Document:

Exhibit 10.02

 

 

COINSURANCE AGREEMENT

 

between

 

LIBERTY LIFE INSURANCE COMPANY

 

and

 

PROTECTIVE LIFE INSURANCE COMPANY

 

Dated as of [·], 2011

 

 

 

TABLE OF CONTENTS

 

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  	
   

  
	
  COINSURANCE

  	
   

  	
  1

  
	
  Section 1.1 Scope and Basis
  of Reinsurance

  	
   

  	
  1

  
	
  Section 1.2 Reinsuring
  Clause; Extra Contractual Obligations

  	
   

  	
  2

  
	
  Section 1.3 Transfer of
  Assets and Ceding Commission

  	
   

  	
  2

  
	
  Section 1.4 Net Retained
  Liabilities

  	
   

  	
  7

  
	
  Section 1.5 Producer
  Payments

  	
   

  	
  8

  
	
  Section 1.6 Guaranty Fund
  Assessments and Premium Taxes

  	
   

  	
  9

  
	
  Section 1.7 Other
  Reinsurance

  	
   

  	
  9

  
	
  Section 1.8 Policy Changes
  and Non-Guaranteed Elements

  	
   

  	
  10

  
	
  Section 1.9 Ownership of
  Premiums

  	
   

  	
  10

  
	
  Section 1.10 Security
  Interest

  	
   

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  	
   

  
	
  REINSURANCE LIABILITY

  	
   

  	
  12

  
	
  Section 2.1 Reinsurance Liability

  	
   

  	
  12

  
	
  Section 2.2 Other
  Reinsurance

  	
   

  	
  12

  
	
  Section 2.3 Disclaimer

  	
   

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  	
   

  
	
  CERTAIN FINANCIAL PROVISIONS

  	
   

  	
  14

  
	
  Section 3.1 Provision of
  Security by the Reinsurer

  	
   

  	
  14

  
	
  Section 3.2 Credit for
  Reinsurance

  	
   

  	
  16

  
	
  Section 3.3 Conversion to
  Assumption Reinsurance

  	
   

  	
  16

  
	
  Section 3.4 RBC Reports

  	
   

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  	
   

  
	
  REPRESENTATIONS AND WARRANTIES

  	
   

  	
  17

  
	
  Section 4.1 Representations
  and Warranties of Reinsurer

  	
   

  	
  17

  
	
  Section 4.2 Representations
  and Warranties of the Company

  	
   

  	
  19

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  	
   

  
	
  PLAN OF REINSURANCE

  	
   

  	
  20

  
	
  Section 5.1 Plan

  	
   

  	
  20

  
	
  Section 5.2 Follow the
  Fortunes

  	
   

  	
  20

  
	
  Section 5.3 Reductions and
  Terminations

  	
   

  	
  20

  
	
  Section 5.4 Reinstatements

  	
   

  	
  21

  
	
  Section 5.5 Contractual
  Conversions; Internal Replacement

  	
   

  	
  21

  
	
  Section 5.6 New Policies

  	
   

  	
  21

  

 

i

 

	
  ARTICLE VI

  	
   

  	
   

  
	
  ADMINISTRATION

  	
   

  	
  22

  
	
  Section 6.1 Administrative
  Services

  	
   

  	
  22

  
	
  Section 6.2 Regulatory
  Matters

  	
   

  	
  22

  
	
  Section 6.3 Bank Accounts

  	
   

  	
  22

  
	
  Section 6.4 Net Settlements

  	
   

  	
  23

  
	
  Section 6.5 Actuarial
  Reports

  	
   

  	
  23

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
   

  	
   

  
	
  DAC TAX

  	
   

  	
  24

  
	
  Section 7.1 DAC Tax Election

  	
   

  	
  24

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  	
   

  
	
  INSOLVENCY

  	
   

  	
  25

  
	
  Section 8.1 Insolvency

  	
   

  	
  25

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
   

  	
   

  
	
  TERMINATION

  	
   

  	
  25

  
	
  Section 9.1 Duration of
  Coinsurance; No Recapture

  	
   

  	
  25

  
	
  Section 9.2 Termination

  	
   

  	
  26

  
	
  Section 9.3 Termination by
  the Company

  	
   

  	
  26

  
	
  Section 9.4 Settlement Upon
  Termination by the Company

  	
   

  	
  26

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
   

  	
   

  
	
  DISPUTE RESOLUTION

  	
   

  	
  27

  
	
  Section 10.1 Arbitration

  	
   

  	
  27

  
	
  Section 10.2 Disputes over
  Initial Coinsurance Premiums and Ceding Commission Calculations

  	
   

  	
  30

  
	
  Section 10.3 Other Disputes
  over Calculations

  	
   

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
   

  	
   

  
	
  INDEMNIFICATION

  	
   

  	
  34

  
	
  Section 11.1 Indemnification
  of the Reinsurer by the Company

  	
   

  	
  34

  
	
  Section 11.2 Indemnification
  of the Company by the Reinsurer

  	
   

  	
  34

  
	
  Section 11.3 Claims Notice

  	
   

  	
  35

  
	
  Section 11.4 Right to
  Contest Claims of Third Parties

  	
   

  	
  35

  
	
  Section 11.5 Mitigation

  	
   

  	
  36

  
	
  Section 11.6 Subrogation;
  Insurance

  	
   

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
   

  	
   

  
	
  CONFIDENTIALITY

  	
   

  	
  37

  
	
  Section 12.1 Confidentiality

  	
   

  	
  37

  

 

ii

 

	
  ARTICLE XIII

  	
   

  	
   

  
	
  DEFINITIONS AND CONSTRUCTION

  	
   

  	
  38

  
	
  Section 13.1 Definitions

  	
   

  	
  38

  
	
  Section 13.2 Construction

  	
   

  	
  49

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIV

  	
   

  	
   

  
	
  GENERAL PROVISIONS

  	
   

  	
  50

  
	
  Section 14.1 Books and
  Records

  	
   

  	
  50

  
	
  Section 14.2 Inspection by
  Reinsurer

  	
   

  	
  51

  
	
  Section 14.3 Errors and Omissions

  	
   

  	
  51

  
	
  Section 14.4 Offset

  	
   

  	
  51

  
	
  Section 14.5 Reimbursement
  of Expenses

  	
   

  	
  51

  
	
  Section 14.6 Parties to this
  Agreement

  	
   

  	
  51

  
	
  Section 14.7 Authority

  	
   

  	
  51

  
	
  Section 14.8 No Assignment

  	
   

  	
  51

  
	
  Section 14.9 Notices

  	
   

  	
  52

  
	
  Section 14.10 Severability

  	
   

  	
  53

  
	
  Section 14.11 Announcements

  	
   

  	
  53

  
	
  Section 14.12 Schedules,
  Annexes and Exhibits

  	
   

  	
  53

  
	
  Section 14.13 Entire
  Agreement

  	
   

  	
  54

  
	
  Section 14.14 Binding Effect

  	
   

  	
  54

  
	
  Section 14.15 Waiver and
  Amendment

  	
   

  	
  54

  
	
  Section 14.16 Headings

  	
   

  	
  54

  
	
  Section 14.17 Counterparts

  	
   

  	
  54

  
	
  Section 14.18 No Prejudice

  	
   

  	
  54

  
	
  Section 14.19 Governing Law

  	
   

  	
  54

  
	
  Section 14.20 Further
  Assurances

  	
   

  	
  54

  
	
  Section 14.21 Recourse

  	
   

  	
  55

  

 

iii

 

INDEX OF SCHEDULES

 

	
  Schedule
  1.3(a)(i)

  	
  Real
  Property

  
	
  Schedule
  5.6

  	
  New
  Policies Under Producer Agreements

  
	
  Schedule
  13.1(i)

  	
  Assumed
  Reinsurance Agreements

  
	
  Schedule
  13.1(ttt)

  	
  Other
  Reinsurance

  
	
   

  	
   

  
	
  INDEX OF ANNEXES

  
	
   

  	
   

  
	
  Annex
  A

  	
  Assets
  Supporting Initial Coinsurance Premium

  
	
  Annex
  B

  	
  Net
  Settlements

  
	
  Annex
  C

  	
  Estimated
  Discounted Interest Maintenance Reserve Amortization

  
	
  Annex
  D

  	
  Actual
  Discounted Interest Maintenance Reserve Amortization

  
	
  Annex
  E

  	
  Valuation
  Methodology for Net Retained Liabilities

  
	
  Annex
  F

  	
  Net
  Retained Liability Ceding Commission Amount

  
	
   

  	
   

  
	
  INDEX OF EXHIBITS

  
	
   

  	
   

  
	
  Exhibit A

  	
  Form of
  Trust Agreement

  

 

iv

 

COINSURANCE AGREEMENT

 

Coinsurance
Agreement, dated as of [·], 2011 (this “Agreement”),
between Liberty Life Insurance Company, a South Carolina insurance company (the
“Company”), and Protective Life Insurance Company, a Tennessee insurance
company (the “Reinsurer”; each of the Company and the Reinsurer, a “Party”
and together, the “Parties”).

 

RECITALS

 

WHEREAS,
the Company desires to cede or retrocede to the Reinsurer certain risks under
certain life and health insurance policies issued and reinsured by it; and

 

WHEREAS,
the Reinsurer desires to reinsure such policies from the Company on the terms
and conditions stated herein; and

 

WHEREAS,
the Company and the Reinsurer intend that the basis of the reinsurance shall be
100% coinsurance by the Reinsurer; and

 

WHEREAS,
the Company and the Reinsurer intend that the Reinsurer will provide certain
administrative services for policies reinsured hereunder, and the Company and
the Reinsurer have entered into an Administrative Services Agreement of dated
as of the date hereof (the “Administrative Services Agreement”) pursuant
to which the Reinsurer shall provide such administrative services on the terms
and conditions stated therein.

 

NOW,
THEREFORE, in consideration of the mutual promises and covenants set forth
herein, and for other good and valuable consideration the receipt and adequacy
of which is hereby acknowledged, and intending to be legally bound hereby, the
Company and the Reinsurer hereby agree as follows:

 

ARTICLE I

COINSURANCE

 

Section 1.1  Scope and Basis of Reinsurance.  This Agreement applies to each and every of
the Policies (a) issued by the Company and in force as of the Effective
Time (the “Existing Direct Reinsured Policies”), (b) issued by the
Company after the Effective Time in accordance with Section 5.4, 5.5(a) and
5.6 hereof (the “New Direct Reinsured Policies” and, together with the
Existing Direct Reinsured Policies, the “Direct Reinsured Policies”), (c) reinsured
by the Company under the terms of any Assumed Reinsurance Agreement as of the
Effective Time (the “Existing Indirect Reinsured Policies”) and (d) reinsured
by the Company after the Effective Time pursuant to the terms of any of the 

 

 

Assumed Reinsurance Agreements (the “New Indirect
Reinsured Policies”, together with the Existing Indirect Reinsured
Policies, the “Indirect Reinsured Policies” and the Indirect Reinsured
Policies together with the Direct Reinsured Policies, the “Reinsured
Policies”).  Except as expressly
provided herein, this Agreement does not reinsure any Policy written by the
Company, or as to which the Company otherwise incurs or assumes liability,
after the Effective Time.

 

Section 1.2  Reinsuring Clause; Extra Contractual
Obligations.  Subject to the terms
and conditions of this Agreement, the Company hereby cedes and the Reinsurer
hereby reinsures on a coinsurance basis as of the Effective Time, 100% (the “Reinsurer’s
Share”) of all Reinsured Liabilities arising under or relating to the
Reinsured Policies.   In addition to
Reinsurer’s coinsurance of the Reinsurer’s Share of the Reinsured Liabilities
pursuant to the preceding sentence, the Reinsurer hereby accepts and agrees to
assume and discharge the Reinsurer’s Share of Extra Contractual Obligations
other than Excluded Liabilities.  Except
as set forth herein, the Reinsurer does not assume any other liabilities of any
kind or description, whether known or unknown, contingent or otherwise.

 

Section 1.3  Transfer of Assets and Ceding Commission.

 

(a)  Coinsurance
Premium.

 

(i) 
On the Effective Date, the Company will transfer to the Reinsurer an initial
coinsurance premium with respect to the Reinsured Policies consisting of cash,
cash equivalents and the assets set forth on Annex A (with such additions
or substitutions as may be determined by the Reinsurer) (the “Transferred
Assets”) with an aggregate Value determined [three] Business Days prior to
the Effective Date equal to the following amount: (1) Reinsurer’s Share of
the Statutory Reserves held by the Company with respect to the Reinsured
Policies as of the Effective Time, plus (2) the
Reinsurer’s Share of the Interest Maintenance Reserve attributable to the
Transferred Assets, minus (3) the
Reinsurer’s Share of the amount of outstanding policy loans on the Reinsured
Policies (to the extent such policy loans constitute admitted assets under SAP,
net of any unearned policy loan interest on such loans but including amounts of
interest due and accrued with respect thereto), minus (4) the
Reinsurer’s Share of net due and deferred Premiums on the Reinsured Policies,
in each case determined in accordance with SAP, consistently applied (such
amount, “Initial Coinsurance Premium”); provided that,
notwithstanding anything to the contrary in this Agreement, solely for purposes
of calculating the Initial Coinsurance Premium, the term “Reinsured Policies”
shall include the portion of the Policies from which Net Retained Liabilities
arise.  In addition, the Company hereby
sells, assigns, transfers 

 

2

 

and delivers to the Reinsurer
as reinsurance premium, on the Effective Date effective as of the Effective
Time, all of Company’s right, title and interest (w) under the Reinsured
Policies to receive principal and interest paid on policy loans, (x) in
the Premiums, (y) in agent debit balances as of the Effective Date with
respect to the Reinsured Policies and the Net Retained Liabilities and (z) in
the real property listed on Schedule 1.3(a)(i) hereto, free and clear
of any liens or other encumbrances.  To
the extent the foregoing sentence is ineffective to transfer the type of asset
described, the Company agrees to execute and record all additional instruments,
bills of sale, deeds and other documents necessary to transfer such asset as
soon practicable after the Effective Date.

 

(ii) 
The amount of the Initial Coinsurance Premium paid on the Effective Date shall
be determined on an estimated basis (the “Estimated Initial Coinsurance
Premium”) as follows: (1) with respect to each of the items set forth
in clauses (1), (3) and (4) of the definition of “Initial Coinsurance
Premium,” the portion of the Estimated Initial Coinsurance Premium attributable
to such item shall be equal to the amount for such item set forth on the
Estimated Balance Sheet delivered to the Reinsurer pursuant to the Stock
Purchase Agreement and (2) with respect to the item set forth in clause (2) of
the definition of “Initial Coinsurance Premium”, the portion of the Estimated
Initial Coinsurance Premium attributable to such item shall be determined by
the Reinsurer in good faith on an estimated basis as of the date that is
[three] Business Days prior to the Effective Date.

 

(iii) 
On the Effective Date, the Reinsurer shall deliver to the Company a statement
setting forth (1) the amount of the Estimated Initial Coinsurance Premium
and (2) the final list of Transferred Assets, in each case, determined as
of the date that is [three] Business Days prior to the Effective Date.

 

(iv) 
Within [five] Business Days following the date on which the Purchase Price
Adjustment Materials and the determination of the amounts set forth therein
become final and binding pursuant to the penultimate sentence of Section 2.6(e) of
the Stock Purchase Agreement (the “True-Up Date”), the Reinsurer shall
deliver to the Company a statement (the “Initial Coinsurance Premium
Reconciliation Statement”) prepared in good faith by the Reinsurer setting
forth the actual amount of the Initial Coinsurance Premium minus the  Net Retained Liabilities Initial Coinsurance Premium
Adjustment as of the True-Up Date (the “Actual Initial Coinsurance Premium”),
the calculation of each of items (1) through (4) of the definition of
“Initial Coinsurance Premium” and the 

 

3

 

Value of the Transferred
Assets as of the Effective Date; provided that if the True-Up Date has
not occurred on or prior to the date that is [seventy-five] days following the
Effective Date, (x) the Reinsurer shall deliver to the Company a statement
setting forth the Reinsurer’s good faith estimate of the Net Retained
Liabilities Initial Coinsurance Premium Adjustment as of such date that is
[seventy-five] days following the Effective Date and the Reinsurer shall pay
the Company an amount of cash equal to the amount set forth in such statement
within [four] Business Days of delivery of such statement and (y) for
purposes of preparing the Initial Coinsurance Premium Reconciliation Statement
and calculating the Actual Initial Coinsurance Premium and the Initial
Coinsurance Premium Adjustment, the Net Retained Liabilities Initial
Coinsurance Premium Adjustment shall be reduced by the amount of cash, if any,
received by the Company from the Reinsurer pursuant to clause (x) of this Section 1.3(a)(iv).  With respect to each of the items set forth
in clauses (1), (3) and (4) of the definition of “Initial Coinsurance
Premium,” the portion of the Actual Initial Coinsurance Premium attributable to
such item shall be equal to the amount for such item set forth on the Final
Balance Sheet.  With respect to the item
set forth in clause (2) of the definition of “Initial Coinsurance Premium,”
the portion of the Actual Initial Coinsurance Premium attributable to such item
shall be the actual Interest Maintenance Reserves attributable to the
Transferred Assets as of the Effective Date. 
The “Initial Coinsurance Premium Adjustment” shall be equal
to the following amount (whether positive or negative): (1) the difference
(whether positive or negative) between the Actual Initial Coinsurance Premium minus the Estimated Initial Coinsurance Premium, minus (2) the difference (whether
positive or negative) between the Value of the Transferred Assets determined in
connection with the calculation of the Estimated Initial Coinsurance Premium
pursuant to Section 1.3(a)(i) minus the Value
of the Transferred Assets on the Effective Date, minus (3) the Net Retained
Liabilities Earned Interest.  If the Initial Coinsurance Premium Adjustment
is positive, then the Company shall pay to the Reinsurer an amount of cash
equal to the Initial Coinsurance Premium Adjustment within [five] Business Days
after the Initial Coinsurance Premium Adjustment is finalized pursuant to Section 10.2,
together with an amount of interest on the portion of the Initial Coinsurance
Premium Adjustment not attributable to the Net Retained Liabilities Initial
Coinsurance Premium Adjustment at the Applicable Rate (as such term is defined
in the Stock Purchase Agreement) calculated on the basis of a 360-day year for
the actual number of days elapsed, accrued from the Effective Date until, but
not including, the date of payment.  If
the Initial Coinsurance Premium Adjustment is negative, then the Reinsurer
shall pay to the Company an amount in cash equal to the absolute value of the
Initial Coinsurance 

 

4

 

Premium Adjustment within
[five] Business Days after the Initial Coinsurance Premium Adjustment is
finalized pursuant to Section 10.2, together with an amount of interest on
the portion of the Initial Coinsurance Premium Adjustment not attributable to
the Net Retained Liabilities Initial Coinsurance Premium Adjustment at the
Applicable Rate (as such term is defined in the Stock Purchase Agreement)
calculated on the basis of a 360-day year for the actual number of days
elapsed, accrued from the Effective Date until, but not including, the date of
payment.

 

(b)  Ceding Commission.

 

(i) 
In consideration of the reinsurance ceded hereunder, on the Effective Date the
Reinsurer shall pay the Company a ceding commission in cash of an amount  (the “Ceding Commission”) equal to (1) the
sum of (A) $200,500,000 and (B) the Reinsurer’s Share of the
aggregate of all Discounted Interest Maintenance Reserve Amortization for the
Transferred Assets, minus (2) the
Life NB Amount.

 

(ii) 
The amount of the Ceding Commission paid on the Effective Date shall be
determined by the Reinsurer in good faith on an estimated basis (such amount,
the “Estimated Ceding Commission”) as follows: (1) with respect to
the item set forth in clause (1)(B) of the definition of “Ceding
Commission,” the portion of the Estimated Ceding Commission attributable to
such item shall be determined by the Reinsurer in accordance with Annex C
and (2) with respect to the item set forth in clause (2) of the
definition of “Ceding Commission,” the portion of the Estimated Ceding
Commission attributable to such item shall be equal to the amount for such item
set forth on the Estimated NB Volume Adjustment Schedule delivered to the
Reinsurer pursuant to the Stock Purchase Agreement.

 

(iii) 
On the Effective Date, the Reinsurer shall deliver to the Company a statement
setting forth the amount of the Estimated Ceding Commission, determined as of
the date that is [three] Business Days prior to the Effective Date.

 

(iv) 
Within [five] Business Days following the True-Up Date, the Reinsurer shall
deliver to the Company a statement (the “Ceding Commission Reconciliation
Statement”) prepared in good faith by the Reinsurer setting forth the
actual amount of the Ceding Commission minus the
amount of the Net Retained Liabilities Initial Ceding Commission Adjustment as
of the True-Up Date (the “Actual Ceding Commission”) and the calculation
of each of items (1)(A), (1)(B) and (2) of the definition

 

5

 

of “Ceding Commission”; provided
that if the True-Up Date has not occurred on or prior to the date that is
[seventy-five] days following the Effective Date, (x) the Reinsurer shall
deliver to the Company a statement setting forth the Reinsurer’s good faith
estimate of the Net Retained Liabilities Initial Ceding Commission Adjustment
as of such date that is [seventy-five] days following the Effective Date and
the Company shall pay the Reinsurer an amount of cash equal to the amount set
forth in such statement within [four] Business Days of delivery of such
statement and (y) for purposes of preparing the Ceding Commission
Reconciliation Statement and calculating the Actual Ceding Commission and the
Ceding Commission Adjustment, the portion of the Actual Ceding Commission
attributable to the Net Retained Liabilities Initial Ceding Commission
Adjustment shall be reduced by the amount of cash, if any, received by the
Reinsurer from the Company pursuant to clause (x) of this Section 1.3(b)(iv).  With respect to the item set forth in clause
(1)(B) of the definition of “Ceding Commission,” the portion of the Actual
Ceding Commission attributable to such item shall be determined by the
Reinsurer in accordance with Annex D. 
With respect to the item set forth in clause (2) of the definition
of “Ceding Commission,” the portion of the Actual Ceding Commission
attributable to such item shall be equal to the amount for such item set forth
on the Final NB Volume Adjustment Schedule. 
The “Ceding Commission Adjustment” shall be equal to the
following amount (whether positive or negative): (1) the difference (whether positive or negative) between the Actual
Ceding Commission minus the Estimated Ceding
Commission, minus (2) the
Net Retained Liabilities Ceding Commission Interest.  If the Ceding Commission
Adjustment is positive, then the Reinsurer shall pay to the Company an amount
of cash equal to the Ceding Commission Adjustment within [five] Business Days
after the Ceding Commission Adjustment is finalized pursuant to Section 10.2,
together with an amount of interest on the portion of the Ceding Commission
Adjustment not attributable to the Net Retained Liabilities Initial Ceding
Commission Adjustment at the Applicable Rate (as such term is defined in the
Stock Purchase Agreement) calculated on the basis of a 360-day year for the
actual number of days elapsed, accrued from the Effective Date until, but not
including, the date of payment.  If the
Ceding Commission Adjustment is negative, then the Company shall pay to the
Reinsurer an amount of cash equal to the absolute value of the Ceding
Commission Adjustment within [five] Business Days after the Ceding Commission
Adjustment is finalized pursuant to Section 10.2, together with an amount
of interest on the portion of the Ceding Commission Adjustment not attributable
to the Net Retained Liabilities Initial Ceding Commission Adjustment at the
Applicable Rate (as such term is defined in the Stock Purchase Agreement)
calculated on the basis of a 360-day year 

 

6

 

for the actual number of days
elapsed, accrued from the Effective Date until, but not including, the date of
payment.

 

(c)  Net Retained
Liabilities Cash Adjustment.  From
the Effective Time until the Net Retained Liabilities True-Up Date, (i) the
Company shall pay the Reinsurer an amount equal to the premiums and
considerations, premium adjustments and any and all amounts or payments,
including any and all policy fees, charges, reimbursements and similar amounts,
received or collected by the Company during such period in respect of the
portion of the Policies from which Net Retained Liabilities arise and (ii) the
Reinsurer shall pay to the Company an amount equal to the obligations,
including any and all death claims, cash surrender benefits, policyholder
dividends, commissions and similar amounts, arising out of or relating to the
portion of the Policies from which Net Retained Liabilities arise (including
Extra Contractual Obligations, but excluding the Excluded Liabilities) incurred
by the Company during such period.  The
payment of such amounts shall be reflected in the Net Settlement for each month
ending prior to the Net Retained Liabilities True-Up Date and for the month in
which the Net Retained Liabilities True-Up Date occurs.  Following the Net Retained Liabilities
True-Up Date, the Reinsurer shall deliver to the Company a statement (the “Net
Retained Liabilities Cash Reconciliation Statement”) setting forth the
Reinsurer’s good faith estimate of the difference (whether positive or
negative) between (x) the aggregate amount paid to the Reinsurer pursuant
to the first sentence of this Section 1.3(c) attributable each Net
Retained Liability that remained a Net Retained Liability on the Net Retained
Liabilities True-Up Date minus (y) the
aggregate amount paid to the Company pursuant to the first sentence of this Section 1.3(c) attributable
each Net Retained Liability that remained a Net Retained Liability on the Net
Retained Liabilities True-Up Date (such difference, the “Net Retained
Liabilities Cash Adjustment”).   If
the Net Retained Liabilities Cash Adjustment is positive, then the Reinsurer
shall pay to the Company an amount of cash equal to the Net Retained
Liabilities Cash Adjustment within [five] Business Days after the Net Retained
Liabilities Cash Adjustment is finalized pursuant to Section 10.2,
together with an amount of interest on such payment at the Applicable Rate (as
such term is defined in the Stock Purchase Agreement) calculated on the basis
of a 360-day year for the actual number of days elapsed, accrued from the
Effective Date until, but not including, the date of payment.  If the Net Retained Liabilities Cash
Adjustment is negative, then the Company shall pay to the Reinsurer an amount
of cash equal to the absolute value of the Net Retained Liabilities Cash
Adjustment within [five] Business Days after the Net Retained Liabilities Cash
Adjustment is finalized pursuant to Section 10.2, together with an amount
of interest on such payment at the Applicable Rate (as such term is defined in
the Stock Purchase Agreement) calculated on the basis of a 360-day year for the
actual number of days elapsed, accrued from the Effective Date until, but not
including, the date of payment.

 

Section 1.4  Net Retained Liabilities.  The Company and the Reinsurer will cooperate
to obtain all waivers and consents necessary in order to reinsure 100% of the 

 

7

 

Net Retained Liabilities under this Agreement.  The Company and the Reinsurer shall use their
reasonable best efforts to obtain any such waivers and consents (it being
understood that the Reinsurer’s executive officers directly responsible for the
Life Reinsurer’s relationships with reinsurers shall, to the extent reasonably
appropriate, be personally engaged in that process) and promptly advise the
other Party of any communications with respect to any such waivers and
consents.  All correspondence from either
the Company or the Reinsurer to any Person from whom such a waiver or consent
is sought shall be in a form approved by the other Party; provided that
any such approval by the Company shall not be unreasonably withheld,
conditioned or delayed.  At the Reinsurer’s
instruction and expense, the Company shall effect any such action with respect
to such waivers and consents as the Reinsurer shall reasonably request,
including sending correspondence requesting such waivers and consents in a form
approved by the Reinsurer; provided, however, that the Reinsurer
shall indemnify and hold harmless the Company for Losses arising out of any
such action so requested by the Reinsurer. 
To the extent that after the Effective Time, any such waivers or
consents are obtained to reinsure a Net Retained Liability under the terms of
this Agreement or the Parties otherwise agree that any such waivers or consents
shall not be required as a condition to coverage hereunder, then the liability
and obligation pertaining to such Policy shall no longer be deemed a Net
Retained Liability for purposes of this Agreement and the liability and
obligation pertaining to such Policy shall be reinsured hereunder effective as
of the date of such consent, waiver or agreement by the Parties, as
applicable.  In addition, with respect to
any such waiver or consent that is obtained after the Net Retained Liabilities
True-Up Date, (i) the Company shall pay the Reinsurer an amount of cash
equal to the Net Retained Liability Reserve Transfer Amount with respect to
such Net Retained Liability for which waiver or consent was obtained and (ii) the
Reinsurer shall pay the Company an amount of cash equal to the Net Retained
Liability Ceding Commission Amount with respect to such Net Retained Liability
for which waiver or consent was obtained. 
For the avoidance of doubt, prior to obtaining any such required
consents or waivers, the portion of each Policy from which Net Retained
Liabilities arise shall not be deemed to constitute a Reinsured Policy for
purposes of this Agreement; provided that the Reinsurer shall provide
administrative services with respect to any Net Retained Liabilities (and the
associated Policies) pursuant to the Administrative Services Agreement.

 

Section 1.5  Producer Payments.  The Reinsurer hereby assumes the liability of
the Company and agrees that is shall be financially responsible for Producer
Payments due in respect of premiums collected and received.  The Company hereby designates the Reinsurer
as “paying agent” to make such Producer Payments directly to the applicable
Producers from and after the Effective Date. The Company shall act at the
Reinsurer’s written direction and cost to exercise all rights of the Company
relating to the Reinsured Policies under the terms of the Producer Agreements,
including, without limitation, any rights to suspend or terminate Producer
Payments to such Producers for any reason or cause set forth in the Producer
Agreements, and the Company hereby transfers and 

 

8

 

assigns to the Reinsurer all of its rights under such
Producer Agreements, but in each case only to the extent such rights thereunder
relate to the Reinsured Policies; provided, however, that the
Reinsurer shall indemnify and hold harmless the Company for Losses arising out
of any such action so requested by the Reinsurer.

 

Section 1.6  Guaranty Fund Assessments and Premium
Taxes.

 

(a)  Guaranty Funds
Assessments.  In the event the
Company is required to pay an assessment on or after the Effective Date in
respect of the Reinsured Policies to any insurance guaranty, insolvency or
other similar fund maintained by any jurisdiction, the portion, if any, of such
assessment that relates to such Reinsured Policies shall be reimbursed by the
Reinsurer.

 

(b)  Premium Taxes.  The Reinsurer shall pay to the Company a
provision for premium taxes and other charges, fees, taxes and assessments,
including retaliatory taxes (collectively, “Premium Taxes”), incurred on
or after the Effective Date in connection with premiums written or received
under the Reinsured Policies.  The
provision for Premium Taxes shall be estimated at [2.5%] of premiums received
under the Reinsured Policies, as calculated on a monthly basis, and shall be
paid by the Reinsurer to the Company as part of the monthly settlement pursuant
to Section 6.4 and adjusted annually to an actual rate for each year as
part of the monthly settlement pursuant to Section 6.4 for the second
calendar month of the following year, with such monthly settlement to reflect
the difference between actual Premium Taxes in respect of the Reinsured Policies
(after giving effect to any offsets for guaranty fund assessments reimbursed by
the Reinsurer pursuant to Section 1.6(a)) and estimated Premium Taxes.

 

Section 1.7   Other Reinsurance.  This Agreement is written on a “gross” basis
and thus the costs and benefits of Other Reinsurance inuring on the Reinsured
Policies are intended to be borne by the Reinsurer.  Other Reinsurance with respect to the
Reinsured Policies shall be deemed to be inuring to the Reinsurer’s benefit for
all purposes of this Agreement and shall be accounted for herein such that
Reinsurer participates in the Reinsurer’s Share of any premiums, benefits,
recoveries, ceding or expense allowances, other allowances and other
adjustments as such amounts and such risks are paid, received or otherwise
collected by the Company with respect to such Other Reinsurance, it being
understood that the Reinsurer shall bear all risk of collecting third party
reinsurance.  Risks under the terms of
any agreement of Other Reinsurance as shall be terminated or recaptured with
the Reinsurer’s consent shall be ceded automatically hereunder to the Reinsurer
without any further action required subject to the receipt by Reinsurer of its
proportional Reinsurer’s Share of any reserve transfer or similar transfer or
settlement amount received by the Company from the applicable third party
reinsurer.  The Reinsurer shall pay any
resulting special transfer or recapture fee incurred by the Company.  The Company covenants that absent the
specific prior written consent of the 

 

9

 

Reinsurer, the Company shall enter into no further
reinsurance cession with respect to any of the Reinsured Policies.

 

Section 1.8  Policy Changes and Non-Guaranteed Elements.

 

(a)  Policy Changes.  The Company agrees that it shall not make any
changes in the provisions and conditions of a Reinsured Policy or an Assumed
Reinsurance Agreement except with the Reinsurer’s prior written consent or to
the extent that any change to the terms of any Reinsured Policy is required by
applicable Law, in which case the Company shall consult with the Reinsurer as
to any such change.

 

(b)  Non-Guaranteed
Elements.  The Company shall
establish cost of insurance charges, loads and expense charges, credited interest
rates, mortality and expense charges, administrative expense risk charges, and
policyholder dividends, as applicable, under the Policies (“Non-Guaranteed
Elements”), taking into account the recommendations of the Reinsurer with
respect thereto.  The Reinsurer may, from
time to time, make recommendations to the Company with respect to
Non-Guaranteed Elements so long as the recommendations comply with the written
terms of the Policies, applicable Law and Actuarial Standards of Practice
promulgated by the Actuarial Standard Board governing redetermination of
non-guaranteed charges.  The Company’s
acceptance and implementation of any such recommendations provided in writing
shall not be unreasonably withheld or delayed more than [ten Business Days]
after such recommendations are provided in writing; provided, however,
that the Reinsurer shall indemnify and hold harmless the Company for Losses
arising out of the Company’s acceptance and implementation of the Reinsurer’s
recommendations.  Notwithstanding the foregoing,
unless the Company follows the recommendations of the Reinsurer pursuant to
this Section 1.8(b), the Company shall vary Non-Guaranteed Elements under
this Agreement only in a manner consistent with the Company’s documented
procedures in effect on the Effective Date or, in the absence of such
documented procedures, in a manner consistent with the historical practices
employed by the Company in establishing Non-Guaranteed Elements in respect of
the Policies.

 

Section 1.9  Ownership
of Premiums.  Payment of Premiums to the Reinsurer, as
Administrator pursuant to the Administrative Services Agreement, by or on
behalf of a policyholder shall be deemed received by the Company.  All monies, checks, drafts, money orders,
postal notes and other instruments that may be received after the Effective
Date by the Company for premiums, fees or other payments on or in respect of
the Reinsured Policies shall be held in trust by the Company for the benefit of
the Reinsurer and shall be immediately transferred and delivered to the
Reinsurer, and any such instruments when so delivered shall bear all
endorsements required to effect the transfer of same to the Reinsurer.  The Reinsurer is hereby authorized to endorse
for payment to the Reinsurer any such checks, drafts, money orders and other
instruments pertaining to the Reinsured Policies that are payable to, or to the
order of, the Company and received 

 

10

 

by the Reinsurer under this Agreement.  As between the Parties, the Reinsurer shall
be deemed owner of all such payments.

 

Section 1.10  Security Interest.

 

(a)  The Parties intend
the Company’s assignment pursuant to the last sentence of Section 1.3(a)(i) to
be a present assignment of all of the Company’s rights, title and interest and
not an assignment as collateral. 
However, to the extent that such assignment is not recognized as a
present assignment, is not valid or is recharacterized as a pledge rather than
a lawful conveyance to the Reinsurer, the Company does hereby grant, bargain,
sell, convey, assign and otherwise pledge to the Reinsurer, all of the Company’s
right, title and interest, if any (legal, equitable or otherwise) to all
Premiums, fees and other payments due or made after the Effective Date under
the Reinsured Policies (and any lockbox or account set up for the receipt of
said Premiums, fees and other payments after the Effective Date) (the “Collateral”)
to secure all of the Company’s obligations under this Agreement.

 

(b)  Upon the failure of
the Company to fully perform any of its material obligations under this
Agreement, which failure is not caused by the Reinsurer as Administrator and
remains uncured ten days after written notice thereof is received by the
Company, the Reinsurer shall have, in addition to all other rights under this
Agreement or under applicable Law, the following rights:

 

(i) 
the right to exercise all rights and remedies granted a secured party under the
Uniform Commercial Code, as said code has been enacted in the State of South Carolina,
the State of Tennessee, the State of Alabama, or any other applicable
jurisdiction (the “UCC”), as though all the Collateral constituted
property subject to a security interest under Article 9 thereof;

 

(ii) 
the right to set off;

 

(iii) 
the right to intercept and retain monies and property in any lockbox and
otherwise;

 

(iv) 
without giving rise to any right to double recovery under this Section 1.10
and Section 11.2, the right to reasonable attorneys’ fees incurred in
connection with the enforcement of this Agreement or in connection with
disposition of the Collateral; and

 

(v) 
the right to dispose of the Collateral, subject to commercial reasonableness.

 

11

 

(c)  This Section 1.10
is being included in this Agreement to ensure that, if an insolvency or other
court determines that, notwithstanding the provisions of this Agreement,
including Section 1.1, Section 1.2, Section 1.3, Section 1.9,
Section 6.4 and Section 11.1, and the intent of this Agreement, the
Company retained ownership of or any rights in the Collateral, the Reinsurer’s
rights to the Collateral are protected with a first priority, perfected
security interest, and it is the intent of the Parties that this Section 1.10
be interpreted as such.

 

(d)  Nothing contained
herein shall be construed to support the conclusion that the Company will
retain any ownership of or any rights in the Collateral after the Effective
Time or to support the conclusion that the Reinsurer does not acquire full ownership
thereof as of the Effective Time.

 

(e)  The Company shall
execute and deliver and the Reinsurer is authorized to execute and deliver any
and all financing statements reasonably requested by the Reinsurer to the
extent that it may appear appropriate to the Reinsurer to file such financing
statements in order to perfect the Reinsurer’s title under Article 9 of
the UCC to any and all Premiums and any and all other Collateral and the
Company shall do such further acts and things as Reinsurer may request in order
that the security interest granted hereunder may be maintained as a first
perfected security interest.

 

ARTICLE II

REINSURANCE LIABILITY

 

Section 2.1  Reinsurance Liability.  The reinsurance by Reinsurer of the Reinsured
Policies is subject to the same rates, conditions, limitations and restrictions
as the insurance under the Reinsured Policies written by the Company on which
the reinsurance is based.  The liability
of Reinsurer hereunder on the terms described herein begins on the Effective
Date and, subject to Article IX hereof, the liability of Reinsurer on any
Reinsured Policy will terminate as and when all liability of the Company with
respect to such Reinsured Policy terminates.

 

Section 2.2  Other Reinsurance.

 

(a)  The Company agrees
that other than as provided expressly in this Agreement, it shall take any
actions reasonably requested by the Reinsurer to maintain in full force and
effect each of the Other Reinsurance Agreements and to perform fully each of
its obligations thereunder.  The Company
may not modify, amend or terminate any Other Reinsurance Agreement or waive any
of its rights under any such agreement without the Reinsurer’s prior written
consent and shall fully enforce, at the expense of the Reinsurer, all of its
rights thereunder, including, without limitation, at the Reinsurer’s request,
requiring the collateralization by the third party reinsurer of reserve
balances and other amounts thereunder. 
With the Reinsurer’s consent, the Company may exercise any right 

 

12

 

it may have to recapture risks ceded thereby under any
of the Other Reinsurance Agreements or to otherwise terminate any such
agreement and shall, at the Reinsurer’s instruction and expense, effect any
such action with respect to the management or administration of the Other
Reinsurance as the Reinsurer shall reasonably request, including, without
limitation, termination or recapture, as may be available under or with respect
to the terms of any Other Reinsurance Agreement; provided, however,
that the Reinsurer shall indemnify and hold harmless the Company for Losses
arising out of any such action so requested by the Reinsurer.  The Company agrees that it shall, at the
direction of the Reinsurer, pursue commercially reasonable management and
collection efforts with respect to the Other Reinsurance and, in general, will
cooperate with the Reinsurer in the management of the Other Reinsurance.

 

(b)  Following the
Effective Date, at the Reinsurer’s request and expense, the Company shall
cooperate with the Reinsurer and use its reasonable best efforts to novate any
Other Reinsurance from the Company to the Reinsurer or a designated Affiliate
of the Reinsurer.  The Company shall
promptly advise the Reinsurer of any communications with respect to any such
proposed novation.  All correspondence
from either the Company or the Reinsurer to any reinsurer under Other
Reinsurance in connection with any such proposed novation shall be in a form
approved by the other Party; provided that any such approval shall not
be unreasonably withheld, conditioned or delayed.  At the Reinsurer’s instruction and expense,
the Company shall effect any such action with respect to any such proposed
novation as Reinsurer shall reasonably request, including sending
correspondence requesting that an Other Reinsurance Agreement be novated to the
Reinsurer or a designated Affiliate of the Reinsurer in a form approved by the
Reinsurer; provided, however, that the Reinsurer shall indemnify
and hold harmless the Company for Losses arising out of any such action so
requested by Reinsurer.  For the
avoidance of doubt, the Seller shall not be obligated to take any action or
cause the Company to take any action in connection with this Section 2.2(b).

 

(c)  The recoverability
of the Other Reinsurance from reinsurers shall be at the risk of and for the
account of the Reinsurer. 
Notwithstanding anything in this Agreement to the contrary, the Company
shall have no obligation to pursue any claims it may have for indemnification
to which it may be entitled in connection with the Other Reinsurance unless
requested to do so by the Reinsurer and at the expense of the Reinsurer.  In no event shall any such right to
indemnification reduce the Reinsurer’s responsibility for the risk of all Other
Reinsurance.

 

Section 2.3  Disclaimer.  The Company has no duty of utmost good faith
or other similar duty of disclosure in connection with the cession of
liabilities from the Company to the Reinsurer as of the Effective Time, which
the Company expressly disclaims, and makes no representations or warranties to
the Reinsurer in connection with the cession of liabilities from the Company
and the Reinsurer as of the Effective Time, other than those expressly
contained in this Agreement; provided, however, that the
Reinsurer reserves all 

 

13

 

of its rights and remedies in respect of any such duty
of utmost good faith or other similar duty of disclosure of the Company arising
after the Effective Time to the extent information relating to the liabilities
reinsured hereunder has not been disclosed, or is not otherwise available, to
the Reinsurer, including in its capacity as Administrator, or any of its
designees or agents.

 

ARTICLE III

CERTAIN FINANCIAL PROVISIONS

 

Section 3.1  Provision of Security by the Reinsurer.

 

(a)  On the Effective
Date, the Reinsurer shall establish and fund with an amount of cash and assets
having a Statutory Book Value equal to the Required Balance calculated by the
Reinsurer as of the Effective Date a trust account (the “Trust Account”)
with a Qualified United States Financial Institution unaffiliated with the
Reinsurer and the Company and which is reasonably acceptable to the Reinsurer
and the Company (the “Trustee”) at the sole cost and expense of the
Reinsurer naming the Company as sole beneficiary until such time as a Trust
Account is no longer required pursuant to Section 3.1(b) and shall
enter into the Trust Agreement to provide security for the payment of amounts
due the Company under this Agreement. 
The Reinsurer shall transfer or pay into the Trust Account, and shall
thereafter maintain in the Trust Account, until such time as a Trust Account is
no longer required pursuant to Section 3.1(b), cash and assets managed by the
Reinsurer in accordance with guidelines (including concentration limits,
applied on a percentage of assets basis rather than a percentage of capital
basis) applied by the Reinsurer generally for its own general investments
supporting insurance liabilities having a Statutory Book Value determined in
good faith by Reinsurer on a quarterly basis to be not less than the Required
Balance.  In lieu of entering into the
Trust Agreement and establishing and funding the Trust Account in the manner
set forth in this Section 3.1, Reinsurer may instead, with the Company’s
consent (which consent shall not be unreasonably withheld or delayed), elect to
provide to the Company substantially equivalent security as would be provided
by the Trust Account such as by providing unconditional letters of credit,
performance guarantees or other similar collateralization.

 

(b)  For purposes of this
Agreement, the term “Required Balance”, as of any date of determination,
means an amount equal to the Reinsurer’s Share of the Statutory Reserves which
would be appropriately held by the Company with respect to the Reinsured
Policies as of such date of determination assuming such Statutory Reserves are
gross of any statutory reserve credit taken by the Company for this Agreement
and calculated in accordance with SAP, reduced by credit for reinsurance taken
by the Reinsurer in respect of Financed Amounts as of such date of
determination and net of the Reinsurer’s Share of (1) policy loan balances
on the Reinsured Policies as of such date of determination and (2) net due
and deferred Premiums on the Reinsured Policies as of such date of
determination, in each case determined in accordance with SAP, consistently 

 

14

 

applied.  The
Required Balance and the Statutory Book Value of any assets held in the Trust
Account shall be calculated by the Reinsurer as of the last day of each
calendar quarter, and the Reinsurer shall provide a certification with respect
to such valuation, including the calculation of the aggregate Statutory Book
Value of the assets, to the Company and the Trustee within thirty days after
the end of such quarter.  If the amount
of cash plus the Statutory Book Value of assets held in the Trust Account as of
any quarter end is less than the Required Balance as of such quarter end, the
Reinsurer shall within ten Business Days after such determination is made make
such further deposits to the Trust Account as are required in order to restore
the Required Balance as of such quarter end. 
If the amount of cash plus the Statutory Book Value of assets held in
the Trust Account as of any quarter end is greater than the Required Balance as
of such quarter end, the Reinsurer may provide notice to the Company of its
desire to withdraw assets from the Trust Account, specifying the amount and
type of assets to be withdrawn.  Within
five Business Days following its delivery of such notice to the Company, the
Reinsurer may withdraw such assets from the Trust Account in excess of the
amount necessary to maintain such Required Balance as of the applicable quarter
end.  Any disputes by the Company of the
valuation of any asset deposited in the Trust Account pursuant to this Section 3.1
shall be resolved in accordance with Section 10.3.  Upon resolution
of any such dispute in accordance with Section 10.3, the Reinsurer shall
cause to be deposited additional assets that comply with Section 3.1(a) within
two Business Days following such resolution or may withdraw assets from the
Trust Account in accordance with this Section 3.1(b), such that following
any such deposit or withdrawal, the amount of cash plus the Statutory Book
Value of the assets held in the Trust Account is sufficient to maintain the
Required Balance as of the applicable quarter end.  Unless otherwise agreed upon in writing by
the Company, the Reinsurer shall maintain such Trust Account until all
obligations of the Reinsurer under this Agreement have been fully satisfied, as
determined by the Company in its sole reasonable discretion.  Notwithstanding the foregoing, the Reinsurer
may terminate the Trust Agreement and close the Trust Account at any time when
the Required Balance as of the end of any calendar quarter is less than 10% of
the sum of the capital and surplus of the Reinsurer plus the
asset valuation reserve of the Reinsurer, in each case as determined in
accordance with the statutory accounting principles and practices prescribed by
the Reinsurer’s state of domicile as of such quarter end.

 

(c)  The Company and the
Reinsurer agree that the assets maintained in the Trust Account may be
withdrawn by the Company only after a default by Reinsurer in the performance
of its monetary obligations hereunder, which default has not been cured by the
Reinsurer within ten days following its receipt of a specific written notice
thereof delivered by the Company, and solely to the extent required to cure
such default and, notwithstanding any other provision of this Agreement, shall
be utilized and applied by the Company or any successor by operation of law,
including, without limitation, any liquidator, rehabilitator, receiver or
conservator of the Company, without diminution because of insolvency on the
part of the Company or the Reinsurer, only to pay amounts

 

15

 

then due to the Company under this Agreement.  The amount of any such withdrawal in excess
of amounts then due to Company hereunder shall be deemed maintained in
constructive trust for the benefit of Reinsurer and promptly returned to the
Reinsurer.  Notwithstanding the
foregoing, upon prior written notice to the Company, the Reinsurer shall have
the right to withdraw all or any part of the cash and assets maintained in the
Trust Account provided that the Reinsurer shall, at the time of such
withdrawal, replace the withdrawn assets with cash or other qualified assets
having a Statutory Book Value equal to the Statutory Book Value of the assets
and the amount of cash withdrawn so as to maintain at all times the deposit in
the Required Balance.

 

(d)  With respect to
transfer of any Transferred Assets to the Trust Account, the Reinsurer will
hold valid title to all such Transferred Assets free and clear of all
Encumbrances, other than Permitted Encumbrances and interests of nominees,
custodians or similar intermediaries.  As
of the date of the transfer of any assets to the Trust Account after the
Effective Date, the Reinsurer will have good and marketable title, free and
clear of any liens, to all such assets transferred by it to the Trust Account,
all assets transferred by the Reinsurer after the Effective Date to the Trust
Account shall be transferred free and clear of any liens or other encumbrances
and the Reinsurer will not create, incur, assume or permit any lien or other
encumbrance on any of the assets held in the Trust Account, or on any interest
therein or on any of the proceeds thereof.

 

(e)  Notwithstanding the
forgoing, in the event the Reinsurer’s RBC Ratio is less than 125%, the
Reinsurer shall fund the Trust Account with an amount of cash and assets having
a fair market value equal to the Required Balance, and all references to “Statutory
Book Value” in this Section 3.1 shall be deemed to be references to “fair
market value.”

 

Section 3.2  Credit for Reinsurance.  At all times during the term of this
Agreement, the Reinsurer agrees that it (a) shall hold and maintain all
licenses, permits and authorities required under applicable laws to perform its
obligations hereunder or (b) establish and maintain security in the form
of letters of credit, assets held in a reinsurance trust or a combination
thereof at its sole expense in a manner that meets all applicable Laws
regarding credit for reinsurance, in each case as necessary to enable the
Company to receive statutory reserve credit in all jurisdictions where it is
licensed as an insurer unless otherwise mutually agreed by the Parties.

 

Section 3.3  Conversion to Assumption Reinsurance.

 

(a)  If the Company’s RBC
Ratio is less than 125% or the Company’s A.M. Best insurer financial
strength rating is downgraded below A, the Company agrees that the Reinsurer
shall have the right, at its option and expense, to assume on a novation basis
the Reinsured Policies, subject to receipt by the Company and the Reinsurer of
all required approvals of Governmental or Regulatory Authorities and any
required policyholder approvals.

 

16

 

(b)  In the event that
the Reinsurer elects to effect such an assumption, at the direction and expense
of the Reinsurer, the Parties shall cooperate fully with each other (i) in
complying with requirements of Governmental or Regulatory Authorities and
responding to regulatory inquiries associated with assumption of the Reinsured
Policies; (ii) in giving notice to policyholders of the assumed Reinsured
Policies of the assumption as required by applicable Law; (iii) in
obtaining, as required by applicable Law, the consent of policyholders of the
assumed Reinsured Policies to the assumption; and (iv) in all other
reasonable respects in order to accomplish the objectives of the assumption
provided, however, that the Reinsurer shall indemnify and hold
harmless the Company for Losses arising out of any action taken by the Company
pursuant to this Section 3.3(b).

 

Section 3.4  RBC Reports.  Within five Business Days of the submission
by the Company and the Reinsurer to the insurance department of its domiciliary
state of a report of its risk-based capital levels as of the end of the
previous calendar year, each of the Company and the Reinsurer shall provide to
the other written certification of such Party’s RBC Ratio as of the end of such
calendar year.  In the event that one
Party has a good faith basis to believe that there has been a material
deterioration in the other Party’s RBC Ratio as of the end of any calendar
quarter, such Party may request, and the other Party shall deliver to the
requesting Party as promptly as practicable, a report of such Party’s RBC Ratio
as of the end of such calendar quarter, as estimated in good faith by such
Party.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

Section 4.1  Representations and Warranties of
Reinsurer.  Reinsurer hereby
represents and warrants to the Company as of the Effective Date:

 

(a)  Organization,
Standing and Authority.  The
Reinsurer is a corporation duly organized and validly existing under the laws
of the State of Tennessee and has all requisite power and authority to own,
lease and operate its assets, properties and business and to carry on the
operations of its business as they are now being conducted, except where the
failure to have such authority would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect.  The Reinsurer is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Reinsurer’s
ability to perform its obligations under this Agreement.

 

(b)  Authorization.  The Reinsurer has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement.  This Agreement has been duly
executed and delivered by the Reinsurer, and, subject to the due execution 

 

17

 

and delivery by the Company, this Agreement is valid and
the binding obligations of the Reinsurer, enforceable against the Reinsurer in
accordance with its terms, subject to (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other similar laws now or
hereafter in effect relating to or affecting the rights of creditors of
insurance companies or creditor’s rights generally and (ii) general
principles of equity (regardless of whether considered in a proceeding at law
or in equity).

 

(c)  Actions and
Proceedings.  There are no
outstanding orders, decrees or judgments by or with any Governmental or
Regulatory Authority applicable to the Reinsurer or its properties or assets
that, individually or in the aggregate, have a material adverse effect on the
Reinsurer’s ability to perform its obligations under this Agreement.  There are no actions, suits, arbitrations or
legal, administrative or other proceedings pending or, to the knowledge of the
Reinsurer, threatened against, at law or in equity, or before or by any
Governmental or Regulatory Authority or before any arbitrator of any kind which
would, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the Reinsurer’s ability to perform its obligations
under this Agreement.

 

(d)  No Conflict or
Violation.  The execution, delivery
and performance by the Reinsurer of this Agreement and the consummation of the
transactions contemplated hereby in accordance with the terms and conditions
hereof will not: (i) violate any provision of the charter, bylaws or other
organizational document of Reinsurer, (ii) violate, conflict with or
result in the breach of any of the terms of, result in any modification of the
effect of, otherwise give any other contracting party the right to terminate or
constitute (or with notice or lapse of time or both, constitute) a default
under, any contract to which the Reinsurer is a party or by or to which its
properties may be bound or subject, (iii) violate any order, judgment,
injunction, award or decree of any arbitrator or Governmental or Regulatory
Authority, or any agreement with, or condition imposed by, any arbitrator or Governmental
or Regulatory Authority, binding upon, the Reinsurer, (iv) violate any
applicable Law or (v) result in a breach or violation of any of the terms
or conditions of, constitute a default under, or otherwise cause an impairment
of, any license or authorization related to the Reinsurer’s business or
necessary to enable the Reinsurer to perform its obligations under this
Agreement, except for any such violations, conflicts or breaches which would
not individually or in the aggregate reasonably be expected to have a material
adverse effect on the Reinsurer’s ability to perform its obligations under this
Agreement.

 

(e)  Brokers and
Financial Advisers.  No broker,
finder or financial adviser has acted directly or indirectly as such for, or is
entitled to any compensation from, the Reinsurer in connection with this
Agreement or the transactions contemplated hereby.

 

(f)  Independent
Investigation.  The Reinsurer has (i) performed
its own independent investigation of the Policies and the Other Reinsurance Agreements
and (ii) 

 

18

 

had the opportunity to ask questions and receive
information from Seller concerning the Policies and the Other Reinsurance
Agreements and the Reinsurer has obtained sufficient information from Seller to
evaluate the relative risks and benefits of, and made its own analysis as it
deemed necessary in order for it to make a determination concerning, entering
into the reinsurance transaction contemplated hereby.

 

Section 4.2  Representations and Warranties of the
Company.  The Company hereby
represents and warrants to Reinsurer as of the Effective Date:

 

(a)  Organization,
Standing and Authority.  The Company
is a corporation duly organized and validly existing under the laws of the
State of South Carolina and has all requisite power and authority to own, lease
and operate its assets, properties and business and to carry on the operations
of its business as they are now being conducted, except where the failure to
have such authority would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect. 
The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where such qualification is
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the Company’s ability to perform its obligations
under this Agreement.

 

(b)  Authorization.  The Company has all requisite corporate power
and authority to execute, deliver and perform its obligations under this
Agreement.  This Agreement has been duly
executed and delivered by the Company, and, subject to the due execution and
delivery by Reinsurer, this Agreement is valid and the binding obligations of
the Company, enforceable against the Company in accordance with its terms,
subject to (i) bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium and other similar laws now or hereafter in effect relating
to or affecting the rights of creditors of insurance companies or creditor’s
rights generally and (ii) general principles of equity (regardless of
whether considered in a proceeding at law or in equity).

 

(c)  Actions and
Proceedings.  There are no
outstanding orders, decrees or judgments by or with any Governmental or
Regulatory Authority applicable to the Company or its properties or assets
that, individually or in the aggregate, have a material adverse effect on the
Company’s ability to perform its obligations under this Agreement.  There are no actions, suits, arbitrations or
legal, administrative or other proceedings pending or, to the knowledge of the
Company, threatened against, at law or in equity, or before or by any Governmental
or Regulatory Authority or before any arbitrator of any kind which would,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the Company’s ability to perform its obligations under this
Agreement.

 

19

 

(d)  No Conflict or
Violation.  The execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby in accordance with the terms and conditions hereof
will not: (i) violate any provision of the charter, bylaws or other
organizational document of the Company, (ii) violate, conflict with or
result in the breach of any of the terms of, result in any modification of the
effect of, otherwise give any other contracting party the right to terminate or
constitute (or with notice or lapse of time or both, constitute) a default
under, any contract to which the Company is a party or by or to which its
properties may be bound or subject, (iii) violate any order, judgment,
injunction, award or decree of any arbitrator or Governmental or Regulatory
Authority, or any agreement with, or condition imposed by, any arbitrator or
Governmental or Regulatory Authority, binding upon, the Company, (iv) violate
any applicable Law or (v) result in a breach or violation of any of the
terms or conditions of, constitute a default under, or otherwise cause an
impairment of, any license or authorization related to the Company’s business
or necessary to enable the Company to perform its obligations under this
Agreement, except for any such violations, conflicts or breaches which would
not individually or in the aggregate reasonably be expected to have a material
adverse effect on the Company’s ability to perform its obligations under this
Agreement.

 

(e)  Brokers and
Financial Advisers.  No broker,
finder or financial adviser has acted directly or indirectly as such for, or is
entitled to any compensation from, the Company in connection with this
Agreement or the transactions contemplated hereby.

 

ARTICLE V

PLAN OF REINSURANCE

 

Section 5.1  Plan. 
Reinsurance under this Agreement is on a 100% coinsurance basis and is
subject to the terms and conditions of the original policy forms for the
Reinsured Policies, and any amendments thereto in effect as of the Effective
Date.

 

Section 5.2  Follow the Fortunes.  The Reinsurer’s liability under this
Agreement shall commence on the Effective Date, and all reinsurance with
respect to which the Reinsurer shall be liable by virtue of this Agreement
shall be subject in all respects to the same risks, terms, rates, conditions,
interpretations, assessments, waivers, proportion of premiums paid to, and
reinsurance recoveries benefiting, the Company with respect to the Reinsured
Liabilities and the Reinsured Policies, the true intent of this Agreement being
that the Reinsurer shall follow the fortunes of the Company with respect to the
Reinsured Liabilities and Reinsured Policies.

 

Section 5.3  Reductions and Terminations.  Reinsurance amounts are calculated in terms
of coverages on a “per policy” basis.  If
the coverage of any Reinsured Policy on an insured is reduced or terminated,
reinsurance under this Agreement on such Reinsured Policy will be equally
reduced or terminated.

 

20

 

Section 5.4  Reinstatements.  Reinsured Policies ceded under this Agreement
shall include any Policy that is reduced, terminated, lapsed or surrendered,
and later reinstated pursuant to its policy provisions and will be reinsured by
the Reinsurer in accordance with the terms of this Agreement.  The Reinsurer will retain any Premiums and
interest that the Company has received for reinstatement in respect of periods
on or after the Effective Date.  A
terminated Policy that would have been a Reinsured Policy had it been in force
at the Effective Time, that later reinstates pursuant to its policy provisions,
will be reinsured by the Reinsurer and become a Reinsured Policy.  The Reinsurer will be entitled to retain any
Premiums and interest for coverage on or after the Effective Date that is
received for such reinstatement, and the Company will transfer to the Reinsurer
the amount of reserves for such reinstated Reinsured Policy calculated as of
the Effective Date.  The date of
reinsurance for such reinstated Reinsured Policies shall be the Effective Date.

 

Section 5.5  Contractual Conversions; Internal
Replacement.

 

(a)  Any conversion,
exchange or replacement policy or contract arising from the Reinsured Policies
shall be deemed to constitute a Reinsured Policy for purposes of this Agreement
and, in the event of a conversion, exchange or replacement of any Reinsured
Policy, the Reinsurer shall reinsure the risk resulting from such conversion on
the basis set forth hereby with respect to the Reinsured Policies; provided,
however, that the Reinsurer shall not be required to pay any additional
ceding commission with respect to any such converted, exchanged or replacement
policy or contract.

 

(b)  Absent the Reinsurer’s
prior written consent in its sole discretion, the Company will not solicit
owners, beneficiaries or policyholders in connection with, or sponsor or
assist, directly or indirectly, in the conduct of, (and will cause each of its
Affiliates to refrain from soliciting in connection with, and sponsoring or
assisting, directly or indirectly, in the conduct of) any program of internal
replacement under which the owners, beneficiaries or policyholders of Reinsured
Policies are or would be encouraged to exchange, or assisted in the exchange
of, insurance or health policies or contracts for other insurance or heath
policies or contracts that are not reinsured under this Agreement.  Should the Company or its Affiliates or any
of their respective successors or assigns initiate such a program of internal
replacement that would include any of the risks reinsured hereunder in
violation of the preceding sentence, the Company will immediately notify the
Reinsurer.  For each risk reinsured
hereunder that has been replaced under a program of internal replacement, the
Reinsurer shall have the option at its sole discretion of either treating the
risks reinsured as recaptured on terms reasonably acceptable to the Reinsurer
or continuing reinsurance on the new policy under the terms of this Agreement
without any additional ceding commission therefor.

 

Section 5.6  New Policies.  From and after the Effective Date, the
Company shall issue in its name (a) new Policies issued or reinstated
pursuant to Section 5.4 or 5.5(a), 

 

21

 

(b) new Policies for which applications were
received by the Company on or before the Effective Date utilizing the same
policy forms and underwriting standards in use for the Policies prior to the
Effective Date and (c) new Policies for which applications were received
by the Company through a Producer party to a Producer Agreement, including the
Producer Agreements listed on Schedule 5.6, after the Effective Date but
on or before the effective date of termination of new production by such
Producer utilizing the same policy forms and underwriting standard in use for
the Policies prior to the Effective Date. 
In connection with the issuance of new Policies described in this Section 5.6,
the Reinsurer shall maintain the Company’s current rate and form filings with
Governmental or Regulatory Authorities, make any required rate and form filings
with Governmental or Regulatory Authorities in connection with any changes in
Company’s rates and forms for the Policies and use best efforts to obtain all
regulatory approvals required by applicable Law and the Reinsurer shall
reimburse the Company for expenses incurred by the Company in connection with
such issuance of new Policies (including any costs related to the actions
described in this sentence).

 

ARTICLE VI

ADMINISTRATION

 

Section 6.1  Administrative Services.  The Parties hereby agree that the Policies
and Other Reinsurance Agreements shall be administered by the Reinsurer in
accordance with or as otherwise provided in the Administrative Services
Agreement.

 

Section 6.2  Regulatory Matters.  If the Company or the Reinsurer receive
notice of, or otherwise become aware of any inquiry, investigation,
examination, audit or proceeding by Governmental or Regulatory Authorities
relating to the Policies, the Company or the Reinsurer, as applicable, shall
promptly notify the other Party thereof, whereupon the Parties shall cooperate
in good faith to resolve such matter in a mutually satisfactory manner and
shall act reasonably in light of the Parties’ respective interests in the
matter at issue.

 

Section 6.3  Bank Accounts.  During the term of this Agreement, the
Reinsurer may establish and maintain accounts with banking institutions with
respect to the Reinsured Policies provided hereby (the “Bank Accounts”).
To the extent such Bank Accounts are established, the Reinsurer shall have the
exclusive authority over the Bank Accounts including, without limitation, the
exclusive authority to (a) open the Bank Accounts in the name of the
Company, (b) designate the authorized signatories on the Bank Accounts, (c) issue
drafts on and make deposits in the Bank Accounts in the name of the Company, (d) make
withdrawals from the Bank Accounts and (e) enter into agreements with
respect to the Bank Accounts on behalf of the Company; provided, that in
no event shall the Company be responsible for any fees, overdraft charges or
other payments, liabilities or obligations with respect to any such Bank
Accounts. The Company shall do all things necessary to (x) enable and
authorize the Reinsurer to use 

 

22

 

the Company’s existing lockboxes with respect to the
Reinsured Policies and (y) to enable the Reinsurer to open and maintain
the Bank Accounts including, without limitation, executing and delivering such
depository resolutions and other documents as may be requested from time to
time by the banking institutions. The Company agrees that without the Reinsurer’s
prior written consent it shall not make any changes to the authorized signatories
on the Bank Accounts nor attempt to withdraw any funds therefrom.

 

Section 6.4  Net Settlements.  For each Monthly Accounting Period the
Parties will effect a settlements on a net basis (the “Net Settlement”)
as contemplated in Annex B hereto. 
The Reinsurer shall provide the Company with reports reflecting in
detail the Net Settlement determinations contemplated in Annex B (a) in
the case of the first [three] Monthly Accounting Periods ending after the
Effective Date, not later than [twenty] Business Days after the end of such
Monthly Accounting Period and (b) in the case of all other Monthly
Accounting Periods, not later than ten Business Days after the end of each
Monthly Accounting Period.  If a Net
Settlement report reflects a balance due the Company, the amount(s) shown
as due shall be paid within ten Business Days of the delivery of the
report.  If (x) a Net Settlement
report reflects a balance due the Reinsurer and (y) the Company does not
object to the report within ten Business Days of its delivery, the amount(s) shown
as due shall be paid within ten Business Days after the date on which the
report was delivered.  If there is a
delayed settlement of any payment due hereunder, interest will accrue on such
payment at the Applicable Rate.  For purposes
of this section, a payment will be considered overdue on the date which is ten
Business Days after the date such payment is due hereunder provided that such
interest will begin to accrue from the original due date with respect to such
payment.  All settlements of account
between the Company and the Reinsurer shall be made in cash or its equivalent.

 

Section 6.5  Actuarial Reports.  Each year in connection with the preparation of the Company’s annual
financial statements, the Reinsurer’s appointed actuary shall provide to the
Company’s appointed actuary a certificate of reliance stating that in his
opinion, the reserves and related actuarial values concerning the Reinsured
Policies:

 

(a)  are computed in
accordance with presently accepted actuarial standards consistently applied and
are fairly stated, in accordance with sound actuarial principles;

 

(b)   are based on actuarial assumptions which
produce reserves at least as great as those called for in any contract
provision as to reserve basis and method, and are in accordance with all other
policy or contract provisions;

 

(c)  meet the
requirements of the insurance laws and regulations of the Reinsurer’s state of
domicile and, to the extent applicable regulations of the Reinsurer’s state of
domicile vary materially from the parallel requirements of the Company’s state
of 

 

23

 

domicile, a good faith estimate of the effects of any
such differences and a summary description of the Reinsurer’s methodologies used
in developing such estimations; and

 

(d)  have been subjected
to satisfactory asset adequacy testing in accordance with applicable
regulations.

 

Any
certification provided pursuant to this Section 6.5 is not, and shall not
be deemed to constitute, any representation as to the ultimate adequacy or
sufficiency of the reserves held by the Company in respect of the Reinsured
Policies.

 

ARTICLE VII

DAC TAX

 

Section 7.1  DAC Tax Election.  The Company and the Reinsurer hereby elect
and agree under Treasury Regulations Section 1.848-2(g)(8) as
follows:

 

(a)  The Company and the
Reinsurer will each attach a schedule to its federal income tax return for the
first taxable year ending after the Effective Date that identifies this
Agreement as a reinsurance agreement for which a joint election under Treasury
Regulation Section 1.848-2(g)(8) has been made, and will otherwise
file its respective federal income tax returns in a manner consistent with the
provisions of Treasury Regulation Section 1.848-2 as in effect on the date
this Agreement is executed;

 

(b)  For each taxable
year under this Agreement, the Party with the net positive consideration, as
defined in the regulations promulgated under Section 848 of the Code, will
capitalize specified policy acquisition expenses with respect to this Agreement
without regard to the general deductions limitation of Section 848(c)(1) of
the Code;

 

(c)  The Company and the
Reinsurer agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency or as
otherwise required by the Code and applicable Treasury Regulations;

 

(d)  The first tax year
for which this election is effective is 2011;

 

(e)  The Reinsurer will
submit to the Company by May 15 each year its calculation of the amount of
the net consideration for the preceding calendar year.  This schedule of calculations will be
accompanied by a statement that the Reinsurer will report such amount of net
consideration in its tax return for the preceding calendar year;

 

(f)  The Company may
contest such calculation by providing an alternative calculation to the
Reinsurer in writing within thirty days of the Company’s receipt of the
Reinsurer’s calculation.  If the Company
does not so notify the Reinsurer, the Company will report the amount of net
consideration as determined by the Reinsurer in the Company’s tax return for
the previous calendar year;

 

24

 

(g)  If the Company
contests the Reinsurer’s calculation of the amount of net consideration, the
Parties will act in good faith to reach an agreement as to the correct amount
within thirty days of the date the Company submits its alternative calculation.

 

Both
the Company and the Reinsurer are subject to U.S. taxation under Subchapter L
of Chapter 1 of the Code.

 

ARTICLE VIII

INSOLVENCY

 

Section 8.1  Insolvency.  The amount recoverable by a liquidator of the
Company from the Reinsurer may not be reduced as a result of delinquency
proceedings with respect to the Company. 
Payment made directly to an insured or other creditor does not diminish
the Reinsurer’s obligation hereunder except: (1) where this Agreement
specifically provides for another payee of the reinsurance in the event of the
insolvency of the ceding insurer; or (2) where the Reinsurer, with the
consent of the direct insured, has assumed the policy obligations of the
Company as direct obligations of the Reinsurer to the payees under a Reinsured
Policy and in substitution for the obligations of the Company to the payees.  The reinsurance hereunder is payable under
the Reinsured Policies reinsured by the Reinsurer on the basis of reported
claims allowed in the liquidation proceedings, subject to court approval,
without diminution because of the insolvency of the Company.  In the event of an insolvency of the Company,
the domiciliary liquidator of the Company will give written notice to the
Reinsurer of the pendency of a claim against the Company on a Reinsured Policy
reinsured hereunder within a reasonable time after the claim is filed in the
liquidation proceeding.  During the
pendency of the claim, the Reinsurer may investigate the claim and interpose,
at its own expense in the proceeding where the claim is to be adjudicated, any
defenses which it considers available to the Company or its liquidator.  This expense is 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 insurers are
involved in the same claim and a majority in interest elect to interpose a
defense to the claim, the expense must be apportioned in accordance with the
terms of this Agreement as though the expense had been incurred by the Company.

 

ARTICLE IX

TERMINATION

 

Section 9.1  Duration of Coinsurance; No Recapture.  This Agreement will be effective as of the
Effective Time.  Subject to the
provisions of this Article IX, this Agreement will remain in effect, and
the reinsurance provided hereunder will remain in force, until termination of
the policy or policies on which the reinsurance is based in

 

25

 

accordance with the terms of this Agreement.  Except as provided in Section 9.3, the
Reinsured Policies are not eligible for recapture by the Company.

 

Section 9.2  Termination.  This Agreement shall terminate:

 

(a)  at any time upon the
mutual written consent of the Parties hereto, which writing shall state the
effective date of termination; or

 

(b)  automatically at
such time as no liability remains under this Agreement.

 

Section 9.3  Termination by the Company.  The Company, in its sole discretion, shall
have the option to terminate this Agreement upon the occurrence of any one of
the following events:

 

(a)  The Reinsurer is
placed in receivership, conservatorship, rehabilitation or liquidation by any
insurance regulatory authority;

 

(b)    The Reinsurer breaches Section 3.1 or
3.2 and fails to cure such breach by the earlier of (i) thirty days
following receipt of written notice of such breach from the Company, or (ii) the
last day of the calendar quarter in which such breach occurs; or

 

(c)  In the event that
the Reinsurer fails to pay any material amount due to the Company under this
Agreement and (i) such amount is not subject to a good faith dispute, (ii) the
Company has exhausted all other remedies available to it under the terms of
this Agreement and (iii) such failure is not cured within five Business
Days following the Reinsurer’s receipt of written notice of such failure from
the Company.

 

Section 9.4  Settlement Upon Termination by the Company.  Upon the termination of this Agreement by the
Company pursuant to Section 9.3, subject to payment by the Reinsurer of
any amounts due to the Company pursuant to this Section 9.4 and the
payment by the Company of any amounts due to the Reinsurer pursuant to this Section 9.4,
the Company shall recapture all liabilities previously ceded to the Reinsurer,
the Reinsurer’s liability under this Agreement will terminate (provided, that
such termination shall not relieve any Party of any pre-termination breach of
this Agreement) and, subject to compliance by the Reinsurer with Section 7.3(b) of
the Administrative Services Agreement, the Reinsurer shall be relieved of
on-going responsibilities for servicing the Policies.  The Company shall prepare a Net Settlement
report for the period commencing on the first day of the then-current calendar
month and ending on the date this Agreement is terminated pursuant to Section 9.3.  On the tenth Business Day following the
delivery of such Net Settlement report (a) the applicable Party shall pay
any amounts due and owing by such Party on such Net Settlement report; (b) the
Reinsurer shall transfer to the Company cash and assets with an aggregate Fair
Market Value equal to 100% of the amount equal to the sum of: (i) Reinsurer’s
Share of the Statutory Reserves held by the Company with respect to the
Reinsured Policies as of 

 

26

 

the date of termination, plus
(ii) the Reinsurer’s Share of the Interest Maintenance Reserve
attributable the transferred assets, minus (iii) the
Reinsurer’s Share of the amount of outstanding policy loans on the Reinsured
Policies (to the extent such policy loans constitute admitted assets under SAP,
net of any unearned policy loan interest on such loans but including amounts of
interest due and accrued with respect thereto), minus
(iv) the Reinsurer’s Share of net due and deferred Premiums on the
Reinsured Policies reduced by advances thereon, in each case determined by the
Company in accordance with SAP, consistently applied as of the date of
termination (the sum of (i) through (iv), the “Reinsurer Termination
Payment”); and (c) the Company shall pay to the Reinsurer cash equal
to the sum of (i) 100% of the unamortized portion of the Ceding
Commission, plus (ii) an amount equal to the
amount of any cash and assets withdrawn by the Company or any successor by
operation of law, including, without limitation, any liquidator, rehabilitator,
receiver or conservator of the Company from the Trust Account prior to the date
of termination, and not used to satisfy claims of policyholders under the
Reinsured Policies prior to the date of termination, or otherwise pay amounts
due to the Company pursuant to this Agreement, in each case determined by the
Reinsurer as of the date of termination (the sum of (i) and (ii), the “Company
Termination Payment”).  Any dispute
by either Party of the Company Termination Payment or the Reinsurer Termination
Payment shall be resolved in accordance with Section 10.3.

 

ARTICLE X

DISPUTE RESOLUTION

 

Section 10.1  Arbitration.

 

(a)  Arbitration.  Any dispute or other matter in question
between the Reinsurer and the Company arising out of, or relating to, the
formation, interpretation, performance, or breach of this Agreement (other than
disputes with respect to (i) calculations relating to DAC tax, which shall
be resolved in accordance with Article VII hereof, (ii) calculations
of the Initial Coinsurance Premium, the Ceding Commission and the Net Retained
Liabilities Cash Adjustment pursuant to Sections 1.3(a), 1.3(b) and
1.3(c), which shall be resolved in accordance with Section 10.2 hereof and
(iii) calculations of other amounts that are to be calculated or reported
pursuant to this Agreement, which shall be resolved in accordance with Section 10.3
hereof), whether such dispute arises before or after termination of this
Agreement, and whether in contract or in tort, shall be settled by arbitration.

 

(b)  Good Faith
Negotiation.  The Reinsurer and the
Company agree that, prior to resorting to arbitration, they will negotiate
diligently and in good faith, in an effort to resolve any dispute.  Once a Party notifies the other of a dispute
and invokes this paragraph, the Parties shall have sixty days (or such longer
period as they may agree) within which to negotiate a resolution.  At the end of sixty days, either Party may
initiate arbitration.

 

27

 

(c)  Initiation of
Arbitration.  To initiate
arbitration, either the Reinsurer or the Company (the “Claimant”) shall
notify the other Party (the “Respondent”) in writing of its desire to
arbitrate (the “Demand”).  The
Demand shall identify the nature of the dispute, the claims asserted and the
relief sought.  The Demand shall be sent
certified mail, with return receipt, or another service which produces a receipt.  The arbitration will be deemed to have been
commenced on the date the Demand is received by the Respondent.

 

(d)  Arbitration Panel.

 

(i) 
Number and Qualification of Arbitrators. 
The arbitration will be conducted by a panel (the “Panel”) consisting
of three arbitrators who will each have no less than ten years of industry
experience and who are (1) current or former officers of life insurance or
life reinsurance companies other than the Parties to this Agreement or their
respective Affiliates or subsidiaries or (2) professionals with no less
than twenty years of experience in or serving the life insurance or reinsurance
industries.  The arbitrators serving on
the Panel shall not be under the control of any Party, nor shall any member of
the Panel have a financial interest in the outcome of the dispute.

 

(ii) 
Selection of Arbitrators.  Within
thirty days following the commencement of the arbitration proceedings, each
Party will provide the other with the identification of their appointed
arbitrator, and provide a copy of the arbitrator’s curriculum vitae.  If either Party refuses or neglects to
appoint an arbitrator within thirty days, the other Party may appoint the
second arbitrator to act as the appointed arbitrator for the defaulting Party.  The Parties’ appointed arbitrators shall
jointly appoint a third arbitrator (the “Umpire”).  Each Party may consult, in confidence, with
the arbitrator they appointed concerning the appointment of an Umpire.  If the two Party-appointed arbitrators fail
to reach agreement on an Umpire within sixty days of their appointment, each
Party shall exchange, within seven days thereafter, six names of qualified
individuals.  Each Party will select
three names from the list and notify the other Party as to its selection.  Each Party will rank the six candidates in
order of preference, and the individual with the lowest total numerical ranking
will act as Umpire.  If the ranking
results in a tie, the Parties will draw lots from the tied individuals, and the
individual chosen by lot will act as Umpire. 
If either Party fails to act in good faith within a reasonable period of
time to complete these procedures, the non-defaulting Party will appoint the
Umpire from its original candidate pool. 
The Umpire selected under this paragraph will not be advised as to which
Party initiated his or her selection.

 

28

 

(iii) 
Replacement.  In the event any
arbitrator fails, refuses, or becomes unable to act as such before an award has
been rendered, a successor shall be selected in the same manner as the original
arbitrator.

 

(e)  Procedural
Requirements.

 

(i) 
Submission of Briefs.  The
Claimant and Respondent shall each submit initial briefs to the Panel outlining
the issues in dispute and the reasons for their respective positions within
thirty days of the notice of the appointment of the Umpire.

 

(ii) 
Standard of Review.  Insofar as
not in conflict with the express terms of this Agreement, it is the intention
of the parties that customs and practices of the life and reinsurance
industries may be considered by the arbitrators in resolving any ambiguities
inherent in this Agreement or its operation. 
In the absence of any such ambiguity, the express terms of this
Agreement will control.

 

(iii) 
Hearing Procedures.  The
arbitrators shall decide all substantive and procedural issues by a majority of
votes.  As soon as possible following
appointment, the arbitrators will meet and establish arbitration procedures as
warranted by the facts and issues of the particular case.  Except as provided specifically in this Article X,
the arbitrators shall have the power to determine all procedural rules of
the arbitration, including, but not limited to inspection of documents,
examination of witnesses, and any other matter related to the conduct of the
arbitration.  Each Party may examine the
witnesses who testify at the arbitration hearing.  Each Party shall have the right to be represented
by legal counsel.  The arbitrator shall
not be obligated to follow judicial formalities or the rules of
evidence.  To the extent permitted by
law, the Panel and the Umpire shall have the authority to issue subpoenas
(including subpoenas to third party witnesses) and other orders to enforce
their decisions.  Ex parte communications
with Party-appointed arbitrators shall be permitted until the arbitration
hearing commences.

 

(iv) 
Confidentiality.  The arbitrators
shall recognize the attorney/client privilege and neither a Party nor an
arbitrator may disclose the existence, content, or result of any arbitration
hereunder, except to the extent such disclosure may be required for review and
enforcement by a court of competent jurisdiction, independent accounting audit,
to support reinsurance or retrocessional recoveries, or is otherwise agreed to
by the Parties.  Any third party
receiving confidential information must agree to maintain confidentiality
before disclosure will be permitted.

 

29

 

(v) 
Location of Hearing.  The location
of all proceedings shall be determined by the arbitrators.

 

(f)  Arbitration Award.

 

(i) 
Interim Relief.  The Panel may
issue orders for interim relief upon showing of good cause, including pre-award
security.

 

(ii) 
Time of Decision.  Absent good
cause for an extension as determined by the Panel, the Panel shall render the
award within thirty days after the date of the closing of the hearing, or if an
arbitration hearing has been waived or otherwise dispensed with, within thirty
days after the date that the Panel received all materials submitted by the
Parties for disposition.

 

(iii) 
Remedies.  The Panel is authorized
to award any remedy or sanctions allowed by applicable law, including, but not
limited to monetary damages, equitable relief, pre- or post-award interest,
costs of arbitration, attorneys fees, and other final or interim relief.  Arbitrators shall not be empowered to award
damages in excess of compensatory damages, and each Party irrevocably waives
any damages in excess of compensatory damages.

 

(iv) 
Decisions.  The decision of the
arbitrators will be made by majority rule, and shall be final and binding on
both Parties.  There shall be no appeal
from the decision, except that the Parties retain all rights to challenge under
the Federal Arbitration Act (9 U.S.C. §1, et seq.).  Either Party to the arbitration may petition
any court having jurisdiction over the Parties to reduce the decision to
judgment.

 

(v) 
Expenses.  Unless the arbitrators
decide otherwise, each Party will bear the expense of its own arbitration
activities, including its appointed arbitrator and any outside attorney and
witness fees.  The parties will jointly
and equally bear the expense of the Umpire and other costs of the arbitration.

 

Section 10.2  Disputes over Initial Coinsurance Premiums
and Ceding Commission Calculations.

 

(a)  Within thirty days
following its receipt from the Reinsurer of the Initial Coinsurance Premium
Reconciliation Statement or the Ceding Commission Reconciliation Statement, as
applicable, or within [five] Business Days following its receipt from the
Reinsurer of the Net Retained Liabilities Cash Reconciliation Statement (the “Review
Period”), the Company shall either (i) notify the Reinsurer in writing
of its 

 

30

 

agreement with the calculation of the Actual Initial
Coinsurance Premium, the Actual Ceding Commission or the Net Retained
Liabilities Cash Adjustment, as applicable, set forth therein (“Notice of
Agreement”); or (ii) if the Company determines that the Initial
Coinsurance Premium Reconciliation Statement, the Ceding Commission
Reconciliation Statement or the Net Retained Liabilities Cash Reconciliation
Statement, as applicable, or the calculations reflected therein either (x) have
not been prepared on the basis set forth in Section 1.3 or (y) contain
or reflect mathematical errors, inform the Reinsurer in writing of its
objection (the “Company’s Objection”), which notice shall set forth in
reasonable detail a description of the basis of the Company’s Objection and the
adjustments to such Initial Coinsurance Premium Reconciliation Statement,
Ceding Commission Reconciliation Statement or Net Retained Liabilities Cash
Reconciliation Statement, as applicable, or the calculations reflected therein
that the Company requests be made.  The
Reinsurer shall, following the Effective Date through the date that the Initial
Coinsurance Premium Reconciliation Statement, the Ceding Commission
Reconciliation Statement or the Net Retained Liabilities Cash Reconciliation
Statement, as applicable, becomes final in accordance with the last sentence of
Section 10.2(c), take all actions necessary or desirable to maintain and
preserve all accounting books, records, policies and procedures on which such
Initial Coinsurance Premium Reconciliation Statement, Ceding Commission
Reconciliation Statement or Net Retained Liabilities Cash Reconciliation
Statement, as applicable, are based or on which the finalized Initial
Coinsurance Premium Adjustment, the finalized Ceding Commission Adjustment or
the finalized Net Retained Liabilities Cash Adjustment, as applicable, are to
be based so as not to impede or delay the determination of the finalized Actual
Initial Coinsurance Premium, the finalized Value of the Transferred Assets on the
Effective Date, the finalized Actual Ceding Commission or the finalized the Net
Retained Liabilities Cash Adjustment, as applicable, or the preparation of the
Company’s Objection in the manner and utilizing the methods permitted by this
Agreement.  Upon receipt by the Reinsurer
of a Notice of Agreement from the Company or if no Company’s Objection is
received by the Reinsurer prior to the expiration of the Review Period, the
Actual Initial Coinsurance Premium or the Actual Ceding Commission, as
applicable, and the Reinsurer’s calculation of the Initial Coinsurance Premium
Adjustment, the Ceding Commission Adjustment or the Net Retained Liabilities
Cash Adjustment (as set forth in the Net Retained Liabilities Cash
Reconciliation Statement), as applicable, shall be deemed to have been accepted
by the Company and will become final and binding upon the Parties in accordance
with the last sentence of Section 10.2(c).

 

(b)  If the Company
timely delivers a Company’s Objection to the Reinsurer, the Reinsurer shall
have thirty days in the case of a Company’s Objection with respect to the
Initial Coinsurance Premium or the Ceding Commission or [five] Business Days in
the case of a Company’s Objection with respect to the Net Retained Liabilities
Cash Adjustment, as applicable, in each case from the date of such delivery to
review and respond to such Company’s Objection (the “Consultation Period”).  The Parties shall use reasonable, good faith
efforts to resolve any disagreements that they may have with 

 

31

 

respect to the matters set forth in the Company’s
Objection.  If the Parties are unable to
resolve all of their disagreements with respect to the matters set forth in the
Company’s Objection within ten Business Days following the expiration of the
Consultation Period, then the Parties shall submit all matters that remain in
dispute with respect to the Company’s Objection (along with a copy of the
Initial Coinsurance Premium Reconciliation Statement, the Ceding Commission
Reconciliation Statement or the Net Retained Liabilities Cash Reconciliation
Statement, as applicable, and the Reinsurer’s calculation of the amounts set
forth therein, marked to indicate those line items that are still in dispute)
to Ernst & Young, LLP, or another internationally recognized firm of
independent certified public accountants with appropriate actuarial expertise
as to which the Parties mutually agree (the “CPA Firm”), which shall,
acting as an expert and not as an arbitrator, make a final determination, on
the basis of the standards set forth in Section 1.3 hereof, and only with
respect to any remaining differences submitted to the CPA Firm, in accordance
with this Section 10.2(b), of the appropriate amount of each line item in
the Initial Coinsurance Premium Reconciliation Statement, the Ceding Commission
Reconciliation Statement or the Net Retained Liabilities Cash Reconciliation
Statement, as applicable, and the Reinsurer’s calculation of the amounts set
forth therein as to which the Parties disagree (such items that remain in
dispute, the “Unresolved Items”).

 

(c)  The Parties shall
instruct the CPA Firm to deliver its written determination to the Reinsurer and
the Company no later than fifteen Business Days after the Unresolved Items are referred
to the CPA Firm.  The CPA Firm’s
determination shall include a certification that it reached such determination
in accordance with this Section 10.2(c) and shall be conclusive and
binding upon the Parties, absent clear and manifest error.  With respect to each Unresolved Item, the CPA
Firm’s determination, if not in accordance with the position of either the
Company or the Reinsurer, shall not be more favorable to the Company than the
amounts advocated by the Company in the Company’s Objection or more favorable
to the Reinsurer than the amounts advocated by the Reinsurer in the Initial
Coinsurance Premium Reconciliation Statement, the Ceding Commission
Reconciliation Statement or the Net Retained Liabilities Cash Reconciliation
Statement, as applicable, or the Reinsurer’s calculations of the amounts set
forth therein with respect to such disputed line item and/or calculation.  For the avoidance of doubt, (i) the CPA
Firm’s review of the Initial Coinsurance Premium Reconciliation Statement, the
Ceding Commission Reconciliation Statement or the Net Retained Liabilities Cash
Reconciliation Statement, as applicable, and the Reinsurer’s calculation of the
amounts set forth therein shall be limited to a determination of whether such
documents and calculations were prepared in accordance with Section 1.3,
and (ii) the CPA Firm shall not review any line items or make any
determination with respect to any matters other than the Unresolved Items that
were referred to the CPA Firm for resolution pursuant to this Section 10.2(c).  The Initial Coinsurance Premium
Reconciliation Statement, the Ceding Commission Reconciliation Statement or the
Net Retained Liabilities Cash Reconciliation Statement, as applicable, and the
determination of the amounts set forth therein that are final and binding on
the Parties, as determined 

 

32

 

either through (1) the Company’s delivery of a
Notice of Agreement pursuant to Section 10.2 (a), (2) the Company’s
failure to deliver Company’s Objection prior to expiration of the Review Period
pursuant to Section 10.2(a), (3) agreement by the Parties during the
Consultation Period or (4) the determination of the CPA Firm pursuant to
this Section 10.2(c) are referred to herein as the “finalized Initial
Coinsurance Premium Reconciliation Statement”, the “finalized Ceding Commission
Reconciliation Statement”, the “finalized Net Retained Liabilities Cash
Reconciliation Statement”, the “finalized Actual Initial Coinsurance Premium”,
the “finalized Value of the Transferred Assets as of the Effective Date”, the “finalized
Actual Ceding Commission”, the “finalized Initial Coinsurance Premium
Adjustment”, the “finalized Ceding Commission Adjustment” and the “finalized
Net Retained Liabilities Cash Adjustment”, as the case may be.

 

(d)  The Parties agree
that judgment may be entered upon the CPA Firm’s determination in any court
having jurisdiction over the Reinsurer or the Company, as the case may be.  The fees and disbursements of the CPA Firm
shall be paid by the Parties in proportion to those matters submitted to the
CPA Firm that are resolved against that Party, as such fees and disbursements
are allocated by the CPA Firm in accordance with this Section 10.2 at the
time of the CPA Firm’s determination.  At
any time following delivery of the Initial Coinsurance Premium Reconciliation
Statement, the Ceding Commission Reconciliation Statement or the Net Retained
Liabilities Cash Reconciliation Statement, as applicable, the Reinsurer shall
provide to the Company and its Representatives full access to books and records
and other information with respect to the Reinsured Policies, including work
papers of its accountants (subject to execution by the Company and/or its
Representatives, as applicable, of a customary hold-harmless agreement in form
and substance reasonably acceptable to such accountants), and to any employees
during regular business hours and on reasonable advance notice, to the extent
necessary for the Company to review the Initial Coinsurance Premium
Reconciliation Statement, the Ceding Commission Reconciliation Statement or the
Net Retained Liabilities Cash Reconciliation Statement, as applicable, or the
Reinsurer’s calculation of the amounts set forth therein, to prepare Company’s
Objection or to prepare materials for presentation to the CPA Firm.  The Parties shall make readily available to
the CPA Firm, during regular business hours and on reasonable advance notice,
interviews with such employees, and all relevant information, books and records
and any work papers of their respective accountants (in each case, subject to
execution by the CPA Firm of a customary hold-harmless agreement in form and
substance reasonably acceptable to such accountants) relating to the Initial
Coinsurance Premium Reconciliation Statement, the Ceding Commission
Reconciliation Statement or the Net Retained Liabilities Cash Reconciliation
Statement, as applicable, and any Unresolved Items and all other items
reasonably required by the CPA Firm to fulfill its obligations under Section 10.2(c).  In acting under this Section 10.2, the
CPA Firm will be entitled to the privileges and immunities of an arbitrator.

 

33

 

Section 10.3  Other Disputes over Calculations.  After the Effective Date, any dispute between
the Parties with respect to the calculation of amounts that are to be
calculated or reported pursuant to this Agreement (other than disputes with
respect to calculations relating to DAC tax, which shall be resolved in accordance
with Article VII hereof, and dispute with respect to the Initial
Coinsurance Premium, the Ceding Commission and the Net Retained Liabilities
Cash Adjustment pursuant to Sections 1.3(a), 1.3(b) and 1.3(c), which
shall be resolved in accordance with Section 10.2 hereof), including
disputes with respect to any Net Settlement, valuation of the assets held in
the Trust Account or the amount of the Reinsurer Termination Payment or the
Company Termination Payment, that cannot be resolved by the Parties within sixty
calendar days, shall be referred to an independent accounting firm of national
recognized standing (which shall not have any material relationship with the
Reinsurer or the Company) mutually agreed to by the Parties; provided, however,
that where the dispute involves an actuarial issue, the dispute shall instead
be referred to an independent actuarial firm of national recognized standing
(which shall not have any material relationship with the Reinsurer or the
Company) mutually agreed to by the Parties. 
There shall be no appeal from the decision made by such firm, which
shall be final and binding, except that, either Party may petition a court
having jurisdiction over the Parties and subject matter to reduce the arbitrator’s
decision to judgment.  The fees charged
by the accounting firm or actuarial firm, as applicable, to resolve the dispute
shall be allocated between the Company and the Reinsurer by such firm in
accordance with its judgment as to the relative merits of the Parties’
positions in respect of the dispute.

 

ARTICLE XI

INDEMNIFICATION

 

Section 11.1  Indemnification of the Reinsurer by the
Company.  From and after the
Effective Date, the Company shall indemnify, defend and hold harmless the
Reinsurer and its officers, directors and Representatives (the “Reinsurer
Indemnified Parties”) against, and hold each of them harmless from all
Losses imposed on, sustained or incurred or suffered by, or asserted against,
the Reinsurer Indemnified Parties (a) with respect to the Excluded
Liabilities, or (b) which arise out of (i) any inaccuracy or breach
of any representation or warranty of the Company set forth in Section 4.2
hereof or (ii) any breach or nonfulfillment by the Company of, or any
failure by the Company to perform, any of the covenants, terms or conditions of
or any of its duties or obligations under this Agreement unless such breach,
nonfulfillment or failure arises out of or results from the action or omission
of the Reinsurer pursuant to the Administrative Services Agreement, or (c) which
arise out of any enforcement of this indemnity.

 

Section 11.2  Indemnification of the Company by the
Reinsurer.  From and after the
Effective Date, the Reinsurer shall indemnify, defend and hold harmless the
Company, and its officers, directors and Representatives (the “Company
Indemnified Parties”) against, and hold each of them harmless from all
Losses imposed on, sustained 

 

34

 

or incurred or suffered by, or asserted against, the
Company Indemnified Parties (a) with respect to the Reinsured Liabilities,
or (b) arising from Extra Contractual Obligations other than the Excluded
Liabilities, or (c) arising out of (i) any inaccuracy or breach of
any representation or warranty of the Reinsurer set forth in Section 4.1
hereof or (ii) any breach or nonfulfillment by the Reinsurer of, or any
failure by the Reinsurer to perform, any of the covenants, terms or conditions
of or any of its duties or obligations under this Agreement, or (iii) written
instructions of the Reinsurer given pursuant to Section 1.4, Section 1.5,
Section 1.8(b), Section 2.2 or Section 3.3(b) hereof, or (c) arising
out of any enforcement of this indemnity.

 

Section 11.3  Claims Notice.  In the event that either the Company or
Reinsurer wishes to assert a claim for indemnification hereunder, the Party
seeking indemnification (the “Indemnified Party”) shall deliver written
notice (a “Claims Notice”) to the other Party (the “Indemnifying
Party”) no later than ten Business Days after such claim becomes known to
the Indemnified Party, specifying the facts constituting the basis for, and the
amount (if known) of the claim asserted. 
Failure to deliver a Claims Notice with respect to a claim (other than a
claim based on an Asserted Liability, as defined below) in a timely manner as
specified in the preceding sentence shall not be deemed a waiver of the
Indemnified Party’s right to indemnification hereunder for Losses in connection
with such claim, but the amount of reimbursement to which the Indemnified Party
is entitled shall be reduced to the extent the Indemnifying Party is materially
prejudiced by such failure to timely deliver such Claims Notice.

 

Section 11.4  Right to Contest Claims of Third Parties.

 

(a)  If an Indemnified
Party asserts, or may in the future seek to assert, a claim for indemnification
hereunder because (i) of a claim or demand made, or an action, proceeding
or investigation instituted, by any Person not a party to this Agreement (a “Third
Party Claimant”) that may result in a liability with respect to which the
Indemnified Party would be entitled to indemnification pursuant to this Article XI
or (ii) the Company has become aware of any circumstance that could result
in a claim for indemnification by the Reinsurer hereunder with respect to any
Extra Contractual Obligation described in clauses (v) through (viii) of
the definition of “Extra Contractual Obligation” (regardless of whether any
claim or demand has been made, or any action, proceeding or investigation has
been instituted by a Third Party Claimant with respect to such Extra
Contractual Obligation), (each, an “Asserted Liability”), the
Indemnified Party, shall deliver to the Indemnifying Party a Claims Notice with
respect thereto, which Claims Notice shall, in accordance with the provisions
of Section 11.3 be delivered as promptly as practicable after such
Asserted Liability is actually known to the Indemnified Party.  Failure to deliver a Claims Notice with
respect to a claim in a timely manner as specified in the preceding sentence
shall not be deemed a waiver of the Indemnified Party’s right to
indemnification hereunder for a liability in connection with such claim, but
the amount of reimbursement to which the Indemnified Party is entitled shall be

 

35

 

reduced to the extent the Indemnifying Party is
materially prejudiced by such failure to timely deliver such Claims Notice.

 

(b)  The Indemnifying
Party shall have the right, upon written notice to the Indemnified Party, to
investigate, contest, defend or settle any Asserted Liability that may result
in a liability with respect to which the Indemnified Party is entitled to
indemnification pursuant to this Article XI, provided that the
Indemnified Party may, at its option and at its own expense, participate in the
investigation, contesting, defense or settlement of any such Asserted Liability
through Representatives and counsel of its own choosing; and, provided  further,
that the Indemnifying Party shall not settle any Asserted Liability unless (i)(A) such
settlement is on exclusively monetary terms, (B) the Indemnifying Party
obtains a complete release for the Indemnified Party with respect to such
Asserted Liability, (C) such settlement does not involve a class action
claim or a claim which alleges bad faith on the part of the Indemnified Party
and (D) such settlement would not be reasonably expected to result in an
adverse effect on the reputation, licenses or regulatory status of the
Indemnified Party; or (ii) the Indemnified Party shall have consented to the
terms of such settlement, which consent shall not unreasonably be
withheld.   If requested by the
Indemnifying Party, the Indemnified Party will, at the sole cost and expense of
the Indemnifying Party, cooperate with the Indemnifying Party and its counsel
in contesting any Asserted Liability or, if appropriate and related to the
Asserted Liability in question, in making any counterclaim against the Third
Party Claimant, or any cross-complaint against any Person (other than the
Indemnified Party or its Affiliates). 
Unless and until the Indemnifying Party elects to defend the Asserted
Liability, the Indemnified Party shall have the right, at its option and at the
Indemnifying Party’s expense to do so in such manner as it deems appropriate, provided,
however, that the Indemnified Party shall not settle or compromise any
Asserted Liability for which it seeks indemnification hereunder without the
prior written consent of the Indemnifying Party (which shall not be
unreasonably withheld).

 

(c)  The Indemnifying
Party shall be entitled to participate in (but not to control) the defense of
any Asserted Liability which it is not defending with its own counsel and at
its own expense.

 

(d)  The Company and
Reinsurer shall make mutually available to each other all relevant information
in their possession relating to any Asserted Liability (except to the extent
that such action would result in a loss of attorney-client privilege) and shall
cooperate with each other in the defense thereof.

 

Section 11.5  Mitigation.  Each Party agrees to use its respective
commercially reasonable efforts to mitigate Losses and not to cause or worsen
any liability as would constitute a liability of the other Party pursuant to
any claim of indemnification hereunder.

 

36

 

Section 11.6  Subrogation; Insurance.  Upon making any indemnification payment, the
Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnified Party against any third party in respect of the Loss
to which the payment relates.  The amount
of Losses sustained by an Indemnified Party and owed by an Indemnifying Party
shall be reduced by any amount received by such Indemnified Party with respect thereto
under any insurance or reinsurance coverage from any other party alleged to be
responsible therefor.  The Indemnified
Party shall use reasonable efforts at the Indemnifying Party’s expense to
collect any amounts available under such insurance or reinsurance coverage and
from such other party alleged to have responsibility.

 

ARTICLE XII

CONFIDENTIALITY

 

Section 12.1  Confidentiality.  Each of the Reinsurer and the Company agrees
to hold any Confidential Information with respect to the other Party in
strictest confidence and to take all reasonable steps to ensure that such
Confidential Information is not disclosed in any form by any means by it or by
its Affiliates, employees, advisors, agents or administrators (collectively, “Representatives”)
to third parties of any kind; provided that the foregoing obligation
shall not prohibit disclosure of any such information (a) if required by
Law, stock exchange rules or a Governmental or Regulatory Authority (in
which case the disclosing party shall allow (to the extent permitted by law and
reasonably practicable) the other Party a reasonable opportunity to comment on
such disclosure in advance of such disclosure); (b) to Representatives,
auditors or ratings agencies, provided, that such Representatives,
auditors or ratings agencies are made aware of the provisions of this Article XII;
(c) to the extent that the information has been made public by or on
behalf of, or with the prior consent of, the non-disclosing party; (d) if
required in connection with any report required to be filed or submitted with
any Governmental or Regulatory Authority; and (e) to the extent reasonably
necessary in connection with any dispute with respect to this Agreement.  The Reinsurer agrees to hold medical,
financial and other personal information about proposed, current, and former
policyowners, insureds, applicants, and beneficiaries of Policies in confidence
to the extent required to be held in confidence under applicable Law and the
Reinsurer’s privacy policy or policies and shall establish and maintain
safeguards against the unauthorized access, destruction, loss or alteration of
such information which are no less rigorous than those maintained by Reinsurer
for its own information of a similar nature. Notwithstanding anything to the
contrary, for purposes of this Section 12.1, the Reinsurer in its capacity
as Administrator on behalf of the Company shall not be considered an advisor,
agent or administrator of the Company.

 

37

 

ARTICLE XIII

DEFINITIONS AND CONSTRUCTION

 

Section 13.1  Definitions.  Unless the context requires otherwise, for
all purposes of this Agreement, the capitalized terms set forth below shall
have the following meanings:

 

(a)  “Actual Ceding
Commission” has the meaning ascribed thereto in Section 1.3(b)(iv).

 

(b)   “Actual Initial Coinsurance Premium”
has the meaning ascribed thereto in Section 1.3(a)(iv).

 

(c)  “Administrative
Services Agreement” has the meaning ascribed thereto in the Recitals.

 

(d)  “Administrator”
means the Reinsurer in its capacity as administrator under the Administrative
Services Agreement.

 

(e)  “Affiliate”
means, as applied to any Person, any other Person directly or indirectly
controlling, controlled by, or under common control with, such other Person at
the time at which the determination of affiliation is made.  The term “control” (including, with
correlative meanings, the terms “controlled by” and “under common control with”),
as applied to any Person, means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities or other ownership
interests, by contract or otherwise.

 

(f)  “Agreement”
has the meaning ascribed thereto in the Recitals.

 

(g)   “Applicable Rate” means, with respect
to any payment date, an interest rate equal to one-month LIBOR for dollars that
appears on page LIBOR 01 (or a successor page) of the Reuters Telerate
Screen as of 11:00 a.m., London time, on the day that is two Business Days
preceding such payment date.

 

(h)  “Asserted
Liability” has the meaning ascribed thereto in Section 11.4(a).

 

(i)  “Assumed
Reinsurance Agreement” means any reinsurance agreement in effect as of the
Effective Time under which the Company assumes liabilities or obligations with
respect to any Policy, including the assumed reinsurance agreements listed on
Schedule 13.1(i) hereto.

 

(j)  “Bank Accounts”
has the meaning ascribed thereto in Section 6.3.

 

38

 

(k)  “Books and Records”
has the meaning ascribed thereto in the Stock Purchase Agreement, but shall not
include Tax Returns or Tax Records (each as defined in the Stock Purchase
Agreement).

 

(l)  “Business Day”
means any day other than a Saturday, a Sunday or a day on which banks in
[Birmingham, Alabama or Greenville, South Carolina] are authorized or obligated
by law or executive order to remain closed.

 

(m)  “Ceding
Commission” has the meaning ascribed thereto in Section 1.3(b)(i).

 

(n)  “Ceding
Commission Adjustment” has the meaning ascribed thereto in Section 1.3(b)(iv).

 

(o)  “Ceding
Commission Reconciliation Statement” has the meaning ascribed thereto in Section 1.3(b)(iv).

 

(p)  “Claimant”
has the meaning ascribed thereto in Section 10.1(c).

 

(q)  “Claims Notice”
has the meaning ascribed thereto in Section 11.3.

 

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

 

(s)  “Collateral”
has the meaning ascribed thereto in Section 1.10(a).

 

(t)   “Company” has the meaning ascribed
thereto in the Recitals.

 

(u)  “Company
Indemnified Parties” has the meaning ascribed thereto in Section 11.2.

 

(v)  “Company’s
Objection” has the meaning ascribed thereto in Section 10.2(a).

 

(w)  “Company
Termination Payment” has the meaning ascribed thereto in Section 9.4.

 

(x)   “Confidential Information” means (i) with
respect to the Company, any information with respect to the Company (other than
information relating to the Policies) that is not generally available to the
public, and includes, without limitation, policyholder lists, any medical,
financial and other personal information about proposed, current, and former
policyowners, insureds, applicants, and beneficiaries of the Company (other
than proposed, current, and former policyowners, insureds, applicants and
beneficiaries of the Policies) and information or knowledge about the Company’s
processes, services, finances and reserving methodology and (ii) with
respect to the Reinsurer, any information with respect to the Policies or the
Reinsurer that is not generally available to the public, and includes, without
limitation, policyholder lists, any medical, financial and 

 

39

 

other personal information about proposed, current, and
former policyowners, insureds, applicants, and beneficiaries of Policies and
information or knowledge about the Reinsurer’s processes, services, finances
and reserving methodology.

 

(y)  “Consultation
Period” has the meaning ascribed thereto in Section 10.2(b).

 

(z)  “CPA Firm”
has the meaning ascribed thereto in Section 10.2(b).

 

(aa)  “Demand” has the meaning ascribed
thereto in Section 10.1(c).

 

(bb)  “Direct Reinsured Policies” has the
meaning ascribed thereto in Section 1.1.

 

(cc)   “Discounted Interest Maintenance Reserve
Amortization” has the meaning ascribed thereto in (i) with respect to
the calculation of the Estimated Ceding Commission, Annex C and (ii) with
respect to the calculation of the Actual Ceding Commission, Annex D.

 

(dd)  “Effective Date” means [•],
2011.

 

(ee)  “Effective Time” means 12:01 a.m.
Eastern time on the Effective Date.

 

(ff)  “Encumbrance” has the meaning ascribed
thereto in the Stock Purchase Agreement.

 

(gg)  “Estimated Balance Sheet” has the
meaning ascribed thereto in the Stock Purchase Agreement.

 

(hh)  “Estimated Ceding Commission” has the
meaning ascribed thereto in Section 1.3(b)(ii).

 

(ii)  “Estimated
Initial Coinsurance Premium” has the meaning ascribed thereto in Section 1.3(a)(ii).

 

(jj)  “Estimated NB Volume Adjustment Schedule”
has the meaning ascribed thereto in the Stock Purchase Agreement.

 

(kk)  “Excluded Liabilities” means any claim
or liability under, in connection with, or with respect to the Policies, for
Extra Contractual Obligations (i) that are based upon, relate to, or arise
out of, any act, error or omission of the Company, its Affiliates or any of
their respective officers, directors, employees or agents (excluding the
Reinsurer and its Affiliates in their capacity as Administrator pursuant to the
Administrative Services Agreement and any successor, assign, designee or
subcontractor appointed by the Reinsurer as Administrator) occurring on or
after the Effective Time, unless the Reinsurer directed or consented to the act
or course of conduct that led directly to the 

 

40

 

imposition of the Extra Contractual Obligations; provided,
however, that the term “Excluded Liabilities” shall not apply to Extra
Contractual Obligations in items (A) through (C) of Schedule 7.3(a) to
the Stock Purchase Agreement; or (ii) to the extent such Extra Contractual
Obligations were included as liabilities on the Final Balance Sheet and were
not included in item 5 of Schedule 2 to the Stock Purchase Agreement; provided,
that an amount in excess of the amount reflected as a liability on the Final
Balance Sheet shall not be an Excluded Liability.

 

(ll)  “Existing Direct Reinsured Policies”
has the meaning ascribed thereto in Section 1.1.

 

(mm)  “Existing Indirect Reinsured Policies”
has the meaning ascribed thereto in Section 1.1.

 

(nn)  “Extra Contractual Obligations” means
all liabilities, obligations or losses (whether known or unknown, contingent or
otherwise) incurred or arising at any time under or relating to any Policy that
are not provided by the contractual benefits arising under the express terms
and conditions of such Policy or are in excess of the applicable Policy
benefits, including, without limitation, any liability for taxes, toll charges,
fines, penalties, forfeitures, excess or penalty interest, punitive, special,
exemplary or other form of extra-contractual damages or attorneys’ fees and
costs awarded, which liabilities, obligations or losses arise from any act,
error or omission, whether or not intentional, negligent, in bad faith or
otherwise relating to: (i) the marketing, sale, underwriting, issuance or
administration of the Policies; (ii) the investigation, defense, trial,
settlement or handling of claims, benefits or payments under the Policies; (iii) the
failure to pay, the delay in payment of, or errors in calculating or
administering the payment of, benefits, claims or any other amounts due or
alleged to be due under or in connection with the Policies; (iv) Premium
Taxes other than those settled under Section 1.6 in connection with
premiums received under the Policies; (v) the failure of any Policy to
provide the purchaser, policyholder, account holder or other holder or intended
beneficiaries thereof with tax treatment under the Code that is the same as or
more favorable than the tax treatment under the Code (1) that was
purported to apply in materials provided at the time of issuance, assumption,
exchange, modification or sale of the Policy by the Company or any of its
predecessors or (2) for which policies or contracts of that type are
intended to qualify under the Code; (vi) the treatment of any Policy as a “modified
endowment contract” within the meaning of Section 7702A of the Code,
except where the holder of the Policy shall have consented to its status as a “modified
endowment contract” under Section 7702A; (vii) costs and expenses
attributable to the continuing engagement of Smart Business Advisory and
Consulting, LLC, pursuant to the “Statement of Work” dated as of June 12,
2008; (viii) the failure of the Company to comply with any applicable tax
information reporting or disclosure requirements (other than any such
requirements applicable to the Company’s income tax returns) or tax withholding
requirements with respect to distributions or payments made pursuant to the
Policies; (ix) 

 

41

 

any Taxes (as defined in the Stock Purchase Agreement)
applicable to the Transferred Assets; and (x) any transfer, sales, use,
value added, excise, stock transfer, documentary stamp, recording, registration
and any similar taxes that become payable as a result of the acquisition by the
Life Reinsurer of the Transferred Assets (including any real property transfer
tax and any similar tax); provided that “Extra Contractual Obligations”
will not under any circumstances include U.S. federal or state income or
capital stock or similar taxes (or interest or penalties payable with respect
thereto) imposed upon the Company or any of its Affiliates.

 

(oo)  “Fair Market Value” means, with
respect to any asset (other than cash) as of any date of determination, fair
market value of such asset determined in accordance with SAP and based on the
closing price obtained from [·](1), as of the close of
business on the date of determination, together with any accrued and unpaid
interest thereon.

 

(pp)  “Final Balance Sheet” has the meaning
ascribed thereto in the Stock Purchase Agreement.

 

(qq)  “Final NB Volume Adjustment Schedule”
has the meaning ascribed thereto in the Stock Purchase Agreement.

 

(rr)  “Financed Amount” means, as of any
date of determination, the gross statutory reserves (including deficiency
reserves) and any additional policy-related liabilities that are required to be
held by the Reinsurer with respect to all or any portion of the Reinsured
Policies retroceded by the Reinsurer in connection with any reserve financing
or securitization transaction as of such date of determination reduced by
credit for reinsurance taken by the Company in respect of such Financed Amount
for Other Reinsurance; provided that the Financed Amount shall not
exceed $250,000,000 without the prior written consent of the Company.  Such reserves and liabilities are posted in
lines 1 through 9.4 inclusive on page 3 of the Company’s 2010 financial
statements as prepared under SAP.  For
years after 2010, reserves and liabilities corresponding to those lines of the
Company’s 2010 SAP financial statements will be included in the Financed Amount
even if the form of SAP financial statements changes.

 

(ss)  “Governmental or Regulatory Authority”
means any court, tribunal, arbitrator, authority, agency, commission, official
or other instrumentality of the United States or any federal, national, state,
municipal, county, city or other political subdivision.

 

(tt)  “Indemnified Party” has the meaning
ascribed thereto in Section 11.3.

 

(uu)  “Indemnifying Party” has the meaning
ascribed thereto in Section 11.3.

 

(1)  Insert name of the
independent pricing service used by the Company prior to the Effective Date,

 

42

 

(vv)  “Indirect Reinsured Policies” has the
meaning ascribed thereto in Section 1.1.

 

(ww)  “Initial Coinsurance Premium” has the
meaning ascribed thereto in Section 1.3(a)(i).

 

(xx)  “Initial
Coinsurance Premium Adjustment” has the meaning ascribed thereto in Section 1.3(a)(iv).

 

(yy)  “Initial Coinsurance Premium
Reconciliation Statement” has the meaning ascribed thereto in Section 1.3(a)(iv).

 

(zz)  “Interest Maintenance Reserve” means
the interest maintenance reserve, as determined in accordance with SAP,
consistently applied.

 

(aaa)  “Law” means all laws, statutes, rules,
regulations, ordinances and other pronouncements having the effect of law of
the United States or any state, municipality, county, city or other political
subdivision thereof or of any Governmental or Regulatory Authority.

 

(bbb)  “Life NB Amount” has the meaning
ascribed thereto in Exhibit B to the Stock Purchase Agreement.

 

(ccc)  “Losses” means any damages, claims,
losses, liabilities, charges, actions, suits, proceedings, deficiencies, taxes,
fees, assessments, interest, penalties, and reasonable out-of-pocket costs and
expenses (including reasonable attorneys’ fees and expenses).

 

(ddd)  “Monthly Accounting Period” means,
with respect to any calendar month, the period beginning on the first day of
such calendar month and ending on the last day of such calendar month.

 

(eee)   “Net Retained Liabilities” means,
with respect to any time of determination, all liabilities or obligations in
respect of any Policies that, under the terms of any Other Reinsurance
Agreement covering such Policy, (i) the Company is required to retain
unreinsured and for its own account or (ii) in the opinion of the Company
and the Reinsurer, requires consent from any party to such agreement in order
to effect reinsurance under this Agreement, and as to which a waiver of such
requirement or other consent has not been obtained prior to such time of
determination.

 

(fff)   “Net Retained Liabilities Cash Adjustment”
has the meaning ascribed thereto in Section 1.3(c).

 

43

 

(ggg)  “Net Retained Liabilities Cash
Reconciliation Statement” has the meaning ascribed thereto in Section 1.3(c).

 

(hhh)  “Net Retained Liabilities Ceding Commission
Interest” means an amount equal to the ratio of the Net Retained
Liabilities Initial Ceding Commission Adjustment as of the True-Up Date over
the Net Retained Liabilities as of the True-Up Date, multiplied by an amount
equal to the Net Retained Liabilities Earned Interest.

 

(iii)  “Net Retained
Liabilities Earned Interest” means an amount equal to the ratio of the Net
Retained Liabilities Initial Coinsurance Premium Adjustment as of the True-Up
Date over the actual amount of the Initial Coinsurance Premium, multiplied by
an amount equal to the aggregate interest earned on the Transferred Assets from
the Effective Date through the True-Up Date.

 

(jjj)  “Net Retained Liabilities Initial Ceding
Commission Adjustment” means, as of any time of determination, an amount
equal to the portion of the $200,500,000 amount set forth in clause (1) of
the definition “Ceding Commission” attributable to the Net Retained Liabilities
immediately prior to such time, determined by the Reinsurer in accordance with
the methodology set forth on Annex E.

 

(kkk)  “Net Retained Liabilities Initial
Coinsurance Premium Adjustment” means, as of any time of determination, an
amount equal to the Reinsurer’s Share of gross statutory reserves (including
deficiency reserves) and any additional policy-related liabilities that were
required to be held by the Company immediately prior to the Effective Time with
respect to the Net Retained Liabilities as of such time, net of (1) the
Reinsurer’s Share of policy loan balances immediately prior to the Effective
Time on Net Retained Liabilities as of such time, and (2) the Reinsurer’s
Share of net due and deferred Premiums immediately prior to the Effective Time
on Net Retained Liabilities as of such time, reduced by credit for reinsurance
taken by the Company in respect of the Net Retained Liabilities for Other
Reinsurance immediately prior to the Effective Time.  Such reserves and liabilities are posted in
lines 1 through 9.4 inclusive on page 3 of the Company’s 2010 financial
statements as prepared under SAP.  For
years after 2010, reserves and liabilities corresponding to those lines of the
Company’s 2010 SAP financial statements will be included in the Net Retained
Liabilities Initial Coinsurance Premium Adjustment even if the form of SAP financial
statements changes.

 

(lll)  “Net Retained Liabilities True-Up Date”
means the earlier of (i) the True-Up Date and (ii) the date that is
[seventy-five] days following the Effective Date.

 

(mmm)  “Net Retained Liability Ceding Commission
Amount” means with respect to any Net Retained Liability for which a waiver
or consent is obtained subsequent to the Net Retained Liabilities True-Up Date
to reinsure such Net Retained Liability under the terms of this Agreement or
the Parties otherwise agree that any such 

 

44

 

waivers or consents shall not be required as a condition
to coverage hereunder, an amount equal to the portion of the $200,500,000
amount set forth in clause (1) of the definition “Ceding Commission”
attributable to such Net Retained Liability determined by the Reinsurer in
accordance with the methodology set forth on Annex F.

 

(nnn)  “Net Retained Liability Reserve Transfer
Amount” means with respect to any Net Retained Liability for which a waiver
or consent is obtained subsequent to the Net Retained Liabilities True-Up Date
to reinsure such Net Retained Liability under the terms of this Agreement or
the Parties otherwise agree that any such waivers or consents shall not be
required as a condition to coverage hereunder, the gross statutory reserves
(including deficiency reserves) and any additional policy-related liabilities
that are required to be held by the Company with respect to such Net Retained
Liability immediately prior to the time of such waiver, consent or agreement by
the Parties, as applicable, net of the Reinsurer’s Share of (1) policy
loan balances on such Net Retained Liability immediately prior to the time of
such waiver, consent or agreement by the Parties, as applicable, and (2) net
due and deferred Premiums on such Net Retained Liability immediately prior to
the time of such waiver, consent or agreement by the Parties, as applicable,
reduced by credit for reinsurance taken by the Company in respect of such Net
Retained Liability for Other Reinsurance immediately prior to the time of such
waiver, consent or agreement by the Parties, as applicable.  Such reserves and liabilities are posted in
lines 1 through 9.4 inclusive on page 3 of the Company’s 2010 financial
statements as prepared under SAP.  For
years after 2010, reserves and liabilities corresponding to those lines of the
Company’s 2010 SAP financial statements will be included in Net Retained
Liability Reserve Transfer Amount even if the form of SAP financial statements
changes.

 

(ooo)  “Net Settlement” has the meaning
ascribed thereto in Section 6.4.

 

(ppp)  “New Direct Reinsured Policies” has
the meaning ascribed thereto in Section 1.1.

 

(qqq)   “New Indirect Reinsured Policies” has
the meaning ascribed thereto in Section 1.1.

 

(rrr)  “Non-Guaranteed Elements” has the
meaning ascribed thereto in Section 1.8(b).

 

(sss)  “Notice of Agreement” has the meaning
ascribed thereto in Section 10.2(a).

 

(ttt)  “Other Reinsurance” means reinsurance
ceded with respect to Reinsured Policies under the terms of the ceded
reinsurance agreements that the Company has entered into with third parties
prior to the Effective Time covering the Reinsured Policies, including the
ceded reinsurance agreements listed on Schedule 13.1(ttt) hereto, and
any

 

45

 

ceded reinsurance agreement entered into by the Company
with the Reinsurer’s consent pursuant to Section 1.7, as all such
reinsurance ceded may be in force from time to time.

 

(uuu)  “Other Reinsurance Agreements” means
the reinsurance treaties and agreements documenting the Other Reinsurance
(including all amendments and modifications thereto entered into prior to the
Effective Date or pursuant to Section 2.2).

 

(vvv)  “Other Reinsurance Benefits” means,
for any period, the aggregate amount of benefits received by the Company for
reinsurance ceded pursuant to Other Reinsurance Agreements with respect to the
Reinsured Policies during such period.

 

(www)  “Other Reinsurance Premiums” means,
for any period, the aggregate amount of premiums paid by the Company pursuant
to Other Reinsurance Agreements with respect to the Reinsured Policies during
such period.

 

(xxx)  “Panel” has
the meaning ascribed thereto in Section 10.1(d)(i).

 

(yyy)   “Party” has the meaning ascribed
thereto in the Recitals.

 

(zzz)  “Parties” has the meaning ascribed
thereto in the Recitals.

 

(aaaa)  “Permitted Encumbrance” has the
meaning ascribed thereto in the Stock Purchase Agreement.

 

(bbbb)  “Person” means an individual, a
corporation, a partnership, an association, a limited liability company, a
trust or other entity or organization.

 

(cccc)  “Policies” mean all of the insurance
policies and contracts (including supplementary contracts), together with all
related binders, slips and certificates and including applications therefor and
all supplements, endorsements, riders and agreements in connection therewith,
issued or reinsured by Company other than such insurance polices and contracts
falling within the following lines of business: annuities, variable life and
annuity certain supplemental contracts included on Exhibit 7 of the
Company’s statutory financial statements.

 

(dddd)  “Premiums” means premiums and
considerations due or to become due, premiums deferred and uncollected, premium
adjustments and any and all amounts or payments, including any and all policy
fees, charges, reimbursements and similar amounts, which are or were held,
received or collected by Company, or which are now due or will become due from
any source under or in connection with the Reinsured Policies, but not including
Other Reinsurance Premiums.

 

(eeee)  “Premium Taxes” has the meaning
ascribed thereto in Section 1.6(b).

 

46

 

(ffff)  “Producer” has the meaning ascribed
thereto in the Stock Purchase Agreement.

 

(gggg)  “Producer Agreements” has the meaning
ascribed thereto in the Stock Purchase Agreement.

 

(hhhh)  “Producer Payments” means any expense
allowance, commission, override commission, service fee or other compensation
payable by the Company to a Producer pursuant to a Producer Agreement (i) in
connection with any Reinsured Policy and (ii) not in the ordinary course
of the Company’s business in connection with any Policy other than a Reinsured
Policy.

 

(iiii)  “Purchase Price Adjustment Materials”
has the meaning ascribed thereto in the Stock Purchase Agreement.

 

(jjjj)  “Qualified United States Financial
Institution” means an institution that is (a) organized or, for a
United States branch or agency office of a foreign banking organization,
licensed under the laws of the United States or any state thereof and has been
granted authority to operate with fiduciary powers and (b) regulated,
supervised and examined by federal or state authorities having regulatory
authority over banks and trust companies.

 

(kkkk)  “RBC Ratio” means the ratio, as of the
date of determination, of the Company’s or the Reinsurer’s “total adjusted
capital” over its “company action level risk-based capital”, as applicable, as
such terms are defined and prescribed by requirements promulgated by the
National Association of Insurance Commissioners and regulations adopted by the
insurance regulatory authorities in the Company’s or the Reinsurer’s state of
domicile, as applicable, which are in effect as of such date, calculated as of
the end of each calendar quarter, and using reserving methodologies and asset
classifications that are in accordance with generally accepted statutory
accounting principles and practices required or permitted by the National
Association of Insurance Commissioners and the insurance regulatory authority
in the Company’s or the Reinsurer’s state of domicile, as applicable,
consistently applied throughout the specified period and in the immediately
prior comparable period.  When an RBC
Ratio is calculated for any period that is not based on data contained in the
annual financial statement of the Company or the Reinsurer, “premium” (as
defined in the instructions for preparing the RBC Ratio as promulgated by the
National Association of Insurance Commissioners) for such year-to-date period
will be reasonably estimated and annualized wherever required in such
calculation.

 

(llll)  “Reinsured Liabilities” means all
gross liabilities and obligations arising out of or relating to the Reinsured
Policies (other than the Net Retained Liabilities, Extra Contractual
Obligations and the Excluded Liabilities), net of Other Reinsurance Benefits.

 

47

 

(mmmm)   “Reinsured Policies” has the meaning
ascribed thereto in Section 1.1.

 

(nnnn)  “Reinsurer” has the meaning ascribed
thereto in the Recitals.

 

(oooo)  “Reinsurer Indemnified Parties” has
the meaning ascribed thereto in Section 11.2.

 

(pppp)  “Reinsurer’s Share” has the meaning
ascribed thereto in Section 1.2.

 

(qqqq)  “Reinsurer Termination Payment” has
the meaning ascribed thereto in Section 9.4.

 

(rrrr)  “Representatives” has the meaning
ascribed thereto in Section 12.1.

 

(ssss)  “Required Balance” has the meaning
ascribed thereto in Section 3.1(b).

 

(tttt)  “Respondent” has the meaning ascribed
thereto in Section 10.1(c).

 

(uuuu)  “Review Period” has the meaning
ascribed thereto in Section 10.2(a).

 

(vvvv)  “SAP” means the statutory accounting
principles and practices prescribed by the Company’s state of domicile.

 

(wwww)  “Seller” has the meaning ascribed to
it in the Stock Purchase Agreement.

 

(xxxx)  “Statutory
Book Value” means the carrying value of the subject asset or liability on
the books of the Reinsurer for statutory statement purposes determined in
accordance with the statutory accounting principles and practices prescribed by
the Reinsurer’s state of domicile, consistently applied.

 

(yyyy)  “Statutory Reserves” means, as of any
date of determination, the gross statutory reserves (including deficiency
reserves) and any additional policy-related liabilities that are required to be
held by the Company with respect to the Reinsured Policies, as of such date of
determination reduced by credit for reinsurance taken by the Company or by the
Reinsurer in respect of the Reinsured Policies for Other Reinsurance as of such
date of determination.  Such reserves and
liabilities are posted in lines 1 through 9.4 inclusive on page 3 of the
Company’s 2010 financial statements as prepared under SAP.  For years after 2010, reserves and liabilities
corresponding to those lines of the Company’s 2010 SAP financial statements
will be included in Statutory Reserves even if the form of SAP financial
statements changes.

 

(zzzz)  “Stock Purchase Agreement” means the
Stock Purchase Agreement,  dated as of [·],
2010, by and among [XYZ] Insurance Holdings (USA) Inc., [Purchaser], the 

 

48

 

Reinsurer, and, solely for purposes of Sections 5.14
through Section 5.17 and Articles 7, 8 and 10 of thereof, [XYZ] USA Holdco
Corporation.

 

(aaaaa)  “Third Party Claimant” has the meaning
ascribed thereto in Section 11.4(a).

 

(bbbbb)  “Transferred Assets” has the meaning
ascribed thereto in Section 1.3(a)(i).

 

(ccccc)  “Transition Services Agreement” has
the meaning ascribed thereto in the Stock Purchase Agreement.

 

(ddddd)  “True-Up Date” has the meaning
ascribed thereto in Section 1.3(a)(iv).

 

(eeeee)  “Trust Account” has the meaning
ascribed thereto in Section 3.1(a).

 

(fffff)   “Trust Agreement” means the Trust
Agreement between the Reinsurer, as grantor, the Company, as beneficiary, and
the Trustee, as trustee, substantially in the form attached as Exhibit A
hereto.

 

(ggggg)  “Trustee” has the meaning ascribed
thereto in Section 3.1(a).

 

(hhhhh)  “UCC” has the meaning ascribed thereto
in Section 1.10(b)(i).

 

(iiiii)  “Umpire” has the meaning ascribed
thereto in Section 10.1(d)(ii).

 

(jjjjj)  “Unresolved Items” has the meaning
ascribed thereto in Section 10.2(b).

 

(kkkkk)  “Value” means the sum of (i) the
amount of cash included in the Transferred Assets, (ii) the excess of (1) the
aggregate Statutory Book Value of all assets included in the Transferred Assets
that are commercial mortgage loans and real estate owned for investment
purposes, together with any accrued and unpaid interest thereon, but net of any
liability specifically related to any such Transferred Assets to the extent
such liability is accounted for on the Estimated Balance Sheet or the Final
Balance Sheet, as applicable, over (2) $18,000,000 and (iii) the
aggregate Fair Market Value of all other assets included in the Transferred
Assets.

 

Section 13.2  Construction.

 

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

 

49

 

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

 

(c)  For purposes of this
Agreement, the term “including” means “including but not limited to.”

 

(d)  Whenever used in
this Agreement, the masculine gender shall include the feminine and neutral
genders.

 

(e)  All references
herein to Articles, Sections, Subsections, Paragraphs, Exhibits and Schedules
shall be deemed references to Articles, Sections, Subsections and Paragraphs
of, and Exhibits, Annexes and Schedules to, this Agreement, unless the context
shall otherwise require.

 

(f)  Any reference herein
to any statute, agreement or document, or any section thereof, shall, unless
otherwise expressly provided, be a reference to such statute, agreement,
document or section as amended, modified or supplemented (including any
successor section) and in effect from time to time.

 

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

 

ARTICLE XIV

GENERAL PROVISIONS

 

Section 14.1  Books and Records.  On the Effective Date or as soon as possible
thereafter (but not later than [three] Business Days after the Company has
received the applicable Books and Records from Seller pursuant to the transfer
required under the Stock Purchase Agreement) in the manner (and in the case of
physical Books and Records at the location(s)) reasonably requested by the
Reinsurer, the Company will transfer the Books and Records relating to the
Reinsured Policies to the Reinsurer; provided, that the Company shall be
permitted to retain a copy of the Books and Records transferred to the
Reinsurer.  The Reinsurer agrees that, on
and after the Effective Date, and for such period of time as may be required
under the Reinsurer’s standard record retention practices and procedures, and
in accordance with applicable Law, it will maintain true and accurate Books and
Records with respect to the Reinsured Policies of all reinsurance
hereunder.  So long as any Reinsured
Policies are in force and subject to coinsurance hereunder, the Reinsurer shall
make available for inspection and copying by the Company and its
Representatives, during normal business hours of the Reinsurer upon forty-eight
hours’ advance written notice, any non-privileged financial or other records
pertaining to the Reinsured Policies that may reasonably be required by the
Company for financial statement preparation or any other reasonable business
purpose.

 

50

 

Section 14.2  Inspection by Reinsurer.  Upon reasonable notice, Reinsurer and its
Representatives may inspect any and all books, records, documents or similar
information reasonably relating to or affecting the Reinsured Policies or
reinsurance under this Agreement at the appropriate office of the Company,
during normal business hours upon forty-eight hours’ advance written notice.

 

Section 14.3  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
caused by mistake, misunderstanding or oversight, the Parties will equitably
adjust the situation to what it would have been had the mistake,
misunderstanding or oversight not occurred, and the reinsurance provided
hereunder will not be invalidated. 
Should it not be possible to adjust the situation, it will be referred
to dispute resolution pursuant to Article X or to such other dispute
resolution procedure as may be mutually selected by the Parties.

 

Section 14.4  Offset.  Any amount which either the Company or the
Reinsurer is contractually obligated to pay to the other Party under this
Agreement may be paid out of any amount which is due and unpaid under this
Agreement.  The application of this
offset provision will not be deemed to constitute diminution in the event of
insolvency.

 

Section 14.5  Reimbursement of Expenses.  The Reinsurer shall reimburse the Company
promptly for any expenses it incurs in complying with any request, direction,
recommendation or instruction of the Reinsurer pursuant to Section 1.4, Section 1.5,
Section 2.2 or Section 3.3(b).

 

Section 14.6  Parties to this Agreement.  This is an agreement for indemnity
reinsurance solely between the Company and the Reinsurer.  The performance of the obligations of each Party
under this Agreement shall be rendered solely to the other Party.  The acceptance of risks under this Agreement
shall create no right or legal relationship between the Reinsurer and the
insured, owner or beneficiary of any insurance policy or other contract of the
Company.

 

Section 14.7  Authority.  Neither the Company nor the Reinsurer shall
have any power or authority to act for or on behalf of the other except as
expressly granted herein or in the Administrative Services Agreement, and no
other or greater power or authority shall be implied by the grant or denial of
power or authority specifically mentioned herein.  No employee or agent of either Party shall be
considered an employee or agent of the other.

 

Section 14.8   No Assignment.  This Agreement may not be assigned by either
of the Parties hereto without the prior written approval of the other
Party.  Notwithstanding the foregoing,
the Reinsurer shall not be prohibited from further transfer of risks accepted
hereunder on a retrocession or other basis without the prior approval of the
Company, 

 

51

 

provided that any transfer shall not relieve the
Reinsurer of its obligations under this Agreement.

 

Section 14.9  Notices.  Any notice, approval, request, consent,
instruction, or other document to be given hereunder by any Party hereto to the
other Party hereto will be delivered by personal delivery, overnight express or
facsimile (followed by telephone confirmation with the intended recipient), as
follows:

 

If
to the Company, to:

 

Liberty
Life Insurance Company

[Address]

Telephone:

Facsimile:

Attn:

 

with
copies (which shall not constitute notice) to:

 

Athene
Holding Ltd.

44 Church Street

Hamilton HM 12, Bermuda

Telephone: (441) 279-8412

Facsimile: (441) 279-8401

Attention: President and General Counsel

Email: cgillis@athenelifere.bm; tshanafelt@athenelifere.bm

 

Sidley
Austin LLP

1 South Dearborn

Chicago, Illinois 60603

Telephone:                                   (312) 853-7061

Facsimile:                                         (312) 853-7036

Attn:                    Perry J. Shwachman, Esq.

 

and

 

Sidley
Austin LLP

787 Seventh Avenue 

New York, New York 10019 

Telephone:                                   (212) 839-5835

Facsimile:                                         (212) 839-5599 

Attn:                    Jonathan J. Kelly, Esq.

 

52

 

If
to the Reinsurer, to:

 

Protective
Life Insurance Company

2801 Highway 280 South

Birmingham, Alabama 35223

Telephone: (205) 268-1000

Facsimile: (205) 268-3597

Attn:  Alfred F. Delchamps, III

Email: Al.Delchamps@Protective.com

 

with
a copy (which shall not constitute notice) to:

 

Debevoise &
Plimpton LLP

919 Third Avenue

New York, New York 10022

Telephone:                                   (212) 909- 6459

Facsimile:                                         (212) 909- 7459

Attn:                    Nicholas F. Potter, Esq.

 

or
at such other address for a Party as will be specified by like notice.  Each notice or other communication required
or permitted under this Agreement that is addressed as provided in this section
will be deemed given upon delivery.

 

Section 14.10  Severability.  If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under any present or future law, and if
the rights or obligations of the Company or Reinsurer under this Agreement will
not be materially and adversely affected thereby, (a) such provision will
be fully severable, (b) this Agreement will be construed and enforced as
if such illegal, invalid, or unenforceable provision had never comprised a part
hereof, (c) the remaining provisions of this Agreement will remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement, and (d) in
lieu of such illegal, invalid or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.

 

Section 14.11  Announcements.  Except as required by applicable Law or in
connection with public disclosure to investors or analysts, the content and
timing of public announcements by either Party concerning the transactions
contemplated by this Agreement must be approved in advance by both Parties, but
such approval shall not be unreasonably withheld, conditioned or delayed.

 

Section 14.12  Schedules, Annexes and Exhibits.  All Schedules, Annexes and Exhibits to this
Agreement are attached hereto and are incorporated herein by reference.  

 

53

 

The provisions of this Agreement (without reference to
any attached Schedules, Annexes and Exhibits) shall be deemed to control in the
event of any inconsistency or conflict between the provisions of this Agreement
(without reference to any attached Schedules, Annexes and Exhibits) and the
Schedules, Annexes and Exhibits attached hereto.

 

Section 14.13  Entire Agreement.  This Agreement and any Schedules, Annexes and
Exhibits attached hereto supersede all prior discussions and written and oral
agreements between the Parties with respect to the subject matter of this
Agreement.  This Agreement (and any
Schedules, Annexes and Exhibits attached hereto) and the Administrative
Services Agreement contain the sole and entire agreement between the Parties
hereto with respect to the subject matter hereof.

 

Section 14.14  Binding Effect.  This Agreement is binding upon, and will
inure to the benefit of, the Parties and their respective permitted assignees
and successors (including, without limitation, any liquidator, rehabilitator,
receiver or conservator of a Party).

 

Section 14.15  Waiver and Amendment.  This Agreement may be modified or amended
only by a writing duly executed by the Company and the Reinsurer.  Any term or condition of this Agreement may
be waived at any time by the Party that is entitled to the benefit
thereof.  A waiver must be in writing and
must be executed by such Party.  A waiver
on any occasion shall not be deemed to be a waiver of the same or any term or
condition on a future occasion.

 

Section 14.16  Headings.  The headings in this Agreement are for
reference purposes only and shall not affect the interpretation of this
Agreement.

 

Section 14.17  Counterparts.  This Agreement may be executed simultaneously
in any number of counterparts, each of which will be deemed an original, but
all of which will constitute one and the same instrument.

 

Section 14.18  No Prejudice.  The Parties agree that this Agreement has
been jointly negotiated and drafted by the Parties hereto and that the terms
hereof shall not be construed in favor of or against any Party on account of
its participation in such negotiations and drafting.

 

Section 14.19  Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of South Carolina without
giving effect to the principles of conflicts of law rules thereof.

 

Section 14.20  Further Assurances.  Each Party shall take, or cause to be taken,
any and all reasonable actions, including the execution, acknowledgment, filing
and delivery of any and all documents and instruments that the other Party may
reasonably 

 

54

 

request in order to effect the intent and purpose of
this Agreement and the transactions contemplated hereby.

 

Section 14.21  Recourse.  Without limiting the rights of any party
under the Stock Purchase Agreement of any party thereto, the Parties agree that
all obligations of the Company under this Agreement and all representations and
warranties of the Company made herein are without recourse to the Seller or its
Affiliates or any director, officer, agent or representative of any of the
foregoing.

 

[Remainder of page intentionally left blank]

 

55

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers effective this
       day of
                  ,
2011.

 

 

	
   

  	
  LIBERTY
  LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PROTECTIVE
  LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:Exhibit 10.1

 

Executed
Version 10/22/10

 

AMENDMENT
TO LOAN AGREEMENT

 

THIS
AMENDMENT TO LOAN AGREEMENT (this “Amendment”) is made and entered into as of
the 22nd day of October, 2010 by and among WEBSTER
BANK, NATIONAL ASSOCIATION, having an office at 80 Elm Street, New
Haven, Connecticut 06510 (“Bank”),
MICROFLUIDICS INTERNATIONAL CORPORATION, a Delaware corporation with
a place of business at 30 Ossipee Road, Newton, MA 02464 (“MIC”), and MICROFLUIDICS CORPORATION, a Delaware corporation with a place
of business at 30 Ossipee Road, Newton, MA 02464 (“MC,”
and MIC and MC are collectively the “Borrower”)

 

WHEREAS, this Amendment
amends that certain Loan Agreement dated as of October 23, 2009 by and
among the Bank and Borrower, as further amended, restated or modified from time
to time (the “Loan Agreement”). Capitalized
terms used in this Amendment and not defined herein shall have the meanings set
forth in the Loan Agreement.

 

WHEREAS, Borrower has
requested that certain terms and provisions of the Loan Agreement be amended so
as to extend the maturity date of the Revolving Loan.

 

NOW,
THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties hereby agree as follows:

 

1.                                      Acknowledgments and Affirmations. Borrower hereby
represents and warrants that:

 

(a)                              Borrower has
all requisite power and authority to enter into and to carry out and perform
its obligations under this Amendment.

 

(b)                             All action on
the part of Borrower, its respective directors, stockholders, shareholders or
other equity holders necessary for the authorization, execution, delivery and
performance by Borrower, as applicable, of this Amendment and for the
consummation of the transactions contemplated herein and therein has been taken
or will be taken prior to the date of this Amendment.

 

(c)                                  This Amendment
is a valid and binding obligation of Borrower, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors’ rights generally and general principles of
equity that restrict the availability of equitable remedies. The execution and
delivery by Borrower of this Amendment, and compliance herewith and therewith,
will not, with or without notice or the passage of time or both,
(x) result in any violation of and will not conflict with, or result in a
breach of any of the terms of, or constitute a default under any provision of,
(i) any law to which Borrower is subject, except for such violations and
conflicts which are not, individually or in the aggregate, material,
(ii) its certificate of incorporation and bylaws, as amended,
(iii) any mortgage, indenture, agreement, instrument, judgment, decree,
order, rule or regulation or other restriction to which Borrower is a
party or by which it or any of its property is bound, or may be affected, or
(y) result in the creation of any mortgage, pledge, lien, encumbrance or
charge upon any of Borrower’s properties or assets pursuant to any such term or
give any other person or entity the right to accelerate the time for
performance of any obligation of Borrower.

 

(d)                             No Event of
Default has occurred and is continuing, and no event or condition has occurred
or exists which would constitute an Event of Default but for the giving of
notice or passage of time or both.

 

(e)                              Each and every
one of the representations and warranties made by Borrower to Bank in the Loan
Agreement and Loan Documents, as amended by this Amendment, are true and
correct in all material respects on and as of the date hereof except to the
extent that any of such representations and warranties relate, by the express
terms thereof, solely to a date prior hereto.

 

(f)                                Borrower has
duly and properly performed, complied with and observed each of the covenants,
agreements and obligations contained in the Loan Documents, as amended by this
Amendment.

 

 

2.                                  Amendments to the Loan Agreement.

 

(a)                              References in
the Loan Agreement to “this Agreement” shall be deemed references to the Loan
Agreement as amended and supplemented by this Amendment and as subsequently
amended.

 

(b)                             The definition
of Maturity Date is hereby deleted in its entirety and replaced with the
following:

 

“Maturity Date” means October 22,
2011.

 

3.                                  Conditions Precedent. Bank’s
obligation to enter into this Amendment as described herein shall terminate if,
in the Bank’s sole discretion, there has been a material adverse change in the
general affairs, management, results, operations, condition (financial or otherwise)
of Borrower, whether or not arising from transactions in the ordinary course of
business, or if there has been any material adverse deviation by Borrower from
the business plan of Borrower presented to and accepted by Bank prior to the
execution of this Amendment. In addition, the effectiveness of this Amendment
shall be conditioned upon:

 

(a)                              the receipt by
Bank of this Amendment duly executed and delivered by Borrower;

 

(b)                             delivery of the
Allonge to Revolving Note by Borrower to Bank;

 

(c)                              copies of all
corporate action taken by Borrower, including resolutions of its Board of
Directors, authorizing the execution, delivery and performance of this
Amendment and each document to be delivered in connection herewith;

 

2

 

IN WITNESS
WHEREOF, the parties have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first written above.

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  MICROFLUIDICS
  INTERNATIONAL CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter F. Byczko

  
	
   

  	
   

  	
  Peter
  F. Byczko

  
	
   

  	
   

  	
  Its
  Vice President of Finance and

  
	
   

  	
   

  	
  Chief
  Accounting Officer 

  
	
   

  	
   

  	
  (Duly
  Authorized)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MICROFLUIDICS
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter F. Byczko

  
	
   

  	
   

  	
  Peter
  F. Byczko

  
	
   

  	
   

  	
  Its
  Vice President of Finance and

  
	
   

  	
   

  	
  Chief
  Accounting Officer 

  
	
   

  	
   

  	
  (Duly
  Authorized)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BANK:

  
	
   

  	
   

  
	
   

  	
  WEBSTER
  BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter Hicks

  
	
   

  	
   

  	
  Peter
  Hicks, Vice President

  

 

[Signature
page to Amendment to Loan Agreement]

 

 

ALLONGE
TO REVOLVING NOTE

 

This Allonge, dated as of October 22,
2010, is attached to and made a part of that certain Revolving Note dated October 23,
2009 (the “Note”), in
the original principal amount of $1,000,000 made
by MICROFLUIDICS INTERNATIONAL CORPORATION and
MICROFLUIDICS CORPORATION to the
order of WEBSTER BANK, NATIONAL ASSOCIATION for
the purpose of annexing thereto the following modifications:

 

(1)                                  The reference
in the second paragraph of the Note to “October 22, 2010” has been changed
to “October 22, 2011”.

 

The Note otherwise remains
unmodified and in full force and effect.

 

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  MICROFLUIDICS
  INTERNATIONAL CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter F. Byczko

  
	
   

  	
   

  	
  Peter
  F. Byczko

  
	
   

  	
   

  	
  Its
  Vice President of Finance and Chief 

  
	
   

  	
   

  	
  Accounting
  Officer

  
	
   

  	
   

  	
  (Duly
  Authorized)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MICROFLUIDICS
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter F. Byczko

  
	
   

  	
   

  	
  Peter
  F. Byczko

  
	
   

  	
   

  	
  Its
  Vice President of Finance and Chief 

  
	
   

  	
   

  	
  Accounting
  Officer 

  
	
   

  	
   

  	
  (Duly
  Authorized)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00179-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00179-of-00352.parquet"}]]