Document:

Exhibit 10.2

 

EMPLOYMENT AGREEMENT

 

This
EMPLOYMENT AGREEMENT (the “Employment Agreement”) is made effective as
of July 6, 2010 (the “Effective Date”) by and among Cloud Peak
Energy Inc., a Delaware corporation (the “Company”) and Todd A. Myers
(the “Executive”).

 

RECITALS

 

WHEREAS,
the Executive possesses skills, experience and knowledge that are of value to
the Company; and

 

WHEREAS,
the Company and the Executive desire to enter into this Employment Agreement.

 

NOW,
THEREFORE, in consideration of the mutual covenants contained herein and other
valid consideration the sufficiency of which is acknowledged, the parties
hereto agree as follows:

 

Section 1.       Employment.

 

1.1.  Term.  Subject to Section 3 hereof, the Company
agrees to employ the Executive, and the Executive agrees to be employed by the
Company, in each case pursuant to this Employment Agreement, for a period
commencing on the Executive’s first day of employment with the Company (the “Start
Date”) and ending on the earlier of (i) the third (3rd) anniversary of
the Start Date and (ii) the termination of the Executive’s employment in
accordance with Section 3 hereof (the “Initial Term”); provided
that, commencing at the end of the Initial Term and at the end of each year
thereafter, this Employment Agreement will extend automatically for an
additional year (the initial term and any renewals, collectively the “Term”)
unless ninety (90) day’s advance written notice of nonrenewal is given by
either party and upon receipt of such notice by the Company or the Executive,
as the case may be, no further automatic renewals of this Employment Agreement
shall occur. For all purposes of this Employment Agreement, the Executive shall
be considered to have terminated employment with the Company when the Executive
incurs a “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of
the Internal Revenue Code of 1986, as amended (the “Code”), and
applicable administrative guidance issued thereunder.

 

1.2.  Title; Duties; Place of
Performance.  During the Term, the
Executive shall serve as Senior Vice President, Business Development of the
Company and in such other positions as an officer or director of affiliates of
the Company as the Executive, the Chief Executive Officer and the board of directors
of the Company (the “Board”), shall mutually agree to from time to
time.  In such positions, the Executive
shall have during the Term such authority, duties, functions and
responsibilities as are typically accorded to and consistent with the Executive’s
position as Senior Vice President, Business Development and such other duties
and 

 

 

responsibilities
commensurate with such position as may be reasonably assigned by the Chief
Executive Officer and the Board in consultation with Executive.  The Executive’s principal places of
employment during the Term shall be in the Denver, Colorado region.

 

1.3.  Reporting.  During the Term, the Executive shall report
to the Chief Executive Officer.

 

1.4.  Exclusivity.  During the Term, the Executive shall devote
substantially all of his time and attention during normal business hours to the
business and affairs of the Company and its affiliates, shall faithfully serve
them, and shall conform to and comply with the lawful and reasonable directions
and instructions given to him by the Chief Executive Officer and the Board,
consistent with Section 1.2 hereof. 
During the Term, the Executive shall use his best efforts to promote and
serve the interests of the Company and its affiliates and shall not engage in
any other business activity that significantly detracts from the performance of
his duties hereunder, whether or not such activity shall be engaged in for
pecuniary profit; provided that the Executive may (i) engage in
charitable and community activities, including serving on the board of
directors of not-for-profit entities, and (ii) manage personal and family
investments and affairs, in each case so long as such other activities do not
violate the terms of this Employment Agreement or significantly interfere with
the performance of his duties hereunder. 
Without limiting the generality of the foregoing, during the Term the
Executive shall not serve on the boards of directors of any for-profit entity
without the prior written consent of the Board, not to be unreasonably
withheld.

 

Section 2.       Compensation.

 

2.1.  Salary.  As compensation for the performance of the
Executive’s services hereunder, during the Term, the Company shall pay to the
Executive a salary at an annual rate of Two Hundred Sixty Thousand Dollars ($260,000),
payable in accordance with the Company’s standard payroll policies but not less
frequently than monthly installments and such salary shall be reviewed annually
and may be adjusted upward by the Compensation Committee (the “Committee”)
of the Board in its sole discretion (as adjusted, the “Base Salary”).

 

2.2.  Annual Bonus.  For each fiscal year ending during the Term,
the Executive shall be eligible to receive an annual cash bonus (the “Annual
Bonus”). The target annual bonus shall be 60% of the Base Salary with a
maximum annual bonus opportunity of 120% of the Base Salary. The actual Annual
Bonus in respect of any fiscal year is to be based upon such individual and/or
Company performance criteria established for each such fiscal year by the Committee.  For fiscal year 2010, the Annual Bonus paid
to the Executive shall be pro rated based on the number of days the Executive
was employed by the Company during the year.

 

2.3.  Equity Grants.

 

(a)       During
the Term, the Executive shall be eligible to participate in the Company’s
equity incentive plans.

 

(b)       Beginning
in 2011, at the time equity grants are made to the Company’s senior executives
generally, and in accordance with the terms of a long term incentive equity
plan to be established by the Board for Executive, the Executive shall receive 

 

2

 

annual
equity grants, in the form and subject to such terms as may be determined by
the Board. For 2011 and calendar years following, the Executive’s equity grants
will have a target value equal to an estimated grant date fair value (as
determined by the Board or Committee in good faith) of 100% of the Executive’s
then Base Salary and such grants shall consist of performance share units and
stock options (as determined by the Board or Committee) in respect of the
Company’s common stock.

 

2.4.  Employee Benefits.  During the Term, the Executive shall be
eligible to participate in the health insurance, retirement and other
perquisites and benefits of the Company as in effect from time to time,
including the Company’s equity incentive plans, on terms no less favorable than
those provided to other senior executives of the Company.

 

2.5.  Vacation.  The Executive will be entitled to no less
than four (4) weeks of paid vacation per year during the Term, subject to
(but not reduced by) the terms and conditions of the Company’s vacation policy
as in effect from time to time.

 

2.6.  Business and
Entertainment Expenses.  The Company
shall pay or reimburse the Executive for all commercially reasonable business
out-of-pocket fees and expenses that the Executive incurs during the Term in
performing his duties under this Employment Agreement upon presentation of
documentation in accordance with the expense reimbursement policy of the
Company as in effect from time to time. 
Any reimbursement pursuant to this Section 2.6 or Section 3
shall be made by the Company as soon as administratively practicable following
receipt of supporting documentation reasonably satisfactory to the Company (but
in any event not later than the close of the Executive’s taxable year following
the taxable year in which the fee or expense is incurred by the Executive).

 

Section 3.       Employment
Termination.

 

3.1.  Termination of Employment.  The Company may terminate the Executive’s
employment for any reason during the Term upon not less than ninety (90) days’
notice to the Executive.  The Executive
may voluntarily terminate his employment for any reason during the Term upon
not less than ninety (90) days’ notice to the Company.  Upon the termination of the Executive’s
employment with the Company for any reason, the Executive shall be entitled to (i) any
unpaid Base Salary through the date of termination, (ii) any unreimbursed
expenses in accordance with Section 2.6 hereof, (iii) accrued
vacation pay through the date of termination, and (iv) any amounts that
the Executive (or his legal representative) is entitled to receive under any
employee benefit plan (including equity incentive plans ) in accordance with
the terms of any such plan (collectively, items (i) through (iv), the “Accrued
Amounts”).

 

3.2.  Termination due to death
or Disability.  If the Executive’s
employment hereunder is terminated due to his death or Disability, then, in
addition to the Accrued Amounts, the Executive, his estate or his beneficiaries
(as the case may be) shall be entitled to the Pro Rata Annual Bonus. The Pro
Rata Annual Bonus to be paid as promptly as practicable after the applicable
year end audit is complete but in no event later than 120 days following the
end of the Performance Period.

 

3

 

3.3.  Termination by the
Company without Cause; Termination by the Executive for Good Reason.  If (i) the Executive’s employment is
terminated by the Company during the Term without Cause, or (ii) the
Executive resigns for Good Reason, then, in addition to the Accrued Amounts,
the Executive shall be entitled to the following payments and benefits: (x) a
lump-sum payment equal to one times the sum of (A) Base Salary and (B) target
Annual Bonus for the year of termination and (y) the Pro Rata Annual
Bonus.  In the event that during the
period of time after which the Company has given notice that it will not renew
the Agreement, the Company terminates the Executive’s employment without Cause
or the Executive terminates the Agreement for Good Reason, he shall receive the
full amount set forth in this paragraph, provided that the amount payable
pursuant to clause (x) shall be reduced by any amount paid in lieu of
notice.  Any amounts payable under this Section shall
be paid within thirty (30) days after the date of the Executive’s date of
termination and the payment described in clause (y) shall be paid as
promptly as practicable after the applicable year end audit is complete but in
no event later than 120 days following the end of the Performance Period.  The Executive is also entitled to the
continuation on the same terms as an active employee of medical benefits that
the Executive would otherwise be eligible to receive as an active employee of
the Company for twelve (12) months  or,
if sooner, until such time as the Executive becomes eligible for substantially
equivalent or greater medical benefits from a subsequent employer without
exclusion of any pre-existing condition. 
It is agreed that the continuation of benefits provided hereunder
following any termination of employment shall be in satisfaction of the Company’s
obligation to provide continuation coverage under COBRA.  All of the payments and benefits provided in
this Section 3.3 shall be subject to the execution of the Waiver and
Release of Claims attached hereto as Appendix
A within thirty (30) days after the Executive’s date of termination.

 

3.4.  It is intended that the
amounts payable pursuant to clauses (x) and (y) in Section 3.3
shall be treated as “separate payments” for purposes of Section 409A of
the Code.  Moreover, if the Executive is
a “specified employee” within the meaning of Section 1.409A-1(i) of
the Treasury regulations as of the date of termination, then payments required
to be made pursuant to this Section 3 which are subject to Section 409A
of the Code, if any, shall not commence until six (6) months from the date
of termination (or if earlier, the date of death of Executive); provided, however,
that during such six (6) month period, to the extent permitted without the
imposition of an excise tax, the Company shall have the right to make any and
all payments contemplated hereunder to the extent such payments do not exceed
two times the lesser of an amount as determined under Treasury Regulation
1.409A-1(b)(9)(iii)(A)(i); or (ii) the maximum amount that may be taken
into account under a qualified plan pursuant to Section 401(a)(17) of the
Code for the year of Executive’s separation from service; and provided further
that any amounts deferred hereunder shall be paid in a lump-sum amount at the
expiration of such six (6) month period.

 

For
purposes of this Employment Agreement:

 

(a)   “Cause” means (1) any conviction
of, or plea of guilty or nolo contendere to (x) any felony (except for
vehicular-related felonies, other than manslaughter or homicide) or (y) any
crime (whether or not a felony) involving dishonesty, fraud, or breach of
fiduciary duty; (2) willful misconduct by the Executive in connection with
the performance of services to the Company; (3) ongoing failure or refusal
after written notice, other than by reason 

 

4

 

of Disability or ill health,
to faithfully and diligently perform the usual and customary duties of his
employment; (4) failure or refusal after written notice to comply with the
reasonable written policies, standards and regulations of the Company which,
from time to time, may be established and disseminated; or (5) a material
breach by the Executive of any terms related to his employment in any
applicable agreement including this Employment Agreement; provided that
the conduct described in clauses (3) through (5) shall not constitute
Cause unless the Company has provided the Executive with written notice of such
conduct within ninety (90) days of any senior officer of the Company (other
than the Executive) having knowledge of such conduct, and the Executive has
failed to cure such conduct within sixty (60) days of receiving such notice.

 

(b)   “Disability” occurs when the Executive
is entitled to receive payments under the Company’s long-term disability
insurance plan, if one is in effect at the time.  If there is no long term disability insurance
plan in effect, then Disability shall occur when the Executive is unable to
perform his duties hereunder as a result of illness or mental or physical
injury for a period of at least 180 days.

 

(c)   “Good Reason” means (A) one of
the following (each, a  “Resignation
Condition”) has occurred: (i) a material breach by the Company of any
of the covenants in this Employment Agreement, (ii) any material reduction
in the Base Salary, (iii) the relocation of the Executive’s principal
place of employment that would increase the Executive’s one-way commute by more
than seventy-five (75) miles, or (iv) a material diminution in the
Executive’s authority, duties, or responsibilities; (B) the Executive has
given the Company written notice of the occurrence of the Resignation Condition
within ninety (90) days after the Resignation Condition first occurred; (C) the
Company has not cured the Resignation Condition within sixty (60) days of
receiving notice from the Executive required by clause (B) of this
paragraph; and (D) the Executive’s termination of employment for “Good
Reason” occurs on the later of (i) ninety (90) days after the Resignation
Condition first occurred or (ii) 10 days after the sixty (60) day period
if, in the event of (D)(i) or (D)(ii) the Company has not cured such
Resignation Condition.

 

(d)   “Pro Rata Annual Bonus” means an
amount equal to the product of (i) the Executive’s actual Annual Bonus he
would have earned for the full year in which his employment hereunder
terminates based on the Company’s actual performance and bonus plan in effect at
such time and (ii) a fraction, the numerator of which is the number of
days on which the Executive was employed by the Company during such year and
the denominator of which is 365, reduced by any pro rata bonus paid or payable
under the applicable annual incentive plan of the Company for the relevant
performance period in which the termination of employment occurred.  .

 

3.5.  Exclusive Remedy.  The payments under this Agreement which
become due following termination of the Executive’s employment shall constitute
the exclusive payments due the Executive upon a termination of his employment
under this Employment Agreement, except that the Executive will remain entitled
to the provisions of Section 2.6.

 

3.6.  Resignation from All
Positions.  Upon the termination of
the Executive’s employment with the Company for any reason the Executive shall
be deemed to have resigned, as of the date of such termination, from all
positions he then holds as an officer, 

 

5

 

director,
employee and member of the board of directors (and any committee thereof) of
the Company and all of its subsidiaries.

 

3.7.  Cooperation.  Following the termination of the Executive’s
employment with the Company, for any reason, the Executive agrees to cooperate
with the Company upon reasonable request of the Board and to be reasonably
available to the Company with respect to matters arising out of the Executive’s
services to the Company and its subsidiaries. 
The Company shall reimburse the Executive for out-of-pocket expenses
reasonably incurred in connection with such matters, including attorney’s fees;
provided that prior to engaging an attorney, the Executive provided
written notice to the Company of his intention to do so, and the Company
consented to such engagement.  The
Company may, in its discretion, withhold such consent and release the Executive
from his obligations under this Section 3.7.

 

3.8.  No Mitigation.  In no event shall the Executive be obligated
to seek other employment or take any other action to mitigate the amounts or
benefits payable to the Executive under any of the provisions of this
Employment Agreement, and there shall be no offset against amounts or benefits
due the Executive under this Employment Agreement or otherwise on account of
any claim (other than preexisting debts then due in accordance with their
terms) the Company or its affiliates may have against him or any remuneration
or other benefit earned or received by the Executive after any termination of
employment.

 

Section 4.       Unauthorized
Disclosure; Non-Solicitation; Non-Competition; Proprietary Rights.

 

4.1.  Unauthorized Disclosure.  The Executive agrees and understands that in
the Executive’s position with the Company, the Executive has been and will be
exposed to and has and will receive information relating to the confidential
affairs of the Company and its affiliates, including, without limitation,
technical information, intellectual property, business and marketing plans,
strategies, customer information, software, other information concerning the
products, promotions, development, financing, expansion plans, business
policies and practices of the Company and its affiliates and other forms of
information considered by the Company and its affiliates to be confidential and
in the nature of trade secrets (including, without limitation, ideas, research
and development, know-how, formulas, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information and
business and marketing plans and proposals) (collectively, the “Confidential
Information”).  The Executive agrees
that at all times during the Executive’s employment with the Company and
thereafter, the Executive shall not disclose, communicate, or furnish to any
other person any information that the Company and its affiliates have
identified to the Executive in writing as confidential or proprietary
information or that, even without such identification, the Executive knows or
should know to be confidential or proprietary information except for Permitted
Disclosures (as defined below).  This
confidentiality covenant has no temporal, geographical or territorial
restriction.  Upon termination of the Executive’s
employment with the Company, the Executive shall promptly supply to the Company
all property including computers, keys, notes, memoranda, writings, lists,
files, reports, customer lists, correspondence, tapes, disks, cards, surveys,
maps, logs, machines, technical data and any other tangible product or document
which has been produced by, received by or otherwise submitted to the Executive
during or prior to the Executive’s employment with the Company, and any copies
thereof in his (or capable of being 

 

6

 

reduced
to his) possession.  “Permitted
Disclosure” means the disclosure of confidential or proprietary information
that (i) is made with the prior written consent of the Company, (ii) is
required to be disclosed by law or legal process, or (iii) is made in the
course of the Executive’s employment with the Company, but only to the extent
the Executive reasonably deemed such disclosure necessary or appropriate to
perform the Executive’s responsibilities on behalf of the Company or otherwise
advance the interests of the Company.

 

4.2.  Non-Competition.  By and in consideration of the Company
entering into this Employment Agreement and the payments to be made and
benefits to be provided by the Company hereunder, and in further consideration
of the Executive’s exposure to the Confidential Information of the Company and
its affiliates, the Executive agrees that the Executive shall not, (i) for
purposes of any covenant protecting the Rio Tinto Group, one (1) year
following the completion of the Company’s completion of its Initial Public
Offering or (ii) for purposes of covenants protecting the Company’s,
during the Executive’s employment with the Company (whether during the Term or
thereafter) and for a one (1) year period following the termination of the
Executive’s employment, whether such termination is by the Company or by the
Executive (the “Restriction Period”), directly or indirectly, own,
manage, operate, join, control, be employed by, or participate in the
ownership, management, operation or control of, or be connected in any manner
with, including, without limitation, holding any position as a stockholder,
director, officer, consultant, independent contractor, employee, partner, or
investor in, any Restricted Enterprise (as defined below); provided that
in no event shall ownership of two percent (2%) or less of the outstanding
securities of any class of any issuer whose securities are registered under the
Securities Exchange Act of 1934, as amended, standing alone, be prohibited by
this Section 4.2, so long as the Executive does not have, or exercise, any
rights to manage or operate the business of such issuer other than rights as a
stockholder thereof.  For purposes of
this paragraph, “Restricted Enterprise” shall mean any of the Companies listed
on Appendix B.  During the Restriction Period,
upon request of the Company, the Executive shall notify the Company of the
Executive’s then-current employment status.

 

4.3.  Non-Solicitation of
Employees.  During the Restriction
Period, the Executive shall not solicit or assist any person to solicit for
employment or hire any person who is, or within twelve (12) months prior to the
date of such solicitation or hire was, a director, officer or employee of the
Company or any of its affiliates or any member of the Rio Tinto Group, provided
that this Section 4.3 shall not apply to solicitation of a person who
responds to general advertising.

 

4.4.  Non-Solicitation of
Customers.  During the Restriction
Period, the Executive shall not, on behalf of himself or any other Person,

 

(a)   Call upon any of the U.S.
customers or U.S clients of the Company or its affiliates or any member of the
Rio Tinto Group (or potential U.S. customers or U.S. clients whose business the
Executive solicited on behalf of the Company or its affiliates or any member of
the Rio Tinto Group or about whose needs the Executive gained information
during his employment with the Company or with any member of the Rio Tinto
Group) for the purpose of soliciting or providing any product or service that
competes or could compete with any product or service provided by the Company
or its affiliates or any member of the Rio Tinto Group.

 

7

 

(b)   Divert or take away, or
attempt to take away any of the U.S. customers, U.S. clients, businesses or patrons
of the Company or its affiliates or any member of the Rio Tinto Group (or
potential customers or clients whose business the Executive solicited on behalf
of the Company or its affiliates or about whose needs the Executive gained
information during his employment with the Company).

 

4.5.  Extension of Restriction
Period.  The Restriction Period
applicable to any particular restriction shall be tolled for any period during
which the Executive is in breach of that restriction under any of Sections 4.2,
4.3 and 4.4 hereof.

 

4.6.  Blue Pencil.  If any court of competent jurisdiction shall
at any time deem the duration or the geographic scope of any of the provisions
of this Section 4 unenforceable, the other provisions of this
Section 4 shall nevertheless stand and the duration and/or geographic
scope set forth herein shall be deemed to be the longest period and/or greatest
size permissible by law under the circumstances, and the parties hereto agree
that such court shall reduce the time period and/or geographic scope to
permissible duration or size.

 

4.7.  Remedies.  The Executive agrees that any breach of the
terms of this Section 4 would result in irreparable injury and damage to
the Company for which the Company would have no adequate remedy at law; the
Executive therefore also agrees that in the event of said breach or any threat
of breach, the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Executive, without having to prove damages, in addition
to any other remedies to which the Company may be entitled at law or in equity,
including without limitation, the obligation of the Executive to return to the
Company the portion of the Severance Payments paid pursuant to Section 2.2
or 2.3.  The terms of this Section 4.7
shall not prevent the Company from pursuing any other available remedies for
any breach or threatened breach hereof, including, without limitation, the
recovery of damages from the Executive. 
The Executive and the Company further agree that the provisions of the
covenants contained in this Section 4 are reasonable and necessary to
protect the businesses of the Company and its affiliates and any member of the
Rio Tinto Group because of the Executive’s access to Confidential Information
and his material participation in the operation of such businesses.

 

For
purposes of this Employment Agreement, “Rio Tinto Group” means Rio Tinto plc,
Rio Tinto Limited and any other corporation wherever situated in which Rio
Tinto plc or Rio Tinto Limited owns or controls, directly or indirectly, more
than 50% of the shares of stock carrying the right to vote at a general meeting
(or its equivalent) or such corporation.

 

Section 5.       Representations.  The Executive represents and warrants that he
(i) is not subject to any contract, arrangement, policy or understanding,
or to any statute, governmental rule or regulation, that in any way limits
his or its ability to enter into and fully perform his or its obligations under
this Employment Agreement and (ii) is not otherwise unable to enter into
and fully perform his or its obligations under this Employment Agreement.  The Company represents and warrants that this
Employment Agreement will, by its effective date, have been duly authorized,
executed and delivered by the Company.

 

8

 

Section 6.       Withholding;
Taxes.  All amounts paid to the
Executive under this Employment Agreement during or following the Term shall be
subject to any required withholding and other employment taxes imposed by
applicable law.

 

Section 7.       Miscellaneous.

 

7.1.  Amendments and Waivers.  This Employment Agreement and any of the
provisions hereof may be amended, waived (either generally or in a particular instance
and either retroactively or prospectively), modified or supplemented, in whole
or in part, only by written agreement signed by the parties hereto; provided
that the observance of any provision of this Employment Agreement may be waived
in writing by the party that will lose the benefit of such provision as a
result of such waiver.  The waiver by any
party hereto of a breach of any provision of this Employment Agreement shall
not operate or be construed as a further or continuing waiver of such breach or
as a waiver of any other or subsequent breach, except as otherwise explicitly
provided for in such waiver.  Except as
otherwise expressly provided herein, no failure on the part of any party to
exercise, and no delay in exercising, any right, power or remedy hereunder, or
otherwise available in respect hereof at law or in equity, shall operate as a
waiver thereof, nor shall any single or partial exercise of such right, power
or remedy by such party preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.

 

7.2.  Assignment; No
Third-Party Beneficiaries.  This
Employment Agreement, and the Executive’s rights and obligations hereunder, may
not be assigned by the Executive or the Company, and any purported assignment
by the Executive or the Company shall be null and void; provided, however,
the Company is authorized to assign this Employment Agreement to a successor to
substantially all of its assets by merger or otherwise.  Nothing in this Employment Agreement shall
confer upon any person not a party to this Employment Agreement (other than
pursuant to Section 7.6), or the legal representatives of such person, any
rights or remedies of any nature or kind whatsoever under or by reason of this
Employment Agreement.

 

7.3.  Notices.  Unless otherwise provided herein, all
notices, requests, demands, claims and other communications provided for under
the terms of this Employment Agreement shall be in writing.  Any notice, request, demand, claim or other
communication hereunder shall be sent by (i) personal delivery (including
receipted courier service) or overnight delivery service, (ii) facsimile
during normal business hours, with confirmation of receipt, to the number
indicated, (iii) reputable commercial overnight delivery service courier
or (iv) registered or certified mail, return receipt requested, postage
prepaid and addressed to the intended recipient as set forth below:

 

(a)                                  If to the
Executive, to the most recent home address that the Company maintains in its
records for the Executive

 

(b)                               If to the
Company, to:

 

Cloud
Peak Energy Inc.

505 S. Gillette Ave.

 

9

 

Gillette, WY 82716

Attention:
Company Secretary

Facsimile:
(307) 687-6000

Telephone:
(307) 687-6059

 

(c)                                With a copy
(which shall not constitute notice) to:

 

Cadwalader,
Wickersham & Taft LLP

One
World Financial Center

New
York, NY 10281

Attn:  Mike
Ryan, Esq.

Fax: (212) 504-6666

 

All
such notices, requests, consents and other communications shall be deemed to
have been given when received.  Any party
may change its facsimile number or its address to which notices, requests,
demands, claims and other communications hereunder are to be delivered by
giving the other parties hereto notice in the manner then set forth.

 

7.4.  Governing Law.  This
Employment Agreement shall be construed and enforced in accordance with, and
the rights and obligations of the parties hereto shall be governed by, the laws
of the state of Colorado, without giving effect to the conflicts of law principles
thereof.

 

7.5.  Severability.  Whenever possible, each provision or portion
of any provision of this Employment Agreement, including those contained in Section 4
hereof, will be interpreted in such manner as to be effective and valid under
applicable law but the invalidity or unenforceability of any provision or
portion of any provision of this Employment Agreement in any jurisdiction shall
not affect the validity or enforceability of the remainder of this Employment
Agreement in that jurisdiction or the validity or enforceability of this
Employment Agreement, including that provision or portion of any provision, in
any other jurisdiction.  In addition,
should a court or arbitrator determine that any provision or portion of any
provision of this Employment Agreement, including those contained in Section 4
hereof, is not reasonable or valid, either in period of time, geographical
area, or otherwise, the parties hereto agree that such provision should be
interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable or valid.

 

7.6.  Entire Agreement.  This Employment Agreement constitutes the
entire agreement between the parties and supersedes all prior representations,
agreements and understandings (including any prior course of dealings), both
written and oral, between the parties with respect to the subject matter
hereof.

 

7.7.  Counterparts.  This Employment Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.

 

7.8.  Binding Effect.  Subject to Section 7.2, this Employment
Agreement shall inure to the benefit of, and be binding on, the successors and
assigns of each of the parties, 

 

10

 

including,
without limitation, the Executive’s heirs and the personal representatives of
the Executive’s estate and any successor to all or substantially all of the
business and/or assets of the Company. 
Unless the same shall occur by operation of law, the Company shall
require any such successor to assume and agree in writing to perform all
obligations under this Agreement.

 

7.9.  General Interpretive
Principles.  The headings of the
sections, paragraphs, subparagraphs, clauses and subclauses of this Employment
Agreement are for convenience of reference only and shall not in any way affect
the meaning or interpretation of any of the provisions hereof.  Words of inclusion shall not be construed as
terms of limitation herein, so that references to “include”, “includes” and “including”
shall not be limiting and shall be regarded as references to non-exclusive and
non-characterizing illustrations.

 

[SIGNATURE ON FOLLOWING PAGE.]

 

11

 

IN
WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of
the date first written above.

 

	
   

  	
  CLOUD
  PEAK ENERGY INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Todd A. Myers

  	
   

  	
  By:

  	
  /s/
  Colin Marshall

  
	
   

  	
  Todd
  A. Myers

  	
   

  	
   

  	
  Name:
  Colin Marshall

  
	
   

  	
   

  	
  Title:
  President & CEO

  

 

12Exhibit 10.(a)

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

 

 

 

REIMBURSEMENT AGREEMENT

 

dated as of

 

April 23, 2010

 

between

 

GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY,

 

as Borrower,

 

and

 

UBS AG, STAMFORD BRANCH,

 

as Issuing Lender

 

 

 

 

104

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I          DEFINITIONS

  	
  108

  
	
  Section 1.01.

  	
  Defined Terms

  	
  108

  
	
  Section 1.02.

  	
  Terms Generally

  	
  124

  
	
  Section 1.03.

  	
  Accounting Terms

  	
  124

  
	
   

  	
   

  	
   

  
	
  ARTICLE II         LETTER OF CREDIT FACILITY

  	
  125

  
	
  Section 2.01.

  	
  Letter of Credit Facility

  	
  125

  
	
  Section 2.02.

  	
  Termination of the Letter of
  Credit

  	
  129

  
	
  Section 2.03.

  	
  Fees

  	
  129

  
	
  Section 2.04.

  	
  Yield Protection

  	
  130

  
	
  Section 2.05.

  	
  Taxes

  	
  132

  
	
  Section 2.06.

  	
  Payments

  	
  135

  
	
  Section 2.07.

  	
  Evidence of Indebtedness

  	
  135

  
	
   

  	
   

  	
   

  
	
  ARTICLE III       REGULATORY
  ACCOUNT; SURPLUS ACCOUNT; REINSURANCE TRUST ACCOUNT; PRIORITY OF PAYMENTS

  	
  136

  
	
  Section 3.01.

  	
  Regulatory Account

  	
  136

  
	
  Section 3.02.

  	
  Surplus Account of the Borrower

  	
  136

  
	
  Section 3.03.

  	
  Reinsurance Trust Account

  	
  137

  
	
  Section 3.04.

  	
  Procedures for Depositing Cash
  and Crediting Securities to Surplus Account

  	
  137

  
	
  Section 3.05.

  	
  Priority of Payments

  	
  137

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV       REPRESENTATIONS
  AND WARRANTIES

  	
  140

  
	
  Section 4.01.

  	
  Borrower Representations and
  Warranties

  	
  140

  
	
   

  	
   

  	
   

  
	
  ARTICLE V         CONDITIONS

  	
  143

  
	
  Section 5.01.

  	
  Closing Conditions

  	
  143

  
	
  Section 5.02.

  	
  Conditions to Increase the LOC
  Amount

  	
  144

  
	
  Section 5.03.

  	
  Conditions to Extension of the
  Letter of Credit

  	
  145

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI       BORROWER
  COVENANTS

  	
  145

  
	
  Section 6.01.

  	
  Borrower Covenants

  	
  145

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII      COLLATERAL
  AND SECURITY

  	
  154

  
	
  Section 7.01.

  	
  Obligations Secured Hereby

  	
  154

  
	
  Section 7.02.

  	
  Collateral

  	
  155

  
	
  Section 7.03.

  	
  Perfection of Security Interest
  in Collateral

  	
  156

  
	
  Section 7.04.

  	
  Continuing Security Interest,
  Termination

  	
  156

  
	
  Section 7.05.

  	
  Protection of Collateral

  	
  156

  
				

 

105

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

	
  Section 7.06.

  	
  Performance of Obligations

  	
  157

  
	
  Section 7.07.

  	
  Power of Attorney

  	
  157

  
	
  Section 7.08.

  	
  No Pledge of Collateral to Others

  	
  157

  
	
  Section 7.09.

  	
  No Change in Borrower Name, Structure
  or Office

  	
  158

  
	
  Section 7.10.

  	
  Release of Collateral

  	
  158

  
	
  Section 7.11.

  	
  Notice of Exclusive Control

  	
  158

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII     EVENTS OF
  DEFAULT

  	
  158

  
	
  Section 8.01.

  	
  Events of Default

  	
  158

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX       MISCELLANEOUS

  	
  161

  
	
  Section 9.01.

  	
  Notices

  	
  161

  
	
  Section 9.02.

  	
  Waivers; Amendments

  	
  163

  
	
  Section 9.03.

  	
  Survival of Representations and
  Warranties

  	
  163

  
	
  Section 9.04.

  	
  Indemnity

  	
  163

  
	
  Section 9.05.

  	
  Successors and Assigns;
  Participations and Assignments

  	
  163

  
	
  Section 9.06.

  	
  Counterparts; Integration;
  Effectiveness

  	
  165

  
	
  Section 9.07.

  	
  Governing Law; Jurisdiction

  	
  165

  
	
  Section 9.08.

  	
  Right of Setoff

  	
  165

  
	
  Section 9.09.

  	
  Collateral Assignment of Rights

  	
  166

  
	
  Section 9.10.

  	
  Expenses

  	
  166

  
	
  Section 9.11.

  	
  Further Assurances

  	
  166

  
	
  Section 9.12.

  	
  Headings

  	
  166

  
	
  Section 9.13.

  	
  Confidentiality

  	
  166

  
	
  Section 9.14.

  	
  Special Dividend

  	
  167

  
	
  Section 9.15.

  	
  Severability

  	
  167

  
	
  Section 9.15.

  	
  WAIVER OF JURY TRIAL

  	
  167

  
	
  Section 9.16.

  	
  USA Patriot Act

  	
  167

  
	
  Section 9.17.

  	
  Usury Savings Clause

  	
  168

  
	
  Section 9.18.

  	
  Third Party Beneficiary

  	
  168

  

 

106

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

	
  SCHEDULES:

  	
   

  
	
   

  	
   

  
	
  SCHEDULE
  1

  	
  Borrower
  Reporting Documents

  
	
  SCHEDULE
  2

  	
  Dividend
  Formula

  
	
  SCHEDULE
  3

  	
  Utilization
  Fee Matrix

  
	
  SCHEDULE
  4

  	
  Scheduled
  LOC Facility Amount

  
	
  SCHEDULE
  5

  	
  Restricted
  List

  
	
  SCHEDULE
  6

  	
  Financial
  and Actuarial Projections and Modeling Information

  
	
   

  	
   

  
	
  EXHIBITS:

  	
   

  
	
   

  	
   

  
	
  EXHIBIT A

  	
  Draw
  Certification Notice

  
	
  EXHIBIT B

  	
  Investment
  Guidelines

  
	
  EXHIBIT C

  	
  Reinsurance
  Agreement

  
	
  EXHIBIT D

  	
  Form of
  Letter of Credit

  
	
  EXHIBIT E

  	
  Form of
  Assignment and Acceptance

  

 

107

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

This
REIMBURSEMENT AGREEMENT (this “Agreement”), dated as of April 23,
2010 by and between Golden Gate III Vermont Captive Insurance Company, a
special purpose financial captive insurance company incorporated under the laws
of the State of Vermont (the “Borrower”) and UBS AG, Stamford Branch, as
the issuing lender (the “Issuing Lender”).

 

WHEREAS,
the Borrower is an Affiliate of the Ceding Company and a direct Subsidiary of
PLICO;

 

WHEREAS,
the Borrower and the Ceding Company are parties to the Reinsurance Agreement
pursuant to which the Ceding Company cedes, and the Borrower reinsures a
certain block of term life insurance policies written by the Ceding Company;

 

WHEREAS,
the Borrower hereby requests that the Issuing Lender establish a Letter of
Credit for the benefit of the Reinsurance Trustee; and

 

WHEREAS,
in consideration of the issuance by the Issuing Lender of a Letter of Credit,
the Borrower has agreed to reimburse promptly the Issuing Lender for any draws
on the Letter of Credit in accordance with the terms of this Agreement.

 

NOW,
THEREFORE, in consideration of the mutual promises and covenants contained
herein, the Borrower and the Issuing Lender agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.01.          Defined Terms.  As used in this Agreement, the following
terms have the meanings specified below:

 

“Additional
Business” has the meaning assigned to it in Section 6.01(h)(ii).

 

“Administrative
Account” has the meaning assigned to it in Section 3.01(c).

 

“Administrative
Services Agreement” means the Administrative Services Agreement, dated as
of April 23, 2010 between the Ceding Company and the Borrower.

 

“Affiliate”
means, with respect to any Person, another Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.

 

“Affiliated
Services Agreements” means (i) the Administrative Services Agreement,
(ii) the Investment Management Agreement and (iii) the PLC Service
Agreements.

 

“Agreement”
has the meaning assigned to it in the preamble.

 

“Anti-Terrorism
Laws” shall mean any applicable law, rule, regulation, executive order,
decree, ordinance, rule or regulation related to terrorism financing or
money laundering 

 

108

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

including
the USA Patriot Act, The Currency and Foreign Transactions Reporting Act (also
known as the “Bank Secrecy Act”, 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§
1818(s), 1820(b) and 1951-1959), the Trading With the Enemy Act (50 U.S.C.
§ 1 et seq., as amended) and Executive Order 13224 (effective September 24,
2001).

 

“Applicable
Governmental Authority” has the meaning assigned to it in Section 2.04(a).

 

“Approval”
means the prior approval of the Vermont Commissioner in accordance with the
terms of the Licensing Order for the payment by the Borrower of any LOC
Reimbursement Obligation payable hereunder, or any amounts payable with respect
to Surplus Notes of the Borrower.

 

“Assignee”
has the meaning assigned to it in Section 9.05(b).

 

“Attributable
Indebtedness” means, on any date, in respect of any capital lease of any
Person, the capitalized amount thereof that would appear on a balance sheet of
such Person prepared as of such date in accordance with SAP.

 

“Borrower”
has the meaning assigned to it in the preamble.

 

“Borrower
Reporting Documents” has the meaning assigned to it in Section 6.01(d).

 

“Business
Day” means any day that is not a Saturday, Sunday or other day on which
commercial banks in New York, New York, Montpelier, Vermont or Lincoln,
Nebraska are authorized or required by law to remain closed.

 

“Capital
Adequacy” has the meaning assigned to it in Section 2.04(b).

 

“Cash”
means immediately available funds denominated in U.S. Dollars.

 

“Cash
Collateral Account” means an account established by the Issuing Lender and
maintained for its benefit upon the occurrence of an Event of Default, which
shall be funded by any payments made by the Borrower under item Eighth
of the Priority of Payments.

 

“Cash
Equivalents” means commercially reasonable overnight repurchase agreements
fully collateralized by the United States Treasury or any agency of the United
States Government, the obligations of which are backed by the full faith and
credit of the United States Government.

 

“Ceding
Company” means West Coast Life Insurance Company and its successors and
assigns.

 

“Ceding
Company Letter Agreement” means that certain letter agreement, dated as of April 23,
2010 by and between the Ceding Company and the Issuing Lender.

 

“Closing
Conditions” has the meaning assigned to it in Section 5.01.

 

109

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Closing
Date” means the date hereof.

 

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

 

“Collateral”
has the meaning assigned to it in Section 7.02(a).

 

“Company
Action Level Risk Based Capital” has the meaning assigned to it in
Section 8301(12)(A) of Title 8 of the Vermont Statutes Annotated
in effect as of December 31, 2009 and calculated using the risk based
capital factors and formula prescribed by the National Association of Insurance
Commissioners as of December 31, 2009.

 

“Confidentiality
Agreement” has the meaning assigned to it in Section 9.13.

 

“Constituent
Documents” means the constituent documents of an entity, and, when used in
relation to the Borrower, shall also include the Plan of Operation, the
Licensing Order, its Certificate of General Good and its Certificate of
Authority.

 

“Control,”
“Controlled,” or “Controlling” mean, as the context requires, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ability to exercise voting power, by contract or otherwise.

 

“Default”
means any occurrence of any event or condition that constitutes an Event of
Default or that, with the giving of any notice, the passage of time or both,
would, unless cured or waived, be an Event of Default.

 

“Dividend
Amount” has the meaning assigned to it in Schedule 2.

 

“Dividend
Catch-Up Contribution” has the meaning assigned to it in Schedule 2.

 

“Dividend
Declaration Date” has the meaning assigned to it in Schedule 2.

 

“Dividend
Formula” has the meaning assigned to it in Schedule 2.

 

“Dividend
Test” has the meaning assigned to it in Schedule 2.

 

“Dividend
Year” has the meaning assigned to it in Schedule 2.

 

“Dollars”
or “$” refers to lawful money of the United States of America.

 

“Draw
Certification Notice” means a duly certified notification letter, signed by
a Responsible Officer of the Ceding Company in the form attached hereto as Exhibit A.

 

“Drawn
Rate” means LIBOR plus [****]  basis points per
annum.

 

“Early
Termination Event” means any (a) Optional LOC Reduction (whether in
part or in full) or (b) termination of the Letter of Credit by the
Borrower at its option pursuant to Section 2.02(b); provided,
however, that an Early Termination Event shall not include (and no 

 

110

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

Early
Termination Fee shall be payable with respect to) a Regulatory Event or a
Regulation XXX Reduction Event.

 

“Early
Termination Fee” means, with respect to any Early Termination Event
occurring prior to July 1, 2017, an amount, payable in arrears within
forty-five (45) calendar days after such Early Termination Event, equal to the
present value of the Utilization Fees (assuming a Utilization Fee Rate of
[****] basis points per annum, without giving effect to any increase thereto)
from the date of such Early Termination Event through July 1, 2017 that
would have accrued pursuant to Section 2.03(b) if such Early
Termination Event had not occurred, not including any portion of those payments
accrued as of the date of such Early Termination Event; provided, that
the LOC Amount used in the calculation of the Early Termination Fee shall be
equal to the Early Termination LOC Amount; provided, further,
that such present value shall be determined using the discount factor implied
by the mid-point between the forward-bid-and-offered side LIBOR curves for
fixed-for-floating LIBOR swaps of the relevant tenors.  No Early Termination Fee shall be payable
with respect to any Optional LOC Reduction or termination of the Letter of
Credit occurring on or after July 1, 2017.

 

“Early
Termination LOC Amount” means the LOC Amount as of the date of the relevant
Early Termination Event and as in effect thereafter from time to time, and at
any time, for the avoidance of doubt giving effect to any prior reduction in
the LOC Amount or prior failure to increase the LOC Amount, and assuming that,
with respect to the LOC Amount as of any future date (i) the LOC Amount
automatically increases in accordance with Schedule 4 (without regard to the
satisfaction of any Increase Conditions) and (ii) the LOC Amount
automatically decreases in accordance with the terms of the Letter of Credit; provided,
however, that in the event the LOC Amount has not been increased on any
prior Scheduled LOC Amendment Date solely to the extent due to a failure of the
Increase Conditions set forth in Sections 5.02(a) or 5.02(b) to have been
satisfied or waived, such increase in the LOC Amount shall be deemed to have
occurred for purposes of determining the LOC Amount unless such failure was
with respect to an Event of Default under Sections 8.01(d), (e) or (g),
and, with respect only to an Event of Default under Section 8.01(e), such
Event of Default did not have a Material Adverse Effect on the applicable
Scheduled LOC Amendment Date.

 

“Economic
Reserves” has the meaning assigned to it in the Reinsurance Agreement.

 

“Eligibility
Failure” has the meaning assigned to it in Section 2.03(c).

 

“Eligible
Bank” means a lender which is (a) on the list of banks approved by the
NAIC Securities Valuation Office, (b) a “Qualified United States financial
institution” as defined in Section 44-416.08 of the Nebraska Insurance
Code or any applicable amended or successor statute (or, if the Ceding Company
is no longer domiciled in Nebraska, the corresponding statute in its
jurisdiction of domicile) and (c) a “qualified U.S. financial institution”
as defined in Regulation 97-3 s 11 of the Vermont Insurance Code or any
applicable amended or successor statute (or, if the Borrower is no longer
domiciled in Vermont, the corresponding statute in its jurisdiction of
domicile).

 

111

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Embargoed
Person” shall mean any party that (i) is publicly identified on the
most current list of “Specially Designated Nationals and Blocked Persons”
published by OFAC or resides, is organized or chartered, or has a place of
business in a country or territory subject to OFAC sanctions or embargo
programs or (ii) is publicly identified as prohibited from doing business
with the United States under the International Emergency Economic Powers Act,
the Trading With the Enemy Act, or any similar applicable law, rule,
regulation, executive order, decree, ordinance, rule or regulation.

 

“Enhanced
Yield Protection Provisions” has the meaning assigned to it in Section 2.04(e).

 

“Entitlement
Holder” means an “entitlement holder” as defined in Section 8-102(a)(7) of
the UCC.

 

“Entitlement
Order” means an “entitlement order” as defined in Section 8-102(a)(8) of
the UCC.

 

“Events
of Default” has the meaning assigned to it in Section 8.01.

 

“Excluded
Taxes” means, with respect to the Issuing Lender and any other recipient of
any payment to be made by or on account of any obligation of the Borrower
hereunder, (a) income, franchise or similar taxes, in each case, imposed
on (or measured by) its net income by the United States of America, or by the
jurisdiction (or any political subdivision thereof) under the laws of which
such recipient is organized or in which its principal office is located or, in
the case of a jurisdiction (or any political subdivision thereof) that imposes
taxes on the basis of management or control or other concept or principle of
residence, the jurisdiction (or any political subdivision thereof) in which
such recipient is so resident, (b) Taxes imposed by reason of such Person
having a former or present connection with or being engaged in business in the
jurisdiction (or any political subdivision thereof) imposing such Taxes, other
than a connection or business arising or deemed to arise as a result of the
execution and delivery of this Agreement or the performance of any action
provided for or enforcement of any rights hereunder, (c) any branch
profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction in which the Borrower is located and (d) any
withholding tax that is attributable to the Issuing Lender’s failure to comply
with Section 2.05(e).

 

“Extension
Event” has the meaning assigned to it in Section 5.03.

 

“Facility
Maturity Date” means April 1, 2013, unless extended to a later date in
accordance with Section 2.01(c).

 

“Facility
Reserves” has the meaning assigned to it in the Reinsurance Agreement.

 

“Federal
Funds Effective Rate” means for any day, the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day that is a Business Day, the average of the quotations
for the day of such transactions received by the Issuing Lender from three (3) federal
funds brokers of recognized standing selected by it.

 

112

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Fees”
means, collectively, any LOC Structuring Fee, Utilization Fee, Early
Termination Fee and Regulatory Event Fee.

 

“First
Extension Event” has the meaning assigned to it in Section 2.01(c)(i).

 

“First
Remainder Contribution” means, in the event that the First Required
Additional Contribution is less than the First Scheduled Additional
Contribution, the absolute value of the difference between such First Required
Additional Contribution and such First Scheduled Additional Contribution.

 

“First
Required Additional Contribution” means the additional equity contribution,
if any, contributed at least thirty-five (35) calendar days prior to the First
Required Additional Contribution Date, from an Affiliate of the Borrower and
deposited in the Surplus Account, in an amount equal to the lesser of (i) the
First Scheduled Additional Contribution and (ii) the applicable Reduced
Contribution.

 

“First
Required Additional Contribution Date” means April 1, 2012.

 

“First
Scheduled Additional Contribution” means $[****].

 

“Fitch”
means Fitch Ratings.

 

“Funding
Costs” means all losses, costs and expenses incurred by the Issuing Lender
as a result of the Borrower’s failure to pay any LOC Reimbursement Obligation
on or prior to the LOC Reimbursement Date, but only to the extent such losses,
costs or expenses relate to the funding of the related LOC Disbursement.

 

“Governmental
Authority” means any nation or government, any state or other political
subdivision thereof, any agency, authority, instrumentality, regulatory body,
court, administrative tribunal, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers
or functions of or pertaining to government.

 

“Hedge
Counterparty” has the  meaning
assigned to it in Section 9.13.

 

“Increase
Conditions” has the meaning assigned to it in Section 5.02.

 

“Indebtedness”
means, as to any Person at a particular time, without duplication, all of the
following, whether or not included as indebtedness or liabilities in accordance
with SAP:

 

(a)           all obligations of such
Person for borrowed money and all obligations of such Person evidenced by
bonds, debentures, notes, loan agreements or other similar instruments;

 

(b)           all direct or contingent
obligations of such Person arising under letters of credit (including standby
and commercial), bankers’ acceptances, bank guaranties, surety bonds and
similar instruments;

 

113

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

(c)           all obligations of such
Person to pay the deferred purchase price of property or services (other than
trade accounts payable in the ordinary course of business);

 

(d)           indebtedness (excluding
prepaid interest thereon) secured by a Lien on property owned or being
purchased by such Person (including indebtedness arising under conditional
sales or other title retention agreements), whether or not such indebtedness
shall have been assumed by such Person or is limited in recourse;

 

(e)           capital leases of which such
Person is the lessee; and

 

(f)            all guarantees of such
Person in respect of any of the foregoing.

 

For
all purposes hereof, the Indebtedness of any Person shall include the
Indebtedness of any partnership or joint venture (other than a joint venture
that is itself a corporation or limited liability company) in which such Person
is a general partner or a joint venturer, unless such Indebtedness is expressly
made non-recourse to such Person.  The
amount of any capital lease as of any date shall be deemed to be the amount of
Attributable Indebtedness in respect thereof as of such date.  For the avoidance of doubt, commitments or
obligations in connection with any insurance policies, reinsurance agreements,
retrocession agreements, guaranteed investment contracts and funding agreements
shall not constitute Indebtedness.

 

“Indemnified
Taxes” means Taxes other than Excluded Taxes.

 

“Indemnitee”
has the meaning assigned to it in Section 9.04.

 

“Independent
Actuary” means Milliman USA’s Chicago office.

 

“Independent
Director” means a member of the Board of Directors of the Borrower who
(i) shall not have been at the time of such Person’s appointment or at any
time during the preceding five (5) years, and shall not be as long as such
Person is a director of the Borrower, (a) a director, officer, employee,
partner, shareholder, member, manager or Affiliate of the Borrower, (b) a
supplier to the Borrower, (c) a Person controlling or under common control
with any partner, shareholder, member, manager, Affiliate or supplier of the
Borrower or (d) a member of the immediate family of any director, officer,
employee, partner, shareholder, member, manager, Affiliate or supplier of the
Borrower; (ii) has prior experience as an independent director for a
corporation or limited liability company whose charter documents required the
unanimous consent of all independent directors thereof before such corporation
or limited liability company could consent to the institution of bankruptcy or
insolvency proceedings against it or could file a petition seeking relief under
any applicable federal or state law relating to bankruptcy and (iii) has
at least three (3) years of employment experience with one or more
entities that provide, in the ordinary course of their respective businesses,
advisory, management or placement services to issuers of securitization or
structured finance instruments, agreements or securities.

 

“Initial
LOC Amount” means $505,000,000.

 

“Instrument”
means an “Instrument” as defined in Section 9-102(a)(47) of the UCC.

 

114

 

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Investment
Guidelines” means those certain investment guidelines attached hereto as Exhibit B.

 

“Investment
Management Agreement” means that certain investment management agreement,
dated as of April 23, 2010, between PLC and the Borrower.

 

“Issuing
Lender” has the meaning assigned to it in the preamble.

 

“Lender
Counterparty” shall mean a counterparty to a swap or similar hedging
transaction with the Issuing Lender related to this Agreement.

 

“Letter of Credit” has the meaning assigned to it in Section 2.01(a).

 

“LIBOR”
means, for any date, a rate determined in accordance with the following
provisions:

 

(a)           LIBOR for such date shall equal the
offered rate for deposits in U.S. dollars having a three-month maturity, as
determined by the Issuing Lender, which appears on the LIBOR Reference Page as
of approximately 11:00 a.m. (London time) on the applicable LIBOR
Determination Date.

 

(b)           If, on any LIBOR Determination Date,
such rate does not appear on the LIBOR Reference Page, then LIBOR shall be
determined by the Issuing Lender on the basis of the offered quotations of the
Reference Bank to prime banks in the London interbank market for Eurodollar
deposits having a three-month maturity, as determined by the Issuing Lender, by
reference to quotations as of approximately 11:00 a.m. (London time) on
such LIBOR Determination Date.

 

(c)           If the Issuing Lender is unable to
determine LIBOR in accordance with the provisions set forth above, LIBOR with
respect to such date shall be deemed to be the Alternate Base Rate plus one and
one-half percent (1.50%) for such period.

 

For
purposes of clause (a) above, all percentages resulting from such
calculations shall be rounded, if necessary, to the nearest one hundred
thousandth of a percentage point and for the purposes of
clause (b) above, all percentages resulting from such calculations
shall be rounded, if necessary, to the nearest one thirty-second (1/32) of a percentage
point.  As used in this definition of
LIBOR:

 

“Alternate Base Rate” means, for any day, a
rate per annum (rounded upward, if necessary, to the nearest one one-hundredth
(1/100) of a percentage point) equal to the greater of (a) the Base Rate
in effect on such day and (b) the Federal Funds Effective Rate in effect
on such day plus one-half percent (0.50%). 
If the Issuing Lender shall have determined (which determination shall
be conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Issuing Lender to obtain sufficient quotations in accordance with the terms of
the definition thereof, the Alternate Base Rate shall be determined without
regard to clause (b) of the preceding sentence until the circumstances
giving rise to such inability no longer exist. 
Any change in the Alternate Base Rate due to a change in the Base Rate
or the Federal Funds Effective Rate shall be effective on 

 

115

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

the
effective date of such change in the Base Rate or the Federal Funds Effective
Rate, respectively.

 

“Base Rate” means, for any day, a rate per annum that is
equal to the corporate base rate of interest established generally for its
customers by the Issuing Lender from time to time; each change in the Base Rate
shall be effective on the date such change is effective.  The corporate base rate is not necessarily
the lowest rate charged by the Issuing Lender to its customers.

 

“LIBOR Determination Date” means, for any
date, the second London Banking Day prior to such date.

 

“LIBOR Reference Page” means Reuters Page LIBOR01
(or such other page as may replace such Reuters Page LIBOR01 for
purposes of displaying comparable rates).

 

“London Banking Day” means a day on which
commercial banks are open for business (including dealings in foreign exchange
and foreign currency deposits) in London.

 

“Reference Bank” means the principal London
branch of UBS AG.

 

“Licensing
Order” means the Licensing Order issued by the Vermont Department to the
Borrower dated April 15, 2010.

 

“Lien”
means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge, or preference, priority or
other security interest or preferential arrangement in the nature of a security
interest of any kind or nature whatsoever (including any conditional sale or
other title retention agreement, and any financing lease having substantially
the same economic effect as any of the foregoing).

 

“LOC
Amount” means the aggregate issued and outstanding face amount of the
Letter of Credit at any time and from time to time, including any adjustment
pursuant to Section 2.01, but excluding, for the avoidance of
doubt, any amounts drawn thereon for which such face amount is not reduced.

 

“LOC
Commitment” has the meaning assigned to it in Section 2.01(a)(i).

 

“LOC
Disbursement” means a payment made by the Issuing Lender pursuant to the
Letter of Credit.

 

“LOC
Reimbursement Date” has the meaning assigned to it in Section 2.01(f)(i).

 

“LOC
Reimbursement Obligation” has the meaning assigned to it in Section 2.01(f)(i).

 

“LOC
Structuring Fee” has the meaning assigned to it in Section 2.03(a).

 

116

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Market
Value” means (i) in the case of Cash and Cash Equivalents, the face
amount thereof; and (ii) in the case of any security or other instrument,
the fair market value thereof.

 

“Material
Adverse Effect” means a material adverse effect on (i) the business,
operations, assets, property or financial condition of the Borrower,
(ii) the Reinsured Policies (iii) the ability of the Issuing Lender
to enforce its rights and remedies under this Agreement and the other
Transaction Document, (iv) the ability of the Borrower to perform any of
its obligations under this Agreement or any other Transaction Documents or
(v) the binding nature, validity or enforceability of this Agreement or
any other Transaction Document other than the PLC Service Agreements.

 

“Maximum
Lawful Amount” has the meaning assigned to it in Section 9.17.

 

“Modified
Total Adjusted Capital” has the meaning assigned to the term “Total
Adjusted Capital”  in
Section 8301(15) of Title 8 of the Vermont Statutes Annotated in
effect as of December 31, 2009; provided that (i) any net
positive capital and surplus benefit relating to the deferred tax asset, (ii) any
asset valuation reserves and (iii) the treatment of any amount of the
Letter of Credit in excess of the Facility Reserves as an admitted asset, shall
be excluded from such calculation.

 

“Moody’s”
means Moody’s Investors Service, Inc.

 

“NAIC”
means the National Association of Insurance Commissioners.

 

“Nebraska
Director” means the Director of Insurance in the State of Nebraska or any
successor or subsequent domestic insurance regulator of the Ceding Company.

 

“Nebraska
Insurance Code” means the insurance laws and regulations of the State of
Nebraska.

 

“Non-Extension
Notice” means a written notice from the Issuing Lender to the Borrower and
the Reinsurance Trustee, as beneficiary of the Letter of Credit, in the form of
Schedule B to the Letter of Credit.

 

“OFAC”
means the U.S. Treasury Department’s Office of Foreign Assets Control.

 

“Optional
LOC Reduction” has the meaning assigned to it in Section 2.01(d).

 

“Optional
LOC Reduction Amount” has the meaning assigned to it in Section 2.01(d).

 

“Other
Letter of Credit Transaction” means one or more letter of credit
transactions arranged by the Issuing Lender whether before or after the Closing
Date with an insurance company or reinsurer for the primary purpose of
financing statutory reserves established in connection with life insurance
policies that exceed the economic reserves required in connection with such
life insurance policies.

 

117

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Other
Taxes” means any and all present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise in respect to, this Agreement.

 

“Participant”
has the meaning assigned to it in Section 9.05(e).

 

“Payment
Restrictions” has the meaning assigned to it in Section 3.05(g).

 

“PDF”
means, when used in reference to notices via electronic mail attachment,
portable document format or a similar electronic file format.

 

“Permitted
Liens” means (i) Liens for Taxes, assessments or governmental charges
or claims not delinquent or being contested in good faith and by appropriate
proceedings and for which reserves adequate under SAP are being maintained;
(ii) deposits or pledges to secure obligations under workers’
compensation, social security or similar laws, or under unemployment insurance;
(iii) mechanics’, workers’, materialmen’s, carriers’ or other like Liens
arising in the ordinary course of business with respect to obligations that are
not due or that are being contested in good faith; (iv) Liens granted
under repurchase and reverse repurchase agreements and derivatives entered into
in the ordinary course of business as permitted under this Agreement or any
other Transaction Document; (v) clearing and settlement Liens on
securities and other investment properties incurred in the ordinary course of
clearing and settling transactions in such assets and holding them with
custodians; (vi) insurance regulatory Liens; (vii) judgment Liens in
respect of judgments that are being contested in good faith and by appropriate
proceedings and for which reserves adequate under SAP are being maintained; and
(viii) Liens contemplated by this Agreement and any other Transaction
Document, including the Reinsurance Trust Account.

 

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

 

“PLICO”
means Protective Life Insurance Company, a Tennessee stock insurance company,
and its successors and assigns.

 

“PLC”
means Protective Life Corporation, a Delaware corporation, and its successors
and assigns.

 

“PLC
Guarantee” means that certain letter agreement, dated as of April 23,
2010, between PLC and the Issuing Lender.

 

“PLC
Service Agreements” means collectively (i) the Amendment to the
Agreement for Administrative Services, dated as of April 23, 2010, between
PLC and the Borrower, (ii) the Agreement for Legal Services, dated as of April 23,
2010, between PLC and the Borrower and (iii) the Agreement for Data
Processing Programming Services, dated as of April 23, 2010, between PLC
and the Borrower.

 

“Present
Value” has the meaning assigned to it in Schedule 2.

 

118

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Prime
Rate” means a rate per annum equal to the prime rate of interest announced
from time to time by UBS AG, Stamford Branch (which is not necessarily the
lowest rate charged to any customer), changing when and as such prime rate
changes.

 

“Priority
of Payments” has the meaning assigned to it in Section 3.05.

 

“Reduced Contribution” means, at any date of determination, the
excess of [****]   percent ([****]%) of the Borrower’s Company
Action Level Risk Based Capital over the Borrower’s Modified Total Adjusted
Capital, each, determined as of the end of the most recent calendar quarter.

 

“Regulation XXX Reduction Event” means any (a) Optional LOC
Reduction (whether in part or in full) or (b) termination of the Letter of
Credit by the Borrower at its option pursuant to Section 2.02(b),
in either case following any change in applicable insurance or tax laws, rules,
regulations or statutory accounting principles (including, and in each case, as
applicable, interpretations by any Governmental Authority thereof) in each case
that results in a decrease in excess of [****]  percent
([****]%) in the Statutory Reserves in excess of the Economic Reserves for the
Reinsured Policies; provided, that such change is applicable (or would
be applicable to any insurer in similar circumstances to the Ceding Company) on
a general basis to insurance companies in the relevant jurisdiction and is not
solely and specifically applicable to the Ceding Company or, in the case of a
permitted practice, such permitted practice is available to or has been or is
being utilized by other insurers in the relevant jurisdiction.

 

“Regulatory
Account” has the meaning assigned to it in Section 3.01(a).

 

“Regulatory Event” means any (a) Optional LOC Reduction
(whether in part or in full) or (b) termination of the Letter of Credit by
the Borrower at its option pursuant to Section 2.02(b), in either
case following (i) any change in applicable insurance or tax laws, rules,
regulations or statutory accounting principles (including, and in each case, as
applicable, interpretations by any Governmental Authority thereof) in each case
that limits or prohibits in any material respect the federal income tax
deduction in respect of the Statutory Reserves in excess of Economic Reserves,
or (ii) any change in the credit for reinsurance that is permitted to be
taken by the Ceding Company in its jurisdiction of domicile or in any other
jurisdiction in which it files its statutory financial statements, in each case
that results in a decrease in excess of [****]  percent
([****]%) in the amount of credit for reinsurance otherwise provided to the
Ceding Company in connection with the Reinsurance Agreement; provided,
that such change is applicable (or would be applicable to any insurer in
similar circumstances to the Ceding Company) on a general basis to insurance
companies in the relevant jurisdiction and is not solely and specifically
applicable to the Ceding Company or, in the case of a permitted practice, such
permitted practice is available to or has been or is being utilized by other
insurers in the relevant jurisdiction; provided, further, that a
Regulatory Event shall not include a Regulation XXX Reduction Event.

 

“Regulatory Event Fee” means, with respect to (a) a
Regulatory Event (but not including any Regulation XXX Reduction Event)
occurring prior to July 1, 2017, an amount, payable in arrears within
forty-five (45) calendar days after such Regulatory Event, equal to [****]  percent ([****]%) of the then-current Early Termination Fee
and (b) a Regulation XXX 

 

119

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

Reduction
Event occurring prior to July 1, 2017, an amount, payable in arrears
within forty-five (45) calendar days after such Regulation XXX Reduction Event,
equal to [****]  percent ([****]%) of the
then-current Early Termination Fee.  No
Regulatory Event Fee shall be payable with respect to any Optional LOC
Reduction or termination of the Letter of Credit occurring on or after July 1,
2017.

 

“Reinsurance
Agreement” means that certain reinsurance agreement dated as of the date
hereof by and between the Borrower and the Ceding Company attached hereto as Exhibit C.

 

“Reinsurance
Trust Account” means a trust account established and maintained in
accordance with the Reinsurance Trust Agreement.

 

“Reinsurance
Trust Agreement” means that certain reinsurance trust agreement, dated as
of April 23, 2010, among the Reinsurance Trustee, the Borrower and the
Ceding Company.

 

“Reinsurance
Trustee” means The Bank of New York Mellon in its capacity as trustee
pursuant to the Reinsurance Trust Agreement, and any successor hereunder.

 

“Reinsured
Policies” has the meaning assigned to it in the Reinsurance Agreement.

 

“Related
Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors of such Person and such Person’s Affiliates.

 

“Required
Additional Contribution” means any or all of the First Required Additional
Contribution, the Second Required Additional Contribution and the Third
Required Additional Contribution.

 

“Required
Additional Contribution Date” means, as applicable, the First Required
Additional Contribution Date, the Second Required Additional Contribution Date
or the Third Required Additional Contribution Date.

 

“Required
Participants” means, at any date of determination, more than fifty percent
(50%) of Participants.

 

“Responsible
Officer” of a Person means the chief executive officer, president, chief
financial officer, principal accounting officer, treasurer, assistant treasurer
or controller of such Person.  Any
document delivered hereunder that is signed by a Responsible Officer of the
Borrower or the Ceding Company shall be conclusively presumed to have been
authorized by all necessary corporate, partnership and other action on the part
of the Borrower or the Ceding Company, as the case may be, and such Responsible
Officer shall be conclusively presumed to have acted on behalf of the Borrower
or the Ceding Company, as the case may be.

 

120

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Restricted
List” means the list set forth on Schedule 5 (as such Schedule 5
may be amended, modified or supplemented by the Borrower from time to time, and
at any time, by written notice to the Issuing Lender).

 

“S&P”
means Standard & Poor’s Ratings Services, a Standard & Poor’s
Financial Services LLC business.

 

“SAP”
means the accounting procedures and practices prescribed or permitted by the
applicable insurance regulatory authority, consistently applied.

 

“Scheduled
LOC Amendment Date” means each Scheduled LOC Amendment Date set forth in Schedule
4.

 

“Scheduled
LOC Facility Amount” means, for each Scheduled LOC Amendment Date, the
amount set forth in the applicable column of Schedule 4.

 

“Scheduled
LOC Increase” has the meaning assigned to it in Section 2.01(b).

 

“Scheduled
LOC Increase Amount” means, for the applicable period, each Scheduled LOC
Increase Amount set forth in Schedule 4.

 

“Second
Extension Event” has the meaning assigned to it in Section 2.01(c)(ii).

 

“Second
Remainder Contribution” means, in the event that the Second Required
Additional Contribution is less than the sum of (i) the Second Scheduled
Additional Contribution and (ii) the First Remainder Contribution, the
absolute value of the difference between such Second Required Additional
Contribution and such sum of (a) the Second Scheduled Additional
Contribution and (b) the First Remainder Contribution.

 

“Second
Required Additional Contribution” means the additional equity contribution,
if any, contributed at least thirty-five (35) calendar days prior to the Second
Required Additional Contribution Date, from an Affiliate of the Borrower and
deposited in the Surplus Account, in an amount equal to the lesser of:

 

(a)           the sum of (i) the Second
Scheduled Additional Contribution and (ii) the First Remainder
Contribution, if any, and

 

(b)           the applicable Reduced Contribution.

 

“Second
Required Additional Contribution Date” means April 1, 2013.

 

“Second
Scheduled Additional Contribution” means $[****].

 

“Secured
Obligations” has the meaning assigned to it in Section 7.01.

 

“Securities
Account” has the meaning assigned to it in Section 8-501 of the UCC.

 

121

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Securities
Account Control Agreement” means that certain securities account control
agreement, dated as of April 23, 2010, by and among the Borrower, the
Issuing Lender and the Securities Intermediary.

 

“Securities
Intermediary” means The Bank of New York Mellon acting as securities
intermediary (as defined in Section 8-102(a)(14) of the UCC) with respect
to the Surplus Account.

 

“Solvent”
means that (i) the assets of the Borrower are greater than the total
amount of liabilities, including contingent liabilities, of the Borrower
determined in accordance with SAP as of the Closing Date; (ii) the
Borrower does not intend to, and does not believe that it will, incur debts or
liabilities beyond its ability to pay as such debts and liabilities mature; and
(iii) the Borrower is not engaged in a business or transaction, and is not
about to engage in a business or transaction, for which the Borrower’s
property, as applicable, would constitute unreasonably insufficient capital.

 

“Special
Dividend” has the meaning assigned to it in Section 9.14.

 

“Special
Payment” has the meaning assigned to it in Section 9.14.

 

“Special
Tax Allocation Agreement” means the Special Tax Allocation Agreement, dated
as of April 23, 2010, by and between the Borrower and PLC.

 

“Statutory
Reserves” has the meaning assigned to it in the Reinsurance Agreement.

 

“Subsidiary”
of a Person means a corporation, partnership, joint venture, limited liability
company or other business entity of which a majority of the shares of
securities or other interests having ordinary voting power for the election of
directors or other governing body (other than securities or interests having
such power only by reason of the happening of a contingency) are at the time
beneficially owned, or the management of which is otherwise controlled,
directly, or indirectly through one or more intermediaries, or both, by such
Person.

 

“Surplus
Account” has the meaning assigned to it in Section 3.02(a).

 

“Surplus
Notes” has the meaning assigned to it in Section 6.01(bb).

 

“Taxes”
means any and all present or future taxes, levies, imposts, duties, deductions,
charges or withholdings imposed by any Governmental Authority including
penalties, interest and additions to tax.

 

“Tax
Sharing Agreement” means that certain Amendment and Clarification of the
Tax Allocation Agreement dated January 1, 1988, effective as of January 1,
1988, by and between PLC and its Subsidiaries.

 

“Third
Party Expenses” means expenses relating to (i) services provided by
Affiliates of the Borrower, including administrative services, investment
management services, data processing services, legal services and any other
amounts incurred under any of the 

 

122

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

Affiliated
Services Agreements and (ii) third party services including accounting
services, actuarial services, legal services, management of the Borrower,
custodial or trustee services and wages for, and reimbursable expenses of any,
outside director of the Borrower, pursuant to the Reinsurance Agreement, and
any other amounts incurred under any Third Party Service Agreement.

 

“Third
Party Service Agreements” means (i) the Captive Management Agreement,
dated as of April 23, between the Borrower and Marsh Management Services, Inc.,
(ii) the Reinsurance Trust Agreement and (iii) the Custody Agreement,
dated as of April 23, between the Borrower and The Bank of New York
Mellon.

 

“Third
Remainder Contribution” means, in the event that the Third Required Additional
Contribution is less than the sum of (i) the Third Scheduled Additional
Contribution and (ii) the Second Remainder Contribution, the absolute
value of the difference between such Third Required Additional Contribution and
such sum of (a) the Third Scheduled Additional Contribution and (b) the
Second Remainder Contribution.

 

“Third
Required Additional Contribution” means the additional equity contribution,
if any, contributed at least thirty-five (35) calendar days prior to the Third
Required Additional Contribution Date, from an Affiliate of the Borrower and
deposited in the Surplus Account, in an amount equal to the lesser of:

 

(a)           the sum of (i) the Third
Scheduled Additional Contribution and (ii) the Second Remainder
Contribution, if any, and

 

(b)           the applicable Reduced Contribution.

 

“Third
Required Additional Contribution Date” means April 1, 2014.

 

“Third
Scheduled Additional Contribution” means $[****].

 

“Total
Adjusted Capital” has the meaning assigned to it in
Section 8301(15) of Title 8 of the Vermont Statutes Annotated in
effect as of December 31, 2009.

 

“Transaction
Documents” means collectively, this Agreement (including the Investment
Guidelines), the Letter of Credit, the Reinsurance Agreement, the Reinsurance
Trust Agreement, the Ceding Company Letter Agreement, the Affiliated Services
Agreements, the Third Party Service Agreements, the PLC Guarantee, the
Aggregate Stop Loss Indemnity Reinsurance Agreement, dated as of April 23,
2010, by and between the Ceding Company and PLICO, the Catastrophic Loss
Capital Support Agreement, dated as of April 23, 2010, by and between PLC
and the Borrower, the Investment Management Agreement, the Tax Sharing
Agreement, Special Tax Allocation Agreement, the Securities Account Control
Agreement, the Transaction Expense Support Agreement, and the Constituent
Documents of the Borrower, as the same made be amended, modified or
supplemented from time to time.

 

“Transaction
Expense Support Agreement” means that certain transaction expense support
agreement dated as of April 23, 2010 between the Borrower and PLC.

 

123

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

“Transactions”
means the execution, delivery and performance by the parties to this Agreement
and the other Transaction Documents of the Transaction Documents and all
certificates and other documents contemplated in connection therewith.

 

“UCC”
means the Uniform Commercial Code as in effect in the State of New York.

 

“USA
Patriot Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
(Title III of Pub. L. 107-56).

 

“Utilization
Fee” means, on any date of determination, an amount equal to the product of
(i) the daily weighted average of the LOC Amount during the immediately
prior calendar quarter and (ii) the daily weighted average of the
applicable Utilization Fee Rate as indicated in the Utilization Fee Matrix
during the immediately prior calendar quarter (including the Withdrawn Rating
Fee Rate included therein, if applicable), attached hereto as Schedule 3,
calculated on the basis of a three hundred sixty (360) day year.

 

“Vermont
Commissioner” means the commissioner of the Vermont Department.

 

“Vermont
Department” means the department of banking, insurance, securities and
health care administration in the State of Vermont.

 

“Vermont
Insurance Code” means the insurance laws and regulations of the State of
Vermont.

 

“Withdrawn
Rating Fee Rate” has the meaning assigned to it in Schedule 3.

 

Section 1.02.          Terms Generally.  The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and “including”
shall be deemed to be followed by the phrase “without limitation.”  The word “will” shall be construed to have
the same meaning and effect as the word “shall.”  Unless the context requires otherwise
(i) any reference herein to any Person shall be construed to include such
Person’s successors and permitted assigns, (ii) the words “herein,” “hereof”
and “hereunder,” and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof,
(iii) the word “from” in connection with a time period means “from and
including” and the word “until” means “to but not including”, (iv) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (v) all references to agreements, documents, guidelines
or instruments, laws, rules, regulations or orders shall be to the same as
amended, modified or supplemented from time to time, and at any time, except as
otherwise provided herein.

 

Section 1.03.          Accounting Terms.  Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with SAP, as in effect from time to time, with respect to entities
that prepare SAP financial statements.

 

124

 

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

ARTICLE II

 

LETTER OF
CREDIT FACILITY

 

Section 2.01.          Letter of Credit Facility.

 

(a)           Letter of Credit.  The Issuing Lender agrees, on the terms and
conditions hereinafter set forth and subject to the prior satisfaction (or
waiver by the Issuing Lender) of the Closing Conditions, to issue and deliver
to the Reinsurance Trustee on the Closing Date an irrevocable and
non-transferable standby letter of credit hereunder, in the form of Exhibit D
(the “Letter of Credit”), at the request of the Borrower as applicant
therefor, for the benefit of the Reinsurance Trustee as beneficiary thereof,
and for deposit in the Reinsurance Trust Account, with a face amount equal to
the Initial LOC Amount.

 

(i)            The obligation of the Issuing Lender
to (A) issue the Letter of Credit, (B) increase the LOC Amount
pursuant to Section 2.01(b) and (C) extend the Facility
Maturity Date pursuant to Section 2.01(c), on and subject to the
terms and conditions hereof is herein called the “LOC Commitment.”

 

(ii)           Unless previously terminated in
accordance with Section 2.02, the LOC Commitment shall terminate on
the Facility Maturity Date, as it may be extended from time to time in
accordance with Section 2.01(c). 
The Letter of Credit shall be denominated in Dollars.

 

(b)           Letter of Credit Increases.  At least five (5) calendar days prior to
the Scheduled LOC Amendment Dates occurring on April 1, 2011, April 1,
2012 and April 1, 2013, the Borrower shall request that the Issuing Lender
amend the Letter of Credit and increase the LOC Amount by an amount equal to
the applicable Scheduled LOC Increase Amount (each, a “Scheduled LOC
Increase”).  Upon the Issuing Lender’s
receipt of such written request and subject to the prior satisfaction (or
waiver by the Issuing Lender) of the Increase Conditions, a Scheduled LOC
Increase shall become effective as of the applicable Scheduled LOC Amendment
Date.  In connection with any Scheduled
LOC Increase, the Issuing Lender shall amend the Letter of Credit to increase
the LOC Amount by the applicable Scheduled LOC Increase Amount.  For the avoidance of doubt, if the Increase
Conditions have not been satisfied (or waived by the Issuing Lender) on any
such Scheduled LOC Amendment Date, the LOC Amount shall not be increased above
the then-current LOC Amount.

 

(c)           Facility Maturity Date.  The Facility Maturity Date shall be extended
to a later date in accordance with the following terms and conditions:

 

(i)            If (A) at least thirty-five
(35) calendar days prior to the First Required Additional Contribution Date,
the First Required Additional Contribution has been made and the Borrower has
provided notice of such contribution to the Issuing Lender in accordance with Section 6.01(dd)
(the “First Extension Event”) and (B) no event that constitutes an
Event of Default pursuant to Sections 8.01(l) or (m) shall
have occurred and be continuing and the Borrower shall have notified the
Issuing Lender in writing to that effect, then the Facility 

 

125

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

Maturity
Date shall be extended to April 1, 2015. 
Any such extension of the Facility Maturity Date shall automatically
become effective on the First Required Additional Contribution Date, unless the
Reinsurance Trustee has received a Non-Extension Notice from the Issuing Lender
before March 1, 2012, and shall remain effective until the Facility
Maturity Date is further extended or the Letter of Credit is terminated
pursuant to the terms of this Agreement. 
The Issuing Lender agrees not to issue any such Non-Extension Notice if
the Extension Conditions have been fully satisfied.

 

(ii)           If (A) the First Extension Event
has occurred, (B) at least thirty-five (35) calendar days prior to the
Second Required Additional Contribution Date, the Second Required Additional
Contribution has been made, (C) at least thirty-five (35) calendar days
prior to the Third Required Additional Contribution Date, the Third Required
Additional Contribution has been made and the Borrower has provided notice of
such Second Required Additional Contribution and Third Required Additional
Contribution to the Issuing Lender in accordance with Section 6.01(dd)
(the “Second Extension Event”) and (D) no event that constitutes an
Event of Default pursuant to Sections Section 8.01(l) or (m) shall
have occurred and be continuing and the Borrower shall have notified the
Issuing Lender in writing to that effect, then the Facility Maturity Date shall
be extended to April 1, 2018.  Any
such extension of the Facility Maturity Date shall automatically become
effective on the Third Required Additional Contribution Date, unless the
Reinsurance Trustee has received a Non-Extension Notice from the Issuing Lender
before March 1, 2014, and shall remain effective until the Letter of
Credit is terminated pursuant to the terms of this Agreement.  The Issuing Lender agrees not to issue any
such Non-Extension Notice if the Extension Conditions have been fully
satisfied.

 

(d)           Optional LOC Reductions.  The Borrower shall, subject to the prior
written consent of the Ceding Company and the Reinsurance Trustee, have the
right at any time to reduce, upon fifteen (15) calendar days prior written
notice to the Issuing Lender, the LOC Amount (an “Optional LOC Reduction”).  Upon (A) the Issuing Lender’s receipt of
such notice and expiration of such fifteen (15) calendar day notice period and (B) the
Borrower’s payment to the Issuing Lender of any applicable Early Termination
Fee, then an Optional LOC Reduction shall immediately become effective.  In connection with any Optional LOC
Reduction, the Issuing Lender shall immediately amend the Letter of Credit to
reduce the LOC Amount to the corresponding amount requested by the Borrower and
consented to by the Reinsurance Trustee, (the “Optional LOC Reduction Amount”)
and the Borrower shall request that the Reinsurance Trustee countersign such
amendment.  Any Optional LOC Reduction
shall remain effective until the LOC Amount is further amended in accordance
with the terms hereof or the Letter of Credit is terminated pursuant to the
terms of this Agreement.

 

(e)           Termination of LOC Commitment.  The LOC Commitment of the Issuing Lender
shall terminate upon any termination in full of the Letter of Credit in
accordance with Section 2.02(a).

 

126

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

(f)            Reimbursement of LOC
Disbursements; Funding Costs.

 

(i)            If the Issuing Lender shall make any
LOC Disbursements in respect of the Letter of Credit, the Borrower
unconditionally agrees to reimburse the Issuing Lender for the full amount of
such LOC Disbursements (each, an “LOC Reimbursement Obligation”), on the
Business Day immediately following each date on which, and to the fullest
extent that, funds become available in accordance with the Priority of Payments
and the Payment Restrictions (each such date, an “LOC Reimbursement Date”).  The Borrower agrees to pay to the Issuing
Lender all Funding Costs on the LOC Reimbursement Date.

 

(ii)           To the extent that any LOC
Reimbursement Obligation is owing at such time as the Borrower’s Total Adjusted
Capital is less than [****]  percent
([****]%) of its Company Action Level Risk Based Capital, the Borrower shall
use its best efforts to obtain an Approval from the Vermont Commissioner for
the payment by the Borrower of such LOC Reimbursement Obligation as promptly as
practicable following the applicable LOC Disbursement.  In the event any such Approval has not been
obtained for such payment on or prior to the date on which such amount is first
due, the Borrower shall continue to use its best efforts to obtain such
Approval as promptly as practicable thereafter; provided, that the
Borrower shall not be required to amend the Transaction Documents in order to
obtain such Approval.

 

(g)           Obligations Absolute.  Notwithstanding anything herein to the contrary,
the Issuing Lender’s obligation to make payment of any draw on the Letter of
Credit in strict compliance with its terms will not be subject to any
conditions or qualifications not expressly included and set forth in the Letter
of Credit, including any action or failure to act or to make any payment by any
Lender Counterparty.  Subject to the
Priority of Payments and the Payment Restrictions, the LOC Reimbursement
Obligation of the Borrower shall be absolute, unconditional and irrevocable,
and shall be performed strictly in accordance with the terms of this Agreement
under any and all circumstances whatsoever and irrespective of:

 

(i)            any lack of validity or
enforceability of the Letter of Credit or this Agreement, or any term or
provision therein;

 

(ii)           any amendment or waiver of or any
consent to departure from all or any of the provisions of the Letter of Credit
or this Agreement;

 

(iii)          the existence of any claim, setoff,
defense or other right that the Borrower or any other Person may at any time have
against the Issuing Lender or any other Person, whether in connection with this
Agreement or any other related or unrelated agreement or transaction;

 

(iv)          any draft or other document presented
under the Letter of Credit proving to be forged, fraudulent or invalid in any
respect or any statement therein being untrue or inaccurate in any respect;

 

127

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

(v)           payment by the Issuing Lender under a
Letter of Credit against presentation of a draft or other document that does
not comply with the terms of such Letter of Credit; and

 

(vi)          any other act or omission to act or
delay of any kind of the Issuing Lender or any other Person to perform any
obligation under the Letter of Credit, or any release of any such obligation,
or any other event or circumstance whatsoever, whether or not similar to any of
the foregoing, that might, but for the provisions of this Section 2.01,
constitute a legal or equitable discharge of the obligations of the Borrower
hereunder.

 

Without
limiting the rights of the Reinsurance Trustee, as directed by the Borrower, to
draw upon the Letter of Credit, neither the Issuing Lender, nor any of its Related
Parties, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of the Letter of Credit or any payment
or failure to make any payment thereunder, including any of the circumstances
specified in Section 2.01(g)(i) through (vi), as well
as any error, omission, interruption, loss or delay in transmission or delivery
of any draft, notice or other communication under or relating to the Letter of
Credit (including any Draw Certification Notice or any other document required
to make a drawing thereunder), any error in interpretation of technical terms
or any consequence arising from causes beyond the control of the Issuing
Lender; provided, that the foregoing shall not be construed to excuse
the Issuing Lender or any of its Related Parties from liability to the Borrower
to the extent of any direct damages (as opposed to consequential damages,
claims in respect of which are hereby waived by the Borrower to the extent
permitted by applicable law) suffered by the Borrower that are caused by the
Issuing Lender’s failure to exercise the agreed standard of care (as set forth
below) in determining whether drafts and other documents presented under the
Letter of Credit comply with the terms hereof. 
The parties hereto expressly agree that the Issuing Lender shall have
exercised the agreed standard of care in the absence of gross negligence or
willful misconduct on the part of the Issuing Lender.

 

(h)           LOC Disbursement Procedures; Draw
Certification Notice.  The Issuing
Lender shall, promptly upon its receipt of a Draw Certification Notice, examine
the Draw Certification Notice purporting to represent a demand for payment
under the Letter of Credit.  The Issuing
Lender shall promptly notify the Borrower by telephone or electronic mail
(confirmed by overnight courier service) whether the Issuing Lender has made or
will make an LOC Disbursement thereunder (without, for the avoidance of doubt,
relieving the Issuing Lender of any obligation to make an LOC Disbursement); provided,
that any failure to give or delay in giving such notice shall not relieve the
Borrower of its LOC Reimbursement Obligations, if applicable.  Without limiting any other provisions of this
Agreement, the parties agree that, with respect to any Draw Certification
Notice presented in respect of the Letter of Credit, the Issuing Lender may, in
its sole discretion, (i) either make payment upon such Draw Certification
Notice without responsibility for further investigation, regardless of any
notice or information to the contrary, or (ii) refuse to make payment upon
such Draw Certification Notice if such document is not in strict compliance
with the terms of the Letter of Credit. 
For the avoidance of doubt, delivery of a sight draft and a Draw
Certification Notice strictly adhering to the requirements of the Letter of
Credit shall be the sole condition to a draw under such Letter of Credit.

 

128

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

(i)            Interest.  Subject to the Priority of Payments, the
Borrower unconditionally agrees to pay to the Issuing Lender interest on the
amount of each LOC Disbursement, for the period from and including the date of
such LOC Disbursement to but excluding the date of payment in full, at the
Drawn Rate.  Subject to the Priority of
Payments, interest accrued in respect of any LOC Disbursement shall be payable
on the relevant LOC Reimbursement Date, and thereafter on demand from time to time
by the Issuing Lender and upon payment of any LOC Reimbursement Obligation.

 

Section 2.02.          Termination of the Letter of Credit.

 

(a)           Termination of the Letter of
Credit.  The Letter of Credit shall
terminate on the earliest to occur of (i) the election of the Borrower to
terminate the Letter of Credit in accordance with Section 2.02(b), (ii) the
drawing of one hundred percent (100%) of the Letter of Credit and
(iii) its stated expiry date, as amended from time to time and at any
time.

 

(b)           The Reinsurance Trustee, at the
direction of the Borrower, may, subject to the prior written consent of the
Ceding Company at any time, by giving at least three (3) Business Days’
prior signed written notice to the Issuing Lender, terminate the Letter of
Credit.

 

(c)           Each notice delivered by the Borrower
in accordance with this Section 2.02 shall be irrevocable.  Any termination of the Letter of Credit shall
be permanent.

 

Section 2.03.          Fees.  The Fees described in this Section 2.03
shall be paid in accordance with, and subject to, the Priority of Payments.

 

(a)           LOC Structuring Fee.  The Borrower agrees to pay to the Issuing
Lender, on or prior to the date hereof, a fee (the “LOC Structuring Fee”)
in an amount equal to $[****].

 

(b)           Utilization Fee.  The Borrower agrees to pay to the Issuing
Lender, from the date hereof until the earlier of the Facility Maturity Date or
the full termination of the Letter of Credit, the applicable Utilization Fee
with respect to the LOC Amount, as appropriately pro rated to reflect (A) the
truncated period from the date hereof to June 30, 2010 or (B) any
Optional LOC Reduction or termination of the Letter of Credit, as the case may
be, payable quarterly in arrears within forty-five (45) calendar days after the
end of each calendar quarter.

 

(c)           Early Termination Fee.  Upon the occurrence of an Early Termination
Event prior to July 1, 2017, the Borrower agrees to pay to the Issuing
Lender, any applicable Early Termination Fee along with any unpaid Utilization
Fees, in respect of the portion of the Letter of Credit being terminated or
reduced, accrued to the date of such Early Termination Event; provided, however,
that no such Early Termination Fee shall be payable in the event that (i) the
Issuing Lender requests or has requested compensation from the Borrower
pursuant to Section 2.04, (ii) the Issuing Lender or any
Affiliate thereof engages or has engaged in any refinancing transaction with
respect to the Letter of Credit, or (iii) the Letter of Credit fails or
has failed to be issued or confirmed by an Eligible Bank, unless prior to the
earliest of (a) sixty (60) days after such failure, (b) any loss of
credit for reinsurance by the Ceding Company or (c) any failure of the
Letter of Credit to be treated as an admitted asset of the Borrower, the
Issuing Lender replaces the Letter of Credit with other assets acceptable to
the Ceding Company, the Borrower and their domestic regulators that are treated
as admitted assets of the Borrower for all 

 

129

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

relevant purposes and that
provide the Ceding Company with full credit for reinsurance under the
Reinsurance Agreement in its jurisdiction of domicile on terms and conditions
satisfactory to the Borrower and the Ceding Company (an “Eligibility Failure”).

 

(d)           Regulatory Event Fee.  Upon the occurrence of a Regulatory Event or
a Regulation XXX Reduction Event, the Borrower agrees to pay to the Issuing
Lender, the applicable Regulatory Event Fee along with any unpaid Utilization
Fees, in respect of the portion of the Letter of Credit being terminated or
reduced in such Regulatory Event or Regulation XXX Reduction Event, accrued to
the date of such Regulatory Event or Regulation XXX Reduction Event; provided,
however, that no such Regulatory Event Fee shall be payable in the event
(i) the Issuing Lender requests compensation or has requested from the
Borrower pursuant to Section 2.04, (ii) the Issuing Lender or any
Affiliate thereof engages or has engaged in any refinancing transaction with
respect to the Letter of Credit or (iii) of an Eligibility Failure; provided,
further, in connection with any Regulation XXX Reduction Event or
Regulatory Event involving a permitted practice, that the Borrower shall
provide the Issuing Lender with an officer’s certificate of the Ceding Company
that, to the knowledge thereof, such permitted practice is available to or is
being or has been utilized by one or more insurers in the applicable
jurisdiction.

 

(e)           The Borrower agrees to pay all
amounts owed in connection with the issuance and maintenance of the Letter of
Credit required to be made hereunder to the Issuing Lender.

 

(f)            All Fees shall be paid on the dates
due, in immediately available funds, to the Issuing Lender.  Fees paid shall not be refundable under any
circumstances.

 

Section 2.04.          Yield Protection.

 

(a)           Increased Costs.  In the event that by reason of any change
after the Closing Date in applicable law, rule or regulation of any Swiss
Governmental Authority with authority over Swiss banks or any U.S. Governmental
Authority with authority over non-U.S. banks with U.S. banking business (each,
an “Applicable Governmental Authority”) or in the interpretation thereof
by any Applicable Governmental Authority charged with the administration,
application or interpretation thereof, or by reason of the adoption or
enactment, as of and following the Closing Date, of any requirement, request or
directive (whether or not having the force of law) of any such Applicable
Governmental Authority with respect to this Agreement that shall impose, modify
or deem applicable any reserve, special deposit assessment or insurance fee or
similar requirement against assets of, deposits with or for the account of, or
credit extended by UBS AG, Stamford Branch, in its capacity as Issuing Lender,
or shall subject UBS AG, Stamford Branch, in its capacity as Issuing Lender, or
its Controlling Persons to any tax, levy, impost, charge, fee, duty, deduction
or withholding of any kind whatsoever (other than Excluded Taxes), with respect
to the Letter of Credit, this Agreement or any other Transaction Document, or
change the basis of taxation of UBS AG, Stamford Branch, in its capacity as
Issuing Lender, with respect to any amounts payable under this Agreement or
change the basis of taxation which affects the taxation of the total income of
UBS AG, Stamford Branch in its capacity as Issuing Lender; and if any of the
above-mentioned measures, events or circumstances shall result in an increase
in the cost to UBS AG, Stamford Branch, in its capacity as Issuing Lender, of
making, issuing, maintaining, amending or funding the Letter of Credit, or
taking any 

 

130

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

other action with respect
to the Letter of Credit contemplated under this Agreement, or a reduction in
the amount of principal or interest or Utilization Fees received or receivable
by UBS AG, Stamford Branch, in its capacity as Issuing Lender, in respect
thereof, the Borrower agrees to pay to UBS AG, Stamford Branch, in its capacity
as Issuing Lender, an amount equal to such additional cost, reduction, other loss
or damage or foregone interest or other amount; provided, however,
that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall only
exercise its rights under this Section 2.04(a) if it exercises
such rights under all other similar transactions to which it is a party.

 

(b)           Capital Requirements.  In the event that UBS AG, Stamford Branch, in
its capacity as Issuing Lender, shall have determined, after the Closing Date,
a change in, or any introduction or adoption of, any applicable law, rule or
regulation of an Applicable Governmental Authority regarding capital adequacy,
capital maintenance, solvency, reserves, weighting, foreign claims of deposits
or other similar matters (hereafter “Capital Adequacy”) or any change in
the interpretation or administration thereof by any Applicable Governmental
Authority, charged with the interpretation or administration thereof, or any
request or directive regarding Capital Adequacy (whether or not having the
force of law) of any Applicable Governmental Authority, has or would have the
effect of reducing the rate of return on capital of UBS AG, Stamford Branch, in
its capacity as Issuing Lender, or its Controlling Persons as a consequence of
the obligations of UBS AG, Stamford Branch, in its capacity as Issuing Lender,
under or with respect to this Agreement or the Letter of Credit to a level
below that which UBS AG, Stamford Branch, in its capacity as Issuing Lender, or
its Controlling Persons could have achieved but for such introduction,
adoption, change, request or directive (taking into consideration the policies
of UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its
Controlling Persons with respect to Capital Adequacy) (in any case other than
with respect to such a change or proposed change regarding Taxes, the
consequences of which are addressed in Section 2.04(a), the
Borrower agrees to pay to UBS AG, Stamford Branch, in its capacity as Issuing
Lender, such additional amount or amounts as will compensate UBS AG, Stamford
Branch, in its capacity as Issuing Lender, or its Controlling Persons for such
reduction; provided, however, that UBS AG, Stamford Branch, in
its capacity as Issuing Lender, shall only exercise its rights under Section 2.04(b) if
it exercises such rights under all other similar transactions to which it is a
party.

 

(c)           Requests for Compensation.  UBS AG, Stamford Branch, in its capacity as
Issuing Lender, will promptly notify the Borrower of any event of which it has
actual knowledge entitling UBS AG, Stamford Branch, in its capacity as Issuing
Lender, to compensation and the amount of such compensation as set forth in
this Section 2.04 and the Borrower shall compensate UBS AG,
Stamford Branch, in its capacity as Issuing Lender, within thirty (30) calendar
days of such demand being made by UBS AG, Stamford Branch in its capacity as
Issuing Lender; provided, that the Borrower shall be responsible for
compliance herewith and the payment of increased costs or other amounts under
this Section 2.04 only to the extent that any change in law, rule,
regulation, interpretation or administration giving rise thereto occurs after
the Closing Date.  UBS AG, Stamford
Branch, in its capacity as Issuing Lender, shall furnish to the Borrower a
certificate setting forth the basis, amount and calculation of each request by
such party for compensation under this Section 2.04.  Failure or delay on the part of UBS AG,
Stamford Branch, in its capacity as Issuing Lender, to demand compensation
pursuant to this Section 2.04 shall not constitute a waiver of the
right of UBS AG, Stamford Branch, in its 

 

131

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

capacity as Issuing
Lender, to demand such compensation; provided, that the Borrower shall
not be required to compensate UBS AG, Stamford Branch, in its capacity as
Issuing Lender, pursuant to this Section 2.04 for any increased
costs incurred or reductions suffered or other loss, damage, forgone interest
or amount suffered more than two hundred and seventy (270) calendar days prior
to the date that UBS AG, Stamford Branch, in its capacity as Issuing Lender,
notifies the Borrower of the change in law, rule, regulation, interpretation or
administration giving rise to such increased costs or reductions or other loss,
damage, forgone interest or amount suffered and of the intention of UBS AG,
Stamford Branch, in its capacity as Issuing Lender, to claim compensation
thereof (except that, if the change in law rule, regulation, interpretation or
administration giving rise to such increased costs or reductions is
retroactive, then the two hundred and seventy (270) calendar day period
referred to above shall be extended to include the period of retroactive effect
thereof).

 

(d)           UBS AG, Stamford Branch, in its
capacity as Issuing Lender, shall use reasonable efforts (consistent with its
internal policy applied on a non-discriminatory basis and legal and regulatory
restrictions) to designate a different existing office for purposes of this
Agreement or to take other appropriate actions if such designations or actions,
as the case may be, will avoid the need for or relieve, the amount of, any
increased costs of, any amounts payable or otherwise payable under this Section 2.04
and will not, in the reasonable opinion of UBS AG, Stamford Branch, in its
capacity as Issuing Lender, be otherwise disadvantageous to UBS AG, Stamford
Branch, in its capacity as Issuing Lender. 
Reasonable costs and expenses of such mitigation shall be at the expense
of Borrower; provided, that UBS AG, Stamford Branch, in its capacity as
Issuing Lender, shall not incur any such costs and expenses without the prior
written approval of the Borrower; provided, further, that, in the
absence of such approval, the UBS AG, Stamford Branch, in its capacity as
Issuing Lender, will have no obligations under this Section 2.04(d).

 

(e)           If, in connection with an Other
Letter of Credit Transaction, UBS AG, Stamford Branch, in its capacity as
Issuing Lender, agrees to increased cost or capital requirements provisions
(the “Enhanced Yield Protection Provisions”) that are more favorable to
the Borrower in such Other Letter of Credit Transaction than the provisions set
forth in Sections 2.04(a) or (b), UBS AG, Stamford Branch,
in its capacity as Issuing Lender, will promptly notify the Borrower in writing
of such Enhanced Yield Protection Provisions (including a copy of such
provisions in such notice) and, at the Borrower’s request, will use its
commercially reasonable efforts to amend this Agreement to include such
Enhanced Yield Protection Provisions.

 

Section 2.05.          Taxes.

 

(a)           Any and all payments by the Borrower
hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes; provided, that if the Borrower shall be required to
deduct any Indemnified Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section 2.05)
UBS AG, Stamford Branch, in its capacity as Issuing Lender, receives an amount
equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower
shall pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.

 

132

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted
portions of this Exhibit are indicated by the following: [****].

 

(b)           In addition, the Borrower shall pay
any Other Taxes to the relevant Governmental Authority in accordance with
applicable law.

 

(c)           The Borrower shall indemnify UBS AG,
Stamford Branch, in its capacity as Issuing Lender, within twenty (20) calendar
days after written demand therefor, for the full amount of any Indemnified
Taxes or Other Taxes paid by UBS AG, Stamford Branch, in its capacity as
Issuing Lender, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this Section 2.05)
and any penalties, interest, additions to tax and reasonable expenses arising
therefrom or with respect thereto whether or not correctly or legally imposed; provided,
that the Borrower shall not be obligated to make a payment pursuant to this Section 2.05
in respect of penalties, interest and additions to Tax attributable to any
Indemnified Taxes or Other Taxes, if (i) such penalties, interest and additions
to Tax are attributable to the failure of UBS AG, Stamford Branch, in its
capacity as Issuing Lender, to pay amounts paid to UBS AG, Stamford Branch, in
its capacity as Issuing Lender, by the Borrower (for Indemnified Taxes or Other
Taxes) to the relevant Governmental Authority within thirty (30) calendar days
after receipt of such payment from the Borrower or (ii) such penalties,
interest and additions to Tax are attributable to the gross negligence or
willful misconduct of UBS AG, Stamford Branch, in its capacity as Issuing
Lender.  Within ten (10) Business
Days after UBS AG, Stamford Branch, in its capacity as Issuing Lender, learns
of the imposition of Indemnified Taxes or Other Taxes, UBS AG, Stamford Branch,
in its capacity as Issuing Lender, shall give notice to the Borrower of the
payment or obligation to pay by UBS AG, Stamford Branch, in its capacity as
Issuing Lender, of such Indemnified Taxes or Other Taxes, and of the assertion
by any Governmental Authority that such Indemnified Taxes or Other Taxes are
due and payable, but the failure to give such notice shall not affect the
Borrower’s obligations hereunder to reimburse UBS AG, Stamford Branch, in its
capacity as Issuing Lender, for such Indemnified Taxes or Other Taxes, except
that the Borrower shall not be liable for penalties, interest and other
liabilities accrued or incurred after such ten (10) Business Day period
until such time as it receives the notice contemplated above, after which time
it shall be liable for penalties, interest and other liabilities accrued or
incurred prior to or during such ten (10) Business Day period and accrued
or incurred after such receipt.  A
certificate as to the amount of such payment or liability delivered to the
Borrower by UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall
be conclusive absent manifest error.  If
so directed by the Borrower, the Issuing Lender shall cooperate in any contest
of Indemnified Taxes (or Other Taxes) and any penalties and interest arising
with respect thereto in accordance with the reasonable discretion of the
Borrower and, at the Borrower’s expense, if (i) the Borrower furnishes to
such party an opinion of reputable tax counsel, which counsel shall be
acceptable to such party, to the effect that such Indemnified Taxes or Other
Taxes and liabilities were wrongfully or illegally imposed and (ii) such
party determines in its good faith judgment that it would not be disadvantaged
or prejudiced in any manner as a result of such cooperation; provided,
that the Borrower shall indemnify the Issuing Lender for such Indemnified Taxes
(or Other Taxes) in accordance with this Section 2.05(c) without
regard to the pendency of any such contest. 
This Section 2.05(c) shall not be construed to require
UBS AG, Stamford Branch, in its capacity as Issuing Lender, to disclose to the
Borrower its Tax return information or other information it reasonably
considers proprietary or confidential.

 

133

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

(d)           As soon as reasonably practicable
after any payment of Indemnified Taxes by the Borrower to a Governmental
Authority, and in any event within thirty (30) days of such payment being made,
the Borrower shall deliver to UBS AG, Stamford Branch, in its capacity as
Issuing Lender, the original or a certified copy of a receipt issued by such
Governmental Authority evidencing such payment, a copy of the return reporting
such payment or other evidence of such payment reasonably satisfactory to UBS
AG, Stamford Branch, in its capacity as Issuing Lender.

 

(e)           UBS AG, Stamford Branch, in its
capacity as Issuing Lender, shall provide the Borrower with two (2) accurate,
complete and signed originals of U.S. Internal Revenue Service Form W-8ECI,
W-8BEN, W8-IMY or any applicable successor forms, along with necessary
supporting documentation, certifications and attachments, if any, indicating
that UBS AG, Stamford Branch, in its capacity as Issuing Lender, is, on the
date of delivery thereof, entitled to receive payments of interest hereunder
free from withholding of United States Federal tax.  To the extent permitted or required by
applicable law, from time to time thereafter, UBS AG, Stamford Branch, in its capacity
as Issuing Lender, shall deliver renewals or additional copies of such forms
(or successor forms) on or before the date that such forms expire or become
obsolete or upon the written request of the Borrower; additionally, UBS AG,
Stamford Branch, in its capacity as Issuing Lender, agrees to deliver to the
Borrower additional copies of such forms (or successor forms) after the
occurrence of any event (including a change in its applicable lending office)
requiring a change in its most recent forms delivered to the Borrower.  If UBS AG Stamford Branch, in its capacity as
Issuing Lender, is a “U.S. branch” of a non-U.S. person and delivers an
Internal Revenue Service Form W-8IMY for purposes of this subsection, the
Issuing Lender must certify in that form that it is a “U.S. branch” and that
the payments the Issuing Lender receives for the account of others are not
effectively connected with the conduct of the Issuing Lender’s trade or
business in the United States and that it is using such form as evidence of its
agreement with the Borrower to be treated as a U.S. person with respect to such
payments (and the Borrower and the Issuing Lender agree to so treat the Issuing
Lender as a U.S. person with respect to such payments), with the intended
effect that the Borrower can make payments to the Issuing Lender without
deduction or withholding of any Taxes imposed by the United States.

 

(f)            If UBS AG, Stamford Branch, in its
capacity as Issuing Lender, determines, in its good faith judgment, that it has
actually received or realized any refund of Tax or any reduction of its Tax
liabilities or otherwise recovered any amount that is attributable to any
deduction or withholding or payment of Indemnified Taxes or Other Taxes with
respect to which the Borrower has paid any additional amount pursuant to this Section 2.05,
UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall reimburse the
Borrower within sixty (60) calendar days in an amount equal to the net benefit,
after Tax, and net of all reasonable out-of-pocket expenses incurred by UBS AG,
Stamford Branch, in its capacity as Issuing Lender, in connection with such
refund, reduction or recovery; provided, that nothing in this Section 2.05(f) shall
require UBS AG, Stamford Branch, in its capacity as Issuing Lender, to make
available its Tax returns (or any other information relating to its Taxes which
it deems to be confidential).

 

(g)           UBS AG, Stamford Branch may withhold
any Taxes required to be deducted and withheld from any payment hereunder with
respect to which the Borrower is not required to pay additional amounts under
this Section 2.05.

 

134

 

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(h)                                 The agreements of the Borrowers in this Section 2.05 shall
survive the payment of all amounts payable hereunder and the termination of
this Agreement in accordance with its terms.

 

Section 2.06.                             Payments.

 

(a)                                  Payments Generally.

 

(i)                                     Unless otherwise specified herein, the Borrower shall be obligated to
make each payment required to be made by it hereunder prior to 3:00 p.m.,
New York time, on the date when due and in immediately available funds, without
set off or counterclaim.  Any amounts
received after such time on any date may, in the discretion of the Issuing
Lender, be deemed to have been received on the next succeeding Business Day for
purposes of calculating interest thereon and for determining whether an Event
of Default has occurred.  All such
payments shall be made by wire transfer to the Issuing Lender to the accounts
specified in Section 9.01 or to the accounts otherwise specified by
the Issuing Lender in a written notice to the Borrower at least five (5) Business
Days prior to payment.  The Issuing
Lender shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt
thereof.  If any payment hereunder shall
be due on a calendar day that is not a Business Day, the date for payment shall
be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable for the period of
such extension.

 

(ii)                                  If at any time insufficient funds are received by and available to the
Issuing Lender to pay fully all amounts of principal, unreimbursed LOC
Disbursements, interest and fees then due hereunder, such funds shall be
applied in accordance with the Priority of Payments and, solely with respect to
the unreimbursed LOC Reimbursement Obligations, the Payment Restrictions.

 

(iii)                               Except as otherwise provided herein, all interest payable hereunder shall
be computed on the basis of (i) if based on the Federal Funds Effective
Rate, a year of three hundred sixty (360) days and the actual number of days
elapsed, (ii) if based on the Prime Rate, a year of 365/366 days and the
actual number of days elapsed and (iii) if based on LIBOR, a year of three
hundred sixty (360) calendar days and the actual number of calendar days
elapsed.

 

(b)                                 Late Payments.  All amounts due and payable to the Issuing
Lender in connection with this Agreement but not paid as of the due date
therefor (without regard to grace periods) (other than LOC Reimbursement
Obligations not paid when due, which shall accrue interest at the Drawn Rate)
shall accrue interest at a rate equal to LIBOR plus [****] basis points per
annum, computed from and including the date payment was due to (but not
including) the date of payment in full.

 

Section 2.07.                             Evidence of Indebtedness.  The Issuing Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of the 

 

135

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

Borrower to the Issuing Lender resulting from the
Issuing Lender’s interest in the Letter of Credit, including the amounts of
principal and interest payable and paid to the Issuing Lender from time to time
hereunder in respect of unreimbursed LOC Reimbursement Obligations.  The Issuing Lender shall maintain an account
in which it shall record (i) the amount of each LOC Disbursement made
hereunder, (ii) the amount of any LOC Reimbursement Obligations and
interest payable from the Borrower to the Issuing Lender hereunder and
(iii) the amount of any sum received by the Issuing Lender.  The entries made in the accounts maintained
pursuant to this Section 2.07 shall be prima facie evidence of the
existence and amounts of the obligations recorded therein absent manifest
error; provided, that the failure of the Issuing Lender to maintain such
accounts or any error therein shall not in any manner affect the obligation of
the Borrower to pay such amounts in accordance with the terms of this
Agreement.

 

ARTICLE III

 

REGULATORY
ACCOUNT; SURPLUS ACCOUNT; REINSURANCE TRUST ACCOUNT; PRIORITY OF PAYMENTS

 

Section 3.01.                             Regulatory Account and
Administrative Account.

 

(a)                                  The Borrower shall cause to be established and maintained as provided in Section 3.01(b) a
segregated account (the “Regulatory Account”) in its own name, which
shall at all times hold Cash or Cash Equivalents with a Market Value at least
equal to $250,000.  Except as required by
applicable law, no amounts held in the Regulatory Account shall be (i) commingled
with the assets of the Surplus Account or (ii) withdrawn prior to the
Facility Maturity Date for any reason.

 

(b)                                 On or prior to the date hereof, the Regulatory Account shall be funded
with Cash having an aggregate Market Value equal to $250,000. No additional
contributions shall be made to the Regulatory Account other than in accordance
with the Priority of Payments.

 

(c)                                  Notwithstanding anything in this Agreement or any other Transaction
Document to the contrary, the Borrower shall be permitted to establish,
maintain and utilize a deposit account (the “Administrative Account”)
with Regions Bank, N.A., and its successor and assigns or, with the consent of
the Issuing Lender, such consent not to be unreasonably withheld, an Eligible
Bank designated by Protective, solely for purposes of making payments to, and
receiving payments from, its Affiliates in connection with the PLC Service
Agreements, Administrative Services Agreement and Investment Management
Agreement; provided, that the ending daily account balance of the
Administrative Account shall not, at the close of any three consecutive
Business Days, exceed $1,000, and the Borrower shall promptly deposit any funds
received from its Affiliates in the Administrative Account into the Surplus
Account.

 

Section 3.02.                             Surplus Account of the Borrower.

 

(a)                                  The Borrower shall cause to be established and maintained as provided in Section 3.02(b) a
segregated account (the “Surplus Account”).  No amounts held in the Surplus Account shall
be commingled with the general assets of the Borrower or the assets held in the
Regulatory Account.  All funds and assets
received by the Borrower pursuant to any Transaction 

 

136

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

Document or otherwise
(including any distributions related to the grantor interest in the Reinsurance
Trust Account) shall be deposited into and held in the Surplus Account subject
to disbursement in accordance with the Priority of Payments and, solely with
respect to LOC Reimbursement Obligations, the Payment Restrictions.  All funds held in the Surplus Account
(including any products and proceeds of any such funds), including any
investments or reinvestments of such proceeds, shall be retained in the Surplus
Account subject to disbursement in accordance with the Priority of Payments
and, solely with respect to LOC Reimbursement Obligations, the Payment
Restrictions and invested and applied in accordance with the Investment
Guidelines.  The Borrower hereby agrees
that any assets credited to or deposited in the Surplus Account may only be
withdrawn or applied as provided in this Agreement.

 

(b)                                 The parties agree that, for purposes of the UCC, New York law shall be
the law of the jurisdiction of The Bank of New York Mellon in its capacity as
Securities Intermediary, with respect to the Surplus Account, and that The Bank
of New York Mellon has agreed in the Securities Account Control Agreement, in
its capacity as Securities Intermediary, to treat all assets credited to the
Surplus Account as “financial assets” within the meaning of
Section 8-102(a)(9) of the UCC; provided, to the extent that
the Surplus Account is not considered a Securities Account, such account shall
be deemed to be a “Deposit Account” (as defined in Section 9-102(a)(29) of
the UCC), and a security interest is hereby granted by the Borrower to the
Issuing Lender and perfected under the UCC in the Surplus Account as a Deposit
Account, which The Bank of New York Mellon shall maintain acting not as
Securities Intermediary but as a “bank” (within the meaning of Section 9-102(a)(8) of
the UCC).

 

(c)                                  All deposits into the Surplus Account shall be made in accordance with
the procedures set forth in Section 3.03.  On or prior to the date hereof, the Surplus
Account shall initially be funded with Cash or securities having an aggregate
Market Value equal to $[****], after giving effect to the payment of the LOC
Structuring Fee, the expenses set forth in Section 6.01(n)(i) and any
rating agency fees, legal fees of the Borrower’s Vermont counsel and other
formation costs of the Borrower incurred in connection with the Transactions as
of the date hereof.  Thereafter, all
amounts received by the Borrower shall immediately be deposited into the
Surplus Account.

 

(d)                                 All withdrawals and releases of capital from the Surplus Account shall be
made in accordance with the Priority of Payments and, solely with respect to
LOC Reimbursement Obligations, the Payment Restrictions.

 

Section 3.03.                             Reinsurance Trust Account.  The Reinsurance Trust Account shall be
established by the Borrower, as grantor, subject to and in accordance with the
terms of the Reinsurance Trust Agreement.

 

Section 3.04.                             Procedures for Depositing Cash and Crediting
Securities to Surplus Account.  The Borrower may, on any Business Day,
transfer, deliver or deposit or cause to be transferred, delivered or
deposited, as the case may be, Cash or securities to the Surplus Account.

 

Section 3.05.                             Priority of Payments.  Except as otherwise provided for in Section 9.14,
the Borrower shall apply all funds held in the Surplus Account on any Business
Day 

 

137

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

(except in the case of item Thirteenth),
without duplication, in the following order of priority (the “Priority of
Payments”):

 

(a)                                  First, for the payment of any
Taxes or provisions for Taxes and other governmental charges due and payable by
the Borrower as of such date;

 

(b)                                 Second, to the extent the Market
Value of the assets held in the Regulatory Account is less than $250,000, for
the payment of Cash or Cash Equivalents in an amount equal to the excess of
$250,000 over such Market Value;

 

(c)                                  Third, to the extent amounts
drawn under any Letter of Credit are not necessary for the payment of amounts
payable under the Reinsurance Agreement, for the payment of that portion of the
Borrower’s obligations due and payable by the Borrower as of such date
consisting of (i) unpaid interest at the Drawn Rate on all LOC
Reimbursement Obligations with respect to such amounts drawn, and
(ii) after all such unpaid interest has been paid in full, unpaid
principal of all LOC Reimbursement Obligations with respect to such amounts
drawn;

 

(d)                                 Fourth, for the payment of any
amounts due and payable by the Borrower to the Ceding Company under, and
subject to the terms of, the Reinsurance Agreement as of such date (including
any deposits to the Reinsurance Trust Account required in accordance with the
terms of the Reinsurance Agreement);

 

(e)                                  Fifth, for the payment of any
Third Party Expenses incurred directly by the Borrower that are due and payable
on such date;

 

(f)                                    Sixth, for the payment of
Utilization Fees that are due and payable by the Borrower to the Issuing Lender
as of such date;

 

(g)                                 Seventh, to the extent not
otherwise contemplated in item Third above, for the payment of that
portion of the Borrower’s obligations that are due and payable as of such date
under this Agreement consisting of unpaid principal of the LOC Reimbursement
Obligations and interest at the Drawn Rate on all LOC Reimbursement
Obligations; provided, that payment of such LOC Reimbursement
Obligations shall only be made to the extent that (i) the Borrower’s Total
Adjusted Capital will equal or exceed [****]  percent
([****]%) of the Borrower’s Company Action Level Risk Based Capital after
giving effect to such payment, or (ii) an Approval has been received in
respect of all or a portion of such payment if the Borrower’s Total Adjusted
Capital will not equal or exceed [****] percent ([****]%) of the Borrower’s
Company Action Level Risk Based Capital after giving effect to such payment
(the “Payment Restrictions”);

 

(h)                                 Eighth, to the extent not
otherwise contemplated in items Third, Sixth or Seventh,
for payments due to the Issuing Lender from the Borrower upon the occurrence of
an Event of Default, including, without limitation, the posting of collateral
or acceleration of any outstanding amounts under the Letter of Credit, which
payments shall be made to and held in the Cash Collateral Account, other than,
for the avoidance of doubt, any LOC Reimbursement Obligations;

 

138

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(i)                                     Ninth, for the payment of any
amounts due and payable by the Borrower as of such date under the Tax Sharing
Agreement or the Special Tax Allocation Agreement;

 

(j)                                     Tenth, to the extent not
otherwise contemplated in items Third, Sixth, Seventh and Eighth
above, for the payment of Fees, indemnities, expenses and other amounts payable
to the Issuing Lender by the Borrower that are due and payable as of such date,
other than, for the avoidance of doubt, any LOC Reimbursement Obligations;

 

(k)                                  Eleventh, subject to an Approval,
on any interest payment date specified in any Surplus Note of the Borrower, for
the payment of any interest due and payable by the Borrower in respect of any
such Surplus Note as of such date to the extent that, immediately following
payment thereof, the Dividend Test shall be satisfied; provided, however,
that no payment of interest may be made under this item Eleventh so long
as (y) a Default or Event of Default has occurred and is continuing, or (z) any
amounts due and payable by the Borrower to the Issuing Lender shall remain due
and unpaid;

 

(l)                                     Twelfth, subject to an Approval,
on any interest payment date specified in any Surplus Note of the Borrower, for
the payment of any principal, premium and any other amount due and payable by
the Borrower in respect of any such Surplus Note as of such date to the extent
that, immediately following payment thereof, the Dividend Test shall be
satisfied; provided, however, that no payment of principal may be
made under this item Twelfth so long as (x) a Default or Event of
Default has occurred and is continuing, (y) any amounts due and payable by
the Borrower to the Issuing Lender shall remain due and unpaid for more than
five (5) Business Days after notice from the Issuing Lender or (z) the
Letter of Credit shall remain outstanding; and

 

(m)                               Thirteenth, for the payment of any
dividends declared on or subsequent to December 1, 2015, subject to and in
accordance with the Dividend Formula; provided, however, that no
dividends will be payable under this item Thirteenth if on the date of
declaration thereof (w) a Default or Event of Default has occurred and is
continuing, (x) any amounts due and payable by the Borrower to the Issuing
Lender shall remain due and unpaid, (y) any Dividend Catch-Up Contribution
shall remain unpaid or (z) any amounts due and payable in excess of
$[****] by PLC to the Borrower pursuant to any Transaction Document to which
PLC is a party shall remain due and unpaid and such failure to pay shall have
continued for thirty (30) calendar days; provided, further, that
any dividend declared on or subsequent to December 1, 2015 in accordance
with this Agreement that satisfied the requirements of this item Thirteenth
on its date of declaration if it had been paid on such date, shall be payable
by the Borrower on any future date, notwithstanding the provisions of this item
Thirteenth or any other provisions to the contrary herein.

 

If
any amounts are due and payable under items First through Tenth
of the Priority of Payments (other than and excluding amounts due and payable
under item Eighth of the Priority of Payments), and insufficient funds
are existing in the Surplus Account at such time, then funds held in the Cash
Collateral Account (if any) shall be transferred to the Surplus Account to make
such payments.

 

139

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

ARTICLE IV

 

REPRESENTATIONS
AND WARRANTIES

 

Section 4.01.                             Borrower Representations and Warranties.  The Borrower represents and warrants to the
Issuing Lender, as of the date hereof, as follows:

 

(a)                                  Organization; Powers.  The Borrower is duly formed in accordance
with its Constituent Documents, validly existing and in good standing under the
laws of the State of Vermont, is duly licensed or authorized under the laws of
the State of Vermont and has the corporate power and authority to carry on its
business as contemplated in the Transaction Documents.

 

(b)                                 Authorization; Enforceability.  The Transaction Documents to which the
Borrower is a party are within the corporate powers of the Borrower and have
been duly authorized by all necessary corporate and, if required, stockholder
action on the part of the Borrower.  Each
of the Transaction Documents to which the Borrower is a party has been duly
executed and delivered by the Borrower and, assuming the due execution and
delivery of such Transaction Documents by the other parties thereto,
constitutes, or will constitute, legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors’ rights
generally, the rights of creditors of insurance companies and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.

 

(c)                                  Approvals; No Conflicts.  Except as would not reasonably be expected to
result in a Material Adverse Effect, the Transaction Documents to which the
Borrower is a party (i) are in full force and effect and do not require
any consent or approval of, registration or filing with, or any other action
by, any Governmental Authority or any third party, except such as have been
obtained or made, (ii) do not violate any applicable law or regulation or
the Constituent Documents of the Borrower, or any order of any Governmental
Authority applicable to the Borrower or the Reinsured Policies, (iii) do
not violate or result in a default or other conflict under any material
agreement or other instrument binding upon the Borrower or any of its assets,
or give rise to a right thereunder to require any payment to be made by the
Borrower and (iv) will not result in the creation or imposition of any
Lien on any asset of the Borrower except for Permitted Liens or as expressly
permitted under the terms of such Transaction Documents.

 

(d)                                 Compliance with Laws and Agreements.  The Borrower is in compliance in all material
respects with all laws, rules, regulations and orders of any Governmental
Authority applicable to it or its properties, the Transaction Documents and,
except as would not result in a Material Adverse Effect, all other agreements
and other instruments binding upon it or its property.

 

(e)                                  Taxes.  The Borrower has timely filed or caused to be
filed all material Tax returns and reports required to have been filed and has
paid or caused to be paid all material Taxes required to have been paid by it.

 

140

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

(f)                                    Accuracy of Information.  The annual audited financial statement for
the year ending December 31, 2008 and the unaudited quarterly financial
statement for the calendar quarter ending September 30, 2009 of the Ceding
Company provided to the Issuing Lender by the Borrower were prepared in all
material respects in accordance with SAP and, to the extent consistent
therewith, fairly present in all material respects the financial condition and
result of operations of the Ceding Company as of the respective dates thereof
and for the respective periods presented therein, as applicable.  The factual information (not including any
projections, estimates, modeling or other non-factual information) contained in
the actuarial report dated December 3, 2009 prepared by the Independent
Actuary with respect to the Reinsured Policies that the Borrower has furnished
or caused to be furnished to the Issuing Lender in connection with its analysis
and negotiation of the Transactions or the Transaction Documents, in each case
as modified or supplemented by other information so furnished by the Borrower,
is true and correct in all material respects as of the date of such
report.  To the best of the Borrower’s
knowledge, the financial and actuarial projections and modeling contained
therein or otherwise furnished to the Issuing Lender by or on behalf of the
Borrower and listed on Schedule 6 were prepared in good faith based upon
assumptions believed to be reasonable in the circumstances as of their
respective dates or when prepared (it being understood that such projections
and modeling are subject to significant uncertainties and contingencies, many
of which are beyond the Ceding Company’s or the Borrower’s control, and that no
assurances can be given that the projections or modeling will be
realized).  To the best of the Borrower’s
knowledge, no report, certificate or information of a type not otherwise described
in this Section 4.01(f) and furnished in writing by or on
behalf of the Ceding Company to the Issuing Lender in connection with its
analysis and negotiation of this Agreement on or prior to the date hereof, when
delivered or as of its respective date, in each case as modified or
supplemented by other information furnished by or on behalf of the Ceding
Company, contained any material misstatement of fact or omitted to state a
material fact.

 

(g)                                 Representations and Warranties in Other Transaction Documents.  Each of the representations and
warranties made by the Borrower in the Transaction Documents to which it is a
party, are true, complete and correct in all material respects as of the date
given, subject to any qualifications and limitations contained therein; provided,
that, in each case, such materiality qualifier shall not be applicable to any
representations or warranties that are already qualified or modified by
materiality in the text thereof.

 

(h)                                 Good Title to Collateral; Absence of Liens.  The Borrower is the owner of any Collateral
pledged hereunder free and clear of all Liens other than Permitted Liens.

 

(i)                                     Litigation Matters.  There are no actions, suits or proceedings by
or before any arbitrator or Governmental Authority pending against or, to the
knowledge of the Borrower, threatened in writing against the Borrower or
against the Ceding Company and affecting the Reinsured Policies (i) that
seek to challenge the validity or enforceability of the Transaction Documents
or the Transactions or (ii) that would reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect.

 

(j)                                     No Material Adverse Effect.  There has been no Material Adverse Effect
since December 31, 2008.

 

141

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(k)                                  Investment Company.  The Borrower is not required to register as
an “investment company” or a company controlled by an “investment company” as
defined in the Investment Company Act of 1940.

 

(l)                                     Anti-Terrorism Laws.

 

(i)                                     Each of the Borrower and, to the Borrower’s knowledge, each of the
Borrower’s Affiliates and each of their respective officers or directors, is in
compliance in all material respects with any Anti-Terrorism Law.

 

(ii)                                  None of the Borrower and, to the Borrower’s knowledge, none of the
Borrower’s Affiliates and none of their respective officers or directors who is
acting or benefiting in any capacity in connection with the Letter of Credit,
is an Embargoed Person.

 

(m)                               Debt Obligations.  The Borrower does not have any outstanding
Indebtedness in excess of $50,000, except as permitted under or contemplated by
the Transaction Documents.

 

(n)                                 Disclosure.  The Borrower has disclosed in writing to the
Issuing Lender all agreements and instruments to which it is subject, the
breach or noncompliance with which could, individually or in the aggregate, be
expected to result in a Material Adverse Effect.

 

(o)                                 Subsidiaries.  The Borrower has no Subsidiaries.

 

(p)                                 Capitalization.  The Borrower has received on or prior to the
Closing Date, a capital contribution or contributions with an aggregate Market
Value of not less than $[****] in the form of paid-in capital, $[****] of which
shall be deposited into the Surplus Account, $[****] of which shall be
deposited into the Reinsurance Trust Account and $250,000 of which shall be
deposited into the Regulatory Account.

 

(q)                                 Solvency.  The Borrower is and shall be Solvent both
before and immediately after giving effect to the Transactions taking place on
the Closing Date.

 

(r)                                    Statutory Filings.  The Borrower has made all required filings
under applicable insurance and reinsurance laws in each jurisdiction where such
filings are required, except where the failure to so file would not reasonably
be expected to have a Material Adverse Effect.

 

(s)                                  Borrower Securities.  All capital stock or other equity interests
issued by the Borrower (other than any Surplus Notes issued subject to and in
accordance with Section 6.01(bb)) are owned by PLICO or any
wholly-owned Affiliate of the ultimate Controlling party of the Borrower that
is a regulated insurance company.

 

(t)                                    Non-Consolidation.  From the date of formation of the Borrower to
the Closing Date, the Borrower has complied in all material respects with the
non-consolidation covenants set forth in Section 6.01(l).

 

142

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

ARTICLE V

 

CONDITIONS

 

Section 5.01.                             Closing Conditions.  The obligation of the Issuing Lender to issue
the Letter of Credit on the Closing Date is subject to the satisfaction or
waiver in accordance with Section 9.02 of the following conditions
precedent on or prior to the Closing Date (the “Closing Conditions”):

 

(a)                                  Approvals.  All material governmental and regulatory
necessary in connection with the consummation of the Transactions shall have
been obtained and be in full force and effect, and all applicable waiting
periods shall have expired without any action being taken or threatened by any
Governmental Authority that would reasonably be expected to have a Material
Adverse Effect.

 

(b)                                 Transaction Documents.  The Borrower and the Ceding Company shall
have executed (if applicable) and delivered the Transaction Documents, copies
of which shall have been delivered to the Issuing Lender, and all conditions to
the effectiveness of the Transaction Documents (other than this Agreement)
shall have been satisfied.

 

(c)                                  Representations and Warranties.  The representations, warranties and covenants
of the Borrower and the Ceding Company set forth herein are true, correct and
complete in all material respects, as of the date hereof, unless such
representations or warranties are specifically made as of any earlier date, in
which case they shall only be made as of such earlier date; provided,
that, in each case, such materiality qualifier shall not be applicable to any
representations or warranties that are already qualified or modified by
materiality in the text thereof.

 

(d)                                 Payment of Fees.  The Borrower shall have paid any Fees due and
owing to the Issuing Lender as of the Closing Date, including but not limited
to the LOC Structuring Fee.

 

(e)                                  Financial Strength Rating.  The Borrower shall have a Counterparty Risk
Rating of at least “A” by S&P (or an equivalent rating by Moody’s or
Fitch).  The Ceding Company shall have an
Insurer Financial Strength Rating of at least “A” by S&P (or an equivalent
rating by Moody’s or Fitch).

 

(f)                                    Closing Documents and Certificates.  The Issuing Lender shall have received
certificates signed by Responsible Officers of the Borrower certifying that the
Closing Conditions (other than those set forth in Sections 5.01(e), (g) and
(h) or those that may have been waived in writing by the Issuing
Lender) have been fully satisfied as of the Closing Date.

 

(g)                                 Legal Opinions and Memorandum.  The Issuing Lender or its counsel shall have
received the following favorable written opinions and memorandum (addressed to
the Issuing Lender and dated as of the Closing Date):

 

(i)                                     Opinion of Vermont counsel for the Borrower with respect to general
corporate matters under Vermont law;

 

143

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(ii)                                  Opinion of counsel for the Borrower with respect to general corporate
matters under Delaware law;

 

(iii)                               Opinion of outside counsel for the Borrower with respect to general
corporate matters and the enforceability of the Transaction Documents under
U.S. federal, New York and Nebraska law;

 

(iv)                              Opinion of counsel for the Borrower with respect to the creation and
perfection under applicable law of the security interests in the Collateral
granted under Section 7.02(a)(ii);

 

(v)                                 Memorandum of counsel for the Borrower with respect to draws on assets
under the Reinsurance Agreement and the Reinsurance Trust Account in the
context of delinquency proceedings; and

 

(vi)                              Opinion of counsel for the Borrower with respect to the enforceability,
including in delinquency proceedings, of the off-set and recoupment provision
in the Reinsurance Agreement under Nebraska law.

 

(h)                                 Letter of Credit Request.  The Issuing Lender shall have received a
correct and complete request for the issuance of the Letter of Credit.

 

(i)                                     No Default.  No event that constitutes a Default or an
Event of Default hereunder shall have occurred and be continuing.

 

(j)                                     Initial Capitalization.  The Borrower shall have received one or more
capital contributions in an aggregate amount of not less than $[****], (i) $[****]
of which shall be deposited into the Surplus Account, (ii) $[****] of
which shall be deposited into the Reinsurance Trust Account and (iii) $250,000
of which shall be deposited into the Regulatory Account.

 

(k)                                  Third Party Excess Reinsurance.  The Ceding Company shall have entered into
reinsurance agreements relating to the Reinsured Policies set forth on
Exhibit B to the Reinsurance Agreement and such agreements shall be in
full force and effect.

 

Section 5.02.                             Conditions to Increase the LOC Amount.  The obligation of the Issuing Lender to
increase the LOC Amount on any Scheduled LOC Amendment Date pursuant to Section 2.01(b),
is subject to the satisfaction (or waiver by the Issuing Lender) of the
following conditions precedent on the applicable Scheduled LOC Amendment Date
(the “Increase Conditions”):

 

(a)                                  Contributions.  The First Required Additional Contribution
shall have been paid by or on behalf of PLC to the Borrower at least
thirty-five (35) calendar days prior to the First Required Additional
Contribution Date, the Second Required Additional Contribution shall have been
paid by or on behalf of PLC to the Borrower at least thirty-five (35) calendar
days prior to the Second Required Additional Contribution Date and the Third
Required Additional Contribution shall have been paid by or on behalf of PLC to
the Borrower at least thirty-five (35) calendar days prior to the Third
Required Additional Contribution Date.

 

144

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(b)                                 No Default.  No event that constitutes a Default or an
Event of Default hereunder shall have occurred and be continuing.

 

(c)                                  Accuracy of Representations and Warranties.  The representations and warranties of (i) the
Borrower made pursuant to Sections 4.01(a) (Organization; Powers), 4.01(b) (Authorization;
Enforceability), 4.01(c) (Approvals; No Conflicts), 4.01(f) (Accuracy
of Information) (but solely with respect to the first sentence of such
subsection), 4.01(h) (Good Title to Collateral; Absence of Liens), 4.01(i) (Litigation
Matters) (but only with respect to clause (i) thereof), 4.01(k) (Investment
Company), 4.01(l) (Anti-Terrorism Laws), 4.01(r) (Statutory
Filings) and 4.01(s) (Borrower Securities), shall, in each case, be
true and correct in all material respects before giving effect to any increase
of the LOC Amount as though made on the applicable Scheduled LOC Amendment Date
unless any such representations or warranties are specifically made as of any
earlier date, in which case they shall only be made as of such earlier date.

 

(d)                                 Officer’s Certificates.  On the Scheduled LOC Amendment Date, the
receipt by the Issuing Lender of an officer’s certificate of the Borrower,
dated as of such date stating that the Increase Conditions (other than those
that have been waived in writing by the Issuing Lender) have been fully
satisfied as of such date.

 

Section 5.03.                             Conditions to Extension of the Letter of
Credit.  The obligation of the Issuing
Lender to extend the Facility Maturity Date pursuant to Section 2.01(c),
is subject to the satisfaction (or waiver by the Issuing Lender) of the
following conditions precedent (the “Extension Conditions”):

 

(a)                                  No Event of Default.  No event that constitutes an Event of Default
pursuant to Sections 8.01(l) or (m) shall have occurred
and be continuing.

 

(b)                                 First Extension Event.  The First Extension Event shall have
occurred.

 

(c)                                  Second Extension Event.  Solely with respect to an extension of the
Facility Maturity Date pursuant to Section 2.01(c)(ii), the Second
Extension Event shall have occurred.

 

ARTICLE VI

 

BORROWER
COVENANTS

 

Section 6.01.                             Borrower Covenants.  The Borrower hereby agrees, so long as the
LOC Commitment remains in effect, the Letter of Credit remains outstanding or
any amount is owing to the Issuing Lender, as follows:

 

(a)                                  Corporate Existence.  The Borrower shall preserve and maintain its
corporate existence and rights (both organizational and statutory) and maintain
full corporate right, power, authority and governmental licenses, approvals and
certificates, to perform its obligations hereunder and to own and operate its
assets and to carry on its business except for such rights, powers, authority, licenses,
approvals and certificates, the loss of which would not reasonably be expected
to have a Material Adverse Effect.

 

145

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(b)                                 Compliance with Laws.  Except as could not reasonably be expected to
have a Material Adverse Effect, the Borrower will comply with all applicable
laws, rules, regulations, and orders of any Governmental Authority applicable to
it, its business or its property.

 

(c)                                  Notices of Material Events.  The Borrower shall furnish to the Issuing
Lender written notice of the following events within the time frames specified
below:

 

(i)                                     the occurrence of any material breach under any Transaction Document to
which it is a party within five (5) Business Days after the Borrower has
knowledge of any such occurrence;

 

(ii)                                  any material correspondence from, including all orders of, or to any
Governmental Authority relating to this Agreement or the Transactions within
twenty (20) Business Days after the actual receipt by the Borrower thereof,
except to the extent prohibited by the terms of such correspondence or order;

 

(iii)                               the filing or commencement of any action, suit or proceeding by or before
any arbitrator or Governmental Authority against the Borrower or against the
Ceding Company affecting the Reinsured Policies that would be reasonably
expected to result in a Material Adverse Effect with respect to the Borrower,
within ten (10) Business Days after the Borrower has knowledge of any such
filing or commencement; and

 

(iv)                              the occurrence of any Material Adverse Effect with respect to the
Borrower or the Reinsured Policies within five (5) Business Days after the
Borrower has knowledge of any such occurrence.

 

Each
notice delivered under this Section 6.01(c) shall be
accompanied by a statement of a Responsible Officer of the Borrower setting
forth, in reasonable detail, the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto; provided,
however, that, to the extent prohibited by applicable laws, rules or
regulations of any Governmental Authority, applicable privilege policies or as
would jeopardize attorney-client or other applicable privilege, details
regarding such breach, correspondence, actions, suits, proceedings, events or
developments need not be furnished to the Issuing Lender by the Borrower.

 

(d)                                 Financial Reports and Other Information.  The Borrower will, to the extent permitted by
applicable law, furnish to the Issuing Lender the various reporting documents
listed in Schedule 1 attached hereto (the “Borrower Reporting
Documents”).  All financial
statements delivered pursuant to this Section 6.01(d) shall be
complete and correct copies thereof in all material respects and, if prepared
by the Borrower, shall be prepared in all material respects in accordance with
SAP.

 

(e)                                  Books and Records; Inspection Rights.  The Borrower shall keep proper books of
records and accounts in which entries are made of dealings and transactions in
relation to its business and activities. 
Such entries shall be true, correct and complete in all material
respects.  Subject to restrictions or
limitations arising under applicable law and regulations, the 

 

146

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

Borrower shall permit one
or more employees of the Issuing Lender and its representatives and advisors
upon reasonable prior notice during the Borrower’s normal business hours and as
does not unreasonably disrupt the business of the Borrower or its Affiliates to
(i) inspect the books and records of the Borrower, (ii) discuss the
affairs, finances and accounts of the Borrower with officers of the Borrower
and (iii) discuss the affairs, finances and accounts of the Borrower with
the Borrower’s independent accountants; provided, that the Issuing
Lender shall not exercise such right more than once per calendar year unless an
Event of Default shall have occurred and be continuing; provided, further,
that the Borrower shall bear the expense of (a) one (1) such audit
per calendar year by the Issuing Lender and (b) in the event an Event of
Default shall have occurred and be continuing, all such audits conducted by the
Issuing Lender; provided, further, that the foregoing shall not
require the Borrower to disclose any information that it is prohibited from
disclosing under applicable contractual confidentiality obligations to third
parties, privacy or other applicable law, regulations or orders or that is
subject to attorney-client privilege or attorney work product privilege; provided,
further, that the Issuing Lender shall keep this and all such
information provided under this Agreement confidential pursuant to Section 9.13.

 

(f)                                    Indebtedness.  The Borrower shall not create, incur, assume,
guarantee, acquire, or, contingently or otherwise, enter into or become
responsible for payment of any Indebtedness or other obligations incurred or
entered into in excess of $50,000 other than (i) pursuant to, as expressly
permitted under, contemplated by or in connection with this Agreement, (ii) Indebtedness
or other obligations incurred as permitted under or contemplated by the Transaction
Documents or (iii) Surplus Notes.

 

(g)                                 Conduct of Business.  The Borrower shall not engage in any business
(including but not limited to any transactions with Affiliates) other than the
business contemplated by the Transaction Documents and its organizational
documents or in connection with the financing of its obligations under the
Reinsurance Agreement through the issuance of Surplus Notes.

 

(h)                                 No Amendment, Modification or Waiver; Impairment of Rights.  The Borrower shall obtain the
prior written consent of the Issuing Lender (such consent not to be
unreasonably withheld or delayed):

 

(i)                                     for any amendment to a Transaction Document (including any such amendment
described in Section 6.01(h)(ii)); provided, that the prior
written consent of the Issuing Lender shall not be required for (x) any
commutation, recapture or termination of the Reinsurance Agreement in
accordance with its terms if the provisions thereof relating to such
commutation, recapture or termination are complied with in all material respects
and (y) any amendment to the definition of “RP Interest Rate” or “RP
Discount Rate” in the Reinsurance Agreement that is required or requested by
the domestic regulator of the Ceding Company so that such definition refers
only to assets of the Borrower deposited in the Reinsurance Trust Account;

 

(ii)                                  for any amendment, on or subsequent to the date of any Regulatory Event
that results in a decrease in excess of [****] percent ([****]%) in the
Statutory Reserves in excess of Economic Reserves for the Reinsured Policies,
to 

 

147

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

the
Reinsurance Agreement to appropriately modify the definition of “XXX Reserves”
therein and to cause to be ceded to, and/or reinsured with, the Borrower,
additional level premium term life business with an actuarial profile
substantially similar to, or more favorable to the Borrower than, the Reinsured
Policies (the “Additional Business”), and to make such other amendments,
supplements and modifications to the Transaction Documents, and to make such
filings with, and to obtain such approvals of, the Nebraska Director and any
other jurisdiction in which the Ceding Company files its statutory financial
statements, and to take such other actions as may be reasonably necessary in
connection with the foregoing; provided, that (A) the aggregate
amount of surplus held by the Borrower to support the Reinsured Policies and
the Additional Business shall be proportionate to the amount of surplus held by
the Borrower (assuming the satisfaction of all contributions contemplated in Section 2.01(c))
to support the Reinsured Policies prior to such amendment and (B) the
aggregate amount of Statutory Reserves in excess of Economic Reserves ceded to,
and reinsured by, the Borrower shall not increase as a result of such
amendment;

 

(iii)                               subject to Section 6.01(h)(vii), before entering into any
additional contracts or binding agreements other than the Transaction Documents
or any required replacement thereof that would create material financial or
other obligations of the Borrower other than Surplus Notes;

 

(iv)                              for any actions taken pursuant to any Transaction Document other than
actions that are (x) ministerial or routine in nature, (y) in the ordinary
course of business or (z) expressly provided for thereunder;

 

(v)                                 prior to using its commercially reasonable efforts to provide statutory
reserve credit for the reinsurance ceded under the Reinsurance Agreement in all
U.S. jurisdictions, other than the Ceding Company’s state of domicile, in which
the Ceding Company is required to file its statutory statements pursuant to
applicable statutory accounting principles and credit for reinsurance statutes
and regulations of such jurisdictions, other than making or submitting any
commercially reasonable applications for accreditation or approval, filing,
notice, or submission to jurisdiction or service of process as a reinsurer with
any Governmental Authority; provided, that it shall not be unreasonable
for the Issuing Lender to withhold its consent if any such efforts of the
Borrower would reasonably be expected to have an adverse impact on the
economic, risk, or return expectations of the Issuing Lender or any of its
Affiliates in any material respect.  For
the avoidance of doubt, nothing in this Section 6.01(h)(v) shall
require the Issuing Lender to agree to any amendment hereof or of the Letter of
Credit;

 

(vi)                              before any material term or condition in any Transaction Document is
waived by the Borrower; and

 

(vii)                           for any other actions of the Borrower not contemplated or permitted by Sections
6.01(h)(i) through (vi), other than actions that are
contemplated by or consistent with the Transaction Documents or the 

 

148

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

Transactions,
are ministerial or routine, are required by applicable law, regulation, rule,
order or any Governmental Authority or as would not adversely affect the
rights, remedies and position of the Issuing Lender with respect to the
Transactions.

 

(i)                                     Compliance with and Enforcement of Transaction Documents.  The Borrower shall comply in all
material respects with the terms and conditions of, and perform its obligations
and exercise and fully enforce in all material respects its rights and remedies
available under, each Transaction Document to which it is a party; provided,
that if the Borrower fails to use reasonable best efforts to so enforce its
rights in all material respects within seven (7) Business Days of notice
from the Issuing Lender or upon the occurrence and continuation of an Event of
Default, the Issuing Lender, may enforce, in the name of the Borrower, the
rights of the Borrower under the Transaction Documents (other than this
Agreement) pursuant and to the extent permitted by the collateral assignment of
rights set forth in Section 9.09.

 

(j)                                     Dividends.  Except with respect to any Special Dividend,
the Borrower shall not declare or pay any dividends (i) other than in
accordance with the terms of the Dividend Payment Formula, (ii) during the
period beginning on the Closing Date and ending December 31, 2014, (iii) if
any Default or Event of Default shall have occurred and be continuing and (iv) if
any amounts in excess of $[****] due and payable by PLC to the Borrower
pursuant to any Transaction Document to which PLC is a party shall remain due
and unpaid for a period of thirty (30) calendar days.

 

(k)                                  Non-Petition.  To the extent permitted by applicable law,
the Borrower shall not dissolve or liquidate, in whole or in part, or institute
insolvency proceedings against itself, or file a petition seeking or consenting
to reorganization or relief under any applicable law relating to bankruptcy or
insolvency, on or prior to the date that is one (1) year and one (1) calendar
day (or, if longer, the preference period then in effect) after payment in full
of all amounts payable in respect of its obligations to the Issuing Lender.

 

(l)                                     Non-Consolidation.

 

(i)                                     The Borrower shall not have employees. 
The Borrower may enter into service agreements with an Affiliate, such
that the employees of such entity act on behalf of the Borrower; provided,
however, that such employees shall at all times hold themselves out to
third parties as representatives of the Borrower while performing duties under
such service agreements.

 

(ii)                                  Any Affiliates shall act as agents of the Borrower solely through express
agencies; provided, however, that such Affiliate fully discloses
to any third party the agency relationship with the Borrower; provided, further,
that such Affiliate receives fair compensation or compensation consistent with
regulatory requirements, as appropriate, from the Borrower for the services
provided.  The Borrower shall not act as
an agent for any Affiliate.

 

(iii)                               The Borrower shall not nor shall it allow any Person to acquire any,
merge into or consolidate with any Person or entity or, to the fullest extent 

 

149

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

permitted
by law, dissolve, terminate or liquidate in whole or in part, transfer, lease
or otherwise dispose of any of its assets other than in accordance with the
Transaction Documents, or change its legal structure, fail to preserve its
existence as an entity duly organized, validly existing and in good standing
(if applicable) under the laws of the jurisdiction of its incorporation or to
the fullest extent permitted by law, seek dissolution or winding up in whole,
or in part.

 

(iv)                              The Borrower shall allocate all overhead expenses (other than expenses
allocable to the Borrower’s use of office space made available by an Affiliate)
for items shared between the Borrower and such Affiliate, on the basis of
actual use to the extent practicable and, to the extent such allocation is not
practicable, on a basis reasonably related to actual use.

 

(v)                                 The Borrower shall ensure that all actions of the Borrower are duly
authorized by its authorized officers, as appropriate.

 

(vi)                              The Borrower shall maintain its bank accounts, books and records
separately from those of its Affiliates, and use the name “Golden Gate III Vermont
Captive Insurance Company” in all correspondence, and use separate invoices and
checks.

 

(vii)                           The Borrower shall maintain its own records, books, resolutions and
agreements, and such books and records shall be adequate and sufficient to
identify all of its assets.

 

(viii)                        The Borrower shall prepare financial statements for itself that are
separate from the financial statements and accounting records of its
Affiliates; provided, that the Borrower may permit such financial
statements to be part of the consolidated financial statements of another
entity which acknowledges that the Borrower is a separate entity.

 

(ix)                                The Borrower shall not commingle funds or other assets of the Borrower
with those of its Affiliates or any other Person and shall not maintain bank
accounts or other depository accounts to which any of its Affiliates are an
account party, into which any of its Affiliates makes deposits or from which
any of its Affiliates have the authority to make withdrawals, except that any
Affiliate of the Borrower may deposit funds and assets owed to the Borrower
pursuant to the PLC Service Agreements, Administrative Services Agreement and
Investment Management Agreement into, and any Affiliate of the Borrower may
withdraw funds and assets owed to such Affiliate pursuant to the PLC Service
Agreements, Administrative Services Agreement and Investment Management
Agreement from, the Administrative Account.

 

(x)                                   The Borrower shall hold its assets in its own name.

 

(xi)                                The Borrower shall maintain its assets in such a manner that it is not,
or will not be, costly or difficult to segregate, identify or ascertain its
assets from those of any other Person.

 

150

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(xii)                             The Borrower shall not permit any of its Affiliates to pay any of the
Borrower’s operating expenses, unless such operating expenses are paid by such
Affiliate pursuant to a Transaction Document or an agreement between such
Affiliate and the Borrower providing for the allocation of such expenses.

 

(xiii)                          The Borrower shall at all times act solely in its own name and through
its duly authorized officers or agents in order for the Borrower to maintain an
arm’s-length relationship its Affiliates. 
The Borrower shall not enter into any contract with an Affiliate except
on terms that are fair and equitable.

 

(xiv)                         The Borrower shall conduct its business solely in its own name so as to
not mislead third parties as to the identity of the Borrower with which such
third parties are conducting business, and shall use all reasonable efforts to
avoid the appearance that it is conducting business on behalf any Affiliate or
that the assets of the Borrower are directly available to pay the creditors of
any Affiliate.

 

(xv)                            The Borrower shall not consent to any of its Affiliates granting
consensual material Liens on the Borrower’s property or assets.  The Borrower shall maintain its assets in
such a manner that it is not costly or difficult to segregate, identify or
ascertain such assets.

 

(xvi)                         Subject to the Transaction Expense Support Agreement and the PLC
Guarantee, the Borrower shall pay its own liabilities and expenses out of its
own funds drawn on its own bank account.

 

(xvii)                      The Borrower shall not assume, guarantee, become obligated for, pay, hold
itself out to be responsible for or pledge its assets in support of, the
Indebtedness or obligations of any Affiliate or controlling persons or any
other Person and, except as permitted or required pursuant to the Transaction
Documents and the transactions contemplated therein, shall not create, incur,
assume, guarantee, acquire, or, contingently or otherwise, enter into or become
responsible for payment of any Indebtedness or guarantees or consent to any of
its Affiliates assuming, granting, becoming obligated for, paying or holding
itself out to be responsible for the Indebtedness or obligations of the
Borrower.

 

(xviii)                   The Borrower shall not acquire obligations or securities of any
Affiliates.  The Borrower shall not hold
out its credit to any person as available to satisfy the obligation of any
other Person or entity.  The Borrower
shall not pledge its assets for the benefit of any other entity or make any
loans or advances to any Person or entity except as provided in the Transaction
Documents.

 

(xix)                           The Borrower shall observe strictly all organizational and procedural
formalities required by this Agreement, its articles of incorporation and its
by-laws, and by applicable law.

 

(xx)                              The Borrower shall not hold itself out as or be considered as a
department or division of (A) any shareholder, partner, principal, member
or Affiliate of the Borrower, (B) any Affiliate of a shareholder, partner,
principal, 

 

151

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

member
or Affiliate of the Borrower or (C) any other Person or allow any Person
to identify the Borrower as a department or division of that Person.

 

(xxi)                           The Borrower shall not conceal assets from any creditor, or enter into
any transaction with the intent to hinder, delay or defraud creditors of the
Borrower or the creditors of any other Person.

 

(xxii)                        As of the date hereof, the Borrower shall have adequate capital.

 

(xxiii)                     The Borrower shall have at least one Independent Director who is not on
the board of directors of its sole shareholder of common stock and shall cause
its board of directors to observe all other corporate formalities.

 

(xxiv)                    The Borrower shall use all reasonable efforts to cause its agents,
service providers and other representatives to act at all times without
contravention of the foregoing covenants.

 

(m)                               Taxes.  The Borrower shall file any material Tax
return that is required to be filed by it in any jurisdiction or pay any
material Tax, assessment, charge or fee due and payable with respect to its
properties and assets, other than those being contested in good faith in which
case it shall take all reasonable steps to defend any action brought by a
taxing authority with respect to such Tax, assessment, charge or fee.

 

(n)                                 Expenses.  The Borrower shall reimburse the Issuing
Lender for all reasonable out-of-pocket expenses and other reasonable costs
(including any legal fees and actuarial fees) incurred in connection with (i) the
negotiation and preparation of the Transaction Documents on or prior to the
date hereof, but not to exceed $[****] in aggregate, (ii) in connection
with the negotiation and preparation of any amendment to this Agreement, but
not to exceed $[****] in aggregate per amendment, in the case of (i) or
(ii), without the consent of the Borrower, such consent not to be unreasonably
withheld or delayed, and (iii) any Event of Default.

 

(o)                                 No Future Issuances of Securities.  The Borrower shall not issue or sell any
bonds, notes, debentures, or other debt securities of the Borrower, or any
other securities of the Borrower, and shall not enter into any subscriptions,
options, warrants, conversion or other rights, agreements, commitments,
arrangements or understandings of any kind, contingently or otherwise, for the
sale of any such securities or any securities convertible into or exchangeable
for any such securities, except with respect to, in each case, Surplus Notes.

 

(p)                                 Maintenance of  Accounts.  The Borrower shall at all times
maintain (or in the case of the Reinsurance Trust Account, cause to be
maintained) (i) the Regulatory Account in accordance with Section 3.01,(ii) the
Surplus Account in accordance with Section 3.02 and (iii) the
Reinsurance Trust Account in accordance with the Reinsurance Trust Agreement.

 

(q)                                 Investments in Regulatory Account.  The Borrower shall not make or permit to be
made any investments of assets held in the Regulatory Account other than in
Cash and Cash Equivalents.

 

152

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(r)                                    Investments in Surplus Account and Reinsurance Trust Account.  The Borrower shall not make or
permit to be made any investments of assets (other than the Letter of Credit)
held in the Surplus Account and Reinsurance Trust Account other than in
accordance in all material respects with the Investment Guidelines and in
compliance in all material respects with applicable law, including ensuring
that the Investment Guidelines comply in all material respects with applicable
insurance laws and regulations.

 

(s)                                  No New Business.  With respect to the Reinsured Policies, no
new insurance or reinsurance treaties shall be reinsured by the Borrower after
the Closing Date, other than as expressly permitted under the Reinsurance
Agreement or Section 6.01(h)(ii).

 

(t)                                    Security Interest.  The Borrower shall not grant a security
interest in any of the Collateral and shall not otherwise create, incur, assume
or permit any liens, mortgages, security interests, pledges, charges, or
encumbrances of any kind on any of its property or assets owned on the date
hereof or thereafter acquired, or any interest therein or the proceeds thereof,
in each case other than Permitted Liens or as expressly permitted in this
Agreement or any other Transaction Document. 
Subject to the Priority of Payments and its obligations under this
Agreement and the other Transaction Documents, the Borrower shall not take
any action, or fail to take any action, with respect to the Collateral other
than the Transaction Documents or any rights thereunder, if such action or
failure to take action would reasonably be expected to interfere with the
enforcement of any rights hereunder material to the Issuing Lender.

 

(u)                                 Change of Control.  The Borrower shall at all times remain an
Affiliate of the Ceding Company and a direct Subsidiary of PLICO; provided,
that nothing herein or in any of the Transaction Documents shall prevent the
Ceding Company or any other Affiliate of the Borrower from consolidating with
or merging into any other Affiliate of PLC (other than the Borrower) or require
any consent, waiver or approval of or by the Issuing Lender therefor.  The Borrower shall not consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, and the Borrower shall not
permit any Person to consolidate with or merge into the Borrower or convey,
transfer or lease its properties and assets substantially as an entirety to the
Borrower.

 

(v)                                 Subsidiaries.  The Borrower shall not have any Subsidiaries.

 

(w)                               Transaction Documents.  The Borrower shall deliver to the Issuing
Lender copies of any executed (or, if execution is inapplicable, otherwise
finalized) Transaction Documents.

 

(x)                                   Regulations T, U and X.  No proceeds of the Letter of Credit will be
used in violation of Regulation T, U or X of the Board of Governors of the
Federal Reserve System, as in effect from time to time.

 

(y)                                 Changes in Accounting Practices.  Except for permitted practices provided for
in the Licensing Order, the Borrower shall not seek approval from the Vermont
Commissioner in any respect of, and shall not implement, any permitted practice
under SAP as permitted by the State of Vermont without the prior written
consent of the Issuing Lender, such consent not to be unreasonably withheld.

 

153

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

(z)                                   Ratings.  In the event that S&P ceases to issue a
Counterparty Risk Rating for the Borrower for any reason other than at the
request of the Borrower, the Borrower shall seek a substitute rating from Moody’s
or Fitch.  The Borrower shall obtain the
written consent of the Issuing Lender prior to requesting that S&P cease to
issue a Counterparty Risk Rating for the Borrower unless a substitute rating
from Moody’s or Fitch has already been obtained.

 

(aa)                            Independent Director.  The Borrower shall not replace or appoint any
director that is to serve as an Independent Director unless (i) the
Borrower provides the Issuing Lender with ten (10) Business Days prior
written notice of such replacement or appointment, (ii) a Responsible
Officer of the Borrower certifies that the designated Person satisfied the
criteria set forth in the definition of “Independent Director” herein and
(iii) the Issuing Lender acknowledges, in writing, that in its reasonable
judgment the designated Person satisfies the criteria set forth in the
definition of “Independent Director” herein or fails to respond to a request
for such acknowledgement within ten (10) Business Days of such request.

 

(bb)                          Surplus Notes.  During the term of this Agreement, the
Borrower may from time to time issue surplus notes (“Surplus Notes”); provided,
that any such Surplus Notes of the Borrower (i) shall be subordinate at
all times in right of payment of principal, interest or premium and any other
amounts with respect thereto to all fees, expenses, LOC Reimbursement
Obligations and other amounts due in connection with this Agreement and the
Letter of Credit as provided in and pursuant to the terms of the Priority of
Payments, (ii) shall bear interest at a rate not to exceed the
then-applicable 5-year benchmark Treasury Rate plus [****] bps, (iii) shall
not have a maturity date earlier than one year and one day following the later
of (A) the Facility Maturity Date and (B) the date on which no
obligations due hereunder are outstanding, (iv) shall be issued in a form
reasonably acceptable to the Issuing Lender and (v) shall only be issued
at times when the difference between the Statutory Reserves and the Economic
Reserves is greater than the LOC Amount. 
Payments of principal, interest or premium in respect of any Surplus
Notes of the Borrower shall only be made in accordance with, and subject to the
restrictions set forth in, the Priority of Payments.

 

(cc)                            Termination of Letter of Credit.  The Borrower shall, upon a termination of the
Letter of Credit pursuant to Section 2.02, within thirty (30)
calendar days of the effective date of such termination, (i) deliver
written notice of such termination to the Issuing Lender and (ii) return
the Letter of Credit to the Issuing Lender for cancellation in full.

 

(dd)                          Contribution Notices.  The Borrower shall promptly provide a written
notice to the Issuing Lender upon any (i) receipt of the First Required
Additional Contribution and (ii) receipt of the Second Required Additional
Contribution and the Third Required Additional Contribution, and any such
notice shall include the dates on which such contributions were received by the
Borrower.

 

ARTICLE VII

 

COLLATERAL
AND SECURITY

 

Section 7.01.                             Obligations Secured Hereby.  This Article VII is made to
secure and provide for payment of all amounts due by the Borrower to the
Issuing Lender under this 

 

154

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

Agreement (such obligations and liabilities being in
this Agreement called the “Secured Obligations”).

 

Section 7.02.                             Collateral.

 

(a)                                  The Borrower, as security for the prompt payment and performance of the
Secured Obligations when due, hereby assigns, conveys, transfers, delivers and
sets over to the Issuing Lender, and grants to the Issuing Lender a Lien on and
a security interest in all assets of the Borrower other than its books and
records and its right, title and interest (now existing or hereafter acquired or
arising) in, to and under the Regulatory Account and the Administrative
Account, including the Borrower’s right, title and interest (now existing or
hereafter acquired or arising) in, to and under the following (collectively,
the “Collateral”):

 

(i)                                     the Borrower’s interest, if any, in the Reinsurance Trust Account; provided,
that such Lien and security interest is subject in all cases and in every
respect to the rights of the Reinsurance Trustee in such interest;

 

(ii)                                  the Surplus Account, and all Cash, securities, Instruments and other
property held in the Surplus Account from time to time, and all certificates
and Instruments, if any, from time to time representing the Surplus Account or
any property therein. Notwithstanding the status of the Surplus Account and
financial assets as Collateral, the Surplus Account and such assets shall
remain available to make payments in the priority and to the recipients
identified pursuant tothe Priority of Payments. In addition,  the Issuing Lender agrees not to issue any
Notice of Exclusive Control (as defined in the Securities Account Control
Agreement) unless an Event of Default has occurred and is continuing. The
Issuing Lender hereby authorizes any disposition of property from the Surplus
Account free of any security interest if, and only to the extent that, such
disposition is made, and the proceeds are applied, in accordance with the
Priority of Payments;

 

(iii)                               all rights, if any, of the Borrower in (A) all Cash, securities, Instruments
and other property held or deemed to be held in any express or constructive
trust established pursuant to the terms of the Reinsurance Agreement from time
to time, and (B) all certificates and Instruments, if any, from time to
time representing any such express or constructive trust or any property
therein; provided, that such Lien and security interest is subject in
all cases and in every respect to the rights of the Ceding Company in such
rights;

 

(iv)                              any and all of the following, whether now existing or hereafter arising
and wheresoever the same may be located: all rights of the Borrower under the
Transaction Documents, accounts (other than the Regulatory Account and the
Reinsurance Trust Account), chattel paper, deposit accounts, documents,
equipment, general intangibles, goods, instruments, inventory, investment
property, letters of credit, letter-of-credit rights, payment intangibles,
securities accounts and supporting obligations;

 

155

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(v)                                 all other property or rights delivered or assigned by the Borrower or on
its behalf to the Issuing Lender from time to time under this Agreement or
otherwise, to secure or guarantee payment of the Secured Obligations; and

 

(vi)                              to the extent not covered above, all products and proceeds of, and all
dividends, collections, earnings, accruals, and other payments with respect to,
any or all of the foregoing.

 

Section 7.03.                             Perfection of Security Interest in Collateral.

 

(a)                                  Entitlement Holder.  The Borrower agrees that it is the sole
Entitlement Holder with respect to each Securities Account established
hereunder, and the Issuing Lender will have control (as defined in Section 9-104
of the UCC) over any deposit account established hereunder.

 

(b)                                 Further Assurances.  The Borrower hereby authorizes the Issuing
Lender to file all appropriate UCC filings, including financing or continuation
statements, in any jurisdiction and with any filing offices as the Issuing
Lender may determine, in its reasonable discretion, are necessary to perfect or
otherwise perfect the security interest granted to the Issuing Lender
herein.  The Borrower shall promptly
prepare, file or record, such additional notices, financing statements or other
documents as the Issuing Lender may reasonably request as necessary for the
perfection of the security interests granted to the Issuing Lender hereunder,
such instruments to be in form and substance reasonably satisfactory to the
Issuing Lender.

 

Section 7.04.                             Continuing Security Interest, Termination.

 

(a)                                  This Agreement shall create a continuing security interest in the
Collateral in favor of the Issuing Lender and shall remain in full force and
effect in accordance with its terms until all of the Secured Obligations are
paid or satisfied in full.

 

(b)                                 The security interest created by this Agreement shall not be considered
satisfied by payment or satisfaction of any part of the Secured Obligations to
the Issuing Lender hereby secured but shall be a continuing security interest
and shall not be discharged, prejudiced or affected in any way by time being
given to the Borrower or by any other indulgence or concession to the Borrower
granted by the Issuing Lender, by the taking, holding, varying, non-enforcement
or release by the Issuing Lender of any other security for all or any of the
Secured Obligations, by any other thing done or omitted to be done by the
Issuing Lender or any other Person or by any other dealing or thing including
any variation of or amendment to any part of the Collateral and any
circumstances whatsoever that but for this provision might operate to discharge
any of the Secured Obligations or to exonerate or discharge the Borrower from
its obligations hereunder or otherwise affect the security interest hereby
created.

 

Section 7.05.                             Protection of Collateral.

 

(a)                                  The Borrower shall take any action necessary to:

 

(i)                                     maintain or preserve any and all Liens created by this Agreement on the
Collateral (and the priorities thereof);

 

156

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

(ii)                                  perfect or protect the validity of the pledge of Collateral and the Liens
created by this Agreement;

 

(iii)                               enforce, if commercially reasonable, any rights with respect to the
Collateral; and

 

(iv)                              preserve and defend, if commercially reasonable, title to the Collateral
and the rights of the Issuing Lender in such Collateral against the claims of
all Persons.

 

Section 7.06.                             Performance of Obligations.

 

(a)                                  The Borrower may contract with other Persons to assist it in performing
its duties under this Agreement, and any performance of such duties by a Person
identified to the Issuing Lender in an officer’s certificate of the Borrower
shall be deemed to be action taken by the Borrower.

 

(b)                                 The Borrower shall perform and observe all its obligations and agreements
contained in this Agreement, including, filing or causing to be filed all
documents required to be filed by the terms of this Agreement in accordance
with, and within the time periods provided for, in this Agreement and therein.

 

Section 7.07.                             Power of Attorney.  The Borrower hereby irrevocably appoints the
Issuing Lender and any receiver, officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in fact with full power and
authority, in each case, to the maximum extent permitted by law, in the name of
the Borrower or the name of such attorney-in-fact, from time to time in the
Issuing Lender’s reasonable discretion for the purpose of taking such action
and executing such agreements, financing statements, continuation statements,
instruments and other documents, in the name of the Borrower, as provided in
this Agreement and as the Issuing Lender may reasonably deem necessary to
perfect, promote and protect and enforce the security interest of the Issuing
Lender in the Collateral. 
Notwithstanding the foregoing or anything else in this Agreement to the
contrary, the Issuing Lender has no responsibility for the validity,
perfection, priority or enforceability of any Lien or security interest and
shall have no obligation to take any action to procure or maintain such
validity, perfection, priority or enforceability.  This power of attorney shall be irrevocable
as one coupled with an interest prior to the payment in full of all the
obligations secured hereby until all amounts due and payable hereunder have
been finally and fully repaid and the Letter of Credit is terminated.

 

Section 7.08.                             No Pledge of Collateral to Others.  The Borrower shall not (i) create, incur
or suffer to exist, or agree to create, incur or suffer to exist, or consent to
cause or permit in the future (upon the happening of a contingency or
otherwise) the creation, incurrence or existence of any Lien on the Collateral
except for (a) Liens the validity of which are being contested in good
faith by appropriate proceedings, (b) Liens for Taxes that are not then
due and payable or that can be paid thereafter without penalty, (c) Liens
otherwise incurred in connection with borrowings permitted hereunder and made
in the ordinary course of business in accordance with the Borrower’s stated
investment objectives, policies and restrictions, (d) Liens in favor of the
Issuing Lender and (e) other Permitted Liens or (ii) sign or file under
the UCC of any 

 

157

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

jurisdiction any financing statement which names the
Borrower as a debtor, or sign any security agreement authorizing any secured
party thereunder to file such financing statement, except in each case any such
Instrument solely securing the rights and preserving the Lien of the Issuing
Lender.

 

Section 7.09.                             No Change in Borrower Name, Structure or
Office.  The Borrower will not change
its name or jurisdictions of organization unless it has taken such action in
advance of such change or removal, if any, or change its mailing addresses
unless it has taken such action within fifteen (15) calendar days of such
change, in each case as is necessary to cause the security interests of the
Issuing Lender in the Collateral to continue to be perfected without
interruption.

 

Section 7.10.                             Release of Collateral.  Upon the payment in full of all Secured
Obligations or upon the other circumstances specified in this Agreement, all of
the Collateral shall be released from the Liens created hereby, the security
interest created hereby and all rights of the Issuing Lender in such Collateral
shall cease, and any remaining amounts or assets held in the Cash Collateral
Account or Surplus Account shall be transferred to, or for the account of, the
Borrower, and all rights to the Collateral shall revert to the Borrower or any
other Person entitled thereto.  At such
time, the Issuing Lender will authorize the filing of appropriate termination
statements and other instruments and documents reasonably requested by the
Borrower to terminate such security interests.

 

Section 7.11.                             Notice of Exclusive Control.  The Issuing Lender shall not deliver a Notice
of Exclusive Control (as defined in the Securities Account Control Agreement)
under the Securities Account Control Agreement unless an Event of Default shall
have occurred and be continuing.

 

ARTICLE VIII

 

EVENTS OF
DEFAULT

 

Section 8.01.                             Events of Default.  If any of the following events (“Events of
Default”) shall occur:

 

(a)                                  the Borrower shall fail to make any payment of an LOC Reimbursement Obligation
(including any applicable interest thereon), immediately following the date on
which, and to the fullest extent that, funds become available in accordance
with the Priority of Payments and the Payment Restrictions, to the Issuing
Lender under this Agreement or any other Transaction Document to which it is a
party and such failure to make payment shall continue for two (2) Business
Days; provided, that such failure shall not constitute an Event of
Default (A) in the case of any unpaid LOC Reimbursement Obligations, such
payment would cause the Borrower’s Total Adjusted Capital following such
payment to be less than [****] percent ([****]%) of its Company Action Level
Risk Based Capital and no Approval has been given by the Vermont Commissioner
in respect of such payment, or (B) if and to the extent the Borrower fails
to pay any such amounts when due at a time when the Market Value of the assets
(if any) in the Surplus Account equals zero;

 

158

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

(b)                                 the Borrower shall fail to pay when due any amount payable to the Issuing
Lender under this Agreement, or if in excess of $[****], any other Transaction
Documents to which it is a party (including the posting of collateral and any
applicable interest payments) other than any LOC Reimbursement Obligation or
any interest thereon, (i) with respect to the payment of any Fees that are
due and payable, immediately following the date on which, and to the fullest
extent that, funds become available in accordance with the Priority of Payments
and, with respect to the payment of any Fees which are due and payable, such
failure to make payment shall continue for two (2) Business Days after the
date due or, (ii) with respect to any payment subject to this Section 8.01(b) other
than the payment of any Fees which are due and payable, immediately following
the date on which, and to the fullest extent that, funds become available in accordance
with the Priority of Payments, and such failure to make payment shall continue
for five (5) Business Days after written notice from the Issuing Lender; provided,
that in the case of both (i) and (ii), such failure shall not constitute
an Event of Default if and to the extent the Borrower fails to pay any such
amounts when due at a time when the Market Value of the assets (if any) in the
Surplus Account equals zero; provided, further, that in the case
of (i), such failure shall not constitute an Event of Default if the failure to
pay is a result of the illegality, unlawfulness or conflict with any applicable
insurance law, rule or regulation of the Borrower paying any Fee (or
portion thereof) hereunder and the amount the Borrower has failed to pay has
been paid or satisfied by PLC under the PLC Guarantee when required thereunder;

 

(c)                                  any representation or warranty made or deemed to be made by the Borrower
or the Ceding Company in any Transaction Document to which it is a party shall
prove to have been incorrect or untrue in any material respect when made or
deemed to be made, as the case may be;

 

(d)                                 a final non-appealable judgment or judgments for the payment of money in
excess of, in the aggregate, $[****] in the case of the Borrower or $[****] in
the case of the Ceding Company, to the extent not paid or covered by insurance,
is rendered by one or more Governmental Authorities against the Borrower or the
Ceding Company, as applicable, and that the same is not discharged, vacated,
bonded or stayed within ninety (90) calendar days;

 

(e)                                  except as otherwise set forth in Sections 8.01(a) or (b),
the Borrower shall fail to observe or perform, in any material respect, its
obligations pursuant to Article VI, and such failure shall continue
for thirty (30) calendar days after written notice from the Issuing Lender; provided,
however, that such thirty (30) calendar day grace period will not apply,
to the extent notice of such breach is required to be given under any section
of Article VI, in the event that the Borrower has provided the
Issuing Lender notice of such breach more than sixty (60) calendar days
following the first day on which the Borrower has knowledge of such breach;

 

(f)                                    the Ceding Company shall fail to observe or perform its obligations in
any material respect pursuant to Sections 2(d) (Draw Certification
Notice), 2(e) (Impermissible Draw) and 2(f) (Compliance)
of the Ceding Company Letter Agreement, and such failure shall continue for
thirty (30) calendar days after written notice from the Issuing Lender;

 

(g)                                 (i) any Transaction Document becomes illegal or it becomes unlawful
for the Borrower or the Ceding Company to perform their respective obligations
under this Agreement or any other Transaction Document in any material respect
or (ii) the performance of 

 

159

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

the Borrower’s obligations
under this Agreement or any other Transaction Document conflicts with any
applicable insurance law, rule or regulation in any material respect, and,
in each case, such obligations are not paid or satisfied by PLC under the PLC
Guarantee when required thereunder;

 

(h)                                 any transaction occurs, whether a merger, sale, asset sale or otherwise,
as a result of which the Borrower fails to be an Affiliate of the Ceding
Company or a direct Subsidiary of PLICO;

 

(i)                                     the Borrower or the Ceding Company shall (i) voluntarily commence
any proceeding or file any petition seeking liquidation, reorganization or
other relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent to
the institution of any proceeding or petition, (iii) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for the Borrower or the Ceding Company or for a substantial
part of any of their respective assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or
(vi) take any action for the purpose of authorizing or effecting any of
the foregoing;

 

(j)                                     an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Borrower or the Ceding Company, or their respective debts, under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar law
now or hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower or
the Ceding Company, and, in any such case, such proceeding or petition shall
continue undismissed for thirty (30) calendar days;

 

(k)                                  The Issuing Lender’s lien on any material portion of the Collateral shall
cease to be, subject to the Permitted Liens, a valid first priority perfected
security interest;

 

(l)                                     PLC shall fail to pay (i) any amount in excess of $[****] payable to
or explicitly required to be made on behalf of the Borrower under the Tax
Sharing Agreement or the Special Tax Allocation Agreement within thirty (30)
calendar days from the date on which such payment was due and payable; or

 

(m)                               the Tax Sharing Agreement or the Special Tax Allocation Agreement shall
be amended, there shall be a termination of the Special Tax Allocation
Agreement, or there shall be a termination of the rights of the Borrower with
respect to PLC and the obligations of PLC with respect to the Borrower under
the Tax Sharing Agreement, in each case without the prior written consent of
the Issuing Lender (such consent not to be unreasonably withheld) and such
amendment or termination adversely affects, in any material respect, the rights,
remedies or obligations of the Borrower under such agreement;

 

(n)                                 PLC shall fail to pay any amount in excess of $[****] payable to the
Borrower under the PLC Guarantee within three (3) Business Days from the
date on which such payment was due;

 

160

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

then,
upon the occurrence and during the continuance of any Event of Default (except
in the case of item (iii) below which shall only apply with respect to an
Event of Default described in either Section 8.01(a) or (b)),
subject to any applicable grace period, the Issuing Lender may declare that
(i) all LOC Reimbursement Obligations and other amounts outstanding shall,
at the option of the Issuing Lender, accelerate and become immediately due and
payable by the Borrower from the available funds of the Borrower subject to the
Priority of Payments and, solely with respect to LOC Reimbursement Obligations,
the Payment Restrictions; (ii) the Borrower will be required to post cash
collateral in an amount equal to the undrawn face amount of the Letter of
Credit, such collateral to be paid as and when available with respect to the
Borrower under item Eighth of the Priority of Payments and to be held in
the Cash Collateral Account; (iii) the Issuing Lender may foreclose on the
Collateral (but only, for the avoidance of doubt, with respect to an Event of
Default described in either Section 8.01(a) or (b);
(iv) the Issuing Lender may enforce in the name of the Borrower any rights
of the Borrower under the Transaction Documents to the extent permitted under
the collateral assignment of such rights set forth in Section 9.09;
and (v) the Borrower shall cease to be allowed to declare or pay any
dividends (other than any Special Dividend). 
Notwithstanding the foregoing, the occurrence and continuation of an
Event of Default shall not impair or otherwise affect the Reinsurance Trustee’s
right to draw on the Letter of Credit in accordance with its terms (it being
understood that any assets of the Borrower pledged as collateral in accordance
with clause (ii) and foreclosed upon in accordance with
clause (iii), of the immediately preceding sentence shall be deemed to
have been used to satisfy amounts due and payable under the Reinsurance
Agreement for purposes of satisfying the condition to drawing on the Letter of
Credit described in Section 2.01(a)).

 

So
long as the Letter of Credit shall remain outstanding, the Issuing Lender shall
hold the Cash Collateral Account, which account and all assets thereof shall be
held separate and apart from all its other assets and accounts in the name of
and subject to the control and dominion of the Issuing Lender, as cash
collateral for the obligations of the Borrower owing to the Issuing Lender hereunder.  Assets of the Cash Collateral Account shall
be Cash or Cash Equivalents, except as otherwise agreed by the Borrower.  Upon the termination of the Letter of Credit
in full, and the payment in full of all secured obligations, the Issuing Lender
shall release all funds and investments held in the Cash Collateral Account to
or upon the account of the Borrower.

 

ARTICLE IX

 

MISCELLANEOUS

 

Section 9.01.          Notices.  Except as otherwise provided herein and in
the case of notices and other communications expressly permitted to be given by
telephone, all notices and other communications provided for herein shall be in
writing (including by electronic transmission) and shall be delivered by hand
or overnight courier service, mailed by certified or registered mail or sent by
electronic mail with PDF attachment and confirmed by overnight courier service,
as follows:

 

161

 

Certain portions of this Exhibit
have been omitted pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

	
  Borrower:

  	
  Golden
  Gate III Vermont Captive Insurance Company

  c/o
  Marsh Management Services, Inc.

  
	
   

  	
  100
  Bank Street

  
	
   

  	
  Burlington,
  VT 05402

  
	
   

  	
  Fax:  (802) 859-3550

   

  with a copy to:

   

  Protective Life Insurance
  Corporation

  2801 Highway 280 South

  Birmingham, AL 35223

  Attention: General Counsel

  Fax: (205) 268-3597

  
	
   

  	
   

  
	
  Ceding
  Company:

  	
  West
  Coast Life Insurance Company

  
	
   

  	
  2801
  Highway 280 South

  
	
   

  	
  Birmingham,
  AL 35223

  
	
   

  	
  Attention:  General Counsel

  
	
   

  	
  Fax:  (205) 268-3597

  
	
   

  	
   

  
	
  Issuing
  Lender:

  	
  UBS
  AG, Stamford Branch

  
	
   

  	
  677
  Washington Boulevard

  
	
   

  	
  Stamford,
  CT 06901

  
	
   

  	
  Attention:  Banking Products Services

  
	
   

  	
   

  
	
   

  	
  with
  a copies to

  
	
   

  	
   

  
	
   

  	
  UBS
  AG, Stamford Branch

  
	
   

  	
  677
  Washington Boulevard

  
	
   

  	
  Stamford,
  CT 06901

  
	
   

  	
  Attention:  Structured Fixed Income

  
	
   

  	
  Fax:
  (203) 719-2941

  
	
   

  	
   

  
	
   

  	
  and

  
	
   

  	
   

  
	
   

  	
  UBS
  AG, Stamford Branch

  
	
   

  	
  677
  Washington Boulevard

  
	
   

  	
  Stamford,
  CT 06901

  
	
   

  	
  Attention:  Fixed Income Legal

  
	
   

  	
  Fax:
  (203) 719-0680

  

 

Any
party hereto may change its address (street or email) for notices and other
communications hereunder by notice to the other parties hereto.  All notices and other 

 

162

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

communications
given to any party hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the date of receipt.

 

Section 9.02.          Waivers; Amendments.  Except as otherwise provided herein, neither
this Agreement nor any provision hereof may be waived, amended or modified
except pursuant to an agreement or agreements in writing entered into by each
of the Borrower and the Issuing Lender.

 

Section 9.03.          Survival of Representations and Warranties.  All representations and warranties contained
herein shall survive the execution and delivery of this Agreement and issuance
of the Letter of Credit.  Such
representations and warranties have been or may be relied upon by the Issuing
Lender regardless of any investigation made at any time by or on behalf of the
Issuing Lender.

 

Section 9.04.          Indemnity.  Irrespective of whether the LOC Commitment or
the Letter of Credit is terminated, the Borrower agrees to indemnify jointly
and severally the Issuing Lender and each Related Party of the Issuing Lender
(each such Person being called an “Indemnitee”) against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the reasonable and documented fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted
against any Indemnitee by any third party arising out of, or as a result of any
actual claim, litigation, investigation or proceeding relating to (i) the
execution or delivery of this Agreement or the performance by the parties
hereto of their respective obligations hereunder or (ii) the Letter of
Credit or any LOC Disbursement regardless of whether any Indemnitee is a party
thereto but excluding in each case any actual or threatened claim, litigation,
investigation or proceeding solely among Indemnitees and/or Participants and/or
Lender Counterparties; provided, that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses have resulted from the gross negligence, bad
faith or willful misconduct of any Indemnitee; provided, further,
that such indemnity shall be subject to, and only payable in accordance with,
the Priority of Payments and, solely with respect to LOC Reimbursement
Obligations, the Payment Restrictions, including, without limitation, as may
limit or restrict payment of any LOC Reimbursement Obligation or interest
thereon.  It is understood and agreed
that, to the extent not precluded by a conflict of interest, each Indemnitee
shall endeavor to work cooperatively with the Borrower with a view toward
minimizing the legal and other expenses associated with any defense and any
potential settlement or judgment.  To the
extent reasonably practicable and not disadvantageous to any Indemnitee and in
the absence of any conflict of interest, a single counsel selected by the
Borrower, and approved by the Indemnitee, may be used.  Settlement of any claim or litigation
involving any material indemnified amount will require the approvals of the
Borrower (not to be unreasonably withheld) and the relevant Indemnitee (not to
be unreasonably withheld or delayed).

 

Section 9.05.          Successors and Assigns; Participations and
Assignments.

 

(a)           The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns (including, if applicable, any Affiliate of
the Issuing Lender), except that (y) the Borrower may not assign or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of 

 

163

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

the Issuing Lender (and
any attempted assignment or transfer by the Borrower without such consent shall
be null and void) and (z) the Issuing Lender may not assign or otherwise
transfer its rights or obligations under this Agreement except in accordance
with this Section 9.05.

 

(b)           Any assignment under this Agreement
by the Issuing Lender, any Assignee or any assignees thereof (each, an “Assignee”)
to any Person that is not an Affiliate of the Issuing Lender may only be made
(i) pursuant to an Assignment and Acceptance Agreement in the form of Exhibit E
attached hereto, (ii) to a Person that, at the time of such assignment, is
an Eligible Bank that is not on the Restricted List and (iii) with the
prior written consent of the Borrower (which consent shall not be unreasonably
withheld, delayed or conditioned), and any attempted assignment in violation of
this Section 9.05(b) shall be void ab initio.

 

(c)           Any assignment under this Agreement
by the Issuing Lender to any Person that is an Affiliate of the Issuing Lender
may only be made pursuant to an Assignment and Acceptance Agreement in the form
of Exhibit E attached hereto and to a Person which, at the time of
such assignment, (i) is an Eligible Bank that is not on the Restricted
List and (ii) has a financial strength rating from S&P (or an
equivalent rating by Moody’s or Fitch) which is equivalent to or higher than
the financial strength rating of the assigning Issuing Lender from S&P (or
an equivalent rating by Moody’s or Fitch), and any attempted assignment in
violation of this Section 9.05(c) shall be void ab initio.

 

(d)           Notwithstanding anything herein to
the contrary, in no event shall the Issuing Lender be released from its
obligations under the Letter of Credit prior to its termination, nor shall it
cease to be a party hereto, nor shall it cease to retain at least [****] percent
([****]%) of all rights, obligations, assignments, participations, commitments
and interests of the Issuing Lender under this Agreement.

 

(e)           The Issuing Lender may, without the
consent of the Borrower and subject to Section 9.05(d), sell
participations to one or more banks or other entities (a “Participant”)
in not more than [****] percent ([****]%) of the Issuing Lender’s rights and
obligations under this Agreement (including not more than [****] percent
([****]%) of the LOC Commitment); provided, that (i) the Issuing
Lender’s obligations under this Agreement shall remain unchanged, (ii) the
Issuing Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations and (iii) the Borrower shall continue
to deal solely and directly with the Issuing Lender in connection with the
Issuing Lender’s rights and obligations under this Agreement.  Any agreement pursuant to which the Issuing
Lender sells such a participation shall provide that the Issuing Lender shall
retain the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided,
that such agreement may provide that the Issuing Lender will not, without the
consent of the Required Participants, agree to (A) extend the Final Maturity
Date of the Letter of Credit (B) reduce the principal amount due with
respect to any LOC Reimbursement Obligation or (C) reduce the Drawn Rate.

 

(f)            The Issuing Lender may at any time
pledge or assign a security interest in all or any portion of its rights under
this Agreement to secure obligations of the Issuing Lender, including any
pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 9.05
shall not apply to any such pledge or assignment of a security interest; provided,

 

164

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

that no such pledge or
assignment of a security interest shall release the Issuing Lender from any of
its obligations hereunder or substitute any such pledgee or Assignee for the
Issuing Lender as a party hereto.

 

Section 9.06.          Counterparts; Integration; Effectiveness.  This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract.  This
Agreement constitutes the entire contract among the parties relating to the
subject matter hereof and supersedes any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof.  Subject to Section 5.01, this
Agreement shall become effective when it shall have been executed by the parties
hereto and when the parties have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. 
Delivery of an executed counterpart of a signature page of this
Agreement by telecopy or electronic mail with PDF attachment shall be effective
as delivery of a manually executed counterpart of this Agreement.

 

Section 9.07.          Governing Law; Jurisdiction.

 

(a)           This Agreement shall be construed in
accordance with and governed by the law of the State of New York.

 

(b)           Each party hereto hereby irrevocably
and unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement, or for recognition or enforcement
of any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. 
Each party hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.  Nothing in this Agreement shall affect any
right that any party may otherwise have to bring any action or proceeding
relating to this Agreement against any other party or its properties in the
courts of any jurisdiction.

 

Section 9.08.          Right of Setoff.  If any amount shall have become due and
payable by the Borrower hereunder, whether due to maturity, acceleration or
otherwise, the Issuing Lender is hereby authorized, at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by the Issuing Lender to or
for the credit or the account of the Borrower under this Agreement (other than
any amount payable under the Letter of Credit) against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement held
by the Issuing Lender, irrespective of whether or not the Issuing Lender shall
have made any demand under this Agreement. 
Without limiting or otherwise affecting the provisions of the Letter of
Credit, the Issuing Lender shall have no right under any circumstances to set
off or apply any amount payable under the Letter of Credit against any obligation
of or amount payable by the Borrower, whether or not under this 

 

165

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

Agreement. 
The rights of the Issuing Lender under this Section 9.08 are
in addition to any other rights and remedies which the Issuing Lender may have.

 

Section 9.09.          Collateral Assignment of Rights.  The Borrower hereby irrevocably collaterally
assigns to the Issuing Lender (a) upon the occurrence and during the
continuance of an Event of Default, the right to enforce in the name of
the Borrower any right of the Borrower under the Transaction Documents (other
than this Agreement) and (b) upon the failure of the Borrower to use its
reasonable best efforts enforce its rights to compel performance of required
contractual obligations or to pursue remedies available to it under the
Transaction Documents to which it is a party (other than this Agreement), in
each case within seven (7) Business Days following receipt of written notice
from the Issuing Lender requesting such enforcement by the Borrower and
identifying the specific breach of the Transaction Document (other than this
Agreement), the right to enforce in the name of the Borrower and the right to
compel performance of required contractual obligations or remedies available to
the Borrower under the applicable Transaction Document (other than this
Agreement) with respect to the identified breach, in connection with which the
Issuing Lender may pursue in the name of the Borrower (or direct the Borrower
to pursue) any such remedy.

 

Section 9.10.          Expenses.  Subject to Section 6.01(n), each
party shall pay its own expenses incurred in connection with the preparation
and administration of this Agreement or any amendments, modifications or
waivers of the provisions hereof (whether or not the Transactions shall be
consummated), including any fees, charges and disbursements of any counsel in
connection with the enforcement or protection of its rights under this
Agreement, including its rights under this Section 9.10.

 

Section 9.11.          Further Assurances.  The Borrower agrees at its own cost and
expense, to do such further acts and things, and to execute and deliver such
additional instruments (including, without limitation, notices and agreements),
as the Issuing Lender may at any time reasonably request or as may be
reasonably necessary at any time in order better to preserve, insure and
confirm the rights, powers and remedies of the Issuing Lender hereunder.

 

Section 9.12.          Headings.  Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.

 

Section 9.13.          Confidentiality.  Each party to this Agreement agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (i) to such party’s Affiliates’ directors,
officers, employees and agents (so long as such Affiliate is not on the
Restricted List), including accountants, legal counsel and other advisors (it
being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep
such Information confidential), (ii) to the extent requested by any
Governmental Authority or self-regulatory authority having or claiming
jurisdiction over such party or its representatives, (iii) to the extent
required by applicable laws or regulations (including securities laws and
regulations) or by any subpoena or similar legal process, (iv) to any
other party to this Agreement, (v) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (vi) by the Issuing Lender or a
Participant to any 

 

166

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

Participant or counterparty to a hedge transaction
reasonably related to the transactions contemplated hereby (a “Hedge
Counterparty”), or to any prospective Participant or Hedge Counterparty, in
each case that is not on the Restricted List, subject to an agreement
containing confidentiality provisions that are either no less restrictive than
those found in this Section 9.13 or that are satisfactory to the
Borrower, in each case expressly inuring to the benefit of PLC and a copy of which
is promptly provided thereto and to the Issuing Lender (each such agreement a “Confidentiality
Agreement”), (vii) with the consent of the other parties to this
Agreement, (viii) to the extent the Information relates to the tax
treatment and any facts that may be relevant to the tax structure of the
Transactions, (ix) to the extent such Information (a) becomes publicly
available other than as a result of a breach of this Section 9.13
or (b) becomes available to the such party or such party has no actual
knowledge that the provision of such information is in violation of a
confidentiality restriction or (x) to any Lender Counterparty not on the
Restricted List, upon the consent of the Borrower (such consent not to be
unreasonably withheld or delayed); provided, that such Lender
Counterparty enters into a Confidentiality Agreement and further agrees such
Information will not be used in a manner adverse to the Borrower.  For the purposes of this Section 9.13,
“Information” means all information received in connection with this
Agreement or the Transactions from another party to this Agreement, or such
party’s representatives or Affiliates, relating to such party or Affiliate or
such party’s or its Affiliate’s business, other than any such information that
is available on a nonconfidential basis prior to disclosure by such party.

 

Section 9.14.          Special Dividend.  In the event the Ceding Company makes any
payment to the Borrower in excess of that required to be paid under the express
terms of the Reinsurance Agreement as a result of, or following, any
requirement or request of the Ceding Company’s domestic insurance regulator,
whether orally or in writing, therefor (a “Special Payment”), the
Borrower shall, notwithstanding anything herein to the contrary and to the
maximum extent permitted by law, be permitted to pay a dividend (a “Special
Dividend”) in the amount of the proceeds of such payment.

 

Section 9.15.          Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.

 

Section 9.15.          WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

 

Section 9.16.          USA Patriot Act.  The Issuing Lender hereby notifies the
Borrower that pursuant to the requirements of the USA Patriot Act, it is
required to obtain, verify and record information that (i) identifies the
Borrower, (ii) includes the name and address of the Borrower and
(iii) will allow the Issuing Lender to identify the Borrower in accordance
with the USA Patriot Act.

 

167

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

Section 9.17.          Usury Savings Clause.  It is the intention of the parties that all
charges under or in connection with this Agreement and the LOC Reimbursement
Obligations, however denominated, and including (without limitation) all
interest, commitment fees, late charges and loan charges, shall be limited to
the maximum lawful interest rate, if any, that at any time and from time to
time may be contracted for, charged, or received under the laws applicable to
the Issuing Lender, which are presently in effect or, to the extent allowed by
law, under such applicable laws which hereafter be in effect and which allow a
higher maximum non-usurious interest rate than applicable laws now allow (the “Maximum
Lawful Amount”).  Such charges
hereunder shall be characterized and all provisions of this Agreement shall be
construed as to uphold the validity of charges provided for therein to the
fullest possible extent.  Additionally,
all charges hereunder shall be spread over the full permitted term of the LOC
Reimbursement Obligations for the purpose of determining the effective rate
thereof to the fullest possible extent, without regard to prepayment of or the
right to prepay the LOC Reimbursement Obligations.  If for any reason whatsoever, however, any
charges paid or contracted to be paid in respect of the LOC Reimbursement
Obligations shall exceed the Maximum Lawful Amount, then, without any specific
action by the Issuing Lender or the Borrower, the obligation to pay such
interest and/or other charges shall be reduced to the Maximum Lawful Amount in
effect from time to time and any amounts collected by the Issuing Lender or the
Borrower that exceed the Maximum Lawful Amount shall be applied to the
reduction of the principal balance of the LOC Reimbursement Obligations and/or
refunded to the Borrower so that at no time shall the interest or loan charges
paid or payable in respect of the LOC Reimbursement Obligations exceed the
Maximum Lawful Amount.  This provision
shall control every other provision herein and in any and all other agreements
and instruments now existing or hereafter arising between the Borrower and the
Issuing Lender with respect to the LOC Reimbursement Obligations.

 

Section 9.18.          Third Party Beneficiary.  The Ceding Company shall be a third party
beneficiary of Sections 2.01(d), 2.02(b) and 2.02(c).

 

[Remainder of page intentionally left
blank.  Signature page to follow.]

 

168

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

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

 

 

	
   

  	
  GOLDEN
  GATE III VERMONT CAPTIVE INSURANCE COMPANY,

  
	
   

  	
  as
  Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Richard J. Bielen

  
	
   

  	
  Name:
  Richard J. Bielen

  
	
   

  	
  Title:
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  UBS
  AG, STAMFORD BRANCH,

  
	
   

  	
  as
  Issuing Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Irja R. Otsa

  
	
   

  	
  Name:
  Irja R. Otsa

  
	
   

  	
  Title:
  Associate Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/
  Mary E. Evans

  
	
   

  	
  Name:
  Mary E. Evans

  
	
   

  	
  Title:
  Associate Director

  

 

Signature Page to the
Reimbursement Agreement

 

169

 

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

SCHEDULE 1

 

BORROWER REPORTING DOCUMENTS

 

The
Borrower Reporting Documents include:

 

(a)           Not later than sixty
(60) calendar days after the end of each fiscal year of the Borrower, a copy of
the unaudited annual statutory financial statements prepared in accordance with
SAP, and not later than June 1 of each calendar year for the Borrower’s
preceding fiscal year, a copy of the audited financial statements prepared in
accordance with SAP.

 

(b)           Not later than April 10
after the end of each fiscal year of the Borrower, an annual cashflow testing
report by the Borrower’s Appointed Actuary (as such may be appointed by the
Borrower from time to time).

 

(c)           Not later than
forty-five (45) calendar days after the end of each of the four (4) quarterly
periods of each fiscal year of the Borrower, a report of actual to expected
mortality claims and lapses by face amount and by policy count with respect to
the Reinsured Policies.

 

(d)           Not later than
forty-five (45) calendar days after the end of each of the four (4) quarterly
periods of each fiscal year of the Borrower, the applicable reserve amounts
(including XXX Reserves, Economic Reserves, Gross Premium Valuation Reserves
and Claims Liability (each, as defined in the Reinsurance Agreement) of the
Borrower as at the end of such quarter.

 

(e)           Not later than
forty-five (45) calendar days after the end of each of the four (4) quarterly
periods of each fiscal year of the Borrower, information regarding risks
insured with respect to the Reinsured Policies in the same form as the seriatim
policy detail outlined in Exhibit D of the Reinsurance Agreement.

 

(f)            Not later than
forty-five (45) calendar days after the end of each of the first three (3) quarterly
periods of each fiscal year of the Borrower, the unaudited consolidated balance
sheet and income statement (without footnotes) of the Borrower as at the end of
such quarter, in each case prepared in accordance with SAP.

 

(g)           Not later than
forty-five (45) calendar days after the end of each of the first three (3) quarterly
periods of each fiscal year of the Borrower, and not later than sixty (60)
calendar days after the end of each fiscal year of the Borrower, information
regarding the following items: Total Adjusted Capital, Modified Total Adjusted
Capital, deferred tax assets, asset valuation reserves, the Letter of Credit in
excess of Facility Reserves, Company Action Level Risk Based Capital, Required
Additional Contribution and Reduced Contribution.

 

(h)           Not later than
forty-five (45) calendar days after the end of each of the four (4) quarterly
periods of each fiscal year of the Borrower, a settlement statement for the
Reinsured Policies between the Ceding Company and the Borrower.

 

170

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

(i)            Not later than
twenty-five (25) calendar days after the end of each of the twelve (12) monthly
periods of each fiscal year of the Borrower, a listing of the Borrower’s asset
portfolio holdings containing details including, without limitation, security
name, book value, market value, ratings, weighted average life, modified
duration, coupon, interest payment frequency, book yield, market yield and
maturity date, to be supplemented by information contained in a final report to
be provided not later than sixty (60) calendar days after the end of each of
the first, second and third quarterly periods of each fiscal year of the
Borrower, and not later than seventy-five (75) calendar days after the end of
each of the fourth quarterly periods of each fiscal year of the Borrower.

 

(j)            Not later than
fifteen (15) calendar days after the end of each of the twelve (12) monthly
periods of each fiscal year of the Borrower, a listing of the Borrower’s asset
portfolio holdings containing details including CUSIP and par amount.

 

(k)           Within five (5) Business
Days of delivery of any report delivered to S&P, Moody’s or Fitch by the
Borrower, a copy of such report, to the extent the information has not been
previously provided to the Issuing Lender.

 

(l)            Within five (5) Business
Days of delivery or receipt, as applicable, of any material report or notice
delivered to any other party or received from any other party under the
Transaction Documents, a copy of such report.

 

(m)          Within five (5) Business
Days of receipt of any third party actuarial report, opinion or review of the
Borrower, a copy of such report.

 

(n)           Seven (7) Business
Days prior notice of any proposed amendment to the Reinsurance Agreement.

 

(o)           Within five (5) Business
Days of submission or receipt of any material correspondence relating to the
Borrower to or from the Nebraska Director or the Vermont Commissioner, a copy
of such correspondence.

 

(p)           Within five (5) Business
Days of any material permitted accounting practice of the Borrower or other
deviation from SAP that is proposed to be made applicable, a copy of such
proposed deviation.

 

(q)           Written notices for
certain material events as identified in Section 6.01(c) within
the specified time periods.

 

(r)            Promptly after any
internal underwriting audit of the Borrower related to the Reinsurance
Agreement, notice of such audit.

 

(s)           Not later than sixty
(60) calendar days after the end of each of the first, second and third
quarterly periods of each fiscal year of the Borrower, and not later than
seventy-five (75) calendar days after the end of each of the fourth quarterly
periods of each fiscal year of the Borrower, information regarding any payments
made by the Borrower pursuant to the Priority of Payments, including amounts
paid in accordance with each individual item of the Priority of Payments.

 

171

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

(t)            Not later than
ninety (90) calendar days after September 30 of each fiscal year of the
Borrower, information regarding any Dividend Amount payable by the Borrower,
including details on Dividend Test and Dividend Threshold calculations.

 

172

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

SCHEDULE 2

 

DIVIDEND FORMULA

 

No dividends can be declared or paid for any calendar year prior to
[****]. Thereafter, if the Dividend Test is satisfied, dividends, if any, in an
amount not to exceed the Dividend Amount, shall be declared by the Borrower by December 31
(each such date, a “Dividend Declaration Date”) and paid by January 30
of the following year (i.e., the first Dividend Declaration Date would be in
[****] and such dividend would be required to be paid by the Borrower by
[****].

 

The annual period for calculation of dividends in any given calendar
year, commencing in [****], will start from October 1 of the prior
calendar year and end on September 30 of that calendar year (each such
period, a “Dividend Year”), with the first Dividend Year commencing
[****].  [****]. Unless otherwise
specified, the Company Action Level Risk Based Capital and all other amounts
will be calculated as of September 30 of that calendar year (which is
immediately prior to the Dividend Declaration Date).  [****].

 

If all of the following conditions are met, an annual dividend in an
amount not to exceed the Dividend Amount may be declared and paid, subject to Section 6.01(j) and
the Priority of Payments (such conditions, the “Dividend Test”):

 

[****]

 

“Dividend Catch-Up Contribution” means, in the event that the
Third Remainder Contribution is greater than zero, and if the Borrower’s
Modified Total Adjusted Capital is less than [****] percent ([****]%) of the
Borrower’s Company Action Level Risk Based Capital, as of [****] or September 30
of each subsequent Dividend Year, an amount equal to the lesser of (y) the
excess, if any, of the Third Remainder Contribution over an amount equal to the
sum of any prior Dividend Catch-Up Contributions and (z) the excess, if
any, of [****] percent ([****]%) of the Borrower’s Company Action Level Risk
Based Capital over the Borrower’s Modified Total Adjusted Capital, each as
determined as of such September 30.

 

The “Dividend Threshold” means (i), plus (ii), plus (iii), minus
(iv), where:

 

[****]

 

[****]

 

“Present Value” means present value calculations assuming a
discount rate equal to the lesser of (a) [****] percent ([****]%) and (b) the
annualized realized net yield (net of defaults) of the assets of the Borrower
(excluding the Letter of Credit) from the Closing Date, as determined in
accordance with applicable statutory accounting principles.

 

“Dividend Amount” means, in any Dividend Year, the excess, if
any, of the lesser of (i) and (ii) minus the Dividend Threshold,
where:

 

173

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

i.                  Equals the
aggregate book value of the Borrower’s assets (excluding the Letter of Credit),
as determined in accordance with applicable statutory accounting principles,
and

 

ii.               Equals the aggregate market value of the
Borrower’s assets (excluding the Letter of Credit),

 

provided, that, (a) if such calculation results in an
amount that is zero or a negative number, then the Dividend Amount will be
zero, and (b) [****].

 

The declaration and payment of a dividend shall be subject to the
following additional limitations:

 

i.                  The Dividend
Amount in any Dividend Year ending prior to September 30, 2017 shall not
exceed $[****];

 

ii.               Immediately following the payment of any
dividend, the Borrower shall maintain Modified Total Adjusted Capital at least
equal to [****] percent ([****]%) of the Borrower’s Company Action Level Risk
Based Capital, determined as of September 30 of the Dividend Year in
respect of which such dividend is paid, taking into account the payment of such
dividend as if paid on such September 30; and

 

iii.            The Dividend Amount shall be reduced by the amount
by which the Nominal Expense Cap (as defined in the Transaction Expense Support
Agreement) applicable as of September 30 for such Dividend Year exceeds
the Base Nominal Expense Cap (as defined in the Transaction Expense Support
Agreement) applicable as of September 30 for such Dividend Year, unless
the Borrower elects to waive such excess amount for purposes of calculating the
applicable Nominal Expense Cap.

 

The
Borrower shall provide the Issuing Lender with supporting information, in
reasonable detail, relating to the calculation of the Dividend Amount.

 

The
foregoing provisions of this Schedule 2 shall not apply to any Special
Dividend.

 

174

 

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

APPENDIX I TO THE DIVIDEND FORMULA

 

DESCRIPTION OF METHODOLOGIES AND PROCESSES FOR CALCULATING EXPECTED
COVERED BENEFITS AND EXPECTED LAPSE RATES

 

 

EXPERIENCE STUDY PROCESS

 

 

Overview

 

Golden
Gate III (“GGIII”) Experience Studies reflecting mortality and lapse activity
on the Reinsured Policies (as defined in the Indemnity Reinsurance Agreement)
will be produced on both quarterly and annual bases to satisfy defined
reporting obligations in the Indemnity Reinsurance Agreement and Reimbursement
Agreement.  The Experience Studies will
also be used for purposes of determining any payments due between West Coast
Life and Protective Life Insurance Company (“PLICO”) under the Aggregate Stop
Loss Agreement as well as any dividend payments due from GGIII to PLICO.  Actual/Expected calculations will be
performed quarterly on a year-to-date basis and on a cumulative basis where required
by the Transaction Documents.

 

·                  Experience
Study exposure periods will be defined in two ways:

·                  Dividend Year Basis: 10/1/XX – 9/30/XX

·                  Used for
calculation of mortality and lapse A/E ratios for purposes of the Stop Loss and
dividend payment calculations

·                  Any payment due
from Protective Life Corporation (“PLC”) to GGIII under the Catastrophic Loss
Support Agreement will also be determined on a Dividend Year Basis

·                  For the initial
year of the Transaction, the Dividend Year Basis begins on the Effective Date
and ends on 9/30/10

·                  The quarterly
Experience Studies required under Schedule 1, Item (c) of the Reimbursement
Agreement will be calculated on a Dividend Year Basis

·                  Quarterly and
Annual experience studies required under Exhibit D of the reinsurance agreement
will be provided on a Dividend Year Basis

·                  All studies
will be on a YTD basis within a dividend year

·                  Calendar Year Basis: 1/1/XX – 12/31/XX

·                  Used for
calculation of quarterly and annual A/E calculations outlined in Exhibit D of
the Reinsurance Agreement

·                  For the initial
year of the Transaction, the Calendar Year Basis begins on the Effective Date
and ends on 12/31/10

·                  All studies
will be on a YTD basis within a calendar year

 

·                  All mortality
and lapse studies are performed using PolySystems Measure to calculate the
exposure and expected claim information.

 

175

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

·                  PolySystems Measure is an industry standard
software package used to generate experience studies

·                  Controlled environment that is auditable at a
policy level

 

·                  Data sources
that feed exposure and expected calculations

·                  Valuation files:

·                  Provided to
Measure Team by the financial reporting valuation team on a quarterly basis.

·                  Contain all
active and terminated policies for the reported quarter.

·                  Policy Detail History (“PDH”, which is a
compilation of quarterly valuation files) files:

·                  Contain all
history for policies that were in force or terminated since the Effective Date
through current date for the policies reinsured to GGIII

·                  Created by
taking the valuation files and appending them to previous quarter’s PDH files.

·                  Contain policy
characteristics such as sex, risk, face amount, termination reason, termination
date, issue date, issue age, etc.

·                  Serve as the
input files for PolySystems Measure

·                  Controls to ensure accuracy

·                  Valuation files
fall under SOX compliance.

·                  Compliance
measures incorporated into quarterly SOX certification as part of PLC’s broader
public reporting requirements

·                  PDH files are
reconciled each quarter. The following items are reconciled to extracts from
the administrative systems, including the death claim system.

·                  All
terminations and termination dates (deaths, lapses, surrenders, conversions,
maturities, expiries, & declined claims)

·                  Active policies

·                  Face amounts

·                  Issue age and
issue dates

·                  Decrement
totals (actual claims and lapses) from experience studies are tied back to
decrements from the reconciliation.

 

·                  Definition of exposure

·                  Uniform Distribution of Deaths: Exposure
starts from the Effective Date of the Transaction

·                  Actual inforce at the beginning of the
respective time period is used as a starting point to capture experience that
occurred during the  period

·                  Exposure is calculated on a policy level
basis within PolySystems Measure

·                  Exposure on policies that do not terminate
during the period ends on the exposure end date

·                  For Mortality:

·                  Exposure on
policies that terminate due to death during the period ends on the next policy
anniversary after the incurred date.

 

176

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

·                  If date of
death is unknown at the time of study, notify date is used until date of death
is verified.

·                  Exposure on
policies that terminate for reasons other than death ends on the incurred date
of the termination.

·                  Accounting
method

·                  Exposure end
date is defined as the date when the termination was incurred (i.e., death
claim reported on 11/30/2010 with a date of death of 6/30/2010 would have an
exposure end date of 6/30/2010).

·                  No Lag

·                  Approach used
for:

·                  Stop Loss A/E calculations

·                  Dividend Test (mortality calculations)

·                  Reimbursement Agreement reporting, Schedule
1, Item (c)

·                  Reinsurance Agreement Exhibit D: Dividend
Year Basis mortality studies

·                  Actuarial
method

·                  Exposure end
date is defined as the date when the termination was incurred (i.e.  Death claim reported on 11/30/2010 with a
date of death of 6/30/2010 would have an exposure end date of 6/30/2010)

·                  All studies
using the Actuarial method will have a three month lag.  This accounts for IBNR and lapse
reinstatements.

·                  Approach used for:

·                  Reinsurance Agreement Exhibit D: Calendar
Year Basis mortality studies

 

·                  For Lapse:

·                  Uses the
Actuarial method outlined above

·                  Exposure on
policies that terminate due to lapse during the period ends on the next policy
anniversary after the incurred date.

·                  Exposure on
policies that terminate for reasons other than lapse ends on the incurred date
of the termination

·                  Lapses are
based on premium mode periods.  A policy
has to complete one premium period to be included in the study.  Exposure is based on completed modal periods
(i.e., monthly premium mode policy will show up in a study after one month of
exposure.  An annual mode policy would
show up after completing one year of exposure.)

·                  Approach used
for:

·                  Dividend Test
lapse calculations

·                  Reimbursement
Agreement reporting, Schedule 1, Item (c)

·                  Reinsurance
Agreement Exhibit D: Dividend Year and Calendar Year lapse studies

 

·                  Source of
Actual Claims and IBNR

·                  Ledger:

·                  Actual deaths
claims in the report come from the ledger.

 

177

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

·                  Totals are
provided to the Measure Team by PLC’s Accounting Department

·                  Totals are
imported into Access database with Expected totals and reported in an Excel
pivot table.

·                  IBNR:

·                  Will be
included in the actual death claims

·                  Source will be
the ledger

·                  IBNR estimation
process:

·                  Annually,
updated historical claims information is obtained from the claims system.

·                  Claims are
reviewed, including date of death and date of notification, and that
information is used to update a claims lag study which identifies level of
claims that were incurred but not reported as of historical valuation dates.

·                  For the same
periods of time, expected mortality is obtained from the Measure Team, and the
IBNR claims are expressed as a percentage of expected mortality for each
period.

·                  The average of
those percentages provides a way to estimate IBNR claims for future periods
based on the expected mortality for those periods.

·                  Therefore
during the course of the year, IBNR reserves change in proportion to change in
expected mortality.

·                  The percentage
is reset annually based on updated claims experience.

·                  Annual report (Reinsurance Agreement Exhibit
D) death claims will be provided by PolySystems.  These deaths are reconciled back to the death
claim administrative system.

 

·                  Calculation of
Expected Mortality

·                  Expected mortality calculations use the same
assumptions outlined in the Milliman Chicago actuarial report dated December 3,
2009 (“Milliman Report”) and attached under Exhibit A to this report; these
rates vary by duration

·                  Quarterly adjustments to the inforce starting
point are made to reflect actual mortality and lapse experience during the
period.

·                  Source of Mortality Rate of Death (“Qx”):  The Qx for the experience studies is coded in
PolySystems to mirror the mortality assumptions used in the Milliman
Report.  The coding is maintained by the
valuation team and is replicated by the Measure Team.

·                  Qx factors
increase on policy anniversary date; this methodology is consistently applied
in both the Milliman modeling and PolySystems coding

·                  Application to exposure:

·                  Calculated by
PolySystems

·                  Exposure is
always based on face amount less YRT reinsurance.

·                  In the case of
policies that end in death, the exposure is defined to continue until the next
policy anniversary.

 

178

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

·                  In the case of
policies that end in lapse, the exposure ends on the effective date of the
lapse.

·                  In the event of
lapse and subsequent reinstatement, the exposure is considered to be
continuous.

·                  Policies that
do not terminate during the study get full exposure for the exposure period.

·                  Face Amount
Exposure (“FAE”) is calculated on a policy duration basis; mathematically, FAE
equals:

·                  (Direct Face
Amount – YRT Ceded Face Amount) * Policy Exposure

·                  Where, Policy Exposure = Number of Months in
Exposure Period

·                  Months may be
either integers or fractional amounts depending on policy issue date and anniversary
date-

·                  PolySystems
Measure assumes 360 day calendar year

·                  Poly translates
annual Qx (“aqx”) to a monthly Qx (“mqx”)

·                  mqx = 1 –
(1-aqx)^(1/12)

·                  PolySystems
Measure calculates exposure according to exposure begin and end date

·                  Formulaic Calculation of Expected Mortality

·                  Expected
mortality is calculated at a policy level; policy level results are added
together to create the aggregate expected mortality result

·                  Expected
Mortality (Policy Level) = mqx * FAE

·                  Expected
Mortality (Aggregate Level) =

 

 

·                  However, if the
policy changes from duration “D” to duration “D+1” (i.e., passes an
anniversary) during the Experience Year or Partial Experience Year, the
Expected Mortality (Aggregate Level) =:

 

·                  Calculations
are performed on an Experience Year-to-date basis (or Calendar Year-to-date
basis, depending on the intended purpose) to account for policies in grace that
ultimately lapsed and late reported deaths

·                  Reporting of total expected

·                  PolySystems
Measure produces output files that contain policy level detail information
which includes exposure, expected, claim count, and exposed count.

·                  These output
files are summed together in an Access database and linked to by an Excel pivot
table.

 

·                  Calculation of
Actual Mortality

·                  Tracked on an incurred basis using the
Accounting method outlined above

 

179

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

·                  Actual Mortality = Paid Claims + ∆IBNR
+ ∆Pending Liability (includes Pended and Resisted claims)

·                  Pended claims
include reported but not paid claims

·                  Calculated net
of Existing YRT Reinsurance (as defined in the Indemnity Reinsurance Agreement)

 

·                  Calculation of
Expected Lapse

·                  Expected lapse calculations use the same
assumptions outlined in the Milliman Report and also attached under Exhibit B
to this report; these rates vary by duration

·                  Quarterly adjustments to the inforce starting
point are made to reflect actual mortality and lapse experience during the
period (i.e. grace policies that lapsed and late reported deaths)

·                  Source of Lapse Rate:  The lapse rate for the experience studies is
coded in PolySystems to mirror the lapse assumptions used in the Milliman
Report.  The coding is maintained by the
valuation team and is replicated by the Measure Team.

·                  Application to exposure:

·                  Calculated by
PolySystems

·                  Exposure is
calculated on a policy duration basis; the mathematical FAE calculation is
identical to the one outlined above

·                  PolySystems
Measure assumes 360 day calendar year

·                  PolySystems
Measure translates annual lapse rates (La) provided in the Milliman Report to monthly lapse
rates (Lm)

·                  Lm = 1 – (1 - La)^(1/12)

·                  PolySystems
Measure calculates exposure according to exposure begin and end date

·                  Formulaic Calculation of Expected Lapse

·                  Expected lapse
is calculated at a policy level; policy level results are added together to
create the aggregate expected lapse result

·                  Expected Lapse
(Policy Level) = Lm * Exposure

·                  Expected Lapse
(Aggregate Level) =

 

 

·                  However, if the
policy changes from duration “D” to duration “D+1” (i.e., passes an
anniversary) during the Experience Year or Partial Experience Year, the
Expected Lapse (Aggregate Level) =:

 

·                  Calculations are performed on an Experience
Year-to-date basis (or Calendar Year-to-date basis, depending on the intended
purpose)

·                  Reporting of total expected

 

180

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

·                  PolySystems
Measure produces output files that contain policy level detail information
which includes exposure, expected, lapse count, and exposed count.

·                  These output
files are summed together in an Access database and linked to by an Excel pivot
table.

·                  Three month lag
is used to account for policies in grace that ultimately lapsed and late
reported deaths

 

·                  Calculation of
Actual Lapse

·                  Actual lapses will come from PolySystems

·                  All lapse decrements and lapse face amounts
are verified against the administrative system

·                  Do not include any policies that are in the “Grace”
period

·                  Shock lapses will be shown separately from
level period lapses

·                  Three month lag is used to account for
policies in grace that ultimately lapsed and late reported deaths

·                  For example, a
lapse report using 9/30/11 inforce data will include actual lapse activity that
occurred during the four quarters beginning 7/1/10 through 6/30/11

 

181

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

APPENDIX I (continued)

Exhibit A

 

Mortality Assumptions

 

On
the Effective Date, each party will receive two (2) copies of a CD with
identical contents detailing the mortality assumptions.  Each CD will contain three Microsoft Excel
Files: [****].

 

[****]

 

182

 

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

APPENDIX
I (continued)

Exhibit
B

 

Lapse
Assumptions

 

(a)          Lapse rates expressed in percentage terms

(b)         [****]

(c)          [****]

(d)         [****]

(e)          [****]

(f)            Risk Classification Key:

 

SPF = Select Preferred

PF = Preferred

ST = Standard

NT = Non-Tobacco

TB = Tobacco

 

WCL
-10

 

	
   

  	
   

  	
   

  	
   

  	
  Face < $250K

  	
   

  	
  Face >= $250K

  
	
  Issue

  	
   

  	
  Policy

  	
   

  	
  SPF

  	
   

  	
  PF

  	
   

  	
  ST

  	
   

  	
  PF

  	
   

  	
  ST

  	
   

  	
  SPF

  	
   

  	
  PF

  	
   

  	
  ST

  	
   

  	
  PF

  	
   

  	
  ST

  
	
  Age

  	
   

  	
  Year

  	
   

  	
  NT

  	
   

  	
  NT

  	
   

  	
  NT

  	
   

  	
  TB

  	
   

  	
  TB

  	
   

  	
  NT

  	
   

  	
  NT

  	
   

  	
  NT

  	
   

  	
  TB

  	
   

  	
  TB

  
	
  [****]

  	
   

  	
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  [****]

  

 

183

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

	
  [****]

  	
   

  	
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  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  

 

WCL
-15

 

	
   

  	
   

  	
   

  	
   

  	
  Face < $250K

  	
   

  	
  Face >= $250K

  
	
  Issue

  	
   

  	
  Policy

  	
   

  	
  SPF

  	
   

  	
  PF

  	
   

  	
  ST

  	
   

  	
  PF

  	
   

  	
  ST

  	
   

  	
  SPF

  	
   

  	
  PF

  	
   

  	
  ST

  	
   

  	
  PF

  	
   

  	
  ST

  
	
  Age

  	
   

  	
  Year

  	
   

  	
  NT

  	
   

  	
  NT

  	
   

  	
  NT

  	
   

  	
  TB

  	
   

  	
  TB

  	
   

  	
  NT

  	
   

  	
  NT

  	
   

  	
  NT

  	
   

  	
  TB

  	
   

  	
  TB

  
	
  [****]

  	
   

  	
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184

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

	
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WCL-20

 

	
   

  	
   

  	
   

  	
   

  	
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  Face >= $250K

  
	
  Issue

  	
   

  	
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185

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

	
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WCL-25
These rates are an average of the WCL 20- and 30-year rates.

 

	
   

  	
   

  	
   

  	
   

  	
  Face < $250K

  	
   

  	
  Face >= $250K

  
	
  Issue

  	
   

  	
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186

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

	
  [****]

  	
   

  	
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WCL
30

 

	
   

  	
   

  	
   

  	
   

  	
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187

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

	
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  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  
	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  
	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  
	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  	
   

  	
  [****]

  

 

[****]
CONTENTS OF TABLES BELOW OMITTED

 

Lapse Rate Beyond
Level Premium Period (N)

 

	
   

  	
   

  	
  Premium Increase (First ART Premium as Multiple of Level Term Premium)(x)

  
	
  Lapse at End

  of Year

  	
   

  	
  0 < x < 2.5

  	
   

  	
  2.5 < x < 5

  	
   

  	
  5 < x < 7.5

  	
   

  	
  7.5 < x < 10

  	
   

  	
  10 < x <

  12.5

  	
   

  	
  12.5 < x <

  15

  	
   

  	
  15 < x < 20

  	
   

  	
  x> 20

  
	
  N

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  N+1

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  N+2

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  N+3 and later

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Excess
Shock Lapse Distribution

 

	
  Monthly Payment Mode

  	
   

  	
   

  	
   

  	
  Quarterly Payment Mode

  
	
   

  	
   

  	
  Excess

  	
   

  	
   

  	
   

  	
  N+1

  	
   

  	
  Excess

  
	
  N+1

  	
   

  	
  Shock Lapse

  	
   

  	
   

  	
   

  	
  Policy

  	
   

  	
  Shock Lapse

  
	
  Policy Month

  	
   

  	
  Distribution

  	
   

  	
   

  	
   

  	
  Quarter

  	
   

  	
  Distribution

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

188

 

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

Shock Lapse Weighting

 

	
  Premium

  Mode

  	
   

  	
  Initial Modal

  Premiums

  	
   

  	
  Final Modal

  Premiums

  
	
  Monthly

  	
   

  	
   

  	
   

  	
   

  
	
  Quarterly

  	
   

  	
   

  	
   

  	
   

  
	
  Semi-Annual

  	
   

  	
   

  	
   

  	
   

  
	
  Annual

  	
   

  	
   

  	
   

  	
   

  

 

189

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

SCHEDULE 3

 

UTILIZATION FEE MATRIX

 

	
  Borrower S&P Counterparty Credit Risk 

  Rating (or the equivalent from either of 

  Moody’s or Fitch or another nationally 

  recognized statistical rating organization)

  	
   

  	
  Utilization Fee Rate (basis points per

  annum)

  
	
  AA-

  	
   

  	
  [****]

  
	
  A+

  A

  A-

  	
   

  	
  [****]

  [****]

  [****]

  
	
  BBB+

  BBB

  BBB-

  	
   

  	
  [****]

  [****]

  [****]

  
	
  BB+

  BB

  BB-

  	
   

  	
  [****]

  [****]

  [****]

  
	
  B+

  B

  B-

  	
   

  	
  [****]

  [****]

  [****]

  
	
  CCC to C

  	
   

  	
  [****]

  

 

The Utilization Fee Rate will be subject to increase upon the downgrade
of the Borrower below AA- by S&P (or the equivalent from either of Moody’s
or Fitch or another nationally recognized statistical rating organization) in
accordance with the above Utilization Fee Matrix.

 

In
the event that the Counterparty Risk Rating of the Borrower provided by S&P
is withdrawn and is not replaced by a rating from Moody’s, Fitch or another
nationally recognized statistical rating organization, the Utilization Fee Rate
shall be [****] (the “Withdrawn Rating Fee Rate”).

 

190

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are indicated
by the following: [****].

 

SCHEDULE 4

 

SCHEDULED LOC PROGRAM AMOUNT

 

	
  Scheduled LOC Amendment 

  Date

  	
   

  	
  Scheduled LOC Facility

  Amount

  	
   

  	
  Scheduled LOC

  Increase Amount

  	
   

  
	
  April 1, 2011

  	
   

  	
  $

  	
  560,000,000

  	
   

  	
  $

  	
  55,000,000

  	
   

  
	
  April 1, 2012

  	
   

  	
  $

  	
  575,000,000

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
  April 1, 2013

  	
   

  	
  $

  	
  610,000,000

  	
   

  	
  $

  	
  35,000,000

  	
   

  
	
  April 1, 2014

  	
   

  	
  $

  	
  595,000,000

  	
   

  	
  N/A

  	
   

  
	
  April 1, 2015

  	
   

  	
  $

  	
  595,000,000

  	
   

  	
  N/A

  	
   

  
	
  April 1, 2016

  	
   

  	
  $

  	
  595,000,000

  	
   

  	
  N/A

  	
   

  
	
  April 1, 2017

  	
   

  	
  $

  	
  590,000,000

  	
   

  	
  N/A

  	
   

  

 

191

 

Certain portions of this Exhibit have been omitted
pursuant to a request for confidential treatment.  The non-public information has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended.  The omitted portions of this Exhibit are
indicated by the following: [****].

 

SCHEDULE 5

 

RESTRICTED LIST

 

The
restricted list includes each of the following companies and their affiliates.

 

[****]

 

192

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

SCHEDULE
6

 

FINANCIAL
AND ACTUARIAL PROJECTIONS AND MODELING INFORMATION

 

The Actuarial Report, dated December 3, 2009, prepared
by Milliman USA’s Chicago office with respect to the Reinsured Policies

 

Responses to Milliman NY Information Request 10/8/2009

 

1)              Premium rate information [****]

2)              YRT premium and pool percentage
information [****]

3)              Mortality rate factor assumptions [****]

4)              Seriatim in-force policy inventory
information as of 12/31/2008

5)              Historical Mortality and Lapse Studies
covering Reinsured Policies

6)              Post Level Term Lapse Studies

7)              WCL pricing mortality comparison

8)              PLC memo dated 10/14/2009 regarding
underwriting

9)              Third-Party Reinsurer audit reports
produced during 2006 – 2009

10)        External consultant underwriting audit
reports 2006 – 2009

11)        PLC 
memo dated 10/14/2009 [****]

12)        PLC memo dated 10/13/2009 [****]

 

Responses to Milliman NY Information Request
10/15/2009

 

1)              PLC memo dated 10/27/2009 [****]

2)              PLC memo dated 10/16/2009 [****]

 

Response to Milliman NY Information Request 11/22/2009

 

1)              PLC memo dated 11/23/2009 [****]

 

Responses to Milliman NY Information Request
11/24/2009

 

1)              PLC memo dated 10/29/2009 [****]

2)              PLC memo dated 11/24/2009 [****]

 

Information submitted to UBS via FTP

 

1)              Information regarding economic reserve
calculation methodology

2)              Historical mortality and lapse studies
using data as of March 31, 2009

3)              Historical business mix reports covering
the Reinsured Policies

4)              Historical Financial Statements of GG,
PLICO, and WCL for fiscal years 2006, 2007 and 2008

5)              Seriatim inforce policy inventory
information as of 12/31/2008 and 9/30/2009

6)              Third-Party Reinsurer Audits of WCL

7)              Spreadsheet titled “GG3 Inforce Business
Mix 2009 12.xlsx” comparing December 31, 2009 inforce policy inventory to
Milliman Report projections

 

Information provided to [****] in association with her
December 2009 underwriting audit

 

1)              GG/WCL claims information

2)              Seriatim in-force policy inventory
information as of 9/30/2009

3)              WCL underwriting guidelines

 

193

 

Certain
portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.  The non-public
information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

4)              Third-Party Reinsurer Audits

5)              External consultant underwriting audits

6)              Retention and Binding Amounts for [****]
policies

7)              [****]

 

194

 

 

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

EXHIBIT A

 

DRAW CERTIFICATION NOTICE

 

FORM OF DRAW CERTIFICATION NOTICE

 

	
  To:

  	
  UBS AG, Stamford Branch

  
	
   

  	
  299 Park Avenue, 26th Floor

  
	
   

  	
  New York, NY 10170

  
	
   

  	
  Attention:
  Letter of Credit Services

  

 

 

Re:
Reimbursement Agreement, dated as of April 23, 2010, as amended, restated,
modified or supplemented from time to time (the “Reimbursement Agreement”),
between Golden Gate III Vermont Captive Insurance Company, a special purpose
financial captive insurance company incorporated under the laws of the State of
Vermont (the “Borrower”) and UBS AG, Stamford Branch, as issuing lender
(the “Issuing Lender”).

 

This
Draw Certification Notice (this “Notice”) is delivered by the
undersigned West Coast Life Insurance Company or any successor by operation of
law thereof, including, without limitation, any liquidator, rehabilitator,
receiver or conservator (the “Ceding Company”) under the Issuing Lender’s
Letter of Credit No. [·], in
connection with a draw requested by the Reinsurance Trustee, as beneficiary
under the Letter of Credit (the “Beneficiary”).  Unless otherwise defined herein, terms
defined in the Reimbursement Agreement and used herein shall have the meanings
given to them in the Reimbursement Agreement.

 

The
Beneficiary is drawing $[·] under the
Letter of Credit (the “Requested Amount”) in connection with this
Notice.

 

The
undersigned, [Name], as [Title](1) of the Ceding Company hereby certifies
to the Issuing Lender that as of the date hereof:

 

(i)            The Requested Amount is required to be obtained by the
Beneficiary for the payment of Covered Benefits or Claims Expenses (each as
defined in the Reinsurance Agreement) now due and payable under the Reinsurance
Agreement.

 

(ii)           All assets in the Reinsurance Trust
Account and any funds held in any account established pursuant to Section 7.3
of the Reinsurance Agreement have previously been used to satisfy amounts due
and payable under the Reinsurance Agreement or released pursuant to Section 7.3(c) of
the Reinsurance Agreement or Section 2 of the Reinsurance Trust
Agreement.

 

(iii)          No assets remain in the Surplus
Account.

 

(1)                                     Officer must be
a Responsible Officer of the Ceding Company, i.e. the Chief Executive Officer,
President, Chief Financial Officer, Chief Accounting Officer, Treasurer,
Assistant Treasurer or Controller.

 

195

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

(iv)          Since the date that is one calendar
year prior to the date hereof, no assets with a Market Value in excess of
$[****] have been transferred from the Surplus Account other than to the extent
permitted to be transferred pursuant to the Priority of Payments, unless (A) despite
such assets being transferred in the incorrect order of priority, such transfer
would have been otherwise permitted pursuant to the Priority of Payments at the
time of such transfer or at any subsequent time thereafter or (B) such
impermissibly transferred assets have been returned to the Surplus Account or
replaced in the Surplus Account with Eligible Assets having a Market Value
equal to those that were impermissibly transferred on or prior to the date
hereof.

 

(v)           Since the Closing Date, the Borrower has existed and, as
of the date hereof, exists, as a separate entity and has not been substantively
consolidated with another entity.

 

(vi)          As of the date hereof, the Reinsurance
Agreement remains in full force and effect.

 

(vii)         As of the date hereof, there is no
continuing failure by PLC to pay any amount in excess of $[****] payable to or
explicitly required to be paid on behalf of the Borrower under the Tax Sharing
Agreement or the Special Tax Allocation Agreement within thirty (30) calendar
days from the date on which such payment was due and payable.

 

(viii)        Since the Closing Date, there has been
no amendment of the Tax Sharing Agreement or the Special Tax Allocation
Agreement and there has not been a termination of the Special Tax Allocation
Agreement or a termination of the rights of the Borrower with respect to PLC
and the obligations of PLC with respect to the Borrower under the Tax Sharing
Agreement, in each case, without the prior written consent of the Issuing
Lender (such consent not to be unreasonably withheld or delayed) if such
amendment or termination adversely affects, in any material respect, the
rights, remedies or obligations of the Borrower under such agreement.

 

196

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

(b)           IN WITNESS WHEREOF, the undersigned
has executed and delivered this Notice as of the
         day of
        ,
        .

 

	
  West
  Coast Life Insurance Company,

  
	
  as
  the Ceding Company

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

197

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

EXHIBIT B

 

INVESTMENT GUIDELINES

 

All
assets held in the Regulatory Account shall be invested solely in Cash or Cash
Equivalents.

 

All
assets (other than the Letter of Credit) held in the Surplus Account and the
Reinsurance Trust Account shall be invested solely in Eligible Assets (as
defined below).

 

“Eligible
Assets” means, subject to the limitations set forth below and except as
otherwise agreed between the Ceding Company and the Issuing Lender, [****].

 

Eligible
Assets will be subject to the following limitations:

 

[****]

 

Where:

 

(i)            “Maximum Sector Limit” means the
ratio of the book value of the relevant Eligible Asset to the book value of all
Eligible Assets at the time of the relevant Eligible Asset purchase,

 

(ii)           “Maximum Tenor Limit” means the
relevant date occurring the stated number of years from the Closing Date, and

 

(iii)          “Maximum Duration Limit” means the
maximum target duration of securities in the relevant category.

 

In
a given year, the weighted average modified duration of all assets will be:

 

	
  Year

  	
   

  	
  Target Modified 

  Duration

  	
   

  
	
  2010

  	
   

  	
  [****]

  	
   

  
	
  2011

  	
   

  	
  [****]

  	
   

  
	
  2012

  	
   

  	
  [****]

  	
   

  
	
  2013

  	
   

  	
  [****]

  	
   

  
	
  2014

  	
   

  	
  [****]

  	
   

  
	
  2015

  	
   

  	
  [****]

  	
   

  
	
  2016

  	
   

  	
  [****]

  	
   

  
	
  2017

  	
   

  	
  [****]

  	
   

  

 

198

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

EXHIBIT C

 

REINSURANCE AGREEMENT

 

[Provided separately]

 

199

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

EXHIBIT D

 

FORM OF LETTER OF CREDIT

 

	
  ISSUING
  LENDER:

  	
   

  	
   

  
	
  UBS
  AG, STAMFORD BRANCH

  	
   

  	
   

  
	
  299
  PARK AVENUE, 26TH FLOOR

  	
   

  	
  FOR
  INTERNAL IDENTIFICATION PURPOSES ONLY

  
	
  NEW
  YORK, NY 10170

  	
   

  	
   

  
	
  ATTENTION:
  LETTER OF CREDIT SERVICES

  	
   

  	
   

  
	
   

  	
   

  	
  APPLICANT:

  
	
   

  	
   

  	
  Golden
  Gate III Vermont Captive Insurance Company

  
	
   

  	
   

  	
   

  
	
  BENEFICIARY:

  	
   

  	
   

  
	
  REINSURANCE
  TRUSTEE

  	
   

  	
   

  
	
  THE
  BANK OF NEW YORK MELLON

  	
   

  	
   

  
	
  101
  BARCLAY STREET

  	
   

  	
   

  
	
  MAILSTOP:
  101-0850

  	
   

  	
   

  
	
  NEW
  YORK, NEW YORK 10286

  	
   

  	
   

  
	
  ATTENTION:
  INSURANCE TRUST

  	
   

  	
   

  
	
  &
  ESCROW GROUP

  	
   

  	
   

  

 

IRREVOCABLE
LETTER OF CREDIT NO. [·]

 

DEAR
SIR OR MADAM:

 

WE,
UBS AG, STAMFORD BRANCH, HEREBY ESTABLISH THIS LETTER OF CREDIT (“LETTER OF
CREDIT” OR “CREDIT”), AT THE REQUEST OF GOLDEN GATE III VERMONT CAPTIVE
INSURANCE COMPANY (“ACCOUNT PARTY”), IN YOUR FAVOR AS BENEFICIARY FOR
DRAWINGS UP TO  $505,000,000, (FIVE HUNDRED FIVE
MILLION UNITED STATES DOLLARS), EFFECTIVE AT THE ISSUE DATE. THIS LETTER OF
CREDIT IS ISSUED BY UBS AG, STAMFORD BRANCH, AND IS PRESENTABLE AND PAYABLE AT
OUR OFFICE AT 299 PARK AVENUE, 26TH FLOOR, NEW YORK, NEW YORK 10170, ATTENTION
LETTER OF CREDIT SERVICES AND EXPIRES AT OUR CLOSE OF BUSINESS ON APRIL 1, 2013
(THE “EXPIRY DATE”) UNLESS EXTENDED AS HEREINAFTER PROVIDED. THIS CREDIT CANNOT
BE REDUCED OR REVOKED WITHOUT THE BENEFICIARY’S CONSENT. THE AVAILABLE AMOUNT
OF THIS LETTER OF CREDIT (THE “LOC AMOUNT”) SHALL BE PERMANENTLY REDUCED BY THE
SUM OF ALL PAYMENTS MADE HEREUNDER TO BENEFICIARY.

 

THE
TERM “BENEFICIARY” INCLUDES ANY SUCCESSOR BY OPERATION OF LAW OF THE NAMED
BENEFICIARY INCLUDING, WITHOUT LIMITATION, ANY LIQUIDATOR, REHABILITATOR, RECEIVER
OR CONSERVATOR.

 

200

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

WE
HEREBY UNDERTAKE TO PROMPTLY HONOR YOUR SIGHT DRAFT(S) DRAWN ON US, INDICATING
OUR LETTER OF CREDIT NO. [·], FOR ALL OR
ANY PART OF THIS CREDIT UPON PRESENTATION OF (A) YOUR SIGHT DRAFT(S) DRAWN
ON US AND (B) A DRAW CERTIFICATION NOTICE IN THE FORM OF SCHEDULE A
HERETO, DATED THE DATE OF SUCH SIGHT DRAFT, IN EACH CASE AT OUR OFFICE
SPECIFIED IN PARAGRAPH ONE ABOVE ON OR BEFORE THE EXPIRY DATE HEREOF OR ANY
EXTENDED EXPIRY DATE. IF THE APPLICABLE EXPIRY DATE IS NOT A BUSINESS DAY,
DRAWING MAY BE MADE NOT LATER THAN THE NEXT IMMEDIATELY FOLLOWING BUSINESS
DAY. ONLY THE BENEFICIARY MAY MAKE DRAWINGS UNDER THIS LETTER OF CREDIT
AND ALL SIGHT DRAFTS MUST BE MARKED: “DRAWN UNDER UBS AG, STAMFORD BRANCH,
LETTER OF CREDIT NO. [·]”. OTHER THAN
YOUR SIGHT DRAFT(S) AND DRAW CERTIFICATION NOTICE(S), NO OTHER DOCUMENT(S) NEED
BE PRESENTED.

 

EXCEPT
AS EXPRESSLY STATED HEREIN, THIS UNDERTAKING IS NOT SUBJECT TO ANY AGREEMENT,
REQUIREMENT OR QUALIFICATION. THE OBLIGATION OF UBS AG, STAMFORD BRANCH UNDER
THIS LETTER OF CREDIT IS THE INDIVIDUAL OBLIGATION OF UBS AG, STAMFORD BRANCH,
AND IS IN NO WAY CONTINGENT UPON REIMBURSEMENT WITH RESPECT THERETO OR UPON OUR
ABILITY TO PERFECT A LIEN, SECURITY OR ANY OTHER REIMBURSEMENT.

 

THIS
LETTER OF CREDIT SETS FORTH IN FULL THE TERMS OF OUR UNDERTAKING, AND THIS
UNDERTAKING SHALL NOT IN ANY WAY BE MODIFIED, AMENDED, AMPLIFIED OR LIMITED BY
REFERENCE TO ANY DOCUMENT, INSTRUMENT OR AGREEMENT REFERRED TO HEREIN OR
IN WHICH THIS LETTER OF CREDIT IS REFERRED TO OR TO WHICH THIS LETTER OF CREDIT
RELATES, AND ANY SUCH REFERENCE SHALL NOT BE DEEMED TO INCORPORATE HEREIN BY
REFERENCE ANY DOCUMENT, INSTRUMENT OR AGREEMENT.

 

THE
EXPIRY DATE OF THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED AS OF
APRIL 1, 2012, TO APRIL 1, 2015 UNLESS, AT LEAST THIRTY (30) CALENDAR DAYS
PRIOR TO SUCH EXTENSION DATE, WE NOTIFY THE BENEFICIARY AND THE ACCOUNT PARTY
IN WRITING, IN THE FORM OF SCHEDULE B HERETO, THAT WE DO NOT INTEND
TO EXTEND THIS LETTER OF CREDIT BEYOND THE EXPIRY DATE THEN IN EFFECT. ALL
NOTICES SHALL BE SENT BY REGISTERED MAIL, REPUTABLE COURIER OR HAND DELIVERY.

 

THE
EXPIRY DATE OF THIS LETTER OF CREDIT SHALL ALSO BE AUTOMATICALLY EXTENDED AS OF
APRIL 1, 2014, TO APRIL 1, 2018, UNLESS, AT LEAST THIRTY (30) CALENDAR DAYS
PRIOR TO SUCH EXTENSION DATE, WE NOTIFY THE BENEFICIARY AND THE ACCOUNT PARTY
IN WRITING, IN THE FORM OF SCHEDULE B HERETO, THAT WE DO NOT INTEND
TO EXTEND THIS LETTER OF CREDIT BEYOND THE EXPIRY DATE THEN IN EFFECT. ALL
NOTICES SHALL BE SENT BY REGISTERED MAIL, REPUTABLE COURIER OR HAND DELIVERY.

 

201

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

IF,
ON APRIL 1, 2014, THE THEN-CURRENT LOC AMOUNT IS GREATER THAN $595,000,000,
THEN THE LOC AMOUNT SHALL BE AUTOMATICALLY AND PERMANENTLY REDUCED BY $15,000,000.

 

IF,
ON APRIL 1, 2017, THE THEN-CURRENT LOC AMOUNT IS GREATER THAN $590,000,000,
THEN THE LOC AMOUNT SHALL BE AUTOMATICALLY AND PERMANENTLY ADDITIONALLY REDUCED
BY $5,000,000.

 

THIS
LETTER OF CREDIT IS SUBJECT TO AND GOVERNED BY THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDIT (2007 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 600 (“UCP”) AS INTERPRETED UNDER THE LAWS OF THE
STATE OF NEW YORK; PROVIDED, HOWEVER, THAT NOTWITHSTANDING THE
PROVISIONS OF ARTICLE 36 OF THE UCP, IF THIS LETTER OF CREDIT EXPIRES
DURING AN INTERRUPTION OF BUSINESS (AS DESCRIBED IN ARTICLE 36 OF THE
UCP), UBS AG, STAMFORD BRANCH AGREES TO EFFECT PAYMENT UNDER THIS LETTER OF
CREDIT IF A DRAWING WHICH STRICTLY CONFORMS TO THE TERMS AND CONDITIONS OF THIS
LETTER OF CREDIT IS MADE WITHIN FIFTEEN (15) DAYS AFTER THE RESUMPTION OF
BUSINESS.

 

WE
UNDERTAKE TO HONOR ANY SIGHT DRAFT(S) PRESENTED UNDER THIS LETTER OF
CREDIT, PROVIDED SUCH DRAFT(S) AND ACCOMPANYING DRAW CERTIFICATION NOTICE(S) CONFORM TO
THE TERMS AND CONDITIONS HEREOF.

 

202

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.  The omitted portions of this
Exhibit are indicated by the following: [****].

 

	
  VERY
  TRULY YOURS,

  
	
  UBS
  AG, STAMFORD BRANCH

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

203

 

 

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

SCHEDULE A

 

FORM OF DRAW CERTIFICATION NOTICE

 

FORM OF DRAW CERTIFICATION NOTICE

 

	
  To:

  	
  UBS AG, Stamford Branch

  	
   

  
	
   

  	
  299 Park Avenue, 26th Floor 

  New York, NY 10170 

  Attention: Letter of Credit Services

  	
   

  

 

Re:
Reimbursement Agreement, dated as of April 23, 2010, as amended, restated,
modified or supplemented from time to time (the “Reimbursement Agreement”),
between Golden Gate III Vermont Captive Insurance Company, a special purpose
financial captive insurance company incorporated under the laws of the State of
Vermont (the “Borrower”) and UBS AG, Stamford Branch, as issuing lender
(the “Issuing Lender”).

 

This
Draw Certification Notice (this “Notice”) is delivered by the
undersigned West Coast Life Insurance Company or any successor by operation of
law thereof, including, without limitation, any liquidator, rehabilitator,
receiver or conservator (the “Ceding Company”) under the Issuing Lender’s
Letter of Credit No. [·], in
connection with a draw requested by the Reinsurance Trustee, as beneficiary
under the Letter of Credit (the “Beneficiary”).  Unless otherwise defined herein, terms
defined in the Reimbursement Agreement and used herein shall have the meanings
given to them in the Reimbursement Agreement.

 

The
Beneficiary is drawing $[·] under the
Letter of Credit (the “Requested Amount”) in connection with this
Notice.

 

The
undersigned, [Name], as [Title](2) of the Ceding Company hereby certifies
to the Issuing Lender that as of the date hereof:

 

(a)           (i)            The Requested Amount is required to be obtained by the Beneficiary for
the payment of Covered Benefits or Claims Expenses (each as defined in the
Reinsurance Agreement) now due and payable under the Reinsurance Agreement.

 

(b)                           (ii)           All assets in the Reinsurance Trust Account and any funds held in any
account established pursuant to Section 7.3 of the Reinsurance
Agreement have previously been used to satisfy amounts due and payable under
the Reinsurance Agreement or released pursuant to Section 7.3(c) of
the Reinsurance Agreement or Section 2 of the Reinsurance Trust
Agreement.

 

(c)                           (iii)           No assets remain in the Surplus Account.

 

(2)                                     Officer must be
a Responsible Officer of the Ceding Company, i.e. the Chief Executive Officer,
President, Chief Financial Officer, Chief Accounting Officer, Treasurer,
Assistant Treasurer or Controller.

 

204

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

(d)                           (iv)          Since the date that is one calendar year prior to the date hereof, no
assets with a Market Value in excess of $[****] have been transferred from the
Surplus Account other than to the extent permitted to be transferred pursuant
to the Priority of Payments, unless (A) despite such assets being
transferred in the incorrect order of priority, such transfer would have been
otherwise permitted pursuant to the Priority of Payments at the time of such
transfer or at any subsequent time thereafter or (B) such impermissibly
transferred assets have been returned to the Surplus Account or replaced in the
Surplus Account with Eligible Assets having a Market Value equal to those that
were impermissibly transferred on or prior to the date hereof.

 

(e)                           (v)           Since the Closing Date, the Borrower has existed and, as of the date
hereof, exists, as a separate entity and has not been substantively
consolidated with another entity.

 

(f)                            (vi)          As of the date hereof, the Reinsurance Agreement remains in full force
and effect.

 

(g)                           (vii)         As of the date hereof, there is no continuing failure by PLC to pay any
amount in excess of $[****] payable to or explicitly required to be paid on
behalf of the Borrower under the Tax Sharing Agreement or the Special Tax
Allocation Agreement within thirty (30) calendar days from the date on which
such payment was due and payable.

 

(h)                           (viii)        Since the Closing Date, there has been no amendment of the Tax Sharing
Agreement or the Special Tax Allocation Agreement and there has not been a
termination of the Special Tax Allocation Agreement or a termination of the
rights of the Borrower with respect to PLC and the obligations of PLC with
respect to the Borrower under the Tax Sharing Agreement, in each case, without
the prior written consent of the Issuing Lender (such consent not to be
unreasonably withheld or delayed) if such amendment or termination adversely
affects, in any material respect, the rights, remedies or obligations of the
Borrower under such agreement.

 

205

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

(i)            IN WITNESS WHEREOF, the undersigned has executed and delivered this
Notice as of the          day of
        ,
        .

 

 

	
  West
  Coast Life Insurance Company,

  
	
  as
  the Ceding Company

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Title:

  

 

206

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

SCHEDULE B

 

 

FORM OF
NOTIFICATION

 

	
  GOLDEN
  GATE III VERMONT CAPTIVE INSURANCE COMPANY

  
	
  c/o
  Marsh Management Services, Inc.

  
	
  100
  Bank Street

  
	
  Burlington,
  VT 05402

  
	
  Fax:
  (802) 859-3550

  
	
   

  
	
  THE
  BANK OF NEW YORK MELLON

  
	
  Attention:
  Insurance Trust & Escrow Group

  
	
  The
  Bank of New York Mellon

  
	
  101
  Barclay Street

  
	
  Mailstop:
  101-0850

  
	
  New
  York, New York, 10286

  
	
  101
  BARCLAY STREET

  
	
  MAILSTOP:
  101-0850

  
	
  NEW
  YORK, NEW YORK 10286

  

 

Dear
Sir/Madam

 

We
refer to the Letter of Credit No. [·]  dated [·]  (the “Letter of Credit”).  Pursuant to the terms of the Letter of
Credit, we hereby notify you that the Letter of Credit will not be extended and
therefore will expire on its current expiry date of [·].

 

 

	
   

  	
  UBS
  AG, STAMFORD BRANCH,

  
	
   

  	
  as
  Issuing Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

207

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

EXHIBIT E

 

FORM OF ASSIGNMENT AND ACCEPTANCE

 

Reference
is made to the Reimbursement Agreement, dated as of April 23, 2010 (the “Agreement”),
by and between Golden Gate III Vermont Captive Insurance Company (the “Borrower”)
and UBS AG, Stamford Branch, (the “Issuing Lender”).  Unless otherwise defined herein, terms
defined in the Agreement and used herein shall have the meanings given to them
in the Agreement.

 

The
Assignor identified on Schedule l hereto (the “Assignor”) and the
Assignee identified on Schedule l hereto (the “Assignee”) agree as
follows:

 

1.     The Assignor hereby
irrevocably sells and assigns to the Assignee without recourse to the Assignor,
and the Assignee hereby irrevocably purchases and assumes from the Assignor
without recourse to the Assignor, as of the Effective Date (as defined below),
the interest in and to the Assignor’s rights and obligations under the
Agreement in a principal amount as set forth on Schedule 1 hereto (the “Assigned
Interest”).

 

2.     The Assignor (a) makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Agreement or with respect to the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement, any other Transaction
Document or any other instrument or document furnished pursuant thereto, other
than that the Assignor has not created any adverse claim upon the interest
being assigned by it hereunder and that such interest is free and clear of any
such adverse claim and (b) makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Borrower, any
of its Affiliates or any other obligor or the performance or observance by the
Borrower, any of its Affiliates or any other obligor of any of their respective
obligations under the Agreement or any other Transaction Document or any other
instrument or document furnished pursuant hereto or thereto.

 

3.     The Assignee (a) represents
and warrants that it is legally authorized to enter into this Assignment and
Acceptance and (b) confirms that it has received a copy of the Agreement,
together with copies of the financial statements delivered pursuant to Section 4.01(f) thereof
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Assignment and
Acceptance; (c) agrees that it will, independently and without reliance
upon the Assignor or the Issuing Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Agreement, the other
Transaction Documents or any other instrument or document furnished pursuant
hereto or thereto; and (d) agrees that it will be bound by the provisions
of the Agreement and will perform in accordance with its terms all the
obligations which by the terms of the Agreement are required to be performed by
it pursuant to Sections 9.05(b) or (c), as applicable, of
the Agreement.

 

4.     The effective date of this
Assignment and Acceptance shall be the Effective Date of Assignment described
in Schedule 1 hereto (the “Effective Date”).  Following the execution of this Assignment
and Acceptance, it will be delivered to the Issuing Lender for acceptance and 

208

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

recording
by it pursuant to the Agreement, effective as of the Effective Date (which
shall not, unless otherwise agreed to by the Issuing Lender, be earlier than
five (5) Business Days after the date of such acceptance and recording by
the Issuing Lender).

 

5.     Upon such acceptance and
recording, from and after the Effective Date, the Issuing Lender shall make all
payments in respect of the Assigned Interest (including payments of fees and
other amounts) to the Assignor for amounts which have accrued to the Effective
Date and to the Assignee for amounts which have accrued subsequent to the
Effective Date.

 

6.     From and after the Effective
Date, (a) the Assignee shall be a party to the Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of the Issuing Lender thereunder and under the other Transaction
Documents and shall be bound by the provisions thereof and (b) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Agreement.

 

7.     This Assignment and
Acceptance shall be governed by and construed in accordance with the laws of
the State of New York, without giving effect to the principles of conflicts of
laws thereof (other than Sections 5-1401 and 5-1402 of the General Obligations
Law of the State of New York).

 

IN
WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance
to be executed as of the date first above written by their respective duly
authorized officers on Schedule 1 hereto.

 

209

 

Certain portions of this Exhibit have been omitted pursuant to a
request for confidential treatment.  The
non-public information has been filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.  The omitted portions
of this Exhibit are indicated by the following: [****].

 

Schedule 1

to Assignment and Acceptance with respect to

the Reimbursement Agreement, dated as of April 23, 2010,

between Golden Gate III Vermont Captive Insurance Company (the “Borrower”),

and UBS AG, Stamford Branch, (the “Issuing Lender”)

 

Name
of Assignor:

 

Name
of Assignee:

 

Effective
Date of Assignment:

 

	
  Principal
  Amount of

  Commitment Assigned

  	
   

  	
  Commitment Percentage Assigned

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  $

  	
   

  	
   

  	
   

  	
  %

  

 

	
  [Name
  of Assignee]

  	
  [Name
  of Assignor]

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Accepted
  for Recordation in the Register:

  	
  Required
  Consents (if any):

  
	
   

  	
   

  
	
   

  	
   

  
	
  UBS
  AG, Stamford Branch, as

  	
  [                        ]

  
	
  Issuing
  Lender

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Title:

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  UBS
  AG, Stamford Branch, as

  
	
   

  	
  Issuing
  Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  

 

210

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