**Exhibit10.1**

 

QUOTA SHARE REINSURANCE AGREEMENT

(hereafter referred to as the “Agreement”)

*by andbetween*

Pennsylvania Life Insurance Company

 

(hereafter referred to as “Company”)

*and*

PharmaCare Captive Re, Ltd.

(hereafter referred to as “Reinsurer”)

 

(collectively, the “Parties”)

 

 
| Effective: |   | 12:01 A.M.,  Local Standard Time, July 1, 2005 |
|------------|--------|----------------------------------------------------------|
| Term:      |   | Per  Article III                                    |
| Type:      |   | QUOTA  SHARE                                             |

 

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TABLE OF CONTENTS

 
| PREAMBLE                                                                                    | 1      |
|---------------------------------------------------------------------------------------------|--------|
|                                                                                        |   |
| ARTICLE I – DEFINITIONS                                                           | 1      |
|                                                                                        |   |
| ARTICLE II – POLICY FORM; REINSURANCE  OBLIGATION                                 | 2      |
|                                                                                        |   |
| ARTICLE III – COMMENCEMENT AND TERMINATION                                        | 2      |
|                                                                                        |   |
| ARTICLE IV – POLICY REDUCTIONS AND TERMINATIONS                                   | 2      |
|                                                                                        |   |
| ARTICLE V – PREMIUM; ALLOWANCES                                                   | 3      |
|                                                                                        |   |
| ARTICLE VI – REPORTS AND REMITTANCES                                              | 3      |
|                                                                                        |   |
| ARTICLE VII – EXTRA CONTRACTUAL OBLIGATIONS  AND PREMIUM TAXES                    | 3      |
|                                                                                        |   |
| ARTICLE VIII – POLICY ADMINISTRATION                                              | 4      |
|                                                                                        |   |
| ARTICLE IX – BREACH                                                               | 4      |
|                                                                                        |   |
| ARTICLE X – REPRESENTATIONS, WARRANTIES AND  COVENANTS; INDEMNIFICATION           | 4      |
|                                                                                        |   |
| ARTICLE XI – PAYMENT OF CLAIMS                                                    | 5      |
|                                                                                        |   |
| ARTICLE XII – COINSURANCE; RESERVES                                               | 6      |
|                                                                                        |   |
| ARTICLE XIII – ERRORS AND OMISSIONS                                               | 6      |
|                                                                                        |   |
| ARTICLE XIV – INSOLVENCY                                                          | 6      |
|                                                                                        |   |
| ARTICLE XV – TREASURY REGULATION  SECTION 1.848-2(GG)(8) JOINT ELECTION | 7      |
|                                                                                        |   |
| ARTICLE XVI – ACCESS TO RECORDS                                                   | 8      |
|                                                                                        |   |
| ARTICLE XVII – ALTERNATIVE DISPUTE RESOLUTION                                     | 8      |
|                                                                                        |   |
| ARTICLE XVIII – ARBITRATION                                                       | 9      |
|                                                                                        |   |
| ARTICLE XIX – GOVERNING LAW                                                       | 10     |
|                                                                                        |   |
| ARTICLE XX – REIMBURSEMENTS AND RECOVERIES                                        | 10     |
|                                                                                        |   |
| ARTICLE XXI – ENTIRE AGREEMENT                                                    | 11     |

 

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| ARTICLE XXII – OFFSET                        | 11     |
|--------------------------------------------------------|--------|
|                                                   |   |
| ARTICLE XXIII – WAIVER; AMENDMENT            | 11     |
|                                                   |   |
| ARTICLE XXIV – NO ASSIGNMENT; BINDING EFFECT | 11     |
|                                                   |   |
| ARTICLE XXV – SEVERABILITY                   | 11     |
|                                                   |   |
| ARTICLE XXVI – CONFIDENTIALITY               | 11     |
|                                                   |   |
| ARTICLE XXVII – PRIVACY POLICY               | 12     |
|                                                   |   |
| ARTICLE XXVIII – NOTICES                     | 12     |
|                                                   |   |
| ARTICLE XXIX – GUARANTEE                     | 13     |
|                                                   |   |
| ARTICLE XXX – EXECUTION                      | 13     |
|                                                   |   |
|                                                   |   |
| EXHIBIT A  – APPROVED POLICY FORMS           |   |
| SCHEDULE B – GUARANTEE                       |   |

 

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**PREAMBLE**

 

In consideration of the mutual covenants hereinafter contained theparties hereto agree as follows:

 

**ARTICLE I****           ****DEFINITIONS**

 

“Administrator” means the entity or entities that will perform theadministrative services associated with the Policy as provided in Article VIIIhereof.

 

“Affiliate” means a Person controlling, controlled by or under commoncontrol of the Company.

 

“Claim” means a demand on Company or Administrator for payment orreimbursement owed as a result of the provision or receipt of items or servicescovered under the Policy.

 

“Claims Account” has the meaning assigned to such term in Article XIhereof.

 

“Coinsurance Basis” means reinsurance on a basis whereby Company cedesproportionally to Reinsurer the premiums and the insurance liabilities relatingto or arising under the Policy.

 

“Company” means Pennsylvania Life Insurance Company, a Pennsylvaniacorporation.

 

“Contract Dispute” has the meaning assigned to such term in Article XVIIIhereof.

 

“Effective Date” means July 1, 2005 as of 12:01 A.M., LocalStandard Time.

 

“Extra Contractual Obligations” means any and all costs, expenses,damages, liabilities, or obligations of any kind or nature (including withoutlimitation pre-judgment and past judgment interest, attorneys fees,consequential and incidental damages, and punitive and exemplary damages, finesand penalties) which are incurred and/or paid by-Company and arise out of,result from or relate to any act or omission, whether or not in bad faith,intentional, willful, negligent, reckless, careless or otherwise, of Company,Administrator, Reinsurer or any of their respective agents or representativesin connection with a Policy, other than benefits payable under the terms ofsuch Policy.

 

“Financial Dispute” has the meaning assigned to such term in Article XVIIhereof.

 

“Local Standard Time” means the time at the location of Company’s homeoffice.

 

“Loss” means a Claim that has been actually paid by or on behalf ofCompany, but excluding Loss Adjustment Expenses. A Loss is incurred on the datethat the Loss is actually paid.

 

“Loss Adjustment Expenses” means all payments of fees and expensesassociated with investigation, adjustment, and litigation costs relating todefense of claims or determination of coverage (including without limitationreasonable attorney’s fees), subrogation and recovery, and settlement of Claimsunder the Policy, excluding Administrator’s or Company’s salaried employees andoverhead.

 

“Party” or “Parties” means Company and/or Reinsurer, as applicable.

 

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“Person” means an individual, firm, corporation or entity.

 

“Policy” means the group prescription drug benefit policy which is,when approved as provided in Article II, to be issued to the State ofConnecticut by Company covering employees and retired employees of such Stateand dependents of such employees and retirees. The Policy shall not have anyconversion rights.

 

“Premium” means the premium required by a Policy to be paid and whichis actually collected and received by the Company or the Administrator onbehalf of the Company.

 

“Premium Account” has the meaning assigned to such term in Article Vhereof.

 

“Reinsurance Premium” shall have the meaning assigned to such term in Article V.

 

“Reinsurer” means PharmaCare Captive Re, Ltd., an Arizona corporation.

 

“SAP” means the statutory accounting principles and procedurespermitted or prescribed by the Pennsylvania Department of Insurance, or as maybe otherwise required by any other State insurance department.

 

“Section 848” means Section 848 of the Internal Revenue Codeof 1986, as amended.

 

**ARTICLE II****         ****POLICY FORM; REINSURANCEOBLIGATION**

 

The form of the Policy and all supporting material required forregulatory approval thereof shall be agreed to by Company and Reinsurer.  Upon agreement among Company, Reinsurer andthe State of Connecticut, as the insured, the Policy shall be submitted by theCompany for all required regulatory approvals. Upon receipt of such approvals,the approved forms shall be attached to this Agreement as Exhibit A.

 

On and after the Effective Date, Company agrees to cede to Reinsurer,and Reinsurer agrees to reinsure from Company, on a Coinsurance Basis, 100% ofLosses under the Policy and 100% of any Loss Adjustment Expenses incurred byCompany with respect to the Policy. Reinsurer shall pay such Losses and LossAdjustment Expenses on behalf of the Company, as provided in Articles XI andVII.. Reinsurer agrees to indemnify Company for 100% of such Losses and LossAdjustment Expenses.

 

**ARTICLE III****        ****COMMENCEMENT AND TERMINATION**

 

This Agreement, and the rights, obligations and duties hereunder of theParties, shall become effective on the Effective Date and shall continue inforce as long as the Policy, including any certificate thereunder, continues ineffect.

 

**ARTICLE IV****        ****POLICY REDUCTIONS ANDTERMINATIONS**

 

Reductions and terminations of coverage and benefits under the Policyshall reduce or terminate the Reinsurer’s liability hereunder in acorresponding amount as of the same date.

 

All reinsurance for which Reinsurer is liable hereunder shall besubject to the same terms, conditions, limitations, and restrictions as arecontained in the Policy.

 

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**ARTICLE V****         ****PREMIUM; ALLOWANCES**

 

The premium for the reinsurance hereunder (the “Reinsurance Premium”)shall be the Premium collected by the Company, or by the Administrator on itsbehalf, after reduction of following expense allowances: two (2) percentof the Premium shall be retained by the Company for underwriting services; andone (1) percent of the Premium shall be paid to the Administrator foradministrative purposes.

 

All Premium collected by Company, or the Administrator on its behalf,shall be deposited into an account in the name of Company (the “Premium Account”),from which the expense allowances described in this Article V shall bepaid (with respect to the underwriting services, by transfer to another accountdesignated by Company), and the remaining Reinsurance Premium shall betransferred to Reinsurer, all within two (2) business days of the receiptof the underlying Premium by Company (or the Administrator on its behalf). TheAdministrator shall have administrative control of the Premium Account.

 

**ARTICLE VI****        ****REPORTS AND REMITTANCES**

 

Within ten (10) business days after the end of each calendarmonth, the Administrator shall deliver in writing to Company and Reinsurer areport delineating all receipts and disbursements provided in Articles V and XIto allow the Parties to book and account for their share of the business forthe prior month. At a minimum, such report shall include the following items: (a) grosscollected premium, (b) premium returned due to cancellations, (c) expenseallowances paid by Company, (d) Claims paid, (e) Loss and LossAdjustment Expenses paid, (f) Extra Contractual Obligations incurred andpaid (g) reimbursements and recoveries due to subrogation and coordinationof benefits, (h) bank reconciliations for the Premium Account and ClaimsAccount, (i) estimated risk-based capital requirements and (j) such otherinformation as may reasonably be requested by Company.

 

Reserves, calculated in accordance with SAP, on a basis satisfactory tothe Company’s Actuary, on the Policy as of the end of each calendar quarter(reported on a quarterly basis only) will be supplied by Reinsurer withintwenty (20) days after each quarter end.

 

Upon receipt of a report, Company may, in its discretion and uponreasonable information and belief, contest the information contained in thereport. If Company so contests, Company shall deliver to Reinsurer writtennotice thereof stating the reasons upon which Company disputes the report, andthe Parties shall use their commercially reasonable efforts to resolve thedispute within twenty (20) days thereafter. If the Parties fail to resolve suchdispute within such period, the dispute shall be resolved as provided in Article XVIIor Article XVIII.

 

During any periods after payment hereunder becomes due, investmentincome shall accrue on the net balance due and payable for the applicablecalendar month. If the net balance due is not paid as of the settlement date bythe Party owing such amount, interest on such outstanding balance shall accrueat a rate equal to 7% per annum from the date such amount became due and payablethrough and including the date on which such payment is actually made.

 

**ARTICLE VII****      ****EXTRA CONTRACTUALOBLIGATIONS AND PREMIUM TAXES**

 

Reinsurer shall indemnify Company for 100% of any Extra ContractualObligations levied, awarded or incurred under the Policy. Such ExtraContractual Obligations shall be deemed to be, and shall be payable as, Losseshereunder.

 

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Reinsurer has advised Company that no premium taxes are payable withrespect to the Premiums. If premium taxes with respect to the Premiums are atany time assessed against, or determined to, be payable by, Company by anygovernmental authority having jurisdiction, Reinsurer shall indemnify Companyfor amounts paid. If Reinsurer contests the assessment of any such tax, itshall do so at its own expense. Guarantee fund assessments based on the amountof the Premium shall be deemed premium taxes for purposes of this paragraph.

 

**ARTICLE VIII****     ****POLICY ADMINISTRATION**

 

All administrative services associated with the Policy, includingPremium billing and collection and Claims administration and payment, shall beperformed by the Administrator on behalf of Company, and all such servicesassociated with this Agreement shall be performed by the Administrator on behalfof Reinsurer. The Administrator shall be appointed by Reinsurer subject toCompany’s consent, which will not be unreasonably withheld. The Administratormay also delegate the provision of administrative services associated with thePolicy and this Agreement to a third party with the Parties’ consent, whichshall not be unreasonably withheld.

 

**ARTICLE IX         BREACH**

 

In the event of a material breach by any Party of the terms andconditions of this Agreement, the non-breaching Parties shall provide writtennotice of such alleged breach to the breaching Party, and the breaching Partyshall have a period of thirty (30) days from the date of such notice to curesuch breach, which cure may include the substitution of the applicable entityin breach if the breach at issue involves licensing, approvals or othercertifications from the relevant governmental authority, and a substitution isa commercially reasonable and statutorily acceptable cure for such breach. Inthe event the breaching Party fails to cure such breach within thirty (30)days, the non-breaching Party shall seek redress through the procedures setforth in Articles XVII and XVIII hereunder. Under no circumstances shall abreach by any Party of the terms and conditions of this Agreement give rise toa right of termination by any Party of this Agreement and all rights andconditions herein shall remain in full force and effect.

 

**ARTICLE X          REPRESENTATIONS,WARRANTIES AND COVENANTS; INDEMNIFICATION**

 

Company represents and warrants to Reinsurer that:

 

1.                                       Except for this Agreement, there is noreinsurance agreement that provides reinsurance coverage on the Policy; and

 

2.                                       Company has all licenses and permitsnecessary or required by applicable law, rule or regulation to sell andissue the Policy in the jurisdiction where Policy is to be sold; and

 

3.                                       To the best of the Company’s knowledge, thePolicy reinsured hereunder has not been, or will not be, sold, underwritten,brokered or issued by a Blocked Person, as such term is defined by the UnitedStates Treasury Department’s Office of Foreign Assets Control (“OFAC”), and nopolicy owner, holder, insured or beneficiary thereof is a Blocked Person; and

 

4.                                       There are no injunctions (in existence or, tothe best of the Company’s knowledge, threatened) against Company from anyFederal or State agency which would prohibit Company from carrying on itsbusiness and responsibilities pursuant to this Agreement.

 

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Company agrees to indemnify and hold harmless Reinsurer from andagainst any and all losses, damages, costs, expenses or liabilities suffered orincurred by Reinsurer arising out of a breach of this Agreement by Company.

 

Company covenants to Reinsurer and agrees, in cooperation withAdministrator, to request promptly any consents, approvals, or otherauthorizations, if necessary or required, with respect to this Agreement and topursue diligently such request.

 

Reinsurer represents and warrants to Company that:

 

1.                                       Reinsurer is duly organized, validlyexisting, in good standing under the laws of Arizona and the execution anddelivery of this Agreement and the performance of its obligations hereunder areduly authorized to the extent necessary; and

 

2.                                       Reinsurer has all licenses, permits andauthorizations necessary or required by applicable law, rule or regulationto provide the services it has agreed to undertake pursuant to this Agreement;and

 

3.                                       There are no injunctions (in existence or, tothe best of the Reinsurer’s knowledge, threatened) against Reinsurer from anyFederal or State agency which would prohibit Reinsurer from carrying on itsbusiness and responsibilities pursuant to this Agreement.

 

Reinsurer agrees to indemnify and hold harmless Company from andagainst any losses, damages, liabilities, costs, or expenses incurred byCompany arising out of a breach of this Agreement by Reinsurer.

 

Reinsurer covenants to Company and agrees that it shall not, except asotherwise provided in this Agreement, transfer, assign or otherwise convey orobtain reinsurance coverage on its proportionate share of liability under thisAgreement without the prior written consent of Company.

 

**ARTICLE XI         PAYMENTOF CLAIMS**

 

Company, through the Administrator, shall pay all Claims and LossAdjustment Expenses. Payment of Claims shall be made twice each month, withinten (10) business days after the end of each claims cycle, which cyclesshall end on the fifteenth (15th) and last day of each calendarmonth. Company shall establish a Claims Account in its name for the solepurpose of making such payments, and all Claims shall be paid on behalf ofCompany by the Administrator from the Claims Account. The Administrator shallhave administrative control of the Claims Account and shall monitor it todetermine the total amount of the Claims payment checks that clear the ClaimsAccount on a daily basis.

 

Reinsurer shall fund the Claims Account by making a daily wire transferof funds to the Claims Account in an amount sufficient to cover the totalamount of Claims payment checks that clear the Claims Account each day.

 

In the event Reinsurer fails to fund the Claims Account in accordancewith the terms of this Agreement, Company may discontinue paying theReinsurance Premium to Reinsurer after notifying Reinsurer in writing of itsintent to do so. To secure its obligation to fund the Claims Account, Reinsurershall provide to Company an irrevocable letter of credit in an amount that, ona monthly basis, will never be less than the greater of: (a) $35,000,000;or (b) the sum of (i) the unearned portion of the Premium that hasbeen paid, (ii) unpaid Claims (i.e., Claims in the course ofsettlement plus IBNR)and (iii) all outstanding Claims payment checks.

 

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**ARTICLE XII       COINSURANCE;RESERVES**

 

The reinsurance hereunder shall be on a 100% Coinsurance Basis,sometimes referred to herein as the “quota share percentage.”

 

Reinsurer shall establish and maintain all statutory reserves withrespect to the Policy that:

 

(i)                                     are computed in accordance with commonlyaccepted actuarial standards;

 

(ii)                                  are based on sound actuarial assumptions;

 

(iii)                               meet the requirements of applicable laws; and

 

(iv)                              are adequate for Company to take fullstatutory reinsurance reserve credit as a result of the portion of the businessceded by it to Reinsurer under this Agreement.

 

In order to secure such reserve requirement, Reinsurer shall provide toCompany letters of credit or other security reasonably acceptable to Company asshall be necessary to support the required reserves of the Reinsurer pursuantto this Article XII and the terms of this Agreement. Any letter of creditprovided in accordance with this Article XII shall (i) comply withthe requirements of Pennsylvania Statutes, Title 40, sec. 442.1 andPennsylvania Regulations, Title 31, secs. 163.15, 163.17, and all otherapplicable statutes, regulations and Insurance Department requirements, (ii) bein proper form and substance, and issued by a proper institution, and issuanceas to enable Company to take full statutory credit for all reinsured reservesin Pennsylvania and in all jurisdictions in which it is admitted, (iii) bein such amount as the Company’s actuary may determine as required for suchpurpose, and (iv) be delivered at such times as may be required for suchpurpose with respect to each annual and, where required, quarterly statementwhich Company is required to file with the Insurance Department of Pennsylvaniaand each such other jurisdiction.

 

The letter of credit provided in accordance with Article XI ofthis Agreement may be used to satisfy Reinsurer’s security obligation underthis Article XII, provided the letter of credit meets the requirements ofthe preceding paragraph.

 

Reinsurer agrees to deliver to Company reasonable evidence ofcompliance with all such reserve requirements.

 

**ARTICLE XIII      ERRORSAND OMISSIONS**

 

Any inadvertent or clerical delay, error or omission made by any Partyin connection with this Agreement shall not relieve any Party from anyliability of such Party hereunder had such inadvertent or clerical delay, erroror omission not occurred. The Parties agree to cure all inadvertent andclerical delays, errors and omissions immediately upon discovery thereof.

 

**ARTICLE XIV      INSOLVENCY**

 

In the event of insolvency of Company, all payments by Reinsurer forLosses shall be payable directly to Company, or to Company’s liquidator,receiver, conservator or statutory successor, without diminution because of theinsolvency of Company, except where this Agreement specifically provides foranother payee of such Losses in the event of the insolvency of Company.

 

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Company or its liquidator, receiver, conservator or statutory successorshall give written notice to Reinsurer of the pendency of a Claim, indicatingthe Policy under which such Claim is pending, within a reasonable time aftersuch Claim is filed in the insolvency proceeding. During the pendency of suchClaim Reinsurer may investigate such Claim and interpose, at its own expense,in the proceeding where such Claim is to be adjudicated, any defense ordefenses that it may deem available to Company or its liquidator, receiver,conservator or statutory successor.

 

The expense thus incurred by Reinsurer shall be chargeable, subject tothe approval of the insolvency court, against Company as part of theadministrative expenses of the estate to the extent of a pro rata share of thebenefit which may accrue to Company solely as a result of the defenseundertaken by Reinsurer.

 

**ARTICLE XV       TREASURYREGULATION SECTION 1.848-2(G)(8) JOINT ELECTION**

 

Company and Reinsurer hereby agree to the following pursuant to Section 1.848-2(g)(8) ofthe Income Tax Regulations issued December 1992, under Section 848 ofthe Internal Revenue Code of 1986, as amended.

 

This election shall be effective for the taxable year ended withrespect to December 31, 2006, and for all subsequent taxable years forwhich this Agreement remains in effect unless such election is terminated bymutual written agreement of the Parties with the consent, if required, of theCommissioner of the Internal Revenue Service.

 

The terms used in this Article XV are defined by reference toTreasury Regulation Section 1.848-2 in effect as of December 29,1992.

 

The term “net consideration” will refer to either net consideration asdefined in Treasury Regulation Section 1.848-2(f) or “gross premiumand other consideration” as defined in Treasury Regulation Section 1.848-2(b) asappropriate.

 

Both Parties agree to identify this Agreement as one for which thejoint election under Treasury Regulation Section 1.848-2(g)(8) hasbeen made in a schedule attached to their respective federal income taxreturns for the taxable period ended December 31, 2006.

 

The Party with the positive net consideration for this Agreement for eachtaxable year will capitalize specified policy acquisition expenses with respectto this Agreement without regard to the general deductions limitation of Section 848(c)(1).

 

Both Parties agree to exchange information pertaining to the amount ofnet consideration under this Agreement each year to ensure consistency or asotherwise required by the Internal Revenue Service.

 

Company will submit a schedule to Reinsurer by July 1st ofeach year of its calculation of the net consideration for the preceding calendaryear. This schedule of calculations will be accompanied by a statementsigned by an officer of Company stating that Company will report such netconsideration in its tax return for the preceding calendar year.

 

Reinsurer may contest such calculation by providing an alternativecalculation to Company in writing within thirty (30) days of Reinsurer’sreceipt of Company’s calculation. If Reinsurer does not so notify Company,Reinsurer will report the net consideration as determined by Company in Reinsurer’stax return for the previous year.

 

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If Reinsurer disputes Company’s calculation of the net consideration,the Parties will act in good faith to reach an agreement as to the correctamount within thirty (30) days of the date Reinsurer submits its alternativecalculation. If Company and Reinsurer reach agreement on an amount of netconsideration, each Party shall report such amount in their respective taxreturns for the previous calendar year.

 

If the Parties fail to reach agreement on an amount of netconsideration, the dispute shall be resolved by arbitration as provided herein.

 

The Parties understand that under Section 848, as effective on theEffective Date of this Agreement, no portion of the premium amounts from thereinsured Policy require capitalization. In the event that Section 848 isamended, or otherwise deemed to include the Policy reinsured under thisAgreement, the Reinsurer agrees to reimburse the Company for an amount equal tothe net capitalization required under Section 848 times the highestFederal corporate tax rate in effect (marginal tax rate) for the year in whichthe capitalization is required.

 

**ARTICLE XVI      ACCESSTO RECORDS**

 

The Parties shall keep true and correct work papers regarding theperformance of their respective duties hereunder. Upon reasonable notice, eachof the Parties shall permit the other Party reasonable access to (includingmaking copies of) any applicable books and records in its possession, as wellas all books, records, data and information (in whatever form maintained) inthe possession of it, its subsidiaries or its agents, and reasonable access toits and its subsidiaries’ personnel, in each case, however, relating only tothis Agreement, for any reasonable business purpose, including, but not limitedto, (i) initiating or defending any form of litigation or otherproceeding, (ii) preparing or filing any tax return or participating inany tax contest, and (iii) responding to any notice, demand or order of orparticipating in any proceeding of any governmental authority with respect tothis Agreement. All access and copying of such books, records, data andinformation shall be at the expense of the Party requesting such access andcopies. Notwithstanding any other provision of this Article XVI, access toany books, records, data and information relating to this Agreement may bedenied to the requesting Party if the other Party is required under applicablelaw to deny such access.

 

**ARTICLE XVII    ALTERNATIVEDISPUTE RESOLUTION**

 

Definition of FinancialDisputes. Disputesrelated to any financial calculations or determinations required under Article Vor computation of reserves under Article XII shall qualify as a “FinancialDispute” and shall be resolved as set forth in this Article XVII.Financial Disputes shall be limited to foregoing issues only and shall notinclude any other disagreement, including, but not limited to contractinterpretation or construction. Such other disagreements shall be resolved inaccordance with Article XVIII.

 

Submission of Dispute. Any Party shall have the right to submit aclaim that qualifies as a Financial Dispute to independent review pursuant tothis Article XVII. The Party requesting the independent review of aFinancial Dispute must notify the other Party in writing in accordance with Article XXVIIIof this Agreement that it is requesting such independent review.

 

Reviewer. The Parties agree that the independent thirdparty reviewer for Financial Disputes shall be Deloitte & Touche USALLP or such other firm as is mutually agreed upon by the Parties. Each Partyshall have the right to suggest individuals within the reviewing firm with anexpertise in the matters at hand to serve as the actual reviewer; and neitherParty shall withhold consent of such person without reasonable cause. If theParties are unable to agree on an

 

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individual within the reviewing firm, then the reviewing firm shalldesignate a person to act as the reviewer. Neither Party, after the EffectiveDate, may enter into a**material relationship with suchreviewing firm without disclosing such to the other Party in which case thereviewing firm stated above shall be changed to one mutually agreed upon by theParties.

 

Review Process.

 

(a)           The Party submitting the Financial Dispute toindependent review shall submit the Financial Dispute to the third partyreviewer within five (5) days of the notice. The Financial Dispute submissionto the third party reviewer shall include a statement of the issues presentedfor review and other such information as the Party filing the Financial Disputedeems to be relevant. The Party responding to the Financial Dispute will havefifteen (15) days to review the file and submit its response.

 

(b)           After each Party’s initial submission, theindependent third party reviewer may, but is not required to, request inwriting additional information from any Party, with a copy of the written requestto the other Party. The Party to whom the request is directed shall respond tosuch request within fifteen (15) days of its receipt of the written request,with a copy of the response to the other Parties. The other Parties may, butare not required to, also respond to the written request within fifteen (15)days of its receipt of the written request.

 

(c)           The independent third party reviewer shallissue a decision within the later of: (i) thirty (30) days of the thirdparty reviewer’s receipt of the disputing Party’s initial submission of thedispute to third party review, or (ii) fifteen (15) days of the thirdparty reviewer’s receipt of the response(s) to its written request foradditional information. The decision shall be in writing and shall set forththe reasons for the determination and shall be final and binding on theParties.

 

(d)           The costs of the independent third partyreview shall be borne equally by Company and Reinsurer.

 

**ARTICLE XVIII         ARBITRATION**

 

Contract Disputes. Except as otherwise set forth in Article XVII,all disputes, controversies, and disagreements arising out of or relating tothis Agreement, any breach of or default under this Agreement, or therelationship between and among the Parties by virtue of this Agreement(referred to collectively as a “Contract Dispute”) shall be resolved inaccordance with this Article XVIII. Notwithstanding the foregoing and anyother provision in this Agreement to the contrary, the following shall not besubject to the provisions of this Article XVIII:

 

(a)           Any action, claim or cause of action that theParties may have against each other that arise from or are related to any claimor cause of actions asserted or made by a person or entity who is not a partyto this Agreement (including, without limitation, any cross claims,counterclaims, or claims for indemnification or contribution), in which casethe Parties reserve all rights that they may have against each other,

 

(b)           Any action or claim for injunctive relief,whether by way of temporary restraining order, preliminary injunction, and/orpermanent injunction, in which case the Parties shall have the right to proceedby way of litigation through judicial proceedings; or

 

(c)           Any Financial Dispute in accordance with Article XVII.

 

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All Contract Disputes shall be subject tobinding arbitration in accordance with the requirements of this Article XVIII.Arbitration shall be initiated by the delivery, by mail, facsimile, or otherreliable means, of a written demand for arbitration by one party or the other.The arbitration shall be held in New York, New York, or such other place as theparties may mutually agree.

 

Arbitration shall be conducted before athree-person Arbitration Panel appointed as follows. Each party shall appointone arbitrator, and the two arbitrators so appointed shall then appoint animpartial Umpire before proceeding.  Ifeither party fails to appoint an arbitrator within thirty (30) days after itreceives a written request by the other party to do so, the other party mayappoint an arbitrator for it. Should the two party appointed arbitrators failto choose an Umpire within thirty (30) days of the appointment of the secondarbitrator, the parties shall appoint the Umpire pursuant to the ARIAS-U.S.Umpire Selection Procedure. The arbitrators and Umpire shall be present orformer executives or officers of insurance or reinsurance companies. Thearbitrators and Umpire shall not be affiliated with either Party and not haveany financial interest in the outcome of the arbitration.

 

The Arbitrators shall consider this Agreementas an honorable engagement rather than merely as a legal obligation and theyare relieved of all judicial formalities and may abstain from following thestrict rules of law. Insofar as the Arbitrators look to substantive law,they shall consider the laws of the State of New York. They may permit or ordersuch discovery, if any, as they think appropriate and may conduct the hearingof the arbitration by written submissions, oral testimony, or any combinationthereof as they think appropriate. A decision of the majority of theArbitrators shall be final and binding on all parties. Judgment upon the finaldecision of the Arbitrators may be entered in any court of competentjurisdiction.

 

The decision of a majority of the ArbitrationPanel shall be final and binding, except to the extent otherwise provided inthe Federal Arbitration Act. The Arbitration Panel shall render its award inwriting. Judgment upon the award may be entered in any court havingjurisdiction, pursuant to the Federal Arbitration Act. Unless the ArbitrationPanel orders otherwise, each party shall pay: (1) the fees and expenses ofits own arbitrator, and (2) an equal share of the fees and expenses of theUmpire and of the other expenses of the arbitration.

 

It is the intent and desire of the partiesthat any arbitration under this Section XVIII should be concluded and anaward rendered as expeditiously as reasonably possible and that the arbitratorsshould schedule and conduct the arbitration accordingly.

 

**ARTICLE XIX      GOVERNINGLAW**

 

This Agreement shall be governed by and construed in accordance withthe laws of the State of New York without regard to its applicable principlesof conflicts of law.

 

**ARTICLE XX       REIMBURSEMENTSAND RECOVERIES**

 

Reinsurer shall be responsible for all subrogation and recovery.Reinsurer shall be entitled to the benefit of any reimbursements or recoveriesdue to coordination of benefits or subrogation on account of Losses. Inaddition, Reinsurer shall be entitled to the benefit of any and all rebate andsimilar payments from drug manufacturers arising from Claims made under thePolicy, and the Company shall have no rights to any such payments.

 

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**ARTICLE XXI      ENTIREAGREEMENT**

 

This Agreement constitutes the entire agreement and understandingbetween the Parties with respect to the subject matter hereof. There are noagreements or understandings between the Parties with respect to the subjectmatter hereof other than as expressed in this Agreement.

 

**ARTICLE XXII    OFFSET**

 

Company or Reinsurer shall have, and may exercise at any time and fromtime to time, the right to offset any balance or balances, whether on accountof Premiums, or Losses or otherwise, due from the Company or the Reinsurer,respectively, with respect to this Agreement.

 

**ARTICLE XXIII           WAIVER;AMENDMENT**

 

Except as provided herein, any waiver by any Party hereto of a breachby any other Party of any provision of this Agreement shall not operate or beconstrued as a continuing waiver or a waiver of any subsequent breach by suchParty. Except as otherwise provided herein, no waiver shall be valid unless inwriting and signed by the Party exercising such waiver.

 

Any modification or amendment of this Agreement shall be in writing andsigned by all of the Parties hereto.

 

**ARTICLE XXIV        NOASSIGNMENT; BINDING EFFECT**

 

Except as otherwise provided herein, the rights, duties and obligationshereunder of the Parties may not be assigned or delegated by any Party heretoto any other person without the prior written consent of the non-assigningParty hereto.

 

This Agreement shall be binding upon and inure to the benefit of theParties’ respective successors and permitted assigns.

 

**ARTICLE XXV    SEVERABILITY**

 

The invalidity or unenforceability of any provision of this Agreementshall not affect the validity or enforceability of the remainder of thisAgreement, and any such invalid or unenforceable provision shall be severablefrom the remainder of this Agreement.

 

**ARTICLE XXVI        CONFIDENTIALITY**

 

Each Party shall maintain the confidentiality of all information,including legally protected consumer privacy information, that is provided toit by the other Party in connection with this Agreement; provided, however,that this obligation of confidentiality will not apply (a) if and to theextent that disclosure is required by applicable law or any court, governmentalagency or regulatory authority or by subpoena or discovery request in pendinglitigation; (b) if the information is or becomes available from publicinformation (other than as a result of prior unauthorized disclosure by thedisclosing Party); (c) if the information is or was received from a thirdparty not known by the disclosing Party to be under a confidentialityobligation with regard to such information; or (d) if the information wasin the possession of the disclosing Party (having received such information ona non-confidential basis) other than by reason of the services performedpursuant to this Agreement. In the event that any Party becomes legallycompelled to disclose any secret or confidential information, such Party willgive prompt written notice of that fact to the other Party so that the otherParty may seek an appropriate remedy to prevent such disclosure; provided,however, that this provision will not apply

 

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to information that is or otherwise becomes available to the public orthat was previously available on a non-confidential basis.

 

**ARTICLE XXVII         PRIVACYPOLICY**

 

In recognition of the importance of protecting consumer health andfinancial information and in consideration of the mutual understandings andundertakings set forth herein, the Parties agree to the following:

 

1.               Company and Reinsurer agree to comply withall applicable state and federal statutory and regulatory rules, guidelines andrequirements governing the collection, use, disclosure, access, security and maintenanceof consumer health and financial information.

 

2.               Company and Reinsurer agree that all consumerhealth information and consumer financial information is confidential and to beused only to effect the intent of, and transactions contemplated by, this Agreement.

 

3.               Company and Reinsurer agree to permit accessto the other’s policies, standards and procedures for the protection of privacyof consumer health and financial information, and further agree to providewritten copies of such policies, standards and procedures, upon writtenrequest.

 

4.               Company and Reinsurer agree to notify theother immediately in the event of any improper disclosure of non-publicpersonal information about our insureds so that appropriate action can betaken.

 

For purposes of this Article: (1) “consumer health information”means any information or data other than age and gender, that relates to thepast, present or future physical, mental or behavioral health or condition ofan individual, provision of health care to an individual, or payment for healthcare. Consumer health information includes any such information whetherwritten, oral or in any other form or medium; and (2) “consumer financialinformation” means all information, other than consumer health information,whether written, oral or in any other form or medium.

 

**ARTICLE XXVIII          NOTICES**

 

Any notice or other communication which is required or permitted to bedelivered to any Party hereunder shall be in writing and deemed delivered ifsent by government-sponsored mail; an internationally-recognized overnightcarrier with confirmation receipt of delivery; certified mail, return receiptrequested; or facsimile with confirmation receipt of successful and completetransmission addressed as follows:

 
| If  to the Reinsurer: |   | PharmaCare  Capitve Re, Ltd.                   |
|-----------------------|--------|------------------------------------------------|
|                  |   | c/o  PharmaCare Management Services, Inc. |
|                  |   | 25  Blackstone Valley Place                    |
|                  |   | P.O. Box  519                             |
|                  |   | Lincoln,  Rl 02865                             |
|                  |   | Attention:  Greg S. Weishar and John Buckley   |
|                  |   | Fax:  (401) 334-4995                           |
|                  |   | Telephone:  (401)334-5078                      |

 

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| If  to the Company: |   | Pennsylvania  Life Insurance Company |
|---------------------|--------|--------------------------------------|
|                |   | Attn:  Gary W. Bryant                |
|                |   | Executive  Vice President            |
|                |   | 1001  Heathrow Park Lane             |
|                |   | Suite 5001                      |
|                |   | Lake  Mary, Florida 32746            |
|                |   | 407-995-8000,  ext. 8211             |

 

**ARTICLE XXIX           GUARANTEE**

 

As a material inducement to the Company to enter into this Agreement,PharmaCare Management Services, Inc., a company affiliated with Reinsurer,has agreed to the Guarantee attached as Exhibit B.

 

**ARTICLE XXX    EXECUTION**

 

The Parties, by and through each of their respective authorizedrepresentatives, have executed this Agreement as of the 30th day of June, 2005.

 

**PENNSYLVANIA LIFE INSURANCE COMPANY**

TaxpayerI.D. #23-1305366

NAICCompany Code: 67660

 
| By:    | /s/  Gary W. Bryant       |   |
|--------|---------------------------|--------|
|   |                      |
| Title: | Executive/Vice  President |
|   |                      |
| Name:  | Gary  W. Bryant           |

 

**PHARMACARE RE**

Taxpayer I.D. # 20-2840526

 
| By:    | /s/ John Buckley |   |
|--------|------------------|--------|
|   |             |   |
| Title: | VP               |   |
|   |             |   |
| Name:  | John Buckley     |   |

 

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**EXHIBIT B – GUARANTEE**

 

In order to induce Pennsylvania LifeInsurance Company (“Company”) to enter into a reinsurance agreement with (“PharmaCareRe”), which agreement is being entered into concurrently with the execution ofthis guarantee, the undersigned unconditionally (1) guarantees PharmaCareRe’s due and timely payment of all amounts due to Company, or to others onbehalf of Company, in accordance with the terms of such reinsurance agreement,as originally entered into and as it may hereafter be amended; and (ii) covenantsthat in the event PharmaCare Re requires additional capital in order to meetthe reserve requirements set forth in the reinsurance agreement or to meet itsrisk based capital required under applicable insurance regulations, theundersigned will provide, or cause to be provided, such additional capital toPharmaCare Re, so that PharmaCare Re maintains sufficient reserves and/orcapital to meet its requirements under said reinsurance agreement.

 

The obligation of the undersigned to Companyshall not be affected by (1) the insolvency of PharmaCare Re, or by rightsor benefits which may accrue to PharmaCare Re under any bankruptcy, insurerinsolvency or debtor protection law of any jurisdiction, (2) any effortmade, or not made, by Company to collect any amount due from any of theundersigned, or (3) the availability of any collateral or security forPharmaCare Re’s obligations.

 

The liability of the undersigned for the fullamount due to Company or, to others on behalf of Company, from PharmaCare Reshall continue until such amounts have been paid in full.

 

The undersigned represents and warrants that:(1) the execution and delivery of this guarantee is within its corporate powerand all steps necessary to authorize such execution and delivery have been dulytaken, and (2) that the person signing this document on its behalf is dulyauthorized to do so.

 

IN WITNESS WHEREOF, a duly authorized officerof the undersigned has executed this instrument intending that such entity belegally bound hereby.

 

PharmaCare Management Services, Inc.

 
| By:    | /s/ John Buckley |   |
|--------|------------------|--------|
|   |
| Title: | svp              |
|   |
| Date:  | 6/29/05          |
|        |                  |        |  |

 

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