"), by and among Issuer, Holder and certain
other parties identified therein; and is subject to the terms and conditions of
the Note Purchase Agreement (including, specifically, and without limitation.
Section 1,2), all of which are incorporated herein by

 

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-2-
reference thereto. This Note is not transferable or assignable by Holder or any
transferee of Holder except in accordance with the terms and conditions of
Section 5.
 
The Issuer agrees to issue to the Holder from time to time a replacement note or
notes in the form hereof and in such denominations as the Holder may request to
facilitate such transfers and assignments permitted herein. In addition, after
delivery of an indemnification agreement in form and substance satisfactory to
the Issuer, the Issuer also agrees to issue a replacement note if this Note has
been lost, stolen, mutilated or destroyed.
 
1. Definitions. Any capitalized terms used in this Note, but not otherwise
defined, shall have the meanings for such terms as set forth in the Note
Purchase Agreement.
 
2. Payment of Principal and Interest.
 
(a) Principal and Interest. AU outstanding principal of, and accrued and unpaid
interest on, this Note shall be due and payable on the Maturity Date.
 
(b) Prepayment. This Note may be prepaid by the Issuer at any time, without
penalty, but only pari passu with all other Notes and only in increments in each
instance as to all Notes of at least $1,000,000.
 
3. Intentionally Omitted
4. Events of Default; Remedies. Events of Default under this Note, and remedies
available thereupon, shall be governed by Section 7 of the Note Purchase
Agreement.
 
5. Assignment of Note. The Holder shall not have the right to assign this Note
without the prior written consent of the Issuer and Majority Purchasers, not to
be unreasonably withheld or delayed; provided, however, the Holder shall have
the right at any time, without notice to or consent of the Issuer or the
Majority Purchasers, to assign this Note to any of the Holder's Affiliates which
are "controlled" by the Holder (for purposes hereof, the term "control" means,
with respect to any Affiliate of the Holder, the possession by the Holder,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Affiliate, whether through the ownership of
voting securities, by contract or otherwise); provided further that,
notwithstanding any assignment permitted pursuant to the foregoing: (a) any such
assignee must be an Accredited Investor as defined under Regulation D
promulgated under the Securities Act; (b) any such transaction is in accordance
with appropriate securities and other laws; and (c) such assignee shall agree,
in writing, to be bound by the terms and conditions of this Note as well as the
other Financing Documents.
 
6. Notices, etc. All notices, requests, consents and other communications
required or permitted hereunder shall be made pursuant to the notice provisions
of Section 6.4 of the Note Purchase Agreement.
 

 

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-3-
7. Fees and Expenses. Issuer shall pay all costs and expenses, including
attorneys' fees, incurred by the Holder in connection with the collection of
this Note. Such expenditures incurred by the Holder shall bear interest at the
highest rate of interest provided for herein.
 
8. No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Note. In the event an ambiguity or question of
intent or interpretation arises under any provision oft his Note, this Note
shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any oft he provisions of this Note.
 
9. Miscellaneous. This Note shall be governed by and be construed in accordance
with the laws of the State of Delaware without regard to any conflicts of laws
principles. Any case, controversy, suit, action, or proceeding arising out of,
in connection with, or related to, this Note shall be resolved in the applicable
state or federal courts of Illinois, The Holder and Issuer consent to the
jurisdiction of such courts, agree to accept service of process by mail and
waive any jurisdictional or venue defenses available. The Section headings
herein are for convenience only and shall not affect the construction hereof
 
[balance of page intentionally left blank - signature page follows]

 

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[signature page to Promissory Note]
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed as
of the date first set forth above,
HRM ACQUISITION CORP.
By:
Its President

 

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