Document:

Exhibit 10.3

 

[Executive Form]

10/1/12

 

STR HOLDINGS, INC.
 2009 Equity Incentive Plan

 

NONQUALIFIED STOCK OPTION AWARD AGREEMENT

 

THIS AGREEMENT (the “Award Agreement”) is made effective as of [                          ] (the “Date of Grant”) between STR Holdings, Inc., a Delaware corporation (with any successor, the “Company”), and [                  ] (the “Participant”):

 

R E  C  I  T  A  L  S:

 

WHEREAS, the Company has adopted the STR Holdings, Inc. 2009 Equity Incentive Plan (the “Plan”), which Plan is incorporated herein by reference and made a part of this Award Agreement.  Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan; and

 

WHEREAS, the Committee has determined that it would be in the best interests of the Company and its stockholders to grant the option provided for herein to the Participant pursuant to the Plan and the terms set forth herein.

 

NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows:

 

1.                                      Grant of the Option.  The Company hereby grants to the Participant the right and option (the “Option”) to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of [                  ] Shares, subject to adjustment as set forth in the Plan.  The Option is intended to be a nonqualified stock option, and is not intended to be treated as an option that complies with Section 422 of the Internal Revenue Code of 1986, as amended.

 

2.                                      Option Price.  The purchase price of the Shares subject to the Option shall be $[        ] per Share (the “Option Price”), subject to adjustment as set forth in the Plan.

 

3.                                      Vesting  Subject to the Participant’s continued Service on each vesting date, the Option shall vest (subject to accelerated vesting set forth in Sections 4 or 5 below) on each anniversary of the Date of Grant as follows: (i) twenty five (25%) of the Shares shall vest on the first anniversary of the Date of Grant; (ii) twenty five (25%) of the Shares shall vest on the second anniversary of the Date of Grant; and (iii) fifty (50%) of the Shares shall vest on the third anniversary of the Date of Grant.

 

At any time, the portion of the Option which has become vested is hereinafter referred to as the “Vested Portion.”  The Vested Portion of the Option shall remain exercisable for the period set forth in Section 6.

 

4.                                      Change of Control.  Upon the occurrence of a Change of Control, any outstanding portion of the Option, to the extent not previously cancelled or forfeited, that is not (i) assumed by the Company (if it is the surviving company or corporation) or by the surviving company or corporation or its parent or (ii) substituted by the surviving company or corporation or its parent with a stock option with substantially the same terms as the Option, shall, to the extent unvested, immediately vest in full, so long as the Participant’s Service has not been terminated before the commencement of the Change of Control Period (as hereinafter defined).

 

 

For purposes of this Section 4, (x) the Option shall not be considered assumed if following any such assumption (or proposed assumption) the shares of stock underlying the Option are not (or would not be) publicly traded on the New York Stock Exchange (“NYSE”), NASDAQ or another established securities market and (y) substitution of the Option with a stock option to purchase shares of stock which are not publicly traded on the NYSE, NASDAQ or another established securities market will result in a failure of the Option to be considered substituted with a stock option with substantially similar terms.

 

5.                                      Forfeiture.

 

(a)                                 If the Participant’s Service is terminated by the Participant for Good Reason or by the Company without Cause, the unvested portion of the Option, to the extent not previously cancelled or forfeited, that would have vested had the Participant been employed for an additional twelve (12) months from the date of termination of employment shall vest immediately upon such date of termination; provided however, in the event that the Participant’s Service is terminated by the Participant for Good Reason or by the Company without Cause, during the Change of Control Period (as hereinafter defined), the unvested portion of the Option to the extent not previously cancelled or forfeited, shall vest immediately upon such date of termination.  Thereafter, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 6.

 

(b)                                 If the Participant’s Service is terminated for any reason other than pursuant to clause 5(a) above, the Option shall, to the extent not then vested, be cancelled by the Company without consideration and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 6.

 

6.                                      Exercise of Option.

 

(a)                                 Period of Exercise.  Subject to the provisions of the Plan and this Award Agreement, the Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of:

 

(i)                                     the tenth anniversary of the Date of Grant;

 

(ii)                                  the date that is ninety (90) days following termination of the Participant’s Service for any reason other than death, Permanent Disability or Cause;

 

(iii)                               the date that is one (1) year following termination of the Participant’s Service due to death or Permanent Disability;

 

(iv)                              the date of termination of the Participant’s Service due to Cause.

 

(b)                                 Method of Exercise.

 

(i)                                     Subject to Section 4, the Vested Portion of the Option may be exercised by delivering to the Company at its principal office written notice of intent to so exercise; provided that the Option may be exercised with respect to whole Shares only.  Such notice shall specify the number of Shares for which the Option is being exercised and shall be accompanied by payment in full of the Option Price.  In the event the Option is

 

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being exercised by the Participant’s representative, the notice shall be accompanied by proof (satisfactory to the Committee) of the representative’s right to exercise the Option.  The payment of the Option Price may be made at the election of the Participant (A) in cash or its equivalent (e.g., by cashier’s check), (B) to the extent permitted by the Committee, in Shares having a Fair Market Value equal to the aggregate Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee, (C) partly in cash and, to the extent permitted by the Committee, partly in such Shares, (D) by reducing the number of Shares otherwise deliverable upon the exercise of the Option by the number of Shares having a Fair Market Value equal to the Option Price, or (E) if there is a public market for the Shares at such time, subject to such requirements as may be imposed by the Committee, through the delivery of irrevocable instructions to a broker to sell Shares obtained upon the exercise of the Option and to deliver promptly to the Company an amount out of the proceeds of such sale equal to the aggregate Option Price for the Shares being purchased.  The Committee may prescribe any other method of payment that it determines to be consistent with applicable law.  Neither the Participant nor the Participant’s representative shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Participant has given written notice of exercise of the Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan.

 

(ii)                                  Notwithstanding any other provision of the Plan or this Award Agreement to the contrary, the Option may not be exercised prior to the completion of any registration or qualification of the Option or the Shares under applicable securities or other laws, or under any ruling or regulation of any governmental body or national securities exchange that the Committee shall in its sole discretion determine to be necessary or advisable.

 

(iii)                               Upon the Company’s determination that the Option has been validly exercised as to any of the Shares, the Company shall issue certificates in the Participant’s name for such Shares.  However, the Company shall not be liable to the Participant for damages relating to any delays in issuing the certificates to him, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the certificates themselves.

 

(iv)                              In the event of the Participant’s death, the Vested Portion of the Option shall remain exercisable during the period set forth in Section 6 by the Participant’s executor or administrator, or the person or persons to whom the Participant’s rights under this Award Agreement shall pass by will or by the laws of descent and distribution as the case may be.  Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions hereof.

 

7.                                      No Right to Continued Service.  The granting of the Option evidenced hereby and this Award Agreement shall impose no obligation on the Company or any Affiliate to continue the Service of the Participant and shall not lessen or affect any right that the Company or any Affiliate may have to terminate the Service of such Participant.

 

8.                                      Securities Laws/Legend on Certificates.  The issuance and delivery of Shares shall comply with all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state

 

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securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded.  If the Company deems it necessary to ensure that the issuance of securities under the Plan is not required to be registered under any applicable securities laws, each Participant to whom such security would be issued shall deliver to the Company an agreement or certificate containing such representations, warranties and covenants as the Company may deem necessary which satisfies such requirements. The certificates representing the Shares shall be subject to such stop transfer orders and other restrictions as the Committee may deem reasonably advisable, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

 

9.                                      Transferability.  The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant other than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.  No such permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the Committee shall have been furnished with written notice thereof and a copy of such evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions hereof.  During the Participant’s lifetime, the Option is exercisable only by the Participant.

 

10.                               Adjustment of Option.  Adjustments to the Option (or any of the Shares underlying the Option) shall be made in accordance with the terms of the Plan.

 

11.                               Definitions.  For purposes of this Award Agreement:

 

“Cause” shall have the meaning set forth in the Participant’s employment agreement with the Company or any of its Subsidiaries, if applicable, and otherwise shall mean (i) the Participant’s failure or refusal to follow the reasonable instructions of the Participant’s supervisor  (or for the CEO, the Company’s Board of Directors)  (other than due to the Participant’s Permanent Disability), which failure or refusal is not cured within thirty (30) days following written notice; (ii) the Participant’s conviction of a felony or of a misdemeanor if such misdemeanor involves moral turpitude or misrepresentation, including a plea of guilty or nolo contendere; (iii) the Participant’s unlawful use (including being under the influence) or possession of illegal drugs on the Company’s or any of its Subsidiaries’ premises; (iv) the Participant’s commission of any act of fraud, embezzlement, misappropriation of funds, intentional misrepresentation, breach of fiduciary duty or other act of dishonesty materially detrimental to the Company or any of its Subsidiaries; or (v) the Participant’s intentional wrongful act or gross negligence that has a materially detrimental effect on the Company or its Subsidiaries.

 

“Change of Control Period” shall mean the period commencing ninety (90) days prior to the execution of any definitive purchase and sale, merger or other acquisition agreement resulting in a Change of Control through the first anniversary following the closing of such Change of Control, or, in the case of any other type of Change of Control, the period of one (1) year beginning on the date of the occurrence of such Change of Control through the first anniversary thereof.

 

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“Good Reason” for termination by the Participant of the Participant’s Service shall have the meaning set forth in the Participant’s employment agreement with the Company or any of its Subsidiaries, if applicable, and otherwise shall mean the occurrence (without the Participant’s express written consent), of any one of the following acts by the Company, or failures by the Company to act.  As set forth below, subsection (i) contains the elements of Good Reason, and subsection (ii) sets forth certain terms and conditions applicable to termination by the Participant for Good Reason;

 

(i)                                     (A)          A material diminution in the nature or status of the Participant’s responsibilities from those in effect immediately prior to such diminution resulting from, among other things, (1) the assignment to the Participant of any duties inconsistent with the Participant’s duties and the Participant’s position, immediately prior to such assignment, or (2) during the Change of Control Period, the failure of the Company to ensure that the Participant maintains substantially the same duties and position during such period, with the Company and each other entity that may then be a direct or indirect parent of the Company owning directly or indirectly a majority of the outstanding capital stock of the Company, as the Participant was assigned or held immediately prior to the Change of Control Period;

 

(B)          A material reduction by the Company, during the period of one (1) year immediately prior to the date of the Participant’s termination of Service, in either or both of (1) the Participant’s annual base salary; or (2) the target bonus percentage set forth in the Company’s management incentive plan, in each case as in effect on the date of this Award Agreement or as the same may be increased from time to time;

 

(C)          The relocation of the Participant’s principal place of Service to a location more than fifty (50) miles from the Participant’s principal place of employment immediately prior to such relocation or the Company’s requiring the Participant to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with the Participant’s business travel obligations immediately prior thereto;

 

(D)          The failure by the Company to pay to the Participant any portion of the Participant’s current compensation, or to pay to the Participant any portion of an installment of deferred compensation under any deferred compensation program of the Company, within thirty (30) days of the date such compensation is due;

 

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(E)           The failure by the Company to continue in effect any material compensation plan in which the Participant participates immediately prior to such failure which is material to the Participant’s total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Participant’s participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Participant’s participation relative to other participants, as existed immediately prior to such failure;

 

(F)           The failure by the Company to continue to provide the Participant with benefits substantially similar to those enjoyed by the Participant under any of the Company’s benefit plans, including without limitation, life insurance, health and accident, or disability plans in which the Participant was participating immediately prior to such failure, the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Participant of any material fringe benefit enjoyed by the Participant immediately prior to such action, or the failure by the Company to provide the Participant with the number of paid vacation days to which the Participant is entitled on the basis of years of service with the Company in accordance with the Company’s normal vacation policy in effect at the time of such failure; or

 

(G)                               Any material breach by the Company of the Participant’s employment agreement with the Company or any of its Subsidiaries.

 

(ii)                                  (A)                               For purposes of this Award Agreement, any purported termination of the Participant’s Service which is not effected pursuant to a written notice of termination indicating the specific termination provision relied upon (e.g., Cause, death, etc.) and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for such a termination shall not be effective.

 

(B)          The Participant’s right to terminate the Participant’s Service for Good Reason shall not be affected by the Participant’s incapacity due to physical or mental illness.

 

(C)                               For purposes of any determination regarding the existence of Good Reason, any claim by the Participant that Good Reason exists shall be presumed to be correct unless the Company

 

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establishes to the Board by clear and convincing evidence that Good Reason does not exist.

 

(D)                               Notwithstanding any provision of this definition of Good Reason to the contrary, none of the foregoing provisions of this definition of Good Reason shall constitute Good Reason unless (1) no later than ninety (90) days following the occurrence of any of the events set forth in subsection (i) of this definition of Good Reason above, the Participant provides written notice to the Company of such event containing a description thereof and stating the subsection of subsection (i) of this definition of Good Reason above under which such event constitutes Good Reason (the “Good Reason Notice”) and the Company shall not have cured such event within thirty (30) days following its receipt of such notice, and (2) no later than one hundred eighty (180) days, but no earlier than thirty (30) days, following the Company’s receipt of such Good Reason Notice, the Participant gives the Company written notice of the Participant’s intent to terminate Service due to the occurrence of the event constituting Good Reason described in such Good Reason Notice.

 

“Permanent Disability” shall have the meaning set forth in the Participant’s employment agreement with the Company or its Affiliates, if any, or if the Participant is not a party to an employment agreement with a definition of “Permanent Disability,” then “Permanent Disability” means any physical or mental disability rendering the Participant unable to perform his or her duties for a period of at least one hundred twenty (120) days out of any twelve (12) month period, as determined by a doctor approved by the Company.

 

“Share” means a share of common stock of the Company or such other class or kind of shares or other securities resulting from the application of Section 12.1 of the Plan.

 

12.                               Withholding.  The Participant may be required to pay to the Company or any Affiliate and the Company shall have the right and is hereby authorized to withhold, any applicable withholding taxes in respect of the Option, its exercise or any payment or transfer under or with respect to the Option and to take such other action as may be necessary in the opinion of the Committee to satisfy all obligations for the payment of such withholding taxes.

 

13.                               Notices. Any notification required by the terms of this Award Agreement shall be given in writing and shall be deemed effective upon personal delivery or within three (3) days of deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid.  A notice shall be addressed to the Company, Attention: Secretary, at its principal executive office and to the Participant at the address that he or she most recently provided to the Company.

 

14.                               Entire Agreement.  This Award Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof.  They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) which relate to the subject matter hereof.

 

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15.                               Waiver.  No waiver of any breach or condition of this Award Agreement shall be deemed to be a waiver of any other or subsequent breach or condition whether of like or different nature.

 

16.                               Successors and Assigns.  The provisions of this Award Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and upon the Participant, the Participant’s assigns and the legal representatives, heirs and legatees of the Participant’s estate, whether or not any such person shall have become a party to this Award Agreement and agreed in writing to be joined herein and be bound by the terms hereof.

 

17.                               Choice of Law; Jurisdiction; Waiver of Jury Trial.  THIS AWARD AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF DELAWARE WITHOUT REGARD TO CONFLICTS OF LAWS.

 

SUBJECT TO THE TERMS OF THIS AWARD AGREEMENT, THE PARTIES AGREE THAT ANY AND ALL ACTIONS ARISING UNDER OR IN RESPECT OF THIS AWARD AGREEMENT SHALL BE LITIGATED IN THE FEDERAL OR STATE COURTS IN DELAWARE.  BY EXECUTING AND DELIVERING THIS AWARD AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS FOR ITSELF, HIMSELF OR HERSELF AND IN RESPECT OF ITS, HIS OR HER PROPERTY WITH RESPECT TO SUCH ACTION.  EACH PARTY AGREES THAT VENUE WOULD BE PROPER IN ANY OF SUCH COURTS, AND HEREBY WAIVES ANY OBJECTION THAT ANY SUCH COURT IS AN IMPROPER OR INCONVENIENT FORUM FOR THE RESOLUTION OF ANY SUCH ACTION.

 

EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AWARD AGREEMENT.

 

18.                               Option Subject to Plan.  By entering into this Award Agreement the Participant agrees and acknowledges that the Participant has received and read a copy of the Plan.  The Option is subject to the Plan.  The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference (subject to the limitation set forth in Section 19).  In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.  The Participant has had the opportunity to retain counsel, and has read carefully, and understands, the provisions of the Plan and the Award Agreement.

 

19.                               Amendment.  The Committee may amend or alter this Award Agreement and the Option granted hereunder at any time; provided that, subject to Articles 11, 12 and 13 of the Plan, no such amendment or alteration shall be made without the consent of the Participant if such action would materially diminish any of the rights of the Participant under this Award Agreement or with respect to the Option.

 

20.                               Severability. The provisions of this Award Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

 

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21.                               Signature in Counterparts.  This Award Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Award Agreement.

 

	
 
    	
 
    	
STR   HOLDINGS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:   Robert S. Yorgensen
    
	
 
    	
 
    	
 
    	
Title:      President and Chief Executive   Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Agreed   and acknowledged as of the date first above written:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
PARTICIPANTExhibit 10.1

 

REINSURANCE AGREEMENT

 

 

Between

 

 

Lincoln Benefit Life Company

(Ceding Company)

 

 

And

 

 

Lincoln Benefit Reinsurance Company

(Reinsurer)

 

 

 

Effective Date: September 30, 2012

 

 

Table of Contents

 

	
Articles
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
Article I.
    	
Preamble
    	
1
    
	
Article II.
    	
Definitions
    	
1
    
	
Article III.
    	
Basis of Reinsurance
    	
3
    
	
Article IV.
    	
Liability
    	
3
    
	
Article V.
    	
Premiums and Commissions
    	
4
    
	
Article VI.
    	
Losses
    	
4
    
	
Article VII.
    	
Settlement and Reporting
    	
4
    
	
Article VIII.
    	
Termination for Non-Payment of   Settlement Amounts
    	
5
    
	
Article IX.
    	
Claims Expenses
    	
6
    
	
Article X.
    	
Insolvency
    	
6
    
	
Article XI.
    	
Arbitration
    	
7
    
	
Article XII.
    	
DAC Tax Election
    	
8
    
	
Article XIII.
    	
General Provisions
    	
8
    
				

 

 

Exhibits

A         Form of Quarterly Report

 

Schedules

I           Covered Policies

 

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Article I.

 

Preamble

 

Section 1.01     This Reinsurance Agreement (this “Agreement”) is made and entered into by and between Lincoln Benefit Life Company, a Nebraska stock insurance company (hereinafter referred to as the “Ceding Company”) and Lincoln Benefit Reinsurance Company, a Vermont-domiciled captive insurance company (hereinafter referred to as the “Reinsurer”) on this the 30th day of September, 2012 (the “Contract Date”).

 

Section 1.02     The Ceding Company desires to cede, and the Reinsurer desires to reinsure, on and after the Effective Date (as defined below) the Covered Liabilities (defined below) with respect to the Covered Policies (defined below), subject to the terms and conditions stated herein.  This Agreement is an indemnity reinsurance agreement and the performance of the obligations of each party under this Agreement shall be rendered solely to the other party.

 

Article II.

 

Definitions     

 

Section 2.01     Defined Terms.  As used in this Agreement, the following terms shall have the meanings set forth below:

 

“Affiliate” shall have the meaning set forth in Section 1-02(b) of Regulation S-X promulgated by the United States Securities and Exchange Commission.

 

“Agreement” shall have the meaning set forth in the preamble hereto.

 

“Business Day” shall mean any day other than a Saturday or Sunday or day on which banks in the State of Nebraska, the State of Illinois or the State of Vermont are permitted or required by law to be closed.

 

“Ceding Company” shall have the meaning set forth in the preamble hereto.

 

“Claims Expense” shall have the meaning set forth in Section 9.01.

 

“Coinsurance Premiums” shall mean the Reinsurer’s Quota Share of the premiums actually received by the Ceding Company on and after the Effective Date with respect to the Covered Policies, net of premium refunds and the Third Party Reinsurance Premiums.

 

“Contract Date” shall have the meaning set forth in the preamble hereto.

 

“Covered Liabilities” shall mean the Reinsurer’s Quota Share of policy benefits arising under the express terms of the Covered Policies, including (i) death benefits (including interest payable to the beneficiary(ies) from the date of death), (ii) cash surrender values, (iii) partial withdrawals, (iv) all benefits payable in respect of riders attached to the Covered Policies, and

 

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(v) policy loans paid by the Ceding Company; in each case, other than Extra-Contractual Obligations, and net of Third Party Reinsurance.

 

“Covered Policy” shall mean each of the universal life insurance policies written by the Ceding Company with issue dates within the range set forth on Schedule I for each policy form specified therein.  For policies issued prior to the Effective Date, Covered Policies shall include only such policies that are in effect on the Effective Date and policies that are not in effect on the Effective Date but are reinstated after the Effective Date in accordance with their terms.

 

“Date of Determination” shall have the meaning set forth in Section 7.03.

 

“Effective Date” shall mean 11:59 P.M. Central Time on September 30, 2012.

 

“Extra-Contractual Obligations” shall mean any payments (a) not made as a good faith claim settlement or compromise of a dispute over coverage under the Covered Policies by the Ceding Company or (b) in excess of the applicable coverage limits of the Covered Policies (including, for the avoidance of doubt, any good faith claim settlement or compromise of a dispute to the extent in excess of applicable coverage limits but not including any amount that is in excess of applicable coverage limits solely due to the application of statutory interest on a claim), including any payment made to satisfy liabilities for fines, penalties, forfeitures, compensatory damages and punitive, special, treble, bad faith, tort, exemplary or other forms of extra-contractual damages awarded against the Ceding Company in respect of the Covered Policies, which liabilities or obligations arise from any act, error or omission committed by the Ceding Company whether or not intentional, negligent, in bad faith or otherwise relating to (i) the cancellation or administration of the Covered Policies (ii) the investigation, defense, trial, settlement or handling of claims, benefits or payments under the Covered Policies or (iii) the failure to pay, the delay in payment or errors in calculating or administering the payment of benefits, claims or any other amounts due or alleged to be due under or in connection with the Covered Policies.

 

“Full Termination Amount” shall mean, as of a given date, an amount equal to (i) the Statutory Reserves (calculated as of such date) minus (ii) any Settlement Amounts that are unpaid by the Ceding Company on such date plus (iii) any Settlement Amounts that are unpaid by the Reinsurer on such date.

 

“Initial Reinsurance Premium” shall have the meaning set forth in Section 5.01.

 

“Nebraska SAP” shall mean statutory accounting procedures and practices prescribed or permitted by the Director of Insurance of the State of Nebraska.

 

“Payment Failure Notice” shall mean the notice delivered by the Reinsurer pursuant to Section 8.01.

 

“Payment Failure Termination Date” shall have the meaning set forth in Section 8.01.

 

“Quarterly Report” shall have the meaning set forth in Section 7.03.

 

“Reinsurer” shall have the meaning set forth in the preamble hereto.

 

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“Reinsurer’s Quota Share” shall mean 100%.

 

“Reporting Date” shall have the meaning set forth in Section 7.02.

 

“Settlement Amount” shall have the meaning set forth in Section 7.04.

 

“Settlement Dates” shall have the meaning set forth in Section 7.04.

 

“Statutory Reserves” shall mean, as of a given date, the Reinsurer’s Quota Share of the statutory reserves in respect of the Covered Liabilities, determined in accordance with the methodologies used by the Ceding Company to calculate such amounts for purposes of its statutory financial statements prepared in accordance with Nebraska SAP.  For the avoidance of doubt, Statutory Reserves are net of reserve credit taken under Third Party Reinsurance.

 

“Third Party Reinsurance” shall mean all third-party reinsurance of Ceding Company with respect to the Covered Policies in effect on and after the Effective Date.

 

“Third Party Reinsurance Premiums” shall mean the reinsurance premiums payable on the Third Party Reinsurance.

 

Article III.

 

Basis of Reinsurance

 

Section 3.01                   Basis.  Subject to the terms and conditions set forth in this Agreement, the Ceding Company hereby cedes to the Reinsurer, and the Reinsurer hereby assumes and agrees to reinsure, the Covered Liabilities.

 

Section 3.02                   Coverage.  The reinsurance hereunder is on a coinsurance basis.

 

Article IV.

 

Liability

 

Section 4.01                   Effectiveness.  Subject to the terms and conditions set forth in this Agreement, the Reinsurer’s liability for reinsurance of the Covered Liabilities shall begin as of the Effective Date.

 

Section 4.02                   Termination of Liability.  All of the Reinsurer’s liability with respect to a Covered Policy shall terminate as of the earlier of (i) the date on which the Ceding Company’s contractual liability for such Covered Policy terminates,  (ii) the Payment Failure Termination Date or (iii) such other date as mutually agreed by the parties, in each case subject to the settlement of all amounts due under this Agreement with respect to such termination.

 

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Article V.

 

Premiums and Commissions

 

Section 5.01     Initial Reinsurance Premium.  As of the Effective Date, the Ceding Company shall owe to the Reinsurer an initial reinsurance premium (the “Initial Reinsurance Premium”) equal to the Statutory Reserves as of the Effective Date.  On the Contract Date, the Ceding Company shall pay to the Reinsurer an amount equal to its best estimate of such amount.  The parties will determine the actual Initial Reinsurance Premium prior to the first Quarterly Report and any differences between the estimated amount and the actual amount of the Initial Reinsurance Premium will be settled in accordance with Article VII on the first Settlement Date.

 

Section 5.02     Coinsurance Premiums.  On each Settlement Date, the Ceding Company shall owe to the Reinsurer the Coinsurance Premiums for the calendar quarter corresponding to such Settlement Date.  Settlement of amounts owed under this Section 5.02 for each Settlement Date shall be made in accordance with Article VII.

 

Section 5.03     Expense Allowance.  On each Settlement Date, the Reinsurer shall owe to the Ceding Company for the calendar quarter corresponding to such Settlement Date an expense allowance equal to the sum of (i) commissions, other sales compensation, and issuance costs, plus (ii) taxes, licenses, and fees (excluding income taxes), plus (iii) marketing, administration, legal and compliance expenses incurred by the Ceding Company, provided that the aggregate amount of expenses in subsection (iii) are subject to a per annum cap of $110 per policy, with such per annum cap increasing on each anniversary of the Effective Date by three percent (3%) from the previous year’s cap amount, commencing in calendar year 2013 (the “Expense Allowance”).  Settlement of amounts owed under this Section 5.03 for each Settlement Date shall be made in accordance with Article VII.

 

Article VI.

 

Losses

 

Section 6.01     Losses.  On each Settlement Date, the Reinsurer shall owe to the Ceding Company, for the calendar quarter corresponding to such Settlement Date, an amount equal to the Covered Liabilities paid or incurred by the Ceding Company during such calendar quarter.  Settlement of amounts owed under this Section 6.01 for each Settlement Date shall be made in accordance with Article VII.

 

Article VII.

 

Settlement and Reporting

 

Section 7.01     Settlement.  Settlement of all amounts due from each party to the other under this Agreement will be on a quarterly basis on the Settlement Dates following each

 

4

 

calendar quarter.  In addition, a settlement of all amounts due from each party to the other party under this Agreement under Article VIII will be completed in accordance with Section 8.03.

 

Section 7.02     Reporting Dates.  The “Reporting Dates” corresponding to each calendar quarter shall be the dates which are forty-five (45) days following the last calendar day in each of March, June, September and December, as applicable (or, if such date is not a Business Day, the first Business Day following such date); provided that the first Reporting Date hereunder shall be November 14, 2012.

 

Section 7.03     Reporting.  No later than the Reporting Date corresponding to the end of each prior calendar quarter, the Ceding Company will submit a quarterly report regarding the Covered Policies (the “Quarterly Report”) in the form of Exhibit A attached hereto setting forth, among other amounts, the amount of Coinsurance Premiums, Expense Allowance, Covered Liabilities, and the Settlement Amount, all for the prior calendar quarter (the “Date of Determination”).

 

Section 7.04     Settlement Amount.  The “Settlement Amount” with respect to the calendar quarter ended immediately prior to each Reporting Date shall be an amount equal to the sum of (i) the Coinsurance Premiums received by the Ceding Company, minus (ii) the Covered Liabilities paid by the Ceding Company, minus (iii) the Expense Allowance, minus (iv) Claims Expenses paid by the Ceding Company, each as set forth in the Quarterly Report.  The Settlement Amount for such calendar quarter shall be due no later than sixty (60) days after the end of the prior calendar quarter (the “Settlement Date”).  An amount equal to the absolute value of any negative Settlement Amount shall be paid by wire payment by the Reinsurer to the Ceding Company on or before such Settlement Date.  An amount equal to any positive Settlement Amount shall be paid by wire payment by the Ceding Company to the Reinsurer on or before such Settlement Date.  As set forth in Section 5.01, any difference between the estimated amount and the actual amount of the Initial Reinsurance Premium will be accounted for on the first Settlement Date immediately following the Effective Date.

 

Section 7.05     Net Settlement.  Except as otherwise specifically provided herein, all amounts due to be paid on a Settlement Date to either the Ceding Company or the Reinsurer under this Agreement shall be determined and payable on a net basis, giving full effect to Section 14.05 hereof.

 

Article VIII.

 

Termination for Non-Payment of Settlement Amounts

 

Section 8.01     Termination for Non-Payment of Settlement Amounts.  In the event that Settlement Amounts payable to the Reinsurer pursuant to Section 7.04 are not paid within thirty (30) calendar days after the Settlement Date upon which they are due, the Reinsurer will have the right to terminate this Agreement by providing the Ceding Company with written notice of termination (the “Payment Failure Notice”) specifying a date of termination (“Payment Failure Termination Date”) that is no earlier than fifteen (15) calendar days after the date the Payment Failure Notice is delivered to the Ceding Company.

 

5

 

Section 8.02     Payment of Amounts Outstanding.  In the event the Reinsurer delivers a Payment Failure Notice that specifies the Payment Failure Termination Date and the Ceding Company pays the Reinsurer all amounts that are then due and payable to the Reinsurer prior to the Payment Failure Termination Date, then the Reinsurer shall not be entitled to terminate this Agreement.

 

Section 8.03     Settlement of Full Termination Amount.  In the event of a termination under this Article, the Reinsurer’s sole liability to the Ceding Company hereunder shall be for an amount equal to the Full Termination Amount calculated as of the Date of Determination through which coverage has been paid hereunder.  Following any termination pursuant to this Article VIII, the Ceding Company shall deliver to the Reinsurer within forty-five (45) days after the Payment Failure Termination Date, a calculation of the Full Termination Amount.  On or prior to the date which is fifteen (15) days after such calculation of the Full Termination Amount is received by the Reinsurer, the amount due thereunder shall be paid by wire payment to the Ceding Company or the Reinsurer as applicable.  The payment of the Full Termination Amount shall constitute a complete and final release of the parties in respect of any and all known and unknown obligations or liability of any nature under this Agreement.

 

Article IX.

 

Claims Expenses

 

Section 9.01     Claim Expenses.  The Reinsurer will share in proportion to the Reinsurer’s Quota Share in the expense of any investigation, adjustment, contest or compromise of a claim (including expenses incurred with respect to disputes among competing beneficiaries and/or any contractual interest and penalties) (“Claims Expense”) under the Covered Policy being contested and will share in the proportion to the Reinsurer’s Quota Share in the total amount of any reduction in Covered Liabilities.

 

Article X.

 

Insolvency

 

Section 10.01   Payments.  In the event of insolvency of the Ceding Company, all reinsurance ceded, renewed or otherwise becoming effective under this Agreement shall be payable by the Reinsurer directly to the Ceding Company or to its liquidator, receiver or statutory successor on the basis of the liability of the Ceding Company under the contract or contracts reinsured without diminution because of the insolvency of the Ceding Company.  Payments by the Reinsurer as set forth in this Article shall be made directly to the Ceding Company or to its conservator, liquidator, or statutory successor.

 

Section 10.02   Notice of Claim. In the event of the Ceding Company’s insolvency, the conservator, liquidator, or statutory successor shall give written notice to the Reinsurer of the pendency of a claim against the Ceding Company on any policies reinsured within a reasonable time after such claim is filed in the insolvency proceeding.  The Reinsurer may interpose, at its

 

6

 

own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to the Ceding Company or its conservator, liquidator, or statutory successor.  Subject to court approval, the expenses thus incurred by the Reinsurer shall be chargeable against the Ceding Company or its estate as part of the expenses of liquidation to the extent a proportionate share of the benefit which may accrue to the Ceding Company solely as a result of the defense undertaken by the Reinsurer.

 

Article XI.

 

Arbitration

 

Section 11.01   Arbitration.  As a condition precedent to any right of action hereunder, any dispute or difference between the Ceding Company and the Reinsurer relating to the interpretation or performance of this Agreement, including its formation or validity, or any transaction under this Agreement, whether arising before or after termination, shall be submitted to arbitration.  Arbitration shall be the method of dispute resolution, regardless of the insolvency of either party, unless the conservator, receiver, liquidator or statutory successor is specifically exempted from arbitration proceeding by applicable state law of the insolvency.

 

Section 11.02   Appointment of Arbitrators.  Arbitration shall be initiated by the delivery of written notice of demand for arbitration by one party to another.  Each party shall appoint an individual as arbitrator within thirty (30) days from the date of such notice and the two so appointed shall then appoint the umpire.  If either party refuses or neglects to appoint an arbitrator within thirty (30) days from the date of such notice, the other party may appoint the second arbitrator.  If the two arbitrators are unable to agree upon the appointment of the umpire within thirty (30) days of their appointment, each party shall, each through its appointed arbitrator, nominate five (5) umpire candidates, of whom the other party, through its appointed arbitrator, shall strike four (4) candidates, and the decision between the two remaining candidates determined by a random selection agreed between the two appointed arbitrators.

 

Section 11.03   Qualifications of Arbitrators.  The arbitrators and umpire shall be present or former officers of life reinsurance or insurance companies other than the two parties to the Agreement or any company owned by, or affiliated with, either party.  The arbitrators and the umpire shall be disinterested.

 

Section 11.04   Location of Arbitration.  The arbitration hearings shall be held in Chicago, Illinois or at another location which is mutually agreed upon.  The arbitration panel shall apply, and shall make its decision based upon, the written terms and conditions of this Agreement.  Custom and usage of the insurance and reinsurance business shall be applied only if the issue cannot be resolved by reference to the written terms and conditions hereof.  The arbitration panel shall be solely responsible for determining what shall be considered and what procedure they deem appropriate and necessary in the gathering of such facts or data to decide the dispute.

 

Section 11.05   Final and Binding.  Decisions in writing of the majority of the arbitration panel shall be final and binding upon the parties.  Judgment may be entered upon the final decision of the arbitration panel in any court having jurisdiction.

 

7

 

 

Section 11.06   Expenses.  Each party shall bear the expenses of its own arbitrator and shall jointly and equally bear the expenses of the umpire and of the arbitration.

 

Article XII.

 

DAC Tax Election

 

Section 12.01   Taxation.  The Ceding Company and the Reinsurer each acknowledge that it is subject to taxation under Subchapter “L” of the Internal Revenue Code of 1986 (as amended).

 

Section 12.02   Agreement.  With respect to this Agreement, the Ceding Company and the Reinsurer agree to the following pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations issued December 1992 whereby:

 

	
(a)
    	
Each party agrees to   attach a schedule to its federal income tax return which identifies this   Agreement for which the joint election under the regulation has been made;
    
	
 
    	
 
    
	
(b)
    	
The party with net   positive consideration (as defined in the regulation promulgated under   Section 848 of the Internal Revenue Code of 1986, as amended) for this   Agreement for each taxable year agrees to capitalize specified policy   acquisition expenses with respect to this Agreement without regard to the   general deductions limitation of Section 848(c)(1);
    
	
 
    	
 
    
	
(c)
    	
Each party agrees to   exchange information pertaining to the amount of net consideration under this   Agreement each year to ensure consistency; and
    
	
 
    	
 
    
	
(d)
    	
This election shall be   effective for the year that this Agreement was entered into and for all   subsequent years that this Agreement remains in effect.
    

 

Article XIII.

 

General Provisions

 

Section 13.01   Entire Agreement.  This Agreement supersedes any and all prior discussions and understandings between the parties and, upon its execution, constitutes the sole and entire Agreement with respect to the reinsurance provided hereunder.  There are no understandings between the parties other than as expressed in this Agreement.  Any waiver shall constitute a waiver only in the circumstances for which it was given and shall not be a waiver of any future circumstance.

 

Section 13.02   Inspection of Records.  Either party, their respective employees or authorized representatives shall have the right to inspect accounts, books and records in relation to the assets and liabilities of the Covered Policies (upon reasonable notice) and the Ceding Company and the Reinsurer shall instruct their employees and/or agents and/or sub-contractors

 

8

 

to give all information and explanations reasonably requested to the requesting party or its duly authorized representatives in relation to the above matter.

 

Section 13.03   Severability.  If any term or provision under this Agreement shall be held or made invalid, illegal or unenforceable by a court decision, statute, rule or otherwise, such term or provision shall be amended to the extent necessary to conform with the law and all of the other terms and provisions of this Agreement shall remain in full force and effect.

 

Section 13.04   Parties to Agreement.  This Agreement is solely between the Ceding Company and the Reinsurer.  Except as otherwise provided herein, nothing in this Agreement will confer any rights upon any third party, including, without limitation, any insured, policy owner, agent, beneficiary or assignee.

 

Section 13.05   Offsets; Recoupment.  Any undisputed payment obligations, debts or credits, in favor of or against either the Reinsurer or Ceding Company under or with respect to this Agreement, whether matured, unmatured, liquidated or unliquidated, are deemed mutual debts or credits and shall automatically, without any further action required of either party, be offset or recouped, and only the balance shall be allowed or paid.  The function of this Section 14.05, including the automatic nature of offset and recoupment, will not be affected or diminished because of the insolvency of either party.

 

Section 13.06   Currency.  All payments (including, but not limited to, all premiums and benefits payable) under this Agreement shall be payable in the lawful money of the United States of America.

 

Section 13.07   Governing Law.  This Agreement shall be governed as to performance, administration and interpretation by the laws of the State of Nebraska exclusive of the rules with respect to conflicts of law.  Each party agrees to (i) submit itself to a court of competent jurisdiction in the State of Nebraska, (ii) comply with all requirements necessary to give such court jurisdiction, (iii) designate the Nebraska Director of Insurance or designated attorney in Nebraska, as its agent for service of the process in Nebraska in any action, suit, or proceeding instituted for any matter arising out of this Agreement, and (iv) shall abide by the final decision of such court.

 

Section 13.08   Errors and Omissions.  Unintentional clerical errors, omissions or misunderstandings in the administration of this Agreement by either the Ceding Company or the Reinsurer shall not invalidate the reinsurance hereunder provided the error, omission or misunderstanding is corrected promptly after discovery.  Both parties shall be restored, to the extent possible, to the position they would have occupied had the error, omission or misunderstanding not occurred, but the liability of the Reinsurer under this Agreement shall in no event exceed the limits specified herein.

 

Section 13.09   Schedules, Exhibits and Section Headings.  Schedules and Exhibits attached hereto are made a part of this Agreement.  Section headings are provided for reference purposes only and are not made a part of this Agreement.

 

9

 

Section 13.10   Amendments.  This Agreement, and any Exhibits and Schedules or amendments attached hereto, shall not be amended or modified except by written agreement, signed by duly authorized officers of both parties.

 

Section 13.11   Counterparts.  This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

 

 

[Signature Pages Follow]

 

10

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers, thereunto duly authorized, all as of the day and year first written above.

 

 

 

	
LINCOLN   BENEFIT LIFE COMPANY
    	
LINCOLN BENEFIT   REINSURANCE COMPANY
    
	
 
    	
 
    
	
By:
    	
/s/ Samuel H. Pilch
    	
 
    	
By:
    	
/s/ Samuel H. Pilch
    
	
 
    	
Name: Samuel H. Pilch

Title: Senior Group   Vice President and Controller
    	
 
    	
 
    	
Name: Samuel H. Pilch

Title: Senior Group   Vice President and Controller
    

 

11

 

Exhibit A

 

Form of Quarterly Report

 

See attached.

 

Exhibit A

 

 

Lincoln Benefit Life Company

Reinsurance Agreement dated September 30, 2012

Quarterly Report

For the Quarter Ending XX/XX/XXXX

 

	
Settlement Amount
    	
 
    	
 
    
	
 
    	
i
    	
Coinsurance   Premiums
    	
 
    	
 
    
	
 
    	
 
    	
Gross Premiums
    	
x
    	
 
    
	
 
    	
 
    	
Existing Reinsurance Premiums
    	
(x)
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Net Coinsurance Premium
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
ii
    	
Covered   Liabilities
    	
 
    	
 
    
	
 
    	
 
    	
Benefits Paid (death)
    	
x
    	
 
    
	
 
    	
 
    	
Benefits Paid (surrender, net of surrender charges)
    	
x
    	
 
    
	
 
    	
 
    	
Recoverables under Existing Reinsurance
    	
(x)
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Total Covered Liabilities
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
iii
    	
Expense   Allowance
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Settlement Amount (i-ii-iii)
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
LBL payable to LB Re
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
LB Re payable to LBL
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other Select Financial Information
    	
 
    	
 
    
	
 
    	
as of XX/XX/XXXX
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Aggregate Death Benefits in Force
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Statutory Reserves
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Pending Claims - In Course of Settlement
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Pending Claims - Incurred But Not Reported
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Third Party Reserve Credits
    	
 
    	
x
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Third Party Reinsurance Recoverable
    	
 
    	
x
    

 

 

Schedule I

 

Covered Policies

 

All business in force as of the Effective Date issued by the Ceding Company for the following flexible premium universal life plans:

 

	
Plan
   Code
    	
Plan
    	
Description
    	
Search
   Key
    	
Base Policy
   Form
    
	
1U24
    	
Golden Achiever
    	
Fixed UL
    	
831U24
    	
UL 9420
    

 

Schedule I

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