Document:

exv10w1

 

APPENDIX A

MASTER AGREEMENT

By and Among

PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*,

WILTON REINSURANCE BERMUDA LIMITED,

ANNUITY AND LIFE REASSURANCE AMERICA, INC.,

and

ANNUITY AND LIFE REASSURANCE, LTD.

August 10, 2005

 

     
* To be renamed Wilton Reassurance Company. Not affiliated
with The Prudential Insurance Company of America.

A-1

 

MASTER AGREEMENT

     
THIS MASTER AGREEMENT (“Agreement”), dated as
of August 10, 2005, is entered into by and among
PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA, a
Minnesota insurance company (to be renamed Wilton Reassurance
Company) (“Wilton America”), WILTON REINSURANCE
BERMUDA LIMITED, a Bermuda insurance company (“Wilton
Bermuda” and, together with Wilton America, the
“Retrocessionaires”), ANNUITY AND LIFE REASSURANCE
AMERICA, INC., a Connecticut insurance company (“ALR
America”), and ANNUITY AND LIFE REASSURANCE, LTD., a
Bermuda insurance company (“ALR Bermuda,” and, with
ALR America, each a “Company” and together the
“Companies”).

     
WHEREAS, the Companies are the reinsurers or
retrocessionaires under the Treaties (as defined
herein); and

     
WHEREAS, the Companies desire to transfer, assign, cede
and retrocede, as the case may be, their contractual rights,
interests, liabilities, obligations and risks under the Treaties
and the Ancillary Agreements (as defined herein) to the
Retrocessionaires, and the Retrocessionaires desire to purchase,
acquire, assume and reinsure such contractual rights, interests,
liabilities, obligations and risks pursuant to the terms of the
Coinsurance Agreements (as defined herein) and to seek novations
of the Treaties to the Retrocessionaires on the terms stated
herein; and

     
WHEREAS, the Retrocessionaires wish for the Companies to
provide certain administrative and support services with respect
to the Treaties for a period of time and, thereafter, the
Retrocessionaires shall undertake and assume full responsibility
for such administrative and support services pursuant to the
provisions of the Coinsurance Agreements; and

     
WHEREAS, in connection with any approvals that the
Companies or their affiliates must obtain from their respective
security holders in connection with the transactions
contemplated by this Agreement, the Retrocessionaires and
certain significant shareholders of ALR Holdings (as defined
herein) have entered into certain voting agreements dated the
date hereof (the “Voting Agreements”), which provide
that such shareholders will vote in favor of the transactions
contemplated hereby.

     
NOW, THEREFORE, in consideration of the mutual promises
and covenants set forth herein, and in reliance upon the
representations, warranties, conditions and covenants herein
contained, and intending to be legally bound hereby, the
Companies and the Retrocessionaires do hereby agree as follows:

ARTICLE I

Definitions

     
Capitalized terms used in this Agreement, but not defined in
this Article  I, shall have the meaning given them in
the other articles of this Agreement. The following capitalized
words and terms shall have the following meanings when used in
this Agreement:

     
1.1     ALR Holdings. Annuity
and Life Re (Holdings), Ltd., a Bermuda holding company.

     
1.2     Ancillary Agreement
Assignment. With respect to any Ancillary Agreement that is
assigned or novated to a Retrocessionaire, the assignment or
novation agreement to be entered into between the relevant
Company, the relevant Retrocessionaire, and the counter-party or
counter-parties to such Ancillary Agreement in accordance with
Section 5.9 of this Agreement (which assignment or novation
agreement shall be substantially in one of the forms attached as
Exhibit A hereto).

     
1.3     Ancillary Agreements.
Each contract or agreement identified on Schedule 1.3
hereof between one or more of the Companies (or affiliates
thereof) and the counterparties as to any Treaty relating to the
administration or management of one or more of the Treaties.

     
1.4     Assumed Liability. Any
liability expressly assumed or reinsured by either
Retrocessionaire pursuant to this Agreement, a Novation
Amendment, an Ancillary Agreement Assignment or an Existing
Retrocession Agreement Assignment.

A-2

 

     
1.5     Books and Records. All
files and records, in whatever form, in the possession of either
Company or ALR Holdings related to the Treaties, the Ancillary
Agreements, the Existing Retrocession Agreements or the
administration of any of the foregoing, including, but not
limited to Treaty files, correspondence files, claims files and
underwriting files, reinsurance and policy records,
administrative records, compliance records, files and records
relating to regulatory matters related to the Treaties or any of
the policies or contracts covered thereby or the administration
of any of the foregoing, and actuarial, operational and
financial data and information developed or utilized by the
relevant Company or on its behalf with respect to the Treaties;
provided, however, that if any such records contain information
which does not relate to the Treaties, such information shall
not constitute “Books and Records” and may be redacted
from the “Books and Records” as the relevant Company
reasonably deems appropriate. Books and Records shall exclude
(a) any original books and records relating to any Company
Extracontractual Liabilities or required to be retained by any
applicable laws, and (b) any records that are subject to
attorney-client privilege.

     
1.6     Business Day. Any day
other than a Saturday, Sunday or other day on which commercial
banks in New York or Bermuda are required or authorized by law
to be closed.

     
1.7     Cedent. The cedent under
any Treaty.

     
1.8     Closing. The closing of
the transactions contemplated by Article II of this
Agreement, which shall take place at the offices of ALR Holdings
in Hamilton, Bermuda, unless otherwise agreed by the parties.

     
1.9     Closing Date. The
Closing shall take place at 10:00 a.m., Atlantic Standard
time, on (a) the first Business Day of the first calendar
month beginning at least five (5) Business Days after the
date on which the last of the conditions set forth in
Article VI is satisfied or waived by the party or parties
entitled to waive the same or (b) such other date upon
which the parties may mutually agree.

     
1.10     Coinsurance Agreements.
The coinsurance agreements to be entered into between
(i) Wilton America and ALR America and (ii) Wilton
Bermuda and ALR Bermuda, in each case pursuant to the provisions
of Section 2.1 of this Agreement. Each such coinsurance
agreement shall be in substantially the form attached as
Exhibit B hereto.

     
1.11     Coinsurance Effective
Date. 11:59 p.m. Eastern time on June 30, 2005.

     
1.12     Company Extracontractual
Liabilities. All liabilities for consequential, exemplary,
punitive or similar extracontractual damages or statutory
penalties, whether owing to Cedents, governmental authorities or
any other person relating to the Treaties, which liabilities
arise from any action, act of bad faith, error or omission by
either Company, any of their affiliates, or any Representative
of either Company or any of their affiliates, in each case
excluding any action taken or failure to take any action at the
written direction or with the express consent of either
Retrocessionaire; provided, however, that Company
Extracontractual Liabilities shall exclude, with respect to a
given Treaty, those liabilities arising pursuant to the express
terms of such Treaty.

     
1.13     Company Statements. The
financial statements of each of the Companies as of and for the
year ended December 31, 2004, and, as to ALR America, the
quarter ended March 31, 2005.

     
1.14     Confidentiality
Agreement. The Confidentiality Agreement by and between
Annuity and Life Re (Holdings), Ltd. and Wilton Re Services,
Inc., dated April 6, 2005.

     
1.15     Enforceability
Exceptions. The exceptions identified as such in
Section 3.1.

     
1.16     Excluded Liability. Any
liability that (i) represents a Company Extracontractual
Liability or (ii) is not expressly assumed by either
Retrocessionaire pursuant to this Agreement, a Coinsurance
Agreement, a Novation Amendment or an Existing Retrocession
Agreement Assignment.

     
1.17     Existing Retrocession
Agreement. Any contract, agreement or treaty between either
Company and any retrocessionaire thereof that (a) is in
force as of the Coinsurance Effective Date and (b) covers
any risks associated with any Treaty, each as specifically
identified on Schedule 1.17, including, as respects
ALR America, retrocession agreements with ALR Bermuda.

A-3

 

     
1.18     Existing Retrocession
Agreement Assignment. With respect to any Existing
Retrocession Agreement that is assigned or novated to a
Retrocessionaire in connection with any Treaty, the assignment
or novation agreement to be entered into between the relevant
Company, the relevant Retrocessionaire and the relevant
Third-Party Retrocessionaire in accordance with Section 5.9
of this Agreement (which assignment or novation agreement shall
be substantially in one of the forms attached as
Exhibit C hereto) pursuant to which such Company
shall assign or novate to the relevant Retrocessionaire, and
such Retrocessionaire shall assume, all of such Company’s
rights and obligations with respect to such Existing
Retrocession Agreement as the same relate to the Treaty.

     
1.19     GAAP. United States
generally accepted accounting principles.

     
1.20     Expense Reimbursement
Amount. The aggregate amount of expense reimbursements paid
by ALR Holdings or its affiliates to affiliates of the
Retrocessionaires through the Closing Date in connection with
the transactions contemplated hereby, as contemplated by an
electronic mail message from Chris C. Stroup to John F. Burke
dated June 20, 2005.

     
1.21     Knowledge of the
Companies. The actual knowledge after due investigation of
the individuals identified in Schedule 1.21.

     
1.22     Knowledge of the
Retrocessionaires. The actual knowledge after due
investigation of the individuals identified in
Schedule 1.22.

     
1.23     Material Adverse
Effect. A material adverse effect on the business, condition
(financial or otherwise), or results of operations with respect
to either (x) the block of business represented by the
Bermuda Treaties or (y) the block of business represented
by the U.S. Treaties; provided, however, that adverse
effects caused primarily by any one or more of the following
shall be excluded from the definition of “Material Adverse
Effect” and from any determination as to whether a Material
Adverse Effect has occurred: (i) any adverse changes in
general economic or market conditions, including, without
limitation, changes in interest rates or currency valuations;
(ii) any adverse change in the life insurance industry or
financial services industry generally; and (iii) any change
in law, rule or regulation, including, without limitation,
changes in tax law, accounting rules or reserving requirements.

     
1.24     Novated Treaty. Each
Treaty that has been assumed by one of the Retrocessionaires
pursuant to the terms of a Novation Amendment or, prior to
Closing, as to which each of the relevant Cedent and the
relevant Company has executed a Novation Amendment that will
become effective upon execution by the relevant Retrocessionaire
and the consummation of the Closing.

     
1.25     Novation Amendment. An
amendment of a Treaty in substantially the form attached as
Exhibit D hereto under which Wilton Bermuda or
Wilton America, as the case may be, will be contractually
substituted for ALR Bermuda and ALR America, respectively, as
respects such Treaty.

     
1.26     Representatives. With
respect to any party hereto, its officers, directors, employees,
agents and other representatives (including legal counsel,
investment bankers, consultants, independent public accountants,
and actuaries).

     
1.27     Required Closing Date
Approvals. The approvals set forth on Schedules 3.2
and 4.2.

     
1.28     Retrocessionaire
Extracontractual Liability. All liabilities for
consequential, exemplary, punitive or similar extracontractual
damages or statutory penalties, whether owing to Cedents,
governmental authorities or any other person relating to the
Treaties, which liabilities arise from any action, act of bad
faith, error or omission by either Retrocessionaire, any of
their affiliates, or any Representative of either
Retrocessionaire or any of their affiliates, in each case
excluding any action taken or failure to take any action at the
written direction or with the express consent of either Company.

     
1.29     SAP. As to either
Company, the statutory accounting practices prescribed by the
insurance regulatory authorities of the jurisdiction in which
such Company is domiciled.

     
1.30     Settlement Amount.
$91,600,000.00 less (i) the book value of the aggregate
funds withheld balances maintained as of the Coinsurance
Effective Date by Cedents in connection with the Treaties or

A-4

 

Ancillary Agreements set forth on Schedule 1.30
(i) hereto, less (ii) the Transferred Investment
Asset Amount, less (iii) the Expense Reimbursement Amount,
plus (iv) interest on such net amount determined at the
Settlement Rate for the period from but excluding June 30,
2005, to and including the Closing Date, plus (v) the
Transferred Investment Asset Interest Amount.

     
1.31     Settlement Rate. Five
percent (5%) per annum, compounded quarterly.

     
1.32     Third-Party
Retrocessionaire. Any retrocessionaire under an Existing
Retrocession Agreement.

     
1.33     Transferred Investment
Asset Amount. The sum of the market values of the investment
assets identified on Schedule 1.33 (the
“Transferred Investment Assets”) as of the date upon
which the asset was purchased by the relevant Company (with the
market value being deemed for purposes of this Agreement to be
the purchase price paid therefor, including but not limited to
“due and accrued interest”). Schedule 1.33 shall
be subject to modification, change and addition at any time
prior to the Closing Date to reflect assets purchased prior to
the Closing Date in joint agreement by the relevant
Retrocessionaire and the relevant Company. At Closing,
Schedule 1.33 shall list the date of purchase and purchase
price (including the due and accrued interest component thereof)
of each asset purchased, along with the Transferred Investment
Asset Interest Amount with respect to each such asset.

     
1.34     Transferred Investment
Asset Interest Amount. As to Transferred Investment Assets
purchased after June 30, 2005, an amount determined by
(i) applying interest at an annualized rate of three
percent (3%) to the purchase price of each such asset as shown
on Schedule 1.33 from but excluding June 30, 2005, to
and including the date on which such asset was purchased and
(ii) aggregating such interest for all Transferred
Investment Assets purchased after June 30, 2005.

     
1.35     Transition Date. The
date that is the later of (i) the first day of the first
calendar month beginning at least twenty-eight (28) days
following the Closing Date or (ii) November 1, 2005.

     
1.36     Treasury Rate. The
annual yield rate, on the Closing Date, of actively traded
U.S. Treasury securities having a remaining time to
maturity of six (6) months, as such rate is published under
“Treasury Constant Maturities” in Federal Reserve
Statistical Release H.15(519).

     
1.37     Treaties. The
reinsurance treaties identified on Schedule 1.37
hereto. For purposes of this Agreement, the term “Bermuda
Treaties” shall mean those Treaties as to which ALR Bermuda
is party as an assuming reinsurer and the term
“U.S. Treaties” means those Treaties as to which
ALR America is party as an assuming reinsurer.

     
1.38     Treaty-Specific Historical
Financial Information. Collectively, the materials provided
by the Companies to the Retrocessionaires and attached hereto as
Schedule 1.38.

     
1.39     Treaty-Specific Projected
Financial Information. The materials provided by the
Companies to the Retrocessionaires and attached hereto as
Schedule 1.39 summarizing projected financial
information concerning the Treaties.

ARTICLE II

Closing

     
2.1     Coinsurance and Novation of
Treaties on the Closing Date. Subject to the terms and
conditions of this Agreement, on the Closing Date, each of the
Companies and the Retrocessionaires shall enter into the
(i) Novation Amendments as to each of the Treaties as to
which counterparties shall have prior to such date executed and
delivered Novation Amendments in form and substance reasonably
acceptable to the relevant Company and Retrocessionaire, and
(ii) Coinsurance Agreements pursuant to which the
Retrocessionaires shall reinsure the Companies’ retained
risk (i.e., net of risk retroceded under Existing Retrocession
Agreements) under the Treaties (other than Novated Treaties) on
a coinsurance basis, and the Companies shall pay to the
Retrocessionaires the Settlement Amount in accordance with
Section 2.3 hereof. The reinsurance under the Coinsurance
Agreements shall be effective as of the Coinsurance Effective
Date. The Settlement Amount shall be allocated according to the
percentages set forth on Schedule 2.1.

A-5

 

     
2.2     Transfer of Books and
Records. On the Transition Date, for no additional
consideration, the Companies shall transfer (i) original
versions of all Books and Records relating to each Novated
Treaty and to each Existing Retrocession Agreement and Ancillary
Agreement that has been assigned or novated to a
Retrocessionaire, subject to the Companies’ right to retain
copies of any such Books and Records, and (ii) copies of
all Books and Records relating to Treaties coinsured under the
Coinsurance Agreements and to any Existing Retrocession
Agreements and Ancillary Agreements that have not been assigned
or novated to a Retrocessionaire.

     
2.3     Closing Deliveries.
(a) On the Closing Date, the Companies shall deliver to the
Retrocessionaires the following:

		
	 	     
    (i) the Coinsurance Agreements, each executed by the
    appropriate Company;
	 
	 	     
    (ii) any Novation Amendments agreed to by the applicable
    Cedent prior to the Closing in accordance with Section 5.9
    of this Agreement, each executed by the appropriate Company and
    the applicable Cedent;
	 
	 	     
    (iii) any Ancillary Agreement Assignment that may be agreed
    to by the parties thereto in accordance with Section 5.9 of
    this Agreement, each in form and substance reasonably acceptable
    to the Retrocessionaires and executed by the appropriate Company;
	 
	 	     
    (iv) any Existing Retrocession Agreement Assignment that
    may be agreed to by the applicable Third-Party Retrocessionaire
    in accordance with Section 5.9 of this Agreement, each
    executed by the appropriate Company;
	 
	 	     
    (v) evidence in form reasonably satisfactory to the
    Retrocessionaires that the Required Closing Date Approvals, if
    any, required to be obtained by the Companies have been obtained;
	 
	 	     
    (vi) two certificates, one for each Company, executed by an
    officer of such Company and certifying that the closing
    conditions set forth in Section 6.1.2 of this Agreement
    have been satisfied;
	 
	 	     
    (vii) the Transferred Investment Assets, together with such
    transfer documentation as may be reasonably acceptable to the
    Retrocessionaires; and
	 
	 	     
    (viii) the Settlement Amount.

     
(b) On the Closing Date, the Retrocessionaires shall
deliver to the Companies the following:

		
	 	     
    (i) the Coinsurance Agreements, each executed by the
    appropriate Retrocessionaire;
	 
	 	     
    (ii) any Novation Amendment agreed to by the applicable
    Cedent prior to the Closing in accordance with Section 5.9
    of this Agreement, each executed by the appropriate
    Retrocessionaire;
	 
	 	     
    (iii) any Ancillary Agreement Assignment that may be agreed
    to by the parties thereto in accordance with Section 5.9 of
    this Agreement, each in form and substance reasonably acceptable
    to the Companies and executed by the appropriate
    Retrocessionaire;
	 
	 	     
    (iv) any Existing Retrocession Agreement Assignment that
    may be agreed to by the applicable Third-Party Retrocessionaire,
    each executed by the appropriate Retrocessionaire;
	 
	 	     
    (v) evidence in form reasonable satisfactory to the
    Companies that the Required Closing Date Approvals, if any,
    required to be obtained by the Retrocessionaires have been
    obtained; and
	 
	 	     
    (vi) two certificates, one for each Retrocessionaire,
    executed by an officer of such Retrocessionaire and certifying
    that the closing conditions set forth in Section 6.2.2 have
    been satisfied.

     
2.4     Cash Transfers. All cash
required to be transferred on the Closing Date will be
transferred by wire transfer of immediately available funds in
U.S. Dollars in the amounts and to the bank accounts
designated in writing by the Retrocessionaires at least three
(3) Business Days prior to the Closing Date.

A-6

 

ARTICLE III

Company Representations and Warranties

     
The Companies hereby represent and warrant, severally and not
jointly, to the Retrocessionaires as follows (it being
understood that each Company hereby makes only those
representations and warranties that specifically relate to it or
to the Treaties to which it is a party):

     
3.1     Corporate Existence and
Authority. Each Company is a stock life insurance company
organized, existing and in good standing under the laws of its
jurisdiction of domicile. Each Company has full corporate power
and authority to execute and to deliver this Agreement and the
Coinsurance Agreement, the Novation Amendments, the Ancillary
Agreement Assignments and the Existing Retrocession Agreement
Assignments to which it is a party, and the execution, delivery
and, subject to obtaining the Required Closing Date Approvals,
performance of those agreements by such Company have been duly
authorized by all necessary corporate action on the part of such
Company. This Agreement has been, and the Coinsurance Agreement,
the Novation Amendments, the Ancillary Agreement Assignments and
the Existing Retrocession Agreement Assignments to which such
Company is a party will at Closing be, duly and validly executed
and delivered to the Retrocessionaires by such Company and
constitute, or will at Closing constitute, the valid and legally
binding obligations of such Company, enforceable in accordance
with their terms except (i) as the same may be limited by
applicable bankruptcy, insolvency, rehabilitation, moratorium or
similar laws of general application relating to or affecting
creditors’ rights, including, without limitation, the
effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers, and (ii) for the
limitations imposed by general principles of equity (the
exceptions identified in the foregoing clauses (i) and
(ii) being referred to as the “Enforceability
Exceptions”). The execution, delivery and performance
by such Company of this Agreement and the Coinsurance Agreement,
the Novation Amendments, the Ancillary Agreement Assignments and
the Existing Retrocession Agreement Assignments to which such
Company is a party do not and will not:

		
	 	     
    3.1.1     Conflict with or result in
    any breach or violation of or any default under (or give rise to
    any right of termination, cancellation or acceleration under)
    the bylaws, certificate of incorporation or similar
    organizational documents of such Company or any note, bond,
    mortgage, indenture, lease, license, permit, agreement or other
    instrument or obligation to which such Company is a party or by
    which such Company is or may be bound.
	 
	 	     
    3.1.2     Subject to obtaining any
    Required Closing Date Approvals, violate any law, order, rule or
    regulation applicable to such Company.

     
3.2     Required Consents and
Approvals. Except for the consents of Cedents for the
novation of Treaties and as set forth on
Schedule 3.2, no consent, approval or authorization
of, or declaration, filing or registration with, any
governmental authority or any other person is required to be
made or obtained by either Company in connection with the
execution, delivery and performance of this Agreement or the
Coinsurance Agreements or the consummation of the transactions
contemplated hereby and thereby.

     
3.3     Financial Statements.
(a) The Company Statements of each Company (i) present
fairly, in all material respects, the financial condition and
results of operations of such Company as of and for the periods
therein specified, and (ii) were prepared in accordance
with SAP consistently applied, each except as expressly set
forth within the Company Statements, including the notes
thereto; provided, that the unaudited quarterly statutory
statements of ALR America for the calendar quarter ended
March 31, 2005 are subject to normal recurring year-end
adjustments.

     
(b) The Treaty-Specific Historical Financial Information:
(i) was prepared from information consistent in all
material respects with the Books and Records of the relevant
Company, and (ii) except as set forth on
Schedule 3.3(b) hereto, to the extent such
Treaty-Specific Historical Financial Information consists of
historical quarterly balance sheet and income statement
information, was prepared on a basis consistent with GAAP or
SAP, as appropriate, and presents fairly, in all material
respects, the financial status of and results with respect to
each of the Treaties as of and for the periods therein specified.

A-7

 

     
(c) The Treaty specific reserve balances reflected in the
Treaty-Specific Historical Financial Information (i) were
determined in accordance with generally accepted actuarial
principles, consistently applied, (ii) were based on
actuarial assumptions that were reasonable in relation to
relevant policy and contract provisions, (iii) are
consistent with balances relating to the Treaties included in
the Company Statements (after consideration of differences
between SAP and GAAP reserve requirements), and (iv) were
determined on a basis consistent with GAAP or SAP, as
appropriate; it being understood by the Retrocessionaires that
in making the representation and warranty in this
Section 3.3(c) that the Companies are not representing or
warranting that the reserves referred to therein have been or
will be sufficient or adequate for the purposes for which they
were established.

     
(d) To the Knowledge of the Companies, there is no reason
to believe that the Treaty-Specific Projected Financial
Information does not represent a reasonable projection in all
material respects of the expected financial results with respect
to the Treaties, considered in the aggregate; however, neither
Company represents or warrants that the Treaties, either
individually or in the aggregate, will achieve any results
projected in the Treaty-Specific Projected Financial Information.

     
3.4     Treaties. (a) The
Companies have made available to the Retrocessionaires true and
complete copies of the Treaties, the Ancillary Agreements and
all amendments thereto.

     
(b) Except as set forth on Schedule 3.4(b)
hereto, (i) no Cedent has given notice of termination
(provisional or otherwise) to either of the Companies in respect
of any Treaty or Ancillary Agreement; (ii) no Cedent has a
present right to recapture any of the risks ceded under any such
Treaty; (iii) neither Company nor, to the Knowledge of the
Companies, the Cedent is in default in any material respect
under any Treaty or Ancillary Agreement; (iv) each Treaty
and Ancillary Agreement is in full force and effect and is valid
and enforceable in accordance with its terms subject to the
Enforceability Exceptions; and (v) no Treaty or Ancillary
Agreement contains any provision under which any Cedent may
terminate such Treaty or Ancillary Agreement or take any other
action by reason of the transactions contemplated by this
Agreement.

     
(c) Except as set forth on Schedule 3.4(c)
hereto, each Treaty involves coverage only of contracts for
individual life insurance or annuities and does not involve any
reinsurance of guaranteed minimum death benefits, guaranteed
minimum income benefits, guaranteed minimum accumulation
benefits, secondary guarantees, long term care, health,
disability or group insurance.

     
(d) All obligations of either Company to make payments with
respect to or under the Treaties and the Existing Retrocession
Agreements (including, without limitation, payments to any
broker, agent, reinsurance intermediary or other producer with
respect to any Treaty or Existing Retrocession Agreement) that
were due under the terms of the Treaties and Existing
Retrocession Agreements as of the Coinsurance Effective Date
have been paid in full. Except as set forth on
Schedule 3.4(d) hereto, no broker, agent,
reinsurance intermediary or other producer with respect to any
Treaty or Existing Retrocession Agreement is entitled to receive
any payments based upon collected renewal premiums.

     
3.5     Existing Retrocession
Agreements; Ancillary Agreements. (a) The Companies
have made available to the Retrocessionaires true and complete
copies of the Existing Retrocession Agreements and Ancillary
Agreements and all amendments thereto.

     
(b) Other than the Existing Retrocession Agreements, there
is no agreement under which any risk assumed under the Treaties
is retroceded or is eligible to be automatically retroceded by
either of the Companies. Other than the Ancillary Agreements,
there is no agreement to which either Company is a party that is
directly related to any Treaty.

     
No retrocessionaire has given notice of termination (provisional
or otherwise) in respect of any Existing Retrocession Agreement.
Neither Company nor, to the Knowledge of the Companies, the
retrocessionaire under any Existing Retrocession Agreement is in
default in any material respect under any Existing Retrocession
Agreement. Each Existing Retrocession Agreement is in full force
and effect and is valid and enforceable in accordance with its
terms, subject to the Enforceability Exceptions. Except as set
forth on Schedule 3.5(b) hereto, no Existing
Retrocession Agreement contains any provision (i) under
which the retrocessionaire may terminate such agreement by
reason of, or (ii) that would be violated by, or that

A-8

 

constitutes a condition that would not be satisfied as a result
of, the transactions contemplated by this Agreement (including
without limitation, the execution and delivery of the
Coinsurance Agreements or the performance of obligations
thereunder).

     
3.6     Accuracy of Books and
Records. All of the Books and Records are current, complete
and accurate in all material respects.

     
3.7     Compliance with Law. As
respects the marketing, issuance and administration of the
Treaties, the Ancillary Agreements and the Existing Retrocession
Agreements, each Company has conducted its business in material
compliance with all applicable laws (including, without
limitation, insurance laws and federal and state laws),
statutes, ordinances, rules, governmental regulations, writs,
injunctions, judgments, decrees or orders of any governmental
instrumentality or court.

     
3.8     Litigation or Regulatory
Actions. Except as disclosed on Schedule 3.8
hereto, there are no actions, suits, investigations or
regulatory proceedings pending or (to the Knowledge of the
Companies) threatened against either Company at law or in
equity, in, before, or by any person or entity (a) that
involve any of the Treaties or any producer or either
Company’s marketing or sales activities, (b) that may
result in the revocation, cancellation, suspension or nonrenewal
of any permit held or required to be held by either Company in
connection with the Treaties, the Ancillary Agreements and the
Existing Retrocession Agreements, or (c) that individually
or in the aggregate have or may reasonably be expected to have a
Material Adverse Effect or a material adverse effect on the
validity or enforceability of this Agreement, the Coinsurance
Agreements, the Novation Amendments, the Ancillary Agreement
Assignments, the Existing Retrocession Agreement Assignments or
the transactions contemplated hereby and thereby.

     
3.9     Company Brokers. Except
for the persons or entities identified on Schedule 3.9
hereto (and for whose compensation the Companies shall be
solely responsible), no broker or finder has acted directly or
indirectly for the Companies, nor has either Company incurred
any obligation to pay any brokerage or finder’s fee or
other commission in connection with this Agreement and the
transactions contemplated hereby, and all actions by or on
behalf of Companies have been carried out by the Companies
directly with the Retrocessionaires, without the intervention of
any person acting on behalf of the Companies in such a manner as
to give rise to any valid claim by any other person against the
Retrocessionaires for payment of a finder’s fee, brokerage
commission or similar payment.

     
3.10     Investment Company.
Neither Company is an investment company subject to registration
and regulation under the Investment Company Act of 1940, as
amended.

     
3.11     Absence of Certain Changes
and Events. (a) Except (i) as disclosed in
Schedule 3.11, or (ii) as expressly
contemplated by this Agreement, since December 31, 2004 the
business consisting of the Treaties and the administration
thereof and the accounting therefore and other business
activities related thereto have been conducted in the ordinary
course of business consistent with past practices (including,
without limitation, with regard to underwriting, pricing,
actuarial and investment policies generally) and there has been
no material change in the financial, underwriting, pricing,
claims, risk retention, retrocession, investment or accounting
policies of the Companies related to such business or any
change, event or circumstance that, individually or in the
aggregate with all other changes, events or circumstances, has
had or would reasonably be expected to have a Material Adverse
Effect.

     
(b) Without limiting the generality of
Section 3.11(a), since December 31, 2004, there has
been no change to the claims payment or cash settlement
practices of either Company relating in any way to the
administration of the Treaties or the Existing Retrocession
Agreements.

A-9

 

ARTICLE IV

Retrocessionaire Representations and Warranties

     
The Retrocessionaires hereby represent and warrant, severally
and not jointly, to the Companies as follows (it being
understood that each Retrocessionaire hereby makes only those
representations and warranties that specifically relate to it):

     
4.1     Corporate Existence and
Authority. Each Retrocessionaire is a stock life insurance
company organized, existing and in good standing under the laws
of its jurisdiction of domicile. Each Retrocessionaire has full
corporate power and authority to execute and to deliver this
Agreement and the Coinsurance Agreement, the Novation
Amendments, the Ancillary Agreement Assignments and Existing
Retrocession Agreement Assignments to which it is a party, and
the execution, delivery and, subject to obtaining the Required
Closing Date Approvals, performance of those agreements by such
Retrocessionaire have been duly authorized by all necessary
corporate action on the part of such Retrocessionaire. This
Agreement has been, and the Coinsurance Agreement, the Novation
Amendments, the Ancillary Agreement Assignments and Existing
Retrocession Agreement Assignments to which such
Retrocessionaire is a party will at Closing be, duly and validly
executed and delivered to such Companies by the
Retrocessionaires and constitute, or will at Closing constitute,
the valid and legally binding obligations of such
Retrocessionaire, enforceable in accordance with their terms
except (i) as the same may be limited by the Enforceability
Exceptions. The execution, delivery and performance by such
Retrocessionaire of this Agreement and the Coinsurance
Agreement, the Novation Amendments, the Ancillary Agreement
Assignments and Existing Retrocession Agreement Assignments to
which such Retrocessionaire is a party do not and will not:

		
	 	     
    4.1.1     Conflict with or result in
    any breach or violation of or any default under (or give rise to
    any right of termination, cancellation or acceleration under)
    the bylaws, certificate of incorporation or similar
    organizational documents of such Retrocessionaire or any note,
    bond, mortgage, indenture, lease, license, permit, agreement or
    other instrument or obligation to which such Retrocessionaire is
    a party or by which such Retrocessionaire is or may be bound.
	 
	 	     
    4.1.2     Subject to obtaining any
    Required Closing Date Approvals, violate any law, order, rule,
    or regulation applicable to such Retrocessionaire.

     
4.2     Required Consents and
Approvals. Except for the consents of Cedents for the
novation of Treaties and as set forth on
Schedule 4.2, no consent, approval or authorization
of, or declaration, filing or registration with, any
governmental authority or any other person is required to be
made or obtained by either Retrocessionaire in connection with
the execution, delivery and performance of this Agreement or the
Coinsurance Agreements or the consummation of the transactions
contemplated hereby and thereby.

     
4.3     Permits.
Schedule 4.3 contains a true and complete list of
all material permits issued to the Retrocessionaires as of the
date of this Agreement. Except as set forth on
Schedule 4.3, (i) each Retrocessionaire has all
material permits required by applicable law for the operation of
its business (including without limitation the business to be
reinsured as contemplated by this Agreement) and is in material
compliance with the terms of such permits, (ii) all such
permits are in full force and effect, (iii) there is no
proceeding pending or threatened to revoke or suspend any such
permit, and (iv) the Retrocessionaires have not received
any written notice from any governmental authority of the
failure to have any required permit. Except as set forth in
Schedule 4.3, as of the date of this Agreement there
is no suit, proceeding or investigation potentially involving
the revocation, cancellation, suspension or nonrenewal of any
such permit which is pending or, to the Knowledge of the
Retrocessionaires, threatened in writing.

     
4.4     Litigation Against
Retrocessionaires. There are no actions, suits,
investigations or regulatory proceedings pending or (to the
Knowledge of the Retrocessionaires) threatened against either
Retrocessionaire at law or in equity, in, before, or by any
person, that individually or in the aggregate have or may
reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement, the Coinsurance
Agreements, the Novation Amendments, the Ancillary Agreement
Assignments, the Existing Retrocession Agreement Assignments or
the transactions contemplated hereby and thereby.

A-10

 

     
4.5     Compliance with Law. The
Retrocessionaires have conducted their business in material
compliance with all applicable laws (including, without
limitation, insurance laws and federal and state laws),
statutes, ordinances, rules, governmental regulations, writs,
injunctions, judgments, decrees or orders of any governmental
instrumentality or court.

     
4.6     Retrocessionaire
Brokers. Except for the persons or entities identified on
Schedule 4.6 hereto (and for whose compensation the
Retrocessionaires shall be solely responsible), no broker or
finder has acted directly or indirectly for the
Retrocessionaires, nor has either Retrocessionaire incurred any
obligation to pay any brokerage or finder’s fee or other
commission in connection with this Agreement and the
transactions contemplated hereby, and all actions by or on
behalf of the Retrocessionaires have been carried out by the
Retrocessionaires, without the intervention of any person acting
on behalf of the Retrocessionaires in such a manner as to give
rise to any valid claim by any other person against the
Companies for payment of a finder’s fee, brokerage
commission or similar payment.

     
4.7     Investment Company.
Neither Retrocessionaire is an investment company subject to
registration and regulation under the Investment Company Act of
1940, as amended.

ARTICLE V

Covenants

     
5.1     Conduct of Business.
Except as (i) set forth on Schedule 5.1,
(ii) otherwise expressly provided in this Agreement or the
Coinsurance Agreements, (iii) consented to in writing by
the Retrocessionaires, or (iv) reasonably required to
prepare for and facilitate the consummation of the transactions
contemplated hereby, during the period from the date hereof
through the earlier of (i) the date upon which the last
Treaty expires or is terminated in accordance with its terms or
(ii) the date upon which the last Treaty is novated to one
of the Retrocessionaires in accordance with Section 5.7,
each of the Companies, with respect to the business related to
the Treaties:

     
(a) shall exercise its commercially reasonable efforts to
maintain itself at all times in all material respects as a
corporation duly organized, validly existing, in good standing,
and duly qualified and licensed to conduct such business;

     
(b) shall exercise its commercially reasonable efforts to
prevent any material breach of or default under any Treaty or
Ancillary Agreement or fail to comply in any material respect
with any applicable law;

     
(c) shall not pay, discharge or satisfy any claims,
liabilities or obligations related to the Treaties, the
Ancillary Agreements, or the Existing Retrocession Agreements
(absolute, asserted or unasserted, contingent or otherwise)
other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice and in
accordance with the terms of the Treaties, the Ancillary
Agreements and the Existing Retrocession Agreements;

     
(d) shall not terminate, modify, amend or waive compliance
with, any provision of any of the Treaties, Ancillary Agreements
or the Existing Retrocession Agreements and shall fully comply
with all of the terms and provisions of such agreements;

     
(e) shall not enter into any new retrocession agreements or
ancillary agreements relating to the Treaties;

     
(f) shall not change any financial, underwriting, reserving
methods or assumptions, pricing, claims, risk retention,
retrocession, investment or accounting policies related thereto
unless required to do so by applicable law, rule or regulation
or as a result of any change to GAAP or SAP; and

     
(g) shall not authorize or enter into an agreement or
arrangement of any kind to do any of the foregoing.

     
5.2     Accountings.
(a) Cash flows arising out of the Treaties, the Ancillary
Agreements, the Existing Retrocession Agreements and the
Transferred Investment Assets from the Coinsurance Effective
Date to but excluding the Closing Date shall be calculated in an
accounting delivered by the Companies no later than five
(5) Business Days after the Closing Date (the
“Post-Effective Time Accounting”). The
Post-Effective Time

A-11

 

Accounting will be in the form attached as
Schedule 5.2(a) hereto. The Post-Effective Time
Accounting shall be accompanied by a certification of the chief
financial officer of each of the Companies that all items
reflected in the Post-Effective Time Accounting were calculated
in good faith by such Company for the period from the
Coinsurance Effective Date to but excluding the Closing Date,
based upon the relevant Books and Records of the Company, and
calculated consistent with the past practices of the Company,
including, without limitation, its claims payment and cash
settlement practices. Each Company shall supply the
Retrocessionaires with a copy of all bank statements, computer
runs, work papers and supporting data relating to the cash flows
arising out of the Treaties or otherwise used in preparing the
Post-Effective Time Accounting. If the Post-Effective Time
Accounting reflects a balance due to either Retrocessionaire,
such balance shall be paid by the appropriate Company to such
Retrocessionaire by wire transfer of immediately available funds
in U.S. dollars, in the amounts and to the bank accounts
designated in writing by the Retrocessionaire, simultaneously
with the delivery of the Post-Effective Time Accounting. If the
Post-Effective Time Accounting reflects a balance due to either
Company, such balance shall be paid by the appropriate
Retrocessionaire to such Company by wire transfer of immediately
available funds in U.S. dollars, in the amounts and to the
bank accounts designated in writing by such Company, not later
than three (3) Business Days following the
Retrocessionaires’ receipt of the Post-Effective Time
Accounting. In either case, the amount paid shall be the balance
due as shown on the Post-Effective Time Accounting plus interest
for the period from the Coinsurance Effective Date to but
excluding the Closing Date at an annual rate of three percent (3
%) on one-half of such balance due.

     
(b) Cash flows arising out of the Treaties, the Ancillary
Agreements, the Existing Retrocession Agreements and the
Transferred Investment Assets from and including the Closing
Date to but excluding the Transition Date shall be calculated in
an accounting delivered by the Companies no later than five
(5) Business Days after the Transition Date (the
“Post-Transition Accounting”). The
Post-Transition Accounting will be in the same form as the
Post-Effective Time Accounting. The Post-Transition Accounting
shall be accompanied by a certification of the chief financial
officer of each of the Companies that all items reflected in the
Post-Transition Accounting were calculated in good faith by such
Company for the period from and including the Closing Date to
but excluding the Transition Date, based upon the relevant Books
and Records of the Company, and calculated consistent with the
past practices of the Company, including, without limitation,
its claims payment and cash settlement practices. Each Company
shall supply the Retrocessionaires with a copy of all computer
runs, work papers and supporting data used in preparing the
Post-Transition Accounting. If the Post-Transition Accounting
reflects a balance due to either Retrocessionaire, such balance
shall be paid by the appropriate Company to such
Retrocessionaire by wire transfer of immediately available funds
in U.S. dollars in the amounts and to the bank accounts
designated in writing by the Retrocessionaire, simultaneously
with the delivery of the Post-Transition Accounting. If the
Post-Transition Accounting reflects a balance due to either
Company, such balance shall be paid by the appropriate
Retrocessionaire to such Company by wire transfer of immediately
available funds in U.S. dollars, in the amounts and to the
bank accounts designated in writing by such Company, not later
than three (3) Business Days following the
Retrocessionaires’ receipt of the Post-Transition
Accounting. In either case, the amount paid shall be the balance
due as shown on the Post-Transition Accounting plus interest for
the period from and including the Closing Date to but excluding
the Transition Date at an annual rate of three percent (3 %) on
one-half of such balance due.

     
(c) The Retrocessionaires shall give written notice (an
“Objection Notice”) to the Companies of any
objections to the calculations shown in the Post-Effective Time
Accounting or the Post-Transition Accounting within
180 days after the receipt by the Retrocessionaires of the
Post-Transition Accounting. Such Objection Notice will set forth
the Retrocessionaires’ proposal as to each item to which
the Retrocessionaires objects together with appropriate support
for such objections. If the Retrocessionaires do not deliver an
Objection Notice within such 180-day period, the Post-Effective
Time Accounting and the Post-Transition Accounting shall be
deemed to be conclusive, final and binding on the parties. Any
disputes regarding the amounts calculated by the Companies
pursuant to this Section 5.2 shall be submitted to
PricewaterhouseCoopers LLP (the “Independent
Accountant”), which shall be the exclusive means for the
resolution of any such disputes. The parties shall provide to
the Independent Accountant the Post-Effective Time Accounting
and/or the Post-Transition Accounting, as applicable, and the
appropriate Objection Notice, as well as any documenta-

A-12

 

tion they believe will assist the Independent Accountant in
resolving the disputes, together with such documentation as may
be requested by the Independent Accountant. The parties shall
instruct the Independent Accountant to resolve such disputes and
issue a written report with respect thereto within 45 days
following its receipt of such documentation. The determination
of the Independent Accountant will, with respect to each item in
dispute, be limited to the range for such item proposed by the
Companies in the Post-Effective Time Accounting or the
Post-Transition Accounting, as applicable, and the
Retrocessionaires in the appropriate Objection Notice. The
decision of the Independent Accountant will be final and binding
on the parties with the same effects as if the issues in dispute
had been resolved by arbitration pursuant to Section 10.9
of this Agreement. The fees and expenses of the Independent
Accountant will be allocated between the parties in accordance
with the Independent Accountant’s assessment of the merits
of the parties’ positions with respect to the matters in
dispute.

     
5.3     Pre-Closing Access.
Between the date of this Agreement and the Closing Date, subject
to any applicable law relating to antitrust, employment or
privacy issues, the Companies shall afford to the
Retrocessionaires and their Representatives access, upon
reasonable notice and during normal business hours, to all
contracts, documents and information of or relating to the
assets, liabilities, business, operations and other aspects of
the business related to the Treaties, the Ancillary Agreements
or the Existing Retrocession Agreements. The Companies shall,
and shall cause their respective employees to, cooperate with
the Retrocessionaires and their Representatives in their
investigation of matters relating to the transactions
contemplated hereby; provided, however, that the
Retrocessionaires’ investigation shall be conducted in a
manner which does not unreasonably interfere with the normal
operations of the Companies. Without limiting any of the terms
thereof, the terms of the Confidentiality Agreement shall govern
the Retrocessionaires’ and their Representatives’
obligations with respect to all confidential information made
available to the Retrocessionaires or their Representatives
pursuant to this Section 5.3.

     
5.4     Transition Services.
(a) Between the Coinsurance Effective Date and the
Transition Date, the Companies shall continue to service the
Treaties, Existing Retrocession Agreements and Ancillary
Agreements (including without limitation any of such agreements
that have been assigned or novated to either Retrocessionaire)
in a manner consistent with their current practices.

     
(b) Within thirty (30) days following the end of each
calendar month ending between the Coinsurance Effective Date and
the Transition Date, the Companies will provide to the
Retrocessionaires the information needed by the
Retrocessionaires for reporting the Treaties on the
Retrocessionaires’ statutory financial statements. The
report will be in a form mutually agreed upon by the parties.

     
(c) From the date of this Agreement to the Transition Date,
the Companies shall use commercially reasonable efforts to
assist the Retrocessionaires in preparing to transition the
administration of the Treaties from the Companies to the
Retrocessionaires on the Transition Date.

     
(d) As consideration for the services provided by the
Companies pursuant to this Section 5.4 (the
“Company Services”), the Retrocessionaires
shall pay or reimburse the Companies: (i) $30,000 per
month, prorated for any portion of a month, for Company Services
provided by the Company, and (ii) for Company Services
provided by third parties not affiliated with either Company, at
the actual costs charged by such third parties, provided that
the provision of such services by a third party (including an
appropriate adjustment of the monthly fee contemplated by
clause (i) above) is approved in advance by the
Retrocessionaires. The Retrocessionaires acknowledge that, while
a reduction in the monthly fee contemplated by clause (i)
above is appropriate in the event any Company Service currently
provided by the Companies (or an affiliate of the Companies) is
moved to a third party, there may be circumstances in which the
aggregate amount paid by the Retrocessionaires for Company
Services may exceed $30,000. For as long as the Companies are
obligated to perform any Company Services, not later than twenty
(20) days following the end of each calendar month, the
Companies shall submit to the Retrocessionaires in writing an
invoice for the Company Services performed by the Companies
during the preceding month that sets forth, in reasonable
detail, costs for services provided by unaffiliated third
parties. The Retrocessionaires shall pay the aggregate amount
shown on each such invoice no later than ten (10) days
after receipt of the invoice, and any monthly payment that is
not so paid shall bear interest from such due date until the
date paid at the Treasury Rate.

A-13

 

     
5.5     Continued Access to Books
and Records Transferred to the Retrocessionaires. On and
after the Transition Date, the Retrocessionaires shall provide
the Companies with access to all information in the possession
or control of the Retrocessionaires which the Companies
reasonably request in connection with the Treaties relating to
the preparation or examination of the Companies’ tax
returns and financial statements, the review of payment and
claims procedures, the adequacy of established reserves, the
compliance by the Retrocessionaires with any obligations they
have under this Agreement or the Coinsurance Agreements, and the
conduct of any litigation or regulatory dispute resolution,
whether pending or threatened, concerning the Treaties or the
servicing of the Treaties by the Retrocessionaires following the
Transition Date. Such access shall be provided by the
Retrocessionaires during normal business hours of the
Retrocessionaires upon forty-eight (48) hours advance
notice or such shorter period if reasonably required in the
circumstances. The Retrocessionaires shall maintain all books,
records, files and other information related to the Treaties for
such period of time as specified by applicable laws and
regulations regulating the preservation of books and records.

     
5.6     Notice of Actions
Received. On and after the date of this Agreement, the
Companies and the Retrocessionaires shall promptly provide each
other with notice of the receipt of any demand letter, summons,
complaint, petition or notice of litigation, and any complaint,
notice, inquiry or other correspondence from any insurance
regulatory authority with respect to any of the Treaties.

     
5.7     Systems Support. From
the date of this Agreement to the Transition Date, and in order
to facilitate the transfer of the Books and Records on the
Transition Date, the Companies shall cooperate with the
Retrocessionaires and their respective designees in converting
the Books and Records from the Companies’ systems to the
Retrocessionaires’ systems. Historical treaty, accounting,
claims, policy master file, retrocession and financial and
actuarial information concerning the Treaties, the Ancillary
Agreements and the Existing Retrocession Agreements will be
provided to the Retrocessionaires in formats reasonably
designated thereby with file layouts and mapping documents as
reasonably designated thereby. Any third-party expense incurred
by the Companies in connection with providing any such
information in the formats designated shall be reimbursed by the
Retrocessionaires. The Companies will make appropriate personnel
available to respond to questions from the
Retrocessionaires’ systems personnel in order to enable the
Retrocessionaires to understand the data and file layouts and
effectuate a transfer of the Books and Records.

     
5.8     Maintenance of Existing
Retrocession Agreements. From and after the date of this
Agreement, unless otherwise agreed by the Retrocessionaires,
each of the Companies shall maintain the Existing Retrocession
Agreements related to any Treaty coinsured under the Coinsurance
Agreements in full force and effect without any waiver or
modification of the terms thereof or any rights or obligations
thereunder.

     
5.9     Novations and
Assignments. (a) From and after the date of this
Agreement, the Retrocessionaires and the Companies shall
cooperate with each other and use commercially reasonable
efforts to procure the consent of (i) the relevant Cedent
to the novation of each of the Treaties to the Retrocessionaires
pursuant to a Novation Amendment, (ii) the relevant
retrocessionaire to the execution and delivery of an Existing
Retrocession Agreement Assignment as to each of the Existing
Retrocession Agreements, and (iii) the appropriate Person
to the assignment or novation to and assumption by the relevant
Retrocessionaire of each of the Ancillary Agreements other than
the Deposit Agreement identified on Schedule 1.3. In no
event shall the obligation to use “commercially reasonable
efforts” pursuant to the foregoing sentence require
(i) the Companies or the Retrocessionaires to make any
additional payment or concession to any Cedent or Third Party
Retrocessionaire, (ii) the Companies to execute or deliver
a Novation Amendment with respect to a Treaty if any risk
assumed thereunder is currently retroceded to ALR Bermuda under
an Existing Retrocession Agreement and Wilton America does not
agree to retrocede such risk to Wilton Bermuda, or
(iii) the Retrocessionaires or the Companies to execute or
deliver a Novation Amendment with respect to any Treaty unless
each Third-Party Retrocessionaire now assuming any risk as to
such Treaty under an Existing Retrocession Agreement has
executed an Existing Retrocession Agreement Assignment with
respect thereto.

     
(b) The Companies shall execute any (i) Novation
Amendment executed by the relevant Retrocessionaire and the
relevant Cedent, (ii) Ancillary Agreement Assignment
executed by the relevant counter-party or counter-parties, and
(iii) Existing Retrocession Agreement Assignment executed
by the relevant Third Party Retrocessionaire, in each case in
the forms attached hereto as exhibits and provided that such
Novation

A-14

 

Amendment and Existing Retrocession Agreement Assignments do not
require the Companies to make any payment to a third party.

     
(c) In the event that the Companies and the
Retrocessionaires are unable to obtain any consent required from
any counter-party in order to assign any Ancillary Agreement to
a Retrocessionaire, (i) the Companies shall use
commercially reasonable efforts in cooperation with the relevant
Retrocessionaire to (A) provide or cause to be provided to
such Retrocessionaire the benefits of such Ancillary Agreement
and (B) enforce for the benefit of such Retrocessionaire
any rights of either Company arising from such Ancillary
Agreement, and (ii) such Retrocessionaire shall use
commercially reasonable efforts to perform the obligations of
the relevant Company under such Ancillary Agreement. If and when
any such required consent to the assignment of an Ancillary
Agreement is obtained, the relevant Company shall promptly
assign all of its rights and obligations thereunder to the
relevant Retrocessionaire without the payment of further
consideration therefore, and such Retrocessionaire shall assume
such rights and obligations.

     
(d) If a Treaty is novated to a Retrocessionaire pursuant
to a Novation Amendment following the Transition Date, the
relevant Company shall transfer all Books and Records relating
to such Treaty to the relevant Retrocessionaire, subject to such
Company’s right to retain copies of any such Books and
Records.

     
(e) Notwithstanding anything in this Section 5.9 to
the contrary, on the Closing Date, each Existing Retrocession
Agreement under which ALR America retrocedes to ALR Bermuda
risks assumed under any of the other Treaties (an
“Inter-Affiliate Agreement”) will be novated in part,
by means of a bifurcation of such Inter-Affiliate Agreement, to
substitute Wilton America for ALR America and Wilton Bermuda for
ALR Bermuda as to each Treaty that is a Novated Treaty on the
Closing Date. Following the Closing Date, at such time as any
Treaty is novated to Wilton America, each Inter-Affiliate
Agreement covering such Treaty will be further novated in part
to substitute Wilton America for ALR America and Wilton Bermuda
for ALR Bermuda as to such Treaty. The documentation effecting
the partial novations contemplated by this Section 5.9(e)
shall be in a form reasonably satisfactory to the parties
hereto. Regardless of whether any Treaties have not yet been
novated at the time in question, the Inter-Affiliate Agreements
shall be finally and completely novated to substitute Wilton
America for ALR America and Wilton Bermuda for ALR Bermuda
effective either (i) the last day of the sixth calendar
month following the month in which the Closing Date falls, or
(ii) the last day of such earlier calendar month as the
Retrocessionaires shall elect in their sole discretion.

     
(f) Prior to the Closing Date, (i) ALR America and ALR
Bermuda will terminate the Deposit Agreement identified on
Schedule 1.3, and (ii) ALR America will cause all
funds on deposit pursuant to such agreement to be returned to
ALR Bermuda.

     
5.10     Letters of Credit or
Similar Collateral. (a) Following the date of this
Agreement, the Companies and the Retrocessionaires will use
their commercially reasonable efforts to arrange to replace any
letters of credit required to be maintained by the Companies
under any Treaty (each, a “Collateralized Treaty”)
with letters of credit provided by the Retrocessionaires, with
such replacement to be effectuated on the Closing Date or as
promptly thereafter as practicable. As to any letters of credit
the Companies continue to maintain following the Closing, the
Retrocessionaire reinsuring the applicable Collateralized Treaty
shall reimburse the applicable Company for (i) all amounts
paid or incurred by such Company for such letter of credit after
the Closing Date (excluding letter of credit facility commitment
fees or other similar amounts not specifically relating to the
letter of credit in question), and, (ii) in the event of
any draw against any such letter of credit securing a
Collateralized Treaty following the Closing Date, including
without limitation a draw resulting from the non-renewal of such
letter of credit, an amount equal to the amount of such draw. If
the Retrocessionaire is obligated to make any payment under
clause (ii) of the preceding sentence, the Company
receiving such payment shall, upon receipt of such payment,
assign to the Retrocessionaire all of its right, title and
interest in and to the return of such collateral under the terms
of the applicable Collateralized Treaty. Any payment to either
Company required pursuant to this Section 5.10(a) shall be
made to such Company within five (5) days of the
appropriate Retrocessionaire’s receipt of notice of the
event giving rise to such payment, and any payment not so made
to the appropriate Company shall bear interest from such due
date until the date paid at the Treasury Rate.

A-15

 

     
(b) Each of the Companies shall provide notice of
non-renewal to the issuer of each letter of credit it maintains
with respect to a Collateralized Treaty on
(i) November 15, 2005, if the Closing takes place on
or prior to such date, or (ii) the date that is
45 days prior to the termination of such letter of credit
if the Closing does not take place on or prior to
November 15, 2005. Neither Company shall provide any notice
of non-renewal of any letter of credit it maintains with respect
to a Collateralized Treaty prior to the date specified in this
Section 5.10(b). In the event of a draw under a letter of
credit by the Cedent under a Collateralized Treaty as a result
of a non-renewal of such letter of credit, the obligation of the
Retrocessionaire reinsuring such Collateralized Treaty to
reimburse the relevant Company for amounts paid or incurred by
such Company with respect to such letter of credit pursuant to
Section 5.10(a) shall cease immediately upon the
reimbursement by such Retrocessionaire of the amount so drawn.

     
5.11     Regulatory Filings,
Consents and Approvals. The Retrocessionaires and the
Companies shall cooperate and use commercially reasonable
efforts to obtain as promptly as practicable all approvals,
authorizations and clearances of governmental and regulatory
authorities to consummate the transactions contemplated by this
Agreement and the Coinsurance Agreements, and shall cooperate
with each other and provide such information and communications
to such governmental and regulatory authorities as the party
responsible for obtaining such approvals may reasonably request.
The Retrocessionaires and the Companies will provide each other
and their counsel the opportunity to review in advance and
comment on all such filings with any governmental and regulatory
authorities and will keep each other informed of the status of
matters relating to obtaining the required regulatory approvals.
It is expressly understood by the parties hereto that each party
hereto shall use commercially reasonable efforts to ensure that
representatives of both parties shall have the right to attend
and participate in any hearing, proceeding, meeting, conference
or similar event before or with a governmental authority
relating to this Agreement. In the case of a meeting, conference
or similar event related in part to this Agreement and in part
to other matters, the parties shall cooperate in good faith to
ensure that each of the parties is able to participate in the
portion of such meeting, conference or similar event that
relates solely to this Agreement; provided, however, that either
party shall have the right to exclude the other party from all
or any portion of any meeting, conference or similar event not
relating to this Agreement. In furtherance of the foregoing,
each party shall provide each other reasonable advance notice of
any such hearing, proceeding, meeting, conference or similar
event.

     
5.12     Other Consents and
Approvals. The parties shall cooperate and use commercially
reasonable efforts to obtain all consents, approvals and
agreements of, and to give and make all notices and filings
with, any other Person (other than governmental and regulatory
authorities, which are covered under Section 5.11 of this
Agreement) required in connection with the execution and
delivery of this Agreement or the consummation of the
transactions contemplated hereby, including without limitation,
Cedents and Third-Party Retrocessionaires. Without limiting the
generality of the foregoing, Wilton Bermuda will cause all
shares as to which it holds proxies granted pursuant to the
Voting Agreements to be voted in favor of the transactions
contemplated by this Agreement at any meeting of the
shareholders of ALR Holdings. The Retrocessionaires and the
Companies will keep each other informed of the status of matters
relating to obtaining the required approvals. It is expressly
understood by the parties hereto that each party hereto shall
use commercially reasonable efforts to ensure that
representatives of both parties shall have the right to attend
and participate in any meeting, conference or similar event
involving any Cedent or Third-Party Retrocessionaire relating to
this Agreement. In furtherance of the foregoing, each party
shall provide each other reasonable advance notice of any such
meeting, conference or similar event.

     
5.13     HSR Act Filings. If
required by law, the parties shall, as promptly as practicable,
file Notification and Report Forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
“HSR Act”), and the rules of the Federal Trade
Commission (“FTC”) thereunder, with the FTC and
the Antitrust Division of the U.S. Department of Justice
(the “Antitrust Division”) in connection with
the transactions contemplated by this Agreement and the
Coinsurance Agreements, and shall use commercially reasonable
efforts to respond as promptly as practicable to all inquiries
received from the FTC or the Antitrust Division for additional
information or documentation.

     
5.14     Notification of Certain
Matters. From the date of this Agreement to the Closing
Date, (a) the Companies shall use commercially reasonable
efforts to conduct their affairs in such a manner so that the

A-16

 

representations and warranties of the Companies contained in
Article III hereof shall continue to be true and correct in
all material respects on and as of the Closing Date as if made
on and as of the Closing Date; (b) the Retrocessionaires
shall use their respective commercially reasonable efforts to
conduct their affairs in such a manner so that the
representations and warranties of the Retrocessionaires
contained in Article IV hereof shall continue to be true
and correct in all material respects on and as of the Closing
Date as if made on and as of the Closing Date; (c) the
Companies shall notify the Retrocessionaires promptly of any
event, condition or circumstance that would reasonably be
expected to give rise to the inability of the Companies to
satisfy any of the conditions precedent to the Closing set forth
in Article 6 hereof; and (d) the Retrocessionaires
shall notify the Companies promptly of any event, condition or
circumstance that would reasonably be expected to give rise to
the inability of the Retrocessionaires to satisfy any of the
conditions precedent to Closing set forth in Article 6
hereof. No notification pursuant to this Section 5.14 shall
be deemed to cure any breach for any purpose under this
Agreement.

     
5.15     Further Assurances.
Each of the parties hereto shall execute such documents and
other papers and perform such further acts as may be reasonably
required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, at or prior to the
Closing Date, use its commercially reasonable efforts to fulfill
or obtain the fulfillment of the conditions precedent to the
consummation of the transactions contemplated hereby, including
the execution and delivery of any documents, certificates,
instruments or other papers that are reasonably required for the
consummation of the transactions contemplated hereby. On and
after the Transition Date, the Companies and their respective
affiliates will hold any and all payments received under the
Treaties, the Ancillary Agreements or any Existing Retrocession
Agreement that has been assigned to the Retrocessionaires as
received thereby for the benefit of the relevant
Retrocessionaire pending remittance thereto. Each of the
Companies shall, upon any request by Retrocessionaires, take any
and all actions reasonably required or appropriate thereby to
further establish, substantiate or perfect the interests created
hereby in favor of the Retrocessionaires, including, without
limitation, the execution and delivery of trust or other
agreements reasonably requested by the Retrocessionaires in
order to further establish, substantiate or perfect the
interests created hereby.

     
5.16     Use by the
Retrocessionaires of the Companies’ Names, Logos or Service
Marks. Except as otherwise agreed in writing, the
Retrocessionaires have not acquired by means of this Agreement
or the Coinsurance Agreements or by any other means, the right
to use the names of either of the Companies or any of the
Companies’ service marks, trademarks, designs or logos
related to that name. The Retrocessionaires agree that they will
not use such name, service marks, trademarks, designs or logos
unless the relevant Company shall have agreed in writing to such
use; provided, however, that the Retrocessionaires may utilize
the names of the Companies as may be necessary or appropriate
for its administration of the Treaties pursuant to the
Coinsurance Agreements.

     
5.17     Communications with Cedents
and Third Party Retrocessionaires. (a) Before the
Closing Date, all communications with Cedents and Third Party
Retrocessionaires by either the Companies or the
Retrocessionaires in connection with the proposed novation or
reinsurance of the Treaties by the Retrocessionaires as
contemplated by this Agreement shall be in such form as shall be
mutually agreed upon by the parties hereto prior to any release
thereof, except for communications with Cedents and Third Party
Retrocessionaires, as the case may be, as required to administer
the Treaties and the Existing Retrocession Agreements in the
ordinary course of business. The Company and the
Retrocessionaires shall cooperate fully and promptly regarding
the preparation and distribution of any such communications to
Cedents.

     
(b) The Retrocessionaires shall send to each Cedent a
written notice from the Companies advising that the
Retrocessionaire has been appointed by the Companies to provide
administrative services relating to the Treaties on and after
the Transition Date, and directing that future payments by the
Cedent should be made to the Collections Account (as defined in
the Coinsurance Agreements). The Retrocessionaires shall send
such notice at their own expense by first class U.S. mail
promptly after the Closing Date, but in no event later than the
Transition Date.

     
5.18     Expenses. Except as
otherwise specifically provided in this Agreement, and except
for the Expense Reimbursement Amount, the parties hereto shall
each bear their own respective expenses incurred in

A-17

 

connection with the preparation, execution and performance of
this Agreement, the Coinsurance Agreements, the Novation
Amendments, the Existing Retrocession Agreement Assignments, the
Ancillary Agreement Assignments and all other documentation
related hereto and thereto, including without limitation all
fees and expenses of counsel, actuaries and accountants.

     
5.19     Intercompany Balances.
At the Closing, the Companies shall provide the
Retrocessionaires with a reconciliation of any outstanding
balances that were owing between ALR Bermuda and ALR America
under any Existing Retrocession Agreement as of the Coinsurance
Effective Date.

     
5.20     Competing Acquisition
Proposals. (a) Subject to Sections 5.20(b) through
(d) below, from and after the date of this Agreement until
the earlier of the termination of this Agreement in accordance
with its terms or the Closing Date, none of ALR Holdings, the
Companies or any of their respective Representatives shall (and
each of ALR Holdings and the Companies shall cause their
respective Representatives not to), directly or indirectly,
(i) initiate, solicit, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer that
constitutes, is intended to result in, or could be expected to
lead to any Competing Acquisition Proposal (as defined below) or
(ii) engage in negotiations or discussions concerning the
Treaties or any Company with, or provide any confidential
information with respect to the Treaties or any Company to, any
person making or proposing to make any Competing Acquisition
Proposal. Each of ALR Holdings and each Company will immediately
cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted
heretofore with respect to any Competing Acquisition Proposal,
and will take the necessary steps to promptly inform such
parties of the obligations undertaken in this Section 5.20.

     
(b) Notwithstanding anything to the contrary contained in
the foregoing Section 5.20(a), nothing herein shall
prohibit ALR Holdings, prior to the receipt of the approval of
its shareholders of the transactions contemplated by this
Agreement (as provided for on Schedule 3.2), (i) from
complying with Rule 14e-2 and Rule 14d-9 under the
Securities Exchange Act of 1934, as amended, with regard to a
bona fide tender offer or exchange offer, or (ii) from
participating in negotiations or discussions with or furnishing
information to any person in connection with an unsolicited bona
fide Competing Acquisition Proposal that is submitted in writing
by such Person to the Board of Directors of ALR Holdings after
the date of this Agreement and prior to the receipt of the
approval of ALR Holdings’ shareholders of the transactions
contemplated by this Agreement, provided that, prior to
participating in any such discussions or negotiations or
furnishing any information (A) ALR Holdings shall promptly
provide the Retrocessionaires with notice of the receipt of any
communication regarding a potential Competing Acquisition
Proposal, including the identity of the person making or
proposing to make such Competing Acquisition Proposal and the
material terms thereof, (B) ALR Holdings shall have
received from such person an executed confidentiality agreement
on terms not less favorable to ALR Holdings than the
Confidentiality Agreement, a copy of which shall be provided
only for informational purposes to the Retrocessionaires,
(C) the Board of Directors of ALR Holdings shall have
concluded in good faith, after obtaining the advice of its
outside financial advisors, that such Competing Acquisition
Proposal is reasonably likely to be or to result in a Superior
Proposal (as defined below), and (D) the Board of Directors
of ALR Holdings shall have concluded in good faith, after
obtaining the advice of its outside legal advisors, that
participating in such negotiations or discussions or furnishing
such information is required in order for the Board of Directors
of ALR Holdings to fulfill its fiduciary duties to its
shareholders. The Board of Directors of ALR Holdings shall
promptly notify the Retrocessionaires of any material changes or
amendment to the primary terms of such Competing Acquisition
Proposal.

     
(c) In the event that, prior to the receipt of the approval
of its shareholders of the transactions contemplated by this
Agreement (as provided for on Schedule 3.2), the Board of
Directors of ALR Holdings determines in good faith, after
consultation with its financial advisor, that such Competing
Acquisition Proposal is a Superior Proposal, and that, after
consultation with outside legal counsel, the failure to accept
such Superior Proposal would be inconsistent with the fiduciary
duties of the Board of Directors of ALR Holdings, the Board of
Directors of ALR Holdings may accept such Superior Proposal and
the Companies may terminate this Agreement in accordance with
Section 9.1.3(b) of this Agreement; provided, however, that
prior to any such acceptance of the Superior Proposal and
termination of this Agreement, ALR Holdings shall
(i) notify the Retrocessionaires in writing that it intends
to enter into an agreement relating to a Superior Proposal,
which notice shall include the most recent draft of the relevant
acquisition agreement (and which

A-18

 

notice shall give the Retrocessionaires the immediate right to
terminate this Agreement in accordance with
Section 9.1.2(b) of this Agreement), (ii) during the
five Business Days following receipt by the Retrocessionaires of
such notice, ALR Holdings shall have offered the
Retrocessionaires the opportunity to make such adjustments to
the terms and conditions of this Agreement such that any
Competing Acquisition Proposal is no longer a Superior Proposal,
and (iii) the Board of Directors of ALR Holdings shall have
concluded, after termination of the five Business Day period,
that the Competing Acquisition Proposal giving rise to ALR
Holdings’ obligations to provide notice hereunder continues
to be a Superior Proposal. ALR Holdings and the Companies may
not terminate this Agreement under Section 9.1.3(b) in
connection with a Superior Proposal unless ALR Holdings pays to
the Retrocessionaires in immediately available funds the
Termination Fee pursuant to Section 9.2 of this Agreement.
ALR Holdings agrees that it will not enter into a binding
agreement relating to a Superior Proposal until at least the
sixth Business Day after it has provided the notice to the
Retrocessionaires described above. ALR Holdings further agrees
that it shall notify the Retrocessionaires promptly if ALR
Holdings has changed its intention with respect to entering into
the agreement identified in the notice provided hereunder,
whether as a result of the Retrocessionaires modifying their
offer or otherwise.

     
(d) For purposes of this Agreement, “Competing
Acquisition Proposal” means any inquiry, proposal or offer
from any person relating to (x) any direct or indirect
sale, transfer, pledge, disposition, reinsurance, novation, bulk
reinsurance or other conveyance of rights or interests with
respect to the Treaties other than a transaction expressly
provided for herein, (y) a direct or indirect sale of any
of the outstanding shares of, or other securities issued by,
either Company or ALR Holdings or (z) a merger,
consolidation, business combination, reorganization, share
exchange, recapitalization, liquidation, dissolution or similar
transaction involving any Company other than a transaction
expressly provided for herein; provided, however, that any such
inquiry, proposal or offer that relates to a transaction that
would, by its terms, be consummated following the consummation
of the transactions contemplated by this Agreement shall not be
considered a Competing Acquisition Proposal so long as such
transaction would not interfere with the Retrocessionaires’
rights hereunder. For purposes of this Agreement, “Superior
Proposal” means any Competing Acquisition Proposal with
respect to which any required financing is committed or, in the
good faith judgment of the Board of Directors of ALR Holdings,
based on the advice of its outside financial advisors, is
reasonably capable of being financed by the person making the
proposal and, with respect to which the Board of Directors of
ALR Holdings shall have concluded in good faith is reasonably
capable of being completed, taking into account all legal,
financial, regulatory and other aspects of the Competing
Acquisition Proposal and the person making the proposal, and
would, if consummated, result in a transaction more favorable to
ALR Holding’s shareholders from a financial point of view
than the transactions contemplated by this Agreement.

ARTICLE VI

Closing Conditions

     
6.1     Conditions to the
Retrocessionaires’ Obligations to Close. The obligation
of the Retrocessionaires to close the transactions contemplated
under this Agreement shall be subject to the fulfillment of the
following conditions, any one or more of which may be waived by
the Retrocessionaires to the extent permitted by law:

     
6.1.1     Receipt of All Required
Closing Date Approvals. All Required Closing Date Approvals
shall have been received, and each Company shall have delivered
to the Retrocessionaires a copy of any Required Closing Date
Approval issued to such Company.

     
6.1.2     Representations,
Warranties and Covenants. The representations and warranties
of each Company contained in this Agreement that are not
qualified by “materiality” or a “Material Adverse
Effect” qualifier shall have been true and correct in all
respects on and as of the date of this Agreement and shall be
true and correct in all material respects on and as of the
Closing Date (unless such representation or warranty is
expressly made as of an earlier date). The representations and
warranties of each Company contained in this Agreement that are
qualified by “materiality” or a “Material Adverse
Effect” qualifier shall have been true and correct in all
respects on and as of the date of this Agreement and shall be
true and correct in all respects on and as of the Closing Date
(unless such representation or warranty is expressly made as of
an earlier date).

A-19

 

Each Company shall have performed and complied in all material
respects with all agreements, covenants, obligations and
conditions required by this Agreement to be so performed or
complied with by such Company at or before the Closing. On the
Closing Date, each Company shall have delivered to the
Retrocessionaires a certificate dated as of the Closing Date and
signed by a senior officer of such Company, to the effect
contemplated by this Section 6.1.2.

     
6.1.3     Secretary’s
Certificates. Each Company shall have delivered to the
Retrocessionaires a certificate of the secretary or assistant
secretary thereof, dated as of the Closing Date, as to the
resolutions of the Board of Directors (or other similar
governing body) of such Company authorizing the execution,
delivery and performance of this Agreement and the other
agreements contemplated hereby to which it is a party, as to the
status and signature of each of its officers who executed and
delivered this Agreement and such other agreements and any other
document delivered by it in connection with the transactions
contemplated by this Agreement and such other agreements.

     
6.1.4     Injunction and
Litigation. There shall be in effect no injunction, writ,
preliminary restraining order or other order issued by any court
of competent jurisdiction directing that the transactions
contemplated by this Agreement or the Coinsurance Agreements not
be consummated as herein or therein provided.

     
6.1.5     Third-Party
Retrocessionaires. Each Third-Party Retrocessionaire that
has accepted any risk arising under any Novated Treaty shall
have, as to the Existing Retrocession Agreement applicable to
such Novated Treaty, either (i) executed an Existing
Retrocession Agreement Assignment or (ii) on terms approved
by the Retrocessionaires, which approval shall not be
unreasonably withheld, confirmed in writing to the
Retrocessionaires that it will continue to provide coverage with
respect to such Novated Treaty under the terms of the relevant
Existing Retrocession Agreement for the duration of the term
thereof.

     
6.1.6     Cedents. Either
(a) the Cedent under each Treaty shall have provided to the
Retrocessionaires a confirmation in the form of
Exhibit E hereto indicating that the information
therein is correct, and such information shall have been
determined to be, in the reasonable judgment of the
Retrocessionaires, consistent in all material respects with
(i) information contained in the Books and Records of the
relevant Company and (ii) information provided prior to the
date of this Agreement by the Companies to the Retrocessionaires
or (b) the Retrocessionaires shall have otherwise received
the information called for by Exhibit E with respect to
each Treaty, and such information shall have been determined to
be, in the reasonable judgment of the Retrocessionaires,
consistent in all material respects with (x) information
contained in the Books and Records of the relevant Company and
(y) information provided prior to the date of this
Agreement by the Companies to the Retrocessionaires.

     
6.2     Conditions to the
Company’s Obligations to Close. The obligation of the
Companies to close the transactions contemplated under this
Agreement shall be subject to the fulfillment of the following
conditions, any one or more of which may be waived by the
Companies to the extent permitted by law:

     
6.2.1     Receipt of All Required
Closing Date Approvals. All Required Closing Date Approvals
shall have been received, and each Retrocessionaire shall have
delivered to the Companies a copy of any Required Closing Date
Approval issued to such Retrocessionaire.

     
6.2.2     Representations,
Warranties and Covenants. The representations and warranties
of each Retrocessionaire contained in this Agreement that are
not qualified by “materiality” or a “Material
Adverse Effect” qualifier shall have been true and correct
in all respects on and as of the date of this Agreement and
shall be true and correct in all material respects on and as of
the Closing Date (unless such representation or warranty is
expressly made as of an earlier date). The representations and
warranties of each Retrocessionaire contained in this Agreement
that are qualified by “materiality” or a
“Material Adverse Effect” qualifier shall have been
true and correct in all respects on and as of the date of this
Agreement and shall be true and correct in all respects on and
as of the Closing Date (unless such representation or warranty
is expressly made as of an earlier date).Each Retrocessionaire
shall have performed and complied in all material respects with
all agreements, covenants, obligations and conditions required
by this Agreement to be so performed or complied with by such
Retrocessionaire at or before the Closing. On the Closing Date,
each Retrocessionaire shall have

A-20

 

delivered to the Companies a certificate dated as of the Closing
Date and signed by a senior officer of such Retrocessionaire, to
the effect contemplated by this Section 6.2.2.

     
6.2.3     Secretary’s
Certificates. Each Retrocessionaire shall have delivered to
the Companies a certificate of the secretary or assistant
secretary thereof, dated as of the Closing Date, as to the
resolutions of the Board of Directors (or other similar
governing body) of such Retrocessionaire authorizing the
execution, delivery and performance of this Agreement and the
other agreements contemplated hereby to which it is a party, as
to the status and signature of each of its officers who executed
and delivered this Agreement and such other agreements and any
other document delivered by it in connection with the
transactions contemplated by this Agreement and such other
agreements.

     
6.2.4     Injunction and
Litigation. There shall be in effect no injunction, writ,
preliminary restraining order or other order issued by any court
of competent jurisdiction directing that the transactions
contemplated by this Agreement or the Coinsurance Agreements not
be consummated as herein or therein provided.

ARTICLE VII

Survival of Representations and Warranties

     
Except for the representations and warranties made by the
Companies in Section 3.1 and those made by the
Retrocessionaires in Section 4.1, each of which shall
survive the Closing indefinitely, the representations and
warranties made by the Companies and the Retrocessionaires in
this Agreement or in any certificate delivered by the Company or
the Retrocessionaires pursuant hereto, shall survive for a
period of eighteen (18) months following the Closing Date.
All claims for inaccuracy or breach of any representation or
warranty will be deemed waived unless notice of such inaccuracy
or breach shall have been given to the breaching party prior to
the expiration of the survival period set forth in this
Article VII, in which case such representation or warranty
shall survive to the extent of the claim referred to in such
notice until such claim has been resolved.

ARTICLE VIII

Indemnification

     
8.1     Indemnification by the
Companies. Subject to the limitations set forth in
Article VII and elsewhere in this Article VIII, each
Company, severally and not jointly, shall indemnify, defend and
hold harmless each Retrocessionaire, each of its affiliates, and
each of their respective directors, officers and employees (the
“Retrocessionaire Indemnified Parties”) from and
against all costs and expenses (including reasonable
attorneys’, accountants’ and actuaries’ fees and
disbursements, and any other costs and expenses incident to any
suit, action or proceeding), damages, losses, charges,
deficiencies, liabilities, obligations, claims or judgments
(“Loss” or “Losses”) arising or resulting
from:

     
(a) any breach of any representation or warranty made by
such Company in this Agreement or from any misrepresentation in
any certificate furnished hereunder by such Company;

     
(b) any breach of any covenant of such Company in this
Agreement;

     
(c) any Excluded Liability; and

     
(d) any successful enforcement of the obligations contained
in this Section 8.1 against either Company.

     
8.2     Indemnification by the
Retrocessionaires. Subject to the limitations set forth in
Article VII and elsewhere in this Article VIII, each
Retrocessionaire, severally and not jointly, shall indemnify,
defend and hold harmless each Company, each of its affiliates,
and each of their respective directors, officers and employees
(the “Company Indemnified Parties”) from and against
all costs and expenses (including reasonable attorneys’,
accountants’ and actuaries’ fees and disbursements,
and any other costs and expenses

A-21

 

incident to any suit, action or proceeding), damages, losses,
charges, deficiencies, liabilities, obligations, claims or
judgments (“Loss” or “Losses”) arising or
resulting from:

     
(a) any breach of any representation or warranty made by
such Retrocessionaire in this Agreement or from any
misrepresentation in any certificate furnished hereunder by such
Retrocessionaire;

     
(b) any breach of any covenant of such Retrocessionaire in
this Agreement;

     
(c) any Assumed Liability;

     
(d) any Retrocessionaire Extracontractual
Liability; and

     
(e) any successful enforcement of the obligations contained
in this Section 8.2 against either Retrocessionaire.

     
8.3     Limitations.
(a) Notwithstanding anything in Section 8.1(a) to the
contrary, (i) the Companies shall have no liability to the
Retrocessionaire Indemnified Parties with respect to the matters
described in Section 8.1(a) unless and until the total of
all Losses with respect to such matters exceeds $25,000.00, and
then only for the amount by which such Losses exceed $25,000.00;
and (ii) in no event shall the Companies’ obligations
under Section 8.1(a) exceed $2,000,000.00 in the aggregate.

     
(b) Notwithstanding anything in Section 8.2(a) to the
contrary, (i) the Retrocessionaires shall have no liability
to the Company Indemnified Parties with respect to the matters
described in Section 8.2(a) unless and until the total of
all Losses with respect to such matters exceeds $25,000.00, and
then only for the amount by which such Losses exceed $25,000.00;
and (ii) in no event shall the Retrocessionaires’
obligations under Section 8.2(a) exceed $2,000,000.00 in
the aggregate.

     
8.4     Notice of Claim. As soon
as reasonably practicable, but in no event subsequent to the
first to occur of the expiration of the relevant survival period
of a representation or warranty (as set forth in
Article VII) or thirty (30) days after receipt by an
indemnified party hereunder of written notice of any demand,
claim or circumstances which, upon the lapse of time, would give
rise to a claim or the commencement (or threatened commencement)
of any action, proceeding or investigation (a “Claim”)
that may result in a Loss, such indemnified party shall give
notice thereof (“Claims Notice”) to the indemnifying
party. The Claims Notice shall describe the Claim in reasonable
detail, and shall indicate the amount (if quantifiable and
estimated, if necessary) of the Loss that has been or may be
suffered by such indemnified party. The failure of the
indemnified party to give the Claims Notice within in the time
provided for herein shall not affect the indemnifying
party’s obligation under this Article VIII except if,
and then only to the extent that, such failure prejudices the
indemnifying party or its ability to defend such Claim.

     
8.5     Opportunity to Defend.
Within thirty (30) days of receipt of any Claims Notice
given pursuant to Section 8.4, the indemnifying party shall
notify the indemnified party in writing of the acceptance of or
objection to the Claim and whether the indemnifying party will
indemnify the indemnified party and, in the case of a Claim by a
third party, defend the same at the expense of the indemnifying
party with counsel selected by the indemnifying party (who shall
be approved in writing by the indemnified party, such approval
not to be unreasonably withheld); provided that the indemnified
party shall at all times have the right to fully participate in
the defense of any third-party Claim at its own expense or, as
provided herein below, at the expense of the indemnifying party.
Failure by the indemnifying party to object in writing within
such thirty (30) day period shall be deemed to be
acceptance of the Claim by the indemnifying party. In the event
that the indemnifying party objects to a third-party Claim
within said thirty (30) day period or does not object but
fails to vigorously defend and appears to be unable or unwilling
to meet its indemnification obligations hereunder, the
indemnified party shall have the right, but not the obligation,
to undertake the defense, and to compromise and/or settle (in
the exercise of reasonable business judgment) such Claim. Except
as provided in the preceding sentence, the indemnified party
shall not compromise and/or settle any third-party Claim without
the prior written consent of the indemnifying party. If a
third-party Claim is one that cannot by its nature be defended
solely by the indemnifying party, the indemnified party shall
make available all information and assistance that the
indemnifying party may reasonably request, provided that any
associated expense shall be paid by the indemnifying party.

A-22

 

     
8.6     Exclusive Remedy; Additional
Limitations. If the Closing occurs, the indemnification
remedies provided in this Article VIII shall be the
exclusive remedies available to the Company Indemnified Parties
and the Retrocessionaire Indemnified Parties with respect to any
breach of representation, warranty, covenant or other obligation
under this Agreement or any document or instrument delivered
under this Agreement (other than the Coinsurance Agreement, any
Novation Amendment, Existing Retrocession Agreement Assignment
or any Ancillary Agreement Assignment) or otherwise arising out
of, resulting from or related to the transactions contemplated
by this Agreement. Neither party shall be entitled to
indemnification unless the party seeking indemnification makes
claim therefor pursuant to the procedures set forth in
Section 8.4 of this Agreement. In addition, for purposes of
determining any indemnifiable amount under this Agreement or the
agreements contemplated hereby, the amount of a Loss shall be
reduced by any net tax benefit to the indemnified party from the
Loss and any insurance proceeds or indemnity, contribution or
similar payments recoverable by the indemnified party from any
third party with respect to the Loss. Except as otherwise
expressly set forth in this Agreement with respect to any
Company Extracontractual Liability or Retrocessionaire
Extracontractual Liability, in no event shall the indemnifying
party under this Article VIII have liability to the
indemnified party for any consequential, special, incidental,
indirect, or punitive damages, lost revenue, profits or income,
diminution in value, loss of business reputation or opportunity
or similar items; provided, that the term “Loss” shall
be deemed to include, and the Retrocessionaires shall be
entitled to recover, lost revenue, profits or income under the
Treaties, the Existing Retrocession Agreements and the Ancillary
Agreements.

     
8.7     Maintenance of Statutory
Capital and Surplus. (a) During the period ending on
the later of the date (i) that is eighteen (18) months
following the Closing Date or (ii) on which all outstanding
Claims by the Retrocessionaire Indemnified Parties for
indemnification with respect to the matters described in
Section 8.1(a) of this Agreement are finally resolved (the
“Capital and Surplus Maintenance Period”), each
Company shall maintain statutory capital and surplus equal to at
least $2,000,000.00.

     
(b) During the Capital and Surplus Maintenance Period, ALR
Holdings shall not take any action, and shall not cause the
Companies to take any action, including, without limitation, the
declaration and payment of any dividend or distribution, that
would reduce the statutory capital and surplus of either Company
below the levels set forth in Section 8.7(a) of this
Agreement.

ARTICLE IX

Termination

     
9.1     Termination. This
Agreement may be terminated as provided in this Section 9.1.

     
9.1.1     This Agreement may be
terminated at any time before the Closing, by mutual written
agreement of the Companies and the Retrocessionaires.

     
9.1.2     The Retrocessionaires may
terminate this Agreement at any time prior to Closing:

     
(a) for material breach by either of the Companies of any
of the terms or conditions of this Agreement or for failure of
any condition to Closing, the satisfaction of which is solely
within the Companies’ control; provided, however, that the
Companies shall have ten (10) days to cure any such breach
or satisfy any such condition after receipt of notice thereof by
the Companies from the Retrocessionaires; or

     
(b) if ALR Holdings provides the Retrocessionaires with
notice pursuant to Section 5.20(c)(i) that it intends to
enter into a binding written agreement for a Superior Proposal
(in which case ALR Holdings shall promptly pay to the
Retrocessionaires the Termination Fee in accordance with
Section 9.2(iv)(A) below).

     
9.1.3     The Companies may terminate
this Agreement at any time prior to Closing:

     
(a) for material breach by the Retrocessionaires of any of
the terms or conditions of this Agreement or for failure of any
condition to Closing, the satisfaction of which is solely within
the Retrocessionaires’ control; provided, however, that the
Retrocessionaires shall have ten (10) days to cure any such
breach or satisfy any such condition after receipt of notice
thereof by the Retrocessionaires from the Companies; or

A-23

 

     
(b) if (i) the Board of Directors of ALR Holdings
authorizes ALR Holdings, subject to complying with the terms of
this Agreement, to enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal,
(ii) ALR Holdings notifies the Retrocessionaires in writing
pursuant to Section 5.20(c)(i) that it intends to enter
into such an agreement, and (iii) ALR Holdings, prior to
such termination, pays to the Retrocessionaires the fee required
to be paid pursuant to Section 9.2(iv)(B) of this Agreement.

     
9.1.4     Either the Companies or the
Retrocessionaires may terminate this Agreement at any time prior
to Closing for failure of any condition to Closing, the
satisfaction of which is not within either the Companies’
or the Retrocessionaires’ control, or otherwise is not the
result of any act or omission on the part of any party;
provided, however, that in the event this Agreement is
terminated by either party due to the failure of ALR
Holdings’ shareholders, at a meeting duly held, to approve
the transactions contemplated hereby, the Retrocessionaires
shall be entitled to receive from ALR Holdings the aggregate
amount of all out-of-pocket expenses incurred by
Retrocessionaires and their affiliates in connection with the
transactions contemplated by this Agreement (including but not
limited to the fees and expenses of outside counsel, accountants
and actuaries) not previously reimbursed by the Companies (the
“Unreimbursed Expense Amount”), as set forth in
Section 9.2 of this Agreement.

     
9.1.5     Either the Company or the
Retrocessionaires may terminate this Agreement if Closing
hereunder has not occurred on or prior to January 2, 2006.

     
9.2     Effect of Termination.
If this Agreement is terminated pursuant to Section 9.1
hereof, notice of termination shall be given pursuant to the
notice provisions herein, and the transactions contemplated by
this Agreement shall be terminated without further action by any
party except that (i) the provisions of Sections 5.18,
10.1, 10.6, 10.7 and 10.8 shall remain in full force and effect,
(ii) such termination shall not in any way limit or
restrict the rights and remedies of any party hereto against any
other party which has breached any of the representations,
warranties, covenants, agreements or other provisions of this
Agreement prior to termination hereof, (iii) any
confidentiality obligations of the parties (arising under this
Agreement or under the Confidentiality Agreement) shall survive
such termination, and (iv) (A) in the event that this
Agreement is terminated by the Retrocessionaires pursuant to
Section 9.1.2(b), then ALR Holdings shall promptly, but in
no event later than three (3) Business Days after the
Retrocessionaires have provided notice of termination in
accordance with this Section 9.2, pay to the
Retrocessionaires a single, lump-sum termination fee (the
“Termination Fee”) equal to the sum of
(x) $500,000 plus (y) the Unreimbursed Expense Amount,
(B) in the event that this Agreement is terminated by the
Retrocessionaires pursuant to Section 9.1.4 due to the
failure of ALR Holdings’ shareholders, at a meeting duly
held, to approve the transactions contemplated hereby, then ALR
Holdings shall promptly, but in no event later than three
(3) Business Days after the Retrocessionaires have provided
notice of termination in accordance with this Section 9.2,
pay to the Retrocessionaires the Unreimbursed Expense Amount,
(C) in the event that this Agreement is to be terminated by
ALR Holdings and the Companies pursuant to
Section 9.1.3(b), then ALR Holdings shall promptly, but in
no event later than the time it delivers to the
Retrocessionaires notice of termination in accordance with this
Section 9.2, pay the Termination Fee to the
Retrocessionaires, and (D) in the event that this Agreement
is to be terminated by ALR Holdings and the Companies pursuant
to Section 9.1.4 due to the failure of ALR Holdings’
shareholders, at a meeting duly held, to approve the
transactions contemplated hereby, then ALR Holdings shall
promptly, but in no event later than three (3) Business
Days after it delivers to the Retrocessionaires notice of
termination in accordance with this Section 9.2, pay to the
Retrocessionaires the Unreimbursed Expense Amount. Any payments
pursuant to this Section 9.2 shall be made by wire transfer
of same day funds to an account or accounts designated in
writing by the party entitled to such payment.

ARTICLE X

Miscellaneous Provisions

     
10.1     Notice. Any and all
notices and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have
been duly given when (a) received by the receiving

A-24

 

party if mailed via United States registered or certified mail,
return receipt requested, (b) received by the receiving
party if mailed by United States overnight express mail,
(c) sent by facsimile or telecopy machine, followed by
confirmation mailed by United States first-class mail or
overnight express mail, or (d) delivered in person or by
commercial courier against proof of receipt to the parties at
the following addresses:

     
If to the Retrocessionaires, to:

		
	 	
    Wilton Reinsurance Bermuda Limited
	 	
    Par La Ville Place
	 	
    14 Par la Ville Road
	 	
    P.O. Box HM 3379
	 	
    Hamilton HM PX Bermuda
	 	
    Attention: Chief Executive Officer
	 	
    Fax: (441) 295-6821
	 
	 	
    Wilton Reassurance Company
	 	
    187 Danbury Road
	 	
    Riverview Building, 3rd Floor
	 	
    Wilton, Connecticut 06897
	 	
    Attention: Chief Executive Officer
	 	
    Fax: (203) 762-4445

     
With a concurrent copy to each of:

		
	 	
    Wilton Services, Inc.
	 	
    187 Danbury Road
	 	
    Riverview Building, 3rd Floor
	 	
    Wilton, Connecticut 06897
	 	
    Attention: General Counsel
	 	
    Fax: (203) 762-4445
	 
	 	
    David A. Massey, Esq.
	 	
    Sutherland Asbill & Brennan LLP
	 	
    1275 Pennsylvania Ave., NW
	 	
    Washington, DC 20004-2415
	 	
    Fax: (202) 637-3593

     
If to the Companies, to:

		
	 	
    Annuity and Life Reassurance America, Inc.
	 	
    124 Palasido Avenue
	 	
    Windsor, Connecticut 06095
	 	
    Attention: Chief Executive Officer
	 	
    Fax: (860) 285-0233
	 
	 	
    Annuity and Life Reassurance, Ltd.
	 	
    Cumberland House
	 	
    1 Victoria Street
	 	
    Hamilton, Bermuda HM 11
	 	
    Attention: Chief Executive Officer
	 	
    Fax: (441) 296-7665

     
With a concurrent copy to each of:

		
	 	
    Annuity and Life Re (Holdings), Ltd.
	 	
    Cumberland House
	 	
    1 Victoria Street
	 	
    Hamilton, Bermuda HM 11

A-25

 

		
	 	
    Attention: Chief Executive Officer
	 	
    Fax: (441) 296-7665
	 
	 	
    Robert C. Juelke, Esq.
	 	
    Drinker, Biddle & Reath LLP
	 	
    One Logan Square
	 	
    18th and Cherry Streets
	 	
    Philadelphia, PA 19103-6996
	 	
    Fax: (215) 988-2757

     
Any party may change the names or addresses where notice is to
be given by providing notice to the other party of such change
in accordance with this Section 10.1.

     
10.2     Entire Agreement. This
Agreement, including the Exhibits and Schedules hereto, the
Coinsurance Agreements, and the other agreements entered into or
to be entered into in connection herewith constitute the sole
and entire agreement between the parties hereto with respect to
the subject matter hereof, and supersedes all prior discussions
and agreements between the parties with respect to the subject
matter hereof, which are merged with and into this Agreement.

     
10.3     Assignment. This
Agreement shall not be assigned by either of the parties hereto
without the prior written consent of the other party.

     
10.4     Waivers and Amendments.
Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof. Such
waiver must be in writing and must be executed by an executive
officer of such party. A waiver on one occasion will not be
deemed to be a waiver of the same or any other term or condition
on a future occasion. This Agreement may be modified or amended
only by a writing duly executed by an executive officer of each
of the Companies and each of the Retrocessionaires.

     
10.5     No Third Party
Beneficiaries. Except as provided in Article VIII, the
terms and provisions of this Agreement are intended solely for
the benefit of the Companies and the Retrocessionaires and their
permitted successors and assigns, and it is not the intention of
the parties to confer rights as a third-party beneficiary to
this Agreement upon any other person.

     
10.6     Public Announcements.
At all times at or before the Closing, the Companies, on the one
hand, and the Retrocessionaires, on the other hand, will consult
with the other before issuing or making any reports, statements
or releases to the public with respect to this Agreement or the
transactions contemplated hereby and will use good faith efforts
to obtain the other party’s approval of the form, content
and timing of any public report, statement or release to be made
solely on behalf of a party. If the Companies and the
Retrocessionaires are unable to agree upon or approve the form,
content and timing of any such public report, statement or
release and such report, statement or release is, in the opinion
of legal counsel to the party wishing to make such report,
statement or release, required by law or by legal disclosure
obligations, then such party may make or issue the legally
required report, statement or release.

     
10.7     Confidentiality. Each
of the Companies, on the one hand, and the Retrocessionaires, on
the other hand, will hold, and will cause its respective
Representatives to hold, in strict confidence, unless compelled
to disclose by judicial or administrative process (including,
without limitation, in connection with obtaining any Required
Closing Date Approval) or by other requirements of law, all
confidential documents and confidential information concerning
the other party furnished to it by the other party or such other
party’s Representatives in connection with this Agreement
or the transactions contemplated hereby (“Confidential
Information”), except to the extent that such documents or
information can be shown to have been (a) previously
lawfully known by the party receiving such documents or
information, (b) in the public domain through no fault of
the receiving party, or (c) later acquired by the receiving
party from other sources not themselves bound by, and in breach
of, a confidentiality agreement. Neither the Companies, on the
one hand, nor the Retrocessionaires, on the other hand, will
disclose or otherwise provide any such Confidential Information
to any other person, except to that party’s respective
auditors, actuaries, attorneys, financial advisors and other
consultants who need access to such Confidential Information in
connection with this Agreement and the transactions contemplated
hereby. If this Agreement is terminated pursuant to
Article IX, each of the parties will return to

A-26

 

the other party all Confidential Information furnished to that
party by the other party, and retrieve and destroy all copies of
such Confidential Information distributed to any other person,
provided that the Retrocessionaires shall be entitled to
maintain one copy solely for archival purposes.

     
10.8     Governing Law and
Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York
applicable to contracts entered into therein, without reference
to principles of choice of law or conflicts of laws of that or
any other jurisdiction. Each party hereto irrevocably and
unconditionally submits to the exclusive jurisdiction of any
State or Federal Court sitting in New York, over any suit,
action or proceeding arising out of or relating to this
Agreement. Each party hereto agrees that service of any process,
summons, notice or document by U.S. registered mail
addressed to such party shall be effective service of process
for any action, suit or proceeding brought against such party in
such court. Each party hereto irrevocably and unconditionally
waives any objection to the laying of venue of any such suit,
action or proceeding brought in any such court and any claim
that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. Each party
hereto agrees that final judgment in any such action, suit or
proceeding brought in any such court shall be conclusive and
binding upon such party and may be enforced in any other courts
to whose jurisdiction such party may be subject, by suit upon
such judgment.

     
10.9     Arbitration.
(a) Except as provided in Section 5.2(c) of this
Agreement, after the Closing Date, any dispute between the
parties relating in any way to this Agreement, the Novation
Amendments, the Existing Retrocession Agreement Assignments, the
Ancillary Agreement Assignments or the transactions contemplated
hereby and thereby (including without limitation any dispute
relating to the formation of a contract) shall be decided
through negotiation and, if necessary, arbitration as set forth
in Schedule 10.9 hereto.

     
(b) The parties intend this Section 10.9 to be
enforceable in accordance with the United States Federal
Arbitration Act (9 U.S.C., Section 1) including any
amendments to that Act which are subsequently adopted. In the
event that either party refuses to submit to arbitration as
required by Section 10.9(a), the other party may request
the court specified in Section 10.8 to compel arbitration
in accordance with the Federal Arbitration Act.

     
10.10     Counterparts. This
Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof each signed by less than
all, but together signed by all of the parties hereto. Each
counterpart may be delivered by facsimile transmission, which
transmission shall be deemed delivery of an originally executed
document.

     
10.11     Headings. The headings
in this Agreement have been inserted for convenience and do not
constitute matter to be construed or interpreted in connection
with this Agreement.

     
10.12     Severability. If any
provision of this Agreement other than any provision of
Article II, Article III or Article VIII is held
to be illegal, invalid or unenforceable under any present or
future law or is determined by a court of competent jurisdiction
to be unenforceable, and if the rights or obligations of the
Companies or the Retrocessionaires under this Agreement will not
be materially and adversely affected thereby, such provision
shall be fully severable, and this Agreement will be construed
and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of this Agreement, and the
remaining provisions of this Agreement shall remain in full
force and effect and will not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom.

[Signature pages follow]

A-27

 

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

		
	 	
    PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA
	 
	 	
    /s/ Perry H. Braun
	 	
     

	 	
    By:   Perry H. Braun

			
	 	Title: 	
    Senior Vice President

		
	 	
    WILTON REINSURANCE BERMUDA LIMITED
	 
	 	
    /s/ Michael N. Smith
	 	
     

	 	
    By:   Michael N. Smith

			
	 	Title: 	
    Chief Executive Officer

		
	 	
    ANNUITY AND LIFE REASSURANCE AMERICA, INC.
	 
	 	
    /s/ John W. Lockwood
	 	
     

	 	
    By:   John W. Lockwood

			
	 	Title: 	
    Chief Financial Officer

		
	 	
    ANNUITY AND LIFE REASSURANCE, LTD.
	 
	 	
    /s/ John F. Burke
	 	
     

	 	
    By:   John F. Burke

			
	 	Title: 	
    Chief Executive Officer

     
Annuity and Life Re (Holdings), Ltd. hereby executes this
Agreement solely for the purposes of Sections 5.20, 8.7(b)
and 9.2 hereof.

		
	 	
    ANNUITY AND LIFE RE (HOLDINGS), LTD.
	 
	 	
    /s/ John F. Burke
	 	
     

	 	
    By:   John F. Burke

			
	 	Title: 	
    Chief Executive Officer

A-28

 

EXHIBIT A-1

[To be used if counterparty will novate]

FORM OF ANCILLARY AGREEMENT NOVATION AGREEMENT

     
THIS NOVATION AGREEMENT (this
“Agreement”), is made and entered into as of
[                    ]
by and among ANNUITY AND LIFE REASSURANCE AMERICA, INC.,
a Connecticut insurance company (“Transferor”),
PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*, a
Minnesota insurance company (“Transferee”), and
the counterparties identified on the signature page hereto
(collectively, the “Counterparties” and each a
“Counterparty”).

RECITALS

     
WHEREAS, pursuant to the Master Agreement (the
“Master Agreement”), dated as of
[                    ],
2005, by and between Transferor, Annuity and Life Reassurance,
Ltd., a Bermuda insurance company (“ALR Bermuda”
and, together with Transferor, the “ALR
Companies”), Transferee, and Wilton Re Bermuda Limited,
a Bermuda insurance company (“Wilton Bermuda”
and together with Transferee the “Wilton
Companies”), the ALR Companies have agreed to reinsure
the Treaties (as defined in the Master Agreement) with, and/or
novate the Treaties to, the relevant Wilton Companies;

     
WHEREAS, there are certain agreements ancillary to the
Treaties, including the
[                    ]
agreement between Transferor and the Counterparties, a true and
correct copy of which, together with all amendments thereto, is
attached as Exhibit A hereto (the “Ancillary
Agreement”);

     
WHEREAS, Transferor desires to novate to the Transferee,
and Transferee desires to assume from Transferor, the Ancillary
Agreement in accordance with the terms hereof and to substitute
Transferee for Transferor for all purposes as a party to the
Ancillary Agreement with respect to all rights and obligations
of Transferor under such agreement; and

     
WHEREAS, each Counterparty is willing to agree to such
novation of the Ancillary Agreement;

     
NOW THEREFORE, in consideration of the foregoing
recitals, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree
as follows:

     
Section 1.01     Novation.
(a) Effective as of 11:59 p.m. Eastern time on
[                    ]
(the “Effective Time”), Transferee agrees with
Transferor to perform the Ancillary Agreement, to be bound by
all of the terms and conditions of the Ancillary Agreement, and
to perform all of Transferor’s duties, obligations and
liabilities under the Ancillary Agreement to the same extent as
if Transferee were an original party to the Ancillary Agreement
instead of Transferor, provided that Transferee shall enjoy all
of Transferor’s rights under the Ancillary Agreement.

     
(b) Effective at the Effective Time, each Counterparty
accepts the liability of Transferee under the Ancillary
Agreement in lieu of the liability of Transferor, agrees to
Transferee being bound by all of the terms and conditions of the
Ancillary Agreement, and to Transferee performing all of
Transferor’s duties, obligations and liabilities under the
Ancillary Agreement to the same extent as if Transferee were a
party to the Ancillary Agreement instead of Transferor, and
agrees that Transferee shall enjoy all of Transferor’s
rights under the Ancillary Agreement.

     
(c) Effective at the Effective Time, each Counterparty
releases and forever discharges Transferor from any liability
under the Ancillary Agreement, from performing the Ancillary
Agreement and any of its terms and conditions, from all of
Transferor’s duties, obligations and liabilities under the
Ancillary Agreement, and from all claims, demands actions and
causes of actions which such Counterparty ever had, now has or
may

 

     
* To be renamed Wilton Reassurance Company. Not affiliated
with The Prudential Insurance Company of America.

A-29

 

hereafter have against Transferor in any way arising out of,
resulting from or related to the Ancillary Agreement.

     
Section 1.02     Continued
Effectiveness. Transferee and each Counterparty hereby
ratify and confirm that the Ancillary Agreement shall continue
among them in full force and effect and the terms and conditions
of this Agreement shall form part of the Ancillary Agreement.

     
Section 1.03     Transferred
Rights, Duties and Obligations. All rights, duties,
obligations and liabilities transferred to Transferee pursuant
to this Agreement shall apply whether the right, duty,
obligation or liability arose prior to or after the Effective
Time.

A-30

 

     
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement this
           day
of
[                    ],
2005.

		
	 	
    PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA

		
	 	
     

	 	
    By:
	 	
    Title:
	 
	 	
    ANNUITY AND LIFE REASSURANCE AMERICA, INC.

		
	 	
     

	 	
    By:
	 	
    Title:
	 
	 	
    COUNTERPARTIES:
	 
	 	
    [COUNTERPARTY]

		
	 	
     

	 	
    By:
	 	
    Title:
	 
	 	
    [COUNTERPARTY]

		
	 	
     

	 	
    By:
	 	
    Title:

A-31

 

EXHIBIT A-2

[To be used if counterparty will not novate]

FORM OF ANCILLARY AGREEMENT ASSIGNMENT AGREEMENT

     
THIS ASSIGNMENT AGREEMENT (this
“Agreement”), is made and entered into as of
[                    ]
by and among ANNUITY AND LIFE REASSURANCE AMERICA, INC.,
a Connecticut insurance company (“Transferor”)
and PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*,
a Minnesota insurance company (“Transferee”).

RECITALS

     
WHEREAS, pursuant to the Master Agreement (the
“Master Agreement”), dated as of
[                    ],
2005, by and between Transferor, Annuity and Life Reassurance,
Ltd., a Bermuda insurance company (“ALR Bermuda”
and, together with Transferor, the “ALR
Companies”), Transferee, and Wilton Re Bermuda
Limited, a Bermuda insurance company (“Wilton
Bermuda” and together with Transferee the
“Wilton Companies”), the ALR Companies have
agreed to reinsure the Treaties (as defined in the Master
Agreement) with, and/or novate the Treaties to, the relevant
Wilton Companies;

     
WHEREAS, there are certain agreements ancillary to the
Treaties, including the
[                    ]
agreement between Transferor and the counterparties identified
on the signature page hereto (collectively, the
“Counterparties” and each a
“Counterparty”), a true and correct copy of
which, together with all amendments thereto, is attached as
Exhibit A hereto (the “Ancillary
Agreement”);

     
WHEREAS, Transferor desires to assign to the Transferee,
and Transferee desires to assume from Transferor, the Ancillary
Agreement in accordance with the terms hereof; and

     
WHEREAS, the Transferor and Transferee desire that each
Counterparty consent, and each Counterparty is willing to
consent, to such assignment and assumption of the Ancillary
Agreement;

     
NOW THEREFORE, in consideration of the foregoing
recitals, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree
as follows:

     
Section 1.01     Assignment
and Assumption. Transferor hereby assigns to Transferee, and
its successors and permitted assigns, as of the
11:59 Eastern time on
[                    ]
(the “Effective Time”), its respective rights,
interests, liabilities and obligations in the Ancillary
Agreement, and Transferee hereby accepts such transfer and
assignment and assumes, and releases and discharges Transferor
and its affiliates, and their respective successors and assigns,
from, and agrees to pay, perform, discharge and be bound by all
the terms, covenants, conditions and obligations in and under,
the Ancillary Agreement.

     
Section 1.02     Transferred
Rights, Duties and Obligations. All rights, duties,
obligations and liabilities transferred to Transferee pursuant
to this Agreement shall apply whether the right, duty,
obligation or liability arose prior to or after the Effective
Time.

 

     
* To be renamed Wilton Reassurance Company. Not affiliated
with The Prudential Insurance Company of America.

A-32

 

     
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement this
           day
of
[                    ],
2005.

		
	 	
    PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA

		
	 	
     

	 	
    By:
	 	
    Title:
	 
	 	
    ANNUITY AND LIFE REASSURANCE AMERICA, INC.

		
	 	
     

	 	
    By:
	 	
    Title:

CONSENT:

     
The undersigned counterparties hereby consent to the foregoing
assignment by the Transferor to the Transferee; provided, that
such assignment shall not relieve the Transferor of any
obligation or liability under the Ancillary Agreement.

		
	 	
    [COUNTERPARTY]

		
	 	
     

	 	
    By:
	 	
    Title:
	 
	 	
    [COUNTERPARTY]

		
	 	
     

	 	
    By:
	 	
    Title:

A-33

 

EXHIBIT B

COINSURANCE AGREEMENT

Between

ANNUITY AND LIFE REASSURANCE AMERICA, INC.,

(referred to as the Company)

and

PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*,

(referred to as the Retrocessionaire)

Dated
[                    ],
2005

Effective June 30, 2005

 

     
* To be renamed Wilton Reassurance Company. Not affiliated
with The Prudential Insurance Company of America.

A-34

 

COINSURANCE AGREEMENT

     
THIS COINSURANCE AGREEMENT (the “Agreement”),
is made and entered into this
[     ] day of
[                    ],
2005, by and between ANNUITY AND LIFE REASSURANCE AMERICA,
INC., a Connecticut insurance company (the
“Company”) and PRUDENTIAL SELECT LIFE INSURANCE
COMPANY OF AMERICA, a Minnesota insurance company
(“Retrocessionaire”).

     
WHEREAS, the Company, Annuity and Life Reassurance, Ltd.,
a Bermuda insurance company (“ALR Bermuda”),
Retrocessionaire and Wilton Reinsurance Bermuda Limited, a
Bermuda insurance company (“Wilton Bermuda,”) have
entered into that certain Master Agreement, dated
August [     ], 2005 (the
“Master Agreement”) and attached as Exhibit A
hereto, pursuant to which the Company and ALR Bermuda have
agreed to retrocede, and Retrocessionaire and Wilton Bermuda
have agreed to reinsure, certain reinsurance treaties;

     
WHEREAS, as contemplated by the Master Agreement, the
Company wishes to retrocede to the Retrocessionaire, and the
Retrocessionaire wishes to indemnity reinsure, on a one-hundred
percent (100%) coinsurance basis, such reinsurance
treaties; and

     
WHEREAS, following the Transition Date, the Company
desires that the Retrocessionaire perform, and the
Retrocessionaire wishes to perform, administrative functions on
behalf of the Company with respect to the Covered Treaties as
well as certain agreements related thereto.

     
NOW, THEREFORE, in consideration of the mutual and
several promises and undertakings herein contained, and for
other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Company and the
Retrocessionaire agree as follows:

ARTICLE I

Basis of Coinsurance and Business Coinsured

     
1.01     Coinsurance.

     
(a) Subject to the terms and conditions of this Agreement,
the Company hereby retrocedes on a coinsurance basis to the
Retrocessionaire as of the Effective Time, and the
Retrocessionaire hereby accepts and agrees to assume and
indemnity reinsure on a coinsurance basis as of the Effective
Time, one hundred percent (100%) of the Reinsured Liabilities.
This is an Agreement for indemnity reinsurance solely between
the Company and the Retrocessionaire and shall not create any
legal relationship whatsoever between the Retrocessionaire and
any Person other than the Company. The reinsurance effected
under this Agreement shall be maintained in force, without
reduction, unless such reinsurance is terminated or reduced as
provided herein.

     
(b) On and after the Effective Time, the Retrocessionaire
will have the responsibility for immediately paying on behalf of
the Company, as and when due, all Reinsured Liabilities arising
under or attributable to the Covered Treaties.

     
1.02     Reinsurance Coverage.
In no event shall the reinsurance provided hereunder with
respect to a particular Covered Treaty be in force and binding
at any time unless such Covered Treaty was in force and binding
as of the Effective Time and is not a Novated Treaty at such
time.

     
1.03     Reserves. On and after
the Effective Time, the Retrocessionaire shall establish and
maintain as a liability on its statutory financial statements
reserves for the Covered Treaties retroceded hereunder,
calculated in accordance with SAP.

A-35

 

ARTICLE II

Accountings and Transfer of Assets

     
2.01     Reinsurance Premiums.
(a) In connection with the Closing under the Master
Agreement, in order to effect the reinsurance on the Covered
Treaties at the Effective Time, the Company has paid to the
Retrocessionaire an initial reinsurance premium equal to [insert
allocable portion of Master Agreement consideration].

     
(b) The Retrocessionaire shall be entitled to receive, as
additional reinsurance premium, immediate payment of an amount
equal to (i) Premiums received on and after the Effective
Time attributable to the Covered Treaties less
(ii) Premiums paid by the Company to Third-Party
Retrocessionaires under any Existing Retrocession Agreements.

     
(c) To the extent that the Company recovers amounts from
any third party relating to the Covered Treaties (including,
without limitation, Premiums from any Ceding Company and
litigation recoveries, but excluding recoveries under Existing
Retrocession Agreements that have not been assigned or novated
to Retrocessionaire), immediately upon receipt of any such
amounts the Company shall transfer such amounts to the
Retrocessionaire and provide the Retrocessionaire with any
pertinent information that the Company may have relating thereto.

     
(d) Notwithstanding anything to the contrary set forth in
Section 2.01(b) and (c) of this Agreement, any amounts
paid, received or due by the Company thereunder prior to the
Transition Date shall be accounted for and paid pursuant to
Section 5.3(b) and (c) of the Master Agreement.

     
2.02     Delayed Payments. If
there is a delayed settlement of any payment due hereunder,
interest will accrue on such payment on a daily compounded basis
at an annual rate equal to the Treasury Rate. For purposes of
this Section 2.02, a payment will be considered overdue,
and such interest will begin to accrue, on the first day
immediately following the date such payment is due. For greater
clarity, (i) a payment shall be deemed to be due hereunder
on the last date on which such payment may be timely made under
the applicable provision, and (ii) interest will not accrue
on any payment due the Retrocessionaire hereunder unless the
delayed settlement thereof was caused by the Company.

     
2.03     Failure to Pay Reinsurance
Premiums. The payment of reinsurance premiums is a condition
precedent to the continuing liability of the Retrocessionaire
under this Agreement, unless such failure is a result of any
action or inaction of the Retrocessionaire or any of its
Representatives during the time it is administering the Covered
Treaties pursuant to Article III of this Agreement. If
reinsurance premiums with respect to this Agreement are not paid
when due, the Retrocessionaire shall have the right to provide
the Company 45 days’ prior written notice (the
“Initial Notice”) of its intent to terminate because
of the Company’s failure to pay reinsurance premiums. If
such reinsurance premiums have not been paid within 45 days
of the delivery of the Initial Notice, the Retrocessionaire
shall provide to the Company a second notice (the “Second
Notice”) of its intent to terminate because of the
Company’s failure to pay such premiums. The reinsurance
hereunder of all Covered Treaties shall terminate as of the last
date upon which premiums with respect to such Covered Treaties
were paid.

ARTICLE III

Administration

     
3.01.     Engagement. Commencing
on the Transition Date and during the entire term of this
Agreement, the Company hereby exclusively engages the
Retrocessionaire to render on behalf of the Company all
administrative and management services necessary and desirable
to fully administer and manage the Covered Treaties, the
Ancillary Agreements and the Existing Retrocession Agreements
(collectively, the “Administrative Services”). The
Retrocessionaire hereby accepts such engagement and agrees to
perform the Administrative Services in accordance with the terms
and conditions of this Agreement. The Administrative Services
shall include, but not be limited to, the following:
(i) collecting Premiums and other amounts due under the

A-36

 

Covered Treaties, provided that the Company shall cooperate with
the Retrocessionaire with respect to any dispute or litigation
with respect thereto by making available any information in the
possession of the Company necessary to respond to any such
dispute or litigation on a timely basis; (ii) receiving,
processing, investigating, evaluating and paying claims filed or
made by Ceding Companies; (iii) defending any action
brought upon a Covered Treaty (other than in respect of an
Excluded Liability), Existing Retrocession Agreement or
Ancillary Agreement or in connection with Reinsured Liabilities;
(iv) providing usual and customary services for Ceding
Companies to the extent required under the terms of the Covered
Treaties, Existing Retrocession Agreements, and Ancillary
Agreements; (v) paying amounts due to agents, brokers,
reinsurance intermediaries, and other Persons, as applicable,
under the terms of any of the Covered Treaties, Existing
Retrocession Agreements, and Ancillary Agreements;
(vi) preparing and providing to the Company all accounting
and actuarial information related to the Covered Treaties,
Existing Retrocession Agreements, and Ancillary Agreements that
are necessary in order for the Company to timely meet statutory
or tax accounting requirements for periods commencing on or
after the Transition Date; (vii) maintaining appropriate
books and records of all transactions related to the each of the
Covered Treaties, Existing Retrocession Agreements, and
Ancillary Agreements, including, without limitation, those books
and records required by and in accordance with the Industry
Standards; (viii) fully administering Existing Retrocession
Agreements, including, without limitation, paying all
reinsurance premiums and collecting all reinsurance recoverables
due from or to the Company thereunder; (ix) commencing any
actions necessary to collect amounts due under the Existing
Retrocession Agreements and Ancillary Agreements; (x) fully
administering Ancillary Agreements, including, without
limitation, paying all amounts due by the Company thereunder and
collecting all amounts due the Company thereunder; and
(xi) providing any such additional services incident to the
foregoing, including, without limitation, those services as may
be necessary or appropriate to fully and properly administer the
Covered Treaties, Existing Retrocession Agreements, and
Ancillary Agreements in accordance with Industry Standards. The
Retrocessionaire shall provide the Administrative Services and
perform its other obligations under this Article III at its
sole cost and expense and in accordance with Industry Standards.
It is acknowledged and agreed that payment of any amount under
or with respect to any Covered Treaty pursuant to this
Section 3.01 (including without limitation the payment of
any Reinsured Liabilities) will constitute full and equivalent
performance by Retrocessionaire of its obligations with respect
to such amount under Section 1.01.

     
3.02.     Facilities. The
Retrocessionaire will furnish the facilities, including, without
limitation, physical facilities, trained personnel, and data
processing hardware and software, necessary or desirable to
provide the Administrative Services.

     
3.03.     Safeguarding Data. The
Retrocessionaire will provide the storage facilities for its
copies of books and records relating to the Covered Treaties,
Existing Retrocession Agreements, and Ancillary Agreements
necessary or desirable and as required by Applicable Law. The
Retrocessionaire shall be responsible for ensuring that the
quality and security of the storage facilities is in accordance
with Industry Standards. The Retrocessionaire shall establish
reasonable safeguards to protect such books and records,
including, without limitation, the data and data files of the
Company and each Ceding Company, as the case may be, against
unauthorized distribution, loss or alteration. Without limiting
the generality of the foregoing, the Retrocessionaire shall
provide for data recovery procedures and systems, including
daily back-up of records, which shall be stored at an off-site
location reasonably acceptable to the Company. Upon reasonable
notice, the Company shall have the right to review and inspect
such books, records and procedures relating thereto.

     
3.04.     Bank Account. The
Retrocessionaire shall establish and maintain a bank account
(the “Collections Account”) in the name of Company for
the collection of and payment of all amounts due in connection
with each Covered Treaty, Existing Retrocession Agreement and
Ancillary Agreement. To the extent reasonably requested by the
Retrocessionaire, the Company shall do all things reasonably
necessary to enable the Retrocessionaire to open and maintain
the Collections Account, including without limitation executing
and delivering such board resolutions and other documents as may
be requested by the relevant bank. The Company shall direct that
all amounts due to the Company under the terms of any Covered
Treaty, Existing Retrocession Agreement and Ancillary Agreement
be deposited directly into the Collections Account. The
Retrocessionaire shall have the right to draw on the Collections
Account for the purpose of performing its

A-37

 

obligations under this Agreement. Schedule 3.04 sets
forth a list of, and copies of incumbency certificates for, the
Retrocessionaire employees empowered to take any action with
respect to the Collection Account. The Retrocessionaire will
notify the Company of the termination or replacement of any
person listed on Schedule 3.04 promptly, but in no event
later than two business days after such termination or
replacement. The Company shall not, without the
Retrocessionaire’s prior written consent, make any changes
to the authorized signatories on the Collections Account or
attempt to withdraw any funds therefrom. As between the
Retrocessionaire and the Company, the Retrocessionaire shall own
all funds deposited in the Collections Account, shall be
entitled to all interest thereon, and shall pay or reimburse the
Company for all taxes on such interest.

     
3.05.     Books and Records. The
Retrocessionaire shall maintain at its principal administrative
office for the duration of this Agreement and six (6) years
thereafter or such longer period required by Applicable Law
books and records (a) of all transactions between it, the
Company and the Ceding Companies, or (b) relating to or
arising from any of the Covered Treaties, Existing Retrocession
Agreements and Ancillary Agreements. Such books and records
shall be maintained in accordance with Industry Standards. The
commissioner of insurance or appropriate governmental officer of
any state or local authority with jurisdiction over the Company
shall have access to such books and records as required by
Applicable Law. The Retrocessionaire shall give the Company
sixty (60) days’ advance written notice of the
proposed disposal or destruction of such books and records by or
on behalf of the Retrocessionaire and shall make available for
removal and storage by the relevant Ceding Company, Third-Party
Retrocessionaire, and/or the Company such books and records
during that sixty-day period. The storage and
disposal/destruction of any books and records so obtained by the
Company shall thereafter be the sole responsibility of the
Company.

     
3.06.     Right to Inspect and
Audit. The Company and its Representatives shall have the
right to inspect and audit the Retrocessionaire during the
Retrocessionaire’s normal business hours with
five(5) business days’ advance notice or upon other
reasonable notice to evaluate the internal controls and
compliance with this Agreement with regard to the books and
records maintained by the Retrocessionaire pursuant to or in
connection with this Agreement, including, without limitation,
records relating to the Collections Account, and all such books
and records shall be made available to the Company and its
Representatives for review, audit, inspection, and
reproduction.. The Company shall be fully responsible for the
costs of such reviews, audits, inspections and reproductions

     
3.07     Regulatory Reporting;
Monthly Reports.

     
(a) The Retrocessionaire shall provide to the Company all
information with respect to the Covered Treaties, Existing
Retrocession Agreements and Ancillary Agreements required by the
Company to satisfy all current and future informational
reporting and any other requirements imposed upon it by any
governmental entity. Upon the reasonable request of the Company,
the Retrocessionaire shall timely provide all information
necessary to prepare such reports and summaries as may be
necessary to satisfy any requirements imposed by a governmental
entity upon the Company with respect to Covered Treaties,
Existing Retrocession Agreements and Ancillary Agreements, and
promptly provide to the Company copies of all existing records
relating to the Covered Treaties, Existing Retrocession
Agreements and Ancillary Agreements (including, with respect to
records maintained in machine readable form, hard copies)
necessary to satisfy such requirements.

     
(b) Within a time period mutually agreeable to the Company
and the Retrocessionaire, but in no event more than 30 days
following the end of each calendar month after the Transition
Date, the Retrocessionaire will provide to the Company the
information needed by the Company for reporting the Covered
Treaties, Existing Retrocession Agreements and Ancillary
Agreements on statutory or GAAP financial statements, tax
returns, or other financial reports required to be filed by the
Company. The form of the report (the “Retrocessionaire
Monthly Report”) and the information to be provided is set
forth on Schedule 3.07 attached hereto. If net cash
is due to the Company, the amount due will accompany the
Retrocessionaire Monthly Report. If net cash is due to the
Retrocessionaire, the Company will pay such amount to the
Retrocessionaire promptly upon its receipt of the
Retrocessionaire Monthly Report.

     
3.08     Insurance. The
Retrocessionaire shall maintain (a) commercial general
liability and/or office premises liability insurance, including
premises liability and contractual liability, for claims of
bodily injury,

A-38

 

personal injury and property damage with a business personal
property limit of not less than $1,000,000, and an office
premises liability of not less than $1,000,000 per
occurrence, $2,000,000 general aggregate, $1,000,000 for fire
damage, any one fire, and $10,000 for medical expense, any one
person; and (b) while any of the Retrocessionaire’s
employees are based on the premises of the Company, workers
compensation insurance in compliance with statutory requirements.

ARTICLE IV

Regulatory Matters

     
4.01     Regulatory Matters. If
the Company or the Retrocessionaire receives notice of, or
otherwise becomes aware of, any regulatory inquiry,
investigation or proceeding relating to the Covered Treaties,
the Company or the Retrocessionaire, as applicable, shall
promptly notify the other party thereof, whereupon the parties
shall cooperate in good faith and use their respective
commercially reasonable efforts to resolve such matter in a
mutually satisfactory manner, in light of all the relevant
business, regulatory and legal facts and circumstances.

     
4.02     Licenses. At all times
during the term of this Agreement, the Retrocessionaire shall
hold and maintain all licenses, certificates of authority and
authorizations required under Applicable Law or otherwise take
all action that may be necessary or desirable (i) for the
Company to obtain full financial credit for the Covered Treaties
in the jurisdiction in which it is domiciled as of the Effective
Date, and (ii) to perform its obligations hereunder.

     
4.03     Notice of Litigation.
On and after the date of this Agreement, the Company and the
Retrocessionaire shall promptly notify the other upon receipt of
any demand letter, summons, complaint, petition or notice of
litigation, arbitration, or other dispute resolution proceedings
from any Person, and any complaint, notice, inquiry or other
correspondence from any insurance regulatory authority relating
to this Agreement, any Covered Treaty, Existing Retrocession
Agreement, or Ancillary Agreement, or the subject matter hereof
or thereof.

ARTICLE V

Certain Covenants

     
5.01     Cooperation. Each party
hereto shall cooperate fully with the other in all reasonable
respects in order to accomplish the objectives of this
Agreement, including, without limitation, the conveyance of the
benefits of the Covered Treaties, Ancillary Agreements and the
Existing Retrocession Agreements, each in accordance with the
terms of such agreements. In the event and to the extent that
the parties are unable to obtain any required consents,
approvals or agreements of any such Person as may be required to
convey such benefits (i) the Company shall use commercially
reasonable efforts in cooperation with the Retrocessionaire to
(A) provide or cause to be provided to the Retrocessionaire
the benefits of each of the Covered Treaties, Ancillary
Agreements and the Existing Retrocession Agreements, and
(B) enforce for the account of the Retrocessionaire any
rights of the Company arising from any such agreement, and
(ii) the Retrocessionaire shall use commercially reasonable
efforts to perform the obligations of the Company arising under
all such agreements. If and when any such consent, approval or
agreement shall be obtained, the Company shall promptly assign
all of its rights and obligations thereunder to the
Retrocessionaire without the payment of further consideration
and the Retrocessionaire shall, without the payment of any
further consideration therefor, assume such rights and
obligations and the Company shall be relieved of any and all
obligation or liability hereunder.

     
5.02     Further Assurances.
Each of the parties hereto shall execute such documents and
other papers and perform such further acts as may be reasonably
required to carry out the provisions hereof and the transactions
contemplated hereby. Without limiting the generality of the
foregoing, (i) the Company shall grant to the
Retrocessionaire a power of attorney to authorize the
Retrocessionaire, to the greatest extent possible, to act on
behalf of the Company in administering the Covered Treaties, the
Existing Retrocession

A-39

 

Agreements, and the Ancillary Agreements, and (ii) the
parties shall cooperate with each other by furnishing any
additional information and executing and delivering any
additional documents as may be reasonably requested by the other
to further perfect or evidence the consummation of, or otherwise
implement, any transaction contemplated by this Agreement, or to
aid in the preparation of any regulatory filing, financial
statement or Tax return; provided, however, that any such
additional documents must be reasonably satisfactory to each of
the parties and not impose upon either party any material
liability, risk, obligation, loss, cost or expense not
contemplated by this Agreement.

     
5.03     Oversights. Inadvertent
delays, errors or omissions made in connection with this
Agreement or any transaction hereunder shall not relieve either
party from any liability which would have attached had such
delay, error or omission not occurred, provided always that such
error or omission is rectified as soon as possible after
discovery, and provided that the party making such error or
omission or responsible for such delay shall be responsible for
any additional liability which attaches as a result.

     
5.04     No Amendments or
Waivers. Following the execution of this Agreement, the
Company shall not terminate, modify, amend or waive compliance
with any provision of any of the Covered Treaties, Ancillary
Agreements or Existing Retrocession Agreements and shall fully
comply with all of the terms and provisions of such agreements.

ARTICLE VI

Dac Tax

     
6.01     Election.

     
(a) All uncapitalized terms used herein shall have the
meanings set forth in the regulations under Section 848 of
the Code.

     
(b) Each of the Company and the Retrocessionaire
acknowledges that it is subject to taxation under Subchapter L
of the Code and hereby makes the election contemplated by
Section 1.848-2(g)(8) of the Treasury Regulations with
respect to this Agreement. Each of the Company and the
Retrocessionaire (i) agrees that such election is effective
for the taxable year of each party that includes the Effective
Date and for all subsequent years during which this Agreement
remains in effect and (ii) warrants that it will take no
action to revoke the election.

     
(c) Pursuant to Section 1.848-2(g)(8) of the Treasury
Regulations, each of the Company and the Retrocessionaire hereby
agrees (i) to attach a schedule to its federal income tax
return for its first taxable year ending on or after the
Effective Date that identifies this Agreement as a reinsurance
agreement for which the joint election under
Section 1.848-2(g)(8) has been made, (ii) that the
party with net positive consideration for this Agreement for
each taxable year will capitalize its specified policy
acquisition expenses with respect to this Agreement without
regard to the general deductions limitation of
Section 848(c)(1) of the Code, and (iii) to exchange
information pertaining to the amount of net consideration under
this Agreement each year to ensure consistency or as otherwise
required by the Internal Revenue Service. The Retrocessionaire
shall prepare and execute duplicate copies of the schedule
described in the preceding sentence as soon as possible after
the Effective Date and submit them to the Company for execution.
The Company shall execute the copies and return one of them to
the Retrocessionaire within thirty (30) days of the receipt of
such copies.

     
(d) The Retrocessionaire shall submit a schedule to the
Company by May 1 of each year of its calculation of the net
consideration under this Agreement for the preceding taxable
year. This schedule of calculations shall be accompanied by a
statement signed by an authorized representative of the
Retrocessionaire stating that the Retrocessionaire will report
such net consideration in its federal income tax return for the
preceding taxable year.

     
(e) The Company may contest such calculation by providing
an alternative calculation to the Retrocessionaire in writing
within thirty (30) days after the date on which the Company
receives the Retrocessionaire’s calculation. If the Company
does not so notify the Retrocessionaire, the Company will report
the net

A-40

 

consideration under this Agreement as determined by the
Retrocessionaire in the Company’s federal income tax return
for the preceding taxable year.

     
(f) If Company contests the Retrocessionaire’s
calculation of the net consideration under this Agreement, the
parties shall act in good faith to reach an agreement as to the
correct amount of net consideration within thirty (30) days
after the date on which the Company submits its alternative
calculation. If Retrocessionaire and the Company reach agreement
as to the amount of net consideration under this Agreement, each
party shall report such amount in its federal income tax return
for the preceding taxable year.

     
If, during such period, Retrocessionaire and the Company are
unable to reach agreement, they shall promptly thereafter cause
PricewaterhouseCoopers LLP (or another mutually-agreed
nationally-recognized firm of certified public accountants)
promptly to review (which review shall commence no later than
five (5) days after the selection of such independent
accountants) this Agreement and the calculations of
Retrocessionaire and the Company for the purpose of calculating
the net consideration under this Agreement. In making such
calculation, such independent accountants shall consider only
those items or amounts in the Company’s calculation as to
which the Retrocessionaire has disagreed.

     
Such independent accountants shall deliver to Retrocessionaire
and the Company, as promptly as practicable (but no later than
thirty (30) days after the commencement of their review), a
report setting forth such calculation, which calculation shall
result in a net consideration between the amount thereof shown
in the Company’s calculation delivered and the amount
thereof shown in Retrocessionaire’s calculation. Such
report shall be final and binding upon Retrocessionaire and the
Company. The fees, costs and expenses of such independent
accountant shall be borne (i) by the Company if the
difference between the net consideration as calculated by the
independent accountants and the Company’s calculation is
greater than the difference between the net consideration as
calculated by the independent accountants and
Retrocessionaire’s calculation, (ii) by the
Retrocessionaire if the first such difference is less than the
second such difference, and (iii) otherwise equally by
Retrocessionaire and the Company.

ARTICLE VII

Arbitration

     
7.01     Arbitration.
(a) After the Closing Date, any dispute between the parties
relating in any way to this Agreement (other than disputes
relating to calculations relating to DAC tax, which shall be
resolved in accordance with Article VI hereof, and any
dispute arising in connection with the Post-Effective Time
Accounting or the Post-Transition Accounting contemplated by
Section 5.2 of the Master Agreement, which shall be
resolved in accordance with Section 5.2(c) of the Master
Agreement), shall be decided through negotiation and, if
necessary, arbitration as set forth in Schedule 7.01 hereto.

     
(b) The parties intend this Section 7.01 to be
enforceable in accordance with the Federal Arbitration Act
(9 U.S.C., Section 1) including any amendments to that
Act which are subsequently adopted. In the event that either
party refuses to submit to arbitration as required by
Section 7.01(a), the other party may request the court
specified in Section 12.04 to compel arbitration in
accordance with the Federal Arbitration Act.

ARTICLE VIII

Insolvency

     
8.01     Insolvency of the
Company. In the event of the insolvency of the Company, all
coinsurance made, retroceded, renewed or otherwise becoming
effective under this Agreement shall be payable by the
Retrocessionaire directly to the Company or to its liquidator,
receiver or statutory successor on the basis of the liability of
the Company under the Covered Treaties without diminution
because of the insolvency of the Company. It is understood,
however, that in the event of the insolvency of the Company, the
liquidator or receiver or statutory successor of the Company
shall give written notice of the pendency of a claim against the

A-41

 

Company on a Covered Treaty within a reasonable period of time
after such claim is filed in the insolvency proceedings and that
during the pendency of such claim the Retrocessionaire may
investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to be adjudicated any defense or
defenses which it may deem available to the Company or its
liquidator or receiver or statutory successor. It is further
understood that the expense thus incurred by the
Retrocessionaire shall be chargeable, subject to court approval,
against the Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue
to the Company solely as a result of the defense undertaken by
the Retrocessionaire.

ARTICLE IX

Duration

     
9.01     Duration. This
Agreement shall continue in force (a) with respect to each
Covered Treaty until such time as (i) such Covered Treaty
becomes a Novated Treaty, or (ii) if such Covered Treaty
does not become a Novated Treaty, (1) all the
Company’s liability with respect to such Covered Treaty is
terminated in accordance with its terms, and (2) the
Company has received, or the Retrocessionaire has made on behalf
of the Company, payments that discharge such liability in full;
(b) each Existing Retrocession Agreement and Ancillary
Agreement until such time as (i) each such agreement is
assigned to and assumed by the Retrocessionaire, or,
(ii) if such agreement is not so assigned or assumed,
(1) all the Company’s liability with respect to each
such agreement is terminated in accordance with its terms, and
(2) the Company has received, or the Retrocessionaire has
made on behalf of the Company, payments that discharge such
liability in full. This Agreement shall terminate following the
satisfaction of the requirements of the foregoing subsections
(a) and (b) with respect to the last non-Novated
Treaty, Existing Retrocession Agreement or Ancillary Agreement
then in force. In no event shall the interpretation of this
Section 9.01 imply a unilateral right of the
Retrocessionaire to terminate this Agreement.

     
9.02     Survival.
Notwithstanding the other provisions of this Article IX,
the terms and conditions of Articles VI, X and XI shall
remain in full force and effect after the date on which this
Agreement is terminated in accordance with the terms and
conditions of this Article IX.

ARTICLE X

Indemnification

     
10.01     Retrocessionaire’s
Obligation to Indemnify. The Retrocessionaire hereby agrees
to indemnify, defend and hold harmless the Company and its
Affiliates and their respective directors, officers and
employees (collectively, the “Company Indemnified
Parties”) from and against all losses, liabilities, claims,
expenses (including reasonable attorneys’ fees and
expenses) and damages (“Losses”) incurred by the
Company to the extent arising from (i) any breach of any
covenant or obligation of the Retrocessionaire contained in this
Agreement, (ii) fraud, theft or embezzlement by directors,
officers, employees, agents, subcontractors, successors or
assigns of the Retrocessionaire in connection with the
performance of the Retrocessionaire’s obligations under
Article III of this Agreement, (iii) any Reinsured
Liability, or (iv) any Retrocessionaire Extracontractual
Liability, provided, however, that no indemnification shall be
due under Sections 10.01(i) or (ii) to the extent that
Losses are attributable to acts, omissions or conduct of a
person who is a director, officer, employee, agent,
representative, successor, or permitted assign of the Company or
any of its Affiliates (other than the Retrocessionaire or any of
its Representatives acting as an agent, representative,
successor or permitted assign of the Company or any of its
Affiliates), unless such acts, omissions or conduct were
committed at the written direction of the Retrocessionaire.

     
10.02     Company’s Obligation
to Indemnify. The Company hereby agrees to indemnify, defend
and hold harmless the Retrocessionaire and its Affiliates and
their respective directors, officers and employees
(collectively, the “Retrocessionaire Indemnified
Parties”) from and against all Losses incurred by the
Retrocessionaire to the extent arising from (i) any breach
of any covenant or obligation of the Company contained in this
Agreement, (ii) fraud, theft or embezzlement by directors,
officers, employees, agents,

A-42

 

subcontractors, successors or assigns of the Company in
connection with the performance of the Company’s
obligations under Article III of this Agreement,
(iii) any Excluded Liability; provided, however, that no
indemnification shall be due under Sections 10.02(i) or
(ii) to the extent that Losses are attributable to acts,
omissions or conduct of a person who is a director, officer,
employee, agent, representative, successor, or permitted assign
of the Retrocessionaire or any of its Affiliates (other than the
Company or any of its Representatives acting as an agent,
representative, successor or permitted assign of the
Retrocessionaire or any of its Affiliates), unless such acts,
omissions or conduct were committed at the written direction of
the Company.

ARTICLE XI

Definitions

     
11.01     Definitions. Any
capitalized term used but not defined herein shall have the
meaning set forth in the Master Agreement. The following terms
shall have the respective meanings set forth below throughout
this Agreement:

     
“Affiliate” means, with respect to any Person,
at the time in question, any other Person controlling,
controlled by or under common control with such Person.

     
“Agreement” has the meaning set forth in the
preamble.

     
“Ancillary Agreements” means each contract or
agreement identified on Schedule 11.01(a) hereto
between the Company (or any Affiliate thereof) and a Ceding
Company or other counterparty relating to the administration or
management of one or more of the Covered Treaties.

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

     
“Business Day” means any day other than a
Saturday, Sunday or other day on which commercial banks in New
York or Bermuda are required or authorized by law to be closed.

     
“Ceding Company” means the ceding company under
any Covered Treaty.

     
“Company” has the meaning set forth in the
preamble.

     
“Company Extracontractual Liabilities” means
all liabilities for consequential, exemplary, punitive or
similar extracontractual damages or statutory penalties, whether
owing to Ceding Companies, governmental authorities or any other
person relating to the Covered Treaties, which liabilities arise
from any action, act of bad faith, error or omission by the
Company, any of its Affiliates, or any Representative of the
Company or any of its Affiliates, in each case excluding any
action taken or failure to take any action at the written
direction or with the express consent of the Retrocessionaire;
provided, however, that Company Extracontractual Liabilities
shall exclude, with respect to a given Covered Treaty, those
liabilities arising pursuant to the express terms of such
Covered Treaty.

     
“Covered Treaty” means each reinsurance
agreement identified on Exhibit B hereto.

     
“Effective Date” means June 30, 2005.

     
“Effective Time” means 11:59 p.m. Eastern
time on June 30, 2005.

     
“Excluded Liability” means any liability that
(i) represents a Company Extracontractual Liability,
(ii) is not expressly assumed by the Retrocessionaire
pursuant the Master Agreement, a Coinsurance Agreement (as
defined in the Master Agreement), a Novation Amendment, an
Existing Retrocession Agreement Assignment (as defined in the
Master Agreement) or an Ancillary Agreement.

     
“Existing Retrocession Agreement” at any time
means any Existing Retrocession Agreement (as defined in the
Master Agreement) that (a) was in force and effect as of
the Effective Time, (b) covers any risk

A-43

 

associated with any Covered Treaty, and (c) has not been
assigned or novated to Retrocessionaire at or prior to such time.

     
“GAAP” means United States generally accepted
accounting principles.

     
“Industry Standards” as to any Administrative
Service shall mean the performance of such service (i) with
the skill, diligence and expertise commonly expected from
experienced and qualified personnel performing such duties in
the life reinsurance industry and (ii) in accordance with
Applicable Law and the terms of each Covered Treaty, Existing
Retrocession Agreement, and Ancillary Agreement, as applicable.

     
“Master Agreement” has the meaning set forth in
the preamble.

     
“Novated Treaty” means, at any time, each
Covered Treaty that has been assumed by the Retrocessionaire
pursuant to the terms of a Novation Amendment at such time.

     
“Novation Amendment” means an amendment of a
Covered Treaty in substantially the form attached as
Exhibit D to the Master Agreement under which the
Retrocessionaire will be contractually substituted for the
Company as respects such Covered Treaty.

     
“Person” means any individual, corporation,
limited liability company, partnership, limited partnership,
firm, joint venture, association, joint stock company, trust,
unincorporated organization, governmental, judicial or
regulatory body or other entity.

     
“Premiums” means premiums, considerations,
deposits and similar amounts due from Ceding Companies or to
Third-Party Retrocessionaires with respect to the Covered
Treaties.

     
“Reinsured Liabilities” means all net retained
liabilities of the Company, whether incurred before or after the
Effective Time, arising under the Covered Treaties (net of all
liabilities with respect to the Covered Treaties retroceded by
the Company under any Existing Retrocession Agreement that has
not been assigned or novated to the Retrocessionaire, except to
the extent any retroceded liability to a non-Affiliate of the
Company under an Existing Retrocession Agreement cannot be
collected, in which case such liability shall be reinsured by
the Retrocessionaire hereunder), including any amounts payable
to any broker, agent or reinsurance intermediary identified on
Schedule 11.01(b) hereto but excluding any Excluded
Liability. For the avoidance of doubt, Reinsured Liabilities
does not include any premium tax liability or any obligation to
pay any guaranty fund assessment by any jurisdiction except to
the extent any such liability or obligation arises under the
express terms of a Covered Treaty.

     
“Representatives” means, with respect to any
party hereto, its officers, directors, employees, agents and
other representatives (including legal counsel, investment
bankers, consultants, independent public accountants and
actuaries).

     
“Retrocessionaire” has the meaning set forth in
the preamble.

     
“Retrocessionaire Extracontractual Liability”
means all liabilities for consequential, exemplary, punitive
or similar extracontractual damages or statutory penalties,
whether owing to Ceding Companies, governmental authorities or
any other person relating to the Covered Treaties, which
liabilities arise from any action, act of bad faith, error or
omission by the Retrocessionaire, any of its Affiliates, or any
Representative of the Retrocessionaire or any of its Affiliates,
in each case excluding any action taken or failure to take any
action at the written direction or with the express consent of
the Company.

     
“SAP” means the statutory accounting practices
prescribed or permitted by the insurance regulatory authorities
of the jurisdiction in which the Retrocessionaire is domiciled.

     
“Third-Party Retrocessionaire” shall mean any
retrocessionaire under an Existing Retrocession Agreement.

     
“Treasury Rate” means the annual yield rate, on
the Closing Date, of actively traded U.S. Treasury
securities having a remaining time to maturity of six
(6) months, as such rate is published under “Treasury
Constant Maturities” in Federal Reserve Statistical Release
H.15(519).

A-44

 

ARTICLE XII

Miscellaneous

     
12.01 Notices. Any and all notices and other
communications required or permitted under this Agreement shall
be in writing and shall be deemed to have been duly given when
(a) received by the receiving party if mailed via United
States registered or certified mail, return receipt requested,
(b) received by the receiving party if mailed by United
States overnight express mail, (c) sent by facsimile or
telecopy machine, followed by confirmation mailed by United
States first-class mail or overnight express mail, or
(d) delivered in person or by commercial courier to the
parties at the following addresses:

	 	 	 
	
    
    (i)

    	 	
    If to the Company to:
	 
	 	 	
    Annuity and Life Reassurance America, Inc.

    124 Palasido Avenue

    Windsor, Connecticut 06095

    Attention: Chief Executive Officer

    Fax: (860) 285-0233
	 
	 	 	
    With a concurrent copy to each of:
	 
	 	 	
    Annuity and Life Re (Holdings), Ltd.

    Cumberland House

    1 Victoria Street

    Hamilton, Bermuda HM 11

    Attention: Chief Executive Officer

    Fax: (441) 296-7665
	 
	 	 	
    Robert C. Juelke, Esq.

    Drinker, Biddle & Reath LLP

    One Logan Square

    18th and Cherry Streets

    Philadelphia, PA 19103-6996

    Fax: (215) 988-2757
	 
	
    
    (ii)

    	 	
    If to Retrocessionaire to:
	 
	 	 	
    Wilton Reassurance Company

    187 Danbury Road

    Riverview Building, 3rd Floor

    Wilton, Connecticut 06897

    Attention: Chief Executive Officer

    Fax: (203) 762-4445
	 
	 	 	
    With a concurrent copy to each of:
	 
	 	 	
    Wilton Services, Inc.

    187 Danbury Road

    Riverview Building, 3rd Floor

    Wilton, Connecticut 06897

    Attention: General Counsel

    Fax: (203) 762-4445
	 
	 	 	
    Sutherland Asbill & Brennan LLP

    1275 Pennsylvania Ave., N.W.

    Washington, D.C., 20004

    Attn: David A. Massey

    Fax: (202) 637-3593

Either party may change the names or addresses where notice is
to be given by providing notice to the other party of such
change in accordance with this Section 12.01.

A-45

 

     
12.02     Entire Agreement. This
Agreement, including the Schedules hereto, and the Master
Agreement constitute the sole and entire agreement between the
parties hereto with respect to the subject matter hereof and
thereof, and supersede all prior discussions and agreements
between the parties with respect to the subject matter hereof,
which are merged with and into this Agreement. In the even of a
conflict between this Agreement and the Master Agreement, this
Agreement shall control.

     
12.03     Waivers and Amendments;
Preservation of Remedies. Any term or condition of this
Agreement may be waived at any time by the party that is
entitled to the benefit thereof. Such waiver must be in writing
and must be executed by an executive officer of such party. A
waiver on one occasion will not be deemed to be a waiver of the
same or any other term or condition on a future occasion. This
Agreement may be modified or amended only by a writing duly
executed by an executive officer of the Company and the
Retrocessionaire.

     
12.04     Governing Law and
Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of
Connecticut applicable to contracts entered into therein,
without reference to principles of choice of law or conflicts of
laws of that or any other jurisdiction. Each party hereto
irrevocably and unconditionally submits to the exclusive
jurisdiction of any State or Federal Court sitting in
Connecticut, over any suit, action or proceeding arising out of
or relating to this Agreement. Each party hereto agrees that
service of any process, summons, notice or document by
U.S. registered mail addressed to such party shall be
effective service of process for any action, suit or proceeding
brought against such party in such court. Each party hereto
irrevocably and unconditionally waives any objection to the
laying of venue of any such suit, action or proceeding brought
in any such court and any claim that any such action, suit or
proceeding brought in any such court has been brought in an
inconvenient forum. Each party hereto agrees that final judgment
in any such action, suit or proceeding brought in any such court
shall be conclusive and binding upon such party and may be
enforced in any other courts to whose jurisdiction such party
may be subject, by suit upon such judgment.

     
12.05     Assignment. This
Agreement shall not be assigned by either of the parties hereto
without the prior written consent of the other party.

     
12.06     No Third Party
Beneficiaries. Except as expressly provided in this
Agreement, the terms and provisions of this Agreement are
intended solely for the benefit of the Company and the
Retrocessionaire and their permitted successors and assigns, and
it is not the intention of the parties to confer rights as a
third-party beneficiary to this Agreement upon any other person.

     
12.07     Expenses. Except as
otherwise specifically provided in this Agreement, the parties
hereto shall each bear their own respective expenses incurred in
connection with the preparation, execution and performance of
this Agreement and all documentation related hereto, including
without limitation all fees and expenses of counsel, actuaries
and accountants.

     
12.08     Counterparts. This
Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof each signed by less than
all, but together signed by all of the parties hereto. Each
counterpart may be delivered by facsimile transmission, which
transmission shall be deemed delivery of an originally executed
document.

     
12.9     Headings. The headings
in this Agreement have been inserted for convenience and do not
constitute matter to be construed or interpreted in connection
with this Agreement.

     
12.10     Severability. If any
provision of this Agreement other than any provision of
Article I, Article II, or Article X is held to be
illegal, invalid or unenforceable under any present or future
law or is determined by a court of competent jurisdiction to be
unenforceable, and if the rights or obligations of the Company
or the Retrocessionaire under this Agreement will not be
materially and adversely affected thereby, such provision shall
be fully severable, and this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision
had never comprised a part of this Agreement, and the remaining
provisions of this Agreement shall remain in full force and
effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.

A-46

 

     
12.11     Offset Rights. Any
debits or credits incurred on and after the Effective Time in
favor of or against either the Company or Retrocessionaire with
respect to this Agreement, Section 5.2 of the Master
Agreement and any Ancillary Agreement are deemed mutual debits
or credits, as the case may be, and shall be set off, and only
the net balance shall be allowed or paid. This
Section 12.11 shall apply notwithstanding the existence of
any insolvency, rehabilitation, conservatorship or comparable
proceeding by or against the Company or the Retrocessionaire.

[Remainder of page intentionally left blank; signature page
follows.]

A-47

 

     
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on this
[                    ] day
of
[                    ],
2005.

		
	 	
    ANNUITY AND LIFE REASSURANCE
	 	
    AMERICA, INC.

			
	 	By: 	
     

		
	 	
     

	 	
    Name: 
	 	
    Title:
	 
	 	
    PRUDENTIAL SELECT LIFE INSURANCE
	 	
    COMPANY OF AMERICA

			
	 	By: 	
     

		
	 	
     

	 	
    Name: 
	 	
    Title:

A-48

 

EXHIBIT C-1

[To be used if counterparty will novate]

FORM OF REINSURANCE NOVATION AGREEMENT

     
THIS NOVATION AGREEMENT (this
“Agreement”), is made and entered into as of
[                    ]
by and among ANNUITY AND LIFE REASSURANCE AMERICA, INC.,
a Connecticut insurance company (“Transferor”),
PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*, a
Minnesota insurance company (“Transferee”), and
[                    ],
a
[                    ]
(the “Retrocessionaire”).

RECITALS

     
WHEREAS, pursuant to the Master Agreement (the
“Master Agreement”), dated as of
[                    ],
2005, by and between Transferor, Annuity and Life Reassurance,
Ltd., a Bermuda insurance company (“ALR Bermuda”
and, together with Transferor, the “ALR
Companies”), Transferee, and Wilton Re Bermuda Limited,
a Bermuda insurance company (“Wilton Bermuda”
and together with Transferee the “Wilton
Companies”), the ALR Companies have agreed to reinsure
the Treaties (as defined in the Master Agreement) with, and/or
novate the Treaties to, the relevant Wilton Companies;

     
WHEREAS, a portion of the business assumed by the ALR
Companies under certain of the Treaties is retroceded pursuant
to certain retrocession agreements, including the retrocession
agreement between Transferor and the Retrocessionaire, a true
and correct copy of which, together with all amendments thereto
and all agreements ancillary thereto (including any related
trust agreement or performance guaranty), is attached as
Exhibit A hereto (the “Retrocession
Agreement”);

     
WHEREAS, Transferor desires to novate to the Transferee,
and Transferee desires to assume from Transferor, the
Retrocession Agreement in accordance with the terms hereof and
to substitute Transferee for Transferor for all purposes as a
party to the Retrocession Agreement with respect to all rights
and obligations of Transferor under such agreement; and

     
WHEREAS, the Retrocessionaire is willing to agree to such
novation of the Retrocession Agreement;

     
NOW THEREFORE, in consideration of the foregoing
recitals, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree
as follows:

     
Section 1.01     Novation.
(a) Effective as of 11:59 p.m. Eastern time on
[                    ]
(the “Effective Time”), Transferee agrees with
Transferor to perform the Retrocession Agreement, to be bound by
all of the terms and conditions of the Retrocession Agreement,
and to perform all of Transferor’s duties, obligations and
liabilities under the Retrocession Agreement to the same extent
as if Transferee were an original party to the Retrocession
Agreement instead of Transferor, provided that Transferee shall
enjoy all of Transferor’s rights under the Retrocession
Agreement.

     
(b) Effective at the Effective Time, the Retrocessionaire
accepts the liability of Transferee under the Retrocession
Agreement in lieu of the liability of Transferor, agrees to
Transferee being bound by all of the terms and conditions of the
Retrocession Agreement, and to Transferee performing all of
Transferor’s duties, obligations and liabilities under the
Retrocession Agreement to the same extent as if Transferee were
a party to the Retrocession Agreement instead of Transferor, and
agrees that Transferee shall enjoy all of Transferor’s
rights under the Retrocession Agreement.

     
(c) Effective at the Effective Time, the Retrocessionaire
releases and forever discharges Transferor from any liability
under the Retrocession Agreement, from performing the
Retrocession Agreement and any of its terms and conditions, from
all of Transferor’s duties, obligations and liabilities
under the Retrocession Agreement, and from all claims, demands
actions and causes of actions which the Retrocessionaire ever
had,

 

     
* To be renamed Wilton Reassurance Company. Not affiliated
with The Prudential Insurance Company 

 of America.

A-49

 

now has or may hereafter have against Transferor in any way
arising out of, resulting from or related to the Retrocession
Agreement. The Retrocessionaire shall indemnify and hold
Transferor harmless from any and all claims, demands,
liabilities, costs and expenses in any way arising out of,
resulting from or related to the Retrocession Agreement.

     
Section 1.02     Continued
Effectiveness. Transferee and the Retrocessionaire hereby
ratify and confirm that the Retrocession Agreement shall
continue between them in full force and effect and the terms and
conditions of this Agreement shall form part of the Retrocession
Agreement.

     
Section 1.03     Transferred
Rights, Duties and Obligations. All rights, duties,
obligations and liabilities transferred to Transferee pursuant
to this Agreement shall apply whether the right, duty,
obligation or liability arose prior to or after the Effective
Time.

A-50

 

     
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement
this                     day
of
[                    ],
2005.

		
	 	
    PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA

		
	 	
     

	 	
    By:
	 	
    Title:
	 
	 	
    ANNUITY AND LIFE REASSURANCE AMERICA, INC.

		
	 	
     

	 	
    By:
	 	
    Title:
	 
	 	
    [RETROCESSIONAIRE]

		
	 	
     

	 	
    By:
	 	
    Title:

A-51

 

EXHIBIT C-2

[To be used if counterparty will not novate]

FORM OF REINSURANCE ASSIGNMENT AGREEMENT

     
THIS ASSIGNMENT AGREEMENT (this
“Agreement”), is made and entered into as of
[                    ]
by and among ANNUITY AND LIFE REASSURANCE AMERICA, INC.,
a Connecticut insurance company (“Transferor”)
and PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*,
a Minnesota insurance company (“Transferee”).

RECITALS

     
WHEREAS, pursuant to the Master Agreement (the
“Master Agreement”), dated as of
[                    ],
2005, by and between Transferor, Annuity and Life Reassurance,
Ltd., a Bermuda insurance company (“ALR Bermuda”
and, together with Transferor, the “ALR
Companies”), Transferee, and Wilton Re Bermuda Limited,
a Bermuda insurance company (“Wilton Bermuda”
and together with Transferee the “Wilton
Companies”), the ALR Companies have agreed to reinsure
the Treaties (as defined in the Master Agreement) with, and/or
novate the Treaties to, the relevant Wilton Companies;

     
WHEREAS, a portion of the business assumed by the ALR
Companies under certain of the Treaties is retroceded pursuant
to certain retrocession agreements, including the retrocession
agreement between Transferor and
[                    ]
(the “Retrocessionaire”), a true and correct
copy of which, together with all amendments thereto and all
agreements ancillary thereto (including any related trust
agreement or performance guaranty), is attached as
Exhibit A hereto (the “Retrocession
Agreement”);

     
WHEREAS, Transferor desires to assign to the Transferee,
and Transferee desires to assume from Transferor, the
Retrocession Agreement in accordance with the terms
hereof; and

     
WHEREAS, the Transferor and Transferee desire that the
Retrocessionaire consent, and the Retrocessionaire is willing to
consent, to such assignment and assumption of the Retrocession
Agreement;

     
NOW THEREFORE, in consideration of the foregoing
recitals, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree
as follows:

     
Section 1.01     Assignment
and Assumption. Transferor hereby assigns to Transferee, and
its successors and permitted assigns, as of the 11:59 Eastern
time on
[                    ]
(the “Effective Time”), its respective rights,
interests, liabilities and obligations in the Retrocession
Agreement, and Transferee hereby accepts such transfer and
assignment and assumes, and releases and discharges Transferor
and its affiliates, and their respective successors and assigns,
from, and agrees to pay, perform, discharge and be bound by all
the terms, covenants, conditions and obligations in and under,
the Retrocession Agreement.

     
Section 1.02     Transferred
Rights, Duties and Obligations. All rights, duties,
obligations and liabilities transferred to Transferee pursuant
to this Agreement shall apply whether the right, duty,
obligation or liability arose prior to or after the Effective
Time.

 

     
* To be renamed Wilton Reassurance Company. Not affiliated
with The Prudential Insurance Company of America.

A-52

 

     
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement
this                     day
of
[                    ],
2005.

		
	 	
    PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA

			
	 	By: 	
     

		
	 	
     

			
	 	Title:	

		
	 	
    ANNUITY AND LIFE REASSURANCE AMERICA, INC.

			
	 	By: 	
     

		
	 	
     

	 	
    Title:   

CONSENT:

     
The undersigned hereby consents to the foregoing assignment by
the Transferor to the Transferee; provided, that such assignment
shall not relieve the Transferor of any obligation or liability
under the Retrocession Agreement.

		
	 	
    [RETROCESSIONAIRE]

			
	 	By: 	
     

		
	 	
     

	 	
    Title:

A-53

 

EXHIBIT D

FORM OF NOVATION AMENDMENT

     
THIS NOVATION AGREEMENT (the
“Agreement”) is made as of
[                    ],
2005 (the “Effective Date”) by and among
[                    ]
(“CEDENT”), [ALR America or ALR Bermuda]
(“ALR”), and [Prudential Select Life Insurance
Company of America or Wilton Reinsurance Bermuda Limited]
(“WILTON”).

RECITALS

     
A. CEDENT and ALR are parties to a [describe underlying
reinsurance agreement], effective as of
[                    ],
as amended (the “Agreement”), under which CEDENT cedes
to ALR certain interests and liabilities with respect to certain
life insurance policies or annuities written or previously
assumed by CEDENT (the “Reinsured Policies”). A true
and correct copy of the Agreement, together with all amendments
thereto and all agreements ancillary thereto (including any
related trust agreement or performance guaranty as to which ALR
may be party), is attached as Exhibit A.

     
B. CEDENT, ALR and WILTON wish to substitute WILTON for ALR
for all purposes as a party to the Agreement with respect to all
rights and obligations of ALR under such agreement.

     
NOW, THEREFORE, in consideration of the mutual and
foregoing recitals and the mutual covenants and undertakings
herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:

     
Section 1.01.     CEDENT
has supplied to WILTON in-force amounts under the Agreement, and
CEDENT represents to WILTON that, to the best of its knowledge,
such amounts are correct and complete. CEDENT understands that
in determining to enter into this Agreement, WILTON is relying
on the CEDENT’s representation in this Section 1.01.

     
Section 1.02.     Effective
at 12:01 a.m. on the Effective Date (the “Effective
Time”), WILTON agrees with each of CEDENT and ALR to
perform the Agreement, to be bound by all of the terms and
conditions of the Agreement, and to perform all of ALR’s
duties, obligations and liabilities under the Agreement to the
same extent as if WILTON were the original reinsurer under the
Agreement instead of ALR, provided that WILTON shall enjoy all
of ALR’s rights under the Agreement.

     
Section 1.03.     Effective
at the Effective Time, CEDENT accepts the liability of WILTON
under the Agreement in lieu of the liability of ALR, agrees to
WILTON performing the Agreement, to WILTON being bound by all of
the terms and conditions of the Agreement, and to WILTON
performing all of ALR’s duties, obligations and liabilities
under the Agreement to the same extent as if WILTON were a party
to the Agreement instead of ALR, and agrees that WILTON shall
enjoy all of ALR’s rights under the Agreement.

     
Section 1.04.     Effective
at the Effective Time, CEDENT releases and forever discharges
ALR and its affiliates from any liability under the Agreement,
from performing the Agreement and any of its terms and
conditions, from all of ALR’s duties, obligations and
liabilities under the Agreement, and from all claims, demands
actions and causes of actions which the CEDENT or any of its
affiliates ever had, now has or may hereafter have against ALR
or any of its affiliates in any way arising out of, resulting
from or related to the Agreement.

     
Section 1.05.     WILTON
and CEDENT hereby ratify and confirm that the Agreement shall
continue between them in full force and effect and the terms and
conditions of this Agreement shall form part of the Agreement.

     
Section 1.06     All
rights, duties, obligations and liabilities transferred to
WILTON pursuant to this Agreement shall apply whether the right,
duty, obligation or liability arose prior to or after the
Effective Time.

A-54

 

     
IN WITNESS WHEREOF, CEDENT, ALR, and WILTON have duly
executed this Agreement on the dates shown below.

CEDENT

		
	By: 	
     

 

Title:  

Date:  

		
	By: 	
     

 

Title:  

Date:  

		
	 	
    [ALR America or ALR Bermuda]

			
	 	By: 	
     

		
	 	
     

	 	
    Title:  

    
	 	
    Date:  

    

			
	 	By: 	
     

		
	 	
     

	 	
    Title:  

    
	 	
    Date:  

    
	 
	 	
    [Prudential Select Life Insurance Company of America or Wilton
    Reassurance Company or Wilton Reinsurance Bermuda Limited]

			
	 	By: 	
     

		
	 	
     

	 	
    Title:  

    
	 	
    Date:  

    

			
	 	By: 	
     

		
	 	
     

	 	
    Title:  

    
	 	
    Date:  

    

A-55

 

EXHIBIT E: CEDENT CONFIRMATION LETTER

NAME 

 ADDRESS 

 CITY, STATE ZIP

Dear Name:

     
Please review and verify the following 2005 financial
information for us. This review is necessary as a result of the
recently announced reinsurance transaction underway between our
company and Wilton Re.

     
Please fax the completed letter to Enrico Treglia, Wilton
Re Services, Inc. at the following number: 203-762-4439.

     
Thank you for your timely attention to this matter.

Sincerely, 

 

 Robert P. Mills, Jr. 

 Vice President & Actuary

	 	 	 	 	 	 	 
	 	 	Contract Type:
	Product Name:	 	 	 	Claim
	Month	 	Premiums	 	Allowances	 	Recoveries
	 	 	 	 	 	 	 
	
    
    January 2005

    	 	 	 	 	 	 
	
    
    February 2005

    	 	 	 	 	 	 
	
    
    March 2005

    	 	 	 	 	 	 
	
    
    April 2005

    	 	 	 	 	 	 
	
    
    May 2005

    	 	 	 	 	 	 
	
    
    June 2005

    	 	 	 	 	 	 

	 	 	 	 	 	 	 
	 	 	 Pending Claims as of June 30, 2005:
	Premiums Outstanding as of June 30, 2005:	 	Policy Number	 	Name	 	Claim Amount
	 	 	 	 	 	 	 

	 	 	 	 	 	 	 
	June 30, 2005 Inforce:	 	 	 	Reinsurance	 	 
	 	 	Count	 	Net Amount at Risk	 	 
	 	 	 	 	 	 	 
	
    
      From electronic file:

    	 	 	 	 	 	 
	
    The above information is:	 	
    (  ) CORRECT
	 	 	 	 	
    (  ) INCORRECT Please provide explanation

	 	 	 	 	 
	
    
    Confirmed by:

    	 	
    Name (Print)	 	
     

	 	 	
    Title	 	
     

	 	 	
    Signature	 	
     

	 	 	
    Date	 	
     

A-56

 

Confirmation Procedure:

1.     ALRe will prepare confirmation
letters for all cedents (see sample).

2.     Letter will be mailed/faxed to
ceding company.

3.     ALRe will send Wilton a copy of
the June 30, 2005 electronic data file that was provided by
the ceding company

		
	 	     
    This file will match the June 30, 2005 Inforce on the
    verification letter.
	 
	 	     
    Along with the file will be layout information and explanation
    of codes used.

4.     Ceding company will respond
directly to Wilton.

A-57<PAGE>
           SETTLEMENT AGREEMENT DATED AS OF OCTOBER 28, 2005 BETWEEN
                      WILMINGTON TRUST OF PENNSYLVANIA AND
                            ROYAL INDEMNITY COMPANY

                                 EXHIBIT 10.40
<PAGE>

                          SETTLEMENT AGREEMENT

     THIS SETTLEMENT AGREEMENT dated as of October 28, 2005, by and between (a)
Wilmington Trust Company of Pennsylvania and (b) Royal Indemnity Company.

                                   BACKGROUND

     A. On January 22, 1999, Royal issued the First Policy. In April 2000, Royal
issued the Second Policy. On August 17, 2001, the Second Policy was replaced by
the Tail Policy. Disputes arose between the Parties regarding claims made by
Wilmington Trust under the Policies for payment.

     B. The disputes under the Policies were included in litigation in the
District Court in Wilmington Trust Company of Pennsylvania v. Royal Indemnity
Company, Case No. 02 1361 (United States District Court, District of Delaware).

     C. On or about August 6, 2004, Judgment was entered against Royal and in
favor of Wilmington Trust in the amount of $12,908,966.43 plus applicable
interest and any additional sums that had become due under the Policies.

     D. Thereafter, Royal appealed to the Court of Appeals.

     E. In order to obtain a stay, Royal entered into the Pledge and Security
Agreement.

     F. On October 3, 2005, the Court of Appeals entered its Opinion affirming
in part and vacating in part, Wilmington Trust Company of Pennsylvania v. Royal
Indemnity Company, C.A. No. 04-2207 (United States Court of Appeals for the
Third Circuit).

     G. On October 17, 2005, Royal filed a Petition for Rehearing and Rehearing
En Banc in the Court of Appeals.

     H. Wilmington Trust and Royal have determined that it is in their mutual
interest to settle all of their disputes embodied in and all amounts owing or
that may become
<PAGE>
owing pursuant to the District Court's Order and Judgment, and the Court of
Appeals's Judgment, and all amounts owing or that may become owing under or
relating to the Policies.

     NOW, THEREFORE, for and in consideration of the promises and mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the parties, intending to be legally bound hereby, agree:

     1. Definitions. As used in the foregoing recitals and the provisions of
this Agreement and all exhibits annexed to this Agreement, the following terms
shall have the following meanings:

          (a) "Agreement" shall mean this Settlement Agreement;

          (b) "Court of Appeals" shall mean the United States Court of Appeals
for the Third Circuit;

          (c) "Credit Agreement" shall mean that certain Student Loan Warehouse
Line of Credit Agreement between SFC Financial LLC, as Borrower, and Wilmington
Trust, as Lender, dated January 22, 1999, as the same has been amended or
supplemented from time to time;

          (d) "District Court" shall mean the United States District Court for
the District of Delaware;

          (e) "District Court's Order" shall mean the Order entered by the
District Court on March 26, 2004 with respect to Royal and Wilmington Trust;

          (f) "Effective Date" shall mean the date upon which both Wilmington
Trust and Royal have signed this Agreement;

          (g) "Eligible Letters of Credit" and "Eligible Institutions" shall
have the meanings ascribed to them in the Pledge and Security Agreement;

                                       2
<PAGE>
          (h) "First Policy" shall mean Credit Risk Insurance Policy No.
RST321276 issued by Royal to SFC, naming Wilmington Trust as beneficiary;

          (i) "Joint Written Instructions" shall mean joint written instructions
from Wilmington Trust and Royal, in the form of Exhibit A-1 hereto, directing
JPMorgan to: (a) release the Collateral in the Securities Account from the
security interest and lien created under the Pledge and Security Agreement; (b)
deliver the Collateral to Royal; and (c) present any Eligible Letters of Credit
to any Eligible Institutions that issued them for surrender and termination;
"Alternative Joint Written Instructions" shall mean joint written instructions
from Wilmington Trust and Royal, in the form of Exhibit A-2 hereto, to be used
solely in the event that Royal fails to pay the Settlement Sum by the Payment
Date, directing JPMorgan to: (a) liquidate so much of the Collateral in the
Securities Account as is necessary to raise the Settlement Sum, and pay the
Settlement Sum to Wilmington Trust; and promptly thereafter (b) release the
remaining Collateral in the Securities Account from the security interest and
lien created under the Pledge and Security Agreement; (c) deliver the remaining
Collateral to Royal; and (d) present any Eligible Letters of Credit to any
Eligible Institutions that issued them for surrender and termination;

          (j) "JPMorgan" shall mean JPMorgan Chase Bank, the Securities
Intermediary under the Pledge and Security Agreement;

          (k) "Judgment" shall mean Final Judgment Pursuant to Rule 54(b)
entered by the District Court on August 6, 2004, against Royal and in favor of
Wilmington Trust;

          (l) "NCO Financial" shall mean NCO Financial Systems, Inc.;

          (m) "NCO Financial Servicing Agreement" shall mean the agreement
between Wilmington Trust and NCO Financial dated August 16, 2002, as
supplemented by an

                                       3
<PAGE>
Addendum dated August 16, 2002 and amended by an Addendum dated August 19, 2002,
relating to the servicing of the Student Loans;

          (n) "Other Student Loans" shall mean all of the student loans
purchased by SFC or any SFC Securitization Entity, acquired by SFC or any SFC
Securitization Entity or submitted for securitization by SFC or any SFC
Securitization Entity, except for the Student Loans;

          (o) "Parties" shall mean Wilmington Trust and Royal;

          (p) "Payment Date" shall mean the date ten (10) business days after
the Effective Date;

          (q) "Pledge and Security Agreement" shall mean that certain Pledge and
Security Agreement dated as of May 26, 2004 among JPMorgan, Wilmington Trust,
and Royal;

          (r) "Policies" shall mean the First Policy, the Second Policy, and the
Tail Policy;

          (s) "Releases" shall mean the releases annexed hereto as Exhibits C &
D;

          (t) "Royal" shall mean Royal Indemnity Company;

          (u) "Second Policy" shall mean Credit Risk Insurance Policy RST147522
issued by Royal to SFC, naming Wilmington Trust as beneficiary, which was
replaced by the Tail Policy;

          (v) "Settlement Sum" shall mean the sum of Eleven Million Dollars
($11,000,000);

          (w) "SFC" shall mean Student Finance Corporation;

                                        4
<PAGE>
          (x) "SFC Bankruptcy" shall mean the Chapter 7 bankruptcy proceeding
captioned In re Student Finance Corporation, Debtor, Case No. 02-11620, pending
before the United States Bankruptcy Court for the District of Delaware;

          (y) "SFC Securitization Entity" shall mean SFC Acceptance II, LLC, SFC
Acceptance III, LLC, SFC Acceptance IV, LLC, SFC Acceptance V, LLC, SFC
Acceptance VI, LLC, SFC Acceptance VII, LLC, SFC Acceptance VIII, LLC, SFC
Acceptance IX, LLC, SFC Financial I, LLC, SFC Financial II, LLC, and any other
entities formed for the purpose of purchasing Other Student Loans, acquiring
Other Student Loans, or submitting Other Student Loans for securitization;

          (z) "SFC Trustee" shall mean the Chapter 7 Trustee in the SFC
Bankruptcy;

          (aa) "Student Loans" shall mean (i) all of the performing and
nonperforming student loans that have been pledged to Wilmington Trust from time
to time pursuant to the Credit Agreement, except those student loans that, after
being pledged to Wilmington Trust, were thereafter included in a securitization
and removed from the pledge to Wilmington Trust (ii) any note, document, chattel
paper or other instrument evidencing such student loans, (iii) all instruments,
general intangibles, property, rights, proceeds and payments relating to such
student loans, (iv) all payments and prepayments of principal, interest and
other income due or to become due on any of such student loans, and (v) all
right, title and interest of every nature whatsoever of Wilmington Trust in and
to the same and every part of such property including, without limitation, all
rights, liens and security interests existing with respect thereto or as
security therefor, and all prepayment premiums and late payment charges with
respect thereto, excluding any and all payments received prior to the Payment
Date;

                                        5
<PAGE>
          (bb) "Successor Servicing Agreements" shall mean the Wells Fargo
Financial Servicing Agreement and the NCO Financial Servicing Agreement;

          (cc) "Tail Policy" shall mean Credit Risk Insurance Policy RST147533
issued by Royal to SFC naming Wilmington Trust as beneficiary, replacing the
Second Policy;

          (dd) "Wells Fargo Financial" shall mean Wells Fargo Financial
Servicing Solutions, LLC;

          (ee) "Wells Fargo Financial Servicing Agreement" shall mean the
agreement between Wilmington Trust and Wells Fargo Financial dated June (with no
day stated) 2002 relating to the servicing of the Student Loans; and

          (ff) "Wilmington Trust" shall mean Wilmington Trust Company of
Pennsylvania.

     2. Binding Agreement. This Agreement shall become valid and binding upon
the Effective Date, and shall remain valid and binding whether or not, prior to
the completion of all actions contemplated by this Agreement (including, without
limitation, the payment of the Settlement Sum and the release of the
Collateral), events occur that would or could otherwise affect the obligations
of Wilmington Trust and Royal to each other (including, without limitation, a
decision by the Court of Appeals on Royal's Petition for Rehearing and Rehearing
En Banc).

     3. Compromise. This Agreement reflects the settlement and compromise of
disputed claims, and does not constitute an acknowledgement or admission by any
party of the validity or invalidity of any claim or defense, and does not
constitute an acknowledgement or admission by Royal of the validity of the
Policies or any claim thereunder.

                                       6
<PAGE>
     4. Settlement Sum. Within ten (10) business days after the Effective Date,
in full settlement of all amounts owing or that may become owing to Wilmington
Trust under the District Court's Order and Judgment, and all amounts claimed to
be owing under the Policies, Royal shall pay Wilmington Trust the Settlement Sum
by wiring Eleven Million Dollars ($11,000,000) (without deduction for transfer
or other fees) to Wilmington Trust pursuant to the following wiring
instructions:

          Wilmington Trust of Pennsylvania
          Wilmington, Delaware 19890
          ABA # 031901929
          Pennsylvania Clearing Account #100410
          For further credit to SFC Financial I LLC, account # 400-7416032-2001
          Attn.: Anthony D'Imperio

     5. Joint Written Instructions and Liquidation of Collateral.

          (a) Upon the Effective Date, and prior to Wilmington Trust's receipt
of the Settlement Sum, Royal and Wilmington Trust shall jointly seek the
approval of JPMorgan of the form of the Joint Written Instructions and the
Alternative Joint Written Instructions, to ensure JPMorgan's expeditious
compliance with the Joint Written Instructions or the Alternative Joint Written
Instructions upon execution and subsequent delivery.

          (b) If Royal pays the Settlement Sum on or before the Payment Date,
Royal and Wilmington Trust shall immediately deliver the Joint Written
Instructions to JPMorgan and shall destroy the Alternative Joint Written
Instructions.

          (c) In the event that Royal fails to pay the Settlement Sum on or
before the Payment Date, Wilmington Trust and Royal shall immediately deliver
the Alternative Joint Written Instructions to JPMorgan and shall destroy the
Joint Written Instructions.

                                        7
<PAGE>
          (d) Until Royal pays the Settlement Sum, Cozen O'Connor, as attorneys
for Wilmington Trust, shall hold the executed Joint Written Instructions and
executed Alternative Joint Written Instructions in escrow.

          (e) In the event that the Alternative Joint Written Instructions are
used, and the proceeds from the liquidation of the Collateral are insufficient
to pay the Settlement Sum in full, Wilmington Trust shall give Notice to Royal
of the amount of any deficiency, and shall transmit to Royal a copy of the wire
transfer advice reflecting the amount of the wire transfer that it received as a
result of liquidation of the Collateral, and Royal shall pay such deficiency
within five (5) business days.

     6. Cancellation and Termination of Policies. Upon Wilmington Trust's
receipt of the Settlement Sum (whether through payment by Royal or pursuant to
the Alternative Joint Written Instructions), the Policies shall be automatically
and irrevocably cancelled and terminated, and Wilmington Trust shall return the
original Policies to Royal (however, if Wilmington Trust fails to return the
original Policies to Royal, such failure shall not affect the automatic and
irrevocable cancellation and termination of the Policies).

     7. Student Loans. Effective upon Wilmington Trust's receipt of the
Settlement Sum (whether through payment by Royal or pursuant to the Alternative
Joint Written Instructions), Wilmington Trust shall assign all of its right,
title and interest in and to the Student Loans, without representation, warranty
or recourse of any kind, to Royal. The assignment shall be in the form of
Exhibit B-1. Wilmington Trust represents to Royal that (a) Wells Fargo Financial
and NCO Financial have been the successor servicers of the Student Loans
pursuant to their respective Successor Servicing Agreements and Wilmington Trust
has provided to Royal copies of all agreements relating to the servicing of the
Student Loans, (b) Wilmington Trust has

                                        8
<PAGE>
provided to Royal all information as of September 30, 2005 that has been made
available to Wilmington Trust by Wells Fargo Financial and NCO Financial
regarding the Student Loans (including, without limitation, as of September 30,
2005 the aggregate amount of the Student Loans that are performing, and which
Student Loans are performing), and (c) while Wilmington Trust has not sought to
independently verify such information, Wilmington Trust has no reason to doubt
its accuracy and Wilmington Trust has received no notices since September 30,
2005 regarding the illegitimacy of the performing Student Loans (such as a
letter from a borrower on a performing Student Loan stating that he had not been
a student at a school operated by the CDI Defendants, or had not undertaken the
loan). Wilmington Trust shall also execute such other documentation as may be
reasonably required by Royal to evidence the assignment of such Student Loans,
including instructions to any servicer of such Student Loans. If Royal so
desires, Wilmington Trust shall at Royal's expense remove Wells Fargo Financial
and/or NCO Financial as servicer(s) of the Student Loans and designate
servicer(s) chosen by Royal. If Royal so desires, Wilmington Trust shall assign
either or both of the Successor Servicing Agreements to Royal. Wilmington Trust
represents that all fees and expenses relating to the servicing of the Student
Loans including, without limitation, all fees and expenses of Wells Fargo
Financial and NCO Financial have been paid for all services rendered through the
Payment Date. Any funds received by Wells Fargo Financial and NCO Financial on
the Student Loans on or after the Payment Date (net of Wells Fargo Financial and
NCO Financial's respective servicing fees) shall be paid to Royal.

     8. Rights Against Andrew Yao, Lore Yao, Thomas Whelans, and Joseph Gallo.
Effective upon Wilmington Trust's receipt of the Settlement Sum (whether through
payment by Royal or pursuant to the Alternative Joint Written Instructions),
Wilmington Trust

                                        9
<PAGE>
shall assign all of its right, title and interest in and to its causes of
action, rights, claims, judgments, and remedies against Andrew Yao, Lore Yao,
Thomas Whelans, and Joseph Gallo, including but not limited to (a) all causes of
action, rights, claims, judgments, and remedies in Wilmington Trust Company of
Pennsylvania v. Andrew N. Yao, et al., No. 03-10188 (Court of Common Pleas,
Montgomery County, Pennsylvania) (the "Montgomery County Action"), including,
without limitation, the Consent Judgment and Order dated May 25, 2005 (the
"Pennsylvania Consent Judgment and Order"); (b) all causes of action, rights,
claims, judgments, and remedies in Wilmington Trust Company of Pennsylvania v.
Andrew N. Yao, et al., NACV2005-00027 (Superior Court, Nantucket, Commonwealth
of Massachusetts); and (c) all causes of action, rights, claims, judgments, and
remedies relating to or against the real property known as 209 and 209R Polpis
Road, Nantucket Town and County, Commonwealth of Massachusetts (the "Nantucket
Property"), which was part of the subject matter of the Pennsylvania Consent
Judgment and Order, and all interests in and to the Nantucket Property.
Wilmington Trust has advised Royal, with respect to the Montgomery County
Action, that: (a) although it has obtained a judgment against Thomas Whelans, it
is aware of no assets owned by Mr. Whelans, who has died, (b) the claims against
Joseph Gallo in the Montgomery County Action were withdrawn, and (c) with the
entry of the Pennsylvania Consent Judgment and Order, there are no pending
proceedings in the Montgomery County Action. The assignment shall be in the form
of Exhibit B-2.

     9. Royal's Release to Wilmington Trust. Upon Wilmington Trust's receipt of
the Settlement Sum (whether through payment by Royal or pursuant to the
Alternative Joint Written Instructions), and the filing in the courts of
Exhibits E and F (described below), Royal

                                       10
<PAGE>
shall provide Wilmington Trust with the executed Release in the form of Exhibit
C, the terms of which are incorporated by this reference into this Agreement.

     10. Wilmington Trust's Release to Royal. Upon Wilmington Trust's receipt of
the Settlement Sum (whether through payment by Royal or pursuant to the
Alternative Joint Written Instructions), and the filing in the courts of
Exhibits E and F (described below), Wilmington Trust shall provide Royal with
the executed Release in the form of Exhibit D, the terms of which are
incorporated by this reference into this Agreement.

     11. Notice to the District Court and Court of Appeals, Withdrawal of
Petition for Rehearing, and Satisfaction of Judgment. Wilmington Trust and Royal
shall file Exhibit E in the District Court and shall simultaneously file Exhibit
F in the Court of Appeals promptly after Wilmington Trust's receipt of the
Settlement Sum (whether through payment by Royal or pursuant to the Alternative
Joint Written Instructions).

     12. Authorization. (a) Royal represents that (i) it is duly authorized to
execute this Agreement and to enter into the settlement described herein and the
Releases and other documents annexed hereto and (ii) it has obtained all
approvals and consents necessary to take such actions. (b) Wilmington Trust
represents that (i) it is duly authorized to execute this Agreement and to enter
into the settlement described herein and the Releases and other documents
annexed hereto and (ii) it has obtained all approvals and consents to execute
this Agreement and to enter into the settlement described herein and the
Releases and other documents annexed hereto.

     13. Governing Law and Retention of Jurisdiction. This Agreement, and all
claims and disputes arising in connection with this Agreement or the
transactions contemplated hereby, shall be governed by and construed in
accordance with the laws of the State of Delaware

                                       11
<PAGE>
without giving effect to conflicts of laws principles. The parties agree that
the District Court shall retain jurisdiction to enforce this Agreement and all
exhibits hereto.

     14. Multiple Counterparts. This Agreement may be executed in two
counterparts, both of which shall constitute collectively one agreement.

     15. Entire Agreement; Amendments. This Agreement and the Releases and other
documents annexed hereto contain all the representations and warranties, express
and implied, oral and written, of the parties and constitute the entire
understanding and agreement between the parties with respect to the subject
matter hereof and thereof. No other agreements, covenants, representations or
warranties, express or implied, oral or written, have been made by either party
with respect to the subject matter of this Agreement and the Releases and other
documents annexed hereto. All prior and contemporaneous conversations,
negotiations, proposed agreements, representations, covenants and warranties
with respect to the subject matter hereof and the Releases and other documents
annexed hereto are merged herein, waived, superseded and replaced in total by
this Agreement and the Releases and other documents annexed hereto. This
Agreement and the Releases and other documents annexed hereto have been jointly
drafted by the Parties and their counsel. This is an integrated agreement. No
amendment, waiver or modification of any provision of this Agreement and the
Releases and other documents annexed hereto shall be effective unless the same
shall be in writing and signed by both of the parties. The parties agree to
execute such additional documents as may be necessary to bring into effect the
terms and conditions of this Agreement.

                                       12
<PAGE>
          IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date hereof.

                                        ROYAL INDEMNITY COMPANY

                                        By: /s/ Christopher A. Benson
                                            ------------------------------------
                                        Name: Christopher A. Benson
                                              ----------------------------------
                                        Title: V.P., Assistant General Counsel
                                               ---------------------------------

                                        WILMINGTON TRUST COMPANY OF PENNSYLVANIA

                                        By: /s/ Anthony D'Imperio
                                            ------------------------------------
                                        Name: Anthony D'Imperio
                                              ----------------------------------
                                        Title: VP
                                               ---------------------------------

                                       13

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00093-of-00352.parquet"}]]