Document:

ex_99961.htm

Exhibit 10.1

 

 

CONFIDENTIAL

ATTORNEY-CLIENT PRIVILEGE

 

 

 

Coinsurance Agreement

 

between

 

American Life & Security Corporation

Lincoln, Nebraska

(hereinafter referred to as “Ceding Company”)

 

and

 

US Alliance Life and Security Company

Topeka, Kansas

(hereinafter referred to as “Reinsurer”)

 

 

effective September 30, 2017

 

 

Treaty Number 1

 

 

 

 

CONFIDENTIAL

ATTORNEY-CLIENT PRIVILEGE

 

	
			Table of Contents

				 
	 	 	 
	
			Article 1 — COINSURANCE AGREEMENT

				1
	
			1.1

				
			Parties to the Agreement

				
			1

			
	
			1.2

				
			Effective Date

				
			1

			
	
			Article 2 – DEFINITIONS

				2
	
			2.1

				
			Defined Terms

				
			2

			
	
			2.2

				
			Other Definitional Provisions

				
			5

			
	
			Article 3 — COVERAGE

				7
	
			3.1

				
			Scope

				
			7

			
	
			3.2

				
			Basis of Reinsurance

				
			7

			
	
			3.3

				
			Retention

				
			7

			
	
			3.4

				
			Existing Reinsurance

				
			7

			
	
			3.5

				
			Reinstatement

				
			7

			
	
			3.6

				
			Misstatement of Fact

				
			8

			
	
			3.7

				
			Credited Rates and Nonguaranteed Elements

				
			8

			
	
			3.8

				
			Internal Replacements

				
			8

			
	
			3.9

				
			Recapture

				
			8

			
	
			Article 4 – REINSURANCE PREMIUMS

				9
	
			4.1

				
			Reinsurance Premiums

				
			9

			
	
			4.2

				
			Initial Consideration

				
			9

			
	
			4.3

				
			Ceding Commission

				
			9

			
	
			4.4

				
			Premium Taxes

				
			9

			
	
			Article 5 – REINSURANCE BENEFITS AND EXPENSES

				10
	
			5.1

				
			Policy Claims

				
			10

			
	
			5.2

				
			Commissions

				
			10

			
	
			5.3

				
			Expenses

				
			10

			
	
			Article 6 – ADMINISTRATION

				11
	
			6.1

				
			Administrator

				
			11

			
	
			6.2

				
			Record Keeping

				
			11

			
	
			Article 7 – REPORTING AND SETTLEMENTS

				12
	
			7.1

				
			Initial and Monthly Reporting

				
			12

			
	
			7.2

				
			Quarterly and Annual Reporting

				
			12

			
	
			7.3

				
			Settlements

				
			12

			
	
			Article 8 – CREDIT FOR REINSURANCE

				13
	
			8.1

				
			Reserves

				
			13

			
	
			8.2

				
			Form of Security

				
			13

			
	
			Article 9 – TERM AND TERMINATION

				14
	
			9.1

				
			Duration of Agreement

				
			14

			
	
			9.2

				
			Termination for Non-Payment

				
			14

			
	
			9.3

				
			Termination for Material Breach

				
			14

			
	
			9.4

				
			Termination for Insolvency of Reinsurer

				
			14

			
	
			9.5

				
			Termination Payment

				
			14

			
	
			9.6

				
			Rescission

				
			15

			
	
			9.7

				
			Survival

				
			15

			
	
			Article 10 – ERRORS AND OMISSIONS

				16

 

 

 

 

CONFIDENTIAL

ATTORNEY-CLIENT PRIVILEGE

 

	
			Article 11 – DISPUTE RESOLUTION

				17
	
			11.1

				
			Negotiation

				
			17

			
	
			11.2

				
			Arbitration

				
			17

			
	
			11.3

				
			Waiver of Trial by Jury

				
			18

			
	
			Article 12 – INSOLVENCY

				20
	
			Article 13 – REPRESENTATIONS, WARRANTIES AND COVENANTS

				21
	
			13.1

				
			Representations and Warranties of Ceding Company

				
			21

			
	
			13.2

				
			Covenants of Ceding Company

				
			22

			
	
			13.3

				
			Representations and Warranties of Reinsurer

				
			22

			
	
			Article 14 – MISCELLANEOUS

				24
	
			14.1

				
			Currency

				
			24

			
	
			14.2

				
			Interest

				
			24

			
	
			14.3

				
			Right of Setoff and Recoupment

				
			24

			
	
			14.4

				
			No Third Party Beneficiaries

				
			24

			
	
			14.5

				
			Amendment

				
			24

			
	
			14.6

				
			Notices

				
			24

			
	
			14.7

				
			Consent to Jurisdiction

				
			25

			
	
			14.8

				
			Service of Process

				
			26

			
	
			14.9

				
			Inspection of Records

				
			26

			
	
			14.10

				
			Confidentiality

				
			26

			
	
			14.11

				
			Indemnification

				
			26

			
	
			14.12

				
			Reinsurance Brokers

				
			27

			
	
			14.13

				
			Successors

				
			27

			
	
			14.14

				
			Entire Agreement

				
			27

			
	
			14.15

				
			Severability

				
			27

			
	
			14.16

				
			Construction

				
			27

			
	
			14.17

				
			Non-Waiver

				
			27

			
	
			14.18

				
			Further Assurances

				
			28

			
	
			14.19

				
			Governing Law

				
			28

			
	
			14.20

				
			Counterparts

				
			28

			

 

Schedules

 

Schedule A – Reinsured Policies

 

Exhibits

 

Exhibit A – Monthly Accounting Report

 

 

 

 

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Article 1 — COINSURANCE AGREEMENT

 

1.1     Parties to the Agreement 

 

This coinsurance agreement for indemnity reinsurance (the “Agreement”) is entered into on the ______ day of September, 2017 (the “Agreement Date”) by and between American Life & Security Corporation, a Nebraska domiciled insurance company with executive offices in Lincoln, Nebraska (“Ceding Company”), and US Alliance Life and Security Company (“Reinsurer”), a Kansas domiciled insurance company with executive offices in Topeka, Kansas, collectively referred to as the “parties”.

 

Performance of the obligations of each party under this Agreement shall be rendered solely to the other party. The acceptance of risks under this Agreement will create no right or legal relationship between Reinsurer and the insured, owner, or beneficiary of any insurance policy or other contract of Ceding Company.

 

The Agreement will be binding upon Ceding Company and Reinsurer and their respective successors and assigns. 

 

1.2     Effective Date

 

The Effective Date of this Agreement is September 30, 2017. Hereinafter, the Effective Date shall mean midnight Central Time on this date.

 

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Article 2 – DEFINITIONS

 

2.1     Defined Terms

 

As used in this Agreement, the following terms shall have the following meanings:

 

“Adjusted Net Reserves” shall be calculated as Net Reserves, less Net Due and Deferred Premiums, less Net Policy Loans, plus Advanced Premiums.

 

“Administrator” shall mean the Ceding Company from the effective date to December 31, 2017 and after December 31, 2017 shall mean the Reinsurer.

 

“Advance Premiums” shall mean premiums received in advance calculated in accordance with SAP, net of Existing Reinsurance, which would have been or should have been reported by Ceding Company on its NAIC Convention Blank as of the date of calculation with respect to the Reinsured Policies as if this Agreement were not in effect.

 

“Affiliate” shall mean, with respect to any person, any other person that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such specified person; provided, that “control” (including, with correlative meanings, “controlled by” and “under common control with”), as used with respect to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities, by agreement or otherwise.

 

“Agreement” shall have the meaning as specified in Article 1.1.

 

“Agreement Date” shall have the meaning as specified in Article 1.1.

 

“Basic Policy Data” shall mean, with respect to active Reinsured Policies, policy number, plan code, issue date, issue age, gender, risk class, policy units, face amount, in force amount, annual premium, modal premium, premium mode, paid-to date, policy status, expiry date (in the case of extended term insurance), amount of accidental death benefit, direct statutory reserve, direct statutory net valuation premium, direct accidental death benefit reserve, loan value, annuity fund value, annuity cash value, and annuity reserve. With respect to orphaned annuity riders associated with inactive Reinsured Policies, such data shall mean policy number, plan code, issue date, issue age, gender, risk class, policy status, annuity fund value, annuity cash value, and annuity reserve.

 

“Business Day” shall mean any day other than a Saturday, Sunday or any other day on which banking institutions are authorized or required by law or executive order to close in Lincoln, Nebraska or Topeka, Kansas.

 

“Ceded Reserves” shall have the meaning as specified in Article 8.2.

 

“Ceding Company” shall have the meaning as specified in Article 1.1.

 

“Ceding Commission” shall mean $1,850,000.00 payable as set forth in Article 4.3.

 

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“Claims” shall mean, with respect to the contractual provisions and obligations of the Reinsured Policies incurred on or after the Effective Date, all death benefits, maturity or endowment benefits, full surrender benefits, partial surrender or withdrawal benefits, loan proceeds, accrued interest, accrued credits or other nonguaranteed elements, annuitizations, benefits under Supplementary Contracts, and other contractual benefits, as further described in Article 5.1, net of Existing Reinsurance, where surrender or withdrawal benefits are net of applicable surrender or withdrawal charges, if any. Claims shall not include any Excluded Liabilities or any liabilities other than the Reinsured Liabilities.

 

“Contested Claim” shall have the meaning as specified in Article 5.1.

 

 

“Effective Date” shall have the meaning as specified in Article 1.2.

“Excluded Liabilities” shall mean

“Existing Reinsurance” shall mean, for FWL, reinsurance under an automatic reinsurance agreement with Optimum Re Insurance Company, Number 2537-12AY05, dated May 1, 2012, and subsequent amendments, and for GPL, reinsurance under an automatic reinsurance agreement with Optimum Re Insurance Company, Number 2516-10AY01, dated January 4, 2010, and subsequent amendments, and for both FWL and GPL, bulk reinsurance agreements with Optimum Re Insurance Company covering accidental death benefit riders associated with the Reinsured Policies.

 

“Extra-Contractual Obligations” shall mean any liabilities or obligations not arising under the express terms and conditions of, or in excess of the applicable policy limits of, the Reinsured Policies, which arise from the handling of any claim with respect to the Reinsured Policies, including liabilities or obligations for fines, penalties, fees, forfeitures, compensatory damages, and punitive, special, treble, bad faith, tort, exemplary or other forms of extracontractual damages awarded against or paid by Ceding Company, which liabilities or obligations arise from any act, error or omission committed by Ceding Company, relating to (a) the investigation, defense, trial, settlement or handling of claims, benefits or payments under the Reinsured Policies, or (b) the failure to pay, the delay in payment, or errors in calculating or administering the payment of benefits, claims or any other amounts due or alleged to be due under or in connection with the Reinsured Policies; however excluded from “Extra-Contractual Obligations” are any liabilities or obligations arising out of fraud or any act of a member of the Ceding Company’s officers or board of directors

 

“Factual Information” shall have the meaning as specified in Article 13.1.

 

“FWL” shall mean First Wyoming Life Insurance Company, NAIC Company Code 14086, prior to its merger into Ceding Company on September 1, 2016.

 

“GPL” shall mean Great Plains Life Assurance Company, NAIC Company Code 13561, prior to its merger into Ceding Company on December 1, 2016.

 

“Initial Consideration” shall have the meaning as specified in Article 4.2.

 

“Monthly Accounting Period” shall have the meaning as specified in Article 7.1.

 

“Monthly Accounting Report” shall have the meaning as specified in Article 7.1.

 

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“Net Due and Deferred Premiums” shall mean net due and deferred premiums calculated in accordance with SAP, net of Existing Reinsurance, which would have been or should have been reported by Ceding Company on its NAIC Convention Blank as of the date of calculation with respect to the Reinsured Policies as if this Agreement were not in effect.

 

“Net Policy Loans” shall mean contract loans originating under provisions contained in the Reinsured Policies calculated in accordance with SAP, net of Existing Reinsurance, which would have been or should have been reported by Ceding Company on its NAIC Convention Blank as of the date of calculation with respect to the Reinsured Policies as if this Agreement were not in effect.

 

“Net Reserves” shall be calculated as Statutory Reserves, net of Statutory Reserves for Existing Reinsurance, which would have been or should have been reported by Ceding Company on its NAIC Convention Blank as of the date of calculation with respect to the Reinsured Policies as if this Agreement were not in effect.

 

“Non-Payment Event” shall have the meaning as specified in Article 9.2.

 

“Non-Public Personal Information” shall mean personally identifiable medical, financial, and other personal information about proposed, current and former applicants, policy owners, contract holders, insureds, annuitants, claimants, and beneficiaries of Reinsured Policies or contracts issued by Ceding Company, and their representatives, that is not publicly available. Non-Public Personal Information does not include de-identified personal data, i.e., information that does not identify, or could not reasonably be associated with, an individual.

 

“Person” shall mean and include an individual, a corporation, a partnership, an association, a trust, an unincorporated organization or a government or political subdivision thereof.

 

“Proprietary Information” shall include, but not be limited to, underwriting manuals and guidelines, applications, contract forms, agent lists and premium rates and allowances of Reinsurer and Ceding Company, but shall not include the existence of this Agreement and the identity of the parties. Additionally, Proprietary Information may be shared by either party on a need-to-know basis with its officers, directors, employees, Affiliates, third party service providers, auditors, consultants or retrocessionaires, or in connection with the dispute process specified in this Agreement.

 

“Receiver” shall have the meaning as specified in Article 9.5.

 

“Reinsurance Premiums” shall have the meaning as specified in Article 4.1. 

 

“Reinsured Liabilities” shall mean, with respect to the contractual provisions and obligations of the Reinsured Policies, the liabilities incurred or accrued by Ceding Company that relate to death benefits, maturity or endowment benefits, full surrender benefits, partial surrender or withdrawal benefits, accrued interest, accrued credits or other nonguaranteed elements, annuitizations, benefits under Supplementary Contracts, and other contractual benefits, net of Existing Reinsurance, provided that in no case shall Reinsured Liabilities include any Excluded Liabilities. 

 

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“Reinsured Policies” shall mean all policies and riders, including any amendments or endorsements attached thereto, and all Supplementary Contracts in force as of the Effective Date originally issued by FWL, which through merger of FWL into Ceding Company became contracts of Ceding Company, and GPL, which through merger of GPL into Ceding Company became contracts of Ceding Company, and as listed by policy number in Schedule A, excluding policies and riders terminated subsequent to the listing date (June 30, 2017) and prior to the Effective Date. Any riders, amendments, or endorsements issued by Ceding Company on Reinsured Policies or increase in benefits on Reinsured Policies subsequent to the effective date shall be reinsured under the terms of this Agreement.

 

“Reinsured Policies Report” shall have the meaning as specified in Article 7.1.

 

“Reinsurer” shall have the meaning as specified in Article 1.1.

 

“Relevant Regulatory Authority” shall mean the insurance regulatory authority of Ceding Company’s state of domicile.

 

 

“SAP” shall mean the statutory accounting principles and practices prescribed or permitted for life insurance companies domiciled in Ceding Company’s state of domicile.

“Statutory Reserves” shall mean reserves and claim liabilities, including in course of settlement and incurred but not reported, calculated in accordance with SAP. Such reserves shall be calculated in good faith on a seriatim basis by Ceding Company (for calculation dates prior to December 31, 2017) or by Reinsurer (for calculation dates on or after December 31, 2017), but shall not include (a) additional actuarial reserves as used in connection with SAP, if any, established by Ceding Company as a result of its annual cash flow testing, (b) any asset valuation reserves as used in connection with SAP established by Ceding Company, or (c) any other reserve not directly attributable to the Reinsured Policies.

 

“Supplementary Contracts” shall mean all supplementary contracts or settlement options, whether with or without life contingencies, issued by Ceding Company in exchange for a Reinsured Policy.

 

“Termination Effective Date” shall have the meaning as specified in Article 9.5.

 

“Terminal Accounting Period” shall have the meaning as specified in Article 7.1.

 

“Third Party Administrative Services Agreement” shall have the meaning as specified in Article 6.1.

 

2.2     Other Definitional Provisions

 

For purposes of this Agreement, the words “hereof,” “herein,” “hereby” and other words of similar import refer to this Agreement as a whole, including all Schedules and Exhibits to this Agreement, unless otherwise indicated.

 

Whenever the singular is used herein, the same shall include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate.

 

The term “including” means “including but not limited to.”

 

Whenever used in this Agreement, the masculine gender shall include the feminine and neutral genders and vice versa.

 

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The Schedules and Exhibits hereto are hereby incorporated by reference into the body of this Agreement.

 

All references herein to Articles, Exhibits and Schedules shall be deemed references to Articles of and Exhibits and Schedules to this Agreement unless the context shall otherwise require.

 

All terms defined in this Agreement shall have the defined meaning when used in any Schedule, Exhibit, report or other documents attached hereto or made or delivered pursuant hereto unless otherwise defined therein.

 

 

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Article 3 — COVERAGE

 

3.1     Scope

 

Ceding Company agrees to transfer to Reinsurer and Reinsurer agrees to accept and indemnify risk on all Reinsured Policies, subject in all respects to the terms, clauses, conditions, stipulations, waivers and modifications of the Reinsured Policies, provided, however, that Reinsurer acknowledges and agrees that Ceding Company shall submit this Agreement to the Nebraska Department of Insurance and the parties will negotiate in good faith any amendments to this Agreement requested thereby. In the event the parties are unable to so agree on any such amendments within ten (10) Business Days following notice to both parties of such request, this Agreement shall be rescinded according to the provisions set forth in Article 9.

 

Ceding Company and Reinsurer acknowledge the existence of a signed letter of intent dated August 31, 2017, which set forth the general terms and conditions leading to the execution of this Agreement, and agree that such letter of intent is both generally consistent with and fully replaced by this Agreement.

 

3.2     Basis of Reinsurance

 

Reinsurer shall accept, on a first dollar quota share coinsurance basis, one hundred percent (100%) of all risks and liabilities associated with the Reinsured Policies, subject in all respects to the terms, clauses, conditions, stipulations, waivers, modifications, and cancellations of the Reinsured Policies, and Extra-Contractual Obligations arising therefrom, but in no event shall Reinsurer be liable for Extra-Contractual Obligations unless Reinsurer shall have received notice in writing of and concurred with the actions taken or not taken by Ceding Company which led to its liability. Subject to the terms, conditions and limits of this Agreement, Reinsurer shall follow the fortunes and settlements of Ceding Company, and to that end, Reinsurer’s liability for the Reinsured Policies shall be identical to that of Ceding Company and shall be subject to the same risks, terms, conditions, interpretations, waivers, modifications, alterations and cancellations as the respective insurances of Ceding Company, subject in each case to Ceding Company’s duty to adhere to its obligations pursuant to Article 6 and to Reinsurer’s duty to adhere to its obligations pursuant to the same Article 6. 

 

3.3     Retention

 

Ceding Company shall retain zero percent (0%) of the liabilities with respect to each of the Reinsured Policies.

 

3.4     Existing Reinsurance

 

Reinsurance under this Agreement shall be subject to Existing Reinsurance associated with the Reinsured Policies. The total reinsurance recoverable under Existing Reinsurance and reinsurance under this Agreement shall not exceed Ceding Company’s total contractual liability on any Reinsured Policy less Ceding Company’s retention under the respective reinsurance agreements.

 

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3.5     Reinstatement

 

If a Reinsured Policy that has lapsed or surrendered is reinstated in accordance with its terms and in accordance with Ceding Company’s rules and procedures for reinstatement, Reinsurer will, upon notification, reinstate reinsurance coverage for such Reinsured Policy. Upon reinstatement of reinsurance coverage, Ceding Company shall pay to Reinsurer all applicable Reinsurance Premiums, if any, plus accrued interest for the period and at the interest rate for which it receives premiums in arrears.

 

3.6     Misstatement of Fact

 

In the event of a change in the amount payable under a Reinsured Policy due to an applicant’s or policy owner’s misstatement in fact on the application for the Reinsured Policy, Reinsurer’s liability with respect to such Reinsured Policy will change proportionately to the change in amount payable under the Reinsured Policy. If the Ceding Company has misstated facts otherwise correct on the application which results in the incorrect amount of premium being collected, the Ceding Company will reimburse the Reinsurer for the correct amount of premium. Should this misstatement result in the over collection of premium, the Ceding Company will work the the Reinsurer to refund the excess premium to the policyowner.

 

3.7     Credited Rates and Nonguaranteed Elements

 

Subsequent to the Effective Date, Reinsurer shall have ultimate discretion and control for determining credited interest rates and other nonguaranteed elements of the Reinsured Policies, provided that Reinsurer shall consider in good faith any recommendations provided by Ceding Company regarding credited interest rates and other nonguaranteed elements of the Reinsured Policies for a period of ten (10) years subsequent to the Effective Date.

 

3.8     Internal Replacements

 

Ceding Company shall not solicit, directly or indirectly, contract holders of the Reinsured Policies in connection with the replacement of a Reinsured Policy with any other policy not reinsured by the Reinsurer. 

 

3.9     Recapture

 

Reinsurance under this Agreement is not eligible for recapture by Ceding Company unless mutually agreed by the parties.

 

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Article 4 – REINSURANCE PREMIUMS

 

4.1     Reinsurance Premiums

 

Reinsurer shall be entitled to 100% of all premiums due and collected subsequent to the Effective Date under the terms of all Reinsured Policies, including modal loadings and policy fees, less agent commissions and premium taxes. Reinsurance premiums are on the same mode as direct premiums. 

 

4.2     Initial Consideration

 

On the Effective Date, Ceding Company shall pay to Reinsurer the Initial Consideration in an amount equal the Adjusted Net Reserves calculated immediately prior to the application of this Agreement and as of the Effective Date, less the Ceding Commission. 

 

4.3     Ceding Commission

 

The Ceding Commission due Ceding Company on the Effective Date shall be paid to Ceding Company by Reinsurer by means of Ceding Company retaining said amount from the Adjusted Net Reserves transferred to Reinsurer as set forth in Article 4.2.

 

4.4     Premium Taxes

 

Premium taxes that first become due to state or local taxing authorities on or after the Effective Date with respect to the Reinsured Policies shall be paid or reimbursed by Reinsurer.

 

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Article 5 – REINSURANCE BENEFITS AND EXPENSES

 

5.1     Policy Claims

 

Reinsurer shall pay or reimburse Ceding Company for all Claims incurred on or after the Effective Date in accordance with the terms and conditions of the Reinsured Policies, applicable law, and Article 7.3. 

 

Reinsurer may request that Ceding Company investigate, contest, compromise or litigate any Claim involving a Reinsured Policy (any such claim, a “Contested Claim”), consent thereto shall not be unreasonably withheld, conditioned or delayed. Ceding Company may authorize Reinsurer to act on its behalf in such matter. Administrator shall provide to the other party all relevant information and documents, as such become available, pertaining to Contested Claim and will promptly report any developments during the review. Subject to limitations relating to Excluded Liabilities, Reinsurer shall bear the expenses, or reimburse Ceding Company for the reasonable expenses, of any contest or compromise of a Claim, and will be entitled to any reduction of liability. 

 

If Reinsurer so elects, it may discharge its liability with respect to any Contested Claim by paying to Ceding Company its share of such Claim as originally presented to Ceding Company and, thereafter, will have no obligation to Ceding Company for reimbursement of expenses related to the contest of such Claim and will not share in any subsequent reduction in liability relating to such Claim.

 

5.2     Commissions

 

Commissions due on or after the Effective Date under the terms of valid agents’ contracts existing as of the Effective Date shall be paid or reimbursed by Reinsurer. Reinsurer shall not be responsible for any uncollectible agent debit balances. 

 

5.3     Expenses

 

Expenses associated with the administration and reporting of the Reinsured Policies on or after the Effective Date shall be paid or reimbursed by Reinsurer after December 31, 2017. Ceding Company agrees to administer the Reinsured Policies through December 31, 2017 at no cost to Reinsurer. Provided, however, if Ceding Company is requested to provide administrative services after December 31, 2017, Reinsurer agrees to pay for those services at $100 per policy per annum, prorated for the period during which such administrative services are are provided.

 

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Article 6 – ADMINISTRATION

 

6.1     Administrator

 

Administrator shall perform all appropriate administrative, claims and other services customarily performed by a direct company in the life insurance industry, including reporting under Article 7, as well as duties customarily performed by an assuming company in the reinsurance industry, such services to include all required and necessary policyholder service, premium billing and collection, commission processing, claim adjudication, insurance accounting, valuation of statutory reserves and other liabilities, and valuation of assets (Administrative Services). Administrator agrees to use reasonable care in its administration, conform with law, and use all reasonable efforts to preserve the value of the Reinsured Policies. 

 

Neither party shall outsource any administrative functions or claims administration with respect to the Reinsured Policies without the consent of the other party, such consent not to be unreasonably withheld. Prior to any such outsourcing, the right to audit and inspect the party performing such outsourced services shall be secured.

 

All monetary considerations for such  Administrative Services are explicitly reflected in the Ceding Commission or Reinsurance Premiums with no further monetary considerations owed to Ceding Company or Reinsurer.

 

6.2     Record Keeping

 

Administrator shall maintain all records and correspondence for services performed under Article 6.1 in

accordance with industry standards of insurance record keeping. In addition, such records shall be made available for examination, audit, and inspection by the department of insurance of any state within whose jurisdiction Ceding Company or Reinsurer operates. Administrator further agrees that in the event of the termination of this Agreement, any such records in the possession of the Administrator shall promptly be duplicated and forwarded to the other party unless otherwise instructed. 

 

Administrator shall establish and maintain an adequate system of internal controls and procedures for financial reporting relating to the Reinsured Policies, including associated documentation and shall make such documentation available for examination and inspection by the other party. All reports provided by the Administrator pursuant to Article 7 shall be prepared in accordance with such system and procedures and shall be consistent with the Administrator’s books and records.

 

6.3     Administrative Account

 

Administrator shall maintain with sufficient funds, at its own expense, and Ceding Company shall cooperate in the establishment and maintenance of a checking account in the name of Ceding Company in a bank insured by the Federal Deposit Insurance Corporation for the purpose of facilitating Administrator’s performance of Administrative Services, including receiving premium and paying claims (“Administrative Account”). 

 

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Article 7 – REPORTING AND SETTLEMENTS

 

7.1     Initial and Monthly Reporting

 

Within ten (10) Business Days following the Effective date and within ten (10) Business Days following the end of each Monthly Accounting Period thereafter, Administrator shall deliver to the other party a report of the Reinsured Policies (a “Reinsured Policies Report”) similar in form to the report set forth on Schedule A, along with seriatim information in electronic format containing Basic Policy Data with respect to each of the Reinsured Policies. 

 

Within ten (10) Business Days following the end of each calendar month, the Administrator shall deliver to the other party an accounting report (a “Monthly Accounting Report”) prepared in accordance with SAP and substantially in the form set forth in Exhibit A for the immediately preceding calendar month (a “Monthly Accounting Period”) or, in the case of termination, the period from the end of the immediately preceding Monthly Accounting Period to the date on which this Agreement is terminated (the “Terminal Accounting Period”), as applicable.

 

7.2     Quarterly and Annual Reporting

 

Ceding Company shall deliver to Reinsurer and Reinsurer shall deliver to Ceding Company (a) a copy of its unaudited annual statement (Blue Book) within five (5) Business Days following the filing thereof with the Relevant Regulatory Authority but no later than March 5 of each year, (b) a copy of its audited annual statutory financial statements within five (5) Business Days following the filing thereof with the Relevant Regulatory Authority but no later than June 5 of each year and (c) a copy of its unaudited quarterly statutory financial statements within five (5) Business Days following the filing thereof with the Relevant Regulatory Authority but no later than fifty (50) calendar days after the end of each calendar quarter.

 

Upon request, Administrator shall promptly provide the other party with any additional information related to the Reinsured Policies that the other party reasonably requires to complete its financial statements.

 

Administrator acknowledges that timely and correct compliance with the reporting requirements of this Agreement are material elements of the Administrator’s responsibilities hereunder and an important basis of the other party’s ability to assess the risks hereunder. Material noncompliance with reporting requirements, including extended delays, will constitute a material breach of the terms of this Agreement.

 

7.3     Settlements

 

Administrator shall calculate a Monthly Settlement Amount on the first Business Day of each calendar month on the basis of Reinsurance Premiums received during the previous calendar month and Claims paid during the previous calendar month. On the first Business Day of each month, Administrator shall effectuate the payment of the Settlement Amount by paying Reinsurance Premiums to Reinsurer and collecting amounts paid for Claims from Reinsurer, consistent with Article 14.3. 

 

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Article 8 – CREDIT FOR REINSURANCE

 

8.1     Admitted Reinsurer

 

Reinsurer represents that it is an admitted insurance company licensed in the state of Nebraska, Ceding Company’s state of domicile. 

 

8.2     Reserves

 

Reinsurer shall establish reserves in respect to the Reinsured Policies (“Ceded Reserves”) in an amount equal to Adjusted Net Reserves.

 

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Article 9 – TERM AND TERMINATION

 

9.1     Duration of Agreement

 

Subject to Article 9.2, this Agreement shall be in effect until all assumed liabilities have been fully satisfied. Subject to Articles 4.1 and 9.2, all Reinsured Policies in force as of the Effective Date will remain Reinsured Policies until the expiration thereof and Reinsurer shall remain liable thereon.

 

9.2     Termination for Non-Payment

 

Either party may terminate this Agreement as to all Reinsured Policies if the other party fails to pay any amounts due under this Agreement within thirty (30) calendar days following written notice of non-payment from the non-defaulting party (a “Non-Payment Event”); provided, that reinsurance that is terminated due to non-payment by Ceding Company may be reinstated by Ceding Company, subject to Reinsurer’s approval, within sixty (60) calendar days of the date of termination, and upon payment of all amounts in arrears including any interest accrued thereon; provided, further, that Reinsurer shall have no liability for the payment of any Claims under the Reinsured Policies that are incurred between the date of termination and the date of the reinstatement of the reinsurance.

 

9.3     Termination for Material Breach

 

In addition to all other rights and remedies available under this Agreement, either party may terminate this Agreement as to all Reinsurance Policies by providing the other party with a minimum of thirty (30) calendar days prior written notice (except in the case of a Non-Payment Event, in which case notice may be given immediately) in the event the other party commits a material breach of any provision of this Agreement (including any failure by Reinsurer, within Reinsurer’s control, that causes Ceding Company not to receive full credit for the reinsurance effected hereunder on its statutory financial statements filed in Ceding Company’s state of domicile), which notice shall specify the nature of such material breach. The breaching party shall have twenty (20) calendar days from the date of the breaching party's receipt of the foregoing notice to cure such material breach to the reasonable satisfaction of the non-breaching party. If the breach is cured, the other party shall provide written notice to the curing party that the breach has been adequately cured. In the event the breaching party fails to cure the material breach within such twenty (20) calendar day period, then, at the option of the non-breaching party and upon notice, this Agreement will terminate upon expiration of the thirty (30) calendar day notice period. Notwithstanding the foregoing, the parties shall cooperate with each other to effect a cure of any breach of the terms of this Agreement.

 

9.4     Termination for Insolvency of Reinsurer

 

Ceding Company may terminate this Agreement as to all Reinsured Policies in the event that Reinsurer becomes insolvent (as set forth in Article 12) by promptly providing Reinsurer or its Authorized Representative with written notice of termination, to be effective as of the date on which Reinsurer’s insolvency is established by the authority responsible for such determination. Any requirement for a notification period prior to the termination of this Agreement shall not apply under such circumstances.

 

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9.5     Termination Payment

 

In the event that this Agreement is terminated as to all Reinsured Policies, including if this Agreement is rejected by any liquidator, receiver, rehabilitator, trustee or similar person acting on behalf of Ceding Company (a “Receiver”), a net accounting and settlement as to any balance due under this Agreement will be undertaken by Ceding Company in accordance with Article 7. In addition, on the date of delivery of the Monthly Accounting Report related to such termination, Reinsurer shall transfer to Ceding Company, within fifteen (15) Business Days after receipt of the Monthly Accounting Report, an amount equal to the Ceded Reserves as of the Termination Effective Date.

 

Reinsurer’s right to terminate the reinsurance provided hereunder will not prejudice its right to collect Reinsurance Premiums, if any, and applicable interest as specified in Article 14.2, for the period during which such reinsurance was in force, through and including any notice period.

 

9.6     Rescission

 

If this Agreement is rescinded pursuant to Article 3.1, the parties agree to cooperate in good faith and use all reasonable efforts to return each party to an economic position that is substantially similar to the economic position it was in immediately prior to the date of this Agreement, after the satisfaction of which this Agreement shall be extinguished and neither party shall have any further liability to the other party hereunder.

 

9.7     Survival

 

All provisions of this Agreement will survive any termination of this Agreement to the extent necessary to carry out its purpose.

 

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Article 10 – ERRORS AND OMISSIONS

 

Any unintentional or accidental failure to comply with the terms of this Agreement that can be shown to be the result of an oversight or clerical error relating to the administration of reinsurance by either party will not constitute a breach of this Agreement. Upon discovery, the error will be promptly corrected so that both parties are restored to the position they would have occupied had the oversight or clerical error not occurred. In the event a payment is corrected, the party receiving the payment shall be entitled to interest in accordance with Article 14.2. Should it not be possible to restore both parties to this position, the party responsible for the oversight or clerical error will be responsible for any resulting liabilities and expenses.

 

If Ceding Company has failed to cede reinsurance as provided under this Agreement or has failed to comply with reporting requirements with respect to business ceded hereunder, Reinsurer may require Ceding Company to audit its records for similar errors and take reasonable actions necessary to correct errors and avoid similar errors. Failing prompt correction, Reinsurer may limit its liability to the correctly reported Reinsured Policies.

 

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Article 11 – DISPUTE RESOLUTION

 

11.1     Negotiation

 

Within fifteen (15) calendar days after Reinsurer or Ceding Company has given the other party written notification of a specific dispute arising out of or relating to this Agreement, each party will appoint a designated officer of its company to attempt to resolve such dispute. The officers will meet at a mutually agreeable location as soon as reasonably possible and as often as reasonably necessary in order to gather and furnish the other with all appropriate and relevant information concerning the dispute. The officers will discuss the matter in dispute and will negotiate in good faith without the necessity of formal arbitration proceedings. During the negotiation process, all reasonable requests made by one officer to the other for information will be honored. The specific format for such discussions will be decided by the designated officers.

 

If the officers cannot resolve the dispute within thirty (30) calendar days of their first meeting, the dispute will be submitted to formal arbitration pursuant to Article 11.2, unless the parties agree in writing to extend the negotiation period for an additional thirty (30) calendar days.

 

11.2     Arbitration

 

It is the intention of Reinsurer and Ceding Company that the customs and practices of the insurance and reinsurance industry will be given full effect in the operation and interpretation of this Agreement. The parties agree to act in all matters with the utmost good faith. However, if Reinsurer and Ceding Company cannot mutually resolve a dispute that arises out of or relates to this Agreement, including, without limitation, the rights and obligations arising under, formation, interpretation, and/or validity of this Agreement, and the dispute cannot be resolved through the negotiation process, then, the dispute shall be submitted to arbitration in accordance with the provisions of this Article 11.2.

 

To initiate arbitration, either Ceding Company or Reinsurer will notify the other party by certified mail of its desire to arbitrate, stating the nature of the dispute and the remedy sought. Each party shall select an arbitrator within thirty (30) days of the written request for arbitration. If either party refuses or neglects to appoint an arbitrator withing thirty (30) days of the written request for arbitration, the other party may appoint the second arbitrator. The two arbitrators shall select an umpire within thirty (30) days of the appointment of the second arbitrator. If the two arbitrators fail to agree on the selection of the umpire withing thirty (30) days of the appointment of the second arbitrator, each arbitrator shall submit to the other a list of three umpire candidates, each arbitrator shall select one name from the list submitted by the other and the umpire shall be selected from the two names chosen by a lot drawing procedure to be agreed upon by the arbitrators.

 

The arbitratrors and umpire shall all be disinterested, ARIAS-certified arbitrators, who are current or former executive officers of a life insurance or life reinsurance company other than the parties to this Agreement, their Affiliates or subsidiaries. The arbitrator shall be familiar with the prevailing customs and practices for reinsurance in the life insurance and life reinsurance industry in the United States. 

 

Each arbitration hearing under this Agreement will be held on the dates set by the umpire in Topeka, Kansas or other mutually agreed upon location. As soon as possible, the arbitrator shall establish arbitration procedures as warranted by the facts and issues of the particular case. Notwithstanding Article 14.19, the arbitration and this Article 11.2 shall be governed by Title 9 (Arbitration) of the United States Code.

 

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The arbitration panel shall interpret this Agreement as an honorable engagement rather than merely as a legal obligation and shall make its decision considering the terms and conditions of this Agreement and the customs and practices of the insurance and reinsurance industries with a view to effecting the general purpose of the Agreement. The arbitration panel is released from judicial formalities and shall not be bound by strict interpretation of the law. 

 

The decision of a majority of the arbitration panel shall be final and binding on both parties, except to the extent otherwise provided in the Federal Arbitration Act. The arbitration panel shall render its award in writing. Judgment upon the award may be entered in any court having jurisdiction, pursuant to the Federal Arbitration Act.

 

The parties agree that the federal courts in either party’s state of domicile have jurisdiction to hear any matter relating to compelling arbitration or enforcing the judgment of an arbitral panel, and the parties hereby consent to such jurisdiction. Each party hereby waives, to the fullest extent permitted by law, any objection it may have to such venue, or any claim that a proceeding brought in federal court in either party’s state of domicile has been brought in an inconvenient forum. In addition, Ceding Company and Reinsurer hereby consent to service of process out of such courts at the addresses set forth in Article 14.6. 

 

Unless the arbitration panel decides otherwise, each party will bear the expense of its own arbitration activities, including the fees and expenses of its own arbitrator, and any outside attorney and witness fees. The parties will jointly bear an equal share of the fees and expenses of the umpire and of the other expenses of the arbitration.

 

11.3     Waiver of Trial by Jury

 

Reinsurer and Ceding Company hereby waive any and all rights to trial by jury in any matter arising out of or relating to this Agreement.

 

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Article 12 – INSOLVENCY

 

A party to this Agreement will be deemed “insolvent” when: (a) a receiver, rehabilitator, conservator, liquidator or statutory successor is appointed; (b) it is adjudicated as bankrupt or insolvent; (c) it files or consents to the filing of a petition in bankruptcy, seeks reorganization or an arrangement with creditors or takes advantage of any bankruptcy, dissolution, liquidation, rehabilitation, conservation or similar law or statute; or (d) it becomes the subject of an order of rehabilitation or an order of liquidation as defined by the insurance code of the jurisdiction of the party’s domicile.

 

In the event of the insolvency of either party, the rights or remedies of this Agreement will remain in full force and effect.

 

In the event of the insolvency of Ceding Company, the following three paragraphs shall apply:

 

The reinsurance provided under this Agreement will be payable by Reinsurer directly to Ceding Company or to its liquidator, receiver, conservator, statutory successor, or other authorized representative on the basis of the reported claims allowed against Ceding Company by any court of competent jurisdiction or by the liquidator, receiver, conservator, statutory successor, or other authorized representative having authority to allow such claims, without diminution because of such insolvency, or because the liquidator, receiver, conservator, statutory successor, or other authorized representative failed to pay all or a portion of any claims. It is agreed, however, that the liquidator, receiver, conservator, statutory successor, or other authorized representative shall give prompt written notice to Reinsurer of the pendency of a claim against Ceding Company within a reasonable time after such claim is filed in the receivership, conservation, insolvency or liquidation proceeding and that during the lendency of such claim, Reinsurer may investigate such Claim and interpose, at its own expense, in the proceedings where the Claim is to be adjudicated, any defense or defenses which it may deem available to Ceding Company or its Authorized Representative. Under no circumstances shall Reinsurer have any obligation to the policy owner of any Reinsured Policy.

 

Reinsurer will be liable only for benefits reinsured as benefits become due under the terms of the Reinsured Policies and will not be or become liable for any amounts or reserves to be held by Ceding Company as to the Reinsured Policies or for any damages or payments resulting from the termination or restructuring of the Reinsured Policies that are not otherwise expressly covered by this Agreement. 

 

The expense incurred by Reinsurer will be chargeable, subject to court approval, against Ceding Company as part of the expense of its insolvency proceedings to the extent of a proportionate share of the benefit which may accrue to Ceding Company solely as a result of the defense undertaken by Reinsurer. Where two or more reinsurers are involved in the same Claim and a majority in interest elect to interpose a defense to such Claim, the expense will be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by Ceding Company.

 

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Article 13 – REPRESENTATIONS, WARRANTIES AND COVENANTS

 

13.1     Representations and Warranties of Ceding Company

 

Ceding Company hereby represents and warrants to Reinsurer as follows:

 

	 	
			(a)

				
			Organization and Qualification. Ceding Company is a corporation duly incorporated, validly existing and in good standing under the laws of Ceding Company’s state of domicile and has all requisite corporate power and authority to operate its business as now conducted, and is duly qualified as a foreign corporation to do business, and, to the extent legally applicable, is in good standing, in each jurisdiction where the character of its owned, operated or leased properties or the nature of its activities makes such qualification necessary, except for failures to be so qualified or be in good standing that, individually or in the aggregate, do not have, and would not reasonably be expected to have, a material adverse effect on Ceding Company’s ability to perform its obligations under this Agreement.

			

 

	 	
			(b)

				
			Authorization. Ceding Company has all requisite corporate power to enter into, consummate the transactions contemplated by and carry out its obligations under, this Agreement. The execution and delivery by Ceding Company of this Agreement, and the consummation by Ceding Company of the transactions contemplated by, and the performance by Ceding Company of its obligations under, this Agreement have been duly authorized by all requisite corporate action on the part of Ceding Company. This Agreement has been duly executed and delivered by Ceding Company, and (assuming due authorization, execution and delivery by Reinsurer) this Agreement constitutes the legal, valid and binding obligation of Ceding Company, enforceable against it in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium, or similar laws relating to or affecting creditors’ rights generally.

			

 

	 	
			(c)

				
			No Conflict. The execution, delivery and performance by Ceding Company of, and the consummation by Ceding Company of the transactions contemplated by, this Agreement do not and will not (i) violate or conflict with the organizational documents of Ceding Company, (ii) conflict with or violate any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any governmental authority applicable to Ceding Company or by which it or its properties or assets is bound or subject, or (iii) result in any breach of, or constitute a default (or event which, with the giving of notice or lapse of time, or both, would become a default) under, or give to any Person any rights of termination, acceleration or cancellation of, any agreement, lease, note, bond, loan or credit agreement, mortgage, indenture or other instrument, obligation or contract of any kind to which Ceding Company or any of its subsidiaries is a party or by which Ceding Company or any of its subsidiaries or any of their respective properties or assets is bound or affected, except, in the case of clause (iii), any such conflicts, violations, breaches, loss of contractual benefits, defaults or rights that, individually or in the aggregate, do not have, and would not reasonably be expected to have, a material adverse effect on Ceding Company’s ability to perform its obligations under this Agreement.

			

 

	 	
			(d)

				
			Factual Information Relating to the Reinsured Policies. The information relating to the business reinsured under this Agreement that was supplied by or on behalf of Ceding Company to Reinsurer or any of Reinsurer’s representatives in connection with this Agreement (such information, the “Factual Information”), as of the date supplied (or if later corrected or supplemented prior to the date hereof, as of the date corrected or supplemented), was true and correct in all material respects.

			

 

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13.2     Covenants of Ceding Company

 

	 	
			(a)

				
			Investigations. To the extent permitted by applicable law or regulation, Ceding Company will notify Reinsurer within five (5) Business Days after notice thereof, in writing, of any and all investigations of Ceding Company conducted by any federal or state governmental authority commencing after the date hereof, which relates in any way whatsoever to the business reinsured under this Agreement.

			

 

 

	 	
			(b)

				
			Governmental Notices. Ceding Company shall provide Reinsurer, within five (5) Business Days after receipt thereof, copies of any written notice or report from any governmental authority that relates in any way whatsoever to the business reinsured under this Agreement and a written summary of any material oral communication with any governmental authority that relates in any way whatsoever to the business reinsured under this Agreement.

			

 

13.3     Representations and Warranties of Reinsurer

 

Reinsurer hereby represents and warrants to Ceding Company as follows:

 

	 	
			(a)

				
			Organization and Qualification. Reinsurer is a corporation duly incorporated, validly existing and in good standing under the laws of Reinsurer’s state of domicile and has all requisite corporate power and authority to operate its business as now conducted, and is duly qualified as a foreign corporation to do business, and, to the extent legally applicable, is in good standing, in each jurisdiction where the character of its owned, operated or leased properties or the nature of its activities makes such qualification necessary, except for failures to be so qualified or be in good standing that, individually or in the aggregate, do not have, and would not reasonably be expected to have, a material adverse effect on Reinsurer’s ability to perform its obligations under this Agreement.

			

 

	 	
			(b)

				
			Authorization. Reinsurer has all requisite corporate power to enter into, consummate the transactions contemplated by and carry out its obligations under, this Agreement. The execution and delivery by Reinsurer of this Agreement, and the consummation by Reinsurer of the transactions contemplated by, and the performance by Reinsurer of its obligations under, this Agreement have been duly authorized by all requisite corporate action on the part of Reinsurer. This Agreement has been duly executed and delivered by Reinsurer, and (assuming due authorization, execution and delivery by Ceding Company) this Agreement constitutes the legal, valid and binding obligation of Reinsurer, enforceable against it in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium, or similar laws relating to or affecting creditors’ rights generally.

			

 

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			(c)

				
			No Conflict. The execution, delivery and performance by Reinsurer of, and the consummation by Reinsurer of the transactions contemplated by, this Agreement do not and will not (i) violate or conflict with the organizational documents of Reinsurer, (ii) conflict with or violate any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any governmental authority applicable to Reinsurer or by which it or its properties or assets is bound or subject, or (iii) result in any breach of, or constitute a default (or event which, with the giving of notice or lapse of time, or both, would become a default) under, or give to any Person any rights of termination, acceleration or cancellation of, any agreement, lease, note, bond, loan or credit agreement, mortgage, indenture or other instrument, obligation or contract of any kind to which Reinsurer or any of its subsidiaries is a party or by which Reinsurer or any of its subsidiaries or any of their respective properties or assets is bound or affected, except, in the case of clause (iii), any such conflicts, violations, breaches, loss of contractual benefits, defaults or rights that, individually or in the aggregate, do not have, and would not reasonably be expected to have, a material adverse effect on Reinsurer’s ability to perform its obligations under this Agreement.

			

 

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Article 14 – MISCELLANEOUS

 

14.1     Currency

 

All payments due under this Agreement will be made in U.S. Dollars.

 

14.2     Interest

 

All amounts due and payable by Ceding Company or Reinsurer under this Agreement that remain unpaid for more than fifteen (15) calendar days from the date due hereunder will incur interest from the date due hereunder. Except as otherwise set forth in this Agreement, such interest shall accrue at a rate equal to the greater of six percent (6%) or 300 basis points over LIBOR, calculated on a 30/360 basis.

 

14.3     Right of Setoff and Recoupment

 

Each of Ceding Company and Reinsurer shall have, and may exercise at any time and from time to time, the right to setoff or recoup any undisputed balance or balances, whether on account of Reinsurance Premiums, allowances, credits, Claims or otherwise, due from one party to the other under this Agreement and may setoff or recoup such balance or balances against any balance or balances due to the former from the latter under this Agreement.

 

The rights provided under this Article 14.3 are in addition to any rights of setoff that may exist at common law. The parties’ setoff rights may be enforced notwithstanding any other provision of this Agreement including, without limitation, the provisions of Article 12.

 

14.4     No Third Party Beneficiaries

 

This Agreement is an indemnity reinsurance agreement solely between Ceding Company and Reinsurer. The acceptance of risks under this Agreement by Reinsurer will create no right or legal relation between Reinsurer and the insured, owner, beneficiary, or assignee of any insurance policy of Ceding Company. In addition, nothing in this Agreement is intended to relieve or discharge the obligation or liability of any third party to any party to this Agreement.

 

14.5     Amendment

 

This Agreement may not be changed or modified or in any way amended except by a written instrument duly executed by the proper officers of both parties to this Agreement and any change or modification to this Agreement will be null and void unless made by amendment to this Agreement and duly executed by the proper officers of both parties to this Agreement.

 

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14.6     Notices

 

All demands, notices, reports and other communications provided for herein shall be delivered by the following means: (i) hand delivery, (ii) overnight courier service (e.g., FedEx, Airborne Express, or DHL); (iii) registered or certified U.S. mail, postage prepaid and return receipt requested; or (iv) facsimile transmission or e-mail provided that the fax or e-mail is confirmed by delivery using one of the three methods identified in clauses (i) through (iii). All such demands, notices, reports and other communications shall be delivered to the parties as follows:

 

if to Ceding Company:

 

American Life & Security Corporation

2900 South 70th Street, Suite 400

Lincoln, NE 68506

Attention: Mark A. Oliver, Chairman and CEO

Phone: 402-489-8266

Email: _______________________________

 

with a copy to:

_____________________________________

_____________________________________

_____________________________________

Attention: ____________________________

Phone: _______________________________

Email: _______________________________

 

if to Reinsurer:

 

US Alliance Life and Security Company

4123 SW Gage Center Drive, Suite 240

Topeka, KS 66604

Attention: Jack H. Brier, Chairman and CEO

Phone: 785-228-0200

Email: _______________________________

 

with a copy to:

_____________________________________

_____________________________________

_____________________________________

Attention: ____________________________

Phone: _______________________________

Email: _______________________________

 

Either party hereto may change the names or addresses where notice is to be given by providing notice to the other party of such change in accordance with this Article 14.6.

 

If either party hereto becomes aware of any change in applicable law restricting the transmission of notices or other information in accordance with the foregoing, such party shall notify the other party hereto of such change in law and such resulting restriction.

 

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14.7     Consent to Jurisdiction

 

Subject to the terms and conditions of Article 11, Reinsurer (a) submits to the jurisdiction of any court of competent jurisdiction in the State of Nebraska for the adjudication of any issues arising out of this Agreement, (b) agrees to comply with all requirements necessary to give such court jurisdiction, and (c) will abide by the final decision of such court or of any appellate court in the event of an appeal. This

Article 14.7 is not intended to conflict with or override Article 11.

 

14.8     Service of Process

 

Reinsurer hereby designates the Insurance Commissioner of the State of Nebraska as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of Ceding Company. A copy of any such process shall be delivered to Reinsurer in accordance

with Article 14.6. This Article 14.8 is not intended to conflict with or override Article 7.

 

14.9     Inspection of Records

 

Provided that the requesting party is current on all amounts owing to the other party (other than amounts that are being disputed in accordance with the terms and conditions of this Agreement), upon giving at least five (5) Business Days’ prior written notice, the requesting party, or its duly authorized representatives, will have the right to audit, examine and copy, during regular business hours, at the home office of the other party, any and all books, records, statements, correspondence, reports, and other documents that relate to the Reinsured Policies or this Agreement, subject to the confidentiality provisions contained in this Agreement. In the event the requesting party exercises its inspection rights, the other party must provide a reasonable work space for such audit, examination or copying, cooperate fully and faithfully, and produce any and all materials reasonably requested to be produced, subject to confidentiality provisions contained in this Agreement. The administrative expenses, including expenses relating to copying, phone, fax and providing work space to the requesting party shall be borne by the requesting party; provided that if any material breach of this Agreement by the other party has occurred, the expenses relating to all such inspections shall be borne by the non-breaching party.

 

The requesting party’s right of access as specified above will survive until all of the requesting party’s obligations under this Agreement have terminated or been fully discharged.

 

14.10     Confidentiality

 

The parties agree to keep confidential and not disclose or make competitive use of any shared Proprietary Information, unless: (a) the information becomes publicly available or is obtained other than through unauthorized disclosure by the party seeking to disclose or use such information; (b) the information is independently developed by the recipient; (c) the disclosure is required by law, provided that, if applicable, the party required to make such disclosure will allow the other party to seek an appropriate protective order.

 

In addition, Reinsurer agrees to protect the confidentiality and security of Non-Public Personal Information by: (a) holding all Non-Public Personal Information in strict confidence; (b) maintaining appropriate measures that are designed to protect the security, integrity and confidentiality of Non-Public Personal Information; and (c) disclosing and using Non-Public Personal Information received under this Agreement for purposes of carrying out Reinsurer’s obligations under this Agreement, for purposes of retrocession, or as may be required or permitted by law.

 

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14.11     Indemnification

 

Reinsurer shall indemnify Ceding Company against the Reinsured Liabilities strictly in accordance with the terms and conditions set forth in this Agreement.

 

14.12     Reinsurance Brokers

 

The parties acknowledge that no broker or finder has acted directly or indirectly for Ceding Company or Reinsurer, nor has Ceding Company or Reinsurer incurred any obligation to pay any brokerage or finder’s fee or other commission, in connection with this Agreement and the transactions contemplated hereby.

 

14.13     Successors

 

This Agreement will be binding upon the parties hereto and their respective successors and assigns including any Authorized Representative of either party. Neither party may effect any novation of this Agreement without the other party’s prior written consent.

 

14.14     Entire Agreement

 

This Agreement and the Schedules and Exhibits hereto constitute the entire agreement between the parties with respect to the Reinsured Policies hereunder and supersede any and all prior representations, warranties, prior agreements or understandings between the parties pertaining to the subject matter of this Agreement. There are no understandings between the parties other than as expressed in this Agreement and the Schedules and Exhibits hereto. In the event of any express conflict between this Agreement and the Schedules and Exhibits hereto, the Schedules and Exhibits hereto will control.

 

14.15     Severability

 

Determination that any provision of this Agreement is invalid or unenforceable will not affect or impair the validity or the enforceability of the remaining provisions of this Agreement.

 

14.16     Construction

 

This Agreement will be construed and administered without regard to authorship and without any presumption or rule of construction in favor of either party. This Agreement is between sophisticated parties, each of which has reviewed this Agreement and is fully knowledgeable about its terms and conditions.

 

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14.17     Non-Waiver

 

Neither the failure nor any delay on the part of Ceding Company or Reinsurer to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof. No single or partial exercise of any right, remedy, power or privilege shall preclude the further exercise of that right, remedy, power or privilege or the exercise of any other right, remedy, power or privilege. No waiver of any right, remedy, power or privilege with respect to any occurrence shall be construed as a waiver of that right, remedy, power or privilege with respect to any other occurrence. No prior transaction or dealing between the parties will establish any custom, sage or precedent waiving or modifying any provision of this Agreement. No waiver shall be effective unless it is in writing and signed by the party granting the waiver.

 

14.18     Further Assurances

 

From time to time, as and when requested by a party hereto, the other party hereto shall execute and deliver all such documents and instruments and shall take all actions as may be reasonably necessary to consummate the transactions contemplated by this Agreement.

 

14.19     Governing Law

 

Subject to Article 11.2, this Agreement will be governed by and construed in accordance with the laws of the State of Nebraska without giving effect to any principles of conflicts of law thereof that are not mandatorily applicable by law and would permit or require the application of the laws of another jurisdiction.

 

14.20     Counterparts

 

This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. When this Agreement has been fully executed by Ceding Company and Reinsurer, it will become effective as of the Effective Date.

 

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The parties hereto have caused this Agreement to be executed effective as of the Effective Date.

 

	
			American Life & Security Corporation

				 	
			US Alliance Life and Security Company

			
	 	 	 
	 	 	 
	
			By: /s/ Mark A. Oliver

				 	
			By: /s/ Jack H. Brier

			
	
			(signature)

				 	
			(signature)

			
	 	 	 
	Mark A. Oliver	 	Jack H. Brier
	
			(print or type name)

				 	
			(print or type name)

			
	 	 	 
	
			Title: CEO

				 	
			Title: President

			
	 	 	 
	 	 	 
	
			Date: 9-29-17

				 	
			Date: 9-29-17

			
	 	 	 
	 	 	 
	
			Location: Lincoln, NE

				 	
			Location: Topeka, Kansas

			
	 	 	 
	 	 	 
	
			Attest: /s/ Todd C. Boeve

				 	
			Attest: /s/ Jeff Brown

			
	
			(signature)

				 	
			(signature)

			
	 	 	 
	 	 	 
	
			Title: VP & COO

				 	
			Title: EVP & COO

			

 

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Schedule A – Policies Reinsured

 

 

 

 

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CONFIDENTIAL

ATTORNEY-CLIENT PRIVILEGE

 

 

Exhibit A – Monthly Accounting ReportEX-4.1

 Exhibit 4.1 

PRECIPIO, INC. 
 WARRANT TO
PURCHASE COMMON STOCK 
  

			
	Warrant No.: 2017-[            ]	  	Number of Warrants: [                ] Date of Issuance:

 November 9, 2017 (“Issuance Date”) 

Expiration Date: May 9, 2023 (“Expiration Date”) 

Precipio, Inc., a Delaware corporation (the “Company”), certifies that, for good and valuable consideration, the receipt and sufficiency of
which are acknowledged, [            ], the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to
purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the
“Warrant”), at any time or times on or after May 9, 2018 (the “Exercisability Date”), but not after 5:30 p.m., New York Time, on the Expiration Date,
[        ] fully paid and nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall
have the meanings set forth in Section 16. 
  

	 	1.	EXERCISE OF WARRANT. 

 (a) Mechanics of Exercise. Subject to the terms and
conditions hereof (including, without limitation, the limitations set forth in Section 1(d)), this Warrant may be exercised by the Holder on any day on or after the Exercisability Date, in whole or in part (but not as to fractional shares), by
(i) delivery of a written notice to the Company, in the form attached hereto as, to the e-mail addresses set forth on, Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant and
(ii) within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in below) following the date of exercise as aforesaid if both (A) the Holder is
not electing a Cashless Exercise (as defined below) pursuant to Section 1(c) of this Warrant and (B) a registration statement registering the issuance of the Warrant Shares under the Securities Act of 1933, as amended (the
“Securities Act”), is effective and available for the issuance of the Warrant Shares, or an exemption from registration under the Securities Act is available for the issuance of the Warrant Shares, payment to the Company (the
“Warrant Agent”) of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire
transfer to the Warrant Agent of immediately available funds (a “Cash Exercise”). No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of
Exercise be required. The Holder shall not be required to surrender this Warrant in order to effect an exercise hereunder, provided that in the event of an exercise of this Warrant for all Warrant Shares then issuable hereunder, this Warrant is
surrendered to the Warrant Agent by the second (2nd) Trading Day following the date on which the Warrant Agent has received each of the Exercise Notice and, if this Warrant is being exercised pursuant to a Cash Exercise, the Aggregate Exercise
Price (the “Exercise Delivery Documents”). On or before date that is the earlier of (i) the earlier of (A) two (2) Trading Days after the delivery to the Company of the Notice of Exercise and (B) one
(1) Trading Day after delivery of the aggregate Exercise Price to the Company and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (the “Share
Delivery Date”), the Warrant Agent shall, upon the request of the Holder, instruct the Company’s transfer agent (the “Transfer Agent”) to credit such aggregate number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise to the Holder’s or its designee’s balance account with The Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission system provided the Holder causes its prime
broker or their clearing agent to initiate a DWAC DEPOSIT for the number of shares of Common Stock, or if the Transfer Agent is not participating in the Fast Automated Securities Transfer Program (the “FAST Program”) or if the
certificates are required to bear a legend regarding restriction on transferability, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the
name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such
Warrant Shares, as the case may be, provided that payment of the aggregate Exercise Price (other than in the 

 
case of a Cashless Exercise) is received within the earlier of (i) two Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of
the Notice of Exercise. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares
being acquired upon an exercise, then the Warrant Agent shall as soon as practicable and in no event later than three (3) Trading Days after any exercise and at the Company’s own expense, issue a new Warrant (in accordance with
Section 7(e)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. The Company
shall pay any and all taxes that may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable
based on the income of the Holder or in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an affiliate thereof. The Holder shall be responsible for all
other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a
number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares
subject to a Notice of Exercise by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the Weighted Average Price of
the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date
until such Warrant Shares are delivered or Holder rescinds such exercise. 
 In addition to any other rights available to the
Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares or to credit the Holder’s balance account with DTC for such number of Warrant Shares to which
the Holder is entitled upon the Holder’s exercise pursuant to an exercise on or before the Share Delivery Date, and if after such date the Holder purchases (in an open market transaction or otherwise) or the Holder’s brokerage firm
otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall within three
(3) Trading Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Warrant Shares or credit such Holder’s balance account with DTC) shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Warrant Shares or credit such Holder’s balance account with DTC and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Weighted Average Price of a share of Common Stock on the date of exercise. 

(b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $1.63 per share of Common
Stock, subject to adjustment as provided herein. 
 (c) Cashless Exercise. Notwithstanding anything contained herein
to the contrary, if a registration statement registering the issuance of the Warrant Shares under the Securities Act is not effective or available for the issuance of the Warrant Shares and an exemption from registration under the Securities Act is
not available for the issuance of the Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Warrant Agent upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”): 

Net Number = [(A-B) (X)] 

A 
 For purposes of the
foregoing formula: 
  

	 	A=	 as applicable: (i) the Weighted Average Price on the Trading Day immediately preceding the date of the
applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on
a Trading Day prior to the 

	 	
opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the
Holder, either (y) the Weighted Average Price on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as
of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until
two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the Weighted Average Price on the date of the applicable Notice of Exercise if the date of such Notice of
Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day. 

 

	 	B=	the Exercise Price of this Warrant, as adjusted hereunder. 

  

	 	C=	the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with
Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 1(c). 

(d) Limitations on Exercises. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s
Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as
defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned
by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents)
subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this
Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to
the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this
Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall
be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any
Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.
In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in
determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the
case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock
outstanding.

 
Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In
any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the
date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance
of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this
Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The
provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this
Warrant. 
 (e) Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the
Warrant Shares pursuant to Section 1(a) by the Share Delivery Date, then the Holder will have the right to rescind such exercise. 

(f) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share that the Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price. 
 2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and the number
of Warrant Shares shall be adjusted from time to time as follows: 
 (a) Adjustment upon Subdivision or Combination of
Shares of Common Stock. If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Issuance Date combines (by
combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and
the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(a) shall become effective at the close of business on the date the subdivision or combination becomes effective. 

(b) Other Events. If any event occurs of the type contemplated by the provisions of Section 2(a) but not expressly
provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features to the holders of the Company’s equity securities), then the Company’s
Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided, that no such adjustment pursuant to this Section 2(b) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2. 
 (c)
Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or
issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Convertible Securities, at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share
Price” and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common Stock or Convertible Securities so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an
effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation
of each Dilutive Issuance 

 
the Exercise Price shall be reduced and only reduced to equal the higher of the (i) Base Share Price or (ii) $0.05 (the “Floor Price” (such Floor Price to subject to
adjustment in accordance with Section 2(a). For the avoidance of doubt, if more than one security is issued in a transaction that is being analyzed to determine whether a Dilutive Issuance has occurred and/or to determine a Base Share
Price, each security so issued shall be analyzed separately with respect to such determinations such that the lowest effective price per share with respect to each such security shall be used. For example, if the existing exercise price under
this Warrant is $1.00 and the Company issues units for $0.90 per unit, with each unit comprised of one (1) share of Common Stock and one (1) Warrant exercisable for one (1) share of Common Stock, which new warrant has an exercise
price of $1.50 per share, the Base Share Price will be $0.90. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 2(c) in respect of an Exempt Issuance. The Company shall notify the Holder,
in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Convertible Securities subject to this Section 2(c), indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 2(c),
upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. For
all purposes of the foregoing (including, without limitation, determining the Base Share Price under this Section 3(b)), the following shall be applicable: 

i. Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for
which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms thereof
is less than the Exercise Price then in effect, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For
purposes of this Section 2(c)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share
of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof and
(y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any
such Option or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such Option, upon exercise of such Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of
such Option (or any other Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or
otherwise pursuant to the terms of or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities. 

ii. Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Exercise Price then in effect, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 2(c)(ii), the “lowest
price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security or otherwise pursuant
to the terms thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of 

 
Common Stock is issuable upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such
Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security (or any other
Person). Except as contemplated below, no further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to
the terms thereof, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(c), except as
contemplated below, no further adjustment of the Exercise Price shall be made by reason of such issuance or sale. 
 iii.
Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time (other than proportional changes in conversion or exercise prices, as applicable, in
connection with an event referred to in Section 2(a)), the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible
Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(c)(iii),
if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(c) shall be made if such adjustment would
result in an increase of the Exercise Price then in effect. 
 iv. Calculation of Consideration Received. If any
shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration
consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the Weighted Average Price of such security for each of the five (5) Trading Days
immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount
of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The
fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. 

v. Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of
subscription or purchase (as the case may be). 
 Notwithstanding anything to the contrary in this Warrant, the provisions of
Section 2(c) of this Warrant shall not become operative until the Company has obtained approval of its stockholders of the issuance of Warrants and shares of the Company’s Series C Preferred Stock pursuant to the Placement Agency
Agreement, including issuances in excess of the maximum number of shares issuable under the rules and regulations of the Nasdaq Capital Market. 

 (d) Par Value. Notwithstanding anything to the contrary in this Warrant,
in no event shall the Exercise Price be reduced below the par value of the Company’s Common Stock. 
 3. RIGHTS UPON DISTRIBUTION OF
ASSETS. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case: 
 (a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall be the Weighted Average Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator shall be the Weighted Average Price of the shares of Common Stock on the Trading Day immediately preceding such
record date; and 
 (b) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares
of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in
the immediately preceding paragraph (a); provided, that in the event that the Distribution is of shares of Common Stock or common stock of a company whose common shares are traded on a national securities exchange or a national automated
quotation system (“Other Shares of Common Stock”), then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical
to those of this Warrant, except that such warrant shall be exercisable for the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant
immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (a) and the number of Warrant Shares calculated in accordance with the first part of this paragraph (b). 
  

	 	4.	PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS. 

 (a) Purchase Rights.
In addition to any adjustments pursuant to Section 2 above, if at any time prior to the Expiration Date the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property
pro rata to all of the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights. 
 (b) Fundamental Transactions. Upon the occurrence of any Fundamental Transaction, then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without
regard to any limitation in Section 1(d) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration
(the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without
regard to any limitation in Section 1(d) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount
of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the
Alternate 

 
Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the
Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public
announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the
consummation of such Fundamental Transaction. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within five Business Days of the Holder’s election (or, if later, on the effective date of the
Fundamental Transaction). The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under
this Warrant and the other Transaction Documents in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable
delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance
to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of
the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise
every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. 

5. RESERVATION OF WARRANT SHARES. The Company covenants that it will at all times reserve and keep available out of the aggregate of its
authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of shares of Common Stock which are then issuable and
deliverable upon the exercise of this entire Warrant, free from preemptive or any other contingent purchase rights of Persons other than the Holder (taking into account the adjustments and restrictions in Section 2). Such reservation shall
comply with the provisions of Section 1. The Company covenants that all shares of Common Stock so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable. The Company will take all such actions as may be reasonably necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Stock may be listed. 
 6.
WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the
holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of
the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. 

 

	 	7.	REGISTRATION AND REISSUANCE OF WARRANTS. 

 (a) Registration of
Warrant. The Company or its Transfer Agent shall register this Warrant, upon the records to be maintained by the Company or its Transfer Agent for that purpose (the “Warrant  

 
Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. The Company or its Transfer Agent shall also register any transfer, exchange, reissuance or cancellation of any
portion of this Warrant in the Warrant Register. 
 (b) Transfer of Warrant. This Warrant may be offered for sale,
sold, transferred or assigned without the consent of the Company, except as may otherwise be required by applicable securities laws. Subject to applicable securities laws, if this Warrant is to be transferred, the Holder shall surrender this Warrant
to the Company or its Transfer Agent, as directed by the Company, together with all applicable transfer taxes, whereupon the Company will, or will cause its Transfer Agent to, forthwith issue and deliver upon the order of the Holder a new Warrant
(in accordance with Section 7(e)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this
Warrant is being transferred, a new Warrant (in accordance with Section 7(e)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. The acceptance of the new Warrant by the transferee thereof shall
be deemed the acceptance by such transferee of all of the rights and obligations in respect of the new Warrant that the Holder has in respect of this Warrant. 

(c) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form or the provision of reasonable security by the Holder to
the Company and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company or its Transfer Agent, as directed by the Company, shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(e))
representing the right to purchase the Warrant Shares then underlying this Warrant. 
 (d) Exchangeable for Multiple
Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company or its Transfer Agent, as directed by the Company, together with all applicable transfer taxes, for a new Warrant or Warrants
(in accordance with Section 7(e)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares
as is designated by the Holder at the time of such surrender; provided, however, that the Company or its Transfer Agent, as directed by the Company, shall not be required to issue Warrants for fractional shares of Common Stock
hereunder. 
 (e) Issuance of New Warrants. Whenever the Company or its Transfer Agent, as directed by the Company, is
required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall (i) be of like tenor with this Warrant, (ii) represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(b) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new
Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) have an issuance date, as indicated on the face of such new Warrant, which is the same as the Issuance Date and
(iv) have the same rights and conditions as this Warrant. 
 8. NOTICES. Whenever notice is required to be given under this
Warrant, unless otherwise provided herein, such notice shall be given in accordance with the information set forth in the Warrant Register. The Company shall give written notice to the Holder (i) reasonably promptly following any adjustment of
the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least ten (10) days prior to the date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation; provided, that in each case, such information shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder. 
 9. NONCIRCUMVENTION. The Company hereby covenants and
agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities or any other
voluntary 

 
action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price then in effect, (ii) shall use all reasonable efforts to take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant and (iii) shall, so long as any of the Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the Warrants, the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the Warrants then outstanding (without regard to any limitations on exercise). 

10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder. 

11. LIMITATION OF LIABILITY. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to
purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Warrant Shares or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company. 
 12. GOVERNING LAW. This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. 

13. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. 

14. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via email or facsimile within two (2) Trading Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder.
If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within five (5) Trading Days of such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within two (2) Trading Days submit via email or facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder
or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than ten (10) Trading Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent demonstrable error. The expenses of the investment bank and accountant will be borne by the Company unless the investment bank or accountant determines that the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares by the Holder was incorrect, in which case the expenses of the investment bank and accountant will be borne by the Holder. 

15. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in
addition to all other remedies available under this Warrant, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any
failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder may cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to seek an injunction restraining any breach. Notwithstanding the
foregoing or anything else herein to the contrary, if the Company is for any reason unable to issue and deliver Warrant Shares upon exercise of this Warrant as required pursuant to the terms hereof, the Company shall have no obligation to pay to the
Holder any cash or other consideration or otherwise “net cash settle” this Warrant. 

 16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the
following meanings: 
 (a) “Bid Price” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is
then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink
Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses
of which shall be paid by the Company. 
 (b) “Black Scholes Value” means the value of this Warrant based on
the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting
(A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility
equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per
share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to
the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. 

(c) “Bloomberg” means Bloomberg Financial Markets. 

(d) “Common Stock” means (i) the Company’s shares of Common Stock, $0.01 par value per share, and
(ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock. 

(e) “Convertible Securities” means any stock or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for shares of Common Stock. 
 (f) “Eligible Market” means
the Principal Market, The New York Stock Exchange, Inc., the NYSE Amex LLC, The Nasdaq Stock Market, or the OTC Bulletin Board®. 

(g) “Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers
or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for
such purpose for services rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common
Stock issued and outstanding on the Issuance Date, provided that such securities have not been amended since the Issuance Date to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such
securities or to extend the term or such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that such securities are issued as
“restricted securities” (as defined in Rule 144) and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the ninety (90) day period commencing on the
Issuance Date, and provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the
business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities. 
 (h) “Fundamental Transaction” means that
(A) the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (ii) sell, assign, transfer, convey
or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person providing to 

 
make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person
or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the
other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), or (v) reorganize, recapitalize or reclassify the Common
Stock or (B) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock. 

(i) “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities. 
 (j) “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction. 
 (k) “Person” means an
individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. 

(l) “Placement Agency Agreement” means the Placement Agency Agreement, dated November 2, 2017, by and
between the Company and Aegis Capital Corp. 
 (m) “Principal Market” means The Nasdaq Capital Market. 

(n) “Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by,
resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into. 

(o) “Trading Day” means any day on which the Common Stock is traded on the Principal Market, or, if the
Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any
day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or
market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York Time). 

(p) “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price
for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing
does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York City time, and ending at
4:00:00 p.m., New York City time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price
of any of the market makers for such security as reported in the “pink sheets” by Pink OTC Markets Inc. If the Weighted Average Price cannot be calculated for such security on such date on any of the foregoing bases, the Weighted Average
Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 14 with the term “Weighted Average Price” being substituted for the term “Exercise Price.” All such determinations shall be appropriately adjusted for any share dividend, share split or other
similar transaction during such period. 
 [Signature Page Follows] 

 IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be
duly executed as of the Issuance Date set out above. 
  

			
		 	PRECIPIO, INC.
		
	By:	 	 
		 	Ilan Danieli, President and Chief Executive Officer

 EXHIBIT A 

EXERCISE 
 NOTICE 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS 

WARRANT TO PURCHASE COMMON STOCK 

PRECIPIO, INC. 
 The undersigned holder
hereby exercises the right to purchase                  of the shares of Common Stock (“Warrant Shares”) of Precipio, Inc., a Delaware corporation (the
“Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”), by delivering this notice to the Company at the e-mail addresses set forth below. Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant. 
 1. Exercise Price. The Holder intends that payment
of the Exercise Price shall be made as (check one): 
  

	 	☐	Cash Exercise under Section 1(a). 

  

	 	☐	Cashless Exercise under Section 1(c). 

 2. Cash Exercise. If the Holder has elected
a Cash Exercise, the Holder shall pay the sum of $                 to the Company in accordance with the terms of the Warrant. 

3. Delivery of Warrant Shares. The Company shall deliver to the holder
                 Warrant Shares in accordance with the terms of the Warrant. 

4. Representations and Warranties. By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company that
in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended) permitted
to be owned under Section 1(d) of this Warrant to which this notice relates. 
 Company E-mail Addresses: 

ciberger@precipiodx.com 

idanieli@precipiodx.com 

mgage@precipiodx.com 
 with
copies to: 
 SDavis@goodwinlaw.com 

THurley@goodwinlaw.com 
 DATED:
                                 

 

			
	(Signature must conform in all respects to name of the Holder as specified on the face of the Warrant)
	
	 
	  
 Registered Holder

		
	Address:	 	 
	
	 

 ACKNOWLEDGMENT 

The Company hereby acknowledges this Exercise Notice. 

 

			
		 	PRECIPIO, INC.
		
	By:	 	 
	Name:	 	
	Title:

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