Document:

Federal Home Loan Bank of Chicago - Advances, Collateral Pledge and Security Agreement

Exhibit 10.1

FEDERAL HOME LOAN BANK OF CHICAGO
ADVANCES, COLLATERAL PLEDGE, AND SECURITY AGREEMENT
[NonStandard-United Insurance Company of America]

THIS AGREEMENT, dated as of March 18, 2014 between the FEDERAL HOME LOAN BANK OF CHICAGO, with its principal office located at 200 East Randolph Drive, Chicago, Illinois 60601 (“Bank”) and UNITED INSURANCE COMPANY OF AMERICA, a Life & Health Insurance Company (“Member”) organized under the laws of Illinois and having its chief executive office at One East Wacker Drive, Chicago, Illinois 60601.

WHEREAS, the Member desires from time to time to participate in the Bank’s credit programs under the terms of this Agreement (as hereinafter defined) and the Bank is authorized to make advances to the Member, subject to the provisions of the Credit Policy (as hereinafter defined), the Federal Home Loan Bank Act, as now and hereafter amended (the “Act”), and the regulations and guidelines of the Federal Housing Finance Agency (or any successor thereto), as now and hereafter in effect (collectively, the “Regulations”); and  

WHEREAS, the Bank requires that advances and other obligations owed by the Member to the Bank be secured pursuant to this Agreement, and the Member agrees to provide the collateral security the Bank requests in accordance with this Agreement and to otherwise comply with the requirements hereof and the Bank’s Credit Policy.  

NOW THEREFORE, the Member and Bank agree as follows:           

ARTICLE I
DEFINITIONS

Section 1.01 DEFINITIONS.  As used herein, the following terms shall have the following meanings:  

(a)  “Additional Collateral” means items of property other than Eligible Collateral which are pledged by the Member and accepted by the Bank as collateral, as it deems necessary, to fully secure and protect the Bank’s security position on outstanding Advances or to renew an outstanding Advance in accordance with Section 10(a)(4) of the Act (12 U.S.C. § 1430(a)(4), as amended) and any Regulations adopted thereunder.

(b) “Advance” or “Advances” means any and all loans, overdrafts, or other extensions of credit, including, without limitation, deposits under funding agreements, and all Outstanding Commitments, whether now or hereafter granted by the Bank to, on behalf of, or for the account of, the Member in accordance with such terms and conditions as are applicable to each such transaction as set forth in the Credit Policy (but excluding any obligations that the Bank may now or hereafter have to honor items or transfer orders under a depository or similar agreement between the Member and the Bank).  

(c) “Affiliate” means with respect to the Member, any other person or entity controlling or controlled by or under common control with the Member.  For purposes of this definition, “control” when used with respect to any specified person (including the Member) means the power to direct the management and policies of such person or entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.  

(d) “Agreement” means this Advances, Collateral Pledge, and Security Agreement, together with any and all permitted and authorized amendments, modifications, or restatements hereof as may be duly entered into by the parties hereto and all documents or other agreements incorporated by reference including, but not limited to, the Credit Policy.   

(e) “Application” means a written or electronic submission (or if so specified in the Credit Policy, may be telephonic to the Bank), in such form and submitted in such manner as may be specified by the Bank from time to time in the Credit Policy or by notice to the Member, by which the Member requests an Advance or a Commitment for an Advance, including, without limitation, in the case of a deposit under a funding agreement, a placement schedule or similar addendum or endorsement to the funding agreement.

(f) “Capital Stock” means all of the Member’s capital stock issued by the Bank and all payments which have been or hereafter are made on account of subscriptions to and all unpaid dividends on such capital stock.  

(g) [Reserved].

282906 (NonStandard-United Insurance Company of America)                      Form No. 300-010 (4-09-12)

(h) “Collateral” means: (1) all property, including the proceeds thereof, heretofore assigned, transferred, or pledged to the Bank by the Member, or in which the Member has granted the Bank a security interest, to secure Advances and other Indebtedness and (2) all Eligible Collateral and Additional Collateral, including the proceeds thereof, which is now or hereafter assigned, transferred, or pledged to the Bank by the Member, or in which the Member now or hereafter grants the Bank a security interest, pursuant to Section 3.01 hereof.

(i) “Collateral Maintenance Level” means a dollar amount of Qualifying Collateral having a Collateral Value equal to such percentage as the Bank may specify from time to time in its Credit Policy of the aggregate dollar amount of (1) Indebtedness and (2) any other amounts specified by the Bank from time to time under the Credit Policy.  The Bank may increase or decrease the Collateral Maintenance Level at any time (A) for all Members, as a result of a change in the Credit Policy, upon fifteen (15) business days advance written notice to Member; or (B) for Member, as a result of credit deterioration, upon three (3) business days advance written notice.    

(j) “Collateral Value” means an amount equal to such percentage of the market value or unpaid principal balances of items of Collateral as the Bank may specify from time to time, in its sole discretion. 

(k) “Commitment” means any obligation of the Bank to make an Advance or payment to, on behalf of, or for the account of, the Member, regardless of whether such obligation is contingent in whole or in part, including, without limitation, on the Bank’s obligations under letters of credit, firm commitments, guarantees, or other arrangements intended to facilitate transactions between the Member and third parties.
    
(l) [Reserved].

(m) “Confirmation of Advance” means a writing or transmission in electronic or other form as may be determined by the Bank from time to time, by which the Bank agrees to and confirms an Application.  With respect to an open line of credit Advance, the posting to a Member’s DID Statement or such similar electronic statement shall be deemed to be receipt of a Confirmation of Advance.

(n) “Credit Policy” means, collectively, the Bank’s Member Products & Credit Policy, its Member Products Guide, its Collateral Guidelines and such other documents or publications as may from time to time be specified by the Bank as supplementing the same, as each such document or publication may from time to time be modified by the Bank in its sole discretion and communicated to the Member.

(o) “Deposit Accounts” means the Member’s DID Account and any and all other demand, term, time, savings or similar account maintained by the Member with the Bank.

(p) “DID Account” means the Member’s Daily Investment Deposit Account at the Bank.

(q) “Eligible Collateral” means Capital Stock, First Mortgage Collateral, Securities, Deposit Accounts and Other Real Estate Related Collateral.

(r) “Event of Default” means an Event of Default as defined in Section 4.01 hereof.  

(s) “First Mortgage Collateral” means Mortgage Loans (excluding participation or other fractional interests therein), the Mortgage Notes evidencing the Mortgage Loans, the Mortgages securing the Mortgage Loans and all general intangibles and accounts relating to a Mortgage Loan, ancillary security agreements, policies and certificates of insurance or guarantees, rent assignments, FHA mortgage insurance or VA loan guarantee certificates, title insurance policies, evidences of recordation, applications, underwriting materials, surveys, appraisals, approvals, permits, notices, opinions of counsel, loan servicing rights, loan servicing data, all other electronically created, stored and/or written records or materials relating to the Mortgage Loans, the proceeds of the Mortgage Loans, and any real property or other property obtained through foreclosure, by realizing upon or in settlement of the Mortgage Loans and/or the Mortgages.

(t) “Indebtedness” means all indebtedness, obligations and liabilities of the Member to the Bank arising under or pursuant to this Agreement or any other agreements, now or hereafter outstanding, of the Member to the Bank, including, without limitation, all Advances, Outstanding Commitments, interest, prepayment premiums and all other obligations to pay and liabilities of the Member to the Bank.

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282906                                                                                                                               Form No. 300-010 (4-17-12)

(u) “Law” means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, adjudication, opinion, release, ruling, order, injunction, writ, decree or award of any Official Body.
    
(v) “Mortgage Loans” means fully-disbursed whole loans evidenced by Mortgage Notes which are secured by Mortgages that constitute a first lien on one-to-four unit dwellings or Multi-Family Properties, and any endorsements or assignments thereof.  

(w) “Mortgage Notes” means notes, bonds, or other instruments evidencing Mortgage Loans or any other loans or indebtedness secured by Mortgages.

(x) “Mortgages” means mortgages, deeds of trust and any other security instruments that create a lien on real property and secure Mortgage Notes.

(y) “Multi-Family Property” means residential real property which includes five or more dwelling units and as may be further defined in the Credit Policy.

(z) “NAIC” means National Association of Insurance Commissioners or any successor thereof.

(aa) “Official Body” means any federal, state, local or other government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, in each case whether foreign or domestic, that regulates Member. 

(bb) “Other Real Estate Related Collateral” means (i) all other loans, lines of credit or indebtedness evidenced by Mortgage Notes, excluding First Mortgage Collateral, but otherwise including without limitation, home equity loans, home improvement loans, subordinate loans, mortgage warehouse lines of credit, real estate construction loans, and other real estate related loans, which Mortgage Notes are secured by Mortgages on commercial property, residential property or by security interests in personal property related to real estate transactions or financing, and (A) all Mortgage Notes or other instruments evidencing such loans, lines of credit or indebtedness, (B) any endorsements and assignments thereof to the Member, and (C) all ancillary security agreements, policies and certificates of insurance or guarantees, chattel paper, electronic chattel paper, evidences of recordation, applications, underwriting materials, appraisals, notices, opinions of counsel, loan servicing data, and all other electronically stored and written records or materials relating to the loans evidenced or secured thereby, (ii) all property relating to the Member’s management, collection, processing, accounting for, monitoring, or servicing of loans and accounts, including, without limitation, all checks, instruments, documents, certificates, agreements, loan accounts, payments, chattel paper, electronic chattel paper, collections, account statements, computer files, records, promissory notes, endorsements, assignments, and loan servicing data, together with the rights, remedies, and powers related thereto, and (iii) participations in or portions of First Mortgage Collateral and participations in or portions of other real estate related collateral as set forth in clause (i) above.

(cc) “Outstanding Commitment(s)” means, at any time, the maximum aggregate amount that the Bank may be obligated to pay or advance under any Commitment.

(dd) “Qualifying Collateral” means Collateral other than Capital Stock that: (1) qualifies as security for Advances under the terms and conditions of the Credit Policy, the Act, and the Regulations and satisfies the requirements for Qualifying Collateral that may be established by the Bank and (2) is owned by the Member free and clear of any liens, encumbrances, or other interests other than may be approved in writing by the Bank. 

(ee) “RBC Level” means the level of Risk-Based Capital as determined from time to time in accordance with the most restrictive, as of the date of determination, of the following: (1) state insurance law applicable to the Member; (2) the policies and procedures of the state insurance department having regulatory authority over the Member, whether or not having the force or effect of Law; and (3) the policies and procedures of the NAIC, whether or not having the force or effect of Law. which level, in the case of any of (1), (2) or (3), requires a response by the Member or the state insurance department having regulatory authority over the Member. The RBC Levels may include without limitation, the following levels as currently defined under the policies and procedures of the NAIC: Company Action Level, Regulatory Action Level, Authorized Control Level and Mandatory Control Level as said terms are determined by the NAIC.

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282906                                                                                                                               Form No. 300-010 (4-17-12)

(ff) “RBC Plan” means each comprehensive financial plan, including all amendments and modifications thereto, filed by the Member with the state insurance department having regulatory authority over the Member at such time as the Member's RBC Level is at the Company Action Level, as such term is currently defined under the policies and procedures of the NAIC, or RBC Level of similar import, which RBC Plan, without limitation, explains the facts contributing to the Member's condition and identifies corrective action to be taken by the Member.
(gg) “RBC Report” means the report filed each year by the Member with the state insurance department having regulatory authority over the Member, such report to set forth a detailed calculation of the Member's RBC Level as of the end of the immediately preceding calendar year, or in the event no such report is filed, then the report filed each year with the NAIC by the Member.
(hh) “Reinsurance Contract” has the meaning specified in Section 5.01(t).

(ii) “Risk-Based Capital” means that calculation, as in effect from time to time, which shall be the most restrictive, as of each date of determination, of the calculations utilized by the following: (1) state insurance Law applicable to the Member (2) the policies and procedures of the state insurance department having regulatory authority over the Member, whether or not having the force or effect of Law; or (3) the policies and procedures of the NAIC whether or not having the force or effect of Law, which calculation, in the case of any of (1), (2) or (3), determines, among other matters, the sufficiency of capital of the Member. Without limiting the generality of the foregoing, as of the date hereof such calculation in accordance with the policies and procedures of the NAIC takes into account the risk with respect to an insurance company's assets, the risk of adverse loss experience with respect to an insurance company's policy liabilities, underwriting and credit risks and all other business risks relevant to such insurance company.

(jj) “REMIC” means a “real estate mortgage investment conduit” within the meaning of Section 860D of the Internal Revenue Code of 1986, as amended, or any successor provision.

(kk) “Securities” means mortgage-backed securities (including participation certificates) issued by Federal Home Loan Mortgage Corporation or Federal National Mortgage Association, obligations guaranteed by Government National Mortgage Association, consolidated obligations of the Federal Home Loan Bank System and/or obligations issued or guaranteed by the United States or an agency thereof, privately-issued residential mortgage-backed securities, and other securities as may be specified from time to time in the Credit Policy.

(ll) Reserved. 
(mm) Reserved. 
(nn) “Swap Transaction” means any transaction between the Member and Bank that constitutes a “swap agreement” as that term is defined in United States Bankruptcy Code (11 U.S.C. §101(53B) or any successor provision), as amended.  

(oo) “UCC” means the Uniform Commercial Code as in effect in the State of Illinois or any other state the laws of which are required to be applied in connection with the perfection or priority of security interests thereunder.

ARTICLE II
ADVANCES AGREEMENT

Section 2.01 ADVANCE DOCUMENTATION.  

(a) The Member may from time to time request Advances and Commitments for Advances or renewal of an outstanding Advance by completing and submitting an Application to the Bank.  The terms of each Advance or Commitment for an Advance shall be conclusively evidenced by this Agreement and by either (1) the Member’s Application when such Application is executed or accepted by the Bank without any change; (2) in the case of a telephonic Application received, completed, or modified by the Bank, by a Confirmation of Advance generated by the Bank; or (3) in the case of an open line of credit Advance, the Member’s DID Account Statement.  Unless otherwise agreed to by the Bank in writing, each Advance shall be made by crediting the Member’s DID Account.

(b)  The Member shall be estopped from asserting any claim or defense with respect to the terms applicable to an Advance or a Commitment for an Advance unless, within two (2) business days of receipt of the Bank’s Confirmation of Advance, the Member delivers to the Bank a written notice specifying the disputed term(s) or condition(s) of the Advance or 

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282906                                                                                                                               Form No. 300-010 (4-17-12)

Commitment for an Advance.  Upon the request of the Bank, the Member shall sign and deliver to the Bank a promissory note or notes in such form as the Bank may reasonably require evidencing any Advance.

Section 2.02 REPAYMENT OF ADVANCES.  

(a) The Member agrees to repay the principal amount of each Advance in accordance with this Agreement and the terms and conditions specified in the Application, the Confirmation of Advance and any other document evidencing such Advance which document is executed by both the Member and the Bank, or, in the case of an open line of credit Advance, on demand.  Interest shall be paid on each Advance at the times specified by the Bank in the Credit Policy, the Application, the Confirmation of Advance and any other documents evidencing such Advance and shall be charged for each day that an Advance is outstanding at the rate applicable to each such Advance.

(b) The Member shall ensure that, on any day on which any payment is due to the Bank with respect to an Advance or other Indebtedness, the DID Account has an available balance in an amount at least equal to the amounts then currently due and payable to the Bank, and the Member hereby authorizes the Bank to debit the DID Account for any and all such amounts.  In the event that the available balance in the DID Account is insufficient to pay such due and payable amounts, the Bank may, without notice to or request from the Member, apply any other deposits, credits, or monies of the Member then in the possession or control of the Bank (exclusive of any such items as are held by the Bank as bailee for a third party) to the payment of amounts due and payable or, in the sole discretion of the Bank, the Bank may fund an Advance to the Member in the amount of the insufficiency, which Advance shall bear interest from the date the same shall be made until paid at the rate in effect and being charged by the Bank from time to time on overdrafts on daily investment deposit accounts of its members.
 
(c) The Member shall pay to the Bank, immediately and without demand, interest on any past due amount owing on any outstanding Advance (other than an Advance made pursuant to Section 2.02(b)) or other Indebtedness at the interest rate set forth in the Credit Policy.

(d) All payments with respect to Advances shall be applied first to any fees or charges applicable thereto and to interest due thereon, in such order as the Bank may determine, and then to any principal amount thereof.

Section 2.03 ADVANCES RELATED TO THIRD PARTY COMMITMENTS.  

		
	(a)
	(1) If an Event of Default has occurred and is continuing, the Bank may at its option, and without notice to or request from the Member, or 

(2) If the Bank reasonably and in good faith, determines that a material adverse change of the Member’s financial condition has occurred or the Bank believes, in good faith, that the prospect of payment or performance of any obligations or any performance under this Agreement is materially impaired, the Bank may at its option, and upon reasonable prior written notice to the Member,
 
make an Advance by crediting the DID account of the Member with the Bank in an amount equal to the aggregate amount of any and all Outstanding Commitments that the Bank has issued on the Member’s behalf to or for the benefit of parties other than the Member.  The Bank shall have a first priority perfected security interest in the DID account, and amounts credited to the DID account may not be withdrawn by the Member for so long as there shall be Outstanding Commitments.  Amounts credited to the DID account shall be utilized by the Bank for the purpose of satisfying the Bank’s obligations under such third party Commitments.  When all such obligations have expired or have been satisfied, the Bank shall disburse the balance, if any, in the DID account first to the satisfaction of any amounts then due and owing by the Member to the Bank and then to the Member or its successors in interest.  Advances made pursuant to this Section 2.03 shall be payable on demand and shall bear interest from the date made until paid at the rate in effect and being charged by the Bank from time to time on overdrafts on daily investment deposit accounts of its members.

(b) The Bank shall not be obligated to honor an Outstanding Commitment to the Member (excluding any Outstanding Commitments issued on behalf of the Member for the benefit of third parties) if the Member’s access to advances is restricted pursuant to § 1266.4 of the Federal Housing Finance Agency Regulations (or any successor to such provision), an Event of Default has occurred under this Agreement or if after giving effect to the related Advance, the Member would not be in compliance with its Collateral Maintenance Level.  The Member releases the Bank from any and all liability in connection with such action by the Bank.  

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282906                                                                                                                               Form No. 300-010 (4-17-12)

Section 2.04 AMORTIZATION OF ADVANCES.  

(a) If the Bank determines, in its sole discretion, that the creditworthiness of the Member does not meet the minimum requirements of the Bank, the Bank may, or 

(b) If the Bank reasonably and in good faith believes that the prospect of payment or performance of any obligations or any performance under this Agreement is materially impaired, the Bank may at its option, and upon reasonable prior written notice to the Member, 

require amortization by means of monthly payments of principal on all or part of the Member’s Advances.   The Member agrees to begin making such monthly amortization payments upon receipt of written notice from the Bank, in such amounts as the Bank shall specify in writing.  The Member shall make such payments while any amount remains unpaid on the subject Advances or until notified otherwise by the Bank. No monthly payment shall exceed ten percent (10%) of the original principal balance of the Advance being amortized.  Unless otherwise specified by the Bank in writing to the Member, such monthly amortization payments shall not extend the maturity date or other scheduled payment dates applicable to the Advance being amortized.  Amortization payments required pursuant to this Section 2.04 shall be in addition to all other required payments of principal and interest with respect to Advances.    

Section 2.05 DISCRETION OF THE BANK TO GRANT OR DENY ADVANCES.  Nothing contained herein, in the Credit Policy, or in any other documents describing or setting forth the Bank’s credit program and credit policies shall be construed as an agreement or Commitment on the part of the Bank to grant Advances or extend Commitments for Advances hereunder or to enter into any other transaction, the right and power of the Bank, in its discretion to either grant or deny any Application or other request for an Advance or Commitment for an Advance in its sole discretion being expressly reserved.  The determination by the Bank of the Collateral Value of a Member’s Qualifying Collateral shall not constitute a determination by the Bank that the Member may obtain Advances or Commitments for Advances up to the maximum amount that could be supported by such Qualifying Collateral based on the Collateral Maintenance Level.

Section 2.06 ELECTRONIC TRANSACTIONS.  The parties agree that the transactions encompassed under this Agreement may be conducted electronically through whatever means the Bank may provide from time to time.  An Application submitted electronically must be transmitted in accordance with the procedures established by the Bank and communicated to the Member.  The Bank may rely upon and enforce an Application submitted electronically to the same extent as if such Application were written and signed on paper and in ink. 

Section 2.07 INTEREST RATE LIMITATION.  Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Indebtedness, together with all fees and other charges that are treated as interest on such Indebtedness under applicable law, shall exceed the maximum lawful rate (the “maximum rate”) that may be contracted for, charged, taken, received or reserved by the Bank in accordance with applicable law, the rate of interest payable in respect of such Indebtedness, together with all of the charges payable in respect thereof, shall be limited to such maximum rate.

ARTICLE III
SECURITY AGREEMENT

Section 3.01 CREATION OF SECURITY INTEREST.  

(a) As security for all Indebtedness and Outstanding Commitments, the Member hereby assigns, transfers, and pledges to the Bank, and grants to the Bank a first and prior security interest in:

(i) all of the following as may be now owned or existing or hereafter owned by the Member:

(A) Capital Stock;
(B) Deposit Accounts;

(ii) such First Mortgage Collateral, Other Real Estate Related Collateral, Securities and Additional Collateral that are delivered pursuant to Section 3.04 hereof; and
(iii) all payment intangibles related to, and all cash and non-cash proceeds of the foregoing.

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282906                                                                                                                               Form No. 300-010 (4-17-12)

Without limitation of the foregoing and for the avoidance of doubt, all property heretofore assigned, transferred, or pledged by the Member to the Bank or as to which the Member has granted a security interest to the Bank, as collateral for Advances or Commitments or other Indebtedness prior to the date hereof is Collateral hereunder.  

(b) The Member shall make, execute, acknowledge, record, and deliver to the Bank such financing statements, notices, assignments, listings, powers, and other documents with respect to the Collateral and the Bank’s security interest therein and in such form as the Bank may reasonably require. To the extent permitted by applicable law, the Member hereby irrevocably authorizes the Bank to file, in the name of the Member or otherwise and without the signature or other separate authorization or authentication of the Member appearing thereon, such UCC financing statements (including, without limitation, continuations and amendments) and in such jurisdictions as the Bank may deem necessary or appropriate to perfect or maintain the perfection of the security interest of the Bank with respect to any Collateral. The Member agrees that a photocopy, electronic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. The Member shall pay the cost of, or incidental to, any recording or filing of any financing statements (including, without limitation, continuations and amendments) or other assignment documents concerning the Collateral. 

Section 3.02 COLLATERAL MAINTENANCE LEVEL REQUIREMENT.  

(a) The Member shall at all times maintain as Collateral an amount of Qualifying Collateral that has a Collateral Value that is at least equal to the then current required Collateral Maintenance Level.  The Member shall not assign, pledge, transfer, create any security interest in, sell, or otherwise dispose of any Collateral without the prior written consent of the Bank except as may be specified in the Credit Policy.  

(b) Any Collateral that has not been delivered in accordance with Section 3.04 hereof shall be held by the Member in trust for the benefit of, and subject to the direction and control of, the Bank and will be physically safeguarded by the Member with at least the same degree of care as the Member uses in physically safeguarding its other property.  Without limitation of the foregoing, the Member shall take all action necessary or desirable to protect and preserve the Collateral and the Bank’s interest therein, including without limitation the maintaining of insurance on property securing First Mortgage Collateral or Other Real Estate Related Collateral (any and all policies and certificates of insurance or guaranty relating to such Mortgages are herein called “insurance”), the collection of payments under all Mortgages and under all insurance, and otherwise assuring that all Mortgages are serviced in accordance with the standards of a reasonable and prudent servicer in the mortgage industry.  

(c) If the Member becomes aware or has reason to believe that the Collateral Value of the Member’s Qualifying Collateral has fallen below the Collateral Maintenance Level (such belief being based on information, including but not limited to, updated appraisals, revised model valuations and information obtained in connection with Member’s evaluation of its loan loss reserves), or that a contingency exists which with the lapse of time would result in the Member failing to meet the Collateral Maintenance Level, the Member shall immediately notify the Bank. If any Collateral that was Qualifying Collateral delivered pursuant to Section 3.04 hereof ceases to be Qualifying Collateral, the Member shall promptly notify the Bank in writing of that fact and, if so requested by the Bank, the reason that the Collateral has ceased to be Qualifying Collateral.  In such case, the Member shall promptly specify, or deliver, as the case may be, other Qualifying Collateral sufficient to maintain its Collateral Maintenance Level.

Section 3.03 RESERVED.

Section 3.04 DELIVERY OF COLLATERAL.  

(a) The Member shall deliver to the Bank, or to a custodian designated or approved by the Bank, Qualifying Collateral having a Collateral Value at least equal to the Collateral Maintenance Level at all times.  Any Collateral that is delivered under this subsection as a part of the Qualifying Collateral must conform to the requirements set forth in the Credit Policy for such Collateral.    

(b) The Member agrees to pay the Bank such reasonable fees and charges as may be assessed by the Bank to cover the overhead and other costs of the Bank relating to the receipt, holding, redelivery, and reassignment of Collateral, and to reimburse the Bank upon request for all recording fees and other reasonable expenses, disbursements, and advances incurred or made by the Bank in connection therewith, including reasonable compensation and the expenses and disbursements of any custodian that may be appointed by the Bank hereunder, and the agents and legal counsel of the Bank and such custodians.

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282906                                                                                                                               Form No. 300-010 (4-17-12)

Section 3.05 RELEASE OF COLLATERAL.  Upon receipt of the Bank of writings or electronic submissions in the form specified by the Bank in the Credit Policy constituting (a) a request from the Member for release of Collateral; (b) a detailed listing of the Collateral to be released; and (c) a certificate of a responsible officer of the Member certifying as to the Qualifying Collateral remaining after such withdrawal, and upon the Bank’s determination that the Collateral Value of the remaining Qualifying Collateral is not less than the current required Collateral Maintenance Level, the Bank shall or shall cause the custodian to promptly redeliver, release, or reassign to the Member, as applicable, at the Member’s expense, the Collateral specified in the Member’s listing of the Collateral to be released.  Notwithstanding anything to the contrary in this Section 3.05, (i) while an Event of Default shall have occurred and be continuing; or (ii) at any time that the Bank reasonably believes in good faith that the prospect of payment or performance of any obligations or any performance under this Agreement by the Member is materially impaired, or (iii) the Member would fail to satisfy its Collateral Maintenance Level, the Member may not obtain any such release of collateral.

Section 3.06 BANK’S RESPONSIBILITIES AS TO COLLATERAL.  The duty of the Bank as to the Collateral shall be solely to use reasonable care in the custody and preservation of the Collateral in its possession, which shall not include (i) any steps necessary to preserve rights against parties with a prior position or (ii) the duty to send notices, perform services, or take any action in connection with the collection or management of the Collateral.  The Bank shall not have any responsibility or liability for the form, sufficiency, correctness, genuineness, or legal effect of any instrument or document constituting a part of the Collateral, or any signature thereon or the description or misdescription, or value of property represented, or purported to be represented, by any such document or instrument.  The Member agrees that any and all Collateral may be removed by the Bank from the state or location where situated, provided such removal does not violate Illinois Law, and may be subsequently dealt with by the Bank as provided in this Agreement 

Section 3.07 BANK’S RIGHTS AS TO COLLATERAL; POWER OF ATTORNEY. 
 
(a) At any time, at the expense of the Member, the Bank may in its reasonable discretion, after the occurrence and during the continuation of an Event of Default, in its own name or in the name of its nominee or of the Member, take any and all reasonable actions that are pertinent to the protection of the Bank’s interest hereunder and, if such actions are subject to the laws of a state, are lawful under the laws of the State of Illinois including, but not limited to the following:    

		
	(1)
	Terminate any consent given hereunder;    

(2) Notify obligors on any Collateral to make payments thereon directly to the Bank or the Bank’s nominee or servicer;    

(3) Endorse any Collateral on behalf of the Member;    

(4) Enter into any extension, compromise, settlement, release, renewal, exchange, or other agreement relating to or affecting any Collateral;    

(5) Take any action the Member is required to take or which is otherwise reasonably necessary to (A) file a financing statement or otherwise perfect a security interest in any or all of the Collateral or (B) obtain, preserve, protect, enforce, or collect the Collateral;    

(6) Take control of any funds or other proceeds generated by the Collateral and use the same to reduce Indebtedness as it becomes due (or hold the same as Additional Collateral); and    

(7) Cause the Collateral to be transferred to its name or the name of its nominee.  

(b)  In connection with entering into this Agreement, the Member has executed a power of attorney substantially in the form of Exhibit A hereto.  In exercising its rights under the power of attorney, the Bank is limited by the provisions of Section 3.07(a) and may only take reasonable actions that are pertinent to the protection of the Bank’s interest under this Agreement.  Further, the Bank shall only exercise its rights under such power of attorney if it believes in good faith that the prospect of payment or performance of any obligations or any performance under this Agreement by the Member is materially impaired or an Event of Default under this Agreement shall have occurred and shall be continuing.

Section 3.08 SUBORDINATION OF OTHER LOANS TO COLLATERAL.  The Member hereby agrees that all Mortgage Notes which are part of the Collateral (other than home equity loans and lines of credit) (“pledged notes”) shall have priority 

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282906                                                                                                                               Form No. 300-010 (4-17-12)

in right and remedy over any other loans, advances, obligations or indebtedness, whenever made, and, however evidenced (“Subordinated Debt”), which are also secured by the Mortgages securing the pledged notes and/or by liens on the same properties encumbered by the Mortgages securing the pledged notes.  The pledged notes shall be satisfied out of the property (or proceeds thereof) encumbered by such Mortgages before recourse to such property may be obtained for the repayment of any Subordinated Debt.  To this end, the Member hereby subordinates (i) the Subordinated Debt to the pledged notes and (ii) the lien of any mortgages or security instruments that secure the Subordinated Debt to the lien of the Mortgages and security agreements  that secure the pledged notes.  The Member further agrees to retain possession of all notes or other instruments evidencing any Subordinated Debt and not to pledge, assign, or transfer the same, or any interest therein, except insofar as such Subordinated Debt may be pledged to the Bank as part of the Collateral.  

Section 3.09 PROCEEDS OF COLLATERAL.  The Member, as the Bank’s agent, shall collect all payments when due on all Collateral.  Upon receipt of written notice, the Member shall hold such collections and other proceeds of Collateral separate from its other monies in one or more designated cash collateral accounts maintained at the Bank and apply them to the reduction of Indebtedness as it becomes due; otherwise, the Bank consents to the Member’s use and disposition of all such collections, except as may otherwise be provided under a control agreement executed by the parties.  

Section 3.10 COLLATERAL AUDITS; REPORTS AND ACCESS.  

(a) All Collateral and the satisfaction of the Collateral Maintenance Level shall be subject to audit and verification by or on behalf of the Bank.  Such audits and verifications may occur upon reasonable notice during the Member’s normal business hours or at such other times as the Bank may reasonably request.  The Member shall provide to the Bank such reports relating to the Collateral as may be called for pursuant to the Credit Policy or as the Bank may otherwise reasonably require.  The Member shall provide the Bank access to the Member’s books and records relating to such Collateral and shall make adequate working facilities available to the representatives or agents of the Bank for purposes of such audits and verification.  Reasonable fees and charges may be assessed to the Member by the Bank to cover the Bank’s costs relating to such audit and verification.  

(b) Notwithstanding anything to the contrary, the Member shall be solely responsible for the accuracy and adequacy of all information and data in each audit or status report (or other writing specifying and describing any Collateral) submitted to the Bank, regardless of the form in which submitted.  To enable the Bank to regenerate any files or data previously furnished to the Bank with respect to any Collateral or any information contained in any audit or status report, the Member shall at all times maintain complete and accurate records and materials supporting or relating to any audit or status report and shall make the same available, on request, to the Bank.  The parties hereto agree that the maintenance and retention of such supporting records and materials shall be the sole responsibility of the Member and that the Bank shall not be liable for any loss of such data.   

(c) The Bank shall have no duty to make any independent examination of or calculation with respect to the information submitted in an audit or status report (or in any written schedule that may be submitted by the Member) and, without limiting the generality of the foregoing, the Bank makes no representation or warranty as to the validity, accuracy, or completeness of any information contained in any written records of the Bank concerning, or of any response to, such audit or status report.  
 
Section 3.11 MEMBER’S REPRESENTATIONS AND WARRANTIES CONCERNING COLLATERAL.  The Member represents and warrants to the Bank, as of the date hereof and the date of each Advance hereunder, as follows:  

(a) The Member owns and has marketable title to the Collateral and has the right and authority to grant a security interest in the Collateral and to subject all of the Collateral to this Agreement;  

(b) The information given in any status report, schedule, or other documents required hereunder and any other information given from time to time by the Member as to each item of Collateral is true, accurate, and complete in all material respects;  

(c) All the Collateral meets the standards and requirements with respect thereto from time to time established by the Act, the Regulations, and the Bank;  

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282906                                                                                                                               Form No. 300-010 (4-17-12)

(d) The lien of the First Mortgage Collateral and Other Real Estate Related Collateral on the real property securing the same is a perfected lien under applicable state law and the lien is a first lien except with respect to (1) home equity loans or lines of credit and (2) subordinate loans which are not reported by the Member as Qualifying Collateral;  

(e) The Member has not conveyed or otherwise created, and there does not otherwise exist, any participation interest or other direct, indirect, legal, or beneficial interest in any Qualifying Collateral on the part of anyone other than the Bank and the Member;  

(f) To the best of Member’s knowledge, all Mortgage documents, securities and other instruments and documents constituting a part of the Collateral constitute valid and binding obligations of their respective issuers and obligors enforceable against such issuers and obligors in accordance with their respective terms, subject to the effect of bankruptcy, insolvency and other similar laws affecting the rights of creditors generally and to general principles of equity;  

(g) Except as may be approved in writing by the Bank, to the best of Member’s knowledge, no account debtor or other obligor owing any obligation to the Member with respect to any item of Qualifying Collateral has any defenses, offsetting claims, or other rights affecting the right of the Member or the Bank to enforce any Mortgage or Mortgage Note relating thereto, and no defaults (or conditions that, with the passage of time or the giving of notice or both, would constitute a default) exist under any such Mortgage or Mortgage Note;  

(h) To the best of Member’s knowledge, no part of any real property or interest in real property that is securing Mortgages included in Qualifying Collateral contains or is subject to the effects of toxic or hazardous materials or other hazardous substances (including those defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq.; and in the regulations adopted and publications promulgated pursuant to said laws) the presence of which could subject the Bank or its successors and assigns  to any liability under applicable state or Federal law or local ordinance either at any time that such property is pledged to the Bank or upon the enforcement by the Bank of its security interest therein. The Member hereby agrees to indemnify and hold the Bank harmless against all costs, claims, expenses, damages, and liabilities resulting in any way from the presence or effects of any such toxic or hazardous substances or materials in, on, or under any real property or interest in real property that is subject to or included in the Collateral.

(i)  Reserved.
(j)  The exact legal name of the Member, the type and jurisdiction of organization of the Member, and the location of the Member’s chief executive office, each as stated in the first paragraph of this Agreement is true, accurate, and complete.  The Member will provide prior written notice to the Bank, as soon as reasonably practicable, of any change to its name, its type and jurisdiction of organization, or the location of its chief executive office.

ARTICLE IV
DEFAULT; REMEDIES

Section 4.01 EVENTS OF DEFAULT; ACCELERATION.  Upon the occurrence of and during the continuation of any of the following events or conditions of default (“Event of Default”), the Bank may at its option and in its discretion, by a notice to the Member, declare all or any part(s) of the Indebtedness and accrued interest thereon, including any prepayment fees or charges which are payable in connection with the payment prior to the originally scheduled maturity of any Advance, to be immediately due and payable without presentment, demand, protest, or any further notice:  

(a) Failure of the Member to pay when due any principal of any Advance or failure of the Member to pay within three (3) business days when due any interest on any Advance;  

(b) Material breach or failure of the Member to comply with the requirements of the Credit Policy or perform any covenant, promise, or obligation or to satisfy any condition or liability contained herein, in any Application, Confirmation of Advance or in any other agreement to which the Member and the Bank are parties, provided Member shall have fifteen (15) days to cure any such material breach or default that is not related to any collateral requirement as set forth in the Credit Policy or the documents identified in this subsection (b); 

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282906                                                                                                                               Form No. 300-010 (4-17-12)

(c) In the Bank’s good faith and reasonable determination, evidence coming to the attention of the Bank that any representation, statement, or warranty made or furnished in any manner to the Bank by or on behalf of the Member in connection with any Advance, any specification or description of Qualifying Collateral or any report or certification concerning the status, principal balance or Collateral Value of any item of Collateral was false in any material respect when made or furnished and, with respect to any item of Collateral such misrepresentation cannot be cured by the substitution of new Collateral;  

     (d) Failure of the Member to maintain adequate Qualifying Collateral free of any encumbrances or claims as required herein; 

(e) The issuance of any material tax, levy, seizure, attachment, garnishment, levy of execution, or other process with respect to the Collateral and the foregoing cannot be cured by the substitution of new Collateral;  

(f) Any suspension of payment by the Member or an Affiliate to any creditor of material sums (defined as 10% of the consolidated assets of Member or Affiliates) due, unless such amount is being disputed in good faith by the Member, or the occurrence of any event which results (or which with the giving of notice or passage of time, or both, will result) in another creditor having the right to accelerate the maturity of any indebtedness of the Member under any security agreement, indenture, loan agreement, instrument, or comparable agreement or the early termination or close-out of any Swap Transaction or other derivatives contract; 

(g) The Member or any Affiliate of the Member:
 
(1) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; 

(2) makes a general assignment, arrangement or composition with or for the benefit of its creditors; 

(3)(A)     institutes or has instituted against it, by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official, or 

     (B)     has such a proceeding instituted against it by a person or entity not described in clause (3)(A) herein and such proceeding either results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or is not appealed, dismissed, discharged, stayed or restrained within 45 days; 

(4) makes a public announcement for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); 

(5) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; 

(6) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets; or 

(7) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts;

(h) Sale by the Member of all or a material part of the Member’s assets or the taking of any other action by the Member to liquidate or dissolve;    

(i) Termination for any reason of the Member’s membership in the Bank, or the Member’s ceasing to be a type of entity that is eligible under the Act to become a member of the Bank, in each case, at such time as the Member has any outstanding Indebtedness due to the Bank;  

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282906                                                                                                                               Form No. 300-010 (4-17-12)

(j) Merger, consolidation, or other combination of the Member with an entity which is not a member of the Bank if the nonmember entity is the surviving entity; 

(k) The Bank reasonably and in good faith determines that a material adverse change has occurred in the financial condition of the Member or an Affiliate from that disclosed at the time of the making of any Advance or from the condition of the Member or an Affiliate as theretofore most recently disclosed to the Bank which could either (1) affect the ability of the Member to perform its obligations under this Agreement or (2) impair the prospect of repayment of any portion of the Indebtedness; 

(l) Any Official Body takes any action with respect to the Member or an Affiliate which (i) is in anticipation of a takeover or assumption of control of the Member or an Affiliate by any Official Body; (ii) is a takeover or assumption of control of the Member or Affiliate by any Official Body; or (iii) results in the supervision of the Member’s or an Affiliate’s operations pursuant to an order of any court or Official Body; provided, however, supervision of the Member’s or an Affiliate’s operations by an Official Body shall encompass significant orders covering a material portion of such Member’s or Affiliate’s operations and shall not include immaterial regulatory actions or memoranda of understanding, written agreements and orders that relate to compliance matters such as reporting and commercial or consumer lending issues.  Notwithstanding the foregoing, any action taken by an Official Body with respect to an Affiliate under clause (i) or (ii) of this subsection (l) shall be considered an Event of Default if the Bank reasonably and in good faith determines that such action either (1) affects the ability of the Member to perform its obligations under this Agreement or (2) impairs the prospect of repayment of any portion of the Indebtedness; 

(m)  Reserved.
(n)  With respect to the Member's RBC Level, the occurrence of a Regulatory Action Level event, an Authorized Control Level event, or a Mandatory Control Level event (as such events are currently defined in the policies and procedures of the NAIC), or an event of similar import occurs in accordance with any of (i) state insurance Law applicable to the Member, or (ii) the policies and procedures of the state insurance department or a federal regulatory body having regulator authority over the Member, whether or not having the force and effect of Law.
Section 4.02 REMEDIES.  

(a) Upon the occurrence of any Event of Default, the Bank shall have all of the rights and remedies provided by applicable law which shall include, but not be limited to, all of the remedies of a secured party under the UCC.   

(b) Without limiting or affecting other rights of the Bank pertaining to the Collateral contained herein, the Bank, at its option and in its discretion, may take or cause its agent to take immediate possession or control of any of the Collateral or any part thereof wherever the same may be found by suit or otherwise.  Upon the occurrence of an Event of Default, the Bank may sell, assign, and deliver the Collateral or any part thereof at public or private sale (at the sole option of the Bank), without recourse for such price as the Bank deems appropriate without any liability for any loss due to a decrease in the market value of the Collateral during the period held.  The Bank shall have the right to purchase all or part of the Collateral at such sale free of any right of redemption on the part of the Member which right is expressly waived and released to the fullest extent permitted by law.  If the Collateral includes insurance or securities which will be redeemed by the issuer upon surrender, or any deposits or other accounts in the possession or control of the Bank, the Bank may realize upon such Collateral without notice to the Member.   

(c) The Member waives any demand, advertisement, or notice of the time or place of intended disposition of any of the Collateral except to the extent required by applicable law.  Any such notification shall be deemed reasonably and properly given if given as provided by applicable law or in accordance with Section 5.06 hereof at least 10 days before any such disposition.  The Member agrees that the Bank may exercise its rights of setoff upon the occurrence of an Event of Default in the same manner as if the Advances and other Indebtedness were unsecured.   
(d) Notwithstanding any other provision hereof, upon the occurrence of any Event of Default at any time when all or part of the obligations of the Member to the Bank hereunder shall be the subject of any guarantee by a third party for the Bank’s benefit and there shall be other outstanding obligations of the Member to the Bank that are not so guaranteed but that are secured by the Collateral, then any sums realized by the Bank from the Collateral, or from any other collateral pledged or furnished to the Bank by the Member under any other agreement, shall be applied first to the satisfaction of such other nonguaranteed obligations and then to the Member’s guaranteed obligations hereunder.   

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282906                                                                                                                               Form No. 300-010 (4-17-12)

(e) The Member agrees to pay all the reasonable costs and expenses of the Bank in the collection of the Indebtedness and enforcement and preservation of the Bank’s rights and remedies in case of default, including, without limitation, reasonable attorneys’ fees.  Any sums owed to the Bank under this Section 4.02(e) may be collected by the Bank, at its option, by debiting the Member’s DID Account with the Bank.   

Section 4.03 PAYMENT OF PREPAYMENT CHARGES.  Any prepayment fees or charges applicable to an Advance shall be calculated in accordance with the formula set forth in the Bank’s Credit Policy and shall be payable at the time of any voluntary or involuntary payment of all or part of the principal of such Advance prior to the originally scheduled maturity thereof, including without limitation payments that are made as part of a liquidation of the Member or that become due as a result of an acceleration pursuant to Section 4.01 hereof, whether such payment is made by the Member, by a conservator, receiver, liquidator, Affiliates or trustee of or for the Member, or by any successor to or any assignee of the Member.  

Section 4.04 CERTAIN PROVISIONS AS TO SALE OF COLLATERAL.  In view of the possibility that Federal and state securities laws and Federal and state laws applicable to the Member may impose certain restrictions on the method by which a sale of the Collateral may be effected, the Bank and the Member agree that any sale of the Collateral as a result of an Event of Default shall be deemed “commercially reasonable” irrespective of whether the notice or manner of such sale contains provisions, or imposes, or is subject to, conditions or restrictions deemed appropriate to comply with the Securities Act of 1933 or any other applicable Federal or state securities law or any state or Federal law applicable to the Member.  It is further agreed that from time to time the Bank may attempt to sell the Collateral by means of private placement.  In so doing, the Bank may restrict the bidders and prospective purchasers to those who will represent and agree that they are purchasing for investment only and not for distribution or otherwise impose restrictions deemed appropriate by the Bank for the purpose of complying with the requirements of applicable securities laws.  The Bank may solicit offers to buy such Collateral, for cash or otherwise, from a limited number of investors deemed by the Bank to be responsible parties who might be interested in purchasing such Collateral.  If the Bank solicits offers from not less than three such investors, then the acceptance by the Bank of the highest offer obtained therefrom (whether or not three offers are obtained) shall be deemed to be a commercially reasonable method of disposing of the Collateral. 

Section 4.05 APPLICATION OF PAYMENTS.  Upon the occurrence of any Event of Default, the Bank shall apply any payment by or recovery from the Member, or any sum realized from Collateral which shall be received by the Bank (a) to payment of all costs of collection and enforcement; (b) to payment of the Indebtedness in such manner as the Bank shall choose; and (c) to offset any amounts to be paid or advanced under Outstanding Commitments.  The Bank shall, unless otherwise required by applicable law, remit any surplus to the Member.         

ARTICLE V
MISCELLANEOUS

Section 5.01 GENERAL REPRESENTATIONS AND WARRANTIES BY THE MEMBER; COVENANTS.  The Member hereby represents, warrants, and covenants that, as of the date hereof and the date of each Advance hereunder:   

(a) The Member is not, and neither the execution of nor the performance of any of the transactions or obligations of the Member under this Agreement shall, with the passage of time, the giving of notice or otherwise, cause the Member to be: (1) in violation of its charter or articles of incorporation, bylaws, the Act or the Regulations, any other law or administrative regulation, including, but not limited to, any applicable anti-predatory lending law or regulation, any court decree, or any order of an Official Body; provided however, Member’s representation that it is not in violation of any administrative regulation refers to regulatory violations that could have a material impact to the financial condition of the Member and does not include immaterial regulatory violations that may be raised as part of a regulatory examination such as reporting and commercial or consumer lending compliance matters; or (2) in default under or in breach of any indenture, contract, or other instrument or agreement to which the Member is a party or by which it or any of its property is bound which would have a material adverse effect on Member;  

(b) The Member has full corporate power and authority and has received all corporate and governmental authorizations and approvals (including without limitation those required under the Act and the Regulations) as may be required to enter into and perform its obligations under this Agreement, to borrow each Advance, and to obtain each Commitment for an Advance;  

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282906                                                                                                                               Form No. 300-010 (4-17-12)

(c) The information given by the Member in any document provided, or in any oral statement made, in connection with an Application, request for an Advance, Commitment for an Advance, a pledge, specification, or delivery of Collateral, is true, accurate, and complete in all material respects;   

(d) The Member, unless otherwise exempted, is in compliance with any Regulations pertaining to community investment or service adopted pursuant to Section 10(g) of the Act (12 U.S.C. 1430(g), as amended);

(e) All long-term Advances shall be utilized solely for the purpose of providing funds for residential housing finance. “Long-term” is defined as greater than five years in term or as defined by the Federal Housing Finance Agency;

(f)  The Member shall notify the Bank immediately if it becomes aware of a material adverse event affecting the Member or its business or operations, including an event, which with a lapse of time, could cause the Collateral Value of Qualifying Collateral to fall below the Collateral Maintenance Level;

(g)  The Member consents to the recording of telephone conversations in connection with this Agreement and any Advances and any other products and services that the Member may receive from time to time from the Bank; 

(h)  The Member’s board of directors approved the execution of this Agreement and such approval is recorded in its official minutes and this Agreement has been, continuously, from the time of its execution, an official record of the Member; 

(i)  The Member shall deliver to the Bank, simultaneously with the Member's delivery thereof to the appropriate federal or state Official Body, a copy of each Form 10-K, 10-Q or other filing with the Securities and Exchange Commission, if any, with respect to Member and a copy of all financial statements, including without limitation all actuarial certifications required in accordance with applicable Law to be filed with any Official Body, such financial statements to be prepared in accordance with all of the requirements of applicable Law (without limitation, as to format, accounting methods and otherwise) and whether or not adopted by applicable Law the requirements of the NAIC (and in the event of any conflicting provisions, including a reconciliation of any difference between the requirements of applicable Law and the NAIC requirements) or, in the event that there are no such requirements of applicable Law, then to be prepared in accordance with statutory accounting principles and, if available, in accordance with generally accepted accounting principles;
(j)  If prepared by the Member, the Member shall provide to the Bank, as soon as available and in any event within forty-five (45) calendar days after the end of each fiscal quarter in each fiscal year, a detailed calculation of Member's estimated Risk-Based Capital and consolidated and consolidating financial statements of the Member, consisting of a balance sheet as of the end of such fiscal quarter and related statements of income, stockholders' equity and cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by the Chief Executive Officer, President or Chief Financial Officer of the Member as having been prepared in accordance with statutory accounting principles in a form required by applicable law and regulations of the applicable insurance regulatory authority, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year;
(k)  If prepared by the Member, the Member shall provide to the Bank, as soon as available in any event within ninety (90) days after the end of each fiscal year of the Member, consolidated and consolidating financial statements of the Member, which are provided to the applicable insurance regulatory authority, consisting of a balance sheet as of the end of such fiscal year, and related statements of income, stockholders' equity and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified by independent certified public accountants reasonably satisfactory to the Bank. The certificate or report of accountants shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur) and shall not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of the Member under this Agreement or the related documents evidencing or in connection with the Indebtedness, together with a letter of such accountants substantially to the effect that based upon their ordinary and customary examination of the affairs of the Member, performed in connection with the preparation of such consolidated financial statements, and in accordance with generally accepted auditing standards, they are not aware of the existence of any condition or event which constitutes an Event of Default or event which with the giving of notice or the passing of time or both would constitute an Event of Default, or, if they are aware of such condition or event, stating the nature thereof; 
(l)  Concurrently with the financial statements of the Member furnished to the Bank pursuant to Sections 5.01(i), (j) and (k) hereof, a certificate of the Member signed by the Chief Executive Officer, President or Chief Financial Officer of the 

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282906                                                                                                                               Form No. 300-010 (4-17-12)

Member, to the effect that, (i) the representations and warranties of the Member contained in this Agreement and the related documents evidencing or in connection with the Indebtedness are true in all material respects on and as of the date of such certificate with the same effect as though such representations and warranties had been made on and as of such date and the Member has performed and complied in all material respects with all covenants and conditions hereof, and (ii) no Event of Default or event which with the passing of time or the giving of notice or both would become an Event of Default exists and is continuing on the date of such certificate;
(m)  The Member shall automatically deliver to the Bank, without any request therefore by the Bank, a copy of each RBC Report of the Member and, if any, each RBC Plan of the Member upon preparation of the same by the Member;
(n)  The Member shall deliver to the Bank within five (5) days of the occurrence thereof, a copy of any amendment to the Member's by-laws, articles or certificate of incorporation or other charter documents; 
(o)  The Member shall deliver to the Bank as soon as reasonably practicable such other information as the Bank's Credit Policy may from time to time require the Member to deliver to the Bank or as the Bank may otherwise from time to time reasonably request;
(p)  The Member shall provide written notice to the Bank upon the occurrence of an Event of Default;
(q)  Upon request from the Bank, the Member shall deliver to the Bank, in form and substance satisfactory to the Bank, an opinion of legal counsel of the Member, such legal counsel to be satisfactory to the Bank and such opinion to be as to those matters which the Bank may request, in its sole discretion, including without limitation: (i) confirming the power and authority of the Member to enter into this Agreement and the other related loan documents with respect to the Indebtedness and to consummate the transactions contemplated hereby and thereby; (ii) confirming the due authorization of this Agreement and the other documents in connection with the Indebtedness to consummate the transactions contemplated thereby; (iii) confirming there is no material litigation pending against the Member or describing same that materially adversely affect the Member’s ability to perform its obligations under this Agreement (or describing same); (iv) confirming that there are no regulatory orders which have been issued by any Official Body that would prohibit the Member from entering into this Agreement and the other related loan documents in respect of the Indebtedness and consummating the transitions contemplated hereby and thereby; and (v) confirming the valid and enforceable first priority security interest of the Bank in the Collateral, and if, subject to a filed Uniform Commercial Code Financing Statement or possession by the Bank, a perfected security interest of the Bank in the Collateral;
(r)  The Member shall at all times comply with all applicable Law, including, without limitation, all Laws relating to: (i) the purchase or holding by the Member of those investments permitted by Law; (ii) transactions with affiliates; (iii) payment of dividends; and (iv) contributions to the Member's surplus except, in each case, where the failure to comply could not reasonably be expected to have a material adverse impact on the Collateral and/or the Bank’s rights under this Agreement;
(s)  The Member shall notify the Bank of any change in law generally applicable to insurance companies the result of which may have a material adverse impact upon the Member; and
(t)  Reserved.
(u) The Member shall not amend its by-laws, articles or certificate of incorporation or other charter documents in such a way that materially adversely impacts the Bank.
Section 5.02  CHANGES TO CREDIT POLICY.  The Bank reserves the right to amend, supplement, restate or otherwise modify the Credit Policy, including but not limited to, changes in underwriting criteria, collateral eligibility, reporting requirements, and collateral margins (each, a “Policy Modification”) at any time, in its sole discretion, without the consent of  the Member, and the Member (i) acknowledges and agrees that each such Policy Modification shall apply to all Advances and other Indebtedness (whether outstanding on the date of such Policy Modification or incurred after the date thereof) and (ii) agrees to be bound by each and every Policy Modification occurring on, prior to, or after the date of this Agreement.  Each Policy Modification shall become effective immediately upon adoption by the Bank; provided, however, no Event of Default shall occur as a result of any Policy Modification until 45 days after the effective date of such Policy Modification.  The Bank shall provide notice of any Policy Modification in writing, which may include by electronic mail, to the Member no later than 30 days after the effective date of such Policy Modification; provided, however, such notice shall be deemed effective when given by the Bank.  Notwithstanding the provisions of this Section, the Bank shall not amend, supplement, restate or otherwise modify the terms and conditions of any Advance specified in an Application or Confirmation of Advance without the consent of the Member.

Section 5.03 ASSIGNMENT.  The Member hereby gives the Bank the full right, power, and authority to assign or transfer all or any part of the Bank’s right, title, and interest in and to this Agreement, and to pledge, assign, or negotiate to any other 

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282906                                                                                                                               Form No. 300-010 (4-17-12)

Federal Home Loan Bank or to any other person or entity, with or without recourse, all or any part of the Indebtedness or participations therein; provided however, if the Bank assigns or transfers its interest in this Agreement or any Indebtedness to a third party other than another Federal Home Loan Bank or Federal Reserve Bank, the Bank will obtain the prior written consent of the Member.  In connection therewith, the Bank may assign and deliver the whole or any part of the Collateral to the transferee, which shall succeed to all the powers and rights of the Bank in respect thereof, and the Bank shall thereafter be forever relieved and fully discharged from any liability or responsibility with respect to the Collateral so assigned or pledged, and all references herein to the Bank shall be read to refer to the pledgee or assignee.  The Member may not assign or transfer any of its rights or obligations hereunder without the express prior written consent of the Bank, which shall not be unreasonably withheld.  

Section 5.04 AMENDMENT; WAIVERS.  No modification, amendment, or waiver of any provision of this Agreement or consent to any departure therefrom shall be effective unless in a writing executed by an authorized officer of the party against whom such change is asserted and shall be effective only in the specific instance and for the purpose of which given.  The terms of this Agreement may not be modified or amended unless both parties execute a written agreement.  No notice to or demand on the Member in any case shall entitle the Member to any other or further notice or demand in the same, or similar or other circumstances.  Any forbearance, failure, or delay by the Bank in exercising any right, power, or remedy hereunder shall not be deemed to be a waiver thereof, and any single or partial exercise by the Bank of any right, power, or remedy hereunder shall not preclude the further exercise thereof.  Every right, power, and remedy of the Bank shall continue in full force and effect until specifically waived by the Bank in writing and no such waiver shall extend to any subsequent matter or impair any right consequent thereon except to the extent expressly so waived.  

Section 5.05 JURISDICTION; LEGAL FEES.  In any action or proceeding brought by the Bank or the Member in order to enforce any right or remedy under this Agreement, the parties hereby consent to, and agree that they will submit to, the exclusive jurisdiction of the United States District Court for the Northern District of Illinois or, if such action or proceeding may not be brought in Federal court, the jurisdiction of the courts of the State of Illinois located in the City of Chicago.  The Member hereby waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue in any such action or proceeding in such courts and any defense or objection based upon any such court being an inconvenient forum for purposes of any such action or proceeding.  The parties agree that if any action or proceeding is brought by either party seeking to obtain any legal or equitable relief against the other party under or arising out of this Agreement or any transaction contemplated hereby and such relief is not granted by the final decision, after any and all appeals, of a court of competent jurisdiction, the losing party will pay all reasonable attorneys’ fees and other costs incurred by the prevailing party in connection therewith.  Each party agrees to reimburse the other party for all reasonable costs and expenses (including reasonable fees and out-of-pocket expenses of outside counsel) incurred by the former party in connection with the enforcement or preservation of the Bank’s rights under this Agreement, including, but not limited to, its rights in respect of any Collateral and the audit or possession thereof.  Any sums owed to the Bank under this Section 5.05 may be collected by the Bank, at its option, by debiting the Member’s DID Account with the Bank.  

Section 5.06 NOTICES.  Any notice, advice, request, consent, or direction given, made, or withdrawn pursuant to this Agreement shall be given in writing or by an electronic transmission in such form and provided in accordance with such security procedures or similar protocols as may be established by the Bank, and shall be deemed to have been duly given to and received by a party hereto when it shall have been mailed by first class mail or hand delivered to such party at its address given above by, or if given by hand or by electronic transmission, when actually received by such party at its chief executive office, or as otherwise designated.  
Section 5.07 SIGNATURES OF MEMBER.  For purposes of this Agreement, documents and electronic records shall be deemed signed by the Member when a signature or an electronic signature of the Member or an authorized signatory or an authorized facsimile thereof appears on or is associated with the document or electronic record.  The Bank may rely on any signature or facsimile thereof which reasonably appears to the Bank to be the signature of an authorized person, including signatures appearing on documents transmitted electronically to and reproduced mechanically at the Bank.  The secretary or an assistant secretary of the Member shall from time to time furnish to the Bank, on forms provided by the Bank, a certified copy of the resolution of the Board of Directors of the Member authorizing persons to apply on behalf of the Member to the Bank for Advances and Commitments and otherwise act for and on behalf of the Member in accordance with this Agreement together with specimen signatures or specimen electronic signatures of such persons.  Such certifications are incorporated herein and made a part of this Agreement and shall continue in effect until expressly revoked in writing by the Member notwithstanding that subsequent certifications may authorize additional persons to act for and on behalf of the Member.  

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282906                                                                                                                               Form No. 300-010 (4-17-12)

Section 5.08 APPLICABLE LAW; SEVERABILITY.  In addition to the terms and conditions specifically set forth herein and in any Application or Confirmation of an Advance between the Bank and the Member, this Agreement and all Advances and all Commitments for Advances shall be governed by the statutory and common law of the United States and, to the extent Federal law incorporates or defers to state law, the laws (exclusive of the choice of law provisions) of the State of Illinois.  Notwithstanding the foregoing, the Uniform Commercial Code as in effect in the State of Illinois shall be deemed applicable to this Agreement and to any Advance hereunder and shall govern the attachment and perfection of any security interest granted hereunder to the extent that the Act, Regulations, or other statutory law of the United States is not applicable.  In the event that any portion of this Agreement conflicts with applicable law, such conflict shall not affect other provisions of this Agreement which can be given effect without the conflicting provision, and to this end the provisions of this Agreement are declared to be severable.  

Section 5.09 SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Member and Bank.  

Section 5.10 ENTIRE AGREEMENT.  This Agreement embodies the entire agreement and understanding between the parties hereto relating to the subject matter hereof and, except as specified in the next sentence, supersedes all prior agreements between such parties which relate to such subject matter.  To the extent the Member and the Bank have entered into an Advances, Collateral Pledge and Security Agreement prior to the date hereof (the “Existing Agreement”): (a) any Advances and Commitments made by the Bank to the Member under the Existing Agreement shall continue to be governed by the terms of the Application or Confirmation of Advance pursuant to which such Advances and Commitments were made, and otherwise by the terms and conditions of this Agreement and (b) this Agreement shall not supersede or terminate any assignment or transfer of, pledge to or grant of a security interest in property made by the Member under the Existing Agreement to secure Advances or other Indebtedness by the Bank.   

Section 5.11 CAPTIONS AND HEADINGS.  The captions and headings in this Agreement are for convenience only and shall not be considered as part of or affect the construction or interpretation of any provision of this Agreement.  

Section 5.12 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS.  All representations,  warranties, and covenants by the Member contained in this Agreement or made in writing in connection herewith, shall be continuing and shall survive execution and delivery of this Agreement and the incurrence of any Indebtedness.  

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282906                                                                                                                               Form No. 300-010 (4-17-12)

IN WITNESS WHEREOF, the Member and the Bank have caused this Agreement to be signed in their names by their duly authorized officers as of the date first above mentioned.                 

MEMBER

UNITED INSURANCE COMPANY OF AMERICA    
    (Typed Name of Member)

By: /s/ Christopher L. Moses 
    
Name: Christopher L. Moses
    
Title: Assistant Treasurer                   Member Number: 030916
        

FEDERAL HOME LOAN BANK OF CHICAGO

By: /s/ Roger D. Lundstrom         

Title: EVP – CFO                                 

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282906                                                                                                                               Form No. 300-010 (4-17-12)

EXHIBIT A
IRREVOCABLE LIMITED POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS THAT, _________________         _______ (the “Member”), hereby irrevocably constitutes and appoints the Federal Home Loan Bank of Chicago (the “Bank”) its true and lawful attorney-in-fact and agent with full power and authority, to prepare, execute, acknowledge, verify, swear to, deliver, endorse, assign, record and file and take every other necessary action with respect to, in its name, place and stead, all of the following:

a.    Any and all promissory notes or any item of collateral (collectively, the “Notes”) pledged by the Member to the Bank pursuant to the terms of the Advances, Collateral Pledge, and Security Agreement (“Advances Agreement”), dated as of _______________________, between the Member and the Bank;

b.    Any and all amendments, assignments, and/or releases of any mortgage, deed of trust, or deed to secure debt, or other security instrument, securing any of the Notes pledge by the Member to the Bank pursuant to the terms of the Advances Agreement; and

c.    All such other documents as the Bank may deem necessary to (i) maintain and protect its security interest in any real and personal property, tangible or intangible, securing the Notes; or (ii) otherwise satisfy the Member’s obligations under the Advances Agreement with respect to the Notes or any security instruments or agreements executed to secure the Notes.

Further, the Member hereby gives and grants to the Bank the authority to do or perform every lawful act necessary or proper in connection with the Notes as fully as the Member might or could do, and without limiting the foregoing, also authorizes the Bank to endorse the Notes using the following form of endorsement which may be hand written, stamped or imprinted, and Member hereby adopts the following as its signature for the purpose of authorizing the Bank to endorse the Notes:

PAY TO THE ORDER OF
WITHOUT RECOURSE
                            
BY FEDERAL HOME LOAN BANK OF CHICAGO,
ITS ATTORNEY-IN-FACT

It is expressly understood and intended by the Member that the Power of Attorney hereby granted is coupled with an interest, is granted for a period commencing on the date of the incurrence of any Indebtedness (as defined in the Advances Agreement) and continuing until the discharge of all Indebtedness and all other obligations of the Member under the Advances Agreement regardless of any event of default thereunder, and is irrevocable for the period granted.  This Power of Attorney shall survive the dissolution, liquidation, termination, or transfer of the interests of the Member.

IN WITNESS WHEREOF, I have hereunto set my hand and seal this ___ day of ___________, 20__.
                                                    
(Name of Member)
By:_________________________________
Name:______________________________     

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282906                                                                                                                               Form No. 300-010 (4-17-12)

Title:_______________________________

SWORN AND WITNESSED in the presence of:

_______________________________________ 

Acknowledgment
(Illinois)

STATE OF ILLINOIS, 
_________________ County ss:

The foregoing instrument was acknowledged before me this day __ of ________________, 20__ by _____________________, ___________________ of ___________________________, a 
                  [name of signer]                                              [title of signer]                                                                        [name of member] 
____________________ chartered under the laws of   the ___________________, on behalf of the
          [bank/corporation/association] 
 ___________________.
          [bank/corporation/association]                                     

My Commission Expires:                __________________________
Notary Public

Acknowledgment
(Wisconsin)

STATE OF WISCONSIN, 
_________________ County ss:

Personally came before me this ___ day of ________________, 20__, the above-named ______________________, _________________ of ___________________________, a
                    [name of signer]                                              [title of signer]                                                    [name of member] 
 ____________________, to me known to be the person who executed the foregoing instrument and 
                [bank/corporation/association]     
acknowledged the same.

My Commission Expires:                __________________________
Notary Public, State of Wisconsin
Print name: _________________

This instrument was drafted by:
Federal Home Loan Bank of Chicago

- 20 -
282906                                                                                                                               Form No. 300-010 (4-17-12)retentionbonusplan.htm

USA Truck, Inc.

2013 Management Team Retention Bonus Plan

Adopted October 30, 2013

 

1.0  ESTABLISHMENT AND PURPOSE

 

    1.1  Plan Approval

 

The USA Truck, Inc. Management Team Retention Bonus Plan (the “Plan”) was adopted and approved by resolution of the Executive Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of USA Truck, Inc. (the “Company”) on October 30, 2013 (the “Effective Date”).

 

       1.2  Commencement of Plan

 

The Plan shall commence on the Effective Date, and shall be applied to calculate remuneration for qualifying employees designated by the Committee as eligible on the Effective Date for retention bonus payments pursuant to the terms of the Plan (“Participants”).

 

      1.3  Plan Purpose

 

The Company has been engaged since 2012 in efforts to reverse a continuing series of operating and financial losses occurring over the past few years, by establishing and implementing a turnaround strategy focused on attracting and retaining individuals in leadership positions to guide the Company’s personnel toward improving key operating metrics in the business, all of which is intended to lead the Company back into profitability and improved financial condition.  This turnaround strategy has included employment of new management and key employees, as well as reinvigorating valuable members of the existing management team at the Company, with employment initiatives particularly accelerating during 2013.  In recent months, however, the Company has been made the target of a hostile takeover attempt by a competitor in the transportation and logistics industry.  The Board has repeatedly let it be known privately and publicly that the Company is not for sale, but to reinforce the Board’s belief that the Company’s intrinsic value significantly exceeds any amounts that the hostile party to date has indicated it is willing to pay for ownership of 100% of the Company, the Company’s management team needs to continue its focus on implementing the turnaround strategy and producing operating results that better evidence the ongoing success of the Company’s strategy.  The Board believes that one of the greatest risks to the further success of the turnaround strategy is disengagement or distraction of the members of the management team and ongoing concern about their individual futures if a hostile takeover of the Company occurs before full success of the turnaround strategy has been achieved.  The Plan is intended to replace the Company’s 2013 management bonus plan.  The Plan’s objectives are to retain and motivate existing key executive employees, to reward those executives for continuing their efforts toward successful execution of the Company’s turnaround strategy, and to align the executive incentive awards with the Company’s long-term objective of creating and growing economic value for shareholders.

 

       2.0  PARTICIPANTS

 

The Participants in the Plan shall be those individual members of management determined by the Committee to be eligible for participation, at levels determined by the Committee.  The Participants shall include four separate groups of key executive and management team members, including Group I – the Chief Executive Officer; Group II – the Senior Executive Officer Group; Group III – the Officer Group; and Group IV – the Key Management Group, all as identified by the Committee on the Effective Date.

 

 

 

    2.1  Cessation of Employment Before Retention Performance Date

 

A Participant who, whether voluntarily or involuntarily, is terminated from employment or otherwise ceases to qualify as a Participant pursuant to this Plan prior to the Retention Performance Date (as defined below), including by virtue of death or Disability (as defined below), shall not be eligible to receive a Retention Bonus Award under the Plan unless the Committee determines, in its sole discretion, that such award will be paid, in whole or in part at the Payment Date (as defined below). As used in this Plan, “Disability” means a medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where such impairment causes the Executive to be unable to perform the duties of his or her position of employment or any substantially similar position of employment.

 

3.0  PLAN OUTLINE

 

This Plan is designed to, among other factors, better align the Company’s executive management and shareholder interests by encouraging key management team members, despite the possible distractions and loss of focus caused by the threat of an ongoing hostile takeover attempt, to remain focused on producing positive results in operations as compared to prior periods, through the end of the first fiscal quarter of 2014.

 

    3.1  Retention Bonus Awards

 

Participants are eligible for Retention Bonus Awards under the Plan if they are employed continuously by the Company from the Effective Date through March 31, 2014 (the “Retention Performance Date”).  Participants who qualify to receive a Retention Bonus Award will be paid in cash, on or about April 11, 2014 (the “Payment Date”), a percentage of their reference annual base salaries (such base salaries determined as of the Effective Date) corresponding with the award level applicable to their particular Group, as set forth in the chart below. Any Participant on an authorized leave of absence at the time of any payment will be paid upon his or her return to work.  Group I, consisting of the Chief Executive Officer, shall receive an additional $150,000, in cash, which has been found and determined by the Compensation Committee to be reasonable in light of the Chief Executive Officer’s ultimate responsibility for supervising the overall execution of the turnaround plan, of which $50,000 is payable in December 2013 and the remainder, subject to continuous continuation of employment of the Chief Executive Officer through the Retention Performance Date, is payable on the Payment Date.

 

	
Group

	
Percentage of Base Salary

	
Group I

	
25%

	
Group II

	
25%

	
Group III

	
12.5%

	
Group IV

	
6.25%

 

If a Participant voluntarily terminates his employment with the Company at any time after receipt of a payment under this Plan and before the one-year anniversary of the adoption of this Plan, or October 30, 2014, the Participant will be required to repay his Retention Bonus Award to the Company.

 

          3.2  Change in Control

 

      In the event of a Change in Control (as defined below), any Retention Bonus Award earned but not yet paid shall remain fully vested and payable. Anything to the contrary in this Plan notwithstanding, payments of said amount shall be made within five (5) days following the Change in Control.  As used in this Plan, “Change in Control” means:

      

 

2

 

       (i)           Any “Person” as defined in Section 3(a)(9) of the Exchange Act, and as used in Section 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) of the Exchange Act (but excluding the Company and any employee benefit plan sponsored or maintained by the Company (including any trustee of such plan acting as trustee)), directly or indirectly, becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities (other than indirectly as a result of the Company’s redemption of its own securities); or 

 

       (ii)           The consummation of any merger or other business combination of the Company, a sale of more than 50% of the Company’s assets, the liquidation or dissolution of the Company or any combination of one or more of the foregoing transactions (the “Transactions”) other than a Transaction immediately following which either (x) the stockholders of the Company and any trustee or fiduciary of any Company employee benefit plan immediately prior to the Transaction own more than 50% of the voting power, directly or indirectly, of (A) the surviving corporation in any such merger or other business combination; (B) the purchaser of or successor to the Company’s assets; (C) both the surviving corporation and the purchaser in the event of any combination of Transactions; or (D) the parent company owning 100% of such surviving corporation, purchaser or both the surviving corporation and the purchaser, as the case may be ((A), (B), (C) or (D), as applicable, the “Surviving Entity”) or (y) the Incumbent Directors, as defined below, shall continue to serve as a majority of the board of directors of the Surviving Entity without an agreement or understanding that such Incumbent Directors will later surrender such majority; or

 

       (iii)           Within any twenty-four (24)-month period, the individuals who were directors immediately before the beginning of such period (the “Incumbent Directors”) shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of any successor to the Company, including any Surviving Entity.  For this purpose, any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of, or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a Person who commenced or threatened to commence an election contest or proxy solicitation by or on behalf of a Person (other than the Board) or who has entered into an agreement to effect a Change in Control or expressed an intention to cause such a Change in Control).

 

       3.3  Successors

 

           All obligations of the Company under the Plan with respect to Retention Bonus Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all the business and/or assets of the Company.

 

              3.4  Severability

 

           If any provision of the Plan or any Retention Bonus Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Retention Bonus Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Committee’s determination, materially altering the intent of the Plan or the Retention Bonus Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Retention Bonus Award shall remain in full force and effect.

 

                3.5  Choice of Law

 

           The Plan, all Retention Bonus Awards granted hereunder and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Delaware without giving effect to the law or principles of conflict of laws.

 

3

 

               3.6  Modification; No Trust Fund

 

           The Plan is subject to amendment, modification or revision at any time in the sole discretion of the Board or the Committee.  The Plan is intended to constitute an “unfunded” plan, and nothing contained herein shall require the Company to segregate any monies or other property, or to create any trusts, or to make any special deposits for any amounts payable to any Participant in the Plan.

 

[END OF PLAN]

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