EXHIBIT 10 (bq)
THIRD MODIFICATION AGREEMENT
This MODIFICATION AGREEMENT ("Modification") is entered into this 1st
day of November, 2002 by and among Hallmark Finance Corporation as seller
(the "Seller"), and FPF, Inc., ("FPF").
WITNESSETH;
WHEREAS, pursuant to that certain Sale and Assignment Agreement dated
as of November 18, 1999 by and among the FPF and the Seller (the
"Agreement"), FPF agrees to purchase, and Seller agrees to sell Eligible
Premium; and
WHEREAS, Seller and FPF have entered into those certain other
Modifications dated June 27, 2001 and December 11, 2001; and.
WHEREAS, all capitalized terms used herein and not otherwise defined in
the Agreement shall have the meaning set forth herein; and
WHEREAS, Seller and FPF desire to modify and amend the Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements contained in the Agreement, the parties hereto intending to be
legally bound, hereby agree as follows:
1. Term. The term "Term" as defined in Schedule A of the Agreement
is hereby amended in its entirety to read as follows:
"Term" means the Term of this Agreement commencing on the
Effective Date and, if not earlier terminated as provided
in this Agreement, all new sales shall terminate on May
1, 2004. Upon written consent of both Seller and FPF
prior to May 1, 2004, the term may be extended to May 1,
2005.
2. Commitment Fee. The term "Commitment Fee" as defined in Schedule
A of the Agreement is hereby amended in its entirety to read as
follows:
"Commitment Fee" shall mean a commitment fee payable to
FPF in an amount equal to the product of (a) the Unused
Portion and (b) (i) if such Unused Portion is equal to or
less than 20% of the Maximum Purchase Commitment, 0.25%
per annum and (ii) if such Unused Portion is greater than
20% of the Maximum Purchase Commitment, 0.50% per annum.
3. Interest Rate: The term "Interest Rate" as defined in Schedule A
of the Agreement is hereby amended in its entirety to read as
follows:
"Interest Rate" shall be the greater of:
a.) the Floor Rate of 5.75%; or
b.) the Prime Rate plus 1.00% per annum, so long as an
Insurance Company Downgrade Event has not occurred;
or
c.) the Prime Rate plus 1.50% per annum upon and
following the occurrence of an Insurance Company
Downgrade Event.
4. Insurance Company Downgrade Event. The term "Insurance Company
Downgrade Event" is hereby defined as follows:
"Insurance Company Downgrade Event" shall mean the
occurrence of Dorinco Reinsurance Company's Standard &
Poor's or A.M. Best rating falling below "A" or American
Hallmark Insurance Company of Texas's A.M. Best rating
falling below "C+" (including any "NR" designation).
5. Sale of Conveyed Property. The condition described in Section 2
(c) (ii) of the Agreement is hereby amended in its entirety to
read as follows:
(ii) No Material Adverse Change or Insurance Company
Downgrade Event has occurred;
6. Termination Fee: The term "Termination Fee" as defined in
Schedule A of the Agreement is hereby amended in its entirety to
read as follows:
"Termination Fee" shall be $30,000 if Seller terminates
this Agreement pursuant to Section 3 on or prior to May
1, 2003. If such termination occurs after May 1, 2003
but prior to November 1, 2003, the Termination Fee shall
be $15,000. No Termination Fee shall be due after
November 1, 2003.
7. Insurance Company Concentration Limits: The concentration limits
described in Schedule B Section A1 of the Agreement is hereby
amended in its entirety to read as follows:
For Eligible Insurance Companies covered by the Texas
insurance guaranty fund, the following allocations shall
apply:
Maximum % of
Insurance Company's Eligible Premium
A.M. Best Rating Rec. per Carrier
------------------- ----------------
"A" or better no limit
"A-" or "B++" 25.0%
"B+", "B" or "B-" 5.0%
All others* 0.0%
*Note: under "all others" above, "C," "D," "E," "F,"
"N/F," "S" are not eligible.
Exception: The financed policies are issued by State and
County Mutual Fire Insurance Company ("S&C"). S&C acts
as a "fronting" company and cedes 100% of the risk to
American Hallmark Insurance Company ("AHIC") via a 100%
Quota Share Reinsurance Agreement between S&C and AHIC.
To administer this sales program, S&C has also entered
into a General Agency Agreement with an affiliate of
AHIC, Brokers General, Inc. now known as American
Hallmark General Agency, Inc. ("XXXX"). XXXX acts as the
administrator of the program, appoints agents, processes
policies, returns unearned premium upon cancellation of
policies, including financed policies, and settles and
pays claims.
AHIC in turn reinsures 50-75% of its risk related to
these policies through Dorinco Reinsurance Company
("Dorinco"). The reinsurance is accomplished through a
Quota Share Retrocession Agreement.
Dorinco has also entered into a Guaranty Agreement with
S&C, providing for direct performance and payment by
Dorinco in the event AHIC fails to perform any of its
duties and obligations or fails to make timely payment to
S&C.
Finance contracts originated under the above described
structure shall be eligible. Further, if AHIC maintains
reinsurance treaties that accept a quota share of the
insurance risk and guarantee the full performance similar
to those currently existing with companies that are rated
"A" or better by A.M. Best and have a Financial Size
Category Class of V there shall be no concentration
limitations.
8. Agreement Ratification: All terms, conditions and covenants of
the Agreement, not otherwise modified herein, are hereby ratified
and confirmed and this Modification, when executed by the parties
hereto, shall become a part of the Agreement and shall have the
same force and effect as if the terms and conditions hereof were
originally incorporated in the Agreement prior to the execution
thereof.
IN WITNESS WHEREOF, this Modification Agreement is executed by the
undersigned parties as of the day and year first set forth above.
SELLER:
HALLMARK FINANCIAL CORPORATION
By: /s/ Xxxxx X. Xxxxxxx
-------------------------
Name: Xxxxx X. Xxxxxxx
Title: President & Chief Executive Officer
FPF, INC.
By: /s/ Xxxxx X. Xxxxx
-----------------------
Name: Xxxxx X. Xxxxx
Title: President
