exv10w1



 





EXECUTION COPY




          FIRST AMENDMENT, dated as of December 28, 2007 (this “Amendment”), TO THE PURCHASE
AGREEMENT, dated as of August 13, 2007 (the “Agreement”), by and among Merrill Lynch
Insurance Group, Inc., a Delaware corporation (the “Seller”), Merrill Lynch & Co., Inc., a
Delaware corporation (the “Seller Parent”), and AEGON USA, Inc., an Iowa corporation (the
“Buyer”). Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Agreement.




WITNESSETH:




     WHEREAS, Seller, Seller Parent and Buyer entered into the Agreement; and



     WHEREAS, Seller, Seller Parent and Buyer desire to amend certain terms of the Agreement on the
terms and conditions set forth in this Amendment.



     NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby expressly acknowledged, and subject
to the terms and conditions hereof, the parties agree as follows:




	1.	 	Section 1.1(a) of the Agreement is hereby amended and restated in its entirety as
follows:






“(a) Purchase and Sale. In consideration for the sale and transfer of the
Shares and the Transferred Assets, and upon the terms and subject to the conditions
of this Agreement, at the Closing the Buyer shall (i) deliver to the Seller cash in
an amount equal to the excess of (x) $1,301,000,000, as the same may be adjusted in
accordance with Exhibit D-1 if the Closing Date is after December 28, 2007 or
Exhibit D-2 if the Closing Date is on December 28, 2007 over (y) the aggregate
amount of all dividends paid by the Companies to the Seller during the period from
June 22, 2007 through the Closing (the “Purchase Price”), and (ii) assume
the Transferred Liabilities.”




	2.	 	Section 1.1(b) of the Agreement is hereby amended and restated in its entirety as
follows:






“(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section 10.1,
the closing of the transactions contemplated by this Agreement (the
“Closing”) will take place effective as of the close of business, New York
City time on December 28, 2007, provided that if the conditions set forth in
Article VI hereof, other than conditions which by their nature are to be satisfied
at the Closing have not been satisfied or waived by December 28, 2007, then the
Closing will take place effective as of the close of business, New York City time on
the third Business Day following the satisfaction or waiver of such conditions,
unless another date or time is agreed to in writing by the parties hereto. The date
on which the Closing occurs shall be referred to herein as the “Closing
Date”. The Closing shall take place at the offices of Debevoise & Plimpton LLP,
919 Third Avenue, New York, NY 10022, unless another place is agreed to in writing
by the parties hereto.”



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	3.	 	Article VIII (Tax Matters) of the Agreement is hereby amended to add Sections 8.14,
8.15, and 8.16 as follows:






“Section 8.14 Agreement to Make DAC Election at the Buyer’s Request.




(a) At the Buyer’s request, the Seller and the Seller Parent shall join with the
Buyer to amend the Agreement to make an election (the “DAC Election”) to
determine specified policy acquisition expenses without regard to the general
deductions limitation of Section 848(c)(1) of the Code in accordance with Treas.
Reg. § 1.848-2(g)(8) and Treas. Reg. § 1.197-2T(g)(5)(ii)(C)(4) with respect to each
deemed reinsurance contract between Old MLLIC and New MLLIC, and each deemed
reinsurance contract between Old MLLICNY and New MLLICNY, that results from the
Section 338(h)(10) Elections and from Treas. Reg. § 1.848-2(f)(7) and Treas. Reg.
§ 1.197-2T(g)(5)(ii)(C)(2) and that is designated by the Buyer for the DAC Election.
Each such deemed reinsurance contract is referred to herein as a “Designated
Contract.”




(b) In accordance with Treas. Reg. § 1.848-2(f)(7) and Treas. Reg.
§ 1.197-2T(g)(5)(ii)(C)(2) there shall be a separate deemed reinsurance contract
arising out of the Section 338 Elections for each category of specified insurance
contracts of Old MLLIC and of Old MLLICNY and for contracts of Old MLLIC and of Old
MLLICNY that are not specified insurance contracts. For the avoidance of doubt, the
Buyer in its sole discretion may request the Seller to make a DAC Election for any
of such deemed reinsurance contracts without being required to request the Seller to
make such election for any of such other deemed reinsurance contracts. If the Buyer
decides not to make the DAC Election for a deemed reinsurance contract, then that
deemed reinsurance contract shall be excluded from the DAC Payment calculation.




(c) At the Buyer’s request, the Seller shall join in making the DAC Election with
respect to a Designated Contract by executing an agreement substantially in the form
of that included in Exhibit I to the Agreement (referred to herein as the “DAC
Election Form”).




(d) The Buyer shall make its request of the Seller to join in making the DAC
Election with respect to a Designated Contract by no later than five (5) Business
Days after the allocations required by Section 8.10(c) of the Agreement are
finalized in accordance with such Section 8.10(c). For the avoidance of doubt, the
allocation set forth in Section 8.10(c) of this Agreement will include an allocation
of ADSP to each separate deemed reinsurance contract identified in Section 8.14(b)
above.




Section 8.15 Seller Payment for Any Cost of DAC Election.




(a) The Seller or Seller Parent shall make a payment to the Buyer for the cost to
the Buyer of making the DAC Election with respect to any Designated Contract



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of
MLLIC and of MLLICNY in connection with the short Taxable Years of MLLIC and of
MLLICNY ending December 31, 2007 (the “DAC Payment”). The DAC Payment shall
be equal to the sum of (1) the excess if any of the Total 12/31/07 Tax Benefit over
the Total 12/28/07 Tax Benefit for MLLIC plus (2) the excess if any of the Total
12/31/07 Tax Benefit over the Total 12/28/07 Tax Benefit for MLLICNY. For the
avoidance of doubt, the calculations required by this Section 8.15 shall be
performed in a manner consistent with the sample calculation attached to this
Agreement as Exhibit J.




(b) The “12/31/07 Tax Benefit” for each Designated Contract shall equal (A)
+ (B) – (C). For purposes of this calculation, “A” shall equal the present
value of 35 percent of the amount of DAC Amortization that would have been taken
into account each Taxable Year with respect to such Designated Contract if the
Closing Date were December 31, 2007 and no DAC Election were made, assuming DAC
would have been amortized 5% in 2008, 10% in each year from 2009 through 2017, and
5% in 2018; “B” shall equal the present value of 35 percent of the amount of
Section 197 Amortization that would have been taken into account each Taxable Year
with respect to such Designated Contract if the Closing Date were December 31, 2007
and no DAC Election were made, assuming the Section 197 Amortization would be
deducted evenly over 15 years from 2008 through the end of 2022; and “C”
shall equal 35 percent of the excess, if any, of the amount of total DAC that would
have been taken into account with respect to such Designated Contract if the Closing
Date were December 31, 2007 and no DAC Election were made over the ADSP allocated to
such Designated Contract in accordance with Section 8.10(c) of this Agreement.




(c) The “Total 12/31/07 Tax Benefit” shall be the sum of the 12/31/07 Tax
Benefits as calculated in accordance with Section 8.15(b) of this Agreement with
respect to each Designated Contract for each of the Companies.




(d) The “12/28/07 Tax Benefit” for each Designated Contract shall equal (X)
+ (Y) — (Z). For purposes of this calculation, “X” shall equal the present
value of 35 percent of the amount of DAC Amortization that will be taken into
account each Taxable Year with respect to such Designated Contract, assuming DAC
will be amortized 1/120 in 2007, 12/120 in each year from 2008 through 2016, and
11/120 in 2017; “Y” shall equal the present value of 35 percent of the
amount of Section 197 Amortization that will be taken into account each Taxable Year
with respect to such Designated Contract, assuming that the Section 197 Amortization
will be deducted 1/180 in 2007, 12/180 in each year from 2007 through 2021 and
11/180 in 2022; and “Z” shall equal the amount of current income actually
recognized on the federal income tax return of MLLIC or MLLICNY, as the case may be,
equal to the excess, if any, of the amount of total DAC taken into account with
respect to such Designated Contract over the ADSP allocated to such Designated
Contract in accordance with Section 8.10(c) of this Agreement.



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(e) The “Total 12/28/07 Tax Benefit” shall be the sum of the 12/28/07 Tax
Benefits as calculated in accordance with Section 8.15(d) of this Agreement with
respect to each Designated Contract for each of the Companies.




(f) For purposes of determining present value in the calculations in Section 8.15(b)
and 8.15(d), an 11% discount rate shall be used and the items of income and
deduction shall be treated as having been earned or incurred as of June 30 of the
respective Taxable Year.




(g) To the extent permitted by applicable Law, any payment made under this Section
8.15 shall be treated by the parties as an adjustment to the Purchase Price for all
federal, state, local and foreign Tax purposes, and the parties shall, and shall
cause their respective Affiliates to, file their Tax Returns accordingly.




(h) Unless otherwise indicated, all calculations pursuant to this Section 8.15 shall
be made in accordance with Sections 848 and 197 of the Code and regulations
thereunder. For the avoidance of doubt, the “general deductions” (as defined in
Section 848(c)(2) of the Code and Treas. Reg. §1.848-2(g)(6)) taken into account for
purposes of the calculations described in paragraph (b) of this Section 8.15 shall
be the amount of general deductions actually reported on the federal income tax
return filed by or with respect to MLLIC or MLLICNY, as the case may be, for the
2008 Taxable Year, as modified by Treas. Reg. § 1.197-2T(g)(5)(ii).




Section 8.16 DAC Payment Procedures.




(a) No later than 30 days after the filing of the federal income tax returns of the
Companies for the Taxable Year ending December 31, 2008, the Buyer shall deliver to
the Seller a calculation of the DAC Payment computed under Section 8.15 of this
Agreement. Within thirty (30) Business Days after receipt thereof, the Seller shall
deliver to the Buyer written notice indicating whether the Seller disagrees with the
Buyer’s calculation. If the Seller agrees with the Buyer’s calculation or fails to
deliver such written notice within such thirty (30) Business Days, the Buyer’s
calculation with respect to the DAC Payment shall constitute the agreed DAC Payment.
If the Seller provides timely written notice to the Buyer of any disagreement with
the Buyer’s calculations, the Seller and the Buyer shall negotiate in good faith to
determine the agreed DAC Payment. If they do not reach agreement within 30 days
after commencing negotiations, the parties shall promptly submit the items in
dispute to the Accounting Arbitrator in accordance with the procedures set forth in
Section 8.5(d) of this Agreement and the amount determined in accordance with such
procedures shall constitute the agreed DAC Payment.




(b) The Seller or Seller Parent shall make a payment to the Buyer of the agreed DAC
Payment within 30 days of the determination of the agreed DAC Payment pursuant to
Section 8.16(a) of this Agreement.



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(c) In connection with the making of the DAC Election in accordance with Section
8.14 and with the determination of the agreed DAC Payment in accordance with Section
8.15 of this Agreement, the Seller and the Buyer each shall cooperate with, and
shall provide assistance to and access to any documents required by, the other party
consistent with the provisions of Section 8.5(c) of this Agreement.”




	4.	 	Article IX (Definitions) of the Agreement is hereby amended to add the following definitions:






“12/28/07 Tax Benefit” has the meaning set forth in Section 8.15(d).




“12/31/07 Tax Benefit” has the meaning set forth in Section 8.15(b).




“DAC Amortization” means, for each Designated Contract, the amount allowable
as a deduction ratably over a 120-month period pursuant to Section 848(a) of the
Code with respect to such Designated Contract as a result of the purchase and sale
of the Shares pursuant to this Agreement and the filing of the Section 338(h)(10)
Elections.




“DAC Election” has the meaning set forth in Section 8.14(a).




“DAC Election Form” has the meaning set forth in Section 8.14(c).




“DAC Payment” has the meaning set forth in Section 8.15(a).




“Designated Contract” has the meaning set forth in Section 8.14(a).




“New MLLIC” means the corporation that is deemed to acquire, pursuant to
Treas. Reg. § 1.338-1(a)(1), all of its assets as a consequence of the Section 338
Election with respect to MLLIC.




“New MLLICNY” means the corporation that is deemed to acquire, pursuant to
Treas. Reg. § 1.338-1(a)(1), all of its assets as a consequence of the Section 338
Election with respect to MLLICNY.




“Old MLLIC” means the corporation that is deemed to transfer, pursuant to
Treas. Reg. § 1.338-1(a)(1), all of its assets as a consequence of the Section 338
Election with respect to MLLIC.




“Old MLLICNY” means the corporation that is deemed to transfer, pursuant to
Treas. Reg. § 1.338-1(a)(1), all of its assets as a consequence of the Section 338
Election with respect to MLLICNY.




“Section 197 Amortization” means, for each Designated Contract, the amount
allowable as a deduction ratably over a 15-year period pursuant to Section 197(a) of
the Code with respect to such Designated Contract as a result of the purchase



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and
sale of the Shares pursuant to this Agreement and the filing of the Section
338(h)(10) Elections.




“Taxable Year” means the period of time for which taxable income is computed
for federal income tax purposes.




“Total 12/28/07 Tax Benefit” has the meaning set forth in Section 8.15(e).




“Total 12/31/07 Tax Benefit” has the meaning set forth in Section 8.15(c).




	5.	 	Schedule A to the Agreement (“Transferred Assets and Transferred Liabilities”) is
hereby amended by replacing it in its entirety with Schedule A hereto.






	6.	 	The Agreement is hereby amended by adding Exhibit I (“DAC Election Form”) and
Exhibit J (“Sample Tax Calculation”) in the form of Exhibit I and Exhibit J,
respectively, attached hereto.






	7.	 	Governing Law. This Amendment shall be governed by the laws of the State of New
York, without giving effect to its principles or rules of conflict of laws to the extent such
principles or rules are not mandatorily applicable by statute and would require or permit the
application of the laws of another jurisdiction.






	8.	 	Entire Agreement. The Agreement, as amended by this Amendment (including the Seller
Disclosure Letter, the Buyer Disclosure Letter and exhibits hereto) and the Confidentiality
Agreement constitute the entire agreement among the parties hereto and supersede all prior
agreements and understandings, oral and written, between or among the parties hereto with
respect to the subject matter hereof.






	9.	 	Ratification. Except as specifically amended by this Amendment, the terms of the
Agreement shall remain in full force and effect and are hereby ratified and confirmed.





[Signature page follows.]





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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the
date first written above.



	 	 	 	 	 	 	 
	 	 	AEGON USA, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	MERRILL LYNCH INSURANCE GROUP, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	MERRILL LYNCH & CO., INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 
	 

	 	 	 	Title: