Document:

exhibit10_4.htm

 

 

 

 

 

 

 

 

 

 

AMENDED AND RESTATED AGREEMENT

by and among

GREENLIGHT REINSURANCE, LTD.,

GREENLIGHT REINSURANCE IRELAND, LTD.,

GREENLIGHT CAPITAL RE, LTD. (for limited purposes)

and

DME ADVISORS, LP

AMENDED AND RESTATED AS OF AUGUST 31, 2010

 

 

  

  

  

TABLE OF CONTENTS

                                                                                                                   Page

 

	
  

	
Article I Definitions   

	 1

 

	
  

	
Article II Organization

	 7

 

	
  

	
2.1. Purpose of Agreement

	 8

 

	
  

	
2.2. Assets

	 8

 

	
  

	
2.3. Term of Agreement

	 8

 

	
  

	
2.4. Objectives

	 9

 

	
  

	
2.5. Actions by DME

	 9

 

	
  

	
2.6. Reliance by Third Parties

	 9

 

	
  

	
2.7. Liability of Participants

	 9

 

	
  

	
Article III Capital

	 9

 

	
  

	
3.1. Contributions to Capital

	 9

 

	
  

	
3.2. Rights of Participants in Capital

	 10

 

	
  

	
3.3. Capital Accounts

	 10

 

	
  

	
3.4. Allocation of Net Profits and Net Losses

	 10

 

	
  

	
3.5. Allocations Relating to New Issues and Designated Securities

	 11

 

	
  

	
3.6. Allocation of DME Share Payment, Withholding Taxes and Certain Other Expenditures

	 11

 

	
  

	
3.7. Reserves; Adjustments for Certain Future Events

	 12

 

	
  

	
3.8. Performance Allocation

	 13

 

	
  

	
3.9. Allocations for Income Tax Purposes

	 13

 

	
  

	
3.10. Qualified Income Offset

	 14

 

	
  

	
3.11. Gross Income Allocation

	 14

 

	
  

	
3.12. Individual Participants’ Tax Treatment

	 15

 

	
  

	
3.13. Distributions

	 15

 

	
  

	
Article IV Management

	 15

 

	
  

	
4.1. Duties and Powers of the Participants

	 15

 

	
  

	
4.2. Expenses

	 18

 

	
  

	
4.3. Other Activities of Participants

	 19

 

	
  

	
4.4. Duty of Care; Indemnification

	 19

 

	
  

	
4.5. Fiduciary Duties; Discretion

	 22

 

	
  

	
Article V Admissions and Withdrawals

	 23

 

	
  

	
5.1. Admission of Participants

	 23

 

	
  

	
5.2. Withdrawal of Interests of Participants

	 23

 

	
  

	
5.3. Transfer of Interests in Participants

	 24

 

	
  

	
Article VI Termination and Liquidation

	 26

 

	
  

	
6.1. Termination of this Agreement

	 26

 

	
  

	
6.2. Liquidation of the Venture

	 26

 

	
  

	
Article VII Accounting and Valuations; Books and Records; Board Meetings

	 27

 

	
  

	
7.1. Accounting and Reports

	 27

 

	
  

	
7.2. Valuation of Assets and Interests

	 28

 

	
  

	
7.3. Determinations by DME

	 30

 

	
  

	
7.4. Books and Records

	 30

 

	
  

	
7.5. Greenlight Re or GRIL Board Meeting

	 30

 

	
  

	
Article VIII General Provisions

	 30

 

	
  

	
8.1. Amendment of Agreement

	 30

 

	
  

	
8.2. Notices

	 31

 

	
  

	
8.3. Agreement Binding Upon Successors and Assigns

	 32

 

	
  

	
8.4. Governing Law

	 32

 

	
  

	
8.5. Not for Benefit of Third Parties

	 33

 

	
  

	
8.6. Consents

	 33

 

	
  

	
8.7. Miscellaneous

	 33

 

	
  

	
8.8. Entire Agreement

	 34

 

 

  

  

  

THIS AMENDED AND RESTATED AGREEMENT (the “Agreement”) is made as of this 31st day of August, 2010 by and among Greenlight Reinsurance, Ltd., incorporated under the laws of the Cayman Islands as an exempted company with limited liability and a holder of a Class B Insurer’s license issued in accordance with the terms of the Insurance Law (as revised) of the Cayman Islands (“Greenlight Re”), Greenlight Reinsurance Ireland, Ltd., Incorporated under the laws of Ireland as a non-life reinsurer in accordance with the provisions of the European Communities (Reinsurance) Regulation 2006 (“GRIL”) and DME Advisors, LP, a Delaware limited partnership (“DME”), and, solely for the purposes set forth in Section 4.1 (d) and (e), Greenlight Capital Re, Ltd. incorporated under the laws of the Cayman Islands as an exempted company with limited liability (“Greenlight Capital Re”);

 

WHEREAS, on January 1, 2008, Greenlight Re, DME and Greenlight Capital Re entered into an agreement, as amended by Amendment No. 1 dated as of February 20, 2009 (the “Original Agreement”) for the purpose of creating a joint venture solely with respect to the management of certain investable assets and to share in the profits and losses therefrom as described in this Agreement;

 

WHEREAS, the parties to the Original Agreement desire to amend and restate the Original Agreement to have GRIL join as a Participant (as defined below);

 

WHEREAS, GRIL is willing to become a party to the Agreement, subject to the terms and conditions stated herein;

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned parties agree as follows:

 

_____________

 

Article I

 

Definitions

 

_____________

 

For purposes of this Agreement:

 

“Affiliate” means with respect to any Person, a Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person.  For these purposes, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting Securities, by contract or otherwise.

 

“Agreement” means this Agreement, as amended from time to time.

 

“Assets” has the meaning set forth in Section 2.2.

 

“Business Day” means any day on which banks are open for business in New York, New York, Ireland and the Cayman Islands.

 

  

1

  

 

“Board” means with respect to each of GRIL or Greenlight Re such party’s full board of directors, or, if required by law, regulation or securities exchange upon which such party’s common shares are listed, an independent committee of the Board; provided, however, that any such independent committee shall consist of all members of such party’s board of directors that are not expressly prohibited by applicable law, regulation or securities exchange from participating in an action to be taken by the Board pursuant to this Agreement.

 

“Capital Account” means with respect to each Participant a memorandum account established and maintained on behalf of such Participant as described in Section 3.3.

 

“Carryforward Account” means a memorandum account to be recorded by DME in the books and records of the venture with respect to each Participant that has an initial balance of zero and that is adjusted as follows:

 

As of the first day after the close of each Performance Period for such Participant (prior to giving effect to the Performance Allocation, if any), the balance of the Carryforward Account (a) is increased by the amount, if any, equal to two and one half times such Participant’s Negative Performance Change for such Performance Period and (b) is reduced (but not below zero) by the amount, if any, of such Participant’s Positive Performance Change for such Performance Period.

 

“Code” means the U.S. Internal Revenue Code of 1986, as amended and as hereafter amended, or any successor law.

 

“Commencement Date” means the first date on or as of which a Participant makes a Capital Contribution to the venture pursuant to this Agreement.  The Commencement Date with respect to each of Greenlight Re and DME is January 1, 2008 and with respect to GRIL is August 31, 2010.

 

“Company Act” means the U.S. Investment Company Act of 1940, as amended.

 

“Covered Person” means DME, the general partner of DME, and their respective members, partners, managers, directors, officers, employees and agents, and any Person who controls DME or its general partner.

 

“Designated Securities” means an Asset, designated as such by DME, either at the time of acquisition or at a later date, in which a Participant has an ownership interest different than its Percentage, which (a) may include no interest at all for a Participant and (b) interest may not be on a pro rata basis.  An Asset may be designated as a Designated Security due to Guideline restrictions or for such other reason as deemed appropriate by DME in its sole discretion.

 

“DME Share Payment” means with respect to each Participant other than DME, an amount per month equal to 0.125% (an annual rate of 1.5%) of the Capital Account balance of each such Participant.

 

“Effective Date” means August 31, 2010.

 

 

  

2

  

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.

 

 “Entity” has the meaning set forth in Section 4.1(b).

 

“Final Determination” means (1) with respect to U.S. federal income taxes, a “determination” (as defined in Section 1313(a) of the Code) or the execution of a settlement agreement with the Internal Revenue Service (pursuant to Form 870-AD or otherwise) and (2) with respect to taxes other than U.S. federal income taxes, any judicial or administrative determination or settlement that is substantially similar to a Final Determination described in clause (1).

 

“FINRA” means the Financial Industry Regulatory Authority (formerly known as the National Association of Securities Dealers, Inc.)

 

“FINRA Rule 5130” means Rule 5130 promulgated by FINRA.

 

“Fiscal Period” means each period that starts on the Commencement Date (in the case of the initial Fiscal Period) and thereafter on the first day immediately following the last day of the preceding Fiscal Period, and that ends on the earliest of the following dates:

 

	
  

	
(1)

	
the last day of any calendar month; or

 

	
  

	
(2)

	
any date as of which any withdrawal or distribution of capital is made by or to any Participant or as of which this Agreement provides for any amount to be credited to or debited against the Capital Account of any Participant, other than a withdrawal or distribution by or to, or an allocation to the Capital Accounts of, all Participants that does not result in any change of any Participant’s Percentage; or

 

	
  

	
(3)

	
the date that immediately precedes any day as of which a contribution to capital is made pursuant to this Agreement, other than a capital contribution that does not result in any change of any Participant’s Percentage; or

 

	
  

	
(4)

	
any other date that DME, in its reasonable discretion, selects.

 

“Fiscal Year” means the period commencing on January 1 of each year and ending on December 31 of such year.

 

“Force Majeure” shall mean fires, floods, acts of God or the public enemy, interference by civil or military authorities, terrorist acts, governmental actions, orders, requests.

 

“Greenlight Re Cause” means (i) a material violation of applicable law relating to DME’s advisory business, (ii) DME’s gross negligence, willful misconduct or reckless disregard of any of DME’s obligations under this Agreement, (iii) a material breach by DME of the Greenlight Re Guidelines, if such breach is not cured within fifteen (15) days following the earlier of (a) the date that DME becomes aware of such breach and (b) the date on which DME receives written notification of such breach from Greenlight Re, or (iv) a material breach by DME of Section 5.2.  For the avoidance of doubt, any termination hereof by Greenlight Re for “Greenlight Re Cause” shall require the approval of the Greenlight Re Board.  Upon any termination of this Agreement for “Greenlight Re Cause”, DME will use all commercially reasonable efforts to follow the direction of the Greenlight Re Board with respect to the disposition of the applicable Assets necessary to satisfy Greenlight Re’s withdrawal; provided, however, that DME makes no guarantee that it can comply with such directions.

 

 

  

3

  

 

“Greenlight Re Guidelines” has the meaning set forth in Section 4.1(h).

 

“GRIL Cause” means (i) a material violation of applicable law relating to DME’s advisory business, (ii) DME’s gross negligence, willful misconduct or reckless disregard of any of DME’s obligations under this Agreement, (iii) a material breach by DME of the GRIL Guidelines, if such breach is not cured within fifteen (15) days following the earlier of (a) the date that DME becomes aware of such breach and (b) the date on which DME receives written notification of such breach from GRIL, (iv) a material breach by DME of Section 5.2, or (v) unsatisfactory long term performance of DME, as determined by the sole discretion of the Board of GRIL on each anniversary date of this Agreement.  For the avoidance of doubt, any termination hereof by GRIL for “GRIL Cause” shall require the approval of the GRIL Board.  Upon any termination of this Agreement for “GRIL Cause”, DME will use all commercially reasonable efforts to follow the direction of the GRIL Board with respect to the disposition of the applicable Assets necessary to satisfy GRIL’s withdrawal; provided, however, that DME makes no guarantee that it can comply with such directions.

 

“GRIL Guidelines” has the meaning set forth in Section 4.1(h).

 

“Guidelines” has the meaning set forth in Section 4.1(h).

 

“Interest” means all of the rights, obligations and interest(s) (in their entirety) of a Participant in the venture at the relevant time, including the right of such Participant to any and all benefits to which a Participant may be entitled as provided in this Agreement and the obligations of such Participant to comply with all the terms and provisions of this Agreement.

 

“Losses” has the meaning set forth in Section 4.4(a).

 

“Managed Account” means assets managed by DME or any of its Affiliates, whether for its own account or for the account of any third party, that are invested or available for investment in investment or trading activities.

 

“Negative Performance Change” has the meaning set forth in the definition of Performance Change.

 

“Net Assets” means the total value, as determined by DME in accordance with Section 7.2, of the Assets (including net unrealized appreciation or depreciation of the assets and accrued interest and dividends receivable net of any withholding taxes), less an amount equal to all accrued debts, liabilities and obligations chargeable against such Assets in accordance with this Agreement (including any reserves for contingencies accrued pursuant to Section 3.7).  Except as otherwise expressly provided herein, Net Assets as of the first day of any Fiscal Period shall be determined on the basis of the valuation of Assets conducted as of the close of the immediately preceding Fiscal Period but after giving effect to any capital contributions made by any Participant subsequent to the last day of such immediately preceding Fiscal Period and Net Assets as of the last day of any Fiscal Period shall be determined before giving effect to any of the following amounts payable generally or in respect of any Securities which payments or allocations are effective as of the date on which such determination is made:

 

 

  

4

  

 

	
  

	
(1)

	
any withdrawals or distributions payable to any Participant that are effective as of the date on which such determination is made;

 

	
  

	
(2)

	
any DME Share Payment or Performance Allocation as of the date on which such determination is made; and

 

	
  

	
(3)

	
withholding taxes, expenses of processing withdrawals and other items payable, any increases or decreases in any reserves or other amounts recorded pursuant to Section 3.7, and any increases or decreases in the value of any New Issues pursuant to Section 3.5 or in the value of any Designated Securities during the Fiscal Period ending as of the date on which such determination is made, to the extent DME reasonably determines that, pursuant to any provisions of this Agreement, such items should be charged to one or more individual Participants and not charged ratably to the Capital Accounts of all Participants on the basis of their respective Percentages as of the commencement of the Fiscal Period.

 

“Net Loss” means any amount by which the Net Assets as of the first day of a Fiscal Period exceed the Net Assets as of the last day of the same Fiscal Period.

 

“Net Profit” means any amount by which the Net Assets as of the last day of a Fiscal Period exceed the Net Assets as of the first day of the same Fiscal Period.

 

“New Issue” has the meaning assigned to such term in Section 3.5(a) hereof.

 

“Participant” means any Person (other than Greenlight Capital Re) that is or becomes a party to this Agreement, until the entire Interest of such Person has been withdrawn pursuant to Section 5.2 or a substitute Participant or Participants are admitted with respect to such Person’s entire Interest, or this Agreement is terminated pursuant to Section 6.1 and the Assets distributed or liquidated pursuant to Section 6.2.

 

“Percentage” means a percentage established for each Participant as of the first day of each Fiscal Period representing such Participant’s share of allocations attributable to transactions involving the Capital Account for such Fiscal Period.  The Percentage of a Participant for a Fiscal Period is determined by dividing the amount of the Participant’s Capital Account as of the beginning of the Fiscal Period (excluding the value of Designated Securities and after adjustment for all net contributions or withdrawals, DME Share Payment and Performance Allocations that are effective as of such date) by the aggregate Capital Accounts of all Participants as of the beginning of the Fiscal Period (excluding the value of Designated Securities after adjustment for all net contributions or withdrawals and DME Share Payment that are effective as of such date).  The sum of the Percentages of all Participants for each Fiscal Period must equal 100%.

 

 

  

5

  

 

“Performance Allocation” means with respect to each Participant other than DME:

 

	
  

	
(1)

	
10% of the portion of the Positive Performance Change for such Participant’s Capital Account, if any, determined as of the close of each Performance Period, that is less than or equal to the positive balance in such Participant’s Carryforward Account as of the most recent prior date as of which adjustment has been made thereto; plus

 

	
  

	
(2)

	
20% of the portion of the Positive Performance Change for such Participant’s Capital Account, if any, determined as of the close of each Performance Period that exceeds the positive balance in such Participant’s Carryforward Account as of the most recent prior date as of which adjustment has been made thereto.

 

“Performance Change” means, with respect to each Participant for each Performance Period, the difference between:

 

	
  

	
(1)

	
the sum of (a) the balance of each such Participant’s Capital Account as of the close of the Performance Period (after giving effect to all allocations to be made to each such Participant’s Capital Account as of such date other than any Performance Allocation to be debited against each such Participant’s Capital Account), plus (b) any debits to each such Participant’s Capital Account during the Performance Period to reflect any actual or deemed distributions or withdrawals with respect to each such Participant’s Interest, plus (c) any debits to each such Participant’s Capital Account during the Performance Period to reflect any items allocable to each such Participant’s Capital Account pursuant to Section 3.6(b) or Section 3.6(c) hereof; and

 

	
  

	
(2)

	
the sum of (a) the balance of each such Participant’s Capital Account as of the commencement of the Performance Period, plus (b) any credits to such Participant’s Capital Account during the Performance Period to reflect any contributions by such Participant pursuant to this Agreement.

 

If the amount specified in clause (1) exceeds the amount specified in clause (2) such difference is a “Positive Performance Change,” and if the amount specified in clause (2) exceeds the amount specified in clause (1), the absolute value of such difference is a “Negative Performance Change.”

 

“Performance Period” means, with respect to a Participant, the period commencing as of the date that such Participant becomes a party to this Agreement (in the case of such Participant’s initial Performance Period) and thereafter each period commencing as of the day following the last day of the preceding Performance Period with respect to such Participant, and ending as of the close of business on the first to occur of the following after the relevant commencement date:

 

	
  

	
(1)

	
the last day of a Fiscal Year;

 

 

  

6

  

 

 

	
  

	
(2)

	
the withdrawal or Transfer by a Participant of its entire Interest; or

 

	
  

	
 (3)

	
termination of this Agreement pursuant to Section 6.1(a).

 

“Person” means any individual, partnership, corporation, limited liability company, trust, or other entity.

 

“Positive Performance Change” has the meaning set forth in the definition of Performance Change.

 

“Proceeding” has the meaning set forth in Section 3.12.

 

“Regulations” means the regulations issued under the Code or any successor law.

 

“Regulation 114 Trust” means a three way investment trust that (i) involves an agreement among a cedent, a financial institution and a non-admitted reinsurer governed by Regulation 114 of the Official Compilation of Codes, Rules and Regulations (11 NYCRR4) of the New York State Insurance Department, (ii) is maintained in the United States in an approved financial institution and (iii) is collateralized only by cash and cash equivalents, U.S. Treasury securities and/or fixed income securities rated “A” or higher.

 

“Restricted Capital Accounts” has the meaning assigned to such term in Section 3.5(a) hereof.

 

“Securities” has the meaning set forth in Section 4.1(b).

 

“Tax Proceeding” has the meaning set forth in Section 3.12.

 

“Tax Treatment” has the meaning set forth in Section 3.12.

 

“Transfer” means any sale, exchange, transfer, assignment or other disposition by a Participant of his Interest to another party, whether voluntary or involuntary, including a transfer by operation of law.  Notwithstanding the foregoing, a pledge or lien by a Participant of any or all of its Interest made in accordance with, and permitted by, this Agreement shall not be deemed to be a Transfer.

 

“Treasury Bill Rate” means, with respect to any calendar month, a rate of interest, determined and adjusted monthly by DME as of the fifth Business Day of each month, equal to the annual coupon equivalent yield on 13-week U.S. Treasury bills resulting from the most recent auction of such instruments prior to the monthly determination date.

 

“venture” has the meaning set forth in Section 2.1(c).

 

 

  

7

  

 

_____________

 

Article II

 

Organization

 

_____________

 

2.1. Purpose of Agreement

 

(a) The parties hereto hereby agree to form a joint venture to jointly own and manage certain assets and to share in net profits and net losses generated by these assets as more particularly described herein.

 

(b) Each of the Participants hereby agrees, subject to the remainder of this Agreement, to reasonably cooperate to carry out the intent of this Agreement and to effectuate, implement and continue the valid and subsisting existence of the relationship created hereby.

 

(c) The parties hereto acknowledge that they intend that the joint venture created by this Agreement be taxed as a partnership and not as an association taxable as a corporation for United States federal income tax purposes and references herein to the “venture” are references to such joint venture and tax partnership.  No election may be made by a Participant to treat the relationship created by this Agreement as other than a partnership for United States federal income tax purposes.

 

2.2. Assets

 

From and after the Effective Date, the Participants acknowledge and agree that (i) the assets of the venture (the “Assets”) will be jointly owned but held in segregated accounts each in the name of Greenlight Re separate from Greenlight Re’s other assets, and (ii) all of the Assets shall be held in trust for the benefit of all Participants in accordance with the terms of this Agreement.  DME will select one or more custodians for the Assets and will promptly notify each Participant in writing following the selection or change of custodians hereunder.

 

2.3. Term of Agreement

 

The term of this Agreement commences on the Commencement Date and continues, unless earlier terminated pursuant to Section 6.1 hereof, until December 31, 2013; provided, however, that this Agreement shall automatically continue for additional successive three-year periods unless DME notifies the other Participants that it wishes to terminate this Agreement at least 90 days prior to the end of the then current term.  In the event that any Participant (other than DME) notifies the other Participants that it wishes to withdraw as a Participant and terminate its participation in the venture at least 90 days prior to the end of the then current term, the electing party shall withdraw from the venture, and shall be deemed to have elected a withdrawal of its entire Capital Account as of the end of such term as provided for in Section 5.2 and the provisions of this Agreement shall no longer apply to such Participant (except those provisions which by their terms apply to Participants following their withdrawal).

 

  

8

  

 

2.4. Objectives

 

The object and purpose of and the nature of the business to be conducted pursuant to this Agreement is investing, acquiring, holding, voting, disposing and otherwise dealing with the Securities consistent with the terms of this Agreement (including, without limitation, the applicable Guidelines) and engaging in any and all activities necessary or incidental to the foregoing.

 

2.5. Actions by DME

 

Subject to the limitations contained elsewhere in this Agreement, DME, on behalf of the Participants, may execute, deliver and perform all contracts, agreements and other undertakings and engage in all activities and transactions as may, in the reasonable discretion of DME, be necessary or advisable to carry out the objectives of this Agreement (including without limitation all federal securities filings relating to any of the investment activities set forth in Section 4.1(b)), provided, however, that if a contract, agreement or other undertaking is or is to be made by DME on behalf of Greenlight Re and/or GRIL that could reasonably be expected to require disclosure on a Form 8-K pursuant to Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended, or other applicable law, DME shall promptly notify Greenlight Re and/or GRIL and cooperate with Greenlight Re and/or GRIL to allow a timely and proper disclosure to be made.

 

2.6. Reliance by Third Parties

 

Persons dealing with any Participant, individually or in the aggregate as it relates to the Assets or the relationship created by this Agreement, are entitled to rely conclusively upon the power and authority of each such Participant as herein set forth.

 

2.7. Liability of Participants

 

In no event will any Participant (or former Participant) be obligated to make any capital contribution in addition to its agreed capital contributions (or other payments provided for herein) or have any liability for the repayment or discharge of debts and obligations of the venture except to the extent provided herein or as required by law.

 

_____________

 

Article III

 

Capital

 

_____________

 

3.1. Contributions to Capital

 

(a) As of the Effective Date of this Agreement, GRIL simultaneously will make or will have made an initial contribution to the venture.  Following such contribution, each Participant as of the Effective Date shall have a Capital Account balance equal to the amounts set forth on Exhibit B.

 

 

  

9

  

 

(b) Each Participant, as applicable, shall make additional capital contributions in accordance with Section 3.6(b), Section 4.1(d) and 4.1(e) hereof.  In the event that DME’s Percentage falls below 1%, it shall promptly (and in any event within five (5) Business Days of such occurrence) make a capital contribution necessary to increase its Percentage to at least 1%.  DME shall not be required to make any other additional capital contributions except as otherwise specifically contemplated by this Agreement.

 

3.2. Rights of Participants in Capital

 

(a) No Participant is entitled to interest on any contributions made pursuant to this Agreement.

 

(b) No Participant has the right to the return of any contribution made pursuant to this Agreement except (i) upon a withdrawal by a Participant pursuant to Section 5.2 or (ii) upon the termination of this Agreement pursuant to Section 6.1.  The entitlement to any such return at such time is limited to the value of the Capital Account of the Participant.

 

3.3. Capital Accounts

 

(a) Each Participant shall have a separate Capital Account relating to its Interest.

 

(b) Each Participant’s Capital Account shall have an initial balance equal to the amount of any cash and the net value, as determined in accordance with Section 7.2 hereof, of any assets constituting such Participant’s initial contribution, as listed on Exhibit B.

 

(c) Each Participant’s Capital Account shall be increased by the amount of cash and the net value, as determined in accordance with Section 7.2 hereof, of any assets constituting additional contributions by such Participant and decreased by the amount of cash and the net value of any assets withdrawn by and distributed to such Participant and such Participant’s pro rata portion of the expenses allocable pursuant to Section 4.2(a).

 

(d) Each Participant’s Capital Account shall be adjusted in the manner specified in the remaining provisions of Article III.

 

3.4. Allocation of Net Profits and Net Losses

 

(a) Except as otherwise expressly provided herein, all capital contributions by a Participant shall be credited to such Participant’s Capital Account, and all withdrawals by or distributions to such Participant shall be debited from such Participant’s Capital Account to the extent thereof.  Subject to the remaining provisions of this Section 3.4, Section 3.5, and Section 3.8 as of the last day of each Fiscal Period, any Net Profit or Net Loss for such Fiscal Period shall be allocated among and credited to or debited against the Capital Accounts of the Participants in proportion to their respective Percentages for such Fiscal Period.

 

(b) Notwithstanding Section 3.4(a), items of income, gains, losses, deduction, credit and expenses that relate to investments in New Issues and Designated Securities shall be allocated pursuant to Section 3.5 below.  DME acknowledges that Greenlight Re holds a Class B Insurer’s license issued in accordance with the terms of the Insurance Law (as revised) of the Cayman Islands and that GRIL is a non-life reinsurer in accordance with the provisions of the European Communities (Reinsurance) Regulations 2006.

 

 

  

10

  

 

3.5. Allocations Relating to New Issues and Designated Securities

 

(a) Pursuant to FINRA Rule 5130, the venture may only acquire certain publicly-offered securities (“New Issues”) if the Capital Accounts of Participants connected with the securities industry (“Restricted Capital Accounts”) are restricted from sharing a beneficial interest in such New Issues in accordance with the provisions of FINRA Rule 5130.  Notwithstanding the provisions of Section 3.4 above, to enable investment in New Issues, DME shall not allocate any items of income, gain, loss, deduction and credit that relate to investments in New Issues to Restricted Capital Accounts except to the extent permitted by FINRA Rule 5130 and shall instead allocate such items among the other Capital Accounts on a pro rata basis.  To the extent that FINRA Rule 5130 permits certain persons with Restricted Capital Accounts to participate in New Issues, DME will allocate such New Issue among such Restricted Capital Accounts on a pro rata basis.  DME may specially allocate a carrying charge to compensate Participants with Restricted Capital Accounts to the extent such Restricted Capital Accounts do not participate in investments in New Issues for the use of capital to purchase or carry such positions.  To the extent consistent with FINRA Rule 5130, as amended from time to time, DME shall determine when all Capital Accounts may participate in the Net Profit and Net Loss from any New Issue.  DME shall value any New Issue at such time at the then-current price of the security in the secondary market.

 

(b) DME may, in its discretion, elect to designate an Asset as a Designated Security. Notwithstanding the provisions of Section 3.4 above, items of income, gains, losses, deduction, credit and expense that relate to a Designated Security shall be allocated to Capital Accounts in such percentages as DME shall reasonably determine (taking into account each Participant’s Guidelines, regulatory restrictions and other items deemed relevant by DME).  Whenever DME makes an investment that is in a Designated Security or whenever an existing investment is first designated as a Designated Security by DME, DME shall establish a sub-account with respect to each Participant that participates in such Designated Security to reflect such Participant’s Capital Account’s pro rata share of all allocations and distributions attributable to transactions involving such Designated Security.  If DME determines that an investment no longer warrants treatment as a Designated Security or that a Participant may or must participate at a different percentage, DME will either deem such investment no longer to be a Designated Security or reallocate interest in the Designated Security to reflect the change in ownership percentage.   In the event of a withdrawal request by a Participant pursuant to Section 5.2, DME shall have the discretion to effect such withdrawal request first out of the Participant’s Capital Account (excluding the Designated Securities sub-account) and then out of the Designated Security sub-account.

 

3.6. Allocation of DME Share Payment, Withholding Taxes and Certain Other Expenditures

 

(a) As of the first day of each month, the DME Share Payment for such month shall be debited against the Capital Account of each Participant (other than DME) and paid in cash to DME. All applicable DME Share Payment accrues from the Commencement Date with respect to each Participant and is payable monthly in advance on the first day of the month, based on the Capital Account balance of each such Participant as of the beginning of such month (or on the Commencement Date with respect to such Participant in the case of the first month of this Agreement).  If this Agreement is terminated in accordance with its terms as of a date other than the last day of a month, the DME Share Payment for the final month shall be prorated to the date of termination.  All payments of the DME Share Payment to DME under this Agreement shall be made without any reduction, deduction or withholding for or on account of any tax (including without limitation, any value added tax), unless required by law.  If reduction, deduction or withholding of any tax (including without limitation, any value added tax) is required by law from any such payment, the sum payable shall be increased as necessary so that after making all required deductions and withholdings, DME receives an amount equal to the amount that it would have received had no such deductions or withholdings been made.

 

 

  

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(b) If the venture or a Participant incurs a withholding tax or other tax obligation with respect to the share of income allocable to any Participant, then DME, on behalf of the venture or of such Participant, shall (unless otherwise agreed by such Participant) withhold the appropriate portion of such Participant’s share of income, timely remit such amount to the applicable taxing authority and cause the amount of such obligation to be debited against the Capital Account of such Participant as of the close of the Fiscal Period during which such obligation was paid.  If the amount of such taxes is greater than such Capital Account balance, then such Participant and any successor to such Participant’s Interest must, in connection with this Agreement, make a capital contribution in the amount of such excess.  No one other than the Participant is obligated to apply for or obtain a reduction of or exemption from withholding tax on behalf of any Participant that may be eligible for such reduction or exemption but DME will provide any assistance reasonably requested by a Participant, at such Participant’s cost, in connection with establishing any such reduction or exemption.  Notwithstanding the foregoing, DME shall bear the financial obligation of any withholding or other tax obligation if the venture, Greenlight Re or GRIL incurs such withholding or other tax obligation with respect to the share of income allocable to Greenlight Re or GRIL, as the case may be, that (i) Greenlight Re or GRIL, as the case may be, would not have been subject to but for the establishment of, and the investment by, the venture, and (ii) increases Greenlight Re’s or GRIL’s aggregate tax liability compared to Greenlight Re’s or GRIL’s aggregate tax liability had the investment been made by Greenlight Re or GRIL, directly or otherwise, outside of the venture.

 

(c) Except as otherwise provided for in this Agreement, any expenditures payable by or on behalf of the venture, to the extent determined by DME to have been paid or withheld on behalf of, or by reason of particular circumstances applicable to, one or more but fewer than all of the Participants, are to be charged to only those Participants on whose behalf such payments are made or whose particular circumstances gave rise to such payments.  Such charges are debited from the Capital Accounts of such Participants as of the close of the Fiscal Period during which any such items were accrued or paid.

 

3.7. Reserves; Adjustments for Certain Future Events

 

(a) Appropriate reserves may be created, accrued and charged against the Net Assets and proportionately against the Capital Accounts of the Participants for contingent liabilities associated with the venture, including, without limitation, for accrued Performance Allocation amounts, such reserves to be in the amounts that DME, in its reasonable discretion, deems necessary or appropriate.  DME may increase or reduce any such reserve from time to time by such amounts as DME in its reasonable discretion deems necessary or appropriate.  At the reasonable discretion of DME, the amount of any such reserve, or any increase or decrease therein, may be charged or credited, as appropriate, to the Capital Accounts of those parties who are Participants at the time when such reserve is created, increased, or decreased, as the case may be, or alternatively may be charged or credited to those parties who were Participants at the time of the act or omission giving rise to the contingent liability for which the reserve was established.

 

 

  

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(b) If DME in its reasonable discretion determines that it is equitable to treat an amount to be paid or received as being applicable to one or more prior periods, then such amount may be proportionately charged or credited, as appropriate, to those parties who were Participants during such prior period or periods.  If any amount is to be charged or credited to a party who is no longer a Participant, such amount must be paid by (in the case of a charge) or to (in the case of a credit) such party, as the case may be, in cash with interest at the Treasury Bill Rate in effect at that time from the date on which DME determines that such charge or credit is required.  In the case of a charge, the former Participant is obligated to pay the amount of the charge, or if another Participant has already paid the charge, to reimburse such other Participant promptly on demand; provided that (i) in no event is a former Participant obligated to make a payment exceeding the amount of its Capital Account at the time to which the charge relates, and (ii) no such demand may be made if the applicable limitation period under applicable law, if any, has expired.  To the extent DME or the Participants fail to collect, in full, any amount required to be charged to such former Participant pursuant to paragraph (a) or (b) of this Section 3.7, whether due to the expiration of the applicable limitation period, if any, or for any other reason whatsoever, the deficiency may be charged proportionately to the Capital Accounts of the current Participants.

 

(c) In the event any reserves in excess of $100,000 are created, accrued or charged against the Net Assets of Greenlight Re’s Capital Account, or any such reserves in excess of $100,000 are increased or decreased, DME will promptly, within five (5) Business Days following month end, provide written notice and a description of such event to Greenlight Re.  In the event any reserves in excess of $100,000 are created, accrued or charged against the Net Assets of GRIL’s Capital Account, or any such reserves in excess of $100,000 are increased or decreased, DME will promptly, within five (5) Business Days following month end, provide written notice and a description of such event to GRIL.

 

3.8. Performance Allocation

 

(a) The Performance Allocation shall be debited against the Capital Account of each Participant (other than DME) as of the last day of each Performance Period with respect to such Participant, and the amount so debited shall be simultaneously credited to the Capital Account of DME.

 

(b) DME, in its sole discretion, may waive or reduce the Performance Allocation.

 

 

  

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3.9. Allocations for Income Tax Purposes

 

(a) Except as otherwise required by Code Section 704(c), items of income, gain, deduction, loss, or credit that are recognized for income tax purposes in each Fiscal Year shall be allocated among the Participants, in such manner as to reflect equitably amounts credited to or debited against each Participant’s Capital Account, whether in such Fiscal Year or in prior Fiscal Years.  To this end, DME shall establish and maintain records that show the extent to which the Capital Account of each Participant, as of the last day of each Fiscal Year, consists of amounts that have not been reflected in the taxable income of such Participant.  To the extent deemed by DME, in its reasonable discretion, to be feasible and equitable, taxable income and gains in each Fiscal Year shall be allocated among the Participants who have enjoyed the related credits to their Capital Accounts, and items of deduction, loss and credit in each Fiscal Year shall be allocated among the Participants who have borne the burden of the related debits to their Capital Accounts.

 

(b) To the extent an adjustment to the adjusted tax basis of any Asset or any Capital Account pursuant to Code Section 734(b) is required under Regulations Sections 1.704-1(b)(2)(iv)(m)(4) and (5) to be taken into account in determining Capital Accounts, the amount of such adjustment to the 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 Participants in the same manner that the gain or loss displaced by such basis adjustment would have been allocated had the assets in question been sold.

 

3.10. Qualified Income Offset

 

In the event any Participant receives any adjustments, allocations, or distributions described in Section 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) of the Regulations, items of income and gain will be specially allocated to each such Participant in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the deficit balance in the Capital Account of such Participant as quickly as possible, provided that an allocation pursuant to this Section 3.10 may be made only if and to the extent that such Participant would have a deficit balance in its Capital Account after all other allocations provided for in this Article III have been tentatively made as if this Section 3.10 were not in the Agreement.  This Section 3.10 is intended to constitute a “qualified income offset” within the meaning of Regulations Section 1.704-1(b)(2)(ii), and must be interpreted consistently therewith.

 

3.11. Gross Income Allocation

 

In the event any Participant has a deficit Capital Account at the end of any Fiscal Year that is in excess of the sum of (i) the amount such Participant is obligated to restore pursuant to any provision of this Agreement and (ii) the amount such Participant is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5), each such Participant will be specially allocated items of income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 3.11 may be made only if and to the extent that such Participant would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article III have been made as if Section 3.10 hereof and this Section 3.11 were not in the Agreement.

 

 

  

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3.12. Individual Participants’ Tax Treatment

 

(a) Except with regard to the treatment of the venture as a partnership for U.S. tax purposes and the treatment of the Performance Allocation as contemplated by this Agreement (“Tax Treatment”), each Participant agrees not to treat, on any income tax return or in any claim for a refund, any item of income, gain, loss, deduction or credit in a manner inconsistent with the treatment of such item pursuant to the terms of this Agreement unless otherwise required by a Final Determination after such Participant uses its commercially reasonable efforts to uphold the treatment of the item in a manner consistent with the terms of this Agreement.

 

(b) Notwithstanding the foregoing, the parties shall not take any position inconsistent with the Tax Treatment.  If a claim, action or proceeding (a “Tax Proceeding”) is brought by the Internal Revenue Service or other taxing authority against a Participant or the venture challenging the Tax Treatment, such Participant shall provide prompt written notice to DME of such Tax Proceeding and DME shall be entitled to assume the defense of, and control all matters with regard to, such Tax Proceeding as it relates to the Tax Treatment in accordance with the procedures set forth in Section 4.4(e).  DME shall indemnify such Participant for any losses, damages, costs and expenses associated with any such Tax Proceeding in accordance with Section 4.4 of this Agreement whether or not it assumes the defense.  DME shall use reasonable efforts to keep such Participant apprised of the status of such Tax Proceeding.  No Participant may settle a Tax Proceeding inconsistent with the Tax Treatment contemplated by this Agreement unless DME fails to assume or maintain the defense of the Tax Proceeding as contemplated by this Section 3.12(b) and Section 4.4(e), or DME provides express prior written consent.

 

3.13. Distributions

 

(a) Subject to Section 5.2, the amount, form and timing of any distributions pursuant to this Agreement are determined by DME.

 

(b) Notwithstanding any provision to the contrary contained in this Agreement, DME may not make a distribution to any Participant on account of such Participant’s Interest if such distribution would violate any applicable law.

 

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Article IV

 

Management

 

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4.1. Duties and Powers of the Participants

 

(a) Subject to Section 4.1(h) below, DME shall be empowered (a) to formulate the overall trading and investment strategy of the venture (and the limited related borrowing activities associated therewith in order to implement such strategy) and (b) to exercise full discretion in the management of the trading and investment transactions and related activities contemplated by this Agreement in order to implement such strategy, including the authority to allocate a portion of the Assets to other trading advisors through managed accounts or collective investment vehicles.  DME shall consider the interests of all Participants when exercising its discretion and shall not make investment decisions based on tax treatment that are or could be reasonably expected to be beneficial to DME to the detriment of other Participants.

 

 

  

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(b) Subject to Section 4.1(c) and Section 4.1(h), in furtherance of the foregoing, the Participants hereby designate and appoint DME as agent and attorney-in-fact for purposes of this Agreement, with full power and authority and without the need for further approval of any Participant (except as may be required by applicable law) to have the exclusive power on behalf of the Participants to (i) effect any and all transactions in equity and debt securities (including derivatives thereon), currencies and commodities (and options, futures, derivatives, swaps, and forward contracts thereon), trade and other claims, arbitrages, loans, break-ups, consolidations, reorganizations and similar securities of non-United States issuers, and everything connected therewith in the broadest sense (“Securities”); (ii) determine all matters relating to the manner, method and timing of investment transactions and to engage consultants and analysts in connection therewith; (iii) select brokers (including prime brokers), custodians, dealers, banks and other intermediaries by or through whom such investment transactions will be executed or carried out; (iv) make short sales; (v) purchase or write options (including uncovered options); (vi) trade on margin; (vii) draw funds and direct banks, brokers or other custodians to effect deliveries of funds or assets, but only in the course of effecting investment transactions for the account of the venture and its Participants; (viii) exercise all voting and other powers and privileges attributable to any Securities or other property held for the account of the venture and its Participants hereunder; and (ix) make and execute all such documents and to take all such other actions as DME considers necessary or appropriate to carry out its investment advisory duties hereunder, including opening brokerage (including prime brokerage) accounts and any other required documentation including, without limitation, swaps, securities, lending arrangements and similar agreements on behalf of the venture and its Participants.  DME may, with the prior consent of Greenlight Re or GRIL, as applicable (which consent may not be unreasonably withheld), effectuate the foregoing through one or more corporations, partnerships, limited liability companies or other entities formed on behalf of the venture (an "Entity").  For purposes of providing such consent, Greenlight Re or GRIL, as applicable, shall designate an authorized representative (and a substitute authorized representative in the event that the first authorized representative is unavailable) each of whom have the authority to provide such consent.  A failure of an authorized representative to consent or reject the formation and use of an Entity in connection with a proposed transaction within twenty-four (24) hours of receipt of a written request (via electronic mail or otherwise) for approval from DME shall be deemed consent.  For purposes of documenting the foregoing for third parties, each of the Participants shall execute a Power of Attorney in the form attached hereto as Exhibit C.  Such Power of Attorney shall be subject to any limitations contained in this Agreement, including, without limitation, those limitations listed in Section 4.1(c) below.

 

(c) Notwithstanding anything to the contrary in this Agreement, DME shall use commercially reasonable efforts to avoid engaging in any activity or taking any action that would cause Greenlight Re or GRIL to be treated as engaged in a U.S. trade or business for U.S. federal income tax purposes, including investing in any asset that (i) does not qualify for the trading safe harbor provided in Section 864(b)(2) of the Code and the Treasury Regulations promulgated thereunder, or (ii) would be considered a United States real property interest for purposes of Section 897 of the Code.

 

 

  

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(d) During the term of this Agreement none of Greenlight Capital Re, Greenlight Re or GRIL shall engage a person or entity, other than DME or, with the prior written consent of DME, a DME Affiliate, to act as its investment advisor or in a similar capacity.  In furtherance of the foregoing, during the term of this Agreement, each of Greenlight Re and GRIL shall use its respective commercially reasonable efforts to cause substantially all of its investable assets to be contributed to the venture as soon as reasonably practicable; provided, however, that the term “investable assets” shall not be deemed to include (i) any assets of Greenlight Re which are, in the good faith determination of the Board of Greenlight Re, necessary for the operation of Greenlight Re’s business; (ii) up to 10% (20% if approved by the Board of Greenlight Re, and communicated in writing to DME) of Greenlight Re’s assets that are available for investment that are used to collateralize Regulation 114 Trusts; (iii) any assets of GRIL which are, in the good faith determination of the Board of GRIL, necessary for the operation of GRIL’s business; and (iv) up to 10% (20% if approved by the Board of GRIL, and communicated in writing to DME) of GRIL’s assets that are available for investment that are used to collateralize Regulation 114 Trusts.

 

(e) During the term hereof (including, for the avoidance of doubt, during any renewal term), Greenlight Re, GRIL and Greenlight Capital Re shall, and shall use their respective commercially reasonable efforts to cause any of their respective subsidiaries that are formed before or after the date hereof to (i) become a Participant or (ii) enter into an agreement similar to this Agreement, in each case relating to the investment of substantially all of their investable assets.

 

(f) In connection with the transactions contemplated by this Agreement, the Participants acknowledge and agree that in the course of selecting brokers, dealers, banks and financial intermediaries to effect such transactions, DME may agree to such commissions, fees and other charges as it shall deem reasonable under the circumstances, taking into consideration all such factors as DME deems relevant, including the following:  the ability to effect prompt and reliable executions at favorable prices; the operational efficiency with which transactions are effected; the financial strength, integrity and stability of the broker; the quality, comprehensiveness and frequency of available research and other services considered to be of value (even if such research and other services are not for the exclusive benefit of the accounts of the venture and its Participants); and the competitiveness of commission rates in comparison with other brokers satisfying DME’s other selection criteria.  It is understood that the costs of such services will not necessarily represent the lowest costs available and that DME is under no obligation to combine or arrange orders so as to obtain reduced charges.

 

(g) DME shall be the tax matters partner for purposes of this Agreement and Section 6231(a)(7) of the Code.  The tax matters partner has the exclusive authority and discretion to make any elections required or permitted to be made by the venture under any provisions of the Code or any other applicable laws.

 

 

  

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(h) Notwithstanding any provision of this Agreement to the contrary, DME hereby agrees to follow (i) the investment guidelines of Greenlight Re attached hereto as Exhibit A-1 (the “Greenlight Re Guidelines”), solely with respect to Assets in which Greenlight Re has an interest, and only to the extent of Greenlight Re’s interest in each such Asset, as the Greenlight Re Guidelines may be amended from time to time by the Board of Greenlight Re, and provided in writing to DME, and (ii) the investment guidelines of GRIL attached hereto as Exhibit A-2 (the “GRIL Guidelines”, and together with the Greenlight Re Guidelines, the “Guidelines”), solely with respect to Assets in which GRIL has an interest, and only to the extent of GRIL’s interest in each such Asset, as the GRIL Guidelines may be amended from time to time by the Board of GRIL and provided in writing to DME.  For the avoidance of doubt, the Parties hereby  acknowledge and agree that (x) the Greenlight Re Guidelines do not apply to any Assets in which Greenlight Re does not have an interest, and (y) the GRIL Guidelines do not apply to any Assets in which GRIL does not have an interest.  DME shall not, except as otherwise approved by Greenlight Re or GRIL in writing, effect any investment transactions for the accounts of such Participant that are inconsistent with the Guidelines applicable to such Participant or other investment restrictions from time to time imposed by applicable regulation (as determined in good faith by the applicable Board) or adopted by the applicable Board; provided that such Guidelines and investment restrictions are communicated in writing to DME.  DME may designate certain investments as Designated Securities in order to comply with the applicable Guidelines and investment restrictions.

 

4.2. Expenses

 

(a) All expenses incurred directly in connection with transactions effected or positions held for the account of the venture and its Participants (including, without limitation, custodial fees, brokerage commissions, research costs, market data fees, legal, consulting and auditing fees, interest on debit balances, withholding or transfer taxes) shall be paid or reimbursed by the venture.  In addition, DME shall be entitled to be paid or reimbursed for other out-of pocket expenses (other than its own salary, office rent and other customary general administrative, overhead costs and the costs of maintaining books and records pursuant to Section 7.4) incurred in the performance of its duties pursuant to this Agreement.  Expenses generally will be borne pro rata by the Participants in accordance with the balances in their respective Capital Accounts, except as provided elsewhere in this Agreement, including Sections 3.4, 3.5, 3.6, and 3.9.

 

(b) DME shall be entitled to use “soft dollars” generated by investments to pay for certain of its own operating and overhead costs, including payment of all or a portion of its costs and expenses of operation to the extent that DME, in its reasonable discretion, determines that any such costs and expenses are reasonably related to the investment decision-making process.  Use of “soft dollars” by DME as described herein shall not constitute a breach by it of any fiduciary or other duty which DME may be deemed to owe to any other Participant or any Affiliate thereof.

 

(c) If DME shall incur any of the expenses for the account or benefit of, or in connection with its activities or those of its Affiliates on behalf of, both the venture and any Managed Account, DME, as appropriate, will allocate such expense among the venture and each such Managed Account in proportion to the size of the investment made by each of the venture and each Managed Account in the activity or entity to which the expense relates, or in such other manner as DME in good faith considers fair and reasonable.

 

 

  

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(d) The venture does not have its own separate employees or office, and no Participant is entitled to reimbursement for salaries, office rent and other general overhead costs of such Participant in connection with this Agreement.

 

4.3. Other Activities of Participants

 

(a) DME is not required to devote its full time to its duties under this Agreement, but must devote such of its time to such duties as it, in its discretion exercised in good faith, determines to be necessary to conduct the affairs contemplated by this Agreement.

 

(b) This Agreement shall not restrict in any way the ability of DME or its Affiliates to engage in any other business or investment activities.  It is expressly understood that DME and its Affiliates may effect investment transactions for their own account and for Managed Accounts which may or may not be affiliated with any Participant, and the Participants further understand and agree that nothing herein shall restrict the ability of DME or its Affiliates to engage in any such transactions notwithstanding the fact that the Participants may have, by virtue of this Agreement or otherwise, or may take a position of any kind; provided, however, that DME shall not, without the prior written consent of the applicable Board, purchase pursuant to this Agreement any Asset from, or sell pursuant to this Agreement, any Asset to, DME or any Managed Account which DME or an Affiliate is the investment advisor to or is otherwise a beneficial owner of; provided further, however, that failure to obtain such prior written consent shall not be deemed a breach of this Agreement if the applicable Board ratifies such purchase or sale after the fact.  Notwithstanding the foregoing, DME may cause the venture and Managed Accounts that invest in parallel therewith to enter into book account trades in the ordinary course of business transferring portions of investments among the venture and all such Managed Accounts in order to reflect changes in the size of the venture relative to the size of such Managed Accounts without the need for consent or ratification by the Board of any such trades.

 

(c) It is understood that when DME determines that it would be appropriate for the venture and one or more of DME’s (or its Affiliates’) other Managed Accounts to participate in an investment opportunity, DME will seek to execute orders for, or otherwise allocate such opportunities to, the venture and such Managed Accounts on an equitable basis.  In such situations, DME may place orders for the venture and each Managed Account simultaneously and if all such orders are not filled at the same price, DME may cause the venture and each Managed Account to pay or receive the average of the prices at which such orders were filled for the venture and all other Managed Accounts.  If all such orders cannot be fully executed under prevailing market conditions, DME may allocate among the venture and the Managed Accounts the securities traded in a manner which DME considers in its reasonable discretion equitable, taking into account the size of the order placed for the venture and each such Managed Account as well as any other factors which DME deems relevant.  However, DME is not obligated to devote any specific amount of time to its duties under this Agreement and is not required to accord exclusivity or priority to the venture or the Participants in the event of limited investment opportunities arising from the application of speculative position limits or other factors.

 

 

  

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4.4. Duty of Care; Indemnification

 

(a) Each Participant agrees that no Covered Person shall be liable to the venture or to any of the Participants or their shareholders for any liabilities, obligations, losses, costs, damages, expenses, claims, judgments and reasonable attorneys fees and expenses (collectively, “Losses”) occasioned by any act or omission of any Covered Person in connection with the performance of such Covered Person’s services hereunder, except that DME shall be liable to the Participants:  (i) for any misstatement or omission of material fact contained in a filing made by or on behalf of a Participant under the United States Securities and Exchange Act of 1934 or other federal law or other public disclosure in so far as such losses, damages, expenses or claims arise out of or are based upon any written information provided by such Covered Person regarding the Participants or the venture expressly for use in such filing or other public disclosure, to the extent (and only to the extent) that such misstatement or omission of a material fact contained in such filing occurs in reliance upon and in conformity with the written information furnished by the Covered Person; (ii) for acts or omissions by it which constitute gross negligence, willful misconduct or reckless disregard of DME’s obligations under this Agreement, (iii) for breaches of the applicable Guidelines by DME which are not cured within 15 days of the earlier of (x) the date on which DME becomes aware of such breach, and (y) the date on which DME receives a written notice of such breach from a Participant or an authorized representative of a Participant; or (iv) for breaches of Section 5.2 hereof, in each case as finally determined by a court having proper jurisdiction and after all appeals are resolved or exhausted.

 

(b) Each Participant, to the extent of its interest in the Assets only, shall indemnify and hold harmless each Covered Person from and against any Losses arising out of any claim asserted or threatened to be asserted in connection with any matter arising out of or in connection with this Agreement or the venture’s business or affairs; provided, however, that no Covered Person shall be entitled to any such indemnification with respect to any expense, loss, liability or damage which was caused by (i) any misstatement or omission of material fact contained in a filing made by or on behalf of a Participant under the United States Securities and Exchange Act of 1934 or other federal law or other public disclosure in so far as such losses, damages, expenses or claims arise out of or are based upon any written information provided by such Covered Person regarding the Participants or the venture expressly for use in such filing or other public disclosure, to the extent (and only to the extent) that such misstatement or omission of a material fact contained in such filing occurs in reliance upon and in conformity with the written information furnished by the Covered Person, (ii) any Covered Person’s gross negligence, willful misconduct or reckless disregard of any of the its obligations under this Agreement, (iii) for breaches of the applicable Guidelines by DME in connection with its actions under this Agreement which breaches are not cured within 15 days of the earlier of (x) the date on which DME becomes aware of such breach, and (y) the date on which DME receives a written notice of such breach from a Participant; or (iv) for breaches of Section 5.2 hereof.  The venture shall advance to any Covered Person the reasonable costs and expenses of investigating and/or defending such claim subject to receiving a written undertaking from the Covered Person to repay such amounts if and to the extent of any subsequent determination by a court or other tribunal of competent jurisdiction that the Covered Person was not entitled to indemnification hereunder.  Notwithstanding the foregoing, no Participant shall be liable hereunder for any settlement of any action or claim effected without its consent thereto, which will not be unreasonably withheld.

 

 

  

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(c) All transactions effected pursuant to this Agreement by DME shall be for the Participants’ accounts and risk.  DME has not made and makes no guarantee whatsoever as to the success or profitability of DME’s trading methods and strategies, and the Participants each acknowledge that it has received no such guarantee from DME or any Covered Person, and has not entered into this Agreement in consideration of or in reliance upon any such guarantee or similar representation from DME or any Covered Person.

 

(d) DME shall indemnify and hold harmless each of the Participants against any Losses which were caused by:  (i) any misstatement or omission of material fact contained in a filing made by or on behalf of a Participant under the United States Securities and Exchange Act of 1934 or other federal law or other public disclosure in so far as such losses, damages, expenses or claims arise out of or are based upon any written information provided by DME regarding the Participants or the venture expressly for use in such filing or other public disclosure, to the extent (and only to the extent) that such misstatement or omission of a material fact contained in such filing occurs in reliance upon and in conformity with the written information furnished by DME; (ii) DME’s fraud, gross negligence, willful misconduct or reckless disregard of any of DME’s obligations under this Agreement; (iii) for breaches of the applicable Guidelines by DME in connection with its duties under this Agreement which breaches are not cured within 15 days of the earlier of (x) the date on which DME becomes aware of such breach, and (y) the date on which DME receives a notice of such breach from a Participant; or (iv) for breaches of Section 5.2 hereof; or (v) any Tax Proceeding.

 

(e) If a Participant shall receive notice of or has actual knowledge of any Tax Proceeding, such Participant shall give DME written notice of such Tax Proceeding; provided, however, that failure to notify DME shall not relieve DME from any liability which it may have on account of the Tax Proceeding except to the extent that DME shall have been materially prejudiced by such failure.  DME shall be entitled to assume control of the defense or settlement of such matter.  If DME elects to assume such control, the Participant being indemnified and its counsel shall be entitled to consult with DME and its counsel and participate in the defense or settlement of such matter at its own cost; provided, however, that DME shall bear the costs and expenses of such Participant’s counsel (from one law firm) if, in the reasonable opinion of counsel mutually acceptable to the parties hereto, use of such Participant’s counsel is necessary as a result of a conflict of interest between the Participant, on the one hand, and DME, on the other hand.  In any event, DME shall indicate in writing to the Participant being indemnified within 10 calendar days after such Participant has given DME written notice whether DME intends to pay the claim or assume control of the defense or settlement of such matter.

 

In the event DME exercises its right to assume control of the defense, the Participant being indemnified shall reasonably cooperate with DME in such defense and make available to DME witnesses, pertinent records, materials and information in its possession or under its control relating thereto as are reasonably requested by DME.  No claim may be settled by DME without the written consent of such Participant, which consent shall not be unreasonably withheld or delayed; provided, however, that DME may settle such claim without the consent of such Participant so long as the settlement (x) includes an unconditional release of such Participant, in form and substance reasonably satisfactory to such Participant, from the claimant, (y) does not impose any liabilities or obligations on such Participant, and (z) with respect to any non-monetary provision of any settlement of a claim, does not impose and conditions upon such Participant.

 

 

  

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(f) The amount which any indemnifying party is required to pay to, or for the benefit of, an indemnified person under this Section 4.4 will be reduced (including, without limitation, retroactively) by any insurance proceeds which are actually paid by, or on behalf of, the indemnified party in reduction of the related Losses.

 

(g) If the indemnity provided for in Section 4.4 and to which an Covered Person is otherwise entitled is unavailable to such Covered Person in respect of any Losses referred to therein, then each Participant, to the extent of its interest in the Assets only, in lieu of indemnifying such Covered Person, shall contribute to the amount paid or payable by such Covered Person as a result of such Losses in the proportion the total capital of the Participants in the venture (exclusive of the balance in the Covered Person’s Capital Account (or the Capital Account of DME if the Covered Person is not DME)) bears to the total capital of the venture (including the balance in Covered Person’s Capital Account (or the Capital Account of DME if the Covered Person is not DME), which contribution shall be treated as an expense of the venture calculated as if the DME’s Capital Account balance was equal to zero.

 

4.5. Fiduciary Duties; Discretion

 

(a) To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the venture or to any Participant, such Covered Person acting under this Agreement is not liable to the venture or to any Participant 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 a Covered Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Covered Person.

 

(b) To the fullest extent permitted by law, unless otherwise expressly provided for herein, (i) whenever a conflict of interest exists or arises between a Participant or any of its Affiliates, on the one hand, and the venture or any of the other Participants on the other hand, or (ii) whenever this Agreement or any other agreement contemplated herein or therein provides that a Participant must act in a manner which is, or provide terms which are, fair and reasonable, the Participant must resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party, including its own interest, to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles.  In the absence of bad faith by the Participant, the resolution, action or terms so made, taken or provided by the Participant do not constitute a breach of this Agreement or any other agreement contemplated herein or of any duty or obligation of the Participant at law or in equity or otherwise.

 

(c) To the fullest extent permitted by law, except as provided elsewhere in this Agreement, whenever in this Agreement a Person is permitted or required to make a decision (i) in its “sole discretion” or under a grant of similar authority or latitude, such Person is entitled to consider only such interests and factors as it desires, including its own interests, and has no duty or obligation to give any consideration to any interest of or factors affecting the venture or the Participants, or (ii) in its “good faith” or under another express standard, then such Person acts under such express standard and is not subject to any other or different standards imposed by this Agreement or any other agreement contemplated herein or by relevant provisions of law or in equity or otherwise.

 

 

  

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_____________

 

Article V

 

Admissions and Withdrawals

 

_____________

 

5.1. Admission of Participants

 

The Participants may by unanimous written consent, on the first day of any calendar month, or at such other times as the Participants may determine, admit any Person who executes this Agreement or any other writing evidencing the intent of such Person to become a Participant, unless the participation by such Participant would have any of the effects described in clauses (i) through (vi) of Section 5.3(c).

 

5.2. Withdrawal of Interests of Participants

 

(a) The Interest of a Participant may not be withdrawn prior to termination of this Agreement except as provided in this Section 5.2.

 

(b) Subject, in the case of DME, to its requirement to maintain at least a 1% interest pursuant to Section 3.1 hereof and subject to the obligations of the other Participants set forth in Section 4.1(d), a Participant may voluntarily withdraw all or part of its Capital Account as of the close of business on any Business Day. If a Participant wishes to withdraw funds, it must give written notice to DME at least 3 Business Days prior to the proposed withdrawal date indicating the amount to be withdrawn from such Participant’s Capital Account in such notice.  DME may with respect to such request, in its reasonable discretion, waive the foregoing notice requirement.  DME shall not be liable for failure to perform or delay in performing under this Section 5.2 when such failure or delay is due to Force Majeure, so long as DME uses its commercially reasonable efforts to cure such event or occurrence as soon as practicably as possible.  Upon receipt by DME of a Participant’s notice of intention to withdraw assets from the venture, DME shall have the discretion to manage the Assets in a manner that would provide for cash being available to satisfy such Participant’s request for withdrawal.  DME may effect withdrawal payments (i) in cash, (ii) in kind, or (iii) in any combination of the foregoing; provided that the DME will use its commercially reasonable efforts to make any such settlement in cash unless otherwise requested by the Participant.  Notwithstanding the foregoing, each of the Participants acknowledges that a substantial amount of withdrawals by one or more Participants could require DME to liquidate positions in order to raise cash necessary to fund the withdrawals at a time when market conditions are adverse or when such liquidations are otherwise not in the best interests of non-withdrawing Participants.

 

 

  

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(c) The right of any Participant to withdraw or of any Participant to have distributed an amount from his Capital Account pursuant to the provisions of this Section 5.2 is subject to the provision by DME, on behalf of the Participants, for all of the venture’s liabilities and for reserves for contingencies provided for in Section 3.7 and Section 4.4 herein.

 

(d) With respect to any amounts withdrawn, a withdrawing Participant does not share in the income, gains and losses resulting from the venture or have any other rights or obligations as a Participant after the effective date of its withdrawal except as provided in Section 3.7 and Section 4.4.

 

(e) Notwithstanding any provision of this Agreement to the contrary (i) Greenlight Re may withdraw as a Participant and fully withdraw all of its Capital Account from the venture (x) on 3 Business Days notice if Greenlight Re Cause exists or (y) at the end of the then current term of the Agreement if Greenlight Re elects not to renew the term of the Agreement pursuant to Section 2.3, and (ii) GRIL may withdraw as a Participant and fully withdraw all of the GRIL Assets from the venture (x) on 3 Business Days notice if GRIL Cause exists or (y) at the end of the then current term of the Agreement if GRIL elects not to renew the term of the Agreement pursuant to Section 2.3.

 

(f) In the event that a Participant shall have withdrawn from the venture pursuant to Section 5.2(e), (i) such Participant shall no longer be considered a Participant from and after the date of such complete withdrawal, and (ii) the provisions of this Agreement shall no longer apply to such Participant (except those provisions which by their terms apply to Participants following their withdrawal).

 

5.3. Transfer of Interests in Participants

 

(a) Each Participant agrees that it will not make or attempt to make any Transfer of its Interest that would violate this Section 5.3.  In the event of any attempted Transfer of any Participant’s Interest in violation of the provisions of this Section 5.3, without limiting any other rights of DME under this Agreement or otherwise, such attempted transfer shall be void ab initio and DME (or, in the case of a transfer by DME, the other Participants) shall have the right to require the withdrawal of such Participant’s Interest.

 

(b) No Transfer of any Participant’s Interest, whether voluntary or involuntary, is valid or effective, and no transferee becomes a substituted Participant, unless the prior written consent of DME (or, in the case of a transfer by DME, a majority in interest) of the other Participants has been obtained, which consent may be withheld for any reason or for no reason in the sole discretion of DME or such Participants; provided, however, that in the case of DME, DME may make an assignment in a transaction that does not result in a change of its actual control or management.  In the event of any Transfer, all of the conditions of the remainder of this Section 5.3 must also be satisfied.

 

(c) No Transfer of any Participant’s Interest, whether voluntary or involuntary, is valid or effective unless DME (or, in the case of a transfer by DME, a majority in interest of the other Participants) in its or their sole discretion determines, after consultation with legal counsel, that such Transfer will not:

 

 

  

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(i)  

	
require registration of any Interest under any securities laws of the United States of America, any state thereof or any other jurisdiction;

 

	
(ii)  

	
subject the venture or the Participants to a requirement to register under any securities or commodities laws of the United States of America, any state thereof or any other jurisdiction;

 

	
(iii)  

	
cause the venture to be treated as a “publicly traded partnership” for U.S. federal income tax purposes under Section 7704(b) of the Code;

 

	
(iv)  

	
result in the venture being considered an investment company under the Company Act;

 

	
(v)  

	
violate or be inconsistent with any representation or warranty made by the transferring Participant at the time the Participant purchased an Interest; or

 

	
(vi)  

	
result in Assets being considered “plan assets” for purposes of ERISA.

 

(d) The transferring Participant must give the other Participants written notice before making any voluntary Transfer and after any involuntary Transfer and must provide sufficient information to allow DME to make the determination that the proposed Transfer will not result in any of the consequences referred to in clauses (i) through (vi) above.

 

(e) Any other provision of this Agreement to the contrary notwithstanding, any successor to any Participant’s Interest is bound by the provisions hereof.  Prior to recognizing any Transfer in accordance with this Section 5.3, the other Participants in their sole discretion may require the transferring Participant to execute and acknowledge an instrument of transfer in form and substance satisfactory to the Participants, and may require the transferee to make certain representations and warranties to the Participants and to accept, adopt and approve in writing all of the terms and provisions of this Agreement.  A transferee becomes a substituted Participant and succeeds to the portion of the transferor’s Capital Account relating to the Interest transferred effective upon the satisfaction of all of the conditions for such Transfer contained in this Section 5.3.

 

(f) Notwithstanding the foregoing, the Participants acknowledge that Greenlight Re or GRIL has or may in the future enter into financing arrangements pursuant to which it may grant to lenders a security interest in its rights to its portion of the Assets.  DME agrees to reasonably cooperate with Greenlight Re or GRIL to effect the granting of such security interests, including without limitation, executing a pledge agreement or similar agreement on reasonably acceptable terms including if possible the right to foreclose on a portion of those Assets equal to the Participant’s percentage interest in the Assets (taking into account that a Participant may not participate fully in certain Designated Securities or New Issues), after accounting for liabilities and reserves.  Each of Greenlight Re and GRIL agrees not to pledge more than its percentage interest in any Assets.

 

 

  

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_____________

 

Article VI

 

Termination and Liquidation

 

_____________

 

6.1. Termination of this Agreement

 

(a) Subject to applicable law, this Agreement will terminate and its affairs must be wound up upon the earliest of:

 

	
(i)  

	
the end of the term of this Agreement, as determined pursuant to Section 2.3(a) hereof; and

 

	
(ii)  

	
the date on which only one Participant remains.

 

(b) Except as provided in Section 6.1(a) or applicable law, the death, mental illness, dissolution, termination, liquidation, bankruptcy, reorganization, merger, sale of substantially all of the stock or assets of or other change in the ownership or nature of a Participant, the execution of a joinder agreement to this Agreement by a new Participant, the withdrawal of a Participant, or the transfer by a Participant of its Interests to a third party does not cause this Agreement to terminate.

 

6.2. Liquidation of the Venture

 

(a) Upon termination of this Agreement pursuant to Section 6.1(a), DME shall promptly liquidate the Assets, except that if DME is unable to perform this function, a liquidator elected by Participants whose Percentages represent more than fifty percent (50%) of the aggregate Percentages of all Participants shall liquidate the Assets.

 

(b) Net profit and net loss attributable to a Capital Account during the Fiscal Periods that include the period of liquidation shall be allocated pursuant to Article III.  The proceeds from liquidation shall be divided in the following manner, subject to applicable law:

 

	
(i)  

	
the debts, liabilities and obligations of the venture, other than debts to the Participants as Participants, and the expenses of liquidation (including legal and accounting expenses incurred in connection therewith), up to and including the date that distribution of the Assets to the Participants has been completed, shall be first satisfied (whether by payment or the making of reasonable provision for payment thereof);

 

	
(ii)  

	
such debts as are owing to the Participants as Participants shall be next paid; and

 

	
(iii)  

	
the Participants shall be next paid liquidating distributions (in cash, securities, or other assets, whether or not readily marketable) pro rata in accordance with, and up to the positive balances of their respective Capital Accounts, as adjusted pursuant to Article III to reflect allocations for the Fiscal Period ending on the date of the distributions under this Section 6.2(b)(iii).

 

 

  

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(c) Notwithstanding anything in this Section 6.2 to the contrary and subject to the priorities set forth in applicable law, DME, the liquidator or the trustee, as the case may be, may distribute ratably in-kind rather than in cash, upon termination, any Assets, provided, however, that if any in-kind distribution is to be made, (i) the assets distributed in kind must be valued pursuant to Section 7.2 as of the actual date of their distribution, and charged as so valued and distributed against amounts to be paid under Section 6.2(b) above and (ii) any gain or loss (as computed for book purposes) attributable to property distributed in-kind must be included in the net profit or net loss attributable to the Capital Account for the Fiscal Period ending on the date of such distribution.

 

_____________

 

Article VII

 

Accounting and Valuations;

Books and Records;

Board Meetings

_____________

 

7.1. Accounting and Reports

 

(a) DME may adopt, on behalf of the venture, for tax accounting purposes any accounting method that DME decides in its reasonable discretion is in the best interests of the venture and that is permissible for U.S. federal income tax purposes and that does not prejudice any other Participant.  DME will promptly notify each Participant in writing of any change.

 

(b) At the request of a Participant received at least 30 days prior to the end of the Fiscal Year, as soon as practicable after the end of such Fiscal Year, DME shall cause an audit of the financial statements of the venture in accordance with U.S. generally accepted accounting principles as of the end of each such Fiscal Year to be made by a firm of certified public accountants selected by DME, which is reasonably acceptable to Greenlight Re and GRIL; and as soon as is practicable thereafter but subject to Section 7.5, a copy of a set of financial statements prepared on a basis that uses United States generally accepted accounting principles as a guideline (with such adjustments thereto as the Participants determine appropriate), including the report of such certified public accountants, is furnished to each Participant.  For purposes of this Section 7.1(b) the accounting firm of BDO Seidman, LLP shall be deemed acceptable to Greenlight Re and GRIL.

 

(c) Promptly after each calendar month end, DME shall arrange for the preparation and delivery to each Participant of an interim statement of its respective Capital Account valued as set forth in Section 7.2, including, but not limited to, balance sheet, income statement, trial balance and detailed holdings report of a Participant’s Capital Account, and other information that the Participant may reasonably request.

 

 

  

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(d) As soon as practicable after the end of each taxable year, DME shall furnish each Participant such information as may be required to enable each Participant properly to report for United States federal, state and local income tax purposes, as applicable, its distributive share of each Participant’s item of income, gain, loss, deduction or credit for such year.

 

(e) DME shall arrange for the preparation and delivery to each Participant a statement setting forth the computation of (i) the DME Share Payment within 10 Business Days following the beginning of each month and (ii) Performance Allocation within 30 days after the close of each Performance Period.

 

(f) DME shall provide a draft of any tax return required to be filed by the venture (together with schedules, statement or attachments thereto) to Greenlight Re and GRIL no later than ten (10) Business Days prior to the due date (including extensions) of such tax return for their review and comment.  DME shall consult with Greenlight Re and GRIL and in good faith consider any comments provided by Greenlight Re and GRIL within five (5) Business Days of their receipt of such tax returns.

 

(g) DME shall timely prepare and file on behalf of Greenlight Re, GRIL or the venture any filings under Section 13 or 16 of the Exchange Act with the U.S. Securities and Exchange Commission resulting from any investment made by the venture.

 

(h) DME will use commercially reasonable efforts to assist Greenlight Re and GRIL in any required internal control or compliance matters applicable to Greenlight Re and GRIL and related to this Agreement, including preparing any internal control reviews that are reasonably deemed necessary by Greenlight Re and GRIL.  DME acknowledges that (i) Greenlight Re is subject to the reporting requirements of, among others, the Securities Exchange Act of 1934, as amended, the listing requirements of the Nasdaq Stock Market and the regulatory and information requirements of the Cayman Islands Monetary Authority and A.M Best & Co., and (ii) GRIL is subject to the regulatory and information requirements of the Insurance Supervision Department of the Irish Financial Regulator and A.M. Best & Co. Furthermore, DME will use commercially reasonable efforts to give access to the venture’s books and records related to GRIL in case requested by the Insurance Supervision Department of the Irish Financial Regulator.

 

(i) Notwithstanding anything herein to the contrary, all expenses incurred directly in connection with the creation and maintenance of the accounting records for the venture shall be paid for or reimbursed by DME.

 

7.2. Valuation of Assets and Interests

 

(a) DME shall value or have valued the Securities and other Assets as of the close of business on the last day of each month, at the end of each Performance Period and on any other date selected by DME or reasonably selected by Greenlight Re or GRIL, as the case may be.  In addition, in good faith, DME shall value Securities that are being distributed in kind as of their date of distribution in accordance with Section 6.2(c).  In determining the value of the Assets, no value is placed on the goodwill, if any, created by this Agreement, or the office records, files, statistical data or any similar intangible assets relating to the Assets not normally reflected in the venture’s accounting records, but there must be taken into consideration any related items of income earned but not received, expenses incurred but not yet paid, liabilities fixed or contingent, prepaid expenses to the extent not otherwise reflected in the books of account, and the value of options or commitments to purchase or sell Securities pursuant to agreements entered into on or prior to such valuation date.  Valuation of Securities made pursuant to this Section 7.2 must be based on all relevant factors and is expected to comply generally with the following guidelines:

 

 

  

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(i)  

	
The market value of each Security listed or traded on any recognized national securities exchange shall be the last reported sale price at the relevant valuation date on the composite tape or on the principal exchange on which such Security is traded.  If no such sale of such Security was reported on that date, the market value is the last reported bid price (in the case of Securities held long), or last reported ask price (in the case of Securities sold short).

 

	
(ii)  

	
Dividends declared but not yet received, and rights in respect of Securities that are quoted ex-dividend or ex-rights, shall be recorded at the fair value thereof, as determined by DME, which may (but need not) be the value so determined on the day such Securities are first quoted ex-dividend or ex-rights.

 

	
(iii)  

	
Listed options, or over-the-counter options for which representative brokers’ quotations shall be available, are valued in the same manner as listed or over-the-counter Securities as hereinabove provided.

 

(b) The fair value of any assets not referred to in paragraph (a) (or the valuation of any assets referred to therein in the event that DME determines in its reasonable discretion that market prices or quotations do not fairly represent the value of particular assets) shall be determined by or at the direction of DME; but may be audited by Greenlight Re, GRIL or any of their representatives or agents, at Greenlight Re’s or GRIL’s cost and expense, as applicable, at any time upon reasonable notice.  In these circumstances, DME will attempt to use consistent and fair valuation criteria and may (but is not required to) obtain independent appraisals, which shall be considered an expense under Section 4.3.

 

(c) Except as otherwise reasonably determined by DME, investment and trading transactions shall be accounted for on the trade date.  Accounts shall be maintained in U.S. dollars and except as otherwise determined by or at the direction DME:  (i) assets and liabilities denominated in currencies other than U.S. dollars shall be translated at the rates of exchange in effect at the close of the relevant valuation period (and exchange adjustments shall be recorded in the results of operations); and (ii) investment and trading transactions and income and expenses shall be translated at the rates of exchange in effect at the time of each transaction.

 

(d) The value of each Security and other Asset and the net worth of the Capital Accounts as a whole determined pursuant to this Section 7.2 shall be, in the absence of bad faith or manifest error and/or subject to any audit verification, conclusive and binding on all of the Participants and all parties claiming through or under them.

 

 

  

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7.3. Determinations by DME

 

(a) All matters concerning the determination and allocation among the Participants of the amounts to be determined and allocated pursuant to Sections  3.4 through 3.9 hereof, including any taxes thereon and accounting procedures applicable thereto, are and will be determined by DME in good faith unless specifically and expressly otherwise provided for by the provisions of this Agreement, and such determinations and allocations are final and binding on all the Participants.

 

(b) DME may make such adjustments to the computation of any of the memorandum accounts maintained pursuant to this Agreement or any component items comprising any of the foregoing as it considers reasonably appropriate to reflect the financial results of the Assets and the intended allocation thereof among the Participants in a reasonably accurate, fair and efficient manner.

 

7.4. Books and Records

 

(a) DME shall maintain (or arrange for the maintenance) and keep (or cause to be kept) books and records of the venture showing all assets and liabilities, receipts and disbursements, gains and losses, Participants’ Capital Accounts and all transactions entered into in connection with the Assets and this Agreement.  Such books and records shall be kept at DME’s office.

 

(b) DME shall retain, or arrange for the retention, for a period of at least five (5) years, copies of any documents it deems pertinent generated or received by DME in the ordinary course of business pertaining to the Assets or to the compensation payable to DME.  DME shall afford to Greenlight Re’s or GRIL’s independent auditors reasonable access to such documents during customary business hours and shall permit Greenlight Re’s and/or GRIL’s auditors to make copies thereof or extracts therefrom at the expense of Greenlight Re or GRIL, as the case may be.

 

7.5. Greenlight Re or GRIL Board Meeting

 

At the request of Greenlight Re or GRIL, as applicable, and subject to reasonable prior notice, DME shall endeavor to make one of DME’s representatives available to attend the meetings of such party’s Board, or meetings with such party’s management (in either case in person or telephonically) to report on the ventures’ activities and on other matters pertaining to this Agreement.

 

 

  

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_____________

 

Article VIII

General Provisions

_____________

 

8.1. Amendment of Agreement

 

This Agreement may be amended, in whole or in part, with the written consent of all of the Participants.

 

8.2. Notices

 

Unless otherwise provided, all notices and other communications required or permitted under this Agreement shall be in writing and shall be sent by facsimile, sent by electronic mail, or delivered personally by hand or by an internationally recognized overnight courier addressed to the party to be notified at the address, facsimile number or e-mail address indicated for such party set forth below, or at such other address, facsimile number or e-mail address as such party may designate by ten days advance written notice to the other parties hereto.  All such notices shall be effective upon receipt.  Unless otherwise provided in writing to the other parties, all notices shall be sent to the following addresses, facsimile numbers or e-mail addresses:

 

If to DME:

 

DME Advisors, LP

 

140 East 45th Street, 24th Floor

 

New York, NY 10017

 

Attention:  Daniel Roitman

 

Facsimile No.:  212-973-9219

 

E-Mail:  droitman@greenlightcapital.com

 

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

 

DME Advisors, LP

 

140 East 45th Street, 24th Floor

 

New York, NY 10017

 

Attention:  Harry Brandler

 

Facsimile No.:  212-973-9219

 

E-Mail:  HBrandler@greenlightcapital.com

 

If to Greenlight Re or to Greenlight Capital Re:

 

Greenlight Reinsurance, Ltd.

65 Market Street, Suite 1207

Camana Bay

P.O. Box 31110

Grand Cayman, KY 1-1205

Cayman Islands

Attention:  Len Goldberg

Facsimile No.:  345-745-4576

E-Mail:  len@greenlightre.ky

 

 

  

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

 

Akin Gump Strauss Hauer & Feld LLP

 

One Bryant Park

 

New York, New York 10036

 

Attention:  Kerry E. Berchem, Esq.

 

Facsimile No.:  212-872-1002

 

E-Mail:  kberchem@akingump.com

 

If to GRIL:

 

Greenlight Reinsurance Ireland, Ltd.

c/o 65 Market Street, Suite 1207

Camana Bay

P.O. Box 31110

Grand Cayman, KY 1-1205

Cayman Islands

Attention: Len Goldberg

Facsimile: 345-745-4576

Email: len@greenlightre.ky

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

A&L Goodbody

International Financial Services Centre

North Wall Quay

Dublin 1, Ireland

Attention: Margaret Stack, Esq.

Facsimile: +353 1 649 2649

E-mail: mstack@algoodbody.ie

 

8.3. Agreement Binding Upon Successors and Assigns

 

This Agreement shall be binding upon and inures to the benefit of the parties hereto and their respective successors and permitted assigns as set forth in Section 5.3 hereof.

 

8.4. Governing Law

 

(a) This Agreement and the rights of the Participants hereunder shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflict of laws rules thereof.  The parties acknowledge that the venture is formed under the laws of the State of New York.

 

 

  

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(b) Each party hereto submits to the jurisdiction of any state or federal court sitting in New York, New York in any action arising out of or relating to this Agreement and agrees that all claims in respect of any such action may be heard and determined in any such court.  Each party hereto agrees that a final judgment in any action so brought will be conclusive and may be enforced by action on the judgment or in any other manner provided at law or in equity.  Each party hereto waives any defense of inconvenient forum to the maintenance of any action so brought and waives any bond, surety, or other security that might be required of any other party with respect thereto.

 

8.5. Not for Benefit of Third Parties

 

The provisions of this Agreement are intended only for the regulation of relations among Participants and between Participants and former or prospective Participants.  This Agreement is not intended for the benefit of non-Participants and no rights are granted to non-Participants under this Agreement.

 

8.6. Consents

 

Any and all consents, agreements or approvals provided for or permitted by this Agreement must be in writing and a signed copy thereof must be filed and kept with the books of each Participant.

 

8.7. Miscellaneous

 

(a) The captions and titles preceding the text of each section hereof shall be disregarded in the construction of this Agreement.

 

(b) This Agreement may be executed in counterparts, each of which is deemed to be an original hereof.

 

(c) The Participants have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, the Participants intend that this Agreement be construed as if drafted jointly by the Participants and that no presumption or burden of proof arise favoring or disfavoring any Participant by virtue of the authorship of any of the provisions of this Agreement.  Any reference to any federal, state, local, or foreign statute or law is deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.  The word “including” means including without limitation.  The word “or” is not exclusive.  All words used in this Agreement shall be construed to be of such gender or number as the circumstances require.

 

(d) The Participants intend that each representation, warranty, and covenant contained herein has independent significance.  If any Participant has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) that such Participant has not breached does not detract from or mitigate the fact that such Participant is in breach of the first representation, warranty, or covenant.

 

 

  

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(e) If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect.  Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.

 

(f) Each party hereto hereby agrees that the other would be damaged irreparably if any provision of this Agreement were not performed in accordance with the specific terms or were otherwise breached and each party hereto agrees that any party shall be entitled to seek equitable relief, including, without limitation, any injunction or injunctions, to prevent breaches or threatened breaches of this Agreement by the other parties or any of their representatives and to specifically enforce the terms and provisions of this Agreement.

 

8.8. Entire Agreement

 

This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings between the parties hereto relating to the subject matter hereof, and each of the parties hereto agrees that each and every such prior agreement is terminated and replaced in its entirety by the rights created by this Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 

  

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first-above written.

 

GREENLIGHT REINSURANCE, LTD.

 

	 	 	By:  	/s/ Bart Hedges	By:	/s/ Leonard Goldberg 
	 	 	Name: 	Bart Hedges	Name:	Leonard Goldberg
	 	 	Title: 	President & CUO	Title:	CEO

     

         

GREENLIGHT REINSURANCE IRELAND, LTD.

 

	 	 	By:  	/s/ Bart Hedges	By:	/s/ Leonard Goldberg 
	 	 	Name: 	Bart Hedges	Name:	Leonard Goldberg
	 	 	Title: 	CUO	Title:	Director

 

 

DME ADVISORS, LP

 

By: DME ADVISORS GP, LLC, its General Partner

 

	By:  	/s/ Vinit Sethi	By:	/s/ Harry Brandler
	Name: 	Vinit Sethi	Name:	Harry Brandler
	Title: 	Vice President  	Title:	CFO

 

     

 

GREENLIGHT CAPITAL RE, LTD.

solely for the purpose of Section 4.1 (d) and (e)

 

	By:  	/s/ Sherry Diaz	By:	/s/ Leonard Goldberg 
	Name: 	Sherry Diaz	Name:	Leonard Goldberg
	Title: 	Controller	Title:	CEO

 

      

 

 

[Signature Page – JV Agreement]

  

 

  

Exhibit A-1

 

GREENLIGHT RE GUIDELINES

 

	
·  

	
Composition of Investments:  At least 80% of the assets in the investment portfolio will be held in debt or equity securities (including swaps) of publicly traded companies (or their subsidiaries) and governments of OECD (the Organization of Economic Co-operation and Development) high income countries, cash, cash equivalents and gold.  No more than 10% of the assets in the investment portfolio will be held in private equity securities.

 

	
·  

	
Concentration of Investments:  Other than cash, cash equivalents and United States government obligations, no single investment in the investment portfolio will constitute more than 20% of the portfolio.

 

	
·  

	
Liquidity:  Assets will be invested in such fashion that Greenlight Re has a reasonable expectation that it can meet any of its liabilities as they become due.  Greenlight Re will review with DME the liquidity of the portfolio on a periodic basis.

 

	
·  

	
Monitoring:  Greenlight Re will require DME to re-evaluate each position in the investment portfolio and to monitor changes in intrinsic value and trading value and provide monthly reports on the investment portfolio to Greenlight Re as Greenlight Re may reasonably determine.

 

	
·  

	
Leverage:  The investment portfolio may not employ greater than 5% indebtedness for borrowed money, including net margin balances, for extended time periods.  DME may use, in the normal course of business, an aggregate of up to 20% net margin leverage for periods of less than 30 days.

 

A-

  

 

  

Exhibit A-2

 

GRIL GUIDELINES

 

	
·  

	
Composition of Investments:  At least 80% of the assets in the investment portfolio will be held in debt or equity securities (including swaps) of publicly traded companies (or their subsidiaries) and governments of OECD (the Organization of Economic Co-operation and Development) high income countries, cash, cash equivalents and gold.  No more than 10% of the assets in the investment portfolio will be held in private equity securities.

 

	
·  

	
Concentration of Investments:  Other than cash or cash equivalents and United States government obligations, (1) no single investment in the investment portfolio will constitute more than 10% of the portfolio, (2) the 10 largest investments shall not constitute greater than 50% of the total investment portfolio, and (3) the investment portfolio shall at all times be comprised of a minimum of 50 debt or equity securities of publicly traded companies (or their subsidiaries).

 

	
·  

	
Liquidity:  Assets will be invested in such fashion that GRIL has a reasonable expectation that it can meet any of its liabilities as they become due.  GRIL will review with DME the liquidity of the portfolio on a periodic basis.

 

	
·  

	
Monitoring:  GRIL will require DME to re-evaluate each position in the investment portfolio and to monitor changes in intrinsic value and trading value and provide monthly reports on the investment portfolio to GRIL as GRIL may reasonably determine.

 

	
·  

	
Leverage:  The investment portfolio may not employ greater than 5% indebtedness for borrowed money, including net margin balances, for extended time periods.  DME may use, in the normal course of business, an aggregate of up to 20% net margin leverage for periods of less than 30 days.

 

A-

  

 

  

Exhibit B

 

INITIAL CAPITAL CONTRIBUTIONS

 

As of August 31, 2010

 

Initial Capital Contributions

 

                DME                                                             $ 30,017,120.00

 

                Greenlight Re                                               $ 874,454,592.00

 

                GRIL                                                              $ 39,000,000.00

 

B-

  

 

  

Exhibit C

 

POWER OF ATTORNEY

 

The undersigned, in connection with and subject to the terms and conditions of that certain Amended and Restated Agreement (the “Agreement”) by and among Greenlight Reinsurance, Ltd., Greenlight Reinsurance Ireland, Ltd., DME Advisors, LP (collectively, the “Participants”) and Greenlight Capital Re, Ltd. (for limited purposes), dated as of August [  ], 2010, hereby designates  and appoints DME Advisors, LP, a Delaware limited partnership (“DME”), as agent and attorney-in-fact, with full power and authority and without the need for further approval of the undersigned (except as may be required by applicable law) to have the exclusive power on behalf of the undersigned to:

 

(i) effect any and all transactions, including short sales, in equity and debt securities (including derivatives thereon), currencies and commodities (and options, futures, derivatives, swaps, and forward contracts thereon), trade and other claims, arbitrages, loans, break-ups, consolidations, reorganizations and everything connected therewith in the broadest sense (collectively, “Securities”);

 

(ii) select brokers (including prime brokers), dealers, banks and other intermediaries by or through whom such investment transactions will be executed or carried out;

 

(iii) purchase or write options (including uncovered options);

 

(iv) trade on margin;

 

(v) draw funds and direct banks, brokers or other custodians to effect deliveries of funds or assets, but only in the course of effecting investment transactions for the account of the undersigned;

 

(vi) exercise all voting and other powers and privileges attributable to any Securities or other property held for the account of the venture and its Participant, including the undersigned; and

 

(vii) make and execute all such documents and take all such other actions as DME considers necessary or appropriate to carry out its investment advisory duties under the Agreement, including opening brokerage (including prime brokerage) accounts and any other required documentation including, without limitation, swaps, Securities and similar agreements on behalf of the undersigned.

 

The power of attorney granted hereby is a special power of attorney coupled with an interest and shall be irrevocable during the term of the Agreement to the fullest extent permitted by law.

 

	
Dated:  August [  ], 2010           

	
[Participant]

 

 

By:                                                                            

 

Name:

 

Title:

 

C-ex10-1.htm

EXHIBIT 10.1

 

AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Amended and Restated Executive Employment Agreement (this “Agreement”) is made and entered into as of October 31, 2010 (the “Restatement Date”), by and between Multimedia Games, Inc., a Texas corporation (the “Company”), and Adam Chibib, an individual (“Executive”).

 

 

RECITALS

WHEREAS, Executive and the Company are currently parties to an Executive Employment Agreement (the “Prior Agreement”) entered into as of February 10, 2009 (the “Effective Date”);

 

WHEREAS, the Company desires to continue to employ Executive and Executive desires to continue to be employed by the Company, in his capacity as Senior Vice President and Chief Financial Officer; and

 

WHEREAS, the Company and Executive have determined that it is in their respective best interests to amend and restate the Prior Agreement in order to, among other things, (i) provide Executive with the ability to earn a retention bonus and (ii) clarify certain provisions consistent with the parties’ intent that the Agreement conform to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (collectively, “Section 409A”).

 

 

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

1.   EMPLOYMENT TERMS AND DUTIES

 

1.1  Employment.  The Company hereby employs Executive, and Executive hereby accepts employment by the Company, upon the terms and conditions set forth in this Agreement.

 

1.2  Duties.  Executive shall serve as Senior Vice President and Chief Financial Officer and shall report directly to the Company’s Chief Executive Officer.  Executive shall have the authority, and perform the duties customarily associated with his titles and offices together with such additional duties as may from time to time be assigned by the Company’s Chief Executive Officer.  During the term of Executive’s employment hereunder, Executive shall devote his full working time and efforts to the performance of his duties and the furtherance of the interests of the Company and shall not be otherwise employed or engaged.

 

1.3  Term.  Subject to the provisions of Section 1.6 below, the term of employment of Executive under this Agreement shall commence on the Effective Date and shall continue until terminated by either party (the “Employment Term”).  Upon termination of this Agreement, this Agreement shall expire and have no further effect, except as otherwise provided in Section 5.5 below.

 

1.4  Compensation and Benefits.

 

    1.4.1  Base Salary.  In consideration of the services rendered to the Company hereunder by Executive and Executive’s covenants hereunder and in the Company’s Agreement Regarding Proprietary Developments, Confidential Information and Non-Solicitation attached hereto as Exhibit A (the “Proprietary Agreement”), effective retroactively as of October 1, 2010 the Company shall pay Executive a salary at the annual rate of $325,000.00 (the “Base Salary”), less statutory and other authorized deductions and withholdings, payable in accordance with the Company’s regular payroll practices.  The Chief Executive Officer will review the Base Salary annually.

 

  

  

  

 

1.4.2  Bonuses.  Executive shall be entitled to receive annual bonus equal to 60% of Executive’s then current Base Salary (the “Target Bonus”) based upon achievement of bonus plan performance targets then in effect as approved by the Chief Executive Officer, which bonus may be as much as 100% of Executive’s then current Base Salary for overachievement against said targets, as determined by the Chief Executive Officer or the Board of Directors.  The Target Bonus shall be less statutory and other authorized deductions and withholdings and payable at the times when other management bonuses are paid; provided, however, that the Target Bonus shall be paid before the later of:  (i) the 15th day of the third calendar month following the calendar year that the Target Bonus is earned; or (ii) the 15th day of the third calendar month following the end of the fiscal year of the Company that the Target Bonus is earned.

 

1.4.3  Benefits Package; Vacation; Business Expenses.  As an employee of the Company, Executive will be eligible to enroll in the Company’s benefit programs (including short and long term disability plans and reasonable Directors’ and Officers’ coverage) as they are established from time to time for senior-level executive employees.  Executive shall be eligible for Company holidays and paid vacation as set forth in the Company’s then current policies for senior-level executive employees.  The Company shall reimburse Executive for ordinary and necessary business expenses incurred by Executive in the performance of his duties hereunder during the term of his employment and in accordance with the Company’s business expense reimbursement policy.  For purposes of compliance with Section 409A, to the extent applicable, reimbursements of expenses to Executive shall in all events (i) be paid no later than the last day of the calendar year following the calendar year in which the expense was incurred, (ii) not affect or be affected by the amount of expenses for which Executive is eligible for reimbursement in any other calendar year, and (iii) not be subject to liquidation or exchange for another benefit.

 

1.4.4  Retention Bonus.

 

(a) Provided that (i) Executive remains employed with the Company through the applicable Stay Bonus Earned Date indicated below, except in the event of Executive’s prior termination of employment Without Cause (as defined by Section 1.6.4), for Good Reason (as defined by Section 1.7.2), due to Executive’s death or due to Executive’s Disability (as defined by Section 1.6.1) or in the event of a Change of Control (as defined by Section 1.5), and (ii) Executive has complied with all of the terms and conditions of this Agreement and the Proprietary Agreement described in Section 2.1.1, Executive will receive in a lump sum cash payment the Stay Bonus Amount applicable to such Stay Bonus Earned Date, less appropriate tax withholdings and deductions, on the first regularly scheduled payroll date following the applicable Stay Bonus Earned Date, as follows:

 

	
Stay Bonus Earned Date

	  	
Stay Bonus Amount

	
June 30, 2010

	  	
50% of then-current Base Salary

	
September 30, 2010

	  	
60% of then-current Base Salary

	
December 31, 2010

	  	
50% of then-current Base Salary

Notwithstanding Section 1.4.2 to the contrary, if Executive receives pursuant to this Section 1.4.4(a) the Stay Bonus Amount for the Stay Bonus Earned Date of September 30, 2010, the amount of any annual bonus pursuant to Section 1.4.2 to which Executive would otherwise be entitled for the fiscal year of the Company ending in calendar year 2010 shall be reduced by an amount equal to such Stay Bonus Amount.

(b) If Executive’s employment with the Company is terminated Without Cause, for Good Reason, due to Executive’s death, or due to Executive’s Disability before a Stay Bonus Earned Date, Executive or Executive’s estate will be paid in a lump sum in cash 100% of the Stay Bonus Amount(s) not yet paid, less appropriate tax withholdings and deductions, on the first regularly scheduled payroll date following the date of such termination of employment, subject to any delay in payment required by Section 4.2.

 

(c) In the event of a Change of Control, and provided that Executive’s employment with the Company has not terminated prior to the closing of the Change of Control, Executive will be paid in a lump sum in cash 100% of the Stay Bonus Amount(s) not yet paid, less appropriate tax withholdings and deductions, on the 10th day following the closing of the Change of Control.

 

  

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(d) If Executive’s employment with the Company is terminated for Cause or if Executive resigns from employment with the Company for any reason other than Executive’s Disability or for Good Reason before the earlier of a Stay Bonus Earned Date or a Change of Control, Executive will forfeit all of the Stay Bonus Amounts otherwise payable on that or any subsequent Stay Bonus Earned Date or as a result of a Change of Control.

 

1.5  Stock Options.

 

1.5.1  Start Date Options.  Upon the Effective Date, Executive was granted one or more options (collectively, the “Option”) to purchase 250,000 shares of the Company’s Common Stock.  Such Option was granted pursuant to the Company’s 2008 Employment Inducement Award Plan (the “Plan”).  The exercise price for the Option is equal to the fair market value of the Company’s Common Stock on the date of grant of the Option.  The Option is immediately exercisable, but the Option shares were initially unvested and vested 25% on February 10, 2010, and will continue to vest over three (3) years in equal quarterly installments during each of the following three years.  The Plan documents provide that, in the event that, within one (1) year after a Change of Control, either (i) Executive is terminated Without Cause pursuant to Section 1.6.4, or (ii) Executive resigns for Good Reason pursuant to Section 1.7.2, Executive shall acquire a vested interest in, and the Company’s repurchase rights shall terminate with respect to all unvested Option shares covered by the Option.  In the event Executive is terminated for any reason, then such termination shall not affect in any manner Executive’s right to receive or exercise the options which have vested as of the date of termination pursuant to the provisions of this Agreement.  The terms of the Option are as set forth in the Plan documents.  The Company has filed a registration statement on Form S-8 with respect to the Plan, and shall maintain the effectiveness of such registration statement during the term of the Plan.

 

1.5.2  Restatement Date Option.  As soon as practicable following the Restatement Date, Executive will be granted an option to purchase 150,000 shares of the Company’s Common Stock, with an exercise price per share equal to the fair market value of a share of the Company’s Common Stock on the date of grant of such option.  The option will be immediately exercisable but the option shares will be initially unvested and will vest 25% after one year from the date of grant, and will continue to vest over three (3) years in equal quarterly installments during each of the following three years.

 

1.5.3  Change of Control Defined.  For purposes of this Agreement, a “Change of Control” shall mean:  (a) the consummation of a merger, consolidation or reorganization approved by the Company’s stockholders, unless securities representing more than 50% of the total combined voting power of the outstanding voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Company’s outstanding voting securities immediately prior to such transaction; or (b) the sale, transfer or other disposition of all or substantially all of the Company’s assets as an entirety or substantially as an entirety to any person, entity or group of persons acting in concert other than a sale, transfer or disposition to an entity, at least 50% of the combined voting power of the voting securities of which is owned by the Company or by stockholders of the Company in substantially the same proportion as their ownership of the Company immediately prior to such sale; or (c) any transaction or series of related transactions within a period of 12 months pursuant to which any person or any group of persons comprising a “group” within the meaning of Rule 13d-5(b)(l) under the Securities Exchange Act of 1934, as amended (other than the Company or a person that, prior to such transaction or series of related transactions, directly or indirectly controls, is controlled by or is under common control with, the Company) acquires (other than directly from the Company) beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than 35% of the total combined voting power of the Company’s securities outstanding immediately after the consummation of such transaction or series of related transactions; provided, however, that the event constituting such Change of Control also constitutes a “change in the ownership or effective control” or “in the ownership of a substantial portion of the assets” of the Company.

 

1.6  Termination.  Executive’s employment and this Agreement (except as otherwise provided hereunder) shall terminate upon the occurrence of any of the following, at the time set forth therefor (the time of any such termination being the “Termination Date”):

 

1.6.1  Death or Disability.  Immediately upon the death of Executive or in the event that Executive has ceased to be able to perform the essential functions of his duties, with or without reasonable accommodation, for a period of not less than 180 days, due to a mental or physical illness or incapacity; as determined in the good faith judgment of the Chief Executive Officer and confirmed by the opinion of an independent medical physician (“Disability”) (termination pursuant to this Section 1.6.1 being referred to herein as termination for “Death or Disability”); or

 

  

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1.6.2  Voluntary Termination.  Thirty (30) days following Executive’s written notice to the Company of termination of employment; provided, however, that the Company may waive all or a portion of the thirty (30) days notice and accelerate the effective date of such termination (and the Termination Date) (termination pursuant to this Section 1.6.2 being referred to herein as “Voluntary” termination); or

 

1.6.3  Termination For Cause.  Immediately following notice of termination for Cause given by the Company.  As used herein, “Cause” means termination based on any one of the following, as determined in good faith by the Board of Directors:  (i) any intentional act of misconduct or dishonesty by Executive in the performance of his duties under the Agreement; (ii) any willful failure or refusal by Executive to attend to his duties under this Agreement; (iii) any material breach of this Agreement; (iv) Executive’s conviction of or plea of “guilty” or “no contest” to any crime constituting a felony or a misdemeanor involving theft, embezzlement, dishonesty, or moral turpitude; or (v) Executive’s unsatisfactory performance of his duties as determined by the Chief Executive Officer and failure of Executive to improve such performance in the reasonable judgment of the Chief Executive Officer following the thirty (30)-day period after Executive is provided written notice of such unsatisfactory performance.  In the event that the Chief Executive Officer believes that an event has occurred that would constitute a termination for Cause pursuant to clauses (i), (ii) or (iii), prior to terminating Executive, the Chief Executive Officer will notify Executive of such belief in writing, including an explanation of the concern, and Executive will have thirty (30) days to address the concern to the Chief Executive Officer’s satisfaction prior to the effectiveness of the termination; provided that the Chief Executive Officer may instruct Executive to take a paid leave of absence during such period.

 

1.6.4  Termination Without Cause.  Notwithstanding any other provisions contained herein,’ including, but not limited to Section 1.3 above, the Company may terminate Executive’s employment following a thirty (30) day written notice of termination without Cause given by the Company as approved by the Board of Directors (termination pursuant to this Section 1.6.4 being referred to herein as termination “Without Cause”).

 

1.6.5  Other Remedies.  Termination pursuant to Section 1.6.3 above shall be in addition to and without prejudice to any other right or remedy to which the Company may be entitled at law, in equity, or under this Agreement.

 

1.7  Severance and Termination.

 

1.7.1  Voluntary Termination, Termination for Cause, Termination for Death or Disability.  In the case of a termination of Executive’s employment hereunder for Death or Disability in accordance with Section 1.6.1 above, or Executive’s Voluntary termination of employment hereunder in accordance with Section 1.6.2 above, or a termination of Executive’s employment hereunder for Cause in accordance with Section 1.6.3 above (i) Executive shall not be entitled to receive payment of, and the Company shall have no obligation to pay, any severance or similar compensation attributable to such termination, other than Base Salary earned but unpaid, accrued but unused vacation to the extent required by the Company’s policies, vested benefits under any employee benefit plan, and any unreimbursed expenses pursuant to Section 1.4.3 or 1.4.4 hereof incurred by Executive as of the Termination Date, and (ii) the Company’s other obligations under this Agreement shall immediately cease.

 

  

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1.7.2  Termination Without Cause; Resignation for Good Reason.  Subject to Executive’s execution of a Release in accordance with Section 1.7.3 which becomes effective in accordance with its terms on or before the 60th day following the Termination Date, in the case of a termination of Executive’s employment hereunder Without Cause in accordance with Section 1.6.4 above, or Executive’s resignation with Good Reason, the Company (i) shall pay Executive two (2) years of Base Salary continuation (to be paid in accordance with the Company’s normal payroll practices commencing on the 60th day following the Termination Date, with a catch-up payment for payroll dates occurring between the Termination Date and such 60th day) and two (2) years of Target Bonus (to be paid at the end of each year within the time set forth in Section 1.4.2(ii)); such payments must not however extend beyond the second taxable year of the Executive following the taxable year in which the termination of employment occurred and (ii) if Executive elects to continue health coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), for a period of one year after termination, the Company will pay Executive’s premiums, in an amount sufficient to maintain the level of health benefits in effect on Executive’s last day of employment.  Further, and alternatively (and not in addition) to the payments described in the prior portion of this section, subject to Executive’s execution of a Release in accordance with Section 1.7.3 which becomes effective in accordance with its terms on or before the 60th day following the Termination Date, in the event that there is a Change of Control and within one year after the closing of the Change of Control, Executive is terminated Without Cause or resigns for Good Reason, (A) the Company shall pay to Executive on the 60th day following the Termination Date a lump sum payment in an amount equal to two (2) years of Base Salary and two (2) years of Target Bonus; (B) if Executive elects to continue health coverage under COBRA, for a period of one year after termination, the Company will pay Executive’s premiums, in an amount sufficient to maintain the level of health benefits in effect on Executive’s last day of employment; and (C) the Option will immediately vest as set forth in Section 1.5.

 

For purposes of this Agreement, “Good Reason” means the occurrence of any of the following:  (1) the assignment to Executive of duties materially adverse to his status as Chief Financial Officer of the Company or a material adverse alteration in the nature or status of his responsibilities, duties or authority; (2) a reduction by the Company in Executive’s then Base Salary or Target Bonus, a material reduction in other benefits, or the failure by the Company to pay Executive any portion of his current compensation when due; (3) a requirement that Executive report to a primary work location that is more than fifty (50) miles from the Company’s current location in Austin, Texas; or (4) the failure of the Executive and any successor company either to (A) maintain (through assignment, transfer or otherwise) this Agreement in full force and effect, or (B) reach a mutually agreeable new  employment agreement, so long as Executive is willing and able to execute a new agreement that substantially provides similar terms and conditions to this Agreement.  Notwithstanding the foregoing, Executive’s resignation shall not be treated as a resignation for Good Reason unless (a) Executive notifies the Company in writing of a condition constituting Good Reason within forty-five (45) days following Executive’s becoming aware of such condition; (b) the Company fails to remedy such condition within thirty (30) days following such written notice (the “Remedy Period”); and (c) Executive resigns within thirty (30) days following the expiration of the Remedy Period.  In addition, the termination must occur within two years of the occurrence of one of the above enumerated events.  Further, in the event that Executive resigns for Good Reason and within two (2) years from such date accepts employment with the Company, any acquirer or successor to the Company’s business or any affiliate, parent, or subsidiary of either the Company or its successor, then Executive will forfeit any right to severance payments hereunder and will reimburse the Company for the full amount of such payments received by Executive within 30 days of accepting such employment.  Notwithstanding the previous sentence, if such payments are deemed Deferred Compensation, then such payments shall only be forfeited to the extent allowed by Section 409A.

 

Executive and Company intend that payment of the cash severance benefits under this Section 1.7.2 shall be exempt from treatment as nonqualified deferred compensation subject to Section 409A to the maximum extent permitted as separation pay due to involuntary separation from service pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii) to the extent of those amounts paid no later than the last day of Executive’s second taxable year following the taxable year of the Termination Date and otherwise qualifying for such exemption.

 

1.7.3  Severance Conditioned on Release of Claims.   The Company’s obligation to provide Executive with the severance benefits set forth in Section 1.7.2 is contingent upon Executive’s execution of a mutual release of claims in the form attached hereto as Exhibit C (the “ Release ”), which, except as otherwise provided below, has become effective in accordance with its terms on or before the time period specified by Section 1.7.2. 

 

(a)           The Company must deliver the Release to Executive for execution no later than seven (7) days after Executive’s termination of employment.  If the Company fails to deliver the Release to Executive within such seven (7) day period, Executive will be deemed to have satisfied the release requirement of this Section 1.7.3, and Executive will be entitled to receive the severance benefits set forth in Section 1.7.2 hereof as though Executive had executed the Release and the Release had become effective in accordance with its terms within the time period required by Section 1.7.2.

 

  

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(b)           Upon delivery of the Release by the Company as provided in Section 1.7.3(a), Executive shall execute the Release, if at all, within forty-five (45) days from the date of its delivery to Executive.

 

(c)           If Executive has revocation rights with respect to his execution of the Release, Executive shall exercise such rights, if at all, not later than seven (7) days after executing the Release.

    2.   PROTECTION OF COMPANY’S PROPRIETARY INFORMATION AND INVENTIONS; NON-COMPETITION

 

  

2.1.1  Proprietary Agreement.  This Agreement, and Executive’s employment hereunder, is contingent upon Executive’s execution of the Proprietary Agreement, effective contemporaneously with the execution of this Agreement.  The Proprietary Agreement survives the termination of this Agreement, the Employment Term and/or Executive’s employment with the Company.

 

2.1.2  Consideration For Promise To Refrain From Competing.  Executive agrees that Executive’s services are special and unique, that the Company’s disclosure of confidential, proprietary information and specialized training and knowledge to Executive, and that Executive’s level of compensation and benefits, including the amount of severance as set forth in Section 1.7 hereof, are partly in consideration of Executive not competing with the Company following the termination of his employment.  Also, the Company promises to provide Executive with proprietary and confidential information to which Executive has not had access (including without limitation information developed and presented in Board of Director meetings).  Executive acknowledges that such consideration (including without limitation the Company’s promise to provide Executive access to proprietary and confidential information made in this section) is adequate for Executive’s promises contained within this Section 2.

 

2.1.3  Promise To Refrain From Competing.  Executive understands the Company’s need for Executive’s promise not to compete with the Company is based on the following:  (i)the Company has expended, and will continue to expend, substantial time, money and effort in developing its proprietary information; (ii) Executive will in the course of Executive’s employment develop, be personally entrusted with and exposed to the Company’s proprietary information; (iii) the Company is engaged in the highly insular and competitive gaming technology industry; (iv) the Company provides products and services nationally and internationally; and (v) the Company will suffer great loss and irreparable harm if Executive were to enter into competition with the Company.  Therefore, in exchange for the consideration described in Section 2.1.2 above, and the severance payments described in Section 1.7.2, Executive agrees that during Executive’s employment with the Company, and for one (1) year following the effective date of the termination of Executive’s employment with the Company (the “Covenant Period”), Executive will not either directly or indirectly, whether as an owner, director, officer, manager, consultant, agent or employee:  (i) work for or provide services or assistance to a competitor of the Company as of the date of termination of employment, which is defined to include those entities or persons primarily engaged in the business of developing, marketing, selling and supporting technology to or for gaming businesses in which, as of the date of termination of employment, the Company engages or in which the Company has an actual intention, as evidenced by the Company’s written business plans to engage, in any country in which the Company does business as of the date of termination of employment (the “Restricted Business”); or (ii) make or hold any investment in any Restricted Business, whether such investment be by way of loan, purchase of stock or otherwise, provided that there shall be excluded from the foregoing the ownership of not more than 1% of the listed or traded stock of any publicly held corporation.  For purposes of this Section 2, the term “Company” shall mean and include the Company, any subsidiary or affiliate of the Company, and any successor to the business of the Company (by merger, consolidation, sale of assets or stock or otherwise).  For purposes of clarification and not limitation, casinos or gaming operations that are not primarily engaged in the business of developing, marketing, selling and supporting technology to or for gaming businesses shall not be Restricted Businesses hereunder.  Notwithstanding anything in this section or this agreement to the contrary, in the event Executive’s employment is terminated for Cause pursuant to clause (v) of Section 1.6.3, the Covenant Period shall be six (6) months from the date of termination of Executive’s employment.

 

2.1.4  Reasonableness of Restrictions.  Executive represents and agrees that the restrictions on competition, as to time, geographic area, and scope of activity, required by this Section 2 are reasonable, do not impose a greater restraint than is necessary to protect the goodwill and business interests of the Company, and are not unduly burdensome to Executive.  Executive expressly acknowledges that the Company competes on an international basis and that the geographical scope of these limitations is reasonable and necessary for the protection of the Company’s trade secrets and other confidential and proprietary information.  Executive further agrees that these restrictions allow Executive an adequate number and variety of employment alternatives, based on Executive’s varied skills and abilities.  Executive represents that Executive is willing and able to compete in other employment not prohibited by this Agreement.

 

  

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2.1.5  Reformation if Necessary.  In the event a court of competent jurisdiction determines that the geographic area, duration, or scope of activity of any restriction under this Section 2 and its subsections is unenforceable, the restrictions under this section and its subsections shall not be terminated but shall be reformed and modified to the extent required to render them valid and enforceable.

 

2.1.6  Forfeiture of Benefits.  In the event that the Release does not become effective on or before the 60th day following the Termination Date solely by reason of Executive’s failure to sign and deliver the Release (other than due to the circumstances described in Section 1.7.3(a)) or through other action on the part of Executive as provided under Section 1.7.3(b) and (c), or in the event that Executive breaches Executive’s promise under Section 2.1.3 to refrain from competing, then the Company shall have the right to (i) terminate any further provision of compensation and benefits set forth in Section 1.7.2 that are expressly made subject to provision of an effective Release, (ii) seek reimbursement from Executive for all compensation and benefits previously provided to Executive under Section 1.7.2, (iii) recover from Executive all shares of Company stock owned by Executive (or the proceeds therefrom, reduced by the purchase price paid to acquire such shares) as to which the vesting was accelerated pursuant to Section 1.7.2, and (iv) immediately cancel all Options or other stock options subsequently awarded Executive to the extent that the vesting thereof was accelerated pursuant to Section 1.7.2 or through other agreement(s) with Executive providing for accelerated vesting related to a change in control.

 

3.  REPRESENTATIONS AND WARRANTIES BY EXECUTIVE

 

Executive represents and warrants to the Company that (i) this Agreement is valid and binding upon and enforceable against him in accordance with its terms; (ii) Executive is not bound by or subject to any contractual or other obligation that would be violated by his execution or performance of this Agreement, including, but not limited to, any non-competition agreement presently in effect; and (iii) Executive is not subject to any pending or, to Executive’s knowledge, threatened claim, action, judgment, order, or investigation that could adversely affect his ability to perform his obligations under this Agreement or the business reputation of the Company.  Executive has not entered into, and agrees that he will not enter into, any agreement either written or oral in conflict herewith.

 

4.  TAXES

 

4.1  Section 4999.

 

4.1.1  Treatment of Parachute Payments.  Notwithstanding any other provision of this Agreement to the contrary, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of Executive, whether paid, payable, distributed or distributable pursuant to this Agreement (collectively, the “Payments”) would, but for this sentence, and as calculated pursuant to Section 4.1.2, be subject to the excise tax imposed by Section 4999 of the Code or any successor provision (the “Excise Tax”), the aggregate amount of the Payments will be, at Executive’s sole discretion, either (i) the largest portion of the Payments that would result in no portion of the Payments (after reduction) being subject to the Excise Tax or (ii) the entire Payments, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes), which results in Executive’s receipt, on an after-tax basis, of the greatest amount of the Payments.  Unless Executive shall have given prior written notice specifying a different order to the Company to effectuate the limitations described in the preceding sentence, the Company shall reduce or eliminate the Payments by first reducing or eliminating those Payments or benefits in the following order: (i) reduction of cash payments; (ii) reduction of accelerated vesting of equity awards other than stock options; (iii) reduction of accelerated vesting of stock options; and (iv) reduction of other benefits paid or provided to Executive.  In the event that acceleration of vesting of equity awards is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of Executive’s equity awards.  If two or more equity awards are granted on the same date, each award will be reduced on a pro-rata basis.

 

  

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4.1.2  Determinations.  The professional firm engaged by the Company for general tax purposes as of the day prior to the date of the event that might reasonably be anticipated to result in Payments that would otherwise be subject to the Excise Tax will perform the foregoing calculations.  If the tax firm so engaged by the Company is serving as accountant or auditor for the acquiring company, the Company will appoint a nationally recognized tax firm to make the determinations required by this Section.  The Company will bear all expenses with respect to the determinations by such firm required to be made by this Section.  The Company and Executive shall furnish such tax firm such information and documents as the tax firm may reasonably request in order to make its required determination.  The tax firm will provide its calculations, together with detailed supporting documentation, to the Company and Executive as soon as practicable following its engagement.   The tax firm, the Company and the Executive shall cooperate to attempt to reduce or eliminate the Excise Tax through the (i) reduction of the parachute payments as reasonable compensation for personal services performed on and after the change in control (including through the Executive’s agreement to refrain from performing services as set forth in Section 2.1.3 or such additional agreement(s) as Executive may enter into), (ii) the deferral of payments to reduce the value of such payment for purposes of Section 280G of the Code, (iii) the reduction of parachute payments as reasonable compensation for personal services performed on or prior to the change in control, or (iv) any other reasonable method to reduce the value of payment or benefit taken into account as a potential parachute payment for purposes of Section 280G of the Code; in each as to the limited extent consented to by the Executive.  Notwithstanding any determination made pursuant to this Section 4.1.2,  the Company and the Executive may take different tax reporting positions with respect to the Excise Tax and/or any determination or calculation made with respect to Sections 280G and 4999 of the Code.

 

4.2  Section 409A.  Notwithstanding any inconsistent provision of this Agreement, to the extent the Company determines in good faith that one or more of the payments or benefits received or to be received by Executive pursuant to this Agreement in connection with Executive’s termination of employment would constitute deferred compensation subject to the rules of Section 409A, no such payment shall be made or benefit provided unless and until Executive has incurred a “separation from service” within the meaning of Section 409A.  Furthermore, if Executive is a “specified employee” under Section 409A at the time of such separation from service, then no amount that constitutes a deferral of compensation which is payable on account of the Employee’s separation from service shall be paid to the Employee before the date (the “Delayed Payment Date”) which is the first business day of the seventh month after the date of the Employee’s separation from service or, if earlier, the date of the Employee’s death following such separation from service.  All such amounts that would, but for this Section, become payable prior to the Delayed Payment Date will be accumulated and paid on the Delayed Payment Date.  The Company and Executive agree to negotiate in good faith to reform any provisions of this Agreement to maintain to the maximum extent practicable the original intent of the applicable provisions without violating the provisions of Section 409A, if the Company deems such reformation necessary or advisable pursuant to guidance under Section 409A to avoid the incurrence of any such interest and penalties.  Such reformation shall not result in a reduction of the aggregate amount of payments or benefits under this Agreement.  Any payments under this Agreement that are deemed subject to Section 409A shall be subject to the following terms and provisions:

 

4.2.1  Nonassignability.  Neither the Executive nor any other person shall have the right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, alienate, or convey in advance of actual receipt, the amounts, if any, payable under this Agreement that are deemed under Section 409A to be “deferred compensation” (“Deferred Compensation”), or any part thereof, and all rights to such payments are expressly declared to be, unassignable and non-transferable.  Subject to Section 4.2.3 below, no part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment, or sequestration for the payments of debts, judgments, alimony or separate maintenance owned by Executive or any other person, be transferable by operation of law in the event of a Executive’s or any other person’s bankruptcy or insolvency, or be transferable to a spouse as a result of a property settlement or otherwise.  Any purported assignment, encumbrance or transfer of any nature before actual receipt shall be null and void.

 

4.2.2  No Suspension of Severance.  Once the Deferred Compensation payments commence, such payments shall continue to be made, except as otherwise permitted under Section 409A.

 

  

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4.2.3  Set-Off.  Notwithstanding any provision herein or any agreement to the contrary, the Company shall not have any right to offset against any Deferred Compensation benefits payable under this Agreement until such benefit is distributable to Executive or his/her beneficiary or as otherwise allowed under Section 409A.

 

4.2.4  Acceleration of Benefits.  The Company may not accelerate any Deferred Compensation benefits.  Notwithstanding the previous sentence, the Company may permit any acceleration that is allowed under Section 409A.

 

4.2.5  Compliance with Section 409A.  The provisions of this Agreement shall be interpreted and administered consistent with Section 409A, Treasury Regulations and other applicable guidance issued under Section 409A and shall incorporate the terms and provisions required by Section 409A.  If any provision herein would cause noncompliance with Section 409A, such provision shall be disregarded and this Employment Agreement shall be construed and administered as if such provision were not a part of this Employment Agreement.

 

4.2.6  Notice 2010-6.  The Company and Executive agree that they will each attach to their respective Federal income tax returns for the taxable year containing the date first written above the applicable statement under Section XII of Internal Revenue Service Notice 2010-6, substantially in the forms attached hereto as Appendix 1 and Appendix 2, respectively.

 

5.  MISCELLANEOUS

 

5.1  Notices.  All notices, requests, and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or mailed (postage prepaid by certified or registered mail, return receipt requested) or by overnight courier to the parties at the following addresses:

 

If to Executive, to:

 

Adam Chibib

401 Brandon Way

Austin, Texas 78733

 

If to the Company, to:

 

Multimedia Games, Inc.

206 Wild Basin Rd. South

Bldg B, Suite 400

Austin, Texas 78746

Attention:  Chief Executive Officer

 

All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section 5.1, be deemed given upon delivery, and (ii) if delivered by mail or overnight courier in the manner described above to the address as provided in this Section 5.1, be deemed given upon receipt.  Any party from time to time may change its address or other information for the purpose of notices to that party by giving written notice specifying such change to the other parties hereto.

 

5.2  Authorization to be Employed.  This Agreement, and Executive’s employment hereunder, is subject to Executive providing the Company with legally required proof of Executive’s authorization to be employed in the United States of America.

 

5.3  Indemnification Agreement.  The Company and Executive shall enter into an Indemnification Agreement in substantially the form attached hereto as Exhibit B.

 

  

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5.4  Entire Agreement.  This Agreement, and the documents referenced herein, supersede all prior discussions and agreements among the parties with respect to the subject matter hereof, and contains the sole and entire agreement between the parties hereto with respect thereto.

 

5.5  Survival.  The respective rights and obligations of the parties that require performance following expiration or termination of this Agreement, including but not limited to Sections 1.4.4, 1.5, 1.7.2, 1.7.3, 2, 4 and 5, shall survive the expiration or termination of this Agreement, the Employment Term and/or Executive’s employment with the Company.

 

5.6  Waiver.  Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition.  No waiver by any party hereto of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion.  All remedies, either under this Agreement or by law or otherwise afforded, will be cumulative and not alternative.

 

5.7  Amendment.  This Agreement may be amended, supplemented, or modified only by a written instrument duly executed by or on behalf of each party hereto.

 

5.8  Attorney’s Fees.  In the event of any litigation arising from or relating to this Agreement, the prevailing party in such litigation proceedings shall be entitled to recover from the non-prevailing party the prevailing party’s reasonable costs and attorney’s fees, in addition to all other legal or equitable remedies to which it may otherwise be entitled.  In addition, the Company shall pay Executive’s reasonable attorneys’ fees, not to exceed $5,000.00, incurred in connection the negotiation of this Agreement.

 

5.9  No Third Party Beneficiary.  The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and the Company’s successors and assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person.

 

5.10  No Assignment; Binding Effect.  This Agreement and its obligations may not be assigned by either the Company or Executive.

 

5.11  Headings.  The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

 

5.12  Severability.  The Company and Executive intend all provisions of this Agreement to be enforced to the fullest extent permitted by law.  Accordingly, if a court of competent jurisdiction determines that the scope and/or operation of any provision of this Agreement is too broad to be enforced as written, the Company and Executive intend that the court should reform such provision to such narrower scope and/or operation as it determines to be enforceable.  If, however, any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future law, and not subject to reformation, then (i) such provision shall be fully severable, (ii) this Agreement shall be construed and enforced as if such provision was never a part of this Agreement, and (iii) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by illegal, invalid, or unenforceable provisions or by their severance.

 

  

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5.13  Governing Law; Arbitration.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED IN SUCH STATE WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES.  IN THE EVENT OF ANY DISPUTE ARISING UNDER THIS AGREEMENT THAT CANNOT BE RESOLVED BETWEEN THE PARTIES, THE SAME SHALL BE SUBMITTED TO FINAL AND BINDING ARBITRATION BEFORE A SINGLE ARBITRATOR OF THE AMERICAN ARBITRATION ASSOCIATION’S PANEL OF COMMERCIAL ARBITRATORS, WHO SHALL BE CHOSEN BY AGREEMENT OF THE PARTIES.  IF THE PARTIES CANNOT AGREE, THEN EACH PARTY SHALL NOMINATE AN ARBITRATOR AND EACH OF THE TWO NOMINEES SHALL SELECT A THIRD ARBITRATOR TO SO SERVE.  THE COMPANY HEREBY AGREES TO BE FULLY RESPONSIBLE FOR ALL COSTS ASSOCIATED WITH THE ADMINISTRATION OF THE ARBITRATION, INCLUDING ANY AND ALL FILING OR OTHER FEES CHARGED BY THE AMERICAN ARBITRATION ASSOCIATION AND ANY FEES CHARGED BY THE ARBITRATOR.  THIS PROVISION AND ANY ARBITRATION AWARD ISSUED PURSUANT TO THIS PROVISION MAY BE ENFORCED BY ANY COURT OF COMPETENT JURISDICTION.  THE ARBITRATION SHALL TAKE PLACE IN AUSTIN, TEXAS UNLESS OTHERWISE MUTUALLY AGREED BY THE PARTIES.

 

5.14  Counterparts.  This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

 

 

[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS]

  

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IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Executive Employment Agreement to be executed as of the date first written above.

 

	 	
“COMPANY”

 

MULTIMEDIA GAMES, INC.

	 
	 	 	 	 
	 	 	 	 
	 	
By: 

	/s/ Patrick J. Ramsey	 
	 	 	
Patrick J. Ramsey

	 
	 	 	President and Chief Executive Officer	 
	 	 	 	 
	 	 	 	 
	 	
“EXECUTIVE”

	 
	 	 	 	 
	 	 	 	 
	 	/s/ Adam Chibib 	 
	 	
Adam Chibib

	 

 

[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]

  

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EXHIBIT A

Proprietary Agreement

  

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EXHIBIT B

Indemnification Agreement

  

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EXHIBIT C

MUTUAL RELEASE

THIS MUTUAL RELEASE (this “ Release ”) is by and between and Adam Chibib, an individual residing at the address on the signature page below (“ Executive ”) and Multimedia Games, Inc., a Texas corporation with its principal office at the address listed on the signature page below (the “ Company ”).

 

RECITALS:

 

WHEREAS, the Company and Executive are parties to that certain Amended and Restated Employment Agreement, dated as of October ___, 2010 and all amendments and modifications thereto (collectively, the “Employment Agreement”); and

 

WHEREAS, Executive’s employment with the Company has terminated and as a result of such termination, the parties are entering into this Release.

 

THEREFORE, in consideration of the mutual promises and obligations set out herein, together with other good and valuable consideration, the sufficiency of which is acknowledged, Parties agree as follows:

 

1            DEFINED TERMS. All capitalized terms used in this Release not otherwise defined herein shall have the respective meanings given thereto in the Employment Agreement.

 

2            RELEASE

 

(a)            By Executive .   Executive hereby releases and forever discharges all claims against the Company, and each of its subsidiaries and the officers, directors, employees, attorneys and agents of the Company and each such subsidiary (collectively, the “ Company Released Parties ”) of whatever nature and kind, in law, equity or otherwise, known or unknown, choate or inchoate, asserted or unasserted, which Executive has had, may have had, or now has, or may have, arising out of or in connection with Executive’s employment with the Company and/or its subsidiaries or the termination of such employment; provided, however, that nothing contained herein is intended to nor shall constitute a release of the Company from any obligations it may have to Executive under the Employment Agreement, or any deferred compensation plan or arrangement in which Executive participates or any rights of indemnification under the Indemnification Agreement or under the Company's Articles of Incorporation, Bylaws or the like as in effect on the Execution Date, or coverage under the Company’s director and officer insurance policy, nor shall it prevent Executive from exercising Executive’s rights, if any, under the Employment Agreement or under any stock option, restricted stock or similar agreement in effect as of the Execution Date in accordance with their terms (collectively, the “ Executive Released Claims ”). Should any claim(s) be asserted in breach of the terms, covenants, and releases in this Section 2(a), Executive agrees that this Release may be pled as a full and complete   defense to such   claim(s).

 

(b)            By the Company .   The Company, on behalf of the Company and its subsidiaries and affiliates, hereby releases and forever discharges all claims against the Executive and Executive’s spouse, heirs, estate administrators and executors (collectively, the “ Executive Released Parties ”) of whatever nature and kind, in law, equity or otherwise, known or unknown, choate or inchoate, asserted or unasserted, which the Company and its subsidiaries and affiliates has had, may have had, or now has, or may have, arising out of or in connection with Executive’s employment with the Company and/or its subsidiaries or the termination of such employment; provided, however, that nothing contained herein is intended to nor shall constitute a release of the Executive from any obligations Executive may have to the Company under the Employment Agreement or under the Proprietary Agreement in effect as of the Execution Date in accordance with their terms (collectively, the “ Company Released Claims ”). Should any claim(s) be asserted in breach of the terms, covenants, and releases in this Section 2(b), the Company agrees that this Release may be pled as a full and complete defense to such claim(s).

  

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3            REPRESENTATIONS AND WARRANTIES

 

(a)        By Executive .   Executive represents and warrants as follows:

 

(i)           Executive is authorized by law and has the legal capacity to enter into this Release. Executive has executed this Release as a natural person with authority to bind Executive to its terms and conditions.

 

(ii)      Executive is not relying upon any representation or warranty by the Company which is not expressly set out in this Release or in the Employment Agreement.

 

(b)        By the Company . The Company represents and warrants as follows:

 

(i)      The Company is authorized by law and has the legal capacity to enter into this Release. The person who has executed this Release on its behalf has been duly authorized to execute this Release and to bind the Company to its terms and conditions.

 

(ii)           The Company is not relying upon any representation or warranty by Executive, which is not expressly set out in this Release or in the Employment Agreement.

 

4            MISCELLANEOUS

 

(a)       Execution Date .   The “Execution Date” of this Release shall be the date on which all parties have signed this Release. If the parties do not sign this Release on the same date, the Execution Date shall be the date that the last party signs this Release.

(b)      Resignation .   Effective as of the Execution Date, Executive hereby resigns from all positions as an officer, director or employee of the Company and each of its subsidiaries or affiliates effective the date hereof and further agrees to execute such further evidence of such resignations as may be necessary or appropriate to effectuate the foregoing.

 

(c)      Press Releases and Public Announcements .   Except as expressly required by law, no party shall issue any press release or make any public announcement relating to the subject matter of this Release, any negotiation, discussion or other relationship between the parties without the prior written approval of the Parties.

 

(d)     Binding Effect .   Each party to this Release has carefully read this Release and discussed its requirements, to the extent each party believes necessary, with legal counsel.  Each party further understands that the other parties hereto will be proceeding in reliance upon this Release. Each of the parties warrants and in good faith represents that there has been, and there will be, no assignment or transfer of any interest in any of the claims with respect to the Executive Released Claims and the Company Released Claims , respectively, and the parties agree to indemnify and hold each other harmless from any liability, claims, demands, damages, costs, expenses, and attorneys’ fees incurred by any of them as a result of any person asserting any such assignment or transfer of any rights or claims released hereunder. This Release shall be a fully binding and complete among the parties hereto and their respective representatives, successors and assigns with respect to the Executive Released Claims or the Company Released Claims. The parties understand and agree that if the law or facts with respect to which this Release is executed are hereafter found to be other than, or different from, the law and facts now believed by the parties to be true, the parties expressly accept and assume the risk of such possible difference in law or facts and agree that the Release shall be and remain effective notwithstanding any such difference, and no Party hereto shall assert or maintain any released claim or any claim or action arising solely as a result of such change in law or facts.

 

(e)      No Third-Party Beneficiaries .   This Release shall not confer any rights or remedies upon any person other than upon the Parties hereto and their respective successors and permitted assigns the rights and remedies which have been contemplated by this Release.

 

(f)      Entire Agreement .   Other than the Employment Agreement, this Release constitutes the entire agreement among the parties and supersedes any prior understandings, agreements, or representations by or among the parties, written or oral, among the parties with respect to the subject matter of this Release.

 

  

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(g)     Succession and Assignment .   This Release shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. No party may assign either this Release or any of his, her or its rights, interests, or obligations hereunder without the prior written approval of the other parties.

 

(h)     Counterparts .   This Release may be executed in multiple counterparts, each one of which shall be deemed an original, but all of which shall be considered together as one and the same instrument. Further, in making proof of this Agreement, it shall not be necessary to produce or account for more than one (1) such counterpart. Execution by a party of a signature page hereto shall constitute due execution and shall create a valid, binding obligation of the party so signing, and it shall not be necessary or required that the signatures of all Parties appear on a single signature page hereto.

 

(i)      Headings .   The section headings contained in this Release are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Release.

 

(j)      Waiver .    No waiver, delay, omission or forbearance on the part of any party to exercise any right, option, duty, or power arising from any default or breach of any other party shall affect or impair the rights of the non-breaching party with respect to any subsequent default or breach of the same or a different kind; nor shall any delay or omission of the non-breaching party to exercise any right arising from any such default or breach affect or impair the non-breaching party’s rights as to such default or breach or any future default or breach.

 

(k)      Notices .   All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given when personally delivered, one business day after it is deposited with a nationally recognized courier for overnight delivery or two business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient at the address set forth on the signature page below. Any party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.

 

(l)      Governing Law .   THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED IN SUCH STATE WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES.

 

(m)     Amendments .   No amendment of any provision of this Release shall be valid unless the same shall be in writing and signed by the parties.

 

(n)      Severability .   Any term or provision of this Release that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

 

(o)      Electronic Transmission .   Delivery of an executed counterpart of this Release may be made by facsimile or other electronic transmission. Any such counterpart or signature pages sent by facsimile or other electronic transmission   shall be deemed to be written and signed originals for all purposes, and copies of this Release containing one or more signature pages that have been delivered by facsimile or other electronic transmission shall constitute enforceable original documents. As used in this Release, the term “ electronic transmission ” means and refers to any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient of the communication, and that may be directly reproduced in paper form by such a recipient through an automated process.

 

(p)      Certain Interpretive Matters and Definitions .

 

(i)           Unless the context of this Release otherwise requires, (A) words of any gender include each other gender; (B) words (including defined terms) using the singular or plural number also include the plural or singular number, respectively; (C) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Release and not to any particular provision of this Release, and (D) the “Section” and “Exhibit” without any reference to a specified document refer to the specified Section and Exhibit, respectively, of this Release.

 

  

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(ii)           The words “including,” “include” and “includes” are not exclusive and shall be deemed to be followed by the words “without limitation;” if exclusion is intended, the word “comprising” is used instead.

 

(iii)           The word “or” shall be construed to mean “and/or” unless the context clearly prohibits that construction.

 

(iv)           Any representation or warranty contained herein as to the enforceability of a contract, including this Release, shall be subject to the effect of any bankruptcy, insolvency, reorganization, moratorium or other similar law affecting the enforcement of creditors’ rights generally and to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

(v)           The parties have participated jointly in the negotiation and drafting of this Release. If an ambiguity or question of intent or interpretation arises, this Release shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions hereof.

 

(q)     Non-Disparagement .   Each party agrees to refrain from making any remark or statement, verbal or written, that could reasonably be construed as disparaging to the other party (or such other party’s affiliates), including, without limitation, remarks or statements that might damage such other person’s business relationships, prospective business relationship image or goodwill.

 

(r)      Further Assurances .   Upon the terms and subject to the conditions herein, each of the Parties hereto agrees to use its reasonable best efforts to take or cause to be taken all action, to do or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable under applicable laws and regulations or otherwise to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Release, including the execution and delivery of such instruments, and the taking of such other actions, as the other party hereto may reasonably require in order to carry out the intent of this Release.

 

 

[Signatures On The Following Page]

  

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[Signature Page of Mutual Release by and between the Company and Executive]

 

IN WITNESS WHEREOF , the Parties have duly executed this Mutual Release, effective as of the Effective Date.

 

“ EXECUTIVE ”

____________________________________

Adam Chibib

 

Date: _______________________________

 

Address:

______________________________

______________________________

______________________________

 

 

“COMPANY”

Multimedia Games, Inc., a Texas corporation

Print Name: ___________________

Sign Name:____________________

Title:_________________________

Date:_________________________

Address:

______________________________

______________________________

______________________________

 

  

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APPENDIX 1

[Form of Statement to be filed with the Multimedia Games, Inc. Federal Income Tax Return for its taxable year containing September ___, 2010]

§409A Document Correction under §§VI.A and VI.B of Notice 2010-6

1.           Name and taxpayer ID number of each service provider affected by the document failure:

Adam Chibib

Social Security Number: ____ - ___ - ____

2.           Plan with respect to which failure occurred:

 

Executive Employment Agreement between Multimedia Games, Inc. and Adam Chibib, dated February 10, 2009.

3.           Statement of correction:

The document failure identified herein is eligible for correction under Section §§VI.A and VI.B of Notice 2010-6.  Multimedia Games, Inc. has taken all actions required and otherwise met all requirements for such corrections as of the last day of its taxable in year in which the correction is made.  Pursuant to Section XI.A of Notice 2010-6, no income inclusion is required as a result of this correction.  The date of the correction is July ___, 2010 and, pursuant to Section XI.A of Notice 2010-6, is treated as effective on January 1, 2009.

4.           Amount involved:

The amount involved is unknown as of the date of the statement because the event at which time such amount would be become determinable has not occurred.  Pursuant to Section XI.A of Notice 2010-6, no income inclusion is required as a result of this correction.

  

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APPENDIX 2

[Form of Statement to be filed with the Adam Chibib 2010 Federal Income Tax Return]

You are entitled to the relief provided in Sections VI.A and VI.B of Internal Revenue Service Notice 2010-6 with respect to a failure to comply with Section 409A.  You must attach a copy of this statement to your 2010 Federal Income Tax Return.

§409A Document Correction under §§VI.A and VI.B of Notice 2010-6

1.           Name and taxpayer ID number of each service provider affected by the document failure:

Adam Chibib

Social Security Number: ____ - ___ - ____

2.           Plan with respect to which failure occurred:

Executive Employment Agreement between Multimedia Games, Inc. and Adam Chibib, dated February 10, 2009.

3.           Statement of correction:

The document failure identified herein is eligible for correction under Sections VI.A and VI.B of Notice 2010-6.  Multimedia Games, Inc. has taken all actions required and otherwise met all requirements for such corrections as of the last day of its taxable in year in which the correction is made.  Pursuant to Section XI.A of Notice 2010-6, no income inclusion is required as a result of this correction.  The date of the correction is September ___, 2010 and, pursuant to Section XI.A of Notice 2010-6, is treated as effective on January 1, 2009.

4.           Amount involved:

The amount involved is unknown as of the date of the statement because the event at which time such amount would be become determinable has not occurred.  Pursuant to Section XI.A of Notice 2010-6, no income inclusion is required as a result of this correction.

 

 

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