Document:

Exhibit 10.19

 

REINSURANCE AGREEMENT

between

GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK

and

UNION FIDELITY LIFE INSURANCE COMPANY

Dated as of April 15, 2004

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  	
  DEFINITIONS

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  	
  COVERAGE

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  	
  ADMINISTRATION; GENERAL PROVISIONS

  	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  	
  GENERAL ACCOUNT ASSET TRANSFER; CEDING
  COMMISSION; INITIAL MODCO RESERVE ADJUSTMENT

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  	
  EXPENSE ALLOWANCES

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
   

  	
  ACCOUNTING AND SETTLEMENT; MODCO ADJUSTMENT

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
   

  	
  DURATION AND TERMINATION

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  	
  INSOLVENCY

  	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
   

  	
  CREDIT FOR REINSURANCE

  	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
   

  	
  REINSURANCE SECURITY

  	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
   

  	
  DEFERRED ACQUISITION COSTS

  	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
   

  	
  DISPUTE RESOLUTION

  	
   

  	
   

  	
   

  
	
  ARTICLE XIII

  	
   

  	
  MISCELLANEOUS PROVISIONS

  	
   

  	
   

  	
   

  

 

 

SCHEDULES

	
  SCHEDULE A

  	
  —

  	
   

  	
  POLICY FORMS

  
	
  SCHEDULE B

  	
  —

  	
   

  	
  SEPARATE ACCOUNTS

  
	
  SCHEDULE C

  	
  —

  	
   

  	
  FORM OF ADMINISTRATIVE SERVICES AGREEMENT

  
	
  SCHEDULE D

  	
  —

  	
   

  	
  CEDING COMMISSION

  
	
  SCHEDULE E

  	
  —

  	
   

  	
  ASSETS

  
	
  SCHEDULE F

  	
  —

  	
   

  	
  EXPENSE ALLOWANCES

  
	
  SCHEDULE G

  	
  —

  	
   

  	
  Part I - INITIAL REPORT

  
	
  SCHEDULE G

  	
  —

  	
   

  	
  Part II - DAILY SETTLEMENT REPORT

  
	
  SCHEDULE G

  	
  —

  	
   

  	
  Part III - MONTHLY SETTLEMENT REPORT

  
	
  SCHEDULE G

  	
  —

  	
   

  	
  Part IV - QUARTERLY SETTLEMENT REPORT

  
	
  SCHEDULE G

  	
  —

  	
   

  	
  Part V - ANNUAL REPORT

  
	
  SCHEDULE H

  	
  —

  	
   

  	
  FORM OF TRUST AGREEMENT

  
	
  SCHEDULE I

  	
  —

  	
   

  	
  ELIGIBLE SECURITIES

  
	
  SCHEDULE J

  	
  —

  	
   

  	
  COMMISSIONS

  

 

i

 

REINSURANCE
AGREEMENT

 

This Reinsurance Agreement,
dated as of April 15, 2004 (this “Agreement”), is made and entered into by and
between GE Capital Life Assurance Company of New York, an insurance company
organized under the laws of the State of New York (the “Company”), and Union
Fidelity Life Insurance Company, an insurance company organized under the laws
of the State of Illinois (the “Reinsurer”). 
Defined terms used herein are defined below.

The Company and the
Reinsurer mutually agree to reinsure the risks described in this Agreement
under the terms and conditions stated herein. 
This Agreement is an indemnity coinsurance and modified coinsurance
agreement solely between the Company and the Reinsurer, and the performance of
the obligations of each party under this Agreement shall be rendered solely to
the other party.  In no instance shall
anyone other than the Company or the Reinsurer have any rights under this
Agreement.  The Company shall be and
shall remain the only party hereunder that is liable to any insured,
Contractholder, policyholder, claimant or beneficiary under any insurance
policy or contract reinsured hereunder.

This Agreement is entered
into in connection with an intercompany reorganization among the Company, the
Reinsurer and certain of their Affiliates.

ARTICLE I

DEFINITIONS

 

1.1.          Definitions. 
As used in this Agreement, the following terms shall have the following
meanings (definitions are applicable to both the singular and the plural forms
of each term defined in this Article):

“Affiliate” means any
other Person that directly or indirectly controls, is controlled by, or is
under common control with, the first Person. 
“Control” (including the terms, “controlled by” and “under
common control with”) means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
credit arrangement, as trustee or executor, or otherwise.

“Agreement” shall
have the meaning specified in the first paragraph of this Agreement.

“Annual Report” shall
have the meaning specified in Section 6.6.

“Applicable Law”
means any federal, state, local or foreign law (including common law), statute,
ordinance, rule, regulation, order, writ, injunction, judgment, permit,
governmental agreement or decree applicable to a Person or any of such Person’s
subsidiaries, properties, assets, or to such Person’s officers, directors,
managing directors, employees or agents in their capacity as such.

“Assets” shall have
the meaning specified in Section 4.4(a).

 

 

“Assignment Letter
Agreement” means the letter agreement dated the date hereof among General
Electric Capital Corporation, a Delaware corporation, the Reinsurer, the
Company and certain affiliates of the Company relating to the assignment by
General Electric Capital Corporation of the Capital Maintenance Agreement.

“Business Day” means
any day other than a Saturday, Sunday or other day on which the New York Stock
Exchange is closed for trading.

“Capital Maintenance
Agreement” means the Capital Maintenance Agreement between General Electric
Capital Corporation, a Delaware corporation, and the Reinsurer.

“Ceded Reinsurance”
means all reinsurance ceded by the Company pursuant to contracts, binders,
certificates, treaties or other evidence of reinsurance relating to the
Reinsured Risks in effect on or prior to the Inception Date, except the
reinsurance provided pursuant to this Agreement.

“Ceded Reinsurance
Agreements” means all of the contracts, binders, certificates, treaties or
other evidence for Ceded Reinsurance.

“Ceding Commission”
shall have the meaning specified in Section 4.2.

“Closing Date” means
April 15, 2004.

“Code” means the
Internal Revenue Code of 1986, as amended.

“Commutation” means,
with respect to any portion of the Ceded Reinsurance, a commutation or other
similar transaction that results in the termination of such Ceded Reinsurance
with respect to the Reinsured Contracts.

“Company Account”
shall have the meaning specified in Section 10.1(e).

“Contractholder”
shall mean the holder of any Reinsured Contract.

“CPR” shall have the
meaning specified in Section 12.3.

“CPR Arbitration Rules”
shall have the meaning specified in Section 12.4(a).

“Daily Settlement Account”
shall have the meaning specified in Section 6.2(a).

“Daily Settlement Amount”
means, with respect to a particular Business Day, the results of the
calculation set forth on Schedule G - Part II for such day.

“Daily Settlement Report”
shall have the meaning specified in Section 6.2(b).

“Dispute” shall have
the meaning specified in Section 12.1(a).

“Eligible Securities”
shall have the meaning specified in Section 10.1(c).

“Expense Allowance”
shall have the meaning specified in Section 5.1.

 

2

 

“Extra Contractual
Liabilities” means all liabilities for damages (including compensatory,
consequential, exemplary, punitive, bad faith or similar or other damages)
which relate to the marketing, sale, underwriting, issuance, delivery,
cancellation or administration of the Reinsured Contracts, including liability
arising out of or relating to any alleged or actual acts, errors or omissions
by the Company or its agents, whether intentional or otherwise, with respect to
any of the Reinsured Contracts, including (A) any alleged or actual reckless
conduct or bad faith in connection with the handling of any claim arising out
of or under Reinsured Contracts, or (B) the marketing, sale, underwriting,
issuance, delivery, cancellation or administration of any of the Reinsured
Contracts.

“Force Majeure” shall
have the meaning specified in Section 3.10(b)(iii).

“Funding Requirement”
shall have the meaning specified in Section 10.1(e).

“GAAP” means U.S.
generally accepted accounting principles consistently applied.

“General Account
Liabilities” means all net retained general account insurance liabilities
and obligations arising under the Reinsured Contracts, including, without
limitation (i) benefits, surrender amounts and other amounts payable to
Contractholders under the terms of the Reinsured Contracts, (ii) premium taxes
due in respect of premiums and other consideration paid on or after the
Inception Date with respect to the Reinsured Contracts, (iii) Insolvency
Fund or other premium based assessments, net of any premium tax credits of the
Company arising out of any such assessments, based on premiums and other
consideration paid on or after the Inception Date with respect to the Reinsured
Contracts, (iv) all amounts payable on or after the Inception Date for
returns or refunds of premiums under the Reinsured Contracts, (v) all liability
for commission payments and other fees or compensation payable with respect to
the Reinsured Contracts in respect of premiums and other consideration paid on
or after the Inception Date and (vi) all Extra Contractual Liabilities
resulting from actions of the Company or its agents to the extent reinsurance
of such liabilities is permitted by state law; but in all cases excluding: (w)
the Separate Account Liabilities; (x) Post-Inception Date Extra Contractual
Liabilities; (y) any general account liabilities which relate to (A) amounts
transferred from the Separate Accounts to the general account of the Company
pending distribution to holders of the Reinsured Contracts, and (B) amounts
held in the general account of the Company pending transfer to the Separate
Accounts; and (z) compensation agreements, arrangements and practices (A) that
exceed the broker commission rates as shown for each product on Schedule J, (B)
that exceed the wholesale expense rates as shown for each product on Schedule
J, (C) that exceed the firm marketing related expense reimbursement rates as
shown for each firm on Schedule J, (D) that exceed the marketing allowance as
shown on Schedule J, or (E) that result from changes to compensation plans for
any sales organization on or after the Inception Date, unless otherwise agreed
to in writing by the Reinsurer or to the extent such excess costs are offset by
an increase in the fund company administrative expense service share referred
to in Schedule F.

“General Account Reserves”
means the general account statutory reserves of the Company (without regard to
the transactions contemplated by this Agreement) with respect to the General
Account Liabilities determined pursuant to SAP, as such reserves would have
been 

 

3

 

included
in lines 1 and 13 of the Liabilities, Surplus and Other Funds page of the NAIC
Annual Statement Blank (2003 Format).

“Governmental Authority”
means any foreign or national government, any state or other political
subdivision thereof or any self regulatory authority, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

“Inception Date”
shall have the meaning specified in Section 2.1(a).

“Initial MODCO Reserve
Adjustment” means the amount specified in Section 4.3.

“Initial Notice”
shall have the meaning specified in Section 12.2.

“Initial Reinsurance
Premium” shall have the meaning specified in Section 4.1(a).

“Initial Report”
shall have the meaning specified in Section 6.1.

“Insolvency Fund”
means any guarantee fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or governed, which provides
for any assessment of or payment or assumption by the Company of part or all of
any claim, debt, charge, fee or other obligation of an insurer or reinsurer, or
its successors or assigns, which has been declared by any competent authority
to be insolvent, or which is otherwise deemed unable to meet any claim, debt,
charge, fee or other obligation in whole or in part.

“Monthly Accounting
Period” means each calendar month, except that the last Monthly Accounting
Period shall be the period commencing with the first day of the calendar month
in which the Termination Date falls and ending with the Termination Date.

“Monthly Settlement”
shall have the meaning specified in Section 4.4(a).

“Monthly Settlement
Report” shall have the meaning specified in Section 6.3.

“NAIC” means the
National Association of Insurance Commissioners.

“Non-Guaranteed Elements”
shall have the meaning specified in Section 3.3.

“Person” means any
natural person, firm, limited liability company, general partnership, limited
partnership, joint venture, association, corporation, trust, Governmental
Authority or other entity.

“Post-Inception Date
Extra Contractual Liabilities” means Extra Contractual Liabilities
attributable to the conduct of the Company on or after the Inception Date in
connection with the Company’s administration of the Reinsured Contracts, other
than actions taken by the Company at the written request or direction of the
Reinsurer or in connection with the Company’s marketing activities with respect
to the Reinsured Contracts.

 

4

 

“Quarterly Accounting
Period” means each calendar quarter, except that the last Quarterly
Accounting Period shall be the period commencing with the first day of the
calendar quarter in which the Termination Date falls and ending with the
Termination Date.

“Quarterly Accounting
Period MODCO Adjustment” shall have the meaning set forth in Section 6.7.

“Quarterly Settlement”
shall have the meaning specified in Section 4.4(a).

“Quarterly Settlement
Report” shall have the meaning specified in Section 6.4.

“RBC Reporting Letter
Agreement” means the letter agreement dated the date hereof among the
Company, the Reinsurer and certain affiliates of the Company relating to the
Reinsurer’s requirement to provide periodic certifications and reports
regarding the Reinsurer’s risk based capital ratio.

“Reinsurance Recoverables”
means the amount of reinsurance recoverables that are actually collected under
Ceded Reinsurance.

“Reinsured Contracts”
means the variable annuity contracts issued by the Company and recorded in the
Company’s administration system on or prior to December 4, 2003 and written on
the policy forms described in Schedule A, including any contract riders or
endorsements issued with respect thereto after the Inception Date with the
prior written consent of the Reinsurer.

“Reinsured Risks”
shall have the meaning specified in Section 2.1(a).

“Response” shall have
the meaning specified in Section 12.2.

“SAP” means statutory
accounting practices prescribed or permitted by the Insurance Department of the
State of New York.

“Separate Account Charges”
shall have the meaning specified in Section 4.1(b).

“Separate Account
Liabilities” means those insurance liabilities that are reflected in the
Separate Accounts and that relate to the Reinsured Contracts, including (i)
amounts transferred from the Separate Accounts to the general account of the
Company pending distribution to holders of the Reinsured Contracts, and (ii)
amounts held in the general account of the Company pending transfer to the
Separate Accounts.

“Separate Account
Reserves” means the separate account statutory reserves of the Separate
Accounts (without regard to the transactions contemplated by this Agreement)
with respect to the Reinsured Contracts determined pursuant to SAP, as such
reserves would have been included in line 27 of the Liabilities, Surplus and
Other Funds page of the NAIC Annual Statement Blank (2003 Format).

“Separate Accounts”
means the separate accounts of the Company described on Schedule B hereto.

 

5

 

“Tax DAC” means
specified policy acquisition expenses capitalized and amortized under section
848 of the Code.

“Termination Date”
means the effective date of any termination of this Agreement as provided in
Article VII.

“Termination Letter
Agreement” means the letter agreement dated the date hereof among the
Company, the Reinsurer and certain affiliates of the Company relating to the
rescission of this Agreement upon the failure of certain events to occur after
the date hereof.

“Trust Account” shall
have the meaning specified in Section 10.1(a).

“Trust Agreement”
shall have the meaning specified in Section 10.1(a).

“Trustee” shall have
the meaning specified in Section 10.1(a).

 

ARTICLE II

 

COVERAGE

 

2.1.          Coverage. 
(a)  Upon the terms and subject to the conditions and other
provisions of this Agreement, as of 12:01 a.m. Eastern Time on January 1,
2004 (the “Inception Date”), the Company hereby cedes to the Reinsurer, and the
Reinsurer hereby agrees to indemnify the Company (i) on a coinsurance basis,
for one hundred percent (100%) of the General Account Liabilities and (ii) on a
modified coinsurance basis, for 100% of the Separate Account Liabilities, in
each case, payable by the Company under the Reinsured Contracts on or after the
Inception Date (the “Reinsured Risks”). 
For the avoidance of doubt, the Reinsurer shall assume the risk for all
uncollectible or uncollected reinsurance recoverables under the Ceded
Reinsurance.

(b)           Upon the annuitization of a Reinsured Contract, such
Reinsured Contract will be considered surrendered and the Reinsurer will pay to
the Company an amount equal to the general account value applied to the
annuitization.  In such event, no
further obligation or liability will exist for the Reinsurer with respect to
such annuitized Reinsured Contract.

2.2.          Conditions. 
(a)  If the Company’s liability under any of the Reinsured
Contracts is changed because of changes made on or after the Inception Date in
the terms and conditions of the Reinsured Contracts (including to any contract
riders or endorsements thereto) that are required due to changes in Applicable
Law, the Reinsurer will share in the change proportionately to the coinsurance
share hereunder and the Company and the Reinsurer will make all appropriate
adjustments to amounts due each other under this Agreement.

(b)           Except as otherwise set forth or contemplated herein,
including in paragraph (a) above, no changes, amendments or modifications made
on or after the Inception Date in the terms and conditions of the Reinsured
Contracts (including to any contract riders or endorsements thereto) which
adversely affect the liability of the Reinsurer hereunder shall be covered
hereunder without the prior written approval of such changes, amendments or 

 

6

 

modifications by the
Reinsurer, which approval shall not be unreasonably withheld or delayed.  In the event that any such changes,
amendments or modifications are made in any Reinsured Contract without the
prior written approval of the Reinsurer, this Agreement will cover Reinsured
Risks incurred by the Company under such Reinsured Contract as if the
non-approved changes, amendments or modifications had not been made.

(c)           The Company will not change fund options for the Separate
Accounts from and after the Inception Date unless such changes are made:  (a) with the prior written consent of
the Reinsurer, in its sole discretion, (b) in fulfillment of the fiduciary
obligations of the Company after consultation with the Reinsurer or (c) by
the Board of Trustees of an unaffiliated fund (trust) to liquidate, merge or
remove a fund pursuant to the terms of the then existing fund participation
agreements or through a regulatory process.

2.3.          Territory. 
The territorial limits of this Agreement shall be identical with those
of the Reinsured Contracts.

2.4.          Commutation of Ceded Reinsurance.  (a)  The
Company shall not, without the Reinsurer’s prior written approval in its sole
discretion, take any action to amend, waive or terminate, in whole or in part,
any Ceded Reinsurance under any Ceded Reinsurance Agreement or enter into any
Commutation of Ceded Reinsurance.

(b)           Subsequent to the Inception Date, the Company will not
enter into any reinsurance arrangements with respect to the Reinsured Contracts
without the prior written consent of the Reinsurer, in its sole discretion.

ARTICLE III

ADMINISTRATION;
GENERAL PROVISIONS

 

3.1.          Contract Administration.  (a)  Subject to Section 3.10, the Company shall provide
policyholder and claims servicing with respect to the Reinsured Contracts and
administer the Separate Accounts in accordance with the terms hereof including,
but not limited to, the collection of premiums and other amounts due from
Contractholders, the payment of all General Account Liabilities and Separate
Account Liabilities and the administration of claims and disbursements, which
disbursements shall be made (i) directly by the Company with respect to
such disbursements relating to the General Account Liabilities and (ii) from
the Separate Accounts with respect to such disbursements relating to the
Separate Account Liabilities.  The
Company shall provide policyholder and claims servicing with respect to the
Reinsured Contracts and administer the Separate Accounts in good faith and with
the care, skill, prudence and diligence of a person experienced in
administering variable annuity business. 
The Company shall provide policyholder and claims servicing with respect
to the Reinsured Contracts and administer the Separate Accounts, (i) in
accordance with the terms of the Reinsured Contracts, (ii) in accordance with
the applicable terms of this Agreement, (iii) in compliance with Applicable Law
and, subject to the foregoing, (iv) in the same manner as it conducts its own
business not subject to this Agreement and (v) in accordance with the Company’s
administrative performance standards in effect on the date hereof, with such
revisions to such standards as are 

 

7

 

no less favorable to the
Reinsurer than such standards.  Notwithstanding
the foregoing, the parties may, from time to time, mutually develop specific
and/or different standards for providing such services with respect to the
Reinsured Contracts and the Separate Accounts.

(b)           The Company may subcontract for the performance of any
policyholder or claims servicing service or services with respect to the
Reinsured Contracts or any services the Company is to provide in the
administration of the Separate Accounts to (i) an Affiliate or (ii) any other
Person with the prior written consent of the Reinsurer, such consent not to be
unreasonably withheld; provided, that the Company also subcontracts for
such service or services for its own variable annuities business not subject to
this Agreement to such subcontractor; and provided, further, that
no such subcontracting shall relieve the Company from any of its obligations or
liabilities hereunder, and the Company shall remain responsible for all
obligations or liabilities of such subcontractor with regards to the providing
of such service or services as if provided by the Company.

3.2.          Ceded Reinsurance Agreements.  The Company shall manage and administer the
Ceded Reinsurance Agreements, including providing all reports and notices
required with regard to the Ceded Reinsurance Agreements to the reinsurers
within the time required by the applicable reinsurance agreement and doing all
other things necessary to comply with the terms and conditions of the Ceded
Reinsurance Agreements.  Without limiting
the foregoing, the Company shall timely pay all reinsurance premiums due to
reinsurers under the Ceded Reinsurance Agreements and diligently collect from
such reinsurers all reinsurance recoverables due thereunder.

3.3.          Non-Guaranteed Elements.  The Company shall set all rider charges, interest rates to be
credited on the Reinsured Contracts and other non-guaranteed elements of the
Reinsured Contracts (“Non-Guaranteed Elements”) from and after the Inception
Date.  The Company shall allow the
Reinsurer to participate in all decisions made by the Company with respect to
setting Non-Guaranteed Elements.

3.4.          Policy Exchanges. 
Unless otherwise agreed by the parties, the Company will not make any
targeted exchange offers with regards to the Reinsured Contracts or otherwise
target the Reinsured Contracts for replacement.

3.5.          Claims Settlements. 
The Company agrees that it will provide prompt notice to the Reinsurer
of its intention to contest, compromise or litigate a claim with respect to a
Reinsured Contract, along with copies of all pleadings and reports of
investigation with respect thereto.  The
Reinsurer shall have the right, at its own expense, to participate jointly with
the Company in the investigation, adjustment or defense of such claims.  In addition, in the event that litigation
arises against the Company in connection with a claim which seeks damages in
excess of $1 million or other remedies deemed material to the Reinsurer, the
Reinsurer may, upon written notice to the Company, assume the defense thereof
with counsel selected by the Reinsurer and reasonably satisfactory to the
Company.  If the Reinsurer assumes such
defense, the Company shall have the right, at its own expense, to participate
jointly with the Reinsurer in the defense thereof.  If the Reinsurer assumes the defense of litigation, the Reinsurer
shall not settle such litigation without the Company’s prior written consent
(which consent shall not be unreasonably withheld or delayed) unless (i) there
is no finding or admission of any violation of 

 

8

 

law or any violation of the
rights of any Person, (ii) such settlement would not reasonably be expected to
have material adverse precedential consequences to the Company and (iii) the
sole relief provided is monetary damages that are paid in full by the
Reinsurer.

3.6.          Inspection.  The Company shall keep accurate and complete
records, files and accounts of all transactions and matters with respect to the
Reinsured Contracts and the Company’s administration thereof in accordance with
Applicable Law and its record management practices in effect from time to time
for the Company’s insurance business not covered by this Agreement.  The Reinsurer and its designated
representatives may upon reasonable notice inspect, at the offices of the
Company where such records are located, the papers and any and all other books
or documents of the Company reasonably relating to this Agreement, including
the Reinsured Contracts and the administration thereof by the Company
(including compliance with the provisions of Section 3.1), and shall have
access to appropriate employees and representatives of the Company, in each
case during normal business hours for such period as this Agreement is in
effect or for as long thereafter as the Company seeks performance by the
Reinsurer pursuant to the terms of this Agreement or the Reinsurer reasonably
needs access to such records for regulatory, tax or similar purposes.  The information obtained shall be used only
for purposes relating to the transactions contemplated under this Agreement.

3.7.          Errors and Omissions.  If any delay, omission, error or failure to pay amounts due or to
perform any other act required by this Agreement is unintentional and caused by
misunderstanding or oversight, the Company and the Reinsurer will adjust the
situation to what it would have been had the misunderstanding or oversight not
occurred.  The party first discovering
such misunderstanding or oversight, or an act resulting from such misunderstanding
or oversight, will notify the other party in writing promptly upon discovery
thereof, and the parties shall act to correct such misunderstanding or
oversight within twenty (20) Business Days of such other party’s receipt of
such notice.  However, this Section
shall not be construed as a waiver by either party of its right to enforce
strictly the terms of this Agreement.

3.8.          Age, Sex and Other Adjustments.  If the Company’s liability under any of the
Reinsured Contracts is changed because of a misstatement of age or sex or any
other material fact, the Reinsurer will share in the change proportionately to
the coinsurance share hereunder and the Company and the Reinsurer will make all
appropriate adjustments to amounts due each other under this Agreement.

3.9.          Setoff.  Any
debts or credits, matured or unmatured, in favor of or against either the
Company or the Reinsurer with respect to this Agreement are deemed mutual debts
or credits, as the case may be, and shall be setoff from any amounts due to the
Company or the Reinsurer hereunder, as the case may be, and only the net
balance shall be allowed or paid.

3.10.        Administration by Reinsurer.  (a)  At any time from and
after the fifteenth (15th) anniversary of the Inception Date, the Reinsurer
shall have the right to assume from the Company the administration of the
Reinsured Contracts, provided that the Reinsurer provides twelve (12) months
prior written notice of such assumption, which notice may be given as early as
the fourteenth (14th) anniversary of the Inception Date to take effect as of the
fifteenth (15th) anniversary of the Inception Date.  The Reinsurer shall bear all transition costs associated with 

 

9

 

an assumption of the
administration of the Reinsured Contracts pursuant to this paragraph (a) of
this Section 3.10.

(b)           In addition to the provisions of Section 3.10(a), the
Reinsurer shall have the right, upon written notice to the Company, to assume
from the Company, the administration of the Reinsured Contracts upon the
occurrence of any of the following events:

(i)
                A voluntary or
involuntary proceeding is commenced in any jurisdiction by or against the
Company for the purpose of conserving, rehabilitating or liquidating the
Company;

(ii)
             There is a
material breach by the Company of any material term or condition of this
Article III  that is not cured by the
Company within thirty (30) days after receipt of written notice from the
Reinsurer of such breach or act (provided that the Reinsurer shall not have the
right to assume such administration (A) for so long as the Company is making a
good faith effort to cure such a breach, not to exceed an additional one
hundred eighty (180) days or (B) during the pendency of any dispute resolution
proceedings as set forth in Article XII regarding an alleged material breach);
or

(iii)
          The Company is
unable to perform the services required under this Article III for a period of
thirty (30) consecutive days for any reason, other than as a result of a Force
Majeure, it being understood that nothing in this Section 3.10(b)(iii) shall
relieve the Company from its administrative responsibilities under this
Agreement.  For purposes of this
Agreement “Force Majeure” means any acts or omissions of any civil or military
authority, acts of God, acts or omissions of the Reinsurer, fires, strikes or
other labor disturbances, equipment failures, fluctuations or non-availability
of electrical power, heat, light, air conditioning or telecommunications
equipment, or any other act, omission or occurrence beyond the Company’s
reasonable control, irrespective of whether similar to the foregoing enumerated
acts, omissions or occurrences.

(c)           The Company shall bear all transition costs associated
with an assumption of the administration of the Reinsured Contracts pursuant to
Section 3.10(b).

(d)           In the event of the Reinsurer’s assumption of the
administration of the Reinsured Contracts, the Reinsurer and the Company shall
enter into an administrative services agreement in the form attached hereto as
Schedule C and the provisions of Section 2.1(b) and Article V shall become
inoperative.

(e)           In the event that the Reinsurer is not properly licensed
to administer the Reinsured Contracts at the time of a proposed transfer of
administration under this Section 3.10, the Reinsurer may designate a properly
licensed entity that has appropriately trained and licensed personnel
reasonably acceptable to the Company to administer the Reinsured Contracts in
its stead, and the administrative services agreement referred to in paragraph
(d) above shall be 

 

10

 

executed by such properly
licensed entity in lieu of the Reinsurer. 
The designation and assumption of administration by such entity shall
not relieve the Reinsurer from any of its obligations or liabilities hereunder
(except as set forth in paragraph (d) above), and the Reinsurer shall remain
responsible for all obligations or liabilities of such entity with regards to
the providing of such administration as if provided by the Reinsurer.  The parties shall take all actions
reasonably necessary to effect the prompt transfer of administration provided
in this Section 3.10.

(f)            In the event of the assumption of the administration of
the Reinsured Contracts under this Section 3.10, the Reinsurer and the Company
shall take all actions necessary or appropriate to transfer administration of
the Separate Account Liabilities to the Reinsurer or its permitted
designee.  Such actions shall include,
without limitation, the establishment and maintenance of a new separate account
of the Company solely for the Reinsured Contracts and the transfer of the
assets of the Separate Account allocable to the Reinsured Contracts to such new
separate account.

ARTICLE IV

 

GENERAL
ACCOUNT ASSET TRANSFER; CEDING COMMISSION; INITIAL MODCO RESERVE ADJUSTMENT

 

4.1.          Asset Transfer. 
(a)  As consideration for the reinsurance by the Reinsurer of
the General Account Liabilities under this Agreement, on the Closing Date, the
Reinsurer shall be entitled to an amount equal to one hundred percent (100%) of
the General Account Reserves as of the close of business on the day immediately
preceding the Inception Date (the “Initial Reinsurance Premium”).

(b)           As additional consideration for the Reinsurer entering
into this Agreement, the Reinsurer shall be entitled to 100% of all premiums
and other considerations to the extent received on or after the Inception Date
by the Company or the Reinsurer with respect to the General Account
Liabilities, less an amount equal to the reinsurance premium due under the
Ceded Reinsurance Agreements to the extent such premium relates to coverage on
or after the Inception Date with respect to the Reinsured Contracts.  In addition, with respect to the Separate
Account Liabilities, the Reinsurer shall be entitled to 100% of all
(i) mortality and expense risk charges and administrative expense charges
(collectively, “asset charges”), any rider charges (to the extent the riders
are reinsured hereunder), and contract maintenance charges, back-end sales loads
and other considerations billed separately for the Reinsured Contracts
collected by the Company on or after the Inception Date, and (ii) any other
charges, fees and similar amounts received by the Company from the Separate
Accounts on or after the Inception Date (collectively, the “Separate Account
Charges”).  The Company hereby assigns
to the Reinsurer all of its rights to such premiums and other considerations
payable to the Company.  For the
avoidance of doubt, the Separate Account Charges shall not include any
distribution fees received from underlying mutual funds pursuant to a plan
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940.

 

11

 

4.2.          Ceding Commission. 
On the Closing Date, the Company shall be entitled to a ceding
commission (the “Ceding Commission”) in an amount determined in accordance with
Schedule D.

4.3.          Initial MODCO Reserve Adjustment.  As additional consideration for the
reinsurance by the Reinsurer of the Separate Account Liabilities under this
Agreement, on the Closing Date, the Company shall transfer to the Reinsurer an
amount equal to the net of (a) minus (b) where (a) is an amount equal to the
Separate Account Liabilities as of the Inception Date and (b) is the Initial
MODCO Reserve Adjustment.  The “Initial
MODCO Reserve Adjustment” shall be an amount equal to the Separate Account
Liabilities as of the Inception Date.

4.4.          Amounts Due the Parties.  (a) Except as otherwise specifically
provided herein, all amounts due to be paid to the Company or the Reinsurer
under this Agreement shall be determined on a net basis, giving full effect to
Section 3.9.  The net amount due
the Reinsurer from the Company on the Closing Date under Section 4.1(a) and
Section 4.2 shall consist of (i) the investment assets (the “Assets”) set forth
on Schedule E, which assets have a statutory book value as of the close of
business on the day immediately preceding the Inception Date equal to (A) the
Initial Reinsurance Premium, less (B) the Ceding Commission, less (C) an amount
equal to accrued but unpaid interest on the Assets as of the close of business
on the day immediately preceding the Inception Date, plus (ii) an amount equal
to the investment cash flows received on the Assets between the Inception Date
and the Closing Date.  The Company shall
pay such net amount concurrent with its delivery of the Initial Report.  Each net amount subsequently due the Company
or the Reinsurer with respect to each Monthly Accounting Period ending after
the Inception Date as reflected on a Monthly Settlement Report (the “Monthly
Settlement”) shall be paid in cash by the owing party no later than thirty (30)
days after delivery of the Monthly Settlement Report.  Each net amount subsequently due the Company or the Reinsurer
with respect to each Quarterly Accounting Period ending after the Inception
Date as reflected on a Quarterly Settlement Report (the “Quarterly Settlement”)
shall be paid in cash by the owing party no later than thirty (30) days after
delivery of the Quarterly Settlement Report. 
Each net amount subsequently due the Company or the Reinsurer with
respect to each calendar year ending after the Inception Date as reflected on
an Annual Report shall be paid in cash by the owing party no later than thirty
(30) days after delivery of the Annual Report.

(b)           The Company shall deliver to the Reinsurer possession of
the Assets and such bills of sale, endorsements, assignments and other good and
sufficient instruments of conveyance and transfer in form and substance
reasonably acceptable to the parties as shall be effective to vest in the
Reinsurer all of the right, title and interest of the Company in and to the
Assets.  Delivery of the Assets shall be
a condition precedent of reinsurance coverage hereunder.

ARTICLE V

 

EXPENSE
ALLOWANCES

 

5.1.          Expense Allowance. 
As reimbursement for expenses incurred by the Company in the providing
of policyholder and claims servicing services with respect to the 

 

12

 

Reinsured Contracts, the
Reinsurer shall pay to the Company with respect to each Monthly Accounting
Period ending after the Inception Date, an expense allowance (each an “Expense
Allowance”) in an amount calculated in accordance with Schedule F, as
subsequently adjusted in accordance with the methodology and procedures set
forth on Schedule F; provided that if the amount calculated in accordance with
Schedule F with respect to any Monthly Accounting Period should be negative,
such negative amount shall be credited to the Reinsurer on the Monthly
Settlement Report for such period.

ARTICLE VI

 

ACCOUNTING
AND SETTLEMENT; MODCO ADJUSTMENT

 

6.1.          Initial Report. 
A report shall be provided by the Company to the Reinsurer on the
Closing Date providing the data required in Schedule G - Part I
(the “Initial Report”).

6.2.          Daily Settlement Amounts.  (a)  On the Closing Date, the Reinsurer shall establish
a separate bank account (the “Daily Settlement Account”) in its own name for
the payment of Daily Settlement Amounts and shall authorize at least two
signatories who shall be representatives of the Company and approved by the
Reinsurer to make deposits to, and withdrawals from, the Daily Settlement
Account.

(b)           By 10:00 a.m. Eastern Time each Business Day following the
Closing Date during the term of this Agreement, the Company shall calculate the
Daily Settlement Amount for the prior Business Day.  Promptly following such calculation, the Company shall forward to
the Reinsurer a report in the form of Schedule G - Part II that shall provide
the details of such calculation (the “Daily Settlement Report”).  Prior to 6:00 p.m. of such Business Day, the
Company or the Reinsurer, as appropriate, shall deposit into the Daily
Settlement Account an amount equal to such Daily Settlement Amount owed by such
party to the other.  The party to whom
such Daily Settlement Amount is owed shall have a right to withdraw such
deposited amount at any time following such deposit.

(c)           The Company shall keep true
and complete records, in accordance with Applicable Law and its record
management practices in effect from time to time for the Company’s insurance
business not covered by this Agreement, clearly recording the deposits in and
withdrawals from the Daily Settlement Account. 
The Company will make available to the Reinsurer or its designated
representative, or shall furnish to the Reinsurer or its designated
representative, upon request of the Reinsurer or its designated representative,
copies of all such records.  All copies
furnished in the ordinary course of business shall be furnished by the Company
at the Company’s cost, which shall be included in the Expense Allowance.  Any extraordinary costs reasonably incurred
by the Company in response to requests from the Reinsurer shall be reimbursed
by the Reinsurer.

(d)           The parties agree to deliver to the depository bank such
depository resolutions, signature cards,
and other documents as may be requested of them in order to use such
accounts at the depository bank in accordance with the provisions of this
Section 6.2.

 

13

 

(e)           Upon a termination of this Agreement pursuant to Article
VII, the Reinsurer shall close the Daily Settlement Account and any closing
balance therein shall be the property of the Reinsurer.

6.3.          Monthly Settlement Reports.  As soon as practicable but not more than
thirty (30) days following the end of each Monthly Accounting Period ending
after the Closing Date (or more frequently as mutually agreed by the parties),
the Company shall supply the Reinsurer with a report that shall provide the
financial data for such Monthly Accounting Period required in Schedule G -
Part III (the “Monthly Settlement Report”).

6.4.          Quarterly Settlement Reports.  As soon as practicable but not more than forty
(40) days following the end of each Quarterly Accounting Period ending after
the Closing Date (or more frequently as mutually agreed by the parties), the
Company shall supply the Reinsurer with a report that shall provide the
financial data for such Quarterly Accounting Period required in
Schedule G - Part IV (the “Quarterly Settlement Report”).  The Company and the Reinsurer agree that the
financial data set forth on the Monthly Settlement Reports used for purposes of
the Monthly Settlements, shall be trued-up to actual amounts in the next
Quarterly Settlement Report and the net amount, if any, subsequently due to the
Company or the Reinsurer, as the case may be, as a result of such adjustments
shall be paid to the Company or the Reinsurer, as applicable.  For the avoidance of doubt, the first
Quarterly Settlement Report will include all transactions with respect to the
Reinsured Contracts occurring from the Inception Date through June 30, 2004.

6.5.          Quarterly Financial Reports.  As soon as practicable but not more than
forty (40) days following the end of each Quarterly Accounting Period ending
after the Closing Date (or more frequently as mutually agreed by the parties),
the Company shall supply the Reinsurer with reports related to the Reinsured
Contracts as may be reasonably requested for use in connection with the
preparation of the Reinsurer’s SAP financial statements or other reports
prepared by the Reinsurer in compliance with its internal reporting
requirements.  The parties shall
cooperate in good faith to establish the form for the providing of such
reports.

6.6.          Annual Reports. 
Within forty-five (45) days after the end of each calendar year during
the term of this Agreement (or more frequently as mutually agreed by the
parties), the Company shall supply the Reinsurer with a report that shall
provide the financial data for such year required in Schedule G - Part V
(the “Annual Report”).

6.7.          Accounting Period MODCO Reserve Adjustment.  At the end of each Quarterly Accounting
Period, the Company shall compute an amount equal to the absolute value of the
increase or decrease in the Separate Account Reserves due to subaccount
investment performance for the Quarterly Accounting Period just ended (the
“Quarterly Accounting Period MODCO Adjustment”).  The Quarterly Accounting Period MODCO Adjustment for each
Quarterly Accounting Period shall be reflected in the Quarterly Settlement
Report for such Quarterly Accounting Period.

6.8.          Additional Reports and Updates.  For so long as this Agreement remains in effect,
each of the parties shall periodically furnish to the other such other reports
and 

 

14

 

information as may be
reasonably requested by such other party for regulatory, tax or similar
purposes and reasonably available to it.

6.9.          Delayed Payments. 
In the event that all or any portion of any payment due either party
pursuant to this Agreement becomes overdue, the portion of the amount overdue
shall bear interest at an annual rate equal to the then current thirty (30) day
U.S. Treasury Bill discount rate on the date that the payment becomes overdue
plus 200 basis points, for the period that the amount is overdue.

ARTICLE VII

DURATION
AND TERMINATION

 

7.1.          Duration. 
Except as otherwise provided herein, this Agreement shall be unlimited
in duration.

7.2.          Reinsurer’s Liability.  The Reinsurer’s liability with respect to the Reinsured Risks
will terminate on the earliest of: 
(i) the date the Company’s liability with respect to the Reinsured
Risks is terminated and all amounts due the Company from the Reinsurer with
respect to such Reinsured Risks are paid to the Company by or on behalf of the
Reinsurer; and (ii) the date this Agreement is terminated upon the written
agreement of the parties.

7.3.          Notice of Termination.  Upon the termination of the Reinsurer’s liability with respect to
the Reinsured Risks referred to in Section 7.2 above, the parties shall
mutually give the Trustee written notice of their intention to terminate the
Trust Account.

ARTICLE VIII

INSOLVENCY

 

8.1.          Payments.  In
the event of the insolvency of the Company, all reinsurance made, ceded,
renewed or otherwise becoming effective under this Agreement shall be payable
by the Reinsurer directly to the Company or to its liquidator, receiver, or
statutory successor on the basis of the liability of the Company under the
contracts reinsured, without diminution because of the insolvency of the
Company.  It is agreed and understood,
however, that (i) in the event of the insolvency of the Company, the Reinsurer
shall be given written notice of the pendency of a claim against the insolvent
Company on a Reinsured Contract within a reasonable time after such claim is
filed in the insolvency proceeding and (ii) during the pendency of such
claim the Reinsurer may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated any defenses
which it may deem available to the Company or its liquidator, receiver or
statutory successor.

8.2.          Expenses.  It
is further understood that any expense thus incurred by the Reinsurer pursuant
to Section 8.1 shall be chargeable, subject to court approval, against the
insolvent Company as part of the expense of liquidation to the extent of a
proportionate share of 

 

15

 

the benefit which may accrue
to the Company solely as a result of the defense undertaken by the
Reinsurer.  Where two or more assuming
reinsurers are involved in the same claim and a majority in interest elect to
interpose defenses to such claim, the expense shall be apportioned in
accordance with the terms of this Agreement as though such expense had been
incurred by the Company.

ARTICLE IX

CREDIT
FOR REINSURANCE

 

9.1.          Reinsurance Credit. 
Notwithstanding any other provision of this Agreement to the contrary,
if the Reinsurer becomes unauthorized or otherwise unaccredited as an insurer
or reinsurer in any U.S. jurisdiction to which the Company must provide
statutory statements of financial condition such that the Company will not
obtain full statutory financial statement credit for reinsurance in such state
for the reinsurance provided under this Agreement, the Reinsurer, upon the
request of the Company, will establish, at the Reinsurer’s sole cost and
option, any trust accounts for the benefit of the Company, letters of credit,
or other acceptable alternatives necessary to permit the Company to obtain such
full statutory financial statement credit for such reinsurance in all
applicable jurisdictions.  The Company
shall cooperate with the Reinsurer to take such steps.  In addition, in such event, the Reinsurer
agrees to amend this Agreement and the Trust Agreement to the extent required
under Applicable Law in order to provide the Company with such full statutory financial
statement credit.

ARTICLE X

REINSURANCE SECURITY

 

10.1.        Trust.  (a) 
On the Closing Date, the Reinsurer shall enter into a trust agreement in
the form attached as Schedule H (the “Trust Agreement”) and establish a trust
account (the “Trust Account”) for the benefit of the Company with respect to
the Reinsured Risks with a bank (the “Trustee”) designated as a Qualified
United States Financial Institution by the Securities Valuation Office of the
National Association of Insurance Commissioners or any successor organization
or regulatory agency having similar duties.

(b)           The Reinsurer agrees to deposit, and maintain in the Trust
Account with respect to this Agreement, assets to be held in trust by the
Trustee for the benefit of the Company as security for the payment of the
Reinsurer’s obligations to the Company under this Agreement.

(c)           The parties agree that the assets so deposited with
respect to this Agreement shall be valued according to their current statutory
book value on the books of the Reinsurer and shall consist only of cash (United
States legal tender), certificates of deposit (issued by a United States bank
and payable in United States legal tender), and other assets of the type
specified on Schedule I attached hereto (“Eligible Securities”).

(d)           The Reinsurer, prior to depositing assets with the
Trustee, shall execute all assignments and endorsements in blank, or transfer
legal title to the Trustee of all shares, 

 

16

 

obligations or any other
assets requiring assignments, in order that, to the extent practicable, the
Company, or the Trustee upon direction of the Company, may whenever necessary
negotiate any such assets without consent or signature from the Reinsurer or
any other entity.  The Company
recognizes that certain assets in the Trust Account will not be readily
negotiable and that certain notices, opinions of counsel, representations
and/or consents will be required for the Company to obtain good and marketable
title to such assets.

(e)           The Reinsurer and the Company agree that the assets in the
Trust Account with respect to this Agreement may be withdrawn for the following
purposes only:

(i)
                to pay or
reimburse the Company for any amount due the Company pursuant to this Agreement
to the extent not so paid or reimbursed by the Reinsurer;

(ii)
             to pay to the
Reinsurer, in accordance with paragraph (h) below, any amounts held in the
Trust Account that exceed an amount (the “Funding Requirement”) equal to the
sum of General Account Reserves and any additional reserves attributable to the
Reinsured Risks that arise as a result of regulatory asset adequacy analysis
requirements of the Reinsurer; and

(iii)
          in the event
that General Electric Capital Corporation breaches its obligations under the
Capital Maintenance Agreement, to fund an account with the Company (the
“Company Account”) in an amount at least equal to the deduction, for
reinsurance ceded, from the Company’s liabilities ceded under this Agreement.  Such amount shall include, but not be
limited to, amounts for policy reserves, reserves for claims and losses
incurred (including losses incurred but not reported), loss and loss adjustment
expenses, and unearned premiums.

(f)            In the event that the Company withdraws assets from the
Trust Account for the purposes set forth in Section 10.1(e)(i) above in excess
of actual amounts required to meet the Reinsurer’s obligations to the Company,
the Company will promptly return such excess to the Reinsurer plus interest at
an annual rate equal to the then current thirty (30) day U.S. Treasury Bill
discount rate on the date of withdrawal plus 200 basis points for the period
during which the amounts were held pursuant to Section 10.1(e)(i).  In the event that the Company withdraws
assets from the Trust Account for the purposes set forth in Section
10.1(e)(iii) above, (i) the Reinsurer shall be relieved of its obligation to
maintain assets in the Trust Account pursuant to this Section 10.1 to the
extent of the amount of funds held in the Company Account and (ii) the Company
shall first apply the funds in the Company Account in satisfaction of the
Reinsurer’s liability under this Agreement until the funds in the Company
Account are exhausted.  In the event
that the Company withdraws assets from the Trust Account for the purposes set
forth in Section 10.1(e)(iii) above, promptly following the date the
Reinsurer’s liability with respect to the Reinsured Risks is terminated, the
Company shall return to the Reinsurer any assets so withdrawn that, together with
any and all interest, dividends and other earnings thereon from the date of
withdrawal to the date of return, are in excess of actual amounts required to
meet the Reinsurer’s obligations to the Company under this Agreement.

 

17

 

(g)           The initial deposit to the Trust Account with respect to
this Agreement shall be made on the Closing Date and shall consist of assets
with a statutory book value equal to the General Account Reserves as of the
close of business on the day immediately preceding the Inception Date.

(h)           The aggregate statutory book value of the assets held in
the Trust Account with respect to this Agreement, shall at all times be at
least equal to the Funding Requirement, and shall be adjusted on a quarterly
basis so as to equal the Funding Requirement.  
On a quarterly basis, the Company shall promptly prepare and deliver to
the Reinsurer a specific statement of the Funding Requirement and the Reinsurer
shall promptly prepare and deliver to the Company a specific statement of the
statutory book value of the assets in the Trust Account, in each case as of the
end of the quarter.   If the statement
shows that the Funding Requirement exceeds 100% of the balance of the Trust
Account with respect to this Agreement as of the statement date, the Reinsurer
shall, within ten (10) Business Days after receipt of such notice of excess,
secure delivery to the Trustee of additional cash or Eligible Securities having
a current statutory book value equal to such difference.  If the statement shows that the Funding
Requirement is less than 100% of the balance of the Trust Account with respect
to this Agreement as of the statement date, the Company shall, within ten (10)
Business Days after delivery of such statement to the Reinsurer, deliver a
notice of withdrawal to the Trustee directing the Trustee to withdraw from the
Trust Account and deliver to the Reinsurer assets from the Trust Account having
a current statutory book value equal to such excess amount.   In addition to the foregoing, the Reinsurer
shall prepare and deliver to the Company on a quarterly basis a specific
statement of the market value of the assets in the Trust Account as of the end
of the quarter.

ARTICLE
XI

DEFERRED
ACQUISITION COSTS

 

11.1.        Tax DAC Information Sharing.  To ensure consistency in their respective Tax DAC calculations
for tax purposes, the Company and the Reinsurer will exchange information
pertaining to the amount of net consideration under this Agreement each year.  The Company will submit a schedule to the
Reinsurer by February 28 of each year presenting its calculation of the net
consideration for the preceding taxable year. 
The Reinsurer may contest the calculation by providing to the Company an
alternative calculation in writing within thirty (30) days of receipt of the
Company’s schedule.  The Company and the
Reinsurer will act in good faith to resolve any differences in the schedule of
calculations within thirty (30) days of receipt of the alternative calculation
to ensure consistent amounts are reported on the respective tax returns for the
preceding tax year.

 

18

 

ARTICLE XII

 

DISPUTE
RESOLUTION

 

12.1.        General
Provisions.  (a) Any dispute, controversy or
claim arising out of or relating to this Agreement or the validity,
interpretation, breach or termination thereof (a “Dispute”), shall be resolved
in accordance with the procedures set forth in this Article XII, which shall be
the sole and exclusive procedures for the resolution of any such Dispute unless
otherwise specified below.

(b)           Commencing with the request contemplated by Section 12.2,
all communications between the parties or their representatives in connection
with the attempted resolution of any Dispute, including any mediator’s
evaluation referred to in Section 12.3, shall be deemed to have been delivered
in furtherance of a Dispute settlement and shall be exempt from discovery and
production, and shall not be admissible in evidence for any reason (whether as
an admission or otherwise), in any arbitral or other proceeding for the
resolution of the Dispute.

(c)           In connection with any Dispute, the parties expressly
waive and forego any right to (i) punitive, exemplary, statutorily-enhanced or
similar damages in excess of compensatory damages, and (ii) trial by jury.

(d)           The specific procedures set forth below, including but not
limited to the time limits referenced therein, may be modified by agreement of
the parties in writing.

(e)           All applicable statutes of limitations and defenses based
upon the passage of time shall be tolled while the procedures specified in this
Article XII are pending.  The parties
will take such action, if any, required to effectuate such tolling.

12.2.        Consideration by Senior Executives.  If a Dispute is not resolved in the normal
course of business at the operational level, the parties shall attempt in good
faith to resolve such Dispute by negotiation between executives who hold, at a
minimum, the office of President and CEO of the respective business entities
involved in such Dispute.  Either party
may initiate the executive negotiation process by providing a written notice to
the other (the “Initial Notice”). 
Fifteen (15) days after delivery of the Initial Notice, the receiving
party shall submit to the other a written response (the “Response”). The
Initial Notice and the Response shall include (i) a statement of the Dispute
and of each party’s position, and (ii) the name and title of the executive who
will represent that party and of any other person who will accompany the
executive. Such executives will meet in person or by telephone within thirty
(30) days of the date of the Initial Notice to seek a resolution of the
Dispute.

12.3.        Mediation.  If a Dispute is not resolved by negotiation
as provided in Section 12.2 within forty-five (45) days from the delivery of the Initial Notice, then either
party may submit the Dispute for resolution by mediation pursuant to the CPR
Institute for Dispute Resolution (the “CPR”) Model Mediation Procedure as then
in effect.  The parties will select a
mediator from the CPR Panels of Distinguished Neutrals, but such mediator must
have prior U.S. reinsurance experience either as a lawyer or as a present or
former officer or management 

 

19

 

employee
of a reinsurance company, but not of the Company, or the Reinsurer, or any of
their respective affiliates.  Either
party at commencement of the mediation may ask the mediator to provide an
evaluation of the Dispute and the parties’ relative positions.

12.4.        Arbitration.  (a)  If a Dispute is not resolved
by mediation as provided in Section 12.3 within thirty (30) days of the
selection of a mediator (unless the mediator chooses to withdraw sooner),
either party may submit the Dispute to be finally resolved by arbitration
pursuant to the CPR Rules for Non-Administered Arbitration as then in effect
(the “CPR Arbitration Rules”).  The
parties consent to a single, consolidated arbitration for all known Disputes
existing at the time of the arbitration and for which arbitration is permitted.

(b)   The neutral organization for purposes of the
CPR Arbitration Rules will be the CPR. 
The arbitral tribunal shall be composed of three arbitrators who are
each experienced in the U.S. reinsurance business, of whom each party shall
appoint one in accordance with the “screened” appointment procedure provided in
Rule 5.4 of the CPR Arbitration Rules. 
The non-party appointed arbitrator must have prior U.S. reinsurance
experience as a present or former officer or management employee of a
reinsurance company, but not of the Company, or the Reinsurer, or any of their
respective affiliates.  The arbitration
shall be conducted in New York City. 
Each party shall be permitted to present its case, witnesses and
evidence, if any, in the presence of the other party.  A written transcript of the proceedings shall be made and
furnished to the parties.  The
arbitrators shall determine the Dispute in accordance with the law of New York,
without giving effect to any conflict of law rules or other rules that might
render such law inapplicable or unavailable, and shall apply this Agreement
according to its terms, provided that the provisions relating to arbitration
shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.  The arbitral tribunal shall endeavor to
render its award or order resulting from any arbitration within forty-five (45)
days following the termination of the arbitration proceedings.

(c)           The parties agree to be bound by any award or order
resulting from any arbitration conducted hereunder and further agree that
judgment on any award or order resulting from an arbitration conducted under
this Section may be entered and enforced in any court having jurisdiction
thereof.

(d)           Except as expressly permitted by this Agreement, no party
will commence or voluntarily participate in any court action or proceeding
concerning a Dispute, except (i) for enforcement as contemplated by Section
12.4(c) above, (ii) to restrict or vacate an arbitral decision based on the
grounds specified under Applicable Law, or (iii) for interim relief as provided
in paragraph (e) below.  For purposes of
the foregoing the parties hereto submit to the non-exclusive jurisdiction of
the courts of the State of New York.

(e)           In addition to the authority otherwise conferred on the
arbitral tribunal, the tribunal shall have the authority to make such orders
for interim relief, including injunctive relief, as it may deem just and
equitable.  Notwithstanding paragraph
(d) above, each party acknowledges that in the event of any actual or
threatened breach of certain of the provisions of this Agreement, the remedy at
law would not be adequate, and therefore injunctive or other interim relief may
be sought immediately to restrain such breach. 
If the tribunal shall not have been appointed, either party may seek
interim relief from a court having jurisdiction if the award to which the
applicant may be entitled may be rendered ineffectual without such interim
relief.

 

20

 

Upon appointment of the
tribunal following any grant of interim relief by a court, the tribunal may
affirm or disaffirm such relief, and the parties will seek modification or
rescission of the court action as necessary to accord with the tribunal’s
decision.

(f)            Each party will bear its own
attorneys’ fees and costs incurred in connection with the resolution of any
Dispute in accordance with this Article XII.

ARTICLE XIII

MISCELLANEOUS
PROVISIONS

 

13.1.        Headings and Schedules.  Headings used herein are not a part of this Agreement and shall
not affect the terms hereof.  The
attached Schedules are a part of this Agreement.

13.2.        Notices.  All
notices, requests, demands and other communications under this Agreement must
be in writing and will be deemed to have been duly given or made as
follows:  (a) if sent by registered or
certified mail in the United States return receipt requested, upon receipt; (b)
if sent by reputable overnight air courier, two business days after mailing; (c)
if sent by facsimile transmission, with a copy mailed on the same day in the
manner provided in (a) or (b) above, when transmitted and receipt is confirmed
by telephone; or (d) if otherwise actually personally delivered, when
delivered, and shall be delivered as follows:

If
to the Company:

GE Capital Life Assurance Company of New York

6610 West Broad Street

Richmond, VA 23230

Facsimile: 
(804) 281-6165

Attention:  Chief Executive Officer

With a copy to:

GE Capital Life Assurance Company of New York

6610 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 281-6005

Attention:  General Counsel

 

If to the Reinsurer:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL  60173-2096

Facsimile:  (847) 330-3404

Attention:  Chief Financial Officer

 

21

 

With a copy to:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL  60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

or to such other address or to
such other Person as either party may have last designated by notice to the
other party.

13.3.        Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, permitted assigns and legal
representatives.  Neither this
Agreement, nor any right or obligation hereunder, may be assigned by any party
without the prior written consent of the other party hereto.  Any
assignment in violation of this Section 13.3 shall be void and shall have no
force and effect.  Nothing in this
Section 13.3 shall be construed to prohibit the Reinsurer from retroceding all
or any portion of the business reinsured hereunder.

13.4.        Execution in Counterpart.  This Agreement may be executed by the parties hereto in any
number of counterparts, and by each of the parties hereto in separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, but all such counterparts shall together
constitute but one and the same instrument.

13.5.        Currency. 
Whenever the word “Dollars” or the “$” sign appear in this Agreement,
they shall be construed to mean United States Dollars, and all transactions
under this Agreement shall be in United States Dollars.

13.6.        Amendments. 
This Agreement may not be changed, altered or modified unless the same
shall be in writing executed by the Company and the Reinsurer.

13.7.        Governing Law. 
This Agreement will be
construed, performed and enforced in accordance with the laws of the State of
New York without giving effect to its principles or rules of conflict of laws
thereof to the extent such principles or rules would require or permit the
application of the laws of another jurisdiction.

13.8.        Entire Agreement; Severability.  (a)  This Agreement and the
Termination Letter Agreement constitute the entire agreement between the
parties hereto relating to the subject matter hereof and supersede all prior
and contemporaneous agreements, understandings, statements, representations and
warranties, negotiations and discussions, whether oral or written, of the
parties and there are no general or specific warranties, representations or
other agreements by or among the parties in connection with the entering into
of this Agreement or the subject matter hereof except as specifically set forth
or contemplated herein or in the Termination Letter Agreement.

(b)           If any provision of this Agreement is held to be void or
unenforceable, in whole or in part, (i) such holding shall not affect the
validity and enforceability of the remainder of this Agreement, including any
other provision, paragraph or subparagraph, and (ii) the parties 

 

22

 

agree to attempt in good
faith to reform such void or unenforceable provision to the extent necessary to
render such provision enforceable and to carry out its original intent.

13.9.        Contemporaneous Agreements.  Concurrent with the execution of this Agreement, the parties
and/or their Affiliates are also entering into the Capital Maintenance
Agreement, the RBC Reporting Letter Agreement and the Assignment Letter
Agreement.

13.10.      No Waiver; Preservation of Remedies.  No consent or waiver, express or implied, by
any party to or of any breach or default by any other party in the performance
by such other party of its obligations hereunder shall be deemed or construed
to be a consent or waiver to or of any other breach or default in the
performance of obligations hereunder by such other party hereunder.  Failure on the part of any party to complain
of any act or failure to act of any other party or to declare any other party
in default, irrespective of how long such failure continues, shall not
constitute a waiver by such first party of any of its rights hereunder.  The
rights and remedies provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or equity.

13.11.      Cooperation.  Each party hereto shall cooperate fully with
the other in all reasonable respects in order to accomplish the objectives of
this Agreement including making available to each their respective officers and
employees for interviews and meetings with Governmental Authorities and
furnishing any additional assistance, information and documents as may be
reasonably requested by a party from time to time.

13.12.      Third Party Beneficiary.  Nothing in this Agreement will confer any
rights upon any Person that is not a party or a successor or permitted assignee
of a party to this Agreement.

13.13.      Tax Exception to Any Confidentiality.  Notwithstanding anything to the contrary set
forth herein or in any other agreement to which the parties hereto are parties
or by which they are bound, any obligations of confidentiality contained herein
and therein, as they relate to the transactions, shall not apply to the federal
tax structure or federal tax treatment of the transactions, and each party
hereto (and any employee, representative, or agent of any party hereto) may
disclose to any and all persons, without limitation of any kind, the federal
tax structure and federal tax treatment of the transactions.  The preceding sentence is intended to cause
the transactions to be treated as not having been offered under conditions of
confidentiality for purposes of Section 1.6011-4(b)(3) (or any successor
provision) of the Treasury Regulations promulgated under Section 6011 of the
Internal Revenue Code of 1986, as amended, and shall be construed in a manner
consistent with such purpose.  In
addition, each party hereto acknowledges that it has no proprietary or
exclusive rights to the federal tax structure of the transactions or any
federal tax matter or federal tax idea related to the transactions.

13.14.      Interpretation.  Wherever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation.”

13.15.      Survival.  Article XII and Article XIII shall survive the termination of
this Agreement.

 

23

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.

	
   

  	
  GE
  CAPITAL LIFE ASSURANCE COMPANY

  
	
   

  	
  OF NEW YORK

  
	
   

  	
   

  
	
   

  	
  By  

  	
  /s/  Victor
  C. Moses

  	
   

  
	
   

  	
   

  	
  Name:
  Victor C. Moses

  	
   

  
	
   

  	
   

  	
  Title:
  Senior Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UNION
  FIDELITY LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
  By  

  	
  /s/  Glenn
  Joppa

  	
   

  
	
   

  	
   

  	
  Name:
  Glenn Joppa

  	
   

  
	
   

  	
   

  	
  Title:
  Senior Vice President and Secretary

  
	
   

  	
   

  
	
   

  	
   

  

 

 

SCHEDULE A

POLICY FORMS

	
  NY1066

  	
  CVA NY

  
	
  NY1155

  NY5237

  NY5197

  NY5141

  NY5066

  NY 5068

  NY5241

  NY5071

  NY5136

  NY5236

  	
  Choice NY

  —      Annual Step Up Rider

  —    Death
  Benefit Rider

  —    Tax
  Rider

  —      Trust Endorsement

  —      Joint Annuitant

  —      Annuity Commencement Date

  —    Annual
  Step Death Benefit

  —    Bonus
  Ride

  —    Death
  Benefit Endorsement

   

  
	
  NY1157

  NY5237

  NY5197

  NY5141

  	
  Selections NY

  —      Annual Step Up Rider

  —      Death Benefit Rider

  —      Tax Rider

  

 

 

SCHEDULE B

SEPARATE ACCOUNTS

GE Capital Life Separate Account II

 

 

SCHEDULE C

FORM OF ADMINISTRATIVE SERVICES AGREEMENT

 

VA UFLIC/GECLANY

 

 

 

 

 

 

 

 

 

 

 

ADMINISTRATIVE SERVICES AGREEMENT

by and between

GE CAPITAL LIFE ASSURANCE COMPANY OF NEW YORK

and

UNION FIDELITY LIFE INSURANCE COMPANY

 

Effective as of
[          ]

 

 

 

ADMINISTRATIVE SERVICES AGREEMENT

 

This ADMINISTRATIVE SERVICES
AGREEMENT (this “Agreement”), effective as of
[                     ]
(the “Effective Date”), is entered into by and between GE CAPITAL LIFE
ASSURANCE COMPANY OF NEW YORK, an insurance company organized under the laws of
the State of New York (the “Company”), and UNION FIDELITY LIFE INSURANCE
COMPANY, an insurance company organized under the laws of the State of Illinois
(the “Administrator”).

RECITALS:

WHEREAS, the Company and the
Administrator have entered into a Reinsurance Agreement dated as of April 15,
2004 (the “Reinsurance Agreement”) which provides for the parties to enter into
this Agreement;

WHEREAS, pursuant to the
Reinsurance Agreement, the Administrator has agreed to indemnify the Company
for, among other things, (i) on a coinsurance basis, 100% of the General
Account Liabilities and (ii) on a modified coinsurance basis, 100% of the
Separate Account Liabilities, in each case, payable by the Company under the
Reinsured Contracts (capitalized terms used herein and not defined herein,
unless otherwise indicated, have the respective meanings assigned to them in
the Reinsurance Agreement); and

WHEREAS, the Company wishes
to appoint the Administrator to provide contractholder and claim servicing with
respect to the Reinsured Contracts as set forth herein, and the Separate
Accounts, and the Administrator desires to provide such administrative
services;

NOW, THEREFORE, in
consideration of the covenants and agreements set forth herein, the parties
hereto agree as follows:

ARTICLE I

AUTHORITY

 

As between the Company and
the Administrator, the Company hereby appoints the Administrator, and the
Administrator hereby accepts appointment, to provide as an independent
contractor of the Company, from and after the Effective Date, all of the
contractholder and claim servicing services necessary or appropriate with
respect to the Reinsured Contracts and the Separate Accounts, including those
set forth in this Agreement and on Schedule A hereto (the “Administrative
Services”), all on the terms as set forth in this Agreement.  In providing the contractholder and claim
servicing with respect to the Reinsured Contracts, the Administrator shall
handle all such matters, including but not limited to the billing and
collection of premiums and the defense, adjustment, settlement and payment of
all contractholder claims arising under the Reinsured Contracts, as more fully
described below.  Notwithstanding any
other provision of this Agreement to the contrary, the Company shall have the
final right to direct the Administrator in the performance of the Administrative
Services in accordance with the standards for services set forth in Section
2.1, including the right to direct the Administrator to perform any action 

 

 

necessary
for the Reinsured Contracts or the contractholder and claim servicing thereof
to comply with Applicable Law, or to cease performing any action that
constitutes a violation of Applicable Law. 
All services hereunder shall be performed by the Administrator in the
name of and on behalf of the Company. 
The Administrator shall maintain a toll-free number for use by
policyholders, certificateholders and beneficiaries.  Any and all correspondence with policyholders, certificateholders
and beneficiaries and check stock utilized by the Administrator for payments
under the Reinsured Contracts shall be in the name of the Company or in the
name of the Administrator and disclosing that the Administrator is acting as
the administrative agent of the Company.

ARTICLE II

 

STANDARD
FOR SERVICES; FACILITIES; SUBCONTRACTING; POLICYHOLDER SERVICING

 

2.1.          Standard for Services.  The Administrator shall provide the contractholder and claims
servicing with respect to the Reinsured Contracts and the Separate Accounts in
good faith and with the care, skill, prudence and diligence of a person
experienced in administering variable annuity business.  Without limiting the generality of the
foregoing, the Administrator shall provide contractholder and claims servicing
with respect to the Reinsured Contracts and the Separate Accounts (i) in
accordance with the terms of the Reinsured Contracts, (ii) in accordance with
the applicable terms of this Agreement, (iii) in compliance with Applicable
Law, (iv) in accordance with industry standards, (v) in accordance with
standards of service as agreed to by the Administrator and the Company and,
subject to the foregoing, (vi) to the extent applicable, in the same manner as
it conducts its own business not subject to this Agreement.

2.2.          Facilities and Personnel.  To the extent not sub-contracted to a Subcontractor, the
Administrator shall at all times maintain sufficient facilities and trained
personnel of the kind necessary to perform its obligations under this Agreement
in accordance with the performance standards set forth herein.

2.3.          Subcontracting. 
The Administrator may subcontract for the performance of any
contractholder or claims servicing service or services with respect to the
Reinsured Contracts or any services the Administrator is to provide in the
administration of the Separate Accounts to (i) an Affiliate or (ii) any other
Person with the prior written consent of the Company, such consent not to be
unreasonably withheld (in each case, the “Subcontractor”); provided,
that, no such subcontracting shall relieve the Administrator from any of its
obligations or liabilities hereunder, and the Administrator shall remain
responsible for all obligations or liabilities of such Subcontractor with
regards to the providing of such service or services as if provided by the
Administrator.

2.4.          Policyholder Servicing.  The Administrator shall provide policyholder servicing with
regards to the Reinsured Contracts, including changes of address, responding to
policyholder inquiries and similar services.

 

2

 

ARTICLE III

CLAIMS
HANDLING

 

The Administrative Services
with respect to claims for benefits including claims outstanding on the
Effective Date, shall include the following:

3.1.          Claim Administration Services.  The Administrator shall acknowledge,
consider, review, investigate, deny, settle, pay or otherwise dispose of each
claim for benefits and disbursements reported under each Reinsured Contract
(each, a “Claim” and collectively the “Claims”) in accordance with procedures
and guidelines established by the Company, such procedures and guidelines to be
in accordance with the standards of service set forth in Section 2.1.

3.2.          Description of Claim Administration Services.  Without limiting the foregoing, the
Administrator shall:

(i)
                provide
claimants under the Reinsured Contract and their authorized representatives
(collectively, “Claimants”) with Claim forms and provide reasonable explanatory
guidance to Claimants in connection therewith;

(ii)
             establish,
maintain and organize Claim files and maintain and organize other
Claims-related records;

(iii)
          review all
Claims and determine whether the Claimant is eligible for benefits and if so,
the nature and extent of such benefits;

(iv)
         prepare and
distribute to the appropriate recipients any reports required by Applicable
Law;

(v)
            respond to all
written or oral Claims-related communications that the Administrator reasonably
believes to require a response; and

(vi)
         maintain a
complaint log with respect to the Reinsured Contracts in accordance with
applicable requirements of Governmental Authorities and provide a copy of such
log, continuously updated through the last day of each calendar quarter during
the term of this Agreement, to the Company on or before the tenth Business Day
of each calendar quarter covering changes during the preceding calendar
quarter.

ARTICLE IV

REGULATORY AND LEGAL PROCEEDINGS

4.1.          Regulatory Complaints and Proceedings.  The Administrator shall:

 

3

 

(i)
                to the extent
permitted by Applicable Law, respond to any Claims payment related complaints
or inquiries made by any Governmental Authority within the Governmental
Authority’s requested time frame for response or, if no such time frame is
provided, within the time frame as allowed by Applicable Law; and promptly
provide a copy of such response to the Company;

(ii)
             promptly notify
the Company of any non-Claims payment related complaints or inquiries initiated
by a Governmental Authority, and of any proceedings (either Claims or
non-Claims related) initiated by a Governmental Authority, and, in either case,
to the extent permitted by Applicable Law, prepare and send to the Governmental
Authority, with a copy to the Company, a response within the Governmental
Authority’s requested time frame for response or, if no such time frame is
provided, within the time frame as allowed by Applicable Law; provided,
that, subject to meeting such time frames, the Administrator shall provide such
response to the Company for its prior review and comment;

(iii)
          subject to
Section 4.4, supervise and control the investigation, contest, defense and/or
settlement of all complaints, inquiries and proceedings by Governmental
Authorities, at its own cost and expense, and in the name of the Company when
necessary; and

(iv)
         at the
Company’s request, provide to the Company a report in a form mutually agreed by
the parties summarizing the nature of any complaints, inquiries or proceedings
by Governmental Authorities, the alleged actions or omissions giving rise to
such complaints, inquiries or proceedings and copies of any files or other
documents that the Company may reasonably request in connection with its review
of these matters.

                Notwithstanding
the foregoing, the Company shall retain final authority for the resolution of
inquiries by Governmental Authorities and consumer complaints; provided,
however, the Company agrees to act reasonably in the exercise of such
authority.

 

4.2.          Legal Proceedings.  The Administrator shall:

(i)
                notify the
Company promptly of any lawsuit, action, arbitration or other dispute
resolution proceedings that are instituted or threatened with respect to any
matter relating to the Reinsured Contracts (“Legal Proceeding(s)”), and in no
event more than five (5) Business Days after receipt of notice thereof;

(ii)
             subject to
Section 4.4, supervise and control the investigation, contest, defense and/or
settlement of all Legal Proceedings at its own cost and expense, and in the
name of the Company when necessary; and

 

4

 

(iii)
          keep the
Company fully informed of the progress of all Legal Proceedings handled by the
Administrator in which the Company is named a party and, at the Company’s
request, provide to the Company a report summarizing the nature of such Legal
Proceedings, the alleged actions or omissions giving rise to any Legal
Proceedings and copies of any files or other documents that the Company may
reasonably request in connection with its review of these matters in each case
other than such files, documents and other information as would, in the
judgment of counsel to the Administrator, lead to the loss or waiver of legal
privilege.

4.3.          Notice to Administrator.  The Company shall give prompt notice to the Administrator of any
Legal Proceeding made or brought against the Company after the Inception Date
arising under or in connection with the Reinsured Contracts to the extent known
to it and not made against or served on the Administrator or a Subcontractor as
administrator hereunder, and in no event more than five (5) Business Days after
receipt of notice thereof, and shall promptly furnish to the Administrator
copies of all pleadings in connection therewith.  The Administrator shall assume the defense of the Company.

4.4.          Defense of Regulatory and Legal Proceedings.  Notwithstanding anything in this Agreement
to the contrary, the Company shall supervise and control the investigation,
contest, defense and/or settlement of all complaints, inquiries and proceedings
by Governmental Authorities to the extent required by Applicable Law.  In addition, the Company shall have the
right to engage in its own separate legal representation, at its own expense,
and to otherwise participate fully in the defense of any Legal Proceedings or
complaints, inquiries or proceedings by Governmental Authorities with respect
to the Reinsured Contracts in which the Company is a named party, without the
Company waiving any right to indemnification it may have under Article XVII
hereof.  The Administrator and the
Company shall cooperate with each other with respect to the administration of
any Legal Proceeding and any complaint, inquiry or proceeding by Governmental
Authorities.  The Administrator shall
not settle any Legal Proceeding or any complaint, inquiry or proceeding by
Governmental Authorities without the Company’s prior written consent (which
consent shall not be unreasonably withheld or delayed) unless (i) there is no
finding or admission of any violation of law or any violation of the rights of
any Person, (ii) such settlement would not reasonably be expected to have
material adverse precedential consequences to the Company and (iii) the sole
relief provided is monetary damages that are paid in full by the Administrator.

ARTICLE V

 

NOTIFICATION
TO CONTRACTHOLDERS

 

The Administrator agrees to
send to contractholders of the Reinsured Contracts a written notice prepared by
the Administrator, reasonably acceptable to the Company and approved by the New
York Insurance Department to the effect that the Administrator, or such other
Person designated by the Administrator in accordance with the terms of this
Agreement, has been appointed by the Company to provide Administrative
Services.  The Administrator shall send
such notice by first class U.S. mail at a time reasonably acceptable to the
Company and the 

 

5

 

Administrator
and in all events in accordance with Applicable Law.  The parties intend to minimize the cost associated with any
notification under this Article V, including by means of inclusion of the notice
in a regularly scheduled mailing to contractholders in lieu of a separate
mailing.  The cost associated with such
notification under this Article V (upon the initial assumption of the
administration of the Reinsured Contracts under Section 3.10 of the Reinsurance
Agreement) shall be a transition cost payable by the Administrator or the
Company in accordance with Section 3.10(a) or 3.10(c) of the Reinsurance
Agreement, as applicable.

ARTICLE VI

 

BILLINGS
AND COLLECTIONS

 

6.1.          Billing and Collection Services.  The Administrator shall assume all
responsibility for billing and collecting premiums and other amounts payable
with respect to the Reinsured Contracts, including Separate Account Charges,
from and after the Effective Date.  The
Company shall promptly remit to the Administrator any such amounts received by
it with respect to the Reinsured Contracts.

ARTICLE VII

 

QUARTERLY
PREMIUM TAX AND INSOLVENCY FUND ACCOUNTINGS

 

7.1.            Quarterly Accountings.  Within thirty (30) days after the end of each calendar quarter
that this Agreement is in effect (or more frequently as mutually agreed by the
parties), the Company shall submit to the Administrator a written statement of
accounting in a form and containing such information to be agreed upon by the
parties hereto (each, an “Insolvency Fund Quarterly Accounting”) setting forth
the Insolvency Fund amounts assessed or payable to the extent that such
assessments constitute Reinsured Risks with respect to the Reinsured Contracts
(collectively, the “Post-Effective Date Assessments”).  Within thirty (30) days after the last day
of each calendar quarter that this Agreement is in effect (or more frequently
as mutually agreed by the parties), the Administrator shall submit to the Company
a written statement of accounting in a form and containing such information to
be agreed upon by the parties hereto (each, a “Quarterly Premium Tax
Accounting”, and together with the Insolvency Fund Quarterly Accountings, the
“Quarterly Accountings”) setting forth the estimated premium taxes due with
respect to the Reinsured Contracts as a result of premiums collected during
such quarter.  Concurrent with the
delivery of each Quarterly Premium Tax Accounting, the Administrator shall
remit to the Company the amount set forth on such Quarterly Premium Tax
Accounting with respect to such estimated premium taxes due and the amount set
forth in such Insolvency Fund Quarterly Accounting with respect to the
Post-Effective Date Assessments, and any other amounts owed to the Company
pursuant to this Agreement; provided, however, that any
Post-Effective Date Assessments set forth in an Insolvency Fund Quarterly
Accounting received by the Administrator less than five (5) Business Days prior
to the Administrator’s delivery of such Quarterly Premium Tax Accounting will
be paid within ten (10) Business Days of receipt by the Administrator of such
Insolvency Fund 

 

6

 

Quarterly Accounting.  Each of the parties agrees to supply to the
other a copy of all supporting data used in preparing the Quarterly Accountings
prepared by such party.

7.2.          Adjustments Regarding Quarterly Accountings.  In the event that subsequent data or
calculations require revision of any of the Quarterly Accountings, the required
revision and appropriate payments thereunder shall be made within ten (10)
Business Days after the parties hereto mutually agree as to the appropriate
revision.

ARTICLE VIII

 

CERTAIN
ACTIONS BY COMPANY

 

8.1.          Filings.  The
Company shall prepare and timely file any filings required to be made with any
Governmental Authority that relate to the Company generally and not just to the
Reinsured Contracts, including filings with guaranty associations and filings
and premium tax returns with taxing authorities.  The Administrator shall, in a timely fashion in light of the
dates such filings by the Company are required, provide to the Company all
information in the possession of the Administrator with respect to the
Reinsured Contracts that may be reasonably required for the Company to prepare
such filings and tax returns.  In order
to enable the Administrator to perform the requirements as set forth in Item
6(c) of Schedule A hereto attached, the Company shall make available to the
Administrator drafts of such documents sufficiently in advance of the proposed
filings thereof.

8.2.          Annual Adjustment. 
The Company shall pay or provide to the Administrator the benefit of any
Post-Effective Date Assessments which have been or can be applied to reduce the
Company’s premium tax liability (“Premium Tax Credits”).  The Company shall provide to the
Administrator by March 15 of each year a statement of the amount (the “Annual
Adjustment”) of (i) premium taxes due with respect to premiums collected during
the prior calendar year (to the extent that such premium taxes constitute
Reinsured Risks with respect to the Reinsured Contracts), less (ii) estimated
premium taxes paid by the Administrator to the Company with respect to such
premiums under the provisions of Article VII, less (iii) Premium Tax Credits
for the prior calendar year.  By March
30 of each year the Administrator shall pay to the Company the Annual
Adjustment, if a positive amount, and the Company will pay or credit to the
Administrator the Annual Adjustment, if a negative amount.

ARTICLE IX

 

REGULATORY
MATTERS AND AUDIT REPORTING

 

9.1.          Regulatory Compliance and Reporting.  The Administrator shall provide to the
Company such information with respect to the Reinsured Contracts as is required
to satisfy all current and future informational reporting, prior approval and
any other requirements imposed by any Governmental Authority.  Upon the reasonable request of the Company,
the Administrator shall timely prepare such reports and summaries, including
statistical summaries and certifications, as are necessary or reasonably
required to satisfy any requirements imposed by a Governmental Authority upon
the Company with respect to the Reinsured Contracts.  In 

 

7

 

addition, the Administrator,
upon the reasonable request of the Company, shall promptly provide to the
Company copies of all existing records relating to the Reinsured Contracts
(including, with respect to records maintained in machine readable form, hard
copies) that are necessary to satisfy such requirements.  All copies of records furnished in the
ordinary course of business shall be furnished by the Administrator at the
Administrator’s cost.  Any extraordinary
costs reasonably incurred by the Administrator in response to requests from the
Company shall be reimbursed by the Company. 
Among other responsibilities:

(i)
                The
Administrator shall promptly prepare and furnish to Governmental Authorities
all reports and related summaries (including, without limitation, statistical
summaries), certificates of compliance and other reports required or requested
by a Governmental Authority.

(ii)
             The
Administrator shall assist the Company and cooperate with the Company in doing
all things necessary, proper or advisable, in the most expeditious manner
practicable in connection with any and all market conduct or other Governmental
Authority examinations relating to the Reinsured Contracts.

9.2.          Reporting and Accountings.  The Administrator shall assume the reporting and accounting
obligations set forth below:

(i)            As soon as practicable but not more than thirty (30) days
after the end of each Monthly Accounting Period (or more frequently as mutually
agreed by the parties), the Administrator shall timely provide to the Company
the Monthly Settlement Reports.  As soon
as practicable but not more than forty (40) days after the end of each
Quarterly Accounting Period that this Agreement is in effect (or more
frequently as mutually agreed by the parties), the Administrator shall timely
provide to the Company the Quarterly Settlement Reports.  As soon as practicable but not more than
forty-five (45) days after the end of each calendar year that this Agreement is
in effect, the Administrator shall timely provide to the Company the Annual
Reports.  In addition, as soon as
practicable but not more than forty (40) days after the end of each calendar
quarter that this Agreement is in effect (or more frequently as mutually agreed
by the parties), the Administrator shall timely provide to the Company such
other reports and summaries of transactions (and, upon request of the Company,
detailed supporting records) related to the Reinsured Contracts as may be
reasonably required for use in connection with the preparation of the Company’s
statutory and GAAP financial statements, tax returns and other required
financial reports and to comply with the requirements of the regulatory
authorities having jurisdiction over the Company, including all premiums
received and all benefits paid.  The
parties shall cooperate in good faith to establish the manner for the providing
of such reports.

(ii)
             The
Administrator shall provide to the Company such reports or summaries (and, upon
the request of the Company, detailed supporting

 

8

 

records therefor) related to
the payment of commissions under the Reinsured Contracts as agreed by the
parties.

(iii)
          As soon as
practicable but not more than forty (40) days after the end of each calendar
quarter that this Agreement is in effect (or more frequently as mutually agreed
by the parties), the Administrator shall report to the Company the amount of
statutory reserves that the Company is required to maintain in connection with
the Reinsured Risks with respect to the Reinsured Contracts as of the quarter
end.

(iv)
         The
Administrator shall promptly provide notice to the Company of any changes in
the reserve methodology used by the Administrator in calculating statutory
reserves for the Reinsured Contracts.

(v)
            Within
forty-five (45) days after each calendar year end (or such longer time as may
be agreed by the parties) that this Agreement is in effect, the Administrator
shall provide to the Company (a) an opinion of an actuary reasonably acceptable
to the Company as to the adequacy of statutory reserves for the Reinsured
Contracts, prepared according to accepted actuarial standards of practice, and
as otherwise required for regulatory reporting purposes and (b) an analysis
which reasonably supports such opinion.

9.3.          Additional Reports and Updates.  For so long as this Agreement remains in
effect, each party shall periodically furnish to the other such other reports
and information as may be reasonably required by such other party for
regulatory, tax or similar purposes and reasonably available to it.

ARTICLE X

MISCELLANEOUS
ADMINISTRATIVE SERVICES

 

The Administrator shall
assume the obligations set forth below:

(i)
                The
Administrator shall timely pay to the contractholders, including any
certificateholder thereunder, any refunds of any kind due under the Reinsured
Contracts.

(ii)
             The
Administrator shall have the exclusive authority to manage and administer the
Ceded Reinsurance Agreements, including providing all reports and notices
required with regard to the Ceded Reinsurance Agreements to the reinsurers
within the time required by the applicable reinsurance agreement and doing all
other things necessary to comply with the terms and conditions of the Ceded
Reinsurance Agreements.  Without
limiting the foregoing, the Administrator shall timely pay all reinsurance
premiums due to reinsurers under the Ceded Reinsurance Agreements and shall use
commercially reasonably efforts to collect from such reinsurers 

 

9

 

all reinsurance recoverables
due thereunder.  The Administrator shall
forward to the Company upon receipt any such reinsurance recoverables collected
by the Administrator that are not the property of Administrator under the terms
of the Reinsurance Agreement.

(iii)
          The
Administrator shall process all policy changes, lapses, cancellations, and
reinstatements in accordance with the terms of this Agreement and the express
terms of the Reinsured Contracts and shall assume responsibility for providing
all other contractholder servicing in connection with the Reinsured Contracts.

(iv)
         The
Administrator shall pay commissions due under the Reinsured Contracts.

(v)
            The
Administrator shall provide such Administrative Services as are not performed
by or on behalf of Company on the date hereof but the need for which may arise
due to changes or developments in Applicable Law.

ARTICLE XI

 

SEPARATE
ACCOUNT ADMINISTRATIVE SERVICES

 

Without limiting the
generality of any of the foregoing, in addition to the Administrative Services
described in any Article of this Agreement, the contractholder and claim
services with respect to, or as a result of, the Separate Accounts shall
include those services set forth on Schedule A hereto.

ARTICLE XII

 

BOOKS
AND RECORDS

 

The Administrator shall keep
accurate and complete records, files and accounts of all transactions and
matters with respect to the Reinsured Contracts and the administration thereof
in accordance with Applicable Law, including New York Regulation 152, and its
record management practices in effect from time to time for the Administrator’s
insurance business not covered by this Agreement, if any.  All such records pertaining to the Reinsured
Contracts shall be the property of the Company, provided that the Administrator
shall at all times have the right to retain a copy of such books and
records.  The parties to this Agreement
and their designated representatives may upon reasonable notice inspect, at the
offices of the Administrator or the Company where such records are located, the
papers and any and all other books or documents of the Administrator or the
Company reasonably relating to this Agreement, including the Reinsured
Contracts, and shall have access to appropriate employees and representatives
of the other party, in each case during normal business hours for such period
as this Agreement is in effect or for as long thereafter as any rights or
obligations of any party survives or the Administrator or the Company
reasonably need access to such records for regulatory, tax or 

 

10

 

similar
purposes. The information obtained shall be used only for purposes relating to
the transactions contemplated under this Agreement.

ARTICLE XIII 

 

COOPERATION

 

Each party hereto shall
cooperate fully with the other in all reasonable respects in order to
accomplish the objectives of this Agreement including making available to each
their respective officers and employees for interviews and meetings with
Governmental Authorities and furnishing any additional assistance, information
and documents as may be reasonably requested by a party from time to time.

ARTICLE XIV

 

PRIVACY
REQUIREMENTS

 

In providing the
Administrative Services provided for under this Agreement, and in connection
with maintaining, administering, handling and transferring the data of the
contractholders and other recipients of benefits under the Reinsured Contracts,
the Administrator shall, and shall cause its Affiliates and any permitted
Subcontractors to, comply with all confidentiality and security obligations
applicable to them in connection with the collection, use, disclosure,
maintenance and transmission of personal, private, health or financial
information about individual contractholders or benefit recipients, including
the provisions of privacy policies under which such information was gathered,
those laws currently in place and which may become effective during the term of
this Agreement, including the Gramm-Leach-Bliley Act, the Health Insurance
Portability and Accountability Act of 1996 and any other Applicable Laws.  The Administrator shall entitle the Company
and its agents and representatives, the Commissioner of Health and Human
Services and such other Governmental Authorities, to the extent required by
Applicable Law, to audit the Administrator’s compliance herewith.  The Administrator shall also enable
individual subjects of personally identifiable information, upon request from
such individuals, to review and correct information maintained by the
Administrator about them, and to restrict use of such information.  The Administrator shall promptly report to
the Company any violation of this provision of which the Administrator becomes
aware.  Unless required by Applicable
Law, the Administrator shall not during the term of this Agreement, modify the
privacy policies under which information utilized by the Administrator in
administering the Reinsured Contracts is gathered, without the Company’s prior
written consent, which consent shall not be unreasonably withheld.  The parties agree to comply with the terms of
the Business Associate Addendum attached hereto, if applicable, or such other
written agreement as may be required by Applicable Law on the date hereof.

 

11

 

ARTICLE XV

 

CONSIDERATION
FOR ADMINISTRATIVE SERVICES

 

Apart from the performance
by the Company of its obligations under the Reinsurance Agreement, there shall
be no fee or other consideration due to the Administrator for performance of
the Administrative Services under this Agreement.

ARTICLE XVI

BANK
ACCOUNT; USE OF COMPANY LETTERHEAD

 

When and on terms reasonably
requested by the Administrator, the Company shall open, modify or close, and
make available for use by the Administrator for the payment of amounts to be
paid by the Administrator hereunder one or more bank accounts of the Company
and check stock of the Company.  The
Administrator shall maintain such account(s) and pay all applicable bank fees
and check stock costs.  The Company
shall adopt such resolutions and execute such documents as required to
designate senior officers of the Administrator (by title) as signatories on
such account(s) and authorize the Administrator to certify to such bank(s),
from time to time, the names of such officers. 
The Company shall also make available to the Administrator, at the sole
expense of the Administrator, such letterhead, printed forms and other
documents of the Company as may be reasonably required by the Administrator in
performing services hereunder.  Upon termination
of this Agreement, the Administrator shall promptly return to the Company all
such unused check stock, letterhead, printed forms and other documents held by
it in connection with this Agreement as provided under this Article XVI.

ARTICLE XVII

INDEMNIFICATION

 

Any claim for or with respect
to indemnification arising out of, or relating to, this Agreement or the
Administrative Services hereunder shall be permitted under and governed by the
provisions of Article V of the Master Agreement, dated as of [             ], 2004, among General Electric
Company, General Electric Capital Corporation, GEI, Inc., GE Financial
Assurance Holdings, Inc. and Genworth Financial, Inc (the “Master Agreement”),
to the extent such provisions are applicable, as if this Agreement were a
Transaction Document under the Master Agreement.

ARTICLE XVIII

 

DURATION;
TERMINATION

 

18.1.        Duration.  This Agreement
shall commence on the Effective Date and continue with respect to each
Reinsured Contract until no further Administrative Services in 

 

12

 

respect of such Reinsured
Contract is required, unless this Agreement is earlier terminated under Section
18.2.

18.2.        Termination. 
(a)  This Agreement is subject to
immediate termination at the option of the Company, upon written notice to the
Administrator, on the occurrence of any of the following events:

(i)
                A voluntary or
involuntary proceeding is commenced in any jurisdiction by or against the
Administrator for the purpose of conserving, rehabilitating or liquidating the
Administrator;

(ii)
             There is a
material breach by the Administrator of any material term or condition of this
Agreement that is not cured by the Administrator within thirty (30) days after
receipt of written notice from the Company of such breach or act (provided that
the Company shall not have the right to terminate this Agreement (A) for so
long as the Administrator is making a good faith effort to cure such breach,
not to exceed an additional one hundred eighty (180) days or (B) during the
pendency of any dispute resolution proceedings as set forth in Article XIX
regarding an alleged material breach); or

(iii)
          The
Administrator is unable to perform the services required under this Agreement
for a period of thirty (30) consecutive days for any reason other than as a result
of a Force Majeure, it being understood that nothing in this 18.2(a)(iii)  shall relieve the Administrator from its
administrative responsibilities under this Agreement.  For purposes of this Agreement, “Force Majeure” means any acts or
omissions of any civil or military authority, acts of God, acts or omissions of
the Company, fires, strikes or other labor disturbances, equipment failures,
fluctuations or non-availability of electrical power, heat, light, air
conditioning or telecommunications equipment, or any other act, omission or
occurrence beyond the Administrator’s reasonable control, irrespective of
whether similar to the foregoing enumerated acts, omissions or occurrences.

(b)   This Agreement may be terminated at any time
upon the mutual written consent of the parties hereto, which writing shall
state the effective date of termination.

(c)   In the event that this Agreement is
terminated under any of the provisions of 18.2(a), the Administrator shall
select a third-party administrator to perform the services required by this
Agreement.  The Company shall have the
right to approve any such administrator selected by the Administrator, but such
approval will not unreasonably be withheld or delayed.  If the Administrator fails to select an
administrator pursuant to this 18.2(c), the Company shall select such an
administrator.  In either case, the
Administrator shall pay all fees and charges imposed by the selected
administrator and shall bear all transition costs associated with the
transition of the performance of the services required under this Agreement to
such administrator, including the expense of sending contractholder notices as
provided in Article V.

 

13

 

ARTICLE XIX

 

DISPUTE
RESOLUTION

 

19.1.        General
Provisions.  (a) Any dispute, controversy or
claim arising out of or relating to this Agreement or the validity,
interpretation, breach or termination thereof (a “Dispute”), shall be resolved
in accordance with the procedures set forth in this Article XIX, which shall be
the sole and exclusive procedures for the resolution of any such Dispute unless
otherwise specified below.

(b)   Commencing with the request contemplated by
19.2, all communications between the parties or their representatives in
connection with the attempted resolution of any Dispute, including any
mediator’s evaluation referred to in 19.3, shall be deemed to have been
delivered in furtherance of a Dispute settlement and shall be exempt from
discovery and production, and shall not be admissible in evidence for any
reason (whether as an admission or otherwise), in any arbitral or other
proceeding for the resolution of the Dispute.

(c)   In connection with any Dispute, the parties
expressly waive and forego any right to (i) punitive, exemplary,
statutorily-enhanced or similar damages in excess of compensatory damages
(provided that any such liability with respect to a Third Party claim (as
defined in the Master Agreement) shall be considered direct damages), and (ii)
trial by jury.

(d)   The specific procedures set forth below,
including but not limited to the time limits referenced therein, may be
modified by agreement of the parties in writing.

(e)   All applicable statutes of limitations and
defenses based upon the passage of time shall be tolled while the procedures
specified in this Article XIX are pending. 
The parties will take such action, if any, required to effectuate such
tolling.

19.2.        Consideration by Senior Executives.  If a Dispute is not resolved in the normal
course of business at the operational level, the parties shall attempt in good
faith to resolve such Dispute by negotiation between executives who hold, at a
minimum, the office of President and CEO of the respective business entities
involved in such Dispute.  Either party
may initiate the executive negotiation process by providing a written notice to
the other (the “Initial Notice”). 
Fifteen (15) days after delivery of the Initial Notice, the receiving
party shall submit to the other a written response (the “Response”). The Initial
Notice and the Response shall include (i) a statement of the Dispute and of
each party’s position, and (ii) the name and title of the executive who will
represent that party and of any other person who will accompany the executive.
Such executives will meet in person or by telephone within thirty (30) days of
the date of the Initial Notice to seek a resolution of the Dispute.

19.3.        Mediation. If a Dispute is not
resolved by negotiation as provided in Section 19.2 within forty-five (45) days
from the delivery of the Initial Notice, then either party may submit the
Dispute for resolution by mediation pursuant to the CPR Institute for Dispute
Resolution (the “CPR”) Model Mediation Procedure as then in effect. The parties
will select a mediator from the CPR Panels of Distinguished Neutrals, but such
mediator must have prior U.S. reinsurance experience either as a lawyer or as a
present or former officer or management 

 

14

 

employee
of a reinsurance company, but not of the Company, or the Administrator, or any
of their respective affiliates.  Either
party at commencement of the mediation may ask the mediator to provide an
evaluation of the Dispute and the parties’ relative positions.

19.4.        Arbitration. (a) If a Dispute is not resolved by mediation as
provided in 19.3 within thirty (30) days of the selection of a mediator (unless
the mediator chooses to withdraw sooner), either party may submit the Dispute
to be finally resolved by arbitration pursuant to the CPR Rules for
Non-Administered Arbitration as then in effect (the “CPR Arbitration Rules”).
The parties consent to a single, consolidated arbitration for all known
Disputes existing at the time of the arbitration and for which arbitration is
permitted.

(b)   The neutral organization for purposes of the
CPR Arbitration Rules will be the CPR. The arbitral tribunal shall be composed
of three arbitrators who are each experienced in the U.S. reinsurance business,
of whom each party shall appoint one in accordance with the “screened”
appointment procedure provided in Rule 5.4 of the CPR Arbitration Rules.  The non-party appointed arbitrator must have
prior U.S. reinsurance experience as a present or former officer or management employee
of a reinsurance company, but not of the Company, or the Administrator, or any
of their respective affiliates.  The
arbitration shall be conducted in New York City.  Each party shall be permitted to present its case, witnesses and
evidence, if any, in the presence of the other party. A written transcript of
the proceedings shall be made and furnished to the parties. The arbitrators
shall determine the Dispute in accordance with the law of New York, without
giving effect to any conflict of law rules or other rules that might render
such law inapplicable or unavailable, and shall apply this Agreement according
to its terms, provided that the provisions relating to arbitration shall be
governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.  The arbitral tribunal shall endeavor to render
its award or order resulting from any arbitration within forty-five (45) days
following the termination of the arbitration proceedings.

(c)   The parties agree to be bound by any award or
order resulting from any arbitration conducted hereunder and further agree that
judgment on any award or order resulting from an arbitration conducted under
this 19.4 may be entered and enforced in any court having jurisdiction thereof.

(d)   Except as expressly permitted by this
Agreement, no party will commence or voluntarily participate in any court
action or proceeding concerning a Dispute, except (i) for enforcement as
contemplated by 19.4(c) above, (ii) to restrict or vacate an arbitral decision
based on the grounds specified under applicable law, or (iii) for interim relief
as provided in paragraph (e) below. For purposes of the foregoing the parties
hereto submit to the non-exclusive jurisdiction of the courts of the State of
New York.

(e)   In addition to the authority otherwise
conferred on the arbitral tribunal, the tribunal shall have the authority to
make such orders for interim relief, including injunctive relief, as it may
deem just and equitable. Notwithstanding paragraph (d) above, each party
acknowledges that in the event of any actual or threatened breach of certain of
the provisions of this Agreement, the remedy at law would not be adequate, and
therefore injunctive or other interim relief may be sought immediately to
restrain such breach.  If the tribunal
shall not have been appointed, either party may seek interim relief from a
court having jurisdiction if the award

 

15

 

to which the applicant may be entitled may be rendered ineffectual
without such interim relief. Upon appointment of the tribunal following any
grant of interim relief by a court, the tribunal may affirm or disaffirm such
relief, and the parties will seek modification or rescission of the court
action as necessary to accord with the tribunal’s decision.

(f)    Each party will bear its own attorneys’ fees
and costs incurred in connection with the resolution of any Dispute in
accordance with this Article XIX.

ARTICLE XX

 

MISCELLANEOUS
PROVISIONS

 

20.1.        Headings and Schedules.  Headings used herein are not a part of this Agreement and shall
not affect the terms hereof.  The
attached Schedules are a part of this Agreement.

20.2.        Notices.  All
notices, requests, demands and other communications under this Agreement must
be in writing and will be deemed to have been duly given or made as
follows:  (a) if sent by registered or
certified mail in the United States return receipt requested, upon receipt; (b)
if sent by reputable overnight air courier, two business days after mailing;
(c) if sent by facsimile transmission, with a copy mailed on the same day in the
manner provided in (a) or (b) above, when transmitted and receipt is confirmed
by telephone; or (d) if otherwise actually personally delivered, when
delivered, and shall be delivered as follows:

If to the Company:

GE Capital Life Assurance Company of New York

6610 West Broad Street

Richmond, VA 23230

Facsimile: 
(804) 281-6165

Attention:  Chief Executive Officer

With a copy to:

GE Capital Life Assurance Company of New York

6610 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 281-6005

Attention:  General Counsel

 

16

 

If to the Administrator:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 330-3404

Attention:  Chief Financial Officer

With a copy to:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

or to such other address or
to such other Person as either party may have last designated by notice to the
other party.

20.3.        Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, permitted assigns and legal
representatives.  Neither this
Agreement, nor any right or obligation hereunder, may be assigned by any party
without the prior written consent of the other party hereto and without the
prior written consent of the New York Insurance Department and the Illinois
Insurance Department.  Any assignment in violation of this 20.3 shall be void and
shall have no force and effect.

20.4.        Execution in Counterpart.  This Agreement may be executed by the parties hereto in any
number of counterparts, and by each of the parties hereto in separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, but all such counterparts shall together
constitute but one and the same instrument.

20.5.        Safeguarding Customer Information.  The Administrator shall implement and
maintain appropriate measures designed to meet the objectives of New York
Insurance Department Regulation No. 173, with respect to safeguarding the
Company’s customer information and customer information systems.  The Administrator shall adjust its
information security program at the reasonable request of the Company for any
relevant changes indicated by the Company’s assessment of risk around its
customer information and customer information systems.  Confirming evidence that the Administrator
has satisfied its obligations under this Agreement shall be made available,
during normal business hours, for inspection by the Company, representatives of
the Company, and any governmental agency that has regulatory authority over the
Company’s business activities.

20.6.        Currency.  Whenever
the word “Dollars” or the “$” sign appear in this Agreement, they shall be
construed to mean United States Dollars, and all transactions under this
Agreement shall be in United States Dollars.

20.7.        Amendments. 
This Agreement may not be changed, altered or modified unless the same
shall be in writing executed by the Company and the Administrator.

 

17

 

20.8.        Governing Law. 
This Agreement will be
construed, performed and enforced in accordance with the laws of the State of
New York without giving effect to its principles or rules of conflict of laws
thereof to the extent such principles or rules would require or permit the
application of the laws of another jurisdiction.

20.9.        Entire Agreement; Severability.  (a) 
This Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, statements, representations and
warranties, negotiations and discussions, whether oral or written, of the
parties and there are no general or specific warranties, representations or
other agreements by or among the parties in connection with the entering into
of this Agreement or the subject matter hereof except as specifically set forth
or contemplated herein.

(b)   If any provision of this Agreement is held to
be void or unenforceable, in whole or in part, (i) such holding or
provision shall not affect the validity and enforceability of the remainder of
this Agreement, including any other provision, paragraph or subparagraph, and
(ii) the parties agree to attempt in good faith to reform such void,
unenforceable or violative provision to the extent necessary to render such
provision enforceable and to carry out its original intent.

20.10.      No Waiver; Preservation of Remedies.  No consent or waiver, express or implied, by
any party to or of any breach or default by any other party in the performance
by such other party of its obligations hereunder shall be deemed or construed
to be a consent or waiver to or of any other breach or default in the
performance of obligations hereunder by such other party hereunder.  Failure on the part of any party to complain
of any act or failure to act of any other party or to declare any other party
in default, irrespective of how long such failure continues, shall not
constitute a waiver by such first party of any of its rights hereunder.  The
rights and remedies provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or equity.

20.11.          Third Party Beneficiary.  Nothing in this Agreement will confer any
rights upon any Person that is not a party or a successor or permitted assignee
of a party to this Agreement.

20.12.          Tax Exception to Any
Confidentiality.  Notwithstanding
anything to the contrary set forth herein or in any other agreement to which
the parties hereto are parties or by which they are bound, any obligations of
confidentiality contained herein and therein, as they relate to the
transactions, shall not apply to the federal tax structure or federal tax
treatment of the transactions, and each party hereto (and any employee,
representative, or agent of any party hereto) may disclose to any and all
persons, without limitation of any kind, the federal tax structure and federal
tax treatment of the transactions.  The
preceding sentence is intended to cause the transactions to be treated as not
having been offered under conditions of confidentiality for purposes of Section
1.6011-4(b)(3) (or any successor provision) of the Treasury Regulations
promulgated under Section 6011 of the Internal Revenue Code of 1986, as
amended, and shall be construed in a manner consistent with such purpose.  In addition, each party hereto acknowledges that
it has no proprietary or exclusive rights to the federal tax structure of the
transactions or any federal tax matter or federal tax idea related to the
transactions.

 

18

 

20.13.          Interpretation.  Wherever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation.”

20.14.          Survival.  Article XIX and Article XX shall survive the
termination of this Agreement.

20.15.          Licensing.  At all times during the term of this
Agreement, the Administrator shall maintain in full force and effect all
licenses required to be maintained by it under Applicable Law with respect to
this Agreement, including, if applicable, an independent claims adjuster
license.

 

19

 

IN WITNESS WHEREOF, the
Company and the Administrator have executed this Agreement as of the date first
above written.

	
   

  	
  GE
  CAPITAL LIFE ASSURANCE COMPANY

  
	
   

  	
  OF NEW YORK

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UNION
  FIDELITY LIFE INSURANCE

  
	
   

  	
  COMPANY

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

20

 

SCHEDULE A

 

SEPARATE
ACCOUNT SERVICES

 

The Administrator shall
provide the following additional services to the Company relating to the
Separate Accounts:

1.     Premium Collection. 
The Administrator shall promptly invest in the Separate Accounts
deposits collected which relate to the Separate Account portions of Reinsured
Contracts (including transfers from fixed options under the Reinsured
Contracts), and promptly forward funds and required information to the
underlying investment management companies, in each case in accordance with the
Reinsured Contracts and any applicable agreements provided by the Company to
the Administrator.

2.     Records Maintenance. 
The Administrator shall maintain and preserve records with respect to
the Separate Accounts as required by Rules 31a-1 and 31a-2 under the Investment
Company Act of 1940, as amended, the Securities Exchange Act of 1934, as
amended, and the rules promulgated by the National Association of Securities
Dealers (the “NASD”).  Upon
request of the Company or any state or federal regulatory authorities, the
Administrator shall forward a complete copy of any record promptly to the
requesting party and in a format appropriate to the request.  The Administrator shall file with the
Securities and Exchange Commission (“SEC”) the undertaking required by
Rule 17a-4(i) under the Exchange Act with respect to any records that it
maintains and that are required to be maintained under the provisions of the
Exchange Act by any broker-dealers that are authorized to sell the Reinsured
Contracts.

3.     Performance of Obligations. 
The Administrator shall perform, in the name and on behalf of the
Company, all of the Company’s obligations under (i) the participation
agreements between the Company and the mutual fund organizations in which
assets of the Separate Accounts are invested (the “Participation Agreements”),
(ii) the underwriting agreements between the Company and the principal
underwriters for the Separate Account portions
of the Reinsured Contracts, and (iii) any other agreements related to the
distribution of the Separate Account portions of the Reinsured Contracts; provided
in each case that the Company has provided complete copies of such agreements
(including any amendments thereto) to the Administrator.

4.     Contractholder Services. 
The Administrator shall provide the Company with the following
additional contractholder services:

(a)                                  Issuing timely reports, statements, and
confirmations as required by the Reinsured Contracts or the Company’s practices
in effect immediately prior to the Effective Date and communicated by the
Company to the Administrator in writing;

(b)                                 Issuing tax reporting forms and other
information as required by applicable regulatory rules, including without
limitation 1099-R, W-4P,

 

A-1

 

and 5498 for
contractholders and beneficiaries as required and distributing the same to
contractholders and beneficiaries and appropriate authorities;

(c)                                  Responding to any requests from plan
administrators or trustees for policy information affecting the plan or
participants for qualified plans;

(d)                                 Responding to contractholder requests for
calculations applicable to annuity payments under the Reinsured Contracts as
may be necessary for tax withholding calculations;

(e)                                  Processing and recording transfer
requests (i.e., from one subaccount to another) in all cases within time
intervals necessary to meet SEC, NASD and other legal and regulatory
requirements;

(f)                                    Calculating (on a daily basis) the net
asset value and the accumulation unit value of each subaccount of the Separate
Accounts that are funding options for the Reinsured Contracts, in accordance
with the provisions of the Reinsured Contracts, as well as with the prospectus
and statement of additional information disclosure on any day when such
calculation is required by the Investment Company Act of 1940, as amended, and
the rules and regulations thereunder;

(g)                                 Calculating (on a daily basis) the
mortality and expense charges, and any administrative charges in accordance
with the provisions of the Reinsured Contracts, as well as with the applicable
prospectus and statement of additional information disclosure; and

(h)                                 Transmitting orders pursuant to the
Participation Agreements for the purchase or redemption of shares in the
investment companies in which the assets of the Separate Account are invested
to such investment companies or their authorized agents and paying and
receiving funds in connection with such purchases or redemptions as required by
any applicable agreement.

5.     Actuarial Services. 
The Administrator shall provide the formal actuarial opinions and
related reports required by the SEC and the NASD.

6.     Compliance Services. 
The Administrator shall provide the Company with the following
additional compliance services:

(a)                                  Preparation and submission of (and
provision of financial data required for) all reports required by the SEC
(including without limitation forms N-SAR, 485(b) registration statement
updates, fund and separate account annual reports and 24f-2 Notices), the NASD
(including, without limitation, compilation of information, if any, related to
the Reinsured Policies that would be reflected in any quarterly FOCUS II/IIA
reports, annual FOCUS schedule 1 or Customer Complaints Rule 3070 Report), and
the states (in each case only after review and approval thereof by the 

 

A-2

 

Company), with all of the
foregoing to be accomplished within such time periods as are necessary to
comply with Applicable Law after giving allowance, in the cases of information
relevant to reports of filings of the Company that are not specific to the
Reinsured Policies, for time periods reasonably specified by the Company to
permit integration of the subject information related to the Reinsured
Policies;

(b)                                 Notwithstanding anything in this
Agreement to the contrary, all complaints and other grievances shall be handled
by the Administrator in accordance with NASD requirements (including any
response time requirements applicable thereto);

(c)                                  Review and comment on registration
statements and other SEC related documents prepared by the Company, and assist
the Company in meeting SEC requirements with respect to any of the Reinsured
Contracts.  In addition, the
Administrator shall distribute at its expense to contractholders all required
information provided by the Company to the Administrator (which the Company
hereby agrees to provide on a timely basis), including prospectuses, post-effective
amendments or supplements to the registration statements of the Separate
Account or of any underlying funds as well as annual and semi-annual reports;

(d)                                 Make all filings and obtain all
regulatory approvals required with regard to advertising of the Reinsured
Contracts, including without limitation all filings and approvals required by
Applicable Laws and NASD requirements (except to the extent that such services
are performed by other entities pursuant to written agreements with the
Company);

(e)                                  Ensure SEC and NASD compliance for
variable contracts, prospectuses, and registration statements including the
submission of any required information, conducting annual compliance audits,
quarterly complaint reporting, registering and terminating representatives and
monitoring continuing education requirements;

(f)                                    Monitor the federal securities statutes
and the rules, regulations, orders, and interpretations thereunder and the
securities statutes and rules, regulations, orders, and interpretations
thereunder of the various states in which contractholders or Reinsured
Contracts are located to ensure compliance therewith and to ensure that any
actions or communications required thereby are properly made;

(g)                                 Process information relating to proxy
voting, including receiving record date information and proxy solicitation from
underlying investment vehicle(s); preparing proxy ballots; mailing solicitation
and resolicitations, if necessary; and maintaining all proxy registers and
other required proxy material;

 

A-3

 

(h)                                 Provide the Company with all information
reasonably requested and necessary for the Company to meet any requirements
arising out of the Sarbanes-Oxley Act of 2002, as amended; and

(i)                                     Ensure
compliance with the Office of Foreign Assets Control (“OFAC”) of the US
Department of the Treasury and money “laundering” restrictions, including but
not limited to those adopted under the Uniting and Strengthening America By
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT) Act of 2001.

7.     General. The Administrator agrees to comply with
all applicable federal securities laws and requirements of applicable self
regulatory organization, including the NASD, as they apply to the Separate
Account portions of Reinsured Contracts in connection with the performance of
the Administrator’s obligations under this Agreement.  The Administrator hereby agrees to provide all necessary
information to the Company in order to meet all regulatory requirements as may
be necessary for the Company to fulfill its obligations under federal and state
law as is deemed reasonably necessary by the Company under applicable federal
and state laws as they relate to the Reinsured Contracts.

 

A-4

 

BUSINESS ASSOCIATE ADDENDUM

 

I.              Purpose.

In order to disclose certain
information to the party providing a service under this Agreement (“Provider”)
under this Addendum, some of which may constitute Protected Health Information
(defined below), the party to whom a service under this Agreement is being
provided (“Recipient”) and Provider mutually agree to comply with the terms of
this Addendum for the purpose of satisfying the requirements of the Health
Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its
implementing privacy regulations at 45 C.F.R. Parts 160-164 (“HIPAA Privacy
Rule”).   These provisions shall apply
to Provider to the extent that Provider is considered a “Business Associate”
under the HIPAA Privacy Rule and all references in this section to Business
Associates shall refer to Provider. 
Capitalized terms not otherwise defined herein shall have the meaning
assigned in the Agreement. 
Notwithstanding anything else to the contrary in the Agreement, in the
event of a conflict between this Addendum and the Agreement, the terms of this
Addendum shall prevail.

II.            Permitted Uses and Disclosures.

A.            Business Associate agrees to use or
disclose Protected Health Information (“PHI”) that it creates for or receives
from Recipient or its Subsidiaries only as follows.  The capitalized term “Protected Health Information or PHI” has
the meaning set forth in 45 Code of Federal Regulations Section 164.501, as
amended from time to time.  Generally,
this term means individually identifiable health information including, without
limitation, all information, data and materials, including without limitation, demographic,
medical and financial information, that relates to the past, present, or future
physical or mental health or condition of an individual; the provision of
health care to an individual; or the past present, or future payment for the
provision of health care to an individual; and that identifies the individual
or with respect to which there is a reasonable basis to believe the information
can be used to identify the individual. 
This definition shall include any demographic information concerning members
and participants in, and applicants for, Recipient’s or its Subsidiaries’
health benefit plans.  All other terms
used in this Addendum shall have the meanings set forth in the applicable
definitions under the HIPAA Privacy Rule.

B.            Functions and Activities on Company’s
Behalf.  Business Associate is permitted to use and
disclose PHI it creates for or receives from Recipient or its Subsidiaries only
for the purposes described in this Addendum or the Agreement that are not
inconsistent with the provisions of this Addendum, or as required by law, or
following receipt of prior written approval from whichever of the Recipient or
its Subsidiary for which the relevant PHI was created or from which the
relevant PHI was received.  In addition
to these specific requirements below, Business Associate may use or disclose
PHI only in a manner that would not violate the HIPAA Privacy Rule if done by
the Recipient or its Subsidiaries.  

C.            Business Associate’s Operations.  Business Associate is permitted by this Agreement
to use PHI it creates for or receives from Recipient or its Subsidiaries: (i)
if such use is reasonably necessary for Business Associate’s proper management
and administration; and (ii) as reasonably necessary to carry out Business
Associate’s legal responsibilities. Business 

 

 

Associate is permitted to
disclose PHI it creates for or receives from Recipient or its Subsidiaries for
the purposes identified in this Section only if the following conditions are
met:

(1)
The disclosure is required by law; or

(2)   The disclosure is reasonably necessary to
Business Associate’s proper management and administration, and Business
Associate obtains reasonable assurances in writing from any person or
organization to which Business Associate will disclose such PHI that the person
or organization will:

a. Hold such PHI as
confidential and use or further disclose it only for the purpose for which
Business Associate disclosed it to the person or organization or as required by
law; and

b. Notify Business
Associate (who will in turn promptly notify whichever of the Recipient or its
Subsidiary for which the relevant PHI was created or from which the relevant
PHI was received) of any instance of which the person or organization becomes
aware in which the confidentiality of such PHI was breached.

D.            Minimum Necessary Standard.  In performing the functions and activities
on Recipient’s or its Subsidiaries’ behalf pursuant to the Agreement, Business
Associate agrees to use, disclose or request only the minimum necessary PHI to
accomplish the purpose of the use, disclosure or request.  Business Associate must have in place
policies and procedures that limit the PHI disclosed to meet this minimum
necessary standard.

E.             Prohibition on
Unauthorized Use or Disclosure. 
Business Associate will neither use nor disclose PHI it creates or
receives for or from Recipient, its Subsidiaries, or from another business
associate of Recipient or its Subsidiaries, except as permitted or required by
this Addendum or the Agreement that are not inconsistent with the provisions of
this Addendum, or as required by law, or following receipt of prior written
approval from whichever of the Recipient or its Subsidiary for which the
relevant PHI was created or from which the relevant PHI was received.

F.             De-identification of
Information.  Business
Associate agrees neither to de-identify PHI it creates for or receives from
Recipient or its Subsidiaries or from another business associate of Recipient
or its Subsidiaries, nor use or disclose such de-identified PHI, unless such
de-identification is expressly permitted under the terms and conditions of this
Addendum or the Agreement and related to Recipient’s or its Subsidiaries’
activities for purposes of “treatment”, “payment” or “health care operations”,
as those terms are defined under the HIPAA Privacy Rule.  De-identification of PHI, other than as
expressly permitted under the terms and conditions of the Addendum for Business
Associate to perform services for Recipient or its Subsidiaries, is not a
permitted use of PHI under this Addendum. 
Business Associate further agrees that it will not create a “Limited
Data Set” as defined by the HIPAA Privacy Rule using PHI it creates or
receives, or receives from another business associate of Recipient or its
Subsidiaries, nor use or disclose such Limited Data Set unless: (i) such
creation, use or disclosure is expressly permitted under the terms and
conditions of this Addendum or the Agreement that are not inconsistent with 

 

 

the provisions of
this Addendum; and such creation, use or disclosure is for services provided by
Business Associate that relate to Recipient’s or its Subsidiaries’ activities
for purposes of “treatment”, “payment” or “health care operations”, as those
terms are defined under the HIPAA Privacy Rule.

G.            Information Safeguards.  Business Associate will develop, document, implement,
maintain and use appropriate administrative, technical and physical safeguards
to preserve the integrity and confidentiality of and to prevent non-permitted
use or disclosure of PHI created for or received from Recipient or its
Subsidiaries.  These safeguards must be
appropriate to the size and complexity of Business Associate’s operations and
the nature and scope of its activities. 
Business Associate agrees that these safeguards will meet any applicable
requirements set forth by the U.S. Department of Health and Human Services,
including (as of the effective date or as of the compliance date, whichever is
applicable) any requirements set forth in the final HIPAA security
regulations.  Business Associate agrees
to mitigate, to the extent practicable, any harmful effect that is known to
Business Associate resulting from a use or disclosure of PHI by Business
Associate in violation of the requirements of this Addendum.

III.           Conducting Standard Transactions.  In the course of performing services for
Recipient or its Subsidiaries, to the extent that Business Associate will
conduct Standard Transactions for or on behalf of Recipient or its
Subsidiaries, Business Associate will comply, and will require any
subcontractor or agent involved with the conduct of such Standard Transactions
to comply, with each applicable requirement of 45 C.F.R. Part 162.  “Standard Transaction(s)” shall mean a
transaction that complies with the standards set forth at 45 C.F.R. parts 160
and 162.  Further, Business Associate
will not enter into, or permit its subcontractors or agents to enter into, any
trading partner agreement in connection with the conduct of Standard
Transactions for or on behalf of the Recipient or its Subsidiaries that:

a.               Changes the
definition, data condition, or use of a data element or segment in a Standard
Transaction;

b.              Adds any data
element or segment to the maximum defined data set;

c.               Uses any code
or data element that is marked “not used” in the Standard Transaction’s
implementation specification or is not in the Standard Transaction’s
implementation specification; or

d.              Changes the
meaning or intent of the Standard Transaction’s implementation specification.

IV.           Sub-Contractors, Agents or Other Representatives.   Business Associate will require any of its subcontractors, agents
or other representatives to which Business Associate is permitted by this
Addendum or the Agreement (or is otherwise given Recipient’s or the relevant
Subsidiary’s prior written approval) to disclose any of the PHI Business
Associate creates or receives for or from Recipient or its Subsidiaries, to
provide reasonable assurances in writing that subcontractor or agent will
comply with the same restrictions and conditions that apply to the Business
Associate under the terms and conditions of this Addendum with respect to such
PHI.

 

 

V.            Protected Health Information Access,
Amendment and Disclosure Accounting.

A.            Access.  Business Associate will promptly upon Recipient’s or
its Subsidiary’s request make available to Recipient, its Subsidiary, or, at
Recipient’s or such Subsidiary’s direction, to the individual (or the
individual’s personal representative) for inspection and obtaining copies any
PHI about the individual which Business Associate created for or received from
Recipient or its Subsidiary and that is in Business Associate’s custody or
control, so that Recipient or its Subsidiary may meet its access obligations
under 45 Code of Federal Regulations § 164.524.

B.            Amendment. 
Upon Recipient’s or its Subsidiary’s request Business Associate will
promptly amend or permit Recipient or its Subsidiary access to amend any
portion of the PHI which Business Associate created for or received from
Recipient or its Subsidiary, and incorporate any amendments to such PHI, so
that Recipient or its Subsidiary may meet its amendment obligations under 45
Code of Federal Regulations § 164.526.

C.            Disclosure Accounting.  So that Recipient or its Subsidiaries may meet their disclosure
accounting obligations under 45 Code of Federal Regulations § 164.528:

1.                     Disclosure
Tracking.  Business Associate will
record for each disclosure, not excepted from disclosure accounting under
Section V.C.2 below, that Business Associate makes to Recipient or its
Subsidiaries of PHI that Business Associate creates for or receives from
Recipient or its Subsidiaries, (i) the disclosure date, (ii) the name and
member or other policy identification number of the person about whom the
disclosure is made, (iii) the name and (if known) address of the person or
entity to whom Business Associate made the disclosure, (iv) a brief description
of the PHI disclosed, and (v) a brief statement of the purpose of the
disclosure (items i-v, collectively, the “disclosure information”).  For repetitive disclosures Business
Associate makes to the same person or entity (including Recipient or its
Subsidiaries) for a single purpose, Business Associate may provide a) the disclosure
information for the first of these repetitive disclosures, (b) the frequency,
periodicity or number of these repetitive disclosures and (c) the date of the
last of these repetitive disclosures. 
Business Associate will make this disclosure information available to
Recipient or its Subsidiaries promptly upon Recipient’s or its Subsidiaries’
request.

2.                     Exceptions
from Disclosure Tracking.  Business
Associate need not record disclosure information or otherwise account for
disclosures of PHI that this Addendum or Recipient or the relevant Subsidiary
in writing permits or requires (i) for the purpose of Recipient’s or its
Subsidiaries’ treatment activities, payment activities, or health care
operations, (ii) to the individual who is the subject of the PHI disclosed or
to that individual’s personal representative; (iii) to persons involved in that
individual’s health care or payment for health care; (iv) for notification for
disaster relief purposes, (v) for national security or intelligence purposes,
(vi) to law enforcement officials or correctional institutions regarding
inmates; or   (vii) pursuant to an authorization; (viii) for
disclosures of certain PHI made as part of a Limited Data Set; (ix) for certain
incidental disclosures that may occur where reasonable safeguards have been
implemented; and (x) for disclosures prior to April 14, 2003.

 

 

3.                     Disclosure
Tracking Time Periods.  Business
Associate must have available for Recipient and its Subsidiaries the disclosure
information required by this section for the 6 years preceding Recipient’s or
its Subsidiaries’ request for the disclosure information (except Business
Associate need have no disclosure information for disclosures occurring before
April 14, 2003).

VI.           Additional Business Associate
Provisions

A.            Reporting of Breach of Privacy Obligations. 
Business Associate will provide written notice to whichever of the
Recipient or its Subsidiary for which the relevant PHI was created or from
which the relevant PHI was received of any use or disclosure of PHI that is
neither permitted by this Addendum nor given prior written approval by
Recipient or the relevant Subsidiary promptly after Business Associate learns
of such non-permitted
use or disclosure.  Business Associate’s
report will at least:

(i)
                Identify the
nature of the non-permitted use or disclosure;

(ii)
             Identify the
PHI used or disclosed;

(iii)
          Identify who
made the non-permitted use or received the non-permitted disclosure;

(iv)
         Identify what
corrective action Business Associate took or will take to prevent further
non-permitted uses or disclosures;

(v)
            Identify what
Business Associate did or will do to mitigate any deleterious effect of the
non-permitted use or disclosure; and

(vi)          Provide such other
information, including a written report, as Recipient or the relevant Subsidiary
may reasonably request.

B.            Amendment.  Upon the effective date of any final regulation or
amendment to final regulations promulgated by the U.S. Department of Health and
Human Services with respect to PHI, including, but not limited to the HIPAA
privacy and security regulations, this Addendum and the Agreement will
automatically be amended so that the obligations they impose on Business
Associate remain in compliance with these regulations.

In addition, to the extent
that new state or federal law requires changes to Business Associate’s
obligations under this Addendum, this Addendum shall automatically be amended
to include such additional obligations, upon notice by Recipient or its
Subsidiaries to Business Associate of such obligations.  Business Associate’s continued performance
of services under the Agreement shall be deemed acceptance of these additional
obligations.

C.            Audit and Review of
Policies and Procedures.  Business Associate agrees to provide,
upon Recipient request, access to and copies of any policies and procedures
developed or utilized by Business Associate regarding the protection of
PHI.  Business Associate agrees to
provide, upon Recipient’s request, access to Business Associate’s internal
practices, books, and records, as they relate to Business Associate’s services,
duties and obligations set forth in this Addendum and the Agreement(s) under
which Business Associate provides services and / or 

 

 

products to or on behalf
of Recipient or its Subsidiaries, for purposes of Recipient’s or its
Subsidiaries’ review of such internal practices, books, and records.

 

 

SCHEDULE
D

 

CEDING COMMISSION

The Ceding Commission shall
be the sum of the following:

1.                                       an amount equal
to the excess of (i) the General Account Reserves as of the Inception Date over
(ii) the net reserves of the Company with respect to the General Account
Liabilities (net after deduction for Ceded Reinsurance) as of the Inception
Date, determined in accordance with GAAP (which amount may be negative);

2.                                       an amount equal
to the unamortized PVFP intangible asset balance of the Company (excluding any
related mark to market adjustments for SFAS 115 requirement) with respect to
the Reinsured Contracts as measured as of the close of business on the day
immediately preceding the Inception Date, determined in accordance with GAAP; 

3.                                       an amount equal
to the unamortized deferred acquisition costs of the Company (excluding any
related mark to market adjustments for SFAS 115 requirement) with respect to
the Reinsured Contracts as measured as of the close of business on the day
immediately preceding the Inception Date, determined in accordance with GAAP;
and

4.                                       an amount equal to the
excess of the GAAP book value of the Assets (excluding any related mark to
market adjustments for SFAS 115 requirement) over the SAP book value of the
Assets measured as of the close of business on the day immediately preceding
the Inception Date (which amount may be negative). 

 

 

SCHEDULE E

 

ASSETS

 

 

	
  Transfer Document

  	
   

  	
  From

  	
   

  	
  To

  	
   

  	
  Nature of
  Transfer

  	
   

  	
  Cash Map Cross-Reference

  	
   

  	
  Schedule

  	
   

  
	
  GECLANY VA Reinsurance

  	
   

  	
  GECLANY

  	
   

  	
  UFLIC

  	
   

  	
  Treaty

  	
   

  	
  (88

  	
  )

  	
  Schedule E

  	
   

  

 

 

	
  Called Securities*

  	
   

  	
  Parent
  Name

  	
   

  	
  Issuer
  Name

  	
   

  	
  1Q04 Cusip

  	
   

  	
  1Q04 Tax
  lot

  	
   

  	
  12/31/03
  Local Par

  	
   

  	
  12/31/03
  GAAP BV (incl attached derivative)

  	
   

  	
  12/31/03
  Accrued Interest

  	
   

  	
  12/31/03
  GAAP BV + Accrued Interest

  	
   

  	
  12/31/03
  STAT BV (incl attached derivative)

  	
   

  	
  12/31/03
  Accrued Interest

  	
   

  	
  

  12/31/03 STAT BV + Accrued Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Individual
  Asset Details Omitted]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Asset Sub Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  241,003,458.24

  	
   

  	
  3,471,887.35

  	
   

  	
  244,475,345.59

  	
   

  	
  241,003,458.24

  	
   

  	
  3,471,887.35

  	
   

  	
  244,475,345.59

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  702,048.88

  	
   

  	
   

  	
   

  	
  702,048.88

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  241,705,507.12

  	
   

  	
   

  	
   

  	
  245,177,394.47

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

* These Securities will not be transferred.
The "Call Amount" will be settled in cash

 

 

 

SCHEDULE F

EXPENSE ALLOWANCES

The “Annual Expense
Reimbursement Factor” used to calculate the Expense Allowance is as follows:

Policy Maintenance Factor                $59.73 per Policy less $64.69
per Policy of fund company administrative expense service shares.

Such Annual Expense Reimbursement
Factor will be adjusted (i) for the year beginning January 1, 2005 and,
thereafter, every three (3) years during the term of this Agreement  based on a triennial cost/time study
prepared in accordance with the methodology set forth below (the “Triennial
Study”) and (ii) for the years between the Triennial Studies based on a report
setting forth the Annual Expense Reimbursement Factor prepared in accordance
with the methodology set forth below (the “Annual Expense Reimbursement Factor
Report”).

(a)           Triennial Study. 
As soon as practicable (and in any event within sixty (60) days) prior
to January 1, 2005 and prior to the beginning of every third calendar year
thereafter during the term of this Agreement, the Company shall cause to be
prepared and delivered to the Reinsurer the Triennial Study which sets forth
the Annual Expense Reimbursement Factor for the next calendar year, together
with all supporting data used in preparing the Triennial Study and work papers,
in reasonable detail, setting forth the determination of such Annual Expense
Reimbursement Factors based on such Triennial Study (such documents, together
with the Triennial Study, the “Triennial Study Documents”).

(b)           Annual Expense Reimbursement Factor Report.  As soon as practicable (and in any event
within thirty (30) days) prior to January 1, 2006 and prior to the beginning of
each calendar year thereafter in which no Triennial Study is prepared, the
Company shall cause to be prepared and delivered to the Reinsurer the Annual
Expense Reimbursement Factor Report, together with all supporting data used in
preparing the Annual Expense Reimbursement Factor Report and work papers, in
reasonable detail, setting forth the determination of such Annual Expense
Reimbursement Factor for the next calendar year (such documents, together with
the Annual Expense Reimbursement Factor Report, the “Annual Expense
Reimbursement Factor Documents”).

(c)           Methodology. 
At the time of the Triennial Study, historical costs (to include costs
directly related to maintaining and administering policies, processing claims
and reporting results) will be determined for the Policy Maintenance Factor
identified above.  For a given Annual
Expense Reimbursement Factor the identified costs will be divided by the total
historical number of units of measure for both the Reinsured Contracts and the
retained block of business to derive an historical cost per unit.  The historical cost per unit will be used as
a prospective cost per unit for the next calendar year.

For
the two succeeding years in the period between the Triennial Studies the
historical dollar amounts by Policy Maintenance Factor will be adjusted (rolled
forward) for current year cost changes agreed to by the Reinsurer and the
Company (in accordance with the procedures set forth below).  This rolled forward historical cost will
then be divided by the total historical number of units for the current period
to determine a prospective cost per unit for the next calendar year.

An
additional adjustment, positive or negative, to the prospective cost per unit
determined by either the Triennial Study or the two succeeding years may be
negotiated between the parties.  The
additional adjustment is for special projected costs or benefits of
productivity, 

 

 

process
improvements, inflation, loss of scale, and any other cost variation which was
not included in the prior Triennial Study or the succeeding roll forward.

The
credit for Fund Company Administrative Expense Service Shares will be
redetermined annually to reflect historical amounts of reimbursement relating
to Reinsured Contracts, current period number of units, and changes in
contractual arrangements with Fund Companies.

The
combined prospective unit cost, additional adjustment and Fund Company
Administrative Expense Service Shares credit is the Annual Expense
Reimbursement Factor.  The Expense
Allowance will be determined quarterly and billed to the Reinsurer in three
equal installments during the quarter at the end of the month.  Each installment will be determined by multiplying
the actual number of units at the beginning of the quarter covered by this
Agreement times the Annual Expense Reimbursement Factor (divided by twelve).

(d)           Review of Documents.  Following the delivery of the Annual Expense Reimbursement Factor
Documents or the Triennial Study Documents, as applicable, the Company shall
(i) provide to the Reinsurer or its designated representative copies of such
additional work papers and other documents relating to its preparation of the
Annual Expense Reimbursement Factor Report or Triennial Study, as applicable,
as the Reinsurer or its designated representative may reasonably request,
including, without limitation, claims files and practices and (ii) cooperate
with, and make its personnel and facilities reasonably available to, the
Reinsurer and the Reinsurer’s designated representative for the purpose of
providing such other information as the Reinsurer or the Reinsurer’s designated
representative may reasonably request concerning Annual Expense Reimbursement Factor
Documents or the Triennial Study Documents, as applicable, and the calculation
of the Annual Expense Reimbursement Factor.

(e)           Notice of Disagreement.  In the event that the Reinsurer has any disagreement with any of
the Annual Expense Reimbursement Factor Documents or the Triennial Study
Documents, as applicable, the Reinsurer shall give written notice of all such
disagreements (a “Notice of Disagreement”) to the Company within thirty (30)
days after the Annual Expense Reimbursement Factor Documents or the Triennial
Study Documents, as applicable, are delivered to the Reinsurer.  Any Notice of Disagreement shall set forth
each item in disagreement and shall provide reasonable specificity as to the
basis for each disagreement and shall specify the total adjustment to the
Annual Expense Reimbursement Factor, as proposed by the Company as a result of
such items in disagreement.

(f)            Dispute Resolution.  If the Reinsurer does not deliver a Notice of Disagreement to the
Company within such thirty (30) day period, the Annual Expense Reimbursement
Factor Documents and the Triennial Study Documents, as applicable, shall be
final and binding upon the parties hereto and shall constitute the final
calculation of the Annual Expense Reimbursement Factor for the next calendar
year.  If the Reinsurer delivers a
Notice of Disagreement to the Company within such thirty (30) day period, the
parties shall (and shall cause their respective designated representatives to)
negotiate in good faith to resolve all disagreements as promptly as
practicable.  Any changes in the Annual
Expense Reimbursement Factor, if any, that are agreed to by the Company and the
Reinsurer within sixty (60) days of the aforementioned delivery of the Annual
Expense Reimbursement Factor Documents or the 

 

 

Triennial Study Documents,
as applicable, shall be incorporated into a final calculation of the Annual
Expense Reimbursement Factor.  If the
parties and their respective designated representatives are unable to resolve
all disagreements within sixty (60) days of delivery of the Annual Expense
Reimbursement Factor Documents or the Triennial Study Documents, as applicable,
then all unresolved disagreements will be submitted within ten (10) days after
the end of such sixty (60) day period for resolution in accordance herewith to
an independent certified public accounting firm of national standing and
reputation (the “Accounting Firm”) mutually acceptable to the Company and the
Reinsurer.  The parties shall cooperate
in good faith with the Accounting Firm and shall give the Accounting Firm
access to all data and other information requested by the Accounting Firm for
purposes of such resolution.  The
Accounting Firm shall, within thirty (30) days after its engagement, deliver to
the Company and the Reinsurer a definitive calculation of the Annual Expense
Reimbursement Factor, which shall be final and binding upon the parties hereto
and shall be so reflected in the calculation of the Annual Expense
Reimbursement Factor.  The Company and
the Reinsurer shall each pay one-half of the fees and expenses of the
Accounting Firm.

(g)           Expense Allowance Pending Resolution.  In the event of a dispute with respect to
any Annual Expense Reimbursement Factor for the next succeeding Calendar year,
the Company and the Reinsurer agree that the Annual Expense Reimbursement
Factor then in effect under this Agreement shall remain in effect pending
resolution of such dispute and adjustment, if any, in accordance with the
dispute resolution procedure set forth in paragraph (f) above.

 

 

SCHEDULE
G - PART I

INITIAL
REPORT

	
  1.SAP
  General Account Reserves

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.Ceding Commission:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A.Excess SAP General Account Reserves over GAAP net reserves for
  General Account Liabilities:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1)Total SAP General Account Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  2)Total GAAP net reserves for General Account Liabilities

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Excess SAP Reserves over GAAP Reserves (A1-A2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.Present Value of Future Profits (PVFP)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  C.Deferred Acquisition Costs (DAC)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  D.Asset Book Value Difference —Measured as of close of business the
  day preceding the Inception Date

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1)Asset Book Value (GAAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  2)Asset Book Value (SAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Excess Asset Book Value (D1-D2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  Total Ceding Commission (A+B+C+D)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.Accrued Interest on Assets as of the day before
  Inception Date

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  4.Investment Cash Flows on the Assets from the
  Inception Date through the Closing Date

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  Net Due Reinsurer (1-2-3+4)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  

 

SCHEDULE G - PART II

DAILY
SETTLEMENT REPORT

Settlement Amount

 

	
   

  	
   

  	
  Current
  Day

  	
   

  	
  Quarter-To-Date

  	
   

  
	
  1.Premium/Deposits Received from Contractholders

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.Net Sales/Redemptions of UIT Shares

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.Net Purchases of UIT Shares

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.Payments to Contractholders from Policy Owner Services

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.Payment to Contractholder Beneficiaries for claims

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [1+2-3-4-5]

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  

 

SCHEDULE G - PART
III

 

MONTHLY SETTLEMENT REPORT

	
  Settlement Amount

  	
   

  	
  Current
  Month Estimate

  	
   

  	
  Quarter-To-Date

  	
   

  
	
  1.Mortality and Expense Charges

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.Premium Taxes

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.Expense Factor

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.Ceded Reinsurance Premiums

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.Ceded Reinsurance Benefits/Recoverables

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.Commissions and Other Fees or Compensation Paid: Trail and Add On
  (See Schedule J)

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.Insolvency Fund or Similar Assessments Paid

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.Other

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [1-2–3-4+5-6–7-8]

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  

 

 

SCHEDULE G - PART IV

QUARTERLY
SETTLEMENT REPORT

 

	
   

  	
   

  	
  Previously
  Reported

  	
   

  	
  Actual
  Quarter Results

  	
   

  	
  True Up

  	
   

  
	
   

  	
   

  	
  Daily
  Settlement Reconciliation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  1

  	
   

  	
  Premiums

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  UIT Sales and Purchases

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  2

  	
   

  	
  Customer Transfers (Net)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  3

  	
   

  	
  Redemption of Shares for Surrender Charges

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  3

  	
   

  	
  Redemption of Shares for Rider Fees and Loads

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5

  	
   

  	
  5

  	
   

  	
  Corrections and Gain/Loss

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Payments to Contractholders and Beneficiaries

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6

  	
   

  	
  6

  	
   

  	
  Surrenders and Withdrawals

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7

  	
   

  	
  7

  	
   

  	
  Return of Premium-Freelooks

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8

  	
   

  	
  8

  	
   

  	
  Death Benefits (Standard and Enhanced)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9

  	
   

  	
  9

  	
   

  	
  Net (+1 +/-2
  +3+4+/-5-6-7-8)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Monthly Settlement Reconciliation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10

  	
   

  	
  10

  	
   

  	
  Mortality & Expense
  Charges

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11

  	
   

  	
  11

  	
   

  	
  Premium Taxes

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12

  	
   

  	
  12

  	
   

  	
  Expense Factor

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13

  	
   

  	
  13

  	
   

  	
  Ceded Reinsurance Premium

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14

  	
   

  	
  14

  	
   

  	
  Ceded Reinsurance
  Benefits/Recoverables

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15

  	
   

  	
  15

  	
   

  	
  Commissions and other Fees
  or Compensation Paid

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16

  	
   

  	
  16

  	
   

  	
  Insolvency Fund or Similar
  Assessments Paid

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17

  	
   

  	
  17

  	
   

  	
  Extra Contractual
  Liabilities Paid

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18

  	
   

  	
  18

  	
   

  	
  Other

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19

  	
   

  	
  19

  	
   

  	
  Net
  (+10-11-12-13+14-15-16-17+/-18)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  20

  	
   

  	
  20
  

  	
   

  	
  Quarterly
  Settlement (9+19)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MODCO Adjustment Reconciliation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  21

  	
   

  	
  21

  	
   

  	
  Beginning Separate Account
  Reserves

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  22

  	
   

  	
  22

  	
   

  	
  UIT Sales and Purchases
  (+/-2 +3+4+/-5)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  23

  	
   

  	
  23

  	
   

  	
  Mortality & Expense
  Charges (10)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  24

  	
   

  	
  24

  	
   

  	
  UIT Appreciation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  25

  	
   

  	
  25

  	
   

  	
  Ending Separate Account
  Reserves (+21-22-23+/-24)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

SCHEDULE G - PART V

ANNUAL
REPORT

 

 

 

	
  The
  following in the same level of detail as the quarterly settlements:

  	
   

  	
   

  
	
  1.  Premiums

  	
   

  	
   

  
	
  2.  UIT Sales and Purchases

  	
   

  	
   

  
	
  3.  Payments to Contractholders and
  Beneficiaries

  	
   

  	
   

  
	
  4.  Premiums Taxes

  	
   

  	
   

  
	
  5.  Commissions and Other Fees or Compensation
  Paid

  	
   

  	
   

  
	
  Other
  information required to complete accounting and reporting:

  	
   

  	
   

  
	
  6.  Expense allowance accrual at year end

  	
   

  	
   

  
	
  7.  DAC and PVFP, as applicable

  	
   

  	
   

  
	
  8.  Modco reserve to support completion of
  Schedule S and RBC

  	
   

  	
   

  

 

 

SCHEDULE
H

FORM OF TRUST AGREEMENT

 

 

SCHEDULE
I

 

ELIGIBLE SECURITIES

                Assets of the types for which an
Illinois-domiciled life insurance company could obtain full statutory reserve
credit under statutory accounting practices prescribed or permitted by the
Director of Insurance of the State of Illinois.

 

 

SCHEDULE
J

 

COMMISSIONS

 

	
  PRODUCT

  	
   

  	
  MAXIMUM
  STANDARD COMMISSION*

  	
   

  	
  MAXIMUM
  TRAIL COMMISSION**

  	
   

  
	
  CVA NY

  	
   

  	
  6.0%

  	
   

  	
  0.01666%

  	
   

  
	
  Choice NY

  	
   

  	
  7.0%

  	
   

  	
  0.08333%

  	
   

  
	
  Selections NY

  	
   

  	
  6.0%

  	
   

  	
  0.08333%

  	
   

  

 

*Each percentage listed is an aggregate
percentage of purchase payments made by the contract owner.

 

**Trail commissions shown are monthly rates.

 

 

Wholesaling
Variable Compensation

 

	
  PRODUCT

  	
   

  	
  RSG

  	
   

  	
  IAN

  	
   

  	
  GFA

  	
   

  	
  IBG

  
	
  CVA NY

  	
   

  	
  60bps

  	
   

  	
  0

  	
   

  	
  390bps

  	
   

  	
  50bps

  
	
  Choice NY

  	
   

  	
  70bps

  	
   

  	
  130bps

  	
   

  	
  360bps

  	
   

  	
  50bps

  
	
  Selections NY

  	
   

  	
  45bps

  	
   

  	
  130bps

  	
   

  	
  360bps

  	
   

  	
  50bps

  

 

 

Firm
Marketing Related Expense Reimbursements

	
  Firm

  	
   

  	
  Expense Reimbursement for Add On Premium

  	
   

  	
  Expense Reimbursement 
  on Inforce (annual rates)

  
	
  ABN AMRO

  	
   

  	
  25bps on Choice & Selections

  	
   

  	
   

  
	
  AG EDWARDS

  	
   

  	
   

  	
   

  	
  10bps  on
  VA’s > 1 year old

  
	
  BANK OF AMERICA

  	
   

  	
  25bps on Choice & Extra

  	
   

  	
  0bps on VA’s — Yrs 0-2; 5bps on   Choice, Extra,  Selections — Yrs 3-5;  10bps on Choice, Extra,  Selections — Yrs 6+.

  
	
  CHASE

  	
   

  	
  15bps on Foundation

  	
   

  	
  5bps on Choice, Extra,   Selections > 2 Yrs old.

  
	
  FLEET QUICK & REILLY

  	
   

  	
   

  	
   

  	
  8bps on Choice, Choice NY,   Extra, Selections > 1 Yr old.

  
	
  RAYMOND JAMES

  	
   

  	
  15bps on Choice & Extra

  	
   

  	
   

  
	
  SALOMON SMITH BARNEY

  	
   

  	
  50bps Excess Comp on Choice;  25bps Excess Comp on Extra  & Selections

  	
   

  	
  4bps on VA’s > 1 Yr old

  

 

 

	
  WACHOVIA SECURITIES LLC

  	
   

  	
  20bps on Choice, Extra,  & Selections; 10bps on Freedom

  	
   

  	
  5bps on Choice, Extra,  Selections > 1 Yr old

  
	
  ESSEX

  	
   

  	
  25bps on Choice, Extra, Freedom

  	
   

  	
   

  
	
  COMERICA

  	
   

  	
  5bps on Choice & Extra

  	
   

  	
   

  
	
  FIRST ALLIED SECURITIES

  	
   

  	
  15bps on Choice, Extra, Selections

  	
   

  	
   

  
	
  FIRST TENNESSEE BANK

  	
   

  	
  25bps on Choice & Extra

  	
   

  	
   

  
	
  H&R BLOCK

  	
   

  	
  5bps on Choice & Extra

  	
   

  	
   

  
	
  HSBC

  	
   

  	
  10bps on Choice, Extra, Freedom,  Selections

  	
   

  	
   

  
	
  LEGG MASON

  	
   

  	
  25bps on Choice & Extra

  	
   

  	
   

  
	
  LINSCO PRIVATE LEDGER

  	
   

  	
  40bps on Choice, Extra, Freedom

  	
   

  	
   

  
	
  MCDONALD/KEY

  	
   

  	
  25bps on Choice & Extra

  	
   

  	
   

  
	
  PRIMEVEST

  	
   

  	
  20bps on Choice & Extra

  	
   

  	
   

  
	
  RBC DAIN RAUSCHER INC

  	
   

  	
  25bps on Choice & Extra

  	
   

  	
   

  
	
  UBS PAINEWEBBER

  	
   

  	
  20bps on Choice, Extra, Freedom

  	
   

  	
  5bps on VA’s —  4/1/97 — 9/30/00 Block

  
	
  USB PIPER JAFFRAY

  	
   

  	
  25bps on Choice, Extra, Selections

  	
   

  	
   

  
	
  UVEST

  	
   

  	
  25bps on Choice & Extra

  	
   

  	
   

  
	
  FINTEGRA

  	
   

  	
  15bps on Choice & Extra

  	
   

  	
   

  
	
  IFMG

  	
   

  	
  25bps on Choice, Extra, Selections

  	
   

  	
   

  
	
  STANFORD GROUP

  	
   

  	
  15bps on Choice & Extra

  	
   

  	
   

  
	
  WASHINGTON MUTUAL

  	
   

  	
  25bps on Choice

  	
   

  	
   

  

 

Ceding Company Marketing Allowance on Add-On
Premiums: 78bpsExhibit 10.20

COINSURANCE
AGREEMENT

between

UNION FIDELITY LIFE INSURANCE COMPANY

and

FEDERAL HOME LIFE INSURANCE COMPANY

Dated as of April 15, 2004

TABLE OF CONTENTS

	
   

  	
   

  	
   

  
	
  ARTICLE
  I

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II

  	
  COVERAGE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  	
  ADMINISTRATION;
  GENERAL PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV

  	
  REINSURANCE
  ASSET TRANSFER; CEDING COMMISSION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  V

  	
  QUARTERLY
  INSOLVENCY FUND AND PREMIUM TAX ACCOUNTING

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI

  	
  CERTAIN
  ACTIONS BY THE COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII

  	
  REGULATORY
  MATTERS AND REPORTING

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  	
  DURATION
  AND TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IX

  	
  INSOLVENCY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  X

  	
  SECURITY
  AND REINSURANCE CREDIT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XI

  	
  DEFERRED
  ACQUISITION COSTS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XII

  	
  DISPUTE
  RESOLUTION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XIII

  	
  PRIVACY
  REQUIREMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XIV

  	
  MISCELLANEOUS
  PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULE A  —  POLICY FORMS

  	
   

  
	
  SCHEDULE B  —  CEDING COMMISSION

  	
   

  
	
  SCHEDULE C  —  ASSETS

  	
   

  
	
  SCHEDULE D  —  INITIAL REPORT

  	
   

  
	
  SCHEDULE E  —  FORM OF TRUST AGREEMENT

  	
   

  

 

i

COINSURANCE AGREEMENT

This
Coinsurance Agreement, dated as of 
April 15, 2004 (this “Agreement”), is made and entered into by and
between Union Fidelity Life Insurance Company, an insurance company organized
under the laws of the State of Illinois (the “Company”), and Federal Home Life
Insurance Company, an insurance company organized under the laws of the
Commonwealth of Virginia (the “Reinsurer”). 
Defined terms used herein are defined below.

The Company
and the Reinsurer mutually agree to reinsure the risks described in this
Agreement under the terms and conditions stated herein.  This Agreement is an indemnity coinsurance
agreement solely between the Company and the Reinsurer, and the performance of
the obligations of each party under this Agreement shall be rendered solely to
the other party.  In no instance shall
anyone other than the Company or the Reinsurer have any rights under this
Agreement.  The Company shall be and
shall remain the only party hereunder that is liable to any insured, contract
holder, policyholder, claimant or beneficiary under any insurance policy or
contract reinsured hereunder.

This Agreement is entered into in connection with an intercompany
reorganization among the Company, the Reinsurer and certain of their
Affiliates.

ARTICLE I

DEFINITIONS

1.1.          Definitions.  As used in this Agreement, the following
terms shall have the following meanings (definitions are applicable to both the
singular and the plural forms of each term defined in this Article):

“Affiliate”
means any other Person that directly or indirectly controls, is controlled by,
or is under common control with, the first Person.  “Control” (including the terms, “controlled by” and
“under common control with”) means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or credit arrangement, as trustee or executor, or otherwise.

“Agreement”
shall have the meaning specified in the first paragraph of this Agreement.

“Allocated
Loss Adjustment Expenses” means all costs, fees and expenses incurred by
the Company or its Affiliates in the investigation, adjustment, settlement or
defense of all claims or the monitoring, preservation or enforcement of rights,
interests or benefits arising out of or relating to the Reinsured Policies
(excluding office expenses and salaries of officials of the Company or its
Affiliates or any other administrative or overhead expenses of the Company or
of its Affiliates), and court costs, and interest on any judgment or
award.  Allocated Loss Adjustment
Expenses shall also include expenses associated with an action by any entity
for declaratory judgment filed in connection with the Reinsured Policies.

 

“Annual
Adjustment” shall have the meaning specified in Section 6.2.

“Applicable
Law” means any federal, state, local or foreign law (including common law),
statute, ordinance, rule, regulation, order, writ, injunction, judgment,
permit, governmental agreement or decree applicable to a Person or any of such
Person’s subsidiaries, properties, assets, or to such Person’s officers,
directors, managing directors, employees or agents in their capacity as such.

“Assets”
shall have the meaning specified in Section 4.4(a).

“Business
Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in the States of Illinois or Virginia are required or
authorized by law to be closed.

“Ceding
Commission” shall have the meaning specified in Section 4.3.

“Closing
Date” means April 15, 2004.

“Code”
means the Internal Revenue Code of 1986, as amended.

“CPR”
shall have the meaning specified in Section 12.3.

“CPR
Arbitration Rules” shall have the meaning specified in Section 12.4(a).

“Dispute”
shall have the  meaning specified in
Section 12.1(a).

“Eligible
Securities” shall have the meaning specified in Section 10.2(c).

“Extra
Contractual Liabilities” means all liabilities for damages (including
compensatory, consequential, exemplary, punitive, bad faith or similar or other
damages) which relate to the marketing, sale, underwriting, issuance, delivery,
cancellation or administration of the Reinsured Policies, including liability
arising out of or relating to any alleged or actual acts, errors or omissions
by the Company, the Reinsurer or any of their agents, whether intentional or
otherwise, with respect to any of the Reinsured Policies, including (A) any
alleged or actual reckless conduct or bad faith in connection with the handling
of any claim arising out of or under the Reinsured Policies, or (B) the
marketing, sale, underwriting, issuance, delivery, cancellation or
administration of any of the Reinsured Policies.

“Force
Majeure” shall have the meaning specified in Section 3.7(a)(iii).

“Funding
Requirement” shall have the meaning specified in Section 10.2(j).

“GAAP”
means U.S. generally accepted accounting principles consistently applied.

“Governmental
Authority” means any foreign or national government, any state or other
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

2

 

“Inception
Date” shall have the meaning specified in Section 2.1.

“Initial
Notice” shall have the meaning specified in Section 12.2.

“Initial
Reinsurance Premium” shall have the meaning specified in Section 4.1.

“Insolvency
Fund” means any guarantee fund, insolvency fund, plan, pool, association,
fund or other arrangement, however denominated, established or governed, which
provides for any assessment of or payment or assumption by the Company of part
or all of any claim, debt, charge, fee or other obligation of an insurer or
reinsurer, or its successors or assigns, which has been declared by any
competent authority to be insolvent, or which is otherwise deemed unable to
meet any claim, debt, charge, fee or other obligation in whole or in part.

“Insolvency
Fund Quarterly Accounting” shall have the meaning specified in Section 5.1.

“Loss”
or “Losses” means the amount of liability paid or payable by the Company
with respect to claims, losses, liabilities, damages, deficiencies, costs or
expenses, including without limitation, any settlements or compromises or
disputed claims, arising under the Reinsured Policies.

“Manager”
means Wakely and Associates, Incorporated.

“Market
Value” shall have the meaning set forth in Section 10.2(j).

“Person”
means any natural person, firm, limited liability company, general partnership,
limited partnership, joint venture, association, corporation, trust,
Governmental Authority or other entity.

“Post-Effective
Date Assessments” shall have the meaning specified in Section 5.1.

“Premium
Tax Credits” shall have the meaning specified in Section 6.2.

“Quarterly
Accountings” shall have the meaning specified in Section 5.1.

“Quarterly
Premium Tax Accounting” shall have the meaning specified in
Section 5.1.

“Reinsured
Policies” means the medicare supplement insurance policies issued by the
Company prior to January 1, 2004 and written on the policy forms described in
Schedule A or reinsured by the Company under reinsurance agreements in
effect prior to January 1, 2004 (excluding reinsurance agreements with
Affiliates), including renewals of any such policies.

“Reinsured
Risks” shall have the meaning specified in Section 2.1.

“Response”
shall have the meaning specified in Section 12.2.

3

 

“SAP”
means statutory accounting practices prescribed or permitted by the Insurance
Department of the State of Illinois.

“Subcontractor”
shall have the meaning specified in Section 3.1(a).

“Tax DAC”
means specified policy acquisition expenses capitalized and amortized under
section 848 of the Code.

“Termination
Date” means the effective date of any termination of this Agreement as
provided in Article VIII.

“Termination
Letter Agreement” means the letter agreement among the Company, the
Reinsurer and certain affiliates of the Reinsurer relating to the rescission of
this Agreement upon the failure of certain events to occur after the date
hereof.

“Total SAP
Ceded Reserves” means, as of any given date, the gross reserves of the
Company calculated in accordance with SAP with respect to the Reinsured Risks,
which shall consist of the sum of (A) (i) active life reserves, (ii) claim
reserves (both case and incurred but not reported), (iii) unearned premium
reserves, and (iv) advance premiums, less (B) due and unpaid premium receivable
balances.

“Total GAAP
Ceded Reserves” means, as of any given date, the gross reserves of the
Company calculated in accordance with GAAP with respect to the Reinsured Risks,
which shall consist of the sum of (A) (i) active life reserves (including
related maintenance and loss expense reserves), (ii) claim reserves (both case
and incurred but not reported), (iii) unearned premium reserves, and (iv)
advance premiums, less (B) due and unpaid premium receivable balances.

“Trust
Account” shall have the meaning set forth in Section 10.2(a).

“Trust
Agreement” shall have the meaning set forth in Section 10.2(a).

“Trustee”
shall have the meaning set forth in Section 10.2(a).

“Ultimate
Net Loss” shall have the meaning specified in Section 2.3(a).

ARTICLE II

COVERAGE

2.1.          Coverage.  Upon the terms and subject to the conditions
and other provisions of this Agreement, as of 12:01 a.m. Eastern Time on
January 1, 2004 (the “Inception Date”), the Company hereby cedes to the
Reinsurer, and the Reinsurer hereby agrees to indemnify the Company for, one
hundred percent (100%) of Ultimate Net Loss incurred by the Company and unpaid
as of the Inception Date (the “Reinsured Risks”).

 

4

 

2.2.          Conditions.  (a) If the
Company’s liability under any of the Reinsured Policies is changed because of
changes made on or after the Inception Date in the terms and conditions of the
Reinsured Policies (including to any contract riders or endorsements thereto)
that are required due to changes in Applicable Law, the Reinsurer will share in
the change proportionately to the coinsurance share hereunder and the Company
and the Reinsurer will make all appropriate adjustments to amounts due each
other under this Agreement.

(b)           Except as otherwise set forth in
paragraph (a) above, no changes, amendments or modifications made by the
Company on or after the Inception Date in the terms and conditions of the
Reinsured Policies which adversely affect the liability of the Reinsurer hereunder
shall be covered hereunder without the prior written approval of such changes,
amendments or modifications by the Reinsurer. 
In the event that any such changes, amendments or modifications are made
by the Company in any Reinsured Policy without the prior written approval of
the Reinsurer, this Agreement will cover Ultimate Net Loss incurred by the
Company as if the non-approved changes, amendments or modifications had not
been made.

2.3.          Ultimate Net Loss.  (a)  Subject to the provisions of Sections 2.2
and 2.3(b) and the terms and conditions of this Agreement, “Ultimate Net
Loss” shall mean (i) the actual Losses and Allocated Loss Adjustment Expenses
payable by the Company after making deductions for all recoveries, salvage and
subrogations actually recovered, (ii) premium taxes due in respect of premiums
and other amounts paid on or after the Inception Date with respect to the
Reinsured Policies, (iii) Insolvency Fund assessments, net of any premium tax
credits of the Company arising out of any such assessments, in respect of
premiums and other amounts paid on or after the Inception Date with respect to
the Reinsured Policies, (iv) all amounts payable on or after the Inception Date
for returns or refunds of premiums under the Reinsured Policies, (v) all
liability for commission payments and other fees or compensation payable with
respect to the Reinsured Policies in respect of premiums and other amounts paid
on or after the Inception Date, (vi) unclaimed property liabilities and
obligations arising under or related to the Reinsured Policies, and
(vii) all liability for Extra Contractual Liabilities resulting from
actions of the Company, the Reinsurer or any of their agents or reinsured by
the Company under the Reinsured Policies, in each case only to the extent
reinsurance of such liabilities is permitted by state law.

(b)           All recoveries or payments received
by the Company subsequent to a loss settlement under this Agreement shall be
applied as if recovered or received prior to the aforesaid settlement and all
necessary adjustments shall be made by the parties hereto;  provided, that nothing in this
Section 2.3(b) shall be construed to mean that the Reinsurer’s share of the
Losses and Allocated Loss Adjustment Expenses under this Agreement are not
recoverable until the Company’s Ultimate Net Loss has been ascertained.

2.4.          Territory.  The territorial limits of this Agreement
shall be identical with those of the Reinsured Policies.

2.5.          Ceded Reinsurance.  Subsequent to the Inception Date, the
Company will not enter into any reinsurance arrangements with respect to the
Reinsured Policies without the prior written consent of the Reinsurer, in its
sole discretion.

5

 

ARTICLE III

ADMINISTRATION; GENERAL PROVISIONS

3.1.          Contract Administration.  (a) 
The Reinsurer shall provide policyholder and claims servicing with
respect to the Reinsured Policies in accordance with the terms hereof.  At its option, the Reinsurer may delegate
such administrative duties and obligations to (i) the Manager, (ii) any other
third party administrator utilized by the Company on the Closing Date, (iii) an
Affiliate, or (iv) any other Person with the prior written consent of the
Company, which consent shall not be unreasonably withheld (in each case, the
“Subcontractor”); provided, that, except with respect to third party
administrators utilized by the Company on the Closing Date, the Reinsurer also
subcontracts for such service or services for its own medicare supplement
business not subject to this Agreement to the Subcontractor; and provided,
further, that no such subcontracting shall relieve the Reinsurer from
any obligations or liabilities hereunder, and the Reinsurer shall remain
responsible for all obligations or liabilities of such Subcontractor with
regards to the providing of such service or services as if provided by the
Reinsurer.  In providing policyholder
and claims servicing with respect to the Reinsured Policies, the Reinsurer (or
the Subcontractor) shall handle all matters, including but not limited to the
billing and collection of premiums and the defense, adjustment, settlement and
payment of all claims arising under the Reinsured Policies.

(b)           The Reinsurer shall provide
policyholder and claims servicing with respect to the Reinsured Policies in
good faith and with the care, skill, prudence and diligence of a person
experienced in administering medicare supplement business.  The Reinsurer shall provide policyholder and
claims servicing with respect to the Reinsured Policies (i) in accordance
with the terms of the Reinsured Policies, (ii) in accordance with the
applicable terms of this Agreement, (iii) in compliance with Applicable Law
and, subject to the foregoing, (iv) in the same manner as it conducts its own business
not subject to this Agreement and (v) in accordance with the Reinsurer’s
administrative performance standards in effect on the date hereof, with such
revisions to such standards as are no less favorable to the Company than the
Reinsurer’s standards in effect on the date hereof.  Notwithstanding the foregoing, the parties may, from time to
time, mutually develop specific and/or different standards for providing such
services with respect to the Reinsured Policies.

(c)           The Company shall give prompt notice
to the Reinsurer of any claims, lawsuits or actions made or brought against the
Company after the Inception Date arising under or in connection with the
Reinsured Policies to the extent known to it and not made against or served on
the Reinsurer or the Subcontractor as administrator hereunder, and shall
promptly furnish to the Reinsurer copies of all pleadings in connection
therewith.  The Reinsurer shall assume
the defense of the Company.  The
Reinsurer shall keep the Company fully informed of the progress of all
litigation  handled by the Reinsurer in
which the Company is named a party.  The
Reinsurer shall indemnify the Company against, and hold it harmless from, all
costs, expenses, and attorneys’ fees incurred in connection with such defense
and all damages, settlements, judgments, or awards of any kind whatsoever
agreed to or assessed against the Company in connection therewith, including
compensatory, consequential, exemplary, punitive, bad faith or similar or other
damages, arising out of the Reinsurer’s (and not the Company’s) 

6

 

handling of claims under the Reinsured
Policies or the acts, errors, or omissions of the Reinsurer or the
Subcontractor, as the case may be.

(d)           In the event that, during the period
of the Reinsurer’s administration of the Reinsured Policies, the Reinsurer
designates a new Person to administer the Reinsured Policies, the Reinsurer
agrees to send to all policyholders of the Reinsured Policies a written notice
prepared by the Reinsurer and reasonably acceptable to the Company to the
effect that such Person has been appointed by the Company to provide
administrative services.  The Reinsurer
shall send such notice by first class U.S. mail at a time reasonably acceptable
to the Company and the Reinsurer.

3.2.          Re-rating of Reinsured Policies.  Subject to compliance with Applicable Law,
the Reinsurer shall have the exclusive right, on behalf of the Company, to seek
to increase or decrease the premium rates under the Reinsured Policies from and
after the Inception Date.  The Reinsurer
shall bear, and shall indemnify the Company for, all costs and liabilities
incurred in or arising out of seeking or effecting any premium rate changes.

3.3.          Inspection.  The Reinsurer shall keep accurate and complete
records, files and accounts of all transactions and matters with respect to the
Reinsured Policies and the administration thereof in accordance with Applicable
Law and its record management practices in effect from time to time for the
Reinsurer’s insurance business not covered by this Agreement.  The parties to this Agreement and their
designated representatives may upon reasonable notice inspect, at the offices
of the Reinsurer or the Company where such records are located, the papers and
any and all other books or documents of the Reinsurer or the Company reasonably
relating to this Agreement, including the Reinsured Policies, and shall have
access to appropriate employees and representatives of the other party, in each
case during normal business hours for such period as this Agreement is in
effect or for as long thereafter as any rights or obligations of any party
survives or the Reinsurer or the Company reasonably need access to such records
for regulatory, tax or similar purposes. The information obtained shall be used
only for purposes relating to the transactions contemplated under this
Agreement.

3.4.          Errors and Omissions.  If any delay, omission, error or failure to
pay amounts due or to perform any other act required by this Agreement is
unintentional and caused by misunderstanding or oversight, the Company and the
Reinsurer will adjust the situation to what it would have been had the
misunderstanding or oversight not occurred. 
The party first discovering such misunderstanding or oversight, or an
act resulting from such misunderstanding or oversight, will notify the other
party in writing promptly upon discovery thereof, and the parties shall act to
correct such misunderstanding or oversight within twenty (20) Business Days of
such other party’s receipt of such notice. 
However, this Section shall not be construed as a waiver by either party
of its right to enforce strictly the terms of this Agreement.

3.5.          Age, Sex and Other Adjustments.  If the Company’s liability under any of the
Reinsured Policies is changed because of a misstatement of age or sex or any
other material fact, the Reinsurer will share in the change proportionately to
the coinsurance share hereunder and the Company and the Reinsurer will make all
appropriate adjustments to amounts due each other under this Agreement.

7

 

3.6.          Setoff.  Any debts or credits, matured or unmatured,
in favor of or against either the Company or the Reinsurer with respect to this
Agreement or any other reinsurance agreement between the Company and the
Reinsurer, are deemed mutual debts or credits, as the case may be, and shall be
setoff from any amounts due to the Company or the Reinsurer hereunder, as the
case may be, and only the net balance shall be allowed or paid.

3.7.          Administration by Reinsurer.  (a) 
The Company shall have the right, upon written notice to the Reinsurer,
to assume from the Reinsurer the administration of the Reinsured Policies upon
the occurrence of any of the following events:

(i)                 A
voluntary or involuntary proceeding is commenced in any jurisdiction by or
against the Reinsurer for the purpose of conserving, rehabilitating or
liquidating the Reinsurer;

(ii)              There
is a material breach by the Reinsurer of any material term or condition of this Article III  that is not cured by the Reinsurer within
thirty (30) days after receipt of written notice from the Company of such
breach or act (provided that the Company shall not have the right to assume
such administration (A) for so long as the Reinsurer is making a good faith
effort to cure such a breach, not to exceed an additional one hundred eighty
(180) days or (B) during the pendency of any dispute resolution proceedings as
set forth in Article XII regarding an alleged material breach); or

(iii)           The
Reinsurer is unable to perform the services required under this Article III for
a period of thirty (30) consecutive days for any reason, other than as a result
of a Force Majeure, it being understood that nothing in this Section 3.7 shall
relieve the Reinsurer from its administrative responsibilities under this
Agreement.  For purposes of this
Agreement “Force Majeure” means any acts or omissions of any civil or military
authority, acts of God, acts or omissions of the Company, fires, strikes or
other labor disturbances, equipment failures, fluctuations or non-availability
of electrical power, heat, light, air conditioning or telecommunications
equipment, or any other act, omission or occurrence beyond the Reinsurer’s
reasonable control, irrespective of whether similar to the foregoing enumerated
acts, omissions or occurrences.

(b)           The Reinsurer shall bear all
transition costs associated with an assumption of the administration of the
Reinsured Policies pursuant to Section 3.7(a), including the expense of sending
policyholder notices as provided in Section 3.10.

(c)           In the event of the Company’s
assumption of the administration of the Reinsured Policies, Sections 3.8,
3.9, 3.10, 3.11 and 3.12 shall apply to the administration of the Reinsured
Policies by the Company and the provisions of Article V, Article VII, Section
3.1 and the second sentence of Section 6.1 shall become inoperative.

8

 

3.8.          Contract Administration.  (a)  In the event that the Company
assumes the administration of the Reinsured Policies pursuant to
Section 3.7, the Company shall provide policyholder and claims servicing
with respect to the Reinsured Policies in accordance with the terms hereof
including, but not limited to, the collection of premiums and other amounts due
from policyholders, the payment of all Reinsured Risks and the administration
of claims and disbursements, which disbursements shall be made directly by the
Company.  The Company shall provide
policyholder and claims servicing with respect to the Reinsured Policies in
good faith and with the care, skill, prudence and diligence of a person
experienced in administering medicare supplement business.  The Company shall provide policyholder and
claims servicing with respect to the Reinsured Policies (i) in accordance
with the terms of the Reinsured Policies, (ii) in accordance with the
applicable terms of this Agreement, (iii) in compliance with Applicable Law
and, subject to the foregoing, (iv) in the same manner as it conducts its own
business not subject to this Agreement and (v) in accordance with the Company’s
administrative performance standards in effect on the date hereof, with such
revisions to such standards as are no less favorable to the Reinsurer than such
standards.  Notwithstanding the
foregoing, the parties may, from time to time, mutually develop specific and/or
different standards for providing such services with respect to the Reinsured
Policies.

(b)           The Company may subcontract for the
performance of any policyholder or claims servicing service or services with
respect to the Reinsured Policies to (i) an Affiliate or (ii) any
other Person with the prior written consent of the Reinsurer, such consent not
to be unreasonably withheld; provided, that the Company also
subcontracts for such service or services for its own medicare supplement
business not subject to this Agreement to such subcontractor; and provided,
further, that no such subcontracting shall relieve the Company from any
of its obligations or liabilities hereunder, and the Company shall remain
responsible for all obligations or liabilities of such subcontractor with
regards to the providing of such service or services as if provided by the
Company.

3.9.          Claims Settlements.  In the event that the Company assumes the
administration of the Reinsured Policies pursuant to Section 3.7, the
Company agrees that it will provide prompt notice to the Reinsurer of its
intention to contest, compromise or litigate a claim with respect to a
Reinsured Policy, along with copies of all pleadings and reports of
investigation with respect thereto.  The
Reinsurer shall have the right, at its own expense, to participate jointly with
the Company in the investigation, adjustment or defense of such claims.  In addition, in the event that litigation
arises against the Company in connection with a claim which seeks damages in
excess of $1 million or other remedies deemed material to the Reinsurer, the
Reinsurer may, upon written notice to the Company, assume the defense thereof
with counsel selected by the Reinsurer and reasonably satisfactory to the
Company.  If the Reinsurer assumes such
defense, the Company shall have the right, at its own expense, to participate
jointly with the Reinsurer in the defense thereof.  If the Reinsurer assumes the defense of litigation, the Reinsurer
shall not settle such litigation without the Company’s prior written consent
(which consent shall not be unreasonably withheld or delayed) unless (i) there
is no finding or admission of any violation of law or any violation of the
rights of any Person, (ii) such settlement would not reasonably be expected to
have material adverse precedential consequences to the Company and (iii) the
sole relief provided is monetary damages that are paid in full by the Reinsurer.

9

 

3.10.        Notice to Policyholder.  To the extent that the administration of the
Reinsured Policies is assumed by the Company pursuant to Section 3.7 and the
Person then administering the Reinsured Policies does not continue to
administer the Reinsured Policies, the Company agrees to send to all
policyholders of the Reinsured Policies a written notice to the effect that the
Company will provide administrative services. 
The Company shall send such notice by first class U.S. mail at a time
reasonably acceptable to the Company and the Reinsurer.

3.11.        Expense Allowance.  In the event the Company assumes the
administration of the Reinsured Policies pursuant to Section 3.7, as
reimbursement for expenses incurred by the Company in the providing of
policyholder and claims servicing services with respect to the Reinsured
Policies, the Reinsurer shall pay to the Company with respect to each calendar
month ending after the Company’s assumption of such administration, an expense
allowance equal to the Company’s actual cost of providing such administrative
services plus reasonable provision for overhead expenses associated therewith.

3.12.        Accounting and Settlement.  (a) 
As soon as practicable but not more than forty (40) days following each
calendar quarter ending after the Company’s assumption of the administration of
the Reinsured Policies pursuant to Section 3.7 (or more frequently as mutually
agreed by the parties), the Company shall supply the Reinsurer with a report
that shall provide financial data for such calendar quarter in the form as
agreed between the parties.

(b)           As soon as practicable but not more
than forty (40) days following the end of each calendar quarter ending after
the Company’s assumption of the administration of the Reinsured Policies
pursuant to Section 3.7 (or more frequently as mutually agreed by the parties),
the Company shall supply the Reinsurer with reports related to the Reinsured
Policies as may be reasonably requested for use in connection with the
preparation of the Reinsurer’s SAP financial statements or other reports
prepared by the Reinsurer in compliance with its internal reporting
requirements.  The parties shall
cooperate in good faith to establish the form for the providing of such
reports.

(c)           Within forty-five (45) days after the
end of each calendar year ending after the Company’s assumption of the
administration of the Reinsured Policies pursuant to Section 3.7 (or more
frequently as mutually agreed by the parties), the Company shall supply the
Reinsurer with a report that shall provide financial data for such year in the
form as agreed between the parties.

(d)           Following any assumption by the
Company of administration of the Reinsured Policies pursuant to Section 3.7,
and for so long thereafter as this Agreement remains in effect, each of the
parties shall periodically furnish to the other such other reports and
information as may be reasonably requested by such other party for regulatory,
tax or similar purposes and reasonably available to it.

(e)           Following any assumption by the
Company of administration of the Reinsured Policies pursuant to Section 3.7, in
the event that all or any portion of any payment due either party pursuant to
this Agreement becomes overdue, the portion of the amount overdue shall bear
interest at an annual rate equal to the then current thirty (30) day U.S.
Treasury Bill

10

 

discount rate on the date that the payment
becomes overdue plus 200 basis points, for the period that the amount is
overdue.

ARTICLE IV

REINSURANCE ASSET TRANSFER; CEDING COMMISSION

4.1.          Initial Reinsurance Premium.  As consideration for the reinsurance by the
Reinsurer of the Reinsured Risks under this Agreement, on the Closing Date, the
Reinsurer shall be entitled to an amount equal to one hundred percent (100%) of
the Total SAP Ceded Reserves as of the close of business on the day immediately
preceding the Inception Date (the “Initial Reinsurance Premium”).

4.2.          Additional Reinsurance Premium.  As additional consideration for the
Reinsurer entering into this Agreement, Reinsurer shall be entitled to 100% of
all premiums and other considerations to the extent received on or after the
Inception Date by the Company or the Reinsurer with respect to the Reinsured
Policies, including premium receivables that were due and unpaid as of the
Inception Date that were taken into account in the calculation of the Initial
Reinsurance Premium.

4.3.          Ceding Commission.  On the Closing Date, the Company shall be
entitled to a ceding commission (the “Ceding Commission”) in an amount
determined in accordance with Schedule B.

4.4.          Amounts Due the Parties.  (a) 
Except as otherwise specifically provided herein, all amounts due to be
paid to the Company or the Reinsurer under this Agreement shall be determined
on a net basis, giving full effect to Section 3.6.  The net amount due the Reinsurer from the
Company on the Closing Date under Section 4.1 and Section 4.3 shall consist of
(i) the investment assets (the “Assets”) set forth on Schedule C,
which assets have a statutory book value as of the close of business on the day
immediately preceding the Inception Date equal to (A) the Initial Reinsurance
Premium, less (B) the Ceding Commission, less (C) an amount equal to
accrued but unpaid interest on the Assets as of the close of business on the
day immediately preceding the Inception Date, plus (ii) an amount equal to
the investment cash flows received on the Assets between the Inception Date and
the Closing Date.  The Company shall pay
such net amount due on the Closing Date concurrent with its delivery of the
Initial Report.

(b)           The Company shall deliver to the
Reinsurer possession of the Assets and such bills of sale, endorsements,
assignments and other good and sufficient instruments of conveyance and
transfer in form and substance reasonably acceptable to the parties as shall be
effective to vest in the Reinsurer all of the right, title and interest of the
Company in and to the Assets.  Delivery
of the Assets shall be a condition precedent of reinsurance coverage hereunder.

(c)           As soon as practicable but not more
than forty (40) days following the end of the first calendar quarter ending
after the Closing Date, the Company shall supply the Reinsurer with a report
setting forth a calculation of the amount of premium and other consideration
received on or after the Inception Date but prior to the Closing Date by the
Company with respect to the Reinsured Policies, minus the amount of Reinsured
Risks (other

11

 

than Insolvency Fund assessments and premium
taxes) paid by the Company on or after the Inception Date but prior to the
Closing Date.  If the result of such
calculation is positive, the Company shall pay to the Reinsurer, concurrent
with the delivery of such report, an amount in cash equal to such positive
amount.  If the result of such
calculation is negative, the Reinsurer shall pay to the Company, no later than
thirty (30) days after receipt of the Company’s report, an amount in cash equal
to such negative amount.

4.5.          Initial Report.  A report shall be provided by the Company to
the Reinsurer on the Closing Date providing the data required in
Schedule D (the “Initial Report”).

ARTICLE V

QUARTERLY INSOLVENCY FUND AND PREMIUM TAX ACCOUNTING

5.1.          Quarterly Accountings.  Within thirty (30) days after the end of
each calendar quarter ending after the Closing Date (or more frequently as
mutually agreed by the parties), the Company shall submit to the Reinsurer a
written statement of accounting in a form and containing such information to be
agreed upon by the parties hereto (each, an “Insolvency Fund Quarterly
Accounting”) setting forth the Insolvency Fund amounts assessed or payable to
the extent that such assessments constitute Reinsured Risks (collectively, the
“Post-Effective Date Assessments”). 
Within thirty (30) days after the last day of each calendar quarter
ending after the Closing Date (or more frequently as mutually agreed by the
parties), the Reinsurer shall submit to the Company a written statement of
accounting in a form and containing such information to be agreed upon by the
parties hereto (each, a “Quarterly Premium Tax Accounting”, and together with
the Insolvency Fund Quarterly Accountings, the “Quarterly Accountings”) setting
forth the estimated premium taxes due with respect to the Reinsured Policies as
a result of premiums collected during such quarter.  Concurrent with the delivery of each Quarterly Premium Tax
Accounting, the Reinsurer shall remit to the Company the amount set forth on
such Quarterly Premium Tax Accounting with respect to such estimated premium
taxes due and the amount set forth in such Insolvency Fund Quarterly Accounting
with respect to the Post-Effective Date Assessments, and any other amounts owed
to the Company pursuant to this Agreement; provided, however,
that any Post-Effective Date Assessments set forth in an Insolvency Fund
Quarterly Accounting received by the Reinsurer less than five (5) Business Days
prior to the Reinsurer’s delivery of such Quarterly Premium Tax Accounting will
be paid within ten (10) Business Days of receipt by the Reinsurer of such
Insolvency Fund Quarterly Accounting. 
Each of the parties agrees to supply to the other a copy of all
supporting data used in preparing the Quarterly Accountings prepared by such
party.  For the avoidance of doubt, the
first Insolvency Fund Quarterly Accounting and Quarterly Premium Tax Accounting
shall cover the period from the Inception Date through June 30, 2004.

5.2.          Adjustments Regarding Quarterly
Accountings.  In the event that
subsequent data or calculations require revision of any of the Quarterly
Accountings, the required revision and appropriate payments thereunder shall be
made within ten (10) Business Days after the parties hereto mutually agree as
to the appropriate revision.

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ARTICLE VI

CERTAIN ACTIONS BY THE COMPANY

6.1.          Filings.  The Company shall prepare and timely file
any filings required to be made with any Governmental Authority that relate to
the Company generally and not just to the Reinsured Policies, including filings
with guaranty associations and filings and premium tax returns with taxing
authorities.  The Reinsurer shall, in a
timely fashion in light of the dates such filings by the Company are required,
provide to the Company all information in the possession of the Reinsurer with
respect to the Reinsured Policies that may be reasonably required for the
Company to prepare such filings and tax returns.

6.2.          Annual Adjustment.  The Company shall pay or provide to the
Reinsurer the benefit of any Post-Effective Date Assessments which have been or
can be applied to reduce the Company’s premium tax liability (“Premium Tax
Credits”).  The Company shall provide to
the Reinsurer by March 15 of each year a statement of the amount (the “Annual
Adjustment”) of (i) premium taxes due with respect to premiums collected during
the prior calendar year (to the extent that such premium taxes constitute
Reinsured Risks), less (ii) estimated premium taxes paid by the Reinsurer to
the Company with respect to such premiums under the provisions of Article V,
less (iii) Premium Tax Credits for the prior calendar year.  By March 30 of each year the Reinsurer shall
pay to the Company the Annual Adjustment, if a positive amount, and the Company
will pay to or credit the Reinsurer the Annual Adjustment, if a negative
amount.

ARTICLE VII

REGULATORY MATTERS AND REPORTING

7.1.          Regulatory Compliance and Reporting.  The Reinsurer shall provide to the Company
such information with respect to the Reinsured Policies as is required to
satisfy all current and future informational reporting, prior approval and any
other requirements imposed by any Governmental Authority.  Upon the reasonable request of the Company,
the Reinsurer shall timely prepare such reports and summaries, including
statistical summaries, as are necessary or useful to satisfy any requirements
imposed by a Governmental Authority upon the Company with respect to the
Reinsured Policies.  In addition, the
Reinsurer, upon the reasonable request of the Company shall promptly provide to
the Company copies of all existing records relating to the Reinsured Policies
(including, with respect to records maintained in machine readable form, hard
copies) that are necessary to satisfy such requirements.  All copies of records furnished in the
ordinary course of business shall be furnished by the Reinsurer at the
Reinsurer’s cost.  Any extraordinary
costs reasonably incurred by the Reinsurer in response to requests from the
Company shall be reimbursed by the Company. 
Among other responsibilities:

(a)                                  The
Reinsurer shall promptly prepare and furnish to Governmental Authorities all
reports and related summaries (including, without limitation, statistical
summaries), certificates of compliance and other reports required or requested
by a Governmental Authority.

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(b)                                 The
Reinsurer shall assist the Company and cooperate with the Company in doing all
things necessary, proper or advisable, in the most expeditious manner
practicable in connection with any and all market conduct or other Governmental
Authority examinations relating to the Reinsured Policies.

7.2.          Reporting and Accounting.  The Reinsurer shall assume the reporting and
accounting obligations set forth below:

(a)                                  As
soon as practicable but not more than forty (40) days after the end of each
calendar quarter ending after the Closing Date (or more frequently as mutually
agreed by the parties), the Reinsurer shall timely provide to the Company
reports and summaries of transactions (and, upon request of the Company,
detailed supporting records) related to the Reinsured Policies as may be
reasonably required for use in connection with the preparation of the Company’s
statutory financial statements, tax returns and other required financial
reports and to comply with the requirements of the regulatory authorities
having jurisdiction over the Company, including all premium written and earned
and all Losses and Allocated Loss Adjustment Expenses reserved, paid, and
outstanding.  The parties shall
cooperate in good faith to establish the manner for the providing of such
reports.

(b)                                 The
Reinsurer shall timely provide to the Company reports or summaries (and, upon
the request of the Company, detailed supporting records therefor) related to
the payment of commissions under the Reinsured Policies.

(c)                                  As
soon as practicable but not more than forty (40) days after the end of each
calendar quarter ending after the Closing Date (or more frequently as mutually
agreed by the parties), the Reinsurer shall report to the Company the amount of
statutory reserves that the Company is required to maintain in connection with
the Reinsured Risks as of the quarter end.

(d)                                 The
Reinsurer shall timely provide notice to the Company of any changes in the
reserve methodology used by the Reinsurer in calculating statutory reserves for
the Reinsured Policies.

(e)                                  Within
forty-five (45) days after each calendar year end (or such longer time as may
be agreed by the parties) that this agreement is in effect, beginning with year
end 2004, the Reinsurer shall cause its appointed actuary to provide to the
Company (a) an opinion as to the adequacy of statutory reserves for the
Reinsured Policies, prepared according to accepted actuarial standards of
practice, and as otherwise required for regulatory reporting purposes and (b)
an analysis which reasonably supports such opinion.

14

 

7.3.          Additional Reports and Updates.
For so long as this Agreement remains in effect, each party shall periodically
furnish to the other such other reports and information as may be reasonably
required by such other party for regulatory, tax or similar purposes and
reasonably available to it.

ARTICLE VIII

DURATION AND TERMINATION

8.1.          Duration.  Except as otherwise provided herein, this
Agreement shall be unlimited in duration.

8.2.          Reinsurer’s Liability.  The Reinsurer’s liability with respect to
the Reinsured Risks will terminate on the earliest of:  (i) the date the Company’s liability
with respect to the Reinsured Risks is terminated and all amounts due the
Company from the Reinsurer with respect to such Reinsured Risks are paid to the
Company by or on behalf of the Reinsurer; and (ii) the date this Agreement
is terminated upon the written agreement of the parties.

8.3.          Notice of Termination.  Upon the termination of the Reinsurer’s
liability with respect to the Reinsured Risks referred to in Section 8.2 above,
the parties shall mutually give the Trustee written notice of their intention
to terminate the Trust Account.

ARTICLE IX

INSOLVENCY

9.1.          Payments.  In the event of the insolvency of the
Company, the reinsurance payable by the Reinsurer hereunder shall be payable
directly to the Company or to its domiciliary liquidator or receiver on the
basis of the liability of the Reinsurer under the contract or contracts
reinsured, without diminution because of the insolvency of the Company.  It is agreed and understood, however, that
(i) in the event of the insolvency of the Company, the Reinsurer shall be given
written notice of the pendency of a claim against the insolvent Company on a
Reinsured Policy within a reasonable time after such claim is filed in the
insolvency proceeding and (ii) during the pendency of such claim the Reinsurer
may investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defenses which it may deem available
to the Company or its domiciliary liquidator, receiver or statutory successor.

9.2.          Expenses.  It is further understood that any expense
thus incurred by the Reinsurer pursuant to Section 9.1 shall be
chargeable, subject to court approval, against the insolvent Company as part of
the expense of liquidation to the extent of a proportionate share of the
benefit which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.  Where two
or more assuming reinsurers are involved in the same claim and a majority in
interest elect to interpose defenses to such claim, the expense shall be
apportioned in

15

 

accordance with the terms of this Agreement
as though such expense had been incurred by the Company.

ARTICLE X

SECURITY AND REINSURANCE CREDIT

10.1.        Reinsurance Credit.  Notwithstanding any other provision of this
Agreement to the contrary, if the Reinsurer becomes unauthorized or otherwise
unaccredited as an insurer or reinsurer in any U.S. jurisdiction to which the
Company must provide statutory statements of financial condition such that the
Company will not obtain full statutory financial statement credit for
reinsurance in such state for the reinsurance provided under this Agreement,
the Reinsurer, upon the request of the Company, will establish, at the
Reinsurer’s sole cost and option, trust accounts for the benefit of the
Company, letters of credit, or other acceptable alternatives necessary to
permit the Company to obtain such full statutory financial statement credit for
such reinsurance in all applicable jurisdictions.  The Company shall cooperate with the Reinsurer to take such
steps.  In addition, in such event, the
Reinsurer agrees to amend this Agreement to the extent required under Applicable
Law in order to provide the Company with such full statutory financial
statement credit.

10.2.        Trust.  (a) On the Closing Date, the Reinsurer shall enter into a trust
agreement in the form attached as Schedule E (the “Trust Agreement”) and
establish a trust account (the “Trust Account”) for the benefit of the Company
with respect to the Reinsured Risks with a bank (the “Trustee”) acceptable to
the Director of Insurance of the State of Illinois, the Superintendent of
Insurance of the State of New York and the Company.

(b)           The Reinsurer agrees to deposit, and
maintain in the Trust Account, assets to be held in trust by the Trustee for
the benefit of the Company as security for the payment of the Reinsurer’s
obligations to the Company under this Agreement.

(c)           The parties agree that the assets so
deposited shall be valued according to their current fair market value and
shall consist only of cash (United States legal tender), certificates of
deposit (issued by a United States bank and payable in United States legal
tender), and other admitted assets of a character, maturity, and value to
fulfill the intent of this Agreement; provided that such investments are
issued by an institution that is not the parent, subsidiary or affiliate of
either the Company or the Reinsurer; and provided, further that
such assets are of the type specified in paragraphs (1), (2), (3), (8) and (10)
of Section 1404(a) of the New York Insurance Law (“Eligible Securities”).

(d)           The Reinsurer, prior to depositing
assets with the Trustee, shall execute all assignments and endorsements in
blank, or transfer legal title to the Trustee of all shares, obligations or any
other assets requiring assignments, in order that the Company, or the Trustee
upon direction of the Company, may whenever necessary negotiate any such assets
without consent or signature from the Reinsurer or any other entity.

(e)           All settlements of account under the
Trust Agreement between the Company and the Reinsurer shall be made in cash or
its equivalent.

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(f)            The Reinsurer and the Company agree
that the assets in the Trust Account may be withdrawn by the Company at any
time, notwithstanding any other provisions in this Agreement, and shall be
applied and utilized by the Company (or any successor of the Company by
operation of law, including, without limitation, any liquidator, rehabilitator,
receiver or conservator of the Company), on the basis of the liability of the
Company under the Reinsured Policies, without diminution because of the
insolvency of the Company or the Reinsurer, only for the following purposes:

(i)                 to
reimburse the Company for the Reinsurer’s share of premiums returned to owners
of Reinsured Policies because of cancellation of the Reinsured Policies;

(ii)              to
reimburse the Company for the Reinsurer’s share of policy benefits or losses
paid by the Company pursuant to the provisions of the Reinsured Policies;

(iii)           to
fund an account with the Company in an amount at least equal to the deduction,
for reinsurance ceded, from the Company’s liabilities ceded under this
Agreement.  Such amount shall include,
but not be limited to, amounts for policy reserves, reserves for claims and
losses incurred (including losses incurred but not reported), loss and loss
adjustment expenses, and unearned premiums; and

(iv)          to
pay any other amounts which the Company claims are due under this Agreement.

(g)           The Reinsurer shall have the right to
seek the Company’s approval to withdraw all or any part of the assets from the
Trust Account and transfer such assets to the Reinsurer, provided that:

(i)                 the
Reinsurer shall, at the time of withdrawal, replace the withdrawn assets with
other assets of a type permitted hereunder having a market value equal to the
market value of the assets withdrawn, so as to maintain the Trust Account in
the required amount, or

(ii)              after
such withdrawal and transfer, the market value of the Trust Account is no less
than 102% of the required amount.

In the event
that the Reinsurer seeks the Company’s approval hereunder, the Company shall
not unreasonably or arbitrarily withhold its approval.

(h)           In the event that the Company
withdraws assets from the Trust Account for the purposes set forth in Section
10.2(f)(i), (ii) or (iii) above in excess of actual amounts required to meet
the Reinsurer’s obligations to the Company, or in excess of amounts determined
pursuant to a final accounting between the Company and the Reinsurer to be due
under Section 10.2(f)(iv) above, the Company will return such excess to the
Reinsurer, plus interest at the average prime rate of interest applicable to
the period during which the amounts were held pursuant to Section 10.2(f)(iii)
above.

17

 

(i)            The initial deposit to the Trust Account
shall be made on the Closing Date and shall consist of the Assets plus an
amount equal to the excess, if any, of the Total SAP Ceded Reserves as of the
Inception Date over the Market Value of the Assets as of the Inception Date.

(j)            The aggregate fair market value of
the assets held in the Trust Account (the “Market Value”) shall at all times be
at least equal to an amount (the “Funding Requirement”) equal to the sum of
Total SAP Ceded Reserves and any additional reserves attributable to the Reinsured
Risks that arise as a result of regulatory asset adequacy analysis requirements
of the Reinsurer.  The amount of the
Trust Account shall be adjusted on a quarterly basis so as to equal the Funding
Requirement.  On a quarterly basis, the
Reinsurer shall promptly prepare a specific statement of the Funding
Requirement, together with a statement of the Market Value of the assets in the
Trust Account, in each case as of the end of the quarter, and deliver such
report to the Company.  If the statement
shows that the Funding Requirement exceeds 100% of the balance of the Trust
Account as of the statement date, the Reinsurer shall, within ten (10) Business
Days after delivery of such notice of excess, secure delivery to the Trustee of
additional cash or Eligible Securities having a current fair market value equal
to such difference.  If the statement
shows that the balance of the Trust Account as of the statement date exceeds an
amount equal to 102% of the Funding Requirement as of such date, the Company
shall, within ten (10) Business Days after receipt of such statement from the
Reinsurer, deliver a notice of withdrawal to the Trustee directing the Trustee
to withdraw from the Trust Account and deliver to the Reinsurer assets from the
Trust Account having a current fair market value equal to such excess amount.

ARTICLE XI

DEFERRED ACQUISITION COSTS

11.1.        Tax DAC Information Sharing.  To ensure consistency in their respective
Tax DAC calculations for tax purposes, the Company and the Reinsurer will
exchange information pertaining to the amount of net consideration under this
Agreement each year.  The Company will
submit a schedule to the Reinsurer by February 28 of each year presenting its
calculation of the net consideration for the preceding taxable year.  The Reinsurer may contest the calculation by
providing to the Company and alternative calculation in writing within thirty
(30) days of receipt of the Company’s schedule.  The Company and the Reinsurer will act in good faith to resolve
any differences in the schedule of calculations within thirty (30) days of
receipt of the alternative calculation to ensure consistent amounts are
reported on the respective tax returns for the preceding tax year.

ARTICLE XII

DISPUTE RESOLUTION

12.1.        General Provisions.  (a)  Any dispute,
controversy or claim arising out of or relating to this Agreement or the
validity, interpretation, breach or termination thereof (a

18

 

“Dispute”), shall be resolved in accordance
with the procedures set forth in this Article XII, which shall be the sole and
exclusive procedures for the resolution of any such Dispute unless otherwise
specified below.

(b)           Commencing with the request
contemplated by Section 12.2, all communications between the parties or their
representatives in connection with the attempted resolution of any Dispute,
including any mediator’s evaluation referred to in Section 12.3, shall be
deemed to have been delivered in furtherance of a Dispute settlement and shall
be exempt from discovery and production, and shall not be admissible in
evidence for any reason (whether as an admission or otherwise), in any arbitral
or other proceeding for the resolution of the Dispute.

(c)           In connection with any Dispute, the
parties expressly waive and forego any right to (i) punitive, exemplary,
statutorily-enhanced or similar damages in excess of compensatory damages, and
(ii) trial by jury.

(d)           The specific procedures set forth
below, including but not limited to the time limits referenced therein, may be
modified by agreement of the parties in writing.

(e)           All applicable statutes of
limitations and defenses based upon the passage of time shall be tolled while
the procedures specified in this Article XII are pending.  The parties will take such action, if any,
required to effectuate such tolling.

12.2.        Consideration by Senior Executives.  If a Dispute is not resolved in the normal
course of business at the operational level, the parties shall attempt in good
faith to resolve such Dispute by negotiation between executives who hold, at a
minimum, the office of President and CEO of the respective business entities
involved in such Dispute.  Either party
may initiate the executive negotiation process by providing a written notice to
the other (the “Initial Notice”). 
Fifteen (15) days after delivery of the Initial Notice, the receiving
party shall submit to the other a written response (the “Response”).  The Initial Notice and the Response shall
include (i) a statement of the Dispute and of each party’s position, and (ii)
the name and title of the executive who will represent that party and of any
other person who will accompany the executive. Such executives will meet in
person or by telephone within thirty (30) days of the date of the Initial
Notice to seek a resolution of the Dispute.

12.3.        Mediation.  If a Dispute is not resolved by negotiation
as provided in Section 12.2 within forty-five (45) days from the delivery of
the Initial Notice, then either party may submit the Dispute for resolution by
mediation pursuant to the CPR Institute for Dispute Resolution (the “CPR”)
Model Mediation Procedure as then in effect. 
The parties will select a mediator from the CPR Panels of Distinguished
Neutrals, but such mediator must have prior U.S. reinsurance experience either
as a lawyer or as a present or former officer or management employee of a
reinsurance company, but not of the Company, or the Reinsurer, or any of their
respective affiliates.  Either party at
commencement of the mediation may ask the mediator to provide an evaluation of
the Dispute and the parties’ relative positions.

12.4.        Arbitration.  (a) If a Dispute is not resolved by mediation as provided
in Section 12.3 within thirty (30) days of the selection of a mediator (unless
the mediator chooses to

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withdraw sooner), either party may submit the
Dispute to be finally resolved by arbitration pursuant to the CPR Rules for
Non-Administered Arbitration as then in effect (the “CPR Arbitration Rules”).
The parties consent to a single, consolidated arbitration for all known
Disputes existing at the time of the arbitration and for which arbitration is
permitted.

(b)           The neutral organization for purposes
of the CPR Arbitration Rules will be the CPR. The arbitral tribunal shall be
composed of three arbitrators who are each experienced in the U.S. reinsurance
business, of whom each party shall appoint one in accordance with the
“screened” appointment procedure provided in Rule 5.4 of the CPR Arbitration
Rules.  The non-party appointed
arbitrator must have
prior U.S. reinsurance experience as a present or former officer or management
employee of a reinsurance company, but not of the Company, or the Reinsurer, or
any of their respective affiliates.  The
arbitration shall be conducted in New York City.  Each party shall be permitted to present its case, witnesses and
evidence, if any, in the presence of the other party. A written transcript of
the proceedings shall be made and furnished to the parties. The arbitrators shall
determine the Dispute in accordance with the law of Illinois, without giving
effect to any conflict of law rules or other rules that might render such law
inapplicable or unavailable, and shall apply this Agreement according to its
terms, provided that the provisions relating to arbitration shall be governed
by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.  The arbitral tribunal shall endeavor to
render its award or order resulting from any arbitration within forty-five (45)
days following the termination of the arbitration proceedings.

(c)           The parties agree to be bound by any
award or order resulting from any arbitration conducted hereunder and further
agree that judgment on any award or order resulting from an arbitration
conducted under this Section may be entered and enforced in any court having
jurisdiction thereof.

(d)           Except as expressly permitted by this
Agreement, no party will commence or voluntarily participate in any court
action or proceeding concerning a Dispute, except (i) for enforcement as
contemplated by Section 12.4(c) above, (ii) to restrict or vacate an arbitral
decision based on the grounds specified under applicable law, or (iii) for
interim relief as provided in paragraph (e) below. For purposes of the
foregoing the parties hereto submit to the non-exclusive jurisdiction of the
courts of the State of New York.

(e)           In addition to the authority
otherwise conferred on the arbitral tribunal, the tribunal shall have the
authority to make such orders for interim relief, including injunctive relief,
as it may deem just and equitable. Notwithstanding paragraph (d) above, each
party acknowledges that in the event of any actual or threatened breach of
certain of the provisions of this Agreement, the remedy at law would not be
adequate, and therefore injunctive or other interim relief may be sought
immediately to restrain such breach.  If
the tribunal shall not have been appointed, either party may seek interim
relief from a court having jurisdiction if the award to which the applicant may
be entitled may be rendered ineffectual without such interim relief. Upon
appointment of the tribunal following any grant of interim relief by a court,
the tribunal may affirm or disaffirm such relief, and the parties will seek
modification or rescission of the court action as necessary to accord with the
tribunal’s decision.

(f)            Each party will bear its own
attorneys’ fees and costs incurred in connection with the resolution of any
Dispute in accordance with this Article XII.

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ARTICLE XIII

PRIVACY REQUIREMENTS

13.1.        Privacy Requirements.  In providing the administrative services
provided for under this Agreement, and in connection with maintaining,
administering, handling and transferring the data of the policyholders and
other recipients of benefits under the Reinsured Policies, the Reinsurer shall,
and shall cause its Affiliates and any permitted Subcontractor to, comply with
all confidentiality and security obligations applicable to them in connection with
the collection, use, disclosure, maintenance and transmission of personal,
private, health or financial information about individual policyholders or
benefit recipients, including the provisions of privacy policies under which
such information was gathered, those laws currently in place and which may
become effective during the term of this Agreement, including the
Gramm-Leach-Bliley Act, the Health Insurance Portability and Accountability Act
of 1996 and any other Applicable Laws. 
The Reinsurer shall entitle the Company and its agents and
representatives, the Commissioner of Health and Human Services and such other
Governmental Authorities, to the extent required by Applicable Law, to audit
the Reinsurer’s compliance herewith. 
The Reinsurer shall also enable individual subjects of personally
identifiable information, upon request from such individuals, to review and
correct information maintained by the Reinsurer about them, and to restrict use
of such information.  The Reinsurer
shall promptly report to the Company any violation of this provision of which
the Reinsurer becomes aware.  Unless
required by Applicable Law, the Reinsurer shall not during the term of this
Agreement, modify the privacy policies under which information utilized by the
Reinsurer in administering the Reinsured Policies is gathered, without the
Company’s prior written consent, which consent shall not be unreasonably
withheld.  The parties hereto agree to
comply with the terms of the Business Associate Addendum attached hereto.

ARTICLE XIV

MISCELLANEOUS PROVISIONS

14.1.        Headings and Schedules.  Headings used herein are not a part of this
Agreement and shall not affect the terms hereof.  The attached Schedules are a part of this Agreement.

14.2.        Notices.  All notices, requests, demands and other communications
under this Agreement must be in writing and will be deemed to have been duly
given or made as follows:  (a) if sent
by registered or certified mail in the United States return receipt requested,
upon receipt; (b) if sent by reputable overnight air courier, two business days
after mailing; (c) if sent by facsimile transmission, with a copy mailed on the
same day in the manner provided in (a) or (b) above, when transmitted and
receipt is confirmed by telephone; or (d) if otherwise actually personally
delivered, when delivered, and shall be delivered as follows:

21

 

If to the Company:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile: (847) 330-3404

Attention: Chief Financial Officer

With a copy to:

Union Fidelity Life Insurance
Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

If to the Reinsurer:

Federal Home Life Insurance Company

6620 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 662-2414

Attention:  Chief Executive Officer

 

With a copy to:

Federal Home Life Insurance Company

700 Main Street

Lynchburg, VA 24504

Facsimile:  (434) 948-5819

Attention:  General Counsel

or to such
other address or to such other Person as either party may have last designated
by notice to the other party.

14.3.        Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. 
Neither this Agreement, nor any right or obligation hereunder, may be
assigned by any party without the prior written consent of the other party hereto.  Any assignment in violation of this Section 14.3 shall be
void and shall have no force and effect. 
Nothing in this Section 14.3 shall be construed to prohibit the
Reinsurer from retroceding all or any portion of the business reinsured
hereunder.

14.4.        Execution in Counterpart.  This Agreement may be executed by the
parties hereto in any number of counterparts, and by each of the parties hereto
in separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.

22

 

14.5.        Currency.  Whenever the word “Dollars” or the “$” sign
appear in this Agreement, they shall be construed to mean United States
Dollars, and all transactions under this Agreement shall be in United States
Dollars.

14.6.        Amendments.  This Agreement may not be changed, altered
or modified unless the same shall be in writing executed by the Company and the
Reinsurer.

14.7.        Governing Law.  This Agreement will be construed, performed and enforced in
accordance with the laws of the State of Illinois without giving effect to its
principles or rules of conflict of laws thereof to the extent such principles
or rules would require or permit the application of the laws of another
jurisdiction.

14.8.        Entire Agreement; Severability.  (a) This Agreement and the Termination
Letter Agreement constitute the entire agreement between the parties hereto
relating to the subject matter hereof and supersede all prior and
contemporaneous agreements, understandings, statements, representations and
warranties, negotiations and discussions, whether oral or written, of the
parties and there are no general or specific warranties, representations or
other agreements by or among the parties in connection with the entering into
of this Agreement or the subject matter hereof except as specifically set forth
or contemplated herein or in the Termination Letter Agreement.

(b)           If any provision of this Agreement is
held to be void or unenforceable, in whole or in part, (i) such holding
shall not affect the validity and enforceability of the remainder of this
Agreement, including any other provision, paragraph or subparagraph, and
(ii) the parties agree to attempt in good faith to reform such void or
unenforceable provision to the extent necessary to render such provision
enforceable and to carry out its original intent.

14.9.        No
Waiver; Preservation of Remedies. 
No consent or waiver, express or implied, by any party to or of any
breach or default by any other party in the performance by such other party of
its obligations hereunder shall be deemed or construed to be a consent or
waiver to or of any other breach or default in the performance of obligations
hereunder by such other party hereunder. 
Failure on the part of any party to complain of any act or failure to
act of any other party or to declare any other party in default, irrespective
of how long such failure continues, shall not constitute a waiver by such first
party of any of its rights hereunder.  The rights and remedies provided
are cumulative and are not exclusive of any rights or remedies that any party
may otherwise have at law or equity.

14.10.      Cooperation.  Each party hereto shall cooperate fully with
the other in all reasonable respects in order to accomplish the objectives of
this Agreement including making available to each their respective officers and
employees for interviews and meetings with Governmental Authorities and
furnishing any additional assistance, information and documents as may be
reasonably requested by a party from time to time.

14.11.      Third Party Beneficiary.  Nothing in this Agreement will confer any
rights upon any Person that is not a party or a successor or permitted assignee
of a party to this Agreement.

23

 

14.12.      Tax Exception to Any Confidentiality.  Notwithstanding anything to the contrary set
forth herein or in any other agreement to which the parties hereto are parties
or by which they are bound, any obligations of confidentiality contained herein
and therein, as they relate to the transactions, shall not apply to the federal
tax structure or federal tax treatment of the transactions, and each party
hereto (and any employee, representative, or agent of any party hereto) may
disclose to any and all persons, without limitation of any kind, the federal
tax structure and federal tax treatment of the transactions.  The preceding sentence is intended to cause
the transactions to be treated as not having been offered under conditions of
confidentiality for purposes of Section 1.6011-4(b)(3) (or any successor
provision) of the Treasury Regulations promulgated under Section 6011 of the
Internal Revenue Code of 1986, as amended, and shall be construed in a manner
consistent with such purpose.  In
addition, each party hereto acknowledges that it has no proprietary or
exclusive rights to the federal tax structure of the transactions or any
federal tax matter or federal tax idea related to the transactions.

14.13.      Interpretation.  Wherever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation.”

14.14.      Survival.  Article XII and XIV shall survive termination of this Agreement.

24

 

IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be executed by their
duly authorized representatives.

	
   

  	
  UNION FIDELITY LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By 

  	
   /s/  Glenn Joppa

  
	
   

  	
   

  	
  Name: Glenn Joppa

  
	
   

  	
   

  	
  Title: Senior Vice President and Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FEDERAL HOME LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By  

  	
  /s/  Victor C. Moses

  
	
   

  	
   

  	
  Name: Victor C. Moses

  
	
   

  	
   

  	
  Title: Senior Vice President

  

 

25

 

SCHEDULE A

POLICY FORMS

FTW Block

POLICY FORM

	
  FORM NUMBER

  	
  TITLE/DESCRIPTION

  
	
  1-0262-SC

  	
  Medicare — Standard Plan A

  
	
  1-0362

  	
  Medicare — Standard Plan A
  (excluding policies issued in New York)

  
	
  1-0363

  	
  Medicare — Standard Plan B
  (excluding policies issued in New York)

  
	
  1-0364

  	
  Medicare — Standard Plan E
  (excluding policies issued in New York)

  
	
  1-0365

  	
  Medicare Supplement-Standard
  Plan E

  
	
  1-0373

  	
  Medicare SELECT — Plan C

  
	
  108350-TX (Rev)

  	
  Medicare Supplement

  
	
  109 REV. NJ

  	
  Monthly Cash Benefit Rider

  
	
  1-0990

  	
  Medicare Supplement

  
	
  1-1041 Cert.

  	
  Medicare Supplement Cert.

  
	
  1-1042 Cert.

  	
  Medicare Supplement Cert.

  
	
  1-1051 Cert.

  	
  Medicare Supplement Cert.

  
	
  1-1053-Cert.

  	
  Medicare Supplement Cert.

  
	
  1-1061 Cert.

  	
  Medicare Supplement Cert.

  
	
  1-1062 Cert.

  	
  Medicare Supplement Cert.

  
	
  1-107

  	
  Weekly Cash Benefit Rider

  
	
  1-1081 Cert.

  	
  Medicare Supplement Cert.

  
	
  1-1082 Cert.

  	
  Medicare Supplement Cert.

  
	
  1-109 REV.

  	
  Monthly Cash Benefit Rider

  
	
  1-110

  	
  Monthly Cash Benefit Rider

  
	
  1-1101-Cert. Rev.

  	
  Group Medicare Supplement

  
	
  1-117 REV.

  	
  Weekly Cash & Recuperation
  Rdr

  
	
  1-119 Rev.

  	
  Weekly Cash & Recuperation
  Rdr

  
	
  1-1251 Cert.

  	
  Medicare Supplement Rider

  
	
  1-1263 Cert.

  	
  Medicare Part B Rider

  
	
  1-1300 Cert.

  	
  Medicare Part A Rider

  
	
  1-1301 Cert.

  	
  Hospital Indemnity Rider

  
	
  1-1310 Cert.

  	
  Medicare Part B Increase Rider

  
	
  1-1411 Cert.

  	
  Out of Hospital Expense Rider

  
	
  1-1481 Cert.

  	
  Nurse At Home Rider

  
	
  1-1550 Cert.

  	
  Doctor Visit Rider

  
	
  1-1560 Cert. (REV.)

  	
  Skilled Nursing Care Rider

  
	
  1-1571 Cert.

  	
  Skilled Nursing Facility Rider

  
	
  1-1572 Cert. Rev.

  	
  Nursing Facility Rider

  
	
  1-1580

  	
  Skilled Nursing Care Rider

  
	
  1-1581 Cert.

  	
  Prescription Drug Rider

  
	
  1-1582 Cert.

  	
  Prescription Drug Rider

  
	
  1-1594 Cert.

  	
  Medicare Part B Rider

  
	
  1-159-47 (Rev. 4/75)

  	
  Accidental D & D Rider 

  

 

 

	
  1-1602 Cert.

  	
  After Hospital Rider

  
	
  1-1630 Cert. REV

  	
  Prescription Drug Rider

  
	
  1-1711 Cert.

  	
  Medicare Supplement Cert.

  
	
  1-1712 Cert.

  	
  Medicare Supplement Cert.

  
	
  1-1890-00

  	
  Lifetime Hospital Indemnity

  
	
  1-1970 Cert.

  	
  Prescription Drug Rider

  
	
  1-2091 Cert.

  	
  Group Long Term Care

  
	
   

  	
   

  
	
  1-2271-MT

  	
  Medicare Supplement

  
	
  1-2310

  	
  Elder Care Hospital & SNF
  Policy

  
	
  1-2310-04 REV 878

  	
  Elder Care/SNF Med Supp

  
	
  1-2310-09

  	
  Elder Care Hospital & SNF
  Policy

  
	
  1-2310-12(Rev. 10/76)

  	
  Elder Care Hospital & SNF
  Policy

  
	
  1-2310-22

  	
  Elder Care Hospital & SNF
  Policy

  
	
  1-2310-49

  	
  Elder Care Hospital & SNF
  Policy

  
	
  1-2540-09

  	
  Hospital Income/Medicare Supp

  
	
  1-2540-17

  	
  Hospital Income/Medicare Supp

  
	
  1-2550-24

  	
  Hospital Income/Medicare Supp

  
	
  1-297

  	
  Surgical Benefit Rider

  
	
  1-297-09 (REV. 2/75) 

  	
  Surgical Benefit Rider

  
	
  13700

  	
  In Hospital Medicare Supplement

  
	
  1-3700

  	
  In Hospital Medicare Supplement

  
	
  1-4021

  	
  Medicare Part A Rider

  
	
  1-4261

  	
  Medicare Part B Rider

  
	
  1-4263-MD

  	
  Medicare Part B Rider

  
	
  1-4281 Rev.

  	
  Skilled Nursing Facility Rider

  
	
  1-4291-CA

  	
  Prescription Drug Rider

  
	
  1-4310

  	
  Part B Medicare Rider

  
	
  1-4370-09

  	
  Cash Benefit Rider

  
	
  1-4430-00

  	
  Intensive Care Unit Benefit
  Rider

  
	
  1-4440 Cert.

  	
  Medicare Part B Rider

  
	
  1-4450

  	
  Elder Care SNF Rider

  
	
  1-4470

  	
  Cancer Increase Rider

  
	
  1-454-47 (Rev. 4/75)

  	
  Weekly — After Hospital Cash
  Rdr

  
	
  1-4560

  	
  Out Of Hospital Expense Rider

  
	
  1-4690

  	
  Accidental D & D Rider

  
	
  1-4700

  	
  Cash Benefit Rider

  
	
  1-4730-AL/PX

  	
  Medical Surgical Rider

  
	
  1-4810 Cert. 

  	
  Accidental D & D Rider

  
	
  1-4840 Cert. (Rev)

  	
  Hospital Indemnity Rider

  
	
  1-4850 Cert.

  	
  Skilled Nursing Rider

  
	
  1-4860 Cert. Rev.

  	
  Nursing Facility Rider

  
	
  1-5081 Cert.

  	
  Nursing Facility Rider

  
	
  1-5101 Cert.

  	
  In Hospital Medicare Part B
  Rider

  
	
  1-5111 Cert.

  	
  Ambulance & Nursing Service
  Rdr

  
	
  1-5131-Cert.

  	
  Outpatient Medicare Part B
  Rider

  

 

 

	
  1-5141 Cert.

  	
  Prescription Drug rider

  
	
  1-5151-Cert.

  	
  Nursing Facility Rider

  
	
  1-5161-Cert.

  	
  Hospital Cash Rider

  
	
  1-5171-Cert.

  	
  Ambulance & Nursing Service
  Rdr

  
	
  1-5181-Cert.

  	
  Prescription Drug Rider

  
	
  1-5191-Cert.

  	
  Nurse At Home Rider

  
	
  1-5201-Cert.

  	
  Medicare Part B Rider

  
	
  1-5501-Cert.

  	
  Accident Outpatient Rider

  
	
  1-5502 Cert.

  	
  Prescription Drug Rider

  
	
  1-5600 Cert.

  	
  Intensive Care Unit Rider

  
	
  1-5640-99

  	
  Nurse At Home Rider

  
	
  1-5720 Cert.

  	
  Ambulance & Nurse Rider

  
	
  1-5730 Cert.

  	
  Prescription Drug Rider

  
	
  1-5741 Cert.

  	
  Outpatient Rider

  
	
  1-5751 Cert.

  	
  Hospital Benefit Rider

  
	
  1-5771 Cert.

  	
  Medical Surgical Benefit Rider

  
	
  1-5781 Cert. (REV)

  	
  Intensive Care & Ambulance
  Rdr

  
	
  1-5791 Cert.

  	
  Prescription Drug Rider

  
	
  1-5830-Cert.

  	
  Nurse At Home Rider 

  
	
  1-5831 Cert. (REV)

  	
  Nurse At Home Rider

  
	
  1-5841-MD

  	
  Accident Hospital Indemnity Rdr

  
	
  1-5880 Cert. (REV)

  	
  Out of Hospital Rider

  
	
  159

  	
  Accidental D & D Rider 

  
	
  1-614 TX (REV. 1/73)

  	
  Elder Care I

  
	
  1-615 (REV. 1/74)

  	
  Elder Care II

  
	
  1-616 (REV. 1/73

  	
  Elder Care III

  
	
  1-618

  	
  In Hospital Medicare Supplement

  
	
  1-619-TX

  	
  Medicare Supplement

  
	
  1-6440 Cert.

  	
  In Hospital Medicare Supplement

  
	
  1-6660-Cert.

  	
  Medicare Supplement Certificate

  
	
  1-6811 CERT.

  	
  Group Medicare Supplement

  
	
  1-6860 CERT

  	
  Medicare Supplement Certificate

  
	
  1-8001-KS

  	
  Medicare Supplement

  
	
  1-8032

  	
  Medicare Supplement One (1)

  
	
  1-8033

  	
  Medicare Supplement Two (2)

  
	
  1-8034

  	
  Medicare Supplement Three (3)

  
	
  1-8101-OR

  	
  Medicare Supplement

  
	
  1-8111 Cert.

  	
  Group Home Health Care

  
	
  1-8260 Cert.

  	
  Group Medicare Supplement

  
	
  1-8340

  	
  Medicare Supplement

  
	
  1-8350

  	
  Medicare Supplement

  
	
  1-8360

  	
  Medicare Supplement

  
	
  1-8370-MI (Rev.)

  	
  Medicare Supplement

  
	
  1-8470 Cert. (REV.)—R

  	
  Medical Surgical Rider

  
	
  1-8480 Cert.—BR

  	
  Medical Surgical Rider

  
	
  1-8541

  	
  Group Medicare Supplement

  

 

 

	
  1-8550 Cert.

  	
  Group Medicare Supplement

  
	
  1-8960-Cert.

  	
  Group Nursing Care

  
	
  1-8991-AR (Rev.)

  	
  Nursing Care Insurance

  
	
  1-9000-Cert

  	
  Group Medicare Supplement

  
	
  1-9001 Cert.

  	
  Comprehensive Long Term Care

  
	
  1-9010 Cert.

  	
  Skilled Nursing Facility

  
	
  1-919 (Clf.) REV.

  	
  Elder Hospital Care

  
	
  1-9260 Cert.

  	
  Medicare Supplement

  
	
  1-9270 Cert.

  	
  Medicare Supplement

  
	
  1-9280 Cert. 

  	
  Medicare Supplement

  
	
  1-9290 Cert. 

  	
  Medicare Supplement

  
	
  19362

  	
  Medicare — Standard Plan A

  
	
  19363

  	
  Medicare — Standard Plan B

  
	
  19364

  	
  Medicare — Standard Plan E

  
	
  1-9940 Cert. (3/84)

  	
  Group Nursing Home

  
	
  1-9960 Cert. Rev

  	
  Group Nursing Facility

  
	
  3-1130

  	
  Medicare Supplement

  
	
  3-4630

  	
  Nursing Home Rider

  
	
  3-9080 Cert.

  	
  Medicare Supplement

  
	
  3-9980 Cert.

  	
  Medicare Supplement

  
	
  454-TX (Rev.)

  	
  Weekly — After Hospital Cash
  Rdr

  
	
  455-48

  	
  Medical Surgical Rider

  
	
  468

  	
  Comprehensive Health Policy

  
	
  498

  	
  Medicare Benefit Endorsement

  
	
  6-0940

  	
  Medicare — Standard Plan F

  
	
  701 Cert.

  	
  Dividend Hospital Accident Cert

  
	
  CAL-8201

  	
  Medicare Supplement

  
	
  CAL-8221

  	
  Medicare Supplement

  
	
  CAL-8311

  	
  Medicare Supplement

  
	
  CAL-8321

  	
  Medicare Supplement

  
	
  DR 1 2118

  	
  Medicare Supplement

  
	
  DR 1-2162

  	
  Medicare Supplement

  
	
  DR 1-2166

  	
  Medicare Supplement

  
	
  DR 1-2970

  	
  Skilled Nursing Facility

  
	
  DR 1-7920

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-2101

  	
  Elder Care III

  
	
  DR1-2111

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-2701-FL

  	
  Medicare Supplement 

  
	
  DR1-2711-FL

  	
  Medicare Supplement

  
	
  DR1-2960

  	
  Elder Care Hospital & SNF 

  
	
  DR1-4170

  	
  Skilled Nursing Facility Rider

  
	
  DR1-4180

  	
  Hospital Cash Benefit Rider

  
	
  DR1-4190

  	
  In Hospital Medicare Part B
  Rider

  
	
  DR1-4195

  	
  In Hospital Medical Surgical
  Rider

  
	
  DR1-4200

  	
  Ambulance & Nursing Service
  Rdr

  
	
  DR1-4210

  	
  Nurse At Home Benefit Rider

  

 

 

	
  DR1-4230

  	
  Outpatient Medicare Part B
  Rider

  
	
  DR1-4235

  	
  Outpatient Expense Rider

  
	
  DR1-4240

  	
  Prescription Drugs Rider

  
	
  DR1-4551-MN

  	
  Medicare Part A Deductible
  Rider

  
	
  DR1-5011 Rev.

  	
  Skilled Nursing Rider

  
	
  DR1-5031-FL

  	
  In Hospital Medicare Part B
  Rider

  
	
  DR1-5041

  	
  Outpatient Medicare Part B
  Rider

  
	
  DR1-5271

  	
  In Hospital Medical Surgical
  Rider

  
	
  DR1-7120-04

  	
  Travel & Pedestrian A D
  Rider

  
	
  DR1-7150

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7160

  	
  Elder Care I

  
	
  DR1-7160-04

  	
  Elder Hospital Care I

  
	
  DR1-7160-22

  	
  Elder Care I

  
	
  DR1-7160-40

  	
  Elder Care I

  
	
  DR1-7420

  	
  Cancer Benefit Rider

  
	
  DR1-7420-04

  	
  Cancer Benefit Rider

  
	
  DR1-7420-09

  	
  Cancer Benefit Rider

  
	
  DR1-7420-21

  	
  Cancer Benefit Rider

  
	
  DR1-7420-30

  (REV.1/78)

  	
  Cancer Benefit Rider

  
	
  DR1-7420-39

  	
  Cancer Benefit Rider

  
	
  DR1-7420-46

  	
  Cancer Benefit Rider

  
	
  DR1-7440

  	
  Elder Care III

  
	
  DR1-7760

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-04(Rev.878)

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-09

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-10

  	
  Hospital & SNF Policy

  
	
  DR1-7760-12

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-13

  	
  Hospital & SNF Policy For
  65 & Over

  
	
  DR1-7760-14

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-15(179)

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-16

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-18

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-19

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-22

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-24

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-25

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-35

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-40

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-41

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-42 (Rev.)

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-47

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-48

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7760-49

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-7790-04 (878)

  	
  Skilled Nursing Facility

  
	
  DR1-7790-09

  	
  Elder Care Skilled Nursing

  

 

 

	
  DR1-7790-14

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-15

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-18

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-19

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-22

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-24

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-25

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-36

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-37

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-39

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-40

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-41

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-42(Rev.)

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-47 (Rev)

  	
  Elder Care Skilled Nursing

  
	
  DR1-7790-47 (Rev.)

  	
  Elder Care Skilled Nursing

  
	
  DR1-7800 Rev.

  	
  Skilled Nursing Facility

  
	
  DR1-7810-42

  	
  Elder Care III

  
	
  DR1-7980-MN

  	
  Elder Care III

  
	
  DR1-8000-22

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR1-8120

  	
  Medicare Supplement

  
	
  DR1-8130

  	
  Medicare Supplement

  
	
  DR1-8140

  	
  Medicare Supplement

  
	
  DR1-8150

  	
  Medicare Supplement

  
	
  DR1-8220

  	
  Skilled Nursing Facility

  
	
  DR1-8230

  	
  Medicare Supplement

  
	
  DR3-7600-13

  	
  Elder Care Hospital & SNF
  Policy

  
	
  DR3-7800-VA

  	
  Skilled Nursing Facility

  
	
  DR3-8140-FL

  	
  Medicare Supplement

  
	
  DR5-7800-TN

  	
  Skilled Nursing Facility

  
	
  GSC-1637C

  	
  Medicare Supplement Certificate

  
	
  HI-201A

  	
  Medicare Part B Rider

  
	
  HI-201A 

  	
  Medicare Part B Rider

  
	
  HI-211 2/81

  	
  Medicare Supplement

  
	
  HJ-1—04) (DR1-7090-04)

  	
  Franchise Health Policy

  
	
  HJ-1—10(DR1-7090-10)

  	
  Franchise Health

  
	
  HJ-1—12 (DR1-7070-12)

  	
  Franchise Health Policy

  
	
  HJ-2 (DR1-7070-12)

  	
  Comprehensive Health

  
	
  HJ-2—09(DR1-7090-09)(676)

  	
  Comprehensive Health 

  
	
  HJ-2—21 (DR1-7090-21)

  	
  Health Benefit Policy

  
	
  HJ-2—22 (DR1-7090-12)

  	
  Comprehensive Health

  
	
  HJ-2—22 (DR1-7090-29)

  	
  Comprehensive Health

  
	
  HJ-2—24 (DR1-7090-12)

  	
  Health Protection

  
	
  HJ-2—32(DR-1—7090-NC(65)

  	
  Comprehensive Health

  

 

 

	
  HJ-2—39(DR1-7090-39)

  	
  Comprehensive Health

  
	
  HJ-2—42(DR17090-42)

  	
  Comprehensive Health 

  
	
  HJ-2—IL (Rev) DR1-7090-12)

  	
  Comprehensive Health

  
	
  HJ-2—TN (R) (DR1-7090)

  	
  Comprehensive Health 

  
	
  HT-502

  	
  In Hospital & Medicare

  
	
  HT-503

  	
  In Hospital & Medicare

  
	
  HT-504

  	
  In Hospital & Medicare

  
	
  LOV-8280-REPL

  	
  Medicare Supplement 

  
	
  NA 1085

  	
  Medicare Supplement

  
	
  NA 1123

  	
  Companion 65+

  
	
  NA 65C (1/90)

  	
  Medicare Supplement

  
	
  P-5—1030-00

  	
  Senior Hospital Care Plan

  
	
  Q0-53578-A

  	
  Nurse At Home Certificate

  
	
  Q0-53578-A24

  	
  Nurse At Home Certificate

  
	
  Q0-69767-A

  	
  Group Medicare Supplement

  
	
  Q0-69768-B

  	
  Group Medicare Supplement

  
	
  X0-53441-A

  	
  Group Nurse At Home Rider

  
	
  X0-88942-A

  	
  Intensive Care Certificate
  Rider

  
	
  X0-89443-A

  	
  Group Out Patient Expense Rider

  
	
  X0-89997-A24

  	
  Group After Hospital Indemnity

  
	
  1-6180 Cert.

  	
  Medicare Supplement Certificate

  
	
  1-6640 Cert.

  	
  Medicare Supplement Certificate

  
	
  6-0950

  	
  Medicare — Standard Plan G

  
	
  LOV-8290

  	
  Medicare Supplement

  

 

 

AGLA Block Reserves

POLICY FORM

	
  737 Series

  	
  AGLA 74687

  	
  MED-1 Series

  
	
  738 Series

  	
  AGLA 76789 Series

  	
  MED1-REV

  
	
  740

  	
  AGLA 76989

  	
  MED-2 Series

  
	
  73787 Series

  	
  AGLA 77089 Series

  	
  MED2-REV

  
	
  74087 Series

  	
  AGLA 77889

  	
  MED-3

  
	
  74687

  	
  AGLA 77989

  	
  OTHER

  
	
  74887

  	
  AGLA 79090 Series

  	
  SUPP-1 Series

  
	
  74987

  	
  AGLA 79190 Series

  	
  SUPP-1—A Series

  
	
  75087 Series

  	
  AGLA 79390 Series

  	
  SUPP-2 Series

  
	
  751087 Series

  	
  AGLA 82192

  	
  SUPP-2—A Series

  
	
  75587 Series

  	
  AGLA 82292

  	
  SUPP-R Series

  
	
  75687 Series

  	
  AGLA 82595

  	
   

  
	
  75689 Series

  	
   

  	
   

  
	
  6001 M-1

  	
   

  	
   

  
	
  6001 M-2

  	
   

  	
   

  
	
  6002 M-3

  	
   

  	
   

  
	
  6001 M-4

  	
   

  	
   

  

 

 

Site 17

POLICY FORM

 

	
  110137

  	
   

  	
   

  
	
  110370

  	
   

  	
   

  
	
  130305

  	
   

  	
   

  
	
  130360

  	
   

  	
   

  
	
  GSC-1310C

  	
   

  	
   

  
	
  GSC-1385C

  	
   

  	
   

  

 

 

SCHEDULE B

CEDING
COMMISSION

The Ceding Commission shall be the sum of the following:

1.                                       an
amount equal to the excess of Total SAP Ceded Reserves over Total GAAP Ceded
Reserves measured as of the close of business on the day immediately preceding
the Inception Date (which amount may be negative);

2.                                       an amount equal
to the unamortized PVFP intangible asset balance of the Company with respect to
the Reinsured Policies as measured as of the close of business on the day
immediately preceding the Inception Date, determined in accordance with GAAP;

3.                                       an amount equal
to the unamortized deferred acquisition costs of the Company with respect to
the Reinsured Policies as measured as of the close of business on the day
immediately preceding the Inception Date, determined in accordance with GAAP;
and

4.                                       an amount equal
to the excess of the GAAP book value of the Assets (excluding any related mark
to market adjustments for SFAS 115 requirement) over the SAP book value of the
Assets measured as of the close of business on the day immediately preceding
the Inception Date (which amount may be negative).

 

 

SCHEDULE C

 

ASSETS

 

 

	
   

  	
   

  	
  Transfer
  Document

  	
   

  	
  From

  	
   

  	
  To

  	
   

  	
   

  	
   

  	
  Nature of

  Transfer

  	
   

  	
  Cash Map
  Cross-

  Reference

  	
   

  	
  Schedule

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  UFLIC MS

  Coinsurance

  	
   

  	
  UFLIC

  	
   

  	
  FHL

  	
   

  	
   

  	
   

  	
  Treaty

  	
   

  	
  (83)

  	
   

  	
  Schedule C

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Called

  Securities *

  	
   

  	
  Parent Name

  	
   

  	
  Issuer
  Name

  	
   

  	
  1Q04 Cusip

  	
   

  	
  1Q04

  Tax lot

  	
   

  	
  12/31/03
  Local

  Par

  	
   

  	
  12/31/03
  GAAP

  BV (incl attached

  derivative)

  	
   

  	
  12/31/03
  Accrued

  Interest

  	
   

  	
  12/31/03
  GAAP

  BV + Accrued

  Interest

  	
   

  	
  12/31/03
  STAT

  BV (incl attached

  derivative)

  	
   

  	
  12/31/03
  Accrued

  Interest

  	
   

  	
  12/31/03 STAT

  BV + Accrued

  Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [Individual Asset Details Omitted]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Asset Sub Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  9,832,601.43

  	
   

  	
  94,536.36

  	
   

  	
  9,927,137.79

  	
   

  	
  9,832,601.43

  	
   

  	
  94,536.36

  	
   

  	
  9,927,137.79

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  114,617.97

  	
   

  	
   

  	
   

  	
  114,617.97

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  9,947,219.40

  	
   

  	
   

  	
   

  	
  10,041,755.76

  	
   

  

 

* These Securities will not be transferred.
The “Call Amount” will be settled in cash

 

 

SCHEDULE D

 

INITIAL REPORT

 

	
  1.

  	
  Total SAP Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Active Life Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Claim Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Unearned Premium Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D.

  	
  Advanced Premium

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  E.

  	
  Less: Due and Unpaid Premium

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total SAP Ceded Reserves (A+B+C+D-E)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Ceding Commission:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Excess SAP Ceded Reserves over GAAP Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1)

  	
  Total SAP Ceded Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2)

  	
  Total GAAP Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  a.

  	
  Active Life Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  b.

  	
  Maintenance Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  c.

  	
  Loss Expense Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  d.

  	
  Claim Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  e.

  	
  Unearned Premium Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  f.

  	
  Advanced Premium

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  g.

  	
  Less: Due and Unpaid Premium

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total GAAP Ceded Reserves (a+b+c+d+e+f-g)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Excess SAP Reserves over GAAP Reserves (A1-A2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Present Value of Future Profits (PVFP)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
  C.

  	
  Deferred Acquisition Costs (DAC)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
  D.

  	
  Asset Book Value Difference -

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1)

  	
  Asset Book Value (GAAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2)

  	
  Asset Book Value (SAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Excess Asset Book Value (D1-D2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Total Ceding Commission (A+B+C+D)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Accrued Interest on Assets as of the day before Inception Date

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Investment Cash Flows on the Assets from the Inception Date through
  the Closing Date

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Net Due Reinsurer (1-2-3+4)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
													

 

 

SCHEDULE E

 

FORM OF TRUST AGREEMENT

 

 

TRUST
AGREEMENT

 

This TRUST AGREEMENT, dated as of           ,
2004 (this “Trust Agreement”), among Federal Home Life Insurance Company, an
insurance company organized under the laws of the Commonwealth of Virginia (the
“Grantor”), Union Fidelity Life Insurance Company, an insurance company
organized under the laws of the State of Illinois (the “Beneficiary”), and The
Bank of New York, a New York corporation (the “Trustee”) (the Grantor, the
Beneficiary and the Trustee are hereinafter each sometimes referred to
individually as a “Party” and collectively as the “Parties”).

 

RECITALS:

 

WHEREAS, the Grantor and the Beneficiary desire to create a trust
account (the “Trust Account”) for the benefit of the Beneficiary; and

 

WHEREAS, the Trustee has agreed to act as Trustee hereunder, and to
hold assets in the Trust Account for the sole and exclusive use and benefit of
the Beneficiary in accordance with the terms and conditions of this Trust
Agreement; and

 

NOW, THEREFORE, for and in consideration of the premises and the
promises and the mutual agreements hereinafter set forth, the Parties,
intending to be legally bound, covenant and agree as follows:

 

Section 1.            Deposit
of Assets into the Trust Account.

 

(a)           The
Grantor hereby establishes the Trust Account with the Trustee for the sole use
and benefit of the Beneficiary, under the terms set forth herein.  The Trustee shall administer the Trust
Account in its name as Trustee for the sole use and benefit of the
Beneficiary.  The Trust Account shall be
subject to withdrawal by the Beneficiary solely as provided herein.  The Trustee hereby accepts the Trust Account
upon the terms set forth in this Trust Agreement.

 

(b)           The
Grantor shall transfer to the Trustee, for deposit into the Trust Account, the
assets listed on Exhibit A hereto, and may transfer to the Trustee, for deposit
into the Trust Account, such other assets as it may from time to time desire to
transfer or be required to transfer (all such assets actually received in the
Trust Account are herein referred to individually as an “Asset” and
collectively as the “Assets”). The Trustee is authorized and shall have power
to receive the Assets from the Grantor and to hold, invest, reinvest and
dispose of the same for the uses and purposes of and according to the
provisions herein set forth.  All Assets
shall be maintained by the Trustee in the Trust Account separate and distinct
from all other assets on the books of the Trustee and shall be continuously
kept in a safe place at the Trustee’s office within the United States of
America. The Assets shall be valued according to their current fair market
value and shall consist only of cash (United States legal tender) and Eligible
Securities (as hereinafter defined).  In
the event of any payment default as to any Asset in the Trust Account or in the
event that any Asset no longer is an Eligible Security, the Grantor shall,
within five (5) business days after receiving notice from the Trustee pursuant
to Section 17 or the Grantor having knowledge of such default or
ineligibility, substitute other Assets which meet the requirements of an
Eligible Security and having a current fair market value equal to the current

 

 

fair market value of such Asset, which has a payment default or no
longer meets the requirements for an Eligible Security, on the last statement
provided by the Trustee.

 

(c)           The
Grantor hereby represents and warrants (i) that any Assets transferred by the
Grantor to the Trustee for deposit to the Trust Account will be in such form
that the Beneficiary whenever necessary may, and the Trustee upon direction by
the Beneficiary will, negotiate any such Assets without consent or signature
from the Grantor or any other person or entity in accordance with the terms of
this Trust Agreement, (ii) that all Assets transferred by the Grantor to the
Trustee for deposit into the Trust Account consist only of cash and Eligible
Securities, and (iii) that Grantor has at the time of transfer into this Trust
Account good and marketable title to the Assets to be so transferred and each
such Asset shall be at the time of transfer free and clear of all claims,
liens, interests and encumbrances (other than those arising under this Trust
Agreement).

 

(d)           Prior
to depositing the Assets into the Trust Account, and from time to time
thereafter as required, the Grantor shall execute assignments, endorsement in
blank, or transfer legal title to the Trustee of all shares, obligations or
other Assets requiring assignments, so that the Beneficiary, whenever necessary
may, and the Trustee upon the direction by the Beneficiary will, negotiate any
such Assets without the consent or signature from the Grantor or any other
person or entity.  Any Assets received
by the Trustee which are not in such proper negotiable form shall not be
accepted by the Trustee and shall be returned to the Grantor as unacceptable.
The Grantor shall give all notices and take all actions as the Trustee deems
appropriate in order to cause payments due or that become due on any Asset
within the Trust Account to be paid to the Trustee.  The Grantor shall not make or consent to any waiver, amendment or
restriction on transfer with respect to any Asset in the Trust Account, in each
case, without the  Beneficiary’s prior
written consent.  In connection with the
deposit of Assets into the Trust Account, the Grantor shall furnish to the
Trustee all original documentation evidencing the Grantor’s ownership thereto.

 

Section 2.            Withdrawal
of Assets from the Trust Account.

 

(a)           Without
notice to the Grantor, the Beneficiary shall have the right, at any time and
from time to time, to withdraw from the Trust Account, subject only to written
notice from the Beneficiary to the Trustee (the “Withdrawal Notice”), such
Assets as are specified in such Withdrawal Notice. The Withdrawal Notice may
designate a third party (the “Beneficiary Designee”) to whom Assets specified
therein shall be delivered. The Beneficiary shall not be required to present
any other statement or document in addition to a Withdrawal Notice in order to
withdraw any Assets, except that the Beneficiary shall acknowledge receipt of
any such Assets withdrawn upon request by the Trustee; nor is said right of
withdrawal or any other provision of this Trust Agreement subject to any
conditions or qualifications not contained in this Trust Agreement.

 

(b)           Upon
receipt of a Withdrawal Notice, the Trustee shall immediately take any and all
steps necessary to transfer absolutely and unequivocally all right, title and
interest in the Assets specified in such Withdrawal Notice and shall deliver
physical custody (or such other form as is necessary to complete the transfer)
of such Assets to or for the account of the Beneficiary or such Beneficiary
Designee, as specified in such Withdrawal Notice.  The Trustee

 

 

shall notify the Grantor and Beneficiary within ten (10) days following
each withdrawal from the Trust Account.

 

(c)           Subject
to Section 3, in the absence of a Withdrawal Notice, the Trustee shall
allow no substitution or withdrawal of any Asset from the Trust Account.

 

Section 3.            Redemption,
Investment and Substitution of  Assets.

 

(a)           The
Trustee shall surrender for payment all maturing Assets and all Assets called
for redemption, and deposit the principal amount of the proceeds of any such
payment to the Trust Account.

 

(b)           The
Grantor, subject to the prior written approval of the Beneficiary, may retain
(and pay the service fees of ) a professional asset manager (the “Asset
Manager”) to manage and make investment decisions with regard to the Assets
held by the Trustee in the Trust Account. 
From time to time, at the written order and direction of the Grantor or
the Asset Manager, the Trustee shall invest Assets in the Trust Account in
Eligible Securities.

 

(c)           From
time to time, subject to the prior written approval of the Beneficiary, the
Grantor or the Asset Manager may direct the Trustee to substitute Assets of
equal current fair market value for other Assets presently held in the Trust
Account. The Trustee shall have no responsibility whatsoever to determine the
value of such substituted Assets or that such substituted Assets constitute Eligible
Securities.

 

(d)           All
investments and substitutions of securities referred to in Sections 3(b) and
3(c) above shall be in compliance with the definition of “Eligible Securities”
in Section 10 of this Trust Agreement. Any instruction or order concerning
such investments or substitutions of securities shall be referred to herein as
an “Investment Order”. The Trustee shall execute Investment Orders and settle
securities transactions by itself or by means of an agent or broker. The
Trustee shall not be responsible for any act or omission, or for the solvency,
of any such agent or broker, except as set forth in Section 6.

 

(e)           From
time to time, upon notice to the Beneficiary, the Trustee may withdraw any
Asset in the Trust Account upon the call or maturity of such Asset provided
that the proceeds from such call or maturity are deposited into the Trust
Account.

 

(f)            When
the Trustee is directed to deliver Assets against payment, delivery will be
made in accordance with generally accepted market practice.

 

(g)           Any
loss incurred from any investment pursuant to the terms of this Section 3
shall be borne exclusively by the Trust Account.

 

Section 4.            The
Income Account.

 

All payments of interest, dividends and other income in respect to
Assets in the Trust Account shall be the property of the Grantor and shall be
deposited by the Trustee, subject to deduction of the Trustee’s compensation
and expenses as provided in Section 7 of this Agreement, in a separate
account (the “Income Account”) established and maintained by the

 

 

Grantor at an office of the Trustee. 
Any interest, dividend or other income automatically posted and credited
on the payment date to the Income Account which is not subsequently received by
the Trustee shall be reimbursed by the Grantor to the Trustee and the Trustee
may debit the Income Account for this purpose. The Grantor may withdraw amounts
from the Income Account at any time and from time to time.

 

Section 5.            Right
to Vote Assets.

 

The Trustee shall forward all annual and interim stockholder reports
and all proxies and proxy materials relating to the Assets in the Trust Account
to the Grantor within a reasonable period of time following the Trustee’s
receipt thereof.  The Grantor shall have
the full and unqualified right to vote any shares of stock in the Trust
Account.

 

Section 6.            Additional
Rights and Duties of the Trustee.

 

(a)           The
Trustee shall be a bank which is a member of the Federal Reserve System of the
United States of America or a New York State chartered bank or trust company
and shall not be a parent, subsidiary or affiliate of the Grantor or the
Beneficiary.

 

(b)           Notwithstanding
any provision of this Agreement to the contrary, the Trustee shall not be
liable except for its own negligence, willful misconduct or lack of good faith arising
out of or in connection with the performance of its obligations in accordance
with this Trust Agreement.

 

(c)           The
Trustee shall have no responsibility whatsoever to determine that any Assets in
the Trust Account are or continue to be Eligible Securities.

 

(d)           The
Trustee shall notify the Grantor and the Beneficiary in writing within ten (10)
days following each deposit into, or withdrawal from, the Trust Account and
shall notify the Grantor promptly of the receipt by the Trustee of any
Withdrawal Notice.

 

(e)           Before
accepting any Asset for deposit to the Trust Account, the Trustee shall
determine that such Asset is in such form that the Beneficiary whenever
necessary may, or the Trustee upon direction by the Beneficiary will, negotiate
such Asset without consent or signature from the Grantor or any person or
entity other than the Trustee in accordance with the terms of this Trust
Agreement.

 

(f)            The
Trustee shall be under no obligation to determine whether or not any
instructions given by the Grantor and Beneficiary are contrary to any provision
of law. It is understood and agreed that the Trustee’s duties are solely those
set forth herein and that the Trustee shall have no duty to take any other
action unless specifically agreed to by the Trustee in writing. Without
limiting the generality of the foregoing, the Trustee shall not have any duty
to advise, manage, supervise or make recommendations with respect to the
purchase, retention or sale of Assets with respect to any Assets in the Trust
Account as to which a default in the payment of principal or interest has
occurred or to be responsible for the consequences of insolvency or the legal
inability of any broker, dealer, bank or other agent employed by the Grantor or
Trustee with respect to the Assets except to the extent that the Trustee was
negligent, engaged in misconduct or acted in bad faith in the selection of any
such person or entity.

 

 

(g)           The
Trustee shall accept and open all mail directed to the Grantor or the
Beneficiary in care of the Trustee.

 

(h)           The
Trustee shall furnish to the Grantor and the Beneficiary a statement of all
Assets in the Trust Account upon the inception of the Trust Account and at the
end of each quarter thereafter.  The
statement shall include a description of the Assets in the Trust Account and
the then current market value of the Assets and shall be delivered within five
(5) business days following the end of such quarter.

 

(i)            The
Trustee shall keep full and complete records of the administration of the Trust
Account in accordance with all applicable law. 
Upon the request of the Grantor or the Beneficiary, the Trustee shall
promptly permit the Grantor or the Beneficiary, their respective agents,
employees, independent auditors and regulatory authorities to examine, audit,
excerpt, transcribe and copy, during the Trustee’s normal business hours, any
books, documents, papers and records relating to the Trust Account or the
Assets.

 

(j)            Unless
otherwise provided in this Trust Agreement, the Trustee is authorized to follow
and rely upon all instructions given by officers of the Grantor or the
Beneficiary and by attorneys-in-fact acting under written authority furnished
to the Trustee by the Grantor or the Beneficiary, including, without
limitation, instructions given by letter, facsimile transmission or electronic
media, if the Trustee believes such instructions to be genuine and to have been
signed, sent or presented by the proper party or parties. In the absence of
negligence, the Trustee shall not incur any liability to anyone resulting from
actions taken by the Trustee in reliance in good faith on such
instructions.  The Trustee shall not
incur any liability in executing instructions (i) from any attorney-in-fact
prior to receipt by it of notice of the revocation of the written authority of
the attorney-in-fact or (ii) from any officer of the Grantor or the
Beneficiary.

 

(k)           The
duties and obligations of the Trustee shall only be such as are specifically
set forth in this Trust Agreement, as it may from time to time be amended, and
no implied duties or obligations shall be read into this Trust Agreement
against the Trustee.

 

(l)            No
provision of this Trust Agreement shall require the Trustee to take any action
which, in the Trustee’s reasonable judgment, would result in any violation of
this Trust Agreement or any provision of law.

 

(m)          The
Trustee may confer with counsel of its own choice in relation to matters
arising under this Trust Agreement and shall have full and complete
authorization from the other Parties for any action taken or suffered by it
under this Trust Agreement or in respect of any transaction contemplated hereby
in good faith and in accordance with the opinion of such counsel.

 

(n)           The
Trustee shall notify the Grantor and Beneficiary in writing of any payment
default occurring as to any Asset within three (3) business days after Trustee
receives notice of such default.  In the
event of a delinquency of a timely payment in regard to any of the Assets, the
Trustee shall inform the Grantor and the Beneficiary immediately upon Trustee’s
receipt of notice of such delinquency (which shall be confirmed in writing by
the Trustee within two (2) business days thereof).

 

 

(o)           The
Trustee shall be liable for (i) the safekeeping of the Assets and administering
the Trust Account in accordance with the provisions of this Trust Agreement and
(ii) its own negligence, willful misconduct or lack of good faith in performing
its duties under this Trust Agreement. 
The Trustee shall exercise the standard of care with respect to the
Assets that a professional trustee, engaged in the banking or trust company
industry, having professional expertise in financial and securities processing
transactions and custody would observe in such affairs.  The Trustee shall be responsible for physical
loss of or damage to Assets under its care, custody, possession or control,
including but not limited to loss due to fire, burglary, robbery, theft or
mysterious disappearance.  In the event
of loss or damage to the Assets under the care, custody, possession or control
of Trustee, Trustee shall, upon demand of the Grantor or Beneficiary, promptly
replace such Assets with like kind and quality together with, all rights and
privileges pertaining to the Assets (by among other methods, posting appropriate
security or bond with the issuer of the Assets to obtain reissue of such
Assets, or, if acceptable to the Grantor, deliver cash equivalent to the market
value of the Assets as of the date of the discovery of the loss or damage).  Nothing contained in any contract between
Trustee and any entity authorized to hold Assets, as defined herein, shall
diminish or otherwise alter the liability of Trustee to the Grantor or
Beneficiary.  The provisions of this
paragraph shall not affect the burden of proof under applicable law with
respect to the assertions of liability in any claim, action or dispute alleging
any breach of or failure to observe such standard of care.

 

Section 7.            The
Trustee’s Compensation; Expenses.

 

(a)           The
Grantor shall pay the Trustee, as compensation for its services under this
Trust Agreement, a fee computed at rates determined by the Trustee from time to
time and communicated in writing to the Grantor. The Grantor shall pay or
reimburse the Trustee for all of the Trustee’s expenses and disbursements in
connection with its duties under this Trust Agreement (including reasonable
attorney’s fees and expenses), except any such expense or disbursement as may
arise from the Trustee’s negligence, willful misconduct, lack of good faith or
failure to administer the Trust Account in accordance with the terms of this
Trust Agreement.  The Trustee shall be
entitled to deduct its compensation and expenses from payments of dividends,
interest and other income in respect of the Assets held in the Trust Account
prior to the deposit thereof to the Income Account as provided in
Section 4 of this Agreement. The Grantor also hereby indemnifies the
Trustee for, and holds it harmless against, any loss, liability, costs or
expenses (including reasonable attorney’s fees and expenses) incurred or made
without negligence, willful misconduct or lack of good faith on the part of the
Trustee, arising out of or in connection with the performance of its
obligations in accordance with the provisions of this Trust Agreement (which
shall be the sole obligation of the Trustee), including any loss, liability,
costs or expenses arising out of or in connection with the status of the
Trustee and its nominee as the holder of record of the Assets. The Grantor
hereby acknowledges that the foregoing indemnities shall survive the
resignation of the Trustee or the termination of this Trust Agreement and
hereby grants the Trustee a lien, right of set-off and security interest in the
funds in the Income Account for the payment of any claim for compensation,
reimbursement or indemnity hereunder.

 

(b)           No
Assets shall be withdrawn from the Trust Account or used in any manner for
paying compensation to, or reimbursement or indemnification of, the Trustee.

 

 

Section 8.            Resignation
or Removal of the Trustee.

 

(a)           The
Trustee may resign at any time upon delivery of a written notice thereof to the
Beneficiary and to the Grantor effective not less than ninety (90) days after
receipt by the Beneficiary and the Grantor of such notice. The Trustee may be removed
by the Grantor’s delivery to the Trustee and the Beneficiary of a written
notice of removal, effective not less than ninety (90) days after receipt by
the Trustee and the Beneficiary of such notice. The Trustee may also be removed
by prior written notice executed by the Grantor and the Beneficiary. No such
resignation or removal shall become effective until a successor Trustee has
been appointed and approved by the Beneficiary and the Grantor and all Assets
in the Trust Account have been duly transferred to the successor Trustee in
accordance with paragraph (b) of this Section 8.

 

(b)           Upon
receipt by the proper Parties of the Trustee’s notice of resignation or the
Grantor’s or the Grantor’s and the Beneficiary’s notice of removal, as
applicable, the Grantor and the Beneficiary shall appoint a successor Trustee.
Any successor Trustee shall be a bank that is a member of the Federal Reserve
System of the United States of America or a New York State chartered bank or
trust company and must not be a parent, a subsidiary or an affiliate of the
Grantor or the Beneficiary.  Upon the
acceptance of the appointment as Trustee hereunder by a successor Trustee and
the transfer to such successor Trustee of all Assets in the Trust Account, the
resignation or removal of the Trustee shall become effective. Thereupon, such
successor Trustee shall succeed to and become vested with all the rights,
powers, privileges and duties of the resigning or removed Trustee, and the
resigning or removed Trustee shall be discharged from any future duties and
obligations under this Trust Agreement, but the resigning or removed Trustee
shall continue after such resignation or removal to be entitled to the benefits
of the indemnities provided herein for the Trustee.

 

Section 9.            Termination
of the Trust Account.

 

The Trust Account and this Trust Agreement shall be effective until
terminated by sixty (60) days’ advance written notice sent to the Trustee by
the Grantor. Written notice of termination shall be delivered by the Trustee to
the Beneficiary at least thirty (30) but not more than forty-five (45) days
prior to termination. Upon the termination of the Trust Account, the Trustee
shall, with the Beneficiary’s prior written consent, transfer to the Grantor
all of the Assets of the Trust Account and Income Account not previously
withdrawn by the Beneficiary.

 

Section 10.          Definitions.

 

Except as the context shall otherwise require, the following terms
shall have the following meanings for purposes of this Trust Agreement (the
definitions to be applicable to both the singular and the plural forms of each
term defined if both forms of such term are used in this Trust Agreement):

 

The term “Beneficiary” shall include any successor of the Beneficiary
by operation of law, including, without limitation, any liquidator,
rehabilitator, receiver or conservator.

 

The term “Eligible Securities” shall mean and include certificates of
deposit (issued by a United States bank and payable in United States legal
tender) and investments of the types specified in paragraphs (1), (2), (3), (8)
and (10) of Section 1404(a) of the New York Insurance

 

 

Law; provided, however, that such investments are issued
by an institution that is not the parent, a subsidiary or an affiliate of
either the Grantor or the Beneficiary.

 

The terms “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.

 

Section 11.          Governing
Law.

 

This Trust Agreement shall be subject to and governed by the laws of
the State of New York, without regard to its conflict of laws provision and the
Trust Account created hereunder shall be administered in accordance with the
laws of said state.

 

Section 12.          WAIVER
OF JURY TRIAL.

 

EACH
PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
RELATIONSHIP ESTABLISHED HEREUNDER. 
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO
THIS AGREEMENT.

 

Section 13.          Successors
and Assigns.

 

This Trust Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors, permitted assigns and legal
representatives.  Neither this Trust
Agreement, nor any right or obligation hereunder, may be assigned by any Party
without the prior written consent of the other Parties hereto.  Any assignment in violation of this
Section 13 shall be void and shall have no force and effect.

 

Section 14.          Severability.
 

 

If any provision of this Trust Agreement is held to be void or
unenforceable, in whole or in part, (i) such holding shall not affect the
validity and enforceability of the remainder of this Trust Agreement, including
any other provision, paragraph or subparagraph, and (ii) the Parties agree to
attempt in good faith to reform such void or unenforceable provision to the
extent necessary to render such provision enforceable and to carry out its
original intent.

 

Section 15.          Entire
Agreement.

 

This Trust Agreement constitutes the entire agreement among the Parties
with respect to the subject matter hereof, and there are no understandings or
agreements, conditions or qualifications relative to this Trust Agreement which
are not fully expressed in this Trust Agreement.

 

 

Section 16.          Amendments.

 

This Trust Agreement may be modified or otherwise amended, and the
observance of any term of this Trust Agreement may be waived, only if such
modification, amendment or waiver is in writing and signed by the Parties.

 

Section 17.          Notices.

 

All notices, requests, demands and other communications under this
Trust Agreement must be in writing and will be deemed to have been duly given
or made as follows:  (a) if sent by
registered or certified mail in the United States return receipt requested,
upon receipt; (b) if sent by reputable overnight air courier, two business days
after mailing; (c) if sent by facsimile transmission, with a copy mailed on the
same day in the manner provided in (a) or (b) above, when transmitted and
receipt is confirmed by telephone; or (d) if otherwise actually personally
delivered, when delivered, and shall be delivered as follows:

 

If to the Grantor:

 

Federal Home Life Insurance Company

6620 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 662-2414

Attention:  Chief Executive Officer

 

With a copy to:

 

Federal Home Life Insurance Company

700 Main Street

Lynchburg, VA 24504

Facsimile:  (434) 948-5819

Attention:  General Counsel

 

If to the Beneficiary:

 

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile: (847) 330-3404

Attention: Chief Financial Officer

 

With a copy to:

 

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

 

 

If to the Trustee:

 

The Bank of New York

101 Barclay Street - 8W

New York, NY 10283

Facsimile:  (212) 815-5875

Attention:  Insurance Trust and Escrow
Unit

 

or to such other address or to such other Person as a Party may have
last designated by notice to the other Parties.

 

Section 18.          Headings.

 

The headings of the Sections have been inserted for convenience of
reference only and shall not be deemed to constitute a part of this Trust
Agreement.

 

Section 19.          Counterparts.

 

This Trust Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall constitute an original, but
such counterparts together shall constitute but one and the same Trust
Agreement.

 

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Trust Agreement to be executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.

 

 

	
   

  	
  FEDERAL HOME LIFE INSURANCE

  COMPANY, as Grantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UNION FIDELITY LIFE INSURANCE

  COMPANY, as Beneficiary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK, as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

EXHIBIT
A

 

Assets

 

 

BUSINESS
ASSOCIATE ADDENDUM

 

I.              Purpose.

 

In order to disclose certain information to the party providing a
service under this Agreement (“Provider”) under this Addendum, some of which
may constitute Protected Health Information (defined below), the party to whom
a service under this Agreement is being provided (“Recipient”) and Provider
mutually agree to comply with the terms of this Addendum for the purpose of
satisfying the requirements of the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) and its implementing privacy regulations
at 45 C.F.R. Parts 160-164 (“HIPAA Privacy Rule”).   These provisions shall apply to Provider to the extent that
Provider is considered a “Business Associate” under the HIPAA Privacy Rule and
all references in this section to Business Associates shall refer to
Provider.  Capitalized terms not
otherwise defined herein shall have the meaning assigned in the Agreement.  Notwithstanding anything else to the
contrary in the Agreement, in the event of a conflict between this Addendum and
the Agreement, the terms of this Addendum shall prevail.

 

II.            Permitted
Uses and Disclosures.

 

A.    Business Associate agrees to use or disclose
Protected Health Information (“PHI”) that it creates for or receives from
Recipient or its Subsidiaries only as follows. 
The capitalized term “Protected Health Information or PHI” has the
meaning set forth in 45 Code of Federal Regulations Section 164.501, as
amended from time to time.  Generally,
this term means individually identifiable health information including, without
limitation, all information, data and materials, including without limitation,
demographic, medical and financial information, that relates to the past,
present, or future physical or mental health or condition of an individual; the
provision of health care to an individual; or the past present, or future
payment for the provision of health care to an individual; and that identifies
the individual or with respect to which there is a reasonable basis to believe
the information can be used to identify the individual.  This definition shall include any
demographic information concerning members and participants in, and applicants
for, Recipient’s or its Subsidiaries’ health benefit plans.  All other terms used in this Addendum shall
have the meanings set forth in the applicable definitions under the HIPAA
Privacy Rule.

 

B.    Functions and Activities on Company’s Behalf.  Business Associate is permitted to use and
disclose PHI it creates for or receives from Recipient or its Subsidiaries only
for the purposes described in this Addendum or the Agreement that are not
inconsistent with the provisions of this Addendum, or as required by law, or
following receipt of prior written approval from whichever of the Recipient or
its Subsidiary for which the relevant PHI was created or from which the
relevant PHI was received.  In addition
to these specific requirements below, Business Associate may use or disclose
PHI only in a manner that would not violate the HIPAA Privacy Rule if done by
the Recipient or its Subsidiaries.

 

C.    Business Associate’s Operations.  Business Associate is permitted by this
Agreement to use PHI it creates for or receives from Recipient or its
Subsidiaries: (i) if such

 

 

use is reasonably necessary for Business Associate’s proper management
and administration; and (ii) as reasonably necessary to carry out Business
Associate’s legal responsibilities. Business Associate is permitted to disclose
PHI it creates for or receives from Recipient or its Subsidiaries for the
purposes identified in this Section only if the following conditions are
met:

 

(1)  The disclosure is required
by law; or

 

(2)  The disclosure is
reasonably necessary to Business Associate’s proper management and
administration, and Business Associate obtains reasonable assurances in writing
from any person or organization to which Business Associate will disclose such
PHI that the person or organization will:

 

a. Hold such PHI as confidential and use or further disclose it only
for the purpose for which Business Associate disclosed it to the person or
organization or as required by law; and

 

b. Notify Business Associate (who will in turn promptly notify
whichever of the Recipient or its Subsidiary for which the relevant PHI was
created or from which the relevant PHI was received) of any instance of which
the person or organization becomes aware in which the confidentiality of such
PHI was breached.

 

D.    Minimum Necessary Standard.  In performing the functions and activities
on Recipient’s or its Subsidiaries’ behalf pursuant to the Agreement, Business
Associate agrees to use, disclose or request only the minimum necessary PHI to
accomplish the purpose of the use, disclosure or request.  Business Associate must have in place policies
and procedures that limit the PHI disclosed to meet this minimum necessary
standard.

 

E.     Prohibition on Unauthorized Use or Disclosure.  Business Associate will neither use nor
disclose PHI it creates or receives for or from Recipient, its Subsidiaries, or
from another business associate of Recipient or its Subsidiaries, except as
permitted or required by this Addendum or the Agreement that are not
inconsistent with the provisions of this Addendum, or as required by law, or
following receipt of prior written approval from whichever of the Recipient or
its Subsidiary for which the relevant PHI was created or from which the
relevant PHI was received.

 

F.     De-identification of Information.  Business Associate agrees neither to
de-identify PHI it creates for or receives from Recipient or its Subsidiaries
or from another business associate of Recipient or its Subsidiaries, nor use or
disclose such de-identified PHI, unless such de-identification is expressly
permitted under the terms and conditions of this Addendum or the Agreement and
related to Recipient’s or its Subsidiaries’ activities for purposes of
“treatment”, “payment” or “health care operations”, as those terms are defined
under the HIPAA Privacy Rule. 
De-identification of PHI, other than as expressly permitted under the
terms and conditions of the Addendum for Business Associate to perform services
for Recipient or its Subsidiaries, is not a permitted use of PHI under this
Addendum.  Business Associate further
agrees that it will not create a “Limited Data Set” as defined by the HIPAA
Privacy Rule using PHI it creates or receives, or receives from another
business

 

 

associate of Recipient or its Subsidiaries, nor use or disclose such
Limited Data Set unless: (i) such creation, use or disclosure is expressly
permitted under the terms and conditions of this Addendum or the Agreement that
are not inconsistent with the provisions of this Addendum; and such creation,
use or disclosure is for services provided by Business Associate that relate to
Recipient’s or its Subsidiaries’ activities for purposes of “treatment”,
“payment” or “health care operations”, as those terms are defined under the
HIPAA Privacy Rule.

 

G.    Information Safeguards.  Business Associate will develop, document,
implement, maintain and use appropriate administrative, technical and physical
safeguards to preserve the integrity and confidentiality of and to prevent
non-permitted use or disclosure of PHI created for or received from Recipient
or its Subsidiaries.  These safeguards
must be appropriate to the size and complexity of Business Associate’s
operations and the nature and scope of its activities.  Business Associate agrees that these
safeguards will meet any applicable requirements set forth by the U.S.
Department of Health and Human Services, including (as of the effective date or
as of the compliance date, whichever is applicable) any requirements set forth
in the final HIPAA security regulations. 
Business Associate agrees to mitigate, to the extent practicable, any
harmful effect that is known to Business Associate resulting from a use or
disclosure of PHI by Business Associate in violation of the requirements of
this Addendum.

 

III.           Conducting
Standard Transactions.  In the
course of performing services for Recipient or its Subsidiaries, to the extent
that Business Associate will conduct Standard Transactions for or on behalf of
Recipient or its Subsidiaries, Business Associate will comply, and will require
any subcontractor or agent involved with the conduct of such Standard
Transactions to comply, with each applicable requirement of 45 C.F.R. Part
162.  “Standard Transaction(s)” shall
mean a transaction that complies with the standards set forth at 45 C.F.R.
parts 160 and 162.  Further, Business
Associate will not enter into, or permit its subcontractors or agents to enter
into, any trading partner agreement in connection with the conduct of Standard
Transactions for or on behalf of the Recipient or its Subsidiaries that:

 

a.     Changes the definition, data condition, or use of
a data element or segment in a Standard Transaction;

 

b.     Adds any data element or segment to the maximum
defined data set;

 

c.     Uses any code or data element that is marked “not
used” in the Standard Transaction’s implementation specification or is not in
the Standard Transaction’s implementation specification; or

 

d.     Changes the meaning or intent of the Standard
Transaction’s implementation specification.

 

IV.           Sub-Contractors,
Agents or Other Representatives.   Business Associate will require any of its subcontractors, agents
or other representatives to which Business Associate is permitted by this
Addendum or the Agreement (or is otherwise given Recipient’s or the relevant
Subsidiary’s prior written approval) to disclose any of the PHI Business
Associate creates or receives for or

 

 

from Recipient or its Subsidiaries, to provide reasonable assurances in
writing that subcontractor or agent will comply with the same restrictions and
conditions that apply to the Business Associate under the terms and conditions
of this Addendum with respect to such PHI.

 

V.            Protected
Health Information Access, Amendment and Disclosure Accounting.

 

A.    Access.  Business
Associate will promptly upon Recipient’s or its Subsidiary’s request make
available to Recipient, its Subsidiary, or, at Recipient’s or such Subsidiary’s
direction, to the individual (or the individual’s personal representative) for
inspection and obtaining copies any PHI about the individual which Business
Associate created for or received from Recipient or its Subsidiary and that is
in Business Associate’s custody or control, so that Recipient or its Subsidiary
may meet its access obligations under 45 Code of Federal Regulations
§ 164.524.

 

B.    Amendment. 
Upon Recipient’s or its Subsidiary’s request Business Associate will
promptly amend or permit Recipient or its Subsidiary access to amend any
portion of the PHI which Business Associate created for or received from
Recipient or its Subsidiary, and incorporate any amendments to such PHI, so
that Recipient or its Subsidiary may meet its amendment obligations under 45
Code of Federal Regulations § 164.526.

 

C.    Disclosure Accounting.  So that Recipient or its Subsidiaries may
meet their disclosure accounting obligations under 45 Code of Federal
Regulations § 164.528:

 

1.     Disclosure Tracking.  Business Associate will record for each
disclosure, not excepted from disclosure accounting under Section V.C.2
below, that Business Associate makes to Recipient or its Subsidiaries of PHI
that Business Associate creates for or receives from Recipient or its Subsidiaries,
(i) the disclosure date, (ii) the name and member or other policy
identification number of the person about whom the disclosure is made, (iii)
the name and (if known) address of the person or entity to whom Business
Associate made the disclosure, (iv) a brief description of the PHI disclosed,
and (v) a brief statement of the purpose of the disclosure (items i-v,
collectively, the “disclosure information”). 
For repetitive disclosures Business Associate makes to the same person
or entity (including Recipient or its Subsidiaries) for a single purpose,
Business Associate may provide a) the disclosure information for the first of
these repetitive disclosures, (b) the frequency, periodicity or number of these
repetitive disclosures and (c) the date of the last of these repetitive
disclosures.  Business Associate will
make this disclosure information available to Recipient or its Subsidiaries
promptly upon Recipient’s or its Subsidiaries’ request.

 

2.     Exceptions from Disclosure Tracking.  Business Associate need not record
disclosure information or otherwise account for disclosures of PHI that this
Addendum or Recipient or the relevant Subsidiary in writing permits or requires
(i) for the purpose of Recipient’s or its Subsidiaries’ treatment activities,
payment activities, or health care operations, (ii) to the individual who is
the subject of the PHI disclosed or to that individual’s personal
representative; (iii) to persons involved in that individual’s health care or
payment for health care; (iv) for notification for disaster relief purposes,
(v) for national security or intelligence purposes, (vi) to law enforcement
officials or correctional

 

 

institutions regarding inmates; or   (vii)
pursuant to an authorization; (viii) for disclosures of certain PHI made as part
of a Limited Data Set; (ix) for certain incidental disclosures that may occur
where reasonable safeguards have been implemented; and (x) for disclosures
prior to April 14, 2003.

 

3.     Disclosure Tracking Time Periods.  Business Associate must have available for
Recipient and its Subsidiaries the disclosure information required by this
section for the 6 years preceding Recipient’s or its Subsidiaries’ request
for the disclosure information (except Business Associate need have no
disclosure information for disclosures occurring before April 14, 2003).

 

VI.           Additional
Business Associate Provisions

 

A.    Reporting of Breach of Privacy Obligations.  Business Associate will provide written
notice to whichever of the Recipient or its Subsidiary for which the relevant
PHI was created or from which the relevant PHI was received of any use or
disclosure of PHI that is neither permitted by this Addendum nor given prior
written approval by Recipient or the relevant Subsidiary promptly after
Business Associate learns of such non-permitted use or disclosure.  Business Associate’s report will at least:

 

(ii)      Identify the nature of the non-permitted use or
disclosure;

 

(iii)     Identify the PHI used or disclosed;

 

(iv)     Identify who made the non-permitted use or
received the non-permitted disclosure;

 

(v)      Identify what corrective action Business
Associate took or will take to prevent further non-permitted uses or
disclosures;

 

(vi)     Identify what Business Associate did or will do to
mitigate any deleterious effect of the non-permitted use or disclosure; and

 

(vii)    Provide such other information, including a written
report, as Recipient or the relevant Subsidiary may reasonably request.

 

B.    Amendment. 
Upon the effective date of any final regulation or amendment to final
regulations promulgated by the U.S. Department of Health and Human Services
with respect to PHI, including, but not limited to the HIPAA privacy and
security regulations, this Addendum and the Agreement will automatically be
amended so that the obligations they impose on Business Associate remain in
compliance with these regulations.

 

In addition, to the extent that new state or federal law requires
changes to Business Associate’s obligations under this Addendum, this Addendum
shall automatically be amended to include such additional obligations, upon
notice by Recipient or its Subsidiaries to Business Associate of such
obligations.  Business Associate’s
continued performance of services under the Agreement shall be deemed acceptance
of these additional obligations.

 

 

C.    Audit and Review of Policies and Procedures.  Business Associate agrees to provide, upon
Recipient request, access to and copies of any policies and procedures
developed or utilized by Business Associate regarding the protection of PHI.  Business Associate agrees to provide, upon
Recipient’s request, access to Business Associate’s internal practices, books,
and records, as they relate to Business Associate’s services, duties and
obligations set forth in this Addendum and the Agreement(s) under which Business
Associate provides services and / or products to or on behalf of Recipient or
its Subsidiaries, for purposes of Recipient’s or its Subsidiaries’ review of
such internal practices, books, and records.

 

 

 

SCHEDULE D

INITIAL REPORT

 

	
  1.

  	
  Total SAP Ceded Reserves:

  	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Active Life Reserves

  	
   

  	
  $

  	
   

  
	
   

  	
  B.

  	
  Claim Reserves

  	
   

  	
  $

  	
   

  
	
   

  	
  C.

  	
  Unearned Premium Reserves

  	
   

  	
  $

  	
   

  
	
   

  	
  D.

  	
  Advanced Premium

  	
   

  	
  $

  	
   

  
	
   

  	
  E.

  	
  Less: Due and Unpaid Premium

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  Total SAP Ceded Reserves (A+B+C+D-E)

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Ceding Commission:

  	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Excess SAP Ceded Reserves over GAAP Ceded
  Reserves:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1)

  	
  Total SAP Ceded Reserves

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  2)

  	
  Total GAAP Ceded Reserves:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  a.

  	
  Active Life Reserves

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  b.

  	
  Maintenance Reserves

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  c.

  	
  Loss Expense Reserves

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  d.

  	
  Claim Reserves

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  e.

  	
  Unearned Premium Reserves

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  f.

  	
  Advanced Premium

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
  g.

  	
  Less: Due and Unpaid Premium

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Total GAAP Ceded Reserves (a+b+c+d+e+f-g)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Excess SAP Reserves over GAAP Reserves
  (A1-A2)

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Present Value of Future Profits (PVFP)

  	
   

  	
   

  	
  $

  
	
   

  	
  C.

  	
  Deferred Acquisition Costs (DAC)

  	
   

  	
   

  	
  $

  
	
   

  	
  D.

  	
  Asset Book Value Difference —

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1)

  	
  Asset Book Value (GAAP basis)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  2)

  	
  Asset Book Value (SAP basis)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Excess Asset Book Value (D1-D2)

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  Total Ceding Commission (A+B+C+D)

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Accrued Interest on Assets as of the day
  before Inception Date

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Investment Cash Flows on the Assets from
  the Inception Date through the Closing Date

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  Net Due Reinsurer (1-2—3+4)

  	
   

  	
   

  	
  $

  

 

 

SCHEDULE E

FORM OF TRUST
AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TRUST AGREEMENT

 

This TRUST
AGREEMENT, dated as of          ,
2004 (this “Trust Agreement”), among Federal Home Life Insurance Company, an
insurance company organized under the laws of the Commonwealth of Virginia (the
“Grantor”), Union Fidelity Life Insurance Company, an insurance company
organized under the laws of the State of Illinois (the “Beneficiary”), and The
Bank of New York, a New York corporation (the “Trustee”) (the Grantor, the
Beneficiary and the Trustee are hereinafter each sometimes referred to
individually as a “Party” and collectively as the “Parties”).

RECITALS:

WHEREAS, the Grantor and the Beneficiary desire to create
a trust account (the “Trust Account”) for the benefit of the Beneficiary; and

WHEREAS, the Trustee has agreed to act as Trustee
hereunder, and to hold assets in the Trust Account for the sole and exclusive
use and benefit of the Beneficiary in accordance with the terms and conditions
of this Trust Agreement; and

NOW,
THEREFORE, for and in consideration of the premises and the promises and the
mutual agreements hereinafter set forth, the Parties, intending to be legally
bound, covenant and agree as follows:

Section 1.            Deposit of Assets into the Trust Account.

(a)           The Grantor hereby
establishes the Trust Account with the Trustee for the sole use and benefit of
the Beneficiary, under the terms set forth herein.  The Trustee shall administer the Trust Account in its name as
Trustee for the sole use and benefit of the Beneficiary.  The Trust Account shall be subject to
withdrawal by the Beneficiary solely as provided herein.  The Trustee hereby accepts the Trust Account
upon the terms set forth in this Trust Agreement.

(b)           The Grantor shall
transfer to the Trustee, for deposit into the Trust Account, the assets listed
on Exhibit A hereto, and may transfer to the Trustee, for deposit into the
Trust Account, such other assets as it may from time to time desire to transfer
or be required to transfer (all such assets actually received in the Trust
Account are herein referred to individually as an “Asset” and collectively as
the “Assets”). The
Trustee is authorized and shall have power to receive the Assets from the
Grantor and to hold, invest, reinvest and dispose of the same for the uses and
purposes of and according to the provisions herein set forth.  All Assets shall be maintained by the
Trustee in the Trust Account separate and distinct from all other assets on the
books of the Trustee and shall be continuously kept in a safe place at the
Trustee’s office within the United States of America. The Assets shall be
valued according to their current fair market value and shall consist only of
cash (United States legal tender) and Eligible Securities (as hereinafter
defined).  In the event of any payment
default as to any Asset in the Trust Account or in the event that any Asset no
longer is an Eligible Security, the Grantor shall, within five (5) business
days after receiving notice from the Trustee pursuant to Section 17 or the
Grantor having knowledge of such default or ineligibility, substitute other
Assets which meet the requirements of an Eligible Security and having a current
fair market value equal to the current

 

fair market
value of such Asset, which has a payment default or no longer meets the
requirements for an Eligible Security, on the last statement provided by the
Trustee.

(c)           The Grantor hereby
represents and warrants (i) that any Assets transferred by the Grantor to the
Trustee for deposit to the Trust Account will be in such form that the
Beneficiary whenever necessary may, and the Trustee upon direction by the
Beneficiary will, negotiate any such Assets without consent or signature from
the Grantor or any other person or entity in accordance with the terms of this
Trust Agreement, (ii) that all Assets transferred by the Grantor to the Trustee
for deposit into the Trust Account consist only of cash and Eligible
Securities, and (iii) that Grantor has at the time of transfer into this Trust
Account good and marketable title to the Assets to be so transferred and each
such Asset shall be at the time of transfer free and clear of all claims,
liens, interests and encumbrances (other than those arising under this Trust
Agreement).

(d)           Prior to depositing the Assets into
the Trust Account, and from time to time thereafter as required, the Grantor
shall execute assignments, endorsement in blank, or transfer legal title to the
Trustee of all shares, obligations or other Assets requiring assignments, so
that the Beneficiary, whenever necessary may, and the Trustee upon the
direction by the Beneficiary will, negotiate any such Assets without the
consent or signature from the Grantor or any other person or entity.  Any Assets received by the Trustee which are
not in such proper negotiable form shall not be accepted by the Trustee and
shall be returned to the Grantor as unacceptable. The Grantor shall give all
notices and take all actions as the Trustee deems appropriate in order to cause
payments due or that become due on any Asset within the Trust Account to be
paid to the Trustee.  The Grantor shall
not make or consent to any waiver, amendment or restriction on transfer with
respect to any Asset in the Trust Account, in each case, without the  Beneficiary’s prior written consent.  In connection with the deposit of Assets
into the Trust Account, the Grantor shall furnish to the Trustee all original
documentation evidencing the Grantor’s ownership thereto.

Section 2.            Withdrawal of Assets from the Trust Account.

(a)           Without notice to
the Grantor, the Beneficiary shall have the right, at any time and from time to
time, to withdraw from the Trust Account, subject only to written notice from
the Beneficiary to the Trustee (the “Withdrawal Notice”), such Assets as are
specified in such Withdrawal Notice. The Withdrawal Notice may designate a
third party (the “Beneficiary Designee”) to whom Assets specified therein shall
be delivered. The Beneficiary shall not be required to present any other
statement or document in addition to a Withdrawal Notice in order to withdraw
any Assets, except that the Beneficiary shall acknowledge receipt of any such
Assets withdrawn upon request by the Trustee; nor is said right of withdrawal
or any other provision of this Trust Agreement subject to any conditions or qualifications
not contained in this Trust Agreement.

(b)           Upon receipt of a
Withdrawal Notice, the Trustee shall immediately take any and all steps
necessary to transfer absolutely and unequivocally all right, title and
interest in the Assets specified in such Withdrawal Notice and shall deliver
physical custody (or such other form as is necessary to complete the transfer)
of such Assets to or for the account of the Beneficiary or such Beneficiary
Designee, as specified in such Withdrawal Notice.  The Trustee

 

shall notify the Grantor and Beneficiary within ten (10) days following
each withdrawal from the Trust Account.

 

(c)           Subject to Section
3, in the absence of a Withdrawal Notice, the Trustee shall allow no
substitution or withdrawal of any Asset from the Trust Account.

Section 3.            Redemption, Investment and Substitution of  Assets.

(a)           The Trustee shall
surrender for payment all maturing Assets and all Assets called for redemption,
and deposit the principal amount of the proceeds of any such payment to the
Trust Account.

(b)           The Grantor, subject
to the prior written approval of the Beneficiary, may retain (and pay the
service fees of ) a professional asset manager (the “Asset Manager”) to manage
and make investment decisions with regard to the Assets held by the Trustee in
the Trust Account.  From time to time,
at the written order and direction of the Grantor or the Asset Manager, the
Trustee shall invest Assets in the Trust Account in Eligible Securities.

(c)           From time to time,
subject to the prior written approval of the Beneficiary, the Grantor or the
Asset Manager may direct the Trustee to substitute Assets of equal current fair
market value for other Assets presently held in the Trust Account. The Trustee
shall have no responsibility whatsoever to determine the value of such
substituted Assets or that such substituted Assets constitute Eligible
Securities.

(d)           All investments and
substitutions of securities referred to in Sections 3(b) and 3(c) above shall
be in compliance with the definition of “Eligible Securities” in Section 10 of
this Trust Agreement. Any instruction or order concerning such investments or
substitutions of securities shall be referred to herein as an “Investment
Order”. The Trustee shall execute Investment Orders and settle securities
transactions by itself or by means of an agent or broker. The Trustee shall not
be responsible for any act or omission, or for the solvency, of any such agent
or broker, except as set forth in Section 6.

(e)           From time to time,
upon notice to the Beneficiary, the Trustee may withdraw any Asset in the Trust
Account upon the call or maturity of such Asset provided that the proceeds from
such call or maturity are deposited into the Trust Account.

(f)            When the Trustee is
directed to deliver Assets against payment, delivery will be made in accordance
with generally accepted market practice.

(g)           Any loss incurred
from any investment pursuant to the terms of this Section 3 shall be borne
exclusively by the Trust Account.

Section 4.            The
Income Account.

All payments
of interest, dividends and other income in respect to Assets in the Trust
Account shall be the property of the Grantor and shall be deposited by the
Trustee, subject to deduction of the Trustee’s compensation and expenses as
provided in Section 7 of this Agreement, in a separate account (the “Income
Account”) established and maintained by the

 

Grantor at an office of the Trustee. 
Any interest, dividend or other income automatically posted and credited
on the payment date to the Income Account which is not subsequently received by
the Trustee shall be reimbursed by the Grantor to the Trustee and the Trustee
may debit the Income Account for this purpose. The Grantor may withdraw amounts
from the Income Account at any time and from time to time.

Section 5.            Right to
Vote Assets.

The Trustee
shall forward all annual and interim stockholder reports and all proxies and
proxy materials relating to the Assets in the Trust Account to the Grantor
within a reasonable period of time following the Trustee’s receipt
thereof.  The Grantor shall have the
full and unqualified right to vote any shares of stock in the Trust Account.

Section 6.            Additional
Rights and Duties of the Trustee.

(a)           The Trustee shall be
a bank which is a member of the Federal Reserve System of the United States of
America or a New York State chartered bank or trust company and shall not be a
parent, subsidiary or affiliate of the Grantor or the Beneficiary.

(b)           Notwithstanding any
provision of this Agreement to the contrary, the Trustee shall not be liable
except for its own negligence, willful misconduct or lack of good faith arising
out of or in connection with the performance of its obligations in accordance
with this Trust Agreement.

(c)           The Trustee shall
have no responsibility whatsoever to determine that any Assets in the Trust
Account are or continue to be Eligible Securities.

(d)           The Trustee shall
notify the Grantor and the Beneficiary in writing within ten (10) days
following each deposit into, or withdrawal from, the Trust Account and shall
notify the Grantor promptly of the receipt by the Trustee of any Withdrawal
Notice.

(e)           Before accepting any
Asset for deposit to the Trust Account, the Trustee shall determine that such
Asset is in such form that the Beneficiary whenever necessary may, or the
Trustee upon direction by the Beneficiary will, negotiate such Asset without
consent or signature from the Grantor or any person or entity other than the
Trustee in accordance with the terms of this Trust Agreement.

(f)            The Trustee shall be
under no obligation to determine whether or not any instructions given by the
Grantor and Beneficiary are contrary to any provision of law. It is understood
and agreed that the Trustee’s duties are solely those set forth herein and that
the Trustee shall have no duty to take any other action unless specifically
agreed to by the Trustee in writing. Without limiting the generality of the
foregoing, the Trustee shall not have any duty to advise, manage, supervise or
make recommendations with respect to the purchase, retention or sale of Assets
with respect to any Assets in the Trust Account as to which a default in the
payment of principal or interest has occurred or to be responsible for the
consequences of insolvency or the legal inability of any broker, dealer, bank
or other agent employed by the Grantor or Trustee with respect to the Assets
except to the extent that the Trustee was negligent, engaged in misconduct or
acted in bad faith in the selection of any such person or entity.

 

(g)           The Trustee shall
accept and open all mail directed to the Grantor or the Beneficiary in care of
the Trustee.

(h)           The Trustee shall
furnish to the Grantor and the Beneficiary a statement of all Assets in the
Trust Account upon the inception of the Trust Account and at the end of each
quarter thereafter.  The statement shall
include a description of the Assets in the Trust Account and the then current
market value of the Assets and shall be delivered within five (5) business days
following the end of such quarter.

(i)            The Trustee shall
keep full and complete records of the administration of the Trust Account in
accordance with all applicable law. 
Upon the request of the Grantor or the Beneficiary, the Trustee shall
promptly permit the Grantor or the Beneficiary, their respective agents,
employees, independent auditors and regulatory authorities to examine, audit,
excerpt, transcribe and copy, during the Trustee’s normal business hours, any
books, documents, papers and records relating to the Trust Account or the
Assets.

(j)            Unless otherwise
provided in this Trust Agreement, the Trustee is authorized to follow and rely
upon all instructions given by officers of the Grantor or the Beneficiary and
by attorneys-in-fact acting under written authority furnished to the Trustee by
the Grantor or the Beneficiary, including, without limitation, instructions
given by letter, facsimile transmission or electronic media, if the Trustee
believes such instructions to be genuine and to have been signed, sent or
presented by the proper party or parties. In the absence of negligence, the
Trustee shall not incur any liability to anyone resulting from actions taken by
the Trustee in reliance in good faith on such instructions.  The Trustee shall not incur any liability in
executing instructions (i) from any attorney-in-fact prior to receipt by it of
notice of the revocation of the written authority of the attorney-in-fact or
(ii) from any officer of the Grantor or the Beneficiary.

(k)           The duties and
obligations of the Trustee shall only be such as are specifically set forth in
this Trust Agreement, as it may from time to time be amended, and no implied
duties or obligations shall be read into this Trust Agreement against the
Trustee.

(l)            No provision of
this Trust Agreement shall require the Trustee to take any action which, in the
Trustee’s reasonable judgment, would result in any violation of this Trust
Agreement or any provision of law.

(m)          The Trustee may
confer with counsel of its own choice in relation to matters arising under this
Trust Agreement and shall have full and complete authorization from the other
Parties for any action taken or suffered by it under this Trust Agreement or in
respect of any transaction contemplated hereby in good faith and in accordance
with the opinion of such counsel.

(n)           The Trustee shall
notify the Grantor and Beneficiary in writing of any payment default occurring
as to any Asset within three (3) business days after Trustee receives notice of
such default.  In the event of a delinquency
of a timely payment in regard to any of the Assets, the Trustee shall inform
the Grantor and the Beneficiary immediately upon Trustee’s receipt of notice of
such delinquency (which shall be confirmed in writing by the Trustee within two
(2) business days thereof).

 

(o)           The Trustee shall be
liable for (i) the safekeeping of the Assets and administering the Trust
Account in accordance with the provisions of this Trust Agreement and (ii) its
own negligence, willful misconduct or lack of good faith in performing its
duties under this Trust Agreement.  The
Trustee shall exercise the standard of care with respect to the Assets that a
professional trustee, engaged in the banking or trust company industry, having
professional expertise in financial and securities processing transactions and
custody would observe in such affairs. 
The Trustee shall be responsible for physical loss of or damage to
Assets under its care, custody, possession or control, including but not
limited to loss due to fire, burglary, robbery, theft or mysterious
disappearance.  In the event of loss or
damage to the Assets under the care, custody, possession or control of Trustee,
Trustee shall, upon demand of the Grantor or Beneficiary, promptly replace such
Assets with like kind and quality together with, all rights and privileges
pertaining to the Assets (by among other methods, posting appropriate security
or bond with the issuer of the Assets to obtain reissue of such Assets, or, if
acceptable to the Grantor, deliver cash equivalent to the market value of the
Assets as of the date of the discovery of the loss or damage).  Nothing contained in any contract between
Trustee and any entity authorized to hold Assets, as defined herein, shall
diminish or otherwise alter the liability of Trustee to the Grantor or Beneficiary.  The provisions of this paragraph shall not
affect the burden of proof under applicable law with respect to the assertions
of liability in any claim, action or dispute alleging any breach of or failure
to observe such standard of care.

Section 7.            The Trustee’s Compensation; Expenses.

(a)           The Grantor shall
pay the Trustee, as compensation for its services under this Trust Agreement, a
fee computed at rates determined by the Trustee from time to time and
communicated in writing to the Grantor. The Grantor shall pay or reimburse the
Trustee for all of the Trustee’s expenses and disbursements in connection with
its duties under this Trust Agreement (including reasonable attorney’s fees and
expenses), except any such expense or disbursement as may arise from the
Trustee’s negligence, willful misconduct, lack of good faith or failure to
administer the Trust Account in accordance with the terms of this Trust
Agreement.  The Trustee shall be
entitled to deduct its compensation and expenses from payments of dividends,
interest and other income in respect of the Assets held in the Trust Account
prior to the deposit thereof to the Income Account as provided in Section 4 of
this Agreement. The Grantor also hereby indemnifies the Trustee for, and holds
it harmless against, any loss, liability, costs or expenses (including
reasonable attorney’s fees and expenses) incurred or made without negligence,
willful misconduct or lack of good faith on the part of the Trustee, arising
out of or in connection with the performance of its obligations in accordance
with the provisions of this Trust Agreement (which shall be the sole obligation
of the Trustee), including any loss, liability, costs or expenses arising out
of or in connection with the status of the Trustee and its nominee as the
holder of record of the Assets. The Grantor hereby acknowledges that the
foregoing indemnities shall survive the resignation of the Trustee or the
termination of this Trust Agreement and hereby grants the Trustee a lien, right
of set-off and security interest in the funds in the Income Account for the
payment of any claim for compensation, reimbursement or indemnity hereunder.

(b)           No Assets shall be
withdrawn from the Trust Account or used in any manner for paying compensation
to, or reimbursement or indemnification of, the Trustee.

 

Section 8.            Resignation
or Removal of the Trustee.

(a)           The Trustee may
resign at any time upon delivery of a written notice thereof to the Beneficiary
and to the Grantor effective not less than ninety (90) days after receipt by
the Beneficiary and the Grantor of such notice. The Trustee may be removed by
the Grantor’s delivery to the Trustee and the Beneficiary of a written notice
of removal, effective not less than ninety (90) days after receipt by the Trustee
and the Beneficiary of such notice. The Trustee may also be removed by prior
written notice executed by the Grantor and the Beneficiary. No such resignation
or removal shall become effective until a successor Trustee has been appointed
and approved by the Beneficiary and the Grantor and all Assets in the Trust
Account have been duly transferred to the successor Trustee in accordance with
paragraph (b) of this Section 8.

(b)           Upon receipt by the
proper Parties of the Trustee’s notice of resignation or the Grantor’s or the
Grantor’s and the Beneficiary’s notice of removal, as applicable, the Grantor
and the Beneficiary shall appoint a successor Trustee. Any successor Trustee
shall be a bank that is a member of the Federal Reserve System of the United
States of America or a New York State chartered bank or trust company and must
not be a parent, a subsidiary or an affiliate of the Grantor or the
Beneficiary.  Upon the acceptance of the
appointment as Trustee hereunder by a successor Trustee and the transfer to
such successor Trustee of all Assets in the Trust Account, the resignation or
removal of the Trustee shall become effective. Thereupon, such successor
Trustee shall succeed to and become vested with all the rights, powers,
privileges and duties of the resigning or removed Trustee, and the resigning or
removed Trustee shall be discharged from any future duties and obligations
under this Trust Agreement, but the resigning or removed Trustee shall continue
after such resignation or removal to be entitled to the benefits of the
indemnities provided herein for the Trustee.

Section 9.            Termination
of the Trust Account.

The Trust
Account and this Trust Agreement shall be effective until terminated by sixty
(60) days’ advance written notice sent to the Trustee by the Grantor. Written
notice of termination shall be delivered by the Trustee to the Beneficiary at
least thirty (30) but not more than forty-five (45) days prior to termination.
Upon the termination of the Trust Account, the Trustee shall, with the Beneficiary’s
prior written consent, transfer to the Grantor all of the Assets of the Trust
Account and Income Account not previously withdrawn by the Beneficiary.

Section 10.          Definitions.

Except as the
context shall otherwise require, the following terms shall have the following
meanings for purposes of this Trust Agreement (the definitions to be applicable
to both the singular and the plural forms of each term defined if both forms of
such term are used in this Trust Agreement):

The term
“Beneficiary” shall include any successor of the Beneficiary by operation of
law, including, without limitation, any liquidator, rehabilitator, receiver or
conservator.

The term “Eligible Securities” shall mean and include certificates of
deposit (issued by a United States bank and payable in United States legal
tender) and investments of the types specified in paragraphs (1), (2), (3), (8)
and (10) of Section 1404(a) of the New York Insurance

 

Law; provided, however, that
such investments are issued by an institution that is not the parent, a
subsidiary or an affiliate of either the Grantor or the Beneficiary.

The terms
“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.

Section 11.          Governing Law.

This Trust
Agreement shall be subject to and governed by the laws of the State of New
York, without regard to its conflict of laws provision and the Trust Account
created hereunder shall be administered in accordance with the laws of said
state.

Section 12.          WAIVER OF JURY TRIAL.

                EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED
TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE PARTIES TO ENTER INTO THIS AGREEMENT.

 

Section 13.          Successors and Assigns.

This Trust
Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors, permitted assigns and legal representatives.  Neither this Trust Agreement, nor any right
or obligation hereunder, may be assigned by any Party without the prior written
consent of the other Parties hereto. 
Any assignment in violation of this Section 13 shall be void and shall
have no force and effect.

Section 14.          Severability.
 

If any
provision of this Trust Agreement is held to be void or unenforceable, in whole
or in part, (i) such holding shall not affect the validity and enforceability
of the remainder of this Trust Agreement, including any other provision,
paragraph or subparagraph, and (ii) the Parties agree to attempt in good faith
to reform such void or unenforceable provision to the extent necessary to
render such provision enforceable and to carry out its original intent.

Section 15.          Entire
Agreement.

This Trust
Agreement constitutes the entire agreement among the Parties with respect to
the subject matter hereof, and there are no understandings or agreements,
conditions or qualifications relative to this Trust Agreement which are not
fully expressed in this Trust Agreement.

 

Section 16.          Amendments.

This Trust Agreement may be modified or otherwise amended, and the
observance of any term of this Trust Agreement may be waived, only if such
modification, amendment or waiver is in writing and signed by the Parties.

Section 17.          Notices.

All notices,
requests, demands and other communications under this Trust Agreement must be
in writing and will be deemed to have been duly given or made as follows:  (a) if sent by registered or certified mail
in the United States return receipt requested, upon receipt; (b) if sent by
reputable overnight air courier, two business days after mailing; (c) if sent
by facsimile transmission, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone; or (d) if otherwise actually personally delivered, when delivered,
and shall be delivered as follows:

If to the Grantor:

Federal Home
Life Insurance Company

6620 West Broad Street

Richmond, VA
23230

Facsimile:  (804) 662-2414

Attention:  Chief Executive Officer

 

With a copy
to:

Federal Home Life Insurance Company

700 Main
Street

Lynchburg, VA 24504

Facsimile:  (434) 948-5819

Attention:  General Counsel

If to the Beneficiary:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile: (847) 330-3404         

Attention: Chief Financial Officer

With a copy to:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

 

If to the Trustee:

The Bank of New York

101 Barclay Street - 8W

New York, NY 10283

Facsimile:  (212) 815-5875

Attention:  Insurance Trust and Escrow
Unit

or to such
other address or to such other Person as a Party may have last designated by
notice to the other Parties.

Section 18.          Headings.

The headings
of the Sections have been inserted for convenience of reference only and shall
not be deemed to constitute a part of this Trust Agreement.

Section 19.          Counterparts.

This Trust
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall constitute an original, but such counterparts
together shall constitute but one and the same Trust Agreement.

 

IN WITNESS WHEREOF,
the parties hereto have caused this Trust Agreement to be executed and
delivered by their respective officers thereunto duly authorized as of the date
first above written.

	
   

  	
  FEDERAL HOME LIFE INSURANCE

  COMPANY, as Grantor

  
	
    

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  UNION FIDELITY LIFE INSURANCE

  COMPANY, as Beneficiary

  
	
    

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK, as Trustee

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

EXHIBIT A

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BUSINESS ASSOCIATE ADDENDUM

 

I.              Purpose.

In order to disclose certain information to the party
providing a service under this Agreement (“Provider”) under this Addendum, some of which may constitute Protected
Health Information (defined below), the party to whom a service under
this Agreement is being provided (“Recipient”)
and Provider mutually agree to comply with the terms of this Addendum for the
purpose of satisfying the requirements of the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) and its implementing privacy regulations
at 45 C.F.R. Parts 160-164 (“HIPAA Privacy Rule”).   These provisions shall apply to Provider to the extent that
Provider is considered a “Business Associate” under the HIPAA Privacy Rule and
all references in this section to Business Associates shall refer to
Provider.  Capitalized terms not
otherwise defined herein shall have the meaning assigned in the Agreement.  Notwithstanding anything else to the
contrary in the Agreement, in the event of a conflict between this Addendum and
the Agreement, the terms of this Addendum shall prevail.

 

II.            Permitted
Uses and Disclosures.

A.    Business Associate agrees to use or disclose
Protected Health Information (“PHI”) that it creates for or receives from
Recipient or its Subsidiaries only as follows. 
The capitalized term “Protected Health Information or PHI” has the
meaning set forth in 45 Code of Federal Regulations Section 164.501, as amended
from time to time.  Generally, this term
means individually identifiable health information including, without
limitation, all information, data and materials, including without limitation,
demographic, medical and financial information, that relates to the past,
present, or future physical or mental health or condition of an individual; the
provision of health care to an individual; or the past present, or future
payment for the provision of health care to an individual; and that identifies
the individual or with respect to which there is a reasonable basis to believe
the information can be used to identify the individual.  This definition shall include any
demographic information concerning members and participants in, and applicants
for, Recipient’s or its Subsidiaries’ health benefit plans.  All other terms used in this Addendum shall
have the meanings set forth in the applicable definitions under the HIPAA
Privacy Rule.

B.    Functions and
Activities on Company’s Behalf. 
Business Associate is permitted to use and disclose PHI it creates for
or receives from Recipient or its Subsidiaries only for the purposes described
in this Addendum or the Agreement that are not inconsistent with the provisions
of this Addendum, or as required by law, or following receipt of prior written
approval from whichever of the Recipient or its Subsidiary for which the
relevant PHI was created or from which the relevant PHI was received.  In addition to these specific requirements
below, Business Associate may use or disclose PHI only in a manner that would
not violate the HIPAA Privacy Rule if done by the Recipient or its
Subsidiaries.  

C.    Business Associate’s Operations.  Business Associate is permitted by this
Agreement to use PHI it creates for or receives from Recipient or its Subsidiaries:
(i) if such

 

use is reasonably
necessary for Business Associate’s proper management and administration; and
(ii) as reasonably necessary to carry out Business Associate’s legal
responsibilities. Business Associate is permitted to disclose PHI it creates
for or receives from Recipient or its Subsidiaries for the purposes identified
in this Section only if the following conditions are met:

(1)   The
disclosure is required by law; or

(2)   The disclosure is reasonably necessary to
Business Associate’s proper management and administration, and Business
Associate obtains reasonable assurances in writing from any person or
organization to which Business Associate will disclose such PHI that the person
or organization will:

 

                                                a. Hold
such PHI as confidential and use or further disclose it only for the purpose
for which Business Associate disclosed it to the person or organization or as
required by law; and

b. Notify Business Associate (who will
in turn promptly notify whichever of the Recipient or its Subsidiary for which
the relevant PHI was created or from which the relevant PHI was received) of
any instance of which the person or organization becomes aware in which the
confidentiality of such PHI was breached.

D.    Minimum Necessary Standard.  In performing the functions and activities
on Recipient’s or its Subsidiaries’ behalf pursuant to the Agreement, Business
Associate agrees to use, disclose or request only the minimum necessary PHI to
accomplish the purpose of the use, disclosure or request.  Business Associate must have in place
policies and procedures that limit the PHI disclosed to meet this minimum
necessary standard.

E.     Prohibition
on Unauthorized Use or Disclosure.  Business Associate will
neither use nor disclose PHI it creates or receives for or from Recipient, its
Subsidiaries, or from another business associate of Recipient or its
Subsidiaries, except as permitted or required by this Addendum or the Agreement
that are not inconsistent with the provisions of this Addendum, or as required
by law, or following receipt of prior written approval from whichever of the
Recipient or its Subsidiary for which the relevant PHI was created or from
which the relevant PHI was received.

F.     De-identification
of Information.  Business Associate agrees neither to
de-identify PHI it creates for or receives from Recipient or its Subsidiaries
or from another business associate of Recipient or its Subsidiaries, nor use or
disclose such de-identified PHI, unless such de-identification is expressly
permitted under the terms and conditions of this Addendum or the Agreement and
related to Recipient’s or its Subsidiaries’ activities for purposes of
“treatment”, “payment” or “health care operations”, as those terms are defined
under the HIPAA Privacy Rule. 
De-identification of PHI, other than as expressly permitted under the
terms and conditions of the Addendum for Business Associate to perform services
for Recipient or its Subsidiaries, is not a permitted use of PHI under this
Addendum.  Business Associate further
agrees that it will not create a “Limited Data Set” as defined by the HIPAA
Privacy Rule using PHI it creates or receives, or receives from another
business

 

associate of Recipient or
its Subsidiaries, nor use or disclose such Limited Data Set unless: (i) such creation,
use or disclosure is expressly permitted under the terms and conditions of this
Addendum or the Agreement that are not inconsistent with the provisions of this
Addendum; and such creation, use or disclosure is for services provided by
Business Associate that relate to Recipient’s or its Subsidiaries’ activities
for purposes of “treatment”, “payment” or “health care operations”, as those
terms are defined under the HIPAA Privacy Rule.

G.    Information
Safeguards.  Business Associate will develop, document,
implement, maintain and use appropriate administrative, technical and physical
safeguards to preserve the integrity and confidentiality of and to prevent
non-permitted use or disclosure of PHI created for or received from Recipient
or its Subsidiaries.  These safeguards
must be appropriate to the size and complexity of Business Associate’s
operations and the nature and scope of its activities.  Business Associate agrees that these
safeguards will meet any applicable requirements set forth by the U.S.
Department of Health and Human Services, including (as of the effective date or
as of the compliance date, whichever is applicable) any requirements set forth
in the final HIPAA security regulations. 
Business Associate agrees to mitigate, to the extent practicable, any
harmful effect that is known to Business Associate resulting from a use or
disclosure of PHI by Business Associate in violation of the requirements of
this Addendum.

III.           Conducting
Standard Transactions.  In the
course of performing services for Recipient or its Subsidiaries, to the extent
that Business Associate will conduct Standard Transactions for or on behalf of
Recipient or its Subsidiaries, Business Associate will comply, and will require
any subcontractor or agent involved with the conduct of such Standard
Transactions to comply, with each applicable requirement of 45 C.F.R. Part
162.  “Standard Transaction(s)” shall
mean a transaction that complies with the standards set forth at 45 C.F.R. parts
160 and 162.  Further, Business Associate
will not enter into, or permit its subcontractors or agents to enter into, any
trading partner agreement in connection with the conduct of Standard
Transactions for or on behalf of the Recipient or its Subsidiaries that:

a.               Changes the definition, data condition,
or use of a data element or segment in a Standard Transaction;

b.              Adds any data element or segment to the
maximum defined data set;

c.               Uses any code or data element that is
marked “not used” in the Standard Transaction’s implementation specification or
is not in the Standard Transaction’s implementation specification; or

d.              Changes the meaning or intent of the
Standard Transaction’s implementation specification.

IV.           Sub-Contractors, Agents or Other
Representatives.   Business Associate will require any of its
subcontractors, agents or other representatives to which Business Associate is
permitted by this Addendum or the Agreement (or is otherwise given Recipient’s
or the relevant Subsidiary’s prior written approval) to disclose any of the PHI
Business Associate creates or receives for or

 

from Recipient or its Subsidiaries, to provide
reasonable assurances in writing that subcontractor or agent will comply with
the same restrictions and conditions that apply to the Business Associate under
the terms and conditions of this Addendum with respect to such PHI.

V.            Protected
Health Information Access, Amendment and Disclosure Accounting.

A.    Access.  Business
Associate will promptly upon Recipient’s or its Subsidiary’s request make
available to Recipient, its Subsidiary, or, at Recipient’s or such Subsidiary’s
direction, to the individual (or the individual’s personal representative) for
inspection and obtaining copies any PHI about the individual which Business
Associate created for or received from Recipient or its Subsidiary and that is
in Business Associate’s custody or control, so that Recipient or its Subsidiary
may meet its access obligations under 45 Code of Federal Regulations
§ 164.524.

B.    Amendment. 
Upon Recipient’s or its Subsidiary’s request Business Associate will
promptly amend or permit Recipient or its Subsidiary access to amend any
portion of the PHI which Business Associate created for or received from
Recipient or its Subsidiary, and incorporate any amendments to such PHI, so
that Recipient or its Subsidiary may meet its amendment obligations under 45
Code of Federal Regulations § 164.526.

C.    Disclosure
Accounting.  So that Recipient or its Subsidiaries may
meet their disclosure accounting obligations under 45 Code of Federal Regulations
§ 164.528:

1.                     Disclosure Tracking.  Business Associate will record for each
disclosure, not excepted from disclosure accounting under Section V.C.2 below,
that Business Associate makes to Recipient or its Subsidiaries of PHI that
Business Associate creates for or receives from Recipient or its Subsidiaries,
(i) the disclosure date, (ii) the name and member or other policy
identification number of the person about whom the disclosure is made, (iii)
the name and (if known) address of the person or entity to whom Business
Associate made the disclosure, (iv) a brief description of the PHI disclosed,
and (v) a brief statement of the purpose of the disclosure (items i-v,
collectively, the “disclosure information”). 
For repetitive disclosures Business Associate makes to the same person
or entity (including Recipient or its Subsidiaries) for a single purpose,
Business Associate may provide a) the disclosure information for the first of
these repetitive disclosures, (b) the frequency, periodicity or number of these
repetitive disclosures and (c) the date of the last of these repetitive
disclosures.  Business Associate will
make this disclosure information available to Recipient or its Subsidiaries
promptly upon Recipient’s or its Subsidiaries’ request.

2.                     Exceptions from
Disclosure Tracking.  Business
Associate need not record disclosure information or otherwise account for
disclosures of PHI that this Addendum or Recipient or the relevant Subsidiary
in writing permits or requires (i) for the purpose of Recipient’s or its
Subsidiaries’ treatment activities, payment activities, or health care
operations, (ii) to the individual who is the subject of the PHI disclosed or
to that individual’s personal representative; (iii) to persons involved in that
individual’s health care or payment for health care; (iv) for notification for
disaster relief purposes, (v) for national security or intelligence purposes,
(vi) to law enforcement officials or correctional

 

institutions regarding
inmates; or (vii) pursuant to an authorization; (viii) for disclosures of
certain PHI made as part of a Limited Data Set; (ix) for certain incidental
disclosures that may occur where reasonable safeguards have been implemented;
and (x) for disclosures prior to April 14, 2003.

3.                     Disclosure Tracking Time
Periods.  Business Associate must
have available for Recipient and its Subsidiaries the disclosure information
required by this section for the 6 years preceding Recipient’s or its
Subsidiaries’ request for the disclosure information (except Business Associate
need have no disclosure information for disclosures occurring before April 14,
2003).

VI.           Additional
Business Associate Provisions

A.    Reporting of Breach
of Privacy Obligations.  Business
Associate will provide written notice to whichever of the Recipient or its
Subsidiary for which the relevant PHI was created or from which the relevant
PHI was received of any use or disclosure of PHI that is neither permitted by
this Addendum nor given prior written approval by Recipient or the relevant
Subsidiary promptly after Business Associate learns of such non-permitted
use or disclosure.  Business Associate’s
report will at least:

(ii)                Identify
the nature of the non-permitted use or disclosure;

(iii)             Identify
the PHI used or disclosed;

(iv)            Identify who made the non-permitted use or
received the non-permitted disclosure;

(v)               Identify what corrective action Business
Associate took or will take to prevent further non-permitted uses or
disclosures;

(vi)            Identify what Business Associate did or will
do to mitigate any deleterious effect of the non-permitted use or disclosure;
and

(vii)         Provide such
other information, including a written report, as Recipient or the relevant
Subsidiary may reasonably request.

B.    Amendment. 
Upon the effective date of any final regulation or amendment to
final regulations promulgated by the U.S. Department of Health and Human
Services with respect to PHI, including, but not limited to the HIPAA privacy
and security regulations, this Addendum and the Agreement will automatically be
amended so that the obligations they impose on Business Associate remain in
compliance with these regulations.

In addition,
to the extent that new state or federal law requires changes to Business
Associate’s obligations under this Addendum, this Addendum shall automatically
be amended to include such additional obligations, upon notice by Recipient or
its Subsidiaries to Business Associate of such obligations.  Business Associate’s continued performance
of services under the Agreement shall be deemed acceptance of these additional
obligations.

 

C.    Audit
and Review of Policies and Procedures.  Business Associate
agrees to provide, upon Recipient request, access to and copies of any policies
and procedures developed or utilized by Business Associate regarding the
protection of PHI.  Business Associate
agrees to provide, upon Recipient’s request, access to Business Associate’s
internal practices, books, and records, as they relate to Business Associate’s
services, duties and obligations set forth in this Addendum and the
Agreement(s) under which Business Associate provides services and / or products
to or on behalf of Recipient or its Subsidiaries, for purposes of Recipient’s
or its Subsidiaries’ review of such internal practices, books, and records.

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