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Related Party Transactions

9 Months Ended

Sep. 30, 2020

Related Party Transactions [Abstract]

Related Party Transactions

11.	Related Party Transactions

Fox Paine Entities

As of September 30, 2020, Fox Paine Capital Fund II International, L.P. and certain of its affiliates (collectively, the “Fox Paine Funds”), which are managed by Fox Paine & Company, LLC, beneficially own approximately 77.5% of the Company’s total voting power. As of September 30, 2020, Fox Mercury Investments, L.P. and certain of its affiliates (collectively, the “FM Entities”) separately beneficially own approximately 4.8% of the Company’s total voting power. The Fox Paine Funds have the right to appoint a number of the Company’s Directors equal in aggregate to the pro rata percentage of the voting power in the Company beneficially held by the Fox Paine Funds, FM Entities and Fox Paine & Company, LLC (collectively, “Fox Paine Entities”) so long as the Fox Paine Entities beneficially own a majority of the outstanding class B common shares of the Company and shares representing an aggregate 25% or more of the total voting power in the Company. The Fox Paine Funds control the election of all of the Company’s Directors due to their controlling share ownership. The Company’s Chairman is the chief executive and founder of Fox Paine & Company, LLC.

On August 27, 2020, the Company issued and sold to Wyncote LLC, an affiliate of Fox Paine & Company, LLC, 4,000 Series A Cumulative Fixed Rate Preferred Interests at a price of $1,000 per Series A Preferred Interest, for the aggregate purchase price of $4,000,000. While the preferred shares are non-voting, the preferred shareholders are entitled to appoint two additional members to the Company’s Board of Directors whenever the “Unpaid Targeted Priority Return” with respect to the preferred shares exceed zero immediately following six or more “Distribution Dates”, whether or not such Distribution Dates occur consecutively. See Note 10 for additional information on the Series A Cumulative Fixed Rate Preferred Interests.

The Company relies on Fox Paine & Company, LLC to provide management services and other services related to the operations of the Company. Starting in 2014, the management fee is adjusted annually to reflect the percentage change in the CPI-U. On May 6, 2020, Global Indemnity Limited and Fox Paine & Company, LLC entered into the Second Amended and Restated Management Agreement, effective as of September 5, 2019 (the “Management Agreement”), to: (i) eliminate the Company’s obligation to reimburse Fox Paine & Company, LLC for its travel, lodging, meals, and other items relating to attendance at regularly scheduled meetings of the Board of Directors, which have averaged approximately $550,000 per year (since execution of the Management Agreement in 2013), and (ii) increase Fox Paine & Company, LLC’s base Annual Service Fee by $550,000 per year. On August 28, 2020, in connection with the Redomestication, the Company and Fox Paine & Company, LLC entered into the Third Amended and Restated Management Agreement effective as of August 28, 2020 (the “Management Agreement”). The Management Agreement amends and restates the Second Amended and Restated Management Agreement, dated as of May 6, 2020, between Fox Paine & Company, LLC and Global Indemnity Limited, to reflect the assumption by Global Indemnity Group, LLC of the obligations under the Management Agreement and to make related conforming changes and immaterial modifications to the Management Agreement.

Management fee expense of $0.6 million and $0.5 million was incurred during the quarters ended September 30, 2020 and 2019, respectively, and management fee expense of $2.0 million and $1.5 million was incurred during the nine months ended September 30, 2020 and 2019, respectively. Prepaid management fees, which were included in other assets on the consolidated balance sheets, were $2.5 million and $1.4 million as of September 30, 2020 and December 31, 2019, respectively.

In addition, Fox Paine & Company, LLC may also propose and negotiate transaction fees with the Company subject to the provisions of the Company’s related party transaction policies, including approval of the Company’s Conflicts Committee of the Board of Directors or Global Indemnity Limited’s Audit Committee of the Board of Directors, for those services from time to time. Each of the Company’s transactions with Fox Paine & Company, LLC described below was reviewed and approved by the Company’s Conflicts Committee or Audit Committee, which is composed of independent directors, and the Board of Directors (other than Saul A. Fox, Chairman of the Board of Directors of the Company and Chief Executive of Fox Paine & Company, LLC, who is not a member of the Conflicts Committee and was not a member of Global Indemnity Limited’s Audit Committee and recused himself from the Board of Directors’ deliberations).

Illiquid Investment Fund Divestiture Fee

On December 21, 2018, GBLI Holdings, LLC exited an investment in a private credit fund pursuant to a sale of GBLI Holdings, LLC’s investment to third parties at par plus accrued interest. Fox Paine & Company, LLC provided services to GBLI Holdings, LLC in connection with the sale, including conducting due diligence to evaluate the private fund, recommending that GBLI Holdings, LLC withdraw from the private fund, and conducting extended negotiations with the private fund to secure GBLI Holdings, LLC’s withdrawal from the private fund on favorable terms. Fox Paine & Company, LLC’s services for GBLI Holdings, LLC in connection with the sale were performed during the second, third, and fourth quarters of 2018. The total fee for these services was $2.0 million which was accrued in the 4^th quarter of 2018, which is the period in which the transaction was completed, and was paid in May 2019.

Redomestication Fee

Pursuant to the Management Agreement, Fox Paine & Company, LLC performed extensive financial advisory services for the Company in connection with the conceptualization, design, structuring and implementation of the redomestication plan. In accordance with the Management Agreement, Fox Paine & Company, LLC may propose and negotiate advisory fees for such services with the Company, subject to the provisions of the Company’s related party transaction policies. The Company agreed to pay an advisory fee to Fox Paine & Company, LLC for such services in an amount of $10.0 million, which was accrued at September 30, 2020, and will be paid in a subsequent period. The $10.0 million fee was approved by the Conflicts Committee.