Exhibit 10.27
SECURITY TRUST AGREEMENT
This Agreement effective as of January 1, 2003, by and between DIRECT
GENERAL INSURANCE COMPANY ("Grantor") the assuming insurer or reinsurer, OLD
AMERICAN COUNTY MUTUAL FIRE INSURANCE COMPANY ("Beneficiary") the ceding insurer
and any successor by operation of law, and BANK ("Trustee"), which is a
qualified United States financial institution.
PURPOSE OF AGREEMENT
WHEREAS, the Grantor and the Beneficiary have previously entered into a
certain Quota Share Reinsurance Agreement No. DIRECT-03-001 effective January 1,
2003 ("Reinsurance Agreement"), and the terms and conditions of this Agreement
are subject only to the conditions and qualifications contained in the
Reinsurance Agreement and no other; and
WHEREAS, as a result of this Reinsurance Agreement certain amounts are
payable and will become payable from time to time to or for the benefit of the
Beneficiary; and
WHEREAS, the Grantor and the Beneficiary want to provide the
Beneficiary an interest in certain assets as defined herein as collateral to be
held in trust to insure the payment of amounts that may become due; and
WHEREAS, the Trustee has agreed to act as Trustee hereunder, and to
hold such assets in trust for the benefit of the Beneficiary.
NOW THEREFORE, in consideration of the mutual promises and conditions
contained herein, and for other good and valuable consideration, the parties do
hereby agree as follows:
SECTION 1
CREATION OF TRUST FUND AND DEPOSIT OF ASSETS
The Grantor will open a Security Trust Account with Trustee for the sole benefit
of the Beneficiary, and deposit or cause to be deposited as soon as practical,
but in no event more than ten (10) days from the date of this Security Trust
Agreement, cash or securities, or a combination thereof ("Assets" as defined in
Section 5.1 below) in the initial amount of $250,000, along with any properly
executed assignment, endorsement or bond powers that may be required to make
good delivery of the Assets. The Assets held in the Security Trust Account are
hereinafter referred to as the "Trust Fund."
SECTION 2
RIGHTS AND OBLIGATIONS OF THE TRUSTEE
2.1 The Grantor shall deliver to the Trustee, Assets at least equal in
market value to the Grantor's funding obligations as defined in the Reinsurance
Agreement and in accordance with Section 4.2 hereof. These Assets shall be
deposited into a trust account established for the
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sole benefit of the Beneficiary, held by the Trustee at the Trustee's office
within the United States.
2.2 The Trustee shall:
(a) Receive the Assets and hold all Assets in safekeeping;
(b) Determine that all Assets are in such form that the
Beneficiary, or the Trustee upon direction by the Beneficiary, may, whenever
necessary, negotiate any such assets, without consent or signature from the
Grantor or any other person or entity;
(c) Furnish to the Grantor and the Beneficiary a statement of
all Assets in the Trust Fund upon its inception and at intervals no less
frequently than the end of each calendar quarter;
(d) Notify the Grantor and the Beneficiary, within five (5)
days, of any deposits (exclusive of deposits or additions generated by the Trust
Fund itself) to or withdrawals from the Trust Fund;
(e) Upon written demand of the Beneficiary, promptly provide
notice of the same to the Grantor and take any and all steps necessary to
transfer, to or for the benefit of the Beneficiary, absolutely and
unequivocally, all right, title, and interest in the Assets held in the Trust
Fund and liquidated in the amount necessary to pay those net balances due as
specified and documented in the notice submitted by the Beneficiary to the
Trustee; and,
(f) Allow no substitutions or withdrawals of assets from the
Trust Fund, except on written instructions from the Beneficiary. For the
purposes of this Agreement it is stipulated that the Beneficiary hereby approves
of the substitution or withdrawal of Assets from the Trust Fund, provided that
Assets are simultaneously replaced with Qualified Assets (as defined in Section
5.1 below) having a fair market value equal to or greater than the Assets
substituted or withdrawn. The Trustee may, without the consent of but with
written notice (which need not be prior notice) to the Beneficiary, upon call or
maturity of any Trust Fund Asset, withdraw such Asset upon condition that the
proceeds are paid or deposited into the Trust Fund.
2.3 Each investment of the Assets contained in the Trust Fund shall be
made pursuant to the written instructions of the Grantor, provided that any such
instructions shall be in accordance with Exhibit A. The Beneficiary and Grantor
may, from time to time designate investments or categories of investments which
are consistent with the provisions contained in Section 5.1.
2.4 The Trustee may resign upon delivery of a written notice of
resignation, effective not less than ninety (90) days after receipt by the
Beneficiary and Grantor of the notice. Similarly, the Trustee may be removed by
the Grantor by delivery to the Trustee and the Beneficiary of a written notice
of removal effective not less than ninety (90) days after receipt by the Trustee
and the Beneficiary of the notice. Provided however, no such notice, whether
provided by the Trustee or the Grantor, shall be effective until a successor
trustee has been duly
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appointed and approved by the Beneficiary and the Grantor and all Assets in the
Trust Fund have been duly transferred to the successor trustee.
2.5 The Trustee's duties are solely as expressly set forth herein
notwithstanding any reference herein to the Reinsurance Agreement.
2.6 The Trustee shall be entitled to rely and act upon any instructions
from the Beneficiary without any independent duty to inquire. No statement or
document, other than the written notice from the Beneficiary to the Trustee,
shall be accepted by the Trustee to withdraw Assets.
SECTION 3
RIGHTS AND OBLIGATIONS OF THE BENEFICIARY WITH RESPECT TO THE TRUST FUND
3.1 The Beneficiary shall have the right to withdraw Assets from the
Trust Fund at any time without notice to the Grantor, subject only to written
notice to the Trustee and the terms and conditions of this Agreement and the
Reinsurance Agreement. Such notice shall be presentable to the Trustee's office
in the United States, with a simultaneous courtesy copy being provided to
Grantor. No statement or document, other than the written notice from the
Beneficiary to the Trustee, shall be accepted to withdraw Assets. The
Beneficiary shall be required to acknowledge receipt of Assets from the Trust
Fund by providing written acknowledgement to both the Trustee and the Grantor.
3.2 The Beneficiary shall undertake to use and apply any amounts drawn
upon the Trust Fund, without diminution because of the insolvency of the
Beneficiary or the Grantor, for the following purposes only:
(a) To pay or reimburse the Beneficiary for the Grantor's
share under the specific Reinsurance Agreement regarding any losses and
allocated loss expenses paid by the Beneficiary, but not recovered from the
Grantor, or for unearned premiums due and payable to the Beneficiary, if not
otherwise paid by the Grantor;
(b) To authorize payment by the Trustee to the Grantor of any
amounts held in the Trust Fund that exceed one hundred two percent (102%) of the
actual amount required to fund the Grantor's obligations under the Reinsurance
Agreement; and
(c) Where the Beneficiary has received notification of
termination of the Trust Fund and where the Grantor has obligations under the
Reinsurance Agreement which remain unliquidated and undischarged ten (10) days
prior to such termination date, to withdraw amounts equal to such obligations
and deposit such amounts in a separate account, in the name of the Beneficiary
in any United States bank or trust company, apart from its general assets, in
trust for such uses and purposes specified in subsections (a) and (b) of this
paragraph as may remain executory after such withdrawal and for any period after
such termination date.
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3.3 Should the aggregate market value of the Trust Fund at the end of
any calendar quarter be in excess of the amount required under the Reinsurance
Agreement, the Beneficiary shall, within seven (7) days after receipt of written
request from Grantor, authorize release of such excess by making the appropriate
communication to the Trustee pursuant to this Security Trust Agreement.
SECTION 4
RIGHTS AND OBLIGATIONS OF THE GRANTOR WITH RESPECT TO THE TRUST FUND
4.1 The Grantor prior to depositing the Assets with the Trustee, shall
execute assignments, endorsements in blank, or transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignments, in
order that the Beneficiary, or the Trustee upon the direction of the Beneficiary
may, whenever necessary, negotiate any such Assets without consent or signature
from the Grantor or any other entity.
4.2 Subject to Section 2.1, within thirty-seven (37) days after the end
of each calendar quarter, the Grantor shall deposit with the Trustee such Assets
as may be necessary to increase the aggregate market value of the Trust Fund to
an amount at lease equal to the Grantor's funding obligations to the Beneficiary
under the Reinsurance Agreement. The Grantor shall continue to be liable for any
amount by which balances due the Beneficiary exceed amounts distributed from the
Trust Fund.
4.3 The Grantor may at any time withdraw Assets from the Trust Fund,
provided however, that concurrently therewith, Qualified Assets (as defined in
Section 5.1 below) of equal or greater market value are deposited in the Trust
Fund, and the Trustee is authorized to permit such substitution of Qualified
Assets pursuant to the provisions of Section 2.2(f) hereinabove.
SECTION 5
ASSETS
5.1 The term "Assets" as used herein is defined as any combination of
cash (United States legal tender), United States Treasury Notes or Bonds, U.S.
Government backed securities, certificates of deposit (issued by a United States
bank and payable in United States legal tender), or other certificates of
indebtedness or commercial paper which would qualify as a permitted investment
under the applicable Texas Insurance Code. Securities or investments in the
above categories are stipulated to be qualified assets ("Qualified Assets")
provided that such investments are issued by an institution that is not the
parent, subsidiary or affiliate of either the Grantor or the Beneficiary.
Grantor and Beneficiary hereby agree to the investment guidelines set forth on
Exhibit A hereto, which investment guidelines shall be deemed to be in
accordance with this Section 5.1, and any investment made in accordance with
such investment guidelines shall be deemed to be a Qualified Asset.
5.2 For purposes of this Agreement, the "market value" of Assets shall
be determined as follows:
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(a) at the time any Assets are deposited initially in the
Trust Fund with respect to Assets on deposit at the end of each calendar
quarter, the Trustee shall in good faith place a tentative market value on said
Assets and shall notify the Grantor and Beneficiary of such valuation by
supplement to the Trustee's quarterly activities report;
(b) if the Grantor or the Beneficiary disagrees with such
tentative market valuation, it may so notify the Trustee within thirty (30) days
after the date it receives the Trustee's quarterly activities report; and
(c) if the event the parties cannot resolve any difference
with respect to the market value of the Assets, the market value of the security
in dispute shall be determined by using the definition of "value" set forth in
the Investment Company Act of 1940, Section 2(a)(41).
SECTION 6
INVESTMENT INCOME AND EXPENSES
6.1 The Grantor shall have the right to receive any interest or other
investment income from Assets deposited in the Trust Fund, and such income shall
be payable by the Trustee to the Grantor no less frequently than monthly.
6.2 All fees and expenses charged by the Trustee for its services
hereunder shall be born by the Grantor. In no event shall any of the fees and
expenses charged by the Trustee be paid from the corpus of the Trust Fund.
SECTION 7
DISPUTE RESOLUTION
7.1 In the event the Grantor objects to the withdrawal of Assets from
the Trust Fund by the Beneficiary, for any reason, notice of such objection
shall be sent to the Beneficiary with a copy to the Trustee. Upon receipt of
such notice of objection from the Grantor, the Trustee will seek instructions
from the Beneficiary. If the parties cannot settle the objection through
negotiation, the parties agree first to try in good faith to settle the dispute
by mediation administered by the American Arbitration Association under its
Commercial Mediation Rules, before resorting to arbitration, litigation or some
other dispute resolution procedure. Such mediation shall take place within
thirty (30) days of the notice by Grantor or as soon thereafter as reasonable.
7.2 In the event the dispute is resolved through mediation, arbitration
or by a court of competent jurisdiction, the prevailing party shall be entitled
to court or arbitration costs, attorney's fees and any other reasonable
expenses.
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SECTION 8
ACCESS TO RECORDS
8.1 The Beneficiary and Grantor, by their duly appointed
representatives, shall have the right at any reasonable time to examine and copy
all records and papers in the possession or control of the Trustee applicable to
this Agreement, and applicable to the Assets deposited and maintained hereunder.
SECTION 9
TERMINATION
9.1 Upon termination of the Reinsurance Agreement and after all of the
Grantor's obligations to the Beneficiary under Article 21 of the Reinsurance
Agreement have been discharged, this Agreement shall terminate and the Trustee
shall return all Assets to the Grantor forthwith. At least thirty (30) days
prior to the termination of the Trust Fund, written notification of termination
shall be delivered by the Trustee via certified mail to the Beneficiary and the
Texas Department of Insurance, Attention: Financial Activity, 333 Xxxxxxxxx,
Xxxxxx, Xxxxx 00000.
9.2 Upon termination of the Trust Fund, the Trustee shall pay over and
deliver to Grantor all of the remaining Assets, if any, of the Trust Account not
previously withdrawn by the Beneficiary pursuant to the provisions of Section 3,
and the Beneficiary shall have no further rights to the Trust Account.
SECTION 10
LIABILITY OF THE TRUSTEE
10.1 The Beneficiary and Grantor, jointly and severally, shall hold the
Trustee harmless from and against any and all losses, claims, damages,
liabilities, costs and expenses arising out of or in connection with the
Trustee's performance in accordance with the terms and conditions of this
Security Trust Agreement; provided, however, that the Trustee shall be liable to
the extent of its own negligence, willful misconduct, lack of good faith or
breath of fiduciary duty. The Trustee shall be entitled to rely upon the advice
of counsel (which may be inside or outside counsel), and any actions of the
Trustee in accordance with the advice of counsel shall be deemed to be in
accordance with this Agreement.
SECTION 11
NOTICES
11.1 Any notice permitted or required hereunder shall be deemed to have
been duly given if delivered personally, received by electronic mail, or if
transmitted by facsimile with machine confirmation of transmittal and followed
by the mailing of "hard copies" of such transmittals or if mailed certified or
registered mail (return receipt requested), postage prepaid, to
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the parties at their address set forth below or to such other address as they
may hereafter designate. Any notice given to the Trustee shall be simultaneously
given to the other party to this Agreement.
IF TO THE GRANTOR: DIRECT GENERAL INSURANCE COMPANY
0000 Xxxxxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000-0000
Attn: Xxxxx X. Elkins
xxxxx.xxxxxx@xxxxxxxxx.xxx
IF TO THE BENEFICIARY: OLD AMERICAN COUNTY MUTUAL FIRE
INSURANCE COMPANY
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000-0000
Attn: Xxxxxx X. McCall
xxx.xxxxxx@xxxxx.xxx
IF TO THE TRUSTEE: BANK
SECTION 12
BINDING EFFECT
12.1 This Agreement shall be binding upon the respective parties hereto
and their heirs, executors, successors and assigns.
SECTION 13
MODIFICATIONS
13.1 This Agreement may not be altered or modified without the express
written consent of the parties hereto. No course of conduct shall constitute a
waiver of any of the terms and conditions of this Agreement, unless such waiver
is specified in writing, and then only to the extent so specified. A waiver of
any of the terms and conditions of this Agreement on one occasion shall not
constitute a waiver of the other terms of this Agreement, or of such terms and
conditions on any other occasion.
SECTION 14
GOVERNING LAW
14.1 This Agreement shall be governed by and construed under the laws
of the State of Texas, the state in which the insurance is written.
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SECTION 15
FORCE MAJEURE
15.1 Neither Grantor nor Beneficiary nor Trustee shall be responsible
for delays or failures in performance resulting from acts beyond its control.
Such acts shall include but not be limited to acts of God, strikes, lockouts,
riots, acts of war or terrorism, epidemics, governmental regulations
superimposed after the fact, fire, communication line failures, power failures,
earthquakes or other disasters.
SECTION 16
REPRESENTATIONS
16.1 Each of the Grantor and Beneficiary represent and warrant that:
(a) it is duly incorporated or organized and validly exists in
good standing in its jurisdiction of incorporation or organization;
(b) the execution, delivery and performance of this Agreement
and all documents and instruments to be delivered hereunder or there under have
been duly authorized;
(c) the person executing this Agreement and all documents and
instruments to be delivered hereunder or there under on its behalf has been duly
authorized to act on its behalf;
(d) this Agreement constitutes a legal, valid, binding and
enforceable agreement;
(e) its entry into this Agreement will not violate any
agreement, law, rule or regulation by which it is bound on by which any of its
assets are affected; and
(f) all necessary steps have been taken to obtain the approval
of the appropriate state insurance regulatory agencies for this Agreement to the
extent required by the insurance laws of any state in which the Grantor and the
Beneficiary conduct business and to which this Agreement relates.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date hereinabove first written:
DIRECT GENERAL INSURANCE COMPANY
By: /s/ Xxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxx X. Xxxxxx
Title: Senior Vice President & Chief
Financial Officer
OLD AMERICAN COUNTY MUTUAL FIRE
INSURANCE COMPANY
By: /s/ Xxxxxx X. XxXxxx
-------------------------------------
Xxxxxx X. XxXxxx, President
BANK
First Tennessee Bank National
Association, Trustee
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxxx X. Xxxxxxxx
------------------------------------
Title: Vice President & Trust Officer
-----------------------------------
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