TRUST ACCOUNT AGREEMENT
THIS TRUST ACCOUNT AGREEMENT (the "Agreement"), effective this 12th day of
March, 2003, by and among AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY, a
Delaware corporation (hereinafter referred to as the "GRANTOR"), THE PROVIDENT
BANK, an Ohio corporation and a member of the Federal Reserve System
(hereinafter referred to as the "TRUSTEE"), and FIDELITY EXCESS AND SURPLUS
INSURANCE COMPANY, an Ohio corporation (hereinafter referred to as the
"BENEFICIARY").
1. The GRANTOR hereby enters into this Agreement and establishes a trust
account (the "Trust Account") with the TRUSTEE for the sole use and benefit of
the BENEFICIARY.
2. The TRUSTEE hereby represents and warrants (a) it is organized under or
is chartered under the laws of the United States or a State thereof and has been
granted authority to operate with fiduciary powers; (b) it is regulated,
supervised, and examined by Federal or State officials that have regulatory
authority over banks and trust companies; and (c) it is a member of the Federal
Reserve System.
3. Simultaneously with the execution of this Agreement, the GRANTOR shall
deposit in the Trust Account the Trust Assets (as defined in Section 4) having a
current fair market value at least equal to the Ultimate Net Aggregate Losses
under the Reinsurance Agreement effective January 1, 2002 between GRANTOR and
BENEFICIARY (the "Reinsurance Agreement"). GRANTOR shall at all times continue
to maintain Trust Assets having a current fair market value at least equal to
the Ultimate Net Aggregate Losses of GRANTOR under the Reinsurance Agreement.
All Trust Assets shall belong to GRANTOR and may be held in the GRANTOR's name.
At the time of depositing Trust Assets, the GRANTOR shall provide the TRUSTEE
with executed assignments or endorsements in blank for all Trust Assets to
enable the BENEFICIARY, or the TRUSTEE upon direction by the BENEFICIARY, to
negotiate whenever necessary any Trust Assets without consent or signature from
the GRANTOR or any other person or entity.
4. All Trust Assets deposited with the TRUSTEE shall be valued by the
TRUSTEE on the basis of current fair market value, and shall consist only of any
combination of (a) cash (United States legal tender) and (b) investments of the
types permitted by the Ohio Insurance Laws which are listed by the Securities
Valuation Office of the National Association of Insurance Commissioners and
which qualify as admitted assets for BENEFICIARY. Notwithstanding the foregoing,
the Trust Assets may not include capital stock or fixed income securities below
investment grade by national rating agencies. No more than 10% of the Trust
Assets may be obligations of a single issuer. TRUSTEE shall have no obligation
to determine if the Trust Assets are so qualified.
5. The term "BENEFICIARY" includes any successor of the BENEFICIARY by
operation of law, including, without limitation, any liquidator, rehabilitator,
receiver, or conservator.
6. The BENEFICIARY shall have right to withdraw Trust Assets from the Trust
Account at any time, without notice to the GRANTOR, subject only to written
notice from the BENEFICIARY to the TRUSTEE. No other statement or document need
be presented in order for the BENEFICIARY to withdraw Trust Assets from the
Trust Account, except that the TRUSTEE may require the BENEFICIARY to
acknowledge receipt of the withdrawn Trust Assets.
7. BENEFICIARY may use and apply any Trust Assets drawn upon the Trust
Account without diminution because of the insolvency of the BENEFICIARY or the
GRANTOR.
8. Except as set forth herein, this Agreement is not subject to any
conditions or qualifications.
9. The TRUSTEE shall:
(a) Receive and hold all Trust Assets in a safe place in the TRUSTEE's
office in the United States. TRUSTEE may hold registered securities in
nominee name. Further, TRUSTEE is authorized to hold securities under
such depository arrangements as the TRUSTEE deems advisable and in the
case of obligations of the United States federal government, TRUSTEE
may hold such securities under the Federal Reserve book entry system.
(b) Determine that all Trust Assets are in such form that the BENEFICIARY
or the TRUSTEE, upon direction by the BENEFICIARY, may whenever
necessary negotiate any Trust Assets, without consent or signature
from the GRANTOR or other person or entity.
(c) Furnish to the GRANTOR and the BENEFICIARY a statement of all Trust
Assets in the Trust Account upon its inception and at intervals no
less frequently than the end of each calendar quarter.
(d) Notify the GRANTOR and the BENEFICIARY within ten (10) days of any
deposits to or withdrawals from the Trust Account.
(e) Upon written demand of the BENEFICIARY, immediately take any and all
steps necessary to transfer absolutely and unequivocally all right,
title and interest in the Trust Assets held in the Trust Account to
the BENEFICIARY and deliver physical custody of the Trust Assets to
the BENEFICIARY.
(f) Allow no substitutions or withdrawals of Trust Assets from the Trust
Account without written instructions from the BENEFICIARY, except as
follows:
(i) the TRUSTEE may, without the consent of but with notice to the
BENEFICIARY, upon call or maturity of any Trust Asset withdraw
such
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Trust Asset upon condition that the proceeds are paid into the
Trust Account; and
(ii) the TRUSTEE may, without prior approval of the BENEFICIARY,
invest funds and accept substitutions which the TRUSTEE has
determined are at least equal in current fair market value to the
Trust Assets withdrawn and which are consistent with the
provisions in Section 4 of this Agreement regarding the
composition, of the Trust Assets.
10. BENEFICIARY shall, at any time and from time to time, upon receipt of
written request from GRANTOR, deliver written instructions to TRUSTEE allowing
GRANTOR to withdraw from the Trust Account any portion of the Trust Assets which
exceed 102% of the actual amount of Trust Assets required to be maintained under
Section 3 hereof.
11. 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. 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. No such resignation or removal shall be effective
until a successor trustee has been duly appointed and approved by the
BENEFICIARY and the GRANTOR and all Trust Assets in the Trust Account have been
duly transferred to a new trustee.
12. The TRUSTEE is prohibited from invading the Trust Account for the
purpose of receiving compensation or reimbursement of expenses as TRUSTEE.
13. The TRUSTEE shall be liable for its own negligence, willful misconduct
or lack of good faith.
14. Prior to their sale or transfer under this Agreement, the GRANTOR has
full and unqualified right to vote any shares of stock in the Trust Account and
to receive from time to time payments of any dividends or interest upon any
securities included in the Trust Account. Any such interest or dividend shall be
forwarded to the GRANTOR promptly upon receipt by the TRUSTEE.
15. The BENEFICIARY may at any time designate a party to whom all or part
of the Trust Assets are to be transferred. Such transfer may be conditioned upon
the simultaneous receipt of the TRUSTEE of other specified Trust Assets.
16. Upon termination of the Trust Account, all Trust Assets not previously
withdrawn by the BENEFICIARY shall, be delivered over to the GRANTOR, subject to
the written consent of the BENEFICIARY.
17. This Agreement shall be governed by the laws of the State of Ohio,
which is the state wherein the Trust Account is established.
18. This Agreement may be amended only upon the written consent of the
GRANTOR, the BENEFICIARY and the TRUSTEE.
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19. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns.
20. This Agreement is not subject to any conditions or qualifications which
are not set forth herein.
21. This Agreement may be executed in counterparts which together shall
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
respective duly authorized representatives effective as of the date first
written above.
EXECUTED AT CINCINNATI, OHIO.
AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY,
as GRANTOR
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Assistant Secretary
THE PROVIDENT BANK, as TRUSTEE
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Vice President
FIDELITY EXCESS AND SURPLUS INSURANCE COMPANY,
as BENEFICIARY
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Assistant Secretary
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