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Exhibit 10.3
 
 
ACADIA ACQUISITION PARTNERS, L.P. 
AGREEIMENT OF LIMITED PARTNERSHIP 
Dated as of March 30, 2011 

 

 

ACADIA ACQUISITION PARTNERS, L.P. 
THIS AGREEMENT OF LIMITED PARTNERSHIP is dated and effective as of March 30, 2011, among Acadia GP, LLC, a Delaware limited liability company (in its capacity as a general partner of the Partnership) (the "General Partner"), and the Limited Partners (as defined below), as amended from time to time. 
The parties, in consideration of their mutual agreements stated in this Agreement, agree to become partners and to form a limited partnership (the "Partnership") under the Act (as defined below). The purpose of the Partnership is to acquire, own, control, manage, operate and dispose of the capital stock of Hamilton Risk Management Co. and all purposes incidental thereto. 
ARTICLE 1. 
General Provisions 
Section 1.1. Definitions. For the purposes of this Agreement, the following terms have the following meanings: 
"Act" means the Delaware Revised Uniform Limited Partnership Act. 
"Actual Capital Contribution" means a contribution of capital to the Partnership by a Partner. The initial Actual Capital Contributions of the Partners are set forth on Schedule A attached hereto. 
"Affiliate" means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person; (b) that directly or indirectly beneficially owns or holds a majority of any class of voting security of such Person; or (c) a majority of the voting securities of which is directly or indirectly beneficially owned or held by the Person in question. The term "control" means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Agreement of Limited Partnership, as amended from time to time. References to this Agreement will be deemed to include all provisions incorporated in this Agreement by reference.
"Capital Account" means the account of each Partner that reflects its interest in the Partnership determined in accordance with Article 5. 
"Capital Contribution" as to any Partner means the sum of its Actual Capital Contributions and Deemed Capital Contributions. 
"Certificate of Limited Partnership" means the certificate of limited partnership with respect to the Partnership filed for record in the Office of Secretary of State of the State of Delaware.

 

 

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"Class A Partners" means all Limited Partners other than the Class B Partner. 
"Class B Partner" means KAI, in its capacity as a Limited Partner, and its permitted successors and assigns of such Limited Partner interest. 
"Closing Capital Account" means, with respect to any fiscal period, the Opening Capital Account of each Partner for the fiscal period after allocations have been made to the Capital Account in accordance with Section 5.3. 
"Code" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder and interpretations thereof promulgated by the Internal Revenue Service, as in effect from time to time. 
"Deemed Capital Contributions" means an amount as to each Partner as set forth on Schedule A attached hereto. The Deemed Capital Contributions shown on Schedule A as of the date hereof shall be deemed to have been made on the date hereof 
"Designated Party" means any of the General Partner or any partner, member, officer, director, manager, stockholder, director, officer or employee of the General Partner. 
"Drag-Along Notice" shall have the meaning set forth in Section 9.2. 
"Drag-Along Right" shall have the meaning set forth in Section 9.2. 
"GAAP" means U.S. generally accepted accounting principles, consistently applied. 
"General Partner" means the general partner or general partners of the Partnership, as set forth in this Agreement. 
"HRM" means Hamilton Risk Management Co. 
"HRM Notes" means the (a) $10 million original principal amount Promissory Note issued by HRM to the Class B Partner on or about March 30, 2011 and (b) the aggregate $3 million original principal amount Promissory Notes issued by HRM to the Class A Limited Partners on or about March 30, 2011 and any promissory notes, debentures, trust preferred certificates and/or other obligations issued in exchange therefor. 
"Indemnifiable Costs" means all costs, expenses, damages, claims, liabilities, fines and judgments (including the reasonable cost of the defense, and any sums which may be paid with the consent of the Partnership in settlement), incurred in connection with or arising from a claim, action, suit, proceeding or investigation, by or before any court or administrative or legislative body or authority. 
"Investment" means the capital stock of HRM and all or substantially all of its assets. 
"KAI" means Kingsway America Inc. 
 

 

 

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"Limited Partners" means the limited partners of the Partnership. 
"Liquidation Capital Account" means, with respect to any Limited Partner and any fiscal year, 
(i) the amount that such Limited Partner would receive, on a hypothetical basis, if a Deemed Liquidation occurred and all assets remaining following the Deemed Liquidation were to be distributed pursuant to Section 6.3, and (ii) if no distribution pursuant to clause (i) would be made, then the amounts that would be allocated to such Limited Partner, on a hypothetical basis, if the negative balance resulting from a Deemed Liquidation were to be allocated to the Limited Partners pro rata according to their respective aggregate Capital Contributions, in each case after all actual distributions or Capital Contributions have been made for such fiscal year. For purposes of this definition, a "Deemed Liquidation" shall mean the sale of all assets of the Partnership as of the end of such fiscal year for cash equal to the amount for which such assets are carried on the books of the Partnership, and the satisfaction of all Partnership liabilities for an amount equal to the amount such liabilities are carried on the books of the Partnership. 
"Majority Consent" means the approval of those Class A Partners holding a majority of all Partner Percentages of the Class A Partners, at a meeting of the Class A Partners or approved without a meeting by written consent signed by those Class A Partners holding a majority of all Partner Percentages of the Class A Partners. 
"Net Losses" means, with respect to any fiscal period, the excess, if any, of: 
(i)     all expenses and losses incurred during such fiscal period by the Partnership from all sources; over 
(ii)     the aggregate revenue, income and gains realized during such fiscal period by the Partnership from all sources. 
 
For purposes of determining Net Losses: 
(A)     items will be taken into account to the extent that (1) such are includable as items of income, credit, loss or deduction for Federal income tax purposes (including items described in Section 705(a)(2)(B) of the Code, or treated as so described in Treasury Regulation § 1.704-l(b)(2)(iv)(i)) or, (2) in the case of items of income, such constitute income that is exempt from Federal income tax; and 
(B)     if any Noncash Asset is distributed in kind, it will be deemed sold at the value established at the most recent valuation of such Noncash Asset under this Agreement and any unrealized appreciation or depreciation with respect to such Noncash Asset will be deemed realized and included in the determination of Net Losses. 
 
"Net Profits" means, with respect to any fiscal period, the excess, if any, of: 
(i)     the aggregate revenue, income and gains realized during such fiscal period by the Partnership from all sources; over 
(ii)     all expenses and losses incurred during such fiscal period by the Partnership from all sources.
 

 

 

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For purposes of determining Net Profits: 
(A)     items will be taken into account to the extent that (1) such are includable as items of income, credit, loss or deduction for Federal income tax purposes (including items described in Section 705(a)(2)(B) of the Code, or treated as so described in Treasury Regulation § 1.704-l(b)(2)(iv)(i)) or, (2) in the case of items of income, such constitute income that is exempt from Federal income tax; and 
(B)     if any Noncash Asset is distributed in kind, it will be deemed sold at the value established at the most recent valuation of such Noncash Asset under this Agreement and any unrealized appreciation or depreciation with respect to such Noncash Asset will be deemed realized and included in the determination of Net Profits. 
 
"Noncash Asset" means any asset of the Partnership other than cash. 
"Opening Capital Account" with respect to any fiscal period means: 
(a)     with respect to any Partner admitted during such fiscal period, such Partner's initial Capital Contribution (or in the case of any Partner admitted as a transferee of all or part of the interest in the Partnership of another Partner, with respect to such transferred interest in the Partnership, that portion of the transferor's initial Capital Contribution transferred to the transferee); and 
(b)     with respect to any Partner admitted during any prior fiscal period (other than a Partner which has withdrawn as of the last day of the preceding fiscal period), such Partner's Closing Capital Account for the preceding fiscal period (or in the case of any Partner admitted as a transferee of all or part of the interest in the Partnership of another Partner, with respect to such transferred interest in the Partnership, that portion of the transferor's Closing Capital Account transferred to the transferee). 
 
"Partner Percentage" means the percentage determined for each Partner by dividing (i) the aggregate Capital Contributions credited to such Partner's Capital Account as provided in Section 5.3 herein at the time of any relevant calculation, by (ii) the aggregate Capital Contributions credited to the Capital Accounts of all Partners at such time. The sum of the respective Partner Percentages shall at all times equal one hundred percent (100%)). Notwithstanding the foregoing, at no time shall KAI and Affiliates' aggregate Partner Percentages exceed forty percent (40%)) (the "Percentage Cap"), as specifically applied to KAI and its Affiliates and not their successors and assigns who are not Affiliates of KAI. Thus, if KAI and its Affiliates' aggregate Partner Percentages would otherwise exceed forty percent (40%)), their aggregate Partner Percentages shall instead be forty percent (40%)) and the Partner Percentages of all other Partners shall be adjusted upward pro rata to cause all Partner Percentages to be 100%o. The application of the foregoing means that the Partner Percentage of KAI on the date hereof is 40% instead of 44.44% ($l,800,000/$4,050,000). If additional Partners are admitted to the Partnership after the date hereof, KAI's Partner Percentage shall be whatever it would be as calculated under the first sentence of this definition, but subject again to the Percentage Cap.
 

 

 

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"Partners" means the General Partner and the Limited Partners. 
"Partnership" means the limited partnership established by this Agreement. 
"Partnership Interest" means all of the interests of a Partner in the Partnership. 
"Permitted Transferee" means a Partner's (A) Affiliates, (B) family members or a charitable foundation established by such Partner or a trust or the trustee or trustees of a trust directly or indirectly for the benefit of the Partner's spouse, children or grandchildren, (C) executors, administrator, testamentary trustee, legatees or beneficiaries upon the Partner's death or (D) in the case of a Class A Partner, another Class A Partner or such other Class A Partner's Permitted Transferees as described in clauses (A) through (C) above. 
"Person" means any natural person, partnership, corporation, limited liability company, trust, estate, association, unincorporated organization or other entity or association. 
"Sale" shall mean the consummation of the merger or consolidation of the Partnership into or with another Person, the merger or consolidation of any other Person into or with the Partnership, the sale of a majority of the Partnership Interests or the sale of all or substantially all the assets of the Partnership, provided that a merger or consolidation shall not be deemed a Sale if those persons who were holders of the Partnership Interests immediately prior to the consummation of such merger or consolidation have (i) the voting power to elect more than 50%) of the directors/general partners/managers of the consolidated or surviving entity immediately after the consummation of such merger or consolidation or (ii) more than 50%) of the voting power of the voting securities of the consolidated or surviving entity immediately after the consummation of such merger or consolidation. 
"Securities Act" means the Securities Act of 1933, as amended, and the regulations thereunder and interpretations thereof promulgated by the SEC, as in effect from time to time. 
"Transfer" means the sale, exchange, transfer, assignment, pledge, hypothecation or other disposition of all or any portion of any of such Partner's Partnership Interest. 
"United" means United Property & Casualty Insurance Company in its capacity as a Class A Limited Partner, and its permitted successors and assigns. 
"Unreturned Actual Capital" is used solely for purposes of allocating distribution proceeds among the Partners pursuant to Section 6.3, and means with respect to each Partner, the excess, if any, of (a) the aggregate Actual Capital Contributions made by such Partner, minus (b) the aggregate distributions received by such Partner pursuant to Section 6.3.
 

 

 

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Section 1.2.     Name. 
(a)     The name of the Partnership is "Acadia Acquisition Partners, L.P." 
(b)     The General Partner has the power at any time to: 
 
(i)     change the name of the Partnership; and 
(ii)     qualify the Partnership to do business under any name when the Partnership's name is unavailable for use, or may not be used, in a particular jurisdiction. 
 
(c)     The General Partner will give prompt notice of any action taken under this Section to each Partner. 
 
Section 1.3.     Principal Office; Registered Office. 
(a)     The principal office of the Partnership will be at 3155 NW 77* Avenue, Miami, FL 33122, or such other place as may from time to time be designated by the General Partner. 
(b)     The registered office of the Partnership in the State of Delaware will be located at 1209 Orange Street, Wilmington, DE 19801. The name of the registered agent for the Partnership will be CT Corporation. The General Partner may from time to time change the registered agent and registered office of the Partnership. 
 
Section 1.4.     Commencement and Duration. 
(a)     The Partnership will commence upon the filing for record of the Certificate of Limited Partnership in the office of the Secretary of State of the State of Delaware. 
(b)     The Partnership will be dissolved and wound up at the time and in the manner provided for in Article 7. 
 
Section 1.5.     No Additional Partnership Interests or Partners. Without both the consent of the General Partner and Majority Consent, (a) no additional Partnership Interests may be issued to any existing or future Partner and (b) except for those Persons signing on the signature page below, no other Person may be admitted as a Farther. 
Section 1.6.     Liability of Partners. 
(a)     Losses, liabilities and expenses incurred by the Partnership during any fiscal year will be allocated among the Partners in accordance with the procedures for allocating Net Losses as provided in Section 5.3. 
(b)     The General Partner has the liability for the liabilities of the Partnership provided for in the Act. The General Partner will not be obligated to restore by way of Capital Contribution or otherwise any deficits in the respective Capital Accounts of the Limited Partners should such deficits occur and no Partner shall have any obligation to restore by way of Capital Contribution or otherwise any deficits in its Capital Accounts should such deficits occur, in either case as to Capital Accounts for book or income tax purposes.

 

 

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(c) Except as otherwise provided under the Act, no Limited Partner will be liable for any loss, liability or expense whatsoever of the Partnership. 
(d) If a Limited Partner is required to return to the Partnership, for the benefit of creditors of the Partnership, amounts previously distributed to the Limited Partner, the obligation of the Limited Partner to return any such amount to the Partnership will be the obligation of the Limited Partner and not the obligation of the General Partner. A Limited Partner that receives a distribution in violation of this Agreement or that is required to be returned to the Partnership under applicable law shall return such distribution within thirty (30) days after demand therefor by the General Partner. No Limited Partner will be liable under this Agreement for the obligations under this Agreement of any other Partner. 
(e) No Partner shall be entitled to interest on such Partner's Capital Contributions, Capital Account balance, or share of undistributed Profits. 
 
ARTICLE 2. 
Purpose and Powers 
 
Section 2.1.     Purpose and Powers. The purposes of the Partnership shall be to acquire, hold, exchange, transfer and otherwise deal, directly or indirectly, with the Investment and engage in such other activities as are related or incidental to the foregoing purpose. 
ARTICLE 3. 
Management 
 
Section 3.1.     Authority of General Partner. 
(a) The management and operation of the Partnership and the formulation of investment policy is vested exclusively in the General Partner. 
(b) The General Partner may manage and/or operate the Partnership through third parties with whom it may contract, including Affiliates. 
(c) The acts of the General Partner in carrying on the business of the Partnership will bind the Partnership. 
 
Section 3.2. Authority of the Limited Partners. 
(a)     No Authority.     The Limited Partners will take no part in the control of the business of the Partnership, and the Limited Partners will not have any authority to act for or on behalf of the Partnership, other than as specifically set forth herein. 
 

 

 

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(b)     Vote on Certain Sales.     The Partnership shall not effect a Sale if the gross proceeds therefrom are expected to be less than $13 million, unless such Sale has been approved by Majority Consent. 
 
(c)     Required Limited Partner Consent. 
 
(i)     Replacement of Managers of the General Partner.     On the date hereof the Managers of the General Partner are Larry G. Swets, Jr. and William A. Hickey, Jr. The Partners hereby agree that the first time that either of Messrs. Swets or Hickey is no longer a Manager of the General Partner, any replacement of such Manager of the General Partner shall be nominated by the General Partner and approved reasonably and in good faith by Majority Consent. The Partners hereby further agree that if the other of Messrs. Swets and Hickey is no longer a Manager of the General Partner, any replacement of such Manager of the General Partner shall be nominated by Majority Consent and approved reasonably and in good faith by the General Partner. 
(ii)     Amendment to Operating Agreement of the General Partner. The General Partner hereby agrees that the provisions of Sections 2.2(a) and Section 2.2(b) of the Operating Agreement of the General Partner as in effect on the date hereof may not be amended without the Majority Consent. 
 
(d)     Removal of General Partner. To the extent not inconsistent with the Act or other applicable law, in the event that the General Partner has committed any act of fraud or embezzlement that has a material adverse impact on the interest of a Limited Partner in the Partnership, the Class A Partners by Majority Consent may vote to cause the removal of the General Partner; provided, however, that any such action for removal must also provide for the appointment of a substitute general partner (such substitute general partner to be admitted as a general partner immediately prior to the effective date of removal of the General Partner to be removed and such substitute shall continue the business of the Partnership without dissolution). 
(e)     In the event of the removal of the General Partner pursuant to this Section, the interest in the Partnership of the General Partner shall be converted to that of a Class A Partner with the same rights with respect to allocations and distributions that it had as a general partner prior to such conversion; provided, however, that the General Partner shall not have the right to receive any distributions (x) that resulted from any fraud or embezzlement on its part, and such distributions shall be paid instead to the Class A Partners in accordance with their respective Partner Percentages or (y) pursuant to clause (i) of Section 6.3(c) other than with respect to amounts that as of the date of the removal were allocable to the Capital Account of the General Partner pursuant to Section 5.3. 
 
Section 3.3.     No Restrictions on Other Activities of the Partners.   Except as otherwise specifically provided in this Agreement, no provision of this Agreement will be construed to preclude any Partner or Affiliate of any Partner from engaging in any activity whatsoever or from receiving compensation therefor or profit from any such activity. Such activities may include, without limitation, (A) making investments, including those that may be competitive with the Partnership and/or its subsidiaries, (B) managing investments, (C) participating in investments, brokerage or consulting arrangements or (D) acting as an adviser to or participant in any Person. Neither the Partnership nor any Partner shall have any right by virtue of this Agreement or the existence of the Partnership in and to any other ventures or activities of any other Partner its Affiliates or to the income or profits derived therefrom; and the Partners and their Affiliates shall have no duty or obligation to make any reports to the other Partners or the Partnership with respect to any such ventures or activities.

 

 

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Section 3.4.     General Partner Compensation. Unless otherwise agreed by Majority Consent, the General Partner shall serve the Partnership in such capacity for annual compensation from the Partnership not to exceed $400,000 (not including its right to distributions under Section 6.3). Notwithstanding anything that may be construed to the contrary, the General Partner shall have the right to contract on behalf of the Partnership with any Person, including Affiliates, for transition, management and/or administrative services at reasonable rates to be paid by the Partnership, but in no event shall the annual compensation for such, when combined with any annual compensation in the preceding sentence, exceed $400,000. 
Section 3.5.     Partnership Expenses. The Partnership will pay all out-of-pocket Partnership expenses, either directly or by reimbursing the General Partner if it pays them. The General partner shall not be entitled to reimbursement for any internal, non-cash expenses in carrying out its duties as General Partner, such as salaries of personnel of its Affiliates. 
Section 3.6.     Indemnification. 
(a)     Each Designated Party shall be indemnified by the Partnership to the fullest extent permitted by the Act and other applicable law against losses, judgments, liabilities, expenses and amounts incurred or paid by such Designated Party in connection with any claim, action, suit or proceeding in which such Designated Party becomes involved as a party or otherwise, or with which such Designated Party shall be threatened, in connection with the business of the Partnership, and against amounts paid or incurred by such Designated Party in the settlement thereof, provided that prompt notice thereof has been given by such Designated Party to the Partnership and the Partnership has been afforded the right and option to assume and direct the defense thereof, including the settlement thereof For this purpose, the words "claim", "action", "suit", or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened while a Designated Party or thereafter, and the words "liability" and "expenses" shall include, without limitation, any liability arising by reason of (i) any failure to withhold income tax under federal or state tax laws with respect to income allocated to Partners, or (ii) any change in law or regulation or in the interpretation thereof as may apply to the Partnership or the Partners, whether such change occurs through legislative, judicial or administrative action, and shall also include attorneys' fees, costs, judgments, amounts paid in settlement fines, penalties and other liabilities. 
 
(b)     The rights of indemnification herein provided shall be severable, shall not be exclusive of or affect any other rights to which any Designated Party may now or hereafter be entitled, shall continue as to any Designated Party who has ceased to be a Designated Party and shall inure to the benefit of the heirs, executors, administrators and successors of any Designated Party. Nothing contained herein shall affect any rights to indemnification to which Partnership personnel, other than Designated Party, and other Persons may be entitled by contract or otherwise under law. 
 

 

 

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(c) Subject to compliance with Section 3.6(a) with respect to the Partnership's right to assume the defense thereof, should the Partnership not elect to assume the defense thereof, expenses incurred by any Designated Party in connection with the preparation and presentation of a defense or response to any claim, action, suit or proceeding of the character described in Section 3.6(a) shall be paid by the Partnership from time to time in advance prior to final disposition thereof to the fullest extent provided by the Act and applicable law. 
(d) The Partnership may purchase and maintain insurance on its own behalf, or on behalf of any Person, with respect to liabilities of the types described in this Section. The Partnership may purchase such insurance regardless of whether the Person is acting in a capacity described in this Section or whether the Partnership would have the power to indemnify the Person against such liability under the provisions of this Section. 
 
ARTICLE 4. 
Partners' Capital Contributions 
 
Section 4.1.     Capital Contributions.   No Partner shall have any obligation to make any Capital Contributions to the Partnership, but may make Capital Contributions with the consent of the General Partner and with Majority Consent. 
ARTICLE 5. 
Adjustment of Capital Accounts 
 
Section 5.1.     Establishment of Capital Accounts.   There will be established on the books of the Partnership an Opening Capital Account for each Partner in accordance with the definitions and methods of allocation prescribed in this Agreement. 
Section 5.2.     Time of Adjustment of Capital Accounts.   Allocations will be made to the Opening Capital Account of each Partner in accordance with Section 5.3, as of the following dates:
 
(a)    the close of each fiscal year of the Partnership;
 
(b)    the day before the dissolution of the Partnership:
 
(c)    the date of a distribution: and
 
(d)    such other dates as the General Partner shall determine or the Agreement may provide.
 

 

 

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Section 5.3.     Adjustments to Capital Accounts. 
(a)     As of the times stated in Section 5.2, allocations will be made to the Opening Capital Accounts of the Partners to arrive at each Partner's Closing Capital Account for the period in the following order and amounts: 
 
(i)     The amount of any Capital Contributions paid by each Partner during such period will be credited to the Partner's Opening Capital Account (other than Capital Contributions referred to in clause (a) of the definition of "Opening Capital Account" in Article 1); provided, however, that any such Capital Contribution will be credited to the Partner's Opening Capital Account on the later of the date the Capital Contribution was due or the date on which the Capital Contribution was actually received by the Partnership; 
(ii)     The amount of any distributions made to each Partner during the period will be debited against the Partner's Opening Capital Account; 
 
(iii)     Net Profits will be credited and Net Losses will be debited to the Opening Capital Accounts of the Partners as follows: 
 
(A)     Net Profits shall be credited to such Opening Capital Account and allocated among the Partners as follows: 
 
(I)     first, to the Partners, pro rata, in proportion to the allocation of all Net Losses allocated pursuant to Section 5.3(a)(iii)(B)(II) until such Net Losses have been reversed; and 
(II)     second, to the Partners in the same manner and amounts as distributions are allocated in Section 6.3. 
 
(B)     Net Losses, if any, shall be debited against such Opening Capital Account and allocated among the Partners as follows: 
 
(I)     first, to the Partners, pro rata, in proportion to the allocation of all Net Profits allocated pursuant to Section 5.3(a)(iii)(A)(II) until such Net Profits have been reversed; and 
(II)     second, to the Limited Partners based on their respective aggregate Capital Contributions. 
 
(b)     Notwithstanding the provisions of Section 5.3 (a)(iii): 
(i)     at such time as the Capital Account of the General Partner or any Limited Partner is reduced to an amount equal to the aggregate Capital Contributions of such Partner (less all distributions to such Partner), the balance of all Net Losses will be allocated: 

 

 

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(A)     first, to the remaining Capital Accounts of the General Partner and Limited Partners which have not been reduced to zero (to be apportioned among them in accordance with their respective positive Capital Accounts); and 
(B)     second, after the Capital Accounts of all Limited Partners and the General Partner have been reduced to zero, then the balance to the General Partner. 
 
(ii)     If Net Losses are allocated in accordance with the foregoing Section 5.3(b)(i), any Net Profits that are required to be allocated after such special allocation of Net Losses as provided in the foregoing Section 5.3(b)(i) will be allocated: 
 
(A)     first, to the General Partner until the effect of the special allocation of Net Losses under Section 5.3(b)(i)(B) is reversed and eliminated; and 
(B)     second, to the General Partner and Limited Partners to whom the allocation of such Net Losses has been made under Section 5.3(b)(i)(A) until the effect of such special allocation of Net Losses has been reversed and eliminated. 
 
(c)     To the extent not otherwise accomplished by the provisions of Section 5.3(a) and Section 5.3(b), the Opening Capital Accounts of the Partners will be adjusted to effect any allocation of any item of income, gain, loss, deduction or credit to a Partner required by the Code. 
 
(d)     Nonrecourse Deductions. If a Partner's capital account has a deficit balance at any time and the deficit or increase in deficit was caused by the allocation of nonrecourse deductions as defined in Treasury Regulations § 1.704-2(b), then beginning in the first taxable year of the Partnership in which there are nonrecourse deductions or in which the Partnership makes a distribution of proceeds of a nonrecourse liability that are allocable to an increase in minimum gain as defined in Treasury Regulations § 1.704-2(d) and thereafter throughout the full term of the Company, the following rules shall apply; 
 
(A)     Nonrecourse deductions shall be allocated to the Partners in a manner that is reasonably consistent with allocations that have substantial economic effect as defined in Treasury Regulations § 1.704-1(b)(2) or some other significant item attributable to the property securing the nonrecourse liabilities, if applicable; and 
(B)     If there is a net decrease in minimum gain for a taxable year, each Partner will be allocated items of Partnership income and gain for that year equal to that Partner's share of the net decrease in minimum gain as defined in Treasury Regulations §1.704-2(g)(2). 
 
This section is intended to comply with the minimum gain chargeback requirement of Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.
 
 

 

 

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(e)     Partner Nonrecourse Deductions. All nonrecourse deductions attributable to a Partner Nonrecourse Liability shall be allocated among the Partners that bear the economic risk of loss for such Partner Nonrecourse Liability in accordance with the ratios in which such Partners share such economic risk o floss and in a manner consistent with the requirements of Treasury Regulation Section 1.704-2(b)(4), 1.704-2(1). Notwithstanding any other provision of this Article 5 and except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4), if there is a net decrease in partner nonrecourse debt minimum gain for a taxable year (determined in accordance with Treasury Regulation Section 1.704-2(i)(3)), each Partner will be allocated items of Partnership income and gain for that year equal to the Partner's proportionate share of the net decrease in partner nonrecourse debt minimum gain, as determined in accordance with Treasury Regulations Section 1.704-2(i)(4). This section is intended to comply with the minimum gain chargeback requirement of Treasury Regulation Section 1.704-2(i)(4) of the regulations and shall be interpreted consistently therewith. 
 
Section 5.4.     Tax Matters. 
 
(a)     If at the end of a fiscal year of the Partnership a Limited Partner unexpectedly receives an adjustment, allocation, or distribution described in clauses (4), (5) and (6) of Treasury Regulation § 1.704-l(b)(2)(ii) and that adjustment, allocation, or distribution reduces that Limited Partner's Opening Capital Account below zero (0), then the Limited Partner will be allocated all items of income and gain of the Partnership for that year and for all subsequent fiscal years until the deficit balance has been eliminated as provided in Treasury Regulation § 1.704-l(b)(2)(ii)(d), as quickly as possible. If any such unexpected adjustment, allocation or distribution creates a deficit balance in the Opening Capital Accounts of more than one Limited Partner in any fiscal year, all items of income and gain of the Partnership for the fiscal year and all subsequent fiscal years will be allocated among all such Limited Partners in proportion to their respective deficit balances until such balances have been eliminated. If any allocation is made pursuant to this paragraph, subsequent allocations shall be made (in a manner consistent with this paragraph) to offset the effects of such prior allocation. This provision is intended to qualify as a "qualified income offset" within the meaning of Treasury Regulation § 1.704-l(b)(2)(ii)(d). 
(b)     For Federal, state and local income tax purposes, each item of Partnership income, credit, gain or loss will be allocated among the Partners as provided in Section  5.3 and Section 5.4(a). 
 
(c)     The General Partner has the power, limited as provided in the following sentence, to make such allocations and to take such actions necessary under the Code or other applicable law to effect and to maintain the substantial economic effect of allocations made to the Partners under Section 704(b) of the Code. AU allocations made and other actions taken by the General Partner under this paragraph will be consistent to the maximum extent possible with the provisions of this Agreement. 
(d)     The General Partner is the "tax matters partner," as the term is used in the Code. 

 

 

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(e)     The General Partner is expressly authorized to (i) elect that the Partnership be classified as a partnership for federal tax purposes, and (i) to make any election or other action on behalf of the Partnership permitted under the Code with respect to the election of such tax classification. 
(f)     Any Partner which enters into a settlement agreement with respect to Partnership items must promptly give the General Partner notice of the settlement agreement and terms that relate to Partnership items. No Limited Partner may enter into any settlement agreement with respect to Partnership items that would be binding on the other Partners. 
(g)     In the event of any transfer by any Limited Partner of its Partnership interest, the General Partner will allocate items of income, credit, gain or loss in accordance with the Code and may make such elections under the Code as the General Partner determines to be necessary or appropriate. 
(h)     Anything contained in this Agreement to the contrary notwithstanding, if the Partnership is deemed liquidated within the meaning of Treasury Regulation §1.704-1(b) (2)(ii)(g) but has not dissolved under Section 7.1(a), then the assets of the Partnership will, after provision for payment to creditors, be deemed distributed to the Partners in accordance with Treasury Regulation §1.704-l(b)(2)(ii)(b)(2) and immediately recontributed to the Partnership. 
 
ARTICLE 6. 
Distributions 
 
Section 6.1.     Distributions to Partners. 
(a)     All distributions from the Partnership to the Partners must be made in the following order and amounts: 
(i)     to the Partners in accordance with Section 6.4; and 
(ii)     if all amounts required to be distributed under Section 6.4 have been distributed, then, if the General Partner elects in its sole discretion to make distributions, to the Partners, to be apportioned among the General Partner and the Limited Partners in accordance with Section 6.3. 
 
(b)     In no event shall any operating distributions be made to the Partners other than under Section 6.4 until all principal, interest and fees and expenses under the HRM Notes have been fully and finally repaid. 
 
Section 6.2.     Distributions of Noncash Assets in Kind. 
(a)     The Partnership at any time may distribute Noncash Assets in kind. 
(b)     Except as provided in the next sentence, any distribution of Noncash Assets will be made to the General Partner and Limited Partners (based upon the respective amounts which each of the two groups would be entitled to receive if the distribution were made in cash) with respect to the distribution of each Noncash Asset. 
 

 

 

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(c)     Noncash Assets distributed in kind under this Section 6.2 will be subject to such conditions and restrictions as are legally required, including, without limitation, such conditions and restrictions required to assure compliance by the Partners and/or the Partnership with the aggregation rules and volume limitations under Rule 144 promulgated under the Securities Act. 
(d)     In connection with any distribution of Noncash Assets that meet the terms of this Section 6.2, the General Partner may, in its sole discretion, offer to all Limited Partners the right to receive at their election all or any portion of such distribution in the form of the net proceeds from a disposition of such Noncash Assets that otherwise would have been distributed to such Partners; provided that in the event that the General Partner disposes of Noncash Assets on behalf of a Limited Partner, the General Partner shall have no liability whatsoever to such Limited Partner or the Partnership with respect to such disposition (including without limitation with respect to the timing of such disposition), except for its willful misconduct. Any gain or loss recognized by the Partnership upon the disposition of such Noncash Assets and any expenses of such disposition shall be allocated equitably among only those Limited Partners electing to receive net proceeds from such disposition. Upon receipt from a Limited Partner of an opinion of counsel (which opinion and counsel shall be reasonably acceptable to the General Partner) to the effect that a distribution of particular Noncash Assets to such Limited Partner would result in such Limited Partner owning assets that would cause such Limited Partner to be in violation of an applicable law or regulation, the General Partner shall not distribute such Noncash Assets to such Limited Partner and shall either (i) use reasonable efforts to dispose of such Noncash Assets and distribute the net proceeds to such Limited Partner in accordance with the other provisions of this Section 6.2(d), or (ii) retain such Noncash Assets in a segregated account, escrow account or other account under the direction and control of the Partnership at such Limited Partner's expense. All future profits (net of losses), if any, and cash proceeds (including cash dividends), if any, with respect to such Noncash Assets placed into any such account will be distributed to such Limited Partner when and as received by the Partnership net of any losses and out-of-pocket expenses incurred by the Partnership in connection with such Noncash Assets. Any such Noncash Assets placed into any such account will be treated as having been distributed in kind to such Limited Partner for purposes of this Agreement. 
 
Section 6.3.     Distributions Among the General Partner and Limited Partners.   Except as provided in Section 6.4, all amounts to be distributed to the General Partner and the Limited Partners will be apportioned among the General Partner and the Limited Partners as set forth in this Section 6.3. Distributions will be made as follows: 
(a)     first, to and among the Partners in an amount equal to each Partner's Unreturned Actual Capital; provided, however, if there is insufficient distributions to pay all Partners' Unreturned Actual Capital, then the amount of such distribution shall be made to and among the Partners in accordance with the ratio that the amount of each Partner's Unreturned Actual Capital bears to the aggregate Unreturned Actual Capital of all of the Partners;

 

 

-16-
(b)     second, to and among the Limited Partners in an amount as to each Limited Partner equal to ten percent (10%)) of such Limited Partner's Deemed Capital Contributions; provided, however, if there is insufficient distributions to pay all Limited Partners' ten percent (10%o) of their Deemed Capital Contributions, then the amount of such distribution shall be made to and among the Partners in accordance with the ratio that the amount of each Limited Partner's Deemed Capital Contributions bears to the aggregate Deemed Capital Contributions of all of the Limited Partners; and 
(c)     third, (i) fifteen percent (15%)) to the General Partner and (ii) eighty-five percent (85%)) to the Limited Partners, with distributions to the Limited Partners to be made pro rata in proportion to their respective Partner Percentages. 
 
Section 6.4.     Distributions for Payment of Taxes. 
(a)     Anything contained in this Agreement to the contrary notwithstanding, if the General Partner determines that, after setting aside amounts for Partnership Expenses and Partnership liability, the Partnership has cash available for distribution, the Partnership shall, before making distributions under Section 6.3, distribute, with respect to each fiscal year of the Partnership, up to the amount sufficient to enable each Partner (and the members of the General Partner) to discharge any Federal, state, and local tax liability arising as a result of such Partner's interest in the Partnership, assuming for this purpose that each Partner is subject to the same effective marginal combined Federal, state and local tax rate on all of the income allocated to h under this Agreement. Distributions made under this Section with respect to a fiscal year shall be made among the Partners pro rata in proportion to the amount of Net Profits allocated to each Partner during such fiscal year. The amount distributed under this Section with respect to any fiscal year shall not exceed the product of (i) the highest marginal combined Federal, state, and local tax rate applicable to any Partner or any member of the General Partner, and (ii) the Net Profits allocated to the Partners with respect to such fiscal year. Such distributions will be debited to such Partner's Capital Account, as provided in Section 5.3(a)(ii) and shall be treated as an advance of distributions to be made under Section 6.3. 
(b)     The Partnership will at all times be entitled to make payments with respect to any Partner in amounts required to discharge any legal obligation of the Partnership to withhold or make payments to any governmental authority with respect to any Federal, state or local tax liability of the Partner arising as a result of the Partner's interest in the Partnership. Each such payment will be debited to such Partner's Capital Account, as provided in Section 5.3(a)(ii). 
 
Section 6.5.     Distributions Violative of the Act Prohibited.   Anything contained in this Agreement to the contrary notwithstanding, no distribution may be made by the Partnership if and to the extent that such distribution would violate the Act.
 

 

 

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ARTICLE 7. 
Dissolution, Liquidation, Winding Up and Withdrawal 
 
Section 7.1.     Dissolution. 
(a)     The Partnership will be dissolved upon the first to occur of 
 
(i)     the election of the General Partner and by Majority Consent to dissolve the Partnership; or 
(ii)     May 1, 2018, but subject to two one-year extensions at the sole discretion of the General Partner. 
 
(b)     The Partnership will not dissolve upon the withdrawal, dissolution, bankruptcy, death or adjudication of incompetence or insanity of any Limited Partner. 
 
Section 7.2.     Winding Up. 
(a)     Subject to Section 7.3, when the Partnership is dissolved, and subject to the prior receipt of all required governmental and regulatory consents, the property and business of the Partnership will be liquidated by the General Partner or if there is no General Partner or the General Partner is unable to act, a Person designated by Majority Consent. 
 
(b)     Within a reasonable time after the effective date of dissolution of the Partnership, the affairs of the Partnership will be wound up and the General Partner shall apply the proceeds in such liquidation, or in its sole discretion to distribute Partnership assets, in the following order of priority: 
 
(i)     first, to the payment of the debts and liabilities of the Partnership (including any loans or advances that may have been made by any of the Partners to the Partnership), all principal, interest and fees and expenses under the HRM Notes and the $5 million Junior Promissory Note issued to Kingsway on or about the date hereof and the expenses of liquidation whether by payment or the making of reasonable provision for payment; 
(ii)     second, to the setting up of any reserves that the General Partner may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership or of the Partners arising out of or in connection with the Partnership; and 
 
(iii)     finally, to the distribution to each of the Partners in accordance with the distribution provisions of Section 6.3 hereof. 
Section 7.3.     Withdrawals of Capital. Except as specifically provided in this Agreement, withdrawals by a Partner of any amount of its Capital Account are not permitted. 
 

 

 

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ARTICLE 8. 
Books and Records 
 
Section 8.1.     Books and Records.   The General Partner shall maintain books of account sufficient to meet the reporting requirements of relevant taxing authorities. The General Partner shall record, fully and accurately, the transactions of the Partnership in such books of account in accordance with GAAP. The Partnership shall keep at its principal place of business the following records: 
(a)     a copy of the Certificate of Limited Partnership and all amendments thereto; 
(b)     copies of Partnership federal, state, and local income tax returns and financial statements for the applicable statute of limitations or, if such returns or statements were not prepared for any reason, copies of the information and statements provided to, or which should have been provided to, the Limited Partners to enable them to prepare their federal, state and local tax returns for such period; and 
(a)     copies of this Agreement, as amended from time to time. 
 
Section 8.2.     Fiscal Year.   The fiscal year of the Partnership will be a twelve-month year (except for the first and last partial years, if any) ending on December 31. 
 
Section 8.3.     Confidentiality. 
(a)     The Partners hereby acknowledge and agree that the Partnership will be in possession of confidential and proprietary information and that the improper use or disclosure of such information could have a material adverse effect upon the Partnership or upon the Investment. 
(b)     The Partners agree that all information provided to them by or on behalf of the Partnership or the General Partner concerning the business or assets of the Partnership, a Partner or the Investment shall be deemed strictly confidential and shall not, without the consent of the General Partner, be (i) disclosed to any Person other than another Partner or the Limited Partner's advisors or (ii) used by a Partner other than for a Partnership purpose or a purpose reasonably related to protecting such Partner's interest in the Partnership; provided, however, that the foregoing requirements shall not apply to a Partner with regard to any information that is (i) required to be disclosed pursuant to any applicable law or the rules of a national securities exchange (but in each case only to the extent of such requirement); (ii) required to be disclosed in order to protect such Partner's interest in the Partnership (but only to the extent of such requirement and after prior consultation with the General Partner); (iii) publicly known or available in the absence of any improper or unlawful action on the part of such Partner; or (iv) known or available to such Partner via legitimate means other than through or on behalf of the Partnership or the General Partner. For purposes of this Section, Partnership information (including information relating to the Investment or another Partner) provided by one Partner to another shall be deemed to have been provided on behalf of the Partnership. 
 

 

 

-19-
 
To the extent permitted by applicable law, and Notwithstanding the provisions of Section 8.3(b), the General Partner may, in its sole and absolute discretion, keep confidential from any Limited Partner any confidential or proprietary information relating to the property or performance of the Investment to the extent the General Partner reasonably determines that disclosure of such information to such Limited Partner may have a material adverse effect upon the Partnership, another Partner or the Investment. The foregoing provisions of this subsection shall not apply to permit the General Partner to keep confidential from a Limited Partner (i) any information that such Limited Partner requires to comply with applicable law or the rules of a national securities exchange rule or (ii) any financial or other information required to be provided to such Limited Partner under the express terms of this Agreement. 
 
 

 

 

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ARTICLE 9.
 Transfer Provisions 
 
Section 9.1.     Transfer Provisions. 
(a)     Transfer Restrictions. Except as expressly provided in this Agreement, a Partner may not Transfer all or any portion of any of such Partner's Partnership Interest, except that (x) the Class B Partner may Transfer all or any portion of its Class B Partnership Interest without the consent of any Person, so long as the transferee of such Class B Partnership Interest executes such instruments and documents as reasonably required by the General Partner, including an agreement to be bound by the terms of this Agreement and (y) if the Class B Partner Transfers more than fifty percent (50%)) of its Class B Partnership Interest to a non-Affiliate of the Class B Partner, any Partner may thereafter Transfer all or any portion of its Partnership Interest without the consent of any Person, so long as the transferee of such Partnership Interest executes such instruments and documents as reasonably required by the General Partner, including an agreement to be bound by the terms of this Agreement. Any transfer of the Class B Partner's Class B Partnership Interest to any Person that is not an Affiliate of the Class B Partner shall automatically and without any further actions convert such Class B Partnership Interest into a Class A Partnership Interest. The Partnership shall not register any Transfer of a Partner's Partnership Interest, and any such Transfer or registration of Transfer shall be null and void, if effected in contravention of the terms hereof 
(b)     The restrictions contained in this Section shall not apply with respect to any Transfer of a Partnership Interest or any part thereof to a Permitted Transferee; provided, that as a condition to any such Transfer, the Permitted Transferee shall execute a counterpart of this Agreement agreeing to be bound to the same extent as the Partner Transferring such Partnership Interest(s); and provided further that the restrictions contained in this Agreement shall continue to apply to the Partnership Interests so transferred after such Transfer by reference to the original Partner. The restrictions contained in this Section shall also not apply to any transfer made to the Proposed Transferee following the exercise of the Drag-Along Right. 
(c)     All Transfers permitted hereunder shall be subject to the prior receipt of all required governmental and regulatory consents to such Transfers. 
 
Section 9.2.     Drag-Along. 
(a)     At any time and from time to time after the date of this Agreement, but subject first to the right of United in Section 9.3, if the General Partner shall have arranged for a Sale (including with Majority Consent if required under Section 3.2(b)) in a bona fide arms' length Sale to any Person or Persons who are not Affiliates of the General Partner (the "Proposed Transferee"), it shall have the right to cause each Partner to participate therein (the "Drag-Along Right"). In such case, each Partner shall be obligated to and shall upon the written request of the General Partner (i) sell, transfer and deliver, or cause to be sold, transferred and delivered, to the Proposed Transferee, a pro rata portion of, his, her or its Partnership Interests on substantially the same terms applicable to the General Partner (other than to account for differences in distributions as a result of the Sale under Section 6.3); and (ii) execute and deliver such instruments of conveyance and transfer and take such other action, including voting such Partnership Interests in favor of the Sale and executing any purchase agreements, merger agreements, indemnity agreements, escrow agreements or related documents, as the General Partner or the Proposed Transferee may reasonably require in order to for such Partners to Transfer their Partnership Interests (and hereby constitutes and empowers the General Partner to execute and deliver such instruments of conveyance and transfer and take such other action as may be necessary or appropriate to carry out the foregoing provisions of this subsection (ii) if such Partner does not reasonably do so). Each Partner shall waive any dissenters' rights, appraisal rights or similar rights in connection with the Sale. 

 

 

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(b)     To exercise a Drag-Along Right, the General Partner shall give each Partner written notice at least 10 business days prior to the proposed Transfer (a "Drag-Along Notice") containing the name and address of the Proposed Transferee, the Partnership Interests involved in the proposed Transfer, and the terms of such proposed Transfer (including all payable consideration amount and form). Each Partner shall thereafter be obligated to sell its Partnership Interests pursuant to such Drag-Along Notice and/or perform such other acts as are reasonably necessary to consummate the Sale, provided that the sale to the Proposed Transferee is consummated on the same economic terms and conditions as set forth in the Drag-Along Notice and substantially the same non-economic terms and conditions set forth in the Drag-Along Notice and within one hundred eighty (180) days of delivery of the Drag-Along Notice. If the Sale is not consummated within such 180-day period, then each Partner shall no longer be obligated to sell such Partner's Partnership Interests and/or perform such other acts as necessary to consummate the Sale pursuant to that specific Drag-Along Right but shall remain subject to the provisions of this Section. 
Section 9.3.     United Right of First Refusal on Sale. 
(a)     If the Partnership arranges for a Sale in a bona fide arms' length sale to any Person (the "Proposed Transferee"), the General Partner shall first deliver to United a written notice of its intention to effect such Sale (a "Sale Notice"), which shall be irrevocable for a period of twenty (20) days after delivery thereof, offering to United the right to be the purchaser in such Sale at the purchase price and on the other material terms at and for which the Partnership proposes to effect the Sale to the Proposed Transferee. 
(b)     United shall have (i) the right and option, for a period of thirty (30) days after delivery to United of the Sale Notice, to accept its right to be the purchaser in the Sale at the purchase price and on the other terms stated in the Sale Notice. Any such acceptance by United shall be made by delivery of a written notice of acceptance ("Notice of Acceptance") to the General Partner within the aforesaid 30-day period. 
(c)     Notwithstanding anything herein that may be construed to the contrary, if for any reason the Proposed Transferee elects any right it may have not to effect the Sale, then the Partnership shall have the right to terminate the right of United to be the purchaser thereunder pursuant to the Sale Notice, in which case the provisions of this Section shall be reinstated with respect to any further proposed Sales (including to the Proposed Transferee). 
 

 

 

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(d)     The closing of any Sale under the terms of this Section shall be at the office of the Partnership on a mutually satisfactory business day within fifteen (15) days after the expiration of the aforesaid 30-day period or, if later, fifteen (15) days after all necessary governmental approvals of the closing and the Sale have been obtained. The Partnership and United shall negotiate and close the Sale in good faith and within the time periods set forth in this Section. Delivery of certificates or other instruments evidencing the Sale duly endorsed for transfer to United shall be made on such date against payment of the purchase price therefor. 
(e)     If effective acceptance shall not be received pursuant to Section 9.3(b) with respect to the Sale pursuant to the Transfer Notice therefor, then the Partnership may effect the Sale to the Proposed Transferee at a price not less than the price, and on terms not more favorable to the Proposed Transferee thereof than the terms, stated in the Sale Notice, at any time within one hundred eighty (180) business days after the expiration of the closing period required by Section 9.3(c) above. In the event that the Sale is not effected by the Partnership during such 180-business day period, or the General Partner decides with notice to United not to effect the Sale to the Proposed Transferee, the right of the Partnership to effect a Sale under this Section 9.3(d) shall expire and the obligations of this Section 9.3 shall be reinstated 
 
ARTICLE 10. 
Miscellaneous 
 
Section 10.1.     Binding Agreement.   Subject to the provisions of Section 9.1, this Agreement is binding upon, and inures to the benefit of, the heir, successor, assign, executor, administrator, committee, guardian, conservator or trustee of any Partner. 
Section 10.2.     Gender.   As used in this Agreement, masculine, feminine and neuter pronouns include the masculine, feminine and neuter; and the singular includes the plural. 
 
Section 10.3.     Notices. 
(a)     All notices, consents, approvals, reports, designations, requests, waivers, elections and other communications (collectively, "Notices") authorized or required to be given pursuant to this Agreement shall be given in writing and either (i) personally delivered to the Partner to whom it is given, (ii) sent by electronic mail or (iii) delivered by an established private delivery service by which receipts are given. 
(b)     A notice is deemed to have been given as of the day of delivery of the notice to the addressee: 
 

 

 

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(c)     Notices must be sent to: 
(i)     the Partnership, at the address of the General Partner in Schedule A attached hereto, or such other address or addresses as to which the Partners have been given notice; and 
(ii)     the Partners, at the addresses in Schedule A attached hereto (as it may be amended from time to time) or such other addresses as to which the Partnership has been given notice. 
 
Section 10.4.     Counterparts; Facsimile and Electronic Signatures. This Agreement and any amendment to this Agreement may be executed in more than one counterpart with the same effect as if the parties executed one counterpart as of the day and year first above written on this Agreement or any such amendment. It shall not be necessary when making proof of this Agreement or any counterpart thereof to account for any other counterpart, and the signature of any party to any counterpart shall be deemed to be a signature to and may be appended to any other counterpart. For purposes of this Agreement, a document (or signature page thereto) signed and transmitted by facsimile machine or other electronic means is to be treated as an original document. The signature of any party on any such document, for purposes hereof, is to be considered as an original signature, and the document transmitted is to be considered to have the same binding effect as an original signature on an original document. At the request of any party, any facsimile or other electronic signature is to be re-executed in original form by the party which executed the facsimile or other electronic signature. No party may raise the use of a facsimile machine or other electronic means, or the fact that any signature was transmitted through the use of a facsimile machine or other electronic means, as a defense to the enforcement of this Agreement. 
Section 10.5.     Amendments. This Agreement may not be amended except by an instrument in writing executed by the General Partner and by Majority Consent. Notwithstanding the foregoing, this Agreement may not be amended and the observance of any term hereunder may not be waived with respect to any matter affecting any individual Partner without the written consent of such Partner, unless such amendment or waiver does not adversely affect such Partner in a disproportionate or discriminatory manner to other Partners. The Partnership shall give prompt written notice of any amendment hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment or waiver. Any amendment or waiver effected in accordance with this Section shall be binding on all parties hereto, even if they do not execute such consent. 
Section 10.6.     Governing Law; Venue. This Agreement shall be governed in all respects by the laws of the State of Delaware as such laws are applied to agreements between or among Delaware residents entered into and to be performed entirely within Delaware, and without regard to its conflicts of laws principles. Each of the parties irrevocably submits to the exclusive jurisdiction of any court of the State of Illinois or any United States District Court in Illinois over any action, suit or proceeding relating to or arising out of this Agreement and the transactions contemplated hereby. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY SUCH ACTIONS, SUIT OR PROCEEDING. Each party hereby irrevocably waives any objections,
 

 

 

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including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens which such party may now or hereafter have to the bringing of any such actions, suit or proceeding in any such court. In the event either party shall not have appointed an agent for service of process in Illinois each party agrees that it may be served with process delivered in accordance with Section 9.4. 
 
Section 10.7.     Partner Consents.   Any action of the Partners (or a subset thereof) may be taken by written consent of that number or percentage of the Partners whose consent is otherwise required for such action under this Agreement. The fact that a Partner has not received notice of an action taken by written consent, or taken at a meeting actually held, shall not invalidate such action so long as it was taken with the consent of that number or percentage of the Partners whose consent is otherwise required for such action under this Agreement. A Partner may authorize another Person to vote or otherwise act on its behalf through a written proxy or power of attorney. 
Section 10.8.     Severability.   If any one or more of the provisions contained in this Agreement, or any application of any such provision, is invalid, illegal, or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained in this Agreement and all other applications of any such provision will not in any way be affected or impaired. 
Section 10.9.     Entire Agreement.  This Agreement, and all other written agreements executed by or on behalf of the General Partner and/or the Limited Partners, up to and including the date of this Agreement, state the entire understanding among the parties relating to the subject matter of this Agreement. Any and all prior conversations, correspondence, memoranda or other writings are merged in, and replaced by this Agreement, and are without further effect on this Agreement. No promises, covenants, representations or warranties of any character or nature other than those expressly stated in this Agreement have been made to induce any party to enter into this Agreement. 
Section 10.10.     No Third Party Beneficiaries. Except for the Partnership's obligations to indemnified Persons hereunder and as otherwise specifically provided in this Agreement, the provisions of this Agreement are not intended to be for the benefit of or enforceable by any third party. 
Section 10.11.     Attorneys' Fees. In the event of any litigation or arbitration regarding the rights and obligations under this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and court costs in addition to any other relief which may be granted. The "prevailing party" shall mean the party who receives substantially the relief desired, whether by settlement, dismissal, summary judgment, judgment or otherwise. 
Section 10.12.     Remedies for Breach of this Agreement. Except as otherwise specifically provided in this Agreement, the remedies set forth in this Agreement are cumulative and shall not exclude any other remedies to which a Person may be lawfully entitled. 
 
Section 10.13.     Miscellaneous. No failure or delay by any party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof; any actual waiver shall be contained in a writing signed by the party against whom enforcement of such waiver is sought. 
 

 

 

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This Agreement shall not be construed for or against any party by reason of the authorship or alleged authorship of any provisions hereof or by reason of the status of the respective parties. Except as otherwise permitted by this Agreement, no Partner shall have the right, and each Partner does hereby agree that it shall not seek, to cause a partition of the Partnership's property whether by court action or otherwise. 
 
 
 
 
 
[intentionally left blank - signature pages follow] 
 

 

 

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[signature page to Agreement of Limited Partnership of Acadia Acquisition Partners, L.P.]
IN WITNESS WHEREOF, the parties to this Agreement have executed this Agreement as of the date first set forth above, 
General Partner:
ACADIA GP, LLC 
 
By: /s/William A. Hickey, Jr. 
William A. Hickey, Jr. 
A Manager 
 
Limited Partners; 
KINGSWAY AMERICA INC.                 UNITED PROPERTY & CASUALTY 
INSURANCE COMPANY 
By: /s/ William A. Hickey, Jr.
       William A. Hickey, Jr.                By: __________________________
       Vice President and Chief Operating                   Its
       Officer
 
 
By: /s/ Hassan Baqar.
       Hassan R. Baqar                    
       Its Vice President 

 

 

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[signature page to Agreement of Limited Partnership of Acadia Acquisition Partners, L.P.]
IN WITNESS WHEREOF, the parties to this Agreement have executed this Agreement as of the date first set forth above, 
General Partner:
ACADIA GP, LLC 
 
By: _______________
William A. Hickey, Jr. 
A Manager 
 
Limited Partners; 
KINGSWAY AMERICA INC.                 UNITED PROPERTY & CASUALTY 
INSURANCE COMPANY 
By: __________________
                                   By: /s/ Donald J. Cronin
       Its                                  Its CEO
       
 
 
By: __________________
                           
       Its 

 

 

	
														
	Schedule A
	 

	 
	 
	 
	 
	 
	 
	 

	Partners' Capital Contributions
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	Initial Actual
	Deemed
	Total Initial
	 
	 

	Partner and
	 
	Capital
	Capital
	Capital
	Partner
	 

	Address
	Partner Class
	Contribution
	Contribution
	Contribution
	Percentage
	 

	 
	 
	 
	 
	 
	 
	 

	Acadia GP, LLC
	Genral Partner
	$
	—
	 
	—
	 
	—
	 
	—
	%
	 

	 
	 
	 
	 
	 
	 
	 

	KIngsway
	 
	 
	 
	 
	 
	 

	America, Inc.
	Class B Partner
	$
	—
	 
	$
	1,800,000
	 
	$
	1,800,000
	 
	40
	%
	1

	 
	 
	 
	 
	 
	 
	 

	United Property
	 
	 
	 
	 
	 
	 

	& Casualty
	 
	 
	 
	 
	 
	 

	Insurance
	 
	 
	 
	 
	 
	 

	Company
	Class A Partner
	$
	—
	 
	$
	2,250,000
	 
	$
	2,250,000
	 
	60
	%
	1

	 
	 
	$
	—
	 
	$
	4,050,000
	 
	 
	100
	%
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	1 After applicaiton of the Percentage CapWebFilings | EDGAR view

 

 
Exhibit 10.4
 
PR-M Non-Bonus Assumption Agreement

 
THIS ASSUMPTION AGREEMENT (the “Agreement”) is executed as of the third day of March, 2011 (“Execution Date”) by and between United Property and Casualty Insurance Company, a Florida licensed and authorized insurance company (“Insurer”); and Citizens Property Insurance Corporation, an entity created by the Legislature of the State of Florida pursuant to Subsection 627.351(6), and any successor entity (“CITIZENS”).
RECITALS
WHEREAS, CITIZENS desires to allow qualifying insurers to participate in the Program and remove policies from CITIZENS;
WHEREAS, Insurer has made application to CITIZENS to participate in the Program; and
WHEREAS, the Office of Insurance Regulation (“OIR”) has issued a Consent Order to this Insurer approving its Depopulation Plan.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the Parties hereto do covenant and agree as follows:
DEFINITIONS
For purposes of this Agreement:
A.      “Aggregate Losses” shall mean those losses which include, but are not limited to, compensatory, punitive, bad faith and other damages arising from, and all loss adjustment expenses relating to, the adjustment or defense of any and all claims with respect to losses on policies of insurance of Citizens or Issuer.
B.      “Assumed Premium” shall mean Initial Assumed Premium as adjusted by a monthly remittance and bordereau process developed by the Insurer and CITIZENS to account for policy cancellations, return premiums, policyholder requested coverage changes, and Returned Policies after the Assumption Date, with the positive and negative adjustments.
 
1
 
 

 

 

PR-M Non-Bonus Assumption Agreement
C.      “Assumption” shall mean the transference of risks from CITIZENS to the Insurer on a Removed Policy, whereby the Insurer is deemed to have directly issued the Removed Policy as provided in subparagraph (p)6 of Subsection 627.351(6) (as added by Chapter 2007-1 Laws of Florida).
D.      “Assumption Date” shall mean that date upon which the Assumption of a Removed Policy occurs.
E.      “Assumption Procedures” shall mean those procedures applicable to the depopulation of CITIZENS policies under subparagraphs (p) 3-6 of Subsection 627.351 (6), Section 627.3511, and Section 627.3517, Florida Statutes, and this Agreement, as set forth in Exhibit D attached hereto.
F.      “Ceding Commission Rate” shall be as defined in Exhibit B attached hereto.
G.      “Independent Auditor” shall mean a certified public accountant or certified public accounting firm, licensed in the State of Florida, to perform professional auditing services and who is without bias with respect to the outcome of the audit services and with respect to the Insurer.
H.      “Initial Assumed Premium” shall mean Written Premium, less the Written Premium earned by CITIZENS with respect to the Removed Policies as of the respective Assumption Dates of such policies.
I.      “Initial Notice” shall mean a notice, in substantially form attached as Exhibit F (this is not included), mailed to a policyholders more than thirty days prior to the Assumption Date of a Tagged Policy.
J.      “Office” shall mean the Florida Office of Insurance Regulation.
K.     “Parties” shall mean the Insurer and CITIZENS.
L.      “Plan” shall mean the Plan of Operation of CITIZENS, as amended.
M.     “Rejected Policy” shall mean any Tagged Policy the offer of which has been rejected by a policyholder as provided in section 3.E. of this Agreement.
N.      “Replacement Policy” shall mean a policy offered or issued by Insurer on its own policy forms, to take effect upon the expiration or cancellation of a Removed Policy.
O.      “Removed Policy or “Removed Policies” shall mean a CITIZENS Policy that is assumed by the Insurer under this Agreement and is not a Rejected Policy.
P.       “Program” shall mean any program for the depopulation of policies by assumption or other take-out as approved by CITIZENS and the Office pursuant to subparagraph (p)3-6 of Subsection 627.351(6).
Q.      “Returned Policy” shall mean a Removed Policy that is returned to Citizens as provided in section 3.F. of this Agreement.
 
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PR-M Non-Bonus Assumption Agreement
R.      “Subsection 627.351 (6)” shall mean subsection 627.351 (6), Florida Statutes (2006), which is Citizens' enabling statute.
S.      “Tagged Policies” shall mean the Policies identified by CITIZENS policy number and expiration date on Exhibit A or any supplement thereto.
T.      “Written Premium” shall mean the gross written premium of CITIZENS on the Removed Policies, less policy cancellation and return premiums, as of the respective Assumption Dates of such polices. Written Premium shall  not  include fees or surcharges invoiced for collection by CITIZENS on the Policies, including a(n) (i) market equalization surcharge, (ii) CITIZENS policyholder surcharge, (iii) nonhomestead policyholder assessment, (iv) Citizens additional policyholder assessment, (v) regular assessment, (vi) emergency assessment, (vii) tax-exempt surcharge, (viii) reinsurance or catastrophe financing surcharge, or (ix) other fees, taxes, assessments, or surcharges imposed on CITIZENS policyholders as determined by CITIZENS.
TERMS AND CONDITIONS
1.    Term of this Agreement.   This Agreement shall terminate 18 months from the date it is signed. No Assumptions may occur after the Agreement terminates.
2.    Agreement to Remove Policies.
A.     The Insurer and CITIZENS shall, prior to an Assumption Date, agree upon those Tagged Policies eligible to be removed under the Program by the Insurer on the Assumption Date and shall set forth those Policies by CITIZENS policy number and expiration date on Exhibit A or any supplement thereto, which Exhibit A or supplement shall be attached hereto and made a part hereof by reference.
B.     Pursuant to this Agreement and the Assumption Procedures, the Insurer shall remove by Assumption all of the Tagged Policies set forth on Exhibit A or supplements thereto, if available for removal on the Assumption Date pursuant to this Agreement and as approved by the Office.
3.    Terms of Assumption.
A.     Liabilities.
(i)     With respect to a Removed Policy, the Insurer is liable and obligated to pay all Aggregate Losses occurring on or after 12:01 A.M. Eastern Standard Time on the Assumption Date of a Removed Policy and CITIZENS has no obligation or liability with respect to such Aggregate Losses.
(ii)     The Insurer, in addition, agrees to assume and undertake all other obligations with respect to the Removed Policies in the manner provided herein. Such obligations include, but are not limited to, accepting that the policy as written, and assumed, may not accurately reflect the risk.
(iii)     CITIZENS shall remain liable for all Aggregate Losses for the Removed Policies occurring prior to the Assumption Date, and all Aggregate Losses for the Rejected Policies and the Returned Policies, and the Insurer shall have no responsibility with respect to such losses.
 
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PR-M Non-Bonus Assumption Agreement
(iv) The Insurer shall comply with all applicable Assumption Procedures.
B.     Notices.
(i)     The cost of any notice and ancillary documentation to current CITIZENS policyholders to effectuate Assumption of the Policies shall be borne equally by the Parties, except that the cost of the Initial Notice shall be borne solely by the Insurer. If CITIZENS bears the cost for any expenditures, the Insurer agrees that its portion of such costs may be withheld from any Assumed Premium paid to Insurer by CITIZENS pursuant to this Agreement or any amendments or addenda to this Agreement. In the event CITIZENS, for whatever reason, does not withhold the Insurer's portion of such cost from any Assumed Premium paid to Insurer, Insurer agrees to pay said sum to CITIZENS within thirty (30) days of its receipt of a billing statement from CITIZENS.
(ii)     The parties shall coordinate the mailing of any documentation or notices required by this Agreement.
C.     Assumed Premium.
(i)     CITIZENS shall pay by wire transfer to the Insurer the Assumed Premium multiplied by 1.000 minus the applicable Ceding Commission Rate on or before the 20th day following the Assumption Date. Any subsequent amounts due to or from CITIZENS as a result of the monthly remittance and bordereau process shall be remitted to the appropriate Party net of Ceding Commission within ten (10) days following the end of each month without interest.
D.     Servicing of Policies. Commencing on the Assumption date of a Removed Policy:
(i)     Until a Removed Policy is renewed onto an Insurers policy form, on behalf of the Insurer, CITIZENS shall process endorsements and cancellations and provide other policy services with respect to the Removed Policy. The consideration for services to be performed by CITIZENS on behalf of the Insurer is specifically encompassed in the Ceding Commission Rate referenced in Exhibit B attached hereto.
(ii)     The Insurer is responsible for offering and processing offers of renewal coverage with respect to its Replacement Policies, utilizing its approved rates and forms. Insurer is responsible for all policyholder services with respect to its Replacement Policies.
E.     Rejected Policies.
The parties acknowledge that policyholders of Tagged Policies have the right to reject Insurer's offer of coverage and to remain policyholders of Citizens. Accordingly, Insurer shall mail to the policyholders the Initial Notice disclosing such right. After the mailing of the Initial Notice, and prior to the Assumption Date, the Insurer shall be responsible for obtaining written confirmation from any Policyholder requesting that their Policy not be removed from CITIZENS. Such information shall be remitted to CITIZENS in an electronic format acceptable to CITIZENS.
 
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PR-M Non-Bonus Assumption Agreement
F.         Returned Policies.
Any policyholder under a Removed Policy may return to CITIZENS within thirty days after the Assumption Date and shall be reinstated by CITIZENS. The insurer shall process all such received policyholder requests to return to CITIZENS and forward such requests, along with the appropriate unearned premium attributable to the Returned Policy, on a monthly basis to CITIZENS in an electronic format acceptable to CITIZENS. After the thirty-day period following an Assumption Date, but prior to the date on which they are renewed onto a Replacement Policy issued by the Insurer, any assumed policyholder that elects to return to CITIZENS may cancel their Policy with the Insurer, and may make application to CITIZENS for a new Policy, and shall be accepted for coverage by CITIZENS if otherwise eligible.
G.     Claims Servicing.
(i)     CITIZENS is solely responsible for the servicing of claims for losses occurring (a) prior to the Assumption Date under a Removed Policy, (b) at any time under a Rejected Policy, and (c) at any time under a Returned Policy.
(ii)     Insurer is solely responsible for the servicing of claims for losses occurring on or after an Assumption Date under a Removed Policy. CITIZENS shall have no responsibility for payment of losses or loss adjustment expenses or for the servicing of claims with respect to losses occurring under any Removed Policy on or after the Assumption Date.
(iii)     CITIZENS agrees that in instances where the sharing of information will facilitate the resolution of a claim which has occurred after the Assumption Date, and in accordance with applicable state and federal laws, it will share prior claims, underwriting and other information with the Insurer. CITIZENS reserves the right at anytime to deny access to any and all such information or to seek the permission of the Policyholder for release of such information. Insurer agrees to treat all information provided to them as confidential and certifies that all such information provided to them by CITIZENS shall be used strictly to adjust a claim and for no other purpose.
(iv)     With regard to losses occurring on Removed Policies after the Assumption Date, CITIZENS shall give notice promptly to the Insurer of any claim by a third party or the commencement of any legal proceedings against CITIZENS with respect to such claim. The Insurer shall have the exclusive right to control the contest and defense for any such claim incurred or litigation initiated as of the Assumption Date. The liability of the Insurer under the Removed Policies shall always follow that of CITIZENS, and any error or omission of CITIZENS or its agents shall in no way relieve the Insurer of its liability or obligations in respect of the matters affected by such errors or omissions, it being understood and agreed that the Insurer shall follow and share the same fortune as CITIZENS under all circumstances.
(v)     CITIZENS agrees to assign to the Insurer any and all salvage and subrogation rights arising with respect to losses occurring on or after an Assumption Date, which CITIZENS may have with respect to the Removed Policies.
 
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PR-M Non-Bonus Assumption Agreement
H.     Conditions to Closing.
The following conditions must be met prior to an Assumption Date:
(i)     Approval by the Office of an Assumption by issuance of a Consent Order or letter, which Consent Order or letter shall be attached hereto as Exhibit C.
(ii)     Satisfactory compliance with all requirements of CITIZENS for participation in the Assumption.
(iii)     The mailing, more than thirty days in advance of the Assumption Date, of the Initial Notice to each putative Policyholder of a Tagged Policy.
I.         Implementation.
(i)     The parties hereto acknowledge that, pursuant to all applicable laws and this Agreement, CITIZENS will use its sole judgment and discretion in implementing the Assumption Procedures for participating Insurers.
(ii)     Should the parties fail to agree on the Tagged Policies to be set forth on Exhibit A, no obligation shall be created pursuant to this Agreement.
(iii)     The Insurer and CITIZENS agree to allow the Insurer to supplement Exhibit A from time to time with lists of additional Tagged Policies, but such additional Tagged Policies must be designated and assumed by the Insurer not later than eighteen (18) months from the initial Assumption Date. All Assumptions for each supplement to Exhibit A ( e.g.,  Exhibit A-1, A-2, etc.) shall be in accordance with the terms and provisions of this Agreement and the Assumption Procedures. The Policies so identified in any such supplement to Exhibit A shall be treated as Removed Policies as of the date of their Assumption for the purposes of this Agreement. All such supplements to this Agreement shall be executed in writing by the Parties to effectuate and document such additional Assumptions.
(iv)     CITIZENS shall not enter into an agreement with any other insurer for the removal of the Tagged Policies unless such policies are not removed by the Insurer in accordance with the terms and provisions of this Agreement, or are Rejected Policies or Returned Policies or are written new by Citizens after their removal by Insurer.
4.  Conditions of Assumption.
A.     The Insurer shall remove the Removed Policies by Assumption in accordance with this Agreement and the Assumption Procedures and shall offer to renew the Insurer's Replacement Policy for a period of three (3) years subsequent to the expiration of the Removed Policy. During the aforenoted period, the Insurer's renewals of the Replacement Policy shall be at the Insurer's approved rates and on substantially similar terms or on such forms and rates as approved by the Office. No such Policy may be cancelled or nonrenewed by the Insurer during this period except for nonpayment of premium or in accordance with the provisions of the Consent Order attached as Exhibit C.
B.     CITIZENS shall provide, or has provided, to the Insurer, by electronic data transfer, or by such other means as is acceptable to CITIZENS, relevant information regarding the Tagged Policies available for assumption. The Insurer understands that CITIZENS cannot guarantee the reliability and accuracy of this data and the Insurer agrees that policies will not be cancelled upon discovery that this information was not accurate, unless such inaccuracy amounts to a material misrepresentation or fraud on behalf of the insured.
 
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PR-M Non-Bonus Assumption Agreement
C.     The Insurer understands that CITIZENS makes no guarantee that a Tagged Policy will be available for removal on the Assumption Date.
D.     Thirty-six (36) months after the first Assumption Date, the Insurer shall provide to CITIZENS an Independent Auditor's report performed in accordance with the instructions provided in the Audit Scope attached hereto and incorporated herein by reference as Exhibit E. At a minimum the Audit shall contain all pertinent data to verify the satisfactory completion of the Insurer's performance pursuant to this agreement. Prior to commencing work, the Independent Auditor shall be approved by CITIZENS, which approval shall not be unreasonably withheld. All expenses of the Independent Auditor shall be paid by the Insurer. At the beginning of the Audit CITIZENS shall provide the approved auditor the procedures to be followed in meeting the requirements of Exhibit E.
E.     The Insurer agrees that as of the Assumption Date, no bonus, incentive plan, or consideration beyond the assumed premium will be paid by CITIZENS for the Insurer's removal of Removed Policies.
F.         By signing this Agreement, Insurer certifies that its assumption of policies complies with Section 627.3517, Florida Statutes. It is the Insurer's sole responsibility to contact all agents involved with the Tagged Policies in order to obtain their permission to include those particular policies in the Assumption.
5.    Office Oversight.   CITIZENS shall provide a fully executed copy of this Agreement to the Office. The Insurer shall respond to any requests for information by the Office regarding the proposal or this Agreement. The Insurer and CITIZENS are, and shall remain, subject to all applicable laws of the State of Florida and the supervision, rules, regulations and orders of the Office.
6.  Right of Audit.     CITIZENS or its representatives, upon reasonable advance written notice, shall be entitled to audit, at its own cost and expense, the relevant books and records of the Insurer during normal business hours to confirm the Insurer's compliance with the terms and conditions of this Agreement.
7.  Indemnification.   Insurer shall indemnify CITIZENS, its Board of Governors, officers, agents and employees (“CITIZENS Indemnitees”) against any costs, expenses (including reasonable counsel fees and costs of litigation), claims, demands, actions, losses or liabilities that CITIZENS Indemnitees may suffer or that may be asserted or claimed against CITIZENS Indemnitees, caused by or arising directly out of any breach of this Agreement by the Insurer or Insurer's Assumption of Removed Policies.
8.  Insurer's Continuing Status.  The Insurer, during the period of this Agreement, shall remain duly licensed and authorized to transact property and casualty insurance business in the State of Florida and the lines of insurance applicable to Removed Policies and Replacement Policies.
 
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PR-M Non-Bonus Assumption Agreement
9.  Breach, Default, Cure, Termination and Other Remedies.
A.     Events of Default.   A default under this Agreement occurs in the event of any material breach of an obligation, representation or undertaking of a party as set forth in this Agreement, including without limitation:
(i)     (a) Insurer fails to maintain its authority and licensing to conduct its business as provided in Section 8 of this Agreement; or
(b) Insurer becomes subject to an adverse finding or an order of supervision, rehabilitation, or liquidation pursuant to Chapter 631, Florida Statutes; or
(c) The issuance of any other order of the Office or a court of competent jurisdiction that in any material form or manner limits or constrains the ability of the Insurer to engage in the business of property and casualty insurance, which results in the Insurer canceling or nonrenewing Removed Policies or Replaced Policies, other than the initial Consent Order issued by the Office in connection with this Agreement.
(d) No notice or curative period is required for a material breach occurring pursuant to this Section (i).
(ii)     Insurer's assumption of Tagged Policies, Replacement Policies, or Removed Policies at unapproved rates within one year of the Assumption Date.
(iii)     The Insurer's cancellation or non-renewal of a Removed Policy for an invalid reason. For purposes of this paragraph, an “invalid reason” shall be a cancellation of non-renewal not authorized by the terms of this Agreement or by the Consent Order attached as Exhibit C.
(iv)     The Insurer fails to materially comply with Section 627.3517, Florida Statutes. In addition to any other remedies provided in this Agreement, if Section 627.3516 is violated, Insurer will be liable for any costs associated with CITIZENS re-assuming any Removed Policies, if Citizens in its sole discretion determines to do so. In addition, Insurer will be assessed a monetary penalty in the amount of $1000.00 per Policy for every Policy assumed without the permission of the agent, if Insurer fails to cure under the provision of Paragraph 9.B.
B.     Cure.   In the event of a default that may be cured, the non-defaulting party shall give the defaulting party written notice of the material breach or default. Failure of the defaulting party to cure the material breach or default within fifteen (15) days of the receipt of the written notice as herein provided shall constitute and be deemed a material breach and default of this Agreement unless the material breach or default is not capable of being cured within such period of time, and the defaulting party has commenced good faith efforts to cure such material breach or default within fifteen (15) days, and thereafter continues in good faith to diligently pursue curing until the material breach or default is cured to the reasonable satisfaction of the non- breaching party.
C.     Termination and Other Remedies.   Should the Insurer materially breach or default in any obligation as set forth in this Agreement and not timely cure such material default and breach as set forth in this section, CITIZENS may in its sole discretion,, take any or all of the follow actions:
(i)     Terminate this Agreement or declare this Agreement canceled or void.
 
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PR-M Non-Bonus Assumption Agreement
(ii)     Prohibit Insurer from further assumption of policies pursuant to this Agreement or any future agreement.
(iii)     Notify the Office of the violation of the Agreement and request that the Office take appropriate administrative action.
(iv)     Forfeiture of up to the entire amount of any escrowed bonus instituted pursuant to Paragraph 4.E., which shall be set forth in detail in any addendum negotiated pursuant to Paragraph 4.E.
(v)     In addition to any rights and remedies set forth in this Agreement, the non-defaulting party shall have all rights and remedies available at law and/or equity, including, but not being limited to, the right to specific performance, damages or injunctive relief.
D.      Removed Policies.  Notwithstanding any breach of this Agreement, the Insurer shall remain responsible for Removed Policies unless and until a judicial determination is rendered relieving, altering or limiting Insurer's responsibility.
10.  Attorney's Fees.   If either of the parties hereto shall bring a Court action alleging material breach of this Agreement or seeking to enforce, rescind, renounce, declare void or terminate this Agreement or any provisions thereof, the prevailing party shall be entitled to recover all of its legal expenses, including reasonable attorney's fees and costs (including attorney's fees and costs for any appeals taken), and to have the same awarded as part of the judgment in the proceeding in which such legal expenses and attorney's fees and costs were incurred.
11.  Benefits.   This Agreement shall be binding upon the parties, their heirs, legal representatives, successors and assigns.
12.  Captions.  The paragraph captions as to contents of the particular paragraphs herein are inserted only for convenience and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular paragraph in which they are referred.
13.  Construction of Agreement.  Words of a gender used in this Agreement shall be held to include any other gender, and words in a singular number shall be held to include the plural, when the sentence so requires.
14.  Entire Agreement.  This Agreement contains all of the oral and/or previously written agreements, representations, and arrangements between the parties hereto concerning the Program, and all rights which the respective parties may have had under any prior written or oral agreements are hereby canceled and terminated, and all parties agree that there are no representations or warranties other than those set forth herein.
15.  Florida Law and jurisdiction.   It is acknowledged that this Agreement was executed in and shall be construed and governed in accordance with the laws of the State of Florida and the rules, orders and regulations of the Office in effect at the time of the execution of this Agreement. In the event of any conflict between such laws, rules, orders and regulations and Subsection 627.351(6), the provisions of that Subsection govern, If any legal action is filed pursuant to this agreement such action must be filed in a court of competent jurisdiction in Leon County Florida.
 
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PR-M Non-Bonus Assumption Agreement
16.  Assignment.   The Insurer may not assign or transfer this Agreement, or any benefit or right under this Agreement without Citizens' prior written consent. Any change in control or ownership is deemed a transfer of this Agreement requiring Citizens' written consent.
17.  Invalidation.   In the event any provision of this Agreement is determined to be invalid by a court of competent jurisdiction, the remaining provisions of this Agreement remain in full force and effect.
18.  No Intermediary.   The Insurer represents and warrants that it has not, and CITIZENS represents and warrants that it has not, incurred an obligation to make payment of any fees to any intermediary with respect to the obligations afforded under this Agreement.
19.  Modification.   No change or modification of this Agreement shall be valid unless the same shall be in writing and signed by all of the parties hereto and not disapproved by the Office.
20.  Notices.   Any and all notices, designations, consents, offers, acceptances, or any other communications provided for herein shall be given in writing, by hand delivery, by overnight mail, by registered or certified mail, or by facsimile transmission and shall be addressed as follows:
Notice to Insurer:
Mr. Donald J. Cronin
President & CEO
United Property & Casualty Insurance Company
Notice to CITIZENS:
Mr. Scott Wallace
President Executive Director
CITIZENS Property Insurance Corporation
101 North Monroe Street, Suite 1000
Tallahassee, Florida 32301
(850) 513-3780
Notices sent by hand delivery shall be deemed delivered on the date of hand delivery. Notices sent by overnight Insurer shall be deemed delivered on the next business day after being placed into the hands of the overnight Insurer. Notices sent by registered or certified mail shall be deemed delivered on the third business day after being deposited into the post office. Notices sent by facsimile transmission shall be deemed to be delivered on the day when sent if sent prior to 4:30 p.m. (the time being determined by the time zone of the recipient) otherwise they shall be deemed delivered on the next business day.
21.  Parties Represented.  The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto.
 
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PR-M Non-Bonus Assumption Agreement
22.   Survival of Terms.   Sections 3, 4, 5, 6, 7, 10, 15, 16,17, and 20 shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the day and year first above set forth.
 
	
			
	 
	 
	 

	CITIZENS PROPERTY INSURANCE CORPORATION

	 
	 

	BY:
	 
	/s/ Mr. Scott Wallace

	 
	 
	Mr. Scott Wallace

	 
	 
	President/CEO and Executive Director

	 

	INSURER: United Property & Casualty Insurance Company

	 
	 

	BY:
	 
	/s/ Mr. Donald J. Cronin

	 
	 
	Mr. Donald J. Cronin

	 
	 
	President and Chief Executive Officer

 
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PR-M Non-Bonus Assumption Agreement
 
	
		
	 
	 

	Exhibits:
	 

	A.
	Schedule of Policies

	B.
	Ceding Commission Rate

	C.
	Consent Order

	D.
	Timeline and Requirements for Assumption

	E.
	Audit Scope

	F.
	Initial Notice

 
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PR-M Non-Bonus Assumption Agreement
EXHIBIT B
Ceding Commission Rate
The contract period to remove policies from CITIZENS will be eighteen (18) months. Any single assumption in a take-out contract period must remove a minimum of 2,500 policies or a Total Insured Value (coverages A, B, C & D combined) of five hundred (500) million dollars. High Risk Account (HRA) and Personal Lines Account (PR-M) take-outs are exclusive and may not be assumed simultaneously under a single eighteen (18) month take-out contract.
There are additional incentives for assuming Insurers that remove larger numbers of eligible policies or TIV from the Personal Lines Account or High Risk Account. CITIZENS agrees to reduce the ceding commission for all policies in a take-out if either the minimum number of policies or TIV are assumed. No agreement may be modified mid-term to change to a different bonus program, unless specified in the assumption agreement.
 
               Ceding Commission (PR-M)
 
	
			
	 
	 
	 

	Number of Policies
	Minimum Eligible
 Total Insured Value
 (TIV)
	Ceding
 Commission

	Less than 60,000
	N/A
	16%

	60,000 to 74,999
	$11 Billion
	Reduced to 12%

	75,000 to 89,999
	$14 Billion
	Reduced to 9%

	90,000 and up
	$17 Billion
	Reduced to 6%

  Ceding Commission (HRA)
 
	
			
	 
	 
	 

	Number of Policies
	Minimum Eligible
 Total Insured Value
 (TIV)
	Ceding
 Commission

	Less than 35,000
	N/A
	16%

	35,000 to 49,999
	$10 Billion
	Reduced to 12%

	50,000 to 79,999
	$14 Billion
	Reduced to 9%

	80,000 and up
	$22 Billion
	Reduced to 6%

 
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PR-M Non-Bonus Assumption Agreement
            Ceding Commission (Mobile Home) 
	
			
	 
	 
	 

	Number of Policies
	Minimum Eligible
 Total Insured Value
 (TIV)
	Ceding
 Commission

	Less than 15,000
	N/A
	16%

	15,000 to 19,999
	N/A
	Reduced to 12%

	20,000 to 29,999
	N/A
	Reduced to 9%

	30,000 and up
	N/A
	Reduced to 6%

 
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PR-M Non-Bonus Assumption Agreement
EXHIBIT D
Timeline and Requirements for Assumption
 
		
	•
	At any point in time, an Insurer may request, for purposes of depopulation and subject to an appropriate confidentiality agreement, a data file of policies from CITIZENS.  All policies not currently pending cancellation, not set for non-renewal or tagged for another insurer as described below, will be included in the data file.

		
	•
	Companies may not be allowed to Depopulate policies in consecutive assumptions.  This is dependent upon the number of participants.  This determination is based on resources, and solely at the discretion of the Depopulation Manager.

At Least 45 Days Before Initial Assumption
 
		
	•
	The Insurer must provide a Certificate of Authority from the Office, and an Order of letter from the Office approving the assumption.

		
	•
	The assuming carrier must return an executed Assumption Agreement and an executed Requirements and Deadline Letter to Citizens.

At Least 40 Days Before Initial Assumption
 
		
	•
	The assuming carrier's policy selection and company information for the assumption notice (i.e. company letterhead with logo, signature, etc.) must be submitted to Citizens. By submitting this policy selection file, the assuming carrier is certifying that all associated agents have either been appointed by the assuming carrier or agreed to have their policies assumed under the provisions of “Consumer Choice.”

		
	•
	Per Order 94539-08 assuming carriers must submit a list of policies (Access format) associated with agents that have declined to participate or did not respond to the assuming carrier (specific to this assumption date). The file must be submitted to Citizens in Access format and include the Citizens policy number and policyholders name.

		
	•
	Assuming carriers must provide contact information to be inserted into a notice to policyholders whose agents have declined to participate in the assumption process. This includes legal name, mailing address, and a contact number. Per Order 94539-08, the notice will provide the policyholder with the offering insurer's contact information and allow the policyholder to contact the carrier directly to make a determination on their own about the offer of coverage from the carrier. The assuming carrier must have knowledgeable staff available to answer the policyholders questions regarding the offer, coverages, etc. and be ready to write the coverage outside of the assumption process.

 
At Least 35 Days Before Initial Assumption
		
	•
	The assuming carrier must mail notice at least 35 days prior to the assumption date giving all policyholders the option to choose not to be assumed (“opt out”). The notice must be approved by the OIR and Citizens and must be sent to every policyholder the assuming carrier intends to assume. It is the assuming carriers responsibility to collect, retain and report responses from the above notice. All policyholders who indicate that they do not want to be assumed must be collected in an Access database (policyholder name and Citizens policy number).

 
 
 
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PR-M Non-Bonus Assumption Agreement
At Least 6 Days Before Initial Assumption
		
	•
	The assuming carrier must provide the Access database with the name and associated Citizens policy number for all policyholders that have chosen not to be assumed. Citizens will remove those policyholders from the assuming carriers policy selection file for that assumption date.

		
	•
	Citizens reserves the right to modify any deadline or requirement.

 
 
 
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PR-M Non-Bonus Assumption Agreement
EXHIBIT E
Audit Scope
This Audit Scope provides the directions for the audit which will occur 36 months after the last assumption date. By signing the overall assumption agreement the Insurer has agreed to abide by the terms of this document.
1.     Approximately sixty (60) days prior to the end of the 36-month period following the date that the Insurer last removed policies under the Non-Bonus Takeout Program, the Insurer will provide to CITIZENS a computer file (hereinafter referred to as the “Policy Computer File”) in ACCESS format sorted by CITIZENS policy number, which contains the following information on each policy:
 
a.  Complete CITIZENS policy number;
b.  Year and month in which policy was removed from CITIZENS;
c.  Insurer's policy number;
d.  Policy effective date of the Insurer's initial policy;
e.  Policy expiration date of the Insurer's initial policy;
f.  County of property address; and
h.  Indicate if the policy is in-force, or canceled.
i.  For all canceled policies, the effective date of the cancellation. 
 
2.     CITIZENS will select a random sample of 400 policies, hereinafter referred to as the “Sample Policies”, from the Policy Computer File and provide a list of the selected policies to the Insurer.
3.     The Insurer will select an Independent Auditor subject to the concurrence of Citizens, which concurrence shall not be unreasonably withheld. The Insurer will provide its Independent Auditor with the list of the Sample Policies. The Independent Auditor, at the expense of the Insurer, will conduct agreed-upon procedures pursuant to this Agreement, and will perform the following:
 
a.  For in force Sample Policies:
 
		
	1.
	Verify that there were offers of coverage and policyholder payments; and

		
	2.
	Verify that the effective date, county and property address are correct; and

		
	3.
	Verify that the policy was in-force with no lapse in coverage through the end of the initial 36-month period.

		
	4.
	Identify and explain any exceptions.

 
b.  For Sample Policies no longer in force:
 
		
	1.
	Verify that there were offers of coverage and policyholder payments; and

		
	2.
	Verify that the effective date, county, and property address are correct; and

		
	3.
	Identify and explain any exceptions; and

		
	4.
	For Sample Policies no longer in force due to voluntary cancellation by the insured (including those cancelled for non-payment of premium), review the policy file for documentation or other data entry, e.g., diary comments, letters from insured, etc., regarding the cancellation and document the reason(s) for cancellation and the effective date of the cancellation.

		
	5.
	For Sample Policies no longer in force due to cancellation by the Insurer for fraud, i.e., material misrepresentation, review the policy file for supporting documentation for the cancellation and document the reason(s) for cancellation and the effective date of the cancellation.

		
	6.
	Identify any Sample Policies that were cancelled or non-renewed by the Insurer to reduce the Insurer's hurricane exposure or for any other reason other than in 4 and 5, above, and provide the effective date of the cancellation and reason for cancellation.

 
 
 
 
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PR-M Non-Bonus Assumption Agreement
4.     The Independent Auditor will provide an agreed-upon procedures report (hereinafter referred to as “Report”) to the Insurer and CITIZENS detailing its findings on each policy reviewed. The Report will list CITIZENS and its auditor, Ernst & Young, as users.
5.     CITIZENS will review and verify the Report of the Independent Auditor. Within 10 working days of receipt of the Report, CITIZENS will verify whether the Report has been prepared in compliance with the agreed-upon procedures set forth in this Agreement. If the Report is not verified, CITIZENS will advise the Independent Auditor on how to correct any deficiencies noted during the verification process and may require that additional policies be sampled in order to validate the findings in the Report.
6.     After verification of the Independent Auditor's Report by Citizens, either the Insurer or CITIZENS may elect, at its own expense, to expand the review sample to enhance the accuracy of the data to be used in extrapolating findings to the entire population. This election may only be made once by each party to this Agreement. The party making such election must notify the other party of its intent within 14 days after receipt of notice of verification of the Independent Auditor's Report prepared pursuant to Paragraphs 4 and 5, above.
7.     The Report shall be referred to the Office.
 
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