exv10w4



 




Exhibit
10.4



August 18, 2006




The MEGA Life and Health Insurance Company

9151 Grapevine Highway

North Richland Hills, Texas 76180




Attn: William J. Gedwed

          Chairman




Dear Mr. Gedwed:



This letter confirms the understanding and agreement (“Agreement”) between The Blackstone Group
L.P. (“Blackstone”) and The MEGA Life and Health Insurance Company (the “Company”) regarding the
retention of Blackstone and its affiliates, successors and assigns, as appropriate, by the Company
as its exclusive financial advisor for the purposes set forth herein.



Under this Agreement, Blackstone will provide financial advisory services to the Company and the
Company’s affiliates in connection with a Transaction and will assist the Company and the Company’s
affiliates in analyzing, structuring, negotiating and effecting the Transaction pursuant to the
terms and conditions of this Agreement. As used in this Agreement, “Transaction” means, whether in
one or a series of transactions, the sale, transfer or other disposition, directly or indirectly,
of all or a significant portion of the business, assets or securities of the Star HRG division of
the Company (“Star HRG”) and/or the Student Insurance division of the Company (“Student
Insurance”), collectively the “Divisions”, whether by way of a merger or consolidation,
reorganization, recapitalization or restructuring, tender or exchange offer, negotiated purchase,
leveraged buyout, minority investment or partnership, collaborative venture or otherwise,
co-insurance or reinsurance transaction, or any other extraordinary corporate transaction involving
the Divisions.



In connection with its engagement, Blackstone agrees to:




	 	(a)	 	provide advisory services, including a general business and financial analysis,
transaction feasibility analysis and pricing analysis of the Transaction;
	 
	 	(b)	 	provide advice with respect to the structure of the consideration to be
received in the Transaction;
	 
	 	(c)	 	develop a list of potential purchasers for the Transaction and consult with the
Company from time to time as to such potential purchasers;
	 
	 	(d)	 	assist in negotiations and develop a general Transaction strategy; and
	 
	 	(e)	 	provide other financial advisory services which may be customarily rendered in
connection with the Transaction.




 









 











Upon the consummation of any Transaction, the Company agrees to pay Blackstone 1.00% of the
Consideration (as defined below) involved in the Transaction for its financial advisory services.



Compensation attributable to that part of the Consideration that is contingent upon the occurrence
of some future event shall be paid when such contingent payments are made.



In this Agreement, “Consideration” means the gross value of all cash, securities and other
properties paid or payable, directly or indirectly, in one transaction or in a series or
combination of transactions, in connection with the Transaction or a transaction related thereto
(including, without limitation, amounts paid (A) pursuant to covenants not to compete or similar
arrangements and (B) to holders of any warrants, stock purchase rights, convertible securities or
similar rights and to holders of any options or stock appreciation rights, whether or not vested).
Consideration shall also specifically include the value of any buyer or installment note and, for
the avoidance of doubt, the principal amount of any such note shall not be considered contingent
consideration. Consideration shall also include the value of any long-term liabilities (including
the principal amount of any indebtedness for borrowed money, preferred stock obligations, any
pension liabilities and guarantees) indirectly or directly assumed or acquired, or otherwise repaid
or retired, in connection with or in anticipation of the Transaction. Consideration shall include
all amounts paid into escrow and all contingent payments payable in connection with the
Transaction, with fees on amounts paid into escrow to be payable upon the unconditional release to
the Company or to an Affiliate of the Company of such funds from escrow and fees on contingent
payments to be payable when such contingent payments are made. If the Consideration to be paid is
computed in any foreign currency, the value of such foreign currency shall, for purposes hereof, be
converted into U.S. dollars at the prevailing exchange rate on the date or dates on which such
Consideration is paid. Consideration shall exclude the impact of payments made to fund inadequate
reserves under any co-insurance agreements.



For purposes of this Agreement, the value of any securities (whether debt or equity) or other
property paid or payable as part of the Consideration shall be determined as follows: (1) the value
of securities that are freely tradable in an established public market will be determined on the
basis of the last market closing price prior to the public announcement of the Transaction; and (2)
the value of securities that are not freely tradable or have no established public market or, if
the Consideration utilized consists of property other than securities, the value of such other
property shall be the fair market value thereof as mutually agreed by the parties hereto.
Notwithstanding the foregoing, the value of any buyer or installment note shall be the principal
amount of any such note.



In addition to any fees that may be payable to Blackstone under this Agreement, the Company agrees
to reimburse Blackstone, upon request made from time to time, for Blackstone’s reasonable
out-of-pocket expenses incurred in connection with the services rendered by Blackstone hereunder
(including, without limitation, travel and lodging, data, word processing, graphics and
communication charges, research costs, courier services and fees, expenses and disbursements of any
legal counsel retained by Blackstone).



The Company agrees that at the closing of the Transaction it will effect a wire transfer to
Blackstone of all fees payable to Blackstone under the Agreement that have not previously been
paid, as well as all out-of-pocket expenses incurred by Blackstone through the closing date in
connection with its services rendered hereunder that have not previously been reimbursed by the
Company.



 









 





In order to coordinate efforts on behalf of the Company and the Company’s Affiliates, during the
period of Blackstone’s engagement, neither the Company nor its management will initiate any
discussion looking to a potential Transaction except with the assistance of Blackstone or upon the
prior notice to Blackstone. In the event that the Company or its management receives an inquiry
concerning a potential Transaction, they will promptly inform Blackstone of such inquiry in order
that Blackstone can assess such inquiry and assist the Company in any resulting negotiations.



The Company will furnish or cause to be furnished to Blackstone such information as Blackstone
believes appropriate to its assignment (all such information so furnished being the “Information”).
The Company recognizes and confirms that Blackstone (a) will use and rely primarily on the
Information and on information available from generally recognized public sources in performing the
services contemplated by this Agreement without having independently verified the same, (b) does
not assume responsibility for the accuracy or completeness of the Information and such other
information, (c) is entitled to rely upon the Information without independent verification, and (d)
will not make an appraisal of any assets in connection with its assignment.



Except as contemplated by the terms hereof or as required by applicable law or legal process,
Blackstone shall keep confidential all material non-public information provided to it by or at the
request of the Company, and shall not disclose such information, the Company’s interest in a
Transaction or the subject matter of this Agreement to any third party or to any of its employees
or advisors.



In the event that confidential information belonging to the Company is stored electronically on
Blackstone’s computer systems, Blackstone shall not be liable for any damages resulting from
unauthorized access, misuse or alteration of such information by persons not acting on its behalf,
provided that Blackstone exercises the same degree of care in protecting the confidentiality of,
and in preventing unauthorized access to, the Company’s information that it exercises with regard
to its own most sensitive proprietary information.



Except as required by applicable law, any advice to be provided by Blackstone under this Agreement
shall not be disclosed publicly or made available to third parties without the prior written
consent of Blackstone. In addition, Blackstone may not be otherwise publicly referred to without
its prior written consent. All services, advice, information and reports provided by Blackstone to
the Company in connection with this assignment shall be for the sole benefit of the Company and
shall not be relied upon by any other person.



In the event that Blackstone is requested or authorized by you or required by government
regulation, subpoena or other legal process to produce documents, or to make its current or former
personnel available as witnesses at deposition or trial, arising as a result of or in connection
with Blackstone’s engagement for the Company, the Company will, so long as Blackstone is not a
party to the proceeding in which the information is sought, pay Blackstone the reasonable fees and
expenses of its counsel incurred in responding to such a request. Nothing in this paragraph shall
affect in any way the Company’s obligations pursuant to the separate indemnification agreement
attached hereto.



The Company acknowledges and agrees that Blackstone has been retained to act solely as financial
advisor to the Company and may be retained, under the circumstances herein contemplated, to act as
placement agent. In such capacities, Blackstone shall act as an independent contractor, and any
duties of Blackstone arising out of its engagement pursuant to this Agreement shall be owed solely
to the Company. Because Blackstone will be acting on the Company’s behalf in this capacity, it is
customary for us to receive indemnification. A copy of Blackstone’s standard form of
indemnification agreement is attached to this Agreement as Attachment A.



 









 





Blackstone’s engagement hereunder may be terminated upon 10 days’ written notice without cause by
either the Company or Blackstone; termination for cause by either party will occur forthwith.
Notwithstanding the foregoing, the provisions relating to (i) the payment of fees and expenses
accrued through the date of termination, (ii) the disclosure of Blackstone services, advice,
information and reports, (iii) the status of Blackstone as an independent contractor, (iv) the
limitation on to whom Blackstone shall owe any duties and (v) waivers of the right to trial by jury
will survive any such termination, and any such termination shall not affect the Company’s
obligations under the indemnification agreement attached as Attachment A. Blackstone will be
entitled to the Transaction Fee set forth above in the event that at any time prior to the
expiration of 12 months after such termination a definitive agreement with respect to a Transaction
is executed and a Transaction is thereafter consummated. 



The Company does not appear on the Specially Designated Nationals and Blocked Persons List of the
Office of Foreign Assets Control of the United States Department of the Treasury, nor is it a
prohibited party according to other U.S. government regulatory or enforcement agencies.



The Company acknowledges that Blackstone may, at its option and expense, place an announcement in
such newspapers and periodicals as it may choose, stating that Blackstone has acted as the
financial advisor to the Company in connection with the Transaction.



Notwithstanding anything to the contrary provided elsewhere herein, none of the provisions of this
Agreement shall in any way limit the activities of Blackstone Group Holdings L.L.C. and its
affiliates in their businesses distinct from the corporate advisory business of The Blackstone
Group L.P., provided that the confidential information obtained by Blackstone pursuant to this
Agreement is not made available to representatives of Blackstone Group Holdings L.L.C. and its
affiliates who are not involved in the corporate advisory business of The Blackstone Group L.P.



Blackstone acknowledges and agrees that the terms of this Agreement (including the form of
indemnification agreement attached to this Agreement as Attachment A) and the transactions
contemplated hereby constitute a transaction between the Company and a “related party,” and, as
such, (a) is subject to the prior approval and consent of a majority of the directors of the
Company who are not affiliated with Blackstone and (b) is subject to the prior approval of the
Oklahoma Insurance Department.



This Agreement (including the attached indemnification agreement) embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof. If any provision of this Agreement is determined to be
invalid or unenforceable in any respect, such determination will not affect or impair such
provision or the remaining provisions of this Agreement in any other respect, which will remain in
full force and effect. No waiver, amendment or other modification of this Agreement shall be
effective unless in writing and signed by each party to be bound thereby. This Agreement shall be
governed by, and construed in accordance with, the laws of the state of New York applicable to
contracts executed in and to be performed in that state.



 









 





The Company hereby agrees that any action or proceeding based hereon or arising out of Blackstone’s
engagement hereunder shall be brought and maintained by the Company exclusively in the courts of
the State of New York located in the City and County of New York or in the United States District
Court for the Southern District of New York. The Company irrevocably submits to the jurisdiction
of the courts of the State of New York located in the City and County of New York and the United
States District Court for the Southern District of New York and appellate courts from any thereof
for the purpose of any action or proceeding based hereon or arising out of Blackstone’s engagement
hereunder and irrevocably agrees to be bound by any judgment rendered thereby in connection with
such action or proceedings. The Company hereby irrevocably waives, to the fullest extent permitted
by law, any objection it may have or hereafter may have to the laying of venue of any such action
or proceeding brought in any such court referred to above and any claim that such action or
proceeding has been brought in an inconvenient forum and agrees not to plead or claim the
same. 



The provisions hereof shall inure to the benefit of and be binding upon the successors and assigns
of the Company, Blackstone and any person entitled to be indemnified under the indemnification
agreement attached hereto as Attachment A.



Any rights to trial by jury with respect to any claim or proceeding related to, or arising out of,
this Agreement, engagement or any transaction or conduct in connection herewith, is waived.



Please confirm that the foregoing correctly sets forth our agreement by signing and returning to
Blackstone the duplicate copy of this Agreement and the indemnification agreement attached hereto
as Attachment A.



	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	THE BLACKSTONE GROUP L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Martin Alderson-Smith	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Martin Alderson-Smith	 	 
	 

	 	 	 	Senior Managing Director	 	 






	 	 	 	 	 
	Accepted and Agreed	 	 
	to as of the date first	 	 
	written above:	 	 
	 
	 	 	 	 
	The MEGA Life and Health Insurance Company	 	 
	 
	 	 	 	 
	By:
	 	/s/ William J. Gedwed	 	 
	 

	 	 	 	 
	 

	 	William J. Gedwed	 	 
	 

	 	Chairman	 	 
	 
	 	 	 	 
	Enclosure	 	 






 









 






ATTACHMENT A




August 18, 2006




The Blackstone Group L.P.

345 Park Avenue

New York, NY 10154




INDEMNIFICATION AGREEMENT




Gentlemen:



This letter will confirm that we have engaged The Blackstone Group L.P. (“Blackstone”) to advise
and assist us in connection with the matters referred to in our letter of agreement dated as of
August 18, 2006 (the “Engagement Letter”). This Indemnification Agreement shall be effective as of
April 5, 2006, for all purposes, notwithstanding the subsequent execution of the Engagement Letter
on August 18, 2006.



In consideration of your agreement to act on our behalf in connection with such matters, we agree
to indemnify and hold harmless you and your affiliates and your and their respective partners (both
general and limited), members, officers, directors, employees and agents and each other person, if
any, controlling you or any of your affiliates (you and each such other person being an
“Indemnified Party”) from and against any losses, claims, damages, expenses and liabilities
whatsoever, whether they be joint or several, related to, arising out of or in connection with the
engagement (the “Engagement”) under the Engagement Letter and will reimburse each Indemnified Party
for all expenses (including fees, expenses and disbursements of counsel) as they are incurred in
connection with investigating, preparing, pursuing, defending or assisting in the defense of any
action, claim, suit, investigation or proceeding related to, arising out of or in connection with
the Engagement or this agreement, whether or not pending or threatened, whether or not any
Indemnified Party is a party, whether or not resulting in any liability and whether or not such
action, claim, suit, investigation or proceeding is initiated or brought by us. We will not,
however, be liable under the foregoing indemnification provision for any losses, claims, damages or
liabilities (or expenses relating thereto) that are finally judicially determined by a court of
competent jurisdiction to have primarily resulted from the gross negligence or willful misconduct
of Blackstone. We also agree that no Indemnified Party shall have any liability (whether direct or
indirect, in contract or tort or otherwise) to us or our owners, parents, affiliates, security
holders or creditors for or in connection with the Engagement except for any such liability for
losses, claims, damages or liabilities incurred by us that are finally judicially determined by a
court of competent jurisdiction to have primarily resulted from the gross negligence or willful
misconduct of Blackstone.



If the indemnification provided for in the preceding paragraph is for any reason (other than the
gross negligence or willful misconduct of Blackstone as provided above) unavailable to an



 









 





Indemnified Party in respect of any losses, claims, damages or liabilities referred to herein,
then, in lieu of indemnifying such Indemnified Party hereunder, we shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (and expenses relating thereto) in such proportion as is appropriate to reflect not
only the relative benefits received (or anticipated to be received) by you, on the one hand, and
us, on the other hand, from the Engagement but also the relative fault of each of you and us, as
well as any other relevant equitable considerations; provided, however, to the extent permitted by
applicable law, in no event shall your aggregate contribution to the amount paid or payable exceed
the aggregate amount of fees actually received by you under the Engagement Letter. For the
purposes of this agreement, the relative benefits to us and you of the Engagement shall be deemed
to be in the same proportion as (a) the total value paid or contemplated to be paid or received or
contemplated to be received by us, our security holders and our creditors in the transaction or
transactions that are subject to the Engagement, whether or not any such transaction is
consummated, bears to (b) the fees paid or to be paid to Blackstone under the Engagement Letter
(excluding any amounts paid as reimbursement of expenses).



Neither party to this agreement will, without the prior written consent of the other party (which
consent will not be unreasonably withheld), settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (a “Judgment”), whether or not we or any Indemnified Party
are an actual or potential party to such claim, action, suit or proceeding. In the event that we
seek to settle or compromise or consent to the entry of any Judgment, we agree that such
settlement, compromise or consent (i) shall include an unconditional release of Blackstone and each
other Indemnified Party hereunder from all liability arising out of such claim, action, suit or
proceeding, (ii) shall not include a statement as to, or an admission of, fault, culpability or a
failure to act by or on behalf of Blackstone or each other Indemnified Party, and (iii) shall not
impose any continuing obligations or restrictions on Blackstone or each other Indemnified Party.



Promptly after receipt by an Indemnified Party of notice of any complaint or the commencement of
any action or proceeding with respect to which indemnification is being sought hereunder, such
person will notify us in writing of such complaint or of the commencement of such action or
proceeding, but failure to so notify us will not relieve us from any liability which we may have
hereunder or otherwise, except to the extent that such failure materially prejudices our rights.
If we so elect or are requested by such Indemnified Party, we will assume the defense of such
action or proceeding, including the employment of counsel reasonably satisfactory to Blackstone and
the payment of the fees and disbursements of such counsel.



In the event, however, such Indemnified Party reasonably determines in its judgment that having
common counsel would present such counsel with a conflict of interest or if we fail to assume the
defense of the action or proceeding in a timely manner, then such Indemnified Party may employ
separate counsel reasonably satisfactory to us to represent or defend it in any such action or
proceeding and we will pay the fees and disbursements of such counsel; provided, however, that we
will not be required to pay the fees and disbursements of more than one separate counsel for all
Indemnified Parties in any jurisdiction in any single action or proceeding. In any action or
proceeding the defense of which we assume, the Indemnified Party will have the right to participate
in such litigation and to retain its own counsel at such Indemnified Party’s own expense.



The foregoing reimbursement, indemnity and contribution obligations of ours under this agreement
shall be in addition to any rights that an Indemnified Party may have at common law



 









 





or otherwise, and shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of ours and such Indemnified Party.



The provisions of this agreement shall apply to the Engagement, as well as any additional
engagement of Blackstone by us in connection with the matters which are the subject of the
Engagement, and any modification of the Engagement or additional engagement and shall remain in
full force and effect regardless of any termination or the completion of your services under the
Engagement Letter.



This agreement and the Engagement Letter shall be governed by, and construed in accordance with,
the laws of the state of New York applicable to contracts executed in and to be performed in that
state.



	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	The MEGA Life and Health Insurance Company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ William J. Gedwed	 	 
	 

	 	 	 	 	 	 
	 	 	William J. Gedwed 
 Chairman	 	 






Accepted and Agreed to as of the date first written above:



THE BLACKSTONE GROUP L.P.



	 	 	 	 	 
	By:
	 	/s/ Martin Alderson-Smith	 	 
	 

	 	 	 	 
	 

	 	Martin Alderson-Smith	 	 
	 

	 	Senior Managing Director