Document:

Exhibit 10.5

 

Execution Version

 

	
 
    

 

SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF

OCI WYOMING, L.P.,

A DELAWARE LIMITED PARTNERSHIP

 

Dated as of July 18, 2013

 

By and between

 

OCI RESOURCES LP,

 

NRP TRONA LLC

 

AND

 

OCI WYOMING CO.

 

	
 
    

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
SECTION 1
    	
THE PARTNERSHIP
    	
1
    
	
 
    	
1.1
    	
Formation
    	
1
    
	
 
    	
1.2
    	
Name
    	
1
    
	
 
    	
1.3
    	
Purpose
    	
2
    
	
 
    	
1.4
    	
Principal   Place of Business, Assets and Operations; Registered Office
    	
3
    
	
 
    	
1.5
    	
Term
    	
3
    
	
 
    	
1.6
    	
Filings;   Agent for Service of Process
    	
3
    
	
 
    	
1.7
    	
Definitions
    	
4
    
	
 
    	
1.8
    	
Title   to Property
    	
11
    
	
 
    	
1.9
    	
Payments   of Individual Obligations
    	
12
    
	
SECTION 2
    	
PARTNER’S   CAPITAL CONTRIBUTIONS
    	
12
    
	
 
    	
2.1
    	
General   Partners
    	
12
    
	
 
    	
2.2
    	
Limited   Partner
    	
12
    
	
 
    	
2.3
    	
Additional   Capital Contributions
    	
13
    
	
 
    	
2.4
    	
Member’s   Liability
    	
13
    
	
SECTION 3
    	
ALLOCATIONS
    	
13
    
	
 
    	
3.1
    	
Profits   and Losses
    	
13
    
	
 
    	
3.2
    	
Special   Allocations
    	
13
    
	
 
    	
3.3
    	
Curative   Allocations
    	
15
    
	
 
    	
3.4
    	
Other   Allocation Rules
    	
15
    
	
 
    	
3.5
    	
Tax Allocations: Code Section 704(c)
    	
16
    
	
SECTION 4
    	
DISTRIBUTIONS
    	
17
    
	
 
    	
4.1
    	
Quarterly   Distributions
    	
17
    
	
 
    	
4.2
    	
Amounts   Withheld
    	
17
    
	
SECTION 5
    	
MANAGEMENT
    	
17
    
	
 
    	
5.1
    	
General   Authority of General Partners and Partnership Committee
    	
17
    
	
 
    	
5.2
    	
Partnership   Committee
    	
19
    
	
 
    	
5.3
    	
Officers
    	
22
    
	
 
    	
5.4
    	
Right   to Rely on Books of Account
    	
24
    
	
 
    	
5.5
    	
Indemnification   of Representatives and Officers
    	
24
    
	
 
    	
5.6
    	
Day-to-Day   Management: Staffing
    	
25
    

 

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TABLE OF CONTENTS

(continued)

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
5.7
    	
Loans
    	
27
    
	
 
    	
5.8
    	
Operating   Restrictions
    	
27
    
	
 
    	
5.9
    	
Vote   of Limited Partners
    	
29
    
	
 
    	
5.10
    	
Duties   of General Partners and Their Affiliates
    	
29
    
	
 
    	
5.11
    	
Reliance   on Agreement
    	
30
    
	
SECTION 6
    	
ROLE OF LIMITED PARTNERS
    	
30
    
	
 
    	
6.1
    	
Rights   or Powers
    	
30
    
	
 
    	
6.2
    	
Voting   and Other Rights
    	
30
    
	
SECTION 7
    	
REPRESENTATIONS AND WARRANTIES
    	
30
    
	
 
    	
7.1
    	
In   General
    	
30
    
	
 
    	
7.2
    	
Representations   and Warranties
    	
30
    
	
SECTION 8
    	
ACCOUNTING, BOOKS AND RECORDS
    	
32
    
	
 
    	
8.1
    	
Books
    	
32
    
	
 
    	
8.2
    	
Fiscal   Year
    	
32
    
	
 
    	
8.3
    	
Checks
    	
32
    
	
 
    	
8.4
    	
Periodic   Reports to Partners
    	
32
    
	
 
    	
8.5
    	
Tax   Matters Partner/Meetings Regarding Tax Matters
    	
33
    
	
SECTION 9
    	
AMENDMENTS; MEETINGS
    	
33
    
	
 
    	
9.1
    	
Amendments
    	
33
    
	
 
    	
9.2
    	
Meetings   of the Partners
    	
34
    
	
SECTION 10
    	
TRANSFERS OF INTERESTS
    	
35
    
	
 
    	
10.1
    	
Restriction   on Transfers
    	
35
    
	
 
    	
10.2
    	
Permitted   Transfers
    	
35
    
	
 
    	
10.3
    	
Conditions   to Permitted Transfers
    	
35
    
	
 
    	
10.4
    	
Right   of First Refusal
    	
36
    
	
 
    	
10.5
    	
Involuntary   Transfers
    	
37
    
	
 
    	
10.6
    	
Admission   of Transferees as Partners
    	
37
    
	
 
    	
10.7
    	
Rights   of Unadmitted Assignees
    	
37
    
	
 
    	
10.8
    	
Transfer   Procedures
    	
38
    
	
SECTION 11
    	
GENERAL PARTNERS
    	
38
    
	
 
    	
11.1
    	
Covenant   Not to Withdraw, Transfer, or Dissolve
    	
38
    

 

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TABLE OF CONTENTS

(continued)

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
11.2
    	
Conditions   to Permitted Transfers; Substitution
    	
39
    
	
 
    	
11.3
    	
Termination   of Status as General Partner
    	
39
    
	
SECTION 12
    	
DISSOLUTION AND WINDING UP
    	
40
    
	
 
    	
12.1
    	
Liquidating   Events
    	
40
    
	
 
    	
12.2
    	
Winding   Up
    	
41
    
	
 
    	
12.3
    	
Notice   of Dissolution
    	
42
    
	
SECTION 13
    	
MISCELLANEOUS
    	
42
    
	
 
    	
13.1
    	
Notices
    	
42
    
	
 
    	
13.2
    	
Headings
    	
42
    
	
 
    	
13.3
    	
Variation   of Pronouns
    	
42
    
	
 
    	
13.4
    	
Governing   Law
    	
42
    
	
 
    	
13.5
    	
Waiver   of Action for Partition; No Bill For Partnership Accounting
    	
43
    
	
 
    	
13.6
    	
Implementation
    	
43
    
	
 
    	
13.7
    	
Counterparts
    	
43
    
	
 
    	
13.8
    	
Execution;   Effective Date
    	
43
    
	
 
    	
13.9
    	
Initial   Public Offering of OCI Resources LP and Exchange Act Reporting
    	
43
    
	
 
    	
13.10
    	
No   Commingling of Funds or Accounts
    	
44
    
	
 
    	
13.11
    	
Incurrence   of Debt
    	
44
    

 

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SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
 OF
 OCI WYOMING, L.P.,
 A DELAWARE LIMITED PARTNERSHIP

 

This SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is entered into by and among OCI RESOURCES LP (“OCI”), a Delaware limited partnership, as a General Partner, OCI WYOMING CO. (“OCI Co.”), a Delaware corporation, as a Limited Partner, and NRP TRONA LLC (“NRP TRONA”), a Delaware limited liability company, as a General Partner and a Limited Partner, together with any other Persons who become Partners in the Partnership as provided herein.

 

WHEREAS, on January 23, 2013, NRP TRONA acquired a general partnership interest in the Partnership and an indirect interest in the Partnership by acquiring an interest in OCI Co.;

 

WHEREAS, on the date hereof, the General Partners and the Partnership Committee have entered into, and OCI Co. has acknowledged, that certain Consent and Agreement (the “Consent”) which, inter alia, sets forth NRP TRONA’s consent to the Restructuring Transactions (as defined therein);

 

WHEREAS, on the date hereof, some aspects of the Restructuring Transactions were effected including, without limitation, the Transfer of the general partnership interest in the Partnership held by OCI Wyoming Holding Co. to OCI, the recapitalization of the limited partnership interest in the Partnership held by OCI Co. to eliminate, among other things, its priority return and the redemption of NRP TRONA’s interest in OCI Co. in exchange for a limited partnership interest in the Partnership; and

 

WHEREAS, contemporaneously with the consummation of the IPO, the Transfer of OCI Co.’s limited partnership interest in the Partnership to OCI will be effected.

 

NOW, THEREFORE, the parties hereto desire to amend and restate the Partnership Agreement to reflect the foregoing.

 

SECTION 1
 THE PARTNERSHIP

 

1.1          Formation.  The partnership was formed on December 5, 1991.  The Partners hereby agree to continue the Partnership as a limited partnership pursuant to the provisions of the Act and upon the terms and conditions set forth in this Agreement.  This Agreement completely restates, amends and supersedes that certain Agreement of Limited Partnership of Rhone-Poulenc of Wyoming, L.P., dated as of December 5, 1991, as amended from time to time.

 

1.2          Name.  The name of the Partnership is OCI Wyoming, L.P., a Delaware limited partnership.

 

 

1.3          Purpose.  The object and purpose of the Partnership is to engage in the United States in the business of mining sodium salts from natural resources and particularly trona and processing the material mined to produce refined soda ash and other refined or processed sodium products, and subject to Section 5.8(c) hereof, producing other products of the material mined, including intermediate products, co-products, and by-products.  Solely toward the object and for the purpose described in the preceding sentence, the nature of the Partnership’s business and the objects and purposes to be transacted, promoted, or carried on by it, may include the following:

 

(a)           To manufacture, produce, buy, sell and deal in chemicals of every kind, organic and inorganic, natural or synthetic, in the form of raw materials, intermediates or finished products or by-products derived from the manufacture thereof, or products to be made therefrom;

 

(b)           To engage in research, exploration, laboratory and development work relating to any substance, compound or mixture, now known or which may hereafter be known, discovered or developed, and to perfect, develop, manufacture, use, apply and generally deal in any such substance, compound or mixture;

 

(c)           To acquire real and personal property of all kinds and to lease, develop, operate and deal in mines and mineral claims and mining properties of every kind;

 

(d)           To conduct research work, refining, processing and manufacturing of all kinds, and to purchase and sell real and personal property, goods, wares and merchandise produced from or used for such activities;

 

(e)           To erect, purchase, own, sell, lease, manage, occupy and improve land and buildings and to do and perform all things needful and lawful for the holding, development and improvement of the same for research, manufacturing, mining, trade and business purposes;

 

(f)            To purchase or otherwise acquire, lease, assign, mortgage, pledge or otherwise dispose of any trade names, trademarks, concessions, inventions, formulas, improvements, processes of any nature whatsoever, copyrights, and letters patent of the United States and of foreign countries, and to accept and grant licenses thereunder;

 

(g)           To subscribe or cause to be subscribed for, and to purchase or otherwise acquire, hold for investment, sell, assign, transfer, mortgage, pledge, exchange, distribute or otherwise dispose of the whole or any part of the shares of the capital stock, bonds, coupons, mortgages, deeds of trust, debentures, securities, obligations, notes and other evidences of indebtedness or other interest in or of any corporation, stock company, partnership or association, now or hereafter existing, and whether created by or under the laws of the State of Delaware, or otherwise; and while owner of any of said shares of capital stock or partnership interests or bonds or other property to exercise all the rights, powers and privileges of ownership of every kind and description, including the right to vote thereon, with power to designate some person for that purpose from time to time to the same extent as natural persons might or could do;

 

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(h)           To endorse, guarantee and secure the payment and satisfaction of the principal of and interest on or evidenced by bonds, coupons, mortgages, deeds of trust, debentures, obligations or evidences of indebtedness of other partnerships or corporations; to guarantee and secure the payment or satisfaction of the par or stated value of or dividends on shares of the capital stock of corporations; to assume the whole or any part of the liabilities, existing or prospective, of any person, corporation, firm, partnership, or association; and to aid in any manner any other person or corporation with which it has business dealings, or whose stocks, bonds or other obligations are held or are in any manner guaranteed by the Partnership, and to do any other acts and things for the preservation, protection, improvement, or enhancement of the value of such stocks, bonds, or other obligations;

 

(i)            Without in any way limiting any of the objects and powers of the Partnership, it is hereby expressly declared and provided that the Partnership shall have power to do all things hereinbefore enumerated, and also to issue or exchange Interests in the Partnership, bonds, and other obligations in payment for property purchased or acquired by it, or for any other object in or about its business; to borrow money without limit; to mortgage or pledge its franchises, real or personal property, income and profits accruing to it, any stocks, bonds or other obligations, or any property which may be owned or acquired by it, and to secure any bonds or other obligations by it issued or incurred; and

 

(j)            To carry on any business whatsoever which the Partnership may deem proper in connection with any of the foregoing purposes or otherwise, or which may be calculated, directly or indirectly, to promote the interests of the Partnership or to enhance the value of its property; to conduct its business in the State of Delaware, in other states, in the District of Columbia, and in the territories of the United States; and to hold, purchase, mortgage and convey real and personal property, either in or out of the State of Delaware, and to have and to exercise all the powers conferred upon the Partnership by the Act.

 

1.4          Principal Place of Business, Assets and Operations; Registered Office.  The principal place of business of the Partnership is Five Concourse Parkway, Suite 2500, Atlanta, Georgia 30328, Attention:  Chief Executive Officer, OCI Resource Partners LLC.  The Partnership’s principal assets are held, and its principal operations are conducted, at LaBarge Road, P.O. Box 513, Green River, Wyoming 82935.  The registered office of the Partnership in the state of Delaware is located at The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.

 

1.5          Term.  The term of the Partnership commenced on the date the certificate of limited partnership described in Section 17-201 of the Act (the “Certificate’’) was filed in the office of the Secretary of State of the State of Delaware in accordance with the Act and shall continue until the winding up and liquidation of the Partnership and its business is completed following a Liquidating Event, as provided in Section 12 hereof.

 

1.6          Filings; Agent for Service of Process.

 

(a)           The General Partners shall take any and all actions reasonably necessary to perfect and maintain the status of the Partnership as a limited partnership under the

 

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laws of Delaware.  The General Partners shall cause amendments to the Certificate to be filed whenever required by the Act.

 

(b)           The General Partners shall execute and cause to be filed original or amended Certificates and shall take any and all other actions as may be reasonably necessary to perfect and maintain the status of the Partnership as a limited partnership under the laws of any other states or jurisdictions in which the Partnership engages in business.

 

(c)           The registered agent for service of process on the Partnership is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801 or any successor as appointed by the Partnership Committee in accordance with the Act.

 

(d)           Upon the dissolution and completion of the winding up of the Partnership, the Liquidator shall promptly execute and cause to be filed certificates of cancellation in accordance with the Act and the laws of any other states or jurisdictions in which the Liquidator deems such filing necessary or advisable.

 

1.7          Definitions.  Capitalized words and phrases used in this Agreement have the following meanings:

 

(a)           “Act” means the Delaware Revised Uniform Limited Partnership Act, as set forth in Del. Code Ann. Tit. 6, §§ 17-101 to 17-1109, as amended from time to time (or any corresponding provisions of succeeding law).

 

(b)           “Adjusted Capital Account Deficit” means, with respect to any Interest Holder, the deficit balance, if any, in such Interest Holder’s Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments:

 

(i)            Credit to such Capital Account any amounts which such Interest Holder is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and

 

(ii)           Debit to such Capital Account the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).

 

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

(c)           “Affiliate” means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, or (ii) any Person owning or controlling 20% or more of the outstanding voting interests of such Person.  For purposes of this definition, the term “controls,” “is controlled by” or “is under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise.

 

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(d)           “Agreement” or “Partnership Agreement” means this Agreement of Limited Partnership, as amended from time to time.  Words such as “herein,” “hereinafter,” “hereof,” “hereto” and “hereunder,” refer to this Agreement as a whole, unless the context otherwise requires.

 

(e)           “Approval Amount” shall have the meaning set forth in Section 5.8(a)(iii) hereof.

 

(f)            “Available Cash” means with respect to any calendar quarter ending prior to the date the Partnership is liquidated, the sum of all cash and cash equivalents of the Partnership on hand at the end of such quarter and all or any portion of additional cash and cash equivalents of the Partnership on hand on the date of determination of Available Cash with respect to such quarter resulting from financing arrangements entered into solely for working capital purposes or to pay distributions to the Partners made subsequent to the end of such quarter, less the amount of any cash reserves established by the Partnership Committee to (i) provide for the proper conduct of the business of the Partnership (including reserves for future capital expenditures and for anticipated future credit needs of the Partnership) subsequent to such quarter, (ii) comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Partnership is a party or by which it is bound or its assets are subject or (iii) provide funds for distributions in subsequent periods, in each case, as determined by the Partnership Committee.  Notwithstanding the foregoing, “Available Cash” with respect to the quarter in which the Partnership is liquidated and any subsequent quarter shall equal zero.

 

(g)           “Bankruptcy” means, with respect to any Person, a “Voluntary Bankruptcy” or an “Involuntary Bankruptcy.”  A “Voluntary Bankruptcy” means, with respect to any Person, the inability of such Person generally to pay its debts as such debts become due, or an admission in writing by such Person of its inability to pay its debts generally or a general assignment by such Person for the benefit of creditors; the filing of any petition or answer by such Person seeking to adjudicate it a bankrupt or insolvent, or seeking for itself any liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of such Person or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking, consenting to, or acquiescing in the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property; or corporate action taken by such Person to authorize any of the actions set forth above.  An ‘‘Involuntary Bankruptcy” means, with respect to any Person, without the consent or acquiescence of such Person, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency or similar statute, law or regulation, or the filing of any such petition against such Person which petition shall not be dismissed within 90 days, or, without the consent or acquiescence of such Person, the entering of an order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the property of such Person which order shall not be dismissed within 60 days.

 

5

 

(h)           “Big Island Plant” means the real estate and improvements located in Sweetwater County, Green River, Wyoming, that are used in and associated with the business described in Section 1.3 hereof.

 

(i)            “Capital Account” means, with respect to any Partner or Interest Holder, the Capital Account maintained for such Person in accordance with the following provisions:

 

(i)            To each Person’s Capital Account there shall be credited such Person’s Capital Contributions, such Person’s distributive share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 3.2 or Section 3.3 hereof, and the amount of any Partnership liabilities assumed by such Person or which are secured by any Property distributed to such Person.

 

(ii)           To each Person’s Capital Account there shall be debited the amount of cash and the Gross Asset Value of any Property distributed to such Person pursuant to any provision of this Agreement, such Person’s distributive share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Section 3.2 or Section 3.3 hereof, and the amount of any liabilities of such Person assumed by the Partnership or which are secured by any property contributed by such Person to the Partnership.

 

(iii)          In the event all or a portion of an Interest in the Partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Interest.

 

(iv)          In determining the amount of any liability for purposes of Sections 1.7(i)(i) and l.7(i)(ii) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations.

 

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations.  In the event the Partnership Committee shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Partnership, the Partners, or Interest Holders), are computed in order to comply with such Regulations, the Partnership Committee may make such modification; provided that it is not likely to have a material effect on the amounts distributable to any Person pursuant to Section 12 hereof upon the dissolution of the Partnership.  The Partnership Committee also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and Interest Holders and the aggregate amount of Partnership capital reflected on the Partnership’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704- 1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).

 

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(j)            “Capital Contributions” means, with respect to any Partner or Interest Holder, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Partnership with respect to the Interest in the Partnership held by such Person.

 

(k)           “Certificate” has the meaning set forth in Section 1.5 hereof.

 

(l)            “Code” means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law).

 

(m)          “Depreciation” means, for each fiscal year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year or other period, except that (i) with respect to any depreciable or amortizable asset whose Gross Asset Value differs from its adjusted tax basis for federal income tax purposes and which difference is being eliminated by use of the “remedial allocation method” defined by Regulations Section 1.704-3(d), Depreciation for such Allocation Year shall be the amount of book basis recovered for such Allocation Year under the rules prescribed by Regulations Section 1.704-3(d)(2), and (ii) with respect to any other depreciable or amortizable asset whose Gross Asset Value differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner.  If the Gross Asset Value of a depreciable or amortizable asset is adjusted pursuant to Sections 1.7(o) (ii) or 1.7(o)(iv) of the definition of Gross Asset Value during an Allocation Year, following such adjustment Depreciation shall thereafter be calculated under clause (i) or (ii) immediately above, whichever the case may be, based upon such Gross Asset Value, as so adjusted.

 

(n)           “General Partner” means any Person who (i) is referred to as such in the first paragraph of this Agreement or has become a General Partner pursuant to the terms of this Agreement, and (ii) has not ceased to be a General Partner pursuant to the terms of this Agreement, in each case, in its capacity as a General Partner.

 

(o)           “Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

 

(i)            The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as determined by the Partnership Committee;

 

(ii)           The Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the Partnership Committee, as of the following times:  (a) the acquisition of an additional Interest in the

 

7

 

Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution or in exchange for the performance of more than a de minimis amount of services to or for the benefit of the Partnership; (b) the distribution by the Partnership to a Partner or Interest Holder of more than a de minimis amount of Property as consideration for an Interest in the Partnership; (c) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g)(1) (other than pursuant to Code Section 708(b)(1)(B)); or (iv) any other event to the extent determined in good faith by the Partnership Committee to be permitted and necessary to properly reflect Gross Asset Values in accordance with the standards set forth in Regulations Section 1.704-1(b)(2)(iv)(q); provided, however, that adjustments pursuant to clauses (a) and (b) above shall be made only if the Partnership Committee reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners and Interest Holders in the Partnership;

 

(iii)          The Gross Asset Value of any Partnership asset distributed to any Partner or Interest Holder shall be the gross fair market value of such asset on the date of distribution; and

 

(iv)          The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) (including any such adjustments pursuant to Regulations Section 1.734-2(b)(1)), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and Section 3.2(g) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this Section 1.7(o)(iv) to the extent the Partnership Committee determines that an adjustment pursuant to Section 1.7(o)(ii) hereof is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this Section 1.7(o)(iv).

 

If the Gross Asset Value of an asset has been determined or adjusted pursuant to Section 1.7(o)(i), 1.7(o)(ii), or 1.7(o)(iv) hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.

 

(p)           “Indemnified Person” means any Partner, any Affiliate of a Partner, or any director, officer, stockholder, employee, agent or representative of a Partner or such Affiliate, but shall not include any Representative or Officer.

 

(q)           “Interest” means an ownership interest in the Partnership representing some or all of a Capital Contribution by a Partner pursuant to Section 2 hereof, including any and all benefits to which the holder of such an Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.

 

(r)            “Interest Holder” means any Person who holds an Interest, regardless of whether such Person has been admitted to the Partnership as a Partner.  “Interest Holders” means all such Persons.

 

(s)            “IPO” shall have the meaning set forth in Section 13.9.

 

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(t)            “Limited Partner” means any Person (i) who is referred to as such in the first paragraph of this Agreement or who has become a Limited Partner pursuant to the terms of this Agreement, and (ii) who holds an Interest, in each case, in its capacity as a Limited Partner.  “Limited Partners” means all such Persons.

 

(u)           “Liquidator” shall have the meaning set forth in Section 12.2 hereof.

 

(v)           “Majority in Interest” shall be determined by reference to the Partners’ Percentage Interests and, when referring to all Partners, shall mean Partners whose combined Percentage Interests represent more than 50% of the Percentage Interests then held by Partners as opposed to Interest Holders that have not been admitted as Partners, and, when referring to Limited Partners only, shall mean Limited Partners whose combined Percentage Interests represent more than 50% of the Percentage Interests then held by Limited Partners (as opposed to General Partners or Interest Holders that have not been admitted as Limited Partners).

 

(w)          “Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(b)(1) and 1.704-2(c).

 

(x)           “Nonrecourse Liability” has the meaning set forth in Regulations Section 1.704-2(b)(3).

 

(y)           “Officer” means any person appointed as an officer of the Partnership pursuant to Section 5.3(a) of this Agreement.

 

(z)           “OCI Credit Facility” means the senior secured credit facility provided to OCI pursuant to the Credit Agreement, dated as of July 18, 2013 by and among OCI, the guarantors party thereto, the financial institutions party thereto as lenders, Bank of America, N.A., as administrative agent for the lenders, and Bank of America Merrill Lynch, as sole lead arranger and sole book manager, as the same may be amended, restated, replaced, refinanced or otherwise modified from time to time.

 

(aa)         “Partner Nonrecourse Debt Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(i)(2).

 

(bb)         “Partner Nonrecourse Debt” has the meaning set forth in Regulations Section 1.704-2(b)(4).

 

(cc)         “Partner Nonrecourse Deductions” has the meaning set forth in Regulations Section 1.704-2(i)(2).

 

(dd)         “Partners” means the General Partners and all Limited Partners, where no distinction is required by the context in which the term is used herein.  “Partner” means any one of the Partners.

 

(ee)         “Partnership” means the partnership continued pursuant to this Agreement and the reconstituted partnership continuing the business of this Partnership in the event of a dissolution as provided in Section 12 hereof.

 

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(ff)          “Partnership Credit Facility” has the meaning set forth in Section 5.07(a) hereof.

 

(gg)         “Partnership Committee” shall mean that committee of Partners’ Representatives formed and continued pursuant to Section 5.2 hereof.

 

(hh)         “Partnership Minimum Gain” has the meaning set forth in Regulations Sections 1.704-2(b)(2) and 1.704-2(d)(1).

 

(ii)           “Percentage Interest” means, with respect to any Partner, the percentage interest in the Partnership as provided in Section 2 hereof.

 

(jj)           “Permitted Transfer” means any transfer, assignment, encumbrance, pledge or other alienation of an Interest in the Partnership in accordance with Section 10.2 hereof.

 

(kk)         “Person” means any individual, partnership, corporation, trust, or other entity.

 

(ll)           “Profits” and “Losses” means, for each fiscal year or other period, an amount equal to the Partnership’s taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:

 

(i)            Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.7(ll) shall be added to such taxable income or loss;

 

(ii)           Any expenditures of the Partnership described in Code Section 705(a)(2)(B), or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Profits or Losses pursuant to this Section 1.7(ll), shall be subtracted from such taxable income or loss;

 

(iii)          In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to Section 1.7(o)(ii) or Section 1.7(o)(iv) hereof, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses;

 

(iv)          Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;

 

(v)           In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be

 

10

 

taken into account Depreciation for such fiscal year or other period, computed in accordance with Section 1.7(m) hereof;

 

(vi)          To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner or Interest Holder’s interest, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits and Losses; and

 

(vii)         Notwithstanding any other provision of this Section 1.7(ll), any items of Partnership income, gain, loss or deduction that are specially allocated pursuant to Section 3.2 or Section 3.3 hereof shall not be taken into account in computing Profits or Losses.  The amount of the items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to the previous sentence or pursuant to such subsections shall be determined pursuant to rules analogous to those set forth in this definition of Profits and Losses.

 

(mm)      “Property” means all real and personal property acquired by the Partnership and any improvements thereto, and shall include both tangible and intangible property.

 

(nn)         “Regulations” means the Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

 

(oo)         “Representative” means a representative to the Partnership Committee appointed pursuant to Section 5.2(a) hereof and who has not ceased to be a representative in accordance with such section.  “Representatives” means all such Representatives.

 

(pp)         “Transfer” means, as a noun, any voluntary or involuntary transfer, sale, pledge, hypothecation, or other disposition and, as a verb, voluntarily or involuntarily to transfer, sell, pledge, hypothecate, or otherwise dispose of; provided that, subject to the last sentence of Section 10.1, no Transfer or issuance of any equity interest in any Person that directly or indirectly holds Interests shall constitute a Transfer of such Interests for purposes of this Agreement.

 

(qq)         “Ultimate Parent” means (i) in the case of OCI, OCI Chemical Corporation and (ii) in the case of NRP TRONA, Natural Resource Partners L.P., a Delaware limited partnership.

 

1.8          Title to Property.  All real and personal property owned by the Partnership shall be owned by the Partnership as an entity and, insofar as permitted by applicable law, no Partner shall have any ownership interest in such property in its individual name or right, and each Partner’s interest in the Partnership shall be personal property for all purposes.  Except as otherwise provided in this Agreement, the Partnership shall hold all of its real and personal property in the name of the Partnership and not in the name of any Partner.

 

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1.9          Payments of Individual Obligations.  The Partnership’s credit and assets shall be used solely for the benefit of the Partnership, and no asset of the Partnership shall be transferred or encumbered for or in payment of any individual obligation of any Partner.

 

SECTION 2
 PARTNER’S CAPITAL CONTRIBUTIONS

 

2.1          General Partners.  The names, addresses, and Percentage Interests of the General Partners are as follows:

 

	
Name and Address
    	
 
    	
Percentage
   Interest
    	
 
    
	
OCI   RESOURCES, LP
   Five Concourse Parkway
   Suite 2500
   Atlanta, Georgia  30328
   Attention:  Chief Executive Officer
    	
 
    	
40.98
    	
%
    
	
 
    	
 
    	
 
    	
 
    
	
NRP   TRONA LLC
   c/o NRP (Operating) LLC
   601 Jefferson
   Suite 3600
   Houston, Texas  77002
   Attention:  Vice President and General   Counsel
    	
 
    	
39.37
    	
%
    

 

2.2          Limited Partner.  The names, addresses, and Percentage Interests of the Limited Partners are as follows:

 

	
Name and Address
    	
 
    	
Percentage
   Interest
    	
 
    
	
OCI   WYOMING CO.
   c/o OCI RESOURCES, LP
   Five Concourse Parkway
   Suite 2500
   Atlanta, Georgia  30328
   Attention:   Chief Executive Officer
    	
 
    	
10.02
    	
%
    
	
 
    	
 
    	
 
    	
 
    
	
NRP   TRONA LLC
   c/o NRP (Operating) LLC
   601 Jefferson
   Suite 3600
   Houston, Texas  77002
   Attention:  Vice President and General   Counsel
    	
 
    	
9.63
    	
%
    

 

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2.3          Additional Capital Contributions.

 

(a)           In General.  The Partners hereby agree to contribute from time to time in accordance with their Percentage Interests (or, as between OCI and NRP TRONA only, in such other percentages as may from time to time be agreed upon by them) such additional funds as may be required by the Partnership and called for by the Partnership Committee.  Additional Capital Contributions required by this Section 2.3(a) shall be made on two days’ notice from the Partnership Committee.  Notwithstanding anything to the contrary in this Agreement, the Partners hereby agree that if at any time the relative Percentage Interests of the General Partners are not proportionate to their relative aggregate Capital Contributions, and such disproportionality is not attributable to disproportionate Capital Contributions agreed to by OCI and NRP TRONA pursuant to the first sentence of this Section 2.3(a), the General Partners will make such additional Capital Contributions and shall be entitled to receive such distributions as are necessary to restore such proportionality.

 

(b)           Preemptive Rights.  Each of OCI and NRP TRONA shall have the preemptive right, during a reasonable time and on reasonable conditions, both to be fixed by the Partnership Committee in their absolute discretion, to subscribe pro rata, in proportion to their Percentage Interests, for any additional Interests in the Partnership.

 

2.4          Member’s Liability.  Except as otherwise provided by this Agreement, no Limited Partner shall be liable for the debts, liabilities, contracts or any other obligations of the Partnership.  Except as otherwise provided by this Agreement, any pre-existing agreements among the Partners, or applicable state law, a Limited Partner shall be liable only to make its Capital Contributions and shall not be required to restore a deficit balance in its Capital Account or to lend any funds to the Partnership or, after its Capital Contributions have been paid, to make any additional contributions to the Partnership.

 

SECTION 3
 ALLOCATIONS

 

3.1          Profits and Losses.

 

(a)           After giving effect to the special allocations set forth in Sections 3.2 and 3.3 hereof, Profits and Losses for any fiscal year shall be allocated among the Partners and Interest Holders pro rata in accordance with their respective Percentage Interests.

 

(b)           Losses allocated pursuant to Section 3.1(a) hereof shall not exceed the maximum amount of Losses that can be so allocated without causing any Partner or Interest Holder to have an Adjusted Capital Account Deficit at the end of any fiscal year.  All Losses in excess of the limitation set forth in this Section 3.1(b) shall be allocated among the General Partners pro rata in accordance with their respective Percentage Interests.  Any Losses allocated pursuant to the previous sentence of this Section 3.1(b) shall be reversed with an allocation of Profits of an equal amount prior to any allocations pursuant to Section 3.1(a).

 

3.2          Special Allocations.  The following special allocations shall be made in the following order:

 

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(a)           Minimum Gain Chargeback.  Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding any other provision of this Section 3, if there is a net decrease in Partnership Minimum Gain during any fiscal year, each Partner and Interest Holder shall be specially allocated items of Partnership income and gain for such fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to such Partner’s and Interest Holder’s share of the net decrease in Partnership Minimum Gain, determined in accordance with Regulations Section 1.704-2(g).  Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner and Interest Holder pursuant thereto.  The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2).  This Section 3.2(a) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

 

(b)           Partner Minimum Gain Chargeback.  Except as otherwise provided in Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Section 3, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal year, each Partner and Interest Holder who has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to such Partner’s and Interest Holder’s share of the net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4).  Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner and Interest Holder pursuant thereto.  The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2).  This Section 3.2(b) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

 

(c)           Qualified Income Offset.  In the event any Partner or Interest Holder unexpectedly receives any adjustments, allocations, or distributions described in Regulations Sections 1.704- 1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially allocated to each such Interest Holder in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Interest Holder as quickly as possible; provided that an allocation pursuant to this Section 3.2(c) shall be made only if and to the extent that such Interest Holder would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 3 have been tentatively made as if this Section 3.2(c) were not in the Agreement. This Section 3.2(c) is intended to comply with the qualified income offset requirement in Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

(d)           Gross Income Allocation.  In the event any Partner or Interest Holder has an Adjusted Capital Account Deficit at the end of any fiscal year which is in excess of the sum of (i) the amount such Interest Holder is obligated to restore pursuant to any provision of this Agreement, and (ii) the amount such Interest Holder is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Interest Holder shall be specially allocated items of Partnership income and gain in the

 

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amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 3.2(d) shall be made only if and to the extent that such Interest Holder would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Section 3 have been made as if Section 3.2(c) hereof and this Section 3.2(d) were not in the Agreement.

 

(e)           Nonrecourse Deductions.  Nonrecourse Deductions for any fiscal year or other period shall be specially allocated among the Partners and Interest Holders pro rata in accordance with their respective Percentage Interests.

 

(f)            Partner Nonrecourse Deductions.  Any Partner Nonrecourse Deductions for any fiscal year or other period shall be specially allocated to the Partner or Interest Holder who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1).

 

(g)           Section 754 Adjustments.  To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) (including any such adjustments pursuant to Regulations Section 1.734-2(b)(1)) is required, pursuant to Regulations Sections 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners and Interest Holders in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations.

 

3.3          Curative Allocations.

 

The allocations set forth in Sections 3.1(b) and 3.2 hereof (collectively, the “Regulatory Allocations”) are intended to comply with the requirements of the Regulations.  It is the intent of the parties hereto that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Partnership income, gain, loss, or deduction pursuant to this Section 3.3.  Therefore, notwithstanding any other provision of Section 3 (other than the Regulatory Allocations), the Partnership Committee shall make such offsetting special allocations of Partnership income, gain, loss, or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Partner’s or Interest Holder’s Capital Account balance is, to the extent possible, equal to the Capital Account such Person would have had if the Regulatory Allocations were not terms of this Agreement and all Partnership items were allocated pursuant to Section 3.1(a).  In exercising its discretion under this Section 3.3, the Partnership Committee shall take into account future Regulatory Allocations that, although not yet made, are likely to offset other Regulatory Allocations previously made.

 

3.4          Other Allocation Rules.

 

(a)           For purposes of determining the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily,

 

15

 

monthly’ or other basis, as determined by the Partnership Committee using any permissible method under Code Section 706 and the Regulations thereunder.

 

(b)           Except as otherwise provided in this Agreement, all items of Partnership income, gain, loss, deduction, and any other allocations not otherwise provided for shall be divided among the Partners and Interest Holders in the same proportions as they share Profits or Losses, as the case may be, for the year.

 

(c)           The Partners are aware of the income tax consequences of the allocations made by this Section 3 and hereby agree to be bound by the provisions of this Section 3 in reporting their shares of Partnership income and loss for income tax purposes.

 

(d)           Solely for purposes of determining a Partner’s or Interest Holder’s proportionate share of the “excess nonrecourse liabilities” of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), if any, such excess nonrecourse liability shall be allocated to the Partners or Interest Holders as follows:

 

(i)            First, such excess nonrecourse liabilities shall be allocated to the Partners and Interest Holders up to the amount of built-in gain allocable to such Person on Code Section 704(c) property (as defined in Regulations Section 1.704-3(a)(3)(i)) or property for which reverse Code Section 704(c) allocations are applicable (as described in Regulations Section 1.704-3(a)(6)(i)) where such property is subject to the nonrecourse liability, to the extent such gain exceeds the gain described in Regulations Section 1.752-3(a)(2).

 

(ii)           Second, the balance of such excess nonrecourse liabilities, if any, shall be allocated to the Partners and Interest Holders in accordance with their Percentage Interests.

 

(e)           To the extent permitted by Regulations Sections 1.704-2(h) and 1.704-2(i)(6), the Partnership Committee shall endeavor to treat distributions of Available Cash as having been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse Debt only to the extent that such distributions would cause or increase an Adjusted Capital Account Deficit for any Interest Holder.

 

3.5          Tax Allocations: Code Section 704(c).

 

In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be determined and allocated among the Partners and Interest Holders under the rules prescribed by Regulations Section 1.704-3(d)(2) so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value (computed in accordance with Section 1.7(o)(i) hereof).

 

In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to Section 1.7(o)(ii) hereof, subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset

 

16

 

for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and under the rules prescribed by Regulations Section 1.704-3(d)(2).

 

Any elections or other decisions relating to such allocations shall be made by the Partnership Committee in any manner that reasonably reflects the purpose and intention of this Agreement.  Allocations pursuant to this Section 3.5 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Person’s Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement.

 

SECTION 4
 DISTRIBUTIONS

 

4.1                               Quarterly Distributions.  Except as otherwise provided in Section 12 hereof, Available Cash, if any, shall be distributed quarterly in the following order and priority:

 

(a)                                 First, to the Partners, in proportion to the total amount distributable to each such Partner pursuant to this Section 4.1(a), until each such Partner receives an amount equal to the excess, if any, of (i) the cumulative additional Capital Contributions made by such Partner pursuant to Section 2.3(a) hereof from the date hereof to the end of the quarter preceding the quarter during which such distribution is made, over (ii) the sum of all prior distributions to such Partner pursuant to this Section 4.1(a) during that same period; and

 

(b)                                 The balance, if any, to the Partners pro rata in accordance with their respective Percentage Interests.

 

4.2                               Amounts Withheld.  All amounts withheld during any fiscal year pursuant to the Code or any provision of any state or local tax law with respect to any payment, distribution or allocation to the Partnership, the Partners or the Interest Holders shall be treated for all purposes under this Agreement as amounts distributed pursuant to this Section 4 to the Partners and the Interest Holders with respect to which such amounts are withheld, and shall reduce amounts otherwise distributable to each such Partner during such period, provided that, if the amounts required to be withheld with respect to each Partner or Interest Holder during such period exceed the amounts otherwise distributable to such Partner or Interest Holder during such period, such Partner or Interest Holder shall contribute to the Partnership an amount equal to such excess upon demand by OCI.  The Partnership Committee is authorized to withhold from distributions, or with respect to allocations, to the Partners and Interest Holders and to pay over to any federal, state, or local government any amounts required to be so withheld pursuant to the Code or any provisions of any other federal, state, or local law, and may allocate any such amounts among the Partners and Interest Holders in any manner that is in accordance with applicable law.

 

SECTION 5
 MANAGEMENT

 

5.1                               General Authority of General Partners and Partnership Committee.  The General Partners shall have such rights, powers and authority, and only such rights, powers and authority, in the management of the Property and the business of the Partnership as shall be

 

17

 

necessary to enable them to take such acts as are required to be taken by them in accordance with this Agreement and applicable law.  Except as otherwise provided in this Agreement (including, without limitation, in this Section 5) or as otherwise required by applicable law, the property and business of the Partnership shall be managed by the Partnership Committee, which has, to the extent permitted by applicable law, all requisite right, power and authority to, and may, without the consent of Partners, exercise all such powers and do all such lawful acts and things as are not directed or required by this Agreement or the Act to be exercised or done or consented to by the Partners, including but not limited to, the right, power and authority to cause the Partnership to:

 

(a)                                 Acquire by purchase, lease, or otherwise any real or personal property which may be necessary, convenient, or incidental to the accomplishment of the purposes of the Partnership;

 

(b)                                 Operate, maintain, finance, improve, construct, own, grant options with respect to, sell, convey, assign, mortgage, and lease any real estate and any personal property necessary, convenient, or incidental to the accomplishment of the purposes of the Partnership;

 

(c)                                  Execute any and all agreements, contracts, documents, certifications, and instruments necessary or appropriate in connection with the management, maintenance, and operation of Partnership property, or in connection with managing the affairs of the Partnership, including executing amendments to this Agreement and the Certificate in accordance with the terms of this Agreement;

 

(d)                                 Borrow money and issue evidences of indebtedness necessary, convenient, or incidental to the accomplishment of the purposes of the Partnership, and secure the same by mortgage, pledge, or other lien on any Partnership property;

 

(e)                                  Execute, in furtherance of any or all of the purposes of the Partnership, any deed, lease, mortgage, deed of trust, mortgage note, promissory note, bill of sale, contract, or other instrument purporting to convey or encumber any or all of the Partnership property;

 

(f)                                   Prepay in whole or in part, refinance, recast, increase, modify, or extend any liabilities affecting the Property and in connection therewith execute any extensions or renewals of encumbrances on any or all of the Property;

 

(g)                                  Care for and distribute funds to the Partners and Interest Holders by way of cash, income, return of capital, or otherwise, all in accordance with the provisions of this Agreement, and perform all matters in furtherance of the objectives of the Partnership or this Agreement;

 

(h)                                 Contract on behalf of the Partnership for the employment and services of employees and/or independent contractors, such as lawyers and accountants, and delegate to such Persons the duty to manage or supervise any of the assets or operations of the Partnership;

 

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(i)                                     Engage in any kind of activity and perform and carry out contracts of any kind (including contracts of insurance covering risks to Partnership Property and General Partner liability) necessary or incidental to, or in connection with, the accomplishment of the purposes of the Partnership, as may be lawfully carried on or performed by a partnership under the laws of each state in which the Partnership is then formed or qualified;

 

(j)                                    Make any and all elections for federal, state, and local tax purposes including, but not limited to, any election, if permitted by applicable law: (i) to adjust the basis of Partnership property pursuant to Code Sections 754, 734(b) and 743(b), or comparable provisions of state or local law, in connection with transfers of Partnership Interests and Partnership distributions; (ii) with the consent of the Partner or Interest Holder affected thereby, to extend the statute of limitations for assessment of tax deficiencies against such Partners and Interest Holders with respect to adjustments to the Partnership’s federal, state, or local tax returns; and (iii) in accordance with Section 8.5 hereof, to represent the Partnership, the Partners and the Interest Holders before taxing authorities or courts of competent jurisdiction in tax matters affecting the Partnership, the Partners, and the Interest Holders in their capacities as Partners or Interest Holders, and to file any tax returns and execute any agreements or other documents relating to or affecting such tax matters, including, to the extent provided in Code Sections 6221 through 6231, agreements or other documents that bind the Partners and Interest Holders with respect to such tax matters or otherwise affect the rights of the Partnership, Partners, and Interest Holders;

 

(k)                                 Take, or refrain from taking, all actions, not expressly proscribed or limited by this Agreement, as may be necessary or appropriate to accomplish the purposes of the Partnership; and

 

(l)                                     Institute, prosecute, defend, settle, compromise, and dismiss lawsuits or other judicial or administrative proceedings brought on or in behalf of, or against, the Partnership and to engage counsel or others in connection therewith.

 

5.2                               Partnership Committee.

 

(a)                                 Representatives.  The Partnership Committee shall consist of seven Representatives, four of whom shall be appointed by OCI and three of whom shall be appointed by NRP TRONA, unless NRP TRONA shall elect to appoint a lesser number of Representatives.  Each Partner shall appoint its Representatives and shall fill vacancies as they occur within 15 days.  Representatives shall serve for indefinite terms at the pleasure of the appointing Partner.

 

(b)                                 Meetings of the Partnership Committee.

 

(i)                                     The Partnership Committee may hold its meetings, both regular and special, either within or without the State of Delaware, and either in person or by telephone.

 

(ii)                                  An annual meeting of the Partnership Committee shall be held at such time and place during the month of February as shall be determined by the Representatives.  The Partnership Committee shall hold one meeting in the third quarter of each calendar year and one meeting in the fourth quarter of each calendar year and may hold such

 

19

 

additional regular meetings as a majority of the Representatives shall determine to be necessary.  The Secretary shall cause written notice of the place, date and hour of each regular meeting of the Partnership Committee, along with a list of the agenda items for such Partnership Committee meeting, to be given to each Representative not less than two days before the date of such meeting if such notice is given personally or by telegram, or not less than five days before the date of such meeting if such notice is given by mail.  Notice of any such meeting need not be given to any Representative who attends such meeting without protesting the lack of notice to him, prior to or at the commencement of such meeting, or to any Representative who submits a signed waiver of notice, whether before or after such meeting.  No notice need be given of any adjourned meeting, unless the time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of this Section shall be given to each Representative.

 

(iii)                               Special meetings of the Partnership Committee may be called by the president on two days’ notice to each Representative, if such notice is given personally or by telegram, on five days’ notice if such notice is given by mail, or without notice if such notice requirement is expressly waived by all of the Representatives.  Special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two Representatives.

 

(iv)                              At each meeting of the Partnership Committee, each Representative of each Partner shall be authorized to vote on his own behalf and on behalf of each and every other Representative of such Partner that is not present at such meeting.  The presence of a Representative (in person or through a voting Representative) of a majority in number of the Partners shall be necessary and sufficient to constitute a quorum for the transaction of business; provided that at least one of such Representatives must be a Representative appointed by OCI, and the act of a majority of the Representatives, whether present at such meeting or represented by another Representative voting on his behalf, at which there is a quorum shall be the act of the Partnership Committee, except as may be otherwise specifically provided by this Agreement or the Act.  If a quorum shall not be present at any meeting of Representatives, the Representatives present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

 

(v)                                 Each Partner hereby agrees that it shall be bound by the act or vote of any of its Representatives, whether acting on his own behalf or on behalf of other Representatives in accordance with Section 5.2(b)(iv) hereof, and without regard to any requirement or procedure of such Partner for authorization or ratification of the act or vote of such Representative, including, without limitation, any financial limitations or restrictions placed by such Partner on the acts or votes of any Representative.

 

(c)                                  Action Without Meeting.  Any action required or permitted to be taken at any meeting of the Partnership Committee or any committee thereof may be taken without a meeting if all the Representatives or members of such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writings or electronic transmissions are filed with the minutes of proceedings of the Partnership Committee or committee.

 

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(d)                                 Subcommittees of Representatives.

 

(i)                                     The Partnership Committee may, by resolution passed by a majority of all of the Representatives, designate one or more subcommittees, each subcommittee to consist of two or more of the Representatives, which, to the extent provided in said resolution, shall have and may exercise the powers of the Partnership Committee in the management of the business and affairs of the Partnership.  Such subcommittee or subcommittees shall have such name or names as may be determined from time to time by resolution adopted by the Partnership Committee.  NRP TRONA shall be entitled to nominate Representatives on any subcommittee appointed by the Partnership Committee, but the majority of Representatives on all such subcommittees shall be Representatives appointed by OCI.

 

(ii)                                  Each subcommittee shall keep regular minutes of its proceedings and report the same to the Partnership Committee when required.

 

(e)                                  Compensation of Representatives.  Representatives, as such, shall not receive any stated salary for their services, provided that nothing herein contained shall be construed to preclude any Representative from serving the Partnership in any other capacity and receiving compensation therefor.

 

(f)                                   General Standards of Conduct for Representatives.

 

(i)                                     A member of the Partnership Committee shall discharge his duties as a Representative, including his duties as a member of a subcommittee:

 

(A)                               In a manner he believes in good faith to be in the best interests of the Partnership; and

 

(B)                               With the care an ordinarily prudent person in a like position would exercise under similar circumstances.

 

(ii)                                  In discharging his duties, a Representative is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:

 

(A)                               One or more Officers or employees of the Partnership whom the Representative reasonably believes to be reliable and competent in the matters presented;

 

(B)                               Legal counsel, public accountants, investment bankers, or other persons as to matters the Representative reasonably believes are within the person’s professional or expert competence; or

 

(C)                               A subcommittee of the Partnership Committee of which he is not a member if the Representative reasonably believes the subcommittee merits confidence.

 

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(iii)                               Notwithstanding subsection (ii) above, a Representative is not entitled to rely if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (ii) above unwarranted.

 

5.3                               Officers.

 

(a)                                 Appointment.

 

(i)                                     The officers of the Partnership shall be chosen by the Partnership Committee and shall be a president, a secretary and a treasurer.  Two or more offices may be held by the same person, except that where the offices of president and secretary are held by the same person, such person shall not hold any other office.

 

(ii)                                  The Partnership Committee at each annual meeting shall choose a president from its members, and shall choose a secretary and a treasurer, neither of whom need be a Representative on the Partnership Committee.

 

(iii)                               The Partnership Committee may appoint such other officers and agents as it shall deem necessary or desirable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Partnership Committee.

 

(iv)                              The officers of the Partnership shall hold office until their successors are chosen and qualify in their stead.  Any officer elected or appointed by the Partnership Committee may be removed at any time by the affirmative vote of a majority of all of the Representatives, or by any subcommittee or superior officer upon whom such power of removal may be conferred by the affirmative vote of a majority of all of the Representatives.  If the office of any officer shall become vacant for any reason, the vacancy shall be filled by the Partnership Committee.

 

(b)                                 The President.

 

(i)                                     The president shall be the chief executive officer of the Partnership.  He shall preside at all meetings of the Partners and Partnership Committee, shall be ex officio a member of all standing subcommittees, shall have general and active management of the business of the Partnership, and shall see that all orders and resolutions of the Partnership Committee are carried into effect.

 

(ii)                                  The president shall execute deeds, notes, bonds, mortgages and contracts, and other instruments, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Partnership Committee to some other officer or agent of the Partnership.

 

(c)                                  The Secretary.  The secretary shall attend all meetings of the Partnership Committee and all meetings of the Partners and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for the standing subcommittees when required.  He shall give, or cause to be given, notice of all meetings of the Partners and special meetings of the Partnership Committee, and shall perform

 

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such other duties as may be prescribed by the Partnership Committee or president, under whose supervision he shall be.

 

(d)                                 The Treasurer.

 

(i)                                     The treasurer shall have the custody of the Partnership funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Partnership and shall deposit all moneys and other valuable effects in the name and to the credit of the Partnership in such depositaries as may be designated by the Partnership Committee.

 

(ii)                                  The treasurer shall disburse the funds of the Partnership as may be ordered by the Partnership Committee, taking proper vouchers for such disbursements, and shall render to the president and Representatives, at the regular meetings of the Partnership Committee, or whenever they may require it, an account of all his transactions as treasurer and of the financial condition of the Partnership.

 

(iii)                               If required by the Partnership Committee, the treasurer shall give the Partnership a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Partnership Committee for the faithful performance of the duties of his office and for the restoration of the Partnership in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Partnership.

 

(e)                                  General Standards of Conduct for Officers.

 

(i)                                     An Officer with discretionary authority shall discharge his duties as such:

 

(A)                               In a manner he believes in good faith to be in the best interests of the Partnership; and

 

(B)                               With the care an ordinary prudent person in a like position would exercise under similar circumstances.

 

(ii)                                  In discharging his duties, an Officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:

 

(A)                               One or more Officers or employees of the Partnership whom the Officer reasonably believes to be reliable and competent in the matters presented; or

 

(B)                               Legal counsel, public accountants, investment bankers, or other persons as to matters the Officer reasonably believes are within the person’s professional or expert competence.

 

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(iii)                               Notwithstanding subsection (ii) above, an Officer is not entitled to rely if he has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (ii) above unwarranted.

 

5.4                               Right to Rely on Books of Account.  Each officer, Representative, or member of any subcommittee designed by the Partnership Committee shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or reports made to the Partnership by any of its officials or by an independent certified public accountant or by an appraiser selected with reasonable care by the Partnership Committee or by any such subcommittee or in relying in good faith upon other records of the Partnership.

 

5.5                               Indemnification of Representatives and Officers.

 

(a)                                 To the fullest extent permitted by applicable law, each Representative, Officer and Indemnified Person (and their respective heirs, executors and administrators) shall be indemnified by the Partnership (and any receiver, liquidator or trustee of, or successor to, the Partnership) from and against any and all liabilities, obligations, losses, damages, penalties, costs or expenses (including, without limitation, all costs and expenses of defense, appeal or settlement reasonably incurred by or imposed upon him) in connection with or arising out of any action, suit or proceeding in which he may be involved and which relates in any way to the Partnership or its business and assets, or to which he may be made a party by reason of his being or having been a Representative or Officer of the Partnership or, at its request, a partner or officer of any partnership or corporation of which it is a partner, stockholder or creditor and for which he is not entitled to be indemnified (whether or not he continues to be a Representative, Officer or Indemnified Person at the time of imposing or incurring such expenses); provided, however, that no indemnification shall be provided hereunder in respect of matters as to which he shall be finally adjudged in such action, suit or proceeding to be liable for breach of any duty expressly imposed by this Agreement; intentional misconduct; a knowing violation of law; or any transaction from which such Representative, Officer or Indemnified Person derived an improper personal benefit.  With respect to any criminal action or proceeding, no indemnification shall be provided hereunder if such Representative, Officer or Indemnified Person had reasonable cause to believe that his or her conduct was unlawful.  In the event of a settlement of any such action, suit or proceeding, indemnification shall be provided only in connection with such matters covered by the settlement as to which the Partnership is advised by counsel that the person to be indemnified did not commit a breach of duty; intentional misconduct; a knowing violation of law; derive an improper personal benefit from a transaction; or have reasonable cause to believe that his or her conduct was unlawful.  Notwithstanding the foregoing, no indemnification shall be provided hereunder in respect of any claim by the Partnership or any Partner against a Representative, Officer or Indemnified Person other than a claim for costs and expenses of defense, appeal and settlement reasonably incurred by or imposed on him and otherwise indemnifiable hereunder.  The foregoing right of indemnification shall not be exclusive of other rights to which he may be entitled.

 

(b)                                 The Partnership shall pay expenses as they are incurred by any Indemnified Person, Representative or Officer in connection with any action, claim, or proceeding that the Indemnified Person, Representative or Officer asserts in good faith to be subject to the indemnification obligations set forth herein, upon receipt of an undertaking from

 

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such Indemnified Person, Representative or Officer to repay all amounts so paid by the Partnership to the extent that it is finally determined that the Indemnified Person, Representative or Officer is not entitled to be indemnified therefor under the terms hereof.

 

(c)                                  If a claim for indemnification or payment of expenses hereunder is not paid in full within ten days after a written claim therefor has been received by the Partnership, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim.  In any such action the Partnership shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.

 

5.6                               Day-to-Day Management: Staffing.

 

(a)                                 Executive Staffing and Technological Guidance.  The Partners agree that OCI shall have the responsibility for the management and staffing of the Partnership and the furnishing to it of technological guidance.  OCI agrees to furnish the following normal and essential business services to the Partnership with OCI’s own personnel; provided, however, that OCI’s obligation under this Section 5.6 may be performed by OCI Enterprises, Inc. or any of its Affiliates:

 

(i)                                     All management, supervision and administration above the level of Resident Plant Manager;

 

(ii)                                  General engineering, research and development, and technological guidance, except work performed directly related to specific projects or studies (which work is subject to Section 5.8(b) hereof);

 

(iii)                               Accounting, payroll, credit and tax and information services, including, without limitation, Partnership accounting, cost accounting, payroll preparation and filing, cash receipts and disbursements handling including paying and filing of vendor’s invoices, and tax return preparation and filing (all such services to be based upon reports from plant personnel pertaining to production, material receipts and shipments, inventories, employee’s time and job distribution and similar information customarily furnished by operating plant personnel);

 

(iv)                              Public relations and advertising services;

 

(v)                                 Employee training and employee relations, including, without limitation, negotiation and administration of labor contracts and employee benefit plans;

 

(vi)                              Transportation services, including, without limitation, negotiation of favorable freight rates and general supervision of freight claim processing and other traffic matters;

 

(vii)                           Routine legal services (not including problems involving actual or threatened litigation, patent exploration and filing or other extraordinary legal services);

 

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(viii)                        Environmental control services, including compliance with all applicable environmental laws and regulations;

 

(ix)                              Treasury and internal audit services and administration of an overall insurance program for protection of Partnership assets; and

 

(x)                                 Purchasing services, including, without limitation, negotiation for major purchases and administration of purchasing routines including review of all appropriation requests and acquisition of electrical energy and necessary plant fuels.

 

(b)                                 Plant and Mine Staffing.  The mining, refining, processing, storage and shipping operations conducted at the Big Island Plant and all other operations incidental thereto conducted upon and in the vicinity of the Big Island Plant shall be performed by plant and mine forces on the payroll of the Partnership.  Such forces shall be headquartered at said plant under the supervision of the Resident Plant Manager.

 

(c)                                  Other Staffing.  The Partnership shall have authority to contract for and bear the cost of such specialized and extraordinary outside services relating to its operations and activities as shall be authorized by the Partnership Committee.

 

(d)                                 Compensation.  Subject to and in accordance with the terms and provisions of this Agreement and such reasonable allocation and other procedures as may be agreed upon by OCI (and/or its Affiliates) and the Partnership from time to time, the Partnership hereby agrees to reimburse OCI (and/or its Affiliates) for all direct and indirect costs and expenses incurred by OCI (and/or its Affiliates) in connection with the provision of the services described in Section 5.6(a) hereof, including the following:

 

(i)                                     any payments or expenses incurred for insurance coverage, including allocable portions of premiums, and negotiated instruments (including surety bonds and performance bonds) provided by underwriters with respect to the assets or business of the Partnership;

 

(ii)                                  an allocated portion of salaries and related benefits (including 401(k), pension, bonuses and health insurance benefits) and expenses of personnel employed by OCI (and/or its Affiliates) who render services to the Partnership, plus general and administrative expenses associated with such personnel;

 

(iii)                               any taxes or other direct operating expenses paid by OCI (and/or its Affiliates) for the benefit of the Partnership (including any state income, franchise or similar tax paid by OCI (and/or its Affiliates) resulting from the inclusion of the Partnership in a combined or consolidated state income, franchise or similar tax report with OCI (and/or its Affiliates) as required by applicable law as opposed to the flow through of income attributable to the ownership interest of OCI (and/or its Affiliates) in the Partnership), provided, however, that the amount of any such reimbursement shall be limited to the tax that the Partnership would have paid had it not been included in a combined or consolidated group with OCI (and/or its Affiliates);

 

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it being agreed, however, that to the extent any reimbursable costs or expenses incurred by OCI (and/or its Affiliates) consist of an allocated portion of costs and expenses incurred by OCI (and/or its Affiliates) for the benefit of both the Partnership and OCI (and/or its Affiliates), such allocation shall be made on a reasonable cost reimbursement basis as determined by OCI (and/or its Affiliates).

 

5.7                               Loans.

 

(a)                                 In the event the Partnership shall desire to borrow money for the construction of additional capital improvements or the acquisition of additional capital assets, OCI and NRP TRONA shall have a preemptive right, during a reasonable time and on reasonable conditions, both to be fixed by the Partnership Committee in its absolute discretion, to loan its pro rata share in proportion to its Percentage Interests, of any such money loaned to the Partnership; it being understood that no preemption right shall apply in connection with the Credit Agreement, dated as of July 18, 2013 by and among the Partnership, the guarantors party thereto, the financial institutions party thereto as lenders, Bank of America, N.A., as administrative agent for the lenders, swing line lender and l/c issuer, and Bank of America Merrill Lynch, as sole lead arranger and sole book manager, as the same may be amended, restated, replaced, refinanced or otherwise modified from time to time (the “Partnership Credit Facility”) and/or any borrowings, loans and/or financings thereunder.

 

(b)                                 All repayments by the Partnership on promissory notes issued by the Partnership to cover advances from NRP TRONA and OCI shall be made in proportion to the then outstanding balances of said notes.

 

5.8                               Operating Restrictions.

 

(a)                                 Operating Programs and Budgets.  The operations of the Partnership shall be conducted, expenses shall be incurred, and assets shall be acquired pursuant to “Budgets” and “Programs” prepared by OCI and provided to the Partners in accordance with this Section 5.8(a).  Except as provided in Sections 5.8(a)(iii) and 5.8(a)(iv) hereof, the approval of the Partnership Committee shall be required prior to any action that is materially inconsistent with any current Budget or Program.

 

(i)                                     In accordance with Section 8.4 hereof and Exhibit A hereto, OCI will prepare and provide to the Partners an annual budget and a three-year plan setting forth such assumptions and forecasts as are required to review the status of the business and determine future capital requirements (such annual plan and three-year plan herein referred to together as the “Budget”).  OCI shall prepare and provide to the Partners “Programs” for all planned capital expenditures whether or not such capital expenditures were specifically described in the Budget.  Such “Programs” shall be presented with description, justification, and spending plans in the form customarily used by OCI Enterprises, Inc.

 

(ii)                                  Within 45 days after a proposed Budget or Program is provided to the Partners, each Partner shall provide to the Partnership Committee:

 

(A)                               Notice that such Partner endorses the proposed Budget or Program; or

 

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(B)                               Proposed modifications to the proposed Budget or Program.

 

If any Partner provides proposed modifications to a proposed Budget or Program in accordance with this Section 5.8(a)(ii), OCI shall give serious consideration to such proposals and make such changes in the proposed Budget or Program as it deems appropriate within its discretion.

 

(iii)                               Programs for capital expenditures will be approved by the Partnership Committee.  Authority for approval by the Partnership Committee is delegated as follows:

 

(A)                               Programs for which the anticipated total spending will equal or exceed One Million Dollars require specific approval of the Partnership Committee.

 

(B)                               Programs estimated to cost in excess of the Approval Amount and less than $1,000,000 and included in the Budget shall be recommended by the Partnership’s officers and provided to NRP TRONA (and with respect to which NRP TRONA may propose modifications in the manner provided in Section 5.8(a)(ii) hereof), and approved by OCI.

 

(C)                               Programs estimated to cost less than the Approval Amount and included in the Budget are to be approved by OCI with information copy of approval to be provided to NRP TRONA.

 

(D)                               Programs not included in the Budget and estimated to cost in excess of the Approval Amount require specific approval of the Partnership Committee.

 

For purposes of this Section 5.8(a)(iii), the “Approval Amount” shall be $350,000 or such other amount as may be approved by the Capital Approval Committee of OCI (or other committee responsible for authorizing capital expenditures to be made by OCI).

 

(iv)                              Notwithstanding anything to the contrary in this Agreement, the Partnership Committee and the Resident Plant Manager shall have the right to take actions that are materially inconsistent with any current Budget or Programs if any of them, in their reasonable judgment, deems such action necessary for the protection of life or health or the preservation of Partnership assets and if, under the circumstances, in the good faith estimation of any of them, there is insufficient time to allow the Partners to review such action in accordance with Section 5.8(a)(ii) hereof and any delay would materially increase the risk to life or health or the preservation of Partnership assets.  Either the Partnership Committee or the Resident Plant Manager shall notify the Partners of each such action contemporaneously therewith or as soon as reasonably practical thereafter.  Such authority shall lapse and terminate upon reduction of such risk to life or health or preservation of assets.

 

(v)                                 The Partnership Committee and OCI shall promptly advise and inform the Partners of any transaction, notice, event, or proposal directly relating to the management and operation of the Partnership’s business which does or could affect, either

 

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adversely or favorably, the Partnership’s business or cause a deviation from any current Budget or Programs.

 

(b)                                 Transactions with Affiliates.  Other than the Transfer of OCI Co.’s limited partnership interest in the Partnership to OCI, as specifically contemplated in Section 13.9, no contract or other transaction between the Partnership and any Partner owning or controlling a majority of the Interests in the Partnership or any Affiliate of such majority Partner shall be valid unless ratified by unanimous vote of the Partnership Committee at a meeting of the Partnership Committee or by written consent without a meeting.  Subject to the foregoing, the Partnership shall have all rights provided under the Act to enter into any and all contracts or other transactions with any other corporation, partnership, firm or association in which any one or more of the Representatives has any pecuniary or other interest.  However, any contracts or transactions referred to in the preceding sentence must be ratified by unanimous vote of the Partnership Committee at a meeting of the Partnership Committee or by written consent without a meeting.

 

(c)                                  Utilization of Mined Sodium Minerals.  None of the sodium minerals mined by the Partnership at and in the vicinity of the Big Island Plant shall be sold or otherwise transferred by the Partnership prior to the refining or processing thereof by the Partnership without the consent of NRP TRONA.

 

5.9                               Vote of Limited Partners.  Notwithstanding anything to the contrary in this Agreement, without the consent of the Limited Partner neither the Partnership Committee nor any Representative or Partner shall have the authority to, and each such Person covenants and agrees that it shall not:

 

(a)                                 Knowingly do any act in contravention of this Agreement;

 

(b)                                 Knowingly perform any act that would subject the Limited Partner to liability as a general partner in any jurisdiction; or

 

(c)                                  Sell or otherwise dispose of all or substantially all of the Property, except for a liquidating sale of Property in connection with the dissolution of the Partnership.

 

5.10                        Duties of General Partners and Their Affiliates.  Except as expressly provided in this Agreement, no General Partner and no Affiliate or employee of a General Partner shall have any duties to the Partnership or the Partners.  To the extent any General Partner exercises any right, power and authority to act under this Agreement, such General Partner shall act in a manner it believes in good faith to be in the best interests of the Partnership and shall take no action that constitutes negligence or willful or wanton misconduct in connection therewith; provided, however, that a General Partner may Transfer its Interest in the Partnership pursuant to Sections 10 and 11 hereof and OCI may effect the IPO without regard to the best interests of the Partnership.  Except as set forth in Sections 5.2(f) and 5.3(e) hereof, no Affiliate or employee of any General Partner shall have any duty to the Partnership or to any Partner unless such Affiliate or employee participates in the management of the business and assets of the Partnership, and the sole duties to the Partnership and the Partners of any Affiliate or employee of a General Partner (other than an Affiliate or employee who serves as a

 

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Representative or an Officer) who so participates in the management of the business and assets of the Partnership shall be the same as the duties of each General Partner stated in the immediately preceding sentence.

 

5.11                        Reliance on Agreement.  To the extent that, at law or in equity, an Indemnified Person, Representative, or Officer has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or to the Partners, an Indemnified Person, Representative, or Officer acting under this Agreement or in connection with the Partnership’s business or affairs shall not be liable to the Partnership or to any Partner for its good faith reliance on the provisions of this Agreement.  The provisions of this Agreement, to the extent that they restrict the duties and liabilities of an Indemnified Person, Representative, or Officer are agreed by the Partners to replace such other duties and liabilities of such Indemnified Person, Representative, or Officer, otherwise existing at law or in equity.

 

SECTION 6
 ROLE OF LIMITED PARTNERS

 

6.1                               Rights or Powers.  No Limited Partner shall have any right or power to take part in the management or control of the Partnership or its business and affairs or to act for or bind the Partnership in any way.

 

6.2                               Voting and Other Rights.  The Limited Partners shall have the right to vote on the matters explicitly set forth in this Agreement and to take such other actions as are explicitly set forth in this Agreement, and the Limited Partner shall not be deemed to have taken part in the management or control of the Partnership or its business or affairs as a result of exercising any such rights.

 

SECTION 7
 REPRESENTATIONS AND WARRANTIES

 

7.1                               In General.  As of the date hereof, each of the statements contained herein shall be a true, accurate, and full disclosure of all facts relevant to the matters contained therein, and such warranties and representations shall survive the execution of this Agreement.

 

7.2                               Representations and Warranties.  Each Partner hereby represents and warrants that, as of the date hereof and as of the effective date of this Agreement:

 

(a)                                 Due Organization; Authorization of Agreement.  Such Partner is a limited partnership or limited liability company, as applicable, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the necessary corporate, limited partnership or limited liability company, as applicable, power and authority to own its property and carry on its business as owned and carried on at the date hereof and as contemplated hereby.  Such Partner is duly licensed or qualified to do business and in good standing in each of the jurisdictions in which the failure to be so licensed or qualified would have a material adverse effect on its financial condition or its ability to perform its obligations hereunder.  Such Partner has the necessary corporate, limited partnership or limited liability company, as applicable, power and authority to execute and deliver this Agreement and to perform its obligations hereunder and the execution, delivery and performance of this Agreement

 

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has been duly authorized by all necessary corporate, limited partnership or limited liability company, as applicable, action.  This Agreement constitutes the legal, valid and binding obligation of such Partner, subject to applicable bankruptcy, insolvency or other laws affecting creditors’ rights generally and to general equity principles.

 

(b)                                 No Conflict with Restrictions; No Default.  Neither the execution, delivery and performance of this Agreement nor the consummation by such Partner of the transactions contemplated hereby (i) will conflict with, violate or result in a breach of any of the terms, conditions or provisions of any law, regulation, order, writ, injunction, decree, determination or award of any court, any governmental department, board, agency or instrumentality, domestic or foreign, or any arbitrator, applicable to such Partner, (ii) will conflict with, violate, result in a breach of or constitute a default under any of the terms, conditions or provisions of the organizational documents of such Partner or of any material agreement or instrument to which such Partner is a party or by which such Partner is or may be bound or to which any of its material properties or assets is subject, (iii) will conflict with, violate, result in a breach of, constitute a default under (whether with notice or lapse of time or both), accelerate or permit the acceleration of the performance required by, or give to others any material interests or rights or require any consent, authorization or approval under any indenture, mortgage, lease agreement or instrument to which such Partner is a party or by which such Partner is or may be bound, or (iv) will result in the creation or imposition of any lien upon any of the material properties or assets of such Partner.

 

(c)                                  Governmental Authorizations.  No registration, declaration or filing with, or consent, approval, license, permit or other authorization or order by, any governmental or regulatory authority, domestic or foreign, is required in connection with the valid execution, delivery, acceptance and performance by such Partner under this Agreement or the consummation by such Partner of any transaction contemplated hereby.

 

(d)                                 Litigation.  There are no actions, suits, proceedings or investigations pending or, to the knowledge of such Partner, threatened against or affecting such Partner or any of its properties, assets or businesses in any court or before or by any governmental department, board, agency or instrumentality, domestic or foreign, or any arbitrator which could, if adversely determined (or, in the case of an investigation could lead to any action, suit or proceeding, which if adversely determined could) reasonably be expected to materially impair such Partner’s ability to perform its obligations under this Agreement or to have a material adverse effect on the consolidated financial condition of such Partner; and such Partner has not received any currently effective notice of any default, and such Partner is not in default, under any applicable order, writ, injunction, decree, permit, determination or award of any court, any governmental department, board, agency or instrumentality, domestic or foreign, or any arbitrator which could reasonably be expected to materially impair its ability to perform its obligations under this Agreement.

 

(e)                                  Investment Company Act.  Neither such Partner nor any of its Affiliates is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

 

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(f)                                   Investigation.  Such Partner is acquiring its Partnership Interest based upon its own investigation, and the exercise by such Partner of its rights and the performance of its obligations under this Agreement will be based upon its own investigation, analysis and expertise.

 

SECTION 8
 ACCOUNTING, BOOKS AND RECORDS

 

8.1                               Books.  The Partnership shall maintain at its principal place of business separate books of account for the Partnership which shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received, and all income derived in connection with the conduct of the Partnership and the operation of its business in accordance with generally accepted accounting principles consistently applied.  Any Partner or its designated representative shall have the right, at any reasonable time and after having provided appropriate notice to OCI, to have access to and inspect and copy the contents of all of such books or records except those books or records relating to transactions between the Partnership and third-party vendors for goods or services that compete with goods and services offered to the Partnership by any Partner or its Affiliate.  Any books and records that are not made available to a Partner as a result of the limitation in the preceding sentence shall be made available to the independent certified public accountants regularly employed by the Partnership or otherwise requested by any General Partner which accountants shall, at the request of such Partner, review such books and records and inform such Partner as to whether the terms of the transactions covered thereby are commercially reasonable and not inconsistent with this Agreement.  The Partnership may keep its books outside of the State of Delaware, except as otherwise provided by the Act.  No more frequently than once in any two year period, each General Partner shall have the right, after having provided reasonable written notice to the Partnership, to conduct an audit, at such General Partner’s sole cost and expense, of the Partnership’s accounts and records relating to the Partnership’s operations and accounting performed hereunder for the purpose of determining that such operations and accounting are consistent with the terms of this Agreement.  Any General Partner causing such an audit to occur shall promptly advise the Partnership Committee of the results of such audit and shall promptly furnish a copy to each member of the Partnership Committee of all reports, memoranda and correspondence prepared in connection with such audit.

 

8.2                               Fiscal Year.  The fiscal year of the Partnership shall be fixed by resolution of the Partnership Committee.

 

8.3                               Checks.  All checks or demands for money of the Partnership shall be signed by such officer or officers or such other person or persons as the Partnership Committee may from time to time designate.

 

8.4                               Periodic Reports to Partners.  The Partnership Committee and OCI shall provide to the Partners all periodic financial reports and tax information (e.g., returns, filings and other submissions) prepared, filed or submitted by either of them with respect to the Partnership’s business at such times and in such form as are described on Exhibit A attached hereto and incorporated by reference herein or at such other times and in such other form as is comparable to that described on Exhibit A.

 

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8.5                               Tax Matters Partner/Meetings Regarding Tax Matters.

 

(a)                                 Tax Matters Partner.  OCI is specifically authorized to act as the “Tax Matters Partner” under the Code and in any similar capacity under state or local law, provided that:

 

(i)                                     OCI shall not extend the statute of limitations for assessment of tax deficiencies against any of the Partners or Interest Holders with respect to adjustments to the Partnership’s federal, state or local tax returns without the consent of the Partner or Interest Holder affected thereby;

 

(ii)                                  In representing the Partnership, Partners and Interest Holders before taxing authorities or courts of competent jurisdiction in tax matters affecting the Partnership, Partners and Interest Holders, OCI may execute agreements or documents that bind the Partners and Interest Holders with respect to such tax matters only to the extent provided in Code Sections 6221 through 6231; and

 

(iii)                               Prior to instituting in any forum any judicial proceeding relating to any tax matters affecting the Partnership, Partners and Interest Holders, OCI shall consult with NRP TRONA and give serious consideration to any proposals made by NRP TRONA with respect to the choice of forum in which such proceeding shall be brought.

 

(b)                                 Meetings Regarding Tax Matters.  In connection with any tax dispute affecting the Partnership, Partners, or Interest Holders, OCI shall afford NRP TRONA or its representatives the opportunity to be present to observe (but not participate in) all administrative conferences (other than conferences during the examination period) and, in litigation, all proceedings and settlement discussions where it is reasonably feasible to do so.  OCI shall keep NRP TRONA apprised in a timely manner of the status of any tax audit or tax dispute and shall provide NRP TRONA both with the written submissions to the taxing authority regarding the audit or dispute in advance of their submission, when feasible, and with correspondence and notices received from the taxing authority.

 

SECTION 9
 AMENDMENTS; MEETINGS

 

9.1                               Amendments.

 

(a)                                 In General.  Except as provided in Section 9.1(b) hereof, this Agreement may be amended by the affirmative vote of a majority of the Partnership Committee at any regular meeting of the Partnership Committee or at any special meeting of the Partnership Committee if notice of the proposed amendment be contained in the notice of such special meeting.

 

(b)                                 Special Matters.  Notwithstanding anything to the contrary in this Agreement, (i) the following Sections may be amended only with the affirmative vote of the entire Partnership Committee: 1.3; 1.7(v); 1.7(oo); 1.8; 1.9; 2.1; 2.2; 2.3; 2.4; 3.1; 4; 5.1(j);

 

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5.2(a); 5.6; 5.7; 5.8(a); 5.8(b); 5.8(c); 5.9; 7; 8.4; 8.5; 9.1; 10; 11; 12.1; 12.2; 12.3; 13.4; 13.9; and 13.11; and (ii) any amendment of this Agreement that potentially would increase the liability of a General Partner under the terms of this Agreement shall require the affirmative vote of the entire Partnership Committee and such General Partner.

 

9.2                               Meetings of the Partners.

 

(a)                                 In General.  Meetings of the Partners, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president and shall be called by the president or secretary at the request in writing of any of the Partners entitled to vote or at the request in writing of a majority of the Partnership Committee.  Such request shall state the purpose or purposes of the proposed meeting.

 

(i)                                     Meetings of Partners may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of the meeting or in a duly executed waiver of notice thereof.

 

(ii)                                  Written notice of a meeting of the Partners shall be served upon or mailed to each Partner entitled to vote thereat at such address as appears on the books of the Partnership at least 20 days prior to the meeting.

 

(b)                                 Quorum.

 

(i)                                     A Majority in Interest of the Partners entitled to vote thereat, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the Partners for the transaction of business except as otherwise provided by this Agreement or the Act.  If, however, such quorum shall not be present or represented at any meeting of the Partners, the Partners entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented.  At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified.

 

(ii)                                  When a quorum is present at any meeting, the vote of a Majority in Interest of the Partners having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the Act or of this Agreement a different vote is required in which case such express provision shall govern and control the decision of such question.

 

(c)                                  Partner Vote.  At any meeting of the Partners every Partner having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such Partner and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period.  Each Partner shall have one vote for each Percentage Interest having voting power, registered in his name on the books of the Partnership.

 

(d)                                 Consent in Writing.  Whenever the vote of Partners at a meeting thereof is required or permitted to be taken in connection with any Partnership action by any

 

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provisions of the Act or of this Agreement, the meeting and vote of Partners may be dispensed with if all the Partners who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such Partnership action being taken.

 

SECTION 10
 TRANSFERS OF INTERESTS

 

10.1                        Restriction on Transfers.  No Partner or Interest Holder shall Transfer any of its Interest in the Partnership save as provided in this  Section 10 and subject to the restriction regarding the Transfer of a General Partner’s Interest as a General Partner provided in Section 11 hereof.  No Ultimate Parent shall Transfer or cause or permit to be Transferred any portion of its interest in any Person 80% of the fair market value of the assets of which, whether held directly or indirectly, consist of an Interest in the Partnership unless (i) after such Transfer, such Partnership Interest shall continue to be held by an Affiliate of such Ultimate Parent described in Section 1.7(c)(i) hereof, or (ii) prior to such transfer, such Partnership Interest shall have been Transferred in a Permitted Transfer.

 

10.2                        Permitted Transfers.  Subject to the conditions and restrictions set forth in Section 10.3 hereof, any Partner or Interest Holder may at any time Transfer all or any portion of its Interests to (a) any Affiliate of the transferor described in Section l.7(c)(i) hereof or, (b) any Purchaser in accordance with Section 10.4 hereof (any such Transfer being referred to in this Agreement as a “Permitted Transfer”) or (c) the lenders (or the administrative agent or collateral agent therefor) under the OCI Credit Facility in connection with the pledge of Interests thereunder (or the exercise or remedies with respect thereto).

 

10.3                        Conditions to Permitted Transfers.  A Transfer shall not be treated as a Permitted Transfer under Section 10.2 hereof unless and until the following conditions are satisfied:

 

(a)                                 Except in the case of a Transfer of Interests involuntarily by operation of law, the transferor and transferee shall execute and deliver to the Partnership such documents and instruments of conveyance as may be necessary or appropriate in the opinion of counsel to the Partnership to effect such Transfer and to confirm the agreement of the transferee to be bound by the provisions of this Section 10.  In the case of a Transfer of Interests involuntarily by operation of law, the Transfer shall be confirmed by presentation to the Partnership of legal evidence of such Transfer, in form and substance satisfactory to counsel to the Partnership.

 

(b)                                 Except in the case of a Transfer involuntarily by operation of law, the transferor shall furnish to the Partnership an opinion of counsel, which counsel and opinion shall be satisfactory to the Partnership, that the Transfer will not cause the Partnership to terminate for federal income tax purposes.

 

(c)                                  The transferor and transferee shall furnish the Partnership with the transferee’s taxpayer identification number, sufficient information to determine the transferee’s initial tax basis in the Interests transferred, and any other information reasonably necessary to permit the Partnership to file all required federal and state tax returns and other legally required

 

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information statements or returns.  Without limiting the generality of the foregoing, the Partnership shall not be required to make any distribution otherwise provided for in this Agreement with respect to any transferred Interests until it has received such information.

 

(d)                                 In the case of a Transfer of a Limited Partner’s Interest, the transferor must obtain the prior consent of all Partners to such Transfer.

 

10.4                        Right of First Refusal.  In addition to the other limitations and restrictions set forth in this Section 10, except as permitted by Section 10.2(a) hereof, no Partner or Interest Holder shall Transfer all or any portion of its Interests (the “Offered Interest”) unless such Partner or Interest Holder first offers to sell the Offered Interest pursuant to the terms of this Section 10.4, provided that, notwithstanding anything to the contrary herein, no Transfer arising out of the pledge of any Interest (including the exercise of remedies with respect to such pledge) by OCI pursuant to the OCI Credit Facility shall be subject to this Section 10.4.

 

(a)                                 In General.  Should any Partner or Interest Holder (the “Seller”) propose to transfer any of its Interest in the Partnership, such Seller shall first obtain a bona fide written offer (the “Purchase Offer”) for the purchase thereof from a responsible purchaser (the “Purchaser”) who is ready, willing and able to purchase the same, which offer shall provide for a purchase price payable in cash of the lawful money of the United States of America or other “hard” currency.  The Seller shall give the other Partners (the “Offerees”) written notice by registered or certified mail, the notice to be accompanied by a photostatic copy of such Purchase Offer.  Such notice shall specify the Percentage Interest to be transferred (the “Offered Interest”), the name of the proposed purchaser, and the price for which such Offered Interest is proposed to be transferred.  In the event such notice is given, then the Offerees shall have 30 days within which to elect to purchase the Offered Interest at the price and on the terms specified in said offer, provided that payment may be made in cash of the lawful money of the United States of America or other “hard” currency provided that the value of such payment equals the price specified in the Purchase Offer.  Each Offeree shall have the option to purchase that portion of the Offered Interest as corresponds to a fraction, the numerator of which is such Offeree’s Percentage Interest, and the denominator of which is the aggregate Percentage Interests held by Offerees.  In the event either Offeree shall not elect to purchase its entire pro rata share, such share not purchased may be purchased by the other Offeree.  An election shall be made by giving written notice to the Seller within said 30-day period by registered or certified mail stating the portion of the Offered Interest that such Offeree is willing to purchase.  The Offerees electing to purchase the Offered Interest shall have 15 days after giving notice of such election to consummate such purchase.  If the Seller shall give notice to the Offerees as herein required, and the Offerees shall not elect to purchase the entire Offered Interest within such 30-day period or shall fail to consummate such purchase within 15 days after such election, the Offered Interest may thereafter be transferred to said Purchaser.

 

(b)                                 Pledges.  In the event that any Partner or Interest Holder (the “Pledgor”) shall desire to pledge or otherwise encumber any of its Interest in the Partnership as security for the payment of a debt, such Pledgor shall give written notice of the pledging or hypothecation of such Interest to the other Partners by giving written notice thereof by registered or certified mail to the other Partners within 10 days after the making of the agreement pledging or hypothecating said Interest.  Any such pledge or hypothecation agreement shall require the

 

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pledgee or party secured to assume and be bound by all of the obligations, terms and conditions of this Agreement.  No such pledge or hypothecation agreement shall be made unless it shall provide that any sale of the Interest so pledged or hypothecated pursuant to the provisions of said pledge or hypothecation agreement shall be at public sale and after thirty (30) days’ notice shall have been given to the other Partners by registered or certified mail of such sale.  In the event any Pledgor shall have pledged or hypothecated any of its Interest in the Partnership and is unable or unwilling to redeem the same as provided for in the pledge or hypothecation agreement, such Pledgor agrees to notify the Partners of its inability or unwillingness to redeem at least ten (10) days before the maturity of the pledge or hypothecation agreement and hereby, agrees to give to the Partners the right to redeem the pledged Interest in the same proportions as such Partners could have elected to purchase the pledged Interest pursuant to Section 10.4(a) hereof had it been an Offered Interest.  In the event the Partners shall redeem the Interest so pledged or hypothecated, the Pledgor who originally pledged or hypothecated said Interest shall, without further consideration, promptly execute and deliver to the Partners all documents required to transfer to them the ownership of the Interest so pledged or hypothecated.

 

10.5                        Involuntary Transfers.  In the event that any Partner or Interest Holder shall become a party to any proceeding or be subject to any legal process, the purpose of which is to require the involuntary transfer of any portion of the Interest in the Partnership of such Partner, such Partner shall immediately give notice by wire to the other of such Partners of the existence or pendency of such legal proceeding or legal process.

 

10.6                        Admission of Transferees as Partners.  Subject to the other provisions of this Section 10, a transferee of an Interest in the Partnership may be admitted to the Partnership as a substituted Partner only upon satisfaction of the conditions set forth below in this Section 10.6:

 

(a)                                 The Interests with respect to which the transferee is being admitted were acquired by means of a Permitted Transfer or in the circumstances described in Section 10.2(c);

 

(b)                                 The transferee becomes a party to this Agreement as a Partner and executes such documents and instruments as the Partnership Committee may reasonably request (including, without limitation, amendments to the Certificate) and as may be necessary or appropriate to confirm such transferee as a Partner in the Partnership and such transferee’s agreement to be bound by the terms and conditions hereof;

 

(c)                                  If the transferee is a Person other than an individual, the transferee provides the Partnership with evidence satisfactory to counsel for the Partnership that such transferee has made each of the representations and undertaken each of the warranties described in Section 7 hereof; and

 

(d)                                 A transferee of an Interest from a Limited Partner hereunder shall be admitted as a Limited Partner with respect to such Interest if, but only if, all of the other Partners consent to such admission.

 

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10.7                        Rights of Unadmitted Assignees.  A person who acquires one or more Interests but who is not admitted as a substituted Partner pursuant to Section 10.6 and Section 11.2(b) hereof shall be entitled only to allocations and distributions with respect to such Interests in accordance with this Agreement, but shall have no right to any information or accounting of the affairs of the Partnership, shall not be entitled to inspect the books or records of the Partnership, and shall not have any of the rights of a General Partner or a Limited Partner under the Act or this Agreement.

 

10.8                        Transfer Procedures.

 

(a)                                 Transfer Books.  The Partnership Committee may close the transfer books of the Partnership for a period not exceeding 50 days preceding the date of any meeting of Partners or the date for any distribution pursuant to Section 4 hereof or the date for the allotment of rights or for a period of not exceeding 50 days in connection with obtaining the consent of Partners for any purpose.  In lieu of closing the transfer books as aforesaid, the Partnership Committee may fix in advance a date, not exceeding 50 days preceding the date of any meeting of Partners, or the date for making any distribution, or the date for the allotment of rights, or a date in connection with obtaining such consent, as a record date for the determination of the Partners entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive any such distribution, or to any such allotment of rights, or to give such consent, and in such case such Partners and only such Partners as shall be Partners of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive such distribution, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any Interest in the Partnership on the books of the Partnership after any such record date fixed as aforesaid.

 

(b)                                 Holders of Record.  The Partnership shall be entitled to treat the holder of record of any Interest in the Partnership as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Interest in the Partnership on the part of any other Person, whether or not it shall have express or other notice thereof, except as otherwise provided by the Act.

 

SECTION 11
 GENERAL PARTNERS

 

11.1                        Covenant Not to Withdraw, Transfer, or Dissolve.  Except as otherwise permitted by this Agreement, each of the General Partners hereby covenants and agrees not to (a) take any action to file a certificate of dissolution or its equivalent with respect to itself, (b) take any action that would cause a Voluntary Bankruptcy of the General Partner, (c) withdraw or attempt to withdraw from the Partnership, (d) exercise any power under the Act to dissolve the Partnership, (e) transfer all or any portion of its Interest in the Partnership as a General Partner, or (f) petition for judicial dissolution of the Partnership.  Further, each of the General Partners hereby covenants and agrees to continue to carry out the duties of a General Partner hereunder until the Partnership is dissolved and liquidated pursuant to Section 12 hereof.

 

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11.2                        Conditions to Permitted Transfers; Substitution.

 

(a)                                 Each of the General Partners may transfer, assign, encumber, pledge or in any way alienate any of its Interest in the Partnership as a General Partner in accordance with Section 10 hereof; provided that the transferor and transferee provide the Partnership with an opinion of counsel, which opinion of counsel shall be acceptable to the other Partners, to the effect that such Transfer will not cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes, or to fail to meet any condition precedent then in effect pursuant to an official pronouncement of the Internal Revenue Service to the issuance of a private letter ruling by the Internal Revenue Service confirming that the Partnership will be treated as a Partnership for federal tax purposes, whether or not such a ruling is being or has been requested.

 

(b)                                 A transferee of a Partnership Interest from a General Partner hereunder shall be admitted as a General Partner with respect to such Interest if, but only if, all of the other Partners consent to such admission, provided that no such consent shall be required with respect to the Transfer by OCI of its Interests in connection with the pledge thereof pursuant to the OCI Credit Facility.  In the event that the transferee of a Partnership Interest from a General Partner is admitted hereunder, such transferee shall be deemed admitted to the Partnership as a General Partner immediately prior to the Transfer, and such transferee shall continue the business of the Partnership without dissolution.

 

(c)                                  A transferee who acquires a Partnership Interest from a General Partner hereunder by means of a transfer that is permitted under Section 10 and this Section 11.2, but who is not admitted as a General Partner, shall have no authority to act for or bind the Partnership, to inspect the Partnership’s books, or otherwise to be treated as a General Partner, but such transferee shall be treated as an unadmitted assignee in accordance with Section 10.7 hereof.  Following such a Transfer, the transferor shall not cease to be a general partner of the Partnership and shall continue to be a General Partner.

 

11.3                        Termination of Status as General Partner.

 

(a)                                 A General Partner shall cease to be a General Partner upon the first to occur of (i) the Bankruptcy of such Partner; (ii) the Transfer of such Partner’s Interest as a General Partner; provided that the transferee of such Interest is admitted as a substituted General Partner pursuant to Section 11.2(b) hereof; (iii) the involuntary Transfer by operation of law of such General Partner’s Interest in the Partnership, (iv) after such General Partner has committed a material breach of this Agreement, or committed any other act or suffered any other condition, in each case that would justify a decree of dissolution of the Partnership under the laws of the State of Delaware.  In the event a Person ceases to be a General Partner without having transferred its entire Interest as a General Partner, such Person shall be treated as an unadmitted assignee of a Partnership Interest in accordance with Section 10.7 hereof.

 

If a General Partner ceases to be a Partner for any reason hereunder, such Person shall continue to be liable as a Partner for all debts and obligations of the Partnership existing at the time such Person ceases to be a General Partner, regardless of whether, at such time, such debts or liabilities were known or unknown, actual or contingent.  A Person shall not be liable as a General Partner for Partnership debts and obligations arising after such Person ceases to be a General Partner.  Any debts, obligations, or liabilities in damages to the Partnership of any

 

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Person who ceases to be a General Partner shall be collectible by any legal means and the Partnership is authorized, in addition to any other remedies at law or in equity, to apply any amounts otherwise distributable or payable by the Partnership to such Person to satisfy such debts, obligations, or liabilities.

 

(b)                                 It is the intention of the Partners that the Partnership not dissolve as a result of the cessation of any General Partner’s status as a General Partner; provided, however, that if it is determined by a court of competent jurisdiction that the Partnership has dissolved, the provisions of Section 12.1 shall govern.

 

(c)                                  If at the time a Person ceases to be a General Partner such Person is also a Limited Partner or an Interest Holder with respect to Interests other than its Interest as a General Partner, such cessation shall not affect such Person’s rights and obligations with respect to such Interests.

 

SECTION 12
 DISSOLUTION AND WINDING UP

 

12.1                        Liquidating Events.  The Partnership shall dissolve and commence winding up and liquidating upon the first to occur of any of the following (“Liquidating Events”):

 

(a)                                 The vote of the Partners as required by under the Act to dissolve, wind up and liquidate the Partnership;

 

(b)                                 The finding by the Partnership Committee or the issuance of a judicial determination that any event has occurred that makes it unlawful, impossible or impractical to carry on the business of the Partnership; or

 

(c)                                  The withdrawal or removal of a General Partner, the assignment by a General Partner of its entire Interest in the Partnership or any other event that causes a General Partner to cease to be a general partner under the Act, provided that any such event shall not constitute a Liquidating Event if the Partnership is continued pursuant to this Section 12.1.

 

The Partners hereby agree that, notwithstanding any provision of the Act or the Delaware Uniform Partnership Act, the Partnership shall not dissolve prior to the occurrence of a Liquidating Event.  Upon the occurrence of any event set forth in Section 12.1(c), the Partnership shall not be dissolved or required to be wound up if (x) at the time of such event there is at least one remaining General Partner and that General Partner carries on the business of the Partnership (any such remaining General Partner being hereby authorized to carry on the business of the Partnership), or (y) within ninety (90) days after such event all remaining Partners agree in writing to continue the business of the Partnership and to the appointment, effective as of the date of such event, of one or more substitute or additional General Partners.  If it is determined, by a court of competent jurisdiction, that the Partnership has dissolved prior to the occurrence of a Liquidating Event, or if upon the occurrence of an event specified in Section 12.1(c) hereof, the Partners fail to agree to continue the business of the Partnership as provided in this Section 12.1, then within an additional 90 days, a 2/3 majority in interest of the Partners may elect to reconstitute the Partnership and continue its business on the same terms and conditions set forth

 

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in this Agreement by forming a new limited partnership on terms identical to those set forth in this Agreement and having as a general partner a Person elected by such 2/3 majority in interest.  Upon any such election by a 2/3 majority in interest of the Partners, all Partners shall be bound thereby and shall be deemed to have consented thereto.  Unless such an election is made within 180 days after the event causing dissolution, the Partnership shall wind up its affairs in accordance with Section 12.2 hereof.  If such an election is made within 180 days after the event causing dissolution, then:

 

(a)                                 The reconstituted limited partnership shall continue until the occurrence of a Liquidating Event as provided in this Section 12.1;

 

(b)                                 If the successor general partner is not a former General Partner, then the Interest of any former General Partner shall be treated thenceforth as the Interest of an Interest Holder; and

 

(c)                                  All necessary steps shall be taken to cancel this Agreement and the Certificate and to enter into a new partnership agreement and certificate of limited partnership; provided that the right of a two-thirds (2/3) majority in interest of the Partners to select a successor general partner and to reconstitute and continue the business of the Partnership shall not exist and may not be exercised unless the Partnership has received an opinion of counsel that the exercise of the right would not result in the loss of limited liability of any Limited Partner and neither the Partnership nor the reconstituted Partnership would cease to be treated as a partnership for federal income tax purposes upon the exercise of such right to continue.

 

12.2                        Winding Up.  Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Partners and no Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership’s business and affairs, provided that, all covenants contained in this Agreement and obligations provided for in this Agreement shall continue to be fully binding upon the Partners until such time as the Partnership Property has been distributed pursuant to this Section 12.2 and the Certificate has been cancelled pursuant to the Act.  The Partnership Committee, or if the Partnership Committee shall not exist or it shall not be possible for the Partnership Committee to establish a quorum, such other liquidating trustee(s) as are appointed in accordance with the Act shall be the Liquidator.  The Liquidator shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership’s liabilities and Property and, to the extent determined by the Liquidator, the Property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom together with any remaining Property, to the extent sufficient therefor, shall be applied and distributed in the following order:

 

(a)                                 First, to the payment and discharge of all of the Partnership’s debts and liabilities to creditors other than the Partners;

 

(b)                                 Second, to the payment and discharge of all of the Partnership’s debts and liabilities to the Partners; and

 

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(c)                                  The balance, if any, to the Partners and Interest Holders in accordance with their Capital Accounts, after giving effect to all contributions, distributions, and allocations for all periods.

 

(d)                                 The Partners understand and agree that by accepting the provisions of this Section 12.2 setting forth the priority of the distribution of the assets of the Partnership to be made upon its liquidation, the Partners expressly waive any right which they, as creditors of the Partnership, might otherwise have under the Act to receive a distribution of assets pari passu with other creditors of the Partnership in connection with a distribution of assets of the Partnership in satisfaction of liabilities of the Partnership, and hereby subordinate to said creditors any such right.

 

12.3                        Notice of Dissolution.  In the event a Liquidating Event occurs or an event occurs that would, but for provisions of Section 12.1, result in a dissolution of the Partnership, the Partnership Committee shall, within 30 days thereafter, provide written notice thereof to each of the Partners and to all other parties with whom the Partnership regularly conducts business (as determined in the discretion of the Partnership Committee) and shall publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conducts business (as determined in the discretion of the Partnership Committee).

 

SECTION 13
 MISCELLANEOUS

 

13.1                        Notices.

 

(a)                                 Whenever under the provisions of this Agreement or the Act notice is required to be given to any person, it shall not be construed to mean personal notice, but such notice may be given in writing, by registered mail, addressed to such person at such address as appears on the books of the Partnership, and such notice shall be deemed to be given at the time when the same shall be thus mailed.  Notice to Representatives may also be given by telegram.

 

(b)                                 Whenever any notice is required to be given under the provisions of this Agreement or the Act, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

 

13.2                        Headings.  Section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof.

 

13.3                        Variation of Pronouns.  All pronouns and any variations thereof shall be deemed to refer to masculine, feminine, or neuter, singular or plural, as the identity of the person or persons may require.

 

13.4                        Governing Law.  The laws of the State of Delaware (without regard to the choice of law principles thereof) shall govern the validity of this Agreement, the construction of its terms, and the interpretation of the rights and duties of the Partners.

 

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13.5                        Waiver of Action for Partition; No Bill For Partnership Accounting.  Each of the Partners irrevocably waives any right that it may have to maintain any action for partition with respect to any of the Partnership Property.  To the fullest extent permitted by law, each of the Partners covenants that it will not (except with the consent of the Partnership Committee) file a bill for Partnership accounting.

 

13.6                        Implementation.  Each of the Partners agrees to promptly execute all instruments and to promptly do all other things necessary for the effectuation and implementation of this Agreement.

 

13.7                        Counterparts.  Any number of counterparts of this Agreement may be executed.  Each counterpart will be deemed to be an original instrument and all counterparts taken together will constitute one agreement.

 

13.8                        Execution; Effective Date.  Each of the parties hereto agrees as follows:

 

(a)                                 This Agreement will not be binding and effective until signed and executed by all the parties hereto.

 

(b)                                 Execution in counterparts shall be effective upon signing; provided that, if a counterpart is executed in escrow, such counterpart shall become effective prospectively when released from escrow.

 

13.9                        Initial Public Offering of OCI Resources LP and Exchange Act Reporting.  Notwithstanding anything herein to the contrary, no consent or approval of any Partner or the Partnership Committee shall be required in connection with the initial public offering of common units representing limited partner interests (the “OCI Units”) in OCI pursuant to the Registration Statement on Form S-1 (Registration No. 333-189838) (the “IPO”) and/or any subsequent transfer or issuance of such OCI Units to one or more third parties; provided that OCI Enterprises, Inc., either alone or together with one or more of its Affiliates, directly or indirectly controls the management and policies of OCI after such transfer or issuance, and such initial public offering (and subsequent transfers or issuances of OCI Units) shall not be subject to Section 10 or Section 11 of this Agreement nor cause any Partner to have any rights or obligations under Section 10 or Section 11 of this Agreement.  The parties hereto agree that the Transfer by OCI Co. of its limited partnership interests in the Partnership to OCI contemporaneously with the IPO is a Permitted Transfer to an Affiliate pursuant to Section 10.2(a) and each of the Partners hereby consents to such Transfer pursuant to Section 10.3(d).  In addition, notwithstanding anything herein to the contrary OCI shall be permitted to file and submit documents or agreements with the Securities and Exchange Commission, applicable securities exchanges and regulatory and self-regulatory organizations and compile, prepare and publicly disclose information regarding the Partnership, this Agreement and any matters related thereto, in each case to the extent required by applicable law, rule or regulation or the rules and regulations of any applicable securities exchange or as reasonably necessary in the view of OCI to conform to customary disclosure practices of other publicly traded master limited partnerships.  Each of OCI and NRP TRONA agrees that it or one of its Affiliates shall provide to the other a copy of each of its periodic reports, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K relating to the Partnership or its

 

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business, to be filed by it with the Securities and Exchange Commission two days prior to such filing; provided that each of OCI and NRP TRONA agrees not to use the information contained therein (except for a purpose directly related to the business of the Partnership) and to maintain the confidentiality of any such filing and the contents thereof and further agrees not to provide to any other Person copies of any such filing without the express prior written consent of OCI or NRP TRONA, as applicable; provided that each of OCI and NRP TRONA may provide such report: (i) to its accountants, internal and external auditors, legal counsel and other fiduciaries (who may be Affiliates) as long as any such Person agrees in writing to maintain the confidentiality thereof and not to disclose to any other Person any information contained therein and (ii) to other Persons if and to the extent required by law (including judicial or administrative order) provided that, to the extent legally permissible, OCI or NRP TRONA, as applicable, is given prior notice to enable it to seek a protective order or similar relief.  Notwithstanding the foregoing, information generally known to the public, including such periodic reports and all information contained in such reports after they have been filed by OCI or NRP TRONA, as applicable, with the Securities and Exchange Commission, shall not be considered confidential information for purposes of this Agreement and may be provided by OCI or NRP TRONA to any other Person.

 

13.10                 No Commingling of Funds or Accounts.  The General Partners shall not commingle the funds and accounts of the Partnership with any of their respective affiliates.

 

13.11                 Incurrence of Debt.  Without the prior written consent of each General Partner, the Partnership shall not from and after the date hereof (i) incur any debt for money borrowed, (ii) enter into any mortgage, deed of trust or guaranty, or (iii) enter into any indemnity bond in excess of $5 million, surety bond in excess of $5 million, performance bond in excess of $5 million, accommodation paper in excess of $5 million or endorsement in excess of $5 million.  In the event that the Partnership shall enter into any agreement relating to debt for money borrowed, mortgage, deed of trust, guaranty, indemnity bond, surety bond, performance bond, accommodation paper or endorsement not disclosed pursuant to clause (i), (ii) or (iii) of the immediately preceding sentence, each General Partner shall receive reasonably prompt prior notice thereof; provided, however, that nothing contained in this sentence to the contrary shall limit the right of any General Partner to vote against any such transaction pursuant to the Partnership Agreement.  It is expressly understood that the Partnership Credit Facility, and any borrowings thereunder, and all indebtedness, capital leases, notes, debentures and bonds existing as of the date hereof and all amendments, restatements, replacements, refinancing or other modifications with respect to and arising from such existing indebtedness, capital leases, notes, debentures and bonds shall not be subject to the restrictions imposed by this Section 13.11.

 

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IN WITNESS WHEREOF, the parties hereto have subscribed to this Agreement on the 18th day of July 2013, to be effective as provided in Paragraph 13.8 hereof.

 

 

	
 
    	
OCI   RESOURCES LP
    
	
 
    	
 
    
	
 
    	
By:   OCI Resource Partners LLC, its general partner
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Kirk H. Milling
    
	
 
    	
 
    	
Name:   
    	
Kirk   H. Milling
    
	
 
    	
 
    	
Title:   
    	
Chief   Executive Officer, President and Director
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
NRP   TRONA LLC 
    
	
 
    	
 
    
	
 
    	
By:   NRP (Operating) LLC, its sole member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Wyatt Hogan
    
	
 
    	
 
    	
Name:   
    	
Wyatt   Hogan
    
	
 
    	
 
    	
Title:   
    	
Vice   President and General Counsel
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
OCI   WYOMING CO.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Kirk H. Milling
    
	
 
    	
 
    	
Name:   
    	
Kirk   H. Milling
    
	
 
    	
 
    	
Title:   
    	
Chief   Executive Officer, President and Director
    

 

 

EXHIBIT A

 

PERIODIC REPORTS TO PARTNERS

 

	
Monthly   Reports
    	
 
    	
Date   Required
    
	
 
    	
 
    	
 
    
	
·
    	
Controllers   Report
    	
 
    	
25th   of month Following
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
·
    	
Income Statement
    	
 
    	
 
    
	
 
    	
·
    	
Balance Sheet
    	
 
    	
 
    
	
 
    	
·
    	
Cash Flow Statement
    	
 
    	
 
    
	
 
    	
·
    	
Cost of Goods Sold Detail
    	
 
    	
 
    
	
 
    	
·
    	
Schedule of Other Current Assets, Accrued   Liabilities, Other Long Term Liabilities
    	
 
    	
 
    
	
 
    	
·
    	
Schedule of Production, Inventories, Sales   Volume, Sales Netback, Workforce, Fuel Cost
    	
 
    	
 
    
	
 
    	
·
    	
Accounts Receivable Aging
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
·
    	
Operations   Report
    	
 
    	
15th   of Month Following
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
·
    	
Safety   Performance
    	
 
    	
 
    
	
 
    	
·
    	
Environmental   Performance
    	
 
    	
 
    
	
 
    	
·
    	
Operations
    	
 
    	
 
    
	
 
    	
·
    	
Production
    	
 
    	
 
    
	
 
    	
·
    	
Headcount   by Cost Center
    	
 
    	
 
    
	
 
    	
·
    	
Overtime
    	
 
    	
 
    
	
 
    	
·
    	
Major   Capital Projects
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
·
    	
Trona   Mining and Refining Report
    	
 
    	
5th   of Month Following
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
·
    	
Summary of Mine Production, Refinery   Consumption, Inventories, and Shipments by Mineral Ownership
    	
 
    	
 
    
	
 
    	
·
    	
Mine Production by Section
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
·
    	
Energy   Report
    	
 
    	
5th   of Month Following
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
·
    	
Energy Summary
    	
 
    	
 
    
	
 
    	
·
    	
Power Cost
    	
 
    	
 
    
	
 
    	
·
    	
Gas Reserve Transactions
    	
 
    	
 
    

 

A-1

 

	
Annual   Reports
    	
 
    	
Date   Required
    
	
 
    	
 
    	
 
    
	
·
    	
Cost   Center Report — December
    	
 
    	
25th   of January
    
	
 
    	
 
    	
 
    	
(include   with December Controller’s Report)
    
	
 
    	
 
    	
 
    	
 
    
	
·
    	
Preliminary   Annual Budget
    	
 
    	
7th   of September
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
·
    	
Key   Assumptions
    	
 
    	
 
    
	
 
    	
·
    	
Sales   Volumes and Prices
    	
 
    	
 
    
	
 
    	
·
    	
Cost   of Goods Detail
    	
 
    	
 
    
	
 
    	
·
    	
Income   Statement
    	
 
    	
 
    
	
 
    	
·
    	
Cash   Flow Statement
    	
 
    	
 
    
	
 
    	
·
    	
Capital   Expenditures Program
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
·
    	
 
    	
Final   Annual Budget
    	
 
    	
1st   of December
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
·
    	
Key   Assumptions
    	
 
    	
 
    
	
 
    	
·
    	
Sales   Volumes and Prices
    	
 
    	
 
    
	
 
    	
·
    	
Cost   of Goods Detail
    	
 
    	
 
    
	
 
    	
·
    	
Income   Statement
    	
 
    	
 
    
	
 
    	
·
    	
Cash   Flow Statement
    	
 
    	
 
    
	
 
    	
·
    	
Capital   Expenditures Program
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
·
    	
Three   Year Plan
    	
 
    	
1st   of December (include with final annual budget)
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
·
    	
Key   Assumptions
    	
 
    	
 
    
	
 
    	
·
    	
Sales   Volumes and Prices
    	
 
    	
 
    
	
 
    	
·
    	
Cost   of Goods Detail
    	
 
    	
 
    
	
 
    	
·
    	
Income   Statement
    	
 
    	
 
    
	
 
    	
·
    	
Cash   Flow Statement
    	
 
    	
 
    
	
 
    	
·
    	
Capital   Expenditures Program
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
·
    	
Audited   Financial Statements
    	
 
    	
15th   of April
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Tax   Information
    	
 
    	
Date   Required
    
	
 
    	
 
    	
 
    
	
All   returns, filings or other submissions filed with or submitted to any federal   taxing jurisdiction
    	
 
    	
30   days prior to the due date (including extensions) of the submission
    
	
 
    	
 
    	
 
    
	
All   returns, filings or other submissions filed with or submitted to any state or   local taxing jurisdiction
    	
 
    	
15   days prior to the due date (including extensions) of the submission
    
	
 
    	
 
    	
 
    
	
All   notices or other correspondence received from any federal, state or local   taxing jurisdiction
    	
 
    	
Within   10 days after receipt
    

 

A-2Exhibit 10.1

 

 

 

 

 

 

 

 

 

 

STOCK PURCHASE AGREEMENT

 

BY AND AMONG

 

ALLSTATE LIFE INSURANCE COMPANY,

 

RESOLUTION LIFE HOLDINGS, INC.

 

AND

 

RESOLUTION LIFE L.P.

 

(SOLELY FOR PURPOSES OF SECTION 5.25 AND ARTICLE X)

 

DATED AS OF JULY 17, 2013

 

 

 

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
ARTICLE   I.             DEFINITIONS
    	
2
    
	
 
    	
 
    
	
SECTION 1.1.
    	
Definitions
    	
2
    
	
 
    	
 
    	
 
    
	
ARTICLE   II.           PURCHASE OF THE SHARES
    	
14
    
	
 
    	
 
    
	
SECTION 2.1.
    	
Purchase and Sale of Shares
    	
14
    
	
SECTION 2.2.
    	
Closing
    	
14
    
	
SECTION 2.3.
    	
Closing Deliveries
    	
14
    
	
SECTION 2.4.
    	
Payment at Closing
    	
15
    
	
SECTION 2.5.
    	
Post-Closing Payments
    	
15
    
	
SECTION 2.6.
    	
Additional Post-Closing Payments
    	
18
    
	
 
    	
 
    	
 
    
	
ARTICLE   III.         REPRESENTATIONS AND   WARRANTIES OF SELLER
    	
18
    
	
 
    	
 
    
	
SECTION 3.1.
    	
Organization, Standing and Corporate Power
    	
18
    
	
SECTION 3.2.
    	
Capital Structure
    	
19
    
	
SECTION 3.3.
    	
Subsidiaries
    	
19
    
	
SECTION 3.4.
    	
Authority
    	
20
    
	
SECTION 3.5.
    	
Noncontravention; Consents
    	
20
    
	
SECTION 3.6.
    	
Financial Statements; Insurance Reserves; Internal   Controls
    	
20
    
	
SECTION 3.7.
    	
No Undisclosed Liabilities
    	
21
    
	
SECTION 3.8.
    	
Absence of Certain Changes or Events
    	
22
    
	
SECTION 3.9.
    	
Employees and Benefit Plans
    	
22
    
	
SECTION 3.10.
    	
Taxes
    	
23
    
	
SECTION 3.11.
    	
Compliance with Applicable Laws
    	
25
    
	
SECTION 3.12.
    	
Litigation
    	
26
    
	
SECTION 3.13.
    	
Contracts
    	
26
    
	
SECTION 3.14.
    	
Insurance Matters
    	
28
    
	
SECTION 3.15.
    	
Tax Treatment of Insurance Contracts
    	
29
    
	
SECTION 3.16.
    	
Reinsurance Contracts
    	
30
    
	
SECTION 3.17.
    	
Actuarial Reports
    	
31
    
	
SECTION 3.18.
    	
Company Insurance Policies
    	
32
    
	
SECTION 3.19.
    	
Environmental Matters
    	
32
    
	
SECTION 3.20.
    	
Intellectual Property
    	
32
    
	
SECTION 3.21.
    	
Brokers
    	
34
    
	
SECTION 3.22.
    	
Real Property
    	
34
    
	
SECTION 3.23.
    	
Sufficiency of Assets
    	
34
    
	
SECTION 3.24.
    	
Book and Records
    	
34
    
	
SECTION 3.25.
    	
Transactions with Affiliates
    	
34
    
	
SECTION 3.26.
    	
Investment Assets
    	
34
    
	
 
    	
 
    	
 
    
	
ARTICLE   IV.         REPRESENTATIONS AND   WARRANTIES OF BUYER
    	
35
    
	
 
    	
 
    
	
SECTION 4.1.
    	
Organization, Standing and Corporate Power
    	
35
    
	
SECTION 4.2.
    	
Authority
    	
35
    
	
SECTION 4.3.
    	
Noncontravention; Consents
    	
36
    

 

i

 

	
SECTION 4.4.
    	
Compliance with Applicable Laws
    	
36
    
	
SECTION 4.5.
    	
Purchase Not for Distribution
    	
36
    
	
SECTION 4.6.
    	
Litigation
    	
36
    
	
SECTION 4.7.
    	
Financial Ability
    	
37
    
	
SECTION 4.8.
    	
Solvency
    	
39
    
	
SECTION 4.9.
    	
Brokers
    	
39
    
	
 
    	
 
    	
 
    
	
ARTICLE   V.           COVENANTS
    	
39
    
	
 
    	
 
    
	
SECTION 5.1.
    	
Conduct of Business of the Company
    	
39
    
	
SECTION 5.2.
    	
Access to Information; Books and Records;   Confidentiality
    	
42
    
	
SECTION 5.3.
    	
Reasonable Best Efforts
    	
43
    
	
SECTION 5.4.
    	
Consents, Approvals and Filings
    	
43
    
	
SECTION 5.5.
    	
Public Announcements
    	
47
    
	
SECTION 5.6.
    	
Related Party Agreements
    	
48
    
	
SECTION 5.7.
    	
Use of Name; Domain Name Assignments
    	
48
    
	
SECTION 5.8.
    	
Further Assurances
    	
49
    
	
SECTION 5.9.
    	
Access to Books and Records
    	
50
    
	
SECTION 5.10.
    	
Non-Competition
    	
50
    
	
SECTION 5.11.
    	
Non-Solicitation
    	
51
    
	
SECTION 5.12.
    	
Employee Matters
    	
52
    
	
SECTION 5.13.
    	
Variable Annuity Transaction
    	
52
    
	
SECTION 5.14.
    	
Post-Closing Distribution
    	
54
    
	
SECTION 5.15.
    	
Specified Capital Charge
    	
55
    
	
SECTION 5.16.
    	
Organizational Documents
    	
55
    
	
SECTION 5.17.
    	
Transition Matters
    	
56
    
	
SECTION 5.18.
    	
Certain Business
    	
56
    
	
SECTION 5.19.
    	
Investment Assets
    	
57
    
	
SECTION 5.20.
    	
Resignations
    	
57
    
	
SECTION 5.21.
    	
Financial Information
    	
57
    
	
SECTION 5.22.
    	
Annuity Administration
    	
57
    
	
SECTION 5.23.
    	
Buyer Financing
    	
57
    
	
SECTION 5.24.
    	
Financing Cooperation
    	
59
    
	
SECTION 5.25.
    	
Subscription Rights
    	
61
    
	
SECTION 5.26.
    	
Certain Covenants
    	
61
    
	
 
    	
 
    	
 
    
	
ARTICLE   VI.         CONDITIONS PRECEDENT
    	
61
    
	
 
    	
 
    
	
SECTION 6.1.
    	
Conditions to Each Party’s Obligations
    	
61
    
	
SECTION 6.2.
    	
Conditions to Obligations of Buyer
    	
62
    
	
SECTION 6.3.
    	
Conditions to Obligations of Seller
    	
63
    
	
 
    	
 
    	
 
    
	
ARTICLE   VII.       INDEMNIFICATION
    	
64
    
	
 
    	
 
    
	
SECTION 7.1.
    	
Survival of Representations, Warranties and Covenants
    	
64
    
	
SECTION 7.2.
    	
Indemnification
    	
64
    
	
SECTION 7.3.
    	
Certain Limitations
    	
65
    
	
SECTION 7.4.
    	
Definitions
    	
66
    
	
SECTION 7.5.
    	
Procedures for Third Party Claims
    	
67
    
	
SECTION 7.6.
    	
Direct Claims
    	
69
    
	
SECTION 7.7.
    	
Sole Remedy
    	
69
    

 

ii

 

	
SECTION 7.8.
    	
Certain Other Matters
    	
69
    
	
SECTION 7.9.
    	
Product Tax Claims
    	
70
    
	
 
    	
 
    	
 
    
	
ARTICLE   VIII.     TAX MATTERS
    	
72
    
	
 
    	
 
    
	
SECTION 8.1.
    	
Indemnification for Taxes
    	
72
    
	
SECTION 8.2.
    	
Filing of Tax Returns
    	
73
    
	
SECTION 8.3.
    	
Tax Refunds
    	
74
    
	
SECTION 8.4.
    	
Cooperation and Exchange of Information
    	
74
    
	
SECTION 8.5.
    	
Conveyance Taxes
    	
74
    
	
SECTION 8.6.
    	
Pre-Closing Tax Payment
    	
74
    
	
SECTION 8.7.
    	
Miscellaneous
    	
75
    
	
 
    	
 
    	
 
    
	
ARTICLE   IX.         TERMINATION PRIOR TO   CLOSING
    	
76
    
	
 
    	
 
    
	
SECTION 9.1.
    	
Termination of Agreement
    	
76
    
	
SECTION 9.2.
    	
Effect of Termination
    	
77
    
	
 
    	
 
    	
 
    
	
ARTICLE   X.           GENERAL PROVISIONS
    	
77
    
	
 
    	
 
    
	
SECTION 10.1.
    	
Fees and Expenses
    	
77
    
	
SECTION 10.2.
    	
Notices
    	
78
    
	
SECTION 10.3.
    	
Interpretation
    	
80
    
	
SECTION 10.4.
    	
Entire Agreement; Third Party Beneficiaries
    	
80
    
	
SECTION 10.5.
    	
Governing Law
    	
80
    
	
SECTION 10.6.
    	
Assignment
    	
80
    
	
SECTION 10.7.
    	
Jurisdiction; Enforcement
    	
81
    
	
SECTION 10.8.
    	
Severability; Amendment; Modification; Waiver
    	
82
    
	
SECTION 10.9.
    	
Certain Limitations
    	
82
    
	
SECTION 10.10.
    	
Specific Performance
    	
83
    
	
SECTION 10.11.
    	
No Offset
    	
84
    
	
SECTION 10.12.
    	
Counterparts
    	
84
    

 

 

EXHIBIT A – Form of Administrative Services Agreement

EXHIBIT B – Form of Agent Servicing Agreement

EXHIBIT C – Form of Amended and Restated Reinsurance Agreement

EXHIBIT D – Form of Intellectual Property License

EXHIBIT E – Form of Principal Underwriting Agreement

EXHIBIT F – Form of Recapture Agreement

EXHIBIT G – Form of Reinsurance Trust

EXHIBIT H – Form of Transition Services Agreement

EXHIBIT I – Commitment Letters

EXHIBIT J – Surplus Notes and Preferred Stock Term Sheet

 

ANNEX A – Accounting Principles

 

iii

 

STOCK PURCHASE AGREEMENT

 

STOCK PURCHASE AGREEMENT, dated as of July 17, 2013 (this “Agreement”), by and among Allstate Life Insurance Company, an insurance company organized under the laws of the State of Illinois (“Seller”), Resolution Life Holdings, Inc., a corporation organized under the laws of the State of Delaware (“Buyer”) and, solely for purposes of Section 5.25 and Article X, Resolution Life L.P., a Bermuda limited partnership and the sole owner of Buyer (“Parent”).

 

WHEREAS, Seller owns 100% of the issued and outstanding shares of common stock, par value $100.00 per share (the “Shares”), of Lincoln Benefit Life Company, an insurance company organized under the laws of the State of Nebraska (the “Company”);

 

WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, Seller desires to sell to Buyer, and Buyer desires to acquire from Seller, all of the Shares;

 

WHEREAS, as of the date hereof, pursuant to the Existing Seller Reinsurance Agreements and the Vermont Captive Reinsurance Agreement (each as defined below), the Company reinsures to Seller and the Vermont Captive all of the insurance and annuity business written by the Company that is not reinsured to third party reinsurers;

 

WHEREAS, after the date hereof and prior to the Closing (as defined below), Seller shall, and shall cause the Company to, enter into the Recapture Agreement (as defined below) pursuant to which, upon the terms and subject to the conditions set forth therein, (i) the Company will recapture from Seller (A) all of the fixed deferred annuity, value adjusted deferred annuity and indexed deferred annuity business written by the Company that is reinsured to Seller, (B) all of the life insurance business written by the Company through Independent Producers that is reinsured to Seller, other than the Specified Life Business (each as defined below), and (C) all of the net Liability of Seller with respect to the accident and health and long-term care insurance business written by the Company that is reinsured to Seller ((A), (B) and (C) collectively, the “Recaptured Business”);

 

WHEREAS, concurrently with the consummation of the Recapture, pursuant to the Recapture Agreement, Seller will transfer to the Company the Investment Assets listed in Section 1.1(a) of the Seller Disclosure Schedule (the Investment Assets set forth on such list, which is dated as of June 30, 2013, as such list may be revised between June 30, 2013 and the Closing Date as provided in Section 5.19 of the Seller Disclosure Schedule, the “Recaptured Investment Assets”);

 

WHEREAS, at or prior to the Closing, Seller shall, and shall cause the Company to, enter into the other Restructuring Agreements (as defined below) pursuant to which Seller will continue to reinsure and administer the Company’s insurance and annuity businesses other than the Recaptured Business, the Vermont Captive Business and any business reinsured to third party reinsurers (comprising all of the immediate annuity business written by the Company, all life insurance business written by the Company through Exclusive Producers (as defined below) and the Specified Life Business);

 

1

 

WHEREAS, prior to the execution and delivery of this Agreement, Buyer, Seller and The Bank of New York Mellon (the “Escrow Agent”) have entered into an Escrow Agreement, dated July 16, 2013 (the “Escrow Agreement”) pursuant to which Buyer has deposited $60,000,000 into an account (the “Escrow Account”) maintained by the Escrow Agent to support Buyer’s obligations under this Agreement; and

 

WHEREAS, Parent desires to provide Seller and its Affiliates the right to subscribe for class A limited partnership interests or other equity interests of Parent with an aggregate capital commitment of up to $100,000,000.

 

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, the parties agree as follows:

 

ARTICLE I.
 DEFINITIONS

 

SECTION 1.1.        Definitions.  For purposes of this Agreement, the following terms have the respective meanings set forth below:

 

“Accounting Principles” means the principles, practices and methodologies set forth on Annex A.

 

“Action” means any action, demand, suit, arbitration proceeding, citation, summons, subpoena or investigation by or before any Governmental Entity, other than any examination by a taxing authority, including a Tax audit.

 

“Adjusted Initial Amount” means an amount equal to: (A) the Base Price; (B) plus (if positive) or minus the absolute value of (if negative) (i) the Estimated Closing Statutory Value; minus (ii) the Reference Statutory Value; (C) plus (if positive) or minus the absolute value of (if negative) the Estimated Recapture Adjustment Amount.

 

“Administrative Services Agreement” means the administrative services agreement substantially in the form attached as Exhibit A.

 

“Affiliate” of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, such first Person, and the term “Affiliated” shall have a correlative meaning.  For the purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly through the ownership of voting securities, by contract, or otherwise, and the terms “controlling” and “controlled” have the meanings correlative to the foregoing.  For the avoidance of doubt, unless otherwise specified herein, the Company shall be deemed an “Affiliate” of Seller (and not Buyer) prior to the Closing, and shall be deemed an “Affiliate” of Buyer (and not Seller) from and after the Closing.

 

“Agent Servicing Agreement” means the agent servicing agreement substantially in the form attached as Exhibit B.

 

2

 

 “Amended and Restated Reinsurance Agreement” means the amended and restated reinsurance agreement substantially in the form attached as Exhibit C.

 

“Applicable Law” means any law, statute, ordinance, regulation, order, injunction, judgment, decree, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity applicable to any Person or such Person’s businesses, properties, assets or rights, as may be amended from time to time.

 

“Applicable Rate” means an interest rate equal to six-month LIBOR for dollars that appears on page LIBOR 01 (or a successor page) of the Reuters Telerate Screen as of 11:00 a.m., New York time, on the day that is two Business Days preceding the date the Final Adjustment Statement is finalized pursuant to Section 2.5(b), calculated on the basis of a 360 day year and the actual number of days elapsed.

 

“Base Price” means $600,000,000.

 

“Books and Records” means all of the books and records of the Company (including all data and other information stored on discs, tapes or other media), including all such books and records to the extent relating to the Company’s governance, legal existence or stock ownership, and copies of all books and records of Seller and its Affiliates that are material to the ongoing operation of the Company Business by Buyer after the Closing (other than as a result of the provision of services by Seller to Buyer pursuant to the Transition Services Agreement); provided that, to the extent any such books and records of the Company contain any information that relates to Seller or any of its Affiliates, or any of their respective businesses, other than the Company or the Company Business, such information shall not constitute “Books and Records” for purposes of this Agreement and any such information may be redacted from the “Books and Records.”  For the avoidance of doubt, no minutes, resolutions or other governance or similar legal entity documents of any Person other than the Company shall constitute “Books and Records” for purposes of this Agreement.

 

“Business Day” means any day other than a Saturday, a Sunday or any other day on which banking institutions in Chicago, Illinois or New York City are required or authorized by Applicable Law to be closed.

 

“Buyer Disclosure Schedule” means the disclosure schedule (including any attachments thereto) delivered by Buyer to Seller in connection with, and constituting a part of, this Agreement.

 

“Buyer Party” means Buyer or any Affiliate of Buyer that is a party to any Transaction Agreement.

 

“Closing Balance Sheets” means, collectively, the Estimated Balance Sheet, the Subject Balance Sheet and the Final Balance Sheet.

 

“Closing RBC Ratio” means the RBC Ratio as of the Closing Date, calculated after giving effect to the Recapture, the other transactions contemplated by this Agreement to take place at or prior to the Closing, the consummation of the NER Financing and the effect of 

 

3

 

the application of Treasury Regulation § 1.1502-36(d) on the transactions contemplated by this Agreement, but without giving effect to any Specified Capital Charge.

 

“Closing Statutory Value” means an amount equal to: (i) the capital and surplus of the Company as of the Closing Date as would be required to be reflected in line 38, column 1 in the “Liabilities, Surplus and Other Funds” section of the 2012 NAIC Annual Statement Blank or the successor to such line number; plus (ii) the asset valuation reserve of the Company as of the Closing Date as would be required to be reflected in line 24.1 of such section of the Annual Statement Blank or the successor to such line number; plus (iii) the interest maintenance reserve of the Company as of the Closing Date (whether positive or negative) that is related to the historical unamortized balance (as described in the Accounting Principles) recaptured by the Company in connection with the Recapture, including amortization with respect to such balance from the date of Recapture to the Closing Date in accordance with Seller’s past practices; and (iv) either minus the admitted net deferred tax asset of the Company as of the Closing Date or plus the net deferred tax liability of the Company as of the Closing Date, as applicable, as would be required to be reflected in line 18.2 or line 15.2, as applicable, of such section of the Annual Statement Blank or the successor to such line number; in each case as calculated from amounts set forth on the applicable Closing Balance Sheet prepared in accordance with the Accounting Principles after giving effect to the Recapture and the other transactions contemplated hereby to occur on or prior to the Closing Date but, for the avoidance of doubt, before giving effect to the application of the Treasury Regulation § 1.1502-36(d) with respect to the transactions contemplated by this Agreement.

 

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

 

“Company Benefit Plan” means each Employee Benefit Plan that is sponsored or maintained by the Company for the benefit of Company Employees (or their dependents and beneficiaries).

 

“Company Business” means, collectively, the Recaptured Business and all of the other life insurance business, other than the Specified Life Business and the Vermont Captive Business, written by the Company through Independent Producers that is reinsured to third parties, as more particularly identified in Section 1.1(b) of the Seller Disclosure Schedule.

 

“Company Employee” means each individual who is or was employed by the Company.

 

“Confidentiality Agreement” means the confidentiality agreement dated as of January 15, 2013, between Resolution Life U.S. Limited and Seller.

 

“Consolidated Returns” means any and all Tax Returns of the Seller Group.

 

“Controlled Group Liability” means any and all liabilities: (i) under Title IV of ERISA; (ii) under the minimum funding requirements of Section 302 of ERISA or Section 412 of the Code; or (iii) under Section 4971 of the Code, other than such liabilities that arise solely out of, or relate to, the Company Benefit Plans or the Seller Benefit Plans.

 

4

 

“Employee Benefit Plan” means a written or unwritten plan, policy, program, agreement and arrangement, whether covering a single individual or a group of individuals, that is (i) an “employee benefit plan” within the meaning of Section 3(3) of ERISA, (ii) a stock bonus, stock purchase, stock option, restricted stock, stock appreciation right or similar equity-based plan or (iii) any other employment, severance, deferred-compensation, retirement, welfare-benefit, bonus, incentive or fringe benefit plan, policy, program, agreement or arrangement.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Escrow Funds” has the meaning given to such term in the Escrow Agreement.

 

“Excluded Liabilities” means any Liabilities resulting from or arising out of: (i) any business ceded to a newly formed captive as provided in Section 5.18; and (ii) the Excluded Employee Liabilities.

 

“Exclusive Producer” means any Producer that markets, sells or administers business of the type written by Seller or any of its Affiliates exclusively for or on behalf of Seller or any of its Affiliates, notwithstanding whether such Producer also sells products of the type not written by Seller or any of its Affiliates on behalf of third parties.

 

“Existing Seller Reinsurance Agreements” means: (i) the Coinsurance Agreement, effective December 31, 2001, between the Company and Seller; (ii) the Modified Coinsurance Agreement, effective December 31, 2001, between the Company and Seller pursuant to which the Company cedes to Seller liabilities under variable universal life insurance contracts written by the Company; and (iii) the Modified Coinsurance Agreement, effective December 31, 2001, between the Company and Seller pursuant to which the Company cedes to Seller liabilities under variable annuity contracts written by the Company.

 

“Final Adjustment Amount” means an amount equal to: (i) the Final Statutory Surplus Adjustment Amount; plus (ii) the Final Recapture Adjustment Amount.

 

“Final Recapture Adjustment Amount” means an amount equal to: (i) the Closing Recapture Adjustment Amount; minus (ii) the Estimated Recapture Adjustment Amount.

 

 “Final Statutory Surplus Adjustment Amount” means an amount equal to: (i) the Final Closing Statutory Value; minus (ii) the Estimated Closing Statutory Value.

 

“Financed Amounts” means: (a) statutory reserves, calculated in accordance with SAP, with respect to the universal life insurance business with secondary guarantees and term life insurance business with premium guarantees that are included in the Company Business; minus (b) Economic Reserves (as such term is described or defined in the NER Commitment Letter or the term sheet attached thereto), excluding any risk spread or similar fees or other costs and expenses incurred by Buyer or the Captive (as such term is defined in the NER Commitment Letter) in connection with or arising under the NER Financing.

 

“Financing Sources” means the parties to the Commitment Letters or any definitive documents relating to the Financing (other than Buyer).

 

5

 

“GAAP” means generally accepted accounting principles in the United States.

 

“Governmental Entity” means any domestic or foreign court, arbitral tribunal, federal, provincial, state or local government or administration, or regulatory or other governmental authority, commission or agency (including any industry or other self-regulating body).

 

“Independent Producer” means any Producer that is not an Exclusive Producer.

 

“Insurance Contracts” means the insurance policies, annuity contracts and, other than for purposes of Section 3.15, the assumed reinsurance treaties, together with all binders, slips, certificates, endorsements and riders thereto, in each case that constitute a part of the Company Business and were issued or entered into by the Company prior to the Closing.

 

“Insurance Regulator” means, with respect to any jurisdiction, the Governmental Entity charged with the supervision of insurance companies in such jurisdiction.

 

“Insurance Reserves” means the reserves for the payment of benefits, losses, claims, unearned premium and expenses under the Insurance Contracts.

 

“Intellectual Property” means: (i) trademarks, service marks, trade names, trade dress, and registrations and applications of any of the foregoing, including all goodwill associated with any of the foregoing (“Trademarks”); (ii) copyrights, copyrightable works, rights in Software, Internet web site content, and registrations and applications of any of the foregoing, (iii) Internet URLs and domain names, and registrations thereof; (iv) patents and applications for patents, including all reissues, divisions, renewals, extensions, provisional, continuations and continuations-in-part thereof; (v) Trade Secrets; (vi) all similar intellectual property rights; and (vii) all administrative and legal rights arising therefrom and relating thereto.

 

“Intellectual Property License” means the intellectual property license substantially in the form attached as Exhibit D.

 

“Investment Assets” means any interest in any bonds, notes, debentures, mortgage loans, real estate, instruments of indebtedness, stocks, partnership interests and all other equity interests, certificates issued by or interests in trusts, derivatives or other assets acquired for investment or hedging purposes.

 

“IRS” means the U.S. Internal Revenue Service.

 

“Knowledge” means the actual knowledge of (i) with respect to Seller, those Persons listed in Section 1.1(c) of the Seller Disclosure Schedule, and (ii) with respect to Buyer, those Persons listed in Section 1.1(a) of the Buyer Disclosure Schedule.

 

“Liability” means any liability, damage, expense or obligation of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, asserted or unasserted, executory, determined, determinable or otherwise.

 

6

 

“Lien” means any pledge, security interest, encumbrance, mortgage, title defect, license, lien, charge or other similar restrictions or limitations of any nature whatsoever.

 

“Limited Partnership Agreement” means the limited partnership agreement of Resolution Life L.P.

 

“Material Adverse Effect” means a material adverse effect on:  (a) the business, operations, condition (financial or otherwise) or results of operations of the Company, but excluding any such effect to the extent resulting from or arising out of:  (i) any change, development, event or occurrence arising out of or relating to general political, economic or securities or financial market conditions (including changes in interest rates or changes in equity prices and corresponding changes in the value of the Investment Assets of the Company); (ii) any change, development, event or occurrence generally affecting participants in the life insurance, annuity or financial services industries; (iii) any change in GAAP, SAP or Applicable Law, or the interpretation or enforcement thereof; (iv) acts of war, sabotage or terrorism, or any escalation or worsening of such acts, any earthquakes, hurricanes, tornadoes, and other storms, floods or other natural disasters, or any other force majeure event; (v) the announcement of this Agreement and the transactions contemplated hereby, including any loss of or change in relationship with any customers or business partners or departure of any employees or officers resulting therefrom; (vi) the identity of or facts related to Buyer; (vii) any action taken by Seller or any of its Representatives at the written instruction of or with the written consent of Buyer, or any failure to act by Seller or any of its Representatives because Buyer has withheld its consent when such consent was required hereunder; (viii) any downgrade or threatened downgrade in the rating assigned to the Company by any rating agency (provided, that this clause (viii) shall not by itself exclude the underlying cause of any such downgrade or threatened downgrade); (ix) any failure, in and of itself, of the Company to meet any financial projections or targets (provided, that this clause (ix) shall not by itself exclude the underlying causes of any such failure); (x) any matter set forth in the Seller Disclosure Schedule (to the extent that any such effect described in the preceding clauses (i) though (iv) does not materially and disproportionally adversely affect the Company relative to other Persons engaged in the industries in which the Company operates); or (b) the ability of Seller to consummate the transactions contemplated hereby.

 

“Maximum Capital Amount” means the amount of total adjusted capital (as defined in the RBC Instructions) of the Company that would cause the Closing RBC Ratio to equal 400%.

 

“MBA Group” means any marketing organization that includes one or more consortia of Independent Producers that are master brokerage agencies.

 

“Permitted Lien” means, with respect to any asset, any: (i) carriers’, mechanics’, materialmens’ or similar Lien either (A) with respect to amounts not yet due and payable or (B) that are being contested in good faith and for which appropriate reserves have been taken on the Books and Records; (ii) Lien arising from any act of Buyer or any of its Affiliates (with respect to an asset of Seller or one of its Affiliates); (iii) pledge or deposit to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations; (iv) Lien that is disclosed in any section of the Seller Disclosure Schedule or the Buyer Disclosure Schedule, as applicable; (v) Lien related to deposits required by any Insurance

 

7

 

Regulator; (vi) Lien for Taxes, assessments or other governmental charges either (A) not yet due and payable or (B) the amount or validity of which is being contested in good faith and for which appropriate reserves have been taken on the Books and Records; and (vii) Lien or other imperfection of title that does not materially detract from the current value or materially interfere with the current use of the assets, properties or rights affected thereby or impair materially the ability of Buyer to consummate any of the transactions contemplated by this Agreement, as applicable.

 

“Person” means an individual, corporation, partnership, joint venture, limited liability company, association, trust, unincorporated organization, Governmental Entity or other entity.

 

“Post-Closing Tax Periods” means any and all Tax periods that begin on the day after the Closing Date and the portion of any Straddle Period beginning on the day after the Closing Date.

 

“Pre-Closing Tax Periods” means any and all Tax periods that end on or before the Closing Date and the portion of any Straddle Period ending at the end of day on which the Closing occurs.

 

“Principal Underwriting Agreement” means the amended and restated principal underwriting agreement substantially in the form attached as Exhibit E.

 

“Producer” means any producer, broker, agent, general agent, managing general agent, master broker agency, broker general agency, financial specialist or other Person responsible for marketing or producing insurance policies, annuity contracts, protection and retirement products on behalf of the Company prior to the Closing.

 

“RBC Instructions” means the Life RBC Instructions of the National Association of Insurance Commissions or any successor thereof as in effect at the applicable time of determination.

 

“RBC Ratio” means, as of any date of determination, the ratio (expressed as a percentage) that the Company’s total adjusted capital (as defined in the RBC Instructions) as of such date bears to the Company’s company action level risk based capital (as defined in the RBC Instructions) as of such date, calculated in accordance with the life insurance risk based capital formula contained in the RBC Instructions.

 

“Recapture” means the recapture of the Recaptured Business pursuant to the Recapture Agreement.

 

“Recapture Agreement” means the recapture agreement substantially in the form attached as Exhibit F.

 

“Reference Statutory Value” means $293,853,484.

 

“Reinsurance Trust” means the trust agreement substantially in the form attached as Exhibit F.

 

8

 

“Representative” means any Person’s Affiliates, or its or its Affiliates’ directors, officers, employees, agents, advisors, attorneys, accountants, consultants and representatives.

 

“Required Capital Amount” means, as of any date of determination, the amount (expressed in dollars and after taking into account any Specified Capital Charge) of total adjusted capital (as defined in the RBC Instructions) that the Company is required by the Nebraska Department of Insurance to maintain as of such date.

 

“Restructuring Agreements” means the Recapture Agreement, the Amended and Restated Reinsurance Agreement, the Administrative Services Agreement and the Reinsurance Trust.

 

“SAP” means statutory accounting practices prescribed or permitted by the Nebraska Department of Insurance.

 

“Seller Benefit Plan” means each Employee Benefit Plan (other than the Company Benefit Plans) that has been maintained, established or contributed to by Seller or any of its Affiliates (other than the Company) that provides, has provided or may provide benefits or compensation (assuming any vesting, performance or other benefit requirements are met) in respect of any Company Employee or any of their beneficiaries or dependents.

 

“Seller Disclosure Schedule” means the disclosure schedule (including any attachments thereto) delivered by Seller to Buyer in connection with, and constituting a part of, this Agreement.

 

“Seller Group” means (i) the “affiliated group” as defined in Section 1504(a) of the Code of which The Allstate Corporation is the common parent, and (ii) with respect to each state, local or foreign jurisdiction in which Seller or any of its current Subsidiaries files a consolidated, combined or unitary Tax Return and in which the Company is or is required to be included, the group with respect to which such Tax Return is filed.

 

“Seller Party” means Seller or any Affiliate of Seller that is a party to any Transaction Agreement.

 

“Selling Agreement” means the Selling Agreement, dated as of June 1, 2006, by and among the VA Buyer, American Skandia Life Assurance Company, American Skandia Marketing, Incorporated, Allstate Financial Services, LLC and, solely with respect to certain provisions thereto, The Allstate Corporation.

 

“Software” means all computer software, including but not limited to, application software, system software and firmware, including all source code and object code versions thereof, in any and all forms and media, and all related documentation.

 

“Specified Capital Amount” means: (i) for purposes of Section 5.4(b) and Section 6.1(c), the amount of total adjusted capital (as defined in the RBC Instructions) of the Company that would cause the Closing RBC Ratio to equal 350%; and (ii) for purposes of Section 5.15, the amount of total adjusted capital (as defined in the RBC Instructions) of the Company that would cause the RBC Ratio as of the date on which the Specified Capital Charge then being imposed on

 

9

 

the Company by the Nebraska Department of Insurance is so imposed (calculated without giving effect to such Specified Capital Charge) to equal 350% or such greater RBC Ratio maintained by the Company immediately prior to the imposition of such Specified Capital Charge.

 

“Specified Capital Charge” means any risk based capital charge the Company is required by the Nebraska Department of Insurance to incur with respect to the reinsurance provided by Seller under the Amended and Restated Reinsurance Agreement.  Notwithstanding the foregoing, no “Specified Capital Charge” shall be deemed to have been imposed to the extent such charge is imposed as a result of the difference between the Fair Market Value (as such term is defined in the Amended and Restated Reinsurance Agreement) and the Reinsurer Statutory Book Value (as such term is defined in the Amended and Restated Reinsurance Agreement) of the assets in the trust account established pursuant to the Reinsurance Trust.

 

“Specified Life Business” means, collectively, (i) the term life insurance policies written by the Company prior to the Closing Date that have been reinsured to Seller and retroceded by Seller to ALIC Reinsurance Company and (ii) the term life insurances policies of the type identified on Section 1.1(d) of the Seller Disclosure Schedule that were written by the Company and are reinsured by third party reinsurers.

 

“Specified VA Transaction Agreements” means all agreements relating to the Variable Annuity Transaction, including: (i) the Administrative Services Agreement, effective as of June 1, 2006, by and between the Company and Seller; (ii) the Principal Underwriting Agreement, entered into as of June 1, 2006, by and between the Company and ALFS, Inc.; (iii) the Coinsurance Agreement, effective as of December 31, 2001, between the Company and Seller to the extent related to the VA Contracts; (iv) the Modified Coinsurance Agreement, effective December 31, 2001, between the Company and Seller, pursuant to which the Company cedes to Seller liabilities under variable annuity contracts written by the Company and (v) the distribution agreements, fund agreements and reinsurance agreements listed in Section 1.1(e) of the Seller Disclosure Schedule.

 

“Straddle Period” means any Tax period that includes, but does not end on, the Closing Date.

 

“Subsidiary” of any Person at the time in question means another Person more than 50% of the total combined voting power of all classes of capital stock or other voting interests of which, or more than 50% of the equity securities of which, is at such time owned directly or indirectly by such first Person.

 

“Tax Return” means any report, estimate, extension request, information statement, claim for refund, or return relating to, or required to be filed in connection with, any Tax, including any schedule or attachment thereto, and any amendment thereof.

 

“Taxes” means any and all federal, state, local, or foreign income, premium, property (real or personal), sales, excise, employment, payroll, withholding, gross receipts, license, severance, stamp, occupation, windfall profits, environmental, customs duties, capital stock, franchise, profits, social security (or similar, including FICA), unemployment, disability, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of

 

10

 

any kind or any charge of any kind in the nature of (or similar to) taxes whatsoever, including any interest, penalty or addition thereto.

 

“Trade Secrets” means all inventions, processes, designs, formulae, trade secrets, know-how, ideas, research and development, data, databases and confidential information.

 

“Transaction Agreements” means this Agreement, the Transition Services Agreement, the Intellectual Property License, the Restructuring Agreements, the Principal Underwriting Agreement, the Agent Servicing Agreement and the Equity Commitment Letter.

 

“Transaction Expenses” means, without duplication, all liabilities (except for any Taxes, including Conveyance Taxes) incurred by any party hereto for fees, expenses, costs or charges as a result of the contemplation, negotiation, efforts to consummate or consummation of the transactions contemplated by this Agreement, including any fees and expenses of investment bankers, attorneys, accountants or other advisors, and any fees payable by such parties to Governmental Entities or other third parties, in each case, in connection with the consummation of the transactions contemplated by this Agreement.

 

“Transition Services Agreement” means the transition services agreement substantially in the form attached as Exhibit H.

 

“Treasury Regulations” means all proposed, temporary and final regulations promulgated under the Code, as such regulations may be amended from time to time.

 

“VA Buyer” means The Prudential Insurance Company of America, a New Jersey-domiciled stock life insurance company.

 

“VA Contracts” means the variable annuity contracts written by the Company the liabilities under which such contracts were ceded to the VA Buyer in connection with the Variable Annuity Transaction.

 

“VA Indemnity Reinsurance Agreement” means the Indemnity Reinsurance Agreement, dated June 1, 2006, between Seller and the VA Buyer, which was entered into in connection with the Variable Annuity Transaction.

 

“Variable Annuity Transaction” means the transactions contemplated by the Master Transaction Agreement, dated as of March 8, 2006, by and among The Allstate Corporation, Seller, Allstate Life Insurance Company of New York, Prudential Financial, Inc. and The Prudential Insurance Company of America (the “VA Master Transaction Agreement”) and the documents related thereto.

 

“Vermont Captive” means Lincoln Benefit Reinsurance Company, an Affiliate of Seller that is an insurance company organized under the laws of the State of Vermont.

 

“Vermont Captive Business” means the business reinsured under the Vermont Captive Reinsurance Agreement.

 

11

 

“Vermont Captive Reinsurance Agreement” means the Reinsurance Agreement, effective September 30, 2012, between the Company and the Vermont Captive.

 

In addition, the following terms shall have the respective meanings set forth in the following sections of this Agreement:

 

	
Term
    	
 
    	
Section
    
	
Actuarial Reports

Additional Equity Financing
    	
 
    	
3.17

5.24
    
	
Adjustment Report
    	
 
    	
2.5(c)(v)
    
	
After-Acquired Business
    	
 
    	
5.10(b)(iv)
    
	
Aggregate After-Acquired Revenues
    	
 
    	
5.10(b)(iv)
    
	
Agreement
    	
 
    	
Preamble
    
	
Alternative Financing
    	
 
    	
5.23(f)
    
	
Alternative Reinsurance Arrangement
    	
 
    	
5.4(d)
    
	
Business Investment Assets
    	
 
    	
5.19
    
	
Buyer
    	
 
    	
Preamble
    
	
Buyer Burdensome Condition
    	
 
    	
5.4(a)
    
	
Buyer Fundamental Representations
    	
 
    	
6.3(a)
    
	
Buyer Indemnified Persons
    	
 
    	
7.2(a)
    
	
Buyer Related Parties
    	
 
    	
10.1(e)
    
	
Cap
    	
 
    	
7.3(a)
    
	
Ceded Reinsurance Contracts
    	
 
    	
3.16(a)
    
	
Closing
    	
 
    	
2.2
    
	
Closing Date

Closing Recapture Adjustment Amount
    	
 
    	
2.2

2.5(c)(viii)
    
	
Commitment Letters
    	
 
    	
4.7(a)
    
	
Company
    	
 
    	
Recitals
    
	
Company Insurance Policies
    	
 
    	
3.18(a)
    
	
Company Intellectual Property Rights
    	
 
    	
3.20(a)
    
	
Company Reinsurance Contracts
    	
 
    	
3.16(a)
    
	
Company Trademarks
    	
 
    	
5.7(b)
    
	
Competing After-Acquired Revenues
    	
 
    	
5.10(b)(iv)
    
	
Competing Business
    	
 
    	
5.10(a)
    
	
Condition Satisfaction
    	
 
    	
2.2
    
	
Contracts
    	
 
    	
3.13(a)
    
	
Conveyance Taxes
    	
 
    	
8.5
    
	
Debt Commitment Letter

Debt Financing
    	
 
    	
4.7(a)

4.7(a)
    
	
Deductible
    	
 
    	
7.3(a)
    
	
Direct Product Tax Claim
    	
 
    	
7.9(a)
    
	
Dispute Notice
    	
 
    	
2.5(c)(ii)
    
	
Equity Commitment Letter
    	
 
    	
4.7(a)
    
	
Equity Financing
    	
 
    	
4.7(a)
    
	
Escrow Account
    	
 
    	
Recitals
    
	
Escrow Agent
    	
 
    	
Recitals
    
	
Escrow Agreement
    	
 
    	
Recitals
    

 

12

 

	
Term
    	
 
    	
Section
    
	
Estimated Balance Sheet
    	
 
    	
2.4(a)
    
	
Estimated Closing Statement
    	
 
    	
2.4(a)
    
	
Estimated Closing Statutory Value

Estimated Recapture Adjustment Amount
    	
 
    	
2.4(a)

2.4(a)
    
	
Excluded Employee Liabilities
    	
 
    	
5.12(b)
    
	
Fee Letter
    	
 
    	
4.7(b)
    
	
Final Adjustment Statement
    	
 
    	
2.5(b)
    
	
Final Balance Sheet
    	
 
    	
2.5(c)(viii)
    
	
Final Closing Statutory Value
    	
 
    	
2.5(c)(viii)
    
	
Financing
    	
 
    	
4.7(a)
    
	
Indemnitee
    	
 
    	
7.4(i)
    
	
Indemnitor
    	
 
    	
7.4(ii)
    
	
Indemnifiable Losses
    	
 
    	
7.4(iii)
    
	
Indemnity Payment
    	
 
    	
7.4(iv)
    
	
Independent Accounting Firm
    	
 
    	
2.5(c)(iv)
    
	
Investors
    	
 
    	
4.7(d)
    
	
Milliman
    	
 
    	
3.17
    
	
NER Commitment Letter
    	
 
    	
4.7(a)
    
	
NER Financing
    	
 
    	
4.7(a)
    
	
New York Court
    	
 
    	
10.7(a)
    
	
Organizational Documents
    	
 
    	
3.1(b)
    
	
Outside Date
    	
 
    	
9.1(b)
    
	
Parent
    	
 
    	
Recitals
    
	
Permits
    	
 
    	
3.11(b)
    
	
Process Agent
    	
 
    	
10.7(c)
    
	
Purchase Price
    	
 
    	
2.1
    
	
Recapture Adjustment Amount
    	
 
    	
Accounting Principles
    
	
Recaptured Business
    	
 
    	
Recitals
    
	
Recaptured Investment Assets
    	
 
    	
Recitals
    
	
Reference Balance Sheet

Required Financial Information
    	
 
    	
3.6(a)

5.24(b)
    
	
Resolution Period
    	
 
    	
2.5(c)(iv)
    
	
Review Period
    	
 
    	
2.5(c)(i)
    
	
Seller
    	
 
    	
Preamble
    
	
Seller Burdensome Condition
    	
 
    	
5.4(a)
    
	
Seller Fundamental Representations
    	
 
    	
6.2(a)
    
	
Seller Indemnified Persons
    	
 
    	
7.2(b)
    
	
Seller Intellectual Property
    	
 
    	
3.20(e)
    
	
Seller Trademarks
    	
 
    	
5.7(a)
    
	
Shared Reinsurance Agreement
    	
 
    	
5.4(d)
    
	
Shares
    	
 
    	
Recitals
    
	
Solvent
    	
 
    	
4.8
    
	
Specified Termination
    	
 
    	
10.1(b)
    
	
Statutory Statements
    	
 
    	
3.6(b)
    
	
Subject Balance Sheet
    	
 
    	
2.5(b)(i)
    

 

13

 

	
Term
    	
 
    	
Section
    
	
Tax Contest
    	
 
    	
8.4
    
	
Tax Refund
    	
 
    	
8.3
    
	
Termination Fee
    	
 
    	
10.1(b)
    
	
Third Party Claim
    	
 
    	
7.4(v)
    
	
Threshold Amount
    	
 
    	
7.3(a)
    
	
Trademarks
    	
 
    	
1.1
    

 

ARTICLE II.
 PURCHASE OF THE SHARES

 

SECTION 2.1.        Purchase and Sale of Shares.  Upon the terms and subject to the conditions of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, all of the Shares for an aggregate purchase price (the “Purchase Price”) in cash equal to the Base Price, as adjusted pursuant to Sections 2.4, 2.5 and 2.6.

 

SECTION 2.2.        Closing.  The closing of the purchase and sale of the Shares (the “Closing”) shall take place at the offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York 10019, at 10:00 a.m., New York time, on (i) the first Business Day of the month immediately following the month in which all the conditions set forth in Article VI have been satisfied or waived (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing) shall have been so satisfied or waived in accordance with this Agreement (the “Condition Satisfaction”) or (ii) if the Condition Satisfaction occurs less than two Business Days prior to the first Business Day of such month and the parties do not have prior notice that the Condition Satisfaction is reasonably likely to occur during such period, then the Closing shall take place on the first Business Day of the second month immediately following the month in which the Condition Satisfaction occurs, in each case unless another date, time or place is agreed to in writing by the parties hereto.  The day on which the Closing actually takes place is referred to herein as the “Closing Date;” provided that, for purposes of the Closing Balance Sheets and any amounts calculated therefrom, the “Closing Date” shall be deemed to be, and the transactions contemplated hereby will be deemed to have occurred at, 12:01 a.m., Central Time, on the first calendar day of the month in which the Closing occurs.

 

SECTION 2.3.        Closing Deliveries.

 

(a)          Seller’s Closing Deliveries.  At the Closing, Seller shall deliver or cause to be delivered to Buyer:

 

(i)           certificates representing the Shares, free and clear of all Liens, duly endorsed in blank or accompanied by sufficient instruments of transfer and bearing or accompanied by all requisite stock transfer tax stamps;

 

(ii)          a certificate of Seller duly executed by an authorized officer of Seller, dated as of the Closing Date, certifying as to Seller’s compliance with the conditions set forth in Section 6.2(a) and Section 6.2(b);

 

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(iii)         counterparts of each Transaction Agreement to which a Seller Party is a party, duly executed by such Seller Party, other than this Agreement and any other Transaction Agreement entered into and delivered to Buyer prior to the Closing Date; and

 

(iv)         the written resignations of the directors and officers of the Company, effective as of the Closing, except as requested by Buyer not less than five Business Days prior to the Closing.

 

(b)          Buyer’s Closing Deliveries.  At the Closing, Buyer shall make the payment contemplated by Section 2.4 and, if applicable, the payment contemplated by Section 2.6, and also deliver to Seller:

 

(i)           a certificate of Buyer duly executed by an authorized officer of Buyer, dated as of the Closing Date, certifying as to Buyer’s compliance with the conditions set forth in Section 6.3(a) and Section 6.3(b); and

 

(ii)          counterparts of each Transaction Agreement to which a Buyer Party is a party, duly executed by such Buyer Party, other than this Agreement and any other Transaction Agreement entered into and delivered to Seller prior to the Closing Date.

 

SECTION 2.4.        Payment at Closing.

 

(a)          No later than five Business Days prior to the anticipated Closing Date, Seller shall deliver to Buyer: (i) a statement (the “Estimated Closing Statement”) setting forth an estimated balance sheet of the Company as of the Closing Date prepared in good faith from the Books and Records in accordance with the Accounting Principles, consistently applied (the “Estimated Balance Sheet”) and showing Seller’s calculations of (A) the Closing Statutory Value (the “Estimated Closing Statutory Value”) and (B) the Recapture Adjustment Amount (the “Estimated Recapture Adjustment Amount”) and (C) the Adjusted Initial Amount based on (A) and (B); and (ii) reasonable supporting documentation with respect to the calculation of the amounts set forth in the Estimated Closing Statement.

 

(b)          In addition to the deliveries contemplated by Section 2.3, at the Closing, Buyer shall pay to Seller or its designee by wire transfer of immediately available funds to an account designated by Seller an amount equal to the Adjusted Initial Amount; provided, that Buyer may choose to have a portion of the Adjusted Initial Amount paid to Seller or its designee by the Escrow Agent out of the Escrow Funds pursuant to a joint written instruction of Buyer and Seller so long as Buyer pays the remaining portion of the Adjusted Initial Amount directly to Seller or such designee.

 

SECTION 2.5.        Post-Closing Payments.

 

(a)          The Final Adjustment Amount shall be determined as set forth in subsections (b) and (c) of this Section 2.5.  If the Final Adjustment Amount is a positive number, then Buyer shall pay such Final Adjustment Amount to Seller or its designee within five Business Days after the final determination thereof.  If the Final Adjustment Amount is a 

 

15

 

negative number, then Seller shall pay the absolute value of such Final Adjustment Amount to Buyer within five Business Days after the final determination thereof.  Any payments required to be made by either party pursuant to this Section 2.5(a) shall (i) be made by wire transfer of immediately available funds and (ii) include interest on the amount required to be paid at the Applicable Rate, compounded annually on the basis of a year of 365 days, from (and including) the Closing Date to (but excluding) the date such payment is made.

 

(b)          No later than 90 days after the Closing Date, Buyer shall deliver to Seller: (i) a statement (the “Final Adjustment Statement”) setting forth the balance sheet of the Company as of the Closing Date prepared in good faith from the Books and Records in accordance with the Accounting Principles, consistently applied (the “Subject Balance Sheet”) and showing Buyer’s calculations of (A) the Closing Statutory Value, (B) the Recapture Adjustment Amount and (C) the Final Adjustment Amount based on (A) and (B); and (ii) reasonable supporting documentation with respect to the calculation of the amounts set forth in the Final Adjustment Statement.  Seller shall, during such period of no longer than 90 days after the Closing Date, provide Buyer and the Company and their Representatives with reasonable access to the employees of Seller to the extent such employees have knowledge about the Company Business and to all documentation, records and other information of the Company or Seller, as Buyer, the Company or any of their Representatives may reasonably request and that are necessary to facilitate the preparation of the Final Adjustment Statement; provided, that such access does not unreasonably interfere with the conduct of the business of Seller and that such access and cooperation shall not, in the event of any dispute arising out of this Agreement, serve to prejudice Seller or any of its Affiliates.

 

(c)          (i)           Seller shall have 45 days from the date on which the Final Adjustment Statement is delivered to it to review the Final Adjustment Statement, the Subject Balance Sheet and the calculations of (A) the Closing Statutory Value, (B) the Closing Recapture Adjustment Amount, and (C) the Final Adjustment Amount based on (A) and (B) (the “Review Period”).  In furtherance of such review, Buyer and the Company shall provide Seller and its Representatives with reasonable access during such 45 day period to the employees of Buyer and the Company (including to the Chief Financial Officer of Buyer) and to all documentation, records and other information of Buyer and the Company as Seller or any of its Representatives may reasonably request; provided, that such access does not unreasonably interfere with the conduct of the business of Buyer or the Company and that such access and cooperation shall not, in the event of any dispute arising out of this Agreement, serve to prejudice Buyer or any of its Affiliates.

 

(ii)          If Seller disagrees with the Final Adjustment Statement (including any amount or computation set forth therein) in any respect and on any basis, Seller may, on or prior to the last day of the Review Period, deliver a notice to Buyer setting forth, in reasonable detail, each disputed item or amount and the basis for Seller’s disagreement therewith (the “Dispute Notice”).  The Dispute Notice shall set forth, with respect to each disputed item, Seller’s position as to the correct amount or computation that should have been included in the Final Adjustment Statement and as to the Final Adjustment Amount.

 

(iii)         If no Dispute Notice is received by Buyer with respect to any item in the Final Adjustment Statement on or prior to the last day of the Review Period, the

 

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amount or computation with respect to such item as set forth in the Final Adjustment Statement shall be deemed accepted by Seller, whereupon the amount or computation of such item or items shall be final and binding on the parties.

 

(iv)         For a period of 10 Business Days beginning on the date that Buyer receives a Dispute Notice (the “Resolution Period”), if any, Buyer and Seller shall endeavor in good faith to resolve by mutual agreement all matters identified in the Dispute Notice.  In the event that the parties are unable to resolve by mutual agreement any matter in the Dispute Notice within such 10 Business Day period, Buyer and Seller shall jointly engage PricewaterhouseCoopers LLP (the “Independent Accounting Firm”) to make a determination with respect to all matters in dispute.  If PricewaterhouseCoopers LLP is unwilling or unable to serve, Seller and Buyer shall cooperate in good faith to appoint, within 30 days after Seller and Buyer receive notice from PricewaterhouseCoopers LLP of its refusal or inability to act as the Independent Accounting Firm, an independent certified public accounting firm of national recognition mutually acceptable to Buyer and Seller, in which event such firm shall be the “Independent Accounting Firm.”

 

(v)          Buyer and Seller will direct the Independent Accounting Firm to render a determination within 30 days after its retention, and Buyer, Seller and their respective employees and agents will cooperate with the Independent Accounting Firm during its engagement.  Buyer, on the one hand, and Seller, on the other hand, shall promptly (and in any event within 10 Business Days) after the Independent Accounting Firm’s engagement, each submit to the Independent Accounting Firm their respective computations of the disputed items identified in the Dispute Notice and information, arguments and support for their respective positions, and shall concurrently deliver a copy of such materials to the other party.  Each party shall then be given an opportunity to supplement the information, arguments and support included in its initial submission with one additional submission to respond to any arguments or positions taken by the other party in such other party’s initial submission, which supplemental information shall be submitted to the Independent Accounting Firm (with a copy thereof to the other party) within five Business Days after the first date on which both parties have submitted their respective initial submissions to the Independent Accounting Firm.  The Independent Accounting Firm shall thereafter be permitted to request additional or clarifying information from the parties, and each of the parties shall cooperate and shall cause their Representatives to cooperate with such requests of the Independent Accounting Firm.  The Independent Accounting Firm shall determine, based solely on the materials so presented by the parties and upon information received in response to such requests for additional or clarifying information and not by independent review, only those issues in dispute specifically set forth in the Dispute Notice and shall render a written report to Buyer and Seller (the “Adjustment Report”) in which the Independent Accounting Firm shall, after considering all matters set forth in the Dispute Notice, determine what adjustments, if any, should be made to the amounts and computations set forth in the Final Adjustment Statement solely as to the disputed items and shall determine the appropriate Final Adjustment Amount on that basis.

 

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(vi)         The Adjustment Report shall set forth, in reasonable detail, the Independent Accounting Firm’s determination with respect to each of the disputed items or amounts specified in the Dispute Notice, and the revisions, if any, to be made to the Final Adjustment Statement, together with supporting calculations.  In resolving any disputed item, the Independent Accounting Firm (i) shall be bound to the principles of this Section 2.5 and the terms of this Agreement, (ii) shall limit its review to matters specifically set forth in the Dispute Notice and (iii) shall not assign a value to any item higher than the highest value for such item claimed by either party or less than the lowest value for such item claimed by either party.

 

(vii)       All fees and expenses relating to the work of the Independent Accounting Firm shall be shared equally by Buyer and Seller.  The Adjustment Report shall be final and binding upon Buyer and Seller, and shall be deemed a final arbitration award that is binding on each of Buyer and Seller, and, absent fraud, no party shall seek further recourse to courts, other tribunals or otherwise, other than to enforce the Adjustment Report.

 

(viii)      The final form of the balance sheet of the Company as of the Closing Date as finally determined pursuant to this Section 2.5 is referred to herein as the “Final Balance Sheet”, the amount of the Closing Statutory Value calculated therefrom is referred to as the “Final Closing Statutory Value” and the amount of the Recapture Adjustment Amount calculated therefrom is referred to as the “Closing Recapture Adjustment Amount.”  Notwithstanding anything to the contrary contained in this Agreement, the provisions of this Section 2.5 represent the sole and exclusive method for determining the Final Balance Sheet, the Final Closing Statutory Value and the Closing Recapture Adjustment Amount.

 

SECTION 2.6.        Additional Post-Closing Payments.  If Seller or any of its Affiliates exercises the right under Section 5.25 to subscribe for class A limited partnership or other equity interests of Parent, Buyer shall at the Closing pay to Seller, by wire transfer of immediately available funds to an account designated by Seller, an amount equal to 10% of the aggregate capital commitment contemplated by the related subscription agreement entered into pursuant to the exercise of such right; provided, that such payment shall not exceed $6,000,000 in the aggregate.  Any payment made pursuant to this Section 2.6 shall be treated as an adjustment to the Purchase Price.

 

ARTICLE III.
 REPRESENTATIONS AND WARRANTIES OF SELLER

 

Subject to and as qualified by the matters set forth in the Seller Disclosure Schedule in accordance with Section 10.3, Seller represents and warrants to Buyer, as of the date hereof and as of the Closing Date (or such other date specified herein), as follows:

 

SECTION 3.1.        Organization, Standing and Corporate Power.

 

(a)          Seller is an insurance company duly incorporated, validly existing and in good standing under the laws of the State of Illinois.  Each other Seller Party is an entity duly 

 

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incorporated or organized (as the case may be), validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization.  The Company is an insurance company duly incorporated, validly existing and in good standing under the laws of the State of Nebraska.  Each of Seller and the Company has the requisite corporate power and authority to own, lease or otherwise hold the assets and properties owned, leased or otherwise held by it and to carry on its business as now being conducted, except where the failure to have such power and authority would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.  Each of Seller and the Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified or in good standing (individually or in the aggregate) would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

 

(b)          Seller has made available to Buyer true, correct and complete copies of the certificate of incorporation and bylaws (or other organizational documents) (collectively, the “Organizational Documents”), each as amended to the date hereof, of the Company.

 

SECTION 3.2.        Capital Structure.

 

(a)          The issued and outstanding capital stock of the Company consists of 25,000 shares, $100.00 par value per share, which constitute the Shares.  There are 30,000 authorized shares of capital stock of the Company.  Except for the Shares, no securities of the Company are issued, reserved for issuance or outstanding.  All outstanding shares of capital stock of the Company were duly authorized and validly issued and are fully paid and non-assessable, and are not subject to any preemptive rights.  Except as set forth in Section 3.2 of the Seller Disclosure Schedule, there are no securities (whether convertible, exchangeable or otherwise), options, warrants, rights, commitments or agreements of any kind to which either Seller or the Company is a party or by which either of them is bound obligating either of them to issue, sell, deliver or redeem shares of capital stock or other equity interests of the Company.

 

(b)          There are no restrictions upon the voting or transfer of the Shares pursuant to the Organizational Documents of the Company or any agreement to which Seller or the Company is a party.

 

(c)          Seller is the record and beneficial owner of all of the shares of capital stock of the Company, free and clear of all Liens, other than any restrictions on transfer generally imposed under applicable securities laws.  Upon consummation of the transactions contemplated by this Agreement, including the execution and delivery of the documents to be delivered at Closing, Buyer shall be vested at the Closing with good and valid title in and to all of the shares of capital stock of the Company, free and clear of all Liens, other than any restrictions on transfer generally imposed under applicable securities laws.

 

SECTION 3.3.        Subsidiaries.  The Company does not own any shares of the capital stock of, or other voting or equity interest in, including any securities exercisable or exchangeable for or convertible into shares of capital stock of or other voting or equity interest in, 

 

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any Person, except for Investment Assets acquired and held in the ordinary course of the investment activities of the Company.

 

SECTION 3.4.        Authority.  Each Seller Party has the requisite corporate power and authority to enter into the Transaction Agreements to which it is or will be a party and to consummate the transactions contemplated hereby and thereby.  The execution and delivery by each Seller Party of the Transaction Agreements to which it is or will be a party and the consummation by each Seller Party of the transactions contemplated hereby and thereby have been and, with respect to the Transaction Agreements to be executed and delivered after the date of this Agreement, will be, duly authorized by all necessary corporate action on the part of such Seller Party.  Each of the Transaction Agreements to which a Seller Party is or will be a party has been or, with respect to the Transaction Agreements to be executed and delivered after the date of this Agreement, will be, duly executed and delivered by such Seller Party and, assuming the Transaction Agreements constitute valid and binding agreements of the Buyer Parties party thereto, constitute valid and binding obligations of such Seller Party, enforceable against such Seller Party in accordance with their terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors’ rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

 

SECTION 3.5.        Noncontravention; Consents.  Except as disclosed in Section 3.5 of the Seller Disclosure Schedule, the execution and delivery of the Transaction Agreements by each Seller Party that is or will be a party thereto, and the consummation of the transactions contemplated hereby and thereby by such Seller Party, do not and will not (i) conflict with any of the provisions of the Organizational Documents of any of the Seller Parties, (ii) subject to the matters referred to in the next sentence, conflict with, result in a breach of or default (with or without notice or lapse of time or both) under, give any contracting party the right to terminate, cancel, accelerate or receive any additional payment under, or result in the creation of any Lien (other than a Permitted Lien) on any property, asset or right of the Company under, any contract or commitment that is binding on the Company or (iii) subject to the matters referred to in the next sentence, contravene any Applicable Law, which, in the case of clauses (ii) and (iii) above, would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  No consent, approval or authorization of, or declaration or filing with, or notice to, any third party or Governmental Entity is required by or with respect to any Seller Party in connection with the execution and delivery of the Transaction Agreements by the Seller Parties, or the consummation by the Seller Parties of the transactions contemplated hereby and thereby, except for the consents, approvals, authorizations, declarations, filings and notices set forth in Section 3.5 of the Seller Disclosure Schedule.

 

SECTION 3.6.        Financial Statements; Insurance Reserves; Internal Controls.

 

(a)          Seller has previously delivered to Buyer a true, correct and complete copy of the unaudited pro forma balance sheet of the Company as of December 31, 2012 prepared after giving pro forma effect to the Recapture and the other transactions contemplated by this Agreement to take place at or prior to the Closing Date but, for the avoidance of doubt, without giving effect to the application of Treasury Regulation § 1.1502-36(d) with respect to the 

 

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transactions contemplated by this Agreement (the “Reference Balance Sheet”).  The Reference Balance Sheet was prepared in good faith from the Books and Records in accordance with the Accounting Principles, using the amounts set forth in the Statutory Statements as the “actual” column and making pro forma adjustments to give effect to assumptions that provide a reasonable basis for presenting the significant effects of the Recapture and the other transactions contemplated by this Agreement (but not, for the avoidance of doubt, the effect of the application of Treasury Regulation § 1.1502-36(d) on the transactions contemplated by this Agreement).

 

(b)          Seller has previously delivered to Buyer true, correct and complete copies of (i) the audited annual statutory financial statements of the Company as of and for the years ended December 31, 2011 and December 31, 2012 and (ii) the unaudited interim statutory financial statements of the Company as of and for the three-month period ending March 31, 2013 (collectively, the “Statutory Statements”).  Except as set forth in Section 3.6(b) of the Seller Disclosure Schedule, the Statutory Statements were prepared in accordance with SAP and fairly present, in all material respects, the admitted assets, liabilities and capital and surplus of the Company at their respective dates and the results of operations, changes in surplus and cash flows of the Company at and for the periods indicated, subject, in the case of the financial statements referenced in clause (ii) above, to normal recurring year-end adjustments.  Section 3.6(b) of the Seller Disclosure Schedule sets forth a complete list of all permitted practices used by the Company in the preparation of the Statutory Statements.

 

(c)          Subject to Section 10.9(c), except as set forth in Section 3.6(b) of the Seller Disclosure Schedule, the Insurance Reserves reflected on the Statutory Statements with respect to the Recaptured Business as of their respective dates:  (i) have been computed in all material respects in accordance with presently accepted actuarial standards consistently applied; (ii) were fairly stated in accordance with sound actuarial principles; (iii) have been based on actuarial assumptions which produced reserves at least as great as those called for in any contract provision as to reserve basis and method, and are in accordance with all other contract provisions; (iv) met, in all material respects, all requirements of SAP; and (v) include provisions for all actuarial reserves and related statement items which ought to be established, in each case, as required to be certified by the actuaries of the Company, pursuant to Applicable Law.

 

(d)          Each of the Company and Seller (with respect to the Company Business) has devised and maintained a system of internal accounting controls with respect to its business sufficient to provide reasonable assurances that: (i) transactions are executed according to the management’s general or specific authorization; (ii) transactions are recorded as necessary to permit the preparation of financial statements in conformity with SAP and to maintain accountability for assets; (iii) access to its assets is permitted only in accordance with management’s general or specific authorization; and (iv) recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

SECTION 3.7.        No Undisclosed Liabilities.  The Company does not have any Liability that is required to be reflected in a balance sheet (or the notes thereto) of the Company prepared in accordance with SAP except (i) those Liabilities provided for, disclosed or reflected in the Statutory Statements or in the notes thereto, (ii) Liabilities disclosed in Section 3.7 of the Seller Disclosure Schedule and (iii) Liabilities incurred in the ordinary course of business 

 

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consistent with past practice since December 31, 2012.  This Section 3.7 does not relate to Tax matters (which are the subject of Section 3.10).

 

SECTION 3.8.        Absence of Certain Changes or Events.  Except as disclosed in Section 3.8 of the Seller Disclosure Schedule, from December 31, 2012 through the date hereof, the Company (i) has conducted its business in the ordinary course, and there has not been any event or change having, or that would reasonably be expected to have, a Material Adverse Effect.  Without limiting the generality of the foregoing, from December 31, 2012 through the date hereof, the Company has not, except as set forth in Section 3.8 of the Seller Disclosure Schedule, taken any action or failed to take any action that would have required Buyer’s consent under clauses (vi), (vii), (viii), (ix), (x), (xi), (xii) and (xvi) (with respect to any of the actions contemplated by such identified clauses) of Section 5.1(a) had such action or omission occurred during the period from the date hereof to the Closing.

 

SECTION 3.9.        Employees and Benefit Plans.

 

(a)          Section 3.9(a) of the Seller Disclosure Schedule includes a list of all material Company Benefit Plans.  With respect to each such Company Benefit Plan, Seller has delivered or made available to Buyer true, correct and complete copies of (i) each writing constituting such Company Benefit Plan (including, any and all amendments thereto) or, if unwritten, a summary thereof, and (ii) the most recent summary plan description for each Company Benefit Plan for which such a summary plan description is required.

 

(b)          Except as disclosed in Section 3.9(b) of the Seller Disclosure Schedule, there are no material claims or disputes pending or, to the Knowledge of Seller, threatened by any Producer or former Producer with respect to any Company Benefit Plan, other than claims for benefits in the ordinary course of business.

 

(c)          Except as disclosed in Section 3.9(c) of the Seller Disclosure Schedule or to the extent required by COBRA, no Company Benefit Plan provides any Producer or any former Producer medical, dental or life insurance coverage or any other welfare benefits after termination of such person’s service for the Company.

 

(d)          Except as disclosed in Section 3.9(d) of the Seller Disclosure Schedule, the Company does not participate in, sponsor or maintain (i) any multiemployer plan within the meaning of Section 3(37) of ERISA or any Employee Benefit Plan that has two or more contributing sponsors, at least two of whom are not under common control, within the meaning of Section 4063 of ERISA, (ii) any Employee Benefit Plan subject to Section 4063 or 4064 of ERISA, (iii) any “multiple employer welfare arrangement” as defined in Section 3(40) of ERISA, (iv) any Employee Benefit Plan funded by a voluntary employees’ beneficiary association within the meaning of Section 501(c)(9) of the Code, or (v) any other Employee Benefit Plan subject to Section 412 of the Code, Section 430 of the Code or Title IV of ERISA.  There does not now exist, nor do any circumstances exist that could result in, any Controlled Group Liability that would be a Liability of the Company following the Closing.

 

(e)          Each Company Benefit Plan in which or under which any Producer or former Producer participates or is otherwise entitled to receive a benefit based on services 

 

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rendered to or for the Company that is intended to be qualified under Section 401(a) of the Code is subject to a favorable determination by the Internal Revenue Service and, to the Knowledge of Seller, no event has occurred and no condition exists that has adversely affected or would reasonably be expected adversely to affect the qualification of any such Company Benefit Plan.  Each Company Benefit Plan in which or under which any Producer or former Producer participates or is otherwise entitled to receive a benefit based on services rendered to or for the Company (i) has been administered in all material respects in accordance with its terms and (ii) is in compliance in all material respects with all Applicable Laws.

 

(f)           Each Company Benefit Plan (i) in which or under which any Producer or former Producer participates or is otherwise entitled to receive a benefit based on services rendered to or for the Company and (ii) that is a “nonqualified deferred compensation plan” within the meaning of Section 409A(d)(1) of the Code, and any award under any such Company Benefit Plan that is subject to Section 409A of the Code, has, in each case, been operated in compliance in all material respects with Section 409A of the Code since January 1, 2009.  No Producer or former Producer of the Company is entitled to receive any additional payment (including any tax gross-up or other payment) from the Company as a result of the imposition of any taxes arising under Section 409A of the Code.

 

(g)          Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in, cause the accelerated vesting, funding or delivery of, or increase the amount or value of, any payment or benefit to any Producer or former Producer.  Without limiting the generality of the foregoing, no amount paid or payable (whether in cash, in property or in the form of benefits) by the Company to any Producer in connection with the transactions contemplated hereby will be an “excess parachute payment” within the meaning of Section 280G of the Code.

 

(h)          As of the date hereof, no person is a common law employee of the Company.  Each of Seller (with respect to the Company Business) and the Company has complied, in all material respects, with all Applicable Laws regarding employment, labor and wage and hour matters as they pertain to any Company Employee or Producer.  With respect to the Company Employees, no labor organization or group of employees has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened to be brought or filed with the National Labor Relations Board or any other labor relations tribunal or authority.  There are no material strikes, work stoppages, slowdowns, lockouts, arbitrations or grievances, or other material labor disputes, pending or threatened against or involving any Company Employees or the Company.

 

SECTION 3.10.     Taxes.  Except as disclosed in Section 3.10 of the Seller Disclosure Schedule:

 

(a)          (i) All material Tax Returns required to be filed by or filed on behalf of the Company have been properly prepared and duly and timely filed (after giving effect to any valid extensions of time in which to make such filings) with the appropriate Tax authorities in all jurisdictions in which such Tax Returns are required to be filed and are true, correct and complete in all material respects and (ii) all material Taxes (whether or not shown on such Tax 

 

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Returns) required to be paid with respect to, or that could give rise to a Lien on the assets of, the Company have been duly and timely paid.

 

(b)          The Company has complied in all material respects with all Applicable Laws relating to the payment and withholding of Taxes and has duly and timely withheld all material Taxes required to be withheld by the Company, and such withheld Taxes have been either duly and timely paid to the proper Governmental Entity or properly set aside in accounts for such purpose.

 

(c)          No material deficiencies for any Taxes have been proposed, asserted or assessed in writing against or with respect to the income or assets of the Company.  No Taxes with respect to the income or assets of the Company are currently under audit, examination or investigation by any Governmental Entity or the subject of any judicial or administrative proceeding.  No agreement, waiver or other document or arrangement is currently in effect extending the period for assessment or collection of Taxes (including any applicable statute of limitation) by or on behalf of the Company other than any agreement, waiver or other document or arrangement relating to Consolidated Returns.

 

(d)          The Company is not a party to any agreement dealing primarily with Tax sharing, allocation, indemnity or distribution pursuant to which it will have any obligation to make any payments after the Closing.

 

(e)          The Company does not have any liability for the Taxes of any Person under Treasury Regulations Section 1.1502-6 or any similar provision of state, local or foreign law, or as a transferee or successor.

 

(f)           There are no material Liens for Taxes as a result of any unpaid Taxes upon the assets of the Company except for Taxes not yet due and payable.

 

(g)          During the past two years, the Company has not been a “distributing corporation” or a “controlled corporation” within the meaning of Section 355(a)(1)(A) of the Code.

 

(h)          The Company has not ever engaged in any “listed transactions” within the meaning of Treasury Regulation Section 1.6011-4(b)(2).

 

(i)           No jurisdiction (whether within or without the United States) in which the Company has not filed a particular type of Tax Return or in which the Seller Group has not filed a particular type of Tax Return with respect to the Company has asserted that the Company is required to file such Tax Return in such jurisdiction.

 

(j)           The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date, as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date under Section 481 of the Code (or any corresponding provision of state, local or foreign income Tax law), (ii) installment sale or open transaction disposition made on or prior to the Closing Date, (iii) prepaid amount received on or 

 

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prior to the Closing Date or (iv) any election pursuant to Section 108(i) of the Code (or any similar provision of state, local or foreign law) made with respect to any Pre-Closing Tax Period.

 

(k)          The Company is not a party to a “gain recognition agreement” within the meaning of the Treasury Regulations under Section 367 of the Code.

 

(l)           No Tax ruling or closing agreement pursuant to Section 7121 of the Code (or any predecessor provision or any similar provision of state or local law) will be binding on the Company after the Closing Date.

 

(m)         Seller’s calculation of its tax basis in the Shares, which has previously been provided to Buyer, was calculated using information reported on the consolidated federal income Tax Returns of the Seller Group that include the Company for the years 1984 through 2011, with adjustments to such amount in 2012 computed based on the Company’s 2012 NAIC annual statement tax provision.  All federal income Tax Returns of the Seller Group that include the Company for Tax years through 2010 have been audited by the IRS with no adjustments in respect of the Company.  The Company’s 2012 NAIC annual statement tax provision has been audited by Deloitte Tax LLP.

 

SECTION 3.11.     Compliance with Applicable Laws.

 

(a)          Except as disclosed in Section 3.11(a) of the Seller Disclosure Schedule, since December 31, 2010, the Company (including each of its separate accounts) has been, and the Company Business has been conducted, in compliance in all material respects with all Applicable Laws.  Except as disclosed in Section 3.11(a) of the Seller Disclosure Schedule, neither the Company (including as to any of its separate accounts) nor Seller has at any time since December 31, 2010 received any written notice or other written communication from any Governmental Entity regarding any actual or alleged violation of, or failure on the part of the Company or the Company Business to comply in any material respect with, any Applicable Laws, in each case other than any such item that has been cured or otherwise resolved to the satisfaction of such Governmental Entity or that is no longer being pursued by such Governmental Entity following a response by the Company.

 

(b)          The Company owns, holds or possesses all permits, licenses, approvals, authorizations, consents and registrations that are necessary to entitle it to own or lease, operate and use its assets or properties and to carry on and conduct its business as currently conducted (collectively, “Permits”).  Schedule 3.11(b) of the Seller Disclosure Schedule sets forth a true, correct and complete list of all material Permits.  The Company is in material compliance with all of the terms and requirements of each such Permit.  With respect to the Permits, the Company has not at any time since December 31, 2010 received any written notice or other written communication from any Governmental Entity regarding any actual or proposed revocation, suspension or termination of, or modification to, any such Permit, in each case other than any such item that has been cured or otherwise resolved to the satisfaction of such Governmental Entity, that is no longer being pursued by such Governmental Entity following a response by the Company or that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  All Permits are valid and in full force and effect, except where the 

 

25

 

failure of such Permits to be in full force and effect would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

SECTION 3.12.     Litigation.  Except as disclosed in Section 3.12 of the Seller Disclosure Schedule, and excluding those Actions relating to the Insurance Contracts or any other policies or contracts of insurance written by the Company that involve claims within applicable policy limits, (i) there is no Action pending or with respect to which the Company or Seller (with respect to the Company Business) has been served with notice or any other Action that, to the Knowledge of Seller, is threatened against the Company or against Seller or any of its Affiliates (with respect to the Company Business), that individually (or in the aggregate with respect to any Actions based on similar facts, circumstances or events or involving similar factual allegations) (A) would reasonably be expected to result in any Liability or loss in excess of $500,000, (B) would reasonably be expected to have the effect of preventing any of the transactions contemplated by any Transaction Agreement or (C) would reasonably be expected to result in an injunction or other similar remedy that would reasonably be expected to be materially adverse to the Company or the Company Business and (ii) there is no order of any Governmental Entity outstanding or, to the Knowledge of Seller, threatened against the Company or any of its assets, properties, rights or businesses or against Seller (with respect to the Company Business) resulting in, or that would reasonably be expected to result in, (A) a Liability or loss of $500,000 or more or (B) an injunction or other similar remedy that would reasonably be expected to be materially adverse to the Company or the Company Business.  Subject to Section 10.9(c) and without making any representation or warranty as to the adequacy or sufficiency of such reserves, each of Seller and the Company establishes reserves with respect to Actions relating to the Insurance Contracts as and when it is required to do so under SAP and Applicable Law.

 

SECTION 3.13.     Contracts.

 

(a)          Section 3.13(a) of the Seller Disclosure Schedule lists each Contract to which the Company is a party or by which it or any of its assets is or are bound as of the date hereof.  The term “Contracts” means all of the following types of contracts (other than any insurance or annuity policy or contract written by the Company or any Company Reinsurance Contract):

 

(i)           contracts containing any provision or covenant limiting the ability of the Company to engage in any line of business, to compete with any Person or to do business in any geographic area, in each case except for contracts and agreements that limit the ability of the Company to solicit the employment of or hire individuals employed by other Persons, or obligating the Company or, following the Closing, Buyer or any of its Affiliates, to conduct any business on an exclusive basis with any Person;

 

(ii)          mortgages, indentures, loan or credit agreements, security agreements and other agreements and instruments relating to the borrowing of money or extension of credit to the Company or the direct or indirect guarantee by the Company of any obligation of any Person or any other Liability of the Company in respect of indebtedness for borrowed money of any Person;

 

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(iii)         agency, broker, selling, marketing or similar contracts between the Company, on the one hand, and any Producer of the Company who, or any MBA Group that, was responsible for placing 2% or more of the aggregate gross written premium of the Company Business for the year ended December 31, 2012;

 

(iv)         any contract (other than any Seller Benefit Plan) between the Company, on the one hand, and any director, officer or Company Employee (or any Affiliate (other than the Company, Seller or any of their respective Affiliates) of a director, officer or Company Employee), on the other hand;

 

(v)          any direct or indirect guarantee by Seller or any of its Affiliates (other than the Company) in favor of or in respect of any obligations of the Company;

 

(vi)         any joint venture, partnership or limited liability company contract binding on the Company, in each case except for the Business Investment Assets;

 

(vii)       any contract under which the Company may become obligated to pay any brokerage or finder’s or similar fees or expenses in connection with the transactions contemplated hereby;

 

(viii)      any collective bargaining agreement;

 

(ix)         any contract pursuant to which any Lien, other than a Permitted Lien, is placed or imposed on any Business Investment Asset or other material asset, property or right of the Company;

 

(x)          any contract granting or restricting rights to Intellectual Property that is material to the operation of the Company Business as presently conducted;

 

(xi)         any contract that relates to the acquisition or disposition by the Company of any of any business or operations, capital stock or assets or any Person or any real estate as to which there are any material ongoing obligations of the Company;

 

(xii)       any contract relating to any material interest rate, derivative or hedging transaction; and

 

(xiii)      any other contract of the Company providing for the provision of goods or services involving payment by the Company in excess of $500,000 annually or $3,000,000 in the aggregate over the term of the contract and that is not terminable on notice of 90 or fewer calendar days without penalty or premium.

 

(b)          Each of the Contracts disclosed in Section 3.13(a) of the Seller Disclosure Schedule constitutes a valid and binding obligation of the Company or Seller, as applicable, and, to the Knowledge of Seller, each other party thereto, enforceable against the Company and, to the Knowledge of Seller, each other party thereto in accordance with its terms (except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors’ rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief 

 

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may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought) and is in full force and effect.  Neither the Company nor the Seller has received written notice of cancellation of any Contract.  There exists no material breach or event of default with respect to any Contract on the part of the Company or Seller, as applicable, or, to the Knowledge of Seller, any other party thereto.

 

SECTION 3.14.     Insurance Matters.

 

(a)          The Company has filed all material reports, statements, registrations, filings or submissions required to be filed with any Insurance Regulator since December 31, 2010, and no material deficiencies have been asserted in writing by any Governmental Entity since December 31, 2010 with respect to any such reports, statements, registrations, filings and submissions that have not been cured or otherwise resolved.  Seller has made available to Buyer true, correct and complete copies of all material reports and registrations (including registrations as a member of an insurance holding company system) and any supplements or amendments thereto filed since December 31, 2010 with any Governmental Entity in respect of the Company or the Company Business and all financial examination and market conduct examination reports of all Insurance Regulators with respect to the Company or the Company Business issued since December 31, 2010.  Except as set forth in Section 3.14(a) of the Seller Disclosure Schedule, neither the Company nor Seller (with respect to the Company Business) is subject to any pending or, to the Knowledge of Seller, threatened financial or market conduct examination or other investigation by an Insurance Regulator.

 

(b)          Except as set forth in Section 3.14(b) of the Seller Disclosure Schedule, the Company is and since December 31, 2010, has been in compliance with all Applicable Laws regulating the marketing and sale of insurance or annuity policies or contracts written by the Company, regulating advertisements, requiring mandatory disclosure of policy information, requiring employment of standards to determine if the purchase of an insurance or annuity policy or contract is suitable for an applicant, prohibiting the use of unfair methods of competition and deceptive acts or practices and regulating replacement transactions.  For purposes of this Section 3.14(b), (i) “advertisement” means any material designed to create public interest in insurance or annuity policies or contracts or in an insurer, or in an insurance producer, or to induce the public to purchase, increase, modify, reinstate, borrow on, surrender, replace or retain such an insurance or annuity policy or contract, and (ii) “replacement transaction” means a transaction in which a new insurance or annuity policy or contract written by the Company is to be purchased by a prospective insured and the proposing producer knows or should know that one or more existing insurance or annuity policies or contracts will lapse, or will be forfeited, surrendered, reduced in value or pledged as collateral.

 

(c)          Since December 31, 2010, the Company has timely paid in all material respects all guaranty fund assessments that have been due, claimed or asserted by, or are the subject of any voluntary contribution commitment to, any state guaranty fund or association or any Governmental Entity charged with the supervision of insurance companies in any jurisdiction in which the Company does business.  Except for regular periodic assessments in the ordinary course of business or assessments based on developments that are publicly known within the insurance industry, no claim or assessment is pending or, to the Knowledge of Seller, threatened against the Company by any state insurance guaranty association in connection with 

 

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such association’s fund relating to insolvent insurers, except for any such claims or assessments that are not and would not reasonably be expected, individually or in the aggregate, to be materially adverse to the Company Business.

 

(d)          Except as set forth on Section 3.14(d) of the Seller Disclosure Schedule, no provision in any insurance or annuity policy or contract written by the Company gives the holder thereof or any other Person the right to receive policy dividends or otherwise participate in the revenue, earnings or profits of the Company.

 

(e)          Except as set forth in Section 3.14(e) of the Seller Disclosure Schedule, to the Knowledge of Seller, since December 31, 2010, (A) each Producer at any time that it wrote, sold or produced business for the Company was in all material respects duly licensed, authorized and appointed (for the type of business written, sold or produced by such Producer) in the particular jurisdiction in which such Producer wrote, sold or produced such business and, to the Knowledge of Seller, no such Producer violated in any material respect any term or provision of Applicable Law relating to the writing, sale or production of such business, (B) no Producer has violated in any material respect any Applicable Law in the solicitation, negotiation, writing, sale or production of business for the Company and (C) no Producer has in any material respect been enjoined, indicted, convicted or made the subject of any consent decree or judgment on account of any violation of Applicable Law in connection with such Producer’s actions in his, her or its capacity as an Producer for the Company or any enforcement or disciplinary proceeding alleging any such violation.

 

(f)           Neither the Company nor Seller (with respect to the Company Business) is a party to any written contract, consent decree or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or subject to any cease-and-desist or other order or directive by, or a recipient of any extraordinary supervisory letter from, or has adopted any policy, procedure or board or stockholder resolution at the request of, any Insurance Regulator that restricts materially the conduct of its business (or in the case of Seller, the Company Business) or in any manner relates to its capital adequacy, credit or risk management policies or management.

 

(g)          The insurance or annuity policies or contracts written by the Company are, to the extent required under Applicable Law, on forms and at rates approved by the applicable Insurance Regulator or filed and not objected to by such Insurance Regulator within the period provided for objection, in each case except as would not reasonably be expected to result in a material violation of Applicable Law by, or a material fine on, the Company.

 

SECTION 3.15.     Tax Treatment of Insurance Contracts.

 

(a)          All Insurance Contracts that are subject to Section 101(f) of the Code satisfy, in all material respects, the requirements of that Section and otherwise qualify as life insurance contracts for purposes of the Code, and all Insurance Contracts (other than long-term care insurance contracts or annuity contracts) satisfy in all material respects, the requirements of Section 7702 of the Code and otherwise qualify as life insurance contracts for purposes of the Code.  All Insurance Contracts that are annuity contracts satisfy, in all material respects, all applicable requirements of Sections 72 and 817 of the Code.  All Insurance Contracts that are 

 

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long term care insurance contracts satisfy, in all material respects, the requirements of Section 7702B of the Code.

 

(b)          None of the Insurance Contracts are “modified endowment contracts” within the meaning of Section 7702A of the Code, except for those Insurance Contracts that are being administered as modified endowment contracts.

 

(c)          With respect to all relevant Tax periods, Seller, the Company and their respective Affiliates have materially complied with all reporting, withholding, and disclosure requirements under the Code that are applicable to the Insurance Contracts and, in particular, but without limitation, have reported distributions under such Insurance Contracts in compliance in all material respects with all applicable requirements of the Code, Treasury Regulations and forms issued by the IRS.

 

(d)          As of the date hereof, none of Seller, the Company or any of their respective Affiliates has entered into any agreement or is involved in any discussions or negotiations with the IRS or any other Taxing authority regarding the failure of any Insurance Contracts to meet the requirements of Section 72, 101, 817, 7702, 7702A or 7702B of the Code, as applicable to such Insurance Contracts.  In addition, none of Seller, the Company or any of their respective Affiliates is a party to or has received notice of any federal, state, local or foreign audits or other administrative or judicial actions with regard to the Tax treatment of any Insurance Contracts, or of any claims by the purchasers of the Insurance Contracts regarding the Tax treatment of the Insurance Contracts or the plan or arrangement in connection with which such Insurance Contracts were purchased.

 

(e)          The Tax treatment of each Insurance Contract is not, and since the time of issuance has not been, materially less favorable to the purchaser, holder or intended beneficiaries thereof than the Tax treatment under the Code (i) that was purported by the Company to apply to such Insurance Contract in written materials provided by the Company to such purchaser, holder or intended beneficiary at the time such Insurance Contract was initially sold or issued or subsequently modified or (ii) for which policies, products or contracts of that type were designed by the Company to qualify at such time or were reasonably expected, based on written materials provided by the Company to such purchaser, holder or intended beneficiary at the time such Insurance Contract was initially sold or issued or subsequently modified, to qualify at such time, except for changes resulting from changes to the Code after the time of such sale, issuance or modification.

 

SECTION 3.16.     Reinsurance Contracts.

 

(a)          Section 3.16(a) of the Seller Disclosure Schedule lists (i) each reinsurance agreement to which the Company is a party as the ceding company thereunder which is in-force as of the date hereof, other than any such agreement under which the Company has gross ceded Insurance Reserves (calculated in accordance with SAP) of $2,500,000 or less as of December 31, 2012 (the “Ceded Reinsurance Contracts”), and (ii) each reinsurance contract pursuant to which the Company has assumed Liability under or with respect to any insurance or annuity policy or contract (such contracts, together with the Ceded Reinsurance Contracts, the “Company Reinsurance Contracts”).

 

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(b)          Each of the Company Reinsurance Contracts constitutes a valid and binding obligation of the Company and, to the Knowledge of Seller, each other party thereto, enforceable against the Company and, to the Knowledge of Seller, each other party thereto in accordance with its terms (except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors’ rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought) and is in full force and effect.  Except as set forth in Section 3.16(b) of the Seller Disclosure Schedule, the Company has not received written notice of early termination of any such Company Reinsurance Contract.  There exists no material breach or event of default with respect to any Company Reinsurance Contract on the part of the Company or, to the Knowledge of Seller, any other party thereto.

 

(c)          Except as set forth in Section 3.16(c) of the Seller Disclosure Schedule, there is no dispute pending with respect to any material amounts recoverable or payable by the Company pursuant to any Ceded Reinsurance Contract.  The Company is entitled under SAP to take full credit in its statutory financial statements for all amounts recoverable by it pursuant to the Ceded Reinsurance Contracts.

 

(d)          To the Knowledge of Seller, Employers Reassurance Corporation is a party to a capital maintenance agreement with General Electric Capital Corporation, pursuant to which General Electric Capital Corporation is required to maintain Employers Reassurance Corporation’s capital level at no less than 300% of its authorized control level risk based capital as determined in accordance with risk based capital factors and formulae prescribed by the National Association of Insurance Commissioners from time to time.

 

SECTION 3.17.     Actuarial Reports.  Seller has delivered to Buyer true, correct and complete copies of the actuarial reports dated June 30, 2012 and December 31, 2012 prepared by Milliman, Inc. (“Milliman”) with respect to the Recaptured Business other than the portions of the Recaptured Business identified in Section 3.17 of the Seller Disclosure Schedule (collectively, and together with any exhibits and appendices thereto, the “Actuarial Reports”).  Seller has complied in all material respects with all information requests by Milliman in connection with its preparation of the Actuarial Report.  Except as set forth on Section 3.17 of the Seller Disclosure Schedule, the factual information and data furnished by Seller and its Affiliates to Milliman expressly in connection with the preparation of the Actuarial Reports, were (a) derived from the relevant Books and Records and (b) accurate in all material respects as of the date delivered to Milliman, subject in each case to any limitations and qualifications contained in the Actuarial Report; provided, that (notwithstanding the inclusion of the measure of “lost profits” within the definition of “Indemnifiable Losses”) Seller does not guarantee the projected results included in the Actuarial Report and makes no representation or warranty with respect to the Actuarial Report, any estimates, projections, predications, forecasts or assumptions in the Actuarial Report or the assumptions on the basis of which such information was, or data were, prepared, or to the effect that the projected profits set forth in the Actuarial Report will be realized.

 

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SECTION 3.18.     Company Insurance Policies.

 

(a)          Section 3.18(a) of the Seller Disclosure Schedule lists all material insurance policies (including fidelity bonds and other similar instruments, but excluding Ceded Reinsurance Contracts) in effect on the date hereof covering the Company or its officers or directors (the “Company Insurance Policies”).

 

(b)          Except as set forth in Section 3.18(b) of the Seller Disclosure Schedule, each of the Company Insurance Policies is in all material respects in full force and effect and all premiums due thereon have been timely paid or adequate provisions for the payment thereof have been made, and the Company is not in material breach or default and has not taken any action or failed to take any action that, with notice or the lapse of time or both, would constitute such a breach or default, or permit termination or modification of, any such Company Insurance Policy.  There is no material claim pending under any of such policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies and, to the Knowledge of Seller, there has been no threatened termination of, material alteration in coverage, or material premium increase with respect to, any such Company Insurance Policies.

 

SECTION 3.19.     Environmental Matters.  Except as set forth in Section 3.19 of the Seller Disclosure Schedule, there are no pending or, to the Knowledge of Seller, threatened Actions against the Company that seek to impose, or that are reasonably likely to result in, any material Liability or obligation of the Company under any Applicable Law concerning worker health and safety, pollution or the protection of the environment or human health as it relates to the environment, and the Company is not subject to any agreement, order, judgment, decree, letter or memorandum by or with any Governmental Entity or third party imposing any material Liability or obligation on the Company with respect to any of the foregoing.

 

SECTION 3.20.     Intellectual Property.

 

(a)          The Company owns or has the right to use pursuant to license, sublicense, agreement or permission all Intellectual Property necessary for the operation of its business as presently conducted, except to the extent that such failure to own or have such right would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Section 3.20(a)(i) of the Seller Disclosure Schedule sets forth all patents, and applications for patents, all registered trademarks and all applications for trademarks, all registered copyrights and all Internet domain names owned by the Company.  Except as set forth in Section 3.20(a)(ii) of the Seller Disclosure Schedule, with respect to: (x) each of the items set forth in Section 3.20(a)(i) of the Seller Disclosure Schedule; (y) each of the material unregistered trademarks, copyrights, trade names, service marks and Trade Secrets owned by the Company and necessary for the operation of its business; and (z) the Internet domain names listed in Section 5.7(e) of the Seller Disclosure Schedule (collectively, the “Company Intellectual Property Rights”), the Company possesses all right, title and interest in and to each of the Company Intellectual Property Rights, free and clear of any Lien, license or other restriction, other than any Permitted Lien.  The Company Intellectual Property Rights are subsisting and, to the Knowledge of Seller, valid and enforceable.

 

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(b)          The conduct of the Company Business as currently conducted does not infringe, misappropriate, dilute or otherwise violate any Intellectual Property rights owned by third parties, except to the extent that such infringement, misappropriations, dilution or violation would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Except as disclosed in Section 3.20(b) of the Seller Disclosure Schedule and since December 31, 2010, the Company has not received any written notice that it has infringed, misappropriated, diluted or otherwise violated any Intellectual Property rights owned by third parties except to the extent that such alleged violation would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(c)          The Company has not made any pending claim against any third party alleging infringement, misappropriation, dilution or other violation of any material Company Intellectual Property Right and, to the Knowledge of Seller, since December 31, 2010, none of the Company Intellectual Property Rights is being infringed, misappropriated, diluted or otherwise violated by any Person.

 

(d)          All employees and consultants who contributed to the creation, discovery or development of any material Company Intellectual Property Rights used in the conduct of the business of the Company did so either (i) within the scope of his or her employment with the Company, Seller or another Affiliate of Seller or (ii) pursuant to written agreements that have validly and irrevocably assigned all Intellectual Property arising therefrom to the Company, Seller or another Affiliate of Seller, except to the extent such failure to do so in accordance with subsection (i) or (ii) above would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Except as disclosed in Section 3.20(d) of the Seller Disclosure Schedule, the collection, storage, use and dissemination by the Company of personally identifiable data and information of consumers of its services or users of any websites operated by the Company is currently, and has since December 31, 2010 been, in compliance with all applicable privacy policies, terms of use and Applicable Laws, except to the extent such failure to comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Seller and its Affiliates (including the Company) use commercially reasonable measures to protect the consumer information of the Company Business that they collect and maintain and have not since December 31, 2010 experienced any breach in security or any incident of unauthorized access, disclosure, use, destruction or loss of any personally identifiable data or information of consumers of the Company Business, except breaches or incidents that have not materially and adversely affected the Company Business and would not, individually or in the aggregate, reasonably be expected to materially and adversely affect the Company Business.

 

(e)          Section 3.20(e)(i) of the Seller Disclosure Schedule sets forth all material Intellectual Property owned by Seller or any of its Affiliates necessary for the operation of the Company Business as presently conducted (“Seller Intellectual Property”).  Immediately after the Closing, the Company will own all of the Company Intellectual Property Rights, free and clear of any Lien, other than Permitted Liens, and will, through the Transition Services Agreement and the Intellectual Property License, have the right to use all Seller Intellectual Property necessary for the operation of the Company Business (recognizing, for this purpose, that the Company does not intend to write any new business after the Closing (other than policies issued upon conversion of an insurance policy included in the Company Business that has a conversion 

 

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feature and any policies issued pursuant to any of the Transaction Agreements)), on substantially the same terms and conditions as in effect prior to the Closing.

 

(f)           Seller or one of its Affiliates has implemented reasonable backup and disaster recovery arrangement to ensure the continued operation of the Company in the event of a disaster or business interruption.

 

SECTION 3.21.     Brokers.  Seller is solely responsible for the payment of the fees and expenses of any broker, investment banker, financial adviser or other Person acting in a similar capacity in connection with the transactions contemplated by this Agreement or any of the Transaction Agreements based upon arrangements made by or on behalf of Seller or any Affiliate.

 

SECTION 3.22.     Real Property.  The Company does not own any real property except for Investment Assets, does not lease any real property and does not have any Liability with respect to or arising out of any real property (other than any Liability to Seller or any of its Affiliates, which will be paid in full and settled pursuant to Section 5.6).

 

SECTION 3.23.     Sufficiency of Assets.  Except as set forth in Section 3.23 of the Seller Disclosure Schedule, and assuming the adequate capitalization of the Company by Buyer at the Closing in an amount sufficient to support the ongoing administration of the Company Business after the Closing, as of the Closing, the assets, properties and rights of the Company, and the assets, rights, properties and services made available to Buyer or the Company pursuant to this Agreement and the other Transaction Agreements (and the assets used to provide such services), including in each case the Intellectual Property that will be licensed pursuant to the Intellectual Property License, will, as of the Closing, comprise assets, properties and rights that are sufficient to permit Buyer to administer the Company Business immediately following the Closing Date (after giving effect to the Restructuring Agreements) in substantially the same manner as the Company Business is being administered as of the date hereof.  This Section 3.23 does not address employee matters, which are addressed in Section 3.9.

 

SECTION 3.24.     Book and Records.  All Books and Records are maintained in accordance with Applicable Law.

 

SECTION 3.25.     Transactions with Affiliates.  Section 3.25 of the Seller Disclosure Schedule lists all contracts between the Company, on the one, hand, and Seller or any Affiliate of Seller (other than the Company), on the other hand, that will not be terminated on or prior to the Closing Date.

 

SECTION 3.26.     Investment Assets.

 

(a)          Seller has provided Buyer prior to the date hereof a true, correct and complete list of all Investment Assets owned by the Company in its general account as of June 30, 2013 and such list is set forth in Section 3.26(a) of the Seller Disclosure Schedule.

 

(b)          Except as set forth on Section 3.26(b) of the Seller Disclosure Schedule, all of the Business Investment Assets were acquired in compliance, in all material respects, with Applicable Law.  The Company or Seller or its applicable Affiliate, as applicable, has good and 

 

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marketable title in and to all of the Business Investment Assets it purports to own, and after the Closing the Company will have good and marketable title in and to all Business Investment Assets, in each case free and clear of all Liens, other than Permitted Liens, except to the extent such Business Investment Asset is on deposit with Insurance Regulators pursuant to Applicable Law on behalf of the Company.

 

(c)          Except as set forth on Section 3.26(c) of the Seller Disclosure Schedule, neither the Company nor Seller (with respect to the Recaptured Investment Assets) has any material funding obligations of any kind, or material obligation to make any additional advances or investments (including any obligation relating to any currency or interest rate swap, hedge or similar arrangement), in respect of any of the Business Investment Assets.  There are no material outstanding commitments, options, put agreements or other arrangements relating to the Business Investment Assets to which Buyer or the Company may be subject upon or after the Closing.

 

ARTICLE IV.
 REPRESENTATIONS AND WARRANTIES OF BUYER

 

Subject to and as qualified by the matters set forth in the Buyer Disclosure Schedule, Buyer represents and warrants to Seller, as of the date hereof and as of the Closing Date (or such other date specified herein), as follows:

 

SECTION 4.1.        Organization, Standing and Corporate Power.  Buyer is a corporation, duly organized, validly existing and in good standing under the laws of Delaware.  Each other Buyer Party is an entity duly incorporated or organized (as the case may be), validly existing and in good standing under the laws of its jurisdiction of incorporation or organization.  Buyer has the requisite corporate power and authority to own, lease or otherwise hold the assets and properties owned, leased or otherwise held by it and to carry on its business as now being conducted.  Buyer is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification necessary, other than in such jurisdictions where the failure to be so qualified or in good standing (individually or in the aggregate) would not reasonably be expected, individually or in the aggregate, to materially impair the ability of Buyer to consummate any of the transactions contemplated hereby.

 

SECTION 4.2.        Authority.  Each Buyer Party has the requisite corporate power and authority to enter into the Transaction Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby.  The execution and delivery by each Buyer Party of the Transaction Agreements to which it is or will be a party and the consummation by each Buyer Party of the transactions contemplated hereby and thereby have been and, with respect to the Transaction Agreements to be executed and delivered after the date of this Agreement, will be, duly authorized by all necessary corporate action on the part of such Buyer Party.  Each of the Transaction Agreements to which a Buyer Party is or will be a party has been duly executed and delivered by such Buyer Party and, assuming such Transaction Agreements constitute the valid and binding agreement of the Seller Parties party thereto, constitute valid and binding obligations of such Buyer Party, enforceable against such Buyer Party in accordance with their terms except that (i) such enforcement may be subject to applicable bankruptcy, 

 

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insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors’ rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

 

SECTION 4.3.        Noncontravention; Consents.  Except as disclosed in Section 4.3 of the Buyer Disclosure Schedule, the execution and delivery of the Transaction Agreements by each Buyer Party that is or will be a party thereto and the consummation of the transactions contemplated thereby by such Buyer Party do not and will not (i) conflict with any of the provisions of the Organizational Documents of any Buyer Party, (ii) subject to the matters referred to in the next sentence, conflict with, result in a breach of or default (with or without notice or lapse of time or both) under, give rise to a right of termination under, or result in the creation of any Lien (other than a Permitted Lien) on any property or asset of Buyer or any of its Subsidiaries under, any agreement, permit, license or instrument to which Buyer or any of its Subsidiaries is a party or (iii) subject to the matters referred to in the next sentence, contravene any Applicable Law, which, in the case of clauses (ii) and (iii) above, would materially impair the ability of Buyer to consummate any of the transactions contemplated hereby.  No consent, approval or authorization of, or declaration or filing with, or notice to, any third party or other Governmental Entity is required by or with respect to any Buyer Party in connection with the execution and delivery of the Transaction Agreements by the Buyer Parties or the consummation by the Buyer Parties of any of the transactions contemplated thereby.  To the Knowledge of Buyer, no fact or circumstance relating to Buyer or its Affiliates (including their plans for funding the purchase of the Shares or financing or operating the Company from and after the Closing) exists as of the date hereof that would render Buyer or its Affiliates, as applicable, unable promptly to obtain any approval, authorization or consent of any Governmental Entity required to be obtained to consummate the transactions contemplated by the Transaction Agreements.

 

SECTION 4.4.        Compliance with Applicable Laws.  Except as disclosed in Section 4.4 of the Buyer Disclosure Schedule, since its formation, Buyer has been in compliance in all material respects with all Applicable Laws.  Except as disclosed in Section 4.4 of the Buyer Disclosure Schedule, Buyer has not received any written notice or other written communication from any Governmental Entity regarding any (i) actual or alleged violation of, or failure on the part of Buyer to comply with, any Applicable Laws or (ii) investigation by any Governmental Entity of any such violation or failure to comply, in each case other than any such item that has been cured or otherwise resolved to the satisfaction of such Governmental Entity or that is no longer being pursued by such Governmental Entity following a response by Buyer.

 

SECTION 4.5.        Purchase Not for Distribution.  The Shares to be acquired under the terms of this Agreement will be acquired by Buyer for its own account and not with a view to distribution.  Buyer will not resell, transfer, assign, pledge or otherwise dispose of any Shares, except in compliance with the registration requirements of the Securities Act of 1933, as amended, and any applicable state securities laws, or pursuant to an available exemption therefrom.

 

SECTION 4.6.        Litigation.  There is no Action pending or, to the Knowledge of Buyer, threatened in writing against or affecting Buyer or any Affiliate of Buyer that (i) seeks to

 

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restrain or enjoin the consummation of any of the transactions contemplated by this Agreement or (ii) would reasonably be expected to impair materially the ability of Buyer to consummate any of the transactions contemplated by this Agreement, including the Financing.  Neither Buyer nor any of its Affiliates nor, to the Knowledge of Buyer, any officer, director or employee of Buyer or any of its Affiliates has been permanently or temporarily enjoined or barred by any order, judgment or decree of any Governmental Entity from engaging in or continuing any conduct or practice in connection with the business conducted by the Company or otherwise that would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of any Buyer Party to consummate any of the transactions contemplated by any Transaction Agreement.

 

SECTION 4.7.                       Financial Ability.

 

(a)                               Attached as Exhibit I are true, correct and complete copies of: (i) the executed commitment letter, dated as of July 17, 2013 among Buyer, Royal Bank of Canada, RBC Capital Markets, The Royal Bank of Scotland plc and RBS Securities Inc. (as amended, supplemented or replaced in compliance with this Agreement, the “Debt Commitment Letter”), pursuant to which, upon the terms and subject to the conditions set forth therein, Royal Bank of Canada and The Royal Bank of Scotland plc have agreed to lend the amounts set forth therein to Buyer for the purpose of funding the transactions contemplated by this Agreement (the “Debt Financing”); (ii) the executed equity commitment letter, dated as of July 17, 2013 among Buyer, Parent and Resolution Life GP Ltd. (as amended, supplemented or replaced as permitted by this Agreement, the “Equity Commitment Letter”), pursuant to which, upon the terms and subject to the conditions set forth therein, Parent has committed to invest in Buyer the cash amount set forth therein (the “Equity Financing”), and which makes Seller an express third-party beneficiary to the Equity Commitment Letter entitled to enforce the obligations of Parent and the General Partner (as defined in the Equity Commitment Letter) thereunder, subject to the limitations set forth therein; and (iii) the executed commitment letter, dated as of July 17, 2013 between Buyer and Hannover Life Reassurance Company of America (as amended, supplemented or replaced as permitted by this Agreement, the “NER Commitment Letter” and together with the Debt Commitment Letter and the Equity Commitment Letter, the “Commitment Letters”), pursuant to which, upon the terms and subject to the conditions set forth therein, Hannover Life Reassurance Company of America has agreed to provide financing for certain of the Financed Amounts (the “NER Financing” and together with the Debt Financing and the Equity Financing, the “Financing”).  Buyer has made available to Seller true and complete copies of (A) the subscription agreements executed prior to the date hereof by the Investors, including the amendments thereto executed on or prior to the date hereof, whereby they have committed to become limited partners of Parent and to make the capital contributions contemplated thereby and (B) the fully executed Limited Partnership Agreement of Parent that is in effect as of the date hereof.

 

(b)                              None of the Commitment Letters has been amended or modified prior to the date of this Agreement (provided that the existence or exercise of “flex” provisions (if any) in the Fee Letter (as defined below) or in the NER Commitment Letter shall not constitute an amendment or modification of the Commitment Letters), and, as of the date hereof, the respective commitments contained in the Commitment Letters have not been withdrawn, terminated or rescinded in any respect.  As of the date hereof, each Commitment Letter (x) is in 

 

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full force and effect and (y) is a legal, valid and binding obligation of Buyer and, to the Knowledge of Buyer, the other parties thereto and is enforceable against Buyer and, to the Knowledge of Buyer, each of the other parties thereto, in each case except that (A) such enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors’ rights generally and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.  Other than as set forth in the Commitment Letters and the Fee Letter, there are no conditions related to the funding of the full amount of the Financing (including any “flex” provisions) (or, in the case of the NER Financing, related to the closing of such Financing) under any agreement relating to the Financing to which Buyer or any of its Affiliates is a party.  Buyer has fully paid any and all commitment fees or other fees in connection with the Commitment Letters that have become due and payable thereunder.  No event has occurred and no circumstance exists that, with or without notice, lapse of time or both, would constitute a default or breach on the part of Buyer or any of its Affiliates or, to the Knowledge of Buyer, on the part of any other party to any Commitment Letter, under any term or condition of any Commitment Letter.  Assuming the conditions set forth in Article VI will be satisfied at or prior to the Closing, and assuming compliance in all material respects by Seller with its obligations under this Agreement, Buyer has no reason to believe that Buyer or any of its Affiliates will be unable to satisfy on a timely basis any term or condition that is required to be satisfied by it or any of its Affiliates as a condition to the funding of the Financing (or, in the case of the NER Financing, to the closing of such Financing) by the Financing Sources, or that the Financing will not be made available to Buyer on the Closing Date.  There are no side letters or other agreements, contracts or arrangements, written or oral, related to the funding or investing, as applicable, of the full amount of the Financing, other than the fee letter in connection with the Debt Financing (the “Fee Letter”), a true, correct and complete copy of which has been provided by Buyer to Seller prior to the date hereof, with only the fee amounts and the economic terms of any market “flex” (none of which would adversely affect the amount or availability of the Debt Financing) redacted.

 

(c)                               The funding commitments under the Commitment Letters, assuming the commitment under the NER Commitment Letter were limited to $450,000,000 in Financed Amounts, are in an amount sufficient to permit the Buyer Parties to consummate the transactions contemplated hereby and by the other Transaction Agreements and to perform their obligations under this Agreement and the other Transaction Agreements, including the payment by Buyer of the Purchase Price at the Closing as contemplated to be paid by Section 2.1, to ensure that the Company is adequately capitalized at the Closing in an amount sufficient to support the ongoing administration of the Company Business following the Closing and to pay all fees and expenses payable by them in connection with this Agreement and the other Transaction Agreements.

 

(d)                             No consent, approval or authorization of, or declaration or filing with, or notice to, any third party or other Governmental Entity is required by or with respect to any equity investor in Parent (the “Investors”) in connection with (A) the execution and delivery of the Transaction Agreements by the Buyer Parties or the consummation by the Buyer Parties of any of the transactions contemplated thereby, or (B) the execution and delivery of the Equity Commitment Letter or any definitive agreement with respect to the Equity Financing by any Buyer Party or any Investor or the consummation by any Buyer Party or any Investor of the 

 

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Financing, except for the consents, approvals, authorizations, declarations, filings and notices set forth in Section 4.7(d) of the Buyer Disclosure Schedule.

 

SECTION 4.8.                       Solvency.  Buyer is not entering into the transactions contemplated by this Agreement with the intent to hinder, delay or defraud either present or future creditors of Buyer or the Company.  Immediately following the Closing and after giving effect to the transactions contemplated by the Transaction Agreements, including the payment of the Adjusted Initial Amount as contemplated by Section 2.4 and the payment of all other amounts required to be paid by the Company or by Buyer or any of its Affiliates in connection with the transactions contemplated by the Transaction Agreements and all related fees and expenses, each of Buyer and the Company will be solvent.  For the purposes of this Agreement, the term “Solvent,” when used with respect to any Person, means that, as of any date of determination, (i) the amount of the “fair saleable value” of the assets of such Person will, as of such date, exceed (x) the value of all “liabilities of such Person, including a reasonable estimate of contingent and other liabilities,” as of such date, as such quoted terms are generally determined in accordance with Applicable Law governing determinations of the insolvency of debtors, and (y) the amount that will be required to pay the probable liabilities of such Person with respect to its existing debts (including contingent and other liabilities) as such debts become absolute and mature, (ii) such Person will not have, as of such date, an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged following such date and (iii) such Person will be able to pay its liabilities, as of such date, including contingent and other liabilities, as they mature.  For purposes of this definition, “not have an unreasonably small amount of capital for the operation of the businesses in which it is engaged or proposed to be engaged” and “able to pay its liabilities, as of such date, including a reasonable estimate of contingent and other liabilities” means that such Person will be able to generate enough cash to meet its obligations as they become due.

 

SECTION 4.9.                       Brokers.  Buyer is solely responsible for the payment of the fees and expenses of any broker, investment banker, financial adviser or other Person acting in a similar capacity in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer or any Affiliate.

 

ARTICLE V.
 COVENANTS

 

SECTION 5.1.                       Conduct of Business of the Company.

 

(a)                               Except as expressly provided for by this Agreement, as required by Applicable Law, as set forth in Section 5.1 of the Seller Disclosure Schedule or as Buyer otherwise consents in advance in writing (which consent shall not be unreasonably withheld, conditioned or delayed), from the date of this Agreement to the Closing Date, Seller shall and shall cause the Company to carry on the Company Business only in the ordinary course consistent with past practice and use commercially reasonable efforts to preserve intact and maintain its current business organizations and its material relationships with third parties (including agents, brokers, insureds and others having business dealings with them) and employees.  Without limiting the generality of the foregoing, from the date of this Agreement to the Closing Date, except as expressly provided for by this Agreement, as required by Applicable 

 

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Law or as set forth in Section 5.1 of the Seller Disclosure Schedule, Seller shall cause the Company not to, and to the extent affecting the Company Business, it shall not, without the prior written consent of Buyer (which consent shall not be unreasonably withheld, conditioned or delayed):

 

(i)                                  enter into, amend, modify, terminate or waive any provision of any (A) Contract or (B) any Company Benefit Plan to the extent that such Company Benefit Plan pertains to any Producer or former Producer, other than as required under the express terms of any existing Company Benefit Plan or by Applicable Law;

 

(ii)                              other than Investment Assets and other than acquisitions, dispositions or transfers in the ordinary course of business consistent with past practice, acquire, dispose of or transfer any asset, property or Intellectual Property right of the Company or the Company Business with a value in excess of $500,000 per such asset, property or Intellectual Property right or $5,000,000 in the aggregate;

 

(iii)                          (A) split, combine or reclassify any of the Company’s outstanding capital stock or equity securities or issue or authorize the issuance of any other stock or securities (including any derivatives securities) in respect of, in lieu of or in substitution for shares or other interests representing any of the Company’s outstanding capital stock or equity securities, (B) whether directly or indirectly, purchase, redeem or otherwise acquire any Shares or other interests representing outstanding capital stock or equity securities of the Company or any rights, warrants or options to acquire any such Shares or interests or (C) amend the Organizational Documents of the Company, or adopt or enter into a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization, business combination or other reorganization, of the Company;

 

(iv)                          issue, sell, convey, transfer, dispose of, pledge or otherwise encumber any Shares or other interests representing the capital stock of or equity interests in the Company or any other securities of the Company of any sort, or issue, sell, grant or enter into any subscription, warrant, option, conversion or other right, agreement, commitment, arrangement or understanding of any kind, contingent or otherwise, to purchase or otherwise acquire, any such Shares or interests, or any securities convertible into or exchangeable for any such Shares or interests, or permit any of its Affiliates to do any of the foregoing;

 

(v)                              promise, grant or agree to increase the compensation or benefits of any Producer or former Producer, or permit any of its Affiliates to do any of the foregoing, in each case other than in the ordinary course of business consistent with past practice or as required by any Employee Benefit Plan in-force as of the date hereof;

 

(vi)                          in the case of the Company, acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any other Person or all or substantially all the assets of any other Person or create or acquire any Subsidiaries;

 

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(vii)                      make any material change in the accounting, actuarial, investment, reserving, underwriting, claims payment or administration policies, practices or principles of the Company or Seller (with respect to the Company Business), except as may be required by GAAP or SAP;

 

(viii)                  in the case of the Company, make, or commit to make, any capital expenditures that are, in the aggregate, in excess of $5,000,000;

 

(ix)                          in the case of the Company, incur, assume or guarantee any indebtedness for borrowed money or otherwise become responsible for any indebtedness of another Person;

 

(x)                              in the case of the Company, other than in connection with the management of Investment Assets, make any loans, advances or capital contributions to, or investments in, any other Person, other than loans and advances to Producers and Company Employees in the ordinary course of business consistent with past practice;

 

(xi)                          pay, settle or compromise any Action or threatened Action involving the Company or the Company Business, except for claims under Insurance Contracts within applicable policy limits and other than any settlement or compromise that involves solely monetary damages that are not in excess of $500,000;

 

(xii)                      in the case of the Company, make, change or revoke any material election related to Taxes, settle or compromise any material Tax liability, enter into any closing agreement related to Tax, consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment, change any taxable period or any Tax accounting method, amend any material Tax Returns, surrender any right to claim a material Tax refund, offset or other reduction in Tax liability, in each case if any such election, change, revocation, settlement, compromise, consent, waiver or other action would reasonably be expected to adversely impact the Tax position of the Company for any period ending after the Closing Date;

 

(xiii)                  declare, set aside or pay any dividends, or make any other distributions, in respect of any of the Shares;

 

(xiv)                  abandon, modify, waive or terminate any material Permit of the Company;

 

(xv)                      amend or modify any Transaction Agreement entered into prior to the Closing Date; or

 

(xvi)                  agree or commit to do any of the foregoing.

 

(b)                              Notwithstanding anything in this Agreement to the contrary, between the date hereof and the Closing Date, neither Seller nor any of its Affiliates (including the Company) shall be required to take any action, or refrain from taking any action, at the instruction or request of Buyer unless and until Buyer has presented Seller with written evidence to Seller’s 

 

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reasonable satisfaction that Hannover Life Reassurance Company of America has consented to such action or inaction, as applicable.

 

SECTION 5.2.                       Access to Information; Books and Records; Confidentiality.

 

(a)                               Prior to the Closing Date, Seller shall, and shall cause the Company to, afford to Buyer and its Representatives reasonable access upon reasonable notice at reasonable times during normal business hours to all of the properties, books, contracts and records of the Company and Seller, to the extent related to the Company Business, and, during such period, Seller shall, and shall cause the Company to, furnish to Buyer such information that relates to the Company Business or the business, properties, financial condition, operations and senior personnel of the Company as Buyer may from time to time reasonably request, other than any such properties, books, contracts, records and information that (i) are subject to an attorney-client or other legal privilege that might be impaired by such disclosure or (ii) are subject to an obligation of confidentiality.  All requests for access or information pursuant to this Section 5.2 shall be directed to such Person or Persons as Seller shall designate.  Without limiting the terms thereof, the Confidentiality Agreement shall govern the obligations of Buyer and its Representatives with respect to all information of any type furnished or made available to them pursuant to this Section 5.2.

 

(b)                              At the Closing, Seller shall cause all Books and Records in the possession of Seller or any of its Affiliates to be delivered to the Company (or a Person designated by Buyer) in the manner (and in the case of physical Books and Records, at the location(s)) reasonably requested by Buyer, subject to the following exceptions:  (i) Buyer recognizes that certain Books and Records may contain information that relates to the Company Business but relates primarily to businesses of Seller other than the Company Business, and that Seller may retain such Books and Records if it provides copies of the relevant portions thereof to Buyer; and (ii) Buyer recognizes that Seller may need to retain Books and Records to perform certain services under the Transaction Agreements and that Seller may retain such Books and Records as long as they are necessary to provide such services, provided that (A) Seller shall provide Buyer and its Representatives reasonable access to such records and (B) once such Books and Records are no longer necessary for the provision of such services, Seller shall cause all such Books and Records to be delivered to the Company (or a Person designated by Buyer) or, at Buyer’s option, to be destroyed.

 

(c)                               Following the Closing Date, Seller shall, and shall cause its Affiliates to: (i) allow Buyer, upon reasonable prior notice and during normal business hours, through its employees and Representatives, the right, at Buyer’s expense, to examine any records retained by Seller or any of its Affiliates for any reasonable business purpose, including the preparation or examination of Buyer’s Tax Returns, regulatory filings and financial statements, but only to the extent that such records of Seller relate to the operation of the Company Business prior to the Closing; (ii) allow Buyer to interview Seller’s employees for any reasonable purpose relating to the Company, including the preparation or examination of Buyer’s Tax Returns, regulatory and statutory filings and financial statements and the conduct of any litigation relating to the Company Business or otherwise (except litigation involving Seller or any of its Affiliates), or the conduct of any regulatory, customer or other dispute resolution process (other than any dispute involving Seller or any of its Affiliates); and (iii) maintain such records for Buyer’s examination 

 

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until at least the sixth anniversary of the Closing Date, after which anniversary Seller may destroy such records in its discretion after giving reasonable prior written notice to Buyer of its intent to destroy such documents, provided, that Seller and its Affiliates shall have no obligation to maintain or retain any books and records to the extent that electronic or paper copies or originals of such books and records are delivered to Buyer or any of its Affiliates (including the Company) at or prior to the Closing.  Access to such employees and records shall not unreasonably interfere with the business operations of Seller or its Affiliates.  Notwithstanding the foregoing, access to records relating to Taxes shall be governed exclusively by Section 8.4.

 

(d)                             From and after the Closing: (i) Seller shall, and shall cause its Affiliates and Representatives to, maintain in confidence any written, oral or other information to the extent relating to the Company Business obtained by virtue of Seller’s ownership of the Company prior to the Closing or otherwise obtained by Seller pursuant to Section 5.9; and (ii) Buyer shall, and shall cause its Affiliates and representatives to, maintain in confidence any written, oral or other information of or relating to Seller or its Affiliates (other than information relating to the Company Business) obtained by virtue of its ownership of the Company from and after the Closing, except, in each case, to the extent that the applicable party is required to disclose such information by judicial or administrative process or pursuant to Applicable Law (provided that such party has given the other party written notice of such potential disclosure and, to the extent reasonably requested by such other party, cooperated with such other party in seeking an appropriate order or other remedy protecting such information from disclosure) or such information can be shown to have been in the public domain through no fault of the applicable party.

 

(e)                               From and after the date hereof, Seller shall, and shall cause its Affiliates to, and shall instruct its Representatives to, maintain in confidence any written, oral or other information to the extent relating to Parent or any of the Investors, including the identity of the Investors, the terms of the Limited Partnership Agreement and the terms of the Subscription Agreements, in each case, obtained by Seller in connection with the transactions contemplated hereunder, except to the extent that the applicable Person is requested or required to disclose such information by judicial or administrative process or pursuant to Applicable Law (provided that, to the extent practicable and permitted under Applicable Law, Seller shall notify Buyer of such request or requirement so that Buyer or one of its Affiliates may seek an appropriate order or other remedy protecting such information from disclosure) or such information can be shown to have been in the public domain through no fault of Seller or any of its Affiliates.

 

SECTION 5.3.                       Reasonable Best Efforts.  Upon the terms and subject to the conditions and other agreements set forth in this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by the Transaction Agreements.

 

SECTION 5.4.                       Consents, Approvals and Filings.

 

(a)                               Seller and Buyer shall each use its reasonable best efforts to obtain, and shall cooperate with the reasonable requests of each other in seeking to obtain, as promptly as 

 

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practicable, all necessary permits, orders or other consents, approvals or authorizations of Governmental Entities and consents or waivers of all other third parties necessary in connection with the consummation of the transactions contemplated by the Transaction Agreements, including the Financing (including those set forth in Section 3.5 of the Seller Disclosure Schedule or Section 4.3 of the Buyer Disclosure Schedule but excluding those contemplated by Section 5.4(c)); provided, that Buyer and Seller shall share equally in the costs (including any license or other fees and expenses) associated with obtaining any such consents or waivers from such other third parties.  In connection therewith, Seller and Buyer shall make and cause their respective Affiliates to make all legally required filings as promptly as practicable in order to facilitate prompt consummation of the transactions contemplated by the Transaction Agreements (including the Financing), shall provide and shall cause their respective Affiliates to provide such information and communications to Governmental Entities as such Governmental Entities may request, shall take and shall cause their respective Affiliates to take all steps that are necessary, proper or advisable to avoid any Action by any Governmental Entity with respect to the transactions contemplated by the Transaction Agreements (including the Financing), shall defend or contest in good faith any Action brought against such Person or any of its Affiliates by any third party (including any Governmental Entity), whether judicial or administrative, challenging any of the Transaction Agreements or the transactions contemplated thereby (including the Financing), or that could otherwise prevent, impede, interfere with, hinder or delay in any material respect the consummation of any such transaction, including by using its reasonable best efforts to have vacated or reversed any stay or temporary restraining order entered with respect to any such transaction by any Governmental Entity, and shall consent to and comply with any condition imposed by any Governmental Entity on its grant of any such permit, order, consent, approval or authorization, other than any such condition that, (i) in the case of Buyer, would have a Material Adverse Effect or require the Company immediately after the Closing to maintain a level of total adjusted capital (as defined in the RBC Instructions) in excess of the Maximum Capital Amount (such condition, a “Buyer Burdensome Condition”) or (ii) in the case of Seller, would require Seller to provide or maintain any guarantee or keepwell or incur any Liability with respect to the Company after the Closing Date, require Seller to make any capital contribution (whether through the acquisition of surplus notes or equity securities or otherwise) to the Company that would not be repaid in full prior to or at the Closing or restrict in any material respect the ability of Seller or any of its Affiliates to conduct their respective businesses after the Closing Date (a “Seller Burdensome Condition”).  Each of the parties shall provide to the other party copies of all applications or other communications to Governmental Entities in connection with this Agreement in advance of the filing or submission thereof.

 

(b)                              Without limiting the generality of the foregoing, within 20 Business Days after the date hereof, each party shall file with all applicable Insurance Regulators requests for approval of the transactions contemplated by the Transaction Agreements (including the Financing but excluding the Recapture), which requests shall include applications from any Investors if and to the extent such Investors are required to be included in such filings under Applicable Law and all required exhibits; provided, that, notwithstanding the foregoing, the following shall apply with respect to the NER Financing: Buyer shall use its reasonable best efforts to file a complete package of materials for approval of the NER Financing substantially contemporaneously with the filing of its “Form A” statement with Nebraska; provided, further that Buyer may require up to 30 Business Days after the date hereof in order to make such filing.  Buyer shall not, and shall cause its Affiliates, Representatives and Financing Sources not to, 

 

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make any written or oral request for approval from any Governmental Entity for the NER Financing to include financing of more than $513,000,000 in Financed Amounts, subject to Section 4.3 of the Buyer Disclosure Schedule.  Buyer shall not, and shall cause its Affiliates and Representatives not to, in connection with seeking to obtain any permit, order, consent, approval or authorization of any Governmental Entity in connection with the transactions contemplated by this Agreement, request approval to operate the Company at or after the Closing at a level of total adjusted capital (as defined in the RBC Instructions) that would correspond to an RBC Ratio below 300%.  Seller acknowledges that Buyer may request in its “Form A” filing the approval of the Nebraska Department of Insurance for the payment immediately prior to, on or immediately after the Closing of a dividend by the Company in an amount that, after giving effect to the transactions contemplated by this Agreement to occur on or prior to the Closing, would not cause the Closing RBC Ratio to be less than the Specified Capital Amount; provided, that obtaining approval from the Nebraska Department of Insurance for all or any portion of such dividend (either alone or as part of Buyer’s request for approval of the transactions contemplated by this Agreement) is not a condition to the Closing.  Seller shall use its commercially reasonable efforts to cooperate with Buyer’s reasonable requests in seeking approval for such dividend; provided that, in connection with the foregoing, Seller shall not be required to take any action that would adversely affect Seller or any of its Affiliates, including by delaying in any material respect the consummation of the transactions contemplated by this Agreement or negatively affecting the likelihood that any applicable Governmental Entity will approve the repayment in full by the Company, prior to or at the Closing, of any capital contributed to the Company by Seller or any of its Affiliates in connection with the Recapture or pursuant to any keepwell entered into in connection with the Recapture.  Unless it would be prohibited to do so under Applicable Law, Buyer shall cause any presentation provided to the Governmental Entities in the State of Nebraska with respect to the transactions contemplated by this Agreement to be substantially consistent with the presentation provided by Buyer to the Lead Arrangers (as such term is defined in the Debt Commitment Letter) on or prior to the date hereof, including with respect to initial capitalization.  Buyer shall enforce its rights under the Equity Commitment Letter to cause Parent to exercise its rights under the Subscription Agreement and the Limited Partnership Agreement to cause any Investors to furnish any information, representations, certifications, applications, affidavits, forms and other documents, make any filings and take such other actions, as may be required under Applicable Law or that otherwise may be requested or required by any Governmental Entity in connection with the transactions contemplated by this Agreement, including as necessary to complete and make any regulatory filing in connection with the transactions contemplated by this Agreement.  A reasonable time prior to furnishing any written materials to any Insurance Regulator in connection with the transactions contemplated by the Transaction Agreements (including the Financing), each party shall furnish the other a copy thereof, and the receiving party shall have a reasonable opportunity to provide comments thereon.  Each party shall give to the other party prompt written notice if it (or any of its Affiliates) receives, and Buyer shall give Seller written notice if any of the Investors receive, any notice or other communication from any Insurance Regulator in connection with the transactions contemplated by the Transaction Agreements (including the Financing) promptly after becoming aware of such notice or communication, and, in the case of any such notice or communication which is in writing, shall furnish the other party with a copy thereof promptly after receipt thereof.  If any Insurance Regulator requires that a hearing be held in connection with any such approval, each party shall use its reasonable best efforts to arrange for such hearing to be held 

 

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promptly after the notice that such hearing is required has been received by such party.  Each party shall give to the other party reasonable prior written notice of the time and place when any meetings, telephone calls or other conferences (other than immaterial non-substantive matters or matters that are time-sensitive and for which reasonable prior notice cannot be given) may be held by it with any Insurance Regulator in connection with the transactions contemplated by the Transaction Agreements, and the other party shall have the right to have a representative or representatives attend or otherwise participate in any such meeting, telephone call or other conference.

 

(c)                               Seller shall, and, to the extent reasonably requested by Seller, Buyer shall cooperate in Seller’s efforts to, as promptly as practicable after the date hereof, but in no event later than 20 Business Days after the date hereof, file with all applicable Governmental Entities requests for approval of the Recapture to be completed pursuant to the terms of the Recapture Agreement effective as of July 1, 2013 or such other date as may be mutually agreed by the parties (it being agreed that, if any permit, order, consent, approval or authorization of any Governmental Entity that is required in connection with effecting the Recapture as of July 1, 2013 cannot be obtained, then the parties shall negotiate in good faith and use commercially reasonable efforts to agree to an alternative date as proximate as possible to July 1, 2013 for effecting the Recapture that is acceptable to such Governmental Entity and mutually acceptable to both parties; provided, that neither party may object to any other effective date if implementing the Recapture as of such date would not have a material adverse effect on the aggregate economic benefits, taken as a whole, that such party reasonably expects to derive from the implementation of the Recapture as of July 1, 2013).  Promptly after receipt of all applicable orders, consents, approvals and authorizations of any Governmental Entity required in connection with the consummation of the Recapture, Seller shall, and shall cause the Company to, execute the Recapture Agreement and amend the Existing Seller Reinsurance Agreements as and to the extent necessary to reflect the Recapture.  From the time at which the Recapture is consummated until the Closing, Seller shall continue to administer the Company Business pursuant to existing intercompany arrangements.  In the event that, in connection with its grant of any order, consent, approval or authorization with respect to the consummation of the Recapture, any Governmental Entity requires Seller or any of its Affiliates to make a capital contribution to the Company (whether through the acquisition of surplus notes or equity securities or otherwise), to provide any guarantee or keepwell to the Company or to enter into any other agreement or arrangement with respect to the Company or the Recapture, Buyer and Seller shall each use reasonable best efforts to obtain approval from all applicable Governmental Entities for (A)  in the event that a capital contribution is required, a dividend, distribution or other payment in the full amount of such capital contribution to be made in cash by the Company to Seller prior to or at the Closing, (B) in the event that a guarantee or keepwell is required, a termination of such guarantee or keepwell prior to or at the Closing and a repayment in cash of any amounts paid under such guarantee or keepwell between the date hereof and the Closing, and (C) in the event that any such other agreement or arrangement with respect to the Company or the Recapture is required, an unwinding or termination of such agreement or arrangement prior to or at the Closing.

 

(d)                             From the date hereof to the Closing Date, Seller and Buyer shall each use its reasonable best efforts, and shall cooperate fully with each other, to cause the reinsurer under each Ceded Reinsurance Contract pursuant to which such reinsurer reinsures both risk included

 

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in the Company Business and risk that is not included in the Company Business (each, a “Shared Reinsurance Agreement”) to (i) enter into (A) a novation to Seller or one or more of its Affiliates of the portion of such Shared Reinsurance Agreement comprising risk that is not included in the Company Business or (B) an amendment of such Shared Reinsurance Agreement to exclude the risk that is not included in the Company Business together with a new reinsurance arrangement with Seller or one or more of its Affiliates pursuant to which such risk will be reinsured by such reinsurer on the same terms as those applicable under the Shared Reinsurance Agreement (each of (A) and (B), an “Alternative Reinsurance Arrangement”) and (ii) waive any right to terminate such Shared Reinsurance Agreement pursuant to its terms as a result of the consummation of the transactions contemplated by this Agreement; provided that neither party shall be required to compromise any right, asset or benefit or expend any amount, incur any Liability or provide any other consideration in connection with obtaining the consent of any reinsurer to any Alternative Reinsurance Arrangement.  The Amended and Restated Reinsurance Agreement will provide that, if the parties are unable to effect an Alternative Reinsurance Arrangement with respect to any Shared Reinsurance Agreement and such Shared Reinsurance Agreement remains in effect after the Closing, the Company will assign to Seller all rights to the reinsurance recoveries under such Shared Reinsurance Agreement that relate to the business reinsured to Seller or the Vermont Captive, and Seller will administer the business that is subject to such Shared Reinsurance Agreement and is not included in the Company Business under the Administrative Services Agreement.

 

(e)                               From the date hereof to the Closing Date, Seller shall use its reasonable best efforts to cause the reinsurer under each Ceded Reinsurance Contract that covers only Specified Life Business, or that otherwise covers only business that is not Company Business, to enter into either (i) a novation of such Ceded Reinsurance Contract from the Company to Seller or one of its Affiliates or (ii) a termination of such Ceded Reinsurance Contract together with the concurrent entry into a new reinsurance contract with Seller on the same terms covering such Specified Life Business or such other business; provided that neither party shall be required to compromise any right, asset or benefit or expend any amount, incur any Liability or provide any other consideration in connection with obtaining the consent of any reinsurer to any such alternative arrangement.  If the parties are unable to effect an alternative arrangement with respect to any such Ceded Reinsurance Contract and such Ceded Reinsurance Contract remains in effect after the Closing Date, Buyer shall assign to Seller all rights to the reinsurance recoveries under such Ceded Reinsurance Contract and Seller will administer the business that is subject to such Ceded Reinsurance Contract under the Administrative Services Agreement.

 

SECTION 5.5.                       Public Announcements.  Each of Buyer and Seller, and their respective Affiliates, shall consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public announcement with respect to the transactions contemplated by the Transaction Agreements (including regarding its plans relating to employees, Producers or other third parties or with respect to the funding or operation of the business of the Company) and shall not issue any such press release or make any such public announcement with respect to such matters without the advance approval of the other party following such consultation (such approval not to be unreasonably withheld or delayed), except as may be required by Applicable Law or by the requirements of any securities exchange; provided, that, in the event that any party is required under Applicable Law or the requirements of any securities exchange to issue any such press release or make any public announcement and 

 

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it is not feasible to obtain the advance approval of the other party hereto as required by this Section 5.5, the party that issues such press release or makes such statement shall provide the other party with notice and a copy of such press release or statement as soon as reasonably practicable and will make any correction that may be reasonably required by the other party.

 

SECTION 5.6.                       Related Party Agreements.  Except as set forth in Section 5.6 of the Seller Disclosure Schedule, all of the intercompany arrangements between Seller and its Affiliates (other than the Company), on the one hand, and the Company, on the other hand, will be terminated immediately prior to the Closing, including by terminating the Company’s participation in all agreements between more than one of the Company’s Affiliates, on the one hand, and the Company, on the other hand, and Seller shall cause all intercompany balances between Seller and its respective Affiliates (other than the Company), on the one hand, and the Company, on the other hand, to be paid in full and settled immediately prior to the Closing or as soon thereafter as is reasonably practicable.

 

SECTION 5.7.                       Use of Name; Domain Name Assignments.

 

(a)                               Prior to or at the Closing, the Company shall transfer any and all right, title or interest, including all associated goodwill, which it may have in or to the names, trademarks and service marks set forth in Section 5.7(a) of the Seller Disclosure Schedule or any name, trademark, service mark, acronym or logo incorporating any of such names, trademarks or service marks (collectively, the “Seller Trademarks”), to Seller or as Seller may direct.

 

(b)                              Prior to or at the Closing, Seller shall, and shall cause its Affiliates (other than the Company) to, transfer any and all right, title or interest, including all associated goodwill, which it or they may have in or to the names, trademarks and service marks set forth in Section 5.7(b) of the Seller Disclosure Schedule or any name, trademark, service mark, acronym or logo incorporating any of such names, trademarks or service marks that does not also contain all or a portion of a Seller Trademark (collectively, the “Company Trademarks”), to the Company.

 

(c)                               Following the Closing Date, except as otherwise provided in this Section 5.7, Buyer shall cause the Company promptly to cease and discontinue any and all uses of the Seller Trademarks, whether or not in combination with other words, symbols or other distinctive or non-distinctive elements, and all trade, corporate or business names, trademarks, tag lines, identifying logos, trade dress, monograms, slogans, service marks, domain names, brand names and other name or source identifiers that are derivations, translations, adaptations, combinations or variations of the Seller Trademarks; provided, that the Company may use Seller Trademarks in accordance with the Intellectual Property License.  Buyer, for itself and its Affiliates, agrees that, except as provided in this Section 5.7 and the Intellectual Property License, any and all rights of the Company to the Seller Trademarks, including any such rights licensed to the Company pursuant to any agreements or other arrangements, whether written or oral, with Seller or its Affiliates, shall terminate on the Closing Date without recourse by Buyer or the Company.  Neither Buyer nor any of its Affiliates shall seek to register in any jurisdiction any trade, corporate or business name, trademark, tag-line, identifying logo, trade dress, monogram, slogan, service mark, domain name, brand name or other name or source identifier that is a derivation, translation, adaptation, combination or variation of the Seller Trademarks.

 

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(d)                             The Company hereby grants to Seller and the Vermont Captive a perpetual, irrevocable fully paid-up right and license for the Vermont Captive to continue to use the name “Lincoln Benefit” in its legal name and for associated uses requiring reference to such legal name.  For the avoidance of doubt, no right is granted to use the name “Lincoln Benefit” as a brand in connection with the advertising, promotion, marketing, sale or distribution of products or services, except in connection with products or services associated with the Company, but such entity shall be permitted to identify itself as the seller of its products and services in an informational context.  Upon the request of Buyer after the Closing Date, Seller will use its reasonable best efforts as promptly as practicable after receiving such request to change the name of the Vermont Captive to a name that does not include “Lincoln Benefit” or any confusingly similar name.

 

(e)                               Prior to or at the Closing, the Company shall transfer any and all right, title or interest which it may have in or to any Internet domain name containing all or a portion of a Seller Trademark to Seller or as Seller may direct.  Seller may, from and after the Closing, maintain in effect the Internet domain name “allstatelincoln.com”, and may cause such Internet domain name to redirect to an Internet domain name owned by Seller or any of its Affiliates that does not include a Company Trademark.  Prior to or at Closing, Seller shall, and shall cause its Affiliates (other than the Company) to, transfer any and all right, title or interest which it or they may have in or to any Internet domain name containing all or a portion of a Company Trademark that does not also contain a Seller Trademark, as set forth in Section 5.7(e) of the Seller Disclosure Schedule, to the Company.  Except as contemplated above, nothing in this Agreement requires Seller to assign any rights in or to, or grant the Company a right or license to use, any domain name that includes “Allstate” in its name, and nothing in this Agreement requires the Company to assign any rights in or to, or grant Seller a right or license to use, any domain name that includes the Lincoln Benefit name in it.

 

SECTION 5.8.                       Further Assurances.

 

(a)                               Seller and Buyer shall (i) execute and deliver, or shall cause to be executed and delivered, such documents, certificates, agreements and other writings and shall take, or shall cause to be taken, such further actions as may be reasonably required or requested by any party to carry out the provisions of the Transaction Agreements and consummate or implement expeditiously the transactions contemplated by the Transaction Agreements and (ii) shall refrain from taking any actions that could reasonably be expected to impair, delay or impede the Closing.

 

(b)                              On and after the Closing Date, Seller and Buyer shall, and shall cause their respective Affiliates to, take all reasonable actions and execute any additional documents, instruments or conveyances of any kind which may be reasonably necessary to carry out any of the provisions hereof, so as to put Buyer and its Affiliates in full possession and operating control of the Company Business.  Notwithstanding the foregoing, no party shall be obligated pursuant to this Section 5.8 to execute or deliver, or cause to be executed or delivered, any document, certificate, agreement, instrument, conveyance or other writing, or take, cause to be taken, any action, if the effect thereof would be to increase the Liability or obligations of such party in any material respect, other than as contemplated elsewhere in this Agreement or the other Transaction Agreements.

 

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SECTION 5.9.                       Access to Books and Records.  Until the later of the sixth anniversary of the Closing or such time as the information and access described below is no longer reasonably required by Seller (provided, that Buyer shall give 30 days’ notice to Seller prior to destroying any records to permit Seller, at its expense, to examine, duplicate or repossess such books and records), Buyer shall afford promptly to Seller and its Representatives access to the books, records, officers, employees, auditors and other advisors of the Company, and provide information with respect to the Company in a readily accessible form (including financial information in a form consistent with the Company’s historical practice for the preparation of such financial information), to the extent reasonably required by Seller for any lawful business purpose, including litigation, disputes, compliance, financial reporting (including financial audits of historical information), loss reporting, regulatory, Tax and accounting matters (including for any such matters related to the Transition Services Agreement), and including all reasonable purposes relating to the Variable Annuity Transaction and the ongoing relationship between Seller and its Affiliates, on the one hand, and the VA Buyer, on the other hand, and Buyer shall cooperate fully with Seller and its Representatives to furnish such books and records and information and make available such officers, employees, auditors and other advisors of the Company; provided, that such access does not unreasonably interfere with the conduct of the business of Buyer or the Company.  Notwithstanding the foregoing, access to records relating to Taxes shall be governed exclusively by Section 8.4.

 

SECTION 5.10.               Non-Competition.

 

(a)                               For a period of 24 months following the Closing Date, Seller shall not, and shall cause each of its Affiliates not to, directly or indirectly, (i) engage in the business of selling any life insurance or annuities within the United States through any MBA Group (“Competing Business”), (ii) induce any MBA Group or other Producer to terminate its relationship with the Company, (iii) induce any MBA Group or other Producer, or solicit any holder of an insurance or annuity policy or contract included in the Company Business, to replace, terminate or lapse any insurance or annuity policy or contract included in the Company Business or (iv) enter into any plan, program, scheme or course of action to market, endorse, encourage, suggest, institute, promote, or target, through mass mailings, sales campaigns or programs, promotions, sales incentives or by any other concerted means, any full or partial surrender, exchange, replacement or termination with respect to any insurance or annuity policy or contract included in the Company Business.

 

(b)                              Notwithstanding anything to the contrary set forth in Section 5.10(a), and without implication that the following activities otherwise would be subject to the provisions of this Section 5.10, nothing in this Agreement shall preclude, prohibit or restrict Seller from engaging, or require Seller to cause any of its Affiliates not to engage, in any manner in any of the following:

 

(i)                                  engaging in the activities that are described in Section 5.10(b) of the Seller Disclosure Schedule or that are permitted pursuant to any of the Transaction Agreements;

 

(ii)                              making investments in the ordinary course of business, including in a general or separate account of an insurance company, in Persons engaged in a 

 

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Competing Business; provided, that Seller or such Affiliate of Seller: (A) does not have the right to designate a majority of the members of the board of directors or other governing body of such entity or otherwise to direct the operation or management of any such entity; (B) is not a participant with any other Person in any group (as such term is used in Regulation 13D of the Securities Exchange Act of 1934, as amended) with such right; and (C) owns less than 10% of the outstanding voting securities (including convertible securities) of such entity, excluding any investment held in a general account or separate account of any insurance company or in any portfolio managed for or on behalf of a third party;

 

(iii)                          selling any of its assets or businesses to a Person engaged in a Competing Business or any business that competes with a Competing Business; or

 

(iv)                          acquiring any assets, or acquiring, merging or combining with any Person that would cause Seller or any of its Affiliates (as then constituted) to be engaged in Competing Business (“After-Acquired Business”); provided, that either (A) at the time of such acquisition, merger or combination, the revenues derived from the Competing Business by the After-Acquired Business (the “Competing After-Acquired Revenues”) constitute no more than 20% of the gross revenues of the After-Acquired Business (for the avoidance of doubt, including the revenues of all Persons directly or indirectly acquired as a result of such acquisition, merger or combination) in the most recently completed fiscal year immediately prior to the date of such acquisition, merger or combination (the “Aggregate After-Acquired Revenues”), or (B) if at the time of such acquisition, merger or combination, the Competing After-Acquired Revenues constitute more than 20% of the Aggregate After-Acquired Revenues then, within one year after such acquisition, merger or combination, (i) Seller or such Affiliate of Seller signs a definitive agreement to dispose, and subsequently disposes of, the relevant portion of the business or securities of such After-Acquired Business or (ii) Seller or such Affiliate of Seller otherwise modifies the After-Acquired Business such that the Competing After-Acquired Revenues constitute not more than 20% of the Aggregate After-Acquired Revenues.

 

SECTION 5.11.               Non-Solicitation.  For a period of 24 months following the Closing Date, without the prior written consent of Seller, neither Buyer nor any of its Affiliates shall, whether directly or indirectly, solicit for employment, employ or contract for the services of any Person who is employed by or engaged in the business of Seller or any of its Affiliates (other than any individuals identified in a writing signed by Buyer and Seller on or after the date hereof); provided, that nothing in this Section 5.11 shall prohibit Buyer or any of its Affiliates (including the Company) from engaging in general solicitations not directed at such Persons or from soliciting, employing or contracting for the services of any such Person whose employment with or engagement by Seller and its Affiliates has been terminated by Seller or its applicable Affiliate or who has otherwise ceased to be employed or engaged by Seller or any of its Affiliates for a period of at least six months prior to the first contact by Buyer or any of its Affiliates with such Person.

 

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SECTION 5.12.               Employee Matters.

 

(a)                               On or prior to the Closing, Seller shall take all necessary actions to cause the Company to have no individuals employed by the Company.

 

(b)                              Seller shall retain and, to the extent that the Company has any responsibility or obligation for any such liabilities, shall assume, effective immediately prior to the Closing, any and all liabilities and obligations (including any and all obligations in respect of the payment of wages or any other remuneration or compensation, the provision of any employee benefits (including pursuant to any Company Benefit Plan) and any claims related to termination of any such services or with regard to any failure to comply with any applicable provision of law) relating to the retention by the Company or by Seller or any of its Affiliates of any person, whether as an employee, director, independent contractor, principal or otherwise, at any time prior to the Closing (collectively, the “Excluded Employee Liabilities”).  From and after the Closing, neither the Company nor the Buyer nor any of their respective Affiliates shall have any responsibility, liability or obligation for, and shall not be deemed to have assumed or to become responsible for, any such Excluded Employee Liabilities.  For the avoidance of doubt, “Excluded Employee Liabilities” does not include any Liabilities to Producers (other than Producers that were employees of the Company, if any, and then such term includes those Liabilities incurred with respect to such Producers solely in their capacities as employees of the Company or of Seller or any of its Affiliates) or any Liabilities relating to any deferred compensation plan sponsored by the Company for the benefit of Producers.

 

SECTION 5.13.               Variable Annuity Transaction.

 

(a)                               From the Closing until the termination in accordance with its terms of the VA Indemnity Reinsurance Agreement, except as instructed by Seller or as required under Applicable Law, Buyer shall, and shall cause the Company to, subject to Section 5.13(f), (i) use commercially reasonable efforts to continue in-force each Specified VA Transaction Agreement to the extent relating to the VA Contracts, (ii) not agree to amend, modify or terminate, expand or otherwise alter any Specified VA Transaction Agreement in any manner without Seller’s prior written consent, (iii) cooperate in good faith with Seller’s efforts to, and take all actions reasonably requested by Seller to, amend, modify, expand or otherwise alter any Specified VA Transaction Agreement to the extent relating to the VA Contracts in the manner requested by Seller in response to a request received by Seller or any of its Affiliates from the VA Buyer or any of its Affiliates pursuant to the Specified VA Transaction Agreements, and (iv) use commercially reasonable efforts to enforce all of the Company’s rights and timely perform all of the Company’s obligations under each Specified VA Transaction Agreement to the extent relating to the VA Contracts.  Buyer shall, and shall cause the Company to, provide Seller with notice of any proposal to terminate any Specified VA Transaction Agreement or to amend or reduce any fees payable under any Specified VA Transaction Agreement to the extent relating to the VA Contracts promptly after becoming aware of any such proposal.

 

(b)                              From and after the Closing Date, Buyer shall not, and shall cause the Company not to, use any information relating to holders of any VA Contract for the purpose of marketing, selling or soliciting sales of Variable Annuity Contracts (as defined in the VA Master Transaction Agreement), fixed annuities, equity-indexed annuities, market value adjusted 

 

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annuities or mutual funds, except to the extent required for the Company to fulfill its obligations under any Ancillary Agreement (as defined in the VA Master Transaction Agreement) to which it is a party or as required by Applicable Law.

 

(c)                               From the Closing Date until the date that is 10 years following the termination or expiration of the Selling Agreement, Buyer shall not, and shall cause the Company not to, directly or indirectly, (i) disclose, transfer or license to any unaffiliated Person (other than Seller and its Affiliates) engaged in the manufacture, issuance, marketing, sale or solicitation, servicing or administration of Variable Annuity Contracts, fixed annuities, equity-indexed annuities, market value adjusted annuities or mutual funds, any information relating to any holders of any VA Contract, except (A) to the extent required for the Company to perform its obligations under any Ancillary Agreement to which it is a party, (B) as required by Applicable Law or (C) to the extent that (x) the information relating to the holders of VA Contracts does not indicate that such Persons have purchased VA Contracts, (y) the information relating to holders of VA Contracts is included in a list or other data file that does not constitute a targeted list of holders of VA Contracts and (z) the Company requires the Person to whom the information is disclosed, transferred or licensed to agree to restrictions on replacements of VA Contracts substantially equivalent to the restriction set forth in Section 5.13(b) and not to disclose, transfer or license such information to an unaffiliated Person or (ii) enter into any plan, program, scheme or course of action to market, endorse, encourage, suggest, institute, promote, or target, through mass mailings, sales campaigns or programs, promotions, sales incentives or by any other concerted means, any full or partial surrender, exchange, replacement or termination with respect to any VA Contract.

 

(d)                             From and after the Closing Date, Buyer shall comply with the confidentiality obligations with respect to the VA Contracts under the VA Master Transaction Agreement and the Ancillary Agreements as if it were a party thereto.

 

(e)                               From and after the Closing Date, Buyer shall not, directly or indirectly, sell, convey or transfer 50% or more of the outstanding capital stock of the Company or all or substantially all of its properties or assets to any Person, in one transaction or a series of transactions that are part of a common plan, or any transaction that constitutes the functional equivalent of any of the foregoing, unless the acquiring Person in such transaction or transactions expressly agrees pursuant to an agreement in a form reasonably acceptable to Seller to assume all of the obligations of Buyer under this Section 5.13.

 

(f)                                Seller shall promptly reimburse Buyer or the Company for its reasonable and documented out-of-pocket costs incurred in connection thereto, including with respect to compliance with this Section 5.13.

 

(g)                              From and after the Closing, Seller shall (i) use commercially reasonable efforts to continue in-force each Specified VA Transaction Agreement to the extent relating to the VA Contracts, (ii) not agree to amend, modify or terminate, expand or otherwise alter any Specified VA Transaction Agreement to the extent relating to the VA Contracts in any manner that would adversely affect Buyer without Buyer’s prior written consent, which consent may not be unreasonably withheld, conditioned or delayed, (iii) use commercially reasonable efforts to enforce all of Seller’s or its Affiliates’ rights and timely perform all of Seller’s or its Affiliates’ 

 

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obligations under each Specified VA Transaction Agreement to the extent relating to the VA Contracts, (iv) promptly pay over to the Company any amounts recovered by it or any of its Affiliates (net of any costs, fees, expenses or Taxes incurred by Seller or any of its Affiliates in connection with the recovery or receipt of such amounts) from the applicable counterparty to such Specified VA Transaction Agreements with respect to the VA Contracts, other than any amounts received or recovered by any Affiliate of Seller that provides underwriting, broker-dealer or other services to such counterparties or any of their Affiliates for providing such services; provided, that such recovered amounts shall be reduced by any related amounts paid to the Company under any reinsurance agreement pursuant to which the Company cedes business to Seller or any of its Affiliates (it being the intent of the parties that the Company be able to enjoy all the rights, privileges and benefits of Seller and its Affiliates (other than any Affiliate providing underwriting, broker-dealer or other services as described above) under the Specified VA Transaction Agreements to the extent relating to the VA Contracts), and (v) promptly deliver to Buyer any notices, reports or certifications delivered to it or any of its Affiliates in writing by any conterparty to any of the Specified VA Transaction Agreements to the extent relating to the VA Contracts.  Each of Buyer and Seller shall consider in good faith any amendment of the Specified VA Transaction Agreements to the extent relating to the VA Contracts that the other may reasonably request.

 

SECTION 5.14.               Post-Closing Distribution.

 

(a)                               From and after the Closing and for so long as any Reinsured Convertible Policy (as defined in the Administrative Services Agreement) with respect to which any Exclusive Producer has received any commissions remains in-force, Seller shall have the right, acting on behalf of the Company pursuant to the Administrative Services Agreement, subject to Section 5.14(d), to (i) maintain the appointment of such Exclusive Producer to act as an insurance agent on behalf of the Company, (ii) provide such information to such Exclusive Producer as is necessary to permit such Exclusive Producer to offer Designated Company Conversion Policies (as defined in the Administrative Services Agreement) on behalf of the Company to the holder of such Reinsured Convertible Policy and (iii) pay commissions to such Exclusive Producer for the placement of such Designated Company Conversion Policy (including with respect to trail commissions with respect thereto) as determined by Seller pursuant to the Administrative Services Agreement.  Buyer shall not, and shall cause the Company and each of its other Affiliates not to, target any Reinsured Convertible Policy or any Designated Company Conversion Policy issued pursuant to this Section 5.14 for replacement with another policy written by the Company or any other Person other than in accordance with the terms of this Section 5.14.

 

(b)                              Following the Closing Date, at Seller’s sole cost and expense, Buyer shall, and shall cause the Company to, provide such information to any Exclusive Provider as is necessary to permit such Exclusive Provider to service customers with respect to any insurance policy or contract produced by such Exclusive Provider, and none of Buyer or any of its Affiliates shall, whether directly or indirectly, support or sponsor a program with the intended or reasonably expected result to be the replacement of any Exclusive Provider.

 

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(c)                               Seller shall promptly reimburse Buyer and the Company for its reasonable and documented out-of-pocket costs incurred in complying with the obligations in this Section 5.14.

 

(d)                             From and after the Closing Date, Buyer shall not, directly or indirectly, sell, convey or transfer 50% or more of the outstanding capital stock of the Company or all or substantially all of its properties or assets to any Person, in one transaction or a series of transactions that are part of a common plan, or any transaction that constitutes the functional equivalent of any of the foregoing, unless the acquiring Person in such transaction or transactions expressly agrees pursuant to an agreement in a form reasonably acceptable to Seller to assume all of the obligations of Buyer under this Section 5.14.

 

SECTION 5.15.               Specified Capital Charge.

 

(a)                               From and after the date hereof, each of Seller and Buyer shall cooperate in good faith, and shall use, and shall cause its Affiliates to use, reasonable best efforts, both prior to and after the Closing, to ensure that no Specified Capital Charge is imposed on the Company; provided, that, except as provided in Section 5.15(b), neither party shall be required to make any capital contribution to the Company or agree to any limitation on dividends in order to comply with the foregoing.

 

(b)                              If, at any time after the Closing but prior to the earlier of (i) the completion of the Company’s first triennial examination that is completed by the Nebraska Insurance Department after the Closing Date and (ii) the fifth anniversary of the Closing Date, a Specified Capital Charge is imposed on the Company, then Seller shall either (A) purchase from the Company surplus notes or preferred stock having the terms set forth in the term sheet attached as Exhibit J in an aggregate principal amount or with an aggregate liquidation preference, as applicable, equal to the amount by which the Required Capital Amount as of the date on which such Specified Capital Charge is imposed on the Company is increased directly as a result of such Specified Capital Charge, but only to the extent that such Required Capital Amount exceeds the Specified Capital Amount or (B) choose to amend the terms of the Amended and Restated Reinsurance Agreement and the Reinsurance Trust (or the composition of the assets held in the trust account established pursuant to the Reinsurance Trust) in order to eliminate the effect of such Specified Capital Charge.  If Seller elects to effect any amendment contemplated by clause (B) of the immediately preceding sentence, the parties shall amend or modify such agreements to eliminate the effect of such Specified Capital Charge, and each party shall agree to any such amendment or modification so long as it would not adversely affect such party.  The obligations of Seller under this Section 5.15 shall not apply from and after any date on which Parent is no longer the direct or indirect owner of at least a majority of the outstanding equity securities of the Company (except as a result of an initial public offering of Parent or any Affiliate of Parent that controls the Company) or the Company is no longer domiciled in the State of Nebraska.

 

SECTION 5.16.               Organizational Documents.  Seller may, between the date hereof and the Closing Date, amend the Organizational Documents of the Company in order to permit the Company to issue preferred stock on the terms set forth in the term sheet attached as Exhibit J.  Buyer shall not, from and after the Closing and for so long as either (i) Seller’s 

 

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obligations under Section 5.15 remain in effect or (ii) Seller holds any shares of preferred stock of the Company, permit the Company’s Organizational Documents to be amended in any manner that would affect the Company’s ability to issue such preferred stock on such terms or that would affect any of the terms thereof or rights associated therewith.

 

SECTION 5.17.               Transition Matters.

 

(a)                               Promptly after the date hereof, and in any event within 60 days hereafter, Seller and Buyer shall each appoint a transition team to:

 

(i)                                  cooperate in good faith to develop a separation plan for separating the Company Business from the businesses of Seller and its Affiliates (including the Company) that is not Company Business so as to minimize the adverse impact of such separation on each party’s businesses, and

 

(ii)                              review, revise and update, where appropriate, the schedules to the Transition Services Agreement, the Administrative Services Agreement and the Agent Servicing Agreement between the date hereof and the Closing and any such mutually agreed upon revised and updated schedules will replace the corresponding schedules attached to the form of Transition Services Agreement, the form of Administrative Services Agreement or the form of the Agent Servicing Agreement, as applicable.

 

(b)                              Seller may, between the date hereof and the Closing Date, take any actions necessary or appropriate to cause the Company’s participation under the agreement identified in Section 5.17(b) of the Seller Disclosure Schedule to be terminated as of or prior to the Closing Date and for the Company no longer to be a party to such agreement from and after such date; provided that Seller shall arrange for the Company to have direct or indirect access to the retained asset account that is the subject of such agreement for the term specified in the Transition Services Agreement.

 

SECTION 5.18.               Certain Business.  Prior to the Closing Date, Seller may cause the Company to recapture from Seller the business identified on Section 5.18 of the Seller Disclosure Schedule and cause the Company to cede such business to an Affiliate of Seller on reinsurance terms that are substantially similar to the terms pursuant to which the Vermont Captive Business is ceded by the Company to the Vermont Captive provided, however, that such recapture does not result in any adverse effect to the Company that is not reimbursed by Seller or otherwise subject to indemnification by Seller under this Agreement, including without limitation with respect to the risk based capital treatment of such reinsurance.  In addition, any such business shall only be recaptured to the extent of actual payments by the captive, it being the intent that Seller shall retain the financial risk of any uncollected or uncollectible amount with respect to such reinsurance.  If Seller does not effect the recapture and reinsurance transactions described in the previous sentence prior to the Closing, Buyer shall, and shall cause the Company to, at Seller’s request and sole cost and expense, cooperate with Seller to cause such recapture and reinsurance transactions to be effected after the Closing Date and take all reasonable actions, and execute all documents, certificates, agreements, instruments or conveyances or other writings of any kind, that may be reasonably necessary to carry out and give effect to such recapture and reinsurance transactions, including using reasonable best efforts

 

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to obtain, at Seller’s sole cost and expense, any consents, approvals or authorizations of Governmental Entities that may necessary to effect such recapture and reinsurance transactions.

 

SECTION 5.19.               Investment Assets.  From June 30, 2013 and until the Closing, Seller shall cause the Investment Assets held by the Company and the Recaptured Investment Assets (collectively, the “Business Investment Assets”) to be managed in accordance with the investment guidelines set forth in Section 5.19 of the Seller Disclosure Schedule.

 

SECTION 5.20.               Resignations.  At or prior to the Closing, Seller shall deliver to Buyer letters of resignation, effective as of the Closing, of all of the officers and directors of the Company, except as requested by Buyer not less than five Business Days prior to the Closing.

 

SECTION 5.21.               Financial Information.  Seller shall cause the Company to deliver to Buyer true, correct and complete copies of the quarterly and annual statutory financial statements of the Company that are filed with the Nebraska Department of Insurance between the date hereof and the Closing, promptly after the filing thereof.

 

SECTION 5.22.               Annuity Administration.  After the date hereof, Seller may negotiate and execute agreements relating to the administration by se2 of the annuity contracts included in the Company Business and may take any other actions that may be reasonably necessary to transition the administration of such annuity contracts to se2.  Buyer acknowledges that such transition might not be completed prior to the Closing and agrees that it shall, and shall cause the Company to, cooperate with Seller to effect such transition after the Closing.  The costs and expenses of such transition shall be borne by the parties in the manner contemplated by the Transition Services Agreement.

 

SECTION 5.23.               Buyer Financing.

 

(a)                               Buyer shall, and shall cause its Affiliates to, use reasonable best efforts to (A) obtain the proceeds of the Debt Financing on the terms and conditions set forth in the Debt Commitment Letters and (B) close the NER Financing on the terms and conditions set forth in the NER Commitment Letter.  Without limiting the foregoing, Buyer shall, and shall cause its Affiliates to, use reasonable best efforts to (i) maintain in effect the Debt Commitment Letter and the NER Commitment Letter in accordance with their terms, (ii) satisfy as promptly as practicable (or obtain the waiver of) all conditions applicable to obtaining the Debt Financing and NER Financing that are within the control of Buyer or any of its Affiliates on terms set forth in the applicable Commitment Letters or in any definitive documents with respect to such Financing, (iii) enter into, as promptly as practicable after the date hereof, definitive documents with respect to the Debt Financing on terms and conditions set forth in the Debt Commitment Letters and (iv) use its reasonable best efforts to cause the Financing Sources to fund the Debt Financing at or prior to the Closing and close the NER Financing immediately after the Closing (including by commencing Actions against the Financing Sources to enforce the terms of the applicable Commitment Letters or any definitive documents relating to such Financing).  Buyer shall, and shall cause its Affiliates to, comply with all of their obligations under the Commitment Letters and any definitive documents relating to the Financing.

 

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(b)                              Buyer shall not, without the prior written consent of Seller, permit any amendment or modification to be made to the Debt Commitment Letter or any definitive document relating to the Debt Financing that would (A) reduce the aggregate amount of the Debt Financing (without a corresponding increase in another portion of the Financing effected in compliance with this Section 5.23), including by changing the amount of fees to be paid or original issue discount of the Debt Financing), (B) impose new or additional conditions, or otherwise amend, modify or expand the conditions, to the drawdown of the Debt Financing in a manner that, in the reasonable expectation of Buyer, would delay or prevent the Closing or make the drawdown of the Debt Financing (or the satisfaction of the conditions to such drawdown) less likely to occur; provided, however, that Buyer may replace, amend or modify the Debt Commitment Letter to add or replace Financing Sources, lead arrangers, syndication agents, bookrunners or similar entities.

 

(c)                               Buyer shall not, without the prior written consent of Seller, permit any amendment or modification to be made to the NER Commitment Letter that would (A) change the aggregate amount of the NER Financing, including by changing the amount of fees to be paid, (B) impose new or additional conditions, or otherwise amend, modify or expand the conditions, to the closing of the NER Financing in a manner that would reasonably be expected to delay or prevent the Closing; provided, that Buyer may replace, amend or modify the NER Commitment Letter to add or replace Financing Sources.

 

(d)                             Buyer shall not, without the prior written consent of Seller, permit any amendment or modification to be made to the Equity Commitment Letter, and shall cause its Affiliates to use reasonable best efforts to obtain the proceeds of the Equity Financing on the terms and conditions set forth in the Equity Commitment Letter.

 

(e)                               Buyer shall not release or consent to the termination of the obligations of any Financing Source under any Commitment Letter or any definitive document with respect to the Financing without Seller’s prior written consent, provided for the avoidance of doubt that no such consent is required in connection with any release or termination in connection with the replacement of one or more Financing Sources as permitted under this Section 5.23.

 

(f)                                Buyer shall give Seller reasonably prompt notice of (I) any termination of the Commitment Letters or material breach by any party thereto of which Buyer becomes aware, (II) the receipt of any written notice or other written communication from any Financing Source regarding any actual or alleged breach, default, termination or repudiation of any Commitment Letter or any definitive document with respect to the Financing by any party thereto and (III) any reason Buyer believes in good faith that it will not be able to obtain all or any portion of the Financing on the terms, in the manner or from the sources contemplated by the Commitment Letters or the definitive documents relating thereto.  Buyer shall provide any information reasonably requested by Seller relating to any of the circumstances described in the foregoing sentence as soon as reasonably practicable, but in any event within three Business Days, after the date that Seller delivers to Buyer a written request for such information.  Buyer shall consult with and keep Seller reasonably informed upon request of the status of its efforts to arrange for and consummate the Financing,  and shall promptly provide Seller true, correct and complete copies of any definitive documents that are executed in connection with the Financing.  If any portion of the Debt Financing or NER Financing becomes unavailable on the terms and 

 

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conditions set forth in the applicable Commitment Letters, Buyer shall (1) promptly notify Seller of such unavailability and the reasons therefor and (2) use its reasonable best efforts, as promptly as practicable following the occurrence of such event, to arrange for and obtain, and negotiate and enter into definitive documents with respect to, alternative financing from alternative sources (“Alternative Financing”) in an amount sufficient to permit the Buyer Parties to consummate the transactions contemplated by this Agreement and the other Transaction Agreements and pay all related costs and expenses required to be paid by them in connection therewith; provided that (i) in no event may any Alternative Financing involve a public offering that is registered with, or require any filings with, the Securities and Exchange Commission or under the securities laws of any jurisdiction and (ii) in no event shall Buyer be required to enter into any Alternative Financing on terms that, taken in the aggregate, are materially less favorable to it than the terms of the Equity Financing, Debt Financing or the NER Financing, as the case may be.

 

(g)                              For the avoidance of doubt and notwithstanding anything in this Agreement to the contrary, Buyer acknowledges and agrees that obtaining neither the Debt Financing nor the Equity Financing is a condition to the Closing and reaffirms its obligation to consummate the transactions contemplated by this Agreement irrespective and independently of the availability of the Debt Financing and the Equity Financing, subject only to the fulfillment of the conditions set forth in Sections 6.1 and 6.2 (or waiver thereof as provided in Sections 6.1 and 6.2).  Buyer further acknowledges and agrees that the closing or consummation of the NER Financing shall not be a condition to the Closing and reaffirms its obligation to consummate the transactions contemplated by this Agreement notwithstanding that the NER Financing has not been consummated, subject only to the fulfillment of the conditions set forth in Sections 6.1 and 6.2 (or waiver thereof as provided in Sections 6.1 and 6.2), including obtaining the prior approval of the Governmental Entities set forth on Section 4.3 of the Buyer Disclosure Schedule with respect to the NER Financing.  The closing of the NER Financing will not occur until after the Closing.

 

SECTION 5.24.               Financing Cooperation.

 

(a)                               Seller shall, between the date hereof and the Closing Date, use its reasonable best efforts to (and to cause its Affiliates and their respective personnel and advisors to use their reasonable best efforts to), as promptly as reasonably practicable, cooperate with and provide such assistance to Buyer as is reasonably requested by Buyer in Buyer’s efforts to obtain (i) the Debt Financing and the NER Financing on the terms contemplated herein and in the respective Commitment Letters and (ii) additional equity financing through the admission of new investors to Parent as limited partners on the terms contemplated under the Limited Partnership Agreement (“Additional Equity Financing”).

 

(b)                              The cooperation and assistance contemplated by Section 5.24(a) shall comprise the following: (i) providing information, including adjustment figures, reasonably requested in connection with (A) any customary offering documents, bank information memoranda and similar documents, which include (x) all audited annual statutory financial statements of the Company for the three (3) most recently completed fiscal years of the Company that have been filed with the Nebraska Department of Insurance prior to the Closing Date and (y) unaudited interim statutory financial statements of the Company that have been filed with the Nebraska Department of Insurance prior to the Closing Date for any fiscal quarter 

 

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ended after the date of the most recent financial statements delivered pursuant to clause (x), (B) rating agency presentations, by providing financial and other factual data related to the Company Business and (C) the Reference Balance Sheet, updated as of the end of the most recent fiscal quarter of the Company ended at least 60 days prior to the Closing Date (or, if the most recently completed fiscal quarter is the end of a fiscal year of the Company, ended at least 120 days prior to the Closing Date); (ii) executing and delivering (or using reasonable best efforts to obtain from its advisors) customary certificates or other similar documents and instruments relating to the NER Financing as may be reasonably requested by Buyer; (iii) subject to receipt of assurances of confidentiality in form and substance reasonably satisfactory to Seller, providing authorization letters to the Financing Sources authorizing the distribution of information to prospective lenders; (iv) providing actuarial and financial information requested by Hannover Life Reassurance Company of America (all such information described in this Section 5.24(b)(i) and (v) together with all information provided to the Financing Sources prior to the date hereof, collectively, the “Required Financial Information”); (vi) subject to receipt of assurances of confidentiality in form and substance reasonably satisfactory to Seller, arranging for the participation of appropriate officers of Seller in a reasonable number of management and other meetings (including customary one-on-one meetings with the lead arrangers for the Debt Financing and with potential investors for the Additional Equity Financing), presentations, due diligence sessions and sessions with rating agencies on reasonable advance notice; (vii) filing all required applications and requests for approval with all applicable Governmental Entities required in connection with the NER Financing (which will be prepared by Buyer and whose form and substance will be subject to the approval of Seller, which shall not be unreasonably withheld, conditioned or delayed); and (viii) taking such corporate actions as shall be reasonably requested of Seller or the Company by Buyer to permit the consummation of the Financing or Additional Equity Financing to permit the proceeds thereof to be made available at the Closing and permit the Closing of the NER Financing to occur immediately after the Closing, provided, however, that Seller and, until the Closing occurs, the Company shall not (1) have any Liability or any obligation under any agreement or document related to the Financing or any Additional Equity Financing or (2) be required to incur any Liability in connection with the Financing or Additional Equity Financing other than out-of-pocket expenses incurred in connection with its compliance with this Section 5.24, which shall promptly be reimbursed by Buyer.  Without limitation to the foregoing, Seller shall provide, and shall use its commercially reasonable efforts to cause each of its and the Company’s Representatives, including legal, tax, regulatory and accounting to provide, all other information and cooperation reasonably requested by the Financing Sources or Buyer.   Neither Seller nor any of its Affiliates shall have any obligation to provide any representations, warranties, assurances or opinions to any Person as to the accuracy or completeness of any information made available to any Financing Source, potential lender, equity or other investors, rating agencies, Governmental Entity or any other Person, and, except for the rights of the Buyer Indemnified Persons pursuant to Section 7.2(a)(i) (subject to the limitations set forth in this Agreement), Seller shall have no Liability or obligation with respect to any information provided pursuant to this Section 5.24 or otherwise in connection with the Financing or any Additional Financing.

 

(c)                               Notwithstanding Sections 5.24(a) and 5.24(b), Buyer acknowledges and agrees that the Company shall not, prior to the Closing, be obligated to incur any Liability or commitment to any third-party under or in connection with the Financing or any Additional Equity Financing.  Buyer shall indemnify and hold harmless Seller and the Company and their 

 

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respective officers, directors, employees, Affiliates and agents from and against any and all Liabilities suffered or incurred by them under or in connection with the Financing or any Additional Equity Financing.

 

SECTION 5.25.               Subscription Rights.  From the date hereof to the earliest of: (i) the Closing; (ii) the termination of this Agreement in accordance with its terms; and (iii) the execution by Seller or any of its Affiliates of the Limited Partnership Agreement as contemplated by this Section 5.25, Seller and its Affiliates collectively shall have the right, but not the obligation, to subscribe for class A limited partnership interests or other equity interests of Parent with an aggregate capital commitment of up to $100,000,000 and, if such right is exercised, Parent shall accept, and shall not reject, the full amount of such subscription; provided that Seller or its applicable Affiliate shall execute the Limited Partnership Agreement and a subscription agreement that is in a form that is the same as the form of the subscription agreements entered into prior to the date hereof by the Investors of Parent as of the date hereof, except that the subscription agreements of such Investors require such Investors to increase their respective capital commitments in order to facilitate the Closing hereunder as provided therein.  From the date hereof to the earliest of: (i) the Closing; (ii) the termination of this Agreement in accordance with its terms; and (iii) the execution by Seller or any of its Affiliates of the Limited Partnership Agreement as contemplated by this Section 5.25, Parent shall not permit any amendment to the Limited Partnership Agreement, including Section 13.13 thereof, that would adversely affect the rights of Seller or any of its Affiliates as a potential Investor in Parent relative to the rights of other Investors in Parent.

 

SECTION 5.26.               Certain Covenants.

 

(a)                               Buyer shall not consent to the addition of any Additional Initial Lender (as defined in the Debt Commitment Letter) without Seller’s prior written consent, other than any lender listed on the most current “Bank List” compiled and maintained by the National Association of Insurance Commissioners, pursuant to the Purposes and Procedures Manual of the Securities Valuation Office of the National Association of Insurance Commissioners.

 

(b)                              Between the date hereof and the Closing Date, Buyer shall not enter into any agreement pursuant to which the Company would incur any Liability with respect to indebtedness for borrowed money, or pursuant to which the Company would secure or guarantee the indebtedness of any other Person, without Seller’s prior written consent.

 

ARTICLE VI.
 CONDITIONS PRECEDENT

 

SECTION 6.1.                       Conditions to Each Party’s Obligations.  The obligations of Buyer and Seller to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver in writing at or prior to the Closing of the following conditions:

 

(a)                               Approvals.  All consents, approvals or authorizations of, declarations or filings with or notices to any Governmental Entity in connection with the transactions contemplated hereby that are set forth in Section 3.5 of the Seller Disclosure Schedule or Section 4.3 of the Buyer Disclosure Schedule shall have been obtained or made and shall be in full force 

 

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and effect and all waiting periods required by Applicable Law with respect thereto shall have expired or been terminated, in each case without the imposition of a Buyer Burdensome Condition in the event that Buyer is seeking to invoke this condition or a Seller Burdensome Condition in the event that Seller is seeking to invoke this condition.

 

(b)                              No Injunctions or Restraints.  No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction and no statute, rule or regulation of any Governmental Entity preventing the consummation of the purchase and sale of the Shares or any other material transaction contemplated by the Transaction Agreements shall be in effect; provided, that the party invoking this condition shall have used all reasonable best efforts to have any such order or injunction vacated.

 

(c)                               RBC Ratio.  The Required Capital Amount as of the Closing Date shall not be greater than the Specified Capital Amount; provided that, if the Required Capital Amount as of the Closing Date is greater than the Specified Capital Amount, then Seller shall have the option, in its sole discretion, to, and this condition shall be deemed to have been satisfied if Seller exercises its option to, purchase from the Company surplus notes or preferred stock having the terms set forth in the term sheet attached as Exhibit J in an aggregate principal amount or with an aggregate liquidation preference, as applicable, equal to the excess of the Required Capital Amount as of the Closing Date over the Specified Capital Amount; provided  further that, notwithstanding the foregoing, this condition shall not be deemed to have been satisfied (notwithstanding whether Seller has exercised its option to purchase surplus notes or preferred stock as contemplated above) if the Required Capital Amount as of the Closing Date is greater than the Maximum Capital Amount.

 

SECTION 6.2.                       Conditions to Obligations of Buyer.  The obligations of Buyer to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver in writing at or prior to the Closing of the following additional conditions:

 

(a)                               Representations and Warranties.  (i) The representations and warranties of Seller set forth in this Agreement other than Sections 3.1, 3.2, 3.3, 3.4 and 3.21 (the “Seller Fundamental Representations”) (without giving effect to any limitation as to materiality or Material Adverse Effect, other than as set forth in the first sentence of Section 3.8) shall be true and correct on and as of the Closing Date as though made on and as of the Closing Date (except to the extent any such representation and warranty speaks only as of an earlier date, in which event such representation and warranty shall have been true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (ii) the Seller Fundamental Representations set forth in Sections 3.2(b), 3.2(c), 3.4 and 3.21 shall be true and correct in all respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date (except for representations and warranties that are made as of a specific date, which representations and warranties shall be true and correct at and as of such earlier date) and (iii) the other Seller Fundamental Representations that are qualified by materiality or Material Adverse Effect shall be true and correct in all respects, and the other Seller Fundamental Representations that are not so qualified shall be true and correct in all material respects, in each case on and as of the Closing Date with the same effect as though made on and as of the Closing Date (except for representations and warranties that are made as 

 

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of a specific date, which representations and warranties shall be true and correct at and as of such earlier date).

 

(b)                              Performance of Obligations of Seller.  Seller shall have performed and complied in all material respects with all agreements, obligations and covenants required to be performed or complied with by it under this Agreement on or prior to the Closing Date.

 

(c)                               Closing Deliveries.  Seller shall have delivered or caused to be delivered to Buyer each of the documents required to be delivered pursuant to Section 2.3(a).

 

(d)                             No Material Adverse Effect.  Since the date of this Agreement, there shall not have occurred any Material Adverse Effect or any fact, event, circumstance, effect, development, occurrence or condition of any character that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

SECTION 6.3.                       Conditions to Obligations of Seller.  The obligations of Seller to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver in writing at or prior to the Closing of the following additional conditions:

 

(a)                               Representations and Warranties.  (i) The representations and warranties of Buyer set forth in this Agreement other than Sections 4.1, 4.2 and 4.7 (the “Buyer Fundamental Representations”) (without giving effect to any limitation as to materiality) shall be true and correct on and as of the Closing Date as though made on and as of the Closing Date (except to the extent any such representation and warranty speaks only as of an earlier date, in which event such representation and warranty shall have been true and correct as of such date), except where the failure of all such representations and warranties to be so true and correct would not, individually or in the aggregate, have a material adverse effect on the ability of Buyer to consummate any of the transactions contemplated by this Agreement (ii) the Buyer Fundamental Representations set forth in Sections 4.2 and 4.9 shall be true and correct in all respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date (except for representations and warranties that are made as of a specific date, which representations and warranties shall be true and correct at and as of such earlier date) and (iii) the other Buyer Fundamental Representations that are qualified by materiality or Material Adverse Effect shall be true and correct in all respects, and the other Buyer Fundamental Representations that are not so qualified shall be true and correct in all material respects, in each case on and as of the Closing Date with the same effect as though made on and as of the Closing Date (except for representations and warranties that are made as of a specific date, which representations and warranties shall be true and correct at and as of such earlier date).

 

(b)                              Performance of Obligations of Buyer.  Buyer shall have performed and complied in all material respects with all agreements, obligations and covenants required to be performed or complied with by it under this Agreement on or prior to the Closing Date.

 

(c)                               Closing Deliveries.  Buyer shall have delivered or caused to have delivered to Seller each of the documents required to be delivered pursuant to Section 2.3(b).

 

(d)                             Recapture Conditions.  Prior to or at the Closing, (i) any guarantee or keepwell required to be provided by Seller or any of its Affiliates to the Company in connection 

 

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with or as a result of the consummation of the Recapture shall have been terminated and (ii) any other agreements or arrangements with respect to the Company or the Recapture that Seller or any of its Affiliates was required to enter into in connection with or as a result of the Recapture shall have been unwound or terminated; provided that any order, consent, approval or authorization of any Insurance Regulator or other Governmental Entity that may have been required in order to effect any of the foregoing shall have been obtained without the imposition of a Seller Burdensome Condition.

 

ARTICLE VII.
 INDEMNIFICATION

 

SECTION 7.1.                       Survival of Representations, Warranties and Covenants.

 

(a)                               The representations and warranties of Seller and Buyer contained in this Agreement shall survive the Closing solely for purposes of this Article VII and shall terminate and expire on the earlier of March 31, 2015 or 30 days after receipt by Buyer of an audit report with respect of the annual financial statements of the Company for the year ending December 31, 2014, after which time no claim for indemnification with respect thereto may be brought; provided, that notwithstanding the foregoing, (i) the Buyer Fundamental Representations, the Seller Fundamental Representations and the representations and warranties set forth in Section 3.10 shall survive until the expiration of the applicable statute of limitations plus 60 days, after which time no claim for indemnification with respect thereto may be brought, (ii) the representations and warranties set forth in Section 3.15 shall (subject to Section 7.9) survive until the fourth anniversary of the Closing Date, after which time no claim for indemnification with respect thereto may be brought and (iii) the representations and warranties set forth in Section 3.6(a) shall not survive the Closing.

 

(b)                              To the extent that it is to be performed after the Closing, each covenant in this Agreement will survive and remain in effect in accordance with its terms plus a period of six months thereafter, after which no claim for indemnification with respect thereto may be brought hereunder.  All covenants in this Agreement that by their terms are required to be fully performed prior to the Closing will survive the Closing for a period of six months, after which time no claim for indemnification with respect thereto may be brought hereunder.

 

(c)                               Notwithstanding the foregoing, any claim for indemnification with respect to any breach of any representation, covenant or agreement in respect of which indemnity may be sought under this Agreement shall survive the time at which it would otherwise terminate pursuant to the preceding paragraphs (a) and (b) of this Section 7.1 if such claim has been properly made pursuant to this Article VII prior to such time.

 

SECTION 7.2.                       Indemnification.

 

(a)                               Seller shall indemnify and hold harmless Buyer and its directors, officers, employees and Affiliates (collectively, the “Buyer Indemnified Persons”) from and against any and all Indemnifiable Losses to the extent directly or indirectly resulting from or arising out of:

 

(i)                                  any breach of any representation or warranty of Seller made in this Agreement;

 

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(ii)                              any breach or nonfulfillment of any agreement or covenant of Seller under this Agreement; or

 

(iii)                          any Excluded Liabilities.

 

(b)                              Buyer shall indemnify and hold harmless Seller and its directors, officers, employees and Affiliates (collectively, the “Seller Indemnified Persons”) from and against any and all Indemnifiable Losses to the extent directly or indirectly resulting from or arising out of:

 

(i)                                  any breach of any representation or warranty of Buyer made in this Agreement; or

 

(ii)                              any breach or nonfulfillment of any agreement or covenant of Buyer under this Agreement.

 

(c)                               For purposes of this Article VII (i) a breach of a representation or warranty shall be deemed to exist either if such representation or warranty is actually inaccurate or breached or would have been inaccurate or breached if such representation or warranty had not contained any qualification as to materiality or Material Adverse Effect (which, in each case, instead will be read as any adverse effect or change) or similar language, and (ii) the amount of Indemnifiable Losses in respect of a breach resulting from the application of clause (i) above shall be determined without regard to any limitation or qualification as to materiality or Material Adverse Effect (which instead will be read as any adverse effect or change) or similar language set forth in such representation or warranty, in each case other than any such limitation or qualification contained in Sections 3.8, 3.13(a), 3.18(a), the first sentence of Section 3.9(a), the second sentence of Section 3.11(b), the second sentence of Section 3.17 or the first sentence of Section 3.20(e), or that is inherent in SAP or in the methods, procedures and practices that constitute the Accounting Principles for purposes of Section 3.6.

 

SECTION 7.3.                       Certain Limitations.

 

(a)                               No party shall be obligated to indemnify and hold harmless its respective Indemnitees under Section 7.2(a)(i) (in the case of Seller) or Section 7.2(b)(i) (in the case of Buyer) (i) with respect to any claim or claims based on a series of substantially similar facts, events or circumstances, unless such claim or claims involved Indemnifiable Losses in excess of $75,000 (the “Threshold Amount”) (nor shall any claim that does not exceed the Threshold Amount be applied to or considered for purposes of calculating the amount of Indemnifiable Losses for which the Indemnitor is responsible under clause (ii) below) and (ii) unless and until the aggregate amount of all Indemnifiable Losses of the Indemnitees under such Section 7.2(a)(i) or such Section 7.2(b)(i), as the case may be, exceeds 1.5% of the Purchase Price for all such Indemnifiable Losses (the “Deductible”), at which point such Indemnitor shall be liable to its respective Indemnitees for the value of the Indemnitee’s claims under Section 7.2(a)(i) or Section 7.2(b)(i), as the case may be, that is in excess of the Deductible, subject to the limitations set forth in this Article VII.  Subject to Section 7.3(c), the maximum aggregate Liability of Seller, on the one hand, and Buyer on the other hand, to their respective Indemnitees for any and all Indemnifiable Losses under Section 7.2(a)(i), in the case of Seller, or Section 7.2(b)(i), in the case of Buyer, shall be 20% of the Purchase Price (the “Cap”); provided, that the maximum 

 

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aggregate Liability of Seller to all Buyer Indemnified Persons for any or all Indemnifiable Losses under this Agreement shall not exceed the Purchase Price.  The limitations in this Section 7.3 shall not apply to claims made in respect of the Excluded Liabilities or under Article VIII or to Indemnifiable Losses arising from breaches of Section 3.10, and the Deductible shall not apply with respect to any Indemnifiable Losses resulting from or arising out of any breach of any representation or warranty set forth in Section 3.15, which shall instead be subject to the terms of Section 7.9(e).

 

(b)                              If any Indemnitee actually recognizes a Tax benefit in respect of an Indemnifiable Loss as described in the proviso in the definition of “Indemnifiable Losses” set forth in Section 7.4(iii) subsequent to an Indemnity Payment made by an Indemnitor to an Indemnitee with respect to such Indemnifiable Loss, then such Indemnitee shall promptly pay to the Indemnitor the amount of such Tax benefit recognized by such Indemnitee up to the amount of such Indemnity Payment received by the Indemnitee, net of any expenses incurred by such Indemnitee in pursuing such Tax benefit, within 15 days after the Indemnitee recognizes such Tax benefit in the form of cash actually received or reduction in cash Taxes actually paid.  If any Tax benefit (or portion thereof) in respect of an Indemnifiable Loss as described in the proviso in the definition of “Indemnifiable Losses” set forth in Section 7.4(iii), that either (i) reduces the Indemnity Payments made by an Indemnitor prior to the time such payment is made or (ii) obligates an Indemnitee to make payments to the Indemnitor under the immediately preceding sentence of this Section 7.3(b), is disallowed as a result of an audit or otherwise, the applicable Indemnitor shall promptly pay to the applicable Indemnitee the amount of such disallowed Tax benefit within 30 days after the Indemnitee notifies the Indemnitor that the adjustment with respect to such disallowance has been paid or otherwise taken into account.

 

(c)                               In the case of Indemnifiable Losses resulting from or arising out of breaches of Section 3.15, the Cap shall, with respect to Indemnifiable Losses subject to indemnification by Seller under this Agreement, be increased by fifty (50) million dollars, provided that the maximum aggregate Liability of Seller with respect to Liabilities other than those resulting from or arising out of any breach of Section 3.15 shall still be as described in Section 7.3(a) (and not increased by this Section 7.3(c)).

 

SECTION 7.4.                       Definitions.  As used in this Agreement:

 

(i)                                  “Indemnitee” means any Person entitled to indemnification under this Agreement;

 

(ii)                              “Indemnitor” means any Person required to provide indemnification under this Agreement;

 

(iii)                          “Indemnifiable Losses” means any and all damages, losses, liabilities, obligations, costs and expenses (including reasonable attorneys’ fees and expenses); provided, that any Indemnity Payment (x) shall in no event include any amounts constituting consequential, incidental, indirect, special or punitive damages (except to the extent actually paid to a third party in connection with a Third Party Claim), or any damages for lost profits, unless: (1) such damages for lost profits do not constitute consequential, incidental, indirect, special or punitive damages of any Buyer Indemnified

 

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Person; (2) such damages for lost profits are recoverable under the laws of the State of New York; (3) the Indemnitee satisfies all elements necessary for proof of such damages for lost profits under such laws; and (4) such lost profits can be demonstrated by reference to the Actuarial Report and therefore to be within the reasonable contemplation of the parties (it being understood that nothing in this Section 7.4 is intended to limit the effect of the statement set forth in the proviso to the last sentence of Section 3.17, and that lost profits damages with respect to the reduction or elimination of any profits contemplated by the Actuarial Report shall in no event exceed the present value ascribed to any such remaining profits contemplated by the Actuarial Report as of the date of the Indemnifiable Loss giving rise to the related claim, calculated based on the assumptions on which the Actuarial Report was prepared and discounted using a discount rate of 12%), and (y) shall be net of any (A) net amounts recovered by the Indemnitee or any of its Affiliates for the Indemnifiable Losses for which such Indemnity Payment is made under any insurance policy, reinsurance agreement, warranty or indemnity or otherwise from any Person other than a party hereto, and the Indemnitee shall promptly reimburse the Indemnitor for any such net amount that is received by it or any of its Affiliates from any such other Person with respect to any Indemnifiable Losses after any indemnification with respect thereto has actually been paid pursuant to this Agreement, (B) amounts included in the calculation of the Final Closing Statutory Value and (C) as determined pursuant to Section 7.3(b), Tax benefits actually recognized by the Indemnitee or any of its Affiliates in respect of any Indemnifiable Losses for which such Indemnity Payment is made (it being understood that no Indemnity Payment to be made hereunder may be withheld or otherwise delayed due to the fact that an anticipated Tax benefit has not actually been recognized by the applicable Indemnitee).

 

(iv)                          “Indemnity Payment” means any amount of Indemnifiable Losses required to be paid pursuant to this Agreement; and

 

(v)                              “Third Party Claim” means any claim, action, suit, or proceeding made or brought by any Person that is not a party to this Agreement.

 

SECTION 7.5.                       Procedures for Third Party Claims.

 

(a)                               If any Indemnitee receives notice of assertion or commencement of any Third Party Claim against such Indemnitee in respect of which an Indemnitor may be obligated to provide indemnification under this Agreement, the Indemnitee shall give such Indemnitor reasonably prompt written notice (but in no event later than 30 days after becoming aware) thereof and such notice shall include a reasonable description of the claim based on the facts known at the time and any documents relating to the claim and an estimate of the Indemnifiable Loss and shall reference the specific sections of this Agreement that form the basis of such claim; provided, that no delay on the part of the Indemnitee in notifying any Indemnitor shall relieve the Indemnitor from any obligation hereunder unless (and then solely to the extent) the Indemnitor is actually prejudiced by such delay (except that the Indemnitor shall not be liable for any expenses incurred during the period in which the Indemnitee failed to give such notice).  Thereafter, the Indemnitee shall deliver to the Indemnitor, within five calendar days after the Indemnitee’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third Party Claim.

 

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(b)                              The Indemnitor shall be entitled to participate in the defense of any Third Party Claim and, if it so chooses, to assume the defense thereof with counsel selected by the Indemnitor.  Should the Indemnitor so elect to assume the defense of a Third Party Claim, the Indemnitor shall not as long as it conducts such defense be liable to the Indemnitee for legal expenses incurred by the Indemnitee in connection with the defense thereof subsequent to the Indemnitor notifying the Indemnitee in writing of its election to assume such defense.  If the Indemnitor assumes such defense, the Indemnitee shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnitor, it being understood that the Indemnitor shall control such defense.  The Indemnitor shall be liable for the reasonable fees and expenses of counsel employed by the Indemnitee for any period during which the Indemnitor has not assumed the defense thereof (other than during any period in which the Indemnitee shall have not yet given notice of the Third Party Claim as provided above).  If the Indemnitor chooses to defend any Third Party Claim, all of the parties hereto shall cooperate in the defense thereof.  Such cooperation shall include the retention and (upon the Indemnitor’s request) the provision to the Indemnitor of records and information that are relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  Whether or not the Indemnitor shall have assumed the defense of a Third Party Claim, the Indemnitee shall not admit any Liability with respect to, or pay, settle, compromise or discharge, such Third Party Claim without the Indemnitor’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed).  If the Indemnitor has assumed the defense of a Third Party Claim, the Indemnitor may only pay, settle, compromise or discharge a Third Party Claim with the Indemnitee’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed); provided, that the Indemnitor may pay, settle, compromise or discharge such a Third Party Claim without the written consent of the Indemnitee if such settlement (i) includes a release of the Indemnitee from all Liability in respect of such Third Party Claim, (ii) does not subject the Indemnitee to any injunctive relief or other equitable remedy and (iii) does not include a statement or admission of fault, culpability or failure to act by or on behalf of the Indemnitee.  If the Indemnitor submits to the Indemnitee a bona fide settlement offer with respect to a Third Party Claim that has been accepted by all Persons bringing such Third Party Claim and otherwise satisfies the requirements set forth in the proviso of the immediately preceding sentence and the Indemnitee refuses to consent to such settlement, then thereafter the Indemnitor’s liability to the Indemnitee with respect to such Third Party Claim shall not exceed the Indemnitor’s portion of the settlement amount included in such settlement offer.

 

(c)                               Notwithstanding anything in this Agreement to the contrary, Seller shall have the right to represent the interests of the Company and settle all issues, and to employ counsel of its choice at its expense, in any audit or other examination or administrative or court proceeding relating to Taxes for any Pre-Closing Tax Period or any Straddle Period; provided, that Seller shall not pay, discharge, settle, compromise, litigate, or otherwise dispose of any item subject to such Tax proceedings with respect to a Straddle Period or, in the case of any such Tax proceedings relating to the treatment of the Recapture or the calculation of any attribute reduction of the Company arising out of the transactions contemplated by this Agreement, with respect to any Pre-Closing Tax Period ending on the Closing Date, without obtaining the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed.  Notwithstanding the foregoing and subject to Seller’s rights set forth in the preceding 

 

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sentence, Buyer shall be entitled, at its expense, to participate in the conduct of any Tax audit and any judicial or administrative proceeding relating to any such Tax audit and to be kept reasonably informed of the conduct and progress thereof.

 

SECTION 7.6.                       Direct Claims.  The Indemnitor will have a period of 30 days within which to respond in writing to any claim by an Indemnitee on account of an Indemnifiable Loss that does not result from a Third Party Claim.  If the Indemnitor does not so respond within such 30 day period, the Indemnitor will be deemed to have rejected such claim, in which event the Indemnitee will be entitled to pursue such remedies as may be available to the Indemnitee.

 

SECTION 7.7.                       Sole Remedy.

 

(a)                               Except for (i) the right of Seller to an injunction, specific performance or other equitable relief pursuant to Section 10.10 and (ii) the right of Seller to receive the Termination Fee pursuant to Article X, prior to the Closing, the Escrow Account shall be the sole and exclusive source of recovery and remedy of Seller or any of its Affiliates with respect to any breach by Buyer, Parent or any of their Affiliates of any representation, warranty, covenant or agreement contained in this Agreement or the Equity Commitment Letter and, as such, the obligations of Buyer, Parent and their Affiliates hereunder and thereunder are non-recourse to any other Buyer Related Party that is not a party hereto or thereto in all respects.

 

(b)                              The parties hereto acknowledge and agree that, except as set forth in Section 10.10 and except for any claims relating to or affecting the Final Balance Sheet or the Final Closing Statutory Value (including claims relating to or arising out of Section 3.6), which shall be resolved and determined in accordance with Section 2.5, if the Closing occurs, their sole and exclusive remedy following the Closing with respect to any and all claims arising out of or related to the transactions contemplated by this Agreement shall be pursuant to the provisions set forth in this Article VII or Article VIII, as applicable.

 

SECTION 7.8.                       Certain Other Matters.

 

(a)                               Upon making any Indemnity Payment, Indemnitor will, to the extent of such Indemnity Payment, be subrogated to all rights of Indemnitee against any third Person (other than any Tax authority) in respect of the Indemnifiable Loss to which the Indemnity Payment related.  Without limiting the generality or effect of any other provision hereof, each such Indemnitee and Indemnitor will duly execute upon request all instruments reasonably necessary to evidence and perfect the above-described subrogation rights.

 

(b)                              The rights and remedies of any party in respect of any inaccuracy or breach of any representation, warranty, covenant or agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts or circumstances upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement as to which there is no inaccuracy or breach. The representations, warranties and covenants of Seller, and the Buyer Indemnified Persons’ rights to indemnification with respect thereto, shall not be affected or deemed waived by reason of (and the Buyer Indemnified Persons shall be deemed to have relied upon the representations and warranties of Seller set forth herein notwithstanding) (i) any investigation made by or on 

 

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behalf of any of the Buyer Indemnified Persons (including by any of its advisers, consultants or representatives) or by reason of the fact that any of the Buyer Indemnified Persons or any of such advisers, consultants or representatives knew or should have known that any such representation or warranty is, was or might be inaccurate, regardless of whether such investigation was made or such knowledge was obtained before or after the execution and delivery of this Agreement or (ii) Buyer’s waiver of any condition set forth in Article VI.  The representations, warranties and covenants of Buyer, and the Seller Indemnified Persons’ rights to indemnification with respect thereto, shall not be affected or deemed waived by reason of (and the Seller Indemnified Persons shall be deemed to have relied upon the representations and warranties of Buyer set forth herein notwithstanding) (i) any investigation made by or on behalf of any of the Seller Indemnified Persons (including by any of its advisers, consultants or representatives) or by reason of the fact that any of the Seller Indemnified Persons or any of such advisers, consultants or representatives knew or should have known that any such representation or warranty is, was or might be inaccurate, regardless of whether such investigation was made or such knowledge was obtained before or after the execution and delivery of this Agreement or (ii) Seller’s waiver of any condition set forth in Article VI.

 

(c)                               For the avoidance of doubt, Seller shall not be required to indemnify any Buyer Indemnified Person for any Liability to the extent it was reserved for on the Final Balance Sheet or to the extent it was included in the calculation of the Final Closing Statutory Value.

 

SECTION 7.9.                       Product Tax Claims.

 

(a)                               The Buyer Indemnified Persons may, within the applicable time period specified in Section 7.1(a) but subject to Section 7.9(b)(ii), bring a claim pursuant to Section 7.2(a)(i) that relates to a breach of a representation or warranty under Section 3.15 even if no related Third Party Claim has first been asserted or made against Buyer or the Company with respect thereto (a “Direct Product Tax Claim”); provided, however, that any Direct Product Tax Claim must be based on the good faith determination by Buyer that a breach of a representation or warranty under Section 3.15 has occurred.  If any Buyer Indemnified Person brings a Direct Product Tax Claim, Seller and Buyer shall cooperate in good faith to determine whether any breach of a representation or warranty under Section 3.15 has occurred and, if necessary, to develop corrective measures that are appropriate, reasonable, cost-efficient and effective, taking into account all of the relevant facts and circumstances then applicable.

 

(b)                              Notwithstanding anything to the contrary in this Agreement, with respect to any breach of Section 3.15:

 

(i)                                  Seller shall have no liability except to the extent that the relevant representation or warranty was breached based on the facts that existed and the Applicable Law (and interpretations thereof) as in effect as of or before the Closing Date;

 

(ii)                              Subject to Section 7.9(c), Seller shall only be required to indemnify the Buyer Indemnified Persons for Indemnifiable Losses with respect to Direct Product Tax Claims to the extent that such Indemnifiable Losses arise out of a circumstance identified in a written notice (describing in reasonable detail the circumstances giving rise to the claim of a breach of the representations and warranties 

 

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made in Section 3.15) delivered to Seller on or prior to the later of December 31, 2015 and (a) with respect to any annuity contracts that are part of the Company Business, the date that is one year after the substantial completion of the conversion of the administration of the annuity contracts to se2 as contemplated by the Transition Services Agreement or (b) with respect to life contracts that are part of the Company Business, the date that is one year after the substantial completion of the migration of the life contracts as provided in the Transition Services Agreement; and

 

(iii)                          Seller shall have no liability with respect to any insurance or annuity policy or contract issued after the Closing Date other than any insurance or annuity policy or contract that is part of the Company Business, an application for which has been submitted prior to the Closing Date and that is issued by the Company on the terms set forth in such application on or within 30 days after the Closing Date.

 

(c)                               If, with respect to a Direct Product Tax Claim, Seller and Buyer cannot agree as to whether a breach of a representation or warranty under Section 3.15 has occurred, then (i) if Seller promptly (and in any event within 30 Business Days) after receiving a written notice with respect to such Direct Product Tax Claim delivers or causes to be delivered to Buyer an opinion addressed to Buyer and issued by a reputable nationally recognized law firm, accounting firm or actuarial firm that is familiar with analyzing matters of the type covered by the representations and warranties set forth in Section 3.15 to the effect that it is more likely than not that no such breach has occurred with respect to the Direct Product Tax Claim then in dispute, then Seller shall not be required to indemnify Buyer with respect to such disputed Direct Product Tax Claim unless and until either a Third Party Claim with respect thereto subsequently arises, such opinion is subsequently withdrawn or qualified, the parties otherwise agree that such opinion is no longer controlling or such opinion is not subsequently reaffirmed or re-issued promptly upon the reasonable request of Buyer (other than as a result of a change in Applicable Law) in which case (A) Seller shall, as provided in Section 7.2(a)(i) but subject to Section 7.9(e), the Cap and the other limitations set forth in this Agreement (other than as specified below), indemnify Buyer for any Indemnifiable Loss attributable to a breach of a representation or warranty under Section 3.15 (including any penalties or fees imposed by the IRS) resulting from or arising out of the matters set forth in such disputed Direct Product Tax Claim, regardless of whether the representations and warranties set forth in Section 3.15 shall have otherwise expired pursuant to Section 7.1(a), Section 7.9(b)(ii) or any other provision of this Agreement and (ii) if Seller does not deliver or cause to be delivered to Buyer any such opinion within such 30-Business Day period, then such breach of a representation or warranty set forth in Section 3.15 that is alleged by Buyer shall be deemed conclusively to have been established with respect to such Direct Product Tax Claim.  If Seller and Buyer cannot agree with respect to the appropriate, reasonable, cost efficient and effective corrective measures, the disagreement shall be resolved by a recognized law firm, accounting firm or actuarial firm selected by mutual agreement of Buyer and Seller, and any such determination by such law firm, accounting firm or actuarial firm shall be final.  The parties shall use their reasonable best efforts to cause such law firm, accounting firm or actuarial firm to render a determination within 60 days of the referral of such matter for resolution.  The fees and expenses of such accounting firm, law firm or actuarial firm shall be borne equally by Buyer and Seller.

 

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(d)                             In the event that the corrective measures described in this Section 7.9 include making any request to the IRS for relief with respect to such failure, Buyer and Seller shall jointly participate in all discussions or other proceedings with the IRS, including attendance at meetings and joint approval of all written submissions.  Buyer shall control the decision of whether or not to enter into a closing agreement or other arrangement with the IRS in connection with such discussions or other proceedings; provided that if the closing agreement or other arrangement involves any admission that would reasonably be expected to form the basis of a claim against Seller under this Agreement, then Buyer may not enter into any such closing agreement or other arrangement without the consent of Seller, which shall not be unreasonably withheld, conditioned or delayed.  Buyer shall control the implementation of the corrective measures described in this Section 7.9.

 

(e)                               Seller shall not be obligated to indemnify any Buyer Indemnified Person under Section 7.2(a)(i) with respect to any claim for Indemnifiable Losses resulting from or arising out of any breach of any representation or warranty set forth in Section 3.15 unless and until the aggregate amount of all such Indemnifiable Losses exceeds $7,500,000, at which point Seller shall be liable for all Indemnifiable Losses that are in excess of such amount, subject to the Cap and the other applicable limitations set forth in Section 7.3.

 

ARTICLE VIII.
 TAX MATTERS

 

SECTION 8.1.                       Indemnification for Taxes.

 

(a)                               Seller shall indemnify and hold harmless the Buyer Indemnified Persons from any and all Indemnifiable Losses to the extent arising out of the following:

 

(i)                                  Taxes with respect to the Company for all Pre-Closing Tax Periods, except to the extent of any accrued liability for Taxes taken into account in the calculation of the Final Adjustment Amount; and

 

(ii)                              liability for Taxes of any Person other than the Company pursuant to any provision of joint and several liability under Treasury Regulation Section 1.1502-6 and any corresponding provision of state, local, or foreign law.

 

(b)                              Buyer agrees to indemnify and hold harmless the Seller Indemnified Persons from and against any and all liabilities for Taxes that are not subject to indemnification by Seller pursuant to Section 8.1(a).

 

(c)                               For purposes of this Agreement, Taxes for a Straddle Period shall be allocated between the Pre-Closing Tax Period and the Post-Closing Tax Period in the following manner:

 

(i)                                  in the case of Taxes based on or measured by income, gain, or receipts, or related to the actual or deemed sale or transfer of property, or which are withholding Taxes, such Taxes shall be allocated based on an interim closing of the books as of the Closing Date; and

 

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(ii)                              in the case of Taxes calculated on a periodic basis, the portion of such Taxes allocable to the Pre-Closing Tax Period shall be deemed to be the amount of such Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of days in the portion of the Straddle Period ending on the Closing Date and the denominator of which is the number of days in the entire Straddle Period.

 

(d)                             Notwithstanding any other provision of this Agreement, the Seller Indemnified Persons shall not be liable for (and Buyer shall indemnify the Seller Indemnified Persons against) any Taxes resulting from any transaction or event that is outside the ordinary course of business and occurs after the Closing but on the Closing Date, unless such transaction or event is initiated by Seller or the Company before the Closing.

 

SECTION 8.2.                       Filing of Tax Returns.

 

(a)                               (i)                                  Seller shall prepare and timely file, or cause to be prepared and timely filed, all Consolidated Returns that include the Company, regardless of when such Tax Returns are required to be filed.

 

(ii)                              Seller shall prepare and timely file, or cause to be prepared and timely filed, all Tax Returns for the Company for taxable periods that end on or before the Closing Date and that are required to be filed prior to the Closing Date (taking into account any extensions) other than Tax Returns described in Section 8.2(a)(i).

 

(iii)                          From and after the Closing, Buyer shall cause the Company to provide Seller and its Affiliates in a timely fashion in accordance with past practice all filing information relating to the Company necessary for the preparation and filing of the Consolidated Returns.

 

(b)                              Buyer shall prepare and timely file, or cause to be prepared and timely filed, Tax Returns for the Company for taxable periods that end on or before the Closing Date that are not described in Section 8.2(a) and for any Straddle Period.  Such Tax Returns shall be prepared in a manner consistent with the positions taken, and with accounting methods used, on the Tax Returns filed by or with respect to the Company prior to the date on which the Closing occurs, unless otherwise required by Applicable Law or agreed by Seller and Buyer.  Buyer shall deliver any such Tax Return to Seller for Seller’s review at least 30 days (or, in the case of premium tax returns, 10 days) prior to the date such Tax Return is required to be filed and shall accept all reasonable comments of Seller consistent with Applicable Law in respect of such Tax Returns.  To the extent consistent with Applicable Law, Buyer shall, or shall cause the Company to, file all Tax Returns for any Straddle Period on the basis that the relevant Tax period ended as of the Closing Date, unless the relevant Tax authority will not accept a Tax Return filed on that basis.

 

(c)                               Buyer shall prepare and timely file, or cause the Company to prepare and timely file, all Tax Returns required to be filed by or with respect to the Company for any Tax period beginning after the Closing Date.

 

(d)                             Except to the extent otherwise required by Applicable Law, Buyer shall not, and shall not permit any of its Affiliates to, without the prior written consent of Seller, which 

 

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consent may not be unreasonably withheld, conditioned or delayed, amend any Tax Returns of the Company relating in whole or in part to a Pre-Closing Tax Period.

 

SECTION 8.3.                       Tax Refunds.  Any Tax refund, credit, or similar benefit (including any interest paid or credited with respect thereto) (a “Tax Refund”) relating to the Company for Taxes paid for any Pre-Closing Tax Period shall be the property of Seller except to the extent such Tax Refund was taken into account in calculating the Final Adjustment Amount.  If received by Buyer or the Company, Buyer shall, or shall cause the Company to, pay such Tax Refund promptly to Seller, net of any Tax cost to Buyer or any of its Affiliates attributable to the receipt of such refund.  In the event that any such Tax Refund is subsequently contested by any Tax authority, such contest shall be handled in accordance with the procedures in Section 7.5.  Any additional Taxes resulting from the contest shall be indemnified in accordance with Section 8.1.

 

SECTION 8.4.                       Cooperation and Exchange of Information.  Seller and Buyer shall provide each other with such cooperation and information as either of them or their respective Affiliates may reasonably request of the other in filing any Tax Return, amended Tax Return or claim for Tax Refund, determining a liability for Taxes or a right to a Tax Refund, or participating in or conducting any contest in respect of Taxes (a “Tax Contest”).  Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by Tax authorities.  Each party and its Affiliates shall make its employees available on a basis mutually convenient to both parties to provide explanations of any documents or information provided hereunder.  Each of Seller and Buyer shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Company for each Tax period first ending after the Closing Date and for all prior Tax periods until the later of (i) the expiration of the statute of limitations of the Tax period to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified in writing of such extensions for the respective Tax periods, or (ii) three years following the due date (without extension) for such Tax Returns.  Any information obtained under this Section 8.4 shall be kept confidential except as otherwise may be necessary in connection with the filing of Tax Returns or claims for Tax Refunds or in conducting a contest or as otherwise may be required by Applicable Law or the rules of any stock exchange.

 

SECTION 8.5.                       Conveyance Taxes.  Buyer or Seller, as appropriate, shall execute and deliver all instruments and certificates necessary to enable the other to comply with any filing requirements relating to any sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees and any similar Taxes (“Conveyance Taxes”) which become payable in connection with the purchase of Shares by Buyer or the consummation of any of the other transactions contemplated by this Agreement and shall file such applications and documents as shall permit any Conveyance Taxes to be assessed and paid.  Any Conveyance Taxes incurred in connection with the consummation of the transactions contemplated by this Agreement shall be paid 50% by Buyer and 50% by Seller.

 

SECTION 8.6.                       Pre-Closing Tax Payment.  Notwithstanding anything in this Agreement to the contrary, prior to the Closing, the Company shall make a payment to Seller to 

 

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fund its full share of the Tax liability of the Seller Group for the Pre-Closing Tax Period, including the Company’s income related to the Recapture.

 

SECTION 8.7.                       Miscellaneous.

 

(a)                               Seller and Buyer agree to treat all payments (other than interest on a payment) made by either of them to or for the benefit of the other or the other’s Affiliates or the Company under this Article VIII and under other indemnity provisions of this Agreement as adjustments to the Purchase Price for Tax purposes and that such treatment shall govern for purposes hereof to the extent permissible under Applicable Law.

 

(b)                              Notwithstanding any provision in this Agreement to the contrary, the obligations of Seller to indemnify and hold harmless the Buyer Indemnified Persons, as well as the obligations of Buyer to indemnify and hold harmless the Seller Indemnified Persons, pursuant to this Article VIII shall terminate on the later of three months after the expiration of the applicable statute of limitations (taking into account any applicable extensions or tollings thereof) with respect to the Tax liabilities in question or 60 days after the final administrative or judicial determination of such Tax liabilities, except for any indemnity obligations as to which a claim has been made before the expiration of the applicable period.

 

(c)                               In the event of any Tax Contest, the conduct of the parties shall be governed by the provisions of Section 7.5.

 

(d)                             In the event of any inconsistency between Article VII and Article VIII with respect to indemnification under this Agreement for or with respect to any Taxes of the Company, Article VIII shall control.

 

(e)                               Should it be necessary, equitable adjustments will be made to prevent duplicate recovery for indemnification with respect to the same item.

 

(f)                                Buyer shall not withhold any amounts pursuant to any Tax law; provided, that Seller has delivered or caused to be delivered on or prior to the Closing Date to Buyer a certificate, in compliance with Treasury Regulations Section 1.1445-2(b)(2), certifying that the transactions contemplated hereby are exempt from withholding under Section 1445 of the Code.

 

(g)                              Seller will cause all Tax sharing, allocation, indemnity and similar agreements or arrangements between the Company, on the one hand, and Seller or any Affiliates of Seller, on the other hand, to be terminated effective prior to or as of the Closing Date, and after the Closing Date the Company shall have no obligation or rights under any such agreement or arrangement for any past, present or future period.

 

(h)                              Buyer and Seller acknowledge and agree that neither Seller nor any of its Affiliates shall be obligated to make any election under Treasury Regulations Section 1.1502-36 in connection with the transactions contemplated by this Agreement.

 

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ARTICLE IX.
 TERMINATION PRIOR TO CLOSING

 

SECTION 9.1.                       Termination of Agreement.  This Agreement may be terminated at any time prior to the Closing:

 

(a)                               by Seller or Buyer in writing, if there shall be any order, injunction or decree of any Governmental Entity that prohibits or restrains any party from consummating the transactions contemplated hereby, and such order, injunction or decree shall have become final and non-appealable; provided, that the party seeking to terminate this Agreement pursuant to this Section 9.1(a) shall have performed in all material respects its obligations under this Agreement, acted in good faith and, if binding on such party, used reasonable best efforts to prevent the entry of, and to remove, such order, injunction or decree in accordance with its obligations under this Agreement;

 

(b)                              by Seller or Buyer in writing, if the Closing has not occurred on or prior to May 1, 2014 (as it may be extended, the “Outside Date”), unless the failure of the Closing to occur is the result of a material breach of this Agreement by the party seeking to terminate this Agreement; provided, that (i) if on the Outside Date either of the conditions set forth in Section 6.1(a) or Section 6.1(b) has not been satisfied then, upon the written notice of Seller to Buyer, the Outside Date shall be extended to a date and time that is not later than 5:00 pm, New York City time, on August 1, 2014 and (ii) the right to terminate this Agreement pursuant to this Section 9.1(b) will not be available (A) to any party if the other party has, in good faith, filed an action seeking, and is then pursuing, specific performance as permitted by Section 10.10 or (B) Buyer until the first Business Day after the end of the cure period contemplated by Section 9.1(d), if any such cure period is applicable.

 

(c)                               by either Seller or Buyer (but only so long as Seller or Buyer, as applicable, is not in material breach of its obligations under this Agreement) in writing, if a breach of any provision of this Agreement that has been committed by the other party would cause the failure of any mutual condition to Closing or any condition to Closing for the benefit of the non-breaching party and such breach is not capable of being cured or is not cured within 20 calendar days after the breaching party receives written notice from the non-breaching party that the non-breaching party intends to terminate this Agreement pursuant to this Section 9.1(c);

 

(d)                             by Seller if (i) all of the conditions to Buyer’s obligations under this Agreement set forth in Section 6.1 or Section 6.2 have been satisfied (other than those conditions that by their terms are to be satisfied at the Closing; provided, that such conditions must be capable of being satisfied assuming, for this purpose, that the Closing Date were the date that valid notice of termination of this Agreement is delivered by Seller to Buyer pursuant to this Section 9.1(d)), (ii) Seller has confirmed in writing to Buyer that all of the conditions to Seller’s obligations under this Agreement set forth in Section 6.1 or Section 6.3 (other than those conditions that by their terms are to be satisfied at the Closing) have been satisfied or will be waived and that Seller is ready and willing to proceed with the Closing and (iii) Buyer fails to comply with its obligations under Article II to consummate the Closing by the time specified in Section 2.2, provided that in the event the sole reason Buyer has failed to consummate the Closing is the result of a failure of the Financing Sources under the Debt Commitment Letter to

 

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provide the Debt Financing, Buyer shall have 30 days to cure such failure and Seller shall not be entitled to terminate this Agreement until the end of such cure period.

 

(e)                               by Seller, if (i) any Governmental Entity imposes any condition in connection with its grant of any permit, order, consent, approval or authorization required in connection with the Recapture that requires Seller or any of its Affiliates to incur any Liability or take any action other than (A) enter into a keepwell for the benefit of the Company or (B) make a capital contribution to the Company with a simultaneous commitment from such Governmental Entity that it will permit the Company to repay such capital contribution through a cash dividend to Seller or such Affiliate prior to the Closing or (ii) Seller is required to make a payment under any keepwell entered into pursuant to clause (i) above; or

 

(f)                                by mutual written consent of Seller and Buyer.

 

SECTION 9.2.                       Effect of Termination.  If this Agreement is terminated pursuant to Section 9.1, this Agreement shall become null and void and of no further force and effect without Liability of either party (or any Representative of such party) to the other party to this Agreement; provided, that no such termination shall relieve a party from Liability for any fraud or intentional breach of this Agreement.  Notwithstanding the foregoing, Section 1.1, Section 5.5, this Section 9.2 and Article X shall survive termination hereof pursuant to Section 9.1.  If this Agreement is terminated pursuant to Section 9.1, all confidential information received by Buyer with respect to the Company or the Company Business (including any confidential information relating to the Variable Annuity Transaction) shall be treated in accordance with the Confidentiality Agreement, which shall remain in full force and effect notwithstanding the termination of this Agreement.

 

ARTICLE X.
 GENERAL PROVISIONS

 

SECTION 10.1.               Fees and Expenses.

 

(a)                               Except as provided below in this Section 10.1, whether or not the purchase and sale of the Shares is consummated, each party hereto shall, except as otherwise provided in this Agreement, pay its own Transaction Expenses incident to preparing for, entering into and carrying out the Transaction Agreements and the consummation of the transactions contemplated thereby.

 

(b)                              In the event Seller terminates this Agreement pursuant to Section 9.1(c) or pursuant to Section 9.1(d) (including, for the avoidance of doubt, as a result of the unavailability of the Financing, whether or not such unavailability was caused by Buyer or any of its Affiliates) (any such termination, a “Specified Termination”), then Buyer shall pay, or Buyer and Seller shall execute a joint written instruction pursuant to the Escrow Agreement to cause the Escrow Agent to pay out of the Escrow Funds on behalf of Buyer, to Seller a non-refundable fee in the amount of $60,000,000 (the “Termination Fee”), by wire transfer of same-day funds to an account designated by Seller, no later than two Business Days after such termination.

 

(c)                               If Buyer fails to promptly pay the Termination Fee when due, Seller takes any action to collect the Termination Fee and the Termination Fee is subsequently paid, Buyer 

 

77

 

shall promptly reimburse Seller for all reasonable and documented out-of-pocket fees and expenses incurred by Seller in connection with any such actions taken by Seller to collect the Termination Fee (including reasonable and documented fees and expenses of all attorneys, consultants and other experts retained by Seller).

 

(d)                             Notwithstanding anything in this Agreement to the contrary, in the event the Termination Fee is paid in accordance with Section 10.1(b), payment thereof shall be the sole and exclusive remedy of Seller against Buyer, Parent, the Financing Sources and any of their respective Affiliates, with respect to (i) any loss or damage suffered, directly or indirectly, as a result of the failure of any of the transactions contemplated by the Transaction Agreements to be consummated, (ii) the termination of this Agreement, (iii) any liabilities or obligations arising under this Agreement or (iv) any claims or actions arising out of or relating to any breach, termination or failure of or under this Agreement.  Buyer and Seller acknowledge and agree that the agreements contained in this Section 10.1 are an integral part of the transactions contemplated by the Transaction Agreements, and that, without these agreements, neither Buyer nor Seller would enter into this Agreement, and that the Termination Fee is not a penalty but rather is liquidated damages in a reasonable amount that will compensate Seller in circumstances in which the Termination Fee is paid for the efforts and resources expended and opportunities foregone while negotiating and seeking to consummate the transactions contemplated by this Agreement, which amount would otherwise be impossible to calculate with precision.

 

(e)                               Notwithstanding anything to the contrary in this Agreement, if Seller effects a Specified Termination (which Specified Termination may be effected by Seller in its sole discretion in the circumstances contemplated by Section 9.1), then Seller’s and its Affiliates’ sole and exclusive remedy (whether at law, in equity, in contract, in tort or otherwise) against Buyer, Parent and any of their respective former, current or future directors, officers, employees, agents, general or limited partners, managers, members, stockholders, Affiliates or assignees or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder, Affiliate or assignee of any of the foregoing (collectively, the “Buyer Related Parties”) for any breach, loss or Liability, shall be to receive payment of the Termination Fee and the fees and expenses referred to in Section 10.1(c) and none of the Buyer Related Parties will have any additional Liability, commitment or obligation to Seller or any of its Affiliates relating to or arising out of this Agreement or the Equity Commitment Letter, through Buyer, whether by or through attempted piercing of the corporate veil, by or through a claim by or on behalf of Buyer against the Parent or any other Buyer Related Party, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute, regulation or other Applicable Law, or otherwise.  The foregoing shall not be construed as or deemed to be a waiver or election of remedies by either party, each of whom, subject to Section 7.7(a) and Section 10.1(d), expressly reserves any and all rights and remedies available to it at law or in equity in the event of any breach by the other party under this Agreement prior to the Closing.

 

SECTION 10.2.               Notices.  All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be delivered personally or by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

 

78

 

(a)                               if to Buyer or Parent:

 

Resolution Life Holdings, Inc.
  733 Third Avenue, 16th Floor
 New York, NY 10017
 Attention:  W. Weldon Wilson

Email: weldon@weldonwilson.com

 

with a copy (which shall not constitute notice) to:

 

Debevoise & Plimpton LLP
 919 Third Avenue
 New York, New York 10022
 Attention:  Nicholas F. Potter

                   David Grosgold

 

(b)                              if to Seller:

 

Allstate Life Insurance Company
 3100 Sanders Road
 Northbrook, Illinois 60062
 Attention:  Jess Merten
 Email: Jess.Merten@allstate.com

 

with copies to:

 

Allstate Life Insurance Company
 3075 Sanders Road
 Northbrook, Illinois 60062
 Attention:  Joy Thomas
 Email: Joy.Thomas@allstate.com

 

and

 

Allstate Life Insurance Company
 2775 Sanders Road
 Northbrook, Illinois 60062
 Attention:  Beth Lapham
 Email: blapham@allstate.com

 

with a copy (which shall not constitute notice) to:

 

Willkie Farr & Gallagher LLP
 787 Seventh Avenue
 New York, New York  10019
 Attention:  John M. Schwolsky

                  Alexander M. Dye

 

79

 

Notice given by personal delivery or overnight courier shall be effective upon actual receipt.

 

SECTION 10.3.               Interpretation.  When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.  All references herein to any agreement, instrument, statute, rule or regulation are to the agreement, instrument, statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, includes any rules and regulations promulgated under said statutes) and to any section of any statute, rule or regulation including any successor to said section.  Disclosure of any item in the Buyer Disclosure Schedule or Seller disclosure schedule, as the case may be, shall be deemed disclosed in all other sections of such disclosure schedule to the extent the applicability of such fact or item to such other section of such disclosure schedule is reasonably apparent.  Disclosure of any item in the Buyer Disclosure Schedule or Seller Disclosure Schedule, as the case may be, shall not be deemed an admission that such item represents a material item, fact, exception of fact, event or circumstance or that occurrence or non-occurrence of any change or effect related to such item would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”  Whenever the singular is used herein, the same shall include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate.  Whenever the word “Dollars” or the “$” sign appear in this Agreement, they shall be construed to mean United States Dollars, and all transactions under this Agreement shall be in United States Dollars.  This Agreement has been fully negotiated by the parties hereto and shall not be construed by any Governmental Entity against either party by virtue of the fact that such party was the drafting party.

 

SECTION 10.4.               Entire Agreement; Third Party Beneficiaries.  This Agreement (including all exhibits and schedules hereto), the Confidentiality Agreement and the other Transaction Agreements constitute the entire agreement, and supersede all prior agreements, understandings, representations and warranties, both written and oral, among the parties with respect to the subject matter of this Agreement.  Except as set forth in (i) Section 5.11 with respect to Affiliates of Seller and (ii) Articles VII and VIII with respect to the Buyer Indemnified Persons and the Seller Indemnified Persons, this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies.

 

SECTION 10.5.               Governing Law.  This Agreement and any dispute arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.

 

SECTION 10.6.               Assignment.  Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise (other than following the Closing by operation of law in a merger), by either party without the prior written consent of the other party, and any such assignment that is not 

 

80

 

consented to shall be null and void; provided, that Buyer may, without the prior written consent of Seller, assign its right to acquire the Shares, on the terms and subject to the conditions set forth herein, to a wholly owned subsidiary of Buyer, provided further, that no such assignment shall limit, or relieve Buyer of, any of Buyer’s duties or obligations under any Transaction Agreement.  Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.

 

SECTION 10.7.               Jurisdiction; Enforcement.

 

(a)                               Each of the parties hereto hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any court of the United States or any state court, which in either case is located in the City of New York (each, a “New York Court”) for purposes of enforcing this Agreement or determining any claim arising from or related to the transactions contemplated by this Agreement.  In any such action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claim that it is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper; provided, that nothing set forth in this sentence shall prohibit any of the parties hereto from removing any matter from one New York Court to another New York Court.  Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding will be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States.  A certified or exemplified copy of such award or judgment will be conclusive evidence of the fact and amount of such award or judgment.  Any process or other paper to be served in connection with any action or proceeding under this Agreement shall, if delivered or sent in accordance with Section 10.2, constitute good, proper and sufficient service thereof.  Notwithstanding the foregoing or anything to the contrary in this Agreement, the determination of the Final Adjustment Amount or any other amount to be calculated or derived from the Final Balance Sheet, or any dispute relating to the Final Balance Sheet, the Reference Balance Sheet or any amounts required to be calculated therefrom, shall be governed by the terms of Section 2.5.

 

(b)                              EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OR ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.7.

 

(c)                               Parent hereby designates, appoints and empowers Buyer with offices at the address set forth in Section 10.2(a) as its authorized agent (Buyer in such capacity, the 

 

81

 

“Process Agent”) to receive for it and on its behalf service of summons or other legal process in any action, suit or proceeding relating to this Agreement in the State of New York.  Such service may be made by mailing or delivering a copy of such process to the Process Agent at the Process Agent’s above address, and Parent hereby irrevocably authorizes and directs the Process Agent to accept such service on its behalf.  Parent covenants and agrees that, for so long as this Agreement continues in effect, it shall maintain a duly appointed agent for the service of summons and other legal process in New York, New York, United States of America, for the purposes of any legal action, suit or proceeding brought by any party in respect of this Agreement and shall keep Seller advised of the identity and location of such agent.  If for any reason Parent does not at any time have an authorized agent for service of process in New York, such entity irrevocably consents to the service of process out of any New York Court by mailing copies thereof by registered United States air mail to it at its address specified in Section 10.2(a).  Nothing in this Agreement shall affect the right of Seller to commence legal proceedings or otherwise sue Parent in the country in which it is domiciled or in any other court having jurisdiction over such entity in order to enforce the judgment of any New York Court or to serve process upon such entity in any manner authorized by the laws of any such jurisdiction.

 

SECTION 10.8.               Severability; Amendment; Modification; Waiver.

 

(a)                               Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any Applicable Law in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.

 

(b)                              This Agreement may be amended or a provision hereof waived only by a written instrument signed by each of Buyer and Seller.

 

(c)                               No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege.

 

SECTION 10.9.               Certain Limitations.

 

(a)                               Notwithstanding anything to the contrary contained herein, the other Transaction Agreements, the Seller Disclosure Schedule or any of the Schedules or Exhibits hereto or thereto, Buyer acknowledges and agrees that neither Seller nor any of its Affiliates (including the Company), nor any Representative of any of them, makes or has made, and Buyer has not relied on, any inducement or promise to Buyer except as specifically made in this Agreement or any representation or warranty to Buyer, oral or written, express or implied, other than as expressly set forth in Article III and that the Company.  Without limiting the generality of the foregoing, other than as expressly set forth in Article III, no Person has made any 

 

82

 

representation or warranty to Buyer with respect to the Company, the Shares or any other matter, including with respect to (i) merchantability, suitability or fitness for any particular purpose, (ii) the operation of the Company by Buyer after the Closing, (iii) the probable success or profitability of the Company after the Closing or (iv) any information, documents or material made available to Buyer, its Affiliates or their respective Representatives in any “data rooms,” information memoranda, management presentations, functional “break-out” discussions or in any other form or forum in connection with the transactions contemplated by this Agreement, including any estimation, valuation, appraisal, projection or forecast with respect to the Company.

 

(b)                              Buyer further acknowledges and agrees that it (i) has made its own inquiry and investigation into and, based thereon, has formed an independent judgment concerning the Company and the Company Business, (ii) has been provided adequate access to such information as it has deemed necessary to enable it to form such independent judgment, (iii) has had such time as it deems necessary and appropriate fully and completely to review and analyze such information, documents and other materials and (iv) has been provided an opportunity to ask questions of Seller with respect to such information, documents and other materials and has received answers to such questions that it considers satisfactory.

 

(c)                               Seller makes no express or implied representation or warranty under this Agreement as to the future experience, success or profitability of the Company Business, whether or not conducted or administered in a manner similar to the manner in which the Company Business was conducted prior to the Closing or that the Insurance Reserves held by or on behalf of the Company or otherwise with respect to the Company Business or the assets supporting such Insurance Reserves have been or will be adequate or sufficient for the purposes for which they were established.

 

SECTION 10.10.       Specific Performance.  The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, including any party’s failure to take all actions as are necessary on such party’s part in accordance with the terms and conditions of this Agreement to consummate the transactions contemplated hereby.  It is accordingly agreed that, without the necessity of posting bond or any other undertaking, the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement (including that Seller shall be entitled to cause Buyer and its Affiliates to enforce their rights under the Commitment Letters or any definitive documents relating to the Financing, or to seek Alternative Financing as contemplated by Section 5.23 in the event that the Debt Financing or the NER Financing cannot be obtained), this being in addition (subject to the terms of this Agreement) to any other remedy to which such party is entitled at law or in equity (except as otherwise provided in this Agreement).  In the event that any Action is brought in equity to enforce the provisions of this Agreement, no party hereto shall allege, and each party hereto hereby waives any defense or counterclaim, that there is an adequate remedy at law.  The foregoing shall not be construed as or deemed to be a waiver or election of remedies by either party, each of whom, subject to Section 7.7(a) and Section 10.1(d), expressly reserves any and all rights and remedies available to it at law or in equity in the event of any breach by the other party under this Agreement prior to the Closing.  If a court of competent jurisdiction (as contemplated by Section 

 

83

 

10.7) (i) declines to grant an injunction or other form of specific performance or equitable relief to require Buyer to cause the Financing to be funded and consummate the transactions contemplated hereby (including by granting monetary damages in lieu of such injunction, specific performance or other equitable relief) or (ii) grants Seller such injunction, specific performance or other equitable relief but the Financing nonetheless fails to be funded such that the transactions contemplated by this Agreement cannot be consummated, Seller shall continue to be entitled to effect a Specified Termination and receive the Termination Fee pursuant to the terms of Article IX and Section 10.1.  For the avoidance of doubt, in no event shall Seller be permitted to receive both a grant of specific performance that results in the occurrence of the Closing and the payment of the Termination Fee.

 

SECTION 10.11.       No Offset.  No party to this Agreement may offset any amount due to the other party hereto or any of such other party’s Affiliates against any amount owed or alleged to be owed from such other party or its Affiliates under this Agreement or any other Transaction Agreement without the written consent of such other party.

 

SECTION 10.12.       Counterparts.  This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties.  Each party may deliver its signed counterpart of this Agreement to the other parties by means of electronic mail or any other electronic medium utilizing image scan technology, and such delivery will have the same legal effect as hand delivery of an originally executed counterpart.

 

[Remainder of page intentionally left blank]

 

84

 

IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be signed by their respective duly authorized officers, all as of the date first written above.

 

 

	
 
    	
ALLSTATE LIFE INSURANCE COMPANY
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By: 
    	
/s/ Jesse E. Merten
    	
 
    
	
 
    	
Name: Jesse E. Merten
    
	
 
    	
Title: Senior Vice President and 
   Chief Financial Officer, 
   Allstate Life Insurance Company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By: 
    	
/s/ Steven C. Verney
    	
 
    
	
 
    	
Name: Steven C. Verney
    
	
 
    	
Title: Executive Vice President and 
   Chief Risk Officer, 
   Allstate Insurance Company
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
RESOLUTION LIFE HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ W. Weldon Wilson
    	
 
    
	
 
    	
Name: W. Weldon Wilson
    
	
 
    	
Title:  President and Secretary
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
RESOLUTION LIFE L.P., acting through its general partner, RESOLUTION   LIFE GP LTD.
    
	
 
    	
(solely for purposes of Section 5.25 and Article X)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Brad Adderly
    	
 
    
	
 
    	
Name: Brad Adderly
    
	
 
    	
Title: Director, Resolution Life GP Ltd.
    
					

 

85

EXHIBIT A

 

 

 

 

	
 
    	
 
    

 

 

 

 

ADMINISTRATIVE SERVICES AGREEMENT

 

by and between

 

LINCOLN BENEFIT LIFE COMPANY

 

and

 

ALLSTATE LIFE INSURANCE COMPANY

 

Effective as of [          ]

 

 

 

	
 
    	
 
    

 

 

TABLE OF CONTENTS

 

	
ARTICLE
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
ARTICLE I
    	
DEFINITIONS
    	
2
    
	
Section 1.1
    	
Definitions
    	
2
    
	
 
    	
 
    	
 
    
	
ARTICLE II
    	
AUTHORITY;   RETAINED SERVICES
    	
5
    
	
Section 2.1
    	
Authority
    	
5
    
	
Section 2.2
    	
Violations   of Applicable Law and Applicable Contracts
    	
5
    
	
Section 2.3
    	
Retained   Services
    	
6
    
	
Section 2.4
    	
Power   of Attorney
    	
6
    
	
 
    	
 
    	
 
    
	
ARTICLE III
    	
STANDARD   FOR SERVICES; FACILITIES; SUBCONTRACTING, ETC.
    	
7
    
	
Section 3.1
    	
Services;   Standard for Services
    	
7
    
	
Section 3.2
    	
Facilities   and Personnel
    	
7
    
	
Section 3.3
    	
Subcontracting
    	
7
    
	
Section 3.4
    	
Independent   Contractor
    	
8
    
	
Section 3.5
    	
Limitation   on Services
    	
8
    
	
Section 3.6
    	
Disaster   Recovery
    	
8
    
	
 
    	
 
    	
 
    
	
ARTICLE IV
    	
UNDERWRITING;   CONVERSION AND REPLACEMENT; PRODUCERS
    	
8
    
	
Section 4.1
    	
Post-Closing   Contracts
    	
8
    
	
Section 4.2
    	
Parties’   Responsibilities
    	
9
    
	
Section 4.3
    	
Conversion   and Replacement
    	
10
    
	
Section 4.4
    	
Producers
    	
11
    
	
 
    	
 
    	
 
    
	
ARTICLE V
    	
COLLECTIONS
    	
11
    
	
Section 5.1
    	
Collection   Services
    	
11
    
	
 
    	
 
    	
 
    
	
ARTICLE VI
    	
CLAIMS   HANDLING
    	
12
    
	
Section 6.1
    	
Claim   Administration Services
    	
12
    
	
Section 6.2
    	
Description   of Claim Administration Services
    	
12
    
	
 
    	
 
    	
 
    
	
ARTICLE VII
    	
REGULATORY   AND LEGAL PROCEEDINGS
    	
13
    
	
Section 7.1
    	
Notice   of Action
    	
13
    
	
Section 7.2
    	
Defense   of Regulatory Complaints and Actions
    	
13
    
	
Section 7.3
    	
Other   Actions
    	
14
    
	
Section 7.4
    	
Cooperation
    	
15
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII
    	
SEPARATE   ACCOUNT ADMINISTRATIVE SERVICES
    	
16
    
	
Section 8.1
    	
Separate   Account Administrative Services
    	
16
    
	
Section 8.2
    	
Changes   to Fund Options
    	
16
    
	
Section 8.3
    	
Changes   to Separate Account Fees
    	
16
    

 

i

 

	
ARTICLE IX
    	
MISCELLANEOUS   SERVICES
    	
16
    
	
Section 9.1
    	
Ceded   Reinsurance Contracts
    	
16
    
	
Section 9.2
    	
Amendments   and Replacements
    	
18
    
	
Section 9.3
    	
Vermont   Captive Reinsurance Agreement
    	
18
    
	
Section 9.4
    	
Non-Guaranteed   Elements
    	
18
    
	
Section 9.5
    	
Contractholder   Services
    	
19
    
	
Section 9.6
    	
Principal   Underwriting Agreement
    	
19
    
	
Section 9.7
    	
Other   Services
    	
19
    
	
 
    	
 
    	
 
    
	
ARTICLE X
    	
NOTIFICATION   TO CONTRACTHOLDERS
    	
19
    
	
Section 10.1
    	
Notification   to Contractholders
    	
19
    
	
 
    	
 
    	
 
    
	
ARTICLE XI
    	
QUARTERLY   PREMIUM TAX AND INSOLVENCY FUND ACCOUNTINGS
    	
20
    
	
Section 11.1
    	
Quarterly   Accountings
    	
20
    
	
Section 11.2
    	
Adjustments   Regarding Quarterly Accountings
    	
20
    
	
 
    	
 
    	
 
    
	
ARTICLE XII
    	
CERTAIN   ACTIONS BY COMPANY
    	
20
    
	
Section 12.1
    	
Filings
    	
20
    
	
Section 12.2
    	
Annual   Adjustment
    	
21
    
	
 
    	
 
    	
 
    
	
ARTICLE XIII
    	
REGULATORY   MATTERS AND REPORTING
    	
21
    
	
Section 13.1
    	
Regulatory   Compliance and Reporting
    	
21
    
	
Section 13.2
    	
Additional   Reports and Updates
    	
22
    
	
Section 13.3
    	
Additional   Reports
    	
23
    
	
 
    	
 
    	
 
    
	
ARTICLE XIV
    	
BOOKS   AND RECORDS
    	
23
    
	
Section 14.1
    	
Maintenance   of Books and Records
    	
23
    
	
 
    	
 
    	
 
    
	
ARTICLE XV
    	
COOPERATION
    	
24
    
	
Section 15.1
    	
Cooperation
    	
24
    
	
 
    	
 
    	
 
    
	
ARTICLE XVI
    	
PRIVACY   REQUIREMENTS
    	
24
    
	
Section 16.1
    	
Confidentiality   Obligations
    	
24
    
	
Section 16.2
    	
Security   Incidents
    	
25
    
	
 
    	
 
    	
 
    
	
ARTICLE XVII
    	
CONSIDERATION   FOR ADMINISTRATIVE SERVICES
    	
26
    
	
Section 17.1
    	
Consideration   for Administrative Services
    	
26
    
	
 
    	
 
    	
 
    
	
ARTICLE XVIII
    	
BANK   ACCOUNTS; TRADEMARKS
    	
26
    
	
Section 18.1
    	
Establishment   of Bank Accounts
    	
26
    
	
Section 18.2
    	
Trademarks
    	
27
    
	
 
    	
 
    	
 
    
	
ARTICLE XIX
    	
INDEMNIFICATION
    	
29
    
	
Section 19.1
    	
Administrator’s   Obligation to Indemnify
    	
29
    
	
Section 19.2
    	
Company’s   Obligation to Indemnify
    	
29
    
	
Section 19.3
    	
Definitions
    	
30
    
	
Section 19.4
    	
Applicability   of Stock Purchase Agreement
    	
30
    

 

ii

 

	
Section 19.5
    	
No Duplication
    	
31
    
	
 
    	
 
    	
 
    
	
ARTICLE XX
    	
DURATION; TERMINATION
    	
31
    
	
Section 20.1
    	
Duration
    	
31
    
	
Section 20.2
    	
Termination
    	
31
    
	
 
    	
 
    	
 
    
	
ARTICLE XXI
    	
GENERAL   PROVISIONS
    	
32
    
	
Section 21.1
    	
Schedules   and Exhibits
    	
32
    
	
Section 21.2
    	
Notices
    	
32
    
	
Section 21.3
    	
Interpretation
    	
33
    
	
Section 21.4
    	
Entire   Agreement; Third Party Beneficiaries
    	
34
    
	
Section 21.5
    	
Governing   Law
    	
34
    
	
Section 21.6
    	
Assignment
    	
34
    
	
Section 21.7
    	
Jurisdiction;   Enforcement
    	
34
    
	
Section 21.8
    	
Severability;   Amendment; Modification; Waiver
    	
35
    
	
Section 21.9
    	
Specific   Performance
    	
35
    
	
Section 21.10
    	
Counterparts
    	
35
    
	
Section 21.11
    	
Survival
    	
36
    

 

iii

 

ADMINISTRATIVE SERVICES AGREEMENT

 

This ADMINISTRATIVE SERVICES AGREEMENT (this “Agreement”), effective as of [                ], (the “Inception Date”), is entered into by and between LINCOLN BENEFIT LIFE COMPANY, a Nebraska domiciled stock life insurance company (the “Company”), and ALLSTATE LIFE INSURANCE COMPANY, an Illinois domiciled stock life insurance company (the “Administrator”, and together with the Company, the “Parties”, and each a “Party”).

 

RECITALS:

 

WHEREAS, the Administrator owns 100% of the issued and outstanding capital stock of the Company;

 

WHEREAS, the Administrator, Resolution Life Holdings, Inc., a corporation organized under the laws of the State of Delaware (the “Buyer”) and, solely for the purposes of Section 5.25 and Article X thereof, Resolution Life L.P., a Bermuda limited partnership, have entered into a Stock Purchase Agreement dated as of July 17, 2013 (the “Stock Purchase Agreement”), pursuant to which the Administrator proposes to sell, and the Buyer proposes to purchase, 100% of the issued and outstanding capital stock of the Company;

 

WHEREAS, the Stock Purchase Agreement provides, among other things, for the Company and the Administrator to  enter into this Agreement;

 

WHEREAS, pursuant to the Amended and Restated Reinsurance Agreement entered into between the Company and the Administrator, effective as of 12:01 a.m. Central Time on [        ] (the “Reinsurance Agreement”), the Administrator (in its capacity as Reinsurer) has agreed to indemnify the Company for (i) on a coinsurance basis, one hundred percent (100%) of the General Account Liabilities of the Company, (ii) on a modified coinsurance basis, one hundred percent (100%) of the Separate Account Liabilities of the Company and (iii) one hundred percent (100%) of the Reinsurer Extra Contractual Obligations (each as defined in the Reinsurance Agreement);

 

WHEREAS, the Company wishes to appoint the Administrator to provide the administrative services with respect to the LBL Contracts, the Ceded Reinsurance Contracts, the Shared Separate Account and the Separate Account (each as defined below) set forth in this Agreement, and the Administrator desires to provide such administrative services;

 

WHEREAS, the Company and the Administrator are parties to the General Account Reinsurance Agreement and the Variable Annuity Reinsurance Agreement, pursuant to which the Administrator reinsures liabilities in respect of the variable annuity contracts written by the Company (the “VA Business”), and the VA ASA, pursuant to which the Administrator is obligated to provide administrative services to the Company in respect of the VA Business, and such agreements will continue in full force and effect in accordance with its terms following the Inception Date;

 

WHEREAS, the Company is also a party to a reinsurance agreement, effective September 30, 2012 (the “Vermont Captive Reinsurance Agreement”), pursuant to which the Company

 

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cedes to its current Affiliate, Lincoln Benefit Reinsurance Company, a Vermont domiciled captive insurance company (the “Vermont Captive”), one hundred percent (100%) of the policy benefits under specified universal life insurance policies written by the Company with issue dates within the range set forth in the Vermont Captive Reinsurance Agreement (the “Vermont Captive Contracts”);

 

WHEREAS, the Company also wishes to appoint the Administrator to provide the administrative services with respect to the Vermont Captive Contracts and the Vermont Captive Reinsurance Agreement set forth in this Agreement, and the Administrator desires to provide such administrative services.

 

NOW, THEREFORE, in consideration of the covenants and agreements set forth herein, the Parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1        Definitions.  Any capitalized term used but not defined herein, unless otherwise indicated, shall have the meaning set forth in the Reinsurance Agreement.  As used in this Agreement, the following terms shall have the following meanings:

 

“Action” shall have the meaning specified in the Stock Purchase Agreement.

 

“Administered Business” shall mean the LBL Contracts, the portion of the Shared Separate Account that relates to the LBL Contracts, the Separate Account, the Vermont Captive Contracts, the Vermont Captive Reinsurance Agreement and the portion of the Ceded Reinsurance Contracts that relates to LBL Contracts.

 

“Administrative Services” shall have the meaning specified in Section 2.1.

 

“Agreement” shall have the meaning specified in the Preamble.

 

“Annual Adjustment” shall have the meaning specified in Section 12.3.

 

“Applicable Law” shall have the meaning specified in the Stock Purchase Agreement.

 

“Claims” shall have the meaning specified in the Section 6.1.

 

“Claimants” shall have the meaning specified in the Section 6.2.

 

“Company” shall have the meaning specified in the Preamble.

 

“Company Business” shall have the meaning specified in the Stock Purchase Agreement.

 

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“Covered Insurance Policies” means the LBL Contracts and the Vermont Captive Contracts.

 

“Customer Information” shall have the meaning specified in the Section 16.1.

 

“Customers” shall have the meaning specified in the Section 16.1.

 

“Designated Company Conversion Policies” means (i) Underwriting Period Conversion Policies and (ii) Post-Underwriting Period Conversion Policies.

 

“Disaster Recovery Policies” shall have the meaning specified in the Section 3.6.

 

“Excluded Conversion Policies” means policies issued from and after the Inception Date as a result of the exercise of a policyholder of any conversion right in a Pre-Closing Policy or a Post-Closing Policy, other than Designated Company Conversion Policies.

 

“Inception Date” has the meaning specified in the Preamble.

 

“Information Security Program” shall have the meaning specified in the Section 16.1.

 

“Insolvency Fund Quarterly Accounting” shall have the meaning specified in Section 11.1.

 

“LBL Contracts” shall have the meaning specified in the Reinsurance Agreement; provided, however, that for purposes of this Agreement, LBL Contracts shall not include any Post-Underwriting Period Conversion Policies.

 

“Licensed Names and Marks” shall have the meaning specified in Section 18.2.

 

“Licensor Standards” shall have the meaning specified in Section 18.2.

 

“Materials” shall have the meaning specified in Section 18.2.

 

“New Conversion Policy Form” shall have the meaning specified in Section 4.3(b).

 

“Post-Inception Date Assessments” shall have the meaning specified in Section 11.1.

 

“Post-Underwriting Period Conversion Policies” shall have the meaning specified in Section 4.3(b).

 

“Premium Tax Credits” shall have the meaning specified in Section 12.2.

 

“Principal Underwriting Agreement” shall have the meaning specified in the Stock Purchase Agreement.

 

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“Quarterly Accountings” shall have the meaning specified in Section 11.1.

 

“Quarterly Premium Tax Accounting” shall have the meaning specified in Section 11.1.

 

“Reinsurance Agreement” shall have the meaning specified in the Preamble.

 

“Reinsured Convertible Policy” shall have the meaning specified in Section 4.3(a).

 

“Reinsurer” means the Administrator in its capacity as reinsurer under the Reinsurance Agreement.

 

“Replacement Policy” shall have the meaning specified in Section 4.3(a).

 

“Retained Services” shall have the meaning specified in Section 2.3.

 

“Separate Account” means the registered separate account of the Company established by the Administrator in accordance with the Transition Services Agreement into which the separate account assets held in respect of the LBL Contracts (but not in respect of the Company Business) will be transferred from the Shared Separate Account pursuant to the Transition Services Agreement in connection with the separation of the administration of the variable life insurance policies included in the LBL Contracts from the administration of the variable life insurance policies included in the Company Business.

 

“Separate Account Separation” shall mean the formation of a new registered separate account of the Company and the transfer from the Shared Separate Account to such new separate account of all assets and amounts held in the Shared Separate Account in respect of the LBL Contracts.

 

“Shared Separate Account” means the Lincoln Benefit Life Variable Life Account 40 Act File No. 811-9154, but only so long as such separate account includes assets held in respect of LBL Contracts.  For clarity, after the effective time of the Separate Account Separation, the Lincoln Benefit Life Variable Life Account 40 Act File No. 811-9154 shall not be a Shared Separate Account under this Agreement, and the Administrator shall have no obligations under this Agreement to, among other things, provide any services with respect to the Lincoln Benefit Life Variable Life Account 40 Act File No. 811-9154.

 

“Subcontractor” shall have the meaning specified in Section 3.3.

 

“Transaction Agreements” shall have the meaning specified in the Stock Purchase Agreement.

 

“Transition Services Agreement” shall have the meaning specified in the Stock Purchase Agreement.

 

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“Underwriting Period Conversion Policy” shall have the meaning specified in Section 4.1(a).

 

“Underwriting Termination Date” means (i) with respect to annuity contracts, December 31, 2013, and (ii) with respect to life insurance policies, December 31, 2015.

 

“VA ASA” means the Administrative Services Agreement by and between the Administrator and the Company, effective as of June 1, 2006.

 

“Vermont Captive” shall have the meaning specified in the Preamble.

 

“Vermont Captive Contracts” shall have the meaning specified in the Preamble.

 

“Vermont Captive Reinsurance Agreement” shall have the meaning specified in the Preamble.

 

ARTICLE II

 

AUTHORITY; RETAINED SERVICES

 

Section 2.1        Authority.  Subject to Section 2.3, the Company hereby appoints the Administrator, and the Administrator hereby accepts appointment, to provide as an independent contractor of the Company, from and after the Inception Date, on the terms and subject to the limitations as set forth in this Agreement, all administrative services necessary or appropriate with respect to the Administered Business, including those provided by or on behalf of the Administrator specifically with respect to the Administered Business prior to the Inception Date (unless the Administrator and the Company mutually decide any such services are no longer necessary or appropriate, which decision of each of the Parties shall not be unreasonably withheld, conditioned or delayed), and those set forth in this Agreement and on Schedule A, other than the Retained Services (the “Administrative Services”).  At all times during the term of this Agreement, the Administrator shall hold, possess and maintain, either directly or through the appointment of Subcontractors permitted pursuant to Section 3.3, any and all licenses, franchises, permits, privileges, immunities, approvals and authorizations from any Governmental Entity that are necessary to perform the Administrative Services.

 

Section 2.2        Violations of Applicable Law and Applicable Contracts.  Notwithstanding any other provision of this Agreement to the contrary, the Company shall have the right to direct the Administrator to perform any action necessary for the Administered Business or the administration thereof to comply with Applicable Law or the terms of the LBL Contracts, Ceded Reinsurance Contracts or Vermont Captive Contracts, or to cease performing any action that constitutes a violation of Applicable Law or the terms of the LBL Contracts, Ceded Reinsurance Contracts or Vermont Captive Contracts, to the extent such action, inaction or administration is within the control of the Administrator, taking into account the recommendations of the Administrator provided to the Company hereunder, which the Company shall only reject in good faith and in light of the intent of the parties to and the stated purposes of the Stock Purchase Agreement, this Agreement and the other Transaction Agreements.  The Administrator shall have the right to direct the Company to perform any action necessary for the Administered Business or the administration thereof to comply with Applicable Law or the terms of the LBL

 

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Contracts, Ceded Reinsurance Contracts or Vermont Captive Contracts, or to cease performing any action that constitutes a violation of Applicable Law or the terms of the LBL Contracts, Ceded Reinsurance Contracts or Vermont Captive Contracts, in either case to the extent such action, inaction or administration constitutes a Retained Service.

 

Section 2.3        Retained Services.  The Parties hereby agree that, notwithstanding anything herein to the contrary, the Company shall, for the term of this Agreement, continue to provide on its own behalf (i) those administrative services described in Schedule B, (ii) those administrative services that the Company is required by Applicable Law to perform without the Administrator or a third party acting on its behalf and (iii) the preparation of accounting reports, tax returns, guaranty fund reports, and other reports and certifications contemplated in Articles XI and XII, in each instance based on information with respect to the LBL Contracts  and Vermont Captive Contracts provided by the Administrator as contemplated therein (collectively, the “Retained Services”), in each case, (i) in accordance with the applicable terms of this Agreement, (ii) in compliance with Applicable Law, (iii) in a professional, competent and workmanlike manner, with the skill, diligence and expertise that would reasonably be expected from experienced and qualified personnel performing such duties in like circumstances, and (iv) at a level no lower than the service standards applied by the Company to other comparable insurance business administered by the Company for its own account.  The Administrator shall have no obligation to provide such Retained Services but shall provide assistance with respect to the Administered Business reasonably requested by the Company in connection therewith in a timely manner to enable the Company to perform such Retained Services.  The Company shall not be deemed to be in breach of this Agreement as a result of any failure to perform, or inadequacy in the performance of, Retained Services hereunder to the extent the performance of such Retained Services is reasonably dependent upon Administrative Services or the performance by the Administrator or its Affiliates of their obligations under the Transaction Agreements that have not been performed.  The Administrator shall promptly reimburse the Company for any documented and reasonable out-of-pocket costs or expenses incurred by it in the performance of the Retained Services to the extent (a) such Retained Services (1) relate solely to the Administered Business, (2) do not constitute entity-level services required to be performed by or on behalf of the Company and (3) are not in the ordinary course of business of the Company, and (b) such out-of-pocket costs and expenses in aggregate exceed $15,000 in the calendar month for which such costs and expenses are being sought for reimbursement or $120,000 in the calendar year for which such costs and expenses are being sought for reimbursement.

 

Section 2.4        Power of Attorney.  Subject to the terms and conditions herein, the Company hereby appoints and names the Administrator, acting through its authorized Subcontractors, and each of their respective officers and employees, as the Company’s lawful attorney-in-fact, from and after the Inception Date for so long as the Administrator is authorized to perform the Administrative Services and solely to the extent necessary to provide the Administrative Services, (a) to do any and all lawful acts that the Company might have done with respect to the Administered Business, and (b) to proceed by all lawful means (i) to perform any and all of the Company’s obligations with respect to the Administered Business, (ii) to enforce any right and defend (in the name of the Company, when necessary) against any liability arising with respect to the Administered Business, (iii) to sue or defend (in the name of the Company, when necessary) any Action arising from or relating to the Administered Business,

 

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(iv) to collect any and all Recoveries due or payable under or relating to the LBL Contracts, the Separate Account, the Shared Separate Account with respect to the LBL Contracts, and the Ceded Reinsurance Contracts; (v) to collect any and all amounts due or payable to the Company under or relating to the Vermont Captive Contracts; (vi) to sign (in the Company’s name, when necessary) vouchers, receipts, releases and other papers in connection with any of the foregoing matters, (vii) to enforce the rights and perform the obligations of the Company under any agency, distribution or service arrangements to the extent related to the LBL Contracts or the Vermont Captive Contracts; (viii) to take actions necessary, as may be reasonably determined by the Administrator, to maintain the Administered Business in compliance with Applicable Law; (ix) to request rate and form changes for the LBL Contracts in accordance with Article IV herein; and (x) to do everything lawful in connection with the satisfaction of the Administrator’s obligations and the exercise of its rights under this Agreement.

 

ARTICLE III

 

STANDARD FOR SERVICES; FACILITIES; SUBCONTRACTING, ETC.

 

Section 3.1        Services; Standard for Services.  Subject to Article II, from and after the Inception Date and thereafter during the term of this Agreement (unless otherwise specified), the Administrator shall  perform the Administrative Services, and the Administrator’s performance of the Administrative Services shall comply with and be subject in all events to the standards set forth in this Section 3.1.  The Administrator shall provide the Administrative Services in all material respects in accordance with the terms of the LBL Contracts, the Ceded Reinsurance Contracts, the Vermont Captive Contracts and the Vermont Captive Reinsurance Agreement and, if applicable, their respective registration statements.  In addition, the Administrator shall provide the Administrative Services (i) in accordance with the applicable terms of this Agreement, (ii) in compliance with Applicable Law, (iii) in a professional, competent and workmanlike manner, with the skill, diligence and expertise that would reasonably be expected from experienced and qualified personnel performing such duties in like circumstances, and (iv) at a level no lower than the service standards applied by Administrator to other comparable insurance business administered by the Administrator for its own account.

 

Section 3.2        Facilities and Personnel.  The Administrator shall at all times maintain either directly or through the appointment of Subcontractors, sufficient facilities and trained personnel of the kind necessary to perform its obligations under this Agreement in accordance with the performance standards set forth herein.

 

Section 3.3        Subcontracting.  The Administrator may subcontract for the performance of any Administrative Service to: (a) any Person if the service to be subcontracted is primarily a routine task or function; (b) an Affiliate of the Administrator; (c) any reinsurer under a Ceded Reinsurance Contract or an ALIC Outward Reinsurance Contract or its Affiliates; (d) an existing subcontractor that was providing such service to the Company immediately before the Closing Date; (e) any subcontractor to which Administrator or an Affiliate subcontracts the same or similar services for business administered for its own account; and (f) any other Person with the prior written consent of the Company, such consent not to be unreasonably withheld, conditioned  or delayed (each such subcontracting party, a “Subcontractor”), provided that no such subcontracting shall relieve the Administrator from any of its obligations or liabilities hereunder,

 

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and the Administrator shall remain responsible for all obligations or liabilities of such Subcontractor with respect to the providing of such service or services as if provided by the Administrator.

 

Section 3.4        Independent Contractor.  For all purposes hereof, except as explicitly set forth herein, the Administrator shall at all times act as an independent contractor and the Administrator and its Affiliates, on the one hand, and the Company and its Affiliates, on the other hand, shall not be deemed an agent, lawyer, employee, representative, joint venturer or fiduciary of one another, nor shall this Agreement or the Administrative Services or any activity or any transaction contemplated hereby be deemed to create any partnership or joint venture between the Parties or among their Affiliates.

 

Section 3.5        Limitation on Services.  The Administrator shall not be deemed to be in breach of this Agreement as a result of any failure to perform, or inadequacy in the performance of, Administrative Services hereunder to the extent the performance of such Administrative Services is reasonably dependent upon Retained Services or the performance by Buyer or its Affiliates of their obligations under the Transaction Agreements (other than the Company’s obligations under the Principal Underwriting Agreement with respect to the LBL Contracts, solely to the extent that the Administrator is responsible hereunder for the Company’s performance of such obligations) that have not been performed.  This Section 3.5 shall not be construed to limit the rights and remedies otherwise available to the Administrator or its Affiliates in the event of any breach by the Company, Buyer or any of their Affiliates of any of the Transaction Agreements.

 

Section 3.6        Disaster Recovery.  The Administrator has made available to the Company its backup, business continuation and disaster recovery plans applicable to the business of the Administrator (the “Disaster Recovery Policies”) in effect as of the Inception Date.  From time to time upon the Company’s written request, the Administrator shall deliver a copy of its then-current Disaster Recovery Policies to the Company.  For as long as Administrative Services are provided hereunder, the Administrator shall, and shall cause its Affiliates to, abide by the Disaster Recovery Policies with respect to the Administered Business.  At all times during the term of this Agreement, the Disaster Recovery Policies applicable to the Administered Business shall be no less protective of the Administered Business than the backup, business continuation and disaster recovery plans applicable to insurance business administered by the Administrator for its own account.

 

ARTICLE IV

 

UNDERWRITING; CONVERSION AND REPLACEMENT; PRODUCERS

 

Section 4.1        Post-Closing Contracts.  Subject to the terms of this Article IV:

 

(a)          from the Inception Date until the first to occur of (i) the Underwriting Termination Date or (ii) the termination of this Agreement, the Administrator shall be authorized to (x) issue, in the name of the Company, life insurance policies and annuity contracts of the types included in, and utilizing the same forms, rates and prospectuses as are in use for, the Pre-Closing Contracts, with amendments to such forms, rates and prospectuses from time to time as

 

8

 

are necessary for the issuance of such policies or contracts to comply with Applicable Law or for any other business purpose, and shall be authorized to file and seek necessary approvals from applicable Governmental Entities, in the name of the Company, with respect to any such amendments; provided that the Administrator’s authority to file amendments to any such rates shall be subject to the prior written consent of the Company (not to be unreasonably withheld, conditioned or delayed), and (y) withdraw such products, forms, rates and prospectuses.  Life insurance policies issued by the Administrator pursuant to this Section 4.1(a) upon conversion of a Pre-Closing Policy or a Post-Closing Policy produced by an Exclusive Producer are referred to herein as “Underwriting Period Conversion Policies”;

 

(b)          the Administrator shall be authorized to issue, in the name of the Company from and after the Inception Date, solely to the extent required to comply with Applicable Law, life insurance policies and annuity contracts as required to replace or remediate LBL Contracts or Vermont Captive Contracts.

 

Section 4.2        Parties’ Responsibilities.

 

(a)          The Administrator, at its sole cost and expense (but without duplication of amounts payable under the Reinsurance Agreement), shall assume all responsibility for (i) the provision of all applications and other contractholder materials to agents and persons seeking to apply for Post-Closing Policies (other than the Post-Underwriting Period Conversion Policies), (ii) all underwriting necessary or appropriate with respect to such applicants pursuant to the underwriting guidelines utilized by the Company as of the Inception Date, or as may be otherwise agreed by the Parties (the agreement of the Company not to be unreasonably withheld, conditioned or delayed), (iii) the processing of underwriting-related transactions in respect of the Post-Closing Policies (other than the Post-Underwriting Period Conversion Policies) and (iv) the issuance of Post-Closing Policies (other than the Post-Underwriting Period Conversion Policies).

 

(b)          The Company shall assume all responsibility for (i) the provision of all applications and other contractholder materials to agents and persons seeking to apply for Post-Underwriting Period Conversion Policies and Excluded Conversion Policies, (ii) with respect to Post-Underwriting Period Conversion Policies, all underwriting necessary or appropriate with respect to such applicants pursuant to the underwriting guidelines as may be agreed by the Parties (the agreement of the Parties not to be unreasonably withheld, conditioned or delayed), (iii) if needed, with respect to Excluded Conversion Policies, all underwriting necessary or appropriate with respect to such applicants, (iv) the processing of underwriting-related transactions in respect of the Post-Underwriting Period Conversion Policies and Excluded Conversion Policies and (v) the issuance of Post-Underwriting Period Conversion Policies and Excluded Conversion Policies.  Without limiting the generality of Article XV or any other provision of this Agreement, the Administrator shall reasonably cooperate and provide all assistance, information and records reasonably available to it as may reasonably be requested by the Company in connection with the Company’s performance of the foregoing obligations.1

 

 

1        Note to Draft: Provision requiring the Company to administer the Post-Underwriting Period Conversion Policies is subject to agreement as to expense allowance payable to Company under the Reinsurance Agreement.

 

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(c)          The Administrator shall promptly notify the Company of all revisions to the LBL Contracts and Vermont Captive Contracts made pursuant to Section 4.1 and shall, on behalf of the Company, prepare and provide to Contractholders all such revisions to the LBL Contracts and Vermont Captive Contracts to be made by the Company.

 

Section 4.3        Conversion and Replacement.

 

(a)          From and after the Inception Date, the Administrator shall be entitled, to the extent permitted by Applicable Law, to offer to any holder of a Pre-Closing Policy or a Post-Closing Policy, in each case that entitles the holder thereof to convert such policy to another policy written by the Company (a “Reinsured Convertible Policy”), the opportunity to convert such Reinsured Convertible Policy into a policy written by the Administrator or one of its Affiliates (a “Replacement Policy”).  If such offer is not accepted, or if no such offer is timely made, then subject to the terms of this Article IV, (i) the Administrator shall issue, in the name of the Company, an Underwriting Period Conversion Policy upon exercise by the policyholder of a Reinsured Convertible Policy, on or prior to December 31, 2015, of such policyholder’s right to receive a conversion policy issued by the Company, and (ii) the Company shall issue a Post-Underwriting Period Conversion Policy upon exercise by the policyholder of a Reinsured Convertible Policy, on or after January 1, 2016, of such policyholder’s right to receive a conversion policy issued by the Company, as applicable.

 

(b)          From and after January 1, 2016, the Company may (i) amend any of its policy forms, rates and prospectuses from time to time, (ii) cease offering any such policy forms, rates and prospectuses and (iii) withdraw any such product, form, rate or prospectus, provided, however, that until such time as no Reinsured Convertible Policies are outstanding, the Company shall maintain in effect at least one (1) new life policy form and associated rate filing developed jointly by the Parties, that meets the requirements of each Reinsured Convertible Policy for a conversion policy issued by the Company.  In connection with the Company’s requirement to maintain such policy form and associated rate filings, after the Inception Date the Parties will work together to develop and submit to appropriate Governmental Entities, as soon as practicable, a life insurance policy form and associated rate filing that meets the requirements of each Reinsured Convertible Policy for a conversion policy (the “New Conversion Policy Form”), provided, that if such form and associated rate filings have not been agreed to by the Parties by [September 30, 2014] then the Administrator’s approval of any such policy form and associated rate filing developed in good faith by the Company (after providing the Administrator reasonable opportunity to comment thereon and taking into account the recommendations of the Administrator) shall not be unreasonably withheld, conditioned or delayed.  Any policy issued on a New Conversion Policy Form to meet the conversion requirements of a Reinsured Convertible Policy originally produced by an Exclusive Producer shall constitute a “Post-Underwriting Period Conversion Policy.”  Any amendments to the New Conversion Policy Form (including the associated rate filing) shall require the prior written consent of each Party in order for any such amended policy to continue to be eligible for issuance as a Post-Underwriting Period Conversion Policy.  For the avoidance of doubt: (x) other than the New Conversion Policy Form, no policy issued to satisfy the conversion requirements of a Reinsured Convertible Policy produced by an Exclusive Producer shall constitute a Post-Underwriting Period Conversion Policy, and (y) subject to the Administrator’s rights pursuant to Section 4.1(a), nothing contained herein shall be construed to limit the Company’s right to develop and maintain

 

10

 

policy forms, rates and prospectuses other than the New Conversion Policy Form, or require the Company to discontinue offering any policy form, associated rate or prospectus.

 

(c)          Subject to the foregoing, the Administrator will share equally with the Company the reasonable costs associated with the Company and Administrator’s joint development, filing, approval and maintenance of a New Conversion Policy Form, for use from and after December 31, 2015, which costs to the Administrator shall not exceed five hundred thousand dollars ($500,000).

 

(d)          The Company shall not, and shall cause each of its Affiliates not to, target any LBL Contract for replacement with another policy written by the Company or any other Person other than in accordance with the terms of this Article IV, provided, however, that the restrictions in this Section 4.3(d) shall not restrict general marketing and solicitation activities (i) not specifically targeted or directed to holders of LBL Contracts or (ii) subject to clause (i), targeted or directed to holders of insurance policies and contracts included in the Company Business regardless of whether such holders are also holders of LBL Contracts.  From and after the Inception Date, Company shall not, directly or indirectly, sell, convey or transfer all or substantially all of its properties or assets to, any Person, in one transaction or a series of transactions that are part of a common plan, or any transaction that constitutes the functional equivalent of any of the foregoing, unless the acquiring Person in such transaction or transactions expressly agrees to assume all of the obligations of the Company under this Section 4.3(d).

 

(e)          Upon a specific written request by the Administrator, and at the Administrator’s sole cost and expense, the Company shall provide such information to  Administrator for the use of the Exclusive Producers as is reasonably necessary to permit Exclusive Producers to offer Designated Company Conversion Policies on behalf of the Company to the holders of Reinsured Convertible Policies.

 

Section 4.4        Producers.  From and after the Inception Date, the Administrator shall have the sole and exclusive right and obligation, on behalf of the Company, to (i) appoint and enter into agreements with Exclusive Producers for the LBL Contracts, (ii) monitor the performance and licensing of the Exclusive Producers for the LBL Contracts to the extent required by Applicable Law, (iii) calculate and pay all commissions to Exclusive Producers in respect of the LBL Contracts and (iv) terminate Exclusive Producers’ authority and agreements with Exclusive Producers with respect to the LBL Contracts, provided, that the Administrator shall indemnify and hold harmless the Company Indemnified Parties from and against any and all Indemnifiable Losses incurred by any of them in connection with such actions.

 

ARTICLE V

 

COLLECTIONS

 

Section 5.1        Collection Services.  From and after the Inception Date and subject to Section 2.3, the Administrator shall assume all responsibility for the receipt and processing of all premiums, deposits, policy loan interest or repayments and other Recoveries with respect to the LBL Contracts and the Vermont Captive Contracts and the allocation of such amounts between the General Account of the Company and, if applicable, the Separate Account or Shared Separate

 

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Account in accordance with the terms of the LBL Contracts, the Vermont Captive Contracts, the Reinsurance Agreement and this Agreement.  The Administrator, on behalf of the Company, shall process payment of any amounts to be paid out of each Separate Account or Shared Separate Account in accordance with the terms of the applicable LBL Contract or Vermont Captive Contract, to the extent of sufficient funds therein.  The Parties shall cooperate to establish procedures to prevent the commingling of assets attributable to the Administered Business, on the one hand, and the business of the Company that is not Administered Business, on the other hand, including by establishment of separate lockboxes with respect to the LBL Contracts and Vermont Captive Contracts, on the one hand, and the business of the Company that is not Administered Business, on the other hand, and otherwise to ensure that funds are traceable to the appropriate Company insurance policy.

 

(a)          The Company shall promptly remit to the Administrator all premiums, deposits, policy loan interest and repayments, claims expenses, expense allowance and all other Recoveries received by it with respect to the LBL Contracts, the Separate Account, the Shared Separate Account with respect to the LBL Contracts, the Vermont Captive Contracts or the Vermont Captive Reinsurance Agreement and the Administrator shall promptly remit to the Company all premiums, deposits, policy loans, interest and repayments received by it with respect to the Company Business.

 

ARTICLE VI

 

CLAIMS HANDLING

 

Section 6.1        Claim Administration Services.  From and after the Inception Date, subject to Section 2.3, the Administrator shall acknowledge, consider, review, investigate, deny, settle, pay or otherwise dispose of each claim for benefits and disbursements reported under each LBL Contract and Vermont Captive Contract (each, a “Claim” and collectively the “Claims”).

 

Section 6.2        Description of Claim Administration Services.  Without limiting the foregoing, the Administrator shall:

 

(i)           provide claimants under the LBL Contracts and Vermont Captive Contracts and their authorized representatives (collectively, “Claimants”) with Claim forms and provide reasonable explanatory guidance to Claimants in connection therewith;

 

(ii)          establish, maintain and organize Claim files and maintain and organize other Claims-related records;

 

(iii)         review all Claims and determine whether the Claimant is eligible for benefits and if so, the nature and extent of such benefits;

 

(iv)         prepare and distribute to the appropriate recipients and Governmental Entities any Claims reports as required by Applicable Law;

 

(v)          respond to all written or oral Claims-related communications that the Administrator reasonably believes to require a response;

 

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(vi)         maintain a complaint log with respect to the LBL Contracts and Vermont Captive Contracts in accordance with applicable requirements of Governmental Entities, and at the Company’s request, provide a copy of such log; and

 

(vii)       respond to and manage any Claims-related matters pursuant to Article VII.

 

ARTICLE VII

 

REGULATORY AND LEGAL PROCEEDINGS

 

Section 7.1        Notice of Action.  If the Company or the Administrator receives notice of or otherwise becomes aware of any examination or Action instituted or threatened in writing against the Company that relates exclusively or in part to the Administered Business, such Party shall promptly notify the other Party thereof, and in no event more than five (5) Business Days after receipt of notice thereof, and shall promptly furnish to such other Party copies of all pleadings in connection therewith.

 

Section 7.2        Defense of Regulatory Complaints and Actions.

 

(a)          From and after the Inception Date, with respect to any examination or Action initiated by a Governmental Entity with respect to the Administered Business, the Administrator shall supervise and control the investigation, contest, defense and/or settlement of all such Actions at its own cost and expense, in the name of the Company when necessary, subject to Sections 2.3 and clauses (b), (c) and (d) below.  The Administrator’s supervision and control of such examinations and Actions shall not constitute a waiver of any right to indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.

 

(b)          The Company authorizes the Administrator to prepare, with a copy to the Company, a response to any such examination or Action initiated by a Governmental Entity with respect to the Administered Business within the Governmental Entity’s requested time frame for response or, if no such time frame is provided, within the time frame as allowed by Applicable Law; provided, that, subject to meeting such time frames, the Administrator shall provide its proposed response to the Company for its prior review and comment; provided, further, that with respect to such examinations or Actions that relate in part to the Company Business, the Administrator shall not respond to any such examinations or Actions without taking into account in good faith any recommendations of the Company provided to the Administrator with respect to such matters and shall not unreasonably reject such recommendations.

 

(c)          Notwithstanding anything in this Agreement to the contrary, the Company, upon written notice to the Administrator and at its own cost and expense, shall have the right at any time to supervise and exclusively control the defense and/or settlement of any examination or Action initiated by a Governmental Entity that, if successful, would reasonably be expected to materially interfere with the business, financial condition or reputation of the Company or any of its Affiliates; provided, however, the Company shall not respond to any such examinations or Actions that relate to the Administered Business without taking into account in good faith any recommendation of the Administrator provided to the Company with respect to

 

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such matters and shall not unreasonably reject such recommendation, and shall not settle or compromise any such examinations or Actions without the Administrator’s prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned).  The Company’s supervision and control of such examinations and Actions shall not constitute a waiver of any right to indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.

 

(d)          The Administrator shall not settle or compromise any examination or Action described in Section 7.2(a) without the Company’s prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned) unless (i) there is no finding or admission of any violation of Applicable Law or any violation of the rights of any Person by the Company or any of its Affiliates, (ii) the sole relief provided is monetary damages that are paid in full by the Administrator or its Affiliates and a full and complete release is provided to the Company and its Affiliates and (iii) the settlement does not encumber any of the assets of the Company or its Affiliates or contain any restriction or condition that would materially adversely affect the Company or its Affiliates.

 

Section 7.3        Other Actions.

 

(a)          From and after the Inception Date, with respect to any Action with respect to the Administered Business by any Person other than a Governmental Entity, the Administrator shall:

 

(i)           subject to Sections 2.3 and clauses (b), (c) and (d) below, supervise and control the investigation, contest, defense and/or settlement of all such Actions at its own cost and expense, in the name of the Company when necessary; and

 

(ii)          keep the Company fully informed of the progress of all Actions supervised or controlled by the Administrator in which the Company is a named party and, at the Company’s request, provide to the Company a report summarizing the nature of such Action, the alleged actions or omissions giving rise to such Actions and copies of any files or other documents that the Company may reasonably request in connection with its review of such matters, in each case other than such files, documents and other information as would, in the judgment of counsel to the Administrator, lead to the loss or waiver of legal privilege.

 

The Administrator’s supervision and control of such Actions shall not constitute a waiver of any right to indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.

 

(b)          The Company shall have the right to engage its own separate legal representation, at its own expense, and to participate fully in the defense of any Action (other than Actions brought by a Governmental Entity, which are the subject of Section 7.2) relating to the Administered Business with respect to which the Company is a named party if such Action, if successful, reasonably could be expected to materially interfere with the business, financial condition or reputation of the Company or any of its Affiliates, without waiving any right to

 

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indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.

 

(c)          The Administrator shall not settle or compromise any Action described in Section 7.3(b) without the Company’s prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned) unless (i) there is no finding or admission of any violation of Applicable Law or any violation of the rights of any Person by the Company or any of its Affiliates, (ii) the sole relief provided is monetary damages that are paid in full by the Administrator or its Affiliates and a full and complete release is provided to the Company and its Affiliates, (iii) the settlement does not encumber any of the assets of the Company or its Affiliates or contain any restriction or condition that would materially adversely affect the Company or its Affiliates and (iv) the Action neither is certified, nor seeks certification, as a class action.

 

(d)          The Company, upon written notice to the Administrator and at its own cost and expense, shall have the right at any time to assume sole and exclusive control over the response, defense, settlement or other resolution of any Action (other than Actions brought by a Governmental Entity, which are the subject of Section 7.2) that, if successful, reasonably could be expected to materially interfere with the business, financial condition or reputation of the Company or any of its Affiliates; provided, however, the Company shall not respond to any such Actions without taking into account in good faith any recommendation of the Administrator provided to the Company with respect to such Actions and shall not unreasonably reject such recommendation, and shall not settle or compromise any such Actions without the Administrator’s prior written consent (which consent shall not be unreasonably withheld, delayed or conditioned).  The Company’s supervision and control of such examinations and Actions shall not constitute a waiver of any right to indemnification or payment that it may have under the terms of the Stock Purchase Agreement, the Reinsurance Agreement, this Agreement or any other Transaction Agreement.

 

Section 7.4        Cooperation.  Each Party hereto shall cooperate with and assist the controlling Party in responding to, defending, prosecuting and settling any examination or Action under this Article VII; provided, that neither Party shall be required to waive any applicable attorney-client, attorney work product or other evidentiary privileges, and provided, further that neither Party shall be required to provide the other Party access to any federal, state, or local consolidated income Tax Return that includes the responding Party or its Affiliates.  Without limiting the generality of the foregoing, each of the Parties shall assist each other and cooperate with the other Party in doing all things necessary, proper or advisable in a commercially reasonable manner in connection with any and all market conduct or other Governmental Entity examinations to the extent related to the Administered Business.  Notwithstanding anything to the contrary contained in this Agreement, neither the Company nor the Administrator shall have the authority to institute, prosecute or maintain any regulatory proceeding on behalf of the other Party without the prior written consent of such other Party, except as expressly contemplated in this Agreement.

 

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ARTICLE VIII

 

SEPARATE ACCOUNT ADMINISTRATIVE SERVICES

 

Section 8.1        Separate Account Administrative Services.  From and after the Inception Date, subject to Section 2.3, in addition to the services described in any Article of this Agreement, the Administrative Services with respect to, or as a result of, the Shared Separate Account and the Separate Account shall include those services set forth on Schedule A attached hereto.

 

Section 8.2        Changes to Fund Options.  Prior to the Separate Account Separation, the Administrator may make recommendations to the Company as to changes in Fund options for the Shared Separate Account from and after the Inception Date and the Company shall not unreasonably reject such recommendations, but the Administrator will not change Fund options for the Shared Separate Account from and after the Inception Date and prior to the Separate Account Separation unless such changes are made: (a) with the prior written consent of the Company, such consent not to be unreasonably withheld, conditioned or delayed, (b) in fulfillment of the fiduciary obligations of the Company or (c) by the Board of Trustees of a Fund to liquidate, merge or remove a Fund pursuant to the terms of the then-existing fund participation agreements or through a regulatory process.  From and after the Separate Account Separation, the Company shall accept the recommendations of the Administrator as to Fund options for the Separate Account, unless implementing such recommendations would result in a breach of the Company’s fiduciary duties or result in a violation of Applicable Law or the applicable LBL Contract.  If the Administrator makes a change in the LBL Contracts, the Shared Separate Account or the Separate Account in connection with the change of a Fund option as permitted above, the Administrator shall, at its own expense, prepare for signature by the Company and transmit on behalf of the Company to the appropriate Governmental Entity any SEC exemptive application, no-action letter or other regulatory filing necessary to reflect or implement such change.

 

Section 8.3        Changes to Separate Account Fees.  Prior to the Separate Account Separation, the Administrator may propose changes to any fees or other amounts receivable from or in respect of Fund options for the Shared Separate Account to the extent related to the LBL Contracts for approval by the Company, which approval shall not be unreasonably withheld, conditioned or delayed.  From and after the Separate Account Separation, the Administrator may, in its sole discretion, make changes to any fees or other amounts receivable from or in respect of Fund options for the Separate Account to the extent related to the LBL Contracts, except as would result in a violation of Applicable Law or the applicable LBL Contract.

 

ARTICLE IX

 

MISCELLANEOUS SERVICES

 

Section 9.1        Ceded Reinsurance Contracts.

 

(a)          From and after the Inception Date, subject to Section 2.3, the Administrator shall have the authority and responsibility to, and shall, manage and administer the

 

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portion of the Ceded Reinsurance Contracts that relates to the LBL Contracts, including providing all reports and notices that relate to the LBL Contracts required with respect to the Ceded Reinsurance Contracts to the reinsurers within the time required by the applicable Ceded Reinsurance Contract and doing all other things necessary to comply with the terms and conditions of the Ceded Reinsurance Contracts.  Without limiting the foregoing, the Administrator shall timely pay all reinsurance premiums due to reinsurers under the Ceded Reinsurance Contracts with respect to the LBL Contracts, and collect from such reinsurers all reinsurance recoverables due thereunder with respect to the LBL Contracts.  The Administrator shall also have the authority to exercise any of the Company’s rights with respect to trust accounts, letters of credit or other security posted for the benefit of the Company in respect of the LBL Contracts under any Ceded Reinsurance Contract that is not a Shared Reinsurance Agreement.  Notwithstanding the foregoing, in the event that the Administrator materially fails to perform its obligations under this Section 9.1(a) with respect to any Shared Reinsurance Agreement, then upon written notice to the Administrator, the Company may assume the authority and responsibility to manage and administer the portion of such Shared Reinsurance Agreement that relates to the LBL Contracts, and the Administrator shall use reasonable best efforts timely to provide any data, information, premiums and other amounts necessary in connection with such management and administration and shall otherwise cooperate in good faith with the Company in connection therewith.  Notwithstanding the foregoing, the Company shall reasonably cooperate with Administrator, at Administrator’s expense, in the administration of the Ceded Reinsurance Contracts to the extent that the Company’s participation is required thereunder or is reasonably requested by the counterparty to any Ceded Reinsurance Contract.

 

(b)          The Company shall have the authority and responsibility to, and shall, manage and administer the portion of the Shared Reinsurance Agreements that does not relate to the LBL Contracts, including providing all reports and notices that relate to policies other than the LBL Contracts required with regard to such Shared Reinsurance Agreements to the reinsurer within the time required by such Shared Reinsurance Agreements and doing all other things necessary to comply with the terms and conditions of such Shared Reinsurance Agreements.  Without limiting the foregoing, the Company shall timely pay all reinsurance premiums due to the reinsurer under such Ceded Reinsurance Contracts with respect to the policies other than LBL Contracts, and collect from such reinsurer all reinsurance recoverables due thereunder with respect to the policies other than the LBL Contracts.  Notwithstanding the foregoing, in the event that the Company materially fails to perform its obligations under this Section 9.1(b) with respect to such Shared Reinsurance Agreement, then upon written notice to the Company, the Administrator may assume the authority and responsibility to manage and administer the portion of such Shared Reinsurance Agreement that does not relate to the LBL Contracts, and the Company shall use reasonable best efforts timely to provide any data, information, premiums and other amounts necessary in connection with such management and administration and shall otherwise cooperate in good faith with the Administrator in connection therewith.  In the event that (i) the Company has not materially failed to perform its obligation under this Section 9.1(b) with respect to a Shared Reinsurance Agreement but (ii) the Company is determined to be obligated to provide consolidated reporting with respect to such Shared Reinsurance Agreement, the Parties shall cooperate in good faith to develop a mutually agreeable method to manage and administer such Shared Reinsurance Agreement.  The Company shall have the right to exercise all of its rights with respect to trust accounts, letters of credit or other security posted for the benefit of the Company under any Shared Reinsurance Agreement; provided that it shall hold in

 

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trust for the benefit of the Administrator, and transfer to the Administrator, any amounts withdrawn by the Company from any such trust accounts, letters of credit or other security that relate to the LBL Contracts (which amounts constitute Recoveries under the Reinsurance Agreement); provided, however, that the Company shall honor Administrator’s requests for collateral draws with respect to the LBL Contracts to the extent permitted under such Shared Reinsurance Agreement.

 

Section 9.2        Amendments and Replacements.  From and after the Inception Date, the Administrator shall have the right to terminate, amend or replace with a new reinsurance agreement between the Administrator and the applicable reinsurer, in whole or in part, any of the Ceded Reinsurance Contracts to the extent such termination, amendment or replacement relates to the LBL Contracts or Vermont Captive Contracts, respectively; provided such termination, amendment or replacement does not affect the reinsurance coverage or other reinsurance terms provided thereunder with respect to the Company Business.  The Company shall, upon the Reinsurer’s request, cooperate with the Administrator and take all actions reasonably requested by the Administrator to cause such terminations, amendments or replacements of Ceded Reinsurance Contracts or to cause such new Ceded Reinsurance Contracts to be entered into.  The Administrator shall reimburse the Company for all reasonable and documented out-of-pocket costs and expenses incurred by the Company or its Affiliates in connection with such terminations, amendments or replacements of Ceded Reinsurance Contracts or the entering into of such new Ceded Reinsurance Contracts.

 

Section 9.3        Vermont Captive Reinsurance Agreement.  The Administrator shall have the authority and responsibility on behalf of the Company to manage and administer the Vermont Captive Reinsurance Agreement, including providing all reports and notices required thereunder to be provided by the Company within the time required thereby.

 

Section 9.4        Non-Guaranteed Elements.

 

(a)          With respect to the LBL Contracts, in accordance with the terms of the Reinsurance Agreement, the Administrator may provide recommendations to the Company as to the setting of all Non-Guaranteed Elements.

 

(b)          With respect to the Vermont Captive Contracts, the Administrator, in consultation with the Vermont Captive, may, from time to time, make recommendations to the Company with respect to Non-Guaranteed Elements so long as the recommendations comply with the written terms of the Vermont Captive Contracts, Applicable Law and Actuarial Standards of Practice promulgated by the Actuarial Standard Board governing redetermination of non-guaranteed charges.  The Company shall establish Non-Guaranteed Elements, taking into account the recommendations of the Administrator (in consultation with the Vermont Captive) with respect thereto.  The Company shall fully consider any such recommendations and act reasonably and in good faith in determining whether any such recommendations should be accepted and shall not unreasonably delay implementation of any accepted recommendations after such recommendations are provided in writing, except to the extent that an applicable Governmental Entity finally determines that Applicable Law would require the implementation of such recommendations to apply to any policy or contract that constitutes Company Business.

 

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(c)          Notwithstanding anything to the contrary contained herein, in the event that an applicable Governmental Entity finally determines that Applicable Law would require the implementation of Administrator’s recommendations with respect to one or more LBL Contracts or Vermont Captive Contracts to apply to any policy or contract that constitutes Company Business (a) the Parties shall cooperate in good faith to develop a mutually agreeable plan to set Non-Guaranteed Elements with respect to such LBL Contracts or Vermont Captive Contracts and such Company Business, and the Parties shall implement any such plan so agreed and (b) the Company shall not be liable for any Indemnified Losses incurred by the Administrator as a result of the Company’s failure to implement Administrator’s recommendations.  In the event that the Company is notified by an applicable Governmental Entity that it proposes making a determination that Applicable Law would require the implementation of such recommendations to apply to any policy or contract that constitute Company Business, the Company shall promptly notify the Administrator of such notification.  The Parties will thereafter cooperate in good faith and use their reasonable best efforts to reach agreements with such Governmental Entity that will avoid a final determination to such effect.  The Administrator acknowledges that the Company has certain indemnification rights under the Reinsurance Agreement for Indemnifiable Losses resulting from the Company’s acceptance and implementation of the Administrator’s recommendations in accordance with this Section 9.4.

 

Section 9.5        Contractholder Services.  From and after the Inception Date subject to Section 2.3, the Administrator shall provide all contractholder services in connection with the LBL Contracts and Vermont Captive Contracts.

 

Section 9.6        Principal Underwriting Agreement.  The Administrator shall have the authority and responsibility on behalf of the Company to perform the services and other obligations required of the Company, and to enforce the Company’s rights, under the Principal Underwriting Agreement, in each case to the extent relating to the LBL Contracts covered thereunder; provided, however, that the Administrator shall have no responsibility to perform any indemnification obligations of the Company under the Principal Underwriting Agreement to the extent such obligations arise out of any act or omission of the Company (other than an act or omission for which Administrator is responsible hereunder).

 

Section 9.7        Other Services.  Subject to Section 2.3, the Administrator shall provide such other administrative services as are necessary or appropriate to fully effectuate the purpose of the Reinsurance Agreement, the Vermont Captive Reinsurance Agreement and this Agreement, including such services as are not performed by or on behalf of Company on the date hereof but the need for which may arise due to changes or developments in Applicable Law and are consistent with the allocation of the services set forth herein between the Administrator and the Company.

 

ARTICLE X

 

NOTIFICATION TO CONTRACTHOLDERS

 

Section 10.1     Notification to Contractholders.  If required by Applicable Law, the Administrator shall send to applicable contractholders under the LBL Contracts and the Vermont Captive Contracts a written notice prepared by the Administrator and reasonably acceptable to

 

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the Company to the effect that the Administrator has been appointed by the Company to provide the Administrative Services with respect to the LBL Contracts and the Vermont Captive Contracts, as applicable.  The Administrator shall send such notice by first class U.S. mail at a time reasonably acceptable to the Company and the Administrator and in all events in accordance with Applicable Law.  Unless otherwise required by Applicable Law, the Administrator may include such notice in a regularly scheduled mailing to such contractholders in lieu of a separate mailing.

 

ARTICLE XI

 

QUARTERLY PREMIUM TAX AND INSOLVENCY FUND ACCOUNTINGS

 

Section 11.1     Quarterly Accountings.  Subject to Section 2.3, from and after the Inception Date, within [ten (10)] Business Days after the end of each calendar quarter that this Agreement is in effect (or more frequently as mutually agreed by the Parties), the Company shall submit to the Administrator a written statement of accounting in a form and containing such information to be agreed upon by the Parties hereto (each, an “Insolvency Fund Quarterly Accounting”) setting forth the insolvency fund amounts assessed against or payable by the Company, to the extent that such assessments constitute the Company’s General Account Liabilities in respect of the LBL Contracts and the Vermont Captive Contracts (collectively, the “Post-Inception Date Assessments”).  In addition, within twenty (20) Business Days after the last day of each calendar quarter that this Agreement is in effect (or more frequently as mutually agreed by the Parties), the Administrator shall submit to the Company a written statement of accounting in a form and containing such information to be agreed upon by the Parties hereto (each, a “Quarterly Premium Tax Accounting”, and together with the Insolvency Fund Quarterly Accountings, the “Quarterly Accountings”) setting forth the estimated premium taxes due with respect to the LBL Contracts and the Vermont Captive Contracts as a result of premiums collected or annuitizations occurring during such quarter.  Concurrent with the delivery of each Quarterly Premium Tax Accounting, the Administrator shall remit to the Company the amount set forth on such Quarterly Premium Tax Accounting with respect to such estimated premium taxes due and the amount set forth in such Insolvency Fund Quarterly Accounting with respect to the Post-Inception Date Assessments, and any other amounts owed to the Company pursuant to this Agreement.

 

Section 11.2     Adjustments Regarding Quarterly Accountings.  In the event that subsequent data or calculations require revision of any of the Quarterly Accountings, the required revision and appropriate payments thereunder shall be made within twenty (20) Business Days after the Parties hereto mutually agree as to the appropriate revision.

 

ARTICLE XII

 

CERTAIN ACTIONS BY COMPANY

 

Section 12.1     Filings.  Subject to Section 2.3, the Company shall prepare and timely file any filings required to be made with any Governmental Entity that relate to the Company generally and not just to the LBL Contracts or the Vermont Captive Contracts, including filings with guaranty associations and filings and premium tax returns with taxing authorities.  The

 

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Administrator shall timely provide to the Company upon request all information in the possession of the Administrator with respect to the LBL Contracts and the Vermont Captive Contracts that may be reasonably required for the Company to prepare such filings and tax returns.

 

Section 12.2     Annual Adjustment.  The Company shall pay or provide to the Administrator the benefit of any Post-Inception Date Assessments which have been applied to reduce the Company’s premium tax liability (“Premium Tax Credits”).  The Company shall provide to the Administrator by April 15 of each year a statement of the amount (the “Annual Adjustment”) of (i) premium taxes (including retaliatory taxes) paid with respect to premiums collected or annuitizations occurring during the prior calendar year (to the extent that such taxes constitute the Company’s General Account Liabilities), less (ii) estimated premium taxes paid by the Administrator to the Company with respect to such premiums under the provisions of Article XI, less (iii) Premium Tax Credits for the prior calendar year.  By May 31 of each year the Administrator shall pay to the Company the Annual Adjustment, if a positive amount, and the Company shall pay or credit to the Administrator the absolute value of the Annual Adjustment, if a negative amount.

 

ARTICLE XIII

 

REGULATORY MATTERS AND REPORTING

 

Section 13.1     Regulatory Compliance and Reporting.  Subject to Section 2.3, upon the timely and reasonable request of the Company, the Administrator shall provide to the Company such information with respect to the LBL Contracts and the Vermont Captive Contracts as is reasonably required to enable the Company timely to comply with regulatory and financial reporting requirements applicable to the Company from time to time, other than such regulatory and financial reporting requirements that are required because the Company or its Affiliates are subject to non-U.S. legal or regulatory requirements and industry standards.  Without limiting the foregoing, the Administrator shall provide the reports and information set forth on Schedule A within the timeframes indicated therein.  In addition, and without limiting the Administrator’s obligation to provide the Administrative Services hereunder, upon the timely and reasonable request of the Company, the Administrator shall promptly provide to the Company copies of all existing records relating to the Administered Business (including, with respect to records maintained in machine readable form, hard copies) that are reasonably necessary to satisfy any requirements imposed by Applicable Law or any Governmental Entity upon the Company with respect to the Administered Business.  All (i) such information and (ii) such records furnished in the ordinary course of business relating to the Administered Business shall be furnished at the Administrator’s sole cost and expense.  Without limiting the generality of the foregoing, upon the timely and reasonable request of the Company, the Administrator shall promptly prepare and furnish to Governmental Entities, to the extent permitted by Applicable Law,  all reports and related summaries (including, statistical summaries), certificates of compliance and other reports required or requested by any such Governmental Entity with respect to the Administered Business, other than such reports, summaries and certificates that are required or requested because the Company or its Affiliates are subject to non-U.S. legal or regulatory requirements and industry standards.  Without limiting the foregoing:

 

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(i)           As soon as practicable but not more than ten (10) Business Days after the end of each month that this Agreement is in effect (or,  with respect to any January, within fifteen (15) Business Days after the end of such month), the Administrator shall provide to the Company reports and summaries of transactions (and upon the reasonable request of the Company, detailed supporting records) related to the LBL Contracts and the Vermont Captive Contracts as may be reasonably required for use in connection with the preparation of the Company’s GAAP financial statements (or any consolidated GAAP financial statements of the Company or its Affiliates, as applicable), including all premiums received and all benefits paid.  The Parties shall cooperate in good faith to establish the manner for the providing of such reports.

 

(ii)          As soon as practicable but not more than twelve (12) Business Days after the end of each calendar quarter that this Agreement is in effect, (or more frequently as mutually agreed by the Parties), the Administrator shall timely provide to the Company reports and summaries of transactions (and upon the reasonable request of the Company, detailed supporting records) related to the LBL Contracts and the Vermont Captive Contracts as may be reasonably required for use in connection with the preparation of the Company’s statutory financial statements, U.S. tax returns and other required U.S. financial reports and to comply with the requirements of the U.S. regulatory authorities having jurisdiction over the Company (or any consolidated statutory financial statements, U.S. tax returns or other U.S. financial reports of the Company or its Affiliates, as applicable), including all premiums received and all benefits paid.  The Parties shall cooperate in good faith to establish the manner for the providing of such reports.

 

(iii)         The Administrator shall promptly provide notice to the Company of any changes in the reserve methodology used by the Administrator in calculating statutory reserves for the LBL Contracts and the Vermont Captive Contracts.

 

(iv)         Within thirty (30) Business Days after each calendar year end (or such longer time as may be agreed by the Parties) that this Agreement is in effect, the Administrator shall provide to the Company an actuarial analysis of statutory reserves for the LBL Contracts and the Vermont Captive Contracts, reasonably adequate to support opinions prepared according to accepted actuarial standards of practice to be issued by the Company, and as otherwise required for regulatory reporting purposes.  The Administrator shall also provide supporting documentation as reasonably requested by the Company or as required by Governmental Entities or actuarial standards of practice.  In the event that Applicable Law imposes (a) a legal requirement on the Administrator, in its capacity as reinsurer under the Reinsurance Agreement or administrator under this Agreement, to provide an actuarial opinion as to the adequacy of statutory reserves for the LBL Contracts or the Vermont Captive Contracts, or (b) a legal requirement on the Company to obtain such an actuarial opinion from the Administrator in any such capacity, the Administrator shall timely provide such opinion directly to the applicable Governmental Entity in substantially the form required by Applicable Law.

 

Section 13.2     Additional Reports and Updates.  For so long as this Agreement remains in effect, upon reasonable notice, each Party shall from time to time furnish to the other such other reports and information related to Administered Business as may be reasonably required by

 

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such other Party for regulatory, tax or similar purposes and reasonably available to it, and such reports or information shall be prepared and delivered on a timely basis in order for the receiving Party to comply with any filing deadlines required by Applicable Law or by contract.

 

Section 13.3     Additional Reports.  The Administrator shall provide such subcertifications with respect to the LBL Contracts and the Vermont Captive Contracts to enable the Company to meet its requirements under Section 302 of the Sarbanes-Oxley Act of 2002 or any Applicable Law requiring the making of certifications by an unaffiliated third party, in a form to be mutually agreed upon by the Parties hereto.

 

ARTICLE XIV

 

BOOKS AND RECORDS

 

Section 14.1     Maintenance of Books and Records.

 

(a)          As of and following the Inception Date, the Administrator shall maintain books and records of all transactions pertaining to the Administered Business (i) in accordance with any and all Applicable Laws, (ii) in accordance with the Administrator’s internal record retention procedures and policies, and (iii) in a format accessible by the Company and its representatives.  All original books and records with respect to the LBL Contracts and Vermont Captive Contracts shall be or remain the property of the Company and shall not be destroyed without the consent of the Company; provided, that the Administrator shall continue to have custody of such books and records for so long as is reasonably required for the Administrator to carry out its duties under this Agreement.

 

(b)          During the term of this Agreement, upon any reasonable request from the Company or its representatives, the Administrator shall (i) provide to the Company and its representatives reasonable access during normal business hours to the books and records under the control of the Administrator pertaining to the Administered Business; provided that such access shall not unreasonably interfere with the conduct of the business of the Administrator, (ii) permit the Company and its representatives to make copies of such records and provide reasonable access to employees concerning the information in such records and (iii) permit the Company and its representatives to review or copy any Tax Returns for which the Administrator is responsible that relate to the Administrative Services.  Nothing herein shall require the Administrator to disclose any information to the Company or its representatives to the extent such information does not pertain to the Administered Business or if such disclosure would jeopardize any attorney-client privilege, the work product immunity or any other legal privilege or similar doctrine or contravene any Applicable Law or any contract (including any confidentiality agreement to which the Administrator or any of its Affiliates is a party) (it being understood that the Administrator shall use its reasonable best efforts to enable such information to be furnished or made available to the Company or its representatives without so jeopardizing privilege or contravening such Applicable Law or contract) or require the Administrator to disclose any personnel or related records.

 

(c)          During the term of this Agreement, upon any reasonable request from the Administrator or its representatives, the Company shall (i) provide to the Administrator and its

 

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representatives reasonable access during normal business hours to the books and records under the control of the Company pertaining to the Administered Business or the Retained Services; provided that such access shall not unreasonably interfere with the conduct of the business of the Company, and (ii) permit the Administrator and its representatives to make copies of such records.  Nothing herein shall require the Company to disclose any information to the Administrator or its representatives if such disclosure would jeopardize any attorney-client privilege, the work product immunity or any other legal privilege or similar doctrine or contravene any Applicable Law or contract (including any confidentiality agreement to which the Company or any of its Affiliates is a party) (it being understood that the Company shall use its reasonable best efforts to enable such information to be furnished or made available to the Administrator or its representatives without so jeopardizing privilege or contravening such Applicable Law or contract) or require the Company to disclose its tax records (other than premium tax filings) or any personnel or related records.

 

(d)          The Administrator shall maintain facilities and procedures that are in accordance with Applicable Law and commercially reasonable standards of insurance recordkeeping for safekeeping the books and records maintained by the Administrator or its Affiliates that pertain to the Administered Business.  The Administrator shall back up all of its computer files relating to the Administered Business or otherwise used in the performance of the Administrative Services under this Agreement on a daily basis and shall maintain back-up files in an off-site location.

 

ARTICLE XV

 

COOPERATION

 

Section 15.1     Cooperation.  Each Party hereto shall cooperate fully with the other in all reasonable respects in order to accomplish the objectives of this Agreement including making available to each their respective officers and employees for interviews and meetings with Governmental Entities and furnishing any additional assistance, information and documents as may be reasonably requested by a Party from time to time.

 

ARTICLE XVI

 

PRIVACY REQUIREMENTS

 

Section 16.1     Confidentiality Obligations.  In providing the Administrative Services provided for under this Agreement, and in connection with maintaining, administering, handling and transferring the data of the Contractholders and other recipients of benefits under the LBL Contracts and Vermont Captive Contracts, the Administrator shall, and shall cause its Affiliates to, comply with any Applicable Law and/or regulations with respect to privacy or data security relative to Customer Information (as defined below), and shall implement and maintain an effective information security program (the “Information Security Program”) designed to protect Customer Information in compliance with all applicable privacy laws and other Applicable Law:

 

(i)           to ensure the security, integrity and confidentiality of Customer Information;

 

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(ii)          to protect against any anticipated threats or hazards to the security or integrity of such Customer Information; and

 

(iii)         to protect against unauthorized access to or use of Customer Information which could result in substantial harm or inconvenience to the owner thereof or its Affiliates, or to Customers or potential Customers thereof.

 

The Administrator has made a copy of such Information Security Program in effect as of the Inception Date available to the Company.  From time to time upon the Company’s written request, the Administrator shall deliver a copy of its then-current Information Security Program to the Company.  For as long as Administrative Services are provided hereunder, the Administrator shall, and shall cause its Affiliates to, abide by the Information Security Program with respect to the Administered Business.  At all times during the term of this Agreement, the Information Security Program shall be no less protective of the Administered Business than the information security program of the Administrator applicable to the insurance business administered by the Administrator for its own account.

 

“Customer Information” is defined as all tangible and intangible information provided or disclosed hereunder about present or former contract holders, annuitants, or other beneficiaries  (collectively, hereinafter “Customers”) or potential Customers of any Party or its Affiliates, including, but not limited to, name, address, telephone number, email address, account or policy information, and any list, description, or other grouping of Customers or potential Customers, and any medical records or other medical information of such Customers or potential Customers and any other type of information deemed “nonpublic” and protected by privacy laws and any other Applicable Law.

 

Section 16.2     Security Incidents.

 

(a)          In the event that any Party discovers a security breach that has resulted or may reasonably result in unauthorized access to or disclosure of, or have any material adverse effect on, the security of any Customer Information related to the LBL Contracts or the Vermont Captive Contracts (a “Security Incident”) such Party shall (i) within 24 hours, notify the other Party of said Security Incident; and (ii) work with the other Party to take all measures reasonably necessary to restore the security of such Customer Information.  The Company shall have the exclusive right to provide notice of any Security Incident to any Customers of the LBL Contracts or the Vermont Captive Contracts, any law enforcement Person or any other Governmental Authorities and to determine the content and timing of any such notice; provided, any such notice shall be subject to review and approval by the Administrator.

 

(b)          Each Party acknowledges that the breach of its obligations under this Section 16.2 may cause irreparable injury and damages, which may be difficult to ascertain.  Therefore a Party shall be entitled to seek injunctive relief with respect to any breach or threatened breach of this Section 16.2 by the other Party and its Affiliates.  This provision shall not in any way limit such other remedies as may be available to any Party at law or in equity.

 

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ARTICLE XVII

 

CONSIDERATION FOR ADMINISTRATIVE SERVICES

 

Section 17.1     Consideration for Administrative Services.  Except as set forth herein, with respect to the LBL Contracts, apart from the performance by the Company of its obligations under the Reinsurance Agreement, there shall be no fee or other consideration due to the Administrator for the performance of the Administrative Services and the Administrator’s other obligations under this Agreement. With respect to the Vermont Captive Contracts, the Administrator shall be entitled to collect and retain all claims expense, expense allowance or similar amounts due to the Company under the terms of the Vermont Captive Reinsurance Agreement, and the Company hereby sells, assigns, transfers and delivers to the Administrator all of its rights, title and interest in one hundred percent of such amounts actually received or receivable at or after the Inception Date by the Company or the Administrator.

 

ARTICLE XVIII

 

BANK ACCOUNTS; TRADEMARKS

 

Section 18.1     Establishment of Bank Accounts.

 

(a)          The Administrator shall have the right to open and maintain the Bank Accounts in respect of the LBL Contracts in accordance with the terms of the Reinsurance Agreement, provided that the Administrator shall notify the Company in writing upon opening any such Bank Account in the name of the Company.

 

(b)          During the term of this Agreement, the Administrator may use such Bank Accounts or open and maintain one or more additional bank accounts with banking institutions with respect to the Vermont Captive Contracts (the “Vermont Captive Bank Accounts”).  The Administrator shall have the exclusive authority over the Vermont Captive Bank Accounts including, without limitation, the exclusive authority to (a) open the Vermont Captive Bank Accounts in the name of the Company, (b) designate the authorized signatories on the Vermont Captive Bank Accounts, (c) issue drafts on and make deposits in the Vermont Captive Bank Accounts in the name of the Company, (d) make withdrawals from the Vermont Captive Bank Accounts and (e) enter into agreements with respect to the Vermont Captive Bank Accounts on behalf of the Company; provided, that in no event shall the Company be responsible for any fees, overdraft charges or other payments, liabilities or obligations with respect to any such Bank Accounts or be obligated to provide funding for the Bank Accounts.  The Company shall do all things necessary at the Reinsurer’s expense to (x) enable and authorize the Administrator to use the Company’s existing lockboxes with respect to the Vermont Captive Contracts, if any, and (y) enable the Administrator to open and maintain the Vermont Captive Bank Accounts including, without limitation, executing and delivering such depository resolutions and other documents as may be requested from time to time by the banking institutions.  The Company agrees that without the Reinsurer’s prior written consent it shall not make any changes to the authorized signatories on the Vermont Captive Bank Accounts nor attempt to withdraw any funds therefrom.

 

26

 

Section 18.2     Trademarks.  Administrator hereby acknowledges that the Company has adopted and is using the names and marks listed on Schedule C hereto in connection with the LBL Contracts and Vermont Captive Contracts (collectively, the “Licensed Names and Marks”).  The Company and Administrator agree as follows:

 

(a)          The Company hereby grants to the Administrator and Administrator hereby accepts a non-exclusive, non-transferable, royalty-free license to use the Licensed Names and Marks in connection with the Administrative Services, including Post-Closing Policies, during the term of, and subject to the terms and conditions set forth in this Agreement.  Any of the rights in the foregoing license may be sublicensed by the Administrator in connection with any contract permitted by Section 3.3; provided, that such sublicense is limited to the use of the Licensed Names and Marks in connection with the Administrative Services, including Post-Closing Policies and does not extend the right to further sublicense any such Licensed Names and Marks.  If the Administrator sublicenses any of the rights in the foregoing license, the Administrator shall remain liable for any actions or omissions by the sublicensee. The Administrator is granted no rights to use the Licensed Names and Marks, other than those rights specifically described and expressly licensed in this Agreement and no right is granted hereunder for the use of the Licensed Names and Marks in connection with any services other than the Administrative Services, including Post-Closing Policies.  Other than in connection with the Administrative Services, including Post-Closing Policies, none of the rights licensed to the Administrator under this Section 18.2 may be assigned, sublicensed or otherwise transferred by the Administrator, nor shall such rights inure to the benefit of any trustee in bankruptcy, receiver or successor of the Administrator, whether by operation of law or otherwise, without the prior written consent of the Company, and any assignment, sublicense or other transfer without such consent shall be null and void. The merger of Administrator with or into another entity shall not constitute an assignment or other transfer of the rights licensed to the Administrator under this Section 18.2.

 

(b)          The Administrator agrees that it will use the Licensed Names and Marks as the Company used them prior to the Closing and that the nature of such use on the Materials (as defined below) shall be at least equal to the standard of quality maintained by the Company in connection with such Licensed Names and Marks immediately prior to the Closing and consistent with established industry practice (collectively, the “Licensor Standards”).  The Administrator agrees to make available for review, upon the Company’s request, all materials that incorporate the Licensed Names and Marks including, but not limited to, advertising copy, labels, stickers, policies, brochures or other materials, including any applicable materials in connection with the Administrator’s performance under this Agreement (collectively, the “Materials”).  If the Company objects to the manner in which a Licensed Name or Mark is used in connection with any Materials, the Company may request that the Administrator take, and the Administrator shall promptly take, all steps necessary to remedy any such deficiencies within 15 days after such notification, including to promptly discontinue the use of any such Materials.  The Administrator shall promptly notify the Company of any material complaints received in writing from third parties regarding the products or services offered or provided under the Licensed Names and Marks and, at the request of the Company, shall reasonably cooperate with the Company in addressing and mitigating the circumstances giving rise to such complaints.  The Administrator shall (a) permit the Company or its representatives reasonable access to such of the Administrator’s facilities and personnel as are actively involved in use of the Licensed

 

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Names and Marks on reasonable prior written notice, and (b) make available to the Company or its representatives for inspection specimens demonstrating the Administrator’s use of the Licensed Names and Marks on the Materials or otherwise in connection with the Licensed Names and Marks, as requested by the Company from time to time for the purpose of verifying that the Administrator’s use complies with Licensor Standards and to the extent reasonably necessary to maintain the validity of the Licensed Names and Marks and the valuable goodwill and reputation established by the Licensed Names and Marks.

 

(c)          The Administrator agrees not to adopt or use any service mark, logo or design confusingly similar to the Licensed Names and Marks.  It is understood that the Company retains the right, in its sole discretion, to modify the Licensed Names and Marks, upon reasonable prior notice to the Administrator.  Any material costs incurred by the Administrator associated with any mailings to Contractholders required under Applicable Law as a result of such modification shall be reimbursed by the Company.

 

(d)          The Administrator recognizes the value of the goodwill associated with the Licensed Names and Marks and acknowledges that, as between the Administrator and the Company, all proprietary rights therein and the goodwill attached thereto belong exclusively to the Company.  All uses of the Licensed Names and Marks by the Administrator shall, with respect to service mark ownership only, inure solely to the benefit of the Company and any registration of the Licensed Names and Marks shall be registered by the Company in its name, it being understood that the present license shall not in any way affect the ownership by the Company of the Licensed Names and Marks, each of which shall continue to be the exclusive property of the Company.  The Company shall, in its own name and at its own expense, maintain appropriate service mark protection for the Licensed Names and Marks.  The Administrator shall not at any time during the term of this Agreement or at any time thereafter do or cause to be done any act contesting the validity of the Licensed Names and Marks, contesting or in any way impairing or tending to impair the Company’s entire right, title and interest in the Licensed Names and Marks and the registrations thereof or adversely affecting the value of the Licensed Names and Marks or the reputation and goodwill of the Company.  The Administrator shall not represent that it has any right, title or interest in the reputation and good will of the Company.  The Administrator shall not represent that it has any right, title or interest in the Licensed Names and Marks other than the rights expressly granted by this Agreement.

 

(e)          Subject to the provisions of Article XIX hereof, except with respect to any uses of the Licensed Names and Marks not authorized under this Agreement, the Company will indemnify, defend and hold the Administrator harmless from any Losses from claims that the Licensed Names and Marks infringe on the rights of third parties. Subject to the provisions of Article XIX, the Administrator will indemnify, defend and hold the Company harmless from any Losses that arise in connection with the Administrator’s use of the Licensed Names and Marks other than as authorized under this Agreement.  This Section 18.2 shall survive the termination or expiration of this Agreement.

 

(f)           The right to institute and prosecute actions for infringement of the Licensed Names and Marks is reserved exclusively to the Company, and the Company shall have the right to join the Administrator in any such actions as a formal party.  The Company may also request, and the Administrator shall provide, assistance with respect to any such infringement

 

28

 

action.  Any such action shall be conducted at the Company’s expense.  The Administrator shall provide prompt written notice to the Company of any infringement or unauthorized use of the Licensed Names and Marks of which it is aware, and agrees to assist the Company at the Company’s expense in any such action brought by the Company.  It is understood, however, that the Company is not obligated to institute and prosecute any such actions in any case in which it, in its sole judgment, may consider it inadvisable to do so.  Any recovery obtained by the Company as a result of any such action shall belong solely to Company.

 

(g)          The agreements and covenants contained in this Section 18.2 shall continue in effect until such time as this Agreement is terminated.  Upon termination of this Agreement, the Administrator shall discontinue all use of the Licensed Names and Marks (but in no event will such use extend beyond sixty (60) calendar days after termination).  Upon any such termination, the Administrator shall take all commercially reasonable actions necessary to effect such discontinuance.  Upon termination, all of the Administrator’s rights to the Licensed Names and Marks shall revert to and continue to reside with and be owned exclusively by the Company.

 

ARTICLE XIX

 

INDEMNIFICATION

 

Section 19.1     Administrator’s Obligation to Indemnify.  The Administrator shall indemnify, defend and hold harmless the Company and its Affiliates and their respective officers, directors, stockholders, employees, representatives, successors and assigns (collectively, the “Company Indemnified Persons”) from and against any and all Indemnifiable Losses incurred by the Company Indemnified Persons to the extent arising from (i) any breach by the Administrator of the covenants and agreements of the Administrator contained in this Agreement (an “Administrator Breach”), (ii) any violations of Applicable Law by the Administrator or its Affiliates or Subcontractors (including without limitation under the Securities Act of 1933) or otherwise arising from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, contained in any registration statement or prospectus or other product materials relating to an LBL Contract or Vermont Captive Contract or any interest offered under an LBL Contract or Vermont Captive Contract or any amendment thereof, but only to the extent prepared or updated by Administrator and excluding any such statement or omission made in reliance upon and in conformity with information furnished in writing to Administrator by LBL or its Affiliates after the date hereof expressly for use therein, (iii) any indemnification payment by the Company pursuant to the Principal Underwriting Agreement in respect of LBL Contracts covered thereunder (except to the extent arising out of any act or omission of the Company for which Administrator is not responsible pursuant to this Agreement) and (iv) any successful enforcement of this indemnity; provided that, the Administrator shall have no obligation to indemnify any Company Indemnified Party to the extent such Indemnifiable Loss results from (i) any act or omission resulting from the negligence or willful misconduct of the Company after the Inception Date, or (ii) any Company Breach.

 

Section 19.2     Company’s Obligation to Indemnify.  The Company hereby agrees to indemnify, defend and hold harmless the Administrator and its Affiliates and their respective

 

29

 

officers, directors, stockholders, employees, representatives, successors and assigns (collectively, the “Administrator Indemnified Persons”) from and against any and all Indemnifiable Losses incurred by the Administrator Indemnified Persons to the extent arising from (i) any breach by the Company of the covenants and agreements of the Company contained in this Agreement (a “Company Breach”), (ii) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, contained in any registration statement or prospectus or other product materials relating to an LBL Contract or Vermont Captive Contract or any interest offered under an LBL Contract or Vermont Captive Contract or any amendment thereof, in each case, that is made in reliance upon and in conformity with information provided in writing by the Company or an Affiliate after the Inception Date expressly for use by the Administrator in the preparation of such registration statement or prospectus and (iii) any successful enforcement of this indemnity; provided that, the Company shall have no obligation to indemnify any Administrator Indemnified Party to the extent such Indemnifiable Loss results from (i) any act or omission resulting from the negligence or willful misconduct of the Administrator or a Subcontractor, or (ii) any Administrator Breach.

 

Section 19.3     Definitions.  As used in this Agreement:

 

“Indemnitee” means any Person entitled to indemnification under this Agreement;

 

“Indemnitor” means any Person required to provide indemnification under this Agreement;

 

“Indemnifiable Losses” means any and all damages, losses, Liabilities, obligations, costs and expenses (including reasonable attorneys’ fees and expenses); provided, that any Indemnity Payment (x) shall in no event include any amounts constituting punitive damages relating to the breach or alleged breach of this Agreement (except to the extent actually paid to a third party in connection with a Third Party Claim) and (y) and shall be net of any amounts recovered by or recoverable by the Indemnitee for the Indemnifiable Losses for which such Indemnity Payment is made under any insurance policy, reinsurance agreement, warranty or indemnity or otherwise from any Person other than a Party hereto, and the Indemnitee shall promptly reimburse the Indemnitor for any such amount that is received by it from any such other Person with respect to an Indemnifiable Losses after any indemnification with respect thereto has actually been paid pursuant to this Agreement;

 

“Indemnity Payment” means any amount of Indemnifiable Losses required to be paid pursuant to this Agreement; and

 

“Third Party Claim” means any claim, action, suit, or proceeding made or brought by any Person that is not an Indemnitee.

 

Section 19.4     Applicability of Stock Purchase Agreement.  The procedures set forth in Section 7.5 of the Stock Purchase Agreement shall apply to Losses indemnified under this Article XIX.

 

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Section 19.5     No Duplication.  To the extent that an Indemnitee has received payment in respect of an Indemnifiable Loss pursuant to the provisions of any other Transaction Agreement, such Indemnitee shall not be entitled to indemnification for such Indemnifiable Loss under this Agreement to the extent of such payment.

 

ARTICLE XX

 

DURATION; TERMINATION

 

Section 20.1     Duration.  This Agreement shall commence on the Inception Date and continue with respect to each LBL Contract and each Vermont Captive Contract until no further Administrative Services in respect of such LBL Contract or Vermont Captive Contract are required, unless this Agreement is earlier terminated under Section 20.2.

 

Section 20.2     Termination.

 

(a)          This Agreement is subject to immediate termination at the option of the Company, upon written notice to the Administrator, upon the occurrence of any of the following events:

 

(i)           A voluntary or involuntary proceeding is commenced in any jurisdiction by or against the Administrator for the purpose of conserving, rehabilitating or liquidating the Administrator, and such proceeding shall continue undismissed for 60 days; or

 

(ii)          There is a material and continuing breach by the Administrator of this Agreement and such breach is not cured within twenty (20) Business Days following receipt by Administrator of written notice of such breach from the Company; provided, however, if such material breach is not curable within such twenty (20) Business Day period, the Company may not terminate the Administrator’s performance of the Administrative Services if the Administrator has, within such twenty (20) Business Day period, provided the Company with a detailed, written description of the Administrator’s good faith plan to cure such material and continuing breach; provided, further, if such material and continuing breach is not cured within forty-five (45) days following the Administrator’s delivery to the Company of such plan, the Company may terminate the Administrator’s performance of the Administrative Services.

 

(b)          This Agreement may be terminated at any time upon the mutual written consent of the Parties hereto, which writing shall state the effective date of termination.

 

(c)          In the event that this Agreement is terminated under any of the provisions of Section 20.2(a):

 

(i)           the Administrator and the Company shall each cooperate in the prompt transfer of the applicable Administrative Services and any books and records and other materials maintained by the Administrator related to such Administrative Services (or, where required by Applicable Law, copies thereof) to the Company or the Company’s designee reasonably acceptable to the Administrator;

 

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(ii)          in the event there has occurred a Change in Control at or prior to such termination, the Administrator shall use its reasonable best efforts to provide the Company or a replacement servicer designated by the Company with a license to, or seek to obtain consents of third parties for the use of, software and systems used by the Administrator in performing the Administrative Services as reasonably necessary to permit the Company or such replacement servicer to perform the Administrative Services for a reasonable period following such termination, such that the Company or such replacement servicer shall be able to perform the applicable Services without interruption following termination of this Agreement; and

 

(iii)         the Administrator shall reimburse the Company for (A) reasonable out-of-pocket costs for transitioning the Administrative Services to a substitute provider reasonably acceptable to the Company (provided that in the event the Reinsurance Agreement is in effect at the time of such termination, the Company shall obtain the Administrator’s consent to such substitute provider, such consent not to be unreasonably withheld, conditioned or delayed, and the Administrator shall notify the Company of its decision with respect to such consent as soon as reasonably practicable and in any event within thirty (30) days following delivery of the Company’s request for such consent), (B) any reasonable fees paid to any such substitute provider in connection with the performance of any Administrative Services and (C) any reasonable out-of-pocket costs incurred by the Company with respect to the Administrative Services after termination of this Agreement; provided, however, that the Administrator shall not be liable for the fees and expenses set forth in clauses (B) and (C) of this Section 20.2(c)(iii) that are incurred following the termination of the Reinsurance Agreement.

 

ARTICLE XXI

 

GENERAL PROVISIONS

 

Section 21.1     Schedules and Exhibits.  The Schedules and Exhibits to this Agreement that are specifically referred to herein are a part of this Agreement as if fully set forth herein.

 

Section 21.2     Notices.  All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be delivered personally or by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

 

(a)          if to the Company:

 

Lincoln Benefit Life Company

[        ]

[        ]

Attention:  [     ]

 

with copies (which shall not constitute notice) to:

 

Debevoise & Plimpton LLP

919 Third Avenue

 

32

 

New York, New York 10022

Attention:          Nicholas F. Potter

David Grosgold

 

(b)          if to the Administrator:

 

Allstate Life Insurance Company

3100 Sanders Road

Northbrook, Illinois 60062

Attention:  Jess Merten

Email: Jess.Merten@allstate.com

 

with copies to:

 

Allstate Life Insurance Company

3075 Sanders Road

Northbrook, Illinois 60062

Attention:  Joy Thomas

Email: Joy.Thomas@allstate.com

 

and

 

Allstate Life Insurance Company

2775 Sanders Road

Northbrook, Illinois 60062

Attention:  Beth Lapham

Email: blapham@allstate.com

 

with copies (which shall not constitute notice) to:

 

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, New York  10019

Attention:          John M. Schwolsky

Alexander M. Dye

 

Notice given by personal delivery or overnight courier shall be effective upon actual receipt.

 

Section 21.3     Interpretation.  When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.  All references herein to any agreement, instrument, statute, rule or regulation are to the agreement, instrument, statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, includes any rules and regulations promulgated under said statutes) and to any section of any statute, rule or regulation including any successor to said section.  The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Whenever the words “include,” “includes” or “including” are

 

33

 

used in this Agreement, they shall be deemed to be followed by the words “without limitation.”  Whenever the singular is used herein, the same shall include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate.  Whenever the word “Dollars” or the “$” sign appear in this Agreement, they shall be construed to mean United States Dollars, and all transactions under this Agreement shall be in United States Dollars.  This Agreement has been fully negotiated by the Parties hereto and shall not be construed by any Governmental Entity against either Party by virtue of the fact that such Party was the drafting Party.

 

Section 21.4     Entire Agreement; Third Party Beneficiaries.  This Agreement (including all exhibits and schedules hereto) and the other Transaction Agreements constitute the entire agreement, and supersede all prior agreements, understandings, representations and warranties, both written and oral, among the Parties with respect to the subject matter of this Agreement.  Except as set forth in Article XIX with respect to the Administrator Indemnified Parties and the Company Indemnified Parties, this Agreement is not intended to confer upon any Person other than the Parties hereto and their successors and permitted assigns any rights or remedies.

 

Section 21.5     Governing Law.  This Agreement and any dispute arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.

 

Section 21.6     Assignment.  Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise (other than by operation of law in a merger), by either Party without the prior written consent of the other Party, and any such assignment that is not consented to shall be null and void.  Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.

 

Section 21.7     Jurisdiction; Enforcement.

 

(a)          Each of the Parties hereto hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any court of the United States or any state court, which in either case is located in the City and County of New York (each, a “New York Court”) for purposes of enforcing this Agreement or determining any claim arising from or related to the transactions contemplated by this Agreement.  In any such action, suit or other proceeding, each of the Parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claim that it is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper; provided, that nothing set forth in this sentence shall prohibit any of the Parties hereto from removing any matter from one New York Court to another New York Court.  Each of the Parties hereto also agrees that any final and unappealable judgment against a Party hereto in connection with any action, suit or other proceeding will be conclusive and binding on such Party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States.  A certified or exemplified copy of such award or judgment will be conclusive evidence of the fact and amount of such award or judgment. Any process or other paper to be served in

 

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connection with any action or proceeding under this Agreement shall, if delivered or sent in accordance with Section 21.2, constitute good, proper and sufficient service thereof.

 

(b)          EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OR ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 21.7.

 

Section 21.8     Severability; Amendment; Modification; Waiver.

 

(a)          Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any Applicable Law in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.

 

(b)          This Agreement may be amended or a provision hereof waived only by a written instrument signed by each of the Administrator and the Company.

 

(c)          No delay on the part of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any Party of any right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege.

 

Section 21.9     Specific Performance.  The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any court of competent jurisdiction, in addition to any other remedy to which they are entitled at law or in equity.  The Parties hereby waive, in any action for specific performance, the defense of adequacy of a remedy at law and the posting of any bond or other security in connection therewith.

 

Section 21.10   Counterparts.  This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Party.  Each Party

 

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may deliver its signed counterpart of this Agreement to the other Party by means of electronic mail or any other electronic medium utilizing image scan technology, and such delivery will have the same legal effect as hand delivery of an originally executed counterpart.

 

Section 21.11   Survival.  Articles XVI, XIX, XX and XXI shall survive the termination of this Agreement.

 

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the Company and the Administrator have caused this Agreement to be signed by their respective duly authorized officers, all as of the date first written above.

 

 

	
 
    	
LINCOLN BENEFIT LIFE   COMPANY
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
ALLSTATE LIFE INSURANCE   COMPANY
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    

 

[Administrative Services Agreement]

 

EXHIBIT C

 

	
 
    	
 
    

 

 

 

 

AMENDED AND RESTATED REINSURANCE AGREEMENT

 

between

 

LINCOLN BENEFIT LIFE COMPANY
 and

 

ALLSTATE LIFE INSURANCE COMPANY

 

 

Dated as of [·]

 

 

	
 
    	
 
    

 

 

TABLE OF CONTENTS

 

	
 
    	
Page
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Article I
    	
DEFINITIONS
    	
 
    	
2
    
	
 
    	
 
    	
 
    	
 
    
	
Article II
    	
COVERAGE
    	
 
    	
11
    
	
 
    	
 
    	
 
    	
 
    
	
Article III
    	
ADMINISTRATION; GENERAL
    	
 
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
Article IV
    	
INITIAL REINSURANCE PREMIUM;   ADDITIONAL CONSIDERATION; NET SETTLEMENT
    	
 
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
Article V
    	
DURATION AND TERMINATION
    	
 
    	
19
    
	
 
    	
 
    	
 
    	
 
    
	
Article VI
    	
INSOLVENCY
    	
 
    	
20
    
	
 
    	
 
    	
 
    	
 
    
	
Article VII
    	
LICENSES; SECURITY
    	
 
    	
20
    
	
 
    	
 
    	
 
    	
 
    
	
Article VIII
    	
DAC TAXES
    	
 
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
Article IX
    	
ARBITRATION
    	
 
    	
24
    
	
 
    	
 
    	
 
    	
 
    
	
Article X
    	
INDEMNIFICATION; DISCLAIMER
    	
 
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
Article XI
    	
GENERAL PROVISIONS
    	
 
    	
27
    

 

 

SCHEDULES

 

	
SCHEDULE A
    	
-
    	
CEDED REINSURANCE   CONTRACTS
    
	
 
    	
 
    	
 
    
	
SCHEDULE B
    	
-
    	
SEPARATE ACCOUNTS
    
	
 
    	
 
    	
 
    
	
SCHEDULE C
    	
-
    	
MONTHLY REPORT
    
	
 
    	
 
    	
 
    
	
EXHIBITS
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
EXHIBIT A
    	
-
    	
TRUST AGREEMENT
    

 

 

AMENDED AND RESTATED REINSURANCE AGREEMENT

 

 

This Amended and Restated Reinsurance Agreement, dated as of [·], 2013 (this “Agreement”), is made and entered into by and between Lincoln Benefit Life Company, a Nebraska domiciled stock life insurance company (the “Company”), and Allstate Life Insurance Company, an Illinois domiciled stock life insurance company (the “Reinsurer”, and together with the Company, the “Parties”, and each a “Party”).

 

WHEREAS, the Reinsurer owns 100% of the issued and outstanding capital stock of the Company;

 

WHEREAS, the Reinsurer, Resolution Life Holdings, Inc., a corporation organized under the laws of the State of Delaware (the “Buyer”), and Resolution Life L.P., solely for purposes of Section 5.25 and Article X thereto, a Bermuda limited partnership, have entered into a Stock Purchase Agreement, dated as of July 17, 2013 (the “Stock Purchase Agreement”), pursuant to which the Reinsurer proposes to sell, and the Buyer proposes to purchase, 100% of the issued and outstanding capital stock of the Company;

 

WHEREAS, the Stock Purchase Agreement provides, among other things, for the Company and the Reinsurer to enter into this Agreement;

 

WHEREAS, the Reinsurer provides reinsurance coverage to the Company in accordance with the terms of the following reinsurance agreements:  (i) a coinsurance agreement between the Parties effective as of December 31, 2001 covering the Company’s general account liabilities for all policies and market value adjustment annuities (the “General Account Reinsurance Agreement”), (ii) a modified coinsurance agreement between the Parties effective as of December 31, 2001 covering the Company’s separate account liabilities for variable life insurance policies (the “Variable Life Reinsurance Agreement”, and together with the General Account Reinsurance Agreement, the “Subject Reinsurance Agreements”) and (iii) a modified coinsurance agreement between the Parties effective as of December 31, 2001 covering the Company’s separate account liabilities for variable annuity policies (the “Variable Annuity Reinsurance Agreement”);

 

WHEREAS, the Company is also a party to a Reinsurance Agreement, effective September 30, 2012 (the “Vermont Captive Reinsurance Agreement”), pursuant to which the Company cedes to the Vermont Captive one hundred percent (100%) of the policy benefits under specified universal life insurance policies written by the Company with issue dates within the range set forth in the Vermont Captive Reinsurance Agreement;

 

WHEREAS, prior to the closing of the transactions contemplated in the Stock Purchase Agreement, the Company and the Reinsurer entered into a Recapture Agreement (the “Recapture Agreement”) pursuant to which the Company recaptured from the Reinsurer certain of the business that was previously ceded or retroceded to the Reinsurer under the Subject Reinsurance Agreements;

 

WHEREAS, in connection with the Closing of the transactions contemplated in the Stock Purchase Agreement, the Company and the Reinsurer desire to amend and restate, in its entirety,

 

 

the Variable Life Reinsurance Agreement with respect to the business of the Company that was reinsured under the Variable Life Reinsurance Agreement and has not recaptured by the Company pursuant to the Recapture Agreement;

 

WHEREAS, in connection with the Closing of the transactions contemplated in the Stock Purchase Agreement, the Company and the Reinsurer desire to amend and restate the General Account Reinsurance Agreement with respect to the portion of the business of the Company that was reinsured under the General Account Reinsurance Agreement and has not recaptured by the Company pursuant to the Recapture Agreement, except for the Company’s variable annuity policies reinsured pursuant to the General Account Reinsurance Agreement (which variable annuity policies will continue to be reinsured by the Reinsurer pursuant to the General Account Reinsurance Agreement with respect to all general account liabilities associated with such variable annuity policies);

 

WHEREAS, the Variable Annuity Reinsurance Agreement shall remain in full force and effect without amendment; and

 

WHEREAS, the Company wishes to appoint the Reinsurer to provide administrative and other services with respect to the Reinsured Risks (as defined below), and the Reinsurer, as Administrator, desires to provide such administrative services and other services;

 

NOW, THEREFORE, the Company and the Reinsurer agree as follows:

 

ARTICLE I
 DEFINITIONS

 

Section 1.1                        Definitions.  Any capitalized term used but not defined herein, unless otherwise indicated, shall have the meaning set forth in the Stock Purchase Agreement.  As used in this Agreement, the following terms shall have the following meanings:

 

“Administrative Services Agreement” means the Administrative Services Agreement entered into between the Company and the Reinsurer as of the date hereof.

 

“Administrator” means the Reinsurer in its capacity as administrator under the Administrative Services Agreement.

 

“Agreement” shall have the meaning set forth in the Preamble.

 

“ALIC Outward Reinsurance Contracts” means all reinsurance or coinsurance treaties and agreements to which the Reinsurer is or becomes a party, as retrocedent, and that relate to the retrocession by the Reinsurer of risks assumed under this Agreement, including  (a) all reinsurance or coinsurance treaties and agreements in force as of the date of this Agreement to which the Reinsurer is a ceding party to and that relate to the LBL Contracts, (b) any such treaty or agreement that is terminated or expired but under which the Reinsurer may continue to receive benefits with respect to the LBL Contracts, (c) any other new or replacement reinsurance or coinsurance treaties or agreements covering the LBL Contracts that are entered into by the Reinsurer and (d) any Alternative Reinsurance Arrangement.

 

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“Alternative Reinsurance Arrangement” shall have the meaning set forth in Section 3.10(b).

 

“ARIAS” shall have the meaning set forth in Section 9.1.

 

“Bank Accounts” shall have the meaning set forth in Section 4.4.

 

“Captive” means ALIC Reinsurance Company, a South Carolina domiciled captive insurance Company.

 

“Captive Change of Control” means the occurrence of one or more of the following events:  any Person other than TAC, one or more Affiliates of TAC or the Reinsurer (whether or not then an Affiliate of TAC) acquires or assumes (x) Control of the Captive, whether by merger, consolidation, stock acquisition or otherwise (including the acquisition or assumption of the power to direct the Captive’s management and policies by means of a management or services agreement or other contractual arrangement) or (y) all or substantially all of the assets or Liabilities of the Captive by reinsurance (whether indemnity or assumption) or otherwise; provided, however, that the acquisition of Control of TAC by any Person shall not constitute a Change in Control.  Notwithstanding the foregoing, no Captive Change in Control shall be deemed to occur if TAC provides a guarantee for the benefit of the Company, on terms reasonably satisfactory to the Company, of all obligations of the Captive to the Reinsurer that are assigned to the Company in accordance with the terms of the definition of Required Balance.

 

“Ceded Reinsurance Contracts” means (a) all reinsurance or coinsurance treaties and agreements in force as of the date of this Agreement to which the Company is a ceding party and that relate to the LBL Contracts, (b) any such treaty or agreement that is terminated or expired but under which the Company may continue to receive benefits with respect to the LBL Contracts, and (c) any other new or replacement reinsurance or coinsurance treaties or agreements covering the LBL Contracts that are entered into by the Reinsurer on behalf of the Company as Administrator under the Administrative Services Agreement, including with respect to subclauses (a), (b) and (c) above, the Vermont Captive Reinsurance Agreement and those treaties and agreements set forth on Schedule A.

 

“Change in Control” means the occurrence of one or more of the following events:  any Person other than TAC or one or more Affiliates of TAC acquires or assumes (x) Control of the Reinsurer, whether by merger, consolidation, stock acquisition or otherwise (including the acquisition or assumption of the power to direct the Reinsurer’s management and policies by means of a management or services agreement or other contractual arrangement) or (y) all or substantially all of the assets or Liabilities of the Reinsurer by reinsurance (whether indemnity or assumption) or otherwise; provided, however, that the acquisition of Control of TAC by any Person shall not constitute a Change in Control.  Notwithstanding the foregoing, no Change in Control shall be deemed to occur if TAC provides a guarantee for the benefit of the Company of all Reinsured Risks and all obligations of the Reinsurer hereunder on terms reasonably satisfactory to the Company.

 

“Company” shall have the meaning set forth in the Preamble.

 

3

 

“Company Extra Contractual Obligations” means all Extra Contractual Obligations to the extent arising out of, resulting from or relating to any alleged or actual act, error or omission after the Inception Date (including the failure of the Company to perform any Retained Services for such term as defined in the Administrative Services Agreement to the extent required thereunder), whether intentional, in bad faith, reckless, grossly negligent, negligent or otherwise, by the Company or any of its Affiliates, or any service providers engaged or compensated by the Company or its Affiliates (other than the Reinsurer, any of its Affiliates or any designee or subcontractor appointed by Administrator under the Administrative Services Agreement), in each case unless such action was directed by the Reinsurer in writing.

 

“Company Indemnified Persons” shall have the meaning set forth in Section 10.1.

 

“Contractholder” means the holder of any LBL Contract.

 

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

“Designated Company Conversion Policies” shall have the meaning set forth in the Administrative Services Agreement.

 

“Eligible Assets” shall have the meaning set forth in Section 7.4.

 

“Exclusive Producer” means any Producer that markets, sells or administers business of the type written by the Reinsurer or any of its Affiliates exclusively for or on behalf of the Reinsurer and its Affiliates, notwithstanding whether such Producer also sells products of the type not written by the Reinsurer or any of its Affiliates on behalf of third parties.

 

“Extra Contractual Obligation” means all Liabilities (for the avoidance of doubt, other than Liabilities arising under the express terms and conditions of the LBL Contracts), including Liabilities for fines, penalties, Taxes, fees, forfeitures, compensatory, punitive, exemplary, special, treble, bad faith, tort or any other form of damages, and legal fees and expenses relating thereto, arising out of, resulting from or relating to any alleged or actual act, error or omission, whether intentional, in bad faith, reckless, grossly negligent, negligent or otherwise, in connection with (i) the form, sale, marketing, underwriting, production, issuance, cancellation or administration of the LBL Contracts, (ii) the investigation, defense, trial, settlement or handling of claims, benefits, dividends or payments under or relating to the LBL Contracts, or (iii) the failure to pay or the delay in payment or errors in calculating or administering the payment of benefits, claims, dividends or any other amounts due or alleged to be due under or in connection with the LBL Contracts.

 

“Fair Market Value” means (i) as to cash, the amount thereof; and (ii) as to an asset other than cash, the amount at which such asset could be bought or sold in a current transaction between willing parties other than in a forced or liquidation sale.

 

“Fronting Period” means the period of time on and after the date hereof that the Reinsurer has the right under Section 4.1(a) of the Administrative Services Agreement to issue life insurance contracts in the name of the Company.

 

4

 

“Fund” means any registered investment company in which a Separate Account invests.

 

“General Account Liabilities” means the following Liabilities of the Company, whether incurred before, at or after the Inception Date:  (a) all claims, benefits, claim expenses, interest on claims or unearned premiums, interest on policy funds, withdrawals, amounts payable for returns or refunds of premium surrender amounts and other amounts payable under the terms of the LBL Contracts; (b) all Liabilities arising out of changes to the terms and conditions of the LBL Contracts mandated by Applicable Law or initiated by a Contractholder pursuant to the terms of the applicable LBL Contracts; (c) all expense allowances payable under the LBL Contracts and all experience refunds that relate to the LBL Contracts (including under the Transamerica Reinsurance Agreement); (d) all premium taxes due or accrued in respect of premiums paid, deposits made or annuitizations occurring with respect to the LBL Contracts net of premium tax credits to the extent arising out of assessments or charges described in clause (e); (e) all assessments and similar charges with respect to the LBL Contracts in connection with participation by the Company or the Reinsurer, whether voluntary or involuntary, in any guaranty association established or governed by any state or other jurisdiction, arising on account of insolvencies, rehabilitations or similar proceedings occurring before, on or after the Inception Date; (f) all commissions (including both fronted and trail commissions), expense allowances, benefit credits, other compensation and other servicing and administration fees payable with respect to the LBL Contracts to or for the benefit of Producers; (g) all escheat and unclaimed property Liabilities arising under the LBL Contracts; (h) all premiums and other amounts payable under the Ceded Reinsurance Contracts in respect of the LBL Contracts; and without duplication, (i) all expense reimbursement amounts payable to Allstate Distributors, LLC by the Company under the Principal Underwriting Agreement with respect to the LBL Contracts; in each of the cases of subclauses (a) through (i) above, net of amounts actually collected under the Ceded Reinsurance Contracts by or on behalf of the Company in respect of the LBL Contracts.  For the avoidance of doubt, General Account Liabilities (A) exclude the Separate Account Liabilities and the Company Extra Contractual Obligations, and (B) include any general account fixed options under LBL Contracts.

 

“General Account Reinsurance Agreement” shall have the meaning set forth in the Recitals.

 

“General Account Reserves” means the aggregate amount of general account reserves of the Company with respect to the General Account Liabilities (without regard to the reinsurance provided hereunder), determined in accordance with Nebraska SAP; provided, the term “General Account Reserves” does not include the Separate Account Reserves.  For the avoidance of doubt, such General Account Reserves shall include the amounts for General Account Liabilities that would be reflected in lines 1 through 4 inclusive, column 1, in the “Liabilities, Surplus and Other Funds” section of the NAIC statement blank used to prepare the Company’s statutory balance sheet as of December 31, 2012, or if the line numbers are changed pursuant to relevant guidance from the NAIC, the successor to such line numbers.

 

“Illinois SAP” means the statutory accounting principles prescribed or permitted by the Commissioner of Insurance of the State of Illinois but disregarding any permitted practices applicable to the Reinsurer, other than those of general applicability to life insurers.

 

5

 

“Inception Date” shall have the meaning set forth in Section 2.1

 

“LBL Contracts” means all Pre-Closing Policies and Post-Closing Policies, excluding policies issued or coverages otherwise provided as a result of the exercise by a Contractholder of any conversion right in a Pre-Closing Policy or a Post-Closing Policy, other than all Designated Company Conversion Policies.

 

“LIBOR Determination Date” means the date as of which One-Month LIBOR is to be determined, or if such date is not a London Banking Day, the next immediately succeeding London Banking Day.

 

“London Banking Day” means any business day on which dealings in deposits in U.S. dollars are transacted in the London interbank market.

 

“Minimum Balance” shall have the meaning set forth in Section 7.7

 

“Monthly Accounting Period” means each calendar month during the term of this Agreement or any fraction thereof ending on the date this Agreement is terminated in accordance with Section 5.2.

 

“Monthly Report” shall have the meaning set forth in Section 4.5.

 

“Monthly Settlement” shall have the meaning set forth in Section 4.5.

 

“Nebraska Commissioner” means the Commissioner of Insurance of the State of Nebraska.

 

“Nebraska SAP” means the statutory accounting principles prescribed or permitted by the Commissioner of Insurance of the State of Nebraska but disregarding any permitted practices applicable to the Company, other than those of general applicability to life insurers.

 

“New York Court” shall have the meaning set forth in Section 11.5.

 

“Non-Guaranteed Elements” means cost of insurance charges, loads and expense charges, credited interest rates, mortality and expense charges, administrative expense risk charges, variable premium rates, variable paid-up amounts, policyholder dividends and other policy features that are subject to change.

 

“One-Month LIBOR” means for each interest period, the London interbank offered rate for deposits in U.S. dollars having a maturity of one month which appears on Bloomberg:  verb “BBAM”, 1) “Official BBA Libor Fixings” as of 11:00 a.m., London time, on the related LIBOR Determination Date.  If this rate does not appear on Bloomberg:  verb “BBAM”, 1) “Official BBA Libor Fixings” on that date, the rate for such interest period will be determined on the basis of the rates at which deposits in U.S. dollars, having a maturity of one month and in a principal amount of not less than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time, on the LIBOR Determination Date with respect to that interest period, to prime banks in the London interbank market.

 

6

 

“Parties” shall have the meaning set forth in the Preamble.

 

“Policy Loan Balance” means, with respect to any date of determination, the amount of contract loans in respect of the LBL Contracts, as of such date, as would be reflected in line 6, column 3 in the “Assets” section of the NAIC statement blank used to prepare the Company’s statutory balance sheet as of December 31, 2012 or if the line number is changed pursuant to relevant guidance from the NAIC, the successor line number to such line number, net of any unearned policy loan interest on such loans but including any due and accrued interest thereon, determined in accordance with Nebraska SAP.

 

“Post-Closing Policies” means all of the life insurance and annuity contracts issued by the Administrator in the name of the Company pursuant to the Administrative Services Agreement.

 

“Post-Underwriting Period Conversion Policies” shall have the meaning set forth in the Administrative Services Agreement.

 

“Pre-Closing Policies” means all of the life insurance and annuity contracts written or reinsured by the Company prior to the Inception Date and reinsured pursuant to the Subject Reinsurance Agreements, other than (i) the Recaptured Business and (ii) all variable annuity policies written by the Company to the extent reinsured by the Reinsurer under the Variable Annuity Reinsurance Agreement or the General Account Reinsurance Agreement.  For the avoidance of doubt, the Pre-Closing Policies shall be comprised of (i) all life insurance business written by the Company through Exclusive Producers prior to the Inception Date, (ii) all immediate annuities written by the Company prior to the Inception Date, (iii) all Specified Life Business and (iv) the Reinsured Policies.

 

“Premiums” means premiums, considerations, deposits, payments, loan interest and principal repayments and other amounts received by or on behalf of the Company in respect of the LBL Contracts.

 

“Principal Underwriting Agreement” means the Principal Underwriting Agreement entered into between the Company and Allstate Distributors, LLC as of the date hereof.

 

“Producer” means any producer, broker, agent, general agent, managing general agent, master broker agency, broker general agency, financial specialist or other Person responsible for marketing or producing insurance policies, annuity contracts, protection and retirement products on behalf of the Company.

 

“Recapture Agreement” shall have the meaning set forth in the Recitals.

 

“Recaptured Business” means the business written by the Company that was reinsured by the Reinsurer pursuant to the Subject Reinsurance Agreement and is recaptured by the Company pursuant to the Recapture Agreement.

 

“Recoveries” shall have the meaning set forth in Section 4.2(a).

 

7

 

“Recoveries Collateral” shall have the meaning set forth in Section 4.3(a).

 

“Reinsurance Receivables” means, as of any date of determination, the sum of (x) the amounts recoverable from reinsurers under the Ceded Reinsurance Agreements or the ALIC Outward Reinsurance Contracts, as of such date, as would be reflected in line 16.1, column 3 in the “Assets” section of the NAIC statement blank used to prepare the statutory balance sheet of the Company or the Reinsurer, as applicable, as of December 31, 2012 or if the line number is changed pursuant to relevant guidance from the NAIC, the successor line number to such line number, plus (y) the funds held by or deposited with reinsured companies under the Ceded Reinsurance Agreements or the ALIC Outward Reinsurance Contracts, as of such date, as would be reflected in line 16.2, column 3 in the “Assets” section of the NAIC statement blank used to prepare the statutory balance sheet of the Company or the Reinsurer, as applicable, as of December 31, 2012 or if the line number is changed pursuant to relevant guidance from the NAIC, the successor line number to such line number, plus (z) other amounts receivable under reinsurance contracts from reinsurers under the Ceded Reinsurance Agreements of the ALIC Outward Reinsurance Contracts, as of such date, as would be reflected in line 16.3, column 3 in the “Assets” section of the NAIC statement blank used to prepare the statutory balance sheet of the Company or the Reinsurer, as applicable, as of December 31, 2012 or if the line number is changed pursuant to relevant guidance from the NAIC, the successor line number to such line number, in each case determined in accordance with SAP or Applicable Law of the Company Domiciliary State.

 

“Reinsured Policies” means those term life insurance policies reinsured by the Company pursuant to the Transamerica Reinsurance Agreement.

 

“Reinsured Risks” shall have the meaning set forth in Section 2.1

 

“Reinsurer” shall have the meaning set forth in the Preamble.

 

“Reinsurer Extra Contractual Obligations” means all Extra Contractual Obligations to the extent arising out of, resulting from or relating to any alleged or actual act, error or omission, whether intentional, in bad faith, reckless, grossly negligent, negligent or otherwise, by the Reinsurer or any of its Affiliates, or any service providers engaged or compensated by the Reinsurer or its Affiliates (other than any Company Extra Contractual Obligations).

 

“Reinsurer Indemnified Persons” shall have the meaning set forth in Section 10.2.

 

“Reinsurer Statutory Book Value” means, with respect to any Eligible Asset, the amount carried in respect of such asset by the Reinsurer as an admitted asset determined in accordance with Illinois SAP.

 

“Required Balance” means, as of any date of determination, an amount equal to (i) the General Account Reserves as of such date, minus (ii) the Policy Loan Balance as of such date, minus (iii) the Reinsurance Receivables as of such date, minus (iv) the amount of Uncollected/Deferred Premiums as of such date, minus (v) reserve credits on the Reinsurer’s books and records as of such date with respect to the ALIC Outward Reinsurance Contracts whereby the Reinsurer cedes liabilities to an Affiliate of the Reinsurer, provided, however, that

 

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with respect to clause (v), the Required Balance shall only be reduced, (A) in an amount that in the aggregate does not exceed 40% of the General Account Reserves as of such date, (B) to the extent of the Value of any assets held as collateral for the reinsurance under the applicable ALIC Outward Reinsurance Contract and (C) to the extent the Reinsurer has assigned to the Company all its rights with respect to such collateral on terms reasonably satisfactory to the Company.  Notwithstanding the foregoing, from and after the occurrence of both a Change in Control and a Captive Change of Control, the Required Balance shall be, as of any date of determination, an amount equal to (i) the General Account Reserves less (ii) the Policy Loan Balance as of such date.

 

“Reserve Credit” means full reserve credit for the reinsurance ceded to the Reinsurer under this Agreement in the Statutory Financial Statements required to be filed by the Company with the Commissioner of Insurance of the State of Nebraska.

 

“Separate Account Charges” shall have the meaning set forth in Section 4.2(a)(iii)

 

“Separate Account Liabilities” means those liabilities that are payable from the assets of the Separate Accounts in respect of the LBL Contracts.

 

“Separate Account Separation” shall have the meaning set forth in the Administrative Services Agreement.

 

“Separate Accounts” means the portion of the variable life separate account(s) of the Company described on Schedule B that relate to the LBL Contracts and, following the Separate Account Separation, the new separate account formed in connection therewith.

 

“Shared Reinsurance Agreement” shall have the meaning set forth in Section 3.10(b).

 

“Shared Separate Account” means the Lincoln Benefit Life Variable Life Account A, but only so long as such separate account includes assets held in respect of LBL Contracts.

 

“Specified Life Business” means, collectively, (i) the term life insurance policies written by the Company prior to the Inception Date that have been reinsured to the Reinsurer and retroceded by the Reinsurer to ALIC Reinsurance Company and (ii) the term life insurance policies of the type identified on Section 1.1(d) of the Seller Disclosure Schedule to the Stock Purchase Agreement that were written by the Company and are reinsured by third party reinsurers.

 

“Statutory Financial Statements” means, with respect to any Party, the annual and quarterly statutory financial statements of such Party.

 

“Stock Purchase Agreement” shall have the meaning set forth in the Recitals.

 

“Subject Reinsurance Agreements” shall have the meaning set forth in the Recitals.

 

“TAC” means The Allstate Corporation, a Delaware corporation.

 

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“Transaction Agreements” shall have the meaning set forth in the Stock Purchase Agreement.

 

“Transamerica” means Transamerica International Reinsurance Company.

 

“Transamerica Reinsurance Agreement” means that certain [Reinsurance Agreement], dated as of [      ] by and between the Company and Transamerica.

 

“Transfer Instruments” shall have the meaning set forth in Section 7.5

 

“Trust Account” means the trust account established by the Reinsurer for the benefit of the Company under the Trust Agreement.

 

“Trust Agreement” means that certain Trust Agreement dated as of the date hereof by and among the Reinsurer, the Company and the Trustee, as trustee, substantially in the form of Exhibit A hereof.

 

“Trustee” shall have the meaning set forth in Section 7.2.

 

“UCC” shall have the meaning set forth in Section 4.3(b)(i).

 

“Uncollected/Deferred Premiums” means, as of any date of determination, the sum of (i) uncollected premiums in the course of collection in respect of the LBL Contracts, as of such date, as would be reflected in line 15.1, column 3 in the “Assets” section of the NAIC statement blank used to prepare the Reinsurer’s balance sheet in its most recent Statutory Financial Statement or if the line number is changed pursuant to relevant guidance from the NAIC, the successor line number to such line number, plus (ii) deferred premiums and installments booked but deferred and not yet due in respect of the LBL Contracts, as of such date, as would be reflected in line 15.2, column 3 in the “Assets” section of the NAIC statement blank used to prepare the Reinsurer’s balance sheet in its most recent Statutory Financial Statement or if the line number is changed pursuant to relevant guidance from the NAIC, the successor line number to such line number, in each case determined in accordance with Nebraska SAP.

 

“Value” means, with respect to the assets in the Trust Account, their Reinsurer Statutory Book Value prior to a Change in Control and following the occurrence of a Change in Control, their Fair Market Value.

 

“Variable Annuity Reinsurance Agreement” shall have the meaning set forth in the Recitals.

 

“Variable Life Reinsurance Agreement” shall have the meaning set forth in the Recitals.

 

“Vermont Captive” means Lincoln Benefit Reinsurance Company, a Vermont domiciled captive insurance company.

 

10

 

“Vermont Captive Reinsurance Agreement” shall have the meaning set forth in the Recitals.

 

ARTICLE II
 COVERAGE

 

Section 2.1        Coverage.  Upon the terms and subject to the conditions and other provisions of this Agreement, as of [12:01 a.m.] Central Time on the 1st day of the month in which the Closing occurs (the “Inception Date”), the Company hereby cedes to the Reinsurer, and the Reinsurer hereby agrees to indemnify the Company (i) on a coinsurance basis, for one hundred percent (100%) of the General Account Liabilities of the Company; (ii) on a modified coinsurance basis, for one hundred percent (100%) of the Separate Account Liabilities of the Company and (iii) for one hundred percent (100%) of the Reinsurer Extra Contractual Obligations, in each case, payable by the Company on or after the Inception Date (the “Reinsured Risks”).

 

Section 2.2        Conditions.

 

(a)          The Company, on its own initiative, shall not change the terms and conditions of any LBL Contract, other than for any changes that are required due to (i) changes in Applicable Law, (ii) the terms of the LBL Contracts or (iii) the requirements of any Governmental Entity.  If the Company’s liability under any of the LBL Contracts is changed because of changes made on or after the Inception Date in the terms and conditions of the LBL Contracts (including to any contract riders or endorsements thereto) that are required due to the reasons identified in clauses (i), (ii) or (iii) above, the Reinsurer will share in the change proportionately to the coinsurance share hereunder and the Company and the Reinsurer will make all appropriate adjustments to amounts due each other under this Agreement.  With respect to any change required due to the reasons identified in clauses (i) or (iii) above, the Company shall, to the extent practicable, prior to the effectiveness of any such change, promptly notify the Reinsurer of such proposed change and afford the Reinsurer the opportunity, to the extent practicable, to object to such change under applicable administrative procedures (both formal and informal).

 

(b)          Except as otherwise set forth or contemplated herein, including in paragraph (a) above, no changes, amendments or modifications made on or after the Inception Date of the terms and conditions of the LBL Contracts (including to any contract riders or endorsements thereto) shall be covered hereunder unless made by the Reinsurer pursuant to the Administrative Services Agreement or made or consented to by the Company with the prior written approval of the Reinsurer.  In the event that any such changes, amendments or modifications are made or consented to in any LBL Contract by the Company without the prior written approval of the Reinsurer, this Agreement will cover Reinsured Risks incurred by the Company under such LBL Contract as if the non-approved changes, amendments or modifications had not been made.

 

Section 2.3        Indemnity Reinsurance.  This Agreement is an indemnity coinsurance and modified coinsurance agreement solely between the Company and the Reinsurer, and the performance of the obligations of each Party under this Agreement shall be rendered solely to the

 

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other Party.  The Company shall be and shall remain the only party hereunder that is liable to any insured, cedent, Contractholder, claimant or beneficiary under any annuity contract or insurance policy reinsured hereunder.

 

Section 2.4        Territory.  The territorial limits of this Agreement shall be identical with those of the LBL Contracts.

 

ARTICLE III
 ADMINISTRATION; GENERAL

 

Section 3.1        Contract Administration.  The Reinsurer shall administer the LBL Contracts (other than the Post-Underwriting Period Conversion Policies), the Ceded Reinsurance Contracts with respect to the LBL Contracts (other than with respect to the Post-Underwriting Period Conversion Policies) and the Separate Accounts (to the extent provided in the Administrative Services Agreement) directly on behalf of the Company, in each instance in accordance with the terms of the Administrative Services Agreement.  The Post-Underwriting Period Conversion Policies shall be administered by the Company.  The Company agrees to administer the Post-Underwriting Period Conversion Policies in accordance with Applicable Law, the terms of such policies and, subject to the foregoing, using a degree of skill and attention no less than that which the Company exercises with respect to the Company Business.1

 

Section 3.2        Non-Guaranteed Elements.  The Reinsurer may, from time to time, make recommendations to the Company with respect to Non-Guaranteed Elements so long as the recommendations comply with the written terms of the LBL Contracts, Applicable Law and Actuarial Standards of Practice promulgated by the Actuarial Standard Board governing redetermination of non-guaranteed charges.  The Company shall fully consider any such recommendations and act reasonably and in good faith in determining whether any such recommendations should be accepted and shall not unreasonably delay implementation of any accepted recommendations after such recommendations are provided in writing, except to the extent that an applicable Governmental Entity finally determines that Applicable Law would require the implementation of such recommendations to apply to any policy or contract that constitutes Company Business.  Notwithstanding anything to the contrary contained herein, in the event that an applicable Governmental Entity finally determines that Applicable Law would require the implementation of the Reinsurer’s recommendations with respect to one or more LBL Contracts to apply to any policy or contract that constitutes Company Business (a) the Parties shall cooperate in good faith to develop a mutually agreeable plan to set Non-Guaranteed Elements with respect to such LBL Contracts and such Company Business, and the Parties shall implement any such plan so agreed and (b) the Company shall not be liable for any Indemnified Losses incurred by the Reinsurer as a result of the Company’s failure to implement the Reinsurer’s recommendations.  In the event that the Company is notified by an applicable Governmental Entity that it proposes making a determination that Applicable Law would require the implementation of such recommendations to apply to any policy or contract that constitute Company Business, the Company shall promptly (but in any event within two (2) Business

 

 

1              Note to Draft: The Company’s obligations to assume the administration of the Post-Underwriting Period Conversion Policies is subject to agreement between Seller and Buyer as to the compensation to be received by the Company in connection thereto.

 

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Days) notify the Reinsurer of such notification.  The parties will thereafter cooperate in good faith and use their reasonable best efforts to reach agreements with such Governmental Entity that will avoid a final determination to such effect.

 

Section 3.3        Policy Exchanges, Replacements or Surrenders.  Unless otherwise agreed in writing by the Parties to this Agreement, (i) the Company will not institute, promote, or encourage any exchange, replacement or surrender program with respect to the LBL Contracts; and (ii) the Company shall not use any information regarding the LBL Contracts, including information regarding the Contractholders, other than for purposes of complying with its obligations under the Administrative Services Agreement and this Agreement or as otherwise required by Applicable Law.

 

Section 3.4        Errors and Omissions.  If any delay, omission, error or failure to pay amounts due or to perform any other act required by this Agreement is unintentional and caused by misunderstanding or oversight, the Company and the Reinsurer will adjust the situation to what it would have been had the misunderstanding or oversight not occurred.  The Party first discovering such misunderstanding or oversight, or an act resulting from such misunderstanding or oversight, will notify the other Party in writing promptly upon discovery thereof, and the Parties shall act to correct such misunderstanding or oversight within twenty (20) Business Days of such other Party’s receipt of such notice.  However, this Section 3.4 shall not be construed as a waiver by either Party of its right to enforce strictly the terms of this Agreement.

 

Section 3.5        Age, Sex and Other Adjustments.  If the Company’s liability under any of the LBL Contracts is changed because of a misstatement of age or sex or any other material fact, the Reinsurer will share in the change proportionately to the reinsurance share hereunder and the Company and the Reinsurer will make all appropriate adjustments to amounts due each other under this Agreement.

 

Section 3.6        Set-off.  Any debts or credits, matured or unmatured, in favor of or against either the Company or the Reinsurer with respect to this Agreement are deemed mutual debts or credits, as the case may be, and shall be set off from any amounts due to the Company or the Reinsurer hereunder, as the case may be, and only the net balance shall be allowed or paid.  For the avoidance of doubt, no such set-off shall affect the obligations of the Parties or their respective Affiliates under the terms of the Stock Purchase Agreement or any other Transaction Agreement.  In the event of any insolvency, rehabilitation, conservatorship or comparable proceeding by or against the Ceding Company or the Reinsurer, the rights of offset and recoupment set forth in this Section 3.6 shall apply to the fullest extent permitted by Applicable Law.

 

Section 3.7        Defenses.  The Reinsurer accepts, reinsures and assumes the Reinsured Risks subject to any and all defenses, set-offs and counterclaims to which the Company would be entitled with respect to the Reinsured Risks, it being expressly understood and agreed to by the Parties hereto that no such defenses, set-offs, or counterclaims are or shall be waived by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby and that the Reinsurer is and shall be fully subrogated in and to all such defenses, set-offs and counterclaims.

 

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Section 3.8        Guaranty Fund Assessments and Premium Taxes.  The Company and the Reinsurer shall settle amounts due with regard to guaranty fund assessments, premium taxes and premium tax credits included in the General Account Liabilities in accordance with the terms of the Administrative Services Agreement.

 

Section 3.9        Conversion.  From and after the Inception Date, the Company shall make policies available for issuance upon the exercise by a Contractholder of any conversion right in an LBL Contract in accordance with the terms of the Administrative Services Agreement.

 

Section 3.10     Ceded Reinsurance Contracts.

 

(a)          From and after the Inception Date, pursuant to the terms of the Administrative Services Agreement, the Reinsurer shall have the exclusive right to terminate, amend or replace with a new reinsurance agreement between the Reinsurer and the applicable reinsurer, in whole or in part, any of the Ceded Reinsurance Contracts to the extent such termination, amendment or replacement relates to the LBL Contracts; provided such termination, amendment or replacement does not affect the reinsurance coverage or other reinsurance terms provided thereunder with respect to the Company Business.  The Company agrees to not terminate, amend or replace any of the Ceded Reinsurance Contracts to the extent such termination, amendment or replacement relates to or affects the reinsurance coverage provided thereunder with respect to the LBL Contracts.  The Company shall, upon the Reinsurer’s request, cooperate with the Reinsurer and take all actions reasonably requested by the Reinsurer to cause such terminations, amendments or replacements of Ceded Reinsurance Contracts or to cause such replacement Ceded Reinsurance Contracts to be entered into.  The Reinsurer shall reimburse the Company for all reasonable and documented out-of-pocket costs and expenses incurred by the Company or its Affiliates in connection with such terminations, amendments or replacements of Ceded Reinsurance Contracts or the entering into of such new Ceded Reinsurance Contracts.

 

(b)          From and after the Inception Date, to the extent not completed prior to the Inception Date pursuant to Section 5.4 of the Stock Purchase Agreement, the Reinsurer and the Company shall each use its reasonable best efforts, and shall cooperate fully with each other, to cause the reinsurer under each Ceded Reinsurance Contract pursuant to which such reinsurer reinsures both risk included in the Company Business and risk that is not included in the Company Business (each, a “Shared Reinsurance Agreement”) to (i) enter into (A) a novation to the Reinsurer or one or more of its Affiliates of the portion of such Shared Reinsurance Agreement comprising risk that is not included in the Company Business or (B) an amendment of such Shared Reinsurance Agreement to exclude the risk that is not included in the Company Business together with a new reinsurance arrangement with the Reinsurer or one or more of its Affiliates pursuant to which such risk will be reinsured by such reinsurer on the same terms as those applicable under the Shared Reinsurance Agreement (each of (A) and (B), an “Alternative Reinsurance Arrangement”) and (ii) waive any right to terminate such Shared Reinsurance Agreement pursuant to its terms as a result of the consummation of the transactions contemplated by this Agreement; provided, that neither Party shall be required to compromise any right, asset or benefit or expend any amount, incur any liability or provide any other consideration in connection with obtaining the consent of any reinsurer to any Alternative Reinsurance Arrangement.  For the avoidance of doubt, if the Parties are unable to effect an Alternative

 

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Reinsurance Arrangement with respect to any Shared Reinsurance Agreement and such Shared Reinsurance Agreement remains in effect after the Inception Date, all rights to the reinsurance recoveries under such Shared Reinsurance Agreement that relate to the LBL Contracts shall be included in the Recoveries, the Company shall have no obligation to seek collection for any such Recoveries (other than with respect to  the Post-Underwriting Period Conversion Policies or as may be provided in the Administrative Services Agreement), and the Reinsurer will administer such Shared Reinsurance Agreement with respect to the LBL Contracts (other than with respect to the Post-Underwriting Period Conversion Policies) under the Administrative Services Agreement.

 

(c)          From and after the Inception Date, to the extent not completed prior to the Inception Date pursuant to Section 5.4 of the Stock Purchase Agreement, the Reinsurer shall have the right but not the obligation to continue to use efforts to cause the reinsurer under each Ceded Reinsurance Contract other than the Shared Reinsurance Agreements to enter into either (i) a novation of such Ceded Reinsurance Contract from the Company to the Reinsurer or one of its Affiliates or (ii) a termination of such Ceded Reinsurance Contract together with the concurrent entry into a new reinsurance contract with the Reinsurer; provided, that neither Party shall be required to compromise any right, asset or benefit or expend any amount, incur any liability or provide any other consideration in connection with obtaining the consent of any reinsurer to any such alternative arrangement.  For the avoidance of doubt, if the Parties are unable to effect an alternative arrangement with respect to any such Ceded Reinsurance Contract and such Ceded Reinsurance Contract remains in effect after the Inception Date, all rights to the reinsurance recoveries under such Ceded Reinsurance Contract shall be included in Recoveries, the Company shall have no obligation to seek collection for any such Recoveries (other than with respect to the Post-Underwriting Period Conversion Policies or as may be provided in the Administrative Services Agreement), and the Reinsurer will administer such Ceded Reinsurance Contract (other than with respect to the Post-Underwriting Period Conversion Policies) under the Administrative Services Agreement.

 

(d)          Subject to the provisions of Section 3.10(a), Liabilities with respect to the LBL Contracts under any Ceded Reinsurance Contract that is terminated or recaptured by the Reinsurer shall be ceded hereunder automatically to the Reinsurer without further action, subject to receipt by the Reinsurer of any reserve transfer or similar transfers or settlement amount, if any, received by the Company from the applicable reinsurer and, in such event, the Reinsurer shall pay any special transfer or recapture fee or any other amount payable by the Company in respect of the LBL Contracts in connection therewith as may be required under such Ceded Reinsurance Contract.

 

(e)          From and after the Inception Date, the Reinsurer shall have the right but not the obligation to seek Transamerica’s consent to (and upon receipt of such consent to effectuate on behalf of the Company) either (i) a novation of the Transamerica Reinsurance Agreement (together with any related servicing agreement) from the Company to the Reinsurer or one of its Affiliates or (ii) a termination of the Transamerica Reinsurance Agreement (together with any related servicing agreement) together with the concurrent entry into a new reinsurance contract and any related servicing agreement with the Reinsurer; provided, that neither Party shall be required to compromise any right, asset or benefit or expend any amount, incur any

 

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liability or provide any other consideration in connection with obtaining the consent of Transamerica to any such alternative arrangement.

 

Section 3.11     Follow the Fortunes.  The Reinsurer’s Liability under this Agreement shall attach simultaneously with that of the Company under the LBL Contracts, and the Reinsurer’s Liability under this Agreement shall be subject in all respects to the same risks, terms, rates, conditions, interpretations, assessments, waivers, proportion of Premiums paid to the Company.

 

ARTICLE IV
 INITIAL REINSURANCE PREMIUM; ADDITIONAL CONSIDERATION; NET SETTLEMENT

 

Section 4.1        Initial Reinsurance Premium.  The Parties agree and acknowledge that the initial reserve transfer occurred under the Subject Reinsurance Agreements (or predecessor reinsurance agreements), and there will be no additional initial reinsurance premium or ceding commission due between the Parties as a result of entering into this Agreement except as provided in Section 4.2

 

Section 4.2        Additional Consideration.

 

(a)          As additional consideration for the Reinsurer entering into this Agreement, as of the Inception Date, the Company hereby irrevocably sells, assigns, transfers and delivers to the Reinsurer as premium hereunder all of its rights, title and interest in one hundred percent (100%) of all of the following amounts actually received or receivable at or after the Inception Date by the Company or the Reinsurer, whether in its role as reinsurer hereunder or as Administrator, with respect to the LBL Contracts (items (i) through (v) below, collectively, the “Recoveries”):

 

(i)           Premiums;

 

(ii)          all amounts actually collected or collectable under the Ceded Reinsurance Contracts in respect of the LBL Contracts (including all recoveries, returns, amounts in respect of profit sharing and all other sums to which the Company may be entitled under the Ceded Reinsurance Contracts in respect of the LBL Contracts);

 

(iii)         all mortality and expense risk charges, administrative expense charges, rider charges, contract maintenance charges, back-end sales loads and other considerations billed separately for the LBL Contracts collected or collectible by the Company, and any other charges, fees and similar amounts received or receivable by the Company from the Separate Accounts in respect of the LBL Contracts (collectively, the “Separate Account Charges”).  For the avoidance of doubt, the Separate Account Charges shall include any revenue sharing fees, service fees and distribution fees received or receivable from or in respect of Funds pursuant to a plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended;

 

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(iv)         all amounts that are transferrable from the Separate Accounts to the general account of the Company in respect of the LBL Contracts; and

 

(v)          without duplication, all other payments, collections, releases of funds, recoveries and other considerations or payments with respect to the LBL Contracts, including all premiums, payments, reimbursements, interest or other amounts that the Company receives in connection with any reinstatement or reissuance of an LBL Contract or any conversion, exchange or replacement policy that is reinsured under this Agreement.

 

(b)          The Company agrees to execute and record all additional documents and take all other steps reasonably requested by the Reinsurer to effectuate such transfer to the Reinsurer.  Direct receipt by the Reinsurer, including in its role as Administrator under the Administrative Services Agreement, or any of its Affiliates of any such amounts shall satisfy the Company’s obligations to transfer any such amount to the Reinsurer hereunder.

 

(c)          The Company hereby and pursuant to the Administrative Services Agreement appoints the Reinsurer as its agent to collect all Recoveries in the Company’s name.  The Company agrees and acknowledges that the Reinsurer and its permitted assigns and delegatees are entitled to enforce, in the name of the Company, all rights at law or in equity or good faith claims of the Company with respect to such Recoveries.  If necessary for such collection, the Company shall reasonably cooperate, at the Reinsurer’s expense, in any litigation or other dispute resolution mechanism relating to such collection.  The Parties acknowledge and agree that the Reinsurer shall be responsible for and has hereby assumed the financial risk of any uncollected or uncollectible Recoveries.  To the extent that the Company recovers any Recoveries from any third party attributable to the LBL Contracts, the Company shall promptly transfer such amounts to the Reinsurer, together with any pertinent information that the Company may have relating thereto.

 

Section 4.3        Security Interest.

 

(a)          The Parties intend the Company’s assignment pursuant to the first sentence of Section 4.2(a) to be a present assignment of all of the Company’s rights, title and interest and not an assignment as collateral.  However, to the extent that such assignment is not recognized as a present assignment, is not valid or is recharacterized as a pledge rather than a lawful conveyance to the Reinsurer, the Company does hereby grant, bargain, sell, convey, assign and otherwise pledge to the Reinsurer all of the Company’s now owned and hereafter acquired or arising, whether governed by Article 9 of the UCC or other law, wherever located, and all proceeds and products thereof, right, title and interest, if any (legal, equitable or otherwise) to all Recoveries (and any lockbox or account set up for the receipt of the Recoveries after the Inception Date) (“Recoveries Collateral”) to secure all of the Company’s obligations to remit the Recoveries to the Reinsurer.

 

(b)          Upon the failure of the Company to remit Recoveries to the Reinsurer, which failure remains uncured ten (10) days after written notice thereof is received by the

 

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Company, the Reinsurer shall have, in addition to all other rights under this Agreement or under Applicable Law, the following rights:

 

(i)           the right to exercise all rights and remedies granted a secured party under the Uniform Commercial Code, as said code has been enacted in the State of Nebraska, the State of Illinois, or any other applicable jurisdiction (the “UCC”), as though all the Recoveries Collateral constituted property subject to a security interest under Article 9 thereof; and

 

(ii)          the right to intercept and retain monies and property in any lockbox or account set up for the receipt of Recoveries.

 

(c)          This Section 4.3 is being included in this Agreement to ensure that, if an insolvency or other court determines that, notwithstanding the provisions of this Agreement, including Section 4.2(a), and the express intent of the Parties in entering into this Agreement, the Company retained ownership of or any rights in the Recoveries Collateral, the Reinsurer’s rights to the Recoveries Collateral are protected with a first priority, perfected security interest, and it is the intent of the Parties that this Section 4.3 be interpreted as such.

 

(d)          Nothing contained herein shall be construed to support the conclusion that the Company will retain any ownership of or any rights in the Recoveries Collateral after the Inception Date or to support the conclusion that the Reinsurer does not acquire full ownership thereof as of the Inception Date.

 

(e)          The Company shall execute and deliver and the Reinsurer is authorized to execute and deliver any and all financing statements reasonably requested by the Reinsurer to the extent that it may appear appropriate to the Reinsurer to file such financing statements in order to perfect the Reinsurer’s title under Article 9 of the UCC to any and all Recoveries Collateral and the Company shall do such further acts and things as the Reinsurer may reasonably request in order that the security interest granted hereunder may be maintained as a first perfected security interest.  All costs and expenses incurred in connection with obtaining a first priority, perfected security interest shall be borne by the Reinsurer.

 

Section 4.4        Bank Accounts.  During the term of this Agreement, the Reinsurer may open and maintain one or more accounts with banking institutions with respect to the LBL Contracts (the “Bank Accounts”).  The Reinsurer shall have the exclusive authority over the Bank Accounts including, without limitation, the exclusive authority to (a) open the Bank Accounts in the name of the Company, (b) designate the authorized signatories on the Bank Accounts, (c) issue drafts on and make deposits in the Bank Accounts in the name of the Company, (d) make withdrawals from the Bank Accounts and (e) enter into agreements with respect to the Bank Accounts on behalf of the Company; provided, that in no event shall the Company be responsible for any fees, overdraft charges or other payments, liabilities or obligations with respect to any such Bank Accounts or be obligated to provide funding for the Bank Accounts.  The Company shall do all things necessary at the Reinsurer’s expense to (x) enable and authorize the Reinsurer to use the Company’s existing lockboxes with respect to the LBL Contracts and (y) to enable the Reinsurer to open and maintain the Bank Accounts

 

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including, without limitation, executing and delivering such depository resolutions and other documents as may be requested from time to time by the banking institutions.  The Company agrees that without the Reinsurer’s prior written consent it shall not make any changes to the authorized signatories on the Bank Accounts nor attempt to withdraw any funds therefrom.

 

Section 4.5        Reports and Settlements.

 

(a)          The Reinsurer shall provide to the Company periodic accounting and other reports with respect to the LBL Contracts as specified in the Administrative Services Agreement. Other than with respect to the Post-Underwriting Conversion Policies, settlement with respect to amounts owed hereunder by the Reinsurer to the Company and by the Company to the Reinsurer shall be performed through the direct payment by the Reinsurer of Reinsured Risks and direct receipt by the Reinsurer of Recoveries on an ongoing basis in its capacity as Administrator under the Administrative Services Agreement.

 

(i)           Except as otherwise specifically provided herein, all amounts due to be paid to the Company and the Reinsurer under this Agreement with regards to the Post-Underwriting Period Conversion Policies shall be determined on a net basis, as of the last day of each Monthly Accounting Period.  Each net amount due with respect to each Monthly Accounting Period (the “Monthly Settlement”) shall be paid by the Reinsurer to the Company, or by the Reinsurer to the Company, as applicable, no later than fifteen (15) days after delivery of the Monthly Report.

 

(ii)          Within fifteen (15) days of the end of each Monthly Accounting Period, the Company shall supply the Reinsurer with a report in the form of Schedule C which shall set forth the Recoveries with respect to the Post-Underwriting Period Conversion Policies collected during the prior Monthly Accounting Period and the General Account Liabilities paid during the prior Monthly Accounting Period (the “Monthly Report”).

 

(iii)       If the actual data required for the Monthly Report cannot be supplied with the appropriate report, the Company shall produce best estimates and shall provide amended reports based on actual data no more than ten (10) days after the actual data becomes available and the Parties will settle any additional amounts due within five (5) days thereafter.

 

ARTICLE V
 DURATION AND TERMINATION

 

Section 5.1        Duration.  Except as otherwise provided herein, this Agreement shall be unlimited in duration.

 

Section 5.2        Reinsurer’s Liability.  The Reinsurer’s liability with respect to the Reinsured Risks will terminate on the earliest of:  (i) the date the Company’s liability with

 

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respect to the Reinsured Risks is terminated and all amounts due the Company from the Reinsurer with respect thereto have been paid by or on behalf of the Reinsurer to or on behalf of the Company; and (ii) the date this Agreement is terminated upon the written agreement of the Parties.

 

ARTICLE VI
 INSOLVENCY

 

Section 6.1        Payments.  In the event of the insolvency of the Company, all reinsurance made, ceded, renewed or otherwise becoming effective under this Agreement shall be payable by the Reinsurer directly to the contractholders of the contracts reinsured, without diminution because of the insolvency of the Company.  It is agreed and understood, however, that (i) in the event of the insolvency of the Company, the domiciliary liquidator, receiver or legal successor of the insolvent Company shall give written notice of the pendency of a claim against the insolvent Company on the LBL Contract within a reasonable time after such claim is filed in the insolvency proceeding and (ii) during the pendency of such claim the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defenses which it may deem available to the Company or its liquidator, receiver or statutory successor.

 

Section 6.2        Expenses.  It is further understood that any expense thus incurred by the Reinsurer pursuant to Section 6.1may be filed as a claim against the insolvent Company as part of the expense of liquidation, to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.  Where two or more assuming reinsurers are involved in the same claim and a majority in interest elect to interpose a defense to such claim, the expense shall be apportioned subject to court approval, in accordance with the terms of this Agreement as though such expense had been incurred by the Company.

 

ARTICLE VII
 LICENSES; SECURITY

 

Section 7.1        Licenses.  At all times during the term of this Agreement, the Reinsurer shall (i) hold and maintain all licenses and authorizations required so that the Company may receive Reserve Credit or (ii) otherwise take such steps as may be required to provide the Company with Reserve Credit.

 

Section 7.2        Security.  During the term of this Agreement until such time as a Trust Account is no longer required pursuant to Section 7.7, as security for the payment of amounts due the Company under this Agreement, the Reinsurer, as grantor, shall establish and maintain the Trust Account with a trustee reasonably acceptable to the Company (the “Trustee”) naming the Company as sole beneficiary thereof.  Concurrently with the execution of this Agreement, on the Inception Date, the Reinsurer shall deposit into the Trust Account Eligible Assets with a Reinsurer Statutory Book Value (including investment income due and accrued) equal to the Reinsurer’s good faith estimate of the Required Balance as of the Inception Date  .  All transfers to and withdrawals from the Trust Account shall be in accordance with and subject to the requirements set forth in the Trust Agreement; provided that, in addition to the requirements set

 

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out in the Trust Agreement, the Reinsurer shall transfer amounts to, and withdraw amounts from, the Trust Account as set forth in Section 7.6.

 

Section 7.3        Trust Account and Settlements.  The trustee shall hold assets in the Trust Account pursuant to the terms of the Trust Agreement.

 

Section 7.4        Investment of Trust Assets.  The assets held in the Trust Account shall be valued at their Value (including investment income due and accrued).  The assets that may be held in the Trust Account shall consist of cash and investments that are permitted to be carried by the Company as admitted assets determined in accordance with Nebraska SAP; provided, that (i) each such asset that is a security is issued by an institution that is not the Reinsurer, the Company or an Affiliate of either Party, and (ii) such assets comply with the requirements specified by the investment guidelines as set forth on Exhibit C of the Trust Agreement; provided, further, that such assets shall be managed in accordance with commercially reasonable investment guidelines agreed by the Company and the Reinsurer upon the occurrence of a Change in Control (the assets pursuant to this sentence being the “Eligible Assets”).

 

Section 7.5        Deposit of Assets.  Prior to depositing assets in the Trust Account, the Reinsurer will execute assignments, endorsements, medallion guaranteed stock powers, and medallion guaranteed bond powers in blank (collectively “Transfer Instruments”) as appropriate in each instance for the type of asset, to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignment, conveyance or transfer, in order that the Company, or the trustee upon the direction of the Company, may whenever necessary negotiate the assets, attach the endorsements and record the assignments without any additional consent or signature from the Reinsurer or any other entity.  The Transfer Instruments shall be accompanied by a Certificate duly executed by an Assistant Secretary of the Reinsurer evidencing the due authority of the signatories to execute the Transfer Instruments on behalf of the Reinsurer.

 

Section 7.6        Adjustment of Security and Withdrawals.  Subject to Section 7.7, the amount of security provided by the Reinsurer shall be adjusted following the end of each Monthly Accounting Period to be equal to the Required Balance as of the end of such Monthly Accounting Period (such amounts to be calculated by the Reinsurer and a report thereof to be furnished to the Company no later than ten (10) Business Days following the end of such Monthly Accounting Period) as follows:

 

(a)          If the aggregate Value of the Eligible Assets held in the Trust Account at the end of any Monthly Accounting Period is less than the Required Balance, calculated based on the most recent Monthly Accounting Period report, the Reinsurer shall, no later than ten (10) Business Days following delivery of the relevant report, transfer additional Eligible Assets to the Trust Account so that the aggregate Value of the Eligible Assets held in the Trust Account is not less than the Required Balance as of the end of such Monthly Accounting Period.

 

(b)          If the aggregate Value of the Eligible Assets in the Trust Account at the end of any Monthly Accounting Period exceeds 100% of the Required Balance, calculated based on the most recent Monthly Accounting Period report, then the Reinsurer shall have the right to withdraw the excess from the Trust Account in accordance with the terms of the Trust

 

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Agreement; provided, however, that after a Change in Control the 100% amount above shall become 102%.

 

(c)          The report required to be delivered by the Reinsurer as described in this Section 7.6 shall include a listing of each asset in the Trust Account and the Reinsurer Statutory Book Value and Fair Market Value of each such asset as of the end of the relevant Monthly Accounting Period.

 

(d)          The Company may withdraw the assets held in the Trust Account only in accordance with the terms of the Trust Agreement to pay to the Company amounts that are (i) due to the Company from the Reinsurer under this Agreement, but not yet recovered from the Reinsurer, (ii) not the subject of a good faith dispute and (iii) not paid by the Reinsurer within ten (10) Business Days after the Reinsurer has received written notice of such failure to pay from the Company.

 

(e)          The amount of any withdrawal from the Trust Account in excess of amounts permitted under the terms of the Trust Agreement shall be held in trust by the Company and maintained in a segregated account, separate and apart from the assets of the Company for the benefit of the Reinsurer and promptly returned to the Reinsurer, plus interest, compounded monthly, at One-Month LIBOR plus 150  basis points from and including the date of withdrawal to but excluding the date on which such excess withdrawal is returned to the Trust Account.

 

Section 7.7        Termination of Trust Account.  Notwithstanding anything to the contrary herein, if, prior to the occurrence of a Change in Control, the Required Balance as set forth in the report required to be delivered by the Reinsurer as described in Section 7.6 with respect to any Monthly Accounting Period is less than or equal to $250 million (the “Minimum Balance”), then (i) the Reinsurer and the Company shall promptly deliver a joint written notice to the Trustee to terminate the Trust Account, and (ii) the Reinsurer shall have no further obligation to maintain any assets in the Trust Account pursuant to this Agreement or the Trust Agreement.

 

Section 7.8        Certain Reports.

 

(a)          The Reinsurer shall provide written notice of the occurrence of any Change in Control or Captive Change of Control within two (2) Business Days after its occurrence.  In addition, the Reinsurer shall cooperate fully with the Company and promptly respond to the Company’s reasonable inquiries from time to time concerning the determination of whether a Change in Control or a Captive Change of Control has occurred.

 

Section 7.9        Vermont Captive.  To the extent the Vermont Captive proposes to reinsure any business in addition to the business currently reinsured under the Vermont Captive Reinsurance Agreement, the parties shall negotiate in good faith with respect to the treatment of the business currently reinsured under the Vermont Captive Reinsurance Agreement.

 

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ARTICLE VIII
 DAC TAXES

 

Section 8.1        DAC Taxes.

 

(a)          Each of the Company and Reinsurer acknowledges that it is subject to taxation under Subchapter L of the Code and hereby makes the election contemplated in section 1.848-2(g)(8) of the Treasury regulations under the Code with respect to this Agreement.  Each of the Company and Reinsurer (i) agrees that such election shall be effective for the taxable year of each Party that includes the Inception Date and for all subsequent years during which this Agreement remains in effect and (ii) warrants that it will take no action to revoke the election.

 

(b)          Pursuant to section 1.848-2(g)(8) of the Treasury regulations, each Party hereby agrees (i) to attach a schedule to its federal income tax return for its first taxable year ending on or after the Inception Date that identifies this Agreement as a reinsurance agreement for which the joint election under section 1.848-2(g)(8) has been made, (ii) that the Party with net positive consideration (as defined in the Treasury regulations) for this Agreement for each taxable year will capitalize specified policy acquisition expenses with respect to the Agreement without regard to the general deductions limitation of section 848(c)(1) of the Code, and (iii) to exchange information pertaining to the amount of net consideration (as defined in the Treasury regulations) under this Agreement to ensure consistency.

 

(c)          By March 1 of each year, the Reinsurer shall submit a schedule to the Company of its calculation of the net consideration for the preceding calendar year.  If the Company agrees with the calculation, the Company shall use this information in determining its net consideration for such prior year.  If the Company disagrees with the calculation, the Parties shall act in good faith to resolve any differences so that consistency is maintained for tax return reporting purposes.

 

(d)          By May 15 of each calendar year, the Reinsurer shall reimburse (or be reimbursed by, as the facts may provide) the Company for DAC taxes incurred for the previous tax year with respect to the policies after the Inception Date.  The DAC tax reimbursement shall be computed by multiplying the DAC tax factor by the sum of (i) 100% of premiums received during the previous tax year on the Reinsured Contracts after the Inception Date subject to section 848 of the Code and (ii) the Company’s net consideration (as defined in the Treasury regulations) for the previous tax year under this Agreement for periods beginning on or after the Inception Date.  The “DAC tax factor” shall be 0.215% for annuity contracts, 0.252% for group life contracts and 0.946% for life insurance contracts, non-cancellable A&H contracts and guaranteed renewable A&H contracts.  The Company and the Reinsurer mutually agree to prospectively adjust the DAC tax factor to reflect any changes in the federal income tax rate applicable to the Company or the Reinsurer, as the case may be,  or changes to section 848 of the Code or the related Treasury regulations.

 

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ARTICLE IX
 ARBITRATION

 

Section 9.1        Resolution of Damages.  As a condition precedent to any right arising under this Agreement, any dispute between the Company and the Reinsurer arising out of the provisions of this Agreement, or concerning its interpretation or validity, whether arising before or after termination of this Agreement, shall be submitted to arbitration pursuant to the commercial arbitration rules of AIDA Reinsurance and Insurance Arbitration Society (“ARIAS”).

 

Section 9.2        Composition of Panel.  Unless the Parties agree upon a single arbitrator within fifteen (15) days after the receipt of notice of intention to arbitrate, all disputes shall be submitted to an arbitration panel composed of two arbitrators and an umpire, chosen in accordance with Sections 9.3 and 9.4.

 

Section 9.3        Appointment of Arbitrators.  The Party requesting arbitration (hereinafter referred to as the “claimant”) shall appoint an arbitrator and give written notice thereof, by registered mail or a recognized overnight courier to the other Party (hereinafter referred to as the “respondent”) together with its notice of intention to arbitrate.  Unless a single arbitrator is agreed upon within fifteen (15) days after the receipt of the notice of intention to arbitrate, the respondent shall, within thirty (30) days after receiving such notice, also appoint an arbitrator and notify the claimant thereof in a like manner.  Before instituting a hearing, the two arbitrators so appointed shall choose an impartial umpire.  If, within thirty (30) days after they are both appointed, the arbitrators fail to agree upon the appointment of an umpire, the umpire shall be selected pursuant to the rules of ARIAS.  The arbitrators shall be present or former executives or officers of life insurance or reinsurance companies.  The arbitrators and umpire shall be disinterested individuals and not be under the control of either Party, and shall have no financial interest in the outcome of the arbitration.

 

Section 9.4        Failure of a Party to Appoint Arbitrator.  If the respondent fails to appoint an arbitrator within thirty (30) days after receiving a notice of intention to arbitrate, such arbitrator shall be selected pursuant to the rules of ARIAS, and shall then, together with the arbitrator appointed by the claimant, choose an umpire as provided in Section 9.3.

 

Section 9.5        Choice of Forum.  Any arbitration instituted pursuant to this Article IX shall be held in New York, New York or such other place as the Parties may mutually agree.

 

Section 9.6        Procedure Governing Arbitration.  Each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive.  The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the panel shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the panel.  The panel shall be the final judge of the procedures of the panel, the conduct of the arbitration of the rules of evidence, the rules of privilege and production and of

 

24

 

excessiveness and relevancy of any witnesses and documents upon the petition of any participating party.

 

Section 9.7        Arbitration Award.  The arbitration panel shall render its decision within sixty (60) days after termination of the proceeding unless the parties consent to an extension, which decision shall be in writing, stating the reason therefor.  The decision of the majority of the panel shall be final and binding on the parties to the proceeding except to the extent otherwise provided in the Federal Arbitration Act.  Judgment upon the award may be entered in any court having jurisdiction pursuant to the Federal Arbitration Act.

 

Section 9.8        Cost of Arbitration.  Unless otherwise allocated by the panel, each party shall bear the expense of its own arbitrator and its own witnesses and shall equally bear with the other parties the expense of the umpire and the arbitration.

 

Section 9.9        Limit of Authority.  It is agreed that the arbitrators shall have no authority to impose any punitive, exemplary or consequential damage awards on either of the Parties hereto.

 

Section 9.10     Survival.  This Article IX shall survive the termination of this Agreement.

 

ARTICLE X
 INDEMNIFICATION; DISCLAIMER

 

Section 10.1     Reinsurer’s Obligation to Indemnify.  The Reinsurer hereby agrees to indemnify, defend and hold harmless the Company and its Affiliates and their respective officers, directors, stockholders, employees, representatives, successors and assigns (collectively, the “Company Indemnified Persons”) from and against any and all Indemnifiable Losses incurred by the Company Indemnified Persons to the extent arising from (i) any breach by the Reinsurer of the covenants and agreements of the Reinsurer contained in this Agreement, (ii) all Reinsurer Extra Contractual Obligations, (iii) the Company’s acceptance and implementation of the Reinsurer’s recommendations in accordance with Section 3.2, (iv) any determination that the setting of Non-Guaranteed Elements by the Company in accordance with such recommendations while setting Non-Guaranteed Elements in a different manner on policies or contracts that comprise the Company Business constitutes a failure by the Company to comply with Applicable Law; provided, that Indemnifiable Losses payable under this clause (iv) shall (A) be limited to Indemnifiable Losses actually paid to a third party in connection with a Third Party Claim (including any additional amounts that are required to be credited or paid to policyholders or beneficiaries) and (B) only be payable if such determination is made by an applicable Governmental Entity or a court of competent jurisdiction, and (v) any successful enforcement of this indemnity.

 

Section 10.2     Company’s Obligation to Indemnify.  The Company hereby agrees to indemnify, defend and hold harmless the Reinsurer and its Affiliates and their respective officers, directors, stockholders, employees, representatives, successors and assigns (collectively, the “Reinsurer Indemnified Persons”) from and against any and all Indemnifiable Losses incurred by the Reinsurer Indemnified Persons to the extent arising from (i) any breach by the Company of the covenants and agreements of the Company contained in this Agreement, (ii) all

 

25

 

Company Extra Contractual Obligations, (iii) (A) changes to Non-Guaranteed Elements that are made by the Company on or after the Inception Date without the Reinsurer’s prior written consent or (B) the failure of the Company to implement the Reinsurer’s recommendations with respect to Non-Guaranteed Elements that satisfy the requirements of Section 3.2, and (iv) any successful enforcement of this indemnity.

 

Section 10.3     Definitions.  As used in this Agreement:

 

(a)          “Indemnitee” means any Person entitled to indemnification under this Agreement;

 

(b)          “Indemnitor” means any Person required to provide indemnification under this Agreement;

 

(c)          “Indemnifiable Losses” means any and all damages, losses, Liabilities, obligations, costs and expenses (including reasonable attorneys’ fees and expenses); provided, that any Indemnity Payment (x) shall in no event include any amounts constituting punitive damages relating to the breach or alleged breach of this Agreement (except to the extent actually paid to a third party in connection with a Third Party Claim) and (y) shall be net of any amounts recovered by or recoverable by the Indemnitee for the Indemnifiable Losses for which such Indemnity Payment is made under any insurance policy, reinsurance agreement, warranty or indemnity or otherwise from any Person other than a Party hereto, and the Indemnitee shall promptly reimburse the Indemnitor for any such amount that is received by it from any such other Person with respect to an Indemnifiable Losses after any indemnification with respect thereto has actually been paid pursuant to this Agreement; and

 

(d)          “Indemnity Payment” means any amount of Indemnifiable Losses required to be paid pursuant to this Agreement; and

 

(e)          “Third Party Claim” means any claim, action, suit, or proceeding made or brought by any Person that is not an Indemnitee.

 

Section 10.4     Applicability of Stock Purchase Agreement.  The procedures set forth in Section 7.5 of the Stock Purchase Agreement shall apply to Indemnifiable Losses indemnified under this Article X.

 

Section 10.5     No Duplication.  If any Indemnifiable Losses are indemnified under any other Transaction Agreement, the Company Indemnified Person or Reinsurer Indemnified Person shall not be entitled to indemnification with respect to such Indemnifiable Losses pursuant to such other Transaction Agreement and shall instead be entitled to indemnification pursuant to Section 10.1 or Section 10.2 of this Agreement.

 

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ARTICLE XI
 GENERAL PROVISIONS

 

Section 11.1     Schedules and Exhibits.  The Schedules and Exhibits to this Agreement that are specifically referred to herein are a part of this Agreement as if fully set forth herein.

 

Section 11.2     Notices.  All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be delivered personally or by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

 

(a)          if to the Company:

 

Lincoln Benefit Life Company

[TBD]

Attention:

 

with copies (which shall not constitute notice) to:

 

Debevoise & Plimpton LLP

919 Third Avenue

New York, New York  10022

Attention:          Nicholas F. Potter

David Grosgold

 

(b)          if to the Reinsurer:

 

Allstate Life Insurance Company

[TBD]

Attention:

 

with copies (which shall not constitute notice) to:

 

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, New York  10019

Attention:  John M. Schwolsky
                   Alexander M. Dye

 

Notice given by personal delivery or overnight courier shall be effective upon actual receipt.

 

Section 11.3     Interpretation.  When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.  All references herein to any agreement, instrument, statute, rule or regulation are to the agreement, instrument, statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, includes any rules and regulations promulgated under said statutes) and to any section of any statute, rule or regulation including any successor to said section.  The table of contents and headings contained

 

27

 

in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”  Whenever the singular is used herein, the same shall include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate.  Whenever the word “Dollars” or the “$” sign appear in this Agreement, they shall be construed to mean United States Dollars, and all transactions under this Agreement shall be in United States Dollars.  This Agreement has been fully negotiated by the Parties hereto and shall not be construed by any Governmental Entity against either Party by virtue of the fact that such Party was the drafting Party.

 

Section 11.4     Entire Agreement; Third Party Beneficiaries.  This Agreement (including all exhibits and schedules hereto) and the other Transaction Agreements constitute the entire agreement, and supersede all prior agreements, understandings, representations and warranties, both written and oral, among the Parties with respect to the subject matter of this Agreement.  Except as set forth in Article X with respect to the Reinsurer Indemnified Persons and the Company Indemnified Persons, this Agreement is not intended to confer upon any Person other than the Parties hereto and their successors and permitted assigns any rights or remedies.

 

Section 11.5     Governing Law and Jurisdiction.

 

(a)          This Agreement and any dispute arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.  While the parties contemplate that all disputes hereunder will be decided pursuant to Article IX hereof, the parties submit to the jurisdiction of any court of the United States or any state court, which in either case is located in the City of New York (each, a “New York Court”) with respect to any legal proceedings to enforce an arbitral award issued in accordance with Article IX.  In any such action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claim that it is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper; provided, that nothing set forth in this sentence shall prohibit any of the parties hereto from removing any matter from one New York Court to another New York Court.  Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding will be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States.  A certified or exemplified copy of such award or judgment will be conclusive evidence of the fact and amount of such award or judgment.  Any process or other paper to be served in connection with any action or proceeding under this Agreement shall, if delivered or sent in accordance with Section 11.2 of this Agreement, constitute good, proper and sufficient service thereof.

 

(b)          EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS

 

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CONTEMPLATED HEREBY.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OR ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.5(b).

 

Section 11.6                Assignment.  Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise (other than by operation of law in a merger), by either Party without the prior written consent of the other Party, and any such assignment that is not consented to shall be null and void.  Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.  For the avoidance of doubt, the Reinsurer shall be permitted to retrocede any of the Reinsured Risks at its sole discretion.

 

Section 11.7                Severability; Amendment; Modification; Waiver.

 

(a)                               Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any Applicable Law in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.

 

(b)                              This Agreement may be amended or a provision hereof waived only by a written instrument signed by each of the Reinsurer and the Company.

 

(c)                               No delay on the part of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any Party of any right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege.

 

Section 11.8                Counterparts.  This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Party.  Each Party may deliver its signed counterpart of this Agreement to the other Party by means of electronic mail or any other electronic medium utilizing image scan technology, and such delivery will have the same legal effect as hand delivery of an originally executed counterpart.

 

Section 11.9                Cooperation.  Each Party hereto shall cooperate fully with the other in all reasonable respects in order to accomplish the objectives of this Agreement including making

 

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available to each their respective officers and employees for interviews and meetings with Governmental Entities and furnishing any additional assistance, information and documents as may be reasonably requested by a Party from time to time.

 

Section 11.10        Survival.  Articles VIII, IX, X and XI shall survive the termination of this Agreement.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the Company and the Reinsurer have caused this Agreement to be signed by their respective duly authorized officers, all as of the date first written above.

 

 

 

	
 
    	
LINCOLN BENEFIT LIFE   COMPANY
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
ALLSTATE LIFE INSURANCE   COMPANY
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    

 

 

Signature Page

 

 

SCHEDULE A

 

CEDED REINSURANCE CONTRACTS

 

 

Schedule A

 

 

SCHEDULE B

 

SEPARATE ACCOUNTS

 

[This schedule will list only the LBL variable life separate account.  The LBL variable annuity separate account relates to business ceded to ALIC under the Variable Annuity Reinsurance Agreement.  All liabilities under the MVAA non-unitized separate account will be retained by LBL.]

 

 

Schedule B

 

 

SCHEDULE C

 

MONTHLY REPORT

 

 

Schedule C

 

 

EXHIBIT A

 

TRUST AGREEMENT

 

 

Exhibit A

 

 

EXHIBIT F

 

RECAPTURE AGREEMENT

 

This RECAPTURE AGREEMENT, dated as of [             ], 2013 (the “Execution Date”), (this “Agreement”) is made and entered into by and between Allstate Life Insurance Company, an insurance company organized under the laws of the State of Illinois (the “Reinsurer”), and Lincoln Benefit Life Company, an insurance company organized under the laws of the State of Nebraska (the “Company”, and together with the Reinsurer, the “Parties”).

 

WHEREAS, the Reinsurer owns 100% of the issued and outstanding capital stock of the Company;

 

WHEREAS, the Reinsurer, Resolution Life Holdings, Inc. (“Buyer”), a corporation organized under the laws of the State of Delaware, and, solely for purposes of Section 5.25 and Article X thereof, Resolution Life L.P., a Bermuda limited partnership and the sole owner of Buyer, have entered into a Stock Purchase Agreement dated as of July 17, 2013 (the “Stock Purchase Agreement”), pursuant to which the Reinsurer proposes to sell, and the Buyer proposes to purchase, 100% of the issued and outstanding capital stock of the Company;

 

WHEREAS, the Stock Purchase Agreement provides, among other things, for the Company and the Reinsurer to enter into this Agreement as soon as practicable following the signing of the Stock Purchase Agreement;

 

WHEREAS, the Reinsurer provides reinsurance coverage to the Company in accordance with the terms of the following reinsurance agreements: (i) a coinsurance agreement between the parties effective as of December 31, 2001 covering the Company’s general account liabilities for all policies and market value adjustment annuities (the “General Account Reinsurance Agreement”), (ii) a modified coinsurance agreement between the parties effective as of December 31, 2001 covering the Company’s separate account liabilities for variable life insurance policies (the “Variable Life Reinsurance Agreement, and together with the General Account Reinsurance Agreement, the “Subject Reinsurance Agreements”) and (iii) a modified coinsurance agreement between the parties effective as of December 31, 2001 covering the Company’s separate account liabilities for variable annuity insurance policies (the “Variable Annuity Reinsurance Agreement”);

 

WHEREAS, the Company and the Reinsurer desire that the Company recapture from the Reinsurer the Recaptured Business (as defined below) currently ceded or retroceded under the Subject Reinsurance Agreements;

 

WHEREAS, the Company and the Reinsurer desire a full and final settlement, discharge and release of any and all of each of their respective liabilities, duties and obligations with respect to the Recaptured Business except as expressly set forth below;

 

WHEREAS, the business reinsured pursuant to the Subject Reinsurance Agreements that is not recaptured pursuant to this Agreement shall continue to be reinsured pursuant to the terms of the Subject Reinsurance Agreements, as amended from time to time, until such time as such Subject Reinsurance Agreements are terminated, restated or replaced; and

 

 

WHEREAS, in connection with the closing of the transactions contemplated in the Stock Purchase Agreement, the Parties will enter into an Amended and Restated Reinsurance Agreement (the “Amended and Restated Reinsurance Agreement”) that will (i) amend and restate, in its entirety, the Variable Life Reinsurance Agreement with respect to the business of the Company that was reinsured under the Variable Life Reinsurance Agreement and that is not recaptured by the Company pursuant to this Agreement and (ii) amend and restate the General Account Reinsurance Agreement with respect to the portion of the business of the Company that was reinsured under the General Account Reinsurance Agreement and that is not recaptured by the Company pursuant to this Agreement, except for the Company’s variable annuity policies reinsured pursuant to the General Account Reinsurance Agreement (which variable annuity policies will continue to be reinsured by the Reinsurer pursuant to the General Account Reinsurance Agreement with respect to all general account liabilities associated with such variable annuity policies); and

 

WHEREAS, the Variable Annuity Reinsurance Agreement shall remain in full force and effect in accordance with its terms without amendment.

 

NOW, THEREFORE, the Company and the Reinsurer (each a “Party”, and together, the “Parties”) agree as follows:

 

Article I.

 

DEFINITIONS

 

Section 1.2.  Definitions.  Capitalized terms used herein and not defined herein, unless otherwise indicated, have the respective meaning assigned to them in the Stock Purchase Agreement.  For purposes of this Agreement, the following terms have the respective meanings set forth below:

 

“Accounting Principles” means the principles, practices and methodologies set forth in Annex A.

 

“Amended and Restated Reinsurance Agreement”  has the meaning set forth in the Recitals.

 

“Buyer”  has the meaning set forth in the Recitals.

 

“Company”  has the meaning set forth in the Preamble.

 

“Effective Time”  has the meaning set forth in the Article II.

 

“Execution Date”  has the meaning set forth in the Preamble.

 

“Exclusive Producer” means any Producer that markets, sells or administers business of the type written by the Reinsurer or any of its Affiliates exclusively for or on behalf of the Reinsurer and its Affiliates, notwithstanding whether such Producer also sells products of the type not written by the Reinsurer or any of its Affiliates on behalf of third parties.

 

“Illinois SAP” shall mean statutory accounting procedures and practices prescribed or permitted

 

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by the Director of Insurance of the State of Illinois.

 

“Independent Producer” means any Producer that is not an Exclusive Producer.

 

“Net Statutory General Account Reserves” shall mean the general account reserves of the Reinsurer in respect of the Recaptured Business as would be reflected in lines 1 through 4 inclusive in the “Liabilities, Surplus and Other Funds” section of the NAIC statement blank used to prepare the Reinsurer’s statutory balance sheet as of December 31, 2012 (or if the line numbers are changed pursuant to relevant guidance from the NAIC, the successor to such line numbers) prepared in accordance with Illinois SAP.  For the avoidance of doubt, Net Statutory General Account Reserves are net of reserve credit taken under Third Party Reinsurance.  Such reserves shall expressly exclude any additional or voluntary actuarial reserves, if any, established by the Reinsurer under Illinois Administrative Code Section 1410.

 

“Parties”  has the meaning set forth in the Preamble.

 

“Producer” means any producer, broker, agent, general agent, managing general agent, master broker agency, broker general agency, financial specialist or other Person responsible for marketing or producing insurance policies, annuity contracts, protection and retirement products on behalf of the Company.

 

“Recapture Balances”  has the meaning set forth in Section 3.2.

 

“Recapture Consideration”  has the meaning set forth in Section 3.1.

 

“Recapture Statement”  has the meaning set forth in Section 3.1.

 

“Recaptured Business”  has the meaning set forth in Article II.

 

“Reinsurer”  has the meaning set forth in the Preamble.

 

“Specified Life Business” has the meaning set forth in the Stock Purchase Agreement.

 

“Subject Reinsurance Agreements”  has the meaning set forth in the Recitals.

 

“Statutory Book Value” means the amount carried in respect of such asset by the Reinsurer as an admitted asset determined in accordance with Illinois SAP, but disregarding any permitted practices applicable to the Reinsurer, other than those of general applicability to life insurer in the State of Illinois.  The Statutory Book Value of the assets to be transferred as part of the Recapture Consideration shall be determined as provided in the Accounting Principles.

 

“Third Party Reinsurance” means all third-party reinsurance of the Company with respect to the Recaptured Business in effect as of the Effective Time.

 

“Variable Annuity Reinsurance Agreement” has the meaning set forth in the Recitals.

 

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Article II.

 

RECAPTURE

 

Effective as of 12:01 a.m. Central time on July 1, 2013 (the “Effective Time”), the Company hereby recaptures from the Reinsurer one hundred percent (100%) of all liabilities ceded or retroceded to the Reinsurer under the Subject Reinsurance Agreements arising under (i) all of the fixed deferred annuity, value adjusted deferred annuity and indexed deferred annuity business written by the Company, (ii) all of the life insurance business written by the Company through Independent Producers, other than the Specified Life Business, and (iii) all of the net liability of the Company with respect to the accident and health and long-term care insurance business written by the Company, in each case as more particularly identified in Section 1.1(b) of the Seller Disclosure Schedule ((i), (ii), and (iii)  collectively, the “Recaptured Business”).  For the avoidance of doubt, this Agreement does not apply to the Variable Annuity Reinsurance Agreement.  The Recaptured Business, the Recapture Consideration and the Recapture Balances shall be determined by the Reinsurer using the methodologies set forth in the Accounting Principles and shall be as reflected in a recapture balance sheet prepared by the Reinsurer as of the Effective Time in accordance with the Accounting Principles (the “Recapture Balance Sheet”).  The Recapture Balance Sheet shall be prepared in a manner consist with the preparation of the Reference Balance Sheet.

 

 

 

Article III.

 

RECAPTURE CONSIDERATION

 

Section 3.1.  Recapture Consideration. Notwithstanding anything contained in the Subject Reinsurance Agreements to the contrary, as consideration for the Company’s recapture of the Recaptured Business, the Reinsurer shall transfer to the Company cash, the policy loans included in the Recaptured Business and outstanding as of the Effective Time and assets set forth in Section 1.1(a) of the Seller Disclosure Schedule (as such list may be revised from the date of signing of the Stock Purchase Agreement to the Execution Date as provided in Section 5.19 of the Seller Disclosure Schedule or as otherwise mutually agreed between the Reinsurer and the Buyer) with an aggregate Statutory Book Value, including investment income due, accrued and unearned, as of the Effective Time equal to the Reinsurer’s best estimate of the sum of (i) the Net Statutory General Account Reserves as of the Effective Time attributable to the Recaptured Business minus (if positive) or plus (if negative) the absolute value of (ii) the amount of the final settlement in respect of the Recaptured Business determined in accordance with Article V of the General Account Reinsurance Agreement and Article IV of the Variable Life Reinsurance Agreement for the period commencing on the first day of the calendar quarter during which the Effective Time falls and ending at the Effective Time (the “Recapture Consideration”).   Within ten (10) Business Days following the Execution Date (but in any event prior to the Closing Date), the Reinsurer shall deliver to the Company a statement with a copy of the Recapture Balance Sheet and showing the Reinsurer’s calculation of the Recapture Consideration, the Net Statutory General Account Reserves and the Recapture Balances (the “Recapture Statement”).  Following delivery of such calculation of the Recapture Consideration (but prior to the Closing Date), the Reinsurer

 

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shall transfer to the Company the assets comprising the Recapture Consideration, however, the parties agree and acknowledge that certain types of assets may take up to twenty (20) Business Days to transfer.  The parties will act use commercially reasonable efforts to transfer prior to the Closing Date any assets not transferred after twenty (20) Business Days.  A copy of the Recapture Statement shall be delivered to Buyer.

 

Section 3.2.  Interest Maintenance Reserve; Other Recapture Balances.

 

(a)  As of the Effective Time, the Reinsurer shall transfer to the Company all liability for the interest maintenance reserve that is attributable to the Recaptured Business at the point in time immediately prior to the consummation of the transactions contemplated by this Agreement, as well as any liability for the interest maintenance reserve that is attributable to the Recaptured Business that is created following the Effective Time, in each case determined in accordance with the Accounting Principles and as shown in the Recapture Balance Sheet.

 

(b)  All account balances (both assets and liabilities) related to the Recaptured Business and ceded by the Company to the Reinsurer under the Subject Reinsurance Agreements (other than (i) those that are reflected in Net Statutory General Account Reserves and (ii) the liability for interest maintenance reserve related to the Recaptured Business) will be transferred from the Reinsurer to the Company (the “Recapture Balances”) as of the Effective Time.  The Recapture Balances shall be determined in accordance with the Accounting Principles and shall be derived from the Recapture Balance Sheet. Such Recapture Balances shall include, but are not limited to, uncollected premiums and agents’ balances, deferred premiums, policyholder dividends, premiums received in advance, commissions due and accrued, commissions and expense allowances on reinsurance assumed, general expenses due or accrued, transfers to separate accounts, taxes, licenses and fees due and accrued, amounts withheld or retained, remittances and items not allocated, liability for benefits for employees and agents, abandoned property, guaranty funds receivable or on deposit, guaranty funds payable, premium tax receivable, and accounts receivable and payable related to long-term care third party administration agreements, in each case to the extent attributable to the Recaptured Business.  The Recapture Balances shall also include amounts in respect of the Recaptured Business that are paid to or received by the Reinsurer on behalf of the Company after the Effective Time.  Upon recapture of these Recapture Balances, a net reinsurance recoverable or a reinsurance payable will be recorded by the Company in respect of the Recapture Balances.  As part of the Recapture Statement, the Reinsurer shall deliver to the Company a statement showing the Reinsurer’s calculations of the Recapture Balances.  The net reinsurance recoverable or reinsurance payable will be settled by the Reinsurer or the Company, as applicable, in cash or fair value of assets within twenty (20) Business Days after delivery of the Recapture Statement (but in any event prior to the Closing Date).

 

Section 3.3.  Company Release of the Reinsurer with respect to the Recaptured Business. In consideration of the receipt of the payment described in Section 3.1 and the release provided in Section 3.4, as of the Effective Time, the Company hereby forever releases and discharges the Reinsurer, and its predecessors, successors, affiliates, agents, officers, directors, employees and shareholders, from any and all past, present, and future obligations, adjustments, liability for payment of interest, offsets, actions, causes of action, suits, debts, sums of money, accounts, premium payments, reckonings, bonds, bills, covenants, contracts, controversies, agreements,

 

- 5 -

 

promises, damages, judgments, liens, rights, costs and expenses (including attorneys’ fees and costs actually incurred), claims and demands, liabilities and losses of any nature whatsoever, all whether known or unknown, vested or contingent, that the Company now has, owns, or holds or claims to have, own, or hold, or at any time had, owned, or held, or claimed to have had, owned, or held, or may after the execution of this Agreement have, own, or hold or claim to have, own, or hold, against the Reinsurer, arising from, based upon, or in any way related to the Recaptured Business, it being the intention of the Parties that this release operate as a full and final settlement of the Reinsurer’s current and future liabilities to the Company under and in connection with the Recaptured Business, provided, however, that this release does not discharge obligations of the Reinsurer that have been undertaken or imposed by the terms of this Agreement or any of the other Transaction Agreements.

 

Section 3.4.  Reinsurer Release of the Company with respect to the Recaptured Business. In consideration of the release provided in Section 3.3, as of the Effective Time, the Reinsurer hereby forever releases and discharges the Company, and its predecessors, successors, affiliates, agents, officers, directors, employees and shareholders, from any and all past, present, and future obligations, adjustments, liability for payment of interest, offsets, actions, causes of action, suits, debts, sums of money, accounts, premium payments, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, damages, judgments, liens, rights, costs and expenses (including attorneys’ fees and costs actually incurred), claims and demands, liabilities and losses of any nature whatsoever, all whether known or unknown, vested or contingent, that the Reinsurer now has, owns, or holds or claims to have, own, or hold, or at any time had, owned, or held, or claimed to have had, owned, or held, or may after the execution of this Agreement have, own, or hold or claim to have, own, or hold, against the Company, arising from, based upon, or in any way related to the Recaptured Business, it being the intention of the Parties that this release operate as a full and final settlement of the Company’s current and future liabilities to the Reinsurer under and in connection with the Recaptured Business, provided, however, that this release does not discharge obligations of the Company that have been undertaken or imposed by the terms of this Agreement or any of the other Transaction Agreements.

 

Article IV.

 

MISCELLANEOUS

 

Section 4.1.  Notices.  All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be delivered personally or by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

 

	
(a)
    	
if to Company:
    
	
 
    	
 
    
	
 
    	
Lincoln Benefit   Life Company]
    
	
 
    	
[TBD]
    
	
 
    	
Attention:
    

 

- 6 -

 

	
 
    	
with a copy   (which shall not constitute notice) to:
    
	
 
    	
 
    
	
 
    	
Debevoise &   Plimpton LLP
    
	
 
    	
919 Third Avenue
    
	
 
    	
New York, New   York 10022
    
	
 
    	
Attention:
    	
Nicholas F.   Potter
    
	
 
    	
 
    	
David Grosgold
    
	
 
    	
 
    	
 
    
	
(b)
    	
if to the Reinsurer:
    
	
 
    	
 
    	
 
    
	
 
    	
Allstate Life   Insurance Company
    
	
 
    	
[TBD]
    
	
 
    	
Attention:
    
	
 
    	
 
    
	
 
    	
with copies   (which shall not constitute notice) to:
    
	
 
    	
 
    
	
 
    	
Willkie   Farr & Gallagher LLP
    
	
 
    	
787 Seventh   Avenue
    
	
 
    	
New York, New   York  10019
    
	
 
    	
Attention:  John M. Schwolsky
    
	
 
    	
Alexander M. Dye
    
				

 

Notice given by personal delivery or overnight courier shall be effective upon actual receipt.

 

Section 4.2.  Entire Agreement; Third Party Beneficiaries.  This Agreement (including any exhibits and schedules hereto) constitutes the entire agreement, and supersedes all prior agreements, understandings, representations and warranties, both written and oral, among the parties with respect to the subject matter of this Agreement.  From the Execution Date until the earlier of the Closing and the termination of the Stock Purchase Agreement in accordance with its terms, Buyer shall be a third-party beneficiary of this Agreement.  Except as set forth in the immediately preceding sentence for Buyer, this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies.

 

Section 4.3.  Governing Law.  This Agreement and any dispute arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.

 

Section 4.4.  Assignment.  Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise (other than following the Execution Date by operation of law in a merger or scheme of arrangement), by either party without the prior written consent of the other party, and any such assignment that is not consented to shall be null and void.  Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.

 

Section 4.5.  Jurisdiction; Enforcement.

 

- 7 -

 

(a)        Each of the Parties hereto hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any court of the United States or any state court, which in either case is located in the City and County of New York (each, a “New York Court”) for purposes of enforcing this Agreement or determining any claim arising from or related to the transactions contemplated by this Agreement.  In any such action, suit or other proceeding, each of the Parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claim that it is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper; provided, that nothing set forth in this sentence shall prohibit any of the Parties hereto from removing any matter from one New York Court to another New York Court.  Each of the Parties hereto also agrees that any final and unappealable judgment against a Party hereto in connection with any action, suit or other proceeding will be conclusive and binding on such Party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States.  A certified or exemplified copy of such award or judgment will be conclusive evidence of the fact and amount of such award or judgment. Any process or other paper to be served in connection with any action or proceeding under this Agreement shall, if delivered or sent in accordance with Section 4.1, constitute good, proper and sufficient service thereof

 

(b)        The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that, without the necessity of posting bond or other undertaking, the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in accordance with this Agreement, this being in addition (subject to the terms of this Agreement) to any other remedy to which such party is entitled at law or in equity.  In the event that any Action is brought in equity to enforce the provisions of this Agreement, no party hereto shall allege, and each party hereto hereby waives any defense or counterclaim, that there is an adequate remedy at law.

 

(c)        EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OR ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 4.5(c).

 

Section 4.6.  Severability.

 

(a)        Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under Applicable Law, but if any

 

- 8 -

 

provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any Applicable Law in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.

 

(b)        This Agreement may be amended or a provision hereof waived only by a written instrument signed by each of the Company and the Reinsurer; provided that for the period from the Execution Date until the earlier of the Closing and the termination of the Stock Purchase Agreement in accordance with its terms, the prior consent of Buyer shall be required for any amendment of this Agreement or the waiver by the Company of any of its rights hereunder.

 

(c)        No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege.

 

Section 4.7.  No Offset.  No party to this Agreement may offset any amount due to the other party hereto or any of such other party’s Affiliates against any amount owed or alleged to be owed from such other party or its Affiliates under this Agreement or any other Transaction Document without the written consent of such other party.

 

Section 4.8.  Counterparts.  This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties.  Each party may deliver its signed counterpart of this Agreement to the other parties by means of electronic mail or any other electronic medium utilizing image scan technology, and such delivery will have the same legal effect as hand delivery of an originally executed counterpart.

 

[Remainder of page intentionally left blank]

 

- 9 -

 

IN WITNESS WHEREOF, the Reinsurer and the Company have caused this Agreement to be signed by their respective duly authorized officers, all as of the date first written above.

 

 

	
 
    	
ALLSTATE LIFE   INSURANCE COMPANY
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
LINCOLN BENEFIT   LIFE COMPANY
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    

 

- 10 -

 

ANNEX A

Accounting Principles

 

[To insert Annex A of the Stock Purchase Agreement]

 

- 11 -

EXHIBIT G

 

 

 

 

 

 

 

 

TRUST AGREEMENT

 

Dated as of

 

[__________]

 

ALLSTATE LIFE INSURANCE COMPANY,

as Grantor

 

and

 

LINCOLN BENEFIT LIFE INSURANCE COMPANY,

as Beneficiary

 

and

 

THE BANK OF NEW YORK MELLON

 

as Trustee

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
Section 1
    	
Deposit of Assets to the Trust Account
    	
2
    
	
 
    	
 
    	
 
    
	
Section 2
    	
Withdrawal of Assets from the Trust Account
    	
3
    
	
 
    	
 
    	
 
    
	
Section 3
    	
Procedure for Withdrawals of Assets; Certain   Covenants
    	
5
    
	
 
    	
 
    	
 
    
	
Section 4
    	
Redemption, Investment and Substitution of   Assets
    	
6
    
	
 
    	
 
    	
 
    
	
Section 5
    	
Income
    	
7
    
	
 
    	
 
    	
 
    
	
Section 6
    	
Right to Vote Assets
    	
7
    
	
 
    	
 
    	
 
    
	
Section 7
    	
Additional Rights and Duties of the Trustee
    	
8
    
	
 
    	
 
    	
 
    
	
Section 8
    	
The Trustee’s Compensation, Expenses and   Indemnification
    	
11
    
	
 
    	
 
    	
 
    
	
Section 9
    	
Resignation of the Trustee
    	
11
    
	
 
    	
 
    	
 
    
	
Section 10
    	
Termination of the Trust Account
    	
12
    
	
 
    	
 
    	
 
    
	
Section 11
    	
Definitions
    	
12
    
	
 
    	
 
    	
 
    
	
Section 12
    	
Governing Law
    	
14
    
	
 
    	
 
    	
 
    
	
Section 13
    	
Successors and Assigns
    	
15
    
	
 
    	
 
    	
 
    
	
Section 14
    	
Severability
    	
15
    
	
 
    	
 
    	
 
    
	
Section 15
    	
Entire Agreement
    	
15
    
	
 
    	
 
    	
 
    
	
Section 16
    	
Amendments
    	
15
    
	
 
    	
 
    	
 
    
	
Section 17
    	
Notices, etc.
    	
15
    
	
 
    	
 
    	
 
    
	
Section 18
    	
Headings
    	
16
    
	
 
    	
 
    	
 
    
	
Section 19
    	
Counterparts
    	
16
    
	
 
    	
 
    	
 
    
	
Section 20
    	
USA Patriot Act
    	
17
    
	
 
    	
 
    	
 
    
	
Section 21
    	
Required Disclosure
    	
17
    
	
 
    	
 
    	
 
    
	
Section 22
    	
Representations
    	
17
    

 

 

EXHIBITS

A — Form of Beneficiary Withdrawal Notice

B — Form of Grantor Withdrawal Notice

C — Investment Guidelines

D — Grantor Representatives

E —  Beneficiary Representatives

 

i

 

TRUST AGREEMENT

 

THIS TRUST AGREEMENT, dated as of [_______] (this “Agreement”), by and among Allstate Life Insurance Company, an Illinois-domiciled life insurance company (such insurer and its successors by operation of law, including, without limitation, any liquidator, rehabilitator, receiver or conservator thereof, being hereinafter referred to as the “Grantor”), Lincoln Benefit Life Insurance Company, a Nebraska-domiciled life insurance company (such insurer and its successors by operation of law, including, without limitation, any liquidator, rehabilitator, receiver or conservator thereof, being hereinafter referred to as the “Beneficiary”), and The Bank of New York Mellon, a national banking association, as trustee, for the benefit of the Beneficiary (such bank and its successors by operation of law, in its or their capacity as trustee, being referred to as the “Trustee”).

 

RECITALS

 

WHEREAS, the Grantor desires to establish with the Trustee a trust account with account # [___________] (the “Trust Account”), and transfer to the Trustee for deposit in the Trust Account Assets (as hereinafter defined) to be made subject to this Agreement in order to secure payments of certain amounts at any time and from time to time owing by the Grantor to the Beneficiary under the Reinsurance Agreement (as hereinafter defined);

 

WHEREAS, the Trustee has agreed to act as Trustee hereunder and, in accordance with the terms hereof, to hold Assets in trust in the Trust Account on the terms herein set forth;

 

WHEREAS, the Trustee is a qualified U.S. financial institution as defined in Nev. Rev. Stat. § 44-416.08; and

 

WHEREAS, this Agreement is made for the sole use and benefit of the Beneficiary and for the purpose of setting forth the duties and powers of the Trustee with respect to the Trust Account;

 

NOW, THEREFORE, for and in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows:

 

Section 1            Deposit of Assets to the Trust Account.

 

(a)          Concurrently with the execution and delivery of this Agreement, the Trustee shall establish a Trust Account in the Grantor’s name, and shall administer the Trust Account as Trustee for the benefit of the Beneficiary in accordance with the terms of this Agreement and for the sole use and benefit of the Beneficiary.  All such trusteed Assets at all times shall be maintained in or credited to the Trust Account, separate and distinct from all other assets of the Trustee, and shall be continuously maintained or credited by the Trustee.

 

(b)          On the date hereof, the Grantor shall transfer or cause to be transferred to the Trustee, for deposit to the Trust Account, Eligible Assets in accordance with Section 7.2 of the Reinsurance Agreement and shall transfer to the Trustee, for deposit to the Trust Account, such Eligible Assets as it may from time to time be required to deposit by this Agreement, the

 

2

 

Reinsurance Agreement or otherwise (all such Eligible Assets and proceeds thereof (other than Income) in the Trust Account are “Assets”).  The Grantor, prior to depositing Eligible Assets with the Trustee, shall execute or cause to be executed assignments, endorsements in blank, or transfer legal title to the Trustee of all shares, obligations or any other assets requiring assignment, in order that the Beneficiary or the Trustee, upon the direction of the Beneficiary, may whenever necessary negotiate any such Eligible Assets without the consent or signature from the Grantor or any other entity.

 

(c)          The Grantor hereby represents, warrants and covenants (i) that any assets transferred by the Grantor to the Trustee for deposit to the Trust Account will be in such form that the Beneficiary whenever necessary may, and the Trustee upon direction by the Beneficiary may, negotiate any such assets without consent or signature from the Grantor or any person in accordance with the terms of this Agreement; and (ii) that all assets transferred by the Grantor to the Trustee for deposit to the Trust Account will consist only of Eligible Assets at the time of such transfer.

 

Section 2            Withdrawal of Assets from the Trust Account.

 

(a)

 

(i)           The Beneficiary shall have the right to withdraw Assets from the Trust Account subject only to (A)(1) the presentation of a written notice (given as provided in Section 17 hereof) from the Beneficiary to the Trustee and the Grantor in the form as attached hereto as Exhibit A (a “Beneficiary Withdrawal Notice”) which shall include a certification by the Beneficiary to the Trustee and the Grantor that the Grantor has failed to pay an amount due to the Beneficiary under the Reinsurance Agreement, such amount is not subject to a good faith dispute and such failure has not been cured within ten (10) Business Days after the Grantor has received written notice of such failure from the Beneficiary (an “Uncured Grantor Default”), signed by a duly authorized officer of the Beneficiary, and (2) an email transmitted to the Trustee and all of the Grantor’s representatives then-listed on Exhibit D hereto (as such list may be modified from time to time by the Grantor in written notice to both the Trustee and the Beneficiary, given as provided in Section 17 hereof), attaching such executed Beneficiary Withdrawal Notice in PDF format with the cover note to such email transmission stating that such email transmission, together with the Beneficiary Withdrawal Notice attached thereto, constitutes a notice to the Trustee and the Grantor as provided in Section 17 hereof (any transmission of such email, a “Beneficiary Email Notice”), and (B) the satisfaction of the requirements set forth in Section 2(a)(ii).  The Beneficiary Withdrawal Notice shall specify the Assets to be withdrawn and an instruction to the Trustee as to how such specified Assets shall be delivered.  The Beneficiary shall acknowledge receipt of any such Assets withdrawn upon request by the Trustee.

 

(ii)          The occurrence of one of the following four events subsequent to the Beneficiary giving the Beneficiary Withdrawal Notice and the applicable Beneficiary Email Notice to the Trustee and the Grantor shall be a condition of withdrawal of Assets by the Beneficiary in accordance with Section 2(a)(i):

 

(A)                          Five (5) Business Days shall have elapsed from and including the date on which the Trustee originally received a copy of the

 

3

 

Beneficiary Withdrawal Notice and the Beneficiary Email Notice, and the Trustee shall not have received any notice, given as provided in Section 17 hereof, from the Grantor disputing the amount requested for withdrawal by the Beneficiary in the Beneficiary Withdrawal Notice;

 

(B)                           The Trustee shall have received a certificate signed by the Beneficiary and the Grantor fixing and determining the amount of Assets, if any, the Beneficiary may withdraw from the Trust Account;

 

(C)                           The Trustee shall have received a certificate from the Beneficiary certifying that a non-appealable award from an arbitration panel has been entered specifying the amount of Assets which the Beneficiary may withdraw from the Trust Account, with a copy of such arbitration award attached; or

 

(D)                          The Trustee shall have received, in the manner provided in Section 17 hereof, other written confirmation from the Grantor permitting the withdrawal requested in the Beneficiary Withdrawal Notice.

 

(b)

 

(i)           If the aggregate Value of all Eligible Assets held in the Trust Account as of the end of any Quarterly Accounting Period is greater than the percentage of the Required Balance as of the end of such Quarterly Accounting Period specified in the Reinsurance Agreement (an “Overfunding Event”), the Grantor shall have the right to withdraw Assets from the Trust Account equal to such excess (“Excess”) subject only to (A)(1) the presentation of a written notice (given as provided in Section 17 hereof) from the Grantor to the Trustee and the Beneficiary in the form as attached hereto as Exhibit B (a “Grantor Withdrawal Notice”) which shall include a certification by the Grantor to the Trustee and the Beneficiary of the occurrence of an Overfunding Event and the amount of such Excess, signed by a duly authorized officer of the Grantor, and (2) an email transmitted to the Trustee and all of the Beneficiary’s representatives then-listed on Exhibit E hereto (as such list may be modified from time to time by the Beneficiary in written notice to both the Trustee and the Grantor, given as provided in Section 17 hereof), attaching such executed Grantor Withdrawal Notice in PDF format with the cover note to such email transmission stating that such email transmission, together with the Grantor Withdrawal Notice attached thereto, constitutes a notice to the Trustee and the Beneficiary as provided in Section 17 hereof (any transmission of such email, a “Grantor Email Notice”), and (B) the satisfaction of the requirements set forth in Section 2(b)(ii).  The Grantor Withdrawal Notice shall specify the Assets to be withdrawn and an instruction to the Trustee as to how such specified Assets shall be delivered.  The Grantor shall acknowledge receipt of any such Assets withdrawn upon request by the Trustee.

 

(ii)          The occurrence of one of the following four events subsequent to the Grantor giving the Grantor Withdrawal Notice and the applicable Grantor Email Notice to the

 

4

 

Trustee and the Beneficiary shall be a condition of withdrawal of Assets by the Grantor in accordance with Section 2(b)(i):

 

(A)                          Five (5) Business Days shall have elapsed from and including the date on which the Trustee originally received a copy of the Grantor Withdrawal Notice and the Grantor Email Notice, and the Trustee shall not have received any notice, given as provided in Section 17 hereof, from the Beneficiary disputing the amount requested for withdrawal by the Grantor in the Grantor Withdrawal Notice;

 

(B)                           The Trustee shall have received a certificate signed by the Grantor and the Beneficiary fixing and determining the amount of Assets, if any, the Grantor may withdraw from the Trust Account;

 

(C)                           The Trustee shall have received a certificate from the Grantor certifying that a non-appealable award from an arbitration panel has been entered specifying the amount of Assets which the Grantor may withdraw from the Trust Account, with a copy of such arbitration award attached; or

 

(D)                          The Trustee shall have received, in the manner provided in Section 17 hereof, other written confirmation from the Beneficiary permitting the withdrawal requested in the Grantor Withdrawal Notice.

 

(c)          The Trustee shall have no responsibility whatsoever to determine that any Assets withdrawn from the Trust Account pursuant to Section 2 of this Agreement will be used and applied in the manner contemplated hereunder or in accordance with the terms of the Reinsurance Agreement.  The Trustee shall have no duty to compel the Grantor to deposit Assets into the Trust Account.

 

Section 3            Procedure for Withdrawals of Assets; Certain Covenants.

 

(a)          Following receipt of a Withdrawal Notice, and the satisfaction of the conditions set forth in Section 2(a) or 2(b), as applicable, the Trustee shall promptly take any and all steps necessary to transfer, absolutely and unequivocally, all right, title and interest to the invested Assets or cash amount specified in such Withdrawal Notice and shall deliver such invested Assets or cash amount as specified in such Withdrawal Notice.  The Trustee shall be protected in relying conclusively upon any written demand, instruction, direction, acknowledgment, statement, notice, resolution, request, consent, order, certificate, report, appraisal, opinion, electronic mail, letter, or other communication (collectively, “Communications”) of the Beneficiary or the Grantor, as applicable, for any such withdrawal that on its face conforms to the requirements of this Agreement.

 

(b)          Subject to Section 4 and Section 10 of this Agreement, in the absence of a Withdrawal Notice, the Trustee shall allow no substitutions or withdrawals of any Asset from the Trust Account.

 

5

 

(c)          The Trustee may neither take, nor consent to the taking of, any action which would or could result in the placement of any lien on any of the Trust Account’s Assets except as stated under this Agreement.  In addition, the Trustee shall have no authority to assign, transfer, pledge, or set off any of the Trust Account’s Assets except as expressly permitted herein.  Neither the Grantor, nor the Trustee, nor their respective successors and assigns, shall alienate, sell, transfer, assign, encumber or otherwise impair any of the Trust Account’s Assets except as stated under this Agreement.  Any attempt to do so is void and of no force or effect.

 

(d)          The Assets held in the Trust Account shall be managed in accordance with the Investment Guidelines.  The Grantor may retain (and pay the service fees of) a professional investment manager (the “Investment Manager”) to manage and make investment decisions with regard to any of the Assets held in the Trust Account in accordance with the Investment Guidelines, and the Grantor agrees to provide reasonable advance written notice to the Trustee and the Beneficiary of the appointment of each Investment Manager so retained; provided that the Grantor shall remain responsible for all its obligations or liabilities under this Agreement despite delegation of any such obligations or liabilities to such Investment Manager and the Grantor shall be liable with respect to the services to be provided by the Investment Manager as if provided by the Grantor.

 

Section 4            Redemption, Investment and Substitution of Assets.

 

(a)          The Trustee shall surrender for payment all maturing Assets and all Assets called for redemption and deposit the principal amount of the proceeds of any such payment to the Trust Account and will provide notice thereof by electronic mail or other Electronic Methods to the Beneficiary and the Grantor.

 

(b)          From time to time, at the written order and direction of the Grantor or its designated Investment Manager, and without consent of, or prior notice to, the Beneficiary, the Trustee shall, invest and reinvest the Assets in the Trust Account in Eligible Assets.  The Trustee shall have no responsibility whatsoever to determine that such designated investments constitute Eligible Assets, and may rely on the direction of the Grantor or its designated Investment Manager.

 

(c)          From time to time, and without consent of, or prior notice to, the Beneficiary, the Grantor or its designated Investment Manager may direct the Trustee to substitute Assets, provided that at the time of such substitution, the withdrawn Assets are replaced with other Eligible Assets having a Value at least equal to the Value of the Assets so withdrawn.

 

(d)          All investments and substitutions of Assets referred to in paragraphs (b) and (c) of this Section shall be in compliance with the definition of “Eligible Assets” in Section 11.  Any instruction or order concerning such investments or substitutions of Assets shall be referred to herein as an “Investment Order.”  The Trustee shall execute Investment Orders and settle securities transactions by itself or by means of an agent or broker, including an Affiliate.  The Trustee shall not be responsible for any act or omission, or for the solvency, of any such agent or broker, provided that the Trustee shall have selected and retained such agent or broker with reasonable care.

 

6

 

(e)          When the Trustee is directed to deliver Assets against payment, delivery will be made in accordance with generally-accepted market practice.

 

(f)           Any loss incurred from any investment pursuant to the terms of this Section 4, or from any settlement of Eligible Assets, shall be borne exclusively by the Trust Account.  The Trustee shall not be liable for any loss due to changes in market rates or penalties for early redemption.

 

Section 5            Income.

 

All payments of interest, dividends and other income in respect of Assets (the “Income”) shall be posted and credited by the Trustee in the separate income column of the custody ledger (the “Income Account”) within the Trust Account established and maintained by the Trustee on behalf of the Grantor at an office of the Trustee in [       ].  Any Income automatically posted and credited on the payment date to the Income Account by the Trustee which is not subsequently received by the Trustee shall be debited from the Income Account and, if any such Income is paid by the Trustee to the Grantor, such amount shall be reimbursed by the Grantor to the Trustee.  Any amounts deposited in the Income Account are not part of the Assets in the Trust Account and as such are not subject to the terms and conditions of this Agreement with respect to the Assets in the Trust Account.  Any amounts deposited in the Income Account shall be paid to the Grantor or its designee, or credited to an account of the Grantor or its designee, in accordance with written instructions provided from time to time by the Grantor to the Trustee.

 

Section 6            Right to Vote Assets.

 

(a)          Whenever Eligible Assets (including, but not limited to, warrants, options, conversions, subscriptions, takeovers, other forms of capital reorganizations, redemptions, tenders, options to tender or non-mandatory puts or calls) confer optional rights on the Grantor or provide for discretionary action or alternative courses of action by the Grantor, the Grantor or its Investment Manager shall be responsible for making any decisions relating thereto and for instructing the Trustee to act.  In order for the Trustee to act, it must receive the Grantor’s or Investment Manager’s written instructions at the Trustee’s offices, addressed as the Trustee may from time to time request, by the reasonable deadline specified by the Trustee from time to time.  If the Trustee does not receive such written instructions prior to such specified deadlines, the Trustee shall not be liable for failure to take any action relating to or to exercise any rights conferred by such assets.

 

(b)          The Trustee shall notify the Grantor or its Investment Manager by Electronic Methods of such rights or discretionary actions or of the date or dates by when such rights must be exercised or such action must be taken provided that the Trustee has received from the issuer or one of the nationally recognized bond or corporate action services to which the Trustee subscribes, notice of such rights or discretionary corporate action or of the date or dates such rights must be exercised or such action must be taken.  If the Trustee shall not actually receive such notice, the Trustee shall have no liability for failing to so notify the Grantor or its Investment Manager.

 

7

 

(c)          With respect to all Eligible Assets, however registered,  the voting rights are to be exercised by the Grantor or its Investment Manager.  The Trustee’s only duty shall be to deliver by Electronic Methods to the Grantor or its Investment Manager any documents (including proxy statements, annual reports and signed proxies) relating to the exercise of such voting rights.

 

Section 7            Additional Rights and Duties of the Trustee.

 

(a)          The Trustee shall furnish to the Grantor and the Beneficiary a statement of all Assets in the Trust Account upon the inception of the Trust Account and at the end of each calendar month thereafter (the “Monthly Statement”).The Monthly Statement shall list (i) all of the Assets with CUSIP number (if applicable) and other specific identifying information with respect to any Asset that has no CUSIP number, and (ii) any transfers of Assets to or from the Trust Account during such calendar month, including all purchases and sales of Assets during such calendar month.  The Monthly Statement shall be given as soon as practicable, but in no event later than ten (10) Business Days after the end of the calendar month most recently concluded.  At the Grantor’s or the Beneficiary’s request, the Trustee may provide daily reporting to the Beneficiary, the Grantor or its designated Investment Manager by granting access to the Trustee’s automated data system affording on-line access to trust accounts information.  The Monthly Statement under this Section 7(a) shall be deemed given by the Trustee to the Grantor and the Beneficiary to the extent that the Grantor and the Beneficiary, as the case may be, had previously requested and had been given access to the Trustee’s automated data system affording on-line access to trust accounts information and such information is posted by the Trustee on such system within such ten (10) Business Day period.

 

(b)          Before accepting any asset for deposit to the Trust Account, the Trustee shall determine that such asset is in such form that the Beneficiary whenever necessary may, or the Trustee upon written direction by the Beneficiary may, negotiate such asset without consent or signature from the Grantor or any other Person.

 

(c)          The Trustee shall notify the Grantor and the Beneficiary by Electronic Methods, within ten (10) days, of any deposits to or withdrawals from the Trust Account.

 

(d)          All Assets shall be safely held by the Trustee in its office in the United States, except that the Trustee may hold any Asset that is in book-entry form as of the date it is credited to the Trust Account (a “Book-Entry Asset”) through the book-entry account maintained by the Trustee with the related depository for such Book-Entry Asset (such a depository being referred to herein as a “Depository”).  A Book-Entry Asset may be held in the name of a nominee maintained by the Depository.

 

(e)          The Trustee shall accept and may open all mail directed to the Grantor or the Beneficiary in care of the Trustee.  The Trustee shall promptly forward all mail to the addressee whether or not opened.

 

(f)           The Trustee shall keep full and complete records of the administration of the Trust Account.  Upon the reasonable written request of the Grantor or the Beneficiary, the Trustee shall promptly permit the Grantor or the Beneficiary, their respective agents, employees or independent auditors to examine, audit, excerpt, transcribe and copy, at their own expense,

 

8

 

during the Trustee’s normal business hours any books, documents, papers and records relating to the Trust Account or the Assets.

 

(g)          The Trustee is authorized to rely conclusively upon all Communications (including, without limitation, Investment Orders, Withdrawal Notices and Termination Notices) given by officers, agents and/or employees named in letters and incumbency certificates furnished to the Trustee from time to time by the Grantor, the Investment Manager or the Beneficiary and by attorneys-in-fact acting under written authority furnished to the Trustee by the Grantor, the Investment Manager or the Beneficiary (collectively “Instructions”), including Instructions given by letter, facsimile transmission or Electronic Methods, if the Trustee reasonably believes such Instructions to be genuine and to have been signed, sent or presented by the proper party or parties.  The Trustee shall not incur any liability to anyone resulting from actions taken by the Trustee in reliance in good faith without fraud, negligence or willful misconduct on such Instructions.  The Trustee shall not incur any liability in executing Instructions prior to receipt by it of (i) notice of the revocation of the written authority of the individual(s) named therein or (ii) notice from any officer, agent or employee of the Grantor, the Investment Manager or the Beneficiary named in a letter or incumbency certificate delivered hereunder prior to receipt by it of a more current certificate.

 

(h)          The duties and obligations of the Trustee shall only be such as are specifically set forth in this Agreement, as it may from time to time be amended in accordance with the terms hereof, and no implied duties or obligations shall be read into this Agreement against the Trustee.  The Trustee shall be liable only for its own fraud, negligence, willful misconduct or lack of good faith.  Subject to the preceding sentence, the Trustee is not liable for acting in accordance with or relying upon any instruction, notice, demand, certificate or document contemplated by and given in accordance with this Agreement from the Grantor or the Beneficiary or for any consequential, punitive or special damages.

 

(i)           No provision of this Agreement shall require the Trustee to take any action which, in the Trustee’s reasonable judgment, would result in any violation of this Agreement or any provision of law.  The Trustee shall exercise the same due care that is expected of a fiduciary with the responsibility for the safeguarding of the Assets in the Trust Account and for compliance with all provisions of this Agreement, whether or not the Assets are in the Trustee’s possession.

 

(j)           The Trustee may confer with a nationally recognized outside law firm of its selection in relation to matters arising under this Agreement and shall, upon demand, be indemnified and held harmless by the Grantor from and against any and all losses incurred by the Trustee hereunder for any actions taken, omitted or suffered by it in connection with this Agreement or under any transaction contemplated hereby without any lack of good faith, fraud, negligence or willful misconduct on the part of the Trustee and in accordance with the written advice or opinion of such counsel.  The written opinion of such law firm shall be full and complete authority and protection for the Trustee with respect to any action taken, omitted or suffered by it in good faith and in accordance with such written advice or opinion of such law firm.

 

9

 

(k)          The parties hereto acknowledge that nothing in this Agreement shall obligate the Trustee to extend credit, grant financial accommodation or otherwise advance moneys for the purpose of making any payments or part thereof or otherwise carrying out any Instructions, including, without limitation, any Investment Order.

 

(l)           Except as set forth in Section 7(d), the Trustee shall not be responsible for the existence, genuineness or value of any of the Assets or for the validity, perfection, priority or enforceability of any liens or security interest in any of the Assets, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder, except to the extent such action or omission constitutes fraud, negligence, bad faith or willful misconduct on the part of the Trustee, for the validity of title to the Assets, for insuring the Assets or for the payment of taxes, charges, assessments or liens upon the Assets.

 

(m)         The Trustee shall not incur any liability for not performing any act or fulfilling any duty, obligation or responsibility hereunder by reason of any occurrence beyond the control of Trustee, including, but not limited to, any act or provision of any present or future law or regulation or Governmental Authority, any act of God or war or terrorism, accidents, labor disputes, loss or malfunction of utilities or computer software or hardware, or the unavailability of the Federal Reserve Bank wire or other wire or communication facility, so long as the Trustee maintains and updates from time to time business continuation and disaster recovery procedures that it determines meet the standards of the banking industry.

 

(n)          The Trustee is authorized to disclose information concerning the Trust Account and Assets to its Affiliates and other providers of services as may be necessary in connection with the administration of the Assets or performance of this Agreement (including, by way of example and not by way of limitation, attorneys and accountants for the Trustee).

 

(o)          The Trustee shall in no way be responsible for determining the amount of Assets required to be deposited, or to monitor whether or not the Assets at any time are or continue to be Eligible Assets or have been invested in accordance with the Investment Guidelines or to determine independently the prices or market value of any Assets.  The Trustee shall be under no obligation to determine whether or not any instructions given by the Grantor and Beneficiary are contrary to any provision of law.  It is understood and agreed that the Trustee’s duties are solely those set forth herein and that the Trustee shall have no duty to take any other action unless specifically agreed to by the Trustee in writing.  Without limiting the generality of the foregoing, the Trustee shall not have any duty to advise, manage, supervise or make recommendations with respect to the purchase, retention or sale of any Assets as to which a default in the payment of principal or interest has occurred or to be responsible for the consequences of insolvency or the legal inability of any broker, dealer, bank or other agent employed by the Grantor or Trustee with respect to the Assets provided that, in cases where the Trustee has employed such an agent, the Trustee shall have selected and retained such agent with reasonable care.  The Trustee shall have no liability for any release of Assets made by it at the direction of the Beneficiary or the Grantor provided in accordance with the terms hereof.

 

10

 

Section 8            The Trustee’s Compensation, Expenses and Indemnification.

 

(a)          The Grantor shall pay the Trustee, as compensation for its services under this Agreement, a fee computed at its usual and customary rates for services of this sort, as determined in good faith by the Trustee from time to time and communicated to and agreed to in writing by the Grantor.  The Grantor shall also pay or reimburse the Trustee for all of the Trustee’s expenses and disbursements in connection with its duties under this Agreement (including reasonable attorneys’ fees and expenses), except any such expense or disbursement as may arise from the Trustee’s fraud, negligence, willful misconduct or lack of good faith.

 

(b)          The Grantor hereby indemnifies the Trustee for, and holds it harmless against, any losses (including reasonable attorneys’ fees and expenses) incurred or paid (other than as a result of the Trustee’s fraud, negligence, willful misconduct or lack of good faith), arising out of or in connection with the performance of its duties and obligations under this Agreement, including without limitation any loss arising out of or in connection with the status of the Trustee in connection with the performance of its duties and any nominee as the holder of record of any or all of the Assets.  In addition to and not in limitation of the foregoing, the Beneficiary hereby indemnifies the Trustee for, and holds it harmless against, any losses (including attorney’s fees and expenses) incurred or paid (other than as a result of the Trustee’s fraud, negligence, willful misconduct or lack of good faith), arising out of or in connection with actions taken by the Trustee pursuant to any written instruction from the Beneficiary to perform any such action.  The Grantor and the Beneficiary each hereby acknowledge that the foregoing indemnities shall survive the resignation of the Trustee or removal of the Trustee or the termination of this Agreement.

 

(c)          No Assets shall be withdrawn from the Trust Account or used in any manner for paying compensation to, or reimbursement or indemnification of, the Trustee.

 

(d)          The Trustee hereby waives any and all rights of offset, counterclaim and recoupment against the Beneficiary and the Trust Account, and waives any lien (statutory or otherwise) that it may assert against the Trust Account.

 

(e)          The Trustee hereby indemnifies each of the Grantor and the Beneficiary for, and holds it harmless against, any losses (including reasonable attorneys’ fees and expenses) arising out of the performance of the Trustee’s obligations under this Agreement with respect to such party to the extent resulting from the Trustee’s fraud, negligence, willful misconduct or lack of good faith.  The Trustee hereby acknowledges that the foregoing indemnities shall survive the resignation of the Trustee or removal of the Trustee or the termination of this Agreement.

 

Section 9            Resignation of the Trustee.

 

(a)          The Trustee may resign at any time by giving not less than ninety (90) days’ written notice thereof to the Beneficiary and to the Grantor.  The Grantor and the Beneficiary jointly also may remove the Trustee at any time, without assigning any reason therefor, on fifteen (15) days’ prior written notice thereof to the Trustee.  Such resignation or removal shall become effective on the acceptance of appointment by a successor Trustee and the transfer to

 

11

 

such successor Trustee of all Assets in the Trust Account in accordance with paragraph (b) of this Section 9.

 

(b)          Upon receipt of the Trustee’s notice of resignation or giving notice to the Trustee of removal, the Grantor and the Beneficiary shall promptly appoint a successor trustee.  Any successor trustee shall be a bank that is a member of the Federal Reserve System and a qualified U.S. financial institution as defined in Nev. Rev. Stat. § 44-416.08 and shall not be a parent, a subsidiary or an Affiliate of the Grantor or the Beneficiary.  Upon the acceptance of the appointment as trustee hereunder by a successor trustee and the transfer to such successor Trustee of all Assets in the Trust Account, the resignation or removal of the Trustee shall become effective.  Thereupon, such successor trustee shall succeed to and become vested with all the rights, powers, privileges and duties of the Trustee, and the Trustee shall be discharged from any future duties and obligations under this Agreement, but the Trustee shall continue after its resignation or removal to be entitled to the benefits of the indemnities provided herein for a Trustee.

 

Section 10         Termination of the Trust Account.

 

(a)          The Trust Account and this Agreement, except for the indemnities provided herein, which shall survive termination, may be terminated, other than pursuant to an order of a court having jurisdiction, only after the Grantor and the Beneficiary have given the Trustee joint written notice of termination of the Trust Account (the “Termination Notice”).  Any Notice of Intention shall specify the date on which the Trust Account shall terminate (the “Termination Date”).

 

(b)          On the Termination Date, the Trustee shall transfer any Assets remaining in the Trust Account to the Grantor, at which time all duties and obligations of the Trustee with respect to such Assets shall cease.

 

Section 11         Definitions.

 

Except as the context shall otherwise require, the following terms shall have the following meanings for all purposes of this Agreement (the definitions to be applicable to both the singular and the plural forms of each term defined if both such forms of such term are used in this Agreement):

 

The term “Affiliate” with respect to any Person shall mean a Person which directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such Person.

 

The term “Agreement” shall have the meaning specified in the preamble.

 

The term “Applicable Law” means any U.S.  domestic or foreign federal, provincial, state or local statute, law, ordinance or code, or any written rules, regulations or administrative interpretations issued by any Governmental Authority pursuant to any of the foregoing, and any order, writ, injunction, directive, judgment or decree of a court of competent jurisdiction applicable to the parties hereto.

 

12

 

The term “Assets” shall have the meaning specified in Section 1(b) of this Agreement.

 

The term “Beneficiary” shall have the meaning specified in the preamble.

 

The term “Beneficiary Email Notice” shall have the meaning specified in Section 2(a) of this Agreement.

 

The term “Book-Entry Asset” shall have the meaning specified in Section 7(d) of this Agreement.

 

The term “Beneficiary Withdrawal Notice” shall have the meaning specified in Section 2(a) of this Agreement.

 

The term “Business Day” shall mean any day that is not a Saturday, Sunday, legal holiday or other day on which commercial banks in New York, New York are authorized or required by law to close.

 

The term “Communications” shall have the meaning specified in Section 3(a) of this Agreement.

 

The term “Depository” shall have the meaning specified in Section 7(d) of this Agreement.

 

The term “Electronic Methods” shall mean delivery by electronic mail or through the grant of access to the recipient of the Trustee’s automated data system affording on-line access to the notice that is the subject of the delivery.

 

The term “Eligible Assets” shall have the meaning set forth in the Reinsurance Agreement.

 

The term “Excess” shall have the meaning specified in Section 2(b) of this Agreement.

 

The term “Governmental Authority” means any court, administrative or regulatory or self-regulatory agency or commission, or other federal, provincial, state or local governmental or self-regulatory authority or instrumentality having jurisdiction over any party hereto.

 

The term “Grantor” shall have the meaning specified in the preamble.

 

The term “Grantor Email Notice” shall have the meaning specified in Section 2(b) of this Agreement.

 

The term “Grantor Withdrawal Notice” shall have the meaning specified in Section 2(b) of this Agreement.

 

The term “Income” shall have the meaning specified in Section 5 of this Agreement.

 

The term “Income Account” shall have the meaning specified in Section 5 of this Agreement.

 

13

 

The term “Instructions” shall have the meaning specified in Section 7(g) of this Agreement.

 

The term “Investment Guidelines” means the Investment Guidelines attached hereto as Exhibit C.

 

The term “Investment Order” shall have the meaning specified in Section 4(d) of this Agreement.

 

The term “Monthly Statement” shall have the meaning specified in Section 7(a) of this Agreement.

 

The term “Overfunding Event” shall have the meaning specified in Section 2(b) of this Agreement.

 

The term “Person” shall mean and include an individual, a corporation, a limited liability company, a partnership, an association, a trust, an unincorporated organization or a government or political subdivision thereof

 

The term “Quarterly Accounting Period” shall have the meaning set forth in the Reinsurance Agreement.

 

The term “Reinsurance Agreement” means the Amended and Restated Reinsurance Agreement, dated as of [____________], 2013, between the Beneficiary and the Grantor.

 

The term “Required Balance” shall have the meaning set forth in the Reinsurance Agreement.

 

The term “Termination Date” shall have the meaning specified in Section 10(a) of this Agreement.

 

The term “Termination Notice” shall have the meaning specified in Section 10(a) of this Agreement.

 

The term “Trust Account” shall have the meaning specified in the preamble.

 

The term “Trustee” shall have the meaning specified in the preamble.

 

The term “Uncured Grantor Default” shall have the meaning specified in Section 2(a).

 

The term “Value” shall have the meaning set forth in the Reinsurance Agreement.

 

The term “Withdrawal Notice” means a Beneficiary Withdrawal Notice or a Grantor Withdrawal Notice.

 

Section 12         Governing Law.

 

This Agreement and the Trust Account shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to its principles or rules of conflict

 

14

 

of laws; to the extent such principles or rules are not mandatorily applicable by statute and would permit or require the application of the laws of another jurisdiction.

 

Section 13         Successors and Assigns.

 

No party may assign this Agreement or any of its obligations hereunder without the prior written consent of the other parties; provided, however, that this Agreement shall inure to the benefit of and bind those who, by operation of law, become successors to the parties, including, without limitation, any liquidator, rehabilitator, receiver or conservator and any successor, merged or consolidated entity; and provided, further, that, in the case of the Trustee, the successor trustee is eligible to be a trustee under the terms hereof.

 

Section 14         Severability.

 

In the event that any provision of this Agreement shall be declared invalid or unenforceable by any Governmental Authority having jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remaining portions of this Agreement.

 

Section 15         Entire Agreement.

 

This Agreement constitutes the entire agreement among the parties, and there are no understandings or agreements, conditions or qualifications regarding the rights and obligations of the Trustee, which are not fully expressed in this Agreement.

 

Section 16         Amendments.

 

This Agreement may be modified or otherwise amended, and the observance of any term of this Agreement may be waived, only if such modification, amendment or waiver is in writing and signed by all of the parties.  Notwithstanding the foregoing, this Agreement may also be amended by the Grantor in the manner contemplated by Section 5.15 of the Stock Purchase Agreement (as defined in the Reinsurance Agreement) in the circumstances contemplated therein.

 

Section 17         Notices, etc.

 

Unless otherwise provided in this Agreement, all Communications (including, without limitation, any Investment Orders or Instructions) required or permitted to be given or made under the terms hereof shall be in writing and shall be deemed to have been duly given or made (a) (i) when delivered personally, (ii) when made or given by facsimile or electronic mail or other Electronic Method, or (iii) in the case of mail delivery, upon the expiration of three days after any Communication shall have been deposited in the United States mail for transmission by first class mail, postage prepaid, or upon receipt thereof, whichever shall first occur and (b) when addressed as follows:

 

If to the Grantor:

[_______________]

[_______________]

 

15

 

[_______________]

Fax: [___________]

Attention:

 

with a copy to:

 

[_______________]

[_______________]

[_______________]

Fax: [___________]

Attention:

 

If to the Beneficiary:

[_______________]

[_______________]

[_______________]

Fax: [___________]

Attention:

 

with a copy to:

[_______________]

[_______________]

[_______________]

Fax:

Attention:

 

If to the Trustee:

[_______________]

[_______________]

[_______________]

Fax:

Attention:

 

Each party may from time to time designate a different address for Communications (including, without limitation, Investment Orders) by giving written notice of such change to the other parties.

 

Section 18         Headings.

 

The headings of the sections and the table of contents have been inserted for convenience of reference only, and shall not be deemed to constitute a part of this Agreement.

 

Section 19         Counterparts.

 

This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall constitute an original, but such counterparts together shall constitute one and the same agreement.

 

16

 

Section 20         USA Patriot Act.

 

The Grantor and the Beneficiary hereby acknowledge that the Trustee is subject to federal laws, including the Customer Identification Program (“CIP”) requirements under the USA PATRIOT Act and its implementing regulations, pursuant to which the Trustee must obtain, verify and record information that allows the Trustee to identify the Grantor and the Beneficiary.  Accordingly, prior to opening an account hereunder, the Trustee will ask the Grantor and the Beneficiary to provide certain information including the Grantor’s and the Beneficiary’s name, physical address, tax identification number and other information that will help the Trustee to identify and verify the Grantor’s and the Beneficiary’s identity such as organizational documents, certificate of good standing, license to do business, or other pertinent identifying information.  The Grantor and the Beneficiary agree that the Trustee cannot open an account hereunder unless and until the Trustee verifies the Grantor’s and the Beneficiary’s identity in accordance with the Trustee’s CIP.

 

Section 21         Required Disclosure.

 

The Trustee is authorized to supply any information regarding the Trust Account and related Assets that is required by Applicable Law.  Each of the Grantor and the Beneficiary agrees to supply the Trustee with any required information if it is not otherwise reasonably available to the Trustee.  The Trustee will use commercially reasonable efforts to provide notice to the Grantor or the Beneficiary, as applicable, following any such disclosure, subject to legal or regulatory restrictions on such notice.

 

Section 22         Representations.

 

Each party represents and warrants to the others that it has full authority to enter into this Agreement upon the terms and conditions hereof and that the individual executing this Agreement on its behalf has the requisite authority to bind such party to this Agreement, and that the Agreement constitutes a binding obligation of such party enforceable in accordance with its terms.

 

[Remainder of page intentionally left blank.  Signature page follows.]

 

17

 

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

 

	
 
    	
ALLSTATE LIFE INSURANCE COMPANY
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
LINCOLN BENEFIT LIFE INSURANCE COMPANY
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
[___________]
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

 

[Trust Agreement]

 

 

EXHIBIT A

 

FORM OF BENEFICIARY WITHDRAWAL NOTICE

 

From:                        Lincoln Benefit Life Insurance Company of America (“Beneficiary”)

 

To:                                         [______________] (the “Trustee”)

 

Allstate Life Insurance Company (the “Grantor”)

 

Date:                           [__________]

 

Re:                                        Trust Agreement dated as of [_____], 2013 among the Grantor, the Beneficiary, and the Trustee (as amended, modified or supplemented from time to time, the “Trust Agreement”)

 

Dear Sirs:

 

We hereby give you notice pursuant to Section 2(a) of the Trust Agreement that the Beneficiary is entitled to withdraw the [sum of $________] [following Assets] from the Trust Account [Describe specific Assets].  This notice constitutes certification by the Beneficiary that an Uncured Grantor Default (as defined in Section 2(a)(i) of the Trust Agreement) has occurred.

 

Payment or delivery should be immediately made to [Insert account information] by the following method: [Describe method of cash transfer and/or Assets to be withdrawn and delivery instructions].

 

Yours faithfully,

 

 

[__________]

 

 

 

For and on behalf of

Lincoln Benefit Life Insurance Company

 

A-1

 

EXHIBIT B

 

FORM OF GRANTOR WITHDRAWAL NOTICE

 

From:                        Allstate Life Insurance Company (the “Grantor”)

 

To:                                         [___________] (the “Trustee”)

 

Date:                           [______]

 

Re:                                        Trust Agreement dated as of [             ], 2013 among the Grantor, Lincoln Benefit Life Insurance Company (the “Beneficiary”), and the Trustee (as amended, modified or supplemented from time to time, the “Trust Agreement”)

 

Dear Sirs:

 

We hereby give you notice pursuant to Section 2(b) of the Trust Agreement that the Grantor is entitled to withdraw the [sum of $____________] [following Assets] from the Trust Account [Describe specific Assets.].   This notice constitutes certification by the Grantor that an Overfunding Event (as defined in Section 2(b)(i) of the Trust Agreement) has occurred and the amount of the applicable Excess is $[            ].

 

Payment or delivery should be immediately made to [Insert account information] by the following method:  [Describe method of cash transfer and/or Assets to be withdrawn and delivery instructions].

 

Yours faithfully,

 

 

[_______]

For and on behalf of

Allstate Life Insurance Company

 

B-1

 

EXHIBIT C

 

INVESTMENT GUIDELINES

 

[Attached]

 

 

EXHIBIT D

 

GRANTOR REPRESENTATIVES

 

 

EXHIBIT E

 

BENEFICIARY REPRESENTATIVES

 

EXHIBIT H

 

 

 

 

 

TRANSITION SERVICES AGREEMENT

 

 

BY

 

and

 

BETWEEN

 

 

ALLSTATE LIFE INSURANCE COMPANY

 

and

 

 

RESOLUTION LIFE HOLDINGS, INC.

 

 

 

 

DATED AS OF _______, 2013

 

 

Table of Contents

 

	
 
    	
 
    	
Page
    
	
ARTICLE I
    
	
CERTAIN   DEFINITIONS
    
	
 
    	
 
    	
 
    
	
1.1
    	
SPA Definitions
    	
1
    
	
1.2
    	
Other Definitions
    	
1
    
	
 
    	
 
    	
 
    
	
ARTICLE II
    
	
SCHEDULED   SERVICES
    
	
 
    	
 
    	
 
    
	
2.1
    	
Scheduled Services
    	
3
    
	
2.2
    	
Standard of Services
    	
6
    
	
2.3
    	
Limitation on Services
    	
7
    
	
2.4
    	
Variances
    	
8
    
	
2.5
    	
Dispute Resolution
    	
9
    
	
2.6
    	
No Agency
    	
10
    
	
2.7
    	
Subcontracting
    	
10
    
	
2.8
    	
Consents
    	
10
    
	
2.9
    	
Transition Management
    	
11
    
	
2.10
    	
Transition Plan
    	
11
    
	
2.11
    	
Records and Audit
    	
12
    
	
2.12
    	
Ownership of Intellectual Property; License
    	
12
    
	
2.13
    	
Separate Accounts
    	
12
    
	
2.14
    	
Notice to Policyholders
    	
12
    
	
2.15
    	
Link on Website
    	
13
    
	
2.16
    	
Customer Telephone Service
    	
13
    
	
 
    	
 
    	
 
    
	
ARTICLE III
    
	
TERM AND   TRANSITION ASSISTANCE
    
	
 
    	
 
    	
 
    
	
3.1
    	
Term
    	
13
    
	
3.2
    	
Extension and Termination
    	
13
    
	
3.3
    	
Return of Materials
    	
14
    
	
 
    	
 
    	
 
    
	
ARTICLE IV
    
	
COMPENSATION   AND PAYMENT ARRANGEMENTS FOR SCHEDULED SERVICES
    
	
 
    
	
4.1
    	
Compensation for Scheduled Services
    	
14
    
	
4.2
    	
Payment Terms
    	
16
    
	
 
    	
 
    	
 
    
	
ARTICLE V
    
	
INDEMNIFICATION
    
	
 
    
	
5.1
    	
Indemnification by Seller
    	
18
    
	
5.2
    	
Indemnification by Buyer
    	
18
    

 

i

 

	
5.3
    	
Indemnification Procedures
    	
18
    
	
 
    	
 
    	
 
    
	
ARTICLE VI
    
	
FORCE   MAJEURE
    
	
 
    
	
ARTICLE VII
    
	
REMEDIES AND   SURVIVAL
    
	
 
    
	
7.1
    	
Financial Remedies Upon Material Breach
    	
20
    
	
7.2
    	
Specific Performance
    	
20
    
	
7.3
    	
Limitation of Liability
    	
20
    
	
7.4
    	
Survival Upon Expiration or Termination
    	
21
    
	
 
    	
 
    	
 
    
	
ARTICLE VIII
    
	
CONFIDENTIALITY
    
	
 
    
	
8.1
    	
Confidential Information
    	
21
    
	
8.2
    	
Unauthorized Acts
    	
21
    
	
 
    	
 
    	
 
    
	
ARTICLE IX
    
	
SYSTEM   ACCESS AND CONSUMER PRIVACY
    
	
 
    
	
9.1
    	
System Access
    	
22
    
	
9.2
    	
Consumer Privacy
    	
22
    
	
 
    	
 
    	
 
    
	
ARTICLE X
    
	
DISCLAIMER   OF REPRESENTATIONS, WARRANTIES AND COVENANTS
    
	
 
    
	
ARTICLE XI
    
	
MISCELLANEOUS
    
	
 
    
	
11.1
    	
Notices
    	
22
    
	
11.2
    	
Interpretation
    	
24
    
	
11.3
    	
Entire Agreement; Third-Party Beneficiaries
    	
24
    
	
11.4
    	
Governing Law
    	
24
    
	
11.5
    	
Assignment
    	
24
    
	
11.6
    	
Jurisdiction; Enforcement
    	
24
    
	
11.7
    	
Severability; Amendment; Modification; Waiver
    	
25
    
	
11.8
    	
Counterparts
    	
26
    

 

ii

 

TRANSITION SERVICES AGREEMENT

 

 

This Transition Services Agreement (this “Agreement” or “TSA”)), dated as of the Closing Date, 2013, is by and between Allstate Life Insurance Company, an insurance company organized under the laws of the State of Illinois (“Seller”), and Resolution Life Holdings, Inc., a corporation organized under the laws of the State of Delaware (“Buyer”).  Seller and Buyer shall each be referred to as a “Party” in this Agreement and, collectively, as the “Parties.”

 

WHEREAS, Seller, Buyer and, solely for purposes of Section 5.25 and Article X thereof, Resolution Life L.P., a Bermuda limited partnership and the sole owner of Buyer, have entered into a Stock Purchase Agreement, dated as of July 17, 2013 (the “SPA”), whereby Buyer has acquired from Seller the ownership and control of Lincoln Benefit Life Company, an insurance company organized under the laws of the State of Nebraska;

 

WHEREAS, in connection with the SPA, Seller and its Affiliates desire to provide certain transition services to Buyer and certain of its Affiliates on the terms set forth herein; and

 

NOW THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE I
 CERTAIN DEFINITIONS

 

1.1         SPA Definitions.  All defined terms used, but not defined, in this Agreement shall have the meanings given such terms in the SPA.

 

1.2         Other Definitions.  For purposes of this Agreement, the following terms shall have the respective meanings set forth below:

 

“Additional Service” has the meaning set forth in Section 2.1.5.

 

“Appraisal Fees” has the meaning set forth in Schedule 1(a).

 

“Base Fee” has the meaning set forth in Schedule 1(a).

 

“Business” means, collectively, the Recaptured Business and all of the other life insurance business, other than the Specified Life Business and the Vermont Captive Business, written by the Company through Independent Producers that is reinsured to third parties, as more particularly identified in Section 1.1(b) of the Seller Disclosure Schedule of the SPA.

 

“Buyer Indemnified Person” has the meaning set forth in Section 5.1.

 

“Confidential Information” has the meaning set forth in Section 8.1.

 

 

“Cost of Service” means the estimated actual internal costs, fees and expenses, and subcontracting costs under subcontracting relationships existing immediately prior to the Closing Date, incurred by Seller and/or Providing Party in performing the Scheduled Services and Migration services, which includes costs such as stay bonuses and incremental severance payments to employees involved in performing such Scheduled Services and Migration services, but shall not include any incremental costs, fees or expenses paid for subcontracting pursuant to Section 2.7.

 

“Customer Information” has the meaning set forth in Section 9.2.

 

“Customers” has the meaning set forth in Section 9.2.

 

“Designated Recipient” has the meaning set forth in Section 2.1.1(b).

 

“Dispute” has the meaning set forth in Section 2.5.

 

“Fees” has the meaning set forth in Section 4.1.1.

 

“Force Majeure Event” has the meaning set forth in ARTICLE VI.

 

“Guest User” has the meaning set forth in ARTICLE IX.

 

“Host” has the meaning set forth in ARTICLE IX.

 

“Indemnitee” means any Person entitled to indemnification under this Agreement.

 

“Indemnitor” means any Person required to provide indemnification under this Agreement.

 

“Migration” means activities reasonably required to complete the migration of business records and data used in the Business prior to the Closing Date or generated during the term of this Agreement prior to the completion of migration, including those activities set forth in Schedule 1(b), to and into the environment or system specified by Buyer and its Affiliates or, as applicable, a Designated Recipient.

 

“Out of Pocket Costs” has the meaning set forth in Section 4.1.2.

 

“Policy” means the policies and contracts of the types listed in the Actuarial Reports prepared by Milliman.

 

“Providing Party” means Seller or any Person designated by Seller in accordance with the terms of this Agreement to provide Scheduled Services.

 

“Receiving Party” means Buyer or Designated Recipient.

 

“Sales and Service Taxes” has the meaning set forth in Section 4.1.3.

 

“Scheduled Services” has the meaning set forth in Section 2.1.1(b).

 

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“Seller Indemnified Person” has the meaning set forth in Section 5.2.

 

“Separation” means activities reasonably required to complete the segregation and extraction necessary to separate the business records and data used by the businesses transferred to Buyer pursuant to the SPA from the environment and systems of Seller and its Affiliates.

 

“Service Fees” means, collectively, the Fees and Out of Pocket Costs.

 

“Service Providers” has the meaning set forth in Section 2.1.1.

 

“Service Term” has the meaning set forth in Section 2.1.1(b).

 

“Significant Service Shortfall” has the meaning set forth in Section 2.2.1.

 

“Signing Date” has the meaning set forth in Section 2.1.5.

 

“Systems” has the meaning set forth in ARTICLE IX.

 

“Term” has the meaning set forth in Section 3.1.

 

“Termination Date” has the meaning set forth in Section 3.2.2.

 

“Third Party Claim” means any claim, action, suit, or proceeding made or brought by any Person that is not a party to this Agreement;

 

“Transition Manager” has the meaning set forth in Section 2.9.

 

“TSA Material Contract” means a contract:  (i) to which Seller or its Affiliates are a named party; (ii) whose nominal value is at least $300,000 USD; and (iii) which is required for Seller to fulfill its obligations under this Agreement.

 

“Unauthorized Access” has the meaning set forth in Section 8.2.

 

“VAT” has the meaning set forth in Section 4.1.3(a).

 

ARTICLE II
 SCHEDULED SERVICES

 

2.1         Scheduled Services.

 

2.1.1     Services.

 

(a)          Seller, directly or through its Affiliates, and their respective employees, agents or subcontractors permitted in accordance with Section 2.7 herein (“Service Providers”), shall provide or cause to be provided to Buyer and certain of its Affiliates all services set forth on Schedules 1(a)-(f) from and after the date of this Agreement for the duration set forth in Schedules 1(a)-(f).  Buyer shall pay, or cause to be paid, the Service Fees as set forth in Section 4.1 to Seller for providing the services set forth on Schedules 1(a)-(f), or causing such services to be provided.

 

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(b)          The services set forth on Schedules 1(a)-(f) are hereinafter referred to as the “Scheduled Services”, and the duration for which each Scheduled Service is to be provided as set forth in Schedules 1(a)-(f) is referred to as the “Service Term”.  Schedules 1(a)-(f) set forth, for each Scheduled Service, the Providing Party and the Receiving Party and, where appropriate, the Affiliate or permitted third party designated in writing by the Receiving Party to receive such Service (the “Designated Recipient”).  The Receiving Party, in its sole discretion, may change any Affiliate or third party designated as the Designated Recipient for a Scheduled Service from the Person currently so designated in Schedules 1(a)-(f), provided that any additional cost to the Providing Party caused by or arising from such change shall be borne by the Receiving Party.

 

2.1.2     Direction of Employees.  The Providing Party shall be solely responsible for all salary, employment, payroll and other benefits of and liabilities owed to, and compliance with immigration and visa laws and requirements in respect of, its personnel assigned to perform the Scheduled Services.  In performing their respective duties hereunder, all personnel engaged in providing Scheduled Services shall be under the direction, control and supervision of the Providing Party; and the Providing Party shall have the sole right to exercise all authority with respect to the employment (including termination of employment), assignment and compensation of such personnel.  The employees of the Providing Party engaged in providing Scheduled Services to the Receiving Party shall not, by virtue thereof, become employees of the Receiving Party.

 

2.1.3     Cooperation.  Seller shall and shall cause each Providing Party to, and Buyer shall and shall cause each Receiving Party to, use its reasonable best efforts to: (a) cooperate with the other Party with respect to the provision or receipt of such Scheduled Service and (b) enable the Providing Party to provide and the Receiving Party or Designated Recipient to receive such Scheduled Service in accordance with this Agreement.  The failure of a Party to comply with this provision with respect to a Scheduled Service in a way that materially prevents or materially hinders the other Party from providing or receiving such Scheduled Service at all or in accordance with the service standard in Section 2.2.1 shall result in the following: (i) with respect to payment of Fees under Section 4.1.1(a)(i)-(iii), (x) if such non-cooperation by Seller or a Providing Party occurs during the first twelve (12) month period of this Agreement, the Appraisal Fees, as set forth in Section 4.1.1(a)(i), for the Schedule 1(a)(i), (a)(ii), or (c)-(f) on which such Scheduled Service appears shall be extended by the period of such non-cooperation, and (y) if such non-cooperation by Seller or a Providing Party occurs during the six (6) months thereafter (including as extended by Section 2.1.3(i)(x)), the fees set forth in Section 4.1.1(a)(ii) shall be extended by the period of such non-cooperation provided that notwithstanding Sections 2.1.3(i)(x) and 2.1.3(i)(y), the fees set forth in Section 4.1.1(a)(iv) shall apply after the end of the twenty-fourth (24th) calendar month from the date hereof; or (ii) if the Buyer or a Receiving Party is failing to cooperate, Buyer shall pay Seller for any incremental fees, costs or expenses arising from such non-cooperation.  A Party must provide notice to the other Party if it believes such other Party is failing to cooperate.  Upon receipt of such notice, such Party shall have thirty (30) days to cure such failure to cooperate.  Notwithstanding the foregoing, a failure to cooperate on the part of such Party shall not excuse performance of the respective Scheduled Service.  Such cooperation shall include assisting Buyer in benchmarking the costs to be paid by the Receiving Party in the administrative services agreement to be entered into between third 

 

4

 

party administrators and the Receiving Party; provided that Seller shall not be obligated to breach any existing obligation to a third party administrator.

 

2.1.4     Permits.  Seller represents and covenants that, as of the date hereof, it and any of its Affiliates through which Seller intends to provide a Scheduled Service has all material Permits necessary to provide the Scheduled Services.  Seller shall be responsible for keeping in force all Permits necessary to provide the Scheduled Services, with any associated costs borne by Seller and Buyer equally.  Notwithstanding anything in this Agreement to the contrary, Seller shall not be obligated to provide any Scheduled Service if the provision of such Scheduled Service would violate any Applicable Law or rules of professional ethics.  If Seller is prevented from providing, or causing to be provided, any Scheduled Service because providing such Scheduled Service or causing it to be provided would violate any Applicable Law or rules of professional ethics, Seller shall (i) notify Buyer of such prevention as soon as practicable, and (ii) provide or cause to be provided alternative equivalent services, and Seller and Buyer shall pay equally any additional costs, fees and expenses associated with such alternative services.  Except with respect to such alternative services provided during the first twelve (12) months in which Scheduled Services are provided pursuant to this Agreement, if costs in connection with the provision of alternative equivalent services are reduced, the fees charged to Buyer will be reduced commensurately.  If Seller changes the manner in which it provides the Scheduled Services such that it or its Affiliates must obtain any additional Permits necessary to provide the Scheduled Services for which it is responsible, other than in response to a change in Applicable Law, Seller shall be responsible for obtaining such necessary Permits, at Seller’s cost.

 

2.1.5     Omitted Services.  If at any time after the Closing Date, Buyer becomes aware of any service that is not a Scheduled Service (i) that had been provided by a Service Provider, in whole or in part, to the Business in the period of time during the twelve (12) months prior to the execution of the SPA (the “Signing Date”), (unless such service was terminated in the normal course of business prior to the Closing Date) and (ii) that is (A) reasonably necessary to conduct the Business or (B) reasonably necessary for Buyer to satisfy its obligations under the SPA, the Administrative Services Agreement or any of the other Transaction Agreements (each, an “Omitted Service”), then Buyer shall provide written notice thereof to Seller’s Transition Manager:  (w) within 100 days after the date hereof, or (x) for an Omitted Service that has historically been provided on a quarterly basis, promptly after discovering the need for such Omitted Service and in no event later than thirty (30) days from the end of the first full quarterly period after the date hereof to which such Omitted Service is related, or (y) for an Omitted Service that has historically been provided on an annual basis, promptly after discovering the need for such Omitted Service and in no event later than ninety (90) days from the end of the first relevant annual period after the date hereof to which such Omitted Service is related.  If such notice is provided, (a) Seller shall cause the Omitted Service to begin to be provided to Buyer and/or its Affiliates within a commercially reasonable period of time under the circumstances after receipt of such notice, (b) such Omitted Service shall be deemed to be a Scheduled Service, (c) Schedules 1(a)-(f) shall be deemed amended to include such Omitted Service, and (d) such Omitted Service shall be provided in accordance with the terms and conditions of this Agreement. With respect to an Omitted Service qualifying under Section 2.1.5(i) that becomes a Scheduled Service included in Schedules 1(a)-(f), Buyer shall pay an amount commensurate with the Service Fees set forth in Schedules 1(a)-(f) for similar Scheduled Services, to the extent such similar Scheduled Services exist, and Schedules 1(a)-(f) shall be 

 

5

 

amended accordingly to include such amount.  For an Omitted Service qualifying under Section 2.1.5(ii) that becomes a Scheduled Service included in Schedules 1(a)-(f), or an Omitted Service for which there is no similar Scheduled Service in Schedules 1(a)-(f), Seller shall determine in good faith the amounts payable by Buyer based on the Service Fees set forth in Schedules 1(a)-(f) and provide notice of such amounts to Buyer; provided, that upon such notice, Buyer shall in its sole discretion have the right to accept or reject the provision of such service.  In the event that the Receiving Party requests that the Providing Party provide additional services that are not Omitted Services (“Additional Services”), the Providing Party shall consider such request in good faith and if it decides it is willing to provide or to cause one of its Affiliates to provide such Additional Services, in the Providing Party’s reasonable discretion, the Parties shall negotiate in good faith to agree on the terms upon which the Providing Party would provide such Additional Services and the amounts payable by Buyer for such Additional Services.  In the event that the Providing Party agrees to provide any such Additional Service, the Parties will enter into an amendment to this Agreement amending Schedules 1(a)-(f) to reflect such Additional Service, and such Additional Service shall be deemed to be part of this Agreement and the Scheduled Services from and after the date of such amendment.  The foregoing obligations of Seller with respect to an Omitted Service or an Additional Service shall not apply with respect to any services that are excluded services set forth in Schedule 1(h) hereto.

 

2.1.6     Finance and Actuarial Corporate Support.  In the performance of the Scheduled Services listed in Schedule 1(c)(ii), at the Receiving Party’s reasonable request, Providing Party shall provide compilations of data and information in a reporting format consistent with that used by Providing Party for its own business to enable the Receiving Party to direct the Business; provided that Providing Party shall have no obligation to provide reports that include any judgment, analysis, or data relating to or reflecting policy data not owned by the Receiving Party, or that reflect any other data or processes proprietary to the Providing Party.  The Parties agree that the Providing Party will not have any responsibility for the direction of the Business.

 

2.2         Standard of Services.

 

2.2.1     General Standard.  The Providing Party shall perform each Scheduled Service for which it is responsible or to cause such Scheduled Services to be performed for the Receiving Party or its Designated Recipient at a standard that is no lower than the service standards set forth on Schedule 1(g), and, if no standard for a Scheduled Service is set forth on Schedule 1(g), at a standard no lower than the standard to which such Scheduled Service was provided in the twelve (12) months immediately prior to the Signing Date.  The target milestones and timelines relating to the Migration services in Schedule 1(b) shall be estimated in good faith and documented in the Migration plan, and such Migration services shall be provided in a workmanlike manner. The Receiving Party understands and agrees that the Providing Party is not in the business of providing transition services to third parties, and under no circumstances shall the Providing Party be held accountable to a higher standard of care than that set forth herein.  The description of services in Schedules 1(a)-(f) shall not alter, amend or supplement the service standard set forth in this Section.  If the Receiving Party provides the Providing Party with written notice of the occurrence of any Significant Service Shortfall (as defined below) in the Scheduled Services, the Providing Party shall rectify such Significant Service Shortfall promptly, provided that any Dispute as to whether a Significant Service Shortfall 

 

6

 

occurred shall be resolved in accordance with Section 2.5 hereto, and the Providing Party shall take corrective action in good faith in connection with such alleged Significant Service Shortfall until such Dispute is resolved; provided further that the Providing Party’s obligations under this Agreement shall be relieved to the extent, and for the duration of, any Force Majeure Event as set forth in ARTICLE VI; provided further, that any costs, fees and expenses associated and in connection with remedying such Significant Service Shortfall shall be borne by the Party responsible for causing such shortfall.  For purposes of this Section 2.2.1, a “Significant Service Shortfall” shall occur if a service level standard set forth in Schedule 1(g) is not met for two (2) consecutive months.

 

2.2.2     Disaster Recovery Program.  For the duration of the Term, the Providing Party shall, and shall cause its relevant Affiliates to, maintain backup, business continuation and disaster recovery plans consistent with past practices as they existed during the twelve (12) months immediately preceding the Signing Date.

 

2.3         Limitation on Services.

 

2.3.1     Buyer acknowledges and agrees that Seller’s obligation to cause Service Providers to provide the Scheduled Services to Buyer and/or its Affiliates under the standards of performance set forth in Section 2.2.1 of this Agreement or Schedule 1(g) shall be subject to and shall be limited to the extent to which Service Providers’ ability to provide Scheduled Services to Buyer or its Affiliates is adversely affected by Buyer’s failure to perform its obligations hereunder, under the SPA or any other Transaction Agreement, or its Affiliates’ failure to perform hereunder, under the SPA or any other Transaction Agreement.

 

2.3.2     Seller shall have no obligation to cause any Scheduled Services to be provided to any Person other than Buyer, its Affiliates, Buyer’s Designated Recipient or its Affiliates.

 

2.3.3     Seller shall cause to be provided the Scheduled Services in accordance herewith solely to allow Buyer and its Affiliates to conduct the Business in substantially the same manner as conducted during the twelve (12) months prior to the Signing Date (inclusive of any organic growth in volume and scope of such businesses).  Except as otherwise mutually agreed by the Parties, Seller shall not be obligated to cause to be provided Scheduled Services to Buyer and its Affiliates in support of the businesses of Buyer and its Affiliates other than the Business.

 

2.3.4     Seller shall not be obligated to cause any Service Provider to provide any Scheduled Service (or portion thereof) to the extent performance of such Scheduled Service (or portion thereof) would require such Service Provider to violate or breach (i) any Applicable Law or any Order; (ii) the terms and conditions of a TSA Material Contract applicable to the administration of the Business, unless to not do so would not be in compliance with Applicable Law or any Order; (iii) subject to Seller’s obligations under Section 2.9, any executed written agreement in effect as of the Closing Date between such Service Provider and a non-affiliated third party; (iv) such Service Provider’s written policies and procedures generally applicable to its other businesses or customers, including any changes made thereto, to the extent such changes are made (A) after the Closing Date and (B)(I) to comply with Applicable Law or any Order, or (II) to respond to a new legal or regulatory issue or to respond to a reasonably plausible security 

 

7

 

threat; or (v) the SPA or any other Transaction Agreement; provided that, for the avoidance of doubt, Seller shall continue to be obligated to cause Service Providers to provide such Scheduled Services (or portion thereof) to the extent that doing so would not result in any such violation or breach; provided further that to the extent that (i)-(v) herein apply Seller and Buyer shall negotiate in good faith and agree upon a course of action to provide alternative equivalent services with Seller and Buyer to share equally any costs, fees or expenses associated with such alternative equivalent services.

 

2.3.5     Subject to Section 2.3, Seller and Buyer reserve the right to suggest any changes to (i) the manner in which the Scheduled Services are provided or received, (ii) the location from which the Scheduled Services are provided or to which the Scheduled Services are received or (iii) the personnel involved in the provision or receipt of the Scheduled Services. The Parties shall negotiate such changes in good faith, with any incremental costs, fees or expenses borne by the Party suggesting such change.  Notwithstanding the foregoing, Seller shall not make a change under this Section 2.3.5 that makes receipt of the Scheduled Services materially more expensive or the Separation process materially more difficult or complicated unless such change is also being implemented broadly across Seller’s own business operations.

 

2.3.6     Except with respect to any Company Employee hired pursuant to the SPA, if Buyer desires to hire or employ any other employee of Seller who provides or supports any Scheduled Services prior to the date of discontinuation of all Scheduled Services hereunder for which such employee has any duties or obligations, the Parties shall discuss in good faith whether and to what extent the hiring or employment of such employee will reduce Seller’s obligations hereunder with respect to such Scheduled Services; provided that, even if such employee of Seller is hired by Buyer and was the sole employee responsible for providing any Scheduled Service, Seller shall remain obligated to provide such Scheduled Services if such employee is hired or employed by Buyer or its Affiliates to perform a service that is not the same as the Scheduled Service for which such employee was solely responsible for providing.  Notwithstanding the foregoing, Seller shall continue to provide any resources reasonably necessary for such a hired employee to perform his or her duties and obligations during the Term of this Agreement and any extensions thereof.

 

2.4         Variances.  With respect to VUL Contracts administered pursuant to this Agreement, Seller shall cause to be provided to Buyer and/or its Affiliates (a) such daily reports as Seller and/or their Affiliates produced during the nine (9) months prior to the Closing Date (the “Pre-Closing Date Period”) summarizing (i) the discrepancies arising in the execution and recording of investment transactions pursuant to the VUL Contracts, and (ii) during such portion of the Term in which Seller provides Scheduled Services, gains or losses to Buyer resulting from or arising out of the administration of the VUL Contracts (including, without limitation, delayed legal interest or claim interest from processing delays, unrecovered miscalculations of claim payment amounts, and other errors in processing claims resulting in gains or losses to Buyer) (collectively, the items summarized in (a)(i) and (a)(ii) are the “Variances”), and (b) such weekly and monthly reconciliation reports as Seller and/or their Affiliates produce as of the Closing Date. For such Variances, Seller shall, in accordance with their guidelines existing as of the Closing Date, reconcile and credit or debit the applicable Contractholder’s account. For so long as Seller is providing the Scheduled Services during the Term, at the end of every six (6) month period during the Term (each, a “True-Up Period”) and once immediately following the 

 

8

 

discontinuation of all of the Scheduled Services (the “Final True-Up Period”), Seller shall aggregate the Monthly Net Variances over the months occurring during the applicable True-Up Period or Final True-Up Period (such aggregate being the “True-Up Sum”). If the True-Up Sum for a True-Up Period or the Final True-Up Period, as applicable, is negative, then Seller shall invoice Buyer for such True-Up Sum and Buyer shall remit payment in accordance with ARTICLE IV; provided, that such True Up Sum shall not exceed the “Variance Limit” (which shall be equal to the cumulative sum of Ten Thousand Dollars ($10,000) per month times the number of months of such True-Up Period or Final True-Up Period). If the True-Up Sum for a True-Up Period or the Final True-Up Period, as applicable, is positive, then Seller shall remit such True-Up Sum to Buyer. The “Monthly Net Variance” shall be the aggregate amount during a given month credited to Contractholders’ accounts or paid to Contractholders to correct Variances (negative amounts), less any amounts debited from Contractholders’ accounts or recovered from Contractholders (including contractholders in connection with the correction of Variances (positive amounts)), and less any amounts retained by Seller in connection with a Variance and not required under Seller’s Guidelines existing as of the Closing Date or Applicable Law, to be paid or credited to Contractholders to correct such Variance.

 

2.5         Dispute Resolution.

 

2.5.1     Amicable Resolution.  The Parties mutually desire that friendly collaboration will continue between them during the Term.  Accordingly, they will try to resolve in an amicable manner all disagreements and misunderstandings connected with their respective rights and obligations under this Agreement, including any amendments hereto.  In furtherance thereof, in the event of any dispute or disagreement (a “Dispute”) between the Parties in connection with this Agreement (including the standard of performance, delay of performance or non-performance of obligations, or payment or non-payment of Service Fees hereunder), then the Transition Managers shall attempt to resolve the Dispute amicably.  If the Transition Managers are unable to resolve a Dispute in a timely manner, then either Transition Manager, by written request to the other, may request that such Dispute be referred for resolution to the president (or similar position) of the division implicated by the matter for Seller and Buyer, which presidents will have fifteen (15) days to resolve such Dispute.  If the presidents of the relevant divisions for each Party do not agree to a resolution of such Dispute within fifteen (15) days after the reference of the matter to them, or if the Dispute is not otherwise resolved in a friendly manner as set forth in this Section 2.5.1, either Party involved in the Dispute may bring an action regarding such Dispute as set forth in Section 11.6.  Notwithstanding anything to the contrary in this Section 2.5.1, any amendment to the terms of this Agreement may only be effected in accordance with Section 11.7.

 

2.5.2     Non-Exclusive Remedy.  Nothing in this Section 2.5 will prevent either Party from immediately seeking injunctive or interim relief (i) in the event of any actual or threatened breach of any of the provisions of ARTICLE VIII, (ii) in the event that the Dispute relates to, or involves a claim of, actual or threatened infringement or violation of intellectual property or (iii) to the extent necessary for either Party to preserve any right.  All such actions for injunctive or interim relief shall be brought in a court of competent jurisdiction in accordance with Section 11.6.  Such remedy shall not be deemed to be the exclusive remedy for breach of this Agreement, and further remedies may be pursued in accordance with Section 2.5.1.

 

9

 

2.5.3     Commencement of Dispute Resolution Procedure.  Notwithstanding anything to the contrary in this Agreement, each Party, but none of their respective Affiliates, is entitled to commence a dispute resolution procedure under this Agreement pursuant to this Section 2.5, and each Party will cause its respective Affiliates not to commence any dispute resolution procedure in connection with this Agreement other than through such Party as provided in this Section 2.5.3.

 

2.5.4     Compensation.  With respect to any Scheduled Services provided as set forth in Schedules 1(a)-(f), during the pendency of any Dispute, the Receiving Party shall continue to make all payments due and owing under ARTICLE IV for such Scheduled Services and the Providing Party shall continue to provide all such Scheduled Services in accordance with the service standard set forth in Section 2.2.1; provided that either Party may recoup any payments or losses incurred during the pendency of a Dispute based on the resolution of such Dispute.  The Parties will proceed in good faith with the Migration timeline identified in the Migration plan during pendency of any Dispute concerning any Scheduled Service set forth in Schedule 1(b).

 

2.6         No Agency.  Each Party acknowledges that it has entered into this Agreement for independent business reasons.  The relationship of the Parties hereunder is that of independent contractors and nothing contained herein shall be deemed to create a joint venture, partnership or any other relationship.  Neither Party shall have any power or authority to negotiate or conclude any agreement, or to make any representation or to give any understanding on behalf of the other in any way whatsoever.

 

2.7         Subcontracting.  The Providing Party may subcontract for the performance of any Scheduled Service to: (a) any Person if the service to be subcontracted is primarily a routine task or function; (b) an Affiliate of the Providing Party; (c) any reinsurer or its Affiliates; (d) an existing subcontractor that was providing such service to the Providing Party or the Receiving Party immediately before the Closing Date; (e) any subcontractor to which Seller or an Affiliate subcontracts the same or similar services for itself; and (f) any other Person with the prior written consent of the Receiving Party, such consent not to be unreasonably withheld, conditioned or delayed, provided that no such subcontracting shall relieve the Providing Party from any of its obligations or liabilities hereunder, and the Providing Party shall remain responsible for all obligations or liabilities of such subcontractor with respect to the provision of such service or services as if provided by the Providing Party.  In the event that the Providing Party subcontracts for performance of any Scheduled Service under Section 2.7(a), (c) or (e), Seller shall pay any incremental fees to the subcontractor that are in excess of the Fees set forth for that Scheduled Service in Schedules 1(a)-(f); provided that if Seller subcontracts to any person under Sections 2.7(a)-(e) after the date hereof, to the extent that such subcontracting makes Separation more difficult or complicated, then Seller shall pay all incremental costs, fees and expenses relating to Separation caused by such subcontracting.

 

2.8         Consents.  Notwithstanding any provision of this Agreement to the contrary, if the provision of any Scheduled Service as contemplated by this Agreement requires the consent, license or approval of any third party that has not been obtained prior to the date hereof as contemplated by Section 5.4(a) of the SPA, Seller shall continue to use commercially reasonable efforts to obtain such consent, license, or approval as promptly as possible after the Closing 

 

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Date; provided, however, that under no circumstances shall the performance of such Scheduled Service require the Providing Party or any of its directors (or persons in similar positions), officers, employees or agents to violate any Applicable Laws or breach any TSA Material Contract.  Seller and Buyer shall share equally all costs of obtaining such third party consents, licenses or approvals necessary for the provision and receipt of the Scheduled Services, including any payments that are required to any third party.  If the Providing Party reasonably believes that it is unable to provide such Scheduled Service because of a failure to obtain necessary consents, licenses, sublicenses or approvals, Providing Party shall promptly notify the Receiving Party and the Parties shall negotiate in good faith and agree upon a course of action to provide alternative equivalent services with Seller and Buyer to share equally any costs, fees or expenses associated with such alternative equivalent services.

 

2.9         Transition Management.  Each Party shall appoint a transition manager (each,  a “Transition Manager”).  The Transition Managers shall have the authority to represent the position of their respective Parties and to make operational decisions regarding the Parties’ performance of this Agreement.  Each Transition Manager shall appoint or designate in a writing directed to the other Transition Manager, a person or persons to act in his or her stead on day-to-day matters within various functional areas when the Transition Manager is unavailable.  Subject to the right to delegate duties to others, the Transition Managers shall serve as the primary contact point for the respective principals with respect to the obligations of the Parties under this Agreement.  Each Transition Manager’s responsibilities shall include: (a) conducting reviews of compliance with the service standard in Section 2.2.1; (b) assuring compliance with this Agreement, including the schedules; (c) mitigating and resolving technical and business issues; (d) managing the service migration process; and (e) participating in the dispute resolution process under Section 2.5.  A Party may designate a replacement for its Transition Manager by written notice to the other Party.  Each Transition Manager, and any successor, shall have an educational background, experience, skills and other qualifications necessary to perform his or her assigned duties.  Nothing in this Agreement shall be deemed to authorize either Transition Manager to amend this Agreement in any way.

 

2.10       Transition Plan.  Promptly after the date hereof, and in any event within thirty (30) days hereafter, Seller and Buyer shall each appoint a transition team to cooperate in good faith to develop a Migration plan for separating the Company Business from the businesses of Seller and its Affiliates (including the Company) that is not Company Business so as to minimize the adverse impact of such Migration on each party’s businesses.  Such Migration plan shall include a decision on whether to separate the accounting/finance conversion from the administrative conversion, such that, if included, Seller would continue providing Scheduled Services for accounting/finance functions to December 31, 2014 but the administrative conversion would occur earlier.  Buyer shall bear any additional costs incurred as a result of the decision to separate the accounting/finance conversion from the administrative conversion.  Seller and Buyer each agree to cooperate in the performance of the activities set forth on Schedule 1(b) and the Migration of the performance of the Scheduled Services on Schedules 1(a) and 1(c)-(f) from a Service Provider to Buyer, an Affiliate or a third party of Buyer’s choice, taking into account, in good faith, the need to minimize both the cost of such Migration and disruption to the ongoing business activities of each party.

 

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2.11       Records and Audit.  Each Party shall maintain true and correct records of all receipts, invoices, reports and other documents relating to the provision and receipt of Scheduled Services and the policyholder records of the Business in accordance with their respective standard accounting practices and procedures, consistently applied, and shall provide each other with reasonable access to such records, subject to Applicable Law and the obligations of ARTICLE VIII.  Following the Term of this Agreement, Seller shall, and shall cause its Affiliates to: (i) allow Buyer, upon reasonable prior notice and during normal business hours, through its employees and Representatives, the right, at Buyer’s expense and no more than once per calendar year unless required by a governmental regulatory agency, to examine any records produced during the Term of this Agreement relating to the provision of Scheduled Services, or any other obligation under this Agreement, or the policyholder records of the Business that are retained by Seller or any of its Affiliates for any purpose, including the preparation or examination of Buyer’s Tax Returns, regulatory filings, financial statements and the conduct of any litigation or otherwise, or the conduct of any regulatory, customer or other dispute resolution process, but only to the extent that such records of Seller relate to the provision of Scheduled Services or the policyholder records of the Business during the Term of this Agreement; (ii) maintain such records in accordance with Seller’s and its Affiliates’ record retention policies; and (iii) provide reasonable access to employees concerning the information in such records for any independent audit of Buyer; provided that Seller and its Affiliates may destroy such records in their discretion in compliance with their record retention policies after giving reasonable prior written notice to Buyer of their intention to destroy such records; provided further that Seller and its Affiliates shall have no obligation to maintain or retain any books and records to the extent that electronic or paper copies or originals of such books and records are delivered to Buyer at or prior to the end of the Term of this Agreement.  The Providing Party shall provide, to the Receiving Party and any independent auditors engaged by it, reasonable access to staff and data relating to the Systems in which the Receiving Party’s data is held or processed.

 

2.12       Ownership of Intellectual Property; License.  Any Intellectual Property owned by a Party or its Affiliates and used after the date hereof in connection with the provision or receipt of the Scheduled Services, as applicable, shall remain the property of such Party or its Affiliates.  Each Party grants, and shall cause its Affiliates to grant, to the other Party and its Affiliates a royalty-free, non-exclusive, non-transferable, worldwide license, during the term of this Agreement, to use the intellectual property owned by such Party or its Affiliates only to the extent necessary for the other Party and its Affiliates to provide or receive the Scheduled Services, as applicable.  Other than the license granted to a Party and its Affiliates pursuant to the preceding sentence, the SPA, the Administrative Services Agreement or any other Transaction Agreement, neither party nor its Affiliates shall have any right, title or interest in the intellectual property owned by the other party or its Affiliates.

 

2.13       Separate Accounts.  Seller will perform, or has performed, services required for Separate Account Separation (as defined in the ASA).  Seller and Buyer shall each equally bear the fees, costs and expenses associated with Separate Account Separation (as defined in the ASA), to be invoiced in accordance with Section 4.2 herein, with the total aggregate exposure of each Party not to exceed fifty thousand U.S. dollars ($50,000).

 

2.14       Notice to Policyholders.  Seller shall, on behalf of Buyer and at Buyer’s cost, include an announcement of the Closing, in form and substance agreed to by the Parties, Seller’s 

 

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consent not to be unreasonably withheld or delayed, with the first correspondence sent to the policyholders of the Company after the Closing, such announcement to be provided in the ordinary course of business or at such time as otherwise required by Applicable Law.

 

2.15       Link on Website.  After Migration is successfully completed and continuing for one (1) year thereafter, Seller shall include and maintain a link displayed on the appropriate Allstate website that directs users that click or activate the link to the Company website.  Such link shall be accompanied by appropriate language notifying the Company’s policyholders of the Company’s website, and instructing them to access such website directly in the future.

 

2.16       Customer Telephone Service.  After Migration is successfully completed and continuing for one (1) year thereafter, each Party shall redirect any inquiries it receives regarding the other Party to the appropriate telephone number of such Party.

 

ARTICLE III
 TERM AND TRANSITION ASSISTANCE

 

3.1         Term.  The term (the “Term”) of this Agreement shall commence as of the date hereof and, subject as to any Scheduled Service to the earlier expiration of the Service Term with respect thereto, shall continue until the earliest of:

 

3.1.1     the date on which the last of the Scheduled Services under this Agreement is terminated; or

 

3.1.2     the date on which this Agreement is terminated by mutual agreement of the Parties.

 

3.2         Extension and Termination.

 

3.2.1     Extension.  If Buyer reasonably believes that it will not be able to complete its Migration of one or more Scheduled Services by the end of the 18th month under this Agreement, then upon written notice provided to Seller at least ninety (90) days prior to the end of such 18-month period, Buyer shall have the right to request and cause Seller to continue to provide such Scheduled Services; provided that, with respect to such extended Scheduled Services, Buyer shall pay the applicable Fees set forth in Section 4.1.1(a)(iii). Notwithstanding the foregoing, if Buyer is unable to complete Migration before the end of such 18-month period due primarily to the Providing Party failing to fulfill its obligations in the performance of any of the Scheduled Services, Buyer shall pay the applicable Fees set forth in Section 4.1.1.(a)(ii) until all such deficiencies are cured.

 

3.2.2     Early Termination.  If the Receiving Party wishes to terminate a Scheduled Service (or a portion thereof) before Buyer has completed its Migration of all Scheduled Services, the Receiving Party shall notify the Providing Party in writing of the proposed date on which such Scheduled Service (or portion thereof) shall terminate (the “Termination Date”), at least 60 days prior to the Termination Date.  The termination of a portion of a service shall not change the Fees for such service.  Effective on the Termination Date, such Scheduled Service (or portion thereof) shall be discontinued and thereafter, this Agreement shall be of no further force and effect with respect to such Scheduled Service (or 

 

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portion thereof), except as to obligations accrued prior to the Termination Date. Except with respect to obligations accrued prior to the Termination Date, if all Scheduled Services on one of the Schedules 1(a)(i), (a)(ii), (b)(i), (b)(ii), (c)(i), (c)(ii) or (d)-(f) are terminated, any fees, costs or expenses associated with such Schedule 1(a)(i), (a)(ii), (b)(i), (b)(ii), (c)(i), (c)(ii) or (d)-(f), shall no longer be due or owing subsequent to the date of termination of the last Scheduled Service on such Schedule.

 

3.3         Return of Materials.  After a Scheduled Service is terminated, each Party will return all materials in a form usable by the other Party, with the cost to change the form of such materials, if applicable, to be borne by the recipient, and property owned by the other Party and materials and property of a proprietary nature involving a Party or its Affiliates relevant solely to the provision or receipt of that Scheduled Service and no longer needed regarding the performance of other Scheduled Services under this Agreement, and will do so (and will cause its Affiliates to do so) within thirty (30) days after the applicable termination.

 

ARTICLE IV
 COMPENSATION AND PAYMENT ARRANGEMENTS FOR SCHEDULED SERVICES

 

4.1         Compensation for Scheduled Services.

 

4.1.1     Compensation Generally.  In accordance with the payment terms set forth in Section 4.2 and subject to Section 4.1.3, the Receiving Party agrees timely to pay the Providing Party, on a monthly basis:

 

(a)          an amount for the provision of Scheduled Services as follows (collectively, the “Fees”):

 

(i)           during the first twelve (12) months of this Agreement, for Scheduled Services on Schedules 1(a) and 1(c)-(f), the Appraisal Fees;

 

(ii)          except with respect to Scheduled Services listed on Schedule 1(c)(ii), during the period starting at the end of the period in subsection (i) until six (6) months thereafter, for Scheduled Services on Schedules 1(a) and 1(c)-(f); the Cost of Service plus 10% of the Cost of Service; or

 

(iii)         except with respect to Scheduled Services listed on Schedule 1(c)(ii), during the period starting at the end of the period in subsection (ii), for Scheduled Services on Schedules 1(a) and 1(c)-(f); the Cost of Service plus 20% of the Cost of Service; and

 

(iv)         during the period starting at the end of the 24th month from the date hereof, an additional $500,000 for every one (1) month period thereafter;

 

(v)          for Scheduled Services on Schedule 1(b), the Fees set forth on Schedule 1(b);

 

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(vi)         for those Scheduled Services listed on Schedule 1(c)(ii), fees for any such services above the current stated estimates will be incremental and charged on a time and materials basis at Seller’s cost; and1

 

(b)          any payments due to Seller pursuant to Section 2.4 (Variance).

 

Seller shall calculate the Cost of Service six (6) months in advance of the periods specified in subsections (i)-(iii) of Section 4.1.1.(a) and shall promptly notify Buyer or Receiving Party of such calculation. If the Cost of Service so calculated (x) is higher than the Base Fee, for purposes of Section 4.1.1.(a) the Cost of Service shall be capped at 110% of the Base Fee; or (y) is lower than the Base Fee, for purposes of Section 4.1.1.(a) the Cost of Service shall in no case be lower than 90% of the Base Fee.

 

4.1.2     Out of Pocket Costs.  Except with respect to any Out of Pocket Costs (as defined below) incurred in providing the Scheduled Services set forth in Schedules 1(a)-(f) of this Agreement, without limiting the foregoing and subject to Section 2.8 and Section 4.1.3, the Receiving Party agrees to pay, or reimburse the Providing Party for its payment of, all Out of Pocket Costs of the Providing Party.  For purposes hereof, the term “Out of Pocket Costs” means all fees, costs or other expenses (including Sales and Service Taxes) (except for any consent fees in the SPA or Section 2.8 herein) payable by the Providing Party or its Affiliates to third parties that are not Affiliates of the Providing Party in connection with the Scheduled Services and Migration services provided by the Providing Party hereunder.  The Providing Party shall request in writing from the Receiving Party the approval of all Out of Pocket Costs above fifty thousand U.S. dollars ($50,000); and agrees not to accrue such Out of Pocket Costs until it receives written approval from the Receiving Party.  The Providing Party shall use commercially reasonable efforts: (a) not to incur Out of Pocket Costs that are inconsistent with the type of Out of Pocket Costs incurred under past practices with the applicable Scheduled Services without the prior written consent of the Receiving Party; and (b) to minimize the amount of its Out of Pocket Costs, consistent with providing the Scheduled Services in accordance with the standard set forth in Section 2.2.1.

 

4.1.3     Taxes.

 

(a)          The Receiving Party will pay and be liable for all sales, goods or services, excise, privilege, value added (“VAT”), lease, use, transfer, consumption or similar gross receipts based taxes (the “Sales and Service Taxes”) imposed on Scheduled Services and Migration services provided by the Providing Party.  Such taxes will be payable by the Receiving Party to the Providing Party in the manner set forth in Section 4.2 or as otherwise mutually agreed in writing by the Parties and under the terms of the Applicable Law which governs the relevant Sales and Service Tax.  Notwithstanding the previous sentence, if the Receiving Party is exempt from liability for such taxes, the Receiving Party shall provide the Providing Party with a certificate (or other proof), which certificate or proof is reasonably acceptable to the Providing Party, evidencing an exemption from liability for such Sales and Service Taxes.  The Receiving Party’s obligation to pay Sales and Service Taxes under this 

 

1  Note to Draft:  The detailed calculation of those Fees described in Section 4.11(a)(vi) will be discussed prior to Closing and documented in Schedule 1(c).

 

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Section 4.1.3 shall be subject to the receipt of a valid and customary invoice or other document under the terms of Applicable Law for each Sales and Service Tax.  The Providing Party shall be responsible for any losses (including any deficiency, interest and penalties) imposed as a result of a failure timely to remit any Sales and Service Taxes to the applicable tax authority to the extent the Receiving Party timely remits such Sales and Service Taxes to the Providing Party or the Receiving Party’s failure to do so results from the Providing Party’s failure timely to charge or provide notice of such Sales and Service Taxes to the Receiving Party.  The Receiving Party shall be entitled to any refund on any Sales and Service Taxes paid in excess of liability as determined at a later date.  Each Party shall promptly notify the other Party of any deficiency claim or similar notice by a taxing authority with respect to Sales and Service Taxes payable under this Agreement, and of any pending tax audit or other proceeding that could lead to the imposition of Sales and Services Taxes payable under this Agreement.

 

(b)          Each Party shall pay and be responsible for its own personal property taxes and taxes based on its own income, profits or assets.  Payments for Scheduled Services or other amounts under this Agreement shall be made net of withholding taxes, provided however that if the Providing Party believes that a reduced rate of withholding applies or the Providing Party is exempt from withholding, the Receiving Party shall only be required to apply such reduced rate of withholding or not withhold if the Providing Party provides the Receiving Party with evidence reasonably satisfactory to the Receiving Party that a reduced rate of or no withholding is required.  Satisfactory evidence for this purpose may include rulings from, or other correspondence with, tax authorities and tax opinions rendered by qualified persons reasonably satisfactory to the Receiving Party, to the extent reasonably requested by the Receiving Party.  Without limiting the generality of the foregoing, each Party shall provide the other with executed originals of Internal Revenue Service Form W-9 certifying that such Party is exempt from U.S. federal backup withholding tax, and any updates with respect thereto as appropriate.  The Receiving Party shall promptly remit any amounts withheld to the appropriate taxing authority and in the event that the Receiving Party receives a refund of any amounts previously withheld from payments to the Providing Party and remitted, the Receiving Party shall surrender such refund to the Providing Party.

 

(c)          With respect to each provision in this Section 4.1.3, the Receiving Party and the Providing Party shall reasonably cooperate with each other and take any action to provide or make available any information reasonably requested (and with a sufficient level of detail) in order to minimize any Sales and Service Taxes payable with respect to the Scheduled Services and Migration services.

 

4.2         Payment Terms.

 

4.2.1     Within fifteen (15) days following the end of any month during which Service Providers provide Scheduled Services, Seller shall issue or cause to be issued an invoice (and reasonably sufficient backup materials related thereto) (“TSA Monthly Invoice”), which shall set forth the amounts payable by or on behalf of Buyer pursuant to Section 4.1.  The Parties acknowledge that there may be a reasonable lag in the submission of charges from Service Providers and third parties (including vendors) relating to the provision of Scheduled Services. With respect to any amounts payable by Buyer hereunder that accrue or are incurred by a Service Provider during the Term but that are not billed to such Service Provider or of which such 

 

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Service Provider does not become aware until after the Term, Seller shall set forth or shall cause to be set forth such amounts payable in invoices (and reasonably sufficient backup materials related thereto) sent to Buyer as soon as practicable following the end of the Term (each a “Post-Term Invoice”); but in any event within sixty 60 days.

 

4.2.2     Subject to Section 4.2.5, (a) Seller shall aggregate all costs incurred by it between the Signing Date and Closing Date for work on the Migration of the policies of the Recaptured Business to the third party administrator selected by the Buyer, and shall provide monthly reports on the Migration plan and achievement under it to Buyer in a form mutually agreed upon by the Parties; (b) all such costs described in subsection (a) shall be reported to Buyer within forty-five (45) days after the Closing Date and Seller shall subsequently invoice Buyer for all such costs; and (c) Buyer also agrees to reimburse Seller for those costs incurred after the Closing Date by Seller for the Migration of the policies of the Recaptured Business.

 

4.2.3     Payment in full of the amounts so invoiced or noticed shall be made by electronic transfer of immediately available funds or other method satisfactory to the Providing Party, within thirty (30) days after the date of receipt of the monthly invoice.  Except with respect to any amount in Dispute pursuant to Section 2.5 herein, any amount unpaid after the thirtieth (30th) day following receipt by Buyer of such TSA Monthly Invoice or Post-Term Invoice shall bear an overdue interest charge calculated at a rate of 1.5% per month on a pro-rated basis on such overdue balance until paid. In no event shall Buyer offset any amounts due hereunder.

 

4.2.4     Should a Party dispute any portion of the amount due from it on any invoice or require any adjustment to an invoiced amount, then such Party shall notify the other Party in writing of the nature and basis of the Dispute or adjustment as soon as reasonably possible using, if necessary, the dispute resolution procedures set forth in Section 2.5.  The Parties shall use their reasonable best efforts to resolve any such Dispute prior to the payment due date.  All amounts required to be paid pursuant to this Agreement shall be paid and payable in U.S. dollars.

 

4.2.5     To the extent that, after the Signing Date, Seller has (i) negotiated and entered into agreements relating to the administration by se2 of the annuity contracts included in the Business, or (ii) taken any other actions that are reasonably necessary to transition the administration of such annuity contracts to se2, the Parties agree that Seller shall bear all costs and expenses relating to such transition; provided, that if Buyer causes the Company to request additional or different services from se2 in connection therewith that result in increased costs or expenses, Buyer shall reimburse Seller for such increased costs and expenses. To the extent Buyer causes the Company to implement changes to the services provided by se2 that reduce the costs or expenses associated therewith, Seller shall be entitled to retain such cost or expense savings in excess of such amount.  For the avoidance of doubt, to the extent there is any conflict between Schedule 1(b)(ii) and this Section 4.2.5, Schedule 1(b)(ii) shall control.

 

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ARTICLE V
 INDEMNIFICATION

 

5.1         Indemnification by Seller.  Seller shall indemnify and hold harmless Buyer and each of its Affiliates (each, an “Buyer Indemnified Person”), from any and all Indemnifiable Losses to the extent relating to or arising out of Third Party Claims relating to, resulting from or arising out of: (a) any fraud, gross negligence or willful misconduct by or on behalf of Seller or any other Service Providers in providing any of the Scheduled Services that Seller or any other Service Provider is obligated to provide hereunder; (b) any material breach by Seller or any other Service Provider of any of its obligations under this Agreement or (c) any actual or alleged infringement of any third party’s intellectual property rights as a result of receiving Scheduled Services herein; provided with respect to (c) that such Scheduled Services are being provided in substantially the same manner as provided to the Business by Seller in the twelve (12) months prior to the Signing Date, unless altered at the sole discretion of Seller.

 

5.2         Indemnification by Buyer.  Buyer shall indemnify and hold harmless Seller and each of its Affiliates (each, a “Seller Indemnified Person”) from any and all Indemnifiable Losses to the extent relating to or arising out of Third Party Claims relating to, resulting from or arising out of: (i) any material breach by Buyer of any of its obligations under this Agreement or (ii) any Scheduled Service that is altered, at the request of Buyer or Receiving Party, from the manner in which Seller provided such service to the Business in the twelve (12) months prior to the Signing Date.

 

5.3         Indemnification Procedures.

 

(a)          If any Indemnitee receives notice of assertion or commencement of any Third Party Claim against such Indemnitee in respect of which an Indemnitor may be obligated to provide indemnification under this Agreement, the Indemnitee shall give such Indemnitor reasonably prompt written notice (but in no event later than thirty (30) days after becoming aware) thereof and such notice shall include a reasonable description of the claim and any documents relating to the claim and an estimate of the Indemnifiable Loss and shall reference the specific sections of this Agreement that form the basis of such claim; provided, however, that no delay on the part of the Indemnitee in notifying any Indemnitor shall relieve the Indemnitor from any obligation hereunder unless (and then solely to the extent) the Indemnitor is actually prejudiced by such delay.  Thereafter, the Indemnitee shall deliver to the Indemnitor, within five calendar days after the Indemnitee’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third Party Claim.

 

(b)          The Indemnitor shall be entitled to participate in the defense of any Third Party Claim and, if it so chooses, to assume the defense thereof with counsel selected by the Indemnitor.  Should the Indemnitor so elect to assume the defense of a Third Party Claim, the Indemnitor shall not as long as it conducts such defense be liable to the Indemnitee for legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof.  If the Indemnitor assumes such defense, the Indemnitee shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnitor, it being understood that the Indemnitor shall control such defense.  The Indemnitor shall be liable for the reasonable fees and expenses of counsel employed by the 

 

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Indemnitee for any period during which the Indemnitor has not assumed the defense thereof (other than during any period in which the Indemnitee shall have not yet given notice of the Third Party Claim as provided above).  If the Indemnitor chooses to defend any Third Party Claim, the Parties shall cooperate in the defense thereof.  Such cooperation shall include the retention and (upon the Indemnitor’s request) the provision to the Indemnitor of records and information that are relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.  Whether or not the Indemnitor shall have assumed the defense of a Third Party Claim, the Indemnitee shall not admit any liability with respect to, or pay, settle, compromise or discharge, such Third Party Claim without the Indemnitor’s prior written consent.  If the Indemnitor has assumed the defense of a Third Party Claim, the Indemnitor may only pay, settle, compromise or discharge a Third Party Claim with the Indemnitee’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed); provided, however, that the Indemnitor may pay, settle, compromise or discharge such a Third Party Claim without the written consent of the Indemnitee if such settlement (i) includes a complete and unconditional release of the Indemnitee from all liability in respect of such Third Party Claim, (ii) does not subject the Indemnitee to any injunctive relief or other equitable remedy and (iii) does not include a statement or admission of fault, culpability or failure to act by or on behalf of the Indemnitee.  If the Indemnitor submits to the Indemnitee a bona fide settlement offer that satisfies the requirements set forth in the proviso of the immediately preceding sentence and the Indemnitee refuses to consent to such settlement, then thereafter the Indemnitor’s liability to the Indemnitee with respect to such Third Party Claim shall not exceed the Indemnitor’s portion of the settlement amount included in such settlement offer, and the Indemnitee shall either assume the defense of such Third Party Claim or pay the Indemnitor’s attorneys’ fees and other out-of-pocket costs incurred thereafter in continuing the defense of such Third Party Claim.

 

ARTICLE VI
 FORCE MAJEURE

 

If performance by either Party of any terms or provisions hereof shall be delayed or prevented, in whole or in part, because of or related to compliance with any Applicable Law, decree, request or order of any Governmental Entity, or because of riots, war, public disturbance, fire, explosion, storm, flood, acts of God, acts of terrorism, or for any other reason that is not within the control of the such Party and that by the exercise of reasonable diligence such Party is unable to prevent (each, a “Force Majeure Event”), then (i) such Party shall give written notice to the other Party, (ii) the Parties shall promptly confer, in good faith, to agree upon equitable, reasonable action to minimize the impact, on both Parties, of such conditions, and (iii) such Party shall be excused from its obligations hereunder during the period such Force Majeure Event continues, and no liability shall attach against it on account thereof.  Neither Party shall be excused from performance if it fails to use reasonable diligence to remedy the situation and remove the cause and effect of the Force Majeure Event.

 

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ARTICLE VII
 REMEDIES AND SURVIVAL

 

7.1         Financial Remedies Upon Material Breach.  In the event of material breach of any provision of this Agreement by a Party, the non-defaulting Party shall give the defaulting Party written notice thereof, and:

 

7.1.1     If such breach arises from the Receiving Party’s non-payment of an amount that is not in Dispute, the Receiving Party shall cure the breach within ten (10) calendar days after receipt of written notice of such non-payment.  If the Receiving Party does not cure such breach prior to the end of such ten (10) day period, then the Receiving Party shall pay the Providing Party the undisputed amount plus an amount of interest equal to three percent per annum above the “prime rate” as announced in the “Money Rates” section of the then most recent edition of the Eastern Edition of The Wall Street Journal, which interest rate shall change as and when the “prime rate” changes.  The Parties agree that this rate of interest constitutes reasonable liquidated damages and not an unenforceable penalty.

 

7.1.2     If such breach results or arises from the Providing Party’s failure to provide one or more of the Scheduled Services at the service standard provided in Section 2.2.1 or any Schedule appended hereto, Seller shall provide or shall cause to be provided alternative equivalent services and Seller shall pay any additional costs, fees and expenses associated and in connection with such alternative services.  If such breach is for any other material failure to perform in accordance with this Agreement, the defaulting Party shall cure such breach within thirty (30) days of the date of such notice.  The defaulting Party shall remain liable for any damages relating to such breach, subject to the limits set forth in Section 7.3.

 

7.2         Specific Performance.  The parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any court of competent jurisdiction, in addition to any other remedy to which they are entitled at law or in equity. The parties hereby waive, in any action for specific performance, the defense of adequacy of a remedy at law and the posting of any bond or other security in connection therewith.

 

7.3         Limitation of Liability.  Except with respect to each Party’s obligations under ARTICLE V (Indemnification) and ARTICLE VIII (Confidentiality), the maximum liability of either Party (including its Affiliates) hereunder shall not exceed two times the total amount received by Seller in the performance of this Agreement. Notwithstanding anything else in this Agreement, the Parties, on behalf of themselves and all other Indemnitees, waive any claim to any punitive or consequential damages against each other; provided that the foregoing shall not apply in respect to any indemnification claim asserted by Buyer pursuant to Section 5.1 or by Seller pursuant to Section 5.2 to the extent that punitive or consequential damages are awarded to a third party against either Party (including its Affiliates), as the case may be, by a court of competent jurisdiction pursuant to a final and non-appealable judgment

 

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7.4         Survival Upon Expiration or Termination.  The provisions of Sections 2.5, 2.10, 2.11, 2.15, 2.16, and 3.3, and ARTICLE I, ARTICLE IV, ARTICLE V, ARTICLE VII, ARTICLE VIII, ARTICLE IX, ARTICLE X, and ARTICLE XI shall survive the termination or expiration of this Agreement unless otherwise agreed to in writing by both Parties.

 

ARTICLE VIII
 CONFIDENTIALITY

 

8.1         Confidential Information.  Each Party covenants that it will (a) accord the Confidential Information (as defined below) of the other Party the same degree of confidential treatment that it accords its similar proprietary and confidential information but in no event less than a reasonable degree of care, (b) not use such Confidential Information for any purpose other than those stated in this Agreement and (c) not disclose such Confidential Information to any Person unless disclosure to such Person is made in the ordinary course of such Party’s conduct of its business and is subject to protections comparable to those such Party would apply in connection with a comparable disclosure of its own Confidential Information.  Notwithstanding any other provision of this Agreement, a party may disclose Confidential Information of the other Party, without liability for such disclosure, to the extent the disclosing party demonstrates that such disclosure is (i) required to be made pursuant to Applicable Law, (ii) required to be made to a court or other tribunal in connection with the enforcement of such Party’s rights under this Agreement or to contest claims between the Parties, (iii) made to such Party’s service providers or Affiliates or, with respect to client information and client account information or records, the applicable current or then-existing client, (iv) with respect to Intellectual Property, made to such Party’s clients or prospective clients in connection with marketing activities or servicing of client accounts, in each case for clauses (iii) and (iv), subject to a confidentiality agreement that includes protections no less restrictive than those set forth herein, or (v) approved by the prior written consent of the other Party.  Each Party will promptly notify the other Party if it receives a subpoena or otherwise becomes aware of events that may legally require it to disclose Confidential Information of the other Party, and will cooperate with the other Party (at the other Party’s expense) to obtain an order quashing or otherwise modifying the scope of such subpoena or legal requirement, in an effort to prevent the disclosure of such Confidential Information.  For purposes of this Agreement, “Confidential Information” means all confidential or proprietary information and documentation of either Party made available to the other Party under this Agreement that is either identified in writing as confidential or which the receiving Party recognized or should reasonably have recognized at the time of disclosure as being of a confidential nature.

 

8.2         Unauthorized Acts.  Each Party shall (a) notify the other Party promptly of any unauthorized possession, use, or knowledge of any Confidential Information by any Person that shall become known to it, any attempt by any person to gain possession of Confidential Information without authorization or any attempt to use or acquire knowledge of any Confidential Information without authorization (collectively, “Unauthorized Access”), (b) promptly furnish to the other Party full details of any Unauthorized Access and use reasonable efforts to assist the other Party in investigating or preventing the reoccurrence of any Unauthorized Access, (c) promptly take action and cooperate with the other Party to remove such Unauthorized Access, (d) cooperate with the other Party in any litigation and investigation 

 

21

 

against third parties deemed necessary by such Party to protect its proprietary rights, and (e) use commercially reasonable efforts to prevent a recurrence of any such Unauthorized Access.

 

ARTICLE IX
 SYSTEM ACCESS AND CONSUMER PRIVACY

 

9.1         System Access.

 

(a)          If the Providing Party or the Receiving Party are at any time given access (each in such capacity, a “Guest User”) to the other’s computer system(s) or software (collectively, “Systems”) in connection with the performance of this Agreement, such Guest User shall comply with the other party’s (each in such capacity, a “Host”) Systems security policies, procedures and requirements which the Host makes available to the Guest User in writing from time to time.

 

9.2         Consumer Privacy.  In providing the Scheduled Services, the Providing Party shall, and shall cause its Affiliates to, comply with Applicable Law with respect to privacy or data security relative to Customer Information (as defined below), and shall maintain the information security program in place prior to the date hereof.  “Customer Information” means all tangible and intangible information provided or disclosed hereunder about present or former present or former clients, life insurance or annuity policy holders, annuitants, or other beneficiaries (collectively, hereinafter “Customers”) or potential Customers of any Party or its Affiliates, including name, address, telephone number, email address, account or policy information, and any list, description, or other grouping of Customers or potential Customers, and any medical records or other medical information of such Customers or potential Customers and any other type of information deemed “nonpublic” and protected by privacy laws and any other Applicable Law.

 

ARTICLE X
 DISCLAIMER OF REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Except for the representations, warranties and covenants expressly made in this Agreement, each Party has not made and does not hereby make any express or implied representations, warranties or covenants, statutory or otherwise, of any nature, including with respect to the warranties of merchantability, quality, quantity, suitability or fitness for a particular purpose or the results obtained by the Scheduled Services.  All other representations, warranties, and covenants, express or implied, statutory, common law or otherwise, of any nature, including with respect to the warranties of merchantability, quality, quantity, suitability or fitness for a particular purpose or the results obtained by the Scheduled Services are hereby disclaimed by the Providing Party.

 

ARTICLE XI
 MISCELLANEOUS

 

11.1       Notices.  All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be delivered personally or by overnight courier (providing proof of delivery) to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

 

22

 

if to Seller, to:

 

Allstate Life Insurance Company
 3100 Sanders Road
 Northbrook, Illinois 60062
 Attention:  Jess Merten
 Email: Jess.Merten@allstate.com

 

with copies to:

 

Allstate Life Insurance Company
 3075 Sanders Road
 Northbrook, Illinois 60062
 Attention:  Joy Thomas
 Email: Joy.Thomas@allstate.com

 

and

 

Allstate Life Insurance Company
 2775 Sanders Road
 Northbrook, Illinois 60062
 Attention:  Beth Lapham
 Email: blapham@allstate.com

 

with a copy (which shall not constitute notice) to:

 

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, New York  10019

Attention:                              John M. Schwolsky

Alexander M. Dye

 

If to Buyer, to:

 

Resolution Life Holdings, Inc.
  733 Third Avenue, 16th Floor
 New York, NY 10017
 Attention:  Simon Packer

 

with a copy (which shall not constitute notice) to:

 

Debevoise & Plimpton LLP
 919 Third Avenue
 New York, New York 10022
 Attention:  Nicholas F. Potter

 

23

 

Notice given by personal delivery or overnight courier shall be effective upon actual receipt.

 

11.2       Interpretation.  When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.  The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”  Whenever the singular is used herein, the same shall include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate.  Whenever the word “Dollars” or the “$” sign appear in this Agreement, they shall be construed to mean United States Dollars, and all transactions under this Agreement shall be in United States Dollars.  This Agreement has been fully negotiated by the parties hereto and shall not be construed by any Governmental Entity against either party by virtue of the fact that such party was the drafting party.

 

11.3       Entire Agreement; Third-Party Beneficiaries.  This Agreement (including all Exhibits and Schedules hereto), the SPA and the other Transaction Documents constitute the entire agreement, and supersede all prior agreements, understandings, representations and warranties, both written and oral, among the Parties with respect to the subject matter hereof.  Except as set forth in ARTICLE V with respect to Buyer Indemnified Persons and Seller Indemnified Persons, this Agreement is not intended to and shall not confer upon any Person other than the Parties hereto any rights or remedies.

 

11.4       Governing Law.  This Agreement and any dispute arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.

 

11.5       Assignment.  Except with respect to any assignment, in whole or in part, of this Agreement or any of the rights, interests or obligations under this Agreement, to (i) an Affiliate, (ii) a successor-in-interest to all or a portion of the business of the Receiving Party, or (iii) by merger, reorganization or operation of law, neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by either Party without the prior written consent of the other Party, and any such assignment that is not consented to shall be null and void.  Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.

 

11.6       Jurisdiction; Enforcement.

 

11.6.1   Each of the Parties hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any court of the United States or any state court, which in either case is located in the City of New York (each, a “New York Court”) for purposes of enforcing this Agreement or determining any claim arising from or related to the transactions contemplated by this Agreement.  In any such action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claim that it is not subject to the jurisdiction of any such New York Court, that 

 

24

 

such action, suit or other proceeding is not subject to the jurisdiction of any such New York Court, that such action, suit or other proceeding is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper; provided that nothing set forth in this sentence shall prohibit any of the parties hereto from removing any matter from one New York Court to another New York Court.  Each of the Parties also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding will be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States.  A certified or exemplified copy of such award or judgment will be conclusive evidence of the fact and amount of such award or judgment.  Any process or other paper to be served in connection with any action or proceeding under this Agreement shall, if delivered or sent in accordance with Section 11.1 of this Agreement, constitute good, proper and sufficient service thereof.

 

11.6.2   EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OR ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.6.

 

11.7       Severability; Amendment; Modification; Waiver.

 

11.7.1   Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under Applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any Applicable Law in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.

 

11.7.2   Except as otherwise contemplated by this Agreement, this Agreement may be amended or a provision hereof waived only by a written instrument signed by each of Seller and Buyer.

 

11.7.3   No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege.

 

25

 

11.8       Counterparts.  This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the Parties and delivered to the other Party.  Each Party may deliver its signed counterpart of this Agreement to the other Party by means of electronic mail or any other electronic medium utilizing image scan technology, and such delivery will have the same legal effect as hand delivery of an originally executed counterpart.

 

[Remainder of page intentionally left blank]

 

26

 

IN WITNESS WHEREOF, the Parties, acting through their authorized officers, have caused this Agreement to be duly executed and delivered as of the date first above written.

 

	
 
    	
ALLSTATE LIFE INSURANCE COMPANY
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
RESOLUTION LIFE HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    

 

27

 

EXHIBIT J

 

Lighthouse – Surplus Notes and Preferred Stock Term Sheet1

 

	
I.   SURPLUS NOTES TERMS
    	
 
    
	
Securities Offered
    	
$[·] aggregate principal   amount of Surplus Notes due [·]2 (the “notes”).
    
	
 
    	
 
    
	
Issuer
    	
[Lighthouse] (“Issuer”)
    
	
 
    	
 
    
	
Issue Date
    	
[·] 
    
	
 
    	
 
    
	
Scheduled Maturity Date
    	
[·]3
    
	
 
    	
 
    
	
Interest Rate
    	
The yield shall equal the 5 year treasury as of the Issue Date plus   450 basis points.  In no case shall the yield on the notes be less than   4.5% or exceed maximum amounts allowable under Applicable Law.  At the   Scheduled Maturity Date and each 5 year anniversary thereafter (the “Reset   Date”), the yield will reset for the subsequent 5 year period.  At any   Reset Date, the yield will be equal to the 5 year treasury as the Reset Date,   plus 450 basis points.  In no case shall the yield on the surplus note   at any Reset Date be less than 6.0%.
    
	
 
    	
 
    
	
Scheduled Interest Payment Dates
    	
Interest on the notes will accrue from [·].4 Subject to the prior approval of the   Director of Insurance of the State of Nebraska (the “Director”), pursuant to   Section 44-221 of Chapter 44 of the Nebraska Revised Statutes, interest   on the notes is scheduled to be paid semiannually in arrears on [May 15]   and [November 15] of each year, beginning on [·], and on   the date the notes are scheduled to mature.
    
	
 
    	
 
    
	
Optional Redemption by Issuer
    	
Subject to the prior approval of the Director pursuant to   Section 44-221 of Chapter 44 of the Nebraska Revised Statutes, the notes   may be redeemed, in whole or in part, at the option of Issuer any time prior   to the Scheduled Maturity Date at a redemption price equal to the aggregate   principal amount then outstanding, plus any accrued but unpaid interest   thereon.
    
	
 
    	
 
    
	
Optional Redemption by any Holder
    	
Subject to the prior approval of the Director pursuant to   Section 44-221 of Chapter 44 of the Nebraska Revised Statutes, the notes   may be redeemed at the option of any holder of the notes at any time 
    

 

1                                           Capitalized terms used herein but not otherwise defined shall have the meaning ascribed to them in the Stock Purchase Agreement by and among Allstate Life Insurance Company, Resolution Life Holdings, Inc. and Resolution Life L.P. (solely for purposes of Section 5.25 and Article X), dated as of July 17, 2013 (the “SPA”).

 

2                                           To insert date that corresponds to 5 years from the Issue Date.

 

3                                           To insert date that corresponds to 5 years from the Issue Date.

 

4                                           To insert date that corresponds with the Issue Date.

 

 

	
 
    	
prior to the Scheduled Maturity Date in an aggregate principal amount   up to the Holder Optional Redemption Amount.    “Holder Optional Redemption Amount” means the sum of (i) the   amount by which (x) exceeds (y), where (x) is equal to the Required   Capital Amount (as defined in the SPA) as of the Issue Date, and (y) is   equal to such lesser amount of capital which the Director permits Issuer to   hold as of the applicable redemption date; provided that the amount   calculated pursuant to this clause (i) shall not in any case exceed the   aggregate principal amount of notes then outstanding and (ii) all   accrued and unpaid interest on the notes subject to redemption.
    
	
 
    	
 
    
	
Mandatory Redemption by Issuer
    	
Subject to the prior approval of the Director pursuant to   Section 44-221 of Chapter 44 of the Nebraska Revised   Statutes, Issuer shall be required to redeem all of the notes then   outstanding at a redemption price equal to the aggregate principal amount   then outstanding, plus any accrued but unpaid interest thereon, in the event   Issuer (i) is no longer domiciled in Nebraska or (ii) receives   approval from the Director permitting Issuer to hold an amount of capital   that is equal to the Specified Capital Amount (as defined for purposes of   Section [5.15(b)/6.1(c)]5 of the   SPA), or any lesser capital amount (each, a “Mandatory Redemption   Event”).  Upon the occurrence of a   Mandatory Redemption Event, the notes will immediately mature in full and all   unpaid amounts of principal and accrued interest will become immediately due   and payable without any action on the part of any holder of the notes.
    
	
 
    	
 
    
	
Subordination
    	
The notes will rank pari passu with each other and with any existing   or future surplus notes or similar obligations of Issuer.  The notes will be expressly subordinate in   right of payment to policy claims and other creditor claims of Issuer,   including all existing or future permitted indebtedness issued, incurred or   guaranteed by Issuer, other than any future surplus notes or similar   obligations of Issuer.  The notes will   be unsecured obligations of Issuer.
    
	
 
    	
 
    
	
Legal Status of Notes; Restrictions on Payment
    	
 

Pursuant to Section 44-221 of Chapter 44 of the Nebraska Revised   Statutes, each payment of interest on or principal of the notes may be made   only with the prior approval of the Director and only out of surplus funds   which the Director determines to be available for such payments under Section 44-221.  If these conditions to payment are not met,   the applicable scheduled payment or scheduled maturity date of such interest   or principal will be extended until such time, if any, at which such   conditions are met.  Interest will   continue to accrue on any unpaid principal amount of the notes; although   interest payments with respect to which the scheduled payment dates have been   so extended are cumulative, interest will not accrue on interest with respect   to which the scheduled payment dates have 
    

 

5                                           Select appropriate provision of the SPA pursuant to which the notes are issued.

 

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been extended, during the period of such extension. 
    
	
 
    	
 
    
	
Covenants
    	
In the event that the notes have not been paid in full (including the   payment of any accrued interest on the notes) upon the Scheduled Maturity   Date or upon an event of default (which shall include a failure by Issuer to   redeem the notes or make any payments with respect thereto, including as a   result of the failure of Issuer to obtain the applicable approvals of   Governmental Entities with respect thereto), Issuer shall not make or   declare any dividend or distribution on, or redeem or repurchase any shares   of, its capital stock until such time as the notes have been paid in full or   such event of default has been cured, as applicable; provided, that   dividends shall be permitted to the extent required to pay the items   designated (i) – (iv) in paragraph (q) (“Waterfall”) of   Schedule 5 to the Project Lighthouse Term Sheet for Credit Facility attached   to the Project Lighthouse Commitment Letter of even date with this term   sheet.

 

Issuer shall take all steps necessary to ensure that each applicable   Governmental Entity will approve the full repayment of the notes upon the   Scheduled Maturity Date or any optional or mandatory redemption date.

 

Issuer shall not issue any securities that rank senior to the notes   without obtaining the consent of the holders of a majority of the aggregate   principal amount of the notes then outstanding.  
    
	
 
    	
 
    
	
Remedies
    	
In the event of Issuer’s rehabilitation, liquidation or dissolution,   the notes will immediately mature in full without any action on the part of   any holder of the notes, with payment thereon being subject to the   satisfaction of the conditions to payment described herein.

 

If the Director approves in whole or in part a payment of any interest   on or principal of any notes and Issuer fails to pay the full amount of such   approved payment on the scheduled payment date, such approved amount will be   immediately payable on such date without any action on the part of any holder   of notes.
    
	
 
    	
 
    
	
Issuance
    	
Issuer will provide Seller with customary representations and   warranties, certificates and opinions of counsel in connection with the issuance   of the notes.
    
	
 
    	
 
    
	
II.  PREFERRED STOCK TERMS
    	
 
    
	
 
    	
 
    
	
Issuer
    	
[Lighthouse] (“Issuer”)
    
	
 
    	
 
    
	
Securities Offered
    	
[·] shares of Cumulative   Preferred Stock, Series A, $1.00 par value per share (the “Preferred   Stock” and each share, a “share”).    Each holder of Preferred Stock will be entitled to all the rights and   preferences of the Preferred Stock represented thereby (including 
    

 

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dividend, voting, redemption and liquidation rights).
    
	
 
    	
 
    
	
Issue Date
    	
[·]
    
	
 
    	
 
    
	
Liquidation Preference
    	
$[·] per share (the   “liquidation amount”)
    
	
 
    	
 
    
	
Final Redemption Date
    	
[·]6
    
	
 
    	
 
    
	
Dividend Payment Dates
    	
Each [January 15], [April 15], [July 15] and   [October 15], commencing [·], subject   to adjustment in the case of any such date that falls on a day that is not a   business day.
    
	
 
    	
 
    
	
Dividends
    	
Dividends on the Preferred Stock will accrue on the liquidation amount   and be payable on each dividend payment date at an annual rate equal to the 5   year treasury as of the Issue Date plus 450 basis points.  In no case   shall the yield on the preferred stock be less than 4.5% or exceed maximum   amounts allowable under Applicable Law.  At the Final Redemption Date   and each 5 year anniversary thereafter (the “Reset Date”), the yield will   reset for the subsequent 5 year period.  At any Reset Date, the yield   will be equal to the 5 year treasury as the Reset Date, plus 450 basis   points.  In no case shall the yield on the preferred stock at any Reset   Date be less than 6.0%.
    
	
 
    	
 
    
	
Optional Redemption by Issuer
    	
Shares may be redeemed, in whole or in part, at the option of Issuer   any time prior to the Final Redemption Date at a redemption price per share   equal to the liquidation amount, plus any accrued but unpaid dividends.
    
	
 
    	
 
    
	
Optional Redemption by any Holder
    	
Shares may be redeemed at the option of any holder of shares at any   time prior to the Final Redemption Date for an aggregate redemption price up   to the Holder Optional Redemption Amount.    “Holder Optional Redemption Amount” means the sum of (i) the   amount by which (x) exceeds (y), where (x) is equal to the Required   Capital Amount (as defined in the SPA) as of the Issue Date; provided that   the amount calculated pursuant to this clause (i) shall not in any case   exceed the aggregate liquidation amount, and (y) is equal to such lesser   amount of capital which the Director permits Issuer to hold as of the   applicable redemption date and (ii) all accrued but unpaid dividends on   the shares subject to redemption.
    
	
 
    	
 
    
	
Mandatory Redemption by Issuer
    	
Issuer shall be required to redeem all of the shares then outstanding   at a per share redemption price equal to the liquidation amount, plus any   accrued but unpaid dividends (A) upon the Final Redemption Date or   (B) in the event Issuer (i) is no longer domiciled in Nebraska or   (ii) receives approval from the Director permitting Issuer to hold an   amount of capital that is equal to the Specified Capital Amount 
    

 

6                                           To insert date that corresponds to 5 years from the Issue Date.

 

- 4 -

 

	
 
    	
(as defined for purposes of Section [5.15(b)/6.1(c)]7 of the   SPA), or any lesser capital amount (each, a “Mandatory Redemption   Event”).  Upon the occurrence of a   Mandatory Redemption Event, the aggregate liquidation amount and all accrued   but unpaid dividends will become immediately due and payable without any   action on the part of any holder of the Preferred Stock.
    
	
 
    	
 
    
	
Liquidation Rights
    	
In the event Issuer voluntarily or involuntarily liquidates, dissolves   or winds up its affairs, holders of shares will be entitled to receive an   amount per share equal to the liquidation amount, plus any accrued but unpaid   dividends.  Distributions will be made   only to the extent of Issuer’s assets that are available for distribution to   shareholders, after payment or provision for payment of its debts and other   liabilities, before any distribution of assets is made to holders of Issuer’s   common stock or any of its junior stock.
    
	
 
    	
 
    
	
Voting Rights
    	
Holders of Preferred Stock will have no voting rights, except with   respect to certain changes in the terms of the Preferred Stock and as   otherwise required by applicable law.  
    
	
 
    	
 
    
	
Covenants
    	
In the event that the aggregate liquidation amount, plus any accrued   but unpaid dividends, has not been paid in full upon a Mandatory Redemption   Event or upon an event of default (which shall include a failure by Issuer to   redeem the shares or make any payments with respect thereto), Issuer   shall not make or declare any dividend or distribution on, or redeem or   repurchase any shares of, its capital stock (other than the Preferred Stock)   until such time as the aggregate liquidation amount, plus any accrued but   unpaid dividends, has been paid in full or such event of default has been   cured, as applicable; provided, that dividends shall be permitted to   the extent required to pay the items designated (i) – (iv) in   paragraph (q) (“Waterfall”) of Schedule 5 to the Project Lighthouse Term   Sheet for Credit Facility attached to the Project Lighthouse Commitment   Letter of even date with this term sheet.

 

Issuer shall take all steps necessary to ensure that any necessary   approval of a Governmental Entity with respect to the full payment of the   liquidation amount, plus any accrued but unpaid dividends, upon any optional   or mandatory redemption date is obtained.
    
	
 
    	
 
    
	
Ranking
    	
The shares of Preferred Stock will rank senior to our common stock and   all other junior stock or preferred stock Issuer may issue (except for any   series that may be issued upon the requisite vote or consent of the holders   of at least a two-thirds of the shares of the Preferred Stock at the time   outstanding and entitled to vote and the requisite vote or consent of all   other series of preferred stock, if any), with respect to the payment of   dividends and distributions of assets upon 
    

 

7                                           Select appropriate provision of the SPA pursuant to which the preferred stock is issued.

 

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our liquidation, dissolution or winding-up. 
    
	
 
    	
 
    
	
Issuance
    	
Issuer will provide Seller with customary representations and   warranties, certificates and opinions of counsel in connection with the   issuance of the preferred stock.
    

 

- 6 -

 

Exhibit 2 to Annex A of Stock Purchase Agreement

 

Recapture Adjustment

 

The “Recapture Adjustment Amount” equals 35% multiplied by 87.5% multiplied by (i) $350 million less (ii) the statutory Mark to Market Gain position (whether positive or negative) of the Recaptured Investment Assets as of the recapture effective date.

 

- 7 -

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