Document:

exv10w38

Exhibit 10.38

CONFIDENTIAL TREATMENT REQUESTED

INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED IS OMITTED AND NOTED WITH “****”. AN UNREDACTED VERSION OF THIS DOCUMENT HAS ALSO BEEN PROVIDED TO THE SECURITIES AND EXCHANGE COMMISSION.

Effective this 1st day of December, 2008

CLAIMS SERVICE AGREEMENT

By and Between

NATIONAL UNION FIRE INSURANCE

COMPANY OF PITTSBURGH, PA.,

And Its Affiliated Insurance Companies

(hereinafter collectively called “Insurer”)

and

LOTSOLUTIONS, INC.

(hereinafter called the “Third Party Administrator”)

WITNESSETH:

WHEREAS, the Insurer desires to have Third Party Administrator provide the fair and expeditious
handling of claims in a professional manner and in accordance with all applicable laws, statutes
and regulations; and

WHEREAS, subject to the terms and conditions contained in this Agreement, the Insurer desires to
retain Third Party Administrator to provide those services, as specified herein; and

WHEREAS, the Third Party Administrator desires to be so retained by the Insurer to provide those
services specified herein and agrees to do so in a fair, expeditious and professional manner, and
in accordance with all applicable laws, statutes and regulations;

NOW,
THEREFORE, the Third Party Administrator and the Insurer, subject to the following terms,
conditions and limitations, agree as follows:

ARTICLE I — TERM

The Third Party Administrator agrees to provide all services agreed to herein, to the Insurer, in
connection with the claims arising under such policies as may be designated by Insurer
(“Policies”) and

 

 

Page 2 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh, Pa.,
as Insurer, and LOTSolutions, Inc., as Third Party Administrator

occurring during the period commencing December 1, 2008, at 12:01 a.m. and continuing thereafter
until terminated pursuant to Article VII (Termination).

ARTICLE II — APPOINTMENT; POLICIES

During the term of this Agreement, Insurer appoints Third Party Administrator as its administrator
of the Policies, and Third Party Administrator hereby accepts such appointment, subject to the
terms and conditions of this Agreement. The Policies adjudicated hereunder will be designated in
writing from time to time by the Insurer upon thirty (30) days advance written notice to Third
Party Administrator.

ARTICLE III — TERRITORY

The territory (“Territory”) within which Third Party Administrator shall operate is limited to
those states which meet all of the following: (a) all states of the United States and all
provinces of Canada in which Third Party Administrator and Insurer are licensed to do business,
and (b) all states of the United States and provinces of Canada in which Third Party Administrator
is appointed by Insurer, and (c) all states of the United States and all provinces of Canada in
which the Policies have been approved, as appropriate, and (d) such states of the United States
and provinces of Canada as may be agreed upon by the parties, provided that the Insurer shall have
the right in its sole discretion to limit the Territory in which Third Party Administrator may act
hereunder. The Territory is assigned without exclusive rights of representation. Insurer reserves
the right to suspend Third Party Administrator’s authority at any time in the event regulatory,
economic or marketplace conditions dictate that continuation of the claims administration by the
Third Party Administrator in a specific jurisdiction would incur regulatory or economic liability
on the part of the Insurer upon immediate written notice to Third Party Administrator. In such
case, Insurer will assume responsibility for administration of claims until the conditions that
dictated the suspension of Third Party Administrator’s administration of claims in the affected
jurisdiction are resolved.

ARTICLE IV — COMPENSATION

In consideration for the Services performed hereunder, Insurer will compensate Third Party
Administrator in accordance with the provisions of Exhibit A.

ARTICLE V — DEFINITIONS

	A.	 	The term “Qualified Claim” as used herein shall mean any matter resulting from an allegedly
covered peril under one or more of the policies.

	B.	 	The term “Claims Adjusting Services” as used herein shall mean the furnishing by the Third
Party Administrator to the Insurer of the following services in compliance with the terms of
the applicable insurance policy, the attached Claims Handling Guidelines and all laws of the
applicable state:

	 	1.	 	pay all Qualified Claims timely, in accordance with the authority granted by
the Insurer via the attached Claims Handling Guidelines; and
	 
	 	2.	 	review all of the claims and prepare loss reports for losses occurring during
the term of this Agreement; and
	 
	 	3.	 	conduct an appropriate investigation of each Qualified Claim in accordance with
industry wide standards; and
	 
	 	4.	 	assure that each Qualified Claim file contains an itemized schedule of all
documentation in chronological order, including a complete Schedule of Payment or other
documentation of payment to allow the adjuster to properly evaluate the merits of the
Qualified Claim and to permit a determination of the Third Party Administrator’s
compliance with performance

 

 

Page 3 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh, Pa.,
as Insurer, and LOTSolutions, Inc., as Third Party Administrator

	 	 	 	standards; such file must be readily available to the Insurer and shall be provided to
the Insurer within three (3) business days of its request; and
	 
	 	5.	 	provide in accordance with the attached Claims Handling Guidelines periodic
detailed narrative reports on the status of each Qualified Claim in excess of the
reporting level or reportable in accordance with the attached Claims Handling
Guidelines; and
	 
	 	6.	 	perform all administrative and clerical work in connection with Qualified
Claims including the preparation of checks and/or drafts drawn on the loss fund
established herein; and
	 
	 	7.	 	Refer all inquiries from state insurance departments, other regulatory agency,
insured, claimant, agent, broker, or other interested party, to the Insurer for
handling; and
	 
	 	8.	 	prepare and maintain files necessary for a) defense of claims; b) other
litigation (such as claims for subrogation, contribution or indemnity); c) other
proceedings; and d) the maintenance of control of activities and expenses; and
	 
	 	9.	 	adjust and/or settle claims in accordance with applicable policy coverage and
within authority levels granted in the attached Claims Handling Guidelines; and
	 
	 	10.	 	maintain closed files in accordance with the Insurer’s requirements as set
forth in Exhibit C (Summary of Document Retention Policy); and
	 
	 	11.	 	manage uncashed checks as abandoned property pursuant to applicable state law
and as directed by Insurer.

	D.	 	The term “Ex Gratia Payment” shall mean all payments made which are outside the terms of the
policies and are not indemnity costs or expenses associated with the terms and conditions
contained in this Agreement.

	E.	 	The term “Force Majeure” shall mean any Act of God, act of civil or military authority, war,
criminal act, fire, explosion, earthquake, flood, weather condition, power failure, labor
problem, accident, or any other cause, beyond either Party’s reasonable control.

	F.	 	All definitions set forth in any exhibit to this Agreement are
incorporated herein.

ARTICLE VI — OBLIGATIONS

	A.	 	The Third Party Administrator agrees to provide the Insurer with Claims Adjusting Services
as defined in Article V, B. in accordance with the attached Claims Handling Guidelines for
the price agreed to in Article IV hereof.

	B.	 	Licensing. The Third Party Administrator, or its life insurance affiliate, where
applicable, warrants and covenants that it has procured or will procure and will maintain all
licenses required by law to enable it to provide the services described in this Agreement for
the duration of this Agreement, that it has the competencies and the capabilities to perform
the services, and that it will manage the services provided hereunder in good faith and in
such a way and in such a manner as to insure that every adjuster, claims investigator,
appraiser and/or employee used by the Third Party Administrator will adjust and/or
investigate and adjust every claim or matter covered by this Agreement in accordance with
applicable laws, and in accordance with the terms of this Agreement.

	C.	 	Standards for Performance; Limitations.

	 	a.	 	Deadlines. At all times, **** percent (****%) of all
claims from **** Insureds must be processed and adjusted within ****
(****) days of receipt and **** percent (****%) of all claims
from non-**** Insureds must be processed
and adjusted within **** (****)

 

 

Page 4 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh, Pa.,
as Insurer, and LOTSolutions, Inc., as Third Party Administrator

	 	 	 	days of receipt of all information reasonably required by Third Party Administrator, unless
Insurer provides in writing for a longer period of time.
	 
	 	b.	 	Financial Accuracy. At all times, Third Party Administrator shall maintain a
financial accuracy rate of **** percent (****%) for all claims.
	 
	 	c.	 	Procedural Accuracy. At all times, Third Party Administrator shall maintain a
procedural accuracy rate of **** percent (****%) for all claims.
	 
	 	d.	 	Limitations of Authority. The Third Party Administrator shall have authority to
adjudicate and pay claims up to and including the amount of ****
dollars ($****); for all claims exceeding the amount of **** dollars ($****), the Third Party
Administrator shall forward all such claims to Insurer for adjudication and direction
with regard to payment of such claims. Notwithstanding the foregoing, the Third Party
Administrator shall have no authority to adjudicate or pay claims for accidental death and
dismemberment benefits or any catastrophic claims. All accidental death and dismemberment
and catastrophic claims shall be forwarded to Insurer for adjudication and direction with
regard to payment of such claims.
	 
	 	e.	 	Service Level Standards. The Third Party Administrator shall adhere to the
service level standards set forth in Exhibit D, attached hereto and incorporated herein,
with regard to the performance of services hereunder.

	D.	 	The Third Party Administrator warrants and covenants that it will manage the services
provided hereunder in good faith and in such a way and in such a manner as to insure that
every adjuster, claims investigator, appraiser and/or employee or subcontractor used by the
Third Party Administrator will adjust and/or investigate every claim or matter covered by this
Agreement in accordance with applicable laws, and in accordance with the terms of this
Agreement.

	E.	 	The Third Party Administrator agrees that the Insurer may, at its sole discretion, audit
performance under this Agreement upon ten (10) days written notice to the Third Party
Administrator. Upon the Insurer’s request for an audit, the Third Party Administrator agrees
to make its books, records and files available for review during regular business hours at the
place or places of business where the books, records and files are maintained by the Third
Party Administrator.

	F.	 	The Third Party Administrator will obtain and maintain General Liability Insurance, Automobile
Liability
Insurance, Workers’ Compensation Insurance, Errors and Omissions Insurance (Professional
Liability Coverage) in the amount of five million dollars ($5,000,000) for a single occurrence
and in the amount of five million dollars ($5,000,000) in the aggregate and Fidelity Coverage
(Bond) in the amount of five hundred thousand dollars ($500,000), and providing coverage for
the Insurer as an additional insured under such liability and fidelity policies with respect to
any liability arising from the Third Party Administrator’s work under this Agreement. Upon
execution of this Agreement, the Third Party Administrator will provide the Insurer with
Certificates of Insurance which reflect the approved limits of liability and which name the
Insurer as an additional insured.

	G.	 	The Third Party Administrator agrees to indemnify, defend, and hold Insurer, as well as its
directors,
officers, attorneys, employees, agents, and/or other representatives wholly harmless from and
against any and all claims, including all allegations, demands, actions, damage, loss, costs,
and/or expenses whatsoever including, without limitation, attorneys’ fees and litigation
expense arising or resulting from any alleged act, error, or omission, including any
intentional tort, willful misconduct, negligence or gross negligence by the Third Party
Administrator or its directors, officers, attorneys, employees, agents, and/or other
representatives arising out of or in any way related to the Third Party Administrator’s
obligations under the terms of this Agreement. Likewise, the Insurer agrees to indemnify,
defend and hold the Third Party Administrator, its directors, officers, attorneys, employees,
agents, and/or other representatives, wholly harmless from and against any and all claims,
including all allegations, demands, actions, damage, loss, costs, and/or expenses whatsoever
including, without limitation, attorneys’ fees and litigation expense, arising or resulting
from any alleged act, error or omission,

 

 

Page 5 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh, Pa.,
as Insurer, and LOTSolutions, Inc., as Third Party Administrator

	 	 	including any intentional tort, willful misconduct, negligence or gross negligence by the
Insurer, or its directors, officers, attorneys, employees, agents, and/or other representatives
under the terms of this Agreement.

	 	 	The Insurer and the Third Party Administrator agree that, to the extent that this defense and
indemnity provision provides for the defense of any litigation, each reserves the right to
select its attorneys, at its expense, who will defend such action, and to direct how such
action shall be defended.

	H.	 	The Third Party Administrator agrees to not subcontract services required hereunder to
others without the express written consent of the Insurer.

	I.	 	Subject to Article VI, Section H, above, the Third Party Administrator agrees to exercise
reasonable care in the selection of any subcontractor and/or any vendor, adjuster, claims
investigator, or appraiser retained to provide adjusting or claim related services hereunder,
and to ascertain that each vendor or subcontractor, including but not limited to adjusters,
appraisers, investigators, rehabilitation vendors, managed care organizations, vocational
rehabilitation, utilization review and hold proper licenses for the work to be performed and
are residents in those states requiring residency, and in which it renders services
hereunder. The Third Party Administrator retains all responsibility for the performance of
all services and obligations set forth in this Agreement, including all defense and indemnity
obligations set forth in Article VI, G.

	J.	 	The Third Party Administrator agrees to issue its checks from a designated bank account, to
be established by the Third Party Administrator for the sole benefit of the Insurer (the
“Loss Fund”) to be used solely for the purpose of the payment by the Third Party
Administrator of claims for which the Third Party Administrator is providing Claims Adjusting
Services hereunder. Such funds shall not be commingled with any other funds including, but
not limited to, funds from other carriers and the Third Party Administrators general
operating funds. All banking arrangements established by the Third Party Administrator must
comply with state laws and regulations. Third Party Administrator will submit reports on a
periodic basis (no more frequently than twice a week) to which the parties will agree. Such
report shall list each payment made by Third Party Administrator and such other information
as may be reasonably required by Insurer. No more frequently than twice a week, Insurer shall
transfer funds via wire transfer to the account established for the payment of claims for the
purpose of reimbursing the Loss Fund.

	K.	 	The Third Party Administrator agrees to furnish to the Insurer and its designees, on a
monthly basis, a “Loss Run” and a “Loss Fund Activity Report.” This loss run will be
submitted via CD-ROM or other mutually agreed upon electronic media. The term “Loss Run”
means a computer generated listing of claims that have been posted to the Third Party
Administrator’s MIS Data System. The term “Loss Fund Activity Report” means a computer
generated listing of accounting activity in the Loss Fund Account during the preceding month
that has posted to the Third Party Administrator’s MIS Data System. A maximum of five (5)
copies of any single listing will be provided by the Third Party Administrator for each
period at no extra fee. The Third Party Administrator reserves the unilateral right to amend
or alter the substance and form of the listings to be provided to the Insurer and/or its
designees hereunder if the Third Party Administrator hereafter amends or alters the substance
or form of such listings for its customers generally. The Third Party Administrator’s
obligations to furnish this information to the insured and/or broker shall be clearly set
forth in the Third Party Administrator’s Account Service Instructions.

	L.	 	The Insurer agrees to pay to the Third Party Administrator the Claims Service Fees
prescribed in Article IV. In the event Claims Service Fees are not paid by the Insurer to the
Third Party Administrator within sixty (60) days of date of invoice, the Third Party
Administrator may terminate this Agreement, at its option, in accordance with Section VII(C).
In the event that the Insurer disputes all or a part of an invoice, this provision will apply
to any undisputed portions of such invoice. However, this provision will not apply to that
portion which is in dispute, until the dispute has been resolved. Each party to this
Agreement shall exercise diligence in expediting the resolution of any such dispute.

 

 

Page 6 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh, Pa.,
as Insurer, and LOTSolutions, Inc., as Third Party Administrator

	M.	 	The Insurer agrees to pay the Third Party Administrator, in addition to the agreed Claims
Service Fees prescribed in Article IV, in accordance with a mutually agreed upon method of
billing, for all claims service and for all claims and/or losses previously handled or
attempted to be handled by any person, firm or corporation or the Insurer’s Insured before
being assigned to the Third Party Administrator.

	N.	 	All records and data in any form pertaining to this Agreement including but not limited to
all claims files, all printed material, and claims forms are the property of Insurer only.
Third Party Administrator is acting solely in a custodial capacity as to any such records
used or held by Third Party Administrator, and such records will be turned over as directed
by Insurer immediately upon demand by Insurer. Third Party Administrator may not copy or
reproduce any administration manual or other such manual in any form without the prior
written consent of Insurer.

ARTICLE VII — TERMINATION

	A.	 	This Agreement covers the period stated in Article I. Any continuation or renewal of this
Agreement shall be the subject of further negotiation between the Insurer and the Third Party
Administrator. If this Agreement is terminated or not renewed, the Insurer shall exercise
one of the following options:

	 	1.	 	The Insurer may require the Third Party Administrator to complete the handling of all
claims which are covered under this Agreement or any previous agreement, whether reported
before or after the term of this Agreement subject, however, to the terms, conditions and
limitations of this Agreement and subject to mutually agreed upon fees for continuing
service. Adequate funds shall continue to be made available by the Insurer to the Third
Party Administrator for the payment of claims as outlined in Article VI, Paragraph J, until
all claims are closed; or
	 
	 	2.	 	The Insurer may require the Third Party Administrator to transfer all open files and/or
closed files to the Insurer or to a designated facility for future handling should the
Insurer’s audit of claim files reveal any violation of the Insurer’s Claim Handling
Guidelines. The Third Party Administrator
shall bear all costs and expenses incurred by all involved parties in the transfer of the
files and in providing for continuity in handling, compliance with the Insurer’s Claims
Handling Guidelines and the uninterrupted flow of all claims information required by this
Agreement to the Insurer.

	B.	 	This Agreement may be terminated by either the Insurer or the Third Party Administrator with
or without cause and for any reason whatsoever upon one hundred eighty (180) days prior
written notice.

	C.	 	Either party may terminate this Agreement immediately upon written notice to the other party:

	 	1.	 	if the other party fails to pay any amount due and owing pursuant to this Agreement,
provided that the breaching party has been given written notice of the amount overdue and
has not made full payment within thirty (30) days after receipt of such notice and such
amount is not in dispute;
	 
	 	2.	 	if the other party has breached any material term or condition of this Agreement,
provided that the breaching party has been given written notice of the breach and has not
cured such breach within fifteen (15) days after receipt of such notice; or
	 
	 	3.	 	(iii) upon the filing of any voluntary or involuntary petition in bankruptcy or for
other relief under any bankruptcy law or law for the relief of debtors by or with respect
to the other party, the liquidation or dissolution of such party, the assignment of any
portion of such party’s assets for the benefit of creditors or any similar arrangement or
the appointment of a receiver, trustee or similar person with respect to such party’s
assets.

	D.	 	Termination of this Agreement by either party hereto shall not relieve the Third Party
Administrator of its obligation to provide the Insurer and the Company with monthly electronic
files as they are currently being provided under all Claim Service Agreements between the
Third Party Administrator and the Insurer or its affiliated or subsidiary corporations,
unless the Insurer relieves the Third Party

 

 

Page 7 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh, Pa.,
as Insurer, and LOTSolutions, Inc., as Third Party Administrator

	 	 	Administrator from such obligation upon receipt of a correct final tape when (i) the Insurer
elects the termination option in Paragraph A (2) of this Article, or (ii) all claims are closed
under this Agreement.

	E.	 	Termination of this Agreement by either party shall not relieve either party of any indemnity
obligations arising out of this Agreement.

	F.	 	The Third Party Administrator shall return to the Insurer the funds remaining in the Loss Fund
Account at the termination or expiration of this Agreement, or when the Third Party Administrator
concludes the handling of all claims covered hereunder, whichever is later.

ARTICLE VIII — ARBITRATION

All disputes or differences arising out of the performance of or the interpretation of this
Agreement must be settled by Arbitration.

If a dispute that the Third Party Administrator and the Insurer cannot settle by mutual agreement
arises about this Agreement or any transaction related to it, that dispute must be submitted to
three (3) arbitrators. The Insurer or the Third Party Administrator may submit to such arbitration
any dispute not resolved within thirty (30) days after it arises.

The Third Party Administrator must notify the Insurer, in writing, as soon as the Third Party
Administrator has submitted a dispute to arbitration. The Insurer must notify the Third Party
Administrator, in writing, as soon as the Insurer has submitted a dispute to arbitration.

This Section will apply whether that dispute arises before or after termination of this Agreement.

How
arbitrators must be chosen: The Third Party Administrator must choose one arbitrator and the
Insurer must choose another. The two arbitrators will choose the third. If the Third Party
Administrator
or the Insurer refuses or neglects to appoint an arbitrator within thirty (30) days after written
notice from the other party requesting it to do so, the requesting party may appoint two
arbitrators. If the two arbitrators fail to agree on the selection of a third arbitrator within
thirty (30) days of their appointment, either the Third Party Administrator or the Insurer may
make an application to a Justice of the Supreme Court, of the State of New York, County of New
York and the Court will appoint the third arbitrator.

Qualifications of arbitrators: Unless the Third Party Administrator and the Insurer agree
otherwise, all arbitrators must be executive officers or former executive officers of life and/or
accident and health insurance or reinsurance companies or insurance brokerage companies domiciled
in the United States of America not under the control of either party to this Agreement.

How the arbitration must proceed: The arbitration must take place in New York, New York unless the
Third Party Administrator and the Insurer agree otherwise. The arbitration must be governed by the
United States Arbitration Act, Title 9 U.S.C. Section 1, et seq. Judgment upon the award rendered
by the arbitrators may be entered by a court having jurisdiction thereof.

The Third Party Administrator and the Insurer must both submit their respective cases to the
arbitrators within thirty (30) days of the appointment of the third arbitrator. The arbitrators
must make their decision within sixty (60) days following the termination of the hearing, unless
the Third Party Administrator and the Insurer consent to an extension. The majority decision of
any two (2) arbitrators, when filed with the Third Party Administrator and the Insurer will be
final and binding on the Third Party Administrator and on the Insurer.

The arbitrators must interpret this Agreement as an honorable engagement and not merely a legal
obligation. They are relieved of all judicial formalities. They may abstain from following the
strict rules of law. They must make their award to effect the general purpose of this Agreement in
a reasonable manner.

 

 

Page 8 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh, Pa.,
as Insurer, and LOTSolutions, Inc., as Third Party Administrator

The arbitrators must render their decision in writing, based upon a hearing in which evidence may
be introduced without following strict rules of evidence, but in which cross-examination and
rebuttal must be allowed.

The arbitrators may award compensatory money damages and interest thereupon. They may order the
Third Party Administrator to provide collateral to the extent required by this Agreement. They
will have exclusive jurisdiction over the entire matter in dispute, including any question as to
its arbitrability. However, they will not have the power to award exemplary damages or punitive
damages, however denominated, whether or not multiplied, whether imposed by law or otherwise.

Expenses
of Arbitration: The Third Party Administrator and the Insurer must each bear the expense
of its respective arbitrator and must jointly and equally bear with each other the expense of the
third arbitrator and of the arbitration.

ARTICLE IX — CONTROLLING LAW

It is hereby agreed that this Agreement shall be interpreted and construed in accordance with
the laws of the State of New York and the proper venue for any action shall be in the State of New
York, County of New York.

ARTICLE X — NONWAIVER OF RIGHTS

Forbearance, neglect or failure by the Insurer or the Third Party Administrator to enforce
any or all of the provisions of this Agreement or to insist upon strict compliance by the other
shall not be construed as a waiver of any rights or privileges of the Insurer or the Third Party
Administrator. A waiver of a past act or circumstance shall not constitute or be a course of
conduct or waiver of any subsequent act or circumstance.

ARTICLE XI — CONFIDENTIALITY; PRIVACY; ASSIGNMENT OF STAFF; OFFICE OF FOREIGN ASSET
CONTROL COMPLIANCE

	A.	 	Duty of Confidentiality. In performing its obligations hereunder, the Third Party
Administrator
may have access to and receive disclosure of certain confidential and/or proprietary
information about the Insurer or the Insured, including, without limitation, loss data, service
instructions, billing processes and such other information and materials that the Insurer or
the Insured, as applicable, considers confidential and proprietary (“Confidential
Information”). The Third Party Administrator agrees to not give, sell or in any way transfer,
either directly or indirectly, Confidential Information to any third party without the prior
written approval of the Insurer, except as may be required by law. The Third Party Administrator
acknowledges and agrees that the restrictions contained in this paragraph are reasonable and
necessary to protect the legitimate business interests of the Insurer and the Insured, and that
any violation thereof by the Third Party Administrator would result in irreparable harm to
Insurer and the Insured. Accordingly, the Third Party Administrator agrees that upon the
violation by it of the restrictions contained in this paragraph, the Insurer shall be entitled
to obtain from any court of competent jurisdiction a preliminary and permanent injunction as
well as any other relief provided at law or equity, and that, notwithstanding the foregoing, no
right, power or remedy conferred upon or reserved or exercised by the Insurer in this paragraph
is intended to be exclusive of any other right, power or remedy, each and every one of which
(now or hereafter existing at law, in equity, by statute or otherwise) shall be cumulative and
concurrent. These obligations as to confidentiality and non-use shall survive the termination
of this Agreement.

	B.	 	Privacy. Insurer and Third Party Administrator agree that each shall comply with the
provisions of any laws and regulations requiring confidential treatment of information and
records determined to be non-public personal information under such laws and regulations,
including, without limitation, the Gramm-Leach-Bliley Act, any other federal and state privacy
laws, and Insurer’s written privacy policy, as may be amended from time to time and provided
to Third Party Administrator by Insurer.

 

 

Page 9 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh, Pa.,
as Insurer, and LOTSolutions, Inc., as Third Party Administrator

	 	 	Third Party Administrator represents that it will comply with the applicable provisions of any
privacy laws and Insurer’s privacy policy and will not disclose, share, transfer, use or reuse
any non-public personal information of customers, except as authorized in writing by Insurer.
Any information provided by or transferred from Insurer to Third Party Administrator shall
remain Insurer’s exclusive property and shall not be inextricably commingled with information
of other clients, contractors or subcontractors of Third Party Administrator. Information so
transferred to Third Party Administrator shall be returned to Insurer within thirty (30) days
following termination of this Agreement for any reason. Third Party Administrator shall ensure
that all approved contractors or subcontractors also comply with the provisions of any laws and
regulations requiring confidential treatment of information and records determined to be
non-public personal information under such laws and regulations, including, without limitation,
the Gramm-Leach-Bliley Act, any other federal and state privacy laws. This provision shall
survive termination of this Agreement.

	C.	 	ASSIGNMENT OF THIRD PARTY ADMINISTRATOR’S STAFF. Third Party Administrator agrees not to
assign any individual to perform services for Insurer who has ever been convicted of a felony
involving dishonesty or a breach of trust. Third Party Administrator also agrees to take
reasonable steps to determine if any employees, contractors or subcontractors have ever been
convicted of any felony involving dishonesty or breach of trust. Further, Third Party
Administrator agrees that it will not knowingly or willfully permit any person, contractor or
subcontractor, if so convicted, to provide any services under this Agreement. Third Party
Administrator also agrees to promptly notify Insurer, in writing, of any employee, contractor
or subcontractor who, after the effective date of this Agreement, is convicted of a felony
involving dishonesty or breach of trust.

	D.	 	OFFICE OF FOREIGN ASSET CONTROL COMPLIANCE. The parties agree that in performing their
respective duties and services under this Agreement, they are required to comply with the
economic sanctions and trade embargoes administered and enforced by the U. S. Treasury
Department’s Office of Foreign Assets Control (“OFAC”). The parties agree that in performing
their respective duties and the services under this Agreement they shall not engage in
transactions that, unless specifically licensed by OFAC, involve (a) individuals or entities
appearing on the “Specially Designated Nationals and Blocked Persons” (“SDN”) list, or (b) the
Sanctioned Countries list.

	 	 	In performing their duties under this Agreement, the parties agree that neither shall issue or
cause to be issued a policy (a) to any individual or entity on the SDN list, (b) that insures
an individual or entity on the SDN list, or (c) where an individual or entity on the SDN list
benefits from or has an interest in the policy.

	 	 	Further, the parties agree that neither shall enter into a transaction or issue a policy that
insures a transaction that is prohibited under the individual country sanctions enforced by
OFAC.

	 	 	The parties agree that neither shall pay a claim, accept premium, furnish services or
products, or exchange monies or assets of any kind to or with an individual or entity on the
SDN list or connected in the manner described in the OFAC regulations to a Sanctioned Country.

ARTICLE XII — MERGER CLAUSE

This Agreement supersedes all previous agreements on the same subject matter whether oral or
written between the Insurer and the Third Party Administrator, and this Agreement, together with
Exhibits, constitutes the entire and sole contract between the Insurer and the Third Party
Administrator and any prior statements, agreements or representations between the Insurer and the
Third Party Administrator are merged herein. The following documents constitute the entire and
sole contract between the Insurer and the Third Party Administrator:

	A.	 	This Agreement;

	B.	 	Exhibit A, titled Compensation;

 

 

Page 10 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh,
Pa., as Insurer, and LOTSolutions, Inc., as Third Party Administrator

	C.	 	Exhibit B, titled Summary of Document Retention Policy;
	 
	D.	 	Exhibit C, titled Claims Handling Guidelines; and

	E.	 	Exhibit D, titled Service Level Standards Addendum.

ARTICLE XIII — SUBSEQUENT AGREEMENTS TO BE IN WRITING

The provisions set out herein constitute the whole and entire Agreement between the Insurer and
the Third Party Administrator and may be altered only by mutual agreement, reduced to writing and
executed by the Vice President of the Insurer Claims and the Third Party Administrator. It is
specifically understood and agreed that this Agreement may be renewed in its entirety by written
addendum, which shall be executed by authorized representatives of the Insurer and the Third Party
Administrator.

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed by their duly
authorized representatives this 27th day of April, 2009.

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

	 	 	 	 	 

	BY:

	 	/s/ A. Weinstein
 

(signature)
	 	 
	 
	 	 	 	 
	 

	 	A. Weinstein, As Its Attorney-In-Fact	 	 

			
	ADDRESS:	 	70 Pine Street

New York, NY 10270

LOTSOLUTIONS, INC.

	 	 	 	 	 

	BY:

	 	/s/ Richard S. Kahlbaugh
 

(signature)
	 	 
	 
	 	 	 	 
	 

	 	Richard S. Kahlbaugh, Chief Executive Officer  	 	 

			
	ADDRESS:	 	100 W. Bay Street

Jacksonville, FL 32202

 

 

Page 11 — Claims Service Agreement between National Union Fire Insurance Company of
Pittsburgh, Pa., as Insurer, and LOTSolutions, Inc., as Third Party Administrator

EXHIBIT A TO CLAIMS SERVICE AGREEMENT

COMPENSATION

Compensation
for the Services provided pursuant to this Agreement shall be ****
($****) dollars per **** Qualified Claim processed and **** ($****) dollars per Qualified
Claim for all other Qualified Claims processed in accordance with the authority granted by the
Insurer hereunder.

Third Party Administrator shall invoice Insurer for the following charges:

	 	1.	 	Non-routine Reports: Upon request, Third Party Administrator
will produce special reports above and beyond the standard information produced.
The parties will agree in advance on a price for such reports.
	 
	 	2.	 	Outside Professional Services: Fees for outside professional
services, including without limitation attorney fees, audit fees, tax fees or
technical support, will be passed through to Insurer; however, the parties will
consult and agree in advance prior to having Third Party Administrator coordinate
any such outside professional services with respect to this Agreement.
	 
	 	3.	 	Non-routine or Express Mailings: The Insurer will be billed for
any expedited postal service, express delivery or courier service requested by the
Insurer that is not related to a particular claim file, unless such costs are due
to an act or omission of Third Party Administrator in its performance of the
Services hereunder.

 

 

Page 12 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh,
Pa., as Insurer, and LOTSolutions, Inc., as Third Party Administrator

EXHIBIT B TO CLAIMS SERVICE AGREEMENT

Summary of Document Retention Policy

Claim files for all lines and all jurisdictions must be maintained for at least seven (7)
years after closure. However, the following exceptions apply:

In cases involving minors, where the minor could have a claim when he/she reaches the age of
maturity, the destruction date should be determined on a case by case basis dependent upon
jurisdictional limitations.

In cases involving litigation, the destruction date should be determined only after the
lawsuit has concluded, the appeal process has concluded, or time for appeal has expired.

Insurer acknowledges that Third Party Administrator images all documents it receives or creates
and maintains such documents in imaged form, not in hard copy.

 

 

Page 13 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh,
Pa., as Insurer, and LOTSolutions, Inc., as Third Party Administrator

EXHIBIT C TO CLAIMS SERVICE AGREEMENT

AIG

CLAIMS SERVICE

CLAIMS HANDLING GUIDELINES

FOR DOMESTIC ACCIDENT & HEALTH DIVISION

CLAIMS ADMINISTRATORS

These guidelines will establish procedures for adjusting losses on behalf of AIG Claims
Service (AIGCS) and AIG Member Companies (hereinafter referred to as the “Insurer”), to which all
Third Party Administrators are required to adhere, under the terms and conditions of the Claims
Service Agreement.

The claim handling, reporting and consulting guidelines outlined in these instructions have been
established by AIGCS and the Insurer. The claims administrator (hereinafter referred to as the
“Third Party Administrator”) may not deviate from these guidelines without prior approval from
AIGCS. The Third Party Administrator, administering claims on behalf of the Insurer, will, to the
best of its ability, comply with all rules, regulations and reporting requirements promulgated by
Federal, State/Commonwealth, Municipal and Provincial Regulatory Authorities relating to
adjusting, licensing, claim settlement and payments for all lines of business, and all
jurisdictions, in each state where claims adjusting activities are contemplated or where claims
adjusting takes place.

The Third Party Administrator will comply, to the best of its ability, with the Insurer’s Claims
Handling Guidelines, outlined herein, and incorporate the consulting and reporting criteria,
agreed upon with AIGCS and its insureds, in the Third Party Administrator Account Service
Instructions.

 

 

Page 14 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh,
Pa., as Insurer, and LOTSolutions, Inc., as Third Party Administrator

ACKNOWLEDGMENTS:

State insurance regulations require prompt acknowledgment of receipt of claims. The Third Party
Administrator shall be responsible for compliance with such regulations.

AUDITS:

All claim files are the property of the Insurer and are subject to open and closed file audits.

Results of an audit will be discussed with the Third Party Administrator and a letter will be sent
by the Insurer setting forth the findings. A follow up audit will determine if corrective action
has been taken by the Third Party Administrator. Results will be monitored and failure to comply
may result in either suspension or termination of the Third Party Administrator. Any audit
reports, written or oral, are confidential and shall not be released to any third parties without
the prior written consent of the Insurer.

BONDS:

The Third Party Administrator does not have authority to purchase bonds of any type on behalf
of the Insurer. In the event a bond is needed for appeals or other purposes, contact the
Insurer.

COMPLAINTS:

Refer any written inquiry, complaint or request from an Insurance Department, other Regulatory
Agency, insured, claimant, agent, broker, or other interested party, to the Insurer.

COVERAGE CONFIRMATION AND COVERAGE ISSUES:

All files must reflect proper documentation that coverage has been reviewed and is in order. All
coverage issues must be reported to the Insurer. The Third Party Administrator must report same to
the Insurer by telephone within two (2) business days. The Third Party Administrator will be
guided appropriately by the Insurer. Following phone contact, the Third Party Administrator must
immediately refer the file to AIGCS.

For purposes of this provision of Exhibit C, “coverage issues” shall include, without limitation,
questions arising out of or resulting from:

	 	•	 	interpretations of policy provisions, including, without limitation, the trigger
event, the amount of benefits available, and/or the application of an exclusion; and/or
	 
	 	•	 	interpretations of applicable statutes, regulations or prevailing case law as may be
applicable to a claim.

DRAFT ISSUANCE:

Drafts/checks should be issued in accordance with the rules, regulations and laws applicable to
the jurisdictions involved. All drafts/checks will be issued by the Third Party Administrator. It
is the responsibility of the Third Party Administrator to timely request funds from AIGCS to
insure a continuous flow of payments as necessary.

EX GRATIA PAYMENTS:

The Third Party Administrator personnel do not have authority to make an “Ex Gratia Payment”
without prior written approval from the Insurer.

FILE RETENTION/DESTRUCTION PROCEDURES:

See Exhibit B of the Agreement.

 

 

Page 15 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh,
Pa., as Insurer, and LOTSolutions, Inc., as Third Party Administrator

FORMS:

Third Party Administrator shall only use forms provided by Insurer in the routine handling of
claims. 

INVESTIGATION:

The Third Party Administrator is required to perform an appropriate investigation and adjust each
claim occurring within the Insurer’s contract period in accordance with the terms and conditions
of the Claims Service Agreement and of the applicable laws of the jurisdiction involved.
Investigation should be commensurate with the loss and provide information sufficient to bring the
claim to a timely and equitable conclusion.

Initial investigation is to be completed within **** days of receipt of the first report. Additional
investigation is to be completed within **** days of receipt of the first report. 

All claim activity
must be documented in the file.

LITIGATION MANAGEMENT:

Insurer shall control litigation arising out of claims adjudicated by Third Party Administrator
under this Agreement.

PENALTIES/FINES:

The Third Party Administrator will be held responsible for any fines, penalties, or interest
charges incurred by the Insurer as a result of the Third Party Administrator’s failure to comply
with the rules, regulations and laws by which these penalties are assessed.

Penalties/fines may not be charged as an Allocated Loss Expense to the claim file unless specific
written authorization is received from the Insurer.

PROCESSING RECOVERIES:

All refunds and voided checks should be made payable to the Third Party Administrator on behalf of
the Insurer and processed through the Third Party Administrators handling branch and/or
supervisory department.

Drafts and checks will be deposited by the Third Party Administrator to the individual insured’s
account and coded as a recovery through the Third Party Administrator’s statistical loss reporting
system.

REPORTABLE FILES:

The Third Party Administrator is required to report to the Insurer:

	•	 	Death claims
	 
	•	 	All lawsuits naming the Insurance Company as a defendant
	 
	•	 	All lawsuits involving class actions, allegations of bad faith, and violation of an unfair
claims practices act

Any issues impacting state laws, reserving issues, settlements and/or setting legal
precedents. 

REPORTING REQUIREMENTS:

A **** (****%) percent increase in claims volume within a week for permanent temporary
disability, accidental death and dismemberment, and/or accident medical expense claims should be
reported immediately, by phone, to the Insurer.

 

 

Page 16 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh,
Pa., as Insurer, and LOTSolutions, Inc., as Third Party Administrator

SIGNATURES (CHECKS AND DOCUMENTS)

Any check or draft which requires a signature from the Insurer, should be sent with a letter of
explanation and a return envelope to Insurer.

CONTACT PERSONS:

Insurer:

Name, Title, and Company: Eileen Duffy, Assistant Vice President, AIG Claim Services, Inc.

Address: 600 King Street, 5th Floor, Wilmington, DE 19801

Phone Number: 302 661-8901

Fax Number: 302 661-8959

E-mail Address: eileen.duffy@aig.com

Third Party Administrator:

Name, Title and Company: Robert S. Fullington, President, LOTSolutions, Inc.

Address: 100 West Bay Street, Jacksonville, FL 32202

Phone Number: (904) 350-9660

Fax Number: (904) 354-4525

E-mail Address: bfullington@lotsolutions.com

 

 

Page 17 — Claims Service Agreement between National Union Fire Insurance Company of Pittsburgh,
Pa., as Insurer, and LOTSolutions, Inc., as Third Party Administrator

EXHIBIT D 

SERVICE LEVEL STANDARDS

Third Party Administrator shall provide Insurer results for each of the performance standards shown
below on an average monthly basis.

	1.	 	Maintain adequate personnel to ensure customer service phone calls are answered as follows:

	 	a.	 	**** percent (****%) or more within **** (****) seconds
	 
	 	b.	 	Average abandonment rate of **** percent (****%) or below

	2.	 	Maintain adequate personnel, training and procedures to ensure that in written and
oral communication with Insureds, customer service personnel provide accurate information
specific to the Policies in all material respects with an overall error rate of less than ****
percent (****%) per month.
	 
	3.	 	Response to Insureds’ inquiries and complaints within **** (****) business days
	 
	4.	 	Written Correspondence Resolved:

	 	a.	 	**** percent (****%) or more within **** (****) business days of receipt
	 
	 	b.	 	**** percent (****%) within **** (****) business days of receipt

	5.	 	Response to a request from Insurer within **** (****) hours
	 
	6.	 	Request for Claim Form

	 	a.	 	Form Request: **** percent (****%) within **** (****) business days of receipt

 

 

AMENDMENT NO. 1

to the

CLAIMS SERVICES AGREEMENT

between

NATIONAL UNION FIRE INSURANCE COMPANY OF

PITTSBURGH, PA

And Its Affiliated Insurance Companies

(hereinafter collectively called “Insurer”)

and

LOTSOLUTIONS, INC.

(hereinafter called “Third Party Administrator”)

This Amendment No. 1 (“Amendment”), entered into effective August 1, 2010 (“Effective Date”),
amends the Claims Service Agreement by and between Third Party Administrator and Insurer dated
December 1, 2008 (the “Agreement”). Capitalized terms used, but not otherwise defined, herein shall
have the meanings ascribed to them in the Agreement.

	 	1.	 	It is mutually agreed, effective August 1, 2010, Exhibit A of the Agreement shall be
deleted in its entirety and replaced with new Exhibit A in the form which is attached
hereto and made a part hereof.
	 
	 	2.	 	It is mutually agreed, effective August 1, 2010, that Third Party Administrator shall
provide Insurer a one-time credit in the aggregate amount of $****, which shall be
credited to Insurer in twelve equal monthly installments of $**** and netted against
any amounts then due and owing to Third Party Administrator pursuant to Exhibit A under
the Agreement. Said monthly credits shall commence with the monthly invoice that is due
and owing in the month following the date on which Insurer has paid Third Party
Administrator in full all invoices for periods prior to August 1, 2010. Once said credit
has been fully issued, no other credit is due or owing to Insurer as of the date of this
Amendment.

All other terms and provisions of the Agreement not in conflict with this Amendment shall remain
unchanged and in effect. This Amendment may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one and the same instrument.
Counterpart signature pages to this Amendment transmitted by facsimile transmission, by electronic
mail in “portable document format” (“.pdf”) form, or by any other electronic means intended to
preserve the original graphic and pictorial appearance of a document, will have the same effect as
physical delivery of the paper document bearing an original signature.

[SIGNATURE LINES ON NEXT PAGE]

Page 1 of 4

 

IN WITNESS WHEREOF the parties, by their respective duly authorized officers, have caused this
Amendment to be executed as of the Effective Date.

	 	 	 	 	 
	 	LOTSOLUTIONS, INC.

 	 
	 	By:  	/s/ Robert S. Fullington	 
	 	Title: 	 President 	 
	 	 	 	 
	 
	 	NATIONAL UNION FIRE INSURANCE 

COMPANY OF PITTSBURGH, PA

 	 
	 	By:  	[ILLEGIBLE] 	 
	 	Title: 	 As Its Attorney-In-Fact 	 
	 	 	 	 
	 

Page 2 of 4

 

EXHIBIT A TO CLAIMS SERVICE AGREEMENT

COMPENSATION

Claims Adjusting Services Fee Structure

Compensation for Services provided pursuant to this Agreement shall be as follows:

	 	A.	 	**** Qualified Claims

	 	 	 	A fee of $**** will be charged per Qualified Claim Processed. Services
include claim form production and delivery, opening and establishing a claim,
policy record creation, adjudication, payment and denials. Any claim closed due to
no activity by the claimant of **** days or more and reopened will be subject to a
new fee.

	 	B.	 	All Other Qualified Claims

	 	1.	 	Opening a Claim — Insurer, or its designated administrators, will
collect information from an insured daily and enter data into Third Party
Administrator’s file to open a new claim. Third Party Administrator will process
the data file, produce a claim form, and mail the form to the insured. The fee for
this service is $**** per form mailed, excluding **** Qualified Claims.
	 
	 	2.	 	Physician Office Visit (“POV”) Claims — A fee of $**** per claim will
be charged for processing the claim form or other documentation received from an
insured or from someone acting on their behalf. Any claim closed due to no activity
by the claimant of **** days or more and reopened will be subject to a new fee.
	 
	 	3.	 	Group Policy Claims (Non-POV) — A fee of $**** per claim will be
charged for processing the claim form or other documentation received from an
insured or from someone acting on their behalf. Any claim closed due to no activity
by the claimant of **** days or more and reopened will be subject to a new fee.
	 
	 	4.	 	Individual Policies (Non-POV) — A fee of $**** will be charged for
processing a claim form or documentation received from an insured, or from someone
acting on their behalf, for any individual policy containing a pre-exiting
exclusion. Any claim closed after **** days due to no activity by the claimant and
reopened will be subject to a new fee.
	 
	 	5.	 	Establish a New Claim — A fee of $**** will be charged for each claim
form received for which a claim has not been previously opened in the system. Third
Party Administrator will open and set-up the claim for processing. This fee is in
addition to the claim adjudication fee listed above.

Page 3 of 4

 

	 	6.	 	Claim Form Request — A fee of $**** will be charged for each call received by
Third Party Administrator’s Customer Service Representative requesting a
claim form. Third Party Administrator will collect information from the insured and enter
information in the system. This fee is in addition to the Opening a Claim and the
applicable claim adjudication fee specified above.
	 
	 	7.	 	Claim Form Requests Received Through Interactive Voice Recognition
(IVR) and Web — Third Party Administrator will collect from the IVR and/or Web services
application and populate the Claims adjudication system. A fee of $**** will be charged
for each claim setup access using the IVR and/or Web service applications requesting a
claim form. This fee is in addition to the Opening a Claim and applicable claim
adjudication fee listed above.

	 	C.	 	Non-Routine Reports: Upon request, Third Party Administrator will produce special
reports above and beyond the standard information produced. The parties will agree in advance
on a price for such reports. Routine Reports shall include: Claims Open Report, POV Claims
Report, Group Policies (non-POV) Report, Individual Policies (non-POV) Report, Establishing a
New Claim Report, Claims Form Request Report.
	 
	 	D.	 	Outside Professional Services: Fees for outside professional services, including
without limitation attorney fees, audit fee, medical peer review fee, toxicology expert review
fee, medical record fee, postage rate increases, tax fee or technical support, will be passed
through to the Insurer; however, the parties will consult and agree in advance prior to having
Third Party Administrator coordinate any such outside professional services with respect to
this Agreement. Third Party Administrator is not required to obtain prior approval to submit
any claim for a peer or toxicology expert review.
	 
	 	E.	 	Non-Routine or Express Mailings: The Insurer will be billed for any expedited postal
service, express delivery or courier service requested by the Insurer, unless such costs are
due to an act or omission of Third Party Administrator in its performance of the Service
hereunder.
	 
	 	F.	 	Dispute Resolution: The Insurer will be billed an hourly rate of $**** for Legal
Department Assistance and $**** per hour for all others responding to Department of
Insurance Complaints, Appeals, Escalations and Attorney
Letters.

Page 4 of 4exv10w39

Exhibit 10.39

LIFE OF THE SOUTH CORPORATION

KEY EMPLOYEE STOCK OPTION PLAN (1995)

INCENTIVE STOCK OPTION AGREEMENT

     This Incentive Stock Option Agreement (the “Agreement”), is made and entered into as of this
28th day of February, 2001, by and between LIFE OF THE SOUTH CORPORATION, a corporation
organized under the laws of the State of Georgia (the “Corporation”), and W. DALE BULLARD (the
“Employee”).

WITNESSETH:

	     WHEREAS, the Corporation adopted the Life of the South Corporation Key Employee Stock Option
Plan (1995) (the “Plan”) for the benefit of certain key employees of the Corporation, which Plan
became effective on January 26, 1995 and was approved by the shareholders of the Corporation on
April 27, 1995; and

     WHEREAS, the Corporation has adopted the Plan in a form that qualifies in pertinent part as
an Incentive Stock Option Plan, as provided in Section 422 of the Internal Revenue Code of 1986,
as amended (the “Code”), and so that certain options granted under the Plan will constitute
“Incentive Stock Options” and will be afforded the favorable tax treatment allowed such options
under the Code; and

     WHEREAS, pursuant to the Plan, the Employee has been selected as an Optionee under the Plan,
and the Corporation desires to grant to the Employee an option to purchase shares of the
Corporation’s Common Stock, 33 1/3 cents par value per share (“Common Stock”), on the terms and
conditions hereinafter set forth;

     NOW, THEREFORE, for and in consideration of the premises and the mutual agreements and
covenants hereinafter set forth and other good and valuable consideration, the parties agree as
follows:

     1. GRANT OF OPTION. Subject to the terms and conditions of this Agreement and the
terms and conditions of the Plan, which are incorporated herein by reference, the Corporation
grants to the Employee on February 28, 2001 (“Grant Date”) the right and option to purchase 50,000
shares of Common Stock (this “Option”), exercisable in accordance with the provisions of paragraph
3. The option price and number of shares subject to this Option have been adjusted to reflect the
stock split which became effective April 27, 2000. This Option shall be an Incentive Stock Option.
Unless otherwise indicated, capitalized terms used in this Agreement shall have the same meaning as
provided in the Plan.

 

 

     2. TERM OF OPTION. Subject to earlier termination as provided in
paragraph 3 hereof, the term of this Option is ten (10) years from the date hereof. In no
event may this Option be exercised as to any shares covered hereby after 5:00 P.M. on
the date which immediately precedes the tenth anniversary of the date of this
Agreement.

     3. OPTION PRICE, VESTING AND EXERCISE.

     (a) Option Price. The purchase price of each share of Common Stock
subject to this Option shall be the Fair Market Value of each such share as of the
date of grant of this Option, which has been determined by the Board of Directors
to be $8.12.

     (b) Vesting of Option.

     (i) This Option shall vest, and may be exercised, with respect to the shares,
upon meeting certain performance criteria as provided in subsection (ii) below and
subject to earlier vesting or termination of the Option as provided in subsections
(e) and (f) below. The right to purchase the Shares as they become vested shall be
cumulative and shall continue during the exercise term unless sooner terminated as
provided herein.

     (ii) The Option shall vest as indicated on the schedule below, to the extent
the Net Income Before Taxes (as defined on Schedule A attached hereto) of the
Corporation for the fiscal year most recently completed (the “Fiscal Year”) before
the Performance Vesting Date equals or exceeds the Net Income Before Taxes Targets
(each, a “Target”) for the Fiscal Year, as set forth in Schedule A attached hereto:

	 	 	 
	Number of Shares	 	Performance Vesting Date
	 
	20% of total number of shares subject to the Option

	 	1st anniversary of Grant Date
	20% of total number of shares subject to the Option

	 	2nd anniversary of Grant Date
	20% of total number of shares subject to the Option

	 	3rd anniversary of Grant Date
	20% of total number of shares subject to the Option

	 	4th anniversary of Grant Date
	20% of total number of shares subject to the Option

	 	5th anniversary of Grant Date

Provided that, if the Net Income Before Taxes for the Fiscal Year is less than
or exceeds the Target for such year, the Option will vest and become exercisable
with respect to the Shares subject to the Option in an amount equal to the product
of (a) 20% of the total number of Shares subject to the Option multiplied by (b) the
Applicable Percentage set forth on Schedule A attached hereto (this additional
vesting shall not apply to the Cumulative Targets described below);
provided, further, that the

2

 

aggregate vesting of shares for all years cannot exceed 100% of the shares subject to this
Option.

     If the Optionee’s Option does not become vested in any year pursuant to the above
performance vesting schedule, the Optionee may “catch-up” vesting if the Cumulative Net
Income Before Taxes Targets (“Cumulative Target”) for the Fiscal Year (as set forth in
Schedule A attached hereto) are satisfied. To the extent not previously vested, the amount
that would vest, if such Cumulative Target is met for the Fiscal Year indicated, equals
40% of the total number of shares subject to the Option on the second anniversary of the
Grant Date, 60% on the third anniversary of the Grant Date, 80% on the fourth anniversary
of the Grant Date, and 100% on the fifth anniversary of the Grant Date. After the fifth
anniversary of the Grant Date, all further performance vesting shall cease and the
Employee shall not be entitled to any further vesting under this subsection (ii).

     (iii) Notwithstanding the other provisions of this section 3(b), this Option shall
become 100% vested and fully exercisable on the ninth (9th) anniversary of the
Grant Date, provided the Employee is actively employed by the Corporation on such date and
provided the Option has not been earlier terminated pursuant to the provisions of this
Agreement.

     (iv) If the aggregate Fair Market Value of Common Stock with respect to which Options
under the Plan and options under all stock option plans of the Corporation and its
subsidiaries are exercisable for the first time by the Employee (or person then entitled
to exercise this Option) during any calendar year exceeds $100,000, this Option shall be
an Incentive Stock Option (up to the $100,000 limit) and a Supplemental Stock Option for
the remaining shares. Any exercise of this option shall be deemed first to be the exercise
of Incentive Stock Options, with the excess treated as the exercise of Supplemental Stock
Options. For purposes of determining the $100,000 limit, the Fair Market Value of the
Common Stock shall be determined at the time the Options are granted. Further, no partial
exercise of this Option may be made for less than 100 shares or, if less than 100 shares
are still available for exercise under this Option, the number of such remaining shares.
For purposes of vesting and other rights under this Agreement, the Employee’s employment
by any Employer shall be considered employment hereunder.

     (c) Manner of Exercise. The person then entitled to exercise this Option may do so by
delivering written notice of exercise to the Secretary of the Corporation, in person, or by mail,
postage prepaid, addressed to the attention of the Secretary of the Corporation at the location at
which the Corporation then maintains its principal office, and if so mailed, the date of mailing
will be considered the date of exercise. Such notice shall be in substantially the form

3

 

attached and shall be accompanied by payment in full of the total purchase price for the shares
being purchased. Such payment may be made in cash or, in whole or in part, by transfer and delivery
to the Corporation of shares of Common Stock already owned by the Employee, free and clear of any
liens, encumbrances or charges of any kind, valued at their Fair Market Value (as defined in the
Plan) on the date of such exercise. The Corporation, in the event of exercise by an authorized
person other than the Employee, may require proof of the right of such person to exercise this
Option. As promptly as practicable after receipt by the Corporation of the notice to purchase and
the full payment of the purchase price of the shares of Stock, the Corporation shall cause to be
issued to the person entitled to purchase the shares for which this Option is exercised, stock
certificate(s) for the number of shares of Common Stock being purchased, which shall evidence fully
paid and nonassessable shares.

     (d) Person Who May Exercise Option. Except as the Corporation may
otherwise permit in its discretion, during the lifetime of the Employee, this Option
shall be exercisable only by the Employee, or if the Employee is disabled, by his
duly appointed guardian or legal representative. Upon his death, to the extent
that such Option is otherwise exercisable hereunder, this Option may be
exercised by the Employee’s legal representative or by a person who receives
the right to exercise this Option under the Employee’s will or by the applicable
laws of descent and distribution.

     (e) Earlier Termination of Option. Notwithstanding the provisions of subparagraph
3(b), this Option shall, except as provided in (f) below, terminate upon the earliest to occur of:
(i) the expiration of the term of this Option as set forth in paragraph 2 hereof, (ii) the
expiration of three months after the Employee’s Retirement, (iii) the expiration of one year
after the Employee ceases to be an employee of the Corporation due to Total and Permanent
Disability, (iv) the expiration of two years after the Employee ceases to be an employee of the
Corporation due to the death of the Employee, or (v) the date that an Employee terminates
employment with the Corporation (whether by action of the Corporation or
voluntarily by the Employee) for any reason other than Retirement, Total and Permanent
Disability or death; provided that in the event any portion of the Option vests as a result of a
Corporate Transaction described in (f) below, the Option shall be exercisable until the expiration
of three months after the Employee’s termination of employment (or such later date as may apply
under (iii) or (iv) above.

     (f) Earlier Vesting and Exercise of Option. The following special rule
shall apply to the vesting and exercise of this Option: if all or substantially all of
the stock or assets of the Corporation are sold to a third party, whether through
sale, merger, recapitalization or otherwise (hereinafter, a “Corporate
Transaction”), fifty percent (50%) of the Shares subject to this Option that are not
yet vested shall become vested and exercisable; provided, further, if as a result
of the Corporation Transaction the net proceeds to the shareholders of the

4

 

Corporation equals or exceeds $65 million, this Option shall become fully vested and
immediately exercisable; provided, further, if the net proceeds of the Corporate
Transaction are less than $65 million but as of such date the Targets described in Section
3(b)(ii) have been met for each year, then the Compensation Committee of the Board shall
have the right, in its sole discretion, to determine whether any additional vesting of
fifty percent (50%) of the unvested Shares under this Option shall occur. For purposes of
this Option, “net proceeds” means the net amount received by the shareholders in the
aggregate after all liabilities, expenses and costs have been paid which are required to be
paid or satisfied by the shareholders in connection with the Corporate Transaction. The
period during which this Option may be exercised after such an event shall be determined in
accordance with the other provisions of this Agreement.

     4. REPURCHASE OF SHARES AFTER TERMINATION. Until a sale of the stock or assets of the
Corporation occurs as described in Section 3(f), if Employee ceases to perform services for the
Company other than as a result of Normal Retirement at or after age 65, which termination may be
with or without Cause or for any reason whatsoever (including death, Disability, or Retirement
prior to age 65), then the Company shall have the right in its sole discretion to purchase all of
the shares acquired by exercise of the Option no later than thirty (30) days after such termination
(or with respect to shares acquired upon exercise of the Option after termination, no later than
thirty (30) days after the date of such exercise). In the event of Employee’s death, this Section 4
shall be binding upon the Employee’s beneficiary or the representative or executor of Employee’s
estate.

     (a) Termination Repurchase Price. The price the Company shall pay
for each Share in the event Employee’s performance of services for the
Company is terminated (the “Termination Repurchase Price”) will be an amount
of cash equal to the fair market value of a share determined by the Board of
Directors in the same manner and amount as if determining the Option Exercise
Price under the Plan, all determined as of the date of Employee’s termination of
performance of services, but not less than the exercise price paid.

     (b) Form of Payment. The Termination Repurchase Price shall be
payable by delivery of the Company’s promissory note (the “Termination Note”)
evidencing the Company’s obligation to pay the Termination Repurchase Price
with interest accruing at a rate of seven per cent (7.0%) per annum. If the
Employee’s performance of services for the Company is terminated by the
Employee, then such payments shall be paid in thirty-six (36) equal monthly
installments commencing thirty (30) days after closing. If the Employee’s
performance of services for the Company is terminated by the Company, then
such payments shall be paid in twelve (12) equal monthly payments commencing
thirty (30) days after closing. The Company shall have the discretion to
accelerate any or all payments.

5

 

     (c) Closing. At a time no later than thirty (30) days after the Employee’s
performance of services terminates as described above (or with respect to shares acquired
upon exercise of the Option after termination, at a time no later than thirty (30) days
after the Employee’s exercise of the Option), the Employee shall deliver a certificate or
certificates representing all of the shares, duly endorsed for transfer to the Company,
free and clear of all liens, security interests, pledges or other claims or charges.
Contemporaneously with the delivery of the certificates evidencing the Shares, the Company
shall deliver the Termination Note.

     5. TRANSFERABILITY. This Agreement and any rights hereunder shall be
nontransferable and nonassignable by the Employee or by any other person entitled
hereunder to exercise any such rights; provided, however, that upon the death of the
Employee any rights granted hereunder shall be transferable, subject to the provisions
of subparagraph 3(d), by the Employee’s will or by the applicable laws of descent and
distribution.

     6. 
ADJUSTMENT OF SHARES. In the event of (i) any dividend payable in shares of Common
 Stock, (ii) any recapitalization, reclassification, split-up,consolidation of, or other change in, the Common Stock, or (iii) an exchange of the then
outstanding shares of Common Stock, in connection with a merger, consolidation, or
other reorganization of the Corporation, or a sale by the Corporation of all or a portion of
its assets, for a different number or class of shares of stock or other securities of the
Corporation or for shares of the stock or other securities of any other corporation; then
the number and class of shares or other securities that shall be subject to this Option
and/or the purchase price per share which must be paid thereafter upon exercise of this
Option shall automatically be appropriately adjusted to reflect the event described in (i),
(ii), or (iii) above.

     7. INVESTMENT REPRESENTATION. The Employee hereby represents, warrants and
agrees:

     (a) That, unless a registration statement is effective at the time of
exercise, the shares that are purchased under this Agreement will be purchased
for his own account for investment purposes only and not with a view to resale or
distribution thereof;

     (b) That he understands the offer of shares under this Agreement may
be made pursuant to a claim of exemption from the registration provisions of the
Securities Act of 1933, as amended (the “Act”) and any applicable state
securities laws, and that such claim may be based in part upon
the
representations contained herein;

6

 

     (c) That the shares subject to this Agreement may be unregistered and,
if so, will be required to be held indefinitely, unless such shares are subsequently
registered or an exemption from registration is then available;

     (d) That the Corporation is under no obligation to register such shares,
to comply with any such exemption or to supply the Employee with any
information necessary to enable him to make routine sales of such shares under
Rule 144 or any other rule or regulation of the Securities and Exchange
Commission; and

     (e) That the transfer agent for the Corporation may be instructed not to
transfer ownership of the stock certificate(s) representing shares acquired upon
any exercise of this Option, unless in the prior written opinion of counsel
reasonably acceptable to the Corporation, such transfer is lawful under the Act
and applicable state securities laws.

     In regard to the foregoing, the Employee understands and agrees that the
certificate(s) evidencing any shares that may be purchased pursuant to the exercise of this
Option which have not been registered under the Act or any applicable state securities law,
may bear an appropriate restrictive legend in a form determined in the sole discretion of
the Corporation.

     8. LEGAL RESTRICTIONS. If in the opinion of legal counsel for the
Corporation the issuance or sale of any shares of Common Stock pursuant to the
exercise of this Option would not be lawful for any reason, including without limitation
the inability of the Corporation to obtain from any governmental authority or regulatory
body having jurisdiction the authority deemed by such counsel to be necessary to such
issuance or sale, the Corporation shall not be obligated to issue or sell any Common
Stock pursuant to the exercise of this Option to the Employee or any other authorized
person unless a registration statement that complies with the provisions of the Act in
respect of such shares is in effect at the time thereof, or other appropriate action has
been taken under and pursuant to the terms and provisions of the Act, or the
Corporation receives evidence satisfactory to such counsel that the issuance and sale
of such shares, in the absence of an effective registration statement or other
appropriate action, would not constitute a violation of the Act or any applicable state
securities law.

     9. NO RIGHTS AS SHAREHOLDER OR TO EMPLOYMENT. Neither the
Employee nor any other person authorized to purchase Common Stock upon exercise
of this Option shall have any interest in or shareholder rights with respect to any shares
of Common Stock which are subject to this Option until such shares have been issued
and delivered to the Employee or any such person pursuant to the exercise of this
Option. Furthermore, neither this Agreement nor the Plan shall confer upon the
Employee any rights of employment with the Corporation or a Subsidiary, including
without limitation any right to continue in the employ of the Corporation or a Subsidiary,

7

 

or shall affect the right of the Corporation or a Subsidiary to terminate the employment of the
Employee at any time with or without cause.

     10. WITHHOLDING TAXES. As a condition of exercise of this Option, the Corporation
may, in its sole discretion, withhold or require the Employee to pay or reimburse the Corporation
for any taxes which the Corporation determines are required to be withheld in connection with the
grant or any exercise of this Option.

     11. HEIRS AND SUCCESSORS. This Agreement and all terms and conditions hereof shall be
binding upon the parties hereto, and their successors, heirs, legatees and legal representatives.

     12. AMENDMENT. The Corporation hereby reserves the right to amend this Agreement,
except that no such amendment shall adversely affect the rights of the Employee hereunder without
his written consent.

     IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by its duly
authorized officers, and the Employee has executed this Agreement, all as of the date first above
written.

	 	 	 	 	 
	 	CORPORATION:

LIFE OF THE SOUTH CORPORATION

 	 
	 	By:  	/s/ Illegible 	 
	 	 	Title:  	President 	 
	 

	 	 	 	 	 
	ATTEST: 

 	 	 
	/s/ Illegible
 	 	 
	Title:  Exec. Asst. 	 	 
	 	 	 
	 

	 	 	 	 	 
	 	EMPLOYEE:

 	 
	 	/s/ W. Dale Bullard
 	 
	 	W. DALE BULLARD 	 
	 	 	 

8

 

	 	 	 	 	 

SCHEDULE A

TO

INCENTIVE STOCK OPTION AGREEMENT

Net Income Before Taxes (“NIBT”) Targets

(dollars in millions)

	 	 	 	 	 	 	 	 	 
	Fiscal Year	 	NIBT Tarqet	 	Cumulative NIBT Tarqet
	 
	 	 	 	 	 	 	 	 
	2001
	 	$	4.0	 	 	$	4.0	 
	2002
	 	$	4.5	 	 	$	8.5	 
	2003
	 	$	5.0	 	 	$	13.5	 
	2004
	 	$	5.5	 	 	$	19.0	 
	2005
	 	$	6.0	 	 	$	25.0	 

     For purposes of the Agreement, Net Income Before Taxes for each Fiscal Year shall be
determined by the Corporation’s independent accountants in accordance with the Corporation’s GAAP
financial statements and shall include such reasonable adjustments (either increases or decreases)
as the Compensation Committee of the Board of Directors (or its designee) deems appropriate.

Applicable Percentage

	 	 	 	 	 
	Percentage of NIBT Tarqet Achieved	 	Applicable Percentage
	 
	 	 	 	 
	Less than 80%
	 	 	0	%
	 80%
	 	 	20	%
	 85%
	 	 	40	%
	 90%
	 	 	60	%
	 95%
	 	 	80	%
	100%
	 	 	100	%
	110%
	 	 	110	%
	120%
	 	 	120	%
	125% or more
	 	 	125	%

9

 

AMENDMENT TO THE LIFE OF THE SOUTH CORPORATION

KEY EMPLOYEE STOCK OPTION PLAN (1995)

AGREEMENT FOR W. DALE BULLARD

     THIS
AMENDMENT (“Amendment”), dated March 7th, 2007 is made to the Stock Option
Agreement for W. Dale Bullard, dated as of February 28, 2001, related to the grant of 50,000 stock
options (of which 5,200 remain unexercised) under the Life of the South Corporation Key Employee
Stock Option Plan (1995) (the “Plan”).

Recitals

     WHEREAS, Life of the South Corporation (the “Corporation”) desires to amend the terms of the
Key Employee Stock Option Plan (1995) Stock Option Agreement for W. Dale Bullard (the
“Agreement”); and

     WHEREAS, the Corporation may amend the Agreement pursuant to Paragraph 12 of the
Agreement; and

     NOW, THEREFORE, the Agreement is hereby amended as follows:

1. AMENDMENT

     1.1 Section 1. Section 5 of the Agreement shall be amended by adding the following at the
end thereof:

     “If Options are exercised between the signing and closing of the transaction contemplated by
that certain Agreement and Plan of Merger, dated as of March 8, 2007 among the Corporation and the
other parties thereto, the Optionee shall not transfer such shares prior to the closing of such
transaction, at which time the shares will be transferable as permitted by the Stockholder’s
Agreement entered into in conjunction with such Agreement and Plan of Merger.”

2. MISCELLANEOUS

     2.1 Definitions. Capitalized terms not defined herein shall have the meanings
set forth with respect thereto in the Agreement and/or the Plan.

     2.2 Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be considered an original for all purposes, and all of
which taken together shall constitute a single instrument.

     2.3 Effect of Amendment. Except as specifically amended by this
Amendment, the Agreement shall remain in full force and effect, and is hereby affirmed
and ratified in all respects.

 

 

AMENDMENT TO THE LIFE OF THE SOUTH CORPORATION

KEY EMPLOYEE STOCK OPTION PLAN (1995)

AGREEMENT FOR W. DALE BULLARD

IN WITNESS WHEREOF, the Corporation and the Employee have caused this Amendment to the
Agreement to be executed as of the day written above.

CORPORATION:

	 	 	 	 	 
	 	LIFE OF THE SOUTH CORPORATION

 	 
	 	By:  	/s/ Illegible
 	 
	 	 	Its: President 	 
	 	 	 	 
	 
	 	EMPLOYEE:

 	 
	 	/s/ W. Dale Bullard
 	 
	 	W. Dale Bullard 	 
	 	 	 

3

 

	 	 	 	 	 

AMENDMENT TO THE LIFE OF THE SOUTH CORPORATION

KEY EMPLOYEE STOCK OPTION PLAN (1995)

AGREEMENT FOR W. DALE BULLARD

     THIS AMENDMENT (“Amendment”), dated as of June 22, 2007 is made to the Stock Option
Agreement for W. Dale Bullard (the “Employee”), dated as of February 28, 2001, related to the grant
of 50,000 stock options (of which 5,200 remain unexercised) under the Life of the South Corporation
Key Employee Stock Option Plan (1995) (the “Plan”).

Recitals

     WHEREAS, Life of the South Corporation (the “Corporation”) has entered into an Agreement and
Plan of Merger, dated March 7, 2007 (the “Merger Agreement”), pursuant to which the Corporation
will merge (the “Merger”) with and into LOS Acquisition Co., with the Corporation being the
surviving corporation and

     WHEREAS, in connection with the Merger, the Corporation desires to amend the terms of the Key
Employee Stock Option Plan Agreement for W. Dale Bullard (the “Agreement”); and

     WHEREAS, the Corporation may amend the Agreement pursuant to Paragraph 12 of the Agreement
and the Employee has agreed to consent to the Amendment; and

     NOW, THEREFORE, the Agreement is hereby amended, effective as of the Closing Date of the
Merger, as follows:

1. Amendment

     Section 3 of the Agreement shall be amended by adding the following
at the end thereof as a new subsection (g):

“(g) Change in Control Transaction. Upon a contemplated transaction,
occurring after the closing of the transaction contemplated by that certain Agreement
and Plan of Merger, dated as of March 7, 2007 among the Corporation and the other
parties thereto, whereby the securities of the Corporation representing in excess of
50% of the voting power of the Corporation are acquired directly, or indirectly
through one or more entities, by any “person” or “group” of Persons (as such terms
are used in Section 13(d) of the Exchange Act), other than the Sponsors or their
Permitted Transferees (as those terms are defined in the Stockholders’ Agreement) or
(ii) a sale of all or substantially all of the assets of the Corporation (the “Change
in Control Transaction”), the Committee may, but is not obligated to, provide for:
(i) continuation or assumption of such outstanding Option under the Plan by the
Corporation (if it is the surviving company or corporation) or by the surviving
company or corporation or its

 

 

parent; (ii) substitution by the surviving company or corporation or its parent of
awards with substantially the same terms with respect to Option Price, Term, exercise
rights, adjustment of shares and other matters for such outstanding Options; (iii)
upon written notice, provide that any outstanding Options must be exercised, to the
extent then exercisable, within fifteen days immediately prior to the scheduled
consummation of the event, or such other period as determined by the Committee (in
either case contingent upon the consummation of the event), and at the end of such
period, such Options shall terminate to the extent not so exercised within the
relevant period; or (iv) cancellation of all or any portion of outstanding Options
for fair value which shall equal the excess, if any, of the value of the
consideration to be paid in the Change of Control Transaction to holders of the same
number of Shares subject to such Options (or, if no such consideration is paid, Fair
Market Value of the Shares subject to such outstanding Options or portion thereof
being canceled) over the aggregate Option Price or exercise price, as applicable,
with respect to such Option or portion thereof being canceled.”

2. Miscellaneous

2. 1 Definitions. Capitalized terms not defined herein shall have the meanings
set forth with respect thereto in the Agreement and/or the Plan.

2.2 Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be considered an original for all
purposes, and all of which taken together shall constitute a single instrument.

2.3 Effect of Amendment. Except as specifically amended by this Amendment,
the Agreement shall remain in full force and effect, and is hereby affirmed and ratified in
all respects.

 

 

     IN WITNESS WHEREOF, the Corporation and the Employee have caused this Amendment to the
Agreement to be executed as of the day first written above.

	 	 	 	 	 
	 	CORPORATION:

LIFE OF THE SOUTH CORPORATION

 	 
	 	By: 	/s/ Illegible	 
	 	 	Its: President	
	 	 	 	 
	 
	 	EMPLOYEE:

 	 
	 	/s/ W. Dale Bullard
 	 
	 	W. Dale Bullard

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