TRANSITION SERVICES AGREEMENT
dated as of
December 30, 2005
among
THE HANOVER INSURANCE GROUP, INC.
(FORMERLY ALLMERICA FINANCIAL CORPORATION),
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY,
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY,
and
THE XXXXXXX XXXXX GROUP, INC.
TABLE OF CONTENTS
PAGE
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ARTICLE 1
DEFINITIONS
Section 1.01. DEFINITIONS 1
ARTICLE 2
SERVICES
Section 2.01. SERVICES 4
Section 2.02. INTRODUCTION OF OTHER SERVICES; CHANGES IN EXISTING
TRANSITION SERVICES 6
Section 2.03. GENERAL STANDARD OF SERVICE 6
Section 2.04. NOTICE OF CERTAIN MATTERS 7
Section 2.05. AUTHORITY 10
Section 2.06. NOTICE TO POLICYHOLDERS 10
Section 2.07. APPOINTMENT 11
Section 2.08. BOOKS AND RECORDS 11
Section 2.09. ACCESS TO BOOKS AND RECORDS 11
Section 2.10. BACK-UP 12
Section 2.11. VARIANCES 12
Section 2.12. SOFTWARE CUSTOMIZATION AND SYSTEMS MODIFICATION 13
Section 2.13. INFORMATION AND ASSISTANCE 14
ARTICLE 3
SERVICE COSTS
Section 3.01. PRICING FOR SERVICES 15
Section 3.02. OTHER COSTS AND EXPENSES 16
Section 3.03. ADJUSTMENT OF SERVICE COSTS 16
Section 3.04. SALES TAX 17
Section 3.05. INVOICING AND SETTLEMENT OF COSTS 17
Section 3.06. ACCESS AND INSPECTION RIGHTS 19
ARTICLE 4
DISCLAIMERS; LIMITATION OF LIABILITY; INDEMNIFICATION
Section 4.01. DISCLAIMERS 20
Section 4.02. LIMITATION OF LIABILITY 20
Section 4.03. INDEMNIFICATION BY BUYER 22
Section 4.04. INDEMNIFICATION BY SELLER 22
Section 4.05. FORCE MAJEURE 22
Section 4.06. EXCLUSIVITY 23
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Section 4.07. INTERPRETATIONS 23
Section 4.08. SURVIVAL 23
ARTICLE 5
TERM AND TERMINATION
Section 5.01. TERM 23
Section 5.02. TERMINATION 24
Section 5.03. EFFECT OF TERMINATION 25
ARTICLE 6
CONFIDENTIAL INFORMATION; COMPLIANCE WITH LAW
Section 6.01. DEFINITION OF CONFIDENTIAL INFORMATION 25
Section 6.02. ACKNOWLEDGMENT AND PRECAUTIONS; XXXXX-XXXXX-XXXXXX
COMPLIANCE 26
Section 6.03. DISCLOSURE OF CONFIDENTIAL INFORMATION 27
Section 6.04. NOTIFICATION UPON DISCOVERY OF DISCLOSURE 27
Section 6.05. RETURN OF CONFIDENTIAL INFORMATION 27
Section 6.06. COMPLIANCE WITH LAW AND/OR ORDER 28
ARTICLE 7
COMPUTER SYSTEMS ACCESS, SECURITY AND INTEGRITY
Section 7.01. SYSTEMS ACCESS; MONITORING 28
Section 7.02. MAINTENANCE OF SECURITY REGULATIONS 29
Section 7.03. VIRUS PROTECTION 29
Section 7.04. DISASTER RECOVERY 30
Section 7.05. INTELLECTUAL PROPERTY 30
ARTICLE 8
MISCELLANEOUS
Section 8.01. NO AGENCY 30
Section 8.02. SUBCONTRACTORS AND PERSONNEL 31
Section 8.03. COOPERATION; LIAISONS; DISPUTE ESCALATION;
COORDINATION WITH THIRD-PARTY SERVICE PROVIDER 32
Section 8.04. NOTICES 32
Section 8.05. AMENDMENTS; NO WAIVERS 33
Section 8.06. EXPENSES 33
Section 8.07. SUCCESSORS AND ASSIGNS 34
Section 8.08. GOVERNING LAW 34
Section 8.09. COUNTERPARTS; EFFECTIVENESS; THIRD-PARTY BENEFICIARIES 34
Section 8.10. ENTIRE AGREEMENT 34
Section 8.11. JURISDICTION 34
Section 8.12. DISPUTE RESOLUTION 35
Section 8.13. WAIVER OF JURY TRIAL 36
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Section 8.14. SEVERABILITY 37
Section 8.15. CAPTIONS 37
Section 8.16. SPECIFIC PERFORMANCE 37
SCHEDULES
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TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT (the "Agreement") dated as of December 30,
2005 among The Hanover Insurance Group, Inc. (formerly Allmerica Financial
Corporation), a
Delaware corporation, ("AFC"), First Allmerica Financial Life
Insurance Company, a stock insurance company incorporated in Massachusetts
("FAFLIC"), Allmerica Financial Life Insurance and Annuity Company, a stock
insurance company incorporated in Massachusetts (the "COMPANY"), and The Xxxxxxx
Xxxxx Group, Inc., a
Delaware corporation ("BUYER").
RECITALS:
WHEREAS, AFC and Buyer have entered into a Stock Purchase Agreement dated
as of August 22, 2005 (the "SPA") providing, among other things, for the sale by
AFC to Buyer of all of the issued and outstanding stock of the Company and the
acquisition of the Core Business by Buyer;
WHEREAS, for a transition period from the Closing until the expiration of
the Service Term, the Company and Buyer desire that AFC or certain of its
Affiliates that are as of the date hereof providing services to the Company
(each, a "SELLER") provide such services to the Company on the terms and
conditions set forth herein and Seller is willing to provide such services on
such terms and conditions;
WHEREAS, during the transition period, the Company and Buyer desire that
Seller provide certain assistance to the Company and Buyer in the conversion of
the operations of the Core Business from Seller to a third party administrator,
Buyer and its Affiliates on the terms and conditions set forth herein and Seller
is willing to provide such assistance on such terms and conditions; and
WHEREAS, pursuant to the SPA, the parties hereto have agreed to enter into
this Agreement upon the Closing.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants, and agreements set forth herein and in the SPA, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. DEFINITIONS. (a) The following terms, as used herein, have
the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"TAX" means any tax, governmental fee or other like assessment or charge
of any kind whatsoever (including withholding on amounts paid to or by any
Person), together with any interest, penalty, addition to tax or additional
amount imposed by any Governmental Entity (domestic or foreign) responsible for
the imposition of any such tax (a "TAXING AUTHORITY").
"TAX RETURN" means all reports, forms and returns required to be filed with
respect to Taxes.
"POST CLOSING ADMINISTRATOR" means SE2, a division of Security Benefit Life
Insurance, Inc., or any substitute third-party administrator.
(b) Capitalized terms used herein and not otherwise defined herein have the
respective meanings assigned to such terms in the SPA.
(c) The words "hereof", "herein" and "hereunder" and words of like import
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof. References to Articles, Sections, Exhibits and Schedules
are to Articles, Sections, Exhibits and Schedules of this Agreement unless
otherwise specified. All Exhibits and Schedules annexed hereto or referred to
herein are hereby incorporated in and made a part of this Agreement as if set
forth in full herein. Any capitalized terms used in any Exhibit or Schedule but
not otherwise defined therein shall have the meaning as defined in this
Agreement or, if not defined herein, as defined in the SPA. Any singular term in
this Agreement shall be deemed to include the plural, and any plural term the
singular. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation", whether or not they are in fact followed by those words or words of
like import. "Writing", "written" and comparable terms refer to printing, typing
and other means of reproducing words (including electronic media) in a visible
form. References to any agreement or contract are to that agreement or contract
as amended, modified or supplemented from time to time in accordance with the
terms hereof and thereof. References to any Person include the successors and
permitted assigns of that Person. References from or through any date mean,
unless otherwise specified, from and including or through and including,
respectively. Wherever this Agreement requires an Affiliate of AFC or Buyer that
is not a party hereto, to perform or comply with any provision set forth herein,
AFC or Buyer, as applicable, shall cause such Affiliate to effect such
performance or compliance, and shall be responsible for any non performance or
non compliance by such Affiliate.
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(d) Each of the following terms is defined in the section set forth
opposite such term:
TERM SECTION
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AFC Preamble
Affected Party 3.04(c)
Agreement Preamble
Application Software 2.12(a)
Back-Up Copies 2.10
Bankruptcy Laws 5.02(c)
Buyer Preamble
Buyer Indemnified Person 4.04
Change Order 2.02
Company Preamble
Confidential Information 6.01(a)
Conversion Costs 3.01
Conversion Services 2.01(c)
Customer Information 6.01(a)
Damages 4.03
Disaster Recovery Plans 7.04
Disclosing Party 6.01(a)
Essential Services 2.04(b)
FAFLIC Preamble
Final and Binding 8.12(e)
GLB 6.01(a)
Inspection 3.06(a)
Liaison 8.03(b)
Material Non-Compliance Notice 2.04(a)
Modification Notice 2.12(c)
Non-Compliance Notice 2.04(a)
Omitted Services 2.01(b)
Operations Software 2.12(a)
Other Party 3.04(c)
Other Services 2.01(d)
Other Services Costs 3.01
Pass Through Service Costs 3.01
Payment Date 3.05(a)
Policy Service Costs 3.01
Receiving Party 6.01(b)
Seller Recitals
Seller Indemnified Person 4.02(a)
Seller Subcontractor Claim 8.02(d)
Seller Subcontractors 8.02(a)
Services 2.01(d)
Service Costs 3.01
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TERM SECTION
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Service Term 5.01
Software 2.12(a)
SPA Recitals
Standard of Service 2.03(a)
Supporting Services 2.04(c)
Taxing Authority 1.01
Transition Services 2.01(a)
Variable Service 3.03
Variable Service Resource 3.03
Variances 2.11
Virus 7.03(a)
ARTICLE 2
SERVICES
Section 2.01. SERVICES. (a) From the Closing until the expiration of the
Service Term, upon the terms and conditions of this Agreement, Seller shall
provide the Company, with respect to the Insurance Contracts issued before the
Closing, or following the Closing in conformity with clauses (i)(C)(I) through
(i)(C)(IV) of the definition of "Core Business" (in accordance with practices in
effect immediately prior to the date of the SPA with changes made in the
ordinary course of business thereafter or as otherwise provided in Section 2.02,
2.03(b) or 4.07), and provided that such Insurance Contracts would have
constituted Insurance Contracts had they been issued on or prior to the Closing,
the services set forth on Schedule 2.01(a) (the "TRANSITION SERVICES"). Seller
may satisfy its obligation to provide or procure Services hereunder by causing
one or more of its Affiliates and/or such Seller Subcontractors as Seller may
engage or hire in accordance with the terms and conditions of Section 8.02
hereof to provide or procure such Services.
(b) To the extent that any services have been provided by Seller or on
behalf of Seller by a third Person to the Core Business during the twelve (12)
months immediately prior to the date of the SPA that are not identified on
Schedule 2.01(a) due to their inadvertent omission from Schedule 2.01(a)
(collectively, the "OMITTED SERVICES"), Seller agrees to amend Schedule 2.01(a)
at the Company's reasonable (taking into account the cost and other burdens on
Seller in providing such Omitted Services and the benefits to be received by the
Company in receiving the Omitted Service) request to include any such Omitted
Services as Transition Services on Schedule 2.01(a); PROVIDED that Omitted
Services shall not include services that were intentionally discontinued in the
ordinary course of Seller's business other than in anticipation of the
Transactions or services that were previously terminated by the Company under
this Agreement. For the avoidance of doubt, all Omitted Services shall be
included in
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Transition Services and all terms and conditions of this Agreement applicable to
Transition Services shall apply to such Omitted Services.
(c) From the Closing and for thirty (30) days following the termination of
the related Service (or for such longer period to which Seller shall reasonably
agree), Seller shall provide Conversion Services to the Company. "CONVERSION
SERVICES" shall mean such services as shall be agreed upon in good faith between
the parties for the orderly movement of data from Seller's system(s) in order to
allow the Company to transition such data and various functionalities to the
Company and/or the Post Closing Administrator, including reasonable information,
consultation and assistance for the Company and/or the Post Closing
Administrator to duplicate the applicable operating environments and software
systems relating to the Core Business. Conversion Services shall not include the
development or implementation of system(s) changes, product modifications or
system(s) enhancements, or the automation of system(s) or processes that were
not automated and in use by Seller for administering the Core Business
immediately prior to the Closing other than those which Seller is currently
undertaking and implementing. Conversion Services shall include, with respect to
the items on Schedule 3.16 of the SPA (it being understood that in some cases
such items are merely the embodiments of property already belonging or
transferred to the Company), reasonable assistance, information and consultation
with respect to: the Company's duplication of various environments and software
configurations and customizations used by Seller; migration of data to the
Company or the Post Closing Administrator; and, as requested, providing
reasonable quality copies of various systems, software and data used by the
Seller in connection with the Core Business (to the extent permitted by law,
Orders and any applicable contracts or licenses); PROVIDED that Seller makes no
representations or warranties in connection with the functionality or
suitability of systems or software within the Company's or the Post Closing
Administrator's environment(s). Seller will not be obligated to provide any
Conversion Service for which Seller would be required to purchase, license or
otherwise obtain new Software after the date hereof or for which a new license
or amendment or modification to an existing license after the date hereof from a
third party is required. The Company shall be solely responsible for obtaining
all licenses required by the Company in order to allow the Company to utilize
such Conversion Services.
(d) The Company may from time to time request, in addition to the
Transition Services (including the Omitted Services) and the Conversion
Services, additional new services or changes to the existing Transition Services
or Conversion Services in accordance with Section 2.02 hereof (such new services
and changes in Transition Services or in Conversion Services, the "OTHER
SERVICES," and together with the Transition Services (including the Omitted
Services) and the Conversion Services, the "SERVICES").
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Section 2.02. INTRODUCTION OF OTHER SERVICES; CHANGES IN EXISTING
TRANSITION SERVICES. If any Other Service, including any change in an existing
Transition Service, is requested in writing by the Company, the parties shall
negotiate in good faith regarding the applicable terms, taking into account,
among other factors, the intended purposes of this Agreement, available
personnel and other resources, and actual costs for the implementation of such
Other Service, and the associated effort, if any, required to perform such Other
Service. If the parties agree to the terms, Seller shall then promptly complete
a change order (a "CHANGE ORDER") for the approval of the Company. Such Change
Order will include, among other things, a new or revised cost for such Other
Services, as well as the costs for implementing such Other Service. All such
Other Services shall be billed to the Company as specified in Section 3.01(iii).
No action will be taken by Seller and Seller shall have no responsibility for
performing any work contemplated by such Change Order, until execution of the
Change Order by an authorized representative of the Company and Seller. Upon
such execution, the completed Change Order shall be deemed an amendment to this
Agreement, the Company will pay the amount specified and in the manner set forth
in the Change Order, and the tasks contained in the Change Order will be
performed according to the terms of this Agreement and the Change Order. Any
modification or change to the Services attributable to or caused by any change
in Law and/or Order effective after the Closing shall require a Change Order
under this Section 2.02. In the event that Seller is requested to provide any
duplicate Conversion Services, whether due to a failure to perform by the Post
Closing Administrator or any other third party administrator, or the termination
by the Company of any such Post Closing Administrator or third party
administrator or otherwise, but specifically excepting any such duplicate
Conversion Services caused by a material breach of this Agreement by Seller,
such duplicate Conversion Services shall constitute an Other Services governed
by this Section 2.02.
Section 2.03. GENERAL STANDARD OF SERVICE. (a) Except as otherwise agreed
with the Company or expressly set forth in this Agreement, Seller agrees that
the levels and degrees, as the case may be, of diligence, priority, frequency,
volume, amount, detail, quality, timeliness, and care ("STANDARD OF SERVICE")
applicable to the delivery of the Services hereunder shall be as set forth on
Schedule 2.03, or if not so specified on Schedule 2.03, shall not be materially
less favorable than those applicable with respect to the Services which Seller
provided to the Core Business as of January 1, 2005, or, for Services introduced
after January 1, 2005, the standards of service applicable to such Service,
taking into account the open staff positions that have not been filled in
expectation of entering into the Transactions, IT BEING UNDERSTOOD, for the
avoidance of doubt, that Seller's obligations hereunder shall not vary whether
the Services are provided to the Company, any Affiliate, auditor or actuarial
consultant of the Company or the Post Closing Administrator or, with the consent
of the Seller, such consent not to be unreasonably withheld, conditioned or
delayed, to any third Person designated by the Company to receive such Services.
Notwithstanding the foregoing, in the event of any material increase in the
volumes of required
6
Services due to extraordinary events, such as significant economic or industry
changes or other one-time non-recurring events beyond the control of the
Company, and the entering into and/or consummation of the Transactions, the
Standard of Service for the affected Service shall be reasonably adjusted to
reflect such material increase in volume, but only to the extent and for the
period of such material increase; PROVIDED that Seller shall use its reasonable
efforts consistent with past practices to accommodate such increase in volume.
Subject to Seller's express obligations under this Agreement and for the
Company's ultimate control over the operation of its business, the management of
and control over the provision of the Services shall reside solely with Seller.
Unless otherwise set forth in the SPA or any of the Ancillary Agreements,
without limiting the generality of the foregoing, all labor matters relating to
employees of Seller and such Seller Subcontractors as may be applicable, shall
be within the exclusive control of Seller or such Seller Subcontractor, and none
of the Company or any of its Subsidiaries or Buyer or any of its Subsidiaries
shall take any action affecting such matters. Other than in each case with
respect to any of Seller, its Affiliates and Seller Subcontractors, all labor
matters relating to the employees of the Company shall be within the exclusive
control of the Company, and the Company shall be solely responsible for the
management of any and all such employees and any vendors, agents, servants,
consultants or other representatives of the Company, including the Post Closing
Administrator.
(b) If the Services involve application of the Company's underwriting,
claims, tax qualification or similar policies in its performance of the
Services, Seller shall abide by such policies utilized by Seller in connection
with the Core Business immediately prior to the Closing Date and by any
modifications thereto, communicated in writing to Seller with reasonably
sufficient time to implement and apply the same; PROVIDED that the Company shall
be responsible for any and all incremental costs associated with such modified
policies if and to the extent that such policies shall differ from the policies
utilized by Seller in connection with the Core Business immediately prior to the
Closing. The Company acknowledges that Seller may perform claims and
reinstatement and other activities according to past practices and guidelines
provided by the Company, but that except as set forth in the SPA and in this
Agreement, Seller and its Affiliates assume no risk or responsibility for the
Company's underwriting, claims decisions, claims payment, reinsurance recovery
or claims recovery. Subject to the foregoing, the Company shall make all
underwriting and claims decisions and shall be fully responsible for same.
Section 2.04. NOTICE OF CERTAIN MATTERS. (a) (i) If the Seller has ceased
to provide any Service or is in material non compliance with the Standards of
Service applicable to any Service, the Company shall promptly so notify Seller
or its designee in writing after becoming aware of such cessation of Service or
material non-compliance by Seller. Such notice (a "MATERIAL NON-COMPLIANCE
NOTICE"), which shall be explicitly identified as a "material" notice under this
Section 2.04(a)(i), shall set forth in reasonable detail the basis for the
Company's
7
Material Non-Compliance Notice as well as the Company's view as to the steps to
be taken by Seller to address the cessation of Service or material
non-compliance. For the avoidance of doubt, Seller shall only be deemed to have
ceased to provide a Service or to be in material non-compliance with the
Standards of Service applicable to any Service if the failure of the Seller to
provide such Service or if such material non-compliance with the Standards of
Service applicable to such Service is due to events within the reasonable
control of Seller or its Affiliates (including to the extent such failure
results from Seller's failure to meet its obligation set forth in this agreement
to establish a back-up facility in accordance with its current standards).
Following receipt of a Material Non-Compliance Notice, Seller shall cooperate
with the Company in good faith to resolve the matters referred to therein to the
reasonable satisfaction of the Company.
(ii) If Seller has otherwise not been in compliance with the Standards of
Service applicable to any Service for a period of five (5) consecutive Business
Days, the Company shall promptly so notify Seller or its designee in writing
after becoming aware of such non-compliance by Seller. Such notice (a
"NON-COMPLIANCE NOTICE") shall set forth in reasonable detail the basis for the
Company's Non-Compliance Notice as well as the Company's view as to the steps to
be taken by Seller to address the non-compliance. Following receipt of a
Non-Compliance Notice, Seller shall cooperate with the Company to work in good
faith to resolve the matters referred to therein to the reasonable satisfaction
of the Company.
(b) With respect to the Services noted with an asterisk on Schedule 2.01(a)
("ESSENTIAL SERVICES"), if(1) Seller has failed to restore the ceased Essential
Service(s) specified in the Company's Material Non-Compliance Notice or (2)
Seller has failed to correct its material non-compliance with the Standards of
Service applicable to such Essential Service(s), within five (5) Business Days
in the case of (1) above or ten (10) Business Days in the case of (2) above, in
each case after receipt of a Material Non Compliance Notice, following such five
(5) or ten (10) Business Day period, until such time as Seller has resumed such
Essential Service(s) so that they are not in material non-compliance with the
applicable Standards of Service, then the Company may elect to terminate
Seller's obligation to provide or procure, and the Company's obligation to
purchase, such Essential Service(s) (or any portion thereof) referred to in its
Material Non-Compliance Notice. Notwithstanding the foregoing, the ten (10)
Business Day period shall be replaced with a five (5) Business Day period in the
case of (2) above if, following the five (5) Business Days after receipt of the
Material Non-Compliance Notice, Seller has not presented the Company with a plan
to address such material non-compliance to the reasonable satisfaction of the
Company or has not implemented any actions to remedy such material
non-compliance.
(c) With respect to Services that are not Essential Services ("SUPPORTING
SERVICES"), if(1) Seller has failed to restore the Supporting Service(s)
specified in the Company's notice or (2) Seller has failed to correct its
8
material non-compliance with the Standards of Service applicable to such
Supporting Service(s), in each case within thirty (30) calendar days after
receipt of a Material Non Compliance Notice, following such thirty (30) calendar
day period, until such time as Seller has restored the ceased Supporting Service
or has resumed such Supporting Service(s) so that it is no longer in material
non-compliance with the applicable Standards of Service, and only if such
failure to provide such Service or such material non-compliance with the
applicable Standards of Service has caused or is reasonably expected to cause
materially adverse consequences to the Company, then the Company may elect, in
its discretion, to terminate Seller's obligation to provide or procure, and the
Company's obligation to purchase, such Supporting Service(s) (or any portion
thereof) referred to in its Material Non-Compliance Notice.
(d) (i) Concurrently with the provision of a Material Non-Compliance Notice
relating to the cessation of one or more Service(s) set forth on Schedule
2.04(d) or one or more Service(s) included within a Service set forth on
Schedule 2.04(d) by the Seller, the obligation of the Company to pay the Service
Cost(s) shall be adjusted downward as set forth in Schedule 2.04(d), with, in
the case of termination of a portion of a group of Services so set forth, a pro
rata reduction to be negotiated in good faith based on the estimated percentage
of the actual cost such ceased portion of the Service represented of the total
estimated actual cost of the Service to Seller as set forth on Schedule 2.04(d)
(in each case as estimated at the time the Schedule 2.04(d) was prepared). If
Seller resumes provision of such Service(s) and the Company has not previously
terminated such Service(s) as contemplated by Section 2.04(b) or 2.04(c), the
Company shall resume the payment of the Service Cost(s) applicable to such
resumed Service(s) as of the date on which such Service(s) has/have been
resumed, without interest or penalty or back pay.
(ii) If Seller receives a Material Non-Compliance Notice relating to
Seller's material non-compliance with the Standards of Service applicable to one
or more Service(s) set forth on Schedule 2.04(d) or one or more Service(s)
included within a Service set forth on Schedule 2.04(d), the Company's
obligation to pay the Service Cost(s) shall continue unless and until the
Company has terminated such Service(s) as contemplated by Section 2.04(b) or
2.04(c). The reduction in price upon such termination shall be on the same basis
as set forth in Section 2.04(d)(i). For the avoidance of doubt, there shall not
be a reduction in Service Costs under this Section 2.04(d) relating to the
cessation or termination of a Service (or a portion thereof) other than with
respect to a Service included in Schedule 2.04(d).
(e) Subject to Section 4.05, if the Company terminates any Service as
contemplated by Section 2.04(b) or 2.04(c) and the Company retains a replacement
service provider (to be selected at the Company's discretion) to provide
services comparable in all material respects to the terminated Service(s) and at
service levels comparable in all material respects to the Standards of
9
Service applicable to the terminated Service(s), Seller shall promptly reimburse
the Company, upon presentation of documentation with a level of detail
reasonably sufficient to identify the related replacement and conversion
services and the related costs and expenses, in cash for fifty percent (50%) of
(i) the aggregate fee charged by such replacement service provider for such
replacement services that is in excess of the Service Costs applicable to the
terminated Service(s) as specified herein until such time as the Service(s)
is/are converted to the Post Closing Administrator (or such time as was
previously scheduled to convert such Services to the Post Closing Administrator,
if sooner) plus (ii) the incremental out-of-pocket conversion costs incurred by
the Company in transferring the obligation for providing such Service(s) to the
replacement service provider that the Company would not otherwise have incurred
had the Service not been terminated and such Service converted to the Post
Closing Administrator in the ordinary course.
Section 2.05. AUTHORITY. Seller shall perform the Services in the name and
on behalf of the Company only as provided in this Agreement and only at the
direction and under the authority of the Company. Except as expressly required
by Law and/or any Order or the applicable Insurance Contract or as authorized in
advance by the Company in writing, Seller shall not have authority to issue new
insurance policies or annuity contracts in the name of the Company or enter into
any agreements on the Company's behalf Notwithstanding the foregoing, Seller
shall have the authority to issue in the name of the Company in conjunction with
Seller's performance of the Services hereunder, policies, riders, policy splits,
and supplements in each case as set forth on Schedule 2.05, in accordance with
practice as of the date of the SPA but only to the extent of "guaranteed issue
coverage" (I.E., no underwriting is required). All underwriting determinations
shall be made solely by the Company. Although Seller shall have the authority to
make claims payments subject to guidelines provided by the Company to Seller,
Seller shall not make any adverse policy decisions without the prior written
consent of the Company. None of the terms or provisions of this Agreement shall
prohibit Seller or any of its Subsidiaries or Affiliates from conducting
business of whatever nature in their own names and on behalf of any person or
entity other than the Company. The Company shall take all actions necessary to
ensure that Seller's designated Affiliate has the authority to accept funds on
behalf of the Company and to disburse funds from bank accounts on the Company's
draft or check stock for the purpose of carrying out Seller's responsibilities
under this Agreement. Seller shall, at the direction and under the authority of
the Company, take all actions necessary to execute amendments, in form and
substance reasonably acceptable to the Company, to the Insurance Contracts to
conform such Insurance Contracts to the extent required by any change in Law
and/or any Order applicable to such Insurance Contracts.
Section 2.06. NOTICE TO POLICYHOLDERS. If the Company gives written notice
to policy holders of the identity of Seller or its designated Affiliate with
respect to the performance of the Services and the relationship between the
10
Company and Seller or such designated Affiliate in connection with such
Services, any such notice shall be approved by Seller prior to delivery to
policyholders, such approval not to be unreasonably withheld, conditioned or
delayed.
Section 2.07. APPOINTMENT. Subject to the terms of this Agreement, the
Company hereby grants to Seller authority with respect to the provision of the
Services, but only to the extent such authority (a) is permitted by Law, and (b)
is reasonably necessary for Seller to provide the Services hereunder (including
to make filings required by Law and/or Orders). In order to assist and to more
fully evidence the authority described in this Section 2.07 and subject to the
terms of this Agreement, the Company hereby nominates, constitutes and appoints
Seller's designated Affiliate as its attorney-in-fact, with full power and
authority to act in the name, place and stead of the Company with respect to the
performance of the Services in connection with the Insurance Contracts,
including (unless otherwise instructed by the Company) the power, without
reservation, to adjust, to defend, to settle and to pay all claims and benefits,
to administer separate accounts and to take such other and further actions as
may be reasonably necessary to effect the transactions contemplated by this
Agreement and during the term of this Agreement and subject to the terms set
forth herein and until its termination in accordance with the terms and
conditions hereof. The Company shall, when and as requested by Seller, execute
and provide to Seller written powers of attorney (in form and substance
reasonably acceptable to Seller) or such other documents that are necessary or
appropriate to carry out the objectives of this Agreement.
Section 2.08. BOOKS AND RECORDS. Seller shall, in connection with provision
of the Services, maintain appropriate Books and Records (for the avoidance of
doubt, Books and Records includes books and records relating to Taxes, including
all related workpapers) relating to the Core Business (to the extent not
converted or transitioned to the Company and/or the Post Closing Administrator)
and the Services provided hereunder in accordance with Seller's current
standards and applicable Law and/or Orders. All such Books and Records shall be
the property of the Company and shall be maintained for any period that may be
required by Law and/or any Order and in conformity with Seller's current
standards. Seller may retain copies of such Books and Records as Seller or its
Affiliates are required to retain by Law or any Order or reasonably require in
connection with any potential Action or investigation, which in any event shall
remain subject to the confidentiality provisions hereof. Seller shall give the
Company written notice at least ten (10) Business Days prior to the destruction
of any such Books and Records, and, at the Company's request, shall transfer
such Books and Records to the Company or the Company's designee, at the
Company's expense.
Section 2.09. ACCESS TO BOOKS AND RECORDS. During the term of this
Agreement, the Books and Records relating to the Core Business (to the extent
not converted or transitioned to the Company and/or the Post Closing
11
Administrator) and the Services provided hereunder shall be available (at their
place of keeping) for inspection, examination and audit by the Company, its
auditors and state and federal regulatory authorities and applicable
self-regulatory organizations (in each case together with their respective
representatives) during normal business hours upon reasonable notice to Seller
and without undue disruption to the operations of the Seller. Seller shall upon
the reasonable request of the Company furnish to the Company (i) at the Seller's
expense, copies of any such Books and Records as may be reasonably required by
the Company in connection with the preparation of the Company's financial
statements, state and federal income and other Tax returns and any other filings
or reports required to be filed with, or requested by, state or federal
regulatory authorities or any rating agencies, and (ii) at the Company's
expense, copies of any such Books and Records as are reasonably required for a
business purpose, it being understood that the Company shall provide or cause to
be provided such assistance to the Seller as may be reasonably requested by the
Seller in light of undue strain on Seller's resources arising from such request.
Seller shall at all times keep logically segregated the Books and Records
relating to the Core Business (to the extent not converted or transitioned to
the Company and/or the Post Closing Administrator) from those of the Seller, it
being understood that physical separation of such Books and Records from those
of Seller is not required hereunder.
Section 2.10. BACK-UP. Seller shall make and maintain such electronic
backup copies of all applicable electronic Books and Records (including
applicable Customer Information) (the "BACK-UP COPIES") in accordance with
Seller's current standards which have been previously provided to Buyer and
which are in compliance with applicable Law and/or any Orders. Upon the
reasonable request of the Company (but only to the extent required of the
Company by applicable Law and/or Orders), Seller shall use its commercially
reasonable efforts to make available, as promptly as practicable, but in any
event within the period specified by applicable Law and/or Orders, to the
Company such number of the Back-Up Copies as the Company requires. The costs of
producing and making available any Back-Up Copies for the Company shall be paid
to Seller by the Company, it being understood that the Company shall provide or
cause to be provided such assistance to the Seller as may be reasonably
requested by the Seller in light of undue strain on Seller's resources arising
from such request.
Section 2.11. VARIANCES. With respect to variable Insurance Contracts
administered pursuant to this Agreement, Seller shall provide to the Company
such daily reports as Seller currently produces summarizing the discrepancies
arising in the execution and recording of investment transactions pursuant to
the variable Insurance Contracts (the "VARIANCES"), and such weekly and monthly
reconciliation reports as Seller currently produces. For such discrepancies,
Seller shall, in accordance with the Company's previously provided guidelines or
upon the Company's written direction, as the case may be, reconcile and credit
or debit
12
the applicable Contract holder's account. Seller shall reimburse the Company for
fifty percent (50%) of the aggregate net Variances (if such amount is negative)
incurred while Seller is providing the related Services in excess of $500,000,
except to the extent such Variances resulted from any actions or omissions of
the Company or the Post Closing Administrator. The Company shall pay Seller for
fifty percent (50%) of such aggregate net Variances if such amount is positive.
Section 2.12. SOFTWARE CUSTOMIZATION AND SYSTEMS MODIFICATION. (a) The
Services shall be provided to the Company utilizing the operating systems
software (the "OPERATIONS SOFTWARE") and the application software (the
"APPLICATION SOFTWARE") and other software used by the Core Business as of
January 1, 2005 (together, the "SOFTWARE") but specifically excluding any
software retired in the normal course of Seller's business prior to the Closing
and/or not required to perform the Services hereunder. Application Software
retired in the normal course of Seller's business between January 1, 2005 and
the date of this Agreement is listed on the attached Schedule 2.12, and Seller
agrees to notify the Company of any Application Software retired in the normal
course of Seller's business between the date of this Agreement and the Closing.
(b) The Company agrees that the Transition Services will be provided
utilizing only the existing Seller network location(s) being utilized by the
Core Business prior to the Closing or other mutually agreed upon new network
location(s) and that the Company will, at the Company's expense, install,
maintain and provide all terminal equipment, telecommunication lines and other
facilities and personnel necessary to interface with any such network
location(s). Existing network location(s) which are not AFLIAC Transferred
Assets, and any new network location(s), if any, added by Seller in connection
with its performance of this Agreement, will be available to the Company only
during the Service Term. For the avoidance of doubt, Seller shall not be
obligated to bear costs associated with the bridging by Seller to the Company
sites, networks and data and other transmissions other than those used in the
Core Business prior to the Closing Date.
(c) For the avoidance of doubt, and notwithstanding anything to the
contrary contained herein, Seller may maintain the Software, make any Software
or systems changes related to the Services and, at Seller's cost, modify and/or
adapt the Software and any other related resource used by Seller to provide
Services to the Company for maintenance, update, upgrade, or any other
reasonable business purpose(s), including to reflect (i) any changes made in any
resource used by Seller to provide Services to the Company, (ii) any changes
required to correct any inaccuracies, mistakes or operational failures, (iii)
installation or implementation of patches or similar modifications, (iv)
performance of normal maintenance and/or system enhancements or upgrades, or (v)
any changes made for, or in reasonable contemplation of, ease of conversion
pursuant to this Agreement, PROVIDED that nothing in this Section 2.12(c) shall
(x) affect Seller's obligation to provide the Services as provided by this
Agreement,
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(y) materially adversely affect the Services provided pursuant to this
Agreement, or (z) cause Buyer or Company to incur any material additional costs,
unless otherwise agreed to by the Company, such consent not to be unreasonably
withheld, conditioned or delayed. Notwithstanding the foregoing provisions of
this Section 2.12(c), Seller shall not, unless otherwise expressly agreed
between Seller and Company, modify or adapt the Application Software to provide
Services to the Company in a manner that would be reasonably expected to require
the Company to materially modify or otherwise adapt its facilities, systems or
other related resources prior to giving the Company at least thirty (30) days'
written advance notice of such planned Seller modification or adaptation along
with a reasonably detailed description of such modification or adaptation (a
"MODIFICATION NOTICE") and reasonably cooperating with the Company during such
notice period at the Company's request to migrate the affected Services from
Seller to the Company so that the Company is able to avoid the modifications and
adaptations which otherwise would be necessitated by Seller's planned
modifications or adaptations, PROVIDED that, other than any modification or
adaptation (A) reasonably required by Law and/or any Order, (B) necessary in
order for Seller to deliver the Services in accordance with Law and/or any Order
or (C) undertaken by Seller in respect of the Core Business and other of its
businesses, no such change to the Applications Software shall (x) materially
adversely affect Seller's ability to provide the Services as provided for by
this Agreement, or (y) cause the Company to incur any material additional costs,
unless otherwise agreed to by the Company, such consent not to be unreasonably
withheld, conditioned or delayed. Unless otherwise provided herein or agreed to
by the Company, such consent not to be unreasonably withheld, conditioned or
delayed, Seller shall use commercially reasonable efforts not serve a
Modification Notice within the three (3) month period immediately following the
Closing Date unless the modification, adaptation or other change, as reflected
in such Modification Notice, is reasonably necessary to allow Seller and/or any
of Seller's Affiliates to conduct its/their business.
Section 2.13. INFORMATION AND ASSISTANCE. The Company and its Affiliates
will, and will use their best efforts to cause the Post-Closing Administrator
to, provide such information, cooperation, services and assistance as is
reasonably required to enable Seller to provide the Services hereunder and
comply with the terms of this Agreement, including financial information
required to provide accounting and reporting Services, to the extent under the
control of the Company, its Affiliates, representatives or agents or the Third
Party Administrator, as applicable. If, during the Service Term, the Company
shall employ any former employee of Seller (and/or any person employed by Seller
Subcontractors who performed services related to the Services hereunder for
Seller prior to performing such services for or on behalf of the Company), the
Company shall make such employees or persons reasonably available to Seller in
order to answer questions and/or provide reasonable assistance to seller;
PROVIDED that the Company and Seller shall, prior to the Company's employment of
any such person, agree on a mutually satisfactory arrangement with respect to
14
limitations thereon and (b) Seller shall pay all related out-of-pocket expenses
incurred by the Company. For the avoidance of doubt, such assistance shall not
prevent such employees or persons from being able to perform the services to the
Company that they would otherwise have provided to the Core Business had they
been retained by the Seller and to the same extent as they had performed such
services. Whenever under this Agreement the review, specification or consent of
the Company or Seller, as applicable, is required or reasonably requested in
connection with the performance of Services by Seller, including pursuant to
Schedule 2.01(a) hereof, or the performance of any other obligation of the
parties hereunder, each of Seller and the Company agrees that such review,
specification or consent shall be provided reasonably, promptly, and in
reasonably sufficient time to allow for Seller or the Company, as applicable, to
perform the Services and other obligations, as applicable, as required pursuant
to this Agreement.
ARTICLE 3
SERVICE COSTS
Section 3.01. PRICING FOR SERVICES. For the portion of the Service Term in
which it receives the Services, the Company shall pay Seller each of the
following:
(i) with respect to the Transition Services, including Omitted
Services, if any, in an aggregate amount equal to $7.50 per month per
Insurance Contract (not counting supplemental riders, endorsements and the
like as individual Insurance Contracts) which is "in force" as of the first
day of such month, subject to adjustment as provided herein (the "POLICY
SERVICE COSTS");
(ii) with respect to the Conversion Services, the costs of conversion
(the "CONVERSION Costs") as set forth in Section 12.03 of the SPA.
Notwithstanding any other provision of this Agreement, no Conversion Cost
shall have (A) a profit component, (B) an overhead component other than
those related and required to perform the Conversion Services, or (C) a
component reflecting any incremental cost arising out of an increase in
base costs due to Seller's sale of one or more of its businesses (including
without limitation the Core Business and any decreases in Seller activity
or volume attributable to services being transitioned to the Company as
contemplated by this Agreement), structural reorganization, or other
similar significant corporate event;
(iii) the costs for any Other Services (the "OTHER SERVICES COSTS")
provided under this Agreement, which shall be as agreed to by the parties
as set forth in the applicable Change Order; and
15
(iv) except as otherwise agreed to by the parties, all reasonable
actual out-of-pocket costs and expenses, including the types set forth on
Schedule 3.Ol(iv), incurred by Seller (or any Seller Subcontractors
providing Services) attributable to the provision of the Services, such
costs to be reasonably detailed and invoiced on a monthly basis in
accordance with Section 3.05 hereof (the "PASS THROUGH SERVICE COSTS", and
together with the Policy Service Costs, the Conversion Costs and the Other
Services Costs, the "SERVICE COSTS"). Notwithstanding the previous
sentence, in no event shall the Company be obligated, during any annual
period beginning on the Closing Date, to pay Seller for any category of
Pass Through Service Costs in excess of the amount applicable to such
category and set forth in Schedule 3.01(iv) or, if such category of Pass
Through Service Cost is not listed on Schedule 3.01(iv), to a single
recipient in the aggregate in excess of ten thousand dollars ($10,000) or
to all such recipients of such Pass Through Service Cost in the aggregate
in excess of 25 thousand dollars ($25,0000), unless in each case previously
consented to by the Company, such consent not to be unreasonably withheld,
conditioned or delayed. Each of Seller and the Company acknowledges that
the undue withholding, delay or condition of such consent may adversely
affect the ability of Seller and the Company to perform their respective
obligations under this Agreement.
Section 3.02. OTHER COSTS AND EXPENSES. (a) In addition to the Service
Costs described herein, the Company shall pay certain other expenses, including
costs of obtaining third party consents, costs of Conversion Services and
certain retention costs, all as described and to the extent set forth in Section
12.03 of the SPA.
(b) Except as provided herein or in the SPA or in any Ancillary Agreement,
(i) the Company shall be solely responsible for all expenses (whether incurred
by Buyer, the Company (after the Closing Date) or any of their respective
Affiliates) associated with eliminating the Company's need to receive Services
from Seller, and (ii) all costs and expenses of the Company and of the operation
of the Core Business are the responsibility of the Company, and the Company
shall reimburse Seller for any such costs and expenses of the Company and of the
operation of the Core Business that are incurred by Seller.
Section 3.03. ADJUSTMENT OF SERVICE COSTS. Schedule 3.03 sets forth certain
portions of the Services that are mutually designated by the parties as variable
expenses (each, a "VARIABLE SERVICE") and the annual rates attributable to each
resource performing the applicable Variable Service (each, a "VARIABLE SERVICE
RESOURCE"). In the event that, during the Service Term, Seller, at Seller's sole
discretion releases one or more Variable Service Resource(s) specifically as a
direct result of the conversion to the Post Closing Administrator of one of the
administrative systems utilized to provide the applicable Variable Service, then
the Policy Service Costs shall be prospectively reduced, effective with the
16
calendar month immediately following the calendar month in which such Variable
Service Resource(s) is/are released, to reflect the pro-rata reduction in the
variable costs of providing such Variable Service directly resulting from and
attributable to such release of the Variable Service Resource(s). As used
herein, a Variable Service Resource shall be understood to be "released" only if
(a) a particular Variable Service Resource is an employee of Seller or an
Affiliate of Seller and such Variable Service Resource's employment with Seller
or such Affiliate is terminated by Seller or such Affiliate, as the case may be,
provided that the Variable Service Resource's position is not filled by Seller
and Seller is not attempting to fill such position, or (b) a particular Variable
Service Resource is an employee of Seller or an Affiliate of Seller and such
Variable Service Resource remains employed by Seller or such Affiliate but no
longer performs Services, or (c) a particular Variable Service Resource is
employed by or affiliated with a Seller Subcontractor and the requirement
of Seller or any Affiliate of Seller to pay for Services performed by such
Variable Service Resource is permanently terminated.
Section 3.04. SALES TAX. If and to the extent that state and/or local sales
tax is or shall be applicable in connection with the Services: (a) for purposes
of such state and local sales tax, Seller and the Company will cooperate in good
faith to segregate amounts payable under this Agreement into the following
categories: (i) taxable Services; (ii) non-taxable Services; and (iii) payments
made by Seller, as applicable, merely as a payment agent for the Company in
procuring goods, supplies or Services.
(b) Seller shall collect from the Company all state and local sales tax and
shall timely remit such taxes to the appropriate state and local Taxing
Authorities. The Company shall pay such taxes to Seller monthly, or as otherwise
reasonably required by Seller. Seller shall be responsible for any interest or
penalties imposed as a result of its failure to timely remit taxes. The Company
shall be RESPONSIBLE for any additional taxes, interest or penalties imposed as
a result of a sales tax audit by any Taxing Authority.
(c) Within 30 days of receiving notification of the commencement of any
sale or use tax audit by a Taxing Authority which involves any Services provided
hereunder or any purchases made as purchasing agent pursuant hereto, Seller or
the Company, as applicable (the "AFFECTED PARTY") shall notify the other party
(the "OTHER PARTY") of such audit. Thereafter, the Affected Party shall take
reasonable steps to keep the Other Party informed of the progress of any such
audit. The Other Party shall have the right (but not the duty) to participate in
any proceeding brought by the Affected Party to contest sales or use tax
liability, and shall have the right to retain tax advisers or counsel at its own
expense.
Section 3.05. INVOICING AND SETTLEMENT OF COSTS. (a) Seller shall invoice
the Company for all Service Costs and other costs and expenses for which the
Company is liable pursuant to this Agreement on a monthly basis. Each such
17
invoice shall be sent following the end of the applicable calendar month within
30 days following the end of such calendar month. Each such invoice shall be in
a format and contain a level of detail reasonably sufficient under the
circumstances to identify the Services and costs and expenses that are the
subject of such invoice and in a form reasonably acceptable to the Company and
Seller. Service Costs will be equitably prorated if the Closing Date or the date
on which a Service is terminated is not the first calendar day or the last
calendar day, respectively, of a calendar month.
(b) Upon the Company's good faith dispute of a xxxx (or portion thereof, as
applicable) for Service Costs or Pass Through Costs submitted to the Company for
payment, Seller shall provide to the Company, as reasonably requested by the
Company, such additional documentation as is reasonably necessary to
substantiate, and to explain Seller's methodology in calculating, such Service
Costs or Pass Through Costs.
(c) The Company agrees to pay on or before thirty (30) days after the date
on which it receives an invoice delivered pursuant to Section 3.05(a) (each, a
"PAYMENT DATE") the amount set forth in such invoice, to the extent not disputed
by the Company in good faith, by wire transfer of immediately available funds
payable to the order of Seller. If the Company fails to pay any undisputed
amount of a monthly payment within such thirty (30)-day period following the
relevant Payment Date, the Company shall be obligated to pay, in addition to the
amount due on such Payment Date, simple interest on such undisputed amount at
the Prime Rate from the relevant Payment Date through the date of payment.
Notwithstanding the foregoing, the Company may withhold payments (other than (i)
for failure to provide a Service or non-compliance with any Service Standards
(which are governed by Section 2.04), (ii) Pass Through Service Costs, or (iii)
with respect to Taxes, unless in the case of (ii) and (iii) such items are
themselves subject to dispute in good faith) for amounts in excess of $25,000,
disputed in good faith payable under this Agreement beyond the applicable
Payment Date; PROVIDED that as concerns those portions of the disputed and
withheld amounts which are determined (either via the dispute resolution
provisions of Section 8.12, and if unsuccessful, via the arbitration provisions
of Section 8.12), to be properly billed and owed to Seller, each such amount
shall bear interest from the Payment Date to and including the date such amount
is paid at a rate equal to the Prime Rate.
(d) The parties shall reasonably cooperate with each other, and with such
third parties as may be applicable, (i) to determine which expenses for Pass
Through Service Costs may be billed directly from the provider thereof to the
Company and (ii) to arrange for such direct billing during the Service Term
under terms and conditions reasonably acceptable to all applicable parties. In
the event that such direct billing shall take place, the Company agrees to pay
such direct bills in accordance with the terms applicable thereto, and (A)
Seller and its Affiliates shall not be responsible or liable for any loss, cost,
claim, damage or
18
expense caused by or attributable to any failure by the Company to pay any such
direct bills; (B) Seller shall not be responsible or liable for any failure to
deliver the Services, or any part or portion thereof, if such failure is
attributable to or caused by any failure by the Company to pay any such direct
bills; and (C) any failure by the Company to pay any such direct bills shall be
considered a breach of this Agreement.
Section 3.06. ACCESS AND INSPECTION RIGHTS. (a) Except as otherwise set
forth herein, and without duplication of any other provision set forth in this
Agreement, as and when so requested by the Company for purposes of verifying
bills submitted to the Company pursuant to Section 3.05(a) and/or Seller's
performance of the Services as specified by this Agreement, or complying with a
request of a Government Entity acting pursuant to Law and/or any Order with
respect to the Core Business, Seller shall, during normal business hours from
time to time permit an inspection (an "INSPECTION") wherein Seller shall (i)
make Books and Records concerning the Core Business (to the extent not already
converted or transferred to the Company or the Post Closing Administrator), the
performance of Services provided pursuant to this Agreement and/or the bills
submitted to the Company pursuant to Section 3.05(a), available for inspection
(and available for copying at the Company's expense) by the Company and its
authorized Representatives, who shall, subject to the terms of Article 6 herein,
have the right to take copies of or extracts from any such Books and Records and
(ii) provide to the Company and its Representatives access in accordance with,
MUTATIS MUTANDIS, the provisions set forth in Section 5.02(b) of the SPA. All
such inspections conducted by the Company or its authorized Representatives
shall be conducted at the Company's cost, subject to Section 5.02(b) of the SPA.
(b) Upon request of the Company, Seller shall provide to the Company a
letter in the form customarily provided by Seller to recipients of its
administrative services certifying its compliance with the Xxxxxxxx-Xxxxx Act of
2002, 15 U.S.C. 7201 et seq., as such statute may be amended from time to time.
If and to the extent that Seller obtains external audit opinions relating
principally to the Core Business and the Services provided hereunder (including,
but not limited to, any external auditor's management letters, SAS 70 Type II
audit reports prepared in accordance with Statement of Auditing Standards No.
70, if and to the extent any such reports are prepared by Seller, as
applicable), Seller shall provide copies of such opinions to the Company.
(c) At Seller's expense, Seller shall reasonably cooperate with the
Company, its auditors (including internal audit staff), examiners, regulators,
consultants and other Representatives and provide such assistance and access to
personnel and Books and Records of the Core Business as is reasonably required
by the Company for any reasonable business purpose and shall, on a timely basis,
furnish each with information reasonably requested.
19
(d) If the parties agree, or if through the dispute resolution or
arbitration conducted pursuant to Section 8.12 it is determined, that (i) Seller
has overcharged the Company pursuant to Section 3.05(a), Seller promptly shall
credit (or, if Seller has ceased providing Services such that the Company could
not be expected to consume the credit balance under this Agreement, then Seller
promptly shall refund to) the Company the amount of the overcharge plus interest
thereon calculated from the date of the Seller's receipt of the overcharge at a
rate equal to LIBOR on such date or (ii) Seller has undercharged the Company
pursuant to Section 3.05(a), the Company shall promptly pay to Seller the amount
of the undercharge, plus interest thereon calculated from the latest date such
amount was payable at a rate equal to LIBOR on such date. Seller shall have the
right to verify any audit hereunder within sixty (60) days from the date the
audit report is made available to them.
ARTICLE 4
DISCLAIMERS; LIMITATION OF LIABILITY; INDEMNIFICATION
Section 4.01. DISCLAIMERS. Except as otherwise specifically set forth
herein, the Services and access to Seller's and the Company's network system or
systems, are provided on an "as is" basis, and neither Seller nor any of its
Affiliates makes any express or implied warranties or guarantees with respect to
the Services except as expressly provided herein. NO STATUTORY WARRANTY OF
MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY TO THE SERVICES.
Section 4.02. LIMITATION OF LIABILITY. (a) Except for liabilities under the
SPA for breach of the representations and warranties set forth in Sections
3.01(a), 3.01(c), 3.02(a), 3.02(b), 3.03 and 3.04, and as expressly provided in
Sections 2.04(e), 2.11 or 3.06(d) hereunder, the Company agrees that neither
Seller nor any of its Affiliates, their respective successors and assigns and
such parties' respective directors, officers, agents, employees or
subcontractors (each, a "SELLER INDEMNIFIED PERSON") shall have any liability
whether direct or indirect, in contract or tort or otherwise, to the Company,
Buyer, their respective Affiliates or any other Person for or in connection with
the Services rendered or to be rendered by any Seller Indemnified Person
pursuant to this Agreement or the transactions contemplated pursuant to this
Agreement or for any Seller Indemnified Person's actions or inactions in
connection with any such Services or transactions (including failure to perform
any obligations under this Agreement), except for Damages to the extent
resulting from such Seller Indemnified Person's gross negligence, bad faith or
willful misconduct in connection with any such Services, actions or inactions.
In addition, other than in connection with a claim under Sections 4.03 and 4.04
or as otherwise set forth herein, upon a claim of a breach of this Agreement,
the non-breaching party shall give the breaching party a reasonable opportunity
to correct the defect. If the breaching party is able to correct the defect
within thirty (30) Business Days, and provided that the non-
20
breaching party has not incurred any actual Damages, the breaching party shall
not be liable for any Damages hereunder.
(b) Except as otherwise expressly set forth in the SPA or under Section
2.04(e) or 2.11, neither any Seller Indemnified Person nor any Buyer Indemnified
Person (as defined below) shall be liable for any special, indirect, incidental,
or consequential damages of any kind whatsoever (including attorneys' fees) in
any way due to, resulting from or arising in connection with any of the Services
or the performance of or failure to perform any obligations under this Agreement
and shall be liable to the other party only for actual losses or direct damages.
This disclaimer applies without limitation (i) to claims arising from the
provision of the Services or any failure or delay in connection therewith, (ii)
to claims for lost profits and (iii) regardless of the form of action, whether
in contract, tort (including negligence), strict liability, or otherwise,
regardless of whether such Damages are foreseeable or whether such Seller
Indemnified Person or Buyer Indemnified Person has been advised of the
possibility of such Damages.
(c) No Seller Indemnified Person shall have any responsibility for reserve
reporting or regulatory reporting other than to the extent expressly provided in
this Agreement. No Seller Indemnified Person shall be liable for any actuarial,
personnel, processing or other expenses incurred by the Company related to any
decision by the Company to use any systems and reports other than those systems
and reports provided by Seller for this purpose, which systems and reports shall
be the systems and reports Seller utilized in connection with the Core Business
immediately prior to the Closing. No such decision by the Company shall excuse
Seller from meeting its obligations under this Agreement; PROVIDED that no
Seller Indemnified Person shall be liable for any Damages arising from the
failure of the Company to provide the relevant information to Seller in a form
compatible with the systems and reports utilized by the Seller as of the date
of this Agreement, or otherwise as previously agreed to by the parties.
(d) Each Seller Indemnified Person or Buyer Indemnified Person agrees that
it shall, in all circumstances, use commercially reasonable efforts to mitigate
and otherwise minimize its respective Damages, whether direct or indirect, due
to, resulting from or arising in connection with any failure by a Seller
Indemnified Person or Buyer Indemnified Person, as applicable, to comply fully
with any obligations under this Agreement.
(e) No Seller Indemnified Person shall be liable for any Damages, or any
failure on the part of Seller to perform Services in accordance with applicable
Service Standards, caused by or attributable to (i) any failure by the Company
to provide the required review, specification or consent pursuant to Section
2.12 or 4.07 or (ii) the unreasonable, conditioned or delayed consent under
Section 3.01(iv).
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Section 4.03. INDEMNIFICATION BY BUYER. Buyer agrees to indemnify and hold
harmless each Seller Indemnified Person from and against any damages, losses,
liabilities and expenses ("DAMAGES") actually suffered by such Seller
Indemnified Person in connection with any action, suit or proceeding asserted
against such Seller Indemnified Person by a third party, and shall reimburse
each Seller Indemnified Person for all reasonable expenses as they are incurred
in investigating, preparing, pursuing, or defending any such action, suit or
proceeding, in each case arising out of or in connection with Services rendered
or to be rendered by any Seller Indemnified Person pursuant to this Agreement
(including, for the avoidance of doubt, any action or inaction taken pursuant to
Section 4.07); PROVIDED that Buyer shall not be responsible for any Damages of
any Seller Indemnified Person to the extent resulting from such Seller
Indemnified Person's gross negligence, bad faith, willful misconduct, violation
of applicable Law (other than any such violation of Law arising from any action
or inaction taken by a Seller Indemnified Person pursuant to Section 4.07 or in
accordance with the established policies, procedures and interpretations thereof
in effect as of the Closing Date) or material breach of its obligations under
this Agreement (other than for breaches of any obligation contained in Article
2), in each case in connection with any of the Services, actions or inactions
referred to above.
Section 4.04. INDEMNIFICATION BY SELLER. AFC agrees to indemnify and hold
harmless Buyer and its Affiliates, their respective successors and assigns and
such parties' respective directors, officers, agents and employees (each, a
"BUYER INDEMNIFIED PERSON") from and against any Damages actually suffered by
such Buyer Indemnified Person in connection with any action, suit or proceeding
asserted against such Buyer Indemnified Person by a third party, and shall
reimburse each Buyer Indemnified Person for all reasonable expenses as they are
incurred in investigating, preparing, pursuing, or defending any such action,
suit or proceeding, to the extent arising out of or in connection with Seller's
or a Seller Subcontractor's (1) gross negligence, bad faith or willful
misconduct, (2) violation of applicable Law (other than any such violation of
Law arising from any action or inaction taken by a Seller Indemnified Person
pursuant to Section 4.07 or in accordance with the established policies,
procedures and interpretations thereof in effect as of the Closing Date), or (3)
material breach of its obligations under Article 6 (other than the first
sentence of Section 6.06) or Section 7.05, in each case in connection with
performing Seller's obligations under this Agreement.
Section 4.05. FORCE MAJEURE. None of the parties shall be liable to the
others by reason of any failure of or delay in performance of its obligations
under this Agreement to the extent such failure or delay is due to events beyond
its reasonable control (except to the extent such failure or delay results from
Seller's failure to meet its obligation to establish a back-up facility in
accordance with its current standards, which have been provided to Buyer and
which are in compliance with applicable Law and Orders), including acts of God,
act of
22
Governmental Entities, act of the public enemy or due to war, terrorism, riot,
flood, civil commotion, insurrection, labor difficulty, severe or adverse
weather conditions, lack of or shortage of electrical power, malfunctions
of equipment or software programs or any other cause beyond the reasonable
control of Seller.
Section 4.06. EXCLUSIVITY. Except for remedies set forth in the SPA with
respect to misrepresentations and breach of warranties set forth in Sections
3.01(a), 3.02(b), 3.03, 4.01, 4.02(b) and 4.03 of the SPA, the provisions of
Sections 4.03 and 4.04 shall provide the exclusive remedy and only source of
procedures with respect to any third party claim relating to the Services or
this Agreement. Any claim for indemnity pursuant to this Agreement must be made
within one year from the date of the expiration or other termination of this
Agreement.
Section 4.07. INTERPRETATIONS. With respect to any interpretation or
understanding of any Law or Order applicable to the Core Business to the extent
administered under this Agreement, Seller shall have the right to reasonably
request specific guidance from the Company, on which Seller may fully rely with
respect to the provision of the Services hereunder. The Company does not make
any express or implied warranties or guarantees with respect to such guidance
with respect to any third party; PROVIDED that Seller shall have no liability to
the Company, and shall be entitled to indemnification to the extent provided
herein, to the extent of such guidance. Seller shall be deemed to have fully
complied with its obligations under this Agreement with respect to any matter to
the extent it follows such guidance or for which it has asked for but not
received such guidance. To the extent practicable under the circumstances,
Seller shall endeavor to allow the Company a reasonable period of time to
determine any such required guidance, including reasonable time to contact and
obtain advice from outside counsel or applicable Government Entities. Seller
shall in no event be deemed to have breached any representation, warranty or
obligation under this Agreement with respect to compliance with Laws and/or
Orders so long as Seller is acting in accordance with the established policies,
procedures and interpretations thereof in effect as of the Closing Date or
otherwise in accordance with Section 4.07.
Section 4.08. SURVIVAL. This Article 4 shall survive the expiration or
termination of this Agreement.
ARTICLE 5
TERM AND TERMINATION
Section 5.01. TERM. Seller shall provide the Services for a period not to
exceed eighteen (18) months after the Closing, unless terminated earlier in
accordance with the terms hereof (the "SERVICE TERM").
23
Section 5.02. TERMINATION. (a) The Company may, without cause, upon
forty-five (45) days' written notice, terminate the provision of any or all
Services (or any portion thereof). If the Company elects to terminate the
provision of less than all Services, Seller shall continue to be obligated to
provide the remaining Services.
(b) The Company may terminate any Service (or any portion thereof) in
accordance with Section 2.04.
(c) Seller may terminate this Agreement immediately, by delivery of written
notice to the Company, upon the occurrence of any of the following events:
(i) the Company, pursuant to or within the meaning of Title 11, U.S.
Code, or any similar Federal, state or foreign law for the relief of
debtors, including without limitation any state insolvency or
rehabilitation statutes (collectively, "BANKRUPTCY LAWS"):
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief against it in an
involuntary case or proceeding;
(C) consents to the appointment of a custodian of it or for all
or for a substantial part of its property;
(D) makes a general assignment for the benefit of its creditors;
or
(E) fails to contest any involuntary case or proceeding filed
against it within the time period fixed by any applicable rules, and
any extensions granted by the court where such involuntary case
or proceeding is pending.
(ii) A court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that remains unstayed and in effect for sixty (60) days
and that:
(A) is for relief against the Company in an involuntary case or
proceeding;
(B) appoints a custodian of the Company or a custodian for all or
for a substantial part of the property of the Company; or
(C) orders the liquidation of the Company.
24
(d) This Agreement shall terminate upon termination of all Services to be
provided hereunder.
Section 5.03. EFFECT OF TERMINATION. Upon termination of any Service
pursuant to Section 5.02 or Section 2.04, or upon termination of this Agreement
in accordance with its terms, except as otherwise explicitly set forth in
Section 2.04(e), Seller shall have no further obligation to provide the
terminated Service (or any Service, in the case of termination of this
Agreement), the Company shall have no obligation to pay any fees relating to
such Services and no party hereto shall have any obligation to make any other
payments hereunder; PROVIDED that notwithstanding such termination, (a) the
Company shall remain liable to Seller for fees and expenses owed and payable
(whether or not invoiced) in respect of Services provided prior to the effective
date of the termination and (b) the provisions of Articles 4, 5 and 6 shall
survive any such termination. Notwithstanding the foregoing, in the event that
the Company shall terminate a portion of the Services pursuant to Section
5.02(b), the Company shall remain liable to Seller for (i) the full Policy
Service Costs unless such terminated Services are Variable Services, in which
case the terms and conditions of Section 3.03 shall apply, and (ii) any fees and
expenses in connection with the remaining portion of such Service.
ARTICLE 6
CONFIDENTIAL INFORMATION; COMPLIANCE WITH LAW
Section 6.01. DEFINITION OF CONFIDENTIAL INFORMATION. (a) For the purposes
of this Agreement, "CONFIDENTIAL INFORMATION" shall mean any and all (i)
confidential information disclosed in connection with the performance of this
Agreement, whether or not owned by the Disclosing Party, including information
relating to planned or existing businesses or business initiatives,
organizational restructuring plans, actual and projected sales, profits and
other financial information, information relating to Xxxxxxx Xxxxx Asset
Management L.P.'s investments, information relating to technology, such as
Software, Systems and Systems architecture, including without limitation
computer hardware, computer software, source code, object code, documentation,
methods of processing and operational methods, information that describes
insurance and financial services products and strategies, including without
limitation actuarial calculations, product designs, product administration and
management, Tax interpretations, Tax positions and treatment of any item for Tax
purposes, employee and personnel data and information, confidential information,
software and material of third parties with which or whom the Company or Seller
conducts business, the terms of this Agreement and its Schedules, and (ii)
"CUSTOMER INFORMATION," shall mean all Nonpublic Personal Information (as
defined in the Xxxxx-Xxxxx-Xxxxxx Act, 15 U.S.C. Section 6801 ETSEQ., and its
implementing regulations, as may be amended from time to time ("GLB")) and all
information provided by or at the direction of the Company about customers of
the Company including name,
25
address, telephone number, e-mail address, account or contract or policy
information, and any list or grouping of customers.
(b) Confidential Information which is not Customer Information shall
exclude information which (i) is or becomes generally available to the public or
is generally known by persons in the life insurance and annuities industry
other than as a result of disclosure by the Receiving Party in violation of this
Agreement, (ii) becomes available to the Receiving Party on a non-confidential
basis from a source other than the Disclosing Party, PROVIDED that the Receiving
Party is not aware that such source is under an obligation (whether contractual,
legal or fiduciary) to the Receiving Party to keep such information
confidential, or (iii) is independently developed by the Receiving Party. For
the purposes of this Agreement, the party disclosing Confidential Information
shall be referred to as the "DISCLOSING PARTY" and the party receiving such
disclosure shall be known as the "RECEIVING PARTY."
Section 6.02. ACKNOWLEDGMENT AND PRECAUTIONS; XXXXX-XXXXX-XXXXXX
COMPLIANCE. (a) The Receiving Party acknowledges the confidential and
proprietary nature of the Confidential Information and agrees not to reveal or
disclose it for any purpose to any other person (excluding counsel and other
advisors, agents or contractors who have a duty of confidentiality, and other
persons who are bound by valid and reasonably protective confidentiality
agreements (and as concerns Seller Subcontractors engaged after the Closing
Date, valid confidentiality agreements containing provisions no less restrictive
than those set forth in this Article 6) and have a need to receive such
information for purposes of this Agreement or the provision of any Service), or
to use or permit use of any Confidential Information for any purpose other than
as contemplated herein or in connection with the provision of any Service,
without the prior written consent of the Disclosing Party.
(b) The Receiving Party agrees to maintain its information security
program, which is reasonably designed to protect Customer Information in
compliance with GLB.
(c) Seller (i) shall maintain and hold in confidence all Nonpublic Personal
Information (as defined in the Xxxxx-Xxxxx-Xxxxxx Act, 15 U.S.C. Section 6801 ET
SEQ., and its implementing regulations, as may be amended from time to time)
obtained by it from the Company or any customer under an Insurance Contract, or
any past or future policyholder, annuityholder or certificate holder in the
performance of its duties and obligations under this Agreement, and (ii) may not
(A) use such Nonpublic Personal Information or (B) disclose such Nonpublic
Personal Information to any third party, in either case without the express
prior written consent of the Company whose information may be used or disclosed,
except as required under applicable Law or Orders and as necessary for the
performance of Seller's duties under this Agreement.
26
Section 6.03. DISCLOSURE OF CONFIDENTIAL INFORMATION. (a) Confidential
Information may be disclosed by the Receiving Party if reasonably required to
provide a Service or pursuant to any statute, regulation, order, subpoena or
document discovery request, or as otherwise required by Law and/or any Order or
requested by any Governmental Entities (including in the course of normal
compliance activities);PROVIDED that prior written notice of such disclosure is
furnished to the Disclosing Party (if permissible by Law and/or any Order) as
soon as reasonably practicable in order to afford the Disclosing Party an
opportunity to seek a protective order (it being agreed that if the Disclosing
Party is unable to obtain or does not seek a protective order prior to the time
the Receiving Party is legally compelled to disclose such information,
disclosure of such information may be made without liability).
(b) Notwithstanding any provision to the contrary in this Article 6, either
Seller or Buyer may provide copies of this Agreement and its Schedules or
portions thereof, including the pricing terms herein, (i) to its consultants
(or, in the case of Seller, any Seller Subcontractors) who are under a duty of
confidentiality to it; (ii) to third parties who are under a duty of
confidentiality to it in connection with potential loans and other financing
arrangements or any joint ventures, mergers, acquisitions, divestitures or other
change of control activities by it or its Affiliates; and (iii) to its strategic
advisors, investors, potential investors and regulators.
Section 6.04. NOTIFICATION UPON DISCOVERY OF DISCLOSURE. The Receiving
Party shall notify the Disclosing Party promptly upon the Receiving Party's
discovery of any prohibited use or prohibited disclosure of the Confidential
Information, or any breach of this Article 6 by the Receiving Party or Persons
permitted to receive Confidential Information under this Agreement, and shall
cooperate with the Disclosing Party as reasonably requested and at the
Disclosing Party's expense to help the Disclosing Party cure such breach or
regain possession of the Confidential Information and prevent any further
prohibited use or prohibited disclosure of the Confidential Information.
Section 6.05. RETURN OF CONFIDENTIAL INFORMATION. Upon the expiration or
earlier termination of the Service Term and upon the written request of the
Disclosing Party, but except to the extent otherwise required by Law and/or any
Order, each Receiving Party shall use commercially reasonable efforts to return
to the Disclosing Party all Confidential Information of the Disclosing Party
received under or pursuant to the performance of this Agreement (including all
copies and summaries thereof, whether tangible or intangible and whether or not
created or provided by the Disclosing Party) that is within the Receiving
Party's possession, power or control, or destroy the same such that it is
rendered reasonably irretrievable and no longer within the Receiving Party's
possession, power or control. Upon written request and within thirty (30) days
of such request, each Receiving Party shall confirm in writing to the Disclosing
Party that it has complied with the provisions of this Section 6.05. Nothing in
this Section 6.05
27
shall require the destruction of copies of any computer records or files
containing Confidential Information which have been created pursuant to
automatic archiving and back-up procedures which cannot reasonably be deleted.
Section 6.06. COMPLIANCE WITH LAW AND/OR ORDER. The parties shall comply in
all material respects with all applicable Law and/or Orders with respect to the
Services and the performance of this Agreement. Should any Seller Subcontractor
breach any obligation of confidentiality and not remedy any such breach within
thirty (30) days from notice thereof, Seller shall, in its reasonable judgment,
take action it shall deem appropriate (such as the permanent termination of the
Seller Subcontractor, expulsion of the offending Seller Subcontractor's
representative or agent, or other) to remedy such breach and/or impose adequate
compensatory measures available under the agreement or otherwise at Law or in
equity onto any Seller Subcontractor as soon as practicable. In the event that
Seller or a Seller Subcontractor, as the case may be, has failed to comply with
such obligations in all material respects Seller immediately shall advise the
Company of such failure to comply and of the measures Seller is taking to remedy
the same, and Seller shall continue reasonable efforts to remedy such failure to
comply until remedied.
ARTICLE 7
COMPUTER SYSTEMS ACCESS, SECURITY AND INTEGRITY
Section 7.01. SYSTEMS ACCESS; MONITORING. (a) During the term of this
Agreement, upon appropriate receipt of notices, in accordance with reasonable
contact criteria established by Seller and communicated to Company, and during
normal business hours, Seller shall provide reasonable access to Seller's
premises and its personnel for purposes of systems access and shall use
commercially reasonable efforts to cause Seller Subcontractors and their
Representatives in respect of the Services provided hereunder to provide such
access; PROVIDED that Seller shall not be liable or responsible for any failure
or refusal by any Seller Subcontractors and their Representatives to provide
such access in the event that Seller has used such commercially reasonable
efforts to cause such access to be provided. Costs, if any, associated with such
access shall be borne by the Company. In addition, Seller shall, subject to
Section 2.12(b) and this Section 7.01(a), provide the Company, at the Company's
expenses, remote access to those of Seller's systems applicable to the Core
Business, any such access to be in conformity with, and subject to, Seller's
policies, requirements, procedures and guidelines, including without limitation
those relating to electronic security, in place at the time of such remote
access.
(b) During the term of this Agreement and during normal business hours,
subject to appropriate security, log-in and other reasonable procedures, and at
all times subject to Article 6 hereof, Seller shall provide reasonable access to
Seller's systems used to provide Services hereunder from no more than twenty-
28
five (25) existing workstations (PCs), located on Seller's premises, to the
Company and its Representatives.
Section 7.02. MAINTENANCE OF SECURITY REGULATIONS. Seller agrees that from
and after the Closing, Seller shall continue its current security regulations
(including with respect to firewalls, caller screening and restriction of access
to premises) in place as of May 1, 2005 which have been previously provided to
Buyer. In the event that Buyer shall desire Seller to amend such regulations to
reflect changes that Buyer may reasonably request, any such proposed
amendment(s) shall be subject to the reasonable mutual agreement of the Buyer
and Seller, it being agreed that Seller shall implement the items on Schedule
7.02, subject to Sections 2.0 1(d) and 2.02. To the extent the Services provided
hereunder are changed or Other Services are added in accordance with the terms
of this Agreement from and after the Closing Date, the applicable security
regulations may be amended, as necessary, to allow for such changes to the
Services or such Other Services, in each case as provided in Sections 2.01(d)
and 2.02. All such security regulations shall comply with applicable Law and/or
Orders.
Section 7.03. VIRUS PROTECTION. (a) For purposes hereof, "VIRUS" means any
"back door," "time bomb," "Trojan horse," "worm," "drop dead device," "virus,"
"malicious logic," software routines, devices, computer codes, programs
or hardware components or other undisclosed feature or file which (i) is
designed to permit unauthorized access to software, hardware or data or other
Systems elements (ii) intentionally may disrupt, disable, harm, erase or
otherwise impede in any manner the operation of the foregoing features or files,
any portion thereof or any other software, firmware, hardware, network or other
Systems element.
(b) Seller agrees to implement and maintain the regular use of Virus
protection software programs which meet the Seller's standards that it uses for
itself, in place as of May 1, 2005, to prevent Viruses from being coded or
introduced into the Software and Systems used in connection with the Transition
Services, including any of Seller's or the Company's owned Systems, which have
been previously provided to Buyer.
(c) Seller shall promptly implement Virus protection updates issued by
applicable third party vendors and publishers relating to the Virus protection
software programs utilized by Seller prior to closing. In the event that the
Company shall desire Seller to amend such protections to reflect changes that
the Company may reasonably request, any such proposed amendment(s) shall be
subject to the mutual agreement of the Buyer and Seller, it being agreed Seller
shall implement the items on Schedule 7.03, subject to Sections 2.01(d) and
2.02. Seller shall promptly notify the Company if Seller detects a Virus in its
own or the Company's Software or Systems, and the Company shall promptly notify
Seller if the Company detects a Virus in its own or the Seller's Software or
Systems. If a Virus is found to have been introduced into the Software or
29
Systems used in connection with the Transition Services, including any of
Seller's or the Company's proprietary Systems, or third party software, the
parties shall reasonably cooperate to eradicate and reduce the effects of such
Virus and, if the Virus causes a loss of operational efficiency or loss of data,
reasonably cooperate to mitigate any losses of operational efficiency or data
caused by the Virus.
Section 7.04. DISASTER RECOVERY. (a) At no cost to the Company (other than
as part of the previously agreed upon Service Costs paid to Seller), Seller
shall maintain business resumption and disaster recovery plans, policies and
procedures in accordance with Seller's standards in place as of May 1, 2005
(with changes made in the ordinary course of business or applicable to AFC and
all of its businesses), which have been previously provided to Buyer (the
"DISASTER RECOVERY PLANS"). In the event that the Company shall desire Seller to
amend such Disaster Recovery Plans to reflect changes that the Company may
reasonably request, any such proposed amendment(s) shall be subject to the
mutual agreement of the Company and Seller, including agreement with respect to
terms, costs and conditions, it being agreed that Seller shall implement the
items on Schedule 7.04, subject to Sections 2.01(d) and 2.02. To the extent the
Services provided hereunder are changed or Other Services are added in
accordance with the terms of this Agreement from and after the Closing Date, the
Disaster Recovery Plans may be amended, as necessary, to allow for such changes
to the Services or such Other Services, as provided in Sections 2.01(d) and
2.02.
(b) Seller shall update and test the operability of the Disaster Recovery
Plans for the Company, with the same frequency and testing mechanisms as it
currently uses for itself Seller shall make available to the Company any
Disaster Recovery Plans in effect for the Company during the Service Term, and
the results of any tests thereof performed during the Service Term with respect
to the Services.
(c) In the event of a business interruption which constitutes a "Disaster"
under the Seller's Disaster Recovery Plans, Seller shall promptly implement the
Disaster Recovery Plans.
Section 7.05. INTELLECTUAL PROPERTY. Seller shall not, in providing the
Services, violate the Intellectual Property rights of any third party.
ARTICLE 8
MISCELLANEOUS
Section 8.01. NO AGENCY. Nothing in this Agreement shall constitute or be
deemed to constitute a partnership or joint venture among the parties hereto or
constitute or be deemed to constitute any party the agent or employee of the
other party for any purpose whatsoever and neither party shall have authority
or power to bind or to contract in the name of the other in any way or for any
purpose.
30
Section 8.02. SUBCONTRACTORS AND PERSONNEL. (a) Subject to the terms of
this Section 8.02, Seller has and may hire or engage, at no additional cost to
Buyer or the Company except as otherwise agreed to by the Company set forth
herein or in the SPA, one or more subcontractors and other vendors (such
subcontractors and vendors, collectively the "SELLER SUBCONTRACTORS"), to
perform all or any of its obligations to provide Services under this Agreement;
PROVIDED that, subject to Section 4.01, Seller shall in all cases remain
responsible for all obligations to provide Services undertaken by it in this
Agreement with respect to the scope, quality, timeliness and nature of the
Services provided to the Company in accordance with the standards set forth in
Section 2.03.
(b) All Seller personnel and Seller Subcontractors providing Services on
behalf of Seller to the Company in accordance with this Agreement shall remain
and shall be deemed to be for all purposes, including all compensation and
employees benefits purposes, representatives, employees or agents of Seller or
independent contractors thereof, and not of the Company. Except as otherwise
provided herein or in the SPA with respect to payment of Service Costs,
retention costs and other costs or expenses, Seller shall pay all related costs,
including salary, bonus, employer's share of all applicable withholding Taxes,
other out of pocket expenses normally incidental to the Transition Services and
benefits received by such employees and representatives. Except as otherwise
provided herein or specifically and previously agreed in writing by the Company,
neither Seller, any of the Seller Subcontractors nor their personnel shall have
the power or authority to act as agent or attorney-in-fact of the Company or
bind the Company in any way.
(c) Seller shall follow policies and procedures with respect to security
and background checks in accordance with its current standards as previously
shared with Buyer and as permitted by Law and Orders in connection with any
actual or prospective Seller employee or Seller Subcontractor staffed or
contemplated to be staffed with respect to the Transition Services, the Other
Services or the performance of this Agreement.
(d) Upon the Company's request and at the Company's expense, Seller shall
enforce on behalf of the Company all rights, remedies, and recourse under
contract, at Law or equity available against a Seller Subcontractor that benefit
or may benefit the Company (each, a "SELLER SUBCONTRACTOR CLAIM") for such
Seller Subcontractor's errors, omissions or breach of provisions relating to the
provision of any Service, which errors, omissions or breach have not been cured
within thirty (30) days of (i) the Company having provided Seller written notice
specifying such errors, omissions or breach; or (ii) Seller's discovery of such
errors, omissions or breach, in which case Seller promptly shall notify the
Company in writing of such errors, omissions or breach. Seller shall resolve
such Seller Subcontractor Claims to the satisfaction of the Company and not
without the prior written consent of the Company, which consent the Company
shall not
31
unreasonably withhold. Notwithstanding the foregoing, Seller may, at Seller's
expense, enforce any such Seller Subcontractor Claim on its own behalf.
Section 8.03. COOPERATION; LIAISONS; DISPUTE ESCALATION; COORDINATION WITH
THIRD-PARTY SERVICE PROVIDER. (a) The Company shall reasonably cooperate with
Seller in taking such actions, making such filings, seeking such consents,
approvals and waivers and executing such agreements, including non-disclosure
agreements, as are reasonably necessary to enable Seller to provide, or cause to
be provided, the Services hereunder.
(b) Seller and the Company each shall designate a liaison to act as the
primary contact person for the provision of all Services (each, a "LIAISON").
The parties have designated their initial Liaisons and provided contact
information therefor on Schedule 8.03.
Section 8.04. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall given,
if to Buyer or the Company, to:
Allmerica Financial Life Insurance and Annuity Company
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: President
Fax: [-]
with a copy of notices in respect of this Agreement to:
The Xxxxxxx Xxxxx Group, Inc.
00 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxx
Fax: (000) 000-0000
Xxxxxxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Fax: (000) 000-0000
32
if to Seller or FAFLIC, to:
The Hanover Insurance Group, Inc.
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Chief Financial Officer
Fax: (000) 000-0000
and:
First Allmerica Financial Life Insurance Company
000 Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: General Counsel
Fax: (000) 000-0000
in each case, with a copy of notices in respect of this Agreement to:
Xxxxx Xxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx
Fax: (000) 000-0000
or such other address or facsimile number as such party may hereafter specify
for the purpose by advance notice to the other parties hereto. All such notices,
requests and other communications shall be effective only upon (i) mailing of
such notice, request or other communication and the actual receipt thereof by
the relevant party, or (ii) a facsimile transmission of such notice, request or
other communication and the acknowledgment by the relevant party of receipt
thereof.
Section 8.05. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by the Company, Buyer, Seller and
FAFLIC, or in the case of a waiver, by the party against whom the waiver is to
be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law or equity.
Section 8.06. EXPENSES. Except as otherwise specifically provided herein,
all costs and expenses incurred in connection with the preparation, execution
and delivery of this Agreement shall be paid by the party incurring such
expense.
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Section 8.07. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Subject to Section 8.02, none of the parties
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the prior written consent of the other and any
attempted assignment without the required consent shall be void; PROVIDED that
no such consent from Seller shall be required for Buyer or the Company to assign
part or all of its rights under this Agreement to one or more of its
wholly-owned subsidiaries, but no such assignment shall relieve Buyer or the
Company of any of its obligations hereunder.
Section 8.08. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of
Delaware, without regard
to the conflicts of laws rule thereof.
Section 8.09. COUNTERPARTS; EFFECTIVENESS; THIRD-PARTY BENEFICIARIES. This
Agreement maybe signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement shall become effective when each party
hereto shall have received a counterpart hereof signed by the other party
hereto. Until and unless each party has received a counterpart hereof signed by
the other party hereto, this Agreement shall have no effect and no party shall
have any right or obligation hereunder (whether by virtue of any other oral or
written agreement or other communication). No provision of this Agreement is
intended to confer any rights, benefits, remedies, obligations, or liabilities
hereunder upon any Person other than the parties hereto and their respective
successors and permitted assigns.
Section 8.10. ENTIRE AGREEMENT. This Agreement, the SPA and the other
Ancillary Agreements constitute the entire agreement between the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter hereof and thereof.
Section 8.11. JURISDICTION. The parties hereto agree that any suit, action
or proceeding seeking to compel arbitration in connection with this Agreement or
the transactions contemplated hereby shall be brought exclusively in any court
of the State of
Delaware or any federal court located in such state, so long as
one of such courts shall have subject matter jurisdiction over such suit, action
or proceeding. Each of the parties hereby consents to the jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection that it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding in any such court and further waives any
objection that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. Without limiting the foregoing, each
party agrees that
34
service of process on such party as provided in Section 8.04 shall be deemed
effective service of process on such party.
Section 8.12. DISPUTE RESOLUTION. (a) Any dispute that arises out of or is
related to this Agreement or any transaction governed by this Agreement, shall
be submitted to senior executives of the parties, vested with authority to
settle the dispute, who will meet and attempt in good faith to resolve the
dispute. The meeting will be held reasonably promptly at the request of the
affected party in the offices of the party requesting the meeting, or if agreed,
at another designated location.
(b) In the event of a good faith dispute between the Company and Seller
regarding this Agreement pursuant to which the Company in good faith believes it
is entitled to withhold payment, the Company shall promptly notify Seller of
such dispute, and shall, upon request by Seller and on the date on which any
Services Fees are required to be made during the pendency of such dispute,
deposit the amount solely associated with the services, fees or costs to which
the dispute relates in an interest-bearing escrow account in the bank or
depository specified by Seller, furnish evidence of such deposit to Seller and
pay any undisputed amounts due for payment.
(c) Any party may submit such dispute to the arbitration provisions set
forth herein within thirty (30) days of the deposit of the funds into the escrow
account. For as long as the Company makes such escrow deposits during the
pendency of such dispute, Seller shall continue to provide the Services to the
Company. Upon resolution of the dispute, the funds in the escrow account shall
be paid to the party or parties entitled to such funds, or such portion thereof
as shall be applicable, in the amount(s) set forth in the resolution of the
dispute pursuant to this Section 8.12, plus any interest earned on such money;
PROVIDED that excess funds in the escrow account, if any, will be remitted to
the Company.
(d) Any dispute arising out of or relating to this Agreement, including its
formation and validity, which is not resolved in accordance with Section 8.12(a)
hereof, shall be referred to arbitration. Arbitration shall be initiated by the
delivery of a written demand for arbitration by one party to the other. The
arbitration shall be held in New York, New York or such other place as the
parties may mutually agree. Arbitration shall be conducted before a three-person
arbitration panel appointed as follows: each party shall appoint one arbitrator
qualified to conduct the arbitration as set forth herein, and the two
arbitrators so appointed shall then appoint a neutral umpire before proceeding.
If either party fails to appoint an arbitrator within thirty (30) days after it
receives a written request by the other party to do so, the requesting party may
appoint both arbitrators. Should the two arbitrators fail to choose an umpire
within thirty (30) days of the appointment of the second arbitrator, the parties
shall appoint the umpire pursuant to the XXXXX U.S. Umpire Selection Procedure.
The arbitrators and umpire shall be either present or former executive officers
of life or life and
35
annuity insurance or life or life and annuity reinsurance companies other than
Seller, Buyer or any of their respective Affiliates. The arbitrators and umpire
shall not be under the control of either party, and shall have no financial
interest in the outcome of the arbitration.
(e) The arbitrators and umpire shall interpret this Agreement as an
honorable engagement and shall not be obligated to follow the strict rules of
law or evidence. In making their award, the arbitrators and umpire shall apply
the custom and practice of the insurance and reinsurance industry, with a view
to effecting the intent of the parties as set forth in the terms of this
Agreement and the general purpose of this Agreement. The decision of a majority
of the arbitration panel shall be Final and Binding, except to the extent
otherwise provided in the Federal Arbitration Act. For purposes of this
Agreement, "FINAL AND BINDING" shall mean that the aforesaid determinations
shall have the same preclusive effect for all purposes as if such determinations
had been embodied in a final judgment, no longer subject to appeal, entered by a
court of competent jurisdiction. The arbitration panel shall render its award in
writing, setting forth the facts underlying, and the reasons for determining,
such award. Judgment upon the award maybe entered in any court having
jurisdiction, pursuant to the Federal Arbitration Act. The non-prevailing party
shall reimburse the prevailing party for (i) the fees and expenses of the
arbitrators, (ii) the fees and expenses of the umpire, and (iii) the other
reasonable expenses of the arbitration, unless (with respect to the foregoing
clauses (i) to (iii)) the arbitration panel determines that the non-prevailing
party had reasonable good faith grounds for asserting its position in such
arbitration proceeding, in which case the fees shall be allocated as determined
by the arbitrators. In the event that either party to this Agreement refuses to
submit to arbitration as required by this Section 8.12, the other party may
request the court specified in Section 8.11 to compel arbitration in accordance
with the Federal Arbitration Act.
(f) At the request of either party, any arbitration under this Section 8.12
may be combined with pending arbitration, if any, between Seller and the Company
or their respective assigns under the Core Administrative Services Agreement or
the Core Coinsurance Agreement so that resolution of disputes under this
Agreement and the Core Administrative Services Agreement or the Core Coinsurance
Agreement may be resolved in a single arbitration proceeding.
(g) Notwithstanding the preceding provisions of this Section 8.12, any
Party may enforce the confidentiality terms of this Agreement by commencing an
action for injunctive or other equitable relief, damages or any other applicable
judicial remedy.
Section 8.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR
36
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 8.14. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated so
long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner so that the transactions contemplated hereby
are consummated as originally contemplated to the fullest extent possible.
Section 8.15. CAPTIONS. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
Section 8.16. SPECIFIC PERFORMANCE. The parties agree that each of them may
be irreparably damaged by the other party's or its authorized representatives'
breach of Sections 6.02 and 6.05 of this Agreement and that there may be no
adequate remedy at law and, in the event of such breach, the other party shall
be entitled to seek injunctive relief and/or a decree for specific performance
to enforce the provisions of this Agreement without the need to post any bond;
PROVIDED, that specific performance shall be permitted only with respect to
breaches or potential breaches of Sections 6.02 and 6.05 of this Agreement.
37
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the date first above
written.
THE HANOVER INSURANCE
GROUP, INC.
By: /s/ Xxxxxx X. Xxxxx, III
-----------------------------------
Name: Xxxxxx X. Xxxxx, III
Title: Executive Vice President and
Chief Financial Officer
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxx, III
-----------------------------------
Name: Xxxxxx X. Xxxxx, III
Title: Chief Financial Officer
ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY
COMPANY
By:
-----------------------------------
Name:
Title:
THE XXXXXXX SACHS GROUP,
INC.
By:
-----------------------------------
Name:
Title:
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the date first above
written.
THE HANOVER INSURANCE
GROUP, INC.
By:
----------------------------------
Name:
Title:
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
By:
----------------------------------
Name:
Title:
ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY
COMPANY
By: /s/ Xxxxxxxx Xxx Xxxxx
----------------------------------
Name: Xxxxxxxx Xxx Xxxxx
Title: Chief Operating Officer
THE XXXXXXX XXXXX GROUP,
INC.
By: /s/ Xxxxx Xxxxxx
----------------------------------
Name: Xxxxx Xxxxxx
Title: Attorney-in-Fact
SCHEDULES TO
TRANSITION SERVICES AGREEMENT
TABLE OF CONTENTS
PAGE
----
SCHEDULE 2.01(a) 1
SCHEDULE 2.03 19
SCHEDULE 2.04(d) 22
SCHEDULE 2.05 23
SCHEDULE 2.12 24
SCHEDULE 3.O1(iv) 25
SCHEDULE 3.03 26
SCHEDULE 7.02 27
SCHEDULE 7.03 28
SCHEDULE 7.04 29
SCHEDULE 8.03 30
SCHEDULE 2.01(a)
SERVICES
The following services constitute the "Transition Services" to be provided under
this Agreement, subject to revision from time to time as provided for by this
Agreement. In connection with such Services, the principal underwriter for the
Core Business shall, during the Service Term, be VeraVest Investments, Inc.,
unless otherwise mutually agreed in writing by the parties hereto.
Services marked with an asterisk (*) shall be considered Essential Services
under Section 2.04.
ADMINISTRATIVE SERVICES
PREMIUM COLLECTION.
* (a) Seller shall xxxx and collect premiums due, return any unearned premiums
or other premiums to be refunded, and reconcile amounts paid with returned
billing statements or other remittance media.
(b) Seller shall update the contract owner master records and all other records
to reflect payments received.
CLAIMS ADMINISTRATION. Seller shall administer claims on the Core Business as
appropriate, including as follows:
(a) Review and pay all annuity claims for benefits up to $1,000,000 and
life claims for benefits up to $500,000 which Seller's review
determines to be qualified for payment in accordance with applicable
Insurance Contract provisions. Any such payments shall be made within
the time periods and in the manner prescribed by applicable Law and/or
Orders and the applicable Insurance Contract provisions. Seller's
review shall be in conformity with the existing claims handling
guidelines in effect immediately prior to the signing date of the SPA
unless such guidelines are changed in accordance with Section 2.02 of
this Agreement.
(b) Claims for benefits greater than $1,000,000 or $500,000, as
applicable, which Seller's review determines to be qualified for
payment in accordance with applicable Insurance Contract provisions
will be forwarded to the Company for review and approval, and, if
approved, will be paid.
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(c) Review and compromise or deny, as is appropriate based on the existing
guidelines in effect immediately prior to the signing date of the SPA,
all claims for benefits which Seller's review determines to be
qualified for such denial or compromise, in reliance on applicable
Insurance Contract provisions. All such denials or compromises will be
forwarded to the Company for review and confirmation, and, if
confirmed, will be not be paid or paid to the extent approved by the
Company. In the event of non-payment of claims on account of
incomplete or insufficient data, Seller shall acknowledge such fact to
the claimant within the number of days provided by applicable Law
and/or Orders and the provisions of the applicable Insurance Contract
provisions.
(d) Communicate with claimants with respect to the submission, approval
and payment, compromise or denial of claims made under the Insurance
Contracts;
(e) Maintain such files and records as are necessary to enable the
Company, at any time, to reasonably determine the claim experience on
the Insurance Contracts;
(f) Perform such other claim services as may be reasonably required in
connection with the support and administration of the Insurance
Contracts;
(g) Respond to reasonable requests for partial claims, including,
without limitation, with respect to waiver of premium riders, nursing
home provisions, and waiver of monthly deduction.
CUSTOMER SERVICES. Seller shall provide policyholder services, including as
follows:
*(a) Respond to customer inquiries with respect to the Core Business
(whether by telephone, electronic transmission, facsimile, mail or
otherwise) from agents, insureds, policyholders, beneficiaries and
annuitants or their authorized agents or representatives in accordance
with guidelines in effect immediately prior to the signing date of the
SPA and applicable Law and/or Orders.
(b) Supply claimants, policyholders, annuitants and insureds with
appropriate instructions and forms for reporting claims and for
submitting relevant information.
*(c) Determine amounts of, and administer payouts of, death benefit and
annuity payments (including the Taxable portion of such payments) and
processing such payments for transmittal to
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claimants, policyholders, annuitants and insureds, in conformity with
contract provisions and the applicable provisions of the Code.
*(d) Issue all statements and confirmations to policyholders, including but
not limited to statements of account, prospectuses and documentation
for all financial transactions (e.g., funds allocation and
reallocation) and confirmations required under Rule lOb-10 of the
Securities and Exchange Act of 1934, in accordance with practices in
effect immediately prior to the signing date of the SPA and applicable
Law and/or Orders.
(e) Process and record policy changes pursuant to the Insurance Contracts
(such changes including but not limited to (i) changes of ownership,
beneficiary, amount of insurance, options under the Insurance
Contracts and (ii) changes in name, changes in address and changes in
other data related to the policyholders and insureds under the
Insurance Contracts), reissuances, all financial transactions (E.G.
transfer requests from one subaccount to another), Insurance Contract
loans, surrenders and reinstatements as required by applicable Law
and/or Orders and in accordance with the practices in effect
immediately prior to the signing date of the SPA.
*(f) Determine (on a daily basis) the net asset value and compute the
accumulation unit value of each subaccount of the Separate Accounts
that are funding options for the Insurance Contracts in accordance
with the applicable Insurance Contract provisions, as well as with the
applicable prospectus and statement of additional information
disclosures and applicable Law and/or Orders, on any day when such
calculation is required by the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder; and transmit orders
for the purchase or redemption of shares to the subject fund manager
or their authorized agents and pay and receive funds in connection
with such purchases or redemptions as required by the terms of the
applicable Insurance Contract.
(g) Provide all incoming and outgoing mail processing and distributions
services; provide receipt of and process mail from all sources (e.g.
P.O. box, fax, mail center); provide sorting, scanning and indexing
of incoming mail and document file retention; and deposit checks and
provide daily reconciliation, in each case in accordance with the
practices in effect immediately prior to the signing date of the SPA.
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(h) Prepare, mail and retain copies of all Tax reporting related to the
Core Business required by Applicable Law, including, without
limitation, l099-R, 1099-INT, 1O99MISC, W-2P, W-2 and 5498 for
policyholders and beneficiaries as required, and distribute the same
to policyholders and beneficiaries and appropriate authorities;
(i) Respond to reasonable requests for calculations applicable to annuity
payments as may be necessary for Tax calculations;
(j) Maintain the Company's Ready Access Program in conformity with the
practices in effect immediately prior to the signing date of the SPA.
(k) Undertake conservation and preservation of preferred clients through
the Preferred Client Group, including the provision of advice for
selected preferred clients, as is currently provided under the
conservation and preservation program, unless otherwise directed by
the Company and, if so directed by the Company, subject to, without
limitation, the Sections 2.01(d) and 2.02 of this Agreement.
(l) Generate and provide illustrations to clients and agents in accordance
with the practices in effect immediately prior to the signing date
of the SPA.
(m) Provide interactive voice response services to the extent and in the
manner provided immediately prior to the signing date of the SPA;
(n) Handle any replacement and exchange requests;
(o) Calculate (on a daily basis) the mortality and expense charges,
administrative charges, and (on a monthly basis) cost of insurance in
accordance with the provisions of the Insurance Contracts, as well as
with the prospectus and statement of additional information
disclosure;
(p) Prepare contract data pages and other inserts or additions to the
Insurance Contracts and mail such items to policyholders or agents, as
appropriate;
(q) Maintain a toll-free telephone number for inquiries by agents,
policyholders and claimants or their authorized agents or
representatives, with properly licensed staffing sufficient to handle
inquiries on a prompt basis; and
S-4
(r) Process any required or permitted changes in non-guaranteed elements
(e.g. costs of insurance for life policies and crediting rates on
certain general account fund options) and satisfy all related notice
or approval requirements in connection with such required or permitted
changes.
(s) Respond to reasonable requests from plan administrators or trustees
for policy information affecting the plan or participants for
qualified plans.
AGENT COMPENSATION. Seller shall, on behalf of the Company, calculate and pay
the compensation due from the Company to the agents, brokers and broker/dealers
of record for the Insurance Contracts as determined pursuant to any written
agreements under which any such payments become due after the Closing Date, and
administer and pay any compensation due under the "Trail Program" in accordance
with its terms and as set forth on Schedule 7.07 to the SPA. In connection
therewith, Seller shall also give effect to any debit balances and/or
overpayments that are recoverable or deductible from current or future
commission payments. Seller shall assure compliance with all reasonable
commission accounting standards.
BROKER/DEALER TRANSFER AND LICENSING. Seller shall, on behalf of the Company,
provide the following support for third party annuity and life broker/dealers
and broker changes, in each case relating to the Core Business, including with
respect to:
(a) Broker transfers
(b) Business transfers
(c) Broker setup
(d) Broker/dealer setup
(e) Confirmation of licensing for broker/dealers
OPERATIONS REPORTING. Seller shall provide the Company with access to the
following reports, to the extent such reports are so produced immediately prior
to the signing date of the SPA and upon such frequency as said reports are
produced immediately prior to the signing date of the SPA and hardcopy reports
as requested by the Company, to the extent consistent with current operations:
(a) Cash receipts and disbursements and related reconciliations
activities.
S-5
(b) Summary of suspense accounts (e.g., claims, premium, abandoned
property and fund trading activities).
(c) Claims related activities.
(d) Reconciliation of daily fund trading.
(e) All other transaction related activity.
*(1)INSURANCE COMPLIANCE SERVICES. Seller shall provide support and assistance
for the following compliance services, it being understood that (a) the
management and decision-making for these services will be provided by the
Company, and (b) prior to filing, submitting, or otherwise corresponding with
any Governmental Entity, approval for such filing, submission, or correspondence
will be required from the Company:
(a) Preparation and submission of reports and other filings and
correspondence required by any Governmental Entity, with the foregoing
to be accomplished within such time periods as are necessary to comply
with applicable Laws and/or Orders.
(b) Handling communications primarily expressing a grievance or complaint
(it being understood that the initial communication stating such a
grievance or complaint must be in writing and that any subsequent
communications with respect thereto may be oral) with respect to the
Core Business, as follows (subject in each case to the rights of
Seller and Buyer under the SPA and the procedures set forth therein):
(i) Seller shall advise the Company of any customer complaint
threatening the commencement of legal action or regulatory
action or of any inquiry or complaint received from or forwarded
by a Governmental Entity, better business bureau or an attorney
representing any customer, and shall, if requested by the
Company, provide the Company with copies of all pertinent files
and correspondence relating thereto.
(ii) Seller shall be responsible for the investigation and
preparation of responses (in accordance with past practice) to
customer and other third party complaints and regulatory
----------
(1) An Insurance Compliance Service will be an Essential Service only if
and to the extent that action is required by Applicable Law or the terms of any
communications or other requirements, in each case imposed by a Governmental
Entity, within ten (10) Business Days.
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inquiries or complaints and shall provide a report of such to
the Company on a monthly basis, in the manner provided
immediately prior to the signing date of the SPA, PROVIDED that
no response (other than acknowledging receipt of the complaint)
to such a complaint threatening the commencement of legal action
or regulatory action or an inquiry or complaint received from or
forwarded by a Governmental Entity, better business bureau or
any attorney representing any customer shall be sent to said
customer, Government Entity, better business bureau or attorney
if the Company promptly notifies Seller that the Company intends
to respond to such complaint.
(iii) Subject to the foregoing, customer complaints shall be handled
in accordance with past practice and applicable Law and/or
Orders. Seller shall use commercially reasonable efforts to
resolve or acknowledge such customer complaints, and a record of
all customer complaints shall be maintained in a log showing the
date received, the nature of the complaint, the action taken (if
any) and the date of the response in accordance with past
practice.
(c) Handling all other written and oral communications with respect to
compliance-related matters in connection with the Core Business,
investigating and preparing a response for the review of the Company.
(d) Drafting and filing registration statements and other SEC related
documents, where required, and distributing all required prospectuses,
post-effective amendments or supplements to the registration
statements of the Separate Accounts or of any underlying funds as well
as annual and semi-annual reports and any other related filings or
submissions.
(e) E-mail surveillance of registered representatives and other Seller
employees that provide Services under the Agreement, and appropriate
disciplinary and corrective action, each in accordance with and to the
extent and in the manner of practices immediately prior to the signing
date of the SPA.
(f) Review of all marketing and sales materials related to the Core
Business for compliance with applicable Law and/or Orders and
preparation and filings of all marketing materials with the National
Association of Securities Dealers and state insurance departments,
S-7
as required by applicable Law and/or Orders, subject to, without
limitation, Sections 2.01(d) and 2.02 of this Agreement.
(g) Maintenance of updated policies and procedures with respect to agent,
broker, broker dealer, call center, and insurance company activities.
(h) Monitoring of telephone calls to customer service center and taking
appropriate disciplinary and corrective action, each in accordance
with practices immediately prior to the signing date of the SPA.
(i) Coordination with and assistance to the Company for regulatory
inquiries and audit requests, in accordance with the terms of this
Agreement.
(j) Reasonable cooperation with Company efforts to facilitate fraud
detection and investigation that may relate to the Insurance
Contracts;
(k) Subject to any restrictions set forth in this Agreement, the
development and filing of policy forms, riders, endorsements, and
disclosure statements as may be required from time to time by
Applicable Law;
(l) Filing of rate changes, as required;
(m) Provision of regulatory supervision and compliance with respect to
Seller's employees, to the extent Seller is legally permitted, as to
all servicing functions contemplated by this Agreement;
(n) Coordination of mailings in respect of Insurance Contracts required by
Applicable Law or contract forms, including, among other things, the
periodic mailing of privacy notices;
(o) Monitoring of statutes and regulations of the insurance departments in
the various states in which the policyholders or the Insurance
Contracts are located to ensure compliance therewith and to ensure
that any actions or communications required by such regulations or
statutes are properly made;
(p) Monitoring of the federal securities statutes and the rules,
regulations, orders, and interpretations thereunder and the securities
statutes and rules, regulations, orders, and interpretations
thereunder of the various states in which policyholders are located
S-8
to ensure compliance therewith and to ensure that any actions or
communications required thereby are properly made; and
(q) Compliance with OFAC and money "laundering" restrictions, including,
without limitation, those adopted under the U.S. Patriot Act;
QUALIFIED PLANS. Seller shall track and implement changes in respect of
qualified plans in accordance with current practices.
PROXY PROCESSING.
(a) Seller shall receive record date information and proxy solicitation
materials and other applicable information from underlying investment
vehicle(s).
(b) Seller shall prepare proxy ballots.
(c) Seller shall mail solicitation and resolicitations, if necessary.
(d) Seller shall maintain all proxy registers and other required proxy
material.
(e) Seller shall vote as per instructed by applicable policyholder in
accordance with applicable Insurance Contract provisions and related
prospectus and other disclosure materials.
ACTUARIAL Services. Seller shall not be required to provide any actuarial
services to the Company.
QUALITY AUDITING. Seller shall perform audits of the operations in accordance
with practices in effect immediately prior to the signing date of the SPA.
TAX QUALIFICATION. Seller shall monitor all Insurance Contracts to identify any
factors that might result in a Contract Failure, utilizing the methodologies
applied by the Seller immediately prior to the signing date of the SPA unless
otherwise modified by agreement of the parties. Seller shall provide notices to
Contract holders with respect to potential Contract Failures in accordance with
the applicable policies and procedures as agreed upon by the parties. Seller
shall notify the Company of any changes to Seller's systems and procedures used
to monitor and notify Contract holders and shall provide the Company with an
opportunity to review such changes. For purposes of this schedule, "CONTRACT
FAILURE" shall mean (i) any life insurance contract or annuity contract failing
to qualify as a life insurance contract or annuity contract as applicable under
the U.S. federal Tax laws including, without limitation, under Sections 101(f),
817(h), 7702 and 72 of the Code and their underlying regulations, or (ii) any
life
S-9
insurance contract issued, reinsured, administered or serviced by the Company
qualifying as a modified endowment contract within the meaning of Section 7702A
of the Code, in each case other than as a result of the failure of the life
insurance contract or annuity contract to comply with applicable U.S. federal
Tax laws either at the issuance of, or as of the date of any amendments to, the
life insurance contract or annuity contract.
THIRD PARTY ADMINISTRATION. Seller shall provide administration services
pursuant to FAFLIC's and the Company's third party administration agreements
with third party life insurers, in a manner consistent with practices in effect
immediately prior to the signing date of the SPA.
REINSURANCE ADMINISTRATION. Seller shall provide reinsurance administration
services in a manner consistent with practices in effect immediately prior to
the signing date of the SPA.
WEB SITE. Seller shall maintain a web site that gives policyholders of Insurance
Contracts and their respective authorized agents view access to applicable
policy data including, as applicable, daily account values, unit values and
transaction confirmations to the extent and in such manner as provided by Seller
immediately prior to the date of the SPA. Such web site shall be maintained in
accordance with Seller's standards for customer information access and on-line
customer transactions, with such standards including commercially reasonable
firewalls and other reasonable protections assuring: (a) the security of the web
site and of individual policyholder information and transactions, and (b) the
privacy of, and limited access to, the policyholder's account and account
related information (or other personal or personally identifying information).
Information obtained or derived from the operation of the web site relating to
the Insurance Contracts shall not be used for any purpose other than performance
of the Services under this Agreement or the Core Coinsurance Agreement. Further,
the operation and maintenance of the web site shall be conducted in accordance
with Applicable Law and the requirements and applicable standards set forth in
this Agreement.
ACCOUNTING AND REPORTING
Seller shall provide the Company with the following life accounting financial
reporting and related services on both a GAAP and statutory basis, it being
understood that prior to filing, submitting, or otherwise corresponding with any
Governmental Entity, tax collecting agency, rating agency, or auditor, approval
for such filing, submission, or correspondence will be sought from, and granted
by, the Company:
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MONTHLY REPORTING
(a) Daily and monthly transactions recorded to PeopleSoft general ledger:
(i) Insurance Contract administrative systems fed directly to the
general ledger via automated interface,
(ii) Treasury and investment transactions fed directly to the general
ledger via automated interface,
(iii) Reserve, actuarial and reinsurance data manually entered from
source documentation provided by actuarial and reinsurance
operations areas, the Company and outside reinsurers,
(iv) Tax provisions and payments calculated and recorded by tax
department,
(v) Appropriate reclassifications made to general ledger via
standard allocation process,
(vi) Other manual journal entries to be processed in the normal
course of business, and
(vii) All other Company provided journal entries, including purchase
GAAP accounting.
(b) Detailed trial balances by account and book-type, book-type being
defined as cash, accrual, statutory, GAAP, and tax ledgers.
(c) Cash settlement with FAFLIC for co-insurance on and after the date
of the Core Coinsurance Closing.
(d) Access to all journal entries and system feeds processed in PeopleSoft
and respective sub-ledgers.
(e) Summary and detailed trial balances to be made available in an agreed
upon electronic format as well as hard copy.
(f) Preparation of any requirements stipulated by existing reinsurance
agreements (coinsurance, reinsurance).
(g) Reports relating to Core Business reinsurance if and the extent such
reports are produced immediately prior to the signing date of the SPA.
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QUARTERLY REPORTING. All monthly items plus the following:
(a) Quarterly transactions recorded to PeopleSoft general ledger
including:
(i) Asset valuation reserve,
(ii) Co-insurance/reinsurance with quarterly information,
(iii) Balance sheet reporting reclassifications.
(b) Quarterly co-insurance information on both a GAAP and statutory basis,
as applicable, to FAFLIC on and after the date of the Coinsurance
Closing, including, but not limited to:
(i) Account values,
(ii) Benefits,
(iii) Separate Accounts activity and balances,
(iv) Death claims pending,
(v) Total Contract Loans outstanding,
(vi) Interest due and accrued on Contract Loans,
(vii) Claims by state,
(c) Cash information by state, which includes, but is not limited to:
(i) First year premium,
(ii) Renewal premium,
(iii) Premium waived,
(iv) Death claims and other benefits,
(v) Reserves released on death,
(vi) Interest on claims,
(vii) Surrenders,
(viii) Contract Loan interest,
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(ix) Change in Contract Loans.
(d) Production of "statutory quarterly financial blanks", including all
required pages, schedules, and exhibits, to be filed with the
Massachusetts Department of Insurance and any other appropriate
Governmental Entity for which such filings are required.
(e) Balance sheet account reconciliations for all the Company asset,
liability and separate accounts.
(f) Calculation and recording of interest maintenance reserve.
(g) Access to and assistance with support schedules and reconciliations
relating to quarterly statutory filings with the NAIC and the
Massachusetts Department of Insurance and any other appropriate
authority for which such filings are required.
(h) Assistance in preparation of footnote disclosures for Buyer Form 10-Q
filings.
ANNUAL REPORTING. All quarterly and monthly items plus the following:
(a) Production of "blue book" statutory annual statement for the Company
and the "green book" Separate Accounts of the Company, to be filed
with the Massachusetts Department of Insurance and all interested
states and regulatory bodies and printed by an external printer/binder
for issuance.
(b) Provision and filing of the following regulatory items:
(i) NOLHGA filings,
(ii) A&H exhibits,
(iii) ISL exhibits,
(iv) IRIS ratio responses.
(c) State fees and license renewals.
(d) Responses to inquiries and audit requests made by Governmental
Entities (in accordance with past practice and subject to Company
review and the SPA).
(e) Production of the Company financial statements prepared in accordance
with U.S. GAAP for inclusion in annual product
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(prospectus) filings (subject to audit by FAFLIC's auditor at the
Company's expense).
(f) Preparation of rating agency surveys for annual requests by Standard &
Poor's, AM Best and Moody's.
(g) State and Federal Tax provisions and Tax Return filings.
(h) Premium tax and guarantee fund filings.
(i) Production of risk-based capital report.
(j) Assistance in preparation of footnote disclosures for Buyer Form 10-K.
(k) Cooperation with Buyer for Xxxxxxxx-Xxxxx documentation and testing.
(l) Assistance for financial, third party, and internal audits.
SEPARATE ACCOUNTS REPORTING.
*(a) Separate Accounts Trading:
(i) Maintain trial balances for each subaccount
(ii) Maintain unit and dollar activity by transaction for each
subaccount
(iii) Maintain purchase and sales for each subaccount
(b) Separate Accounts Reporting:
(i) Prepare NSAR filings
(ii) Prepare 24f-2 filings
(iii) Edgarize and proof all separate account financials
(c) Provide report of assets by distribution channel.
GENERAL ACCOUNT INVESTMENT REPORTING. Seller will provide the Company with the
following:
(a) Daily cash reconciliation report and supporting details.
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(b) Other standard daily XXX reports.
(c) Daily trade date positions feed from XXX at taxlot level, which
includes book cost.
(d) Monthly portfolio valuation feed from XXX.
(e) Monthly and quarterly detail investment reports to support general
ledger postings (cash, transaction, other).
(f) Annual SVO valuation.
(g) Quarterly NAIC price and ratings import.
(h) Monthly IDC price and ratings import.
(i) Support for monthly full reconciliation of Company reports to Bank
of New York/custodian records (i.e., cash securities, accruals,
receivables, etc.)
(j) Quarterly book yield and prepayment assumptions.
(k) Year end audit support.
(l) Quarterly determination of investment portfolio compliance with state
regulations.
(m) Processing of an automated daily trade file to XXX via a XXX
compatible trading system feed to be provided by the custodian.
(n) Responses to requests for financial and regulatory information about
the general account assets.
TAX
FEDERAL & STATE INCOME TAX.
COMPLIANCE
1. Prepare Federal Income Tax Return
- Calculation of DAC
- Calculation of SA DRD
- Calculation of SA FTC
2. Prepare State Income Tax Return
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- Florida
- Louisiana
- Massachusetts
- Mississippi
- Oregon
- New Hampshire
- Nebraska
- Illinois
3. Prepare Foreign Tax Returns
- Puerto Rico
- Virgin Islands
ACCOUNTING
1. Prepare Quarterly Tax Provisions
- Prepare GAAP including full FAS 109 deferred analysis
- Prepare Statutory including full SSAP 10 analysis
2. Prepare Quarterly Financial Statement Footnote Disclosure
OTHER
1. Assist with Projections of Tax Related Cashflow
2. Assist with Federal Audit
3. Assist with State Audit
4. Prepare tax information materials required to be provided to Seller pursuant
to Section 8.02 of the SPA
PREMIUM TAXES & LOCAL TAXES.
STATE AND LOCAL COMPLIANCE
1. File annual premium tax returns in all states, including Puerto Rico
2. File quarterly premium tax payments in the Virgin Islands
3. File and pay quarterly estimated payments in most states
4. Respond to all premium tax-related state inquiries and requests
5. Pay assessments and administrative fees to all state guaranty funds
6. File Returns and pay municipal taxes in the following states:
a. Alabama
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b. Xxxxxxx
x. Louisiana
d. South Carolina
7. Prepare and record monthly estimates of premium taxes by product for
financial statement purposes. These estimates are also used to facilitate
estimated payments where actual current year data is required. Estimated
payments are tracked and accounted for through this process.
8. Provide accounting for and follow up with states on outstanding refunds and
prior year overpayments to ensure proper utilization of subsequent returns
or receipts.
9. Provide accounting for guaranty fund assessments to ensure appropriate
utilization on annual returns. Provide accounting for SSAP 35 guaranty fund
liabilities
10. Maintain tracking of CAPCO credits and ensure appropriate usage on annual
premium tax returns
11. Prepare balance sheet reconciliations for all premium tax and guaranty fund
related assets and liabilities. (AFLIAC has no personal property or
sales/use taxes)
TAX RETURNS.
(i) Any Federal Tax Return that Seller is required to prepare under the
terms of this Agreement shall be delivered to the Company by Seller at
least thirty (30) days prior to the due date of the filing of such
Federal Tax Return. Any state income tax return, premium tax return or
local tax return that Seller is required to prepare under the terms
of this Agreement shall be provided to the Company by Seller at a time
prior to the due date for such return that will provide the Company
with a reasonable amount of time to review such return.
(ii) At the closing of the SPA, Seller shall provide the Company with a Tax
calendar which shall set forth each Tax Return that the Company is
required to file and the date upon which each such Tax Return is
required to be filed.
TAX COOPERATION. Seller's senior Tax personnel shall be made available to the
Company at reasonable times and for reasonable periods of time and shall
reasonably cooperate with the Company's Tax personnel for purposes of
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providing reasonable assistance to Company Tax personnel with any and all Tax
matters relating to the Core Business and to the Non-Core Business.
TECHNOLOGY
Seller shall provide the Company with reasonable and appropriate Technology
assistance and support that includes, but is not limited to, the following:
testing of all file feeds from Seller to the Company; resolution of any data
feeds-related issues in a reasonably timely manner; investigation and resolution
of any material data discrepancies identified by the Company and communicated to
Seller; consultation to the Company on reasonable system-related inquiries; and
reasonable amounts of user help desk support and other reasonable support in
accordance with practices in effect immediately prior to the signing date of the
SPA.
Seller and Company shall reasonably cooperate with and work with each other in
order to arrange for and complete the delivery from Seller to the Company of
such Core Business data feeds and electronic reports as are currently produced
by Seller in connection with the Core Business so as to reasonably assist
Company in the management of the Core Business during the Service Term. If and
to the extent that the Company desires data feeds or electronic reports
different from or other than those data feeds or electronic reports which are
currently produced by Seller in connection with the Core Business ("ADDITIONAL
FEEDS/REPORTS"), Seller agrees to provide an estimate associated with the effort
of producing and delivering such Additional Feeds/Reports to the extent
reasonable in effort, it being understood that reasonableness of effort shall be
measured by, among other factors, the impact that such effort would have on
Seller's resources and Seller's ability to provide Services pursuant to this
Agreement, including without limitation Transition Services and/or Conversion
Services. Accordingly, all such requests for Additional Feeds/Reports shall be
subject to mutual agreement by the Company and the Seller. All costs and
expenses associated with such Additional Feeds/Reports shall be subject to,
without limitation, Sections 2.01(d) and 2.02 of this Agreement.
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SCHEDULE 2.03
SERVICE STANDARDS
SERVICE PERFORMANCE STANDARD
NON-FINANCIAL ACTIVITIES
Sending out requested forms Postmarked or FAXed within five (5)
Business Days of receipt of request
Sending out policyholder annual/quarterly Within fifteen (15) Business Days of the
statements end of the applicable policy
year/quarter
Researching and answering policyholder Best efforts to provide response within
phone inquiries five (5) Business Days, unless otherwise
required by applicable Law and/or Orders
Time to process all non-financial changes Within five (5) Business Days from
received in good order (e.g. changes of receipt of request
ownership, beneficiary designation,
address, payment mode, assignments or
collateral assignments)
Complaint handling processing Subject to Schedule 2.01(a), written
acknowledgement to client within one (1)
Business Day. Best efforts to provide final
response within ten (10) Business Days,
unless otherwise required by applicable Law
and/or Orders or the terms of the complaint.
Dedicated call center professionals' 8:30 a.m. to 6:00 p.m., Eastern time, on
accurate and timely service to clients each Business Day
Cash management Advise Company to fund account at least
one (1) Business Day in advance of
payment date.
Variable Universal Life Illustration Best efforts to send to policyholder within
Requests five (5) Business Days
FINANCIAL ACTIVITIES
Time to process financial transactions Same Business Day received or next
received in good order, including but not Business Day if received after 4:00 p.m.
limited to: Eastern time
- Premium payments
- Fund transfer/reallocations
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- Fund allocations
- Transfers among sub-accounts
- Deposits
- Partial withdrawals;
- Automatic rebalancing
Transaction confirmations mailed to Within one (1) Business Day after
policyholder successful completion of the transaction
Daily deposit of premium received into Same Business Day of receipt of request
Company cash account at bank in good order or next Business Day if
received after 4:00 p.m. Eastern time
Daily reconciliation of cash activities to Same Business Day
bank statement
CLAIMS PROCESSING
Annuity Claims within the agreed threshold Processed same Business Day as receipt
of $1,000,000 of final requirement in good order
Life Claims within the agreed threshold of Processed within five to seven (5-7)
$500,000 Business Days of receipt of final
requirement in good order.
Annuity and Life Claims for thresholds Determination of payment and
greater than $1,000,000 and $500,000, transmission to Company for review and
respectively, for which Seller's review approval made same Business Day as
determines to be qualified for payment final requirement received in good order.
Processed on Same Business Day as
approved by Company if approval
received prior to 4:00 p.m. Eastern time,
otherwise next Business Day.
REPORTING (TRANSACTION RELATED AND
MANAGEMENT REPORTS - ELECTRONIC OR
HARDCOPY)
Cash activities and related reconciliations End of Business Day following the
reports reconciliation
Summary of suspense accounts (e.g., Weekly - available for review by the
claims, premium, abandoned property and Company first Business Day of the
fund trading activities) following week
Claims related transaction activities End of Business Day following
completion of successful processing
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Reconciliation of daily fund trading End of Business Day upon which the fund
complex confirms closing shares
Commission disbursement and End of Business Day following the
reconciliation reporting applicable commission cycle processing
date
ACCOUNTING
Administrative and operational feeds are By end of Business Day, day 2
processed in PeopleSoft
All cash and investment entries are By end of Business Day, day 3
processed in PeopleSoft
All Income Statement GAAP and accrual By end of Business Day, day 6
entries are processed in PeopleSoft
GAAP Operating Income Management By end of Business Day, day 9
reporting is completed
All Balance Sheet reclassification entries By end of Business Day, day 11
processed in PeopleSoft
All Statutory entries processed in By end of Business Day, day 14
PeopleSoft
Estimated Statutory surplus and RBC By end of Business Day, day 15
calculations are completed
MISCELLANEOUS
File Feeds to the Company Provided in a time frame that is
reasonable and appropriate for the nature
of the data.
Technology Services Same standards applicable to the Core
Business, that were provided in
accordance with practices in effect
immediately prior to the signing date of
the SPA.
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SCHEDULE 2.04(d)
VARIABLE SERVICES
ANNUAL PER MONTHLY PER
POLICY VARIABLE POLICY VARIABLE
SERVICE EXPENSE EXPENSE
-------------------------------------------------------------------------------------
Call Center $ 12.06 $ 1.00
Annuity Operations iO.53 .87
Life Operations 6.66 .55
Financial/Operational Reporting 7.65 .64
Regulatory Print .54 .05
BITS 10.44 .87
Preferred Client Group 4.41 .36
Operations Leadership 3.78 .31
Allmerica Technology Services:
Beacon 10.18 .86
Vantage 11.20 .94
Core 8.82 .74
LifeForce 3.73 .31
$ 90.00 $ 7.50
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SCHEDULE 2.05
PERMITTED INSURANCE CONTRACT ISSUANCES
Term conversions
Additions to qualified plans
Child riders
QDROs
New insured riders
Policy splits
Life insurance exchange option riders
Spousal takeovers
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SCHEDULE 2.12
RETIRED APPLICATION SOFTWARE
Plexus Image & Workflow and associated Banctec software.
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SCHEDULE 3.01(iv)
PASS THROUGH SERVICE COSTS
ESTIMATED
ANNUAL COSTS
"Pass Through Service Costs" shall include expenses incurred for:
(a) all data communication charges as well as any related equipment charges $ 100,000
incurred on the Company's behalf;
(b) telephone charges incurred in communicating with the Company, its $ 200,000
insureds or clients and its agents and representatives;
(c) freight, distribution and postage charges incurred as a result of the Services $ 1,300,000
performed hereunder for and on behalf of the Company (e.g., Xxxxxxxx);
(d) travel expenses (including transportation, parking, lodging and meals) Variable
incurred by FAFLIC, its employees and/or its duly authorized agents,
subcontractors or representatives in providing the Services:
(e) charges for stationery and other supplies unique to the Company or to the $ 200,000
provision of the Services hereunder for the Company;
(f) reasonable expenses incurred by FAFLIC for extraordinary activities either Variable
requested by the Company or reasonably required to be performed;
(g) mailing, lockbox, and scanning charges and other administration fees (e.g., $ 400,000
BFDS);
(h) printing charges, including regulatory printing and prospectuses (e.g., $ 2,300,000
Donnelly, Ibbotson, and BFDS);
(i) auditing, licensing, and exam fees incurred in connection with the Services $ 500,000
other than as set forth in the Agreement;
(j) external legal fees (exclusive of litigation, SEC/NASD investigations, etc.); $ 165,000
(k) charges related to asset allocation services, if any (e.g., Ibbotson); $ 300,000
(l) proxy costs; and Depends on
fund company
(m) bank charges $ 360,000
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SCHEDULE 3.03
VARIABLE SERVICES
ANNUAL RATE PER
VARIABLE SERVICE VARIABLE SERVICE
RESOURCE
------------------------------------------------------------------
Call Center $ 45,000
Regulatory Print $ 60,000
BITS $ 75,000
ATS (Beacon/Vantage Resource)
Offshore Resource $ 60,000
On-Site Resource $ 135,000
Life Operations $ 46,000
Annuity Operations $ 43,000
Financial & Operational Reporting $ 56,000
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SCHEDULE 7.02
ADDED SECURITY REGULATION
Seller shall configure Encryption File Systems or equivalent technology on all
laptop computers used by the Seller to provide the Services in order to protect
data stored thereon in the case of a lost or stolen laptop. Such configuration
shall be undertaken at Seller's expense for up to ten (10) laptops and
configurations in excess of ten (10) laptops shall be undertaken at the
Company's expense.
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SCHEDULE 7.03
ADDED VIRUS PROTECTION
For Seller employees providing Services remotely, Seller shall ensure that
Citrix or equivalent technology is in place for access infrastructure, which
includes network access and application access.
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SCHEDULE 7.04
ADDED DISASTER RECOVERY GUIDELINES
Seller shall complete all business resumption and Disaster Recovery Plan
initiatives which have been previously provided by Seller to Buyer and are
applicable to the performance of the Services, substantially in accordance with
the schedules applicable to such initiatives.
Seller shall provide the necessary backups for relevant access databases,
spreadsheets, and other desktop applications in accordance with practices in
effect immediately prior to the signing of the SPA.
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SCHEDULE 8.03
LIST OF LIAISONS
[To be completed between signing of the SPA and the Closing Date]
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