Document:

Exhibit 10.1

 

FEDERAL HOME LOAN BANK OF CHICAGO

ADVANCES, COLLATERAL PLEDGE, AND SECURITY AGREEMENT

[Insurance Companies]

[Nonstandard-RLI Insurance Company / Mt. Hawley Insurance Company]

 

THIS AGREEMENT, dated as of September 22, 2014 between the FEDERAL HOME LOAN BANK OF CHICAGO, with its principal office located at 200 East Randolph Drive, Chicago, Illinois 60601 (“Bank”) and [RLI Insurance Company / Mt. Hawley Insurance Company], an insurance company (“Member”) organized under the laws of Illinois and having its chief executive office at 9025 N. Lindbergh Drive, Peoria, IL, 61615.

 

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

 

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

 

NOW THEREFORE, the Member and Bank agree as follows:

 

ARTICLE I

DEFINITIONS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(g) [Reserved].

 

Form No. 300-010 (4-09-12)

 

 

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

 

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

 

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

 

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

 

(l) [Reserved].

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(u) “Law” means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, adjudication, opinion, release, ruling, order, injunction, writ, decree or award of any Official Body.

 

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(v) “Mortgage Loans” means fully-disbursed whole loans evidenced by Mortgage Notes which are secured by Mortgages that constitute a first lien on one-to-four unit dwellings or Multi-Family Properties, and any endorsements or assignments thereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(ff) “RBC Plan” means each comprehensive financial plan, including all amendments and modifications thereto, filed by the Member with the state insurance department having regulatory authority over the Member at such time as the Member’s RBC Level is at the Company Action Level, as such term is currently defined under the policies and procedures of the NAIC, or RBC Level of similar import, which RBC Plan, without limitation, explains the facts contributing to the Member’s condition and identifies corrective action to be taken by the Member.

 

(gg) “RBC Report” means the report filed each year by the Member with the state insurance department having

 

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regulatory authority over the Member, such report to set forth a detailed calculation of the Member’s RBC Level as of the end of the immediately preceding calendar year, or in the event no such report is filed, then the report filed each year with the NAIC by the Member.

 

(hh) “Reinsurance Contract” has the meaning specified in Section 5.01(t).

 

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

 

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

 

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

 

(ll) Reserved.

 

(mm) Reserved.

 

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

 

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

 

ARTICLE II

ADVANCES AGREEMENT

 

Section 2.01 ADVANCE DOCUMENTATION.

 

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

 

(b)  The Member shall be estopped from asserting any claim or defense with respect to the terms applicable to an Advance or a Commitment for an Advance unless, within two (2) business days of receipt of the Bank’s Confirmation of Advance, the Member delivers to the Bank a written notice specifying the disputed term(s) or condition(s) of the Advance or Commitment for an Advance.  Upon the request of the Bank, the Member shall sign and deliver to the Bank a promissory note or notes in such form as the Bank may reasonably require evidencing any Advance.

 

Section 2.02 REPAYMENT OF ADVANCES.

 

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

 

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Confirmation of Advance and any other documents evidencing such Advance and shall be charged for each day that an Advance is outstanding at the rate applicable to each such Advance.

 

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

 

(c) The Member shall pay to the Bank, immediately and without demand, interest on any past due amount owing on any outstanding Advance (other than an Advance made pursuant to Section 2.02(b)) or other Indebtedness at the interest rate set forth in the Credit Policy.

 

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

 

Section 2.03 ADVANCES RELATED TO THIRD PARTY COMMITMENTS.

 

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

 

(2) If the Bank reasonably and in good faith, determines that a material adverse change of the Member’s financial condition has occurred or the Bank believes, reasonably and in good faith, that the prospect of payment or performance of any material obligations or any material performance under this Agreement is materially impaired, the Bank may at its option, and upon reasonable prior written notice to the Member,

 

make an Advance by crediting a special account of the Member with the Bank in an amount equal to the aggregate amount of any and all Outstanding Commitments that the Bank has issued on the Member’s behalf to or for the benefit of parties other than the Member.  The Bank shall have a first priority security interest in any such special account, and amounts credited to such special account may not be withdrawn by the Member for so long as there shall be Outstanding Commitments.  Amounts credited to such special account shall be utilized by the Bank for the purpose of satisfying the Bank’s obligations under such third party Commitments.  When all such obligations have expired or have been satisfied, the Bank shall disburse the balance, if any, in such special account first to the satisfaction of any amounts then due and owing by the Member to the Bank and then to the Member or its successors in interest.  Advances made pursuant to this Section 2.03 shall be payable on demand and shall bear interest from the date made until paid at the rate in effect and being charged by the Bank from time to time on overdrafts on daily investment deposit accounts of its members.

 

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

 

Section 2.04 AMORTIZATION OF ADVANCES.

 

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

 

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

 

require amortization by means of monthly payments of principal on all or part of the Member’s Advances.  The Member agrees to begin making such monthly amortization payments upon receipt of written notice from the Bank, in such amounts

 

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

 

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

 

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

 

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

 

ARTICLE III

SECURITY AGREEMENT

 

Section 3.01 CREATION OF SECURITY INTEREST.

 

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

 

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

 

(A) Capital Stock;

(B) Deposit Accounts;

 

(ii) such First Mortgage Collateral, Other Real Estate Related Collateral, Securities and Additional Collateral that are delivered pursuant to Section 3.04 hereof; and

 

(iii) all payment intangibles related to, and all cash and non-cash proceeds of the foregoing.

 

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

 

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

 

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Section 3.02 COLLATERAL MAINTENANCE LEVEL REQUIREMENT.

 

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

 

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

 

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

 

Section 3.03 RESERVED.

 

Section 3.04 DELIVERY OF COLLATERAL.

 

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

 

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

 

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

 

Section 3.06 BANK’S RESPONSIBILITIES AS TO COLLATERAL.  The duty of the Bank as to the Collateral shall be solely to use reasonable care in the custody and preservation of the Collateral in its possession, which shall not include (i) any steps necessary to preserve rights against parties with a prior position or (ii) the duty to send notices, perform services, or take any action in connection with the collection or management of the Collateral.  The Bank shall not have any

 

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responsibility or liability for the form, sufficiency, correctness, genuineness, or legal effect of any instrument or document constituting a part of the Collateral, or any signature thereon or the description or misdescription, or value of property represented, or purported to be represented, by any such document or instrument.  The Member agrees that any and all Collateral may be removed by the Bank from the state or location where situated, and may be subsequently dealt with by the Bank as provided in this Agreement.

 

Section 3.07 BANK’S RIGHTS AS TO COLLATERAL; POWER OF ATTORNEY.

 

(a) At any time, at the expense of the Member, the Bank may in its reasonable and good faith discretion, after the occurrence and during the continuation of an Event of Default, in its own name or in the name of its nominee or of the Member, take any and all reasonable and good faith actions that are pertinent to the protection of the Bank’s interest hereunder and, if such actions are subject to the laws of a state, are lawful under the laws of the State of Illinois including, but not limited to the following:

 

(1) Terminate any consent given hereunder;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 3.08 SUBORDINATION OF OTHER LOANS TO COLLATERAL.  The Member hereby agrees that all Mortgage Notes which are part of the Collateral (other than home equity loans and lines of credit) (“pledged notes”) shall have priority in right and remedy over any other loans, advances, obligations or indebtedness, whenever made, and, however evidenced (“Subordinated Debt”), which are also secured by the Mortgages securing the pledged notes and/or by liens on the same properties encumbered by the Mortgages securing the pledged notes.  The pledged notes shall be satisfied out of the property (or proceeds thereof) encumbered by such Mortgages before recourse to such property may be obtained for the repayment of any Subordinated Debt.  To this end, the Member hereby subordinates (i) the Subordinated Debt to the pledged notes and (ii) the lien of any mortgages or security instruments that secure the Subordinated Debt to the lien of the Mortgages and security agreements that secure the pledged notes.  The Member further agrees to retain possession of all notes or other instruments evidencing any Subordinated Debt and not to pledge, assign, or transfer the same, or any interest therein, except insofar as such Subordinated Debt may be pledged to the Bank as part of the Collateral.

 

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

 

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Section 3.10 COLLATERAL AUDITS; REPORTS AND ACCESS.

 

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

 

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

 

(c) The Bank shall have no duty to make any independent examination of or calculation with respect to the information submitted in an audit or status report (or in any written schedule that may be submitted by the Member) and, without limiting the generality of the foregoing, the Bank makes no representation or warranty as to the validity, accuracy, or completeness of any information contained in any written records of the Bank concerning, or of any response to, such audit or status report.

 

Section 3.11 MEMBER’S REPRESENTATIONS AND WARRANTIES CONCERNING COLLATERAL.  The Member represents and warrants to the Bank, as of the date hereof and the date of each Advance hereunder, as follows:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(h) To the best of Member’s knowledge, no part of any real property or interest in real property that is securing

 

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Mortgages included in Qualifying Collateral contains or is subject to the effects of toxic or hazardous materials or other hazardous substances (including those defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq.; and in the regulations adopted and publications promulgated pursuant to said laws) the presence of which could subject the Bank or its successors and assigns to any liability under applicable state or Federal law or local ordinance either at any time that such property is pledged to the Bank or upon the enforcement by the Bank of its security interest therein. The Member hereby agrees to indemnify and hold the Bank harmless against all costs, claims, expenses, damages, and liabilities resulting in any way from the presence or effects of any such toxic or hazardous substances or materials in, on, or under any real property or interest in real property that is subject to or included in the Collateral.

 

(i)  Reserved.

 

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

 

ARTICLE IV

DEFAULT; REMEDIES

 

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

 

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

 

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

 

(c) In the Bank’s good faith and reasonable determination, evidence coming to the attention of the Bank that any material representation, statement, or warranty made or furnished in any manner to the Bank by or on behalf of the Member in connection with any Advance, any specification or description of Qualifying Collateral or any report or certification concerning the status, principal balance or Collateral Value of any item of Collateral was false in any material respect when made or furnished;

 

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

 

(e) The issuance of any material tax, levy, seizure, attachment, garnishment, levy of execution, or other process with respect to the Collateral;

 

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

 

(g) The Member or any Affiliate of the Member:

 

(1) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due;

 

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

 

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

 

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

 

(4) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger);

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(l) Any Official Body takes any action with respect to the Member or an Affiliate which (i) is in anticipation of a takeover or assumption of control of the Member or an Affiliate by any Official Body; (ii) is a takeover or assumption of control of the Member or Affiliate by any Official Body; or (iii) results in the supervision of the Member’s or an Affiliate’s operations pursuant to an order of any court or Official Body; provided, however, supervision of the Member’s or an Affiliate’s operations by an Official Body shall encompass significant orders covering a material portion of such Member’s or Affiliate’s operations and shall not include immaterial regulatory actions or memoranda of understanding, written agreements and orders that relate to compliance matters such as reporting and commercial or consumer lending issues;

 

(m)  Reserved.

 

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

 

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Section 4.02 REMEDIES.

 

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

 

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

 

(c) The Member waives any demand, advertisement, or notice of the time or place of intended disposition of any of the Collateral except to the extent required by applicable law.  Any such notification shall be deemed reasonably and properly given if given as provided by applicable law or in accordance with Section 5.05 hereof at least 10 days before any such disposition.  The Member agrees that the Bank may exercise its rights of setoff upon the occurrence of an Event of Default in the same manner as if the Advances and other Indebtedness were unsecured.

 

(d) Notwithstanding any other provision hereof, upon the occurrence of any Event of Default at any time when all or part of the obligations of the Member to the Bank hereunder shall be the subject of any guarantee by a third party for the Bank’s benefit and there shall be other outstanding obligations of the Member to the Bank that are not so guaranteed but that are secured by the Collateral, then any sums realized by the Bank from the Collateral, or from any other collateral pledged or furnished to the Bank by the Member under any other agreement, shall be applied first to the satisfaction of such other nonguaranteed obligations and then to the Member’s guaranteed obligations hereunder.

 

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

 

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

 

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

 

Section 4.05 APPLICATION OF PAYMENTS.  Upon the occurrence of any Event of Default, the Bank shall apply any payment by or recovery from the Member, or any sum realized from Collateral which shall be received by the Bank (a) to

 

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payment of all costs of collection and enforcement; (b) to payment of the Indebtedness in such manner as the Bank shall choose; and (c) to offset any amounts to be paid or advanced under Outstanding Commitments.  The Bank shall, unless otherwise required by applicable law, remit any surplus to the Member.

 

ARTICLE V

MISCELLANEOUS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(i)  The Member shall deliver to the Bank, simultaneously with the Member’s delivery thereof to the appropriate federal or state Official Body, a copy of each Form 10-K, 10-Q or other filing with the Securities and Exchange Commission, if any, with respect to Member and a copy of all financial statements, including without limitation all actuarial certifications required in accordance with applicable Law to be filed with any Official Body, such financial statements to be prepared in accordance with all of the requirements of applicable Law (without limitation, as to format, accounting methods and otherwise) and whether or not adopted by applicable Law the requirements of the NAIC (and in the event of any conflicting provisions, including a reconciliation of any difference between the requirements of applicable Law and the NAIC requirements) or, in the event that there are no such requirements of applicable Law, then to be prepared in accordance with statutory accounting principles and, if available, in accordance with generally accepted accounting principles;

 

(j)  If prepared by the Member, the Member shall provide to the Bank, as soon as available and in any event within forty-five (45) calendar days after the end of each fiscal quarter in each fiscal year, a detailed calculation of Member’s estimated Risk-Based Capital and consolidated and consolidating financial statements of the Member, consisting of a balance

 

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sheet as of the end of such fiscal quarter and related statements of income, stockholders’ equity and cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by the Chief Executive Officer, President or Chief Financial Officer of the Member as having been prepared in accordance with statutory accounting principles in a form required by applicable law and regulations of the applicable insurance regulatory authority, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year;

 

(k)  If prepared by the Member, the Member shall provide to the Bank, as soon as available in any event within ninety (90) days after the end of each fiscal year of the Member, consolidated and consolidating financial statements of the Member, which are provided to the applicable insurance regulatory authority, consisting of a balance sheet as of the end of such fiscal year, and related statements of income, stockholders’ equity and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified by independent certified public accountants reasonably satisfactory to the Bank. The certificate or report of accountants shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur) and shall not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of the Member under this Agreement or the related documents evidencing or in connection with the Indebtedness, together with a letter of such accountants substantially to the effect that based upon their ordinary and customary examination of the affairs of the Member, performed in connection with the preparation of such consolidated financial statements, and in accordance with generally accepted auditing standards, they are not aware of the existence of any condition or event which constitutes an Event of Default or event which with the giving of notice or the passing of time or both would constitute an Event of Default, or, if they are aware of such condition or event, stating the nature thereof;

 

(l)  Concurrently with the financial statements of the Member furnished to the Bank pursuant to Sections 5.01(i), (j) and (k) hereof, a certificate of the Member signed by the Chief Executive Officer, President or Chief Financial Officer of the Member, to the effect that, (i) the representations and warranties of the Member contained in this Agreement and the related documents evidencing or in connection with the Indebtedness are true in all material respects on and as of the date of such certificate with the same effect as though such representations and warranties had been made on and as of such date and the Member has performed and complied in all material respects with all covenants and conditions hereof, and (ii) no Event of Default or event which with the passing of time or the giving of notice or both would become an Event of Default exists and is continuing on the date of such certificate;

 

(m)  The Member shall automatically deliver to the Bank, without any request therefore by the Bank, a copy of each RBC Report of the Member and, if any, each RBC Plan of the Member upon preparation of the same by the Member;

 

(n)  The Member shall deliver to the Bank within five (5) days of the occurrence thereof, a copy of any amendment to the Member’s by-laws, articles or certificate of incorporation or other charter documents;

 

(o)  The Member shall deliver to the Bank as soon as reasonably practicable such other information as the Bank’s Credit Policy may from time to time require the Member to deliver to the Bank or as the Bank may otherwise from time to time reasonably request;

 

(p)  The Member shall provide written notice to the Bank upon the occurrence of an Event of Default;

 

(q)  Upon request from the Bank, the Member shall deliver to the Bank, in form and substance satisfactory to the Bank, an opinion of legal counsel of the Member, such legal counsel to be satisfactory to the Bank and such opinion to be as to those matters which the Bank may request, in its sole discretion, including without limitation: (i) confirming the power and authority of the Member to enter into this Agreement and the other related loan documents with respect to the Indebtedness and to consummate the transactions contemplated hereby and thereby; (ii) confirming the due authorization of this Agreement and the other documents in connection with the Indebtedness to consummate the transactions contemplated thereby; (iii) confirming there is no material litigation pending against the Member or describing same that materially adversely affect the Member’s ability to perform its obligations under this Agreement (or describing same); (iv) confirming that there are no regulatory orders which have been issued by any Official Body that would prohibit the Member from entering into this Agreement and the other related loan documents in respect of the Indebtedness and consummating the transitions contemplated hereby and thereby; and (v) confirming the valid and enforceable first priority security interest of the Bank in the Collateral;

 

(r)  The Member shall at all times comply with all applicable Law, including, without limitation, all Laws relating to: (i) the purchase or holding by the Member of those investments permitted by Law; (ii) transactions with affiliates; (iii) payment of dividends; and (iv) contributions to the Member’s surplus except, in each case, where the failure to comply could not reasonably be expected to have a material adverse impact on the Collateral and/or the Bank’s rights under this Agreement;

 

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(s)  The Member shall notify the Bank of any change in law generally applicable to insurance companies the result of which may have a material adverse impact upon the Member; and

 

(t)  Reserved.

 

(u) The Member shall not amend its by-laws, articles or certificate of incorporation or other charter documents in such a way that materially adversely impacts the Bank.

 

Section 5.02  CHANGES TO CREDIT POLICY.  The Bank reserves the right to amend, supplement, restate or otherwise modify the Credit Policy, including but not limited to, changes in underwriting criteria, collateral eligibility, reporting requirements, and collateral margins (each, a “Policy Modification”) at any time, in its sole discretion, without the consent of the Member, and the Member (i) acknowledges and agrees that each such Policy Modification shall apply to all Advances and other Indebtedness (whether outstanding on the date of such Policy Modification or incurred after the date thereof) and (ii) agrees to be bound by each and every Policy Modification occurring on, prior to, or after the date of this Agreement.  Each Policy Modification shall become effective immediately upon adoption by the Bank; provided, however, no Event of Default shall occur as a result of any Policy Modification until 45 days after the effective date of such Policy Modification.  The Bank shall provide notice of any Policy Modification in writing, which may include by electronic mail, to the Member no later than 30 days after the effective date of such Policy Modification; provided, however, such notice shall be deemed effective when given by the Bank.  Notwithstanding the provisions of this Section, the Bank shall not amend, supplement, restate or otherwise modify the terms and conditions of any Advance specified in an Application or Confirmation of Advance without the consent of the Member.

 

Section 5.03 ASSIGNMENT.  The Member hereby gives the Bank the full right, power, and authority to assign or transfer all or any part of the Bank’s right, title, and interest in and to this Agreement, and to pledge, assign, or negotiate to any other Federal Home Loan Bank or to any other person or entity, with or without recourse, all or any part of the Indebtedness or participations therein; provided however, if the Bank assigns or transfers its interest in this Agreement or any Indebtedness to a third party other than another Federal Home Loan Bank or Federal Reserve Bank, the Bank will obtain the prior written consent of the Member.  In connection therewith, the Bank may assign and deliver the whole or any part of the Collateral to the transferee, which shall succeed to all the powers and rights of the Bank in respect thereof, and the Bank shall thereafter be forever relieved and fully discharged from any liability or responsibility with respect to the Collateral so assigned or pledged, and all references herein to the Bank shall be read to refer to the pledgee or assignee.  The Member may not assign or transfer any of its rights or obligations hereunder without the express prior written consent of the Bank, which shall not be unreasonably withheld or delayed.

 

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

 

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

 

15

 

may be collected by the Bank, at its option, by debiting the Member’s DID Account with the Bank.

 

Section 5.06 NOTICES.  Any notice, advice, request, consent, or direction given, made, or withdrawn pursuant to this Agreement shall be given in writing or by an electronic transmission in such form and provided in accordance with such security procedures or similar protocols as may be established by the Bank, and shall be deemed to have been duly given to and received by a party hereto when it shall have been mailed by first class mail or hand delivered to such party at its address given above by, or if given by hand or by electronic transmission, when actually received by such party at its chief executive office, or as otherwise designated.

 

Section 5.07 SIGNATURES OF MEMBER.  For purposes of this Agreement, documents and electronic records shall be deemed signed by the Member when a signature or an electronic signature of the Member or an authorized signatory or an authorized facsimile thereof appears on or is associated with the document or electronic record.  The Bank may rely on any signature or facsimile thereof which reasonably appears to the Bank to be the signature of an authorized person, including signatures appearing on documents transmitted electronically to and reproduced mechanically at the Bank.  The secretary or an assistant secretary of the Member shall from time to time furnish to the Bank, on forms provided by the Bank, a certified copy of the resolution of the Board of Directors of the Member authorizing persons to apply on behalf of the Member to the Bank for Advances and Commitments and otherwise act for and on behalf of the Member in accordance with this Agreement together with specimen signatures or specimen electronic signatures of such persons.  Such certifications are incorporated herein and made a part of this Agreement and shall continue in effect until expressly revoked in writing by the Member notwithstanding that subsequent certifications may authorize additional persons to act for and on behalf of the Member.

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

MEMBER

 

	
 
    	
 
    	
 
    
	
[RLI   Insurance Company / Mt. Hawley Insurance Company]
    	
 
    	
 
    
	
(Typed   Name of Member)
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Thomas L. Brown
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Name:
    	
Thomas   L. Brown
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title:
    	
VP/Chief   Financial Officer/Treasurer
    	
 
    	
Member   Number:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
FEDERAL   HOME LOAN BANK OF CHICAGO
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Roger D. Lundstrom
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title:
    	
EVP   — CFO
    	
 
    	
 
    

 

17Exhibit 4.1

 

THE PRICELINE GROUP INC.

OFFICERS’ CERTIFICATE PURSUANT TO

SECTIONS 2.02 AND 10.04 OF THE INDENTURE

 

September 23, 2014

 

Daniel J. Finnegan and Peter J. Millones do hereby certify that they are the Chief Financial Officer, and the Executive Vice President, General Counsel and Secretary, respectively, of The Priceline Group Inc., a Delaware corporation (the “Company”), and do further certify, pursuant to resolutions of the Board of Directors of the Company adopted on July 17, 2014 and the pricing committee of the Company on September 15, 2014 (together, the “Resolutions”), and in accordance with Sections 2.02 and 10.04 of the Indenture (the “Indenture”) dated as of September 23, 2014 between the Company and Deutsche Bank Trust Company Americas, as trustee (the “Trustee”), as follows:

 

1. Attached hereto as Annex A is a true and correct copy of a specimen note (the “Form of Note”) representing the Company’s 2.375% Senior Notes Due 2014 (the “Notes”). The Notes are a separate Series of Securities under the Indenture.

 

The Company is initially issuing €1,000,000,000 in aggregate principal amount of the Notes. The Company may, without the consent of the holders, issue additional notes under the Indenture in the future with the same terms and with the same CUSIP number as the Notes in an unlimited aggregate principal amount; provided that if any such additional notes are not fungible with the Notes for U.S. federal income tax purposes, such additional notes will have a separate CUSIP number.

 

2. The Form of Note sets forth certain of the terms required to be set forth in this certificate pursuant to Section 2.02 of the Indenture, and said terms are incorporated herein by reference. The Notes were offered at an initial public offering price of 99.063% of the principal amount thereof.

 

3. Deutsche Bank Luxembourg S.A. shall be the authenticating agent, Registrar and transfer agent for the Notes.

 

4. Deutsche Bank Trust Company Americas shall be the Trustee under the Indenture and the Paying Agent for the Notes.

 

5. For purposes of determining compliance with the payment provisions included in Sections 3.05 and 4.01 of the Indenture, the Company shall deposit money sufficient to pay prinicpal, interest, redemption prices and accrued interest prior to 11:00 a.m. (London time) on the day prior to such payment.

 

6. In addition to the covenants set forth in Article IV of the Indenture, the Notes shall include the following additional covenants, and such additional covenants and the additional Event of Default referred to in Section 7 below shall be subject to covenant defeasance pursuant to Section 8.04 of the Indenture:

 

“Section 4.06 Limitation on Liens.

 

The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, incur or permit to exist any Lien securing Indebtedness (the “Initial Lien”) on any of its properties or assets whether owned at the Issue Date or thereafter acquired, other than Permitted Liens, without effectively providing that the notes (together with, at the option of the Company, any other Indebtedness or guarantees of the Company or any of its Subsidiaries ranking equally in right of payment with the notes or such guarantee) are secured equally and ratably with (or prior to) the obligations so secured for so long as such obligations are so secured.

 

Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may create, assume, incur or guarantee Indebtedness secured by a Lien without equally and ratably securing the notes; provided that at the time of such creation, assumption, incurrence or guarantee, after giving effect thereto and to the retirement of any Indebtedness that is being retired substantially concurrently with any such creation, assumption, incurrence or guarantee, the sum of (a) the aggregate amount of all outstanding Indebtedness of the Company and its Restricted Subsidiaries secured by Liens other than Permitted Liens and (b) the Attributable Debt associated with all Sale/Leaseback Transactions of the Company and its Restricted Subsidiaries permitted by the last paragraph under Section 4.07 of this Indenture, does not at such time exceed the greater of (i) 20% of the Consolidated Net Tangible Assets of the Company measured at the date of incurrence of the Lien and (ii) $1.4 billion.

 

Any such Lien thereby created in favor of the notes will be automatically and unconditionally released and discharged upon (i) the release and discharge of each Initial Lien to which it relates, or (ii) any sale, exchange or transfer to any Person not an affiliate of the Company of the property or assets secured by such Initial Lien.

 

 

Section 4.07 Limitation on Sale and Leaseback Transactions.

 

The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless:

 

(a) the Company or such Restricted Subsidiary would be entitled to create a Lien on such property securing the Attributable Debt associated with such Sale/Leaseback Transaction without equally and ratably securing the notes pursuant to Section 4.06;

 

(b) the net proceeds of the sale of the property to be leased are at least equal to such property’s fair market value, as determined by the Company’s board of directors, and the proceeds are applied within 365 days of the effective date of the Sale/Leaseback Transaction to the purchase, construction, development or acquisition of assets or to the repayment of any Indebtedness of the Company that ranks equally with the notes or any Indebtedness of one or more Restricted Subsidiaries; provided that the amount required to be applied to the repayment of any such Indebtedness pursuant to this clause (b) shall be reduced by the principal amount of any notes delivered within 365 days after such sale to the Trustee for retirement and cancellation;

 

(c) such transaction was entered into prior to the date of the initial issuance of the notes under the Indenture;

 

(d) such transaction involves a lease for not more than three years (or which may be terminated by the Company or a Restricted Subsidiary within a period of not more than three years);

 

(e) such transaction was for the sale and lease between only the Company and a Subsidiary of the Company or only between Subsidiaries of the Company; or

 

(f) such transaction involves a sale and lease of property executed by the time of, or within 18 months after the latest of, the acquisition, the completion of construction or improvement, or the commencement of commercial operation of the property.

 

Notwithstanding the restrictions outlined in the preceding paragraphs, the Company and its Restricted Subsidiaries will be permitted to enter into Sale/Leaseback Transactions, without complying with the requirements of the preceding paragraph, if, after giving effect thereto, the aggregate amount of all Attributable Debt associated with Sale/Leaseback Transactions not otherwise permitted by the preceding paragraph that is outstanding at such time, together with the aggregate amount of all outstanding Indebtedness secured by Liens permitted under the second paragraph of Section 4.06, does not exceed the greater of (i) 20% of the Consolidated Net Tangible Assets of the Company measured at the date of incurrence of the lien and (ii) $1.4 billion.

 

7. In addition to the Events of Default set forth in Section 6.01 of the Indenture, the Notes shall include the following additional Event of Default, which shall be deemed an Event of Default under Section 6.01(7) of the Indenture:

 

“default by the Company or any majority owned subsidiary in the payment of the principal or interest on any mortgage, agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced any debt for money borrowed in excess of $50 million in the aggregate of the Company and/or any subsidiary, whether such debt now exists or shall hereafter be created, which default results in such debt becoming or being declared due and payable, and such acceleration shall not have been rescinded or annulled within 30 days after written notice of such acceleration has been received by the Company or such subsidiary.”

 

8.  For purposes of determining compliance with the conditions to Legal or Covenant Defeasance of the Notes, euros shall be considered “cash” for purposes of Section 8.04(1) of the Indenture.

 

9.  Section 8.04(4) of the Indenture shall be amended to include the following condition to Legal or Covenant Defeasance of the Notes:

 

 

“(c) at any time period ending on the 123rd day after the date of such deposit (other than a default or event of default with respect to the notes resulting from the borrowing of funds to be applied to such deposit);”

 

10.  For purposes of determining compliance with the conditions to Legal or Covenant Defeasance of the Notes, Section 8.04(6) of the Indenture shall be amended and restated to replace the reference to the “91st day” with the “123rd day”.

 

11. In addition to the definitions set forth in Article I of the Indenture, the Notes shall include the following additional definitions, which, in the event of a conflict with the definition of terms in the Indenture, shall control:

 

“Attributable Debt” in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the implicit interest factor determined in accordance with GAAP) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended), other than amounts required to be paid on account of property taxes, maintenance, repairs, insurance, water rates and other items which do not constitute payments for property rights.

 

“Capital Stock” of any Person means any and all shares, interests (including partnership interests), rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any preferred stock, but excluding any debt securities convertible into such equity.

 

“Consolidated Net Tangible Assets” means, as of the time of determination, the aggregate amount of the assets of the Company and the assets of its Subsidiaries, determined on a consolidated basis, after deducting (1) all goodwill, trade names, trademarks, service marks, patents, unamortized debt discount and expense and other intangible assets and (2) all current liabilities, in each case as reflected on the most recent consolidated balance sheet prepared by the Company in accordance with GAAP contained in an annual report on Form 10-K or a quarterly report on Form 10-Q filed or any amendment thereto pursuant to the Exchange Act by the Company prior to the time as of which “Consolidated Net Tangible Assets” is being determined or, if the Company is not required to so file, as reflected on its most recent consolidated balance sheet prepared by the Company in accordance with GAAP.

 

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in:

 

(a) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants;

 

(b) statements and pronouncements of the Financial Accounting Standards Board;

 

(c) such other statements by such other entity as approved by a significant segment of the accounting profession; and

 

(d) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC.

 

“Hedging Obligations” means:

 

(a) interest rate swap agreements and other agreements designed to hedge or reduce the risk of interest rate fluctuations; and

 

(b) agreements or arrangements designed to hedge or reduce the risk of fluctuations in currency exchange rates or commodity prices.

 

“Indebtedness” means, with respect to any Person on any date of determination: the principal in respect of (A) indebtedness of such Person for money borrowed, including, without limitation, indebtedness for money borrowed evidenced by notes, debentures, bonds or other similar instruments and (B) all guarantees in respect of such indebtedness of another Person (it

 

 

being understood, however, that indebtedness for money borrowed shall in no event include any amounts payable or other liabilities to trade creditors (including undrawn letters of credit) arising in the ordinary course of business). For the avoidance of doubt, Hedging Obligations are not Indebtedness.

 

“Issue Date” means the date on which the notes are originally issued.

 

“Lien” any mortgage or deed of trust, charge, pledge, lien, privilege, security interest, assignment, easement, hypothecation, claim, preference, priority or other similar encumbrance upon or with respect to any property of any kind (including any conditional sale, capital lease or other title retention agreement); provided, however, that in no event shall an operating lease be deemed to constitute a Lien.

 

“Permitted Liens” means, with respect to any Person:

 

(a) Liens securing Indebtedness incurred to finance the construction, purchase or lease of, or repairs, improvements or additions to, property, plant or equipment of such Person; provided, however, that the Lien may not extend to any other property owned by such Person or any of its Subsidiaries at the time the Lien is incurred (other than assets and property affixed or appurtenant thereto), and the Indebtedness (other than any interest thereon) secured by the Lien may not be incurred more than 18 months after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to the Lien;

 

(b) Liens existing on the Issue Date;

 

(c) Liens on assets (including shares of Capital Stock) of another Person at the time such other Person becomes a Subsidiary of such Person (other than a Lien incurred in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of transactions pursuant to which such Person becomes such a Subsidiary); provided, however, that the Liens may not extend to any other categories of assets owned by such Person or any of its Subsidiaries (other than assets and property affixed or appurtenant thereto);

 

(d) Liens on assets at the time such Person or any of its Subsidiaries acquires the assets, including any acquisition by means of a merger or consolidation with or into such Person or a Subsidiary of such Person (other than a Lien incurred in connection with, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of transactions pursuant to which such Person or any of its Subsidiaries acquired such assets; provided, however, that the Liens may not extend to any other categories of assets owned by such Person or any of its Subsidiaries (other than assets and property affixed or appurtenant thereto);

 

(e) Liens securing Indebtedness or other obligations of a Restricted Subsidiary of such Person owing to such Person or to another Restricted Subsidiary of such Person;

 

(f) Liens on securities deemed to exist under repurchase agreements and reverse repurchase agreements entered into by the Company or any Restricted Subsidiary in the ordinary course of business;

 

(g) Liens Incurred to secure cash management services in the ordinary course of business or on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto;

 

(h) Liens created to secure the notes and Liens in favor of the Trustee granted in accordance with the Indenture;

 

(i) Liens to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, including Liens or trade letters of credit in favor of any governmental entity, including the United States or any state, territory or possession thereof (or the District of Columbia), or any department, agency, instrumentality or political subdivision of any such entity, to secure partial, progress, advance or other payments pursuant to any contract or statute;

 

(j) Liens on the Capital Stock of a Subsidiary that is not a Restricted Subsidiary;

 

 

(k) purported Liens evidenced by the filing of precautionary UCC financing statements; and

 

(l) any extensions, renewals or replacements of any Lien referred to in clauses (1) through (11) without increase of the principal of the Indebtedness secured by such Lien (except to the extent of any fees, premiums or other costs associated with any such extension, renewal or replacement); provided, however, that any Liens permitted by any of clauses (1) through (11) shall not extend to or cover any property of the Company or any of its Restricted Subsidiaries, as the case may be, other than the property specified in such clauses and improvements to such property.

 

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

 

“Sale/Leaseback Transaction” means an arrangement relating to property owned by the Company or a Restricted Subsidiary on the Issue Date or thereafter acquired by the Company or a Restricted Subsidiary whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Subsidiary leases it from such Person.

 

“Restricted Subsidiary” means any Subsidiary other than:

 

(a) any Subsidiary primarily engaged in financing receivables or in the finance business; or

 

(b) any Subsidiary that is not a “significant subsidiary” within the meaning of Rule 1-02 of Regulation S-X.

 

“Subsidiary” means, with respect to any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by:

 

(a) such Person;

 

(b) such Person and one or more Subsidiaries of such Person; or

 

(c) one or more Subsidiaries of such Person.

 

“Voting Stock” of a Person means all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.

 

12. Each of the undersigned is authorized to approve the form, terms and conditions of the Notes pursuant to the Resolutions.

 

13. Attached hereto as Annex B is a true and correct copy of each of the Resolutions, which are in full force and effect on the date hereof.

 

14. The Notes shall be issued as registered Global Securities (subject to exchange for definitive certificated Notes under the circumstances provided in the Indenture) and Euroclear Bank SA/NV and Clearstream Banking, societe anonyme shall be Depository for the Notes and Deutsche Bank AG, London Branch, shall be the common depositary for the Notes.

 

15. Attached hereto as Annex C is a true and correct copy of the letter addressed to the Trustee entitling the Trustee to rely on certain paragraphs of the Opinion of Counsel attached thereto, which Opinion relates to the Notes and is delivered in compliance with Section 10.04(b) of the Indenture.

 

16. Each of the undersigned has reviewed the provisions of the Indenture, including the covenants and conditions precedent pertaining to the authentication and issuance of the Notes.

 

17. In connection with this certificate each of the undersigned has examined documents, corporate records and certificates and has spoken with other officers of the Company.

 

18. I, Daniel J. Finnegan and I, Peter J. Millones, have made such examination and investigation as is necessary to enable me to express an informed opinion as to whether or not such covenants and conditions precedent of the Indenture pertaining to the authentication and issuance of the Notes have been satisfied.

 

 

19. In each of our respective opinions all of the covenants and conditions precedent provided for in the Indenture for the authentication and issuance of the Notes have been satisfied.

 

Terms used herein that are not otherwise defined but that are defined in the Indenture or the Notes shall have the meanings ascribed thereto in the Indenture or the Notes, as the case may be.

 

[Signature Page Follows]

 

 

IN WITNESS WHEREOF, each of the undersigned officers has executed this certificate as of the date first written above.

 

	
 
    	
THE   PRICELINE GROUP INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Daniel J. Finnegan
    
	
 
    	
Daniel   J. Finnegan
    
	
 
    	
Chief   Financial Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Peter J. Millones
    
	
 
    	
Peter   J. Millones
    
	
 
    	
Executive   Vice President, General Counsel and Secretary

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