EXHIBIT 10.7
 
 
 
 
 
 
ASSUMPTION AGREEMENT
between
SUNSHINE STATE INSURANCE COMPANY
and
UNITED PROPERTY & CASUALTY INSURANCE COMPANY

 

--------------------------------------------------------------------------------

 

 
ASSUMPTION AGREEMENT
 
THIS ASSUMPTION AGREEMENT (hereinafter referred to as the "Assumption Agreement"
or the "Agreement") is made and entered into this 18th day of May, 2010 (the
"Effective Date"), by and between SUNSHINE STATE INSURANCE COMPANY, a Florida
domiciled insurance company (hereinafter referred to as the "Company") and
UNlTED PROPERTY & CASUALTY INSURANCE COMPANY, a Florida domiciled insurance
company (hereinafter referred to as the "Assuming Insurer"). Company and
Assuming Insurer shall sometimes be referred to individually as "Party" and
collectively as "Parties."
 
WHEREAS, the Company is the issuer of certain insurance Policies, and
 
WHEREAS, the Company will cede its risks under the Policies to the Assuming
Insurer on an assumption basis; and
 
WHEREAS, following the Assumption Effective Date hereof, the Company will cede
100% of the Policies to and such Policies will be assumed by Assuming Insurer
pursuant to the terms of this Assumption Agreement;
 
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
herein, and in reliance upon the representations, warranties, conditions and
covenants contained herein, and intending to be legally bound hereby, the
Company and the Assuming Insurer hereby agree as follows:
 
ARTICLE I
 
DEFINITION OF TERMS
 
It is intended that capitalized terms should have the following meanings when
used in this Assumption Agreement:
 
1.1     Actual Earned and Collected Premiums shall have the meaning set forth in
Section 2.5( d).

 
1.2     Actual UPR Transfer Amount shall have the meaning set forth in Section
2.S(b)(ili).

 
1.3     Alternative Accountants shall have the meaning set forth in Section 2. 5
(b)(iv).

 
1.4     Assumed Policy or Policies shall mean each and all Policies that have
been assumed by the Assuming Insurer pursuant to the terms of this Assumption
Agreement between the Assuming Insurer and the Company.

 
1.5     Assumption Agreement shall have the meaning set forth in the preamble.

 
1.6     Assumption Certificate shall mean the certificate, a form of which is
set forth in Schedule 1.5, to be issued by the Assuming Insurer to the
Policyholder of any Assumed Policy under the provisions of this Assumption
Agreement.

 
1.7     Assumption Effective Date shall mean the date upon which any of the
Policies arc to be assumed by the Assuming Insurer under the provisions of this
Assumption Agreement, which shall be July 1, 2010 or a later date as provided
for in Section 6.1.

 
1.8     Business shall mean the homeowners and flood lines of property and
casualty insurance coverage risks located in the State of South Carolina and
only in respect to policies bearing the designation by the Insurance Services
Office of HO-2, HO-3, HO-5 and HO-6.

 
1.9     Ceding Commission shall mean an amount equal to twenty-one percent (21
%) of the Unearned Premium Reserves or Estimated Earned and Collected Premiums,
as applicable.

 
1.10     Effective Date shall have the meaning set forth in the preamble.

 
1.11    Estimated Earned and Collected Premiums shall have the meaning set forth
in Section 2.S(c).

 
1.12    Extra-contractual Liabilities shall mean any claim or liability under,
in connection with or with respect to the Policies for bad faith, punitive,
exemplary or other extra-contractual damages that are based upon, relate to or
arise out of any act, error or omission of a Party, or any of such Party's
officers, directors, agents or employees, whether intentional or otherwise.

 
1.13    Initial UPR Transfer Amount shall have the meaning set forth in Section
2.S(b)(ii).

 
1.14    Loss shall mean, for purposes of Section 5.2, all costs and expenses
(including interest, penalties, reasonable attorneys" accountants' and
actuaries' fees, and any other costs and expenses incident to any suit, action
or proceeding), damages, charges, deficiencies, liabilities, obligations, claims
and judgments sustained or incurred by, or asserted against, a Party entitled to
indemnity hereunder.

 
1.15    Losses shall mean, for purposes of Sections 1.21, 1.22 and 2.5,
regardless of whether occurring prior to or after the Assumption Effective Date,
an event or occurrence resulting in liabilities and obligations to make payments
to Policyholders, beneficiaries and/or other third party claimants under the
Policies (including, without limitation, liabilities or assessments arising from
the Company's participation, if any, in any voluntary or involuntary pools,
guaranty funds, or other types of government-sponsored or government-organized
insurance funds) and all loss adjustment expenses and defense costs, including,
without limitation, (i) all expenses reinsured or incurred by or on behalf of
the Company related to the investigation, appraisal, adjustment, litigation,
defense or appeal of claims under or covered by the Policies and/or coverage
actions under or covered by the Policies, eli) all liabilities for
consequential, exemplary, punitive or similar extra contractual damages, or for
statutory or regulatory fines or penalties, or for any loss in excess of the
limits arising under or covered by any Policy, and (iii) court costs accrued
prior to final judgment, prejudgment interest or delayed damages and interest
accrued after final judgment.

 
1.16    Non-Renewed Assumed Policies shall have the meaning set forth in Section
3.1(b).

 
1.17    Novation shall mean the substitution of the Assuming Insurer for the
Company under an Assumed Policy with the result that the Assuming Insurer
becomes directly liable to the Policyholder as of the Assumption Effective Date
and the Company's liability to the Policyholder under such Assumed Policy is
extinguished except for any claim made for a Pre-Assumption Loss. Likewise, all
rights to an Assumed Policy pass to the Assuming Insurer to include but not be
limited to the right to renewal of such Assumed Policy.

 
1.18    Party or Parties shall have the meaning set forth in the preamble.

 
1.19    Policyholder shall mean any individual or entity who is the owner of a
Policy or who has the right to terminate or lapse the Policy, effect changes of
beneficiary, coverage limits, add or terminate persons covered under such Policy
or direct any other policy changes in such Policy.

 
1.20    Policy or Policies shall mean each or all of those insurance policies
issued by the Company, along with any renewal rights thereto, that are (a)
identified by policy number and policyholder name on the Policy Schedule
referred to in Schedule 1.20 attached hereto and incorporated herein, as may be
revised from time to time by mutual agreement of the Parties and (b) in force
and effect as of the Assumption Effective Date.

 
1.21    Post-Assumption Loss shall mean actual or alleged Losses occurred under
any Assumed Policy on or after the Assumption Effective Date.

 
1.22    Pre-Assumption Loss shall mean actual or alleged Losses occurred under
any Assumed Policy prior to the Assumption Effective Date regardless of when a
claim is made on said Losses.

 
1.23    Premium(s) shall mean all gross written premium(s), considerations,
deposits, premium adjustments, fees and similar amounts related to the Policies,
less cancellation and return premiums.

 
1.24    Premium Adjustment shall have the meaning set forth ill Section
2.5(d)(iii).

 
1.25    Required Assumption Approvals shall mean the approvals of, or
pre-closing notice filings with, any insurance regulatory authorities that may
be required in connection with and necessary to give effect to the assumption of
any of the Policies by the Assuming Insurer on an assumption basis, including,
but not limited to, the approvals listed on Schedule 1.25.

 
1.26    Transition Period shall mean the period beginning with the Assumption
Effective Date and ending one year later.

 
1.27    True Up Report shall have the meaning set forth in Section 2.5(d)(i).

 
1.28    Unearned Acquisition Costs shall mean an amount equal to the actual
out-of- pocket expenses incurred by the Company for amounts paid or payable by,
or on behalf of, the Company to persons who are not affiliates of the Company to
acquire the Policies associated with the Unearned Premium Reserve, including all
commissions and brokerage payments and any adjustments thereto.

 
1.29    Unearned Premium Reserves shall mean the gross liability as of the
Assumption Effective Date for the amount of Premium corresponding to the
unexpired portion of the Policies, whether or not such Premium has been
collected, less the corresponding Unearned Acquisition Costs, in each case
calculated using a daily pro rata method.

 
ARTICLE II
 
BASIS OF POLICY ASSUMPTION
 
2.1    Policy Assumption.
 
(a)    As of the Assumption Effective Date and subject to receipt of all
Required Assumption Approvals, the Company hereby cedes to the Assuming Insurer
and the Assuming Insurer hereby assumes all of the contractual rights,
obligations, liabilities and risks of the Company under or with respect to each
Policy except as relates to any Pre-Assumption Loss. The Parties intend to
accomplish as soon as practicable transfers of the Company's contractual rights,
obligations, liabilities and risks with respect to such Policies, with the
result that the Assuming Insurer, as transferee, in all respects and conditions
including but not limited to the right to renewal of such Policies, shall
succeed the Company as the insurer under the terms and provisions of each of
such Policies and to transfer to the Assuming Insurer, as administrator, full
and complete responsibility for servicing and administering such Policies in
accordance with the terms and conditions of this Assumption Agreement and the
Policies.

 
(b)    The Assuming Insurer shall be fully responsible for all claims associated
with any Post-Assumption Loss. The Company shall retain all responsibility for
defending and adjusting any claim associated with any Pre-Assumption Loss. The
Parties agree to provide the other with all reasonably requested information and
assistance necessary to defend and adjust any such claim.

 
2.2    Conditions Precedent to Assumption: Assumption Approvals. Consummation of
the assumption contemplated by this Assumption Agreement with respect to any
Policy and the Company's obligations to consummate the transactions contemplated
by this Agreement shall be subject to and contingent upon the fulfillment on or
prior to the Assumption Effective Date of the following conditions:
 
(a)     Receipt by the Assuming Insurer of all Required Assumption Approvals
with respect to each Policy.

 
(b)    The Assuming Insurer shall have delivered a certificate, executed on
behalf of the Assuming Insurer by its Secretary, dated as of the Assumption
Effective Date, certifying that the Assuming Insurer has received all Required
Assumption Approvals with respect to each Policy and attaching evidence of such
Required Assumption Approvals to such certificate.

 
(c)    The Assuming Insurer shall have delivered a certificate, executed on
behalf of the Assuming Insurer by its Chief Executive Officer or its Chief
Financial Officer, that the covenants and agreements contained in this Agreement
to be performed or complied with by the Assuming Insurer on or before the
Assumption Effective Date, including, but not limited to, those set forth in
Sections 3.3 and 4.3 shall have been performed or complied with by the Assuming
Insurer.

 
(d)    The Company shall have delivered a certificate, executed on behalf of the
Company by its Chief Executive Officer or its Chief Financial Officer, that the
covenants and agreements contained in this Agreement to be performed and
complied with by the Company on or before the Assumption Effective Date,
including, but not limited to, those set forth in Section 4.4 shall have been
performed or complied with by the Company.

 
2.3    Exclusivity. As of the Effective Date, the Company shall not (a)
negotiate or consummate a sale of the Company until after the Assumption
Effective Date, or any extension thereof pursuant to the terms of this
Assumption Agreement, or (b) negotiate or consummate an assumption of the
Policies with a third party until after the Assumption Effective Date, or any
extension thereof pursuant to the terms of this Assumption Agreement.
 
2.4    Effect of Assumption.
 
(a)    The assumption effected by this Assumption Agreement shall create a
Novation under all of the Assumed Policies in accordance with each of the terms
and conditions thereof, and subject to all rights, privileges, defenses,
offsets, cross-actions and counterclaims to which the Company would have been
entitled had it continued to act as the insurer thereunder. It is expressly
understood and agreed by the Parties to this Assumption Agreement that no such
rights, privileges, defenses, offsets, cross-actions or counterclaims are waived
by the execution of this Assumption Agreement or the consummation of the
transactions contemplated herein, and that the Assuming Insurer shall be fully
subrogated to all such rights, privileges, defenses, offsets, cross-actions and
counterclaims except as relates to any Pre-Assumption Loss in which case the
Company retains any and all rights, privileges, defenses, offsets, cross-action
and counterclaims which may exist as relates to said Pre-Assumption Loss.
Subsequent to the assumption effected by this Assumption Agreement, the Parties
shall provide each other with all reasonably requested information and
assistance to administer all aspects of the Assumed Policies as contemplated by
Section 3.

 
(b)    On the Assumption Effective Date, the Assuming Insurer shall be the
successor of the Company with respect to the Assumed Policies, and such Assumed
Policies shall be the direct obligation of the Assuming Insurer, and the Company
shall have no further liability thereunder to the Assuming Insurer, the
Policyholders or to any third party. The Policyholders and any persons insured
under the Assumed Policies shall thereafter disregard the Company as the insurer
on any of the Assumed Policies. Beginning on the Assumption Effective Date, the
Assuming Insurer shall have the right of renewal on each of the Assumed
Policies. This Section 2.4(b) is not intended to relieve the Company of its
obligations related to any Pre-Assumption Loss as described in this Assumption
Agreement.

 
(c)    On and after the Assumption Effective Date, the Policyholders and the
insureds or beneficiaries under any Assumed Policy shall have the right to file
claims for benefits under any Assumed Policy solely and directly with the
Assuming Insurer. Any such claim made for a Pre-Assumption Loss shall be
directed to the Company, or its designated claims adjustor, immediately. but in
no event more than 5 business days after receipt by the Assuming Insurer of such
claim, and further provided that any such claim made for a Post-Assumption Loss
shall be the sole responsibility of the Assuming Insurer.

 
2.5    Consideration.
 
(a)     As consideration for the transfer to the Assuming Insurer of the rights
and obligations with respect to each Policy as provided in this Agreement, the
Assuming Insurer shall pay the Company an aggregate amount up to $1,000,000
according to the following schedule:
 
(i) As of the Assumption Effective Date, Assuming Insurer shall promptly
initiate a non-refundable, non-creditable wire transfer of immediately available
funds equal to $300,000 to be delivered to the account of the Company, account
details of which are as set forth on Schedule 2.5.
 
(ii) Commencing on September 15, 2010 (or on October 15, 2010 if the Assumption
Effective Date is extended pursuant to Section 6.1) and on the 15th day of each
subsequent calendar month until August 31, 2011 (or until September 30, 2011 if
the Assumption Effective Date is extended pursuant to Section 6.1), subject to
the Company's fulfillment of its obligations under this Agreement, the Assuming
Insurer shall pay to the Company monthly payments equal to the percentage of
Policies renewed during the month which is two months prior to the payment date
multiplied by $58,333, for an aggregate total of up to $700,000, such that the
Assuming Insurer's payment on September 15th shall be based upon renewals in the
month of July, the payment on October 15th shall be based upon renewals in the
month of August and so on. Such monthly payments shall be delivered to the
account of the Company, account details of which are set forth on Schedule 2.5,
and, as applicable, be gross or net of the Ceding Commission amounts, and as set
forth in Sections 2.5(b)(ii) and/or 2.5( d)(iii), as applicable.
 
(b)    Unearned Premium Transfer.
 
(i) As full premium for the Policies ceded under Section 2.1, the Company shall
transfer to the Assuming Insurer one hundred percent (100%) of the Unearned
Premium Reserves held by the Company relating to such ceded business.
 
(ii) Subject to Assuming Insurer's fulfillment of its obligations under this
Agreement, including, but not limited to, those set forth in Sections 2.2 and 4,
on the Assumption Effective Date, the Company shall deposit by wire transfer of
immediately available funds into the account of the Assuming Insurer, account
details of which are as set forth on Schedule 2.5, equal to the amount
identified in Schedule 2.5(b)(ii), representing an estimate of the Unearned
Premium Reserves for the Policies as of the Effective Date, with such estimate
to be updated accordingly by the Company prior to the Assumption Effective Date
(the "Initial UPR Transfer Amount") and net of the applicable Ceding Commission
owed by the Assuming Insurer.
 
(c) Earned Premium Transfer. Further to Section 3.1 (b) and for the duration of
the time during the Transition Period that the Company provides such services
contemplated in Section 3 .1 (b), the Company shall notify the Assuming Insurer
on the 5th business day of every calendar month following the Assumption
Effective Date of an estimate of all premiums earned and collected by the
Company ("Estimated Earned and Collected Premiums") during the previous calendar
month. The Company shall further deposit by 'wire transfer of immediately
available funds into the account of the Assuming Insurer, as set forth in
Schedule 2.5, all Estimated Earned and Collected Premium amounts on the 15th of
such calendar month, net of the Ceding Commission owed by the Assuming Insurer
on such Estimated Earned and Collected Premium amounts, and subject to
adjustment pursuant to Section 2.5(d).
 
(d)    Premium True Up.
 
(i) Within thirty (30) days following the 5th business day of every calendar
month following the Assumption Effective Date for the duration of the Transition
Period, the Company may recalculate the amounts specified in Section 2.5(b)(ii)
and Section 2.5(c) considering the monthly post-Assumption Effective Date
information available to the Parties (such calculations resulting in the
calculation of the "Actual UPR Transfer Amount" for the purposes of Section
2.5(b)(ii) and the "Actual Earned and Collected Premiums" for the purposes of
Section 2.5(c); the Actual UPR Transfer Amount and the Actual Earned and
Collected Premiums, together, the "Actual Premium Amounts") and, if the Actual
Premium Amounts are different from the Initial UPR Transfer Amount (as may be
subsequently adjusted on a monthly basis pursuant to this Section 2.5(d)(i»
and/or Estimated Earned and Collected Premiums, as applicable, the Company shall
notify the Assuming Insurer of its computation of the Actual Premium Amounts,
together with its work papers used to compute' the same (the "True Up Report").
Failure of the Company to deliver the True Up Report within the time period
specified herein shall be deemed confirmation by the Company of the Initial UPR
Transfer Amount (as may be subsequently adjusted on a monthly basis pursuant to
this Section 2.5(d)(i) and the Estimated Earned and Collected Premiums as,
respectively, the Actual UPR Transfer Amount and the Actual Earned and Collected
Premiums.
 
(ii) Within ten (10) days following the Assuming Insurer's receipt of the True
Up Report, the Parties shall confer in good faith with regard to the Actual
Premium Amounts and, if necessary, an appropriate adjus1ment shall be made to
the amounts due or payable pursuant to this Section 2.5(d) as agreed upon by the
Parties. If the Parties are unable to agree on the Actual Premium Amounts within
twenty (20) days of the Assuming Reinsurer's receipt of the True Up Report,
"Alternative Accountants," whose decision on the matter shall be binding on the
Parties, shall be designated by agreement between the Company and the Assuming
Insurer. If the Parties fail to agree on the selection of the Alternative
Accountants, the Alternative Accountants shall be selected by mutual agreement
of each of the Company's and the Assuming Insurer's outside independent
auditors. The selection of Alternative Accountants, whether by the Parties or
outside auditors, shall take place within ten (10) days of the decision to
select such Alternative Accountants. The Alternative Accountants shall conduct
such analysis as they deem appropriate, during a period not to exceed thirty
(30) days after they are selected, to determine the amounts which they conclude
should have been reflected in the True Up Report and shall issue their decision
(which shall be rendered in writing and shall specify the reasons for the
decision) within fifteen (15) days after the conclusion of their analysis. The
Alternative Accountants' decision shall include a determination of the Actual
Premium Amounts, the amounts which they have determined should be used for the
True Up Report and a determination of the Premium Adjustment (as that term is
defined in Section 2.5(d)(iii)) due to the Assuming Insurer or the Company, as
the case may be. Each Party shall make available to the other Party and the
Alternative Accountants such work papers as may be reasonably necessary to
calculate the Actual Premium Amounts and Premium Adjustment under this Section
2.5(d)(ii). No Party shall have any ex parte discussions or communications,
directly or indirectly, with the Alternative Accountants regarding the subject
matter of a dispute arising under this Section 2.5(d)(ii), unless the Party
seeking such discussions or communications first obtains the other Party's
written consent to such ex parte contact with the Alternative Accountants. For
the avoidance of doubt, in the event of any dispute with respect to the Actual
Premium Amounts and/or True Up Report, such dispute shall be governed by this
Section 2.5(d)(ii) and the procedures set forth herein, and not by the
provisions of Section 8.8.
 
(iii) On the fifth (5th) business day following the deemed acceptance of, the
mutual written agreement of the Company and the Assuming Insurer to, or the
determination by the Alternative Accountants of, the Actual Premium Amounts, if
the premium required under Section 2.5(b)(i) or Section 2.5(c), as applicable,
using such Actual Premium Amounts exceeds the Initial UPR Transfer Amount (as
may be subsequently adjusted on a monthly basis pursuant to this Section
2.5(d)(i)) and/or Estimated Earned and Collected Premiums, as applicable, the
Company shall deposit funds into the Assuming Insurer's account equal to the
difference, and if the premium so calculated is less than the Initial UPR
Transfer Amount (as may be subsequently adjusted on a monthly basis pursuant to
this Section 2.5(d)) and/or Estimated Earned and Collected Premiums, as
applicable, the Company shall be paid such difference by the Assuming Insurer,
in either case any such amounts shall be deposited by wire transfer of
immediately available funds using the applicable account information set forth
in Schedule 2.5 (the amount so transferred being herein called the "Premium
Adjustment") net or gross, as applicable, of any Ceding Commission owed on such
Premium Adjustment amount
 
(e)    The Assuming Insurer shall further pay the Ceding Commission to the
Company on the Assumption Effective Date. The Assuming Insurer shall deposit by
wire transfer of immediately available funds into the account of the Company, as
set forth on Schedule 2.5, the Ceding Commission based on the Initial UPR
Transfer Amount set forth in Schedule 2.5(b)(ii). In the event there is any
Premium Adjustment amount as per Section 2.5(d)(ii), the Assuming Insurer or the
Company, as the case may be, shall pay to the other Party any amounts that may
become owed to the other Party due to such Premium Adjustment (either a further
Ceding Commission or a reimbursement of previously paid Ceding Commission), by
wire transfer of immediately available funds into such account at the same time
such Premium Adjustment is paid.

 
2.6     Offset Rights. Each Party shall have, and may exercise at any time and
from time to time, the right to offset any balance or balances due to the other
Party arising under this Agreement, and regardless of whether on account of
Premiums or Losses related to or arising under the Policies or any other amount
related to or arising under the Agreement or otherwise; provided, however, that
in the event of the insolvency of a Party, offsets shall only be allowed in
accordance with the provisions of the law of the State of Florida. Any offset
taken by a Party shall not be considered a waiver of any future right that Party
may have to receive any balance due from the other Party.
 
 
ARTICLE III
 
UNDERTAKINGS OF ASSUMING lNSURER
 
3.1    Policy Administration.
 
(a)    Other than as provided under this Section 3.1, on and after the
Assumption Effective Date, the Assuming Insurer shall assume all responsibility
for servicing and administration of the Assumed Policies, including without
limitation, the payment of all allowable claims for benefits under the Assumed
Policies, except for claims made on a Pre-Assumption Loss in accordance with
Sections 2.1(b) and 2.4(c), in accordance with the contractual terms and
provisions of the Assumed Policies and the investigation, adjustment, appraisal,
defense or settlement thereof, at the Assuming Insurer's sole cost and expense;
billing and collection of premiums under the Assumed Policies; preparation of
policy changes, endorsements, and such other administrative services as the
Assuming Insurer, in its sole discretion, deems necessary, appropriate, or
lawful in connection with the Assumed Policies, as though such Assumed Policies
were originally issued as direct insurance obligations of the Assuming Insurer.
The Company shall provide the Assuming Insurer with all reasonably requested
information and assistance to enable the Assuming Insurer to administer all
aspects of the Assumed Policies.

 
(b)    Notwithstanding Section 3.1 (a) and in recognition of the logistical and
technical difficulties of transferring to the Assuming Insurer the servicing and
administration aspects of the Assumed Policies that have not been renewed with
the Assuming Insurer (''Non-Renewed Assumed Policies"), the Company shall
continue during the Transition Period to service and administer the Non-Renewed
Assumed Policies; provided, however, the Assuming Insurer shall use continuing
commercially reasonable efforts to fully service and administer, in accordance
with the Assuming Insurer's obligations under Section 3.1 (a), all such
Non-Renewed Assumed Policies at the earliest commercially practicable date prior
to the end of the Transition Period.

 
3.2    Premium Payments: Negotiation of Checks. Upon and after the Assumption
Effective Date, all premium payments under the Assumed Policies shall be the
sole property of the Assuming Insurer. The Assuming Insurer shall be authorized
to endorse for payment all checks, drafts. and money orders payable to the
Company with respect to premiums due and payable after the Assumption Effective
Date on the Assumed Policies. As of the Assumption Effective Date, the Company
hereby assigns all of its rights and privileges, to the extent permitted by law,
to draft or debit the accounts of any Policyholders for premiums due and payable
under the Assumed Policies after the Assumption Effective Date pursuant to
existing pre-authorized bank draft or electronic fund transfer arrangements
between the Company and such Policyholders.
 
3.3    Assumption Certificates. As of the Assumption Effective Date and subject
to the receipt of all Required Assumption Approvals, the Assuming Insurer shall
issue to each of the Policyholders of the Assumed Policies an Assumption
Certificate, and provide satisfactory evidence thereof to the Company. The
Assumption Certificate shall be effective on the Assumption Effective Date, and
shall be mailed to each Policyholder's last known address of record furnished to
the Assuming Insurer by the Company.
 
3.4    Assessments and Liabilities. The Assuming Insurer shall be and shall
remain liable for payment of (i) state guaranty fund assessments and (ii)
obligations and liabilities of any kind in respect of residual markets or joint
underwriting associations, based upon or attributable to premiums earned under
the Assumed Policies on and after the Assumption Effective Date.
 
3.5    Forwarding Checks and Correspondence. On and after the Assumption
Effective Date, and other than those notices, claims and correspondence handled
by the Company pursuant to its obligations under Section 3.1(b) and those
relating to a Pre-Assumption Loss, all notices, claims and correspondence
received by the Company pertaining to the Assumed Policies, including
applications for reinstatements of lapsed policies, will be forwarded promptly
by the Company to the Assuming Insurer. Furthermore, in addition to the
Company's obligation under Section 2.5(d), all checks, drafts or money orders
held or received by the Company for premiums due under the Assumed Policies
shall be properly endorsed to the Assuming Insurer and forwarded promptly to the
Assuming Insurer by the Company.
 
ARTICLE IV
 
REPRESENTATIONS; WARRANTIES AND COVENANTS
 
4.1    Representations and Warranties of Company. The Company represents and
warrants that as of the Effective Date:
 
(a)    The Company is duly organized and validly existing under the laws of its
state of incorporation.

 
(b)    The Company bas full corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby.

 
(c)    The Company has taken all action required by law and all other necessary
corporate actions to authorize the execution and delivery of this Agreement and
this Agreement is a valid and binding agreement of the Company enforceable in
accordance with its terms.

 
4.2    Representations and Warranties of Assuming Insurer. The Assuming Insurer
represents and warrants that as of the Effective Date:
 
(a)    The Assuming Insurer is duly organized and validly existing under the
laws of its state of incorporation.

 
(b)    The Assuming Insurer has full corporate power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby.

 
(c)    The Assuming Insurer has taken all action required by law and all other
necessary corporate actions to authorize the execution and delivery of this
Agreement and this Agreement is a valid and binding agreement of the Assuming
Insurer enforceable in accordance with its terms.

 
4.3    Covenants of Assuming Insurer.
 
(a)    The Assuming Insurer shall be solely responsible for and shall use
commercially reasonable efforts to obtain all Required Assumption Approvals by
the Assumption Effective Date at Assuming Insurer's sole cost and expense.

 
(b)    The Assuming Insurer shall use continuing commercially reasonable efforts
to fully service and administer, in accordance with the Assuming Insurer's
obligations under Section 3.1 (a), all Non-Renewed Assumed Policies at the
earliest commercially practicable date prior to the end of the Transition
Period.

 
(c)    The Assuming Insurer shall ensure that as of the Assumption Effective
Date the Assuming Insurer is in compliance with all statutes, laws, regulations,
rules, judgments, orders and decrees of all governmental entities applicable to
it that relate to its business and has maintained all permits that are required
in order to permit it to carry on its business as it is presently conducted.

 
(d)    The Assuming Insurer shall further be responsible for sending ail notices
to Policyholders as may be required as a condition of obtaining any Required
Assumption Approval. The Parties agree to equally share the cost of sending this
notice to Policyholders.

 
(e)    The Assuming Insurer shall take all other actions necessary for it to
fulfill its obligations under this Agreement by the Assumption Effective Date.

 
4.4    Covenants of the Company.
 
(a)    The Company shall ensure that as of the Assumption Effective Date the
Company is in compliance with all statutes, laws, regulations, rules, judgments,
orders and decrees of all governmental entities applicable to it that relate to
its business and has maintained all permits that are required in order to permit
it to carry on its business as it is presently conducted.

 
(b)    The Company shall take all other actions necessary for it to fulfill its
obligations under this Agreement by the Assumption Effective Date.

 
ARTICLE V
 
INDEMNIFICATION
 
5.1    Claims Identification. As set forth in Section 2.1 (b), all claims under
the Assumed Policies for a Post-Assumption Loss shall be the responsibility of
the Assuming Insurer and all claims under the Assumed Policies for a
Pre-Assumption Loss shall be the responsibility of the Company, and each Party
shall indemnify and hold the other Party harmless from and against all such
respective Post-Assumption Loss and Pre-Assumption Loss claims, including the
indemnified Party's costs in connection therewith, as specified in Section 5.2.
 
5.2    Indemnification. From and after the Assumption Effective Date, each Party
shall reimburse the other for, and shall indemnify and hold the other Party
harmless and defend the such other Party from and against any and all Loss
sustained or incurred by, or asserted against, such other Party (a) with respect
to the payment of amounts due under or in connection with a Pre-Assumption Loss
or Post-Assumption Loss, as applicable; (b) which arise out of (i) any breach or
non-fulfillment by a Party of, or any failure by a Party to perform, any of the
covenants, terms or conditions of or any of its duties or obligations under this
Agreement; or, (ii) any action or inaction of a Party under or with respect to
any of the Assumed Policies (including, without limitation, any
Extra-contractual Liabilities that such Party has incurred or may incur in
connection with such Assumed Policies); or (c) with respect to any enforcement
of this indemnity.
 
ARTICLE VI
 
TERMINATION
 
6.1    Termination. Each Party shall each have the right to terminate this
Assumption Agreement if the other Party is unable to fu1:fill those obligations
required to be fulfilled by such other Party as of the Assumption Effective Date
under this Agreement, including but not limited to the assumption of the
Policies by the Assuming Insurer on the Assumption Effective Date. In the event
a Party, despite using commercially reasonable efforts, cannot meet the
conditions precedent set forth under Section 2.2 of this Assumption Agreement
for reasons solely outside the control of such Party, that Party may seek, and
the other Party shall grant, a one-time extension of the Assumption Effective
Date to August 1,2010.
 
6.2    Penalty for Failure to Consummate Assumption Without Good Cause. The
Parties agree that it is not possible to quantify the cost to each Party of a
failure to consummate the transaction provided under this Assumption Agreement.
Therefore, if a Party to this Agreement cannot, despite using commercially
reasonable efforts, meet the such Party's obligations under Section 2.2 of this
Agreement for reasons solely outside of the control of such Party, then such
Party shall pay to the other Party by wire transfer of immediately available
funds equal to $50,000 in liquidated damages to be delivered to the account of
the said other Party, as set forth in Schedule 2.5.
 
ARTICLE VII
 
PROHIBITION ON COMPETITION AND SOLICITATION
 
7.1    Non-Competition. The Company agrees that the Assuming Insurer would not
receive the benefit of its bargain under this Assumption Agreement if the
Company were to engage in the Business of the Assuming Insurer following the
Assumption Effective Date. Therefore, neither the Company nor any affiliate
thereof shall carry on or be engaged in the Business for a period of three years
from the Assumption Effective Date.
 
7.2    Non-Solicitation. The Company agrees that the Assuming Insurer would not
receive the benefit of its bargain under this Assumption Agreement if the
Company were to solicit for hire any employee of the Assuming Insurer whose
primary employment function concerns the Business, including former employees of
the Company employed by the Assuming Insurer as part of the transaction
contemplated herein. Therefore, neither the Company nor any affiliate shall
solicit, directly or indirectly, any employee of the Assuming Insurer whose
primary employment function concerns the Business to leave the employ of the
Assuming Insurer, including but not limited to Mr. Darold Palme if hired by the
Assuming Insurer in relation to this transaction, for a period of three years
from the Assumption Effective Date. This section 7.2 shall not prohibit the
Company or its affiliates from employing any such person who contacts the
Company or any affiliate thereof on his or her own initiative in response to a
general advertisement.
 
ARTICLE VIII
 
MISCELLANEOUS PROVISIONS
 
8.1    Notices. All notices, requests, consents, approvals and statements given
in connection with this Agreement shall be in writing and, if properly addressed
to the recipient, shall be deemed given if (a) delivered personally to the
recipient; (b) sent by electronic mail or electronic facsimile transmission; C
c) sent by registered or certified mail, postage prepaid and return receipt
requested, or Cd) delivered by a reputable overnight courier service. Notices
shall be deemed to be properly addressed to a Party if addressed to its address,
facsimile number or electronic mail address, as applicable, set forth below, or
to such other address or facsimile number as the addressee previously may have
specified by written notice to the other Party given in the manner specified in
this Section 8.1. Notices shall be deemed received (a) when delivered personally
to the recipient; (b) when sent by electronic mail or electronic facsimile
transmission if sent during business hours on a business day in the place of
receipt and otherwise at the opening of business on the next business day in the
place of receipt; (c) five (5) business days after they are mailed if sent by
registered or certified mail; or (d) one (1) business day after they are put in
possession of the courier if sent by reputable overnight courier service.
 
If to the Company:
 
Sunshine State Insurance Company
475 West Town Place, Suite 210
St. Augustine, FL 32092
Tel: 904-285-1879
Fax: 904-285-1012
Attn: John Rogan, President and Chief Executive Officer
 
If to the Assuming Insurer:
United Property & Casualty Insurance Company
360 Central Avenue, Suite 900
St. Petersburg, FL 33701
Tel: 727-895-7737
Fax: 727-895-8623
Attn: Donald J. Cronin
 
8.2    Entire Agreement. This Agreement, together with the Renewals Rights
Agreement, constitutes the sole and entire agreement between the Parties hereto
with respect to the subject matter hereof, and supersede all prior discussions
and agreements between the Parties with respect to the subject matter hereof,
which are merged with and into this Agreement.
 
8.3    Assignment. This Agreement shall not be assigned by either of the Parties
hereto without the prior written approval of the other Party.
 
8.4    Confidentiality. Each of the Parties shall maintain the confidentiality
of the existence of this Assumption Agreement, all information related to the
Policies and all other information denominated as confidential by the other
Party provided to it in connection with this Agreement and shall not disclose
such information to any third parties without prior written consent of the other
Party, except as may be required by regulatory authorities, or pursuant to legal
process. Neither Party shall make any public announcement of this transaction
prior to the Assumption Effective Date without the prior written consent of the
other Party, except as required by law, in which case the disclosing Party will
notify the other Party as promptly as practicable and shall consider in good
faith any comments of the other Party on the proposed disclosure.
 
8.5    Waivers and Amendments. Any term or condition of this Assumption
Reinsurance Agreement may be waived at any time by the Party that is entitled to
the benefit thereof. Such waiver must be in writing and must be executed by an
executive officer of such Party. A waiver on one occasion will not be deemed to
be a waiver of the same or any other term or condition on a future occasion.
This Agreement may be modified or amended only by a writing duly executed by an
executive officer of the Company and the Assuming Insurer, respectively.
 
8.6    Third Party Beneficiaries. This Agreement is for the sole and exclusive
benefit of the Parties and their successors and permitted assigns and, to the
extent expressly set forth in this Agreement, those Policyholders, insureds and
beneficiaries who are insured under Assumed Policies.
 
8.7    Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Florida, without regard to its
conflicts of law doctrine.
 
8.8    Dispute Resolution. Any dispute, controversy or claim arising out of or
relating to this Agreement, or the breach, termination or invalidity thereof,
shall be resolved as follows:
 
(a)    the Executive Officers of both Parties shall meet to attempt to resolve
such dispute.

 
(b)    If the Executive Officers cannot resolve such dispute within thirty (30)
(twenty (20) days in the event of non-payment) days after either Party requests
such a meeting in writing, then upon written notice by either Party to the other
Party, such dispute, controversy or claim shall be finally resolved by binding
arbitration conducted in Florida under the Commercial Arbitration Rules of the
American Arbitration Association by three (3) arbitrators. Each Party shall be
entitled to appoint one (1) arbitrator. The Parties shall appoint their
respective arbitrators within thirty (30) days after submission for arbitration.
The two (2) arbitrators so appointed shall agree on the appointment of the third
(3rd) arbitrator from the list of arbitrators maintained by the American
Arbitration Association. If the Parties' appointed arbitrators shall fail to
agree, within thirty (30) days from the date both Parties' arbitrators have been
appointed, on the identity of the third (3rd) arbitrator, then such arbitrator
shall be appointed by the appropriate administrative body of the American
Arbitration Association.

 
(c)    Within ten (10) days of appointment of the full arbitration panel, the
Parties shall exchange their final proposed positions with respect to the
matters to be arbitrated, which shall approximate as closely as possible the
closest positions of the Parties previously taken in the negotiations. Within
thirty (30) days of appointment of the arbitration panel, each Party shall
submit to the arbitrators a copy of the proposed position which it previously
delivered to the other Party, together with a brief or other written memorandum
supporting the merits of its proposed position. The arbitration panel shall
promptly convene a hearing, at which time each Party shall have one (1) hour to
argue in support of its proposed position. The Parties will not call any
witnesses in support of their arguments.

 
(d)    The arbitration panel shall select either Party's proposed position on
the issue as the binding final decision to be embodied as an agreement between
the Parties. In making their selection, the arbitrators shall not modify the
terms or conditions of either Party's proposed position; nor will the
arbitrators combine provisions from both proposed positions. In the event the
arbitrators seek the guidance of the law of any jurisdiction, the law of the
State of Florida shall govern.

 
(e)    The arbitrators shall make their decision known to the Parties as
promptly as possible by delivering written notice of their decision to both
Parties. Such written notice need not justify their decision. The Parties will
execute any and all papers necessary to obligate the Parties to the position
selected by the arbitration Panel within five (5) days of receipt of notice of
such selection. The decision of the arbitrators shall be final and binding on
the Parties, and specific performance may be ordered by any court of competent
jurisdiction.

 
(f)    The Parties will bear their own costs in preparing for the arbitration.
The costs of the arbitrators will be equally divided between the Parties.

 
(g)    Notwithstanding anything to the contrary in this Section 8.8, if either
Party in its sole judgment believes that any such breach of this Agreement could
cause it irreparable harm, such Party (i) will be entitled to seek equitable
relief in order to avoid such irreparable harm, and (ii) will not be required to
follow the procedures set forth in Section 8.8(a)-(f) with respect to seeking
such relief.

 
8.9    Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original, but all of which shall constitute one and the
same instrument.
 
8.10    Headings. The headings in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
 
8.11    Severability. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision, which shall be replaced with an enforceable provision closest in
intent and economic effect as the severed provision; provided that no such
severability shall be effective if it materially changes the economic benefit of
this Agreement to any Party.
 
[REMAINDER OF THIS PAGE INTENTIONALL Y LEFT BLANK]

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
 
SUNSHINE STATE INSURANCE COMPANY
 
 
 
By:
/s/ John Rogan
Name:
John Rogan
Title:
President and Chief Executive Officer

 
UNITED PROPERTY & CASUALTY INSURANCE COMPANY
 
 
By:
/s/ Donald J. Cronin
Name:
Donal J. Cronin
Title:
President and Chief Executive Officer

 

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SCHEDULE 1.5
 
UNITED PROPERTY & CASUALTY INSURANCE CG:MPANY
360 Central Avenue, Suite 900
St. Petersburg, FL 33701
 
Policy No.
John Doe
123 Main Street
City, State, Zip
 
[FORM OF] CERTIFICATE OF ASSUMPTION
 
This is to certify that pursuant to the terms of an Assumption Agreement, United
Property & Casualty Insurance Company, a Florida domiciled insurance company,
with its home office at 360 Central Avenue, Suite 900, St Petersburg, Florida
33701, has assumed all of the contractual liabilities of Sunshine State
Insurance Company, a Florida domiciled insurance company, under this Policy on
the same terms and conditions as set forth in this Policy except as relates to
losses occurring prior to the date of assumption of this Policy and subject to
any available defenses and offsets, and subject to the terms and conditions set
forth in the Assumption Agreement and this Assumption Certificate, which will
become a part of the Policy.
 
As relates to losses occurring prior to the date of assumption of this Policy,
claims are to be submitted to United Property & Casualty Insurance Company,
however, any such claim will be forwarded to Sunshine State Insurance Company
which shall continue to be contractually liable under the Policy to adjust any
such claim. From and after the date hereof, you should submit all premiums under
this Policy, and all claims under this Policy, whenever incurred as described
above, to the following address:
 
UNITED PROPERTY & CASUALTY INSURANCE COMPANY
360 Central Avenue, Suite 900
St. Petersburg, FL 33701
Tel: 727-895-7737
Fax: 727-895-8623
 
IN WITNESS WHEREOF, United Property & Casualty Insurance Company has caused this
Certificate to be executed at its administrative office in St. Petersburg,
Florida, by its President as of the 18th day of May, 2010, its effective date.
 
 
 
 
/s/ Melvin A. Russell
 
/s/ Donald J. Cronin
Melvin A. Russel, Secretary
 
Donald J. Cronin

 

 

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[SCHEDULE 1.20]
 
[POLICIES]

 

--------------------------------------------------------------------------------

 

 
SCHEDULE 1.25
 
REQUIRED ASSUMPTION APPROVALS
 
1. Licensure of Assuming Insurer to do business in the State of South Carolina
by the Department of Insurance of the State of South Carolina
 
2. Approval by the Department of Insurance of the State of South Carolina of the
transactions contemplated in the Agreement.
 
3. Approval by the Office of Insurance Regulation of the State of Florida of the
transactions contemplated in the Agreement.
 
4. Approval by the Department of Insurance of the State of South Carolina of the
Assumption Certificate to be issued by the Assuming Insurer to the Policyholders
of any Assumed Policy.

 

--------------------------------------------------------------------------------

 

 
SCHEDULE 2.5
 
BANK ACCOUNT INFORMATION
 
1. Company Wire Information
 
Sunshine State Insurance Company
Bank of America
ABA 026009593
Beneficiary Account Number 003441273118
 
2. Assuming Insurer Wire Information
 
[INSERT]

 

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SCHEDULE 2.5(b )(ii)
 
INITIAL UPR TRANSFER AMOUNT*
 
[INSERT]
 
*To be updated by the Company per Section 2.5(b)(ii)