Exhibit 10.27
Note: Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment filed with the SEC under Rule 406. The omitted
material has been filed separately with the SEC. The location of the omitted
confidential information is indicated herein by "[****]."
ENGAGEMENT AGREEMENT
THIS ENGAGEMENT AGREEMENT ("Agreement") is made and entered into as of the
12th day of March, 1993, by and between:
(i) GENERAL AMERICAN LIFE INSURANCE COMPANY--GROUP PENSION, a mutual life
insurance company with its principal office at 700 Market Street, St.
Louis, Missouri 63101 (Mailing Address: P.O. Box 396, St. Louis,
Missouri 63166 ("Client"); and
(ii) ANALYTICAL RISK MANAGEMENT, LTD., a Kentucky limited partnership with
its principal office at 239 S. Fifth Street, Suite 614, Louisville,
Kentucky 40202 ("ARM").
RECITALS:
A. Client is a line of business of a mutual life insurance company
domiciled in Missouri and engaged in the life insurance business, either
directly or through one or more Affiliates (as defined in Section 15 hereof).
B. ARM is a limited partnership created primarily for the purpose of
providing various investment, integrated asset-liability management, and other
services to insurance companies and other institutions.
C. ARM desires to provide various services to Client, and Client desires to
obtain such services from ARM, all upon the terms and conditions set forth
herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and obligations hereinafter set forth, the parties agree as follows:
1. Engagement and Term. In accordance with and subject to the terms and
conditions of this Agreement, Client hereby engages ARM to work with Client in
designing, developing, and marketing a floating rate guaranteed interest
contract product in accordance with the specifications and parameters set forth
in Section 2 hereof (the "GIC Product"), and to provide various portfolio
strategy, administrative, and asset-liability modeling services (but not any
securities trading or investment management or investment accounting services)
in connection with such GIC Product, and ARM hereby accepts such engagement, for
an initial term beginning on the date hereof and ending at 12:00 midnight on
December 31,1995 ("Initial
-1-
Term"), unless sooner terminated as hereinafter provided. This Agreement shall
be automatically renewed and extended for successive periods of one (1) calendar
year each ("Additional Terms") following the expiration of the Initial Term or
last Additional Term, as applicable, unless either party gives notice to the
other party not less than 60 days prior to the end of such Initial Term or
Additional Term that it desires to have the Agreement terminate at the end
thereof (subject to sooner termination as hereinafter provided) (the Initial
Term together with all Additional Terms, as applicable, are hereinafter
collectively referred to as the "Term").
2. Design, Development, and Implementation of GIC Product.
(a) Design and Development of GIC Product. ARM shall work with Client
to design and develop the GIC Product in accordance with the following general
specifications and parameters:
o Client guarantee of principal and interest.
o Interest rate reset monthly, based on 106% of 3-month LIBOR (London
Interbank Offered Rate).
o Minimum and maximum deposit levels established and stated in Contract.
o Book value withdrawals permitted and payable within 30 days.
o Contract terminable by Client upon 90 days notice or by contractholder
upon 30 days notice.
o Client to have right to change interest rate index after the first
year upon 90 days prior written notice to contractholders.
o Any other features or modifications mutually agreed upon by the
parties.
(b) Preparation and Filing of Contract. ARM and Client shall cooperate in
preparing, or causing to be prepared, a form of contract ("Contract") to be
issued by Client regarding the GIC Product and in complying with all applicable
filing requirements and other compliance matters. The GIC Product shall be
issued in the name of Client. Each party shall bear its own legal costs or other
expenses in connection with the preparation of the Contract, except that the
expenses associated with the printing of the Contract and state filing fees
shall be borne by Client.
(c) Designated Affiliate of Client. Subject to the provisions hereof, at
any time during the Term, Client may grant or assign to any one or more of its
qualified Affiliates (as defined in Section 15 hereof) (a "Designated
Affiliate") all or any part of Client's rights, title, or interests under this
Agreement (subject, however, to Client's duties and obligations under this
Agreement with respect thereto), including, but not limited to, Client's right
to issue Contracts as to the GIC Product, which designations may be revoked or
revised by Client at any time on a prospective basis. Any such designation, or
revision thereof, shall be effective upon (i) receipt by ARM of a written
instrument (in form and substance reasonably acceptable to ARM) executed by
Client and the Designated Affiliate providing for such designation or revision
thereof, any limitations or restrictions by Client on the extent of such
designation, and the acceptance by such Affiliate of all applicable provisions
of this Agreement, and (ii) the consent of ARM to such designation or revision
thereof, which consent shall not be unreasonably withheld. Any revocation of a
designation shall be effective upon receipt of written notice of
Accordingly,
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revocation by ARM. To the extent that any revocation or revision results in
any rights, title, or interests of Client under this Agreement no longer
being vested in a Designated Affiliate, such rights, tide, or interests shall
revest in or be retained by Client (and Client shall be subject to all duties
and obligations under this Agreement with respect thereto). All references to
"Client" in this Agreement shall be deemed to mean or include, as the case
may be, any one or more "Designated Affiliates" to the extent applicable.
3. Marketing and Distribution of the GIC Product.
(a) Marketing and Distribution Authority. During the Term, each of ARM
and Client may sell, market, and distribute the GIC Product through its
respective employees, agents, and representatives. Subject to the general
review, supervision, and final approval of Client, ARM shall have primary
responsibility for designing and developing marketing and presentation materials
for use by ARM or Client with respect to the GIC Product, which materials shall
be printed and produced by Client or by ARM at Client's expense. In connection
with the marketing and sale of the GIC Product, Client shall establish such
underwriting guidelines and perform such client or plan due diligence on
potential contractholders as Client may deem advisable.
(b) Maximum Deposit Levels. Each calendar year, Client shall
establish, by written notice to ARM, a maximum contractholder deposit level to
apply with respect to the GIC Product during such calendar year ("Maximum
Deposit Level"). The Maximum Deposit Level may be revised on a prospective basis
by Client at any time by delivery to ARM of written notice of such revision.
Without the prior consent of Client, ARM shall not sell on Client's behalf any
Contract as to the GIC Product if the sale of such Contract would increase the
total amount of contractholder deposits held by Client at such time with respect
to the GIC Product to an amount which is greater than the Maximum Deposit Level
then in effect. The establishment or revision of any Maximum Deposit Level with
respect to the GIC Product at any time shall not require a reduction of any
contractholder deposit balances existing at such time. ARM and Client shall
cooperate in all reasonable ways so as to facilitate their monitoring of
contractholder deposit levels and sales with respect to the GIC Product.
(c) Deposits. All deposits from contractholders with respect to the
GIC Product issued on behalf of Client shall be deposited by wire transfer from
the contractholders directly to such bank accounts in the name of Client as
Client may direct.
4. Contractholder Administration Services. During the Term, ARM shall
generally serve as the primary contact with contractholders and potential
contractholders with respect to deposits and withdrawals as to the GIC Product,
and, generally, communications from contractholders or potential contractholders
shall be directed or referred to ARM. Client shall have responsibility for all
contractholder administration services necessary or appropriate with respect to
the GIC Product, including, but not limited to, the maintenance of necessary
accounting or other records, the processing of benefit payments and withdrawals,
and the furnishing to contractholders of statements, reports, and notifications
of interest rate resets. ARM and Client shall mutually establish, and revise as
necessary from time to time, such protocols, procedures, and interfaces as may
be necessary or appropriate to facilitate each
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party's performance of such party's services and duties under this Section 4.
Except as may be otherwise agreed in writing by ARM and Client, all underwriting
activities and sales shall be subject to Client's final approval and nothing in
this Section 4 shall be construed as limiting such final approval rights of
Client.
5. Portfolio and Asset-Liability Advisory Services. ARM shall provide
strategic and tactical advice to Client regarding the initial development, and
revision from time to time as necessary, of a model or benchmark asset portfolio
strategy for the GIC Product and regarding tactics designed to add value to such
benchmark portfolio. Client will give due consideration of any such advice in
structuring portfolio investment strategy for the GIC Product and Client may
implement such recommendations as determined appropriate by Client. In addition,
if requested by Client, ARM shall consult with Client as to the establishment of
target surplus or other matters regarding the GIC Product. ARM and Client shall
mutually establish, and revise as necessary from time to time, such protocols,
procedures, and interfaces as may be necessary or appropriate to facilitate
ARM's performance of ARM's services and duties under this Section 5.
6. Records, Reports, Audits, Examinations and Meetings.
(a) Records and Reports. ARM shall maintain separate records with
respect to matters handled by ARM as to Client and its Affiliates pursuant to
this Agreement. Client shall be entitled to receive such detailed management
reports from ARM as Client may reasonably request regarding any matters handled
by ARM regarding Client pursuant to this Agreement. ARM shall be entitled to
receive such detailed reports from Client as ARM may reasonably request
regarding investment activities as to the GIC Product and regarding the Product
Fund Balance (as hereinafter defined in Section 15(l)), and records with respect
thereto, maintained by Client or its Affiliates pursuant to this Agreement.
(b) Audits and Examinations. Client shall have the right and
authority at any time and from time to time to inspect, examine or audit, at
Client's expense, any contractholder records or other records and information
maintained by or under the control or management of ARM pursuant to this
Agreement in the name of, or with respect to, Client. ARM shall have the right
and authority at any time and from time to time to inspect, examine or audit, at
ARM's expense, any records and information maintained by or under the control or
management of Client or any Affiliate of Client with respect to the GIC Product,
and any investment activities and the Product Fund Balance with respect thereto.
(c) Meetings. During the Term, ARM and Client shall schedule periodic
meetings to discuss the activities of each pursuant to this Agreement, and each
party agrees to meet with the other at any time upon reasonable request to do so
by the other party.
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7. Compensation to ARM.
(a) Quarterly, Base Management Fee. In addition to all other
compensation provided for under this Agreement with respect to each full or
partial calendar quarter, ARM shall be entitled to receive a quarterly base
management fee ("Base Management Fee") equal to the sum of:
(i) The product of:
(A) The excess, if any, of (1) the Average Quarterly
Contractholder Account Balance (as defined in Section 15 hereof)
with respect to such quarter regarding the GIC Product, over (2)
the Total Contractholder Account Balance regarding the GIC
Product as of the beginning of the calendar year in which such
quarter occurs,
Multiplied by
(B) [***]%,
plus
(ii) The product of:
(A) An amount equal to the lesser of (1) the Average Quarterly
Contractholder Account Balance with respect to such quarter
regarding the GIC Product, or (2) the Total Contractholder
Account Balance regarding the GIC Product as of the beginning of
the calendar year in which such quarter occurs,
Multiplied by
(B) [***]%.
As soon as reasonably practicable after the end of each quarter, Client shall
submit to ARM an accounting of such quarterly Base Management Fee and shall
distribute such amount to ARM.
[***] This material has been omitted pusuant to a request for confidential
treatment filed with the SEC under Rule 406. The omitted material has
been filed separately with the SEC.
-5-
================================================================================
Illustrations
The application of the foregoing rates and calculations may be illustrated by
the following examples:
First Year Assumptions and Results (1993): Assume that the first year
during which the GIC Product is issued is 1993, and that the GIC Product account
balances increase by $100 million on a ratable basis during such year.
Accordingly, the Average Quarterly Contractholder Account Balance during the
four quarters of such year would be $12.5 million, $37.5 million, $62.5 million,
and $87.5 million, respectively, and because this is the first year, the Total
Contractholder Account Balance regarding the GIC Product as of the beginning of
1993 would be zero. Under these assumptions, ARM's Base Management Fees for the
four quarters of 1993 would be $[***] [[***]% x $12.5 million], $[***] [[***]% x
$37.5 million], $[***] [[***]% x $62.5 million], and $[***] [[***]% x $87.5
million], respectively. All of such amounts would arise pursuant to Section
7(a)(i) because the calculation under Section 7(a)(ii) for each quarter would
equal [***].
Second Year Assumptions and Results (1994): Assume that the GIC Product
account balances increase by $150 million on a ratable basis during 1994, the
second year of sales. Accordingly, the Average Quarterly Contractholder
Account Balance during the four quarters of such year would be $118.75
million, $156.25 million, $193.75 million, and $231.25 million, respectively,
and the Total Contractholder Account Balance regarding the GIC Product as of
the beginning of 1994 would be $100 million. Under these assumptions, ARM's
Base Management Fees for the four quarters of 1994 would be equal to the
totals of (i) the amounts computed pursuant to Section 7(a)(i)--$[***]
[[***]% x ($118.75 million - $100 million) = $[***]], $[***]
[[***]% x ($156.25 million - $100 million) = $[***]], $[***]
[[***]% x ($193.75 million -$100 million) = $[***]], and $[***]
[[***]% x ($231.25 million - $100 million) = $[***]], respectively, and
(ii) the amounts computed pursuant to Section 7(a)(ii)--$[***]
in each case [[***]% x $100 million = $[***]].
Accordingly, ARM's Base Management Fees for the four quarters of 1994 would be
$[***], $[***], $[***], and
$[***], respectively.
[***] This material has been omitted pusuant to a request for confidential
treatment filed with the SEC under Rule 406. The omitted material has
been filed separately with the SEC.
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================================================================================
(b) ARM Annual Profit Share. In addition to all other compensation
provided for under this Agreement, with respect to each full or partial calendar
year, ARM be entitled to receive an annual profit share ("ARM Annual Profit
Share") equal to:
The sum of:
(i) [***]% of (A) minus (B), where:
(A) equals the Total Annual Profit/Loss (as defined in Section 15
hereof) with respect to such year regarding the GIC Product; and
(B) equals the Client Floor (as defined in Section 15 hereof)
with respect to the GIC Product,
Plus
(ii) The ARM Annual Profit Share with respect to the year immediately
preceding the subject year if such ARM Annual Profit Share with
respect to such immediately preceding year is an amount less than zero
("Loss Carryover").
Except by way of the offset of a Loss Carryover as hereinabove provided, ARM
shall not be required to pay or otherwise bear the burden of any failure of the
Total Annual Profit/Loss or ARM Annual Profit Share in any year to exceed zero
or the failure of the Total Annual Profit/Loss in any year to exceed the Client
Floor in such year.
[***] This material has been omitted pusuant to a request for confidential
treatment filed with the SEC under Rule 406. The omitted material has
been filed separately with the SEC.
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================================================================================
Illustrations
The application of the foregoing rates and calculations may be illustrated by
the following examples:
Example 1 (No Loss Carryover Year):
Assume that (i) the first year during which the GIC Product is issued is
1993, (ii) the GIC Product account balances increase by $100 million on a
ratable basis during 1993, and (iii) the Total Annual Profit/Loss for 1993
equals $500,000 (assumed to be equal to 100 bps on average GIC Product account
balances throughout the year of $50 million). In such event, the Client Floor
for 1993 would be $[***] [[***]% x $50 million = $[***]] and
the excess of the Total Annual Profit/Loss for 1993 over the Client Floor would
be a profit of $[***] [$500,000 - $[***] = $[***]]. Accordingly, the ARM Profit
Share for 1993 would be $[***] [[***]% x $[***] = $[***]].
Similarly, assume that (i) the GIC Product account balances increase by
$150 million on a ratable basis during 1994, and (ii) the Total Annual
Profit/Loss for 1994 equals $1,750,000 (assumed to be equal to 100 bps on
average GIC Product account balances throughout the year of $175 million). In
such event, the Client Floor for 1994 would be $[***] [[***] x $175 million
= $[***]] and the excess of the Total Annual Profit/Loss for 1994 over the
Client Floor would be $[***] [$1,750,000 - $[***] = $[***]].
Accordingly, the ARM Profit Share for 1994 would be $[***] [[***]% x $[***] =
$[***]].
Finally, assume that (i) the GIC Product account balances increase by $200
million on a ratable basis during 1995, and (ii) the Total Annual Profit/Loss
for 1995 equals $3,500,000 (assumed to be equal to 100 bps on average GIC
Product account balances throughout the year of $350 million). In such event,
the Client Floor for 1995 would be $[***] [[***]% x $350 million =
$[***]] and the excess of the Total Annual Profit/Loss for 1995 over the
Client Floor would be $[***] [$3,500,000 - $[***] = $[***]].
Accordingly, the ARM Profit Share for 1995 would be $[***] [[***]% x $[***]].
Example 2 (One Loss Carryover Year): Although not expected by the parties,
assume that (i) the Total Annual Profit/Loss for 1994 were $1,050,000 (assumed
to be equal to 60 bps on average GIC Product account balances throughout the
year of $175 million) instead of the $1,750,000 assumed for purposes of Example
1, and (ii) the other assumptions of Example 1 continued to apply. In such
event, the ARM Profit Share for 1994 would be a negative < $[***] > [[***]% x
($1,050,000 - $[***]) = < $[***] >], and the ARM Profit Share for 1995
would be $[***] [$[***] + < $[***] > = $[***]], reflecting the absorption
of the Loss Carryover of < $[***] > from 1994. In this case, there would be no
Loss Carryover to be applied as to 1996.
[***] This material has been omitted pusuant to a request for confidential
treatment filed with the SEC under Rule 406. The omitted material has
been filed separately with the SEC.
-8-
================================================================================
The ARM Annual Profit Share with respect to each year shall be distributed by
Client to ARM out of the Product Fund Balance with respect to the GIC Product in
quarterly installments as soon as reasonably practicable after the end of each
calendar quarter during the year. In such regard, the installment for each
calendar quarter other than the fourth calendar quarter of a year shall be
determined by Client and ARM in the following manner: (i) first, the ARM Annual
Profit Share for the entire year shall be estimated by Client and ARM by a
linear extrapolation method based on applicable financial data available with
respect to the GIC Product for current and past calendar quarters of such year,
(ii) second, such estimated ARM Annual Profit Share shall be multiplied by a
fraction, the numerator of which is the number of elapsed calendar quarters of
such year through and including the current calendar quarter and the denominator
of which is the number four (4), and (iii) third, the total amount of
installments of the ARM Annual Profit Share for such year paid to ARM with
respect to prior calendar quarters (net of any repayments of such installments
by ARM) shall be subtracted from the product obtained pursuant to the
immediately preceding clause (ii), the result of which computation is
hereinafter referred to as the "Required Payment"). If the Required Payment is a
positive number, Client shall immediately pay such Required Amount to ARM as the
installment of the ARM Annual Profit Share with respect to the calendar quarter
in question. On the other hand, if the Required Payment is a negative number,
ARM shall pay as soon as reasonably practicable the absolute value of such
Required Payment to Client as a repayment of overpaid past installments. As soon
as reasonably practicable after the end of each year, the actual ARM Annual
Profit Share for such year shall be determined by ARM and Client. If the
difference between such finally determined amount and the total of all
installments of the ARM Annual Profit Share for such year paid to ARM with
respect to prior calendar quarters (net of any repayments of such installments
by ARM) is a positive number, Client shall pay as soon as reasonably practicable
such difference to ARM as the final installment of the ARM Annual Profit Share.
If such difference is a negative number, ARM shall as soon as reasonably
practicable pay to Client the lesser of (i) the absolute value of such
difference and (ii) the total of all installments of the ARM Annual Profit Share
for such year paid to ARM (net of any prior repayments of such installments by
ARM).
8. Client Annual Profit Share. The Client Annual Profit Share regarding the
GIC Product for each year shall be distributed to Client out of the Product Fund
Balance with respect to the GIC Product in quarterly installments as soon as
reasonably practicable after the end of each calendar quarter during the year.
In such regard, the installments for each calendar quarter shall be estimated or
determined, and appropriate payments made in or out of the Product Fund Balance
with respect to the GIC Product, in a manner similar to that set forth at the
end of Section 7 hereof with respect to installments of the ARM Annual Profit
Share for such year.
9. Representations and Warranties of Client. Client represents and warrants
to ARM, as of the date hereof and as of each day throughout the Term, as
follows:
(a) Organization and Existence. Each of Client and any Designated
Affiliate of Client is either a mutual life insurance company or a corporation
duly organized and validly existing under the laws of the state or country of
its domicile or incorporation. Each of them
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has, and at all times has had, full power and authority to own its properties
and conduct its business.
(b) Authority. Each of Client and any Designated Affiliate of Client
has full power and authority, corporate and otherwise, to enter into, deliver
and perform this Agreement. Client's execution, delivery and performance of, and
the consummation of the transactions contemplated by, this Agreement have been
duly authorized. This Agreement has been duly executed and delivered by Client
and constitutes the legal, valid and binding obligation of Client, enforceable
in accordance with the terms and conditions hereof.
(c) Licensing. Each of Client and any Designated Affiliate of Client
is properly authorized and licensed to write guaranteed interest contracts or
other group annuity products in all states and the District of Columbia, except
New York, as well as any other jurisdictions in which it is currently issuing
policies.
10. Representations and Warranties of ARM. ARM represents and warrants to
Client, as of the date hereof and as of each day throughout the Term, as
follows:
(a) Organization and Existence. ARM is a limited partnership duly
organized and validly existing under the laws of the Commonwealth of Kentucky.
ARM has, and at all times has had, full power and authority to own its
properties and conduct its business.
(b) Authority. ARM has full power and authority to enter into, deliver
and perform this Agreement. ARM's execution, delivery and performance of, and
the consummation of the transactions contemplated by, this Agreement have been
duly authorized. This Agreement has been duly executed and delivered by ARM and
constitutes the legal, valid and binding obligation of ARM, enforceable in
accordance with the terms and conditions hereof.
(c) Change of Partners. ARM shall comply with all applicable
provisions of the Investment Advisers Act of 1940, as amended, including, but
not limited to, the requirement that ARM give notice to Client of any change in
the partners of ARM and the requirement that ARM not assign the Agreement
without the prior consent of Client.
11. Early Termination by Notice. At any time, either party hereto may, in
its sole discretion, terminate this Agreement prior to expiration of the Term by
delivering to the other party hereto at least 60 days' prior written notice of
termination, in which case this Agreement shall terminate 60 days after the date
such notice is received unless a later date of termination is specified therein.
12. Continuation of Services and/or Fees Under Certain Circumstances;
Restrictions on Marketing of Similar Products. Notwithstanding any other
provision hereof, upon termination of this Agreement by expiration of the Term
or otherwise, ARM shall continue to perform its contractholder administration
services and portfolio and asset-liability advisory services hereunder as to all
Contracts with respect to the GIC Product then in force, during a period of
eighteen (18) months following the expiration of the Term or the termination of
this Agreement prior to expiration of the Term pursuant to Section 11 hereof and
shall continue to
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be entitled to receive all compensation provided for hereunder with respect
thereto as if the Term had not ended. Furthermore, during the Term and for a
period of eighteen (18) months following the expiration of the Term or the
termination of this Agreement prior to expiration of the Term pursuant to
Section 11 hereof, any sales by Client, any Affiliate of Client, or any other
party for the benefit of Client of the GIC Product or any product which is
identical to, or substantially similar to, the GIC Product shall be treated as
if the sales of such products were sales of the GIC Product by ARM during the
Term of this Agreement and ARM shall be entitled to a quarterly Base Management
Fee and an ARM Annual Profit Share with respect to such sales in the same manner
as that set forth in Section 7 hereof. If, at any time, the Client elects to put
back to any contractholder all or any part of such contractholder's account
balance with respect to the GIC Product (as opposed to a withdrawal by such
contractholder or a distribution of interest or other income in the ordinary
course of business with respect to the GIC Product), then Client shall pay as
soon as reasonably practicable a fee (the "Special Fee") to ARM equal to the
product of (i) the number three (3), multiplied by (ii) the amount put back to
the contractholder, and further multiplied by (iii) [***]%; provided, however,
that Client shall not be obligated to pay the aforesaid Special Fee to ARM if
the Total Annual Profit/Loss with respect to the GIC Product for the four
consecutive calendar quarters immediately preceding the calendar quarter in
which Client elects to put back the funds to such contractholder is less than
(x) the Average Annual Reserves with respect to such four-quarter period,
multiplied by (y) [***]%.
13. Remedies on Breach. Each party shall be entitled to all rights and
remedies available at law or equity for any breach or default by the other party
of its obligations under this Agreement, all such rights and remedies shall be
cumulative, and none shall exclude any other right or remedy allowed by law or
equity. Said rights and remedies may be exercised and enforced concurrently or
successively from time to time to the extent applicable.
14. No Guarantee of Results. Although ARM will exercise its reasonable best
efforts to propose Products which it believes in good faith will perform and
sell as contemplated, ARM in no way warrants or guarantees that the GIC Product
will sell, generate profits, or otherwise perform as set forth in any product
proposal or in any other manner whatsoever. Except for any loss or damage caused
by ARM's breach of any of its duties or obligations under this Agreement or by
ARM's gross negligence or wilful misconduct in the performance of its duties,
obligations, and services under this Agreement, ARM shall not be responsible or
liable in any way for any loss or damage whatsoever which may be caused to
Client or any of its Affiliates (i) by reason of any deviations or variations in
results, performance, profitability or any other aspect from those set forth in
any product proposal, (ii) by reason of the failure of the GIC Product or any
other product to sell, generate profits or otherwise perform in any particular
manner, or (iii) by reason of any changes in any applicable laws, regulations,
rules, or procedures, including, but not limited to, any loss or damage
whatsoever which may be caused by reason of any errors, deviations or variations
in or from any of the various assumptions, estimates, actuarial computations,
investment strategies or models used or adopted in connection with the design,
development, implementation, operation or continuation of the GIC Product or any
other product. Furthermore, ARM shall have no liability or responsibility for
any loss, damage or expense caused to Client or any of its Affiliates by reason
of any defects or
[***] This material has been omitted pusuant to a request for confidential
treatment filed with the SEC under Rule 406. The omitted material has
been filed separately with the SEC.
-11-
deficiencies in the form or substance of the GIC Product or any other product,
regardless whether or not ARM coordinates or performs the drafting, registration
or other activities with respect to the preparation and issuance of such
product, unless due to ARM's gross negligence or wilful misconduct.
15. Definitions. For purposes of this Agreement, the following definitions
shall apply:
(a) Affiliate. For all purposes of this Agreement, the term
"Affiliate" with respect to any entity ("Subject Party") shall mean any
corporation, partnership, trust, mutual life insurance company, or other entity
Controlling, Controlled by, or under common Control with, such Subject Party.
For all purposes of this Agreement, the term "Control" (including, but not
limited to, the terms "Controlled by" and "Controlling," or any variations
thereof) shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a party, whether
through ownership of voting securities, position of authority, or otherwise.
(b) Average Annual Reserves. For all purposes of this Agreement, the
term "Average Annual Reserves" with respect to any period of four consecutive
calendar quarters regarding the GIC Product shall mean an amount equal to the
quotient of (i) the sum of the Average Quarterly Reserves with respect to each
quarter during such period regarding the GIC Product, divided by (ii) the number
four (4).
(c) Average Quarterly Reserves. For all purposes of this Agreement,
the term "Average Quarterly Reserves" regarding the GIC Product with respect to
any calendar quarter shall mean an amount equal to the simple average of the
Minimum Required Statutory Reserves regarding the GIC Product as of the
beginning and the end of such quarter.
(d) Average Annual Contractholder Account Balance. For all purposes of
this Agreement, the term "Average Annual Contractholder Account Balance"
regarding the GIC Product with respect to any period of four consecutive
calendar quarters shall mean an amount equal to the quotient of (i) the sum of
the Average Quarterly Contractholder Account Balances with respect to each
quarter during such period regarding the GIC Product, divided by (ii) the number
four (4).
(e) Average Quarterly Contractholder Account Balance. For all purposes
of this Agreement, the term "Average Quarterly Contractholder Account Balance"
regarding the GIC Product with respect to any calendar quarter shall mean an
amount equal to the simple average of the Total Contractholder Account Balances
regarding the GIC Product as of the beginning and the end of such quarter.
(f) Client Annual Profit Share. For all purposes hereof, the term
"Client Annual Profit Share" with respect to each full or partial calendar year
within the Term regarding the GIC Product shall mean the excess, any, of (i) the
Total Annual Profit/Loss (as hereinafter defined) with respect to such year or
partial year regarding the GIC Product, over
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(ii) the sum of (A) all Base Management Fees paid or due and accrued with
respect to such year or partial year based on the Average Quarterly
Contractholder Account Balance during such year or partial year regarding the
GIC Product, plus (B) the ARM Annual Profit Share, if any, with respect to such
year or partial year regarding the GIC Product, plus (C) the commissions, if
any, paid or due and accrued to The Laughlin Group with respect to such year or
partial year regarding the GIC Product, plus (D) investment expenses withdrawn
from the Product Fund Balance for such year or partial year.
(g) Client Floor. For all purposes of this Agreement, the term "Client
Floor" with respect to any calendar year during the Term regarding the GIC
Product shall mean an amount equal to the product of (i) the Average Annual
Reserves (as defined in Section 15(b) hereof) with respect to such year
regarding the GIC Product, multiplied by (ii) [***]%.
(h) Minimum Required Statutory Reserves. For all purposes of this
Agreement, the term "Minimum Required Statutory Reserves" shall mean an amount
which does not exceed the Total Contractholder Account Balance for the GIC
Product unless Client is legally required by the Department of Insurance of its
state of domicile or other regulatory authority to maintain reserves for the GIC
Product at an amount greater than such Total Contractholder Account Balance.
(i) Net Asset Change. For all purposes of this Agreement, the term
"Net Asset Change" with respect to any period of four consecutive calendar
quarters regarding the GIC Product shall mean an amount equal to the difference
(which difference may be a positive or negative number) between (i) the sum of
all cash and the amount of all other assets comprising the Product Fund Balance
with respect to the GIC Product as of the end of the subject period, all
investment expenses withdrawn from the Product Fund Balance during such period,
and the total amount of any Base Management Fees and ARM Annual Profit Share
payments paid to ARM, and Client Annual Profit Share payments paid to Client
during such period in connection with the GIC Product, and (ii) the sum of all
cash and the amount of all other assets comprising the Product Fund Balance with
respect to the GIC Product as of the end of the four-quarter period immediately
preceding the subject period after reduction for all investment expenses, ARM
Base Management Fees, ARM Annual Profit Share payments, and Client Annual Profit
Share payments due and accrued as of such date in connection with the GIC
Product, but paid during the subject period, all as determined in conformity
with statutory accounting practices prescribed, or otherwise permitted, by the
Department of Insurance of Client's state of domicile. For purposes of Section
(h)(i) above, all withdrawals and payments are determined on the basis of
amounts transferred from the Product Fund Balance during the subject period for
charges incurred during such period.
(j) Net Liability Change. For all purposes of this Agreement, the term
"Net Liability Change" with respect to any period of four consecutive calendar
quarters regarding the GIC Product shall mean an amount equal to the difference
(which may be a positive or negative number) between (i) the Minimum Required
Statutory Reserves with respect to the GIC Product as of the end of the subject
period, and (ii) the Minimum Required Statutory Reserves
[***] This material has been omitted pusuant to a request for confidential
treatment filed with the SEC under Rule 406. The omitted material has
been filed separately with the SEC.
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with respect to the GIC Product as of the end of the period immediately
preceding the subject period.
(k) Net Realized Capital Gain or Net Realized Capital Loss. For all
purposes of this Agreement, the term "Net Realized Capital Gain" with respect to
the Product Fund Balance for any period of four consecutive calendar quarters
shall mean an amount equal to the excess, if any, of (i) the sum of all realized
capital gains with respect to the Product Fund Balance during such period, over
(ii) the sum of all realized capital losses with respect to the Product Fund
Balance during such period, and, conversely, the term "Net Realized Capital
Loss" with respect to the Product Fund Balance in any period of four consecutive
calendar quarters shall mean an amount equal to the excess, if any, of (x) the
sum of all realized capital losses with respect to the Product Fund Balance
during such period, over (y) the sum of all realized capital gains with respect
to the Product Fund Balance during such period. The amount of any realized
capital gain or capital loss with respect to any period shall be as determined
in conformity with statutory accounting practices prescribed, or otherwise
permitted, by the Department of Insurance of Client's state of domicile.
(l) Product Fund Balance. A separate fund balance account shall be
maintained by Client for bookkeeping purposes with respect to the GIC Product
("Product Fund Balance"). The Product Fund Balance at any time as to the GIC
Product shall be an amount equal to the sum of (i) all deposits received through
such time from contractholders by reason of sales of the GIC Product, plus (ii)
the gross investment income through such time attributable to such Product Fund
Balance (determined in conformity with statutory accounting practices
prescribed, or otherwise permitted, by the Department of Insurance of Client's
state of domicile), plus or minus, as applicable, (iii) the Net Realized Capital
Gain or Net Realized Capital Loss (as defined in Section 15(k) hereof) through
such time attributable to such Product Fund Balance (exclusive of any otherwise
applicable capital gains tax), and minus (iv) the total of all withdrawals,
payments and distributions made out of the Product Fund Balance through such
time in accordance with the provisions of this Agreement, including, but not
limited to, withdrawals, payments and distributions made through such time in
order to satisfy obligations to contractholders or pay Base Management Fees, ARM
Annual Profit Shares, Special Fees, commission payments to The Laughlin Group in
connection with sales of the GIC Product, Client Annual Profit Shares, or
investment expenses. For all purposes of this Agreement, references to
"withdrawals," "payments," or "distributions" (or derivations thereof) out of
the Product Fund Balance shall mean withdrawals, payments or distributions out
of the cash and other assets accounted for under the Product Fund Balance.
(m) Total Annual Profit/Loss. For all purposes of this Agreement, the
term "Total Annual Profit/Less" with respect to the GIC Product for any period
of four consecutive calendar quarters shall mean an amount (which amount may be
a positive or negative number) equal to (a) the Net Asset Change (as defined in
Section 15(h), 15(i) hereof) for such period with respect to the GIC Product,
minus (b) the Net Liability Change (as defined in Section 15(j) hereof) for such
period with respect to the GIC Product, minus (c) an amount equal to two-thirds
(2/3) of the Net Realized Capital Gain (as defined in Section 15(k) hereof) for
such period with respect to the GIC Product, if any, plus (d) an amount equal to
two-thirds (2/3) of the Net
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Realized Capital Loss (as defined in Section 15(k) hereof) for such period with
respect to the GIC Product, if any, plus (e) an amount equal to one-third (1/3)
of the Net Realized Capital Gains, if any, with respect to the GIC Product for
each of the two four-quarter periods immediately preceding the subject period,
minus (f) an amount equal to one-third (1/3) of the Net Realized Capital Losses,
if any, with respect to the GIC Product for each of the two four-quarter periods
immediately preceding the subject period.
(n) Total Contractholder Account Balance. For all purposes of this
Agreement, the term "Total Contractholder Account Balance" with respect to the
GIC Product as of any date shall mean an amount equal to the balances as of such
date of all contracts under the GIC Product, based upon contractholder deposits,
interest credited, and contractholder withdrawals through such date.
16. Independent Contractor. It is the intention of the parties hereto that
the relationship of ARM created hereby be that of an independent contractor.
Neither ARM, nor any of ARM's employees, shall be deemed to be an employee of
Client or any Affiliate of Client, nor shall ARM or any of ARM's employees hold
themselves out to others as so acting. Neither the Client nor any of its
Affiliates shall control the specific manner in which ARM performs its duties.
17. Notices. All notices, requests, demands or other communications
required or permitted under this Agreement shall be in writing and transmitted
to the party to whom such notice, request, demand or other communication is
intended to be delivered (i) by personal delivery to such intended recipient,
which personal delivery shall be evidenced by a written receipt therefor signed
by such recipient, (ii) by United States registered, certified or express mail,
return receipt requested, postage prepaid, or by a reputable express delivery
service (such as Federal Express, Airborne, Purolator, DHL or United Parcel
Service), fees prepaid, addressed to the intended recipient thereof, at the
address set forth for such party at the beginning of this Agreement, or at such
other address as such party shall furnish in writing to the other party to this
Agreement, or (iii) by fax to such intended recipient, receipt of which
transmission shall be confirmed by such recipient. All notices, requests,
demands and other communications shall be effective upon being personally
delivered or delivered by fax and properly receipted or upon being properly
addressed and deposited in the United States mail or with a reputable express
delivery service in accordance with the foregoing.
18. Amendment. This Agreement may be modified or amended from time to time
with the written consent of both parties.
19. Waiver. No waiver by any party of any of the provisions of this
Agreement, nor any default by any party, shall affect the rights of the waiving
or any nondefaulting party thereafter to enforce such provision or to exercise
any right or remedy in the event of any other default, whether similar or
dissimilar. No waiver shall be binding unless executed in writing by the party
making the waiver, nor shall any waiver constitute a continuing waiver.
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20. Captions. Section or paragraph titles, captions, and illustrations or
examples contained in this Agreement are inserted only as a matter of
convenience and reference, and in no way define, limit, extend or describe the
scope of this Agreement, or the intent of any provision hereof.
21. Entire Agreement. This Agreement constitutes the entire agreement among
the parties pertaining to the subject matter contained in it and supersedes all
prior and contemporaneous agreements, representations, and understandings of the
parties, including, but not limited to, that certain Engagement Agreement dated
November 3, 1992. No supplements, variations, modifications, amendments or
changes hereof shall be binding upon any party unless set forth in a document
duly executed by such party.
22. Severability. If any nonmaterial provision of this Agreement, or the
application thereof to any individual, entity or circumstances, shall be invalid
or unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to other individuals, entities or circumstances,
shall not be affected thereby and shall be enforced to the greatest extent
permitted by law.
23. Assignment: Binding Agreement. Except as otherwise provided herein,
neither party may assign this Agreement, or any of such party's rights, duties,
or obligations under this Agreement, without the prior consent of the other
party. Except as otherwise provided herein, this Agreement shall be binding
upon, and inure to the benefit of, the parties hereto, their personal
representatives, heirs, successors, and permitted assigns.
24. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Kentucky.
25. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
26. Further Assurances. Each of the parties hereby agrees to execute and
deliver all of the agreements, documents and instruments required to be executed
and delivered by it in this Agreement and to execute and deliver such additional
instruments and documents and to take such additional actions as may reasonably
be required from time to time in order to effectuate the transactions
contemplated by this Agreement throughout the Term.
27. Other Proposed Products. As Client and ARM may mutually agree from time
to time during the Term, ARM shall design and develop written proposals for
additional guaranteed interest contracts and other group annuity products or
other products to be issued by Client. In such event, during the Term (and
during a period of two years thereafter in the case of any such product proposal
developed during the last year of the Term), as among ARM, Client and Client's
Affiliates, only ARM may sell products which are the same or substantially the
same as those set forth in any such product proposal except as otherwise
provided pursuant to a specific written agreement between ARM and Client.
(Signature Page Alone Follows)
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
CLIENT:
GENERAL AMERICAN LIFE INSURANCE
COMPANY-GROUP PENSION
By: /s/ E. Tom Hughes
-----------------------------------------
E. Tom Hughes
Executive Vice President - Group Pensions
ATTEST:
By: /s/ Debra J. Ferguson
---------------------------
Title: Administrative Assistant
ARM:
ANALYTICAL RISK MANAGEMENT, LTD.
By: /s/ Martin H. Ruby
-----------------------------------------
Martin H. Ruby
Co-Chief Executive Officer
ARM GP, Inc., General Partner
ATTEST:
By: /s/ David M. Roth
-----------------------------
David M. Roth, Secretary,
ARM GP, Inc., General Partner
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