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Exhibit 10.7

Fourth Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2011

issued to

Federated National Insurance Company

Lauderdale Lakes, Florida

 

 

  

  

  

Table of Contents

	
Article

	
Page

	  	  	  	  
	  	
1

	
Coverage

	
1

	  	
2

	
Commencement and Termination

	
1

	  	
3

	
Concurrency of Conditions

	
2

	  	
4

	
Premium

	
3

	  	
5

	
Loss Notices and Settlements

	
3

	  	
6

	
Late Payments

	
3

	  	
7

	
Offset (BRMA 36C)

	
5

	  	
8

	
Access to Records

	
5

	  	
9

	
Errors and Omissions (BRMA 14F)

	
5

	  	
10

	
Currency (BRMA 12A)

	
5

	  	
11

	
Taxes (BRMA 50B)

	
6

	  	
12

	
Federal Excise Tax (BRMA 17D)

	
6

	  	
13

	
Reserves

	
6

	  	
14

	
Insolvency

	
7

	  	
15

	
Arbitration

	
8

	  	
16

	
Service of Suit (BRMA 49C)

	
9

	  	
17

	
Governing Law (BRMA 71B)

	
9

	  	
18

	
Notices and Contract Execution

	
9

	  	
19

	
Intermediary

	
10

 

 

 

  

  

  

Fourth Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2011

issued to

Federated National Insurance Company

Lauderdale Lakes, Florida

(hereinafter referred to as the "Company")

by

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the "Reinsurer")

Article 1 - Coverage

By this Contract the Reinsurer agrees to indemnify the Company for 100% of any

reinstatement premium which the Company pays or becomes liable to pay as a result of loss occurrences covered under the Company's Fourth Excess Catastrophe Reinsurance Contract, effective July 1, 2011 (hereinafter referred to as the "Original Contract"), subject to the terms, conditions and limitations hereinafter set forth.

Article 2 - Commencement and Termination

  

	
A.

	
This Contract shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2011, with respect to reinstatement premium payable by the Company under the Original Contract as a result of losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2012.

	
B.

	
Notwithstanding the provisions of paragraph A above, the Company may terminate a Subscribing Reinsurer's percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur:

	
  

	
1.

	
The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at the inception of this Contract has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

	
  

	
2.

	
The Subscribing Reinsurer's policyholders' surplus (or its equivalent under the Subscribing Reinsurer's accounting system) at any time during the term of this Contract has been reduced by more than 20.0% of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer's most recent financial statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

 

 

 

  

  

  

	
  

	
3.

	
The Subscribing Reinsurer's A.M. Best's rating has been assigned or downgraded below A- and/or Standard & Poor's rating has been assigned or downgraded below BBB+; or

	
  

	
4.

	
The Subscribing Reinsurer has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer's operations previously; or

	
  

	
5.

	
A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or

	
  

	
6.

	
The Subscribing Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

	
  

	
7.

	
The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company's prior written consent; or

	
  

	
8.

	
The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business; or

	
  

	
9.

	
The Subscribing Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

	
C.

	
If this Contract is terminated or expires while a loss occurrence covered hereunder is in progress, the Reinsurer's liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire loss occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such loss occurrence is claimed against any renewal or replacement of this Contract.

Article 3 - Concurrency of Conditions

	
A.

	
It is agreed that this Contract will follow the terms, conditions, exclusions, definitions, warranties and settlements of the Company under the Original Contract, which are not inconsistent with the provisions of this Contract.

	
B.

	
The Company shall advise the Reinsurer of any material changes in the Original Contract which may affect the liability of the Reinsurer under this Contract.

 

 

 

  

  

  

Article 4 - Premium

	
A.

	
As premium for the reinsurance coverage provided hereunder for the term of this Contract, the Company shall pay the Reinsurer the product of the following:

	
  

	
1.

	
1.10; times

	
  

	
2.

	
The Final Adjusted Rate on Line for the Original Contract; times

	
  

	
3.

	
An amount equal to 100% reinsurance placement percentage under the Original Contract of the final adjusted premium paid by the Company for the Original Contract.

"Final Adjusted Rate on Line" as used herein shall mean an amount equal to a 100% reinsurance placement percentage under the Original Contract of the final adjusted premium paid by the Company for the Original Contract divided by the Reinsurer's Per Occurrence Limit under the Original Contract.

	
B.

	
The Company shall pay the Reinsurer a deposit premium of $269,500 in four equal installments of $67,375 on July 1 and October 1 of 2011, and January 1 and April 1 of 2012.  However, in the event this Contract is terminated, there shall be no deposit premium installments due after the effective date of termination.

	
C.

	
As soon as possible after the termination or expiration of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for the term of this Contract, computed in accordance with paragraph A, and any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

Article 5 - Loss Notices and Settlements

	
A.

	
Whenever reinstatement premium settlements made by the Company under the Original Contract appear likely to result in a claim hereunder, the Company shall notify the Reinsurer.  The Company will advise the Reinsurer of all subsequent developments relating to such claims that, in the opinion of the Company, may materially affect the position of the Reinsurer.

	
B.

	
All reinstatement premium settlements made by the Company under the Original Contract, provided they are within the terms of the Original Contract and within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable within 10 days of receipt of reasonable evidence of the amount paid (or scheduled to be paid) by the Company.

Article 6 - Late Payments

	
A.

	
The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

	
B.

	
In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (hereinafter referred to as the "Intermediary") by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows:

 

 

 

  

  

  

	
  

	
1.

	
The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

	
  

	
2.

	
1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

	
  

	
3.

	
The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

	
C.

	
The establishment of the due date shall, for purposes of this Article, be determined as follows:

	
  

	
1.

	
As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment.

	
  

	
2.

	
Any claim or loss payment due the Company hereunder shall be deemed due 10 days after the proof of loss or demand for payment is transmitted to the Reinsurer.  If such loss or claim payment is not received within the 10 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer.

	
  

	
3.

	
As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of this paragraph C, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 10 days following transmittal of written notification that the provisions of this Article have been invoked.

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

	
D.

	
Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract.  If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void.  If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings.  If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

 

 

 

  

  

  

	
E.

	
Interest penalties arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period.

Article 7 - Offset (BRMA 36C)

The Company and the Reinsurer shall have the right to offset any balance or amounts due from one party to the other under the terms of this Contract.  The party asserting the right of offset may exercise such right any time whether the balances due are on account of premiums or losses or otherwise.

Article 8 - Access to Records

The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance, provided the Reinsurer gives the Company at least 15 days prior notice of request for such access.  However, the Reinsurer or its designated representatives shall not have any right of access to the records of the Company if it is not current in all undisputed payments due the Company.  "Undisputed" as used herein shall mean any amount that the Reinsurer has not contested in writing to the Company that specifies the reason(s) why the payments are disputed.

Article 9 - Errors and Omissions (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

Article 10 - Currency (BRMA 12A)

	
A.

	
Whenever the word "Dollars" or the "$" sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

	
B.

	
Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Article 11 - Taxes (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

 

 

 

  

  

  

Article 12 - Federal Excise Tax (BRMA 17D)

	
A.

	
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

	
B.

	
In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government.

Article 13 - Reserves

	
A.

	
The Reinsurer agrees to fund its share of amounts, including but not limited to, the Company's ceded unearned premium and outstanding loss reserves (being the sum of all reinstatement premiums paid by the Company under the Original Contract but not yet recovered from the Reinsurer, plus the Company's reserves for reinstatement premium due under the Original Contract, if any) (hereinafter referred to as "Reinsurer's Obligations") by:

	
  

	
1.

	
Clean, irrevocable and unconditional letters of credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of letters of credit and acceptable to said insurance regulatory authorities; and/or

	
  

	
2.

	
Escrow accounts for the benefit of the Company; and/or

	
  

	
3.

	
Cash advances;

if the Reinsurer:

	
  

	
1.

	
Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Company and if, without such funding, a penalty would accrue to the Company on any financial statement it is required to file with the insurance regulatory authorities involved; or

	
  

	
2.

	
Has an A.M. Best Company's rating equal to or below B++ at the inception of this Contract.

The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

	
B.

	
With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an "evergreen clause," which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days prior to said expiration date.  The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

 

 

 

  

  

  

	
  

	
1.

	
To reimburse itself for the Reinsurer's share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer;

	
  

	
2.

	
To reimburse itself for the Reinsurer's share of reinstatement premiums paid by the Company under the terms of the Original Contract, unless paid in cash by the Reinsurer;

	
  

	
3.

	
To reimburse itself for the Reinsurer's share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer;

	
  

	
4.

	
To fund a cash account in an amount equal to the Reinsurer's share of amounts, including, but not limited to, the Reinsurer's Obligations as set forth above, funded by means of a letter of credit which is under non-renewal notice, if said letter of credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;

	
  

	
5.

	
To refund to the Reinsurer any sum in excess of the actual amount required to fund the Reinsurer's share of amounts, including but not limited to, the Reinsurer's Obligations as set forth above, if so requested by the Reinsurer.

In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.

Article 14 - Insolvency

	
  

	 

	
A.

	
In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

	
B.

	
Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Company.

 

 

 

  

  

  

	
C.

	
It is further understood and agreed that, in the event of the insolvency of the Company, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the Company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees.

Article 15 - Arbitration

	
A.

	
As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration.  One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd's London Underwriters.  In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration.  If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, each Arbiter shall nominate three candidates within 10 days thereafter, two of whom the other shall decline, and the decision shall be made by drawing lots.

	
B.

	
Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire.  The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law.  The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties.  Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

	
C.

	
If more than one reinsurer is involved in the same dispute, all such reinsurers shall, at the option of the Company, constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

	
D.

	
Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration.  In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

	
E.

	
Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office.

 

 

 

  

  

  

Article 16 - Service of Suit (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities)

	
A.

	
It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States.  Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer's rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.

	
B.

	
Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract.

Article 17 - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Florida.

Article 18 - Notices and Contract Execution

	
A.

	
Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile.  With the exception of notices of termination, first class mail is also acceptable.

	
B.

	
The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

	
  

	
1.

	
Paper documents with an original ink signature;

	
  

	
2.

	
Facsimile or electronic copies of paper documents showing an original ink signature; and/or

	
  

	
3.

	
Electronic records with an electronic signature made via an electronic agent.  For the purposes of this Contract, the terms "electronic record," "electronic signature" and "electronic agent" shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

 

 

 

  

  

  

	
C.

	
This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

 

Article 19 - Intermediary

 

Aon Benfield Inc., or one of its affiliated corporations duly licensed as a reinsurance intermediary, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder.  All communications (including but not limited to notices, statements, premiums, return premiums, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating to this Contract will be transmitted to the Company or the Reinsurer through the Intermediary.  Payments by the Company to the Intermediary will be deemed payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary will be deemed payment to the Company only to the extent that such payments are actually received by the Company.

 

In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date specified below:

This 3rd day of October in the year 2011.

Federated National Insurance Company

/s/  Michael H. Braun

 

 

 

  

  

  

Interests and Liabilities Agreement

of

Certain Underwriting Members of Lloyd's

shown in the Signing Page(s) attached hereto

(hereinafter referred to as the "Subscribing Reinsurer")

with respect to the

Fourth Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2011

issued to

Federated National Insurance Company

Lauderdale Lakes, Florida

The Subscribing Reinsurer hereby accepts a 100% share in the interests and liabilities of the "Reinsurer" as set forth in the attached Contract captioned above.

This Agreement shall become effective at 12:01 a.m., Eastern Standard Time, July 1, 2011, and shall remain in force until 12:01 a.m., Eastern Standard Time, July 1, 2012, unless earlier terminated in accordance with the provisions of the attached Contract.

The following shall apply to the Subscribing Reinsurer's percentage share(s) in the attached Contract:

	
1.

	
In lieu of the provisions of the introductory portion of paragraph A of Article 4 - Premium - of the Contract the following introductory portion of paragraph A shall apply:

	
  

	
"A.

	
As premium for the reinsurance coverage provided hereunder for the term of this Contract, the Company shall pay the Reinsurer the product of the following, subject to a minimum premium of $215,600 (or a pro rata portion thereof in the event the term of this Contract is less than 12 months):"

	
2.

	
In lieu of the provisions of the last paragraph of Article 13 - Reserves - of the Contract the following paragraph shall apply:

"The Reinsurer, at its sole option, may fund in other than cash (including the use of the Lloyd's Credit for Reinsurance Trust Funds as a funding instrument) if such method and form of funding are acceptable to the Company and to the insurance regulatory authorities involved, as the case may be."

 

 

 

  

  

  

In any action, suit or proceeding to enforce the Subscribing Reinsurer's obligations under the attached Contract, service of process may be made upon Mendes & Mount, LLP, 750 Seventh Avenue, New York, New York  10019.

In Witness Whereof, the Company by its duly authorized representative has executed this Agreement as of the date specified below:

This 3rd day of October in the year 2011.

Federated National Insurance Company

/s/  Michael H. Braun

Signed for and on behalf of the Subscribing Reinsurer in the Signing Page(s) attached hereto.

 

 

 

  

  

  

Signing Page

attaching to and forming part of the

Interests and Liabilities Agreement

of

Certain Underwriting Members of Lloyd's

with respect to the

Fourth Reinstatement Premium Protection

Reinsurance Contract

Effective:  July 1, 2011

issued to

Federated National Insurance Company

(Re)Insurer's Liability Clause - LMA3333

(Re)insurer's liability several not joint

The liability of a (re)insurer under this contract is several and not joint with other (re)insurers party to this contract.  A (re)insurer is liable only for the proportion of liability it has underwritten.  A (re)insurer is not jointly liable for the proportion of liability underwritten by any other (re)insurer.  Nor is a (re)insurer otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.

The proportion of liability under this contract underwritten by a (re)insurer (or, in the case of a Lloyd's syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp.  This is subject always to the provision concerning "signing" below.

In the case of a Lloyd's syndicate, each member of the syndicate (rather than the syndicate itself) is a (re)insurer.  Each member has underwritten a proportion of the total shown for the syndicate (that total itself being the total of the proportions underwritten by all the members of the syndicate taken together).  The liability of each member of the syndicate is several and not joint with other members.  A member is liable only for that member's proportion.  A member is not jointly liable for any other member's proportion.  Nor is any member otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.  The business address of each member is Lloyd's, One Lime Street, London EC3M 7HA.  The identity of each member of a Lloyd's syndicate and their respective proportion may be obtained by writing to Market Services, Lloyd's, at the above address.

Proportion of liability

Unless there is "signing" (see below), the proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd's syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp and is referred to as its "written line".

Where this contract permits, written lines, or certain written lines, may be adjusted ("signed").  In that case a schedule is to be appended to this contract to show the definitive proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd's syndicate, the total of the proportions underwritten by all the members of the syndicate taken together).  A definitive proportion (or, in the case of a Lloyd's syndicate, the total of the proportions underwritten by all the members of a Lloyd's syndicate taken together) is referred to as a "signed line".  The signed lines shown in the schedule will prevail over the written lines unless a proven error in calculation has occurred.

Although reference is made at various points in this clause to "this contract" in the singular, where the circumstances so require this should be read as a reference to contracts in the plural.ex10_1.htm

EXHIBIT 10.1

 

EQUITY EXCHANGE AGREEMENT

Equity Exchange Agreement dated as of October 26, 2011 (this “Agreement”) by and between Power of the Dream Ventures, Inc., a Delaware corporation (the “Company”), and each of Messrs. Viktor Rozsnyay (“Rozsnyay”) and Daniel Kun, Jr. (“Kun”).

RECITALS:

A.  Rozsnyay and Kun each own twelve million (12,000,000) shares of common stock, par value $.0001 per share (the “Exchange Shares”) of the “Company”).

B.  Rozsnyay and Kun desire to surrender all their respective Exchange Shares to the Company for cancellation and return to the Company’s treasury of authorized but unissued shares, in exchange for the Company’s agreement to authorize a class of Series A Preferred shares, par value $.0001 per share (the “Series A Preferred”), having the terms and conditions hereinafter set forth, and by (i) filing an amendment to the Certificate of Incorporation (the “Amendment”) with the Secretary of State of the State of Delaware containing the characteristics of the Series A Preferred, together with (ii) such filings as may be required with the Securities and Exchange Commission (the “SEC”) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and other applicable federal and state securities laws, and (iii) upon authorization of the class of Series A Preferred delivering all such shares to Rozsnyay and Kun (the “Exchange”) upon the terms and conditions contained in this Agreement.

NOW, THEREFORE, upon the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree:

1.            Terms and Conditions of the Exchange. 

	
  

	
(a)

	
Within three (3) business days after the execution of this Agreement, each of Rozsnyay and Kun shall deliver their respective certificates for the Exchange Shares to the Company’s transfer agent, duly endorsed for transfer to the Company and for cancellation immediately by the Company’s transfer agent.  Upon cancellation, all of the Exchange Shares shall be returned to the authorized and unissued shares of common stock of the Company. All of the Exchange Shares delivered for cancellation shall be free and clear of all liens, charges, claims, encumbrances, taxes, options and agreements of any kind.

	
  

	
(b)

	
The Company represents and warrants that resolutions have  been duly and validly adopted by the Company’s board of directors (the “Board”) by unanimous written consent, and the holders of a majority of the Company’s issued and outstanding shares of common stock by majority written consent (i) authorizing the Exchange, (ii) the creation of the Series A Preferred, (iii) the filing of the Amendment, (iv) the filing of all regulatory filings under the Exchange Act and all other applicable federal and state securities laws,  and (v) the issuance of the Series A Preferred having the terms and conditions hereinafter set forth to Rozsnyay and Kun,  upon the filing of the Amendment with the Delaware Secretary of State.

 

  

  

  

 

	
  

	
(c)

	
The characteristics of the Series A Preferred are as follows:

	
  

	
i.

	
each Series A Preferred share shall have forty (40)  votes and shall vote together with the shares of the Company’s common stock on all matters presented to the Company shareholders for a vote;

	
  

	
ii.

	
(ii) at the option of the holder of a Series A Preferred share, each share of Series A Preferred shall be convertible into twelve (12) shares of the Company’s common stock at a rate of 12 shares of common stock for each share of Series A Preferred in accordance with the following timetable: one hundred thousand (100,000) shares of Series A Preferred may be converted each calendar year beginning with the calendar year January 1, 2014, such that each Holder may convert 100,000 Series A Preferred into 1,200,000 shares of common stock on January 1, 2014 and an additional 100,000 shares of Series A Preferred on each January 1 thereafter until all Series A Preferred have been converted; and further provided, that the right of conversion shall be cumulative and not expire until all shares of Series A Preferred have been converted;

	
  

	
iii.

	
each share of Series A Preferred shall participate in all distributions or dividends of the Company on an “as if” fully converted basis except that (1) in the event of any stock dividend or other equity distribution by the Company of (1) its own shares or (2) of the shares of common stock or other form of equity, such as but not limited to warrants, options or rights, of any other corporation or entity that are owned by the Company, each Series A Preferred share shall receive fifteen (15) shares of common stock or the equivalent number in any other form of equity, and (2) on liquidation of the Company the holder of each Series A Preferred share shall first be paid the par value of the share of Series A Preferred, and then participate on an “as if” fully converted basis with all holders of issued and outstanding shares of common stock participating in the liquidating distribution, in full satisfaction of all  liquidation preferences under the Amendment;

	
  

	
iv.

	
each share of Series A Preferred shall not be entitled to any right of redemption;

	
  

	
v.

	
each share of Series A Preferred shall not be entitled to pre-emptive right with respect to any subsequent issue of securities by the Company;

	 

	
  

	
vi.

	
each holder of a Series A Preferred share shall be entitled to receive all Company reports sent to the holders of the Company’s common stock;

	
  

	
vii.

	
each share of Series A Preferred shall bear a restricted legend prohibiting sale, transfer or other disposition of the shares represented by the certificate except in accordance with all applicable Federal and state securities laws.

	 

 

  

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(d)

	
The Company shall promptly take all actions required and file all documents to implement the creation and authorization of the Series A Preferred shares with the SEC, the Delaware Secretary of State and any other regulatory authority.

	
  

	
(e)

	
Notwithstanding anything to the contrary in this Agreement, the Company shall issue and deliver all 2,000,000 of the Series A Preferred shares to Messrs. Rozsnyay (1,000,000 such shares) and Kun (1,000,000 such shares) within sixty (60) days of the date of this Agreement (the “Time Period”). If the Company does not complete the delivery of the Series A  Preferred shares within the aforesaid Time Period, then this Agreement shall terminate, and the Company shall reissue immediately all of the Exchange Shares to Messrs. Rozsnyay and Kun in the same amounts as they surrendered to the Company for cancellation under this Agreement.

	
  

	
(f)

	
All certificates for shares issued under this Agreement shall be restricted and shall bear a legend prohibiting transfer in the manner set forth in Section 2 of this Agreement.

2.            Representations and Warranties of Rozsnyay and Kun. 

	
  

	
(a)

	
Authority.  Each of Rozsnyay and Kun has full power and authority to enter into and to perform this Agreement in accordance with its terms. The execution, delivery, and performance of this Agreement by Rozsnyay and Kun constitute valid and binding obligations of each of them enforceable in accordance with its terms. The execution of and performance of the transactions contemplated by this Agreement and compliance with its provisions by each of Rozsnyay and Kun will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under, or require a consent or waiver under any indenture, lease, agreement, guaranty or other instrument or agreement, written or oral, to which each of Rozsnyay and Kun is a party or by which he or any of his properties is bound, or any decree, judgment, order, statute, rule or regulation applicable to each of Rozsnyay and Kun. Each of Rozsnyay and Kun is not a party to any pending litigation or other proceeding of any kind and is not aware of any claim that may affect their ability to execute and deliver this Agreement and complete the Exchange hereunder.

	
  

	
(b)

	
Rozsnyay and Kun Due Diligence. Each of Rozsnyay and Kun has not relied upon any representations or warranties of the Company, and each of Rozsnyay and Kun represents that the Company has not made any such representations or warranties to them except, in both instances, as set forth in Section 3 of this Agreement.

	
  

	
(c)

	
Investment Intent. Each of Rozsnyay and Kun is acquiring the Series A Preferred shares for his own account for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the Series A Preferred shares or any portion thereof; and each of Rozsnyay and Kun has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness, or commitment providing for the disposition itself.

 

  

3

  

 

	
  

	
(d)

	
Restricted Securities. Each of Rozsnyay and Kun understands that the Series A Preferred shares have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) or under applicable state securities laws. Accordingly, the Series A Preferred shares or any portion thereof may not be offered, sold, resold, delivered, pledged, hypothecated or transferred, directly or indirectly, at any time or to any other person or entity regardless of location except (i) pursuant to the terms of an applicable exemption under the Securities Act together with an opinion of counsel acceptable to the Company as to the basis of such exemption and (ii) a registration statement under the Securities Act, and, in either case, in compliance with applicable state securities laws.

	
  

	
(e)

	
Legends. Each of Rozsnyay and Kun understands and agrees that the certificates or instruments or other writings evidencing the Series A Preferred shares and the shares of common stock into which they may be converted from time to time shall bear a restrictive legend in substantially the following form:

“The shares represented by this certificate have not been and will not be registered under the Securities Act of 1933 as amended (the “Securities Act”) and applicable state securities laws. The shares represented by this certificate may not be offered, sold, resold, pledged, gifted, hypothecated, delivered or transferred at any time or to any person or entity regardless of location except (i) pursuant to the terms of an applicable exemption under the Securities Act together with an opinion of counsel acceptable to the Company as to the basis of such exemption or (ii) an effective registration statement under the Securities Act with respect to said Shares, and, in either case, in compliance with applicable state securities laws.”

	
  

	
(f)

	
Indemnification Covenants of each of Rozsnyay and Kun. Each of Rozsnyay and Kun shall indemnify and hold harmless the Company from and against any and all claims, causes of action, damages, losses, injuries and costs and expenses arising out of the breach of any representation or warranty or covenant by each of Rozsnyay and Kun under this Agreement.

3.            Representations and Warranties of the Company. The Seller makes the following representations and warranties to each of Rozsnyay and Kun:

	
  

	
(a)

	
Organization and Standing of the Company.  The Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware.

 

  

4

  

 

	
  

	
(b)

	
Authority for Agreement; Ownership and Exchange of the Series A Preferred Shares.  The Company’s execution, delivery, and performance of this Agreement, and the issuance and delivery of the Series A Preferred shares to each of Rozsnyay and Kun have been duly authorized by all necessary action. The Company has duly executed and delivered this Agreement, and this Agreement constitutes the valid and binding obligations of the Company enforceable in accordance with its terms. The Company’s execution of, and performance of the transactions contemplated by, this Agreement will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under, or require a consent or waiver under, the Certificate of Incorporation or by-laws of the Company, or any indenture, lease, agreement, or other instrument to which the Company is a party or by which it or any of its properties is bound, or any decree, judgment, order, statute, rule or regulation applicable to the Company.  The Company is not a party to any pending litigation or other proceeding of any kind and is not aware of any claim that may affect the Company’s ability to execute and deliver this Agreement and complete the authorization and issuance of the Series A Preferred shares hereunder.

	
  

	
(c)

	
Indemnification Covenants of the Company. The Company shall indemnify and hold harmless each of Rozsnyay and Kun from and against any and all claims, causes of action, damages, losses, injuries and costs and expenses arising out of the breach of any representation or warranty or covenant by the Company under this Agreement.

 

4.            Miscellaneous.

	
  

	
a)

	
Successors and Assigns. The provisions of this Agreement shall be binding upon, and inure to the benefit of, the respective successors, assigns, heirs, executors, and administrators of the parties hereto, but this Agreement and the rights and obligations of the parties shall not be assigned by any such party without the prior written consent of all other parties hereto.

	
  

	
b)

	
Survival of Representations and Warranties. All agreements, representations, covenants and warranties made by any party hereto contained herein shall survive the execution and delivery of this Agreement and the closing of the transactions contemplated hereby for a period of one year from the Closing.

	
  

	
c)

	
Expenses.  Each party shall pay its own costs and expenses in connection with the preparation of this Agreement and the closing of the transactions contemplated hereby.

	
  

	
d)

	
Notices.  All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered by hand, by overnight courier or mailed by the equivalent of express mail, overnight delivery, postage prepaid or by electronic transmission with confirmation of sending or by pdf scan attachment with confirmation of transmission:

 

	
 

	
 

	
If to the Buyer at:

	
 

	
 

	
1095 Budapest

	 	
 

	
Soroksari ut 94-96

	 	
 

	
Hungary

	 	
 

	
Attn:  Viktor Rozsnyay, CEO

	 	
 

	
Facsimile: +36-1-456-6061

 

  

5

  

 

	 	
 

	
If  to each of Rozsnyay and Kun at:

	 	
 

	
1095 Budapest

	 	
 

	
Soroksari ut 94-96

	 	
 

	
Hungary

	 	
 

	
Attn: Viktor Rozsnyay, CEO

	 	
 

	
Facsimile: +36-1-456-6061

 

Notices provided in accordance with this Section 4(d) shall be deemed delivered upon (i) personal delivery, (ii) next business days if sent by overnight delivery service or, (iii) the next business day if sent by facsimile provided there is electronic confirmation of the transmission.

	
  

	
(e)

	
Entire Agreement; Integration.  This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter, written or oral. There are no representations, agreements, arrangements, or understandings, oral or written, between and among the parties hereto (or their representatives) relating to the subject matter of this Agreement that are not fully expressed in this Agreement.

	
  

	
(f)

	
Governing Law; Arbitration. This Agreement, its substantive and procedural terms and conditions, shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any applicable body of laws pertaining to conflicts of laws.  Any and all disputes arising under, out of, or related to this Agreement shall be settled using the Commercial Arbitration Rules of the American Arbitration Association in the City and State of New York, New York before one arbitrator experienced in securities law matters. The Arbitrator shall award interest, attorneys fees and the costs and expenses of the arbitration to the prevailing party as part of any such award. Judgment upon any such award may be entered in the courts of the State of New York, County of New York or in the United States District Court for the Southern District of New York.  The Company and each of Rozsnyay and Kun agree to submit to the personal jurisdiction of the federal and state courts of the State of New York, and each hereby waives any and all objections to venue in New York County on grounds of forum non conveniens or any similar grounds.

	
  

	
(g)

	
Counterparts; Facsimile Signature. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which may be taken together and shall constitute one agreement. This Agreement may be signed by facsimile signature which shall constitute the valid and binding signature of a party; provided, however, the parties shall thereafter exchange original signatures of this Agreement for their permanent records.

  

6

  

IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the day and year first above written.

 

	 	THE SELLER:	 
	 	 	 
	 	Power of the Dream Ventures, Inc.	 
	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Viktor Rozsnyay	 
	 	 	Viktor Rozsnyay, CEO	 

 

	 	 	 	 
	 	 	 	 
	
 

	
 

	/s/ Viktor Rozsnyay	 
	 	 	Viktor Rozsnyay	 

 

	 	 	 
	 	 	 	 
	
 

	
 

	/s/ Daniel Kun, Jr.	 
	 	 	Daniel Kun, Jr.	 

SIGNATURE PAGE TO EQUITY EXCHANGE AGREEMENT DATED AS OF OCTOBER 26, 2011 BY AND AMONG POWER OF THE DREAM VENTURES, INC.  AND EACH OF VIKTOR ROZSNYAY AND DANIEL KUN, JR. 

 

 

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