INDEMNITOR STATUS: Effectively Taking the Indemnity of Traditional and Non-Traditional E ntities Presented by:

INDEMNITOR STATUS: Effectively Taking the Indemnity of Traditional and Non-Traditional Entities Presented by: Julie Glick DePhillips Liberty Mutual Surety Chris Indelicato Liberty Mutual Surety May 21, 2013

PRESENTERS Julie Glick DePhillips is Senior Counsel for the Northeast Region of Liberty Mutual Surety and has been with Liberty Mutual since 2000. Prior to joining Liberty, Julie was a claims attorney with Reliance Insurance Company and subsequently Travelers Bond. She graduated from the George Washington University with an International Business degree and received her JD from the University of Miami School of Law. Julie has been a presenter at several surety industry conferences, underwriting training seminars and makes presentations to underwriters related to their role within the organization. Chris Indelicato is Senior Counsel for the Midwest Region in the Legal Department at Liberty Mutual Surety. Chris graduated from Temple University School of Law and was in private practice in Philadelphia until 2003, when he joined Liberty’s Claim Department. In 2010, he moved to the Legal Department, where he provides legal support for Liberty’s underwriting and executive teams. Chris has been a presenter at various surety industry conferences and events, and makes frequent presentations to Liberty’s underwriting personnel.

PRINCIPAL & INDEMNITOR • Principal – a party for whom a bond is issued • Indemnitor – a party that is financially liable to the surety for the bonds issued and a signatory to the general agreement of indemnity

Indemnity Examples GAI defining Indemnitor: • This agreement is made and entered into by the Undersigned in favor of Surety for the purpose of indemnifying them from all loss and expense in connection with Bonds for the following Principals _____________________________: • This General Agreement of Indemnity (the Agreement) is made and entered into by the following individuals and/or entities __________________________ (the Indemnitors) in favor of Surety with respect to surety bonds for _______________________________: GAI defining Principal: • This agreement is made and entered into by the Undersigned in favor of Surety for the purpose of indemnifying them from all loss and expense in connection with Bonds for the following Principals _____________________________: • This General Agreement of Indemnity (the Agreement) is made and entered into by the following individuals and/or entities __________________________ (the Indemnitors) in favor of Surety with respect to surety bonds for _______ and any subsidiaries or affiliates of ___________or at the request of others……(Principal)

Types of Entities • Sole Proprietorship • Corporation • Limited Liability Company • Partnerships (Limited Partnership, General Partnership) • Joint Ventures • Trust (Revocable, Irrevocable, Business Trust, REIT) • Employee Stock Ownership Plans • Non Profit and Social Enterprise Vehicles • Cooperatives • Native American Tribes • Other

Who Signs for Various Entities • Sole Proprietorship – individual that owns the business • Corporation – President • LLC – Manager • General Partnership – all partners • Limited Partnership – general partner • Joint Venture – each co-venturer on behalf of itself and JV • Trusts – Trustee

Sole Proprietorship • A designation assigned to a manner of doing business by an individual. • No legal distinction between the individual and the business. • Sole proprietor is personally liable for all debts and obligations of the business. • Only need signature of the sole proprietor.

Corporation • A corporation is a distinct legal entity that acts through authorized representatives namely the corporate officers. • A corporation may only exercise those powers that are granted by law, by its charter or articles of incorporation or bylaws. • It is presumed that a corporation guaranteeing its own debts [corporation = principal] has the authority to execute the indemnity agreement and that the president of the corporation has the apparent authority to do so. • If indemnitor is the only bond principal then president with attestation from secretary.

Corporation • “Ultra Vires” is an act that is not within the express or implied powers of the company and are wholly void. • Depending on the law of the jurisdiction where the corporation is established, guaranteeing the debts of another legal entity, even that of a subsidiary company or affiliated company of the corporation may be deemed ultra vires acts. • If writing bonds on behalf of entities other than indemnitor and relying on indemnitor’s indemnity obligations, then likely need corporate resolutions or other confirmation that within corporate authority to guarantee the debts of another.

Limited Liability Company • Most commonly formed business organization in US which incorporates the best of corporation (limited liability for members) and partnership (no double tax). • Member is one who owns an interest in an LLC (= shareholder of a corporation). • Manager is one designated by the members to operate the business of the LLC (= director of corporation). • Operating Agreement- legal relationship among members, how LLC will be managed. • LLC can be managed by Members (owners) or Manager (may or may not be owner). • Members and/or Managers can be persons or other LLCs, corporations, etc. • Executed by Manager or Members if Member-managed.

Partnerships • General Partnership is the association of two or more persons to carry on a business for profit. The act of entering a contract is that of the individual members and as such all partners of a general partnership should execute the GAI to bind. • Limited Partnership is a partnership consisting of one general partner and one or more limited partnerships. The general partner manages the partnership and is thus the party who should execute the GAI. • Master Limited Partnership is a publicly traded limited partnership, of which> 90% of its revenue comes from “qualifying income” (typically energy-related assets). The general partner (usually an SPV which is owned by the corporate “sponsor”) is the party who executes indemnity agreement.

Joint Ventures • An association of two or more persons/entities to carry on an enterprise for profit. • Unincorporated JV is subject to the laws of general partnerships. • Executes GAI by both/all partners • Joint and several liability • Still, get indemnity of all partners AND the JV itself. • Can also form separate legal entity (Corp, LLC, etc.). • Form 1(unincorporated JV) & Form 3 (JV forms separate legal entity) • Project specific GAI • Add to existing GAI

Trusts • A legal entity created to hold and disburse assets. • Created by Trust Declaration/Trust Agreement • Managed by a person or entity known as a Trustee. • Succession/estate planning; tax avoidance; shield assets. • Powers of Trustee include: • Enter into loan agreements/pledge collateral • Any other power as permitted by law • Power to execute indemnity agreement? • What assets does Trust own today? tomorrow? • Financial Statement/Inventory of Assets

Trusts • Types of Trusts • Revocable • Irrevocable • Testamentary • Real Estate Investment Trust • Business Trust (i.e. Massachusetts Business Trust)

Employee Stock Ownership • Qualified benefit plan designed to provide employees with an investment in the stock of the sponsoring employer to align the interests of the employees with that of the company • A type of defined contribution plan regulated by Employee Retirement Income Security Act (ERISA) and the Department of Labor and must also comply with certain IRS regulations. • ESOP itself cannot indemnify, but the corporation can.

Non Profit Corporation • Form corporation by filing papers (Cert of Incorporation must state exempt purpose). • Apply to IRS as “exempt organization” per 501(c) of Code. • No excess profits to members. • Fund-raising activity must be consistent with exempt purpose. • Governed/operated by Directors/Officers.

Social Enterprise Vehicle • Enterprises that seek to achieve their primary social or environmental missions using business methods • a/k/a “for profit charity” • Avoid limits on lobbying/political activities, raising capital. • Secondary fiduciary duty to maximize profit • L3C (Low-profit Limited Liability Company) • charitable or educational purpose • same limited liability and tax treatment • B Corp. (Benefit corporation) • public benefit • 3rdparty certification • 2/3 shareholder vote to change • Execute GAI in same form as Corp or LLC.

Cooperative • Mutual benefit association formed for the purpose of uniting parties to provide goods or services. • Typically set up as a corporation, however, considered to be non profit in that its primary goal is not profit but instead to further the economic advantage of its members in the form of marketing advantages. • Governed by state statute.

Native American Tribes • Tribes are separate sovereign entities which enjoy sovereign immunity from suit in both state and federal court and potentially its own tribal court unless a waiver of sovereign immunity is obtained. • Examine how the tribe is set up by reviewing charter, articles of incorporation and by-laws • Corporation owned by the tribe • Registered tribal entity • Owned by tribal members but chartered under state or tribal law • Waivers must be unequivocally expressed • Must determine who has authority to bind tribe based upon constitution and tribal code.

QUESTIONS? If you do not he the opportunity to have your question addressed during the Seminar, you may contact the presenter directly: Julie Glick DePhillips Liberty Mutual Surety Julie.glick_dephillips@libertymutual.com 610-832-8308 Christopher Indelicato Liberty Mutual Surety Chris.indelicato@libertymutual.com 610-832-8432

INDEMNITOR STATUS: Effectively Taking the Indemnity of Traditional and Non-Traditional E ntities Presented by: