Document:

Exhibit - 10.27

EXECUTION COPY 

MEMORANDUM OF TERMS FOR PROPOSED CHANGES TO 
REINSURANCE AGREEMENT

Item 1. Identity of Parties to Transaction

		
	a.
	Name:      INTEGON NATIONAL INSURANCE COMPANY 

		
	b.
	Name:  MAIDEN INSURANCE COMPANY LTD.

		
	c.
	Name:  TECHNOLOGY INSURANCE COMPANY, INC.

		
	d.
	Name: ACP Re, Ltd.

Item 2. Term of Agreement

		
	a.
	The Personal and Commercial Automobile Quota Share Agreement between the parties was originally effective from March 1, 2010 to March 1, 2013 with provisions for automatic renewal for successive three year periods unless either party elects to not renew. The Personal and Commercial Automobile Quota Share Agreement was automatically renewed for another agreement term effective through March 1, 2016.

Item 3.     Description of Transaction

		
	a.
	Nature of this transaction:  Revise the ceding commission adjustment rates, revise the remittance schedule for adjusted commission payments, clarify that losses incurred includes reserves on incurred but not reported losses, clarify the Company retention requirement under the Personal and Commercial Automobile Quota Share Agreement between the parties.  The proposed amendment to the Personal and Commercial Automobile Quota Share Agreement is attached hereto as Exhibit A.

		
	b.
	The proposed effective date of the transaction is October 1, 2012.

Exhibit A

ADDENDUM No. 1

to the

PERSONAL AND COMMERCIAL AUTOMOBILE QUOTA SHARE
REINSURANCE AGREEMENT
(hereinafter referred to as the “Agreement”)

between

INTEGON NATIONAL INSURANCE COMPANY
Winston-Salem, North Carolina

(hereinafter referred to as the “Company”)

          and

The Reinsurers subscribing to the respective Interests and Liabilities Contract to which this Agreement is attached (each subscribing reinsurer is referred to hereinafter, individually, as a “Subscribing Reinsurer” and collectively as the "Reinsurer")

Effective, 12:01 A.M., Eastern Standard Time on October 1, 2012, this Agreement shall be amended as follows:

		
	I.
	ARTICLE IV,WARRANTIES, Paragraph 1 is revised to read as follows:

The Company and the direct and indirect subsidiaries of American Capital Acquisition Corporation shall retain net for their own account at least 50% of the Losses Incurred each Policy, each Occurrence on all business ceded hereunder.
 
		
	II.
	ARTICLE VII, CEDING COMMISSION is revised to read as follows:

ARTICLE VII

CEDING COMMISSION

		
	A.
	The Reinsurer shall allow the Company a provisional ceding commission of 32.0% of all Net Earned Premium ceded to the Reinsurer hereunder.  The Company shall allow the Reinsurer return commission on return premiums at the same rate.

		
	B.
	The provisional commission allowed to the Company shall be adjusted periodically in accordance with the provisions set forth herein. 

		
	C.
	The first adjustment period shall be from the inception date of this Agreement through December 31, 2010 and each subsequent 12 month period shall be a separate adjustment period, with the final separate adjustment period being a 14 month period  (each an “Adjustment Period” and, collectively, “Adjustment Periods”).  However, if this Agreement is terminated, the final adjustment period shall be from the beginning of the then current Adjustment Period through the date of termination if this Agreement is terminated on a “cutoff” basis or the end of the runoff period if this Agreement is terminated on a “runoff” basis.  The first calculation of adjusted commission for an Adjustment Period shall be made as of the date that is 12 months after the end of such Adjustment Period (the “Initial Calculation Date”). 

		
	D.
	The adjusted commission rate shall be calculated as follows and be applied to Net Earned Premium for the Adjustment Period under consideration:

		
	1.
	If the Actual Loss Ratio for the Adjustment Period is 64.5% or greater, the adjusted commission rate for the Adjustment Period under consideration shall be a minimum commission of 30.0%;

		
	2.  
	If the Actual Loss Ratio for the Adjustment Period is less than 64.5%, but equal to or greater than 62.0%, the adjusted commission rate for such Adjustment Period under consideration shall be 32.5%, minus the difference in percentage points between 62.0% and the Actual Loss Ratio for such Adjustment Period;

		
	3.  
	If the Actual Loss Ratio for the Adjustment Period is less than 62.0%, but greater than 60.0% the adjusted commission rate for such Adjustment Period under consideration shall be 32.5% plus the difference in percentage points between 62.0% and the Actual Loss Ratio for such Adjustment Period;

		
	4.  
	If the Actual Loss Ratio for the Adjustment Period is 60.0% or less, the adjusted commission rate for such Adjustment Period shall be 34.5%.

For an abundance of clarity, an illustration of the sliding scale is attached as Exhibit A.

		
	E.
	The Reinsurer shall calculate and report the adjusted commission on Net Earned Premium within 30 days after the Initial Calculation Date, and within 30 days after the end of each subsequent calendar year thereafter with respect to each Adjustment Period until all losses subject hereto have been finally settled.  Each such calculation shall be based on cumulative transactions hereunder from the beginning of each Adjustment Period under consideration through the date of adjustment.  With respect to the first Adjustment Period, remittance of adjusted commission on Net Earned 

Premium, if any, shall commence 24 months after the end of the first Adjustment Period.  With respect to all Adjustment Periods other than the first Adjustment Period, remittance of adjusted commission on Net Earned Premium, if any, shall be made 12 months after the end of the final Adjustment Period.  If the adjusted commission on Net Earned Premium for the Adjustment Period under consideration, as of the date remittance is due, is less than commissions previously allowed by the Reinsurer on Net Earned Premium for the same Adjustment Period, the Company shall remit the difference to the Reinsurer on or before March 1, after receipt and verification of the Reinsurer’s report.  If the adjusted commission on Net Earned Premium for the Adjustment Period under consideration as of the date remittance is due, is greater than commissions previously allowed by the Reinsurer on Net Earned Premium for the same Adjustment Period, the Reinsurer shall remit the difference to the Company on or before March 1, after receipt of the Company’s written verification of the Reinsurer’s report. For an abundance of clarity, an illustration of the timing of annual calculations and payments is attached as Exhibit B.

		
	F.
	It is expressly agreed that the ceding commission allowed the Company includes provision for all unallocated loss expenses, dividends, commissions, taxes (exclusive of Federal Excise Taxes), assessments and all other expenses of whatever nature, except allocated Loss Adjustment Expense.

		
	III.
	Item G. of Article XII, Definitions is revised to read as follows:

		
	G.
	“Losses Incurred” as used herein shall mean Net Losses and Loss Adjustment Expense paid as of the effective date of calculation, plus the ceded reserves for losses and Loss Adjustment Expense (including reserves for incurred but not reported losses) outstanding as of the same date, all as respects losses occurring during the Adjustment Period under consideration plus the change in Losses Incurred from the preceding Adjustment Period.

		
	IV.
	The following sentence shall be added to the end of Item I. of Article XII:

For all purposes of this Agreement, with respect to all periods following January 1, 2012, it is understood that references to the Company Pool and retrocessions to the Company Pool shall no longer be deemed to be included in the Agreement as following such date, pursuant to the Amended & Restated Reinsurance Pooling Agreement dated January 1, 2012 among the affiliates of the Company, there is no longer any retrocession to the members of the Company Pool.  All other references to the Company Pool following January 1, 2012 shall be deemed to be references to the Company.

		
	V.
	Item B. of Article XVI. Special Termination is revised to read as follows:

The Company may terminate this Agreement sixty (60) days from the commencement date of an initial public offering (“IPO”) by itself, or its direct or 

indirect parent company by giving notice in writing to the Reinsurer by certified mail, return receipt requested, and the North Carolina Department of Insurance, Missouri Department of Insurance, Michigan Department of Insurance and California Department of Insurance, within thirty (30) days of the commencement date of the IPO.  For the purposes of this Agreement, the commencement date of an IPO shall be (i) the date of the issuance of stock by the Company or its direct or indirect parent company in a private placement pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended, which is subject to a registration rights agreement or (ii) the filing of a Form S-1 Registration Statement under the Securities Act of 1933, as amended with respect to the issuance of stock by the Company or its direct or indirect parent company.

		
	VI.
	All references to MK Re, Ltd in the Agreement shall be deemed to be references to ACP Re, Ltd.

All other terms and conditions remain unchanged.

Exhibit A

	
					
	Sliding Scale and Ceding Commission Matrix

	 
	 
	 
	 
	 

	Loss Ratio
	Ceding Commission
	 

	64.5% or greater
	30.0%
	Minimum
	 

	64.0%
	30.5%
	 
	 
	 

	63.5%
	31.0%
	 
	 
	 

	63.0%
	31.5%
	 
	 
	 

	62.5%
	32.0%
	Provisional
	 

	62.0%
	32.5%
	 
	 
	 

	61.5%
	33.0%
	 
	 
	 

	61.0%
	33.5%
	 
	 
	 

	60.5%
	34.0%
	 
	 
	 

	60.0% or less
	34.5%
	Maximum
	 

Exhibit B

	
										
	Timing of Annual Calculations and Payments
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

	Loss Year
	2010
	2011
	2012
	2013
	2014
	2015
	2016
	2017 and thereafter
	 

	2010
	 
	 
	C/P
	C/P
	C/P
	C/P
	C/P
	

We currently do not support nested tables...
	 

	2011
	 
	 
	 
	C
	C
	C
	C
	C/P
	 

	2012
	 
	 
	 
	 
	C
	C
	C
	C/P
	Ultimate until losses are finally settled

	2013
	 
	 
	 
	 
	 
	C
	C
	C/P
	 

	2014
	 
	 
	 
	 
	 
	 
	C
	C/P
	 

	2015
	 
	 
	 
	 
	 
	 
	 
	C/P
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

	C = Calculation
	P = Cash Payment
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 
	 

*The 2010 Loss Year covers the initial Adjustment Period from the inception date of the Agreement until December 31, 2010.  The 2015 Loss Year covers the Adjustment Period commencing January 1, 2015 and ending March 1, 2016.ex10-12.htm

Exhibit 10.12

EMPLOYEE

 

PHANTOM STOCK UNIT AGREEMENT

 

THIS PHANTOM STOCK UNIT AGREEMENT (the "Agreement"), dated as of the 3rd day of December, 2012, by and between Arden-Mayfair, Inc., a Delaware corporation (the "Company"), and Laura Neumann (the "Unit Holder"), is made with reference to the following facts:

 

A.           The Company is a wholly owned subsidiary of Arden Group, Inc., a Delaware corporation (“Arden Group”).

 

B.           The Company is desirous of providing additional incentives to the Unit Holder in rendering services as an employee of the Company and, in order to accomplish this result, has determined to grant the Unit Holder phantom stock units (based on the Class A Common Stock of Arden Group) representing the right to receive a cash payment on the terms and conditions set forth herein.

 

C.           The Unit Holder is desirous of accepting said right on the terms and conditions set forth herein.

 

NOW, THEREFORE, it is agreed as follows:

 

1.             Grant

 

(a)           Subject to the terms and conditions set forth herein, the Company hereby grants to the Unit Holder One Thousand (1,000) Units exercisable from time to time in accordance with the provisions of this Agreement during a period commencing on the date hereof and expiring at the close of business on December 2, 2019 (the "Expiration Date"). Each Unit hereunder represents the right to receive an amount equal to the excess of (i) the fair market value (determined in accordance with Paragraph 1(b) below) of one share of the Class A Common Stock, $.25 par value per share, of Arden Group (the "Class A Common Stock") based on the date upon which the Unit Holder exercises such Unit (the “Exercise Date Price”) over (ii) $95.82 (the "Base Price"), representing the fair market value of one share of the Class A Common Stock on the effective date hereof determined on the basis of the closing sales price of the Class A Common Stock on the effective date hereof as reported by the NASDAQ Global Market.

 

(b)           The Exercise Date Price shall be determined as follows: (i) if the Class A Common Stock is then listed on a national securities exchange, the average of the closing sales prices of the Class A Common Stock for the twenty Trading Days (as defined below) preceding the date of exercise of such Units (the “Determination Date”) on the principal securities exchange on which such stock is then listed, and, if there is no reported sale on any Trading Day within such twenty day period, such Trading Day shall be counted for purposes of determining such twenty day period but shall be disregarded for purposes of determining such average, or (ii) if the Class A Common Stock is then publicly traded in the over-the-counter market, the average of the closing sales prices of the Class A Common Stock in the over-the-counter market for the twenty Trading Days preceding the Determination Date and, if there is no reported sales on any Trading Day within such twenty day period, such Trading Day shall be counted for purposes of determining such twenty day period but shall be disregarded for purposes of determining such average, or (iii) if the Class A Common Stock is not then separately quoted or publicly traded, the fair market value on the Determination Date, as determined by the Board of Directors of Arden Group (the "Board").  For purposes hereof, “Trading Day” shall mean any day upon which the principal national securities exchange or over-the-counter market upon which the Class A Common Stock is then traded is open for the trading of securities.

 

  

  

  

 

2.             Exercise of Units

 

(a)           The Unit Holder may elect to be paid for any then vested Units by timely delivering or mailing to the Company (in accordance with Paragraph 10 below), Attention: Chief Executive Officer and Secretary (or Assistant Secretary), a notice of exercise, in the form prescribed by the Company, stating therein that the Unit Holder has elected to exercise his or her vested Units and specifying therein the date of this Agreement and the number of vested Units for which he or she is electing to be paid.  The exercise of any Units shall not be deemed effective unless and until the Unit Holder has complied with all of the provisions of this Paragraph 2(a).  Upon an effective exercise of any one or more vested Units, the Company shall thereafter pay the Unit Holder in complete satisfaction of each vested Unit with respect to which such right and option has been exercised an amount equal to: (i) the Exercise Date Price minus (ii) the Base Price.  Such payment shall be made to the Unit Holder within thirty (30) days after the exercise of such right and option.

 

(b)           No Units shall vest or become exercisable during the first, second or third year from the date of grant hereof; thereafter Units shall vest and become exercisable in installments as to (i) twenty-five percent (25%) of the total number of Units subject to this Agreement on December 3, 2015, (ii) an additional twenty-five percent (25%) of the total number of Units subject to this Agreement on December 3, 2016, (iii) an additional twenty-five percent (25%) of the total number of Units subject to this Agreement on December 3, 2017, and (iv) the remaining twenty-five percent (25%) of the total number of Units subject to this Agreement on December 3, 2018.

 

(c)           In connection with the exercise of any one or more Units and as a condition to delivery of any payment to which the Unit Holder is entitled upon such exercise, the Company may withhold from such payment an amount sufficient to satisfy all current or estimated future federal, state and local withholding tax requirements and federal social security or other taxes or other tax requirements relating thereto.

 

3.             Termination.  All unexercised Units shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:

 

(a)           The Expiration Date; or

 

(b)           The date of termination of the Unit Holder's employment with the Company and its parent and subsidiary corporations; or

 

(c)           Any of the events as described in Paragraph 7 below.

 

Nothing contained in this Agreement shall obligate the Company or any of its parent or subsidiary corporations to continue to employ or engage the services of the Unit Holder as an employee of the Company or in any other capacity with the Company or any of its parent or subsidiary corporations, nor confer upon the Unit Holder any right to continue in the employ or in any other capacity with the Company or any of its parent or subsidiary corporations, nor limit in any way the right of the Company or its parent or subsidiary corporations to amend, modify or terminate at any time the Unit Holder's compensation or employment agreement, if any, with the Company or any of its parent or subsidiary corporations.

 

4.             Payment Upon Death.  Upon the termination of the employment of the Unit Holder due to the death of the Unit Holder while employed by the Company (or its parent or subsidiary corporations), (a) the Company shall pay the legal representative of the estate of the deceased Unit Holder or the person or persons who acquire the right to receive payment for a Unit by bequest or inheritance or reason of the death of the Unit Holder (hereinafter, "Successor(s)"), in complete satisfaction of all fully vested and unexercised Units held by the Unit Holder on the date of such termination of his or her employment, an amount determined in the manner set forth in Paragraph 2 above as if the Unit Holder had exercised the right and option to be paid for all then fully vested and unexercised Units held by the Unit Holder on the date of such termination of his or her employment, and (b) all other Units held by the Unit Holder on the date of such termination of his or her employment shall terminate and shall become null and void.  Such payment shall be made by the Company to the Successor(s) within thirty (30) days after the date of such termination of employment.

 

  

  

  

 

5.             Non-Assignability.  The Unit Holder shall not transfer, assign, pledge or hypothecate in any manner this Agreement or any of the rights and privileges granted hereby other than by will or by the laws of descent and distribution.  Units are exercisable during the Unit Holder's lifetime only by the Unit Holder.  Upon any attempt by the Unit Holder to transfer this Agreement or any right or privilege granted hereby (including without limitation any Units) other than by will or by the laws of descent and distribution and contrary to the provisions hereof, this Agreement and said rights and privileges shall immediately become null and void.

 

6.             Anti-Dilution.  In the event that the shares of Class A Common Stock subject to this Agreement shall be changed into or exchanged for a different number or kind of shares of stock or other securities of Arden Group or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares, or otherwise) or if the number of such shares of Class A Common Stock shall be increased solely through the payment of a stock dividend, then there shall be made an appropriate adjustment (a) in the number of Units then covered hereby, (b) to the Base Price and/or (c) to the other terms as may be necessary to reflect the foregoing events.  There may also be made similar adjustments as described in (a)-(c) of the previous sentence in the event of any distribution of assets to stockholders of Arden Group other than a dividend payable in cash or property (other than stock).  Any determinations or interpretations under this Section shall be made by the Board, whose determination shall be final, binding and conclusive.  In the event there shall be any other change in the number or kind of the outstanding shares of stock of Arden Group subject to this Agreement, then if the Board, in its sole discretion, determines that such change equitably requires an adjustment in this Agreement, such adjustments shall be made in accordance with such determination, and the Board’s determination of the nature and amount of such adjustment, if any, shall be final, binding and conclusive.

 

7.             Termination upon Merger.  In the event that Arden Group merges with or into any other corporation, consolidates with any other corporation, or sells substantially all of its assets and business to another corporation and, in any such case, stockholders of Arden Group immediately prior to the consummation of the transaction own less than fifty percent (50%) of the outstanding voting securities of the surviving or acquiring corporation immediately after consummation of the transaction, then (a) the Unit Holder shall be paid the amount provided in Paragraph 2 above for all then fully vested and unexercised Units then held by him or her in the manner provided in said Paragraph 2 as if such Unit Holder had exercised his or her right and option to be paid for all of such then fully vested Units immediately prior to the effectiveness of such merger or consolidation, consummation of such sale or the occurrence of the Class A Common Stock no longer being listed on a national securities exchange or publicly traded in the over-the-counter market and (b) all of the Units shall automatically and without notice terminate and become null and void upon such effectiveness, consummation or occurrence.

 

8.             Rights Unfunded.  The Unit Holder understands that the rights provided for hereunder are unfunded and the Company has not made, and has no obligation to make, any provision with respect to segregating assets of the Company for payment of any benefits hereunder.  The Unit Holder further understands that he or she has no interest in any particular asset of the Company by reason of this Agreement but only the rights of a general unsecured creditor with respect to his or her rights under this Agreement.

 

  

  

  

 

9.             No Rights as a Stockholder.  Neither the Unit Holder nor any other person legally entitled to exercise any Units hereunder shall have any voting or other rights of a stockholder by virtue of the grant, vesting or exercise of a Unit.

 

10.           Notices.  Whenever under this Agreement notice is required to be given in writing, it shall be deemed to have been duly given upon personal delivery or upon receipt by the Company by fax (telecopy), one business day following deposit with a nationally recognized air courier guaranteeing overnight delivery, or three business days after deposit in the United States mail if mailed by registered or certified mail, postage prepaid, to the Company at the address set forth below or to the Unit Holder at the address set forth on the last page hereof (or to such other address as either party shall have indicated to the other party by notice in accordance with this Paragraph):

 

	
  

	
Company:

	
Arden-Mayfair, Inc.

	
  

	
2020 South Central Avenue

	
  

	
Compton, California 90220

	
  

	
Attention: Chief Executive Officer and

	
  

	
Secretary or Assistant Secretary

 

For purposes hereof, a "business day" is any day other than a Saturday, Sunday or a holiday in the State of California.

 

11.           Benefit.  Except as otherwise specifically provided herein, this Agreement shall be binding upon and shall operate for the benefit of the Company and the Unit Holder and his or her successors.

 

12.           Governing Law.  This Agreement and any rights and obligations arising hereunder shall be governed and construed in accordance with the laws of the State of California.

 

13.           Entire Agreement.  This Agreement represents the entire agreement between the parties hereto regarding Units based on the Class A Common Stock and supersedes any and all prior or contemporaneous written or oral agreements or discussions between the parties and any other person or legal entity concerning the specific transactions contemplated herein.  Except as otherwise expressly provided herein, this Agreement cannot be amended or modified except by a written instrument executed by the parties hereto.

 

14.           Construction.  The headings of the Paragraphs are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  If any of the provisions of this Agreement shall be unlawful, void or for any reason unenforceable, they shall be deemed separable from, and shall in no way affect the validity or enforceability of, the remaining provisions of this Agreement.

 

15.           Further Acts.  The parties hereto agree to execute and deliver such further instruments as may be reasonably necessary to carry out the intent of this Agreement.

 

  

  

  

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

 

	
ARDEN-MAYFAIR, INC.

 

By:                                                                                         

	
UNIT HOLDER:

 

                                                                                        

Laura Neumann

Address for Notice:

c/o Arden Group, Inc.

2020 S. Central Ave.

Compton, California 90220

 

 

The undersigned, the spouse of the Unit Holder, does hereby agree to be bound by the terms of the foregoing Phantom Stock Unit Agreement.

 

	Date:                                          ,

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