Document:

Exhibit 10.2

 

PENN-ARGOSY MERGER APPROVAL AGREEMENT

 

This
Penn-Argosy Merger Approval Agreement (the “Agreement”) is entered into between
the Illinois Gaming Board (“Gaming Board”) and Penn National Gaming Inc. (“Penn”),
effective as of the date of execution by all parties (the “Effective Date”).

 

WHEREAS
on September 29, 2005, the Gaming Board, pursuant to the Riverboat
Gambling Act (the “Act”), made a decision on Penn’s request for regulatory
approval to acquire Argosy Gaming Company (“Argosy”) and all its wholly-owned
subsidiaries, including the Empress Casino Joliet Corporation (“Empress”) and
the Alton Gaming Company (“Alton”), (collectively referred to as the “Merger”).

 

WHEREAS,
on the Effective Date of this Agreement, Penn wholly owns the Hollywood Casino
Corporation and its wholly-owned subsidiary, Hollywood Casino-Aurora Inc. (“Hollywood”).

 

WHEREAS,
upon completion of the Merger, Penn will ultimately wholly own Empress, Alton
and Hollywood;

 

WHEREAS,
Penn is desirous of expediting the closing of the Merger;

 

WHEREAS,
in exchange for the Board’s immediate approval of the Merger request, Penn
requests prior Gaming Board approval to dispose of the Empress and Alton,
pursuant to the terms incorporated herein, upon execution of the Merger; and

 

WHEREAS,
the Gaming Board and Penn mutually desire to avoid the expense and risk of
protracted litigation.

 

NOW
THEREFORE, in consideration of the foregoing premises (which constitute an
integral part of this Agreement) and the mutual covenants hereinafter set forth,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Gaming Board and Penn hereby agree as
follows:

 

TERMS

 

1.                                       The
Gaming Board agrees to approve the Merger, as presented by Penn, on September 29,
2005, consistent with the terms incorporated herein;

 

2.                                       Penn
agrees to enter into a Definitive Sales Agreement to sell Empress and Alton by December 31,
2006.

 

3.                                       Penn
agrees to dispose of Empress and Alton upon completion of the Board’s
suitability investigation or June 30, 2007 (Execution Deadline), whichever
is earlier.  If the Board’s suitability
investigation is not completed by June 30, 2007, then the Execution
Deadline will be extended until 15 days after completion of that investigation.

 

 

4.                                       Penn
agrees that it will not appoint any existing members of the Board of Directors
of Argosy to Penn’s Board of Directors or to the Boards of Directors at the
Empress, Alton, or Hollywood without prior Board approval.

 

5.                                       Penn
may request that the Gaming Board, in its sole discretion, review or reconsider
the terms of this Agreement under which Penn and Argosy are approved to
merge.  Notwithstanding the foregoing,
Penn expressly waives any and all rights to file an action to contest the Board’s
decision on the merger before any tribunal including the Gaming Board, federal
and state courts and any other administrative tribunals.

 

6.                                       Penn
hereby releases the Gaming Board, each of its Members, its staff and its
attorneys, agents and representatives from any and all legal, equitable, or
other claims or causes of action which are now known or unknown as of the
Effective Date including, but not limited to, claims arising out of the Gaming
Board’s decision on the Merger.

 

7.                                       Notwithstanding
the foregoing, the Gaming Board and Penh reserve their rights to enforce the
terms of this Agreement.

 

8.                                       The
parties hereto represent and warrant to, and agree with the others as follows:

 

(a)                                  Each party has received
independent legal advice from its own attorneys with respect to the
advisability of making the settlement provided for herein, and with respect to
the advisability of executing this Agreement. 
Each party has contributed to the drafting of this Agreement and,
therefore, the Agreement shall not be construed against either party.

 

(b)                                 No party (nor any agent,
associate, representative, or attorney of or for any other party), has made any
statement or representation to any other party regarding any fact relied upon
by the other party in entering into this Agreement, and no party hereto relies
upon any statement, representation or promise of any other party (or of any
agent, associate, representative or attorney of or for any other party), in
executing this Agreement, or in making the settlement provided for herein, except
as expressly stated in this Agreement.

 

(c)                                  Each party, and its
attorney, has made such investigation of the facts pertaining to this
Agreement, and has all information with respect to all the matters pertaining
thereto, as he, she or it deems necessary to make a final and binding decision
to execute this Agreement and abide by the provisions herein.

 

(d)                                 This Agreement has been
carefully read by all parties, the contents hereof are known and understood by
all parties, and it is signed freely by each person or entity executing this
Agreement;

 

(e)                                  The terms of this Agreement
are contractual, not a mere recital, and are the result of negotiation among
all the parties.

 

2

 

(f)                                    Each party hereto relies on
the finality of this Agreement as a material factor inducing that party’s
execution of this Agreement, and the obligations assumed by this Agreement.

 

9.                                       This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their successors and assigns.  No
person or entity is, or is intended to be, a third-party beneficiary of this
Agreement.

 

10.                                 This
Agreement shall be deemed to have been executed and delivered within the State
of Illinois, and the laws of the State of Illinois shall apply to the
interpretation and enforcement of this Agreement without reference to the
choice of law rules thereof.

 

11.                                 Each
signatory to this Agreement hereby represents and warrants that he/she is
authorized to act on behalf of the party or parties he/she purports to
represent or upon whose behalf he/she purports to act and shall submit
documentation supporting such representation.

 

12.                                 In any
action by the Gaming Board to enforce this Agreement, the Gaming Board shall be
entitled to an award of reasonable attorneys’ fees and costs in connection with
those proceedings.

 

13.                                 In any
action by Penn to enforce this Agreement, the prevailing party shall be
entitled to an award of reasonable attorneys’ fees and costs in connection with
those proceedings.

 

14.                                 This Agreement
may be signed in counterparts and delivered by facsimile, with each executed
counterpart in a facsimile standing as an original.

 

 

	
  ILLINOIS
  GAMING BOARD

  	
  PENN
  NATIONAL GAMING INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Jeannette P. Tamayo

  	
   

  	
   

  	
  /s/  Kevin G. DeSanctis

  	
   

  
	
  By:
  Jeannette P. Tamayo

  	
   

  	
  By:
  Kevin G. DeSanctis

  	
   

  
	
  Its:
  Administrator

  	
   

  	
  Its:
  President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
  September 29,
  2005

  	
   

  	
  Dated:

  	
  9-29-2005

  	
   

  
							

 

3Exhibit
10.1

 

QUOTA SHARE REINSURANCE AGREEMENT

(hereafter referred to as the “Agreement”)

by and
between

Pennsylvania Life Insurance Company

 

(hereafter referred to as “Company”)

and

PharmaCare Captive Re, Ltd.

(hereafter referred to as “Reinsurer”)

 

(collectively, the “Parties”)

 

 

	
  Effective:

  	
   

  	
  12:01 A.M.,
  Local Standard Time, July 1, 2005 

  
	
  Term:

  	
   

  	
  Per
  Article III

  
	
  Type:

  	
   

  	
  QUOTA
  SHARE

  

 

 

TABLE OF CONTENTS

 

	
  PREAMBLE

  	
  1

  
	
   

  	
   

  
	
  ARTICLE I – DEFINITIONS

  	
  1

  
	
   

  	
   

  
	
  ARTICLE II – POLICY FORM; REINSURANCE
  OBLIGATION

  	
  2

  
	
   

  	
   

  
	
  ARTICLE III – COMMENCEMENT AND TERMINATION

  	
  2

  
	
   

  	
   

  
	
  ARTICLE IV – POLICY REDUCTIONS AND TERMINATIONS

  	
  2

  
	
   

  	
   

  
	
  ARTICLE V – PREMIUM; ALLOWANCES

  	
  3

  
	
   

  	
   

  
	
  ARTICLE VI – REPORTS AND REMITTANCES

  	
  3

  
	
   

  	
   

  
	
  ARTICLE VII – EXTRA CONTRACTUAL OBLIGATIONS
  AND PREMIUM TAXES

  	
  3

  
	
   

  	
   

  
	
  ARTICLE VIII – POLICY ADMINISTRATION

  	
  4

  
	
   

  	
   

  
	
  ARTICLE IX – BREACH

  	
  4

  
	
   

  	
   

  
	
  ARTICLE X – REPRESENTATIONS, WARRANTIES AND
  COVENANTS; INDEMNIFICATION

  	
  4

  
	
   

  	
   

  
	
  ARTICLE XI – PAYMENT OF CLAIMS

  	
  5

  
	
   

  	
   

  
	
  ARTICLE XII – COINSURANCE; RESERVES

  	
  6

  
	
   

  	
   

  
	
  ARTICLE XIII – ERRORS AND OMISSIONS

  	
  6

  
	
   

  	
   

  
	
  ARTICLE XIV – INSOLVENCY

  	
  6

  
	
   

  	
   

  
	
  ARTICLE XV – TREASURY REGULATION
  SECTION 1.848-2(GG)(8) JOINT ELECTION

  	
  7

  
	
   

  	
   

  
	
  ARTICLE XVI – ACCESS TO RECORDS

  	
  8

  
	
   

  	
   

  
	
  ARTICLE XVII – ALTERNATIVE DISPUTE RESOLUTION

  	
  8

  
	
   

  	
   

  
	
  ARTICLE XVIII – ARBITRATION

  	
  9

  
	
   

  	
   

  
	
  ARTICLE XIX – GOVERNING LAW

  	
  10

  
	
   

  	
   

  
	
  ARTICLE XX – REIMBURSEMENTS AND RECOVERIES

  	
  10

  
	
   

  	
   

  
	
  ARTICLE XXI – ENTIRE AGREEMENT

  	
  11

  

 

ii

 

	
  ARTICLE XXII – OFFSET

  	
  11

  
	
   

  	
   

  
	
  ARTICLE XXIII – WAIVER; AMENDMENT

  	
  11

  
	
   

  	
   

  
	
  ARTICLE XXIV – NO ASSIGNMENT; BINDING EFFECT

  	
  11

  
	
   

  	
   

  
	
  ARTICLE XXV – SEVERABILITY

  	
  11

  
	
   

  	
   

  
	
  ARTICLE XXVI – CONFIDENTIALITY

  	
  11

  
	
   

  	
   

  
	
  ARTICLE XXVII – PRIVACY POLICY

  	
  12

  
	
   

  	
   

  
	
  ARTICLE XXVIII – NOTICES

  	
  12

  
	
   

  	
   

  
	
  ARTICLE XXIX – GUARANTEE

  	
  13

  
	
   

  	
   

  
	
  ARTICLE XXX – EXECUTION

  	
  13

  
	
   

  	
   

  
	
   

  	
   

  
	
  EXHIBIT A
  – APPROVED POLICY FORMS

  	
   

  
	
  SCHEDULE B – GUARANTEE

  	
   

  

 

iii

 

PREAMBLE

 

In consideration of the mutual covenants hereinafter contained the
parties hereto agree as follows:

 

ARTICLE I            DEFINITIONS

 

“Administrator” means the entity or entities that will perform the
administrative services associated with the Policy as provided in Article VIII
hereof.

 

“Affiliate” means a Person controlling, controlled by or under common
control of the Company.

 

“Claim” means a demand on Company or Administrator for payment or
reimbursement owed as a result of the provision or receipt of items or services
covered under the Policy.

 

“Claims Account” has the meaning assigned to such term in Article XI
hereof.

 

“Coinsurance Basis” means reinsurance on a basis whereby Company cedes
proportionally to Reinsurer the premiums and the insurance liabilities relating
to or arising under the Policy.

 

“Company” means Pennsylvania Life Insurance Company, a Pennsylvania
corporation.

 

“Contract Dispute” has the meaning assigned to such term in Article XVIII
hereof.

 

“Effective Date” means July 1, 2005 as of 12:01 A.M., Local
Standard Time.

 

“Extra Contractual Obligations” means any and all costs, expenses,
damages, liabilities, or obligations of any kind or nature (including without
limitation pre-judgment and past judgment interest, attorneys fees,
consequential and incidental damages, and punitive and exemplary damages, fines
and penalties) which are incurred and/or paid by-Company and arise out of,
result from or relate to any act or omission, whether or not in bad faith,
intentional, willful, negligent, reckless, careless or otherwise, of Company,
Administrator, Reinsurer or any of their respective agents or representatives
in connection with a Policy, other than benefits payable under the terms of
such Policy.

 

“Financial Dispute” has the meaning assigned to such term in Article XVII
hereof.

 

“Local Standard Time” means the time at the location of Company’s home
office.

 

“Loss” means a Claim that has been actually paid by or on behalf of
Company, but excluding Loss Adjustment Expenses. A Loss is incurred on the date
that the Loss is actually paid.

 

“Loss Adjustment Expenses” means all payments of fees and expenses
associated with investigation, adjustment, and litigation costs relating to
defense of claims or determination of coverage (including without limitation
reasonable attorney’s fees), subrogation and recovery, and settlement of Claims
under the Policy, excluding Administrator’s or Company’s salaried employees and
overhead.

 

“Party” or “Parties” means Company and/or Reinsurer, as applicable.

 

1

 

“Person” means an individual, firm, corporation or entity.

 

“Policy” means the group prescription drug benefit policy which is,
when approved as provided in Article II, to be issued to the State of
Connecticut by Company covering employees and retired employees of such State
and dependents of such employees and retirees. The Policy shall not have any
conversion rights.

 

“Premium” means the premium required by a Policy to be paid and which
is actually collected and received by the Company or the Administrator on
behalf of the Company.

 

“Premium Account” has the meaning assigned to such term in Article V
hereof.

 

“Reinsurance Premium” shall have the meaning assigned to such term in Article V.

 

“Reinsurer” means PharmaCare Captive Re, Ltd., an Arizona corporation.

 

“SAP” means the statutory accounting principles and procedures
permitted or prescribed by the Pennsylvania Department of Insurance, or as may
be otherwise required by any other State insurance department.

 

“Section 848” means Section 848 of the Internal Revenue Code
of 1986, as amended.

 

ARTICLE II          POLICY FORM; REINSURANCE
OBLIGATION

 

The form of the Policy and all supporting material required for
regulatory approval thereof shall be agreed to by Company and Reinsurer.  Upon agreement among Company, Reinsurer and
the State of Connecticut, as the insured, the Policy shall be submitted by the
Company for all required regulatory approvals. Upon receipt of such approvals,
the approved forms shall be attached to this Agreement as Exhibit A.

 

On and after the Effective Date, Company agrees to cede to Reinsurer,
and Reinsurer agrees to reinsure from Company, on a Coinsurance Basis, 100% of
Losses under the Policy and 100% of any Loss Adjustment Expenses incurred by
Company with respect to the Policy. Reinsurer shall pay such Losses and Loss
Adjustment Expenses on behalf of the Company, as provided in Articles XI and
VII.. Reinsurer agrees to indemnify Company for 100% of such Losses and Loss
Adjustment Expenses.

 

ARTICLE III         COMMENCEMENT AND TERMINATION

 

This Agreement, and the rights, obligations and duties hereunder of the
Parties, shall become effective on the Effective Date and shall continue in
force as long as the Policy, including any certificate thereunder, continues in
effect.

 

ARTICLE IV         POLICY REDUCTIONS AND
TERMINATIONS

 

Reductions and terminations of coverage and benefits under the Policy
shall reduce or terminate the Reinsurer’s liability hereunder in a
corresponding amount as of the same date.

 

All reinsurance for which Reinsurer is liable hereunder shall be
subject to the same terms, conditions, limitations, and restrictions as are
contained in the Policy.

 

2

 

ARTICLE V          PREMIUM; ALLOWANCES

 

The premium for the reinsurance hereunder (the “Reinsurance Premium”)
shall be the Premium collected by the Company, or by the Administrator on its
behalf, after reduction of following expense allowances: two (2) percent
of the Premium shall be retained by the Company for underwriting services; and
one (1) percent of the Premium shall be paid to the Administrator for
administrative purposes.

 

All Premium collected by Company, or the Administrator on its behalf,
shall be deposited into an account in the name of Company (the “Premium Account”),
from which the expense allowances described in this Article V shall be
paid (with respect to the underwriting services, by transfer to another account
designated by Company), and the remaining Reinsurance Premium shall be
transferred to Reinsurer, all within two (2) business days of the receipt
of the underlying Premium by Company (or the Administrator on its behalf). The
Administrator shall have administrative control of the Premium Account.

 

ARTICLE VI         REPORTS AND REMITTANCES

 

Within ten (10) business days after the end of each calendar
month, the Administrator shall deliver in writing to Company and Reinsurer a
report delineating all receipts and disbursements provided in Articles V and XI
to allow the Parties to book and account for their share of the business for
the prior month. At a minimum, such report shall include the following items: (a) gross
collected premium, (b) premium returned due to cancellations, (c) expense
allowances paid by Company, (d) Claims paid, (e) Loss and Loss
Adjustment Expenses paid, (f) Extra Contractual Obligations incurred and
paid (g) reimbursements and recoveries due to subrogation and coordination
of benefits, (h) bank reconciliations for the Premium Account and Claims
Account, (i) estimated risk-based capital requirements and (j) such other
information as may reasonably be requested by Company.

 

Reserves, calculated in accordance with SAP, on a basis satisfactory to
the Company’s Actuary, on the Policy as of the end of each calendar quarter
(reported on a quarterly basis only) will be supplied by Reinsurer within
twenty (20) days after each quarter end.

 

Upon receipt of a report, Company may, in its discretion and upon
reasonable information and belief, contest the information contained in the
report. If Company so contests, Company shall deliver to Reinsurer written
notice thereof stating the reasons upon which Company disputes the report, and
the Parties shall use their commercially reasonable efforts to resolve the
dispute within twenty (20) days thereafter. If the Parties fail to resolve such
dispute within such period, the dispute shall be resolved as provided in Article XVII
or Article XVIII.

 

During any periods after payment hereunder becomes due, investment
income shall accrue on the net balance due and payable for the applicable
calendar month. If the net balance due is not paid as of the settlement date by
the Party owing such amount, interest on such outstanding balance shall accrue
at a rate equal to 7% per annum from the date such amount became due and payable
through and including the date on which such payment is actually made.

 

ARTICLE VII       EXTRA CONTRACTUAL
OBLIGATIONS AND PREMIUM TAXES

 

Reinsurer shall indemnify Company for 100% of any Extra Contractual
Obligations levied, awarded or incurred under the Policy. Such Extra
Contractual Obligations shall be deemed to be, and shall be payable as, Losses
hereunder.

 

3

 

Reinsurer has advised Company that no premium taxes are payable with
respect to the Premiums. If premium taxes with respect to the Premiums are at
any time assessed against, or determined to, be payable by, Company by any
governmental authority having jurisdiction, Reinsurer shall indemnify Company
for amounts paid. If Reinsurer contests the assessment of any such tax, it
shall do so at its own expense. Guarantee fund assessments based on the amount
of the Premium shall be deemed premium taxes for purposes of this paragraph.

 

ARTICLE VIII      POLICY ADMINISTRATION

 

All administrative services associated with the Policy, including
Premium billing and collection and Claims administration and payment, shall be
performed by the Administrator on behalf of Company, and all such services
associated with this Agreement shall be performed by the Administrator on behalf
of Reinsurer. The Administrator shall be appointed by Reinsurer subject to
Company’s consent, which will not be unreasonably withheld. The Administrator
may also delegate the provision of administrative services associated with the
Policy and this Agreement to a third party with the Parties’ consent, which
shall not be unreasonably withheld.

 

ARTICLE IX         BREACH

 

In the event of a material breach by any Party of the terms and
conditions of this Agreement, the non-breaching Parties shall provide written
notice of such alleged breach to the breaching Party, and the breaching Party
shall have a period of thirty (30) days from the date of such notice to cure
such breach, which cure may include the substitution of the applicable entity
in breach if the breach at issue involves licensing, approvals or other
certifications from the relevant governmental authority, and a substitution is
a commercially reasonable and statutorily acceptable cure for such breach. In
the event the breaching Party fails to cure such breach within thirty (30)
days, the non-breaching Party shall seek redress through the procedures set
forth in Articles XVII and XVIII hereunder. Under no circumstances shall a
breach by any Party of the terms and conditions of this Agreement give rise to
a right of termination by any Party of this Agreement and all rights and
conditions herein shall remain in full force and effect.

 

ARTICLE X          REPRESENTATIONS,
WARRANTIES AND COVENANTS; INDEMNIFICATION

 

Company represents and warrants to Reinsurer that:

 

1.                                       Except for this Agreement, there is no
reinsurance agreement that provides reinsurance coverage on the Policy; and

 

2.                                       Company has all licenses and permits
necessary or required by applicable law, rule or regulation to sell and
issue the Policy in the jurisdiction where Policy is to be sold; and

 

3.                                       To the best of the Company’s knowledge, the
Policy reinsured hereunder has not been, or will not be, sold, underwritten,
brokered or issued by a Blocked Person, as such term is defined by the United
States Treasury Department’s Office of Foreign Assets Control (“OFAC”), and no
policy owner, holder, insured or beneficiary thereof is a Blocked Person; and

 

4.                                       There are no injunctions (in existence or, to
the best of the Company’s knowledge, threatened) against Company from any
Federal or State agency which would prohibit Company from carrying on its
business and responsibilities pursuant to this Agreement.

 

4

 

Company agrees to indemnify and hold harmless Reinsurer from and
against any and all losses, damages, costs, expenses or liabilities suffered or
incurred by Reinsurer arising out of a breach of this Agreement by Company.

 

Company covenants to Reinsurer and agrees, in cooperation with
Administrator, to request promptly any consents, approvals, or other
authorizations, if necessary or required, with respect to this Agreement and to
pursue diligently such request.

 

Reinsurer represents and warrants to Company that:

 

1.                                       Reinsurer is duly organized, validly
existing, in good standing under the laws of Arizona and the execution and
delivery of this Agreement and the performance of its obligations hereunder are
duly authorized to the extent necessary; and

 

2.                                       Reinsurer has all licenses, permits and
authorizations necessary or required by applicable law, rule or regulation
to provide the services it has agreed to undertake pursuant to this Agreement;
and

 

3.                                       There are no injunctions (in existence or, to
the best of the Reinsurer’s knowledge, threatened) against Reinsurer from any
Federal or State agency which would prohibit Reinsurer from carrying on its
business and responsibilities pursuant to this Agreement.

 

Reinsurer agrees to indemnify and hold harmless Company from and
against any losses, damages, liabilities, costs, or expenses incurred by
Company arising out of a breach of this Agreement by Reinsurer.

 

Reinsurer covenants to Company and agrees that it shall not, except as
otherwise provided in this Agreement, transfer, assign or otherwise convey or
obtain reinsurance coverage on its proportionate share of liability under this
Agreement without the prior written consent of Company.

 

ARTICLE XI         PAYMENT
OF CLAIMS

 

Company, through the Administrator, shall pay all Claims and Loss
Adjustment Expenses. Payment of Claims shall be made twice each month, within
ten (10) business days after the end of each claims cycle, which cycles
shall end on the fifteenth (15th) and last day of each calendar
month. Company shall establish a Claims Account in its name for the sole
purpose of making such payments, and all Claims shall be paid on behalf of
Company by the Administrator from the Claims Account. The Administrator shall
have administrative control of the Claims Account and shall monitor it to
determine the total amount of the Claims payment checks that clear the Claims
Account on a daily basis.

 

Reinsurer shall fund the Claims Account by making a daily wire transfer
of funds to the Claims Account in an amount sufficient to cover the total
amount of Claims payment checks that clear the Claims Account each day.

 

In the event Reinsurer fails to fund the Claims Account in accordance
with the terms of this Agreement, Company may discontinue paying the
Reinsurance Premium to Reinsurer after notifying Reinsurer in writing of its
intent to do so. To secure its obligation to fund the Claims Account, Reinsurer
shall provide to Company an irrevocable letter of credit in an amount that, on
a monthly basis, will never be less than the greater of: (a) $35,000,000;
or (b) the sum of (i) the unearned portion of the Premium that has
been paid, (ii) unpaid Claims (i.e., Claims in the course of
settlement plus IBNR)and (iii) all outstanding Claims payment checks.

 

5

 

ARTICLE XII       COINSURANCE;
RESERVES

 

The reinsurance hereunder shall be on a 100% Coinsurance Basis,
sometimes referred to herein as the “quota share percentage.”

 

Reinsurer shall establish and maintain all statutory reserves with
respect to the Policy that:

 

(i)                                     are computed in accordance with commonly
accepted actuarial standards;

 

(ii)                                  are based on sound actuarial assumptions;

 

(iii)                               meet the requirements of applicable laws; and

 

(iv)                              are adequate for Company to take full
statutory reinsurance reserve credit as a result of the portion of the business
ceded by it to Reinsurer under this Agreement.

 

In order to secure such reserve requirement, Reinsurer shall provide to
Company letters of credit or other security reasonably acceptable to Company as
shall be necessary to support the required reserves of the Reinsurer pursuant
to this Article XII and the terms of this Agreement. Any letter of credit
provided in accordance with this Article XII shall (i) comply with
the requirements of Pennsylvania Statutes, Title 40, sec. 442.1 and
Pennsylvania Regulations, Title 31, secs. 163.15, 163.17, and all other
applicable statutes, regulations and Insurance Department requirements, (ii) be
in proper form and substance, and issued by a proper institution, and issuance
as to enable Company to take full statutory credit for all reinsured reserves
in Pennsylvania and in all jurisdictions in which it is admitted, (iii) be
in such amount as the Company’s actuary may determine as required for such
purpose, and (iv) be delivered at such times as may be required for such
purpose with respect to each annual and, where required, quarterly statement
which Company is required to file with the Insurance Department of Pennsylvania
and each such other jurisdiction.

 

The letter of credit provided in accordance with Article XI of
this Agreement may be used to satisfy Reinsurer’s security obligation under
this Article XII, provided the letter of credit meets the requirements of
the preceding paragraph.

 

Reinsurer agrees to deliver to Company reasonable evidence of
compliance with all such reserve requirements.

 

ARTICLE XIII      ERRORS
AND OMISSIONS

 

Any inadvertent or clerical delay, error or omission made by any Party
in connection with this Agreement shall not relieve any Party from any
liability of such Party hereunder had such inadvertent or clerical delay, error
or omission not occurred. The Parties agree to cure all inadvertent and
clerical delays, errors and omissions immediately upon discovery thereof.

 

ARTICLE XIV      INSOLVENCY

 

In the event of insolvency of Company, all payments by Reinsurer for
Losses shall be payable directly to Company, or to Company’s liquidator,
receiver, conservator or statutory successor, without diminution because of the
insolvency of Company, except where this Agreement specifically provides for
another payee of such Losses in the event of the insolvency of Company.

 

6

 

Company or its liquidator, receiver, conservator or statutory successor
shall give written notice to Reinsurer of the pendency of a Claim, indicating
the Policy under which such Claim is pending, within a reasonable time after
such Claim is filed in the insolvency proceeding. During the pendency of such
Claim Reinsurer may investigate such Claim and interpose, at its own expense,
in the proceeding where such Claim is to be adjudicated, any defense or
defenses that it may deem available to Company or its liquidator, receiver,
conservator or statutory successor.

 

The expense thus incurred by Reinsurer shall be chargeable, subject to
the approval of the insolvency court, against Company as part of the
administrative expenses of the estate to the extent of a pro rata share of the
benefit which may accrue to Company solely as a result of the defense
undertaken by Reinsurer.

 

ARTICLE XV       TREASURY
REGULATION SECTION 1.848-2(G)(8) JOINT ELECTION

 

Company and Reinsurer hereby agree to the following pursuant to Section 1.848-2(g)(8) of
the Income Tax Regulations issued December 1992, under Section 848 of
the Internal Revenue Code of 1986, as amended.

 

This election shall be effective for the taxable year ended with
respect to December 31, 2006, and for all subsequent taxable years for
which this Agreement remains in effect unless such election is terminated by
mutual written agreement of the Parties with the consent, if required, of the
Commissioner of the Internal Revenue Service.

 

The terms used in this Article XV are defined by reference to
Treasury Regulation Section 1.848-2 in effect as of December 29,
1992.

 

The term “net consideration” will refer to either net consideration as
defined in Treasury Regulation Section 1.848-2(f) or “gross premium
and other consideration” as defined in Treasury Regulation Section 1.848-2(b) as
appropriate.

 

Both Parties agree to identify this Agreement as one for which the
joint election under Treasury Regulation Section 1.848-2(g)(8) has
been made in a schedule attached to their respective federal income tax
returns for the taxable period ended December 31, 2006.

 

The Party with the positive net consideration for this Agreement for each
taxable year will capitalize specified policy acquisition expenses with respect
to this Agreement without regard to the general deductions limitation of Section 848(c)(1).

 

Both Parties agree to exchange information pertaining to the amount of
net consideration under this Agreement each year to ensure consistency or as
otherwise required by the Internal Revenue Service.

 

Company will submit a schedule to Reinsurer by July 1st of
each year of its calculation of the net consideration for the preceding calendar
year. This schedule of calculations will be accompanied by a statement
signed by an officer of Company stating that Company will report such net
consideration in its tax return for the preceding calendar year.

 

Reinsurer may contest such calculation by providing an alternative
calculation to Company in writing within thirty (30) days of Reinsurer’s
receipt of Company’s calculation. If Reinsurer does not so notify Company,
Reinsurer will report the net consideration as determined by Company in Reinsurer’s
tax return for the previous year.

 

7

 

If Reinsurer disputes Company’s calculation of the net consideration,
the Parties will act in good faith to reach an agreement as to the correct
amount within thirty (30) days of the date Reinsurer submits its alternative
calculation. If Company and Reinsurer reach agreement on an amount of net
consideration, each Party shall report such amount in their respective tax
returns for the previous calendar year.

 

If the Parties fail to reach agreement on an amount of net
consideration, the dispute shall be resolved by arbitration as provided herein.

 

The Parties understand that under Section 848, as effective on the
Effective Date of this Agreement, no portion of the premium amounts from the
reinsured Policy require capitalization. In the event that Section 848 is
amended, or otherwise deemed to include the Policy reinsured under this
Agreement, the Reinsurer agrees to reimburse the Company for an amount equal to
the net capitalization required under Section 848 times the highest
Federal corporate tax rate in effect (marginal tax rate) for the year in which
the capitalization is required.

 

ARTICLE XVI      ACCESS
TO RECORDS

 

The Parties shall keep true and correct work papers regarding the
performance of their respective duties hereunder. Upon reasonable notice, each
of the Parties shall permit the other Party reasonable access to (including
making copies of) any applicable books and records in its possession, as well
as all books, records, data and information (in whatever form maintained) in
the possession of it, its subsidiaries or its agents, and reasonable access to
its and its subsidiaries’ personnel, in each case, however, relating only to
this Agreement, for any reasonable business purpose, including, but not limited
to, (i) initiating or defending any form of litigation or other
proceeding, (ii) preparing or filing any tax return or participating in
any tax contest, and (iii) responding to any notice, demand or order of or
participating in any proceeding of any governmental authority with respect to
this Agreement. All access and copying of such books, records, data and
information shall be at the expense of the Party requesting such access and
copies. Notwithstanding any other provision of this Article XVI, access to
any books, records, data and information relating to this Agreement may be
denied to the requesting Party if the other Party is required under applicable
law to deny such access.

 

ARTICLE XVII    ALTERNATIVE
DISPUTE RESOLUTION

 

Definition of Financial
Disputes. Disputes
related to any financial calculations or determinations required under Article V
or computation of reserves under Article XII shall qualify as a “Financial
Dispute” and shall be resolved as set forth in this Article XVII.
Financial Disputes shall be limited to foregoing issues only and shall not
include any other disagreement, including, but not limited to contract
interpretation or construction. Such other disagreements shall be resolved in
accordance with Article XVIII.

 

Submission of Dispute. Any Party shall have the right to submit a
claim that qualifies as a Financial Dispute to independent review pursuant to
this Article XVII. The Party requesting the independent review of a
Financial Dispute must notify the other Party in writing in accordance with Article XXVIII
of this Agreement that it is requesting such independent review.

 

Reviewer. The Parties agree that the independent third
party reviewer for Financial Disputes shall be Deloitte & Touche USA
LLP or such other firm as is mutually agreed upon by the Parties. Each Party
shall have the right to suggest individuals within the reviewing firm with an
expertise in the matters at hand to serve as the actual reviewer; and neither
Party shall withhold consent of such person without reasonable cause. If the
Parties are unable to agree on an

 

8

 

individual within the reviewing firm, then the reviewing firm shall
designate a person to act as the reviewer. Neither Party, after the Effective
Date, may enter into a material relationship with such
reviewing firm without disclosing such to the other Party in which case the
reviewing firm stated above shall be changed to one mutually agreed upon by the
Parties.

 

Review Process.

 

(a)           The Party submitting the Financial Dispute to
independent review shall submit the Financial Dispute to the third party
reviewer within five (5) days of the notice. The Financial Dispute submission
to the third party reviewer shall include a statement of the issues presented
for review and other such information as the Party filing the Financial Dispute
deems to be relevant. The Party responding to the Financial Dispute will have
fifteen (15) days to review the file and submit its response.

 

(b)           After each Party’s initial submission, the
independent third party reviewer may, but is not required to, request in
writing additional information from any Party, with a copy of the written request
to the other Party. The Party to whom the request is directed shall respond to
such request within fifteen (15) days of its receipt of the written request,
with a copy of the response to the other Parties. The other Parties may, but
are not required to, also respond to the written request within fifteen (15)
days of its receipt of the written request.

 

(c)           The independent third party reviewer shall
issue a decision within the later of: (i) thirty (30) days of the third
party reviewer’s receipt of the disputing Party’s initial submission of the
dispute to third party review, or (ii) fifteen (15) days of the third
party reviewer’s receipt of the response(s) to its written request for
additional information. The decision shall be in writing and shall set forth
the reasons for the determination and shall be final and binding on the
Parties.

 

(d)           The costs of the independent third party
review shall be borne equally by Company and Reinsurer.

 

ARTICLE XVIII         ARBITRATION

 

Contract Disputes. Except as otherwise set forth in Article XVII,
all disputes, controversies, and disagreements arising out of or relating to
this Agreement, any breach of or default under this Agreement, or the
relationship between and among the Parties by virtue of this Agreement
(referred to collectively as a “Contract Dispute”) shall be resolved in
accordance with this Article XVIII. Notwithstanding the foregoing and any
other provision in this Agreement to the contrary, the following shall not be
subject to the provisions of this Article XVIII:

 

(a)           Any action, claim or cause of action that the
Parties may have against each other that arise from or are related to any claim
or cause of actions asserted or made by a person or entity who is not a party
to this Agreement (including, without limitation, any cross claims,
counterclaims, or claims for indemnification or contribution), in which case
the Parties reserve all rights that they may have against each other,

 

(b)           Any action or claim for injunctive relief,
whether by way of temporary restraining order, preliminary injunction, and/or
permanent injunction, in which case the Parties shall have the right to proceed
by way of litigation through judicial proceedings; or

 

(c)           Any Financial Dispute in accordance with Article XVII.

 

9

 

All Contract Disputes shall be subject to
binding arbitration in accordance with the requirements of this Article XVIII.
Arbitration shall be initiated by the delivery, by mail, facsimile, or other
reliable means, of a written demand for arbitration by one party or the other.
The arbitration shall be held in New York, New York, or such other place as the
parties may mutually agree.

 

Arbitration shall be conducted before a
three-person Arbitration Panel appointed as follows. Each party shall appoint
one arbitrator, and the two arbitrators so appointed shall then appoint an
impartial Umpire before proceeding.  If
either party fails to appoint an arbitrator within thirty (30) days after it
receives a written request by the other party to do so, the other party may
appoint an arbitrator for it. Should the two party appointed arbitrators fail
to choose an Umpire within thirty (30) days of the appointment of the second
arbitrator, the parties shall appoint the Umpire pursuant to the ARIAS-U.S.
Umpire Selection Procedure. The arbitrators and Umpire shall be present or
former executives or officers of insurance or reinsurance companies. The
arbitrators and Umpire shall not be affiliated with either Party and not have
any financial interest in the outcome of the arbitration.

 

The Arbitrators shall consider this Agreement
as an honorable engagement rather than merely as a legal obligation and they
are relieved of all judicial formalities and may abstain from following the
strict rules of law. Insofar as the Arbitrators look to substantive law,
they shall consider the laws of the State of New York. They may permit or order
such discovery, if any, as they think appropriate and may conduct the hearing
of the arbitration by written submissions, oral testimony, or any combination
thereof as they think appropriate. A decision of the majority of the
Arbitrators shall be final and binding on all parties. Judgment upon the final
decision of the Arbitrators may be entered in any court of competent
jurisdiction.

 

The decision of a majority of the Arbitration
Panel shall be final and binding, except to the extent otherwise provided in
the Federal Arbitration Act. The Arbitration Panel shall render its award in
writing. Judgment upon the award may be entered in any court having
jurisdiction, pursuant to the Federal Arbitration Act. Unless the Arbitration
Panel orders otherwise, each party shall pay: (1) the fees and expenses of
its own arbitrator, and (2) an equal share of the fees and expenses of the
Umpire and of the other expenses of the arbitration.

 

It is the intent and desire of the parties
that any arbitration under this Section XVIII should be concluded and an
award rendered as expeditiously as reasonably possible and that the arbitrators
should schedule and conduct the arbitration accordingly.

 

ARTICLE XIX      GOVERNING
LAW

 

This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to its applicable principles
of conflicts of law.

 

ARTICLE XX       REIMBURSEMENTS
AND RECOVERIES

 

Reinsurer shall be responsible for all subrogation and recovery.
Reinsurer shall be entitled to the benefit of any reimbursements or recoveries
due to coordination of benefits or subrogation on account of Losses. In
addition, Reinsurer shall be entitled to the benefit of any and all rebate and
similar payments from drug manufacturers arising from Claims made under the
Policy, and the Company shall have no rights to any such payments.

 

10

 

ARTICLE XXI      ENTIRE
AGREEMENT

 

This Agreement constitutes the entire agreement and understanding
between the Parties with respect to the subject matter hereof. There are no
agreements or understandings between the Parties with respect to the subject
matter hereof other than as expressed in this Agreement.

 

ARTICLE XXII    OFFSET

 

Company or Reinsurer shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account
of Premiums, or Losses or otherwise, due from the Company or the Reinsurer,
respectively, with respect to this Agreement.

 

ARTICLE XXIII           WAIVER;
AMENDMENT

 

Except as provided herein, any waiver by any Party hereto of a breach
by any other Party of any provision of this Agreement shall not operate or be
construed as a continuing waiver or a waiver of any subsequent breach by such
Party. Except as otherwise provided herein, no waiver shall be valid unless in
writing and signed by the Party exercising such waiver.

 

Any modification or amendment of this Agreement shall be in writing and
signed by all of the Parties hereto.

 

ARTICLE XXIV        NO
ASSIGNMENT; BINDING EFFECT

 

Except as otherwise provided herein, the rights, duties and obligations
hereunder of the Parties may not be assigned or delegated by any Party hereto
to any other person without the prior written consent of the non-assigning
Party hereto.

 

This Agreement shall be binding upon and inure to the benefit of the
Parties’ respective successors and permitted assigns.

 

ARTICLE XXV    SEVERABILITY

 

The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of the remainder of this
Agreement, and any such invalid or unenforceable provision shall be severable
from the remainder of this Agreement.

 

ARTICLE XXVI        CONFIDENTIALITY

 

Each Party shall maintain the confidentiality of all information,
including legally protected consumer privacy information, that is provided to
it by the other Party in connection with this Agreement; provided, however,
that this obligation of confidentiality will not apply (a) if and to the
extent that disclosure is required by applicable law or any court, governmental
agency or regulatory authority or by subpoena or discovery request in pending
litigation; (b) if the information is or becomes available from public
information (other than as a result of prior unauthorized disclosure by the
disclosing Party); (c) if the information is or was received from a third
party not known by the disclosing Party to be under a confidentiality
obligation with regard to such information; or (d) if the information was
in the possession of the disclosing Party (having received such information on
a non-confidential basis) other than by reason of the services performed
pursuant to this Agreement. In the event that any Party becomes legally
compelled to disclose any secret or confidential information, such Party will
give prompt written notice of that fact to the other Party so that the other
Party may seek an appropriate remedy to prevent such disclosure; provided,
however, that this provision will not apply

 

11

 

to information that is or otherwise becomes available to the public or
that was previously available on a non-confidential basis.

 

ARTICLE XXVII         PRIVACY
POLICY

 

In recognition of the importance of protecting consumer health and
financial information and in consideration of the mutual understandings and
undertakings set forth herein, the Parties agree to the following:

 

1.               Company and Reinsurer agree to comply with
all applicable state and federal statutory and regulatory rules, guidelines and
requirements governing the collection, use, disclosure, access, security and maintenance
of consumer health and financial information.

 

2.               Company and Reinsurer agree that all consumer
health information and consumer financial information is confidential and to be
used only to effect the intent of, and transactions contemplated by, this Agreement.

 

3.               Company and Reinsurer agree to permit access
to the other’s policies, standards and procedures for the protection of privacy
of consumer health and financial information, and further agree to provide
written copies of such policies, standards and procedures, upon written
request.

 

4.               Company and Reinsurer agree to notify the
other immediately in the event of any improper disclosure of non-public
personal information about our insureds so that appropriate action can be
taken.

 

For purposes of this Article: (1) “consumer health information”
means any information or data other than age and gender, that relates to the
past, present or future physical, mental or behavioral health or condition of
an individual, provision of health care to an individual, or payment for health
care. Consumer health information includes any such information whether
written, oral or in any other form or medium; and (2) “consumer financial
information” means all information, other than consumer health information,
whether written, oral or in any other form or medium.

 

ARTICLE XXVIII          NOTICES

 

Any notice or other communication which is required or permitted to be
delivered to any Party hereunder shall be in writing and deemed delivered if
sent by government-sponsored mail; an internationally-recognized overnight
carrier with confirmation receipt of delivery; certified mail, return receipt
requested; or facsimile with confirmation receipt of successful and complete
transmission addressed as follows:

 

	
  If
  to the Reinsurer:

  	
   

  	
  PharmaCare
  Capitve Re, Ltd.

  
	
   

  	
   

  	
  c/o
  PharmaCare Management Services, Inc.

  
	
   

  	
   

  	
  25
  Blackstone Valley Place

  
	
   

  	
   

  	
  P.O. Box
  519

  
	
   

  	
   

  	
  Lincoln,
  Rl 02865

  
	
   

  	
   

  	
  Attention:
  Greg S. Weishar and John Buckley

  
	
   

  	
   

  	
  Fax:
  (401) 334-4995

  
	
   

  	
   

  	
  Telephone:
  (401)334-5078

  

 

12

 

	
  If
  to the Company:

  	
   

  	
  Pennsylvania
  Life Insurance Company

  
	
   

  	
   

  	
  Attn:
  Gary W. Bryant

  
	
   

  	
   

  	
  Executive
  Vice President

  
	
   

  	
   

  	
  1001
  Heathrow Park Lane

  
	
   

  	
   

  	
  Suite 5001

  
	
   

  	
   

  	
  Lake
  Mary, Florida 32746

  
	
   

  	
   

  	
  407-995-8000,
  ext. 8211

  

 

ARTICLE XXIX           GUARANTEE

 

As a material inducement to the Company to enter into this Agreement,
PharmaCare Management Services, Inc., a company affiliated with Reinsurer,
has agreed to the Guarantee attached as Exhibit B.

 

ARTICLE XXX    EXECUTION

 

The Parties, by and through each of their respective authorized
representatives, have executed this Agreement as of the 30th day of June, 2005.

 

PENNSYLVANIA LIFE INSURANCE COMPANY

Taxpayer
I.D. #23-1305366

NAIC
Company Code: 67660

 

	
  By:

  	
  /s/
  Gary W. Bryant

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  Executive/Vice
  President

  
	
   

  	
   

  
	
  Name:
  

  	
  Gary
  W. Bryant

  

 

PHARMACARE RE

Taxpayer I.D. # 20-2840526

 

	
  By:

  	
  /s/ John Buckley

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  VP

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  John Buckley

  	
   

  

 

13

 

EXHIBIT B – GUARANTEE

 

In order to induce Pennsylvania Life
Insurance Company (“Company”) to enter into a reinsurance agreement with (“PharmaCare
Re”), which agreement is being entered into concurrently with the execution of
this guarantee, the undersigned unconditionally (1) guarantees PharmaCare
Re’s due and timely payment of all amounts due to Company, or to others on
behalf of Company, in accordance with the terms of such reinsurance agreement,
as originally entered into and as it may hereafter be amended; and (ii) covenants
that in the event PharmaCare Re requires additional capital in order to meet
the reserve requirements set forth in the reinsurance agreement or to meet its
risk based capital required under applicable insurance regulations, the
undersigned will provide, or cause to be provided, such additional capital to
PharmaCare Re, so that PharmaCare Re maintains sufficient reserves and/or
capital to meet its requirements under said reinsurance agreement.

 

The obligation of the undersigned to Company
shall not be affected by (1) the insolvency of PharmaCare Re, or by rights
or benefits which may accrue to PharmaCare Re under any bankruptcy, insurer
insolvency or debtor protection law of any jurisdiction, (2) any effort
made, or not made, by Company to collect any amount due from any of the
undersigned, or (3) the availability of any collateral or security for
PharmaCare Re’s obligations.

 

The liability of the undersigned for the full
amount due to Company or, to others on behalf of Company, from PharmaCare Re
shall continue until such amounts have been paid in full.

 

The undersigned represents and warrants that:
(1) the execution and delivery of this guarantee is within its corporate power
and all steps necessary to authorize such execution and delivery have been duly
taken, and (2) that the person signing this document on its behalf is duly
authorized to do so.

 

IN WITNESS WHEREOF, a duly authorized officer
of the undersigned has executed this instrument intending that such entity be
legally bound hereby.

 

PharmaCare Management Services, Inc.

 

	
  By:

  	
  /s/ John Buckley

  	
   

  
	
   

  
	
  Title:

  	
  svp

  
	
   

  
	
  Date:

  	
  6/29/05

  
				

 

14

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}]]