Document:

Exhibit 10.11

 

 

 

COINSURANCE AGREEMENT

between

GE LIFE AND ANNUITY ASSURANCE COMPANY

and

UNION FIDELITY LIFE INSURANCE COMPANY

Dated as of April 15, 2004

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II

  	
  COVERAGE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  	
  ADMINISTRATION; GENERAL PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV

  	
  CLAIMS SETTLEMENT ACCOUNT; CLAIMS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  REINSURANCE ASSET TRANSFER; CEDING
  COMMISSION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI

  	
  EXPENSE ALLOWANCES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII

  	
  ACCOUNTING AND SETTLEMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  	
  DURATION AND TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IX

  	
  INSOLVENCY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  X

  	
  CREDIT FOR REINSURANCE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XI

  	
  REINSURANCE SECURITY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XII

  	
  DEFERRED ACQUISITION COSTS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XIII

  	
  DISPUTE RESOLUTION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  XIV

  	
  MISCELLANEOUS PROVISIONS

  	
   

  

 

 

SCHEDULES

 

	
  SCHEDULE
  A

  	
  -

  	
  POLICY
  FORMS

  
	
  SCHEDULE
  B

  	
  -

  	
  FORM OF ADMINISTRATIVE SERVICES AGREEMENT

  
	
  SCHEDULE
  C

  	
  -

  	
  CEDING
  COMMISSION

  
	
  SCHEDULE
  D

  	
  -

  	
  ASSETS

  
	
  SCHEDULE
  E

  	
  -

  	
  EXPENSE ALLOWANCES

  
	
  SCHEDULE F - PART I

  	
  -

  	
  INITIAL REPORT

  
	
  SCHEDULE F - PART II

  	
  -

  	
  QUARTERLY REPORT

  
	
  SCHEDULE F - PART III

  	
  -

  	
  ANNUAL REPORT

  
	
  SCHEDULE
  G

  	
  -

  	
  FORM
  OF TRUST AGREEMENT

  
	
  SCHEDULE
  H

  	
  -

  	
  ELIGIBLE
  SECURITIES

  

 

i

 

COINSURANCE AGREEMENT

 

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

 

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

 

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

 

ARTICLE I

DEFINITIONS

 

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

 

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

 

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

 

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

 

“Annual Report” shall
have the meaning specified in Section 7.4.

 

“Applicable Law”
means any federal, state, local or foreign law (including common law), statute,
ordinance, rule, regulation, order, writ, injunction, judgment, permit,
governmental agreement or decree applicable to a Person or any of such Person’s
subsidiaries,

 

 

properties, assets, or to such Person’s
officers, directors, managing directors, employees or agents in their capacity
as such.

 

“Assets” shall have
the meaning specified in Section 5.3(a).

 

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

 

“Benefits” shall have
the meaning specified in Section 2.3(a).

 

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

 

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

 

“Ceding Commission”
shall have the meaning specified in Section 5.2.

 

“Claims Settlement
Account” shall have the meaning specified in Section 4.1(a).

 

“Closing Date” means
April 15, 2004.

 

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

 

“Company Account”
shall have the meaning specified in Section 11.1(e).

 

“CPR” shall have the
meaning specified in Section 13.3.

 

“CPR Arbitration Rules”
shall have the meaning specified in Section 13.4(a).

 

“Dispute” shall have
the meaning specified in Section 13.1(a).

 

“Eligible Securities”
shall have the meaning specified in Section 11.1(c).

 

“Expense Allowance”
shall have the meaning specified in Section 6.1.

 

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

 

2

 

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

 

“Funding Requirement”
shall have the meaning specified in Section 11.1(e).

 

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

 

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

 

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

 

“Initial Notice”
shall have the meaning specified in Section 13.2.

 

“Initial Reinsurance
Premium” shall have the meaning specified in Section 5.1.

 

“Initial Report”
shall have the meaning specified in Section 7.1.

 

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

 

“Minimum Claims
Settlement Amount” shall have the meaning specified in Section 4.1(b).

 

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

 

“Quarterly Report”
shall have the meaning specified in Section 7.2.

 

“Quarterly Settlement”
shall have the meaning specified in Section 5.3(a).

 

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

 

“Reinsured Contracts”
means the structured settlements immediate annuity contracts issued by the
Company and recorded in the Company’s valuation system on or prior to December
3, 2003 or reinsured by the Company under reinsurance agreements in effect
prior to January 1, 2004, and, in each case, written on the policy forms
described in Schedule A.

 

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

 

3

 

“Response” shall have
the meaning specified in Section 13.2.

 

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

 

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

 

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

 

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

 

“Total SAP Ceded Reserves”
means, as of any given date, the gross policy reserves of the Company
calculated in accordance with SAP with respect to the Reinsured Risks.

 

“Total GAAP Ceded
Reserves” means, as of any given date, the gross policy reserves of the
Company calculated in accordance with GAAP with respect to the Reinsured Risks.

 

“Trust Account” shall
have the meaning set forth in Section 11.1(a).

 

“Trust Agreement”
shall have the meaning set forth in Section 11.1(a).

 

“Trustee” shall have
the meaning set forth in Section 11.1(a).

 

ARTICLE II

COVERAGE

 

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

 

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

 

(b)   Except as otherwise set forth in paragraph (a)
above, no changes, amendments or modifications made on or after the Inception
Date in the terms and conditions of the

 

4

 

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

 

2.3.          Benefits.  (a)  Subject to the provisions of Sections 2.2,
2.3(b) and (c) and the terms and conditions of this Agreement, “Benefits” shall
mean the actual benefits payable by the Company under the Reinsured Contracts.

 

(b)   Any Extra Contractual Liabilities resulting from
actions of the Company or its agents or reinsured by the Company under the
Reinsured Contracts shall be treated as a Benefit payable for the purposes of
this Agreement to the extent permitted by state law, except to the extent that
any such Extra Contractual Liabilities are attributable to the conduct of the
Company in the administration of the Reinsured Contracts on or after the
Inception Date, other than actions taken by the Company at the written request
or direction of the Reinsurer.

 

(c)   This Agreement excludes all liability arising by
contract, operation of law, or otherwise from the Company’s participation or membership,
whether voluntary or involuntary, in any Insolvency Fund.

 

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

 

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

 

ARTICLE III

ADMINISTRATION; GENERAL PROVISIONS

 

3.1.          Contract
Administration.  (a)  Subject to Section 3.7, the Company shall
provide policyholder and claims servicing with respect to the Reinsured
Contracts in accordance with the terms hereof. 
All Benefits paid by the Company shall be binding upon the Reinsurer; provided,
however, that such Benefits are within the terms, conditions and
limitations of the Reinsured Contracts. 
The Company shall provide policyholder and claims servicing with respect
to the Reinsured Contracts (including the administration of claims for Benefits
thereunder) in good faith and with the care, skill, prudence and diligence of a
person experienced in administering structured settlement business.  The Company shall provide policyholder and
claims servicing with respect to the Reinsured Contracts, (i) in
accordance with the terms of the Reinsured Contracts, (ii) in accordance with
the applicable terms of this Agreement, (iii) in compliance with Applicable Law
and, subject to the foregoing, (iv) in the same manner as it conducts its own
business not subject to this Agreement and (v) in accordance with the Company’s
administrative performance standards in effect on the date hereof, with such
revisions

 

5

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

3.7.          Administration by
Reinsurer.  (a)  At any time from and after the fifteenth
(15th) anniversary of the Inception Date, the Reinsurer shall have the right to
assume from the Company the administration of the Reinsured Contracts, provided
that the Reinsurer provides twelve (12) months prior written notice of such
assumption, which notice may be given as early as the fourteenth (14th)
anniversary of the Inception Date to take effect as of the fifteenth (15th)
anniversary of the Inception Date.  The
Reinsurer shall bear all transition costs associated with an assumption of the
administration of the Reinsured Contracts pursuant to this paragraph (a) of
this Section 3.7.

 

(b)   In addition to the provisions of Section 3.7(a), the
Reinsurer shall have the right, upon written notice to the Company to assume
from the Company the administration of the Reinsured Contracts upon the
occurrence of any of the following events:

 

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

 

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

 

7

 

proceedings as
set forth in Article XIII regarding an alleged material breach); or

 

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

 

(c)   The Company shall bear all transition costs
associated with an assumption of the administration of the Reinsured Contracts
pursuant to Section 3.7(b).

 

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

 

ARTICLE IV

CLAIMS SETTLEMENT ACCOUNT; CLAIMS

 

4.1.          Claims Settlement
Account.  (a)  On the Closing Date, the Reinsurer shall
establish a separate bank account (the “Claims Settlement Account”) in its own
name for the payment of Benefits and shall authorize two signatories who shall
be representatives of the Company and approved by the Reinsurer in writing to
issue drafts in the name of the Reinsurer and showing the identity of the
Company.  The Reinsurer shall fund such
account for payment of Benefits in accordance with the provisions of Section
4.1(b).  Any interest earned on the
Claims Settlement Account shall belong to the Reinsurer.  The Claims Settlement Account shall be
administered by the Company in a fiduciary capacity and shall be used solely by
the Company to make payments of Benefits in accordance with the terms of this
Agreement.

 

(b)   The Reinsurer shall deposit $3 million in the Claims
Settlement Account on the Closing Date and shall thereafter fund the Claims
Settlement Account on or before the fifth (5th) day of each month in amounts
agreed by the Company and the Reinsurer from time to time in amounts sufficient
to provide funds to the Company for the payment of Benefits during the next
thirty (30) days, or such other amount as may be mutually agreed by the parties
(such initial deposit amount and each minimum funding amount as agreed from
time to time shall be referred to as a “Minimum Claims Settlement Amount”).  In addition, the Reinsurer shall deposit to
the Claims Settlement Account such additional amounts as may be required to
keep

 

8

 

the balance of such account above zero at all
times.  In consideration of the
Reinsurer providing the Claims Settlement Account arrangement, the Company
agrees that it shall apply funds in the Claims Settlement Account against the
Reinsurer’s liability under this Agreement until such funds are exhausted.

 

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

 

(d)           Within
thirty (30) days after each calendar month (or more frequently as mutually
agreed by the parties), the Company shall render a complete accounting to the
Reinsurer detailing all transactions with respect to the Claims Settlement
Account, in such form as agreed by the parties.

 

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

 

(f)            Upon
a termination of this Agreement pursuant to Article VIII, the Reinsurer shall
close the Claims Settlement Account and any closing balance therein shall be
the property of the Reinsurer.  The
Company’s claims payment authority under this Agreement with respect to the
Claims Settlement Account shall terminate immediately upon termination of this
Agreement pursuant to Article VIII or the assumption by the Reinsurer of the
administration of the Reinsured Contracts pursuant to Section 3.7.  Upon termination of its authority to pay
claims, the Company shall promptly return to the Reinsurer all unused check
stock held by it in connection with this Agreement.

 

ARTICLE V

REINSURANCE ASSET TRANSFER; CEDING
COMMISSION

 

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

 

9

 

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

 

5.3.          Amounts Due the
Parties.  (a)  Except as otherwise specifically provided
herein, all amounts due to be paid to the Company under this Agreement shall be
determined on a net basis, giving full effect to Section 3.6.  The net amount due the Reinsurer from the
Company on the Closing Date under Section 5.1 and Section 5.2 shall consist of
(i) the investment assets (the “Assets”) set forth on Schedule D, which assets
have a statutory book value as of the close of business on the day immediately
preceding the Inception Date equal to (A) the Initial Reinsurance Premium, less
(B) the Ceding Commission, less (C) an amount equal to accrued but unpaid
interest on the Assets as of the close of business on the day immediately
preceding the Inception Date, plus (ii) an amount equal to the investment cash
flows received on the Assets between the Inception Date and the Closing
Date.  The Company shall pay such net
amount concurrent with its delivery of the Initial Report.  Each net amount subsequently due with
respect to each Accounting Period ending after the Inception Date (the
“Quarterly Settlement”) shall be paid in cash by the Reinsurer to the Company
no later than thirty (30) days after delivery of the Quarterly Report, as
applicable.  Each net amount
subsequently due with respect to each calendar year ending after the Inception
Date as reflected on an Annual Report shall be paid in cash by the Reinsurer to
the Company no later than thirty (30) days after delivery of the Annual Report.

 

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

 

ARTICLE VI

EXPENSE ALLOWANCES

 

6.1.          Expense Allowance.  As reimbursement for expenses incurred by the
Company in the providing of policyholder and Benefit payment services with
respect to the Reinsured Contracts, the Reinsurer shall pay to the Company with
respect to each calendar month ending after the Inception Date, an expense
allowance (each an “Expense Allowance”) in an amount calculated in accordance
with Schedule E, as subsequently adjusted in accordance with the methodology
and procedures set forth on Schedule E.

 

ARTICLE VII

ACCOUNTING AND SETTLEMENT

 

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

 

10

 

7.2.          Quarterly Settlement
Reports.  As soon as practicable but
not more than forty (40) days following each Accounting Period ending after the
Closing Date (or more frequently as mutually agreed by the parties), the
Company shall supply the Reinsurer with a report that shall provide the
financial data for such Accounting Period required in Schedule F -
Part II (the “Quarterly Report”).  For
the avoidance of doubt, the first Quarterly Report will include all
transactions with respect to the Reinsured Contracts occurring from the
Inception Date through June 30, 2004.

 

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

 

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

 

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

 

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

 

ARTICLE VIII

DURATION AND TERMINATION

 

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

 

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

 

11

 

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

 

ARTICLE IX

INSOLVENCY

 

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

 

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

 

ARTICLE X

CREDIT FOR REINSURANCE

 

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

 

12

 

ARTICLE XI

REINSURANCE SECURITY

 

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

 

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

 

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

 

(d)           The
Reinsurer, prior to depositing assets with the Trustee, shall execute all
assignments and endorsements in blank, or transfer legal title to the Trustee
of all shares, obligations or any other assets requiring assignments, in order
that, to the extent practicable, the Company, or the Trustee upon direction of
the Company, may whenever necessary negotiate any such assets without consent
or signature from the Reinsurer or any other entity.  The Company recognizes that certain assets in the Trust Account
will not be readily negotiable and that certain notices, opinions of counsel,
representations and/or consents will be required for the Company to obtain good
and marketable title to such assets.

 

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

 

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

 

(ii)     to pay to the Reinsurer, in accordance with
paragraph (h) below, any amounts held in the Trust Account that exceed an
amount (the “Funding Requirement”) equal to the sum of Total SAP Ceded Reserves
and any additional reserves attributable to the Reinsured Risks that arise as a
result of regulatory asset adequacy analysis requirements of the Reinsurer,
less, prior to the date on which the Claims Settlement Account is closed, the
Minimum Claims Settlement Amount then in effect; and

 

(iii)    in the event that General Electric Capital
Corporation breaches its obligations under the Capital Maintenance Agreement,
to fund an account

 

13

 

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

 

(f)            In
the event that the Company withdraws assets from the Trust Account for the
purposes set forth in Section 11.1(e)(i) above in excess of actual amounts
required to meet the Reinsurer’s obligations to the Company, the Company will
promptly return such excess to the Reinsurer, plus interest at an annual rate
equal to the then current thirty (30) day U.S. Treasury Bill discount rate on
the date of withdrawal plus 200 basis points for the period during which the amounts
were held pursuant to Section 11.1(e)(i). 
In the event that the Company withdraws assets from the Trust Account
for the purposes set forth in Section 11.1(e)(iii) above, (i) the Reinsurer
shall be relieved of its obligation to maintain assets in the Trust Account
pursuant to this Section 11.1 to the extent of the amount of funds held in the
Company Account and (ii) the Company shall first apply the funds in the Company
Account in satisfaction of the Reinsurer’s liability under this Agreement until
the funds in the Company Account are exhausted.  In the event that the Company withdraws assets from the Trust
Account for the purposes set forth in Section 11.1(e)(iii) above, promptly
following the date the Reinsurer’s liability with respect to the Reinsured
Risks is terminated, the Company shall return to the Reinsurer any assets so
withdrawn that, together with any and all interest, dividends and other
earnings thereon from the date of withdrawal to the date of return, are in
excess of actual amounts required to meet the Reinsurer’s obligations to the
Company under this Agreement.

 

(g)           The
initial deposit to the Trust Account with respect to this Agreement shall be
made on the Closing Date and shall consist of assets with a statutory book
value equal to the Total SAP Ceded Reserves as of the close of business on the
day immediately preceding the Inception Date, less an amount of assets with a
statutory book value equal to the initial Minimum Claims Settlement Amount.

 

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

 

14

 

addition to the foregoing, the Reinsurer shall prepare and deliver to
the Company on a quarterly basis a specific statement of the market value of
the assets in the Trust Account as of the end of the quarter.

 

ARTICLE XII

DEFERRED ACQUISITION COSTS

 

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

 

ARTICLE XIII

DISPUTE RESOLUTION

 

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

 

(b)           Commencing
with the request contemplated by Section 13.2, all communications between the
parties or their representatives in connection with the attempted resolution of
any Dispute, including any mediator’s evaluation referred to in Section 13.3,
shall be deemed to have been delivered in furtherance of a Dispute settlement
and shall be exempt from discovery and production, and shall not be admissible
in evidence for any reason (whether as an admission or otherwise), in any
arbitral or other proceeding for the resolution of the Dispute.

 

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

 

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

 

15

 

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

 

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

 

13.3.        Mediation.
If a Dispute is not resolved by negotiation as provided in Section 13.2 within
forty-five (45) days from the delivery of the Initial Notice, then either party
may submit the Dispute for resolution by mediation pursuant to the CPR
Institute for Dispute Resolution (the “CPR”) Model Mediation Procedure as then
in effect. The parties will select a mediator from the CPR Panels of
Distinguished Neutrals, but such
mediator must have prior U.S. reinsurance experience either as a lawyer or as a
present or former officer or management employee of a reinsurance company, but
not of the Company, or the Reinsurer, or any of their respective affiliates.  Either party at commencement of the mediation may ask the
mediator to provide an evaluation of the Dispute and the parties’ relative
positions.

 

13.4.        Arbitration. (a) If a Dispute is not resolved by mediation as
provided in Section 13.3 within thirty (30) days of the selection of a mediator
(unless the mediator chooses to withdraw sooner), either party may submit the
Dispute to be finally resolved by arbitration pursuant to the CPR Rules for
Non-Administered Arbitration as then in effect (the “CPR Arbitration Rules”).
The parties consent to a single, consolidated arbitration for all known
Disputes existing at the time of the arbitration and for which arbitration is
permitted.

 

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

 

16

 

from any arbitration within forty-five (45) days following the
termination of the arbitration proceedings.

 

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

 

(d)           Except
as expressly permitted by this Agreement, no party will commence or voluntarily
participate in any court action or proceeding concerning a Dispute, except (i)
for enforcement as contemplated by Section 13.4(c) above, (ii) to restrict or
vacate an arbitral decision based on the grounds specified under applicable
law, or (iii) for interim relief as provided in paragraph (e) below. For
purposes of the foregoing the parties hereto submit to the non-exclusive
jurisdiction of the courts of the State of New York.

 

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

 

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

 

ARTICLE XIV

 

MISCELLANEOUS PROVISIONS

 

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

 

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

 

17

 

If to the Company:

GE Life and Annuity Assurance Company

6610 West Broad Street

Richmond, VA 23230

Facsimile: 
(804) 281-6165

Attention:  Chief Executive Officer

 

With a copy to:

GE Life and Annuity Assurance Company

6610 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 281-6005

Attention:  General Counsel

If to the Reinsurer:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile: (847) 330-3404

Attention: Chief Financial Officer

With a copy to:

 

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

 

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

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

19

 

 

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

 

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

 

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

 

14.15.      Survival.  Article XIII and Article XIV shall survive
the termination of this Agreement.

 

20

 

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

 

	
   

  	
  GE LIFE AND ANNUITY ASSURANCE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ 
  VICTOR C. MOSES

  	
   

  
	
   

  	
   

  	
  Title: Vice President

  
	
   

  	
   

  	
  Name: Victor C. Moses

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  UNION FIDELITY LIFE INSURANCE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ 
  GLENN JOPPA

  	
   

  
	
   

  	
   

  	
  Name: Glenn Joppa

  
	
   

  	
   

  	
  Title: Senior Vice President and Secretary

  

 

21

 

SCHEDULE A

 

POLICY FORMS

 

8001

 

8101

 

8201

 

8401

 

1700

 

 

SCHEDULE B

 

FORM OF
ADMINISTRATIVE SERVICES AGREEMENT

 

 

SSA UFLIC/GELAAC

 

 

ADMINISTRATIVE
SERVICES AGREEMENT

 

by and between

 

GE LIFE AND
ANNUITY ASSURANCE COMPANY

 

and

 

UNION FIDELITY
LIFE INSURANCE COMPANY

 

Effective as
of [          ]

 

 

 

ADMINISTRATIVE SERVICES AGREEMENT

 

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

 

RECITALS:

 

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

 

WHEREAS,
pursuant to the Coinsurance Agreement, the Administrator has agreed to
indemnify the Company for, among other things, 100% of the liability of the
Company for Benefits payable on or after the Inception Date with respect to the
Reinsured Contracts (capitalized terms used herein and not defined herein,
unless otherwise indicated, have the respective meanings assigned to them in
the Coinsurance Agreement); and

 

WHEREAS, the
Company wishes to appoint the Administrator to provide policyholder and claim
servicing with respect to the Reinsured Contracts, and the Administrator
desires to provide such administrative services;

 

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

 

ARTICLE I

 

AUTHORITY

 

The Company
hereby appoints the Administrator, and the Administrator hereby accepts
appointment, to provide as an independent contractor of the Company, from and
after the Effective Date, all of the policyholder and claim servicing services
necessary or appropriate with respect to the Reinsured Contracts including
those set forth in this Agreement (the “Administrative Services”), all on the
terms as set forth in this Agreement. 
Notwithstanding any other provision of this Agreement to the contrary,
the Company shall have the right to direct the Administrator to perform any
action necessary for the Reinsured Contracts or the policyholder and claim
servicing thereof to comply with Applicable Law, or to cease performing any
action that constitutes a violation of Applicable Law.

 

 

 

ARTICLE II

 

STANDARD FOR SERVICES; FACILITIES;
SUBCONTRACTING

 

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

 

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

 

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

 

ARTICLE III

 

CLAIMS HANDLING

 

The
Administrator shall pay all Benefits payable on or after the Inception Date
with respect to the Reinsured Contracts (each, a “Claim” and collectively the
“Claims”).

 

ARTICLE IV

 

REGULATORY AND LEGAL PROCEEDINGS

 

4.1.          Regulatory Complaints
and Proceedings.  The Administrator
shall:

 

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

 

2

 

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

 

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

 

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

 

4.2.          Legal Proceedings.  The Administrator shall:

 

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

 

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

 

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

 

4.3.          Notice to
Administrator.  The Company shall
give prompt notice to the Administrator of any Legal Proceeding made or brought
against the Company after the Inception

 

3

 

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

 

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

 

ARTICLE V

 

NOTIFICATION TO POLICYHOLDERS

 

The
Administrator agrees to send to policyholders of the Reinsured Contracts a
written notice prepared by the Administrator and reasonably acceptable to the
Company to the effect that the Administrator, or such other Person designated
by the Administrator in accordance with the terms of this Agreement, has been
appointed by the Company to provide Administrative Services.  The Administrator shall send such notice by
first class U.S. mail at a time reasonably acceptable to the Company and the
Administrator and in all events in accordance with Applicable Law.  The parties intend to minimize the cost
associated with any notification under this Article V, including by means of
inclusion of the notice in a regularly scheduled mailing to policyholders in
lieu of a separate mailing.  The cost
associated with such notification under this Article V (upon the initial
assumption of the administration of the Reinsured Contracts under Section 3.7
of the Coinsurance Agreement) shall be a transition cost payable by the Administrator
or the Company in accordance with Section 3.7(a) or 3.7(c) of the Coinsurance
Agreement, as applicable.

 

ARTICLE VI

 

INSOLVENCY FUND ACCOUNTINGS

 

6.1.          Quarterly Accountings.  Within thirty (30) days after the end of
each calendar quarter that this Agreement is in effect (or more frequently as
mutually agreed by the

 

4

 

parties), the Company shall submit to the Administrator a written
statement of accounting in a form and containing such information to be agreed
upon by the parties hereto (each, an “Insolvency Fund Quarterly Accounting”)
setting forth the Insolvency Fund amounts assessed or payable to the extent
that such assessments constitute Reinsured Risks with respect to the Reinsured
Contracts (collectively, the “Post-Effective Date Assessments”).  The Administrator shall remit to the Company
an amount equal to the Post-Effective Date Assessments set forth in an
Insolvency Fund Quarterly Accounting received by the Administrator within ten
(10) Business Days of receipt by the Administrator of such Insolvency Fund
Quarterly Accounting.

 

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

 

ARTICLE VII

 

CERTAIN ACTIONS BY COMPANY

 

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

 

7.2.          Annual Adjustment.  The Company shall pay or provide to the
Administrator the benefit of any Post-Effective Date Assessments which have
been or can be applied to reduce the Company’s premium tax liability (“Premium
Tax Credits”).  The Company shall
provide to the Administrator by March 15 of each year a statement of the amount
of Premium Tax Credits for the prior calendar year and the Company will pay or
credit to the Administrator an amount equal to such Premium Tax Credits.

 

ARTICLE VIII

 

REGULATORY MATTERS AND AUDIT REPORTING

 

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

 

5

 

respect to records maintained in machine readable form, hard copies)
that are necessary to satisfy such requirements.  All copies of records furnished in the ordinary course of
business shall be furnished by the Administrator at the Administrator’s cost.  Any extraordinary costs reasonably incurred
by the Administrator in response to requests from the Company shall be
reimbursed by the Company.  Among other
responsibilities:

 

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

 

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

 

8.2.          Reporting and
Accounting.  The Administrator shall
assume the reporting and accounting obligations set forth below:

 

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

 

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

 

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

 

(iv)    Within forty-five (45) days after each calendar
year end (or such longer time as may be agreed by the parties) that this
Agreement is in effect, the Administrator shall provide to the Company (a) an
opinion of an actuary reasonably acceptable to the Company as to the adequacy
of statutory

 

6

 

reserves for the
Reinsured Contracts, prepared according to accepted actuarial standards of
practice, and as otherwise required for regulatory reporting purposes and (b)
an analysis which reasonably supports such opinion.

 

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

 

ARTICLE IX

 

MISCELLANEOUS ADMINISTRATIVE SERVICES

 

The
Administrator shall provide such other Administrative Services as are necessary
or appropriate to fully effectuate the purpose of the Reinsurance Agreement and
this Agreement, including such Administrative Services as are not performed by
or on behalf of the Company on the date hereof but the need for which may arise
due to changes or developments in Applicable Law.

 

ARTICLE X

 

BOOKS AND RECORDS

 

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

 

ARTICLE XI

 

COOPERATION

 

Each party
hereto shall cooperate fully with the other in all reasonable respects in order
to accomplish the objectives of this Agreement including making available to
each their respective officers and employees for interviews and meetings with
Governmental Authorities and

 

7

 

furnishing any additional
assistance, information and documents as may be reasonably requested by a party
from time to time.

 

ARTICLE XII

PRIVACY REQUIREMENTS

 

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

 

ARTICLE XIII

CONSIDERATION FOR ADMINISTRATIVE
SERVICES

 

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

 

ARTICLE XIV

 

BANK ACCOUNT; USE OF COMPANY LETTERHEAD

 

When and on
terms reasonably requested by the Administrator, the Company shall open, modify
or close, and make available for use by the Administrator for the payment of
amounts to

 

8

 

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

 

ARTICLE XV

 

INDEMNIFICATION

 

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

 

ARTICLE XVI

 

DURATION; TERMINATION

 

16.1.        Duration.  This Agreement shall commence on the
Effective Date and continue with respect to each Reinsured Contract until no
further Administrative Services in respect of such Reinsured Contract is
required, unless this Agreement is earlier terminated under Section 16.2.

 

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

 

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

 

(ii)     There is a material breach by the Administrator of
any material term or condition of this Agreement that is not cured by the
Administrator within thirty (30) days after receipt of written notice from the
Company of such breach or act (provided that the Company shall not have the right
to terminate this Agreement (A) for so long as the Administrator is making a

 

9

 

good faith
effort to cure such breach, not to exceed an additional one hundred eighty
(180) days or (B) during the pendency of any dispute resolution proceedings as
set forth in Article XVII regarding an alleged material breach); or

 

(iii)    The Administrator is unable to perform the services
required under this Agreement for a period of thirty (30) consecutive days for
any reason other than as a result of a Force Majeure, it being understood that
nothing in this Section 16.2(a)(iii) shall relieve the Administrator from its
administrative responsibilities under this Agreement.  For purposes of this Agreement, “Force Majeure” means any acts or
omissions of any civil or military authority, acts of God, acts or omissions of
the Company, fires, strikes or other labor disturbances, equipment failures,
fluctuations or non-availability of electrical power, heat, light, air
conditioning or telecommunications equipment, or any other act, omission or
occurrence beyond the Administrator’s reasonable control, irrespective of
whether similar to the foregoing enumerated acts, omissions or occurrences.

 

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

 

(c)           In
the event that this Agreement is terminated under any of the provisions of
Section 16.2(a), the Administrator shall select a third-party
administrator to perform the services required by this Agreement.  The Company shall have the right to approve
any such administrator selected by the Administrator, but such approval will
not unreasonably be withheld or delayed. 
If the Administrator fails to select an administrator pursuant to this
Section 16.2(c), the Company shall select such an administrator.  In either case, the Administrator shall pay
all fees and charges imposed by the selected administrator and shall bear all
transition costs associated with the transition of the performance of the
services required under this Agreement to such administrator, including the
expense of sending policyholder notices as provided in Article V.

 

ARTICLE XVII

 

DISPUTE RESOLUTION

 

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

 

(b)           Commencing
with the request contemplated by Section 17.2, all communications between
the parties or their representatives in connection with the attempted
resolution of any Dispute, including any mediator’s evaluation referred to in
Section 17.3, shall be deemed to have been delivered in furtherance of a
Dispute settlement and shall be exempt

 

10

 

from discovery and production, and shall not be admissible in evidence
for any reason (whether as an admission or otherwise), in any arbitral or other
proceeding for the resolution of the Dispute.

 

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

 

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

 

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

 

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

 

17.3.        Mediation.
If a Dispute is not resolved by negotiation as provided in Section 17.2
within forty-five (45) days from the delivery of the Initial Notice, then
either party may submit the Dispute for resolution by mediation pursuant to the
CPR Institute for Dispute Resolution (the “CPR”) Model Mediation Procedure as
then in effect. The parties will select a mediator from the CPR Panels of
Distinguished Neutrals, but such mediator must have prior U.S. reinsurance
experience either as a lawyer or as a present or former officer or management
employee of a reinsurance company, but not of the Company, or the
Administrator, or any of their respective affiliates.  Either party at commencement of the mediation may ask the
mediator to provide an evaluation of the Dispute and the parties’ relative
positions.

 

17.4.        Arbitration. (a) If a Dispute is not resolved by mediation as
provided in Section 17.3 within thirty (30) days of the selection of a
mediator (unless the mediator chooses to withdraw sooner), either party may
submit the Dispute to be finally resolved by arbitration pursuant to the CPR
Rules for Non-Administered Arbitration as then in effect (the “CPR Arbitration Rules”).
The parties consent to a single, consolidated arbitration for all known
Disputes existing at the time of the arbitration and for which arbitration is
permitted.

 

(b)           The
neutral organization for purposes of the CPR Arbitration Rules will be the CPR.
The arbitral tribunal shall be composed of three arbitrators who are each
experienced in

 

11

 

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

 

(c)           The
parties agree to be bound by any award or order resulting from any arbitration
conducted hereunder and further agree that judgment on any award or order
resulting from an arbitration conducted under this Section 17.4 may be
entered and enforced in any court having jurisdiction thereof.

 

(d)           Except
as expressly permitted by this Agreement, no party will commence or voluntarily
participate in any court action or proceeding concerning a Dispute, except (i)
for enforcement as contemplated by Section 17.4(c) above, (ii) to restrict
or vacate an arbitral decision based on the grounds specified under applicable
law, or (iii) for interim relief as provided in paragraph (e) below. For
purposes of the foregoing the parties hereto submit to the non-exclusive
jurisdiction of the courts of the State of New York.

 

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

 

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

 

12

 

ARTICLE XVIII

 

MISCELLANEOUS PROVISIONS

 

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

 

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

 

If to the Company:

GE Life and Annuity Assurance Company

6610 West Broad Street

Richmond, VA 23230

Facsimile: 
(804) 281-6165

Attention:  Chief Executive Officer

 

With a copy to:

GE Life and Annuity Assurance Company

6610 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 281-6005

Attention:  General Counsel

 

If to the Administrator:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 330-3404

Attention:  Chief Financial Officer

 

With a copy to:

 

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

 

13

 

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

 

18.3.        Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. 
Neither this Agreement, nor any right or obligation hereunder, may be
assigned by any party without the prior written consent of the other party
hereto.  Any assignment in violation of this Section 18.3 shall
be void and shall have no force and effect.

 

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

 

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

 

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

 

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

 

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

 

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

 

18.9.        No Waiver; Preservation
of Remedies.  No consent or waiver,
express or implied, by any party to or of any breach or default by any other
party in the performance by such other party of its obligations hereunder shall
be deemed or construed to be a consent or waiver to or of any other breach or
default in the performance of obligations hereunder by such other party
hereunder.  Failure on the part of any
party to complain of any act or failure to act of any other party or to declare
any other party in default, irrespective of how long such failure continues,
shall not constitute a waiver by such first party of any of its rights
hereunder.  The

 

14

 

rights and remedies provided are cumulative
and are not exclusive of any rights or remedies that any party may otherwise
have at law or equity.

 

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

 

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

 

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

 

18.13.      Survival.  Article XVII and Article XVIII shall survive
the termination of this Agreement.

 

15

 

 

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

 

	
   

  	
  GE LIFE AND ANNUITY ASSURANCE

  
	
   

  	
    COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  UNION FIDELITY LIFE INSURANCE

  
	
   

  	
    COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
								

 

16

 

BUSINESS ASSOCIATE ADDENDUM

 

I.              Purpose.

 

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

 

II.            Permitted Uses and
Disclosures.

 

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

 

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

 

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

 

 

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

 

(1) The disclosure is required by law; or

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

this Addendum or
the Agreement that are not inconsistent with the provisions of this Addendum;
and such creation, use or disclosure is for services provided by Business
Associate that relate to Recipient’s or its Subsidiaries’ activities for
purposes of “treatment”, “payment” or “health care operations”, as those terms
are defined under the HIPAA Privacy Rule.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

or agent will
comply with the same restrictions and conditions that apply to the Business
Associate under the terms and conditions of this Addendum with respect to such
PHI.

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

of certain PHI
made as part of a Limited Data Set; (ix) for certain incidental disclosures
that may occur where reasonable safeguards have been implemented; and (x) for
disclosures prior to April 14, 2003.

 

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

 

VI.           Additional Business
Associate Provisions

 

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

 

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

 

(ii)       Identify the PHI used or
disclosed;

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

6

 

SCHEDULE C

 

CEDING COMMISSION

 

The Ceding Commission shall
be the sum of the following:

 

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

 

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

 

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

 

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

 

 

SCHEDULE D

 

ASSETS

 

	
  Transfer Document

  	
   

  	
  From

  	
   

  	
  To

  	
   

  	
  Nature of
  Transfer

  	
   

  	
  Cash Map
  Cross-Reference

  	
   

  	
  Schedule

  	
   

  
	
  GELAAC SS Coinsurance

  	
   

  	
  GELAAC

  	
   

  	
  UFLIC

  	
   

  	
  Treaty

  	
   

  	
  (85

  	
  )

  	
  Schedule D

  	
   

  

 

 

	
  Called Securities*

  	
   

  	
  Parent
  Name

  	
   

  	
  Issuer
  Name

  	
   

  	
  1Q04 Cusip

  	
   

  	
  1Q04 Tax
  lot

  	
   

  	
  12/31/03
  Local Par

  	
   

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

  	
   

  	
  12/31/03
  Accrued Interest

  	
   

  	
  12/31/03
  GAAP BV + Accrued Interest

  	
   

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

  	
   

  	
  12/31/03
  Accrued Interest

  	
   

  	
  12/31/03
  STAT BV + Accrued Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Individual Asset Details Omitted]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Asset Sub
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  177,644,647.60

  	
   

  	
  4,313,861.68

  	
   

  	
  181,958,509.28

  	
   

  	
  177,559,684.47

  	
   

  	
  4,313,861.68

  	
   

  	
  181,873,546.15

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  47,523.66

  	
   

  	
   

  	
   

  	
  47,523.66

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  177,607,208.13

  	
   

  	
   

  	
   

  	
  181,921,069.81

  	
   

  

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

 

 

SCHEDULE E

 

EXPENSE
ALLOWANCES

 

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

 

Policy Maintenance Factor                           $23.84 per
Policy

 

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

 

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

 

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

 

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

 

 

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

 

An additional adjustment, positive or negative, to
the prospective cost per unit determined by either the Triennial Study or the
two succeeding years may be negotiated between the parties. The additional
adjustment is for special projected costs or benefits of productivity, process
improvements, inflation, loss of scale, and any other cost variation which was
not included in the prior Triennial Study or the succeeding roll forward.

 

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

 

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

 

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

 

(f) Dispute
Resolution.  If the Reinsurer does
not deliver a Notice of Disagreement to the Company within such thirty (30) day
period, the Annual Expense Reimbursement Factor Documents and the Triennial
Study Documents, as applicable, shall be final and binding upon

 

 

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

 

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

 

 

SCHEDULE F - PART I

 

INITIAL REPORT

 

	
  1.

  	
  Total SAP
  Ceded Reserves

  Gross Policy Reserves calculated in accordance with SAP with respect to the
  reinsured risks.

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Ceding Commission:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A. 
  Excess SAP Ceded Reserves over GAAP Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1) 
  Total SAP Ceded Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  2) 
  Total GAAP Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Gross Policy Reserves calculated in accordance with GAAP with respect
  to the reinsured risks.

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
   Excess SAP Reserves over GAAP
  Reserves (A1-A2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B. 
  Present Value of Future Profits (PVFP)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
  C. 
  Deferred Acquisition Costs (DAC)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

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

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1) 
  Asset Book Value (GAAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  2) 
  Asset Book Value (SAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
  Excess Asset Book Value (D1-D2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

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

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Accrued Interest on Assets as of the day
  before Inception Date

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

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

  	
   

  	
   

  	
   

  	
  $

  	
   

  
	
   

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

  	
   

  	
   

  	
   

  	
  $

  	
   

  

 

 

SCHEDULE F -
PART II

 

QUARTERLY REPORT

 

	
  1.

  	
  Benefits

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Withdrawals from Claims Settlement Account

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Expense Allowance

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  I.

  	
  Quarterly Settlement Amount (-1+2-3)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  Net Due to (from) Reinsurer

  	
   

  	
  $

  	
   

  

 

 

SCHEDULE F - PART III

 

ANNUAL REPORT

 

	
  1.

  	
  Benefits

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Withdrawals from Claims Settlement Account

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Expense Allowance

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  I.

  	
  Quarterly Settlement Amount (-1+2-3)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
  Net Due to (from) Reinsurer (I-II)

  	
   

  	
  $

  	
   

  

 

 

SCHEDULE G

 

FORM OF TRUST AGREEMENT

 

 

SCHEDULE H

 

ELIGIBLE SECURITIES

 

Assets of the
types for which an Illinois-domiciled life insurance company could obtain full
statutory reserve credit under statutory accounting practices prescribed or
permitted by the Director of Insurance of the State of Illinois.Exhibit 10.12

 

 

 

COINSURANCE AGREEMENT

 

between

 

FEDERAL HOME LIFE INSURANCE COMPANY

 

and

 

UNION FIDELITY LIFE INSURANCE COMPANY

 

Dated as of April 15, 2004

 

 

 

 

TABLE OF CONTENTS

 

 

	
  ARTICLE I

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  COVERAGE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  	
  ADMINISTRATION;
  GENERAL PROVISIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  CLAIMS SETTLEMENT ACCOUNT; CLAIMS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  REINSURANCE ASSET TRANSFER; CEDING
  COMMISSION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  EXPENSE ALLOWANCES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  ACCOUNTING AND SETTLEMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  DURATION AND TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  INSOLVENCY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
  CREDIT FOR REINSURANCE

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
  REINSURANCE SECURITY

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
  DEFERRED ACQUISITION COSTS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII

  	
  DISPUTE RESOLUTION

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIV

  	
  MISCELLANEOUS PROVISIONS

  	
   

  

 

 

	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULE A

  	
  -

  	
  POLICY FORMS

  
	
   

  	
   

  	
   

  
	
  SCHEDULE B

  	
  -

  	
  FORM OF ADMINISTRATIVE SERVICES AGREEMENT

  
	
   

  	
   

  	
   

  
	
  SCHEDULE C

  	
  -

  	
  CEDING COMMISSION

  
	
   

  	
   

  	
   

  
	
  SCHEDULE D

  	
  -

  	
  ASSETS

  
	
   

  	
   

  	
   

  
	
  SCHEDULE E

  	
  -

  	
  EXPENSE ALLOWANCES

  
	
   

  	
   

  	
   

  
	
  SCHEDULE F - PART I

  	
  -

  	
  INITIAL REPORT

  
	
   

  	
   

  	
   

  
	
  SCHEDULE F - PART II

  	
  -

  	
  QUARTERLY REPORT

  
	
   

  	
   

  	
   

  
	
  SCHEDULE F - PART III

  	
  -

  	
  ANNUAL REPORT

  
	
   

  	
   

  	
   

  
	
  SCHEDULE
  G

  	
  -

  	
  FORM
  OF TRUST AGREEMENT

  
	
   

  	
   

  	
   

  
	
  SCHEDULE
  H

  	
  -

  	
  ELIGIBLE
  SECURITIES

  

 

i

 

COINSURANCE
AGREEMENT

 

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

 

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

 

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

 

ARTICLE I

DEFINITIONS

 

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

 

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

 

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

 

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

 

“Annual
Report” shall have the meaning specified in Section 7.4.

 

“Applicable
Law” means any federal, state, local or foreign law (including common law),
statute, ordinance, rule, regulation, order, writ, injunction, judgment,
permit, governmental agreement or decree applicable to a Person or any of such
Person’s subsidiaries,

 

 

properties, assets, or to such Person’s officers, directors, managing
directors, employees or agents in their capacity as such.

 

“Assets”
shall have the meaning specified in Section 5.3(a).

 

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

 

“Benefits”
shall have the meaning specified in Section 2.3(a).

 

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

 

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

 

“Ceding
Commission” shall have the meaning specified in Section 5.2.

 

“Claims
Settlement Account” shall have the meaning specified in Section 4.1(a).

 

“Closing
Date” means April 15, 2004.

 

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

 

“Company
Account” shall have the meaning specified in Section 11.1(e).

 

“CPR”
shall have the meaning specified in Section 13.3.

 

“CPR
Arbitration Rules” shall have the meaning specified in Section 13.4(a).

 

“Dispute”
shall have the meaning specified in Section 13.1(a).

 

“Eligible
Securities” shall have the meaning specified in Section 11.1(c).

 

“Expense
Allowance” shall have the meaning specified in Section 6.1.

 

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

 

2

 

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

 

“Funding
Requirement” shall have the meaning specified in Section 11.1(e).

 

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

 

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

 

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

 

“Initial
Notice” shall have the meaning specified in Section 13.2.

 

“Initial
Reinsurance Premium” shall have the meaning specified in Section 5.1.

 

“Initial
Report” shall have the meaning specified in Section 7.1.

 

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

 

“Minimum
Claims Settlement Amount” shall have the meaning specified in Section
4.1(b).

 

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

 

“Quarterly
Report” shall have the meaning specified in Section 7.2.

 

“Quarterly
Settlement” shall have the meaning specified in Section 5.3(a).

 

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

 

“Reinsured
Contracts” means the structured settlements immediate annuity contracts
issued by the Company and recorded in the Company’s valuation system on or
prior to December 3, 2003 or reinsured by the Company under reinsurance
agreements in effect prior to January 1, 2004, and, in each case, written on
the policy forms described in Schedule A.

 

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

 

3

 

“Response”
shall have the meaning specified in Section 13.2.

 

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

 

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

 

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

 

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

 

“Total SAP
Ceded Reserves” means, as of any given date, the gross policy reserves of
the Company calculated in accordance with SAP with respect to the Reinsured
Risks.

 

“Total GAAP
Ceded Reserves” means, as of any given date, the gross policy reserves of
the Company calculated in accordance with GAAP with respect to the Reinsured
Risks.

 

“Trust
Account” shall have the meaning set forth in Section 11.1(a).

 

“Trust
Agreement” shall have the meaning set forth in Section 11.1(a).

 

“Trustee”
shall have the meaning set forth in Section 11.1(a).

 

ARTICLE II

COVERAGE

 

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

 

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

 

(b)           Except
as otherwise set forth in paragraph (a) above, no changes, amendments or
modifications made on or after the Inception Date in the terms and conditions
of the

 

4

 

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

 

2.3.          Benefits.  (a)  Subject to the provisions of Sections 2.2,
2.3(b) and (c) and the terms and conditions of this Agreement, “Benefits” shall
mean the actual benefits payable by the Company under the Reinsured Contracts.

 

(b)           Any
Extra Contractual Liabilities resulting from actions of the Company or its
agents or reinsured by the Company under the Reinsured Contracts shall be
treated as a Benefit payable for the purposes of this Agreement to the extent
permitted by state law, except to the extent that any such Extra Contractual Liabilities
are attributable to the conduct of the Company in the administration of the
Reinsured Contracts on or after the Inception Date, other than actions taken by
the Company at the written request or direction of the Reinsurer.

 

(c)           This
Agreement excludes all liability arising by contract, operation of law, or
otherwise from the Company’s participation or membership, whether voluntary or
involuntary, in any Insolvency Fund.

 

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

 

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

 

ARTICLE III

ADMINISTRATION; GENERAL PROVISIONS

 

3.1.          Contract
Administration.  (a)  Subject to Section 3.7, the Company shall
provide policyholder and claims servicing with respect to the Reinsured
Contracts in accordance with the terms hereof. 
All Benefits paid by the Company shall be binding upon the Reinsurer; provided,
however, that such Benefits are within the terms, conditions and
limitations of the Reinsured Contracts. 
The Company shall provide policyholder and claims servicing with respect
to the Reinsured Contracts (including the administration of claims for Benefits
thereunder) in good faith and with the care, skill, prudence and diligence of a
person experienced in administering structured settlement business.  The Company shall provide policyholder and
claims servicing with respect to the Reinsured Contracts, (i) in
accordance with the terms of the Reinsured Contracts, (ii) in accordance with
the applicable terms of this Agreement, (iii) in compliance with Applicable Law
and, subject to the foregoing, (iv) in the same manner as it conducts its own
business not subject to this Agreement and (v) in accordance with the Company’s
administrative performance standards in effect on the date hereof, with such
revisions

 

5

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

3.7.          Administration by
Reinsurer.  (a)  At any time from and after the fifteenth
(15th) anniversary of the Inception Date, the Reinsurer shall have the right to
assume from the Company the administration of the Reinsured Contracts, provided
that the Reinsurer provides twelve (12) months prior written notice of such
assumption, which notice may be given as early as the fourteenth (14th)
anniversary of the Inception Date to take effect as of the fifteenth (15th)
anniversary of the Inception Date.  The
Reinsurer shall bear all transition costs associated with an assumption of the
administration of the Reinsured Contracts pursuant to this paragraph (a) of
this Section 3.7.

 

(b)           In
addition to the provisions of Section 3.7(a), the Reinsurer shall have the
right, upon written notice to the Company to assume from the Company the administration
of the Reinsured Contracts upon the occurrence of any of the following events:

 

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

 

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

 

7

 

proceedings as
set forth in Article XIII regarding an alleged material breach); or

 

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

 

(c)           The
Company shall bear all transition costs associated with an assumption of the
administration of the Reinsured Contracts pursuant to Section 3.7(b).

 

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

 

ARTICLE IV

CLAIMS SETTLEMENT ACCOUNT; CLAIMS

 

4.1.          Claims Settlement
Account.  (a)  On the Closing Date, the Reinsurer shall
establish a separate bank account (the “Claims Settlement Account”) in its own
name for the payment of Benefits and shall authorize two signatories who shall
be representatives of the Company and approved by the Reinsurer in writing to
issue drafts in the name of the Reinsurer and showing the identity of the
Company.  The Reinsurer shall fund such
account for payment of Benefits in accordance with the provisions of Section
4.1(b).  Any interest earned on the Claims
Settlement Account shall belong to the Reinsurer.  The Claims Settlement Account shall be administered by the
Company in a fiduciary capacity and shall be used solely by the Company to make
payments of Benefits in accordance with the terms of this Agreement.

 

(b)           The
Reinsurer shall deposit $5 million in the Claims Settlement Account on the
Closing Date and shall thereafter fund the Claims Settlement Account on or
before the fifth (5th) day of each month in amounts agreed by the Company and
the Reinsurer from time to time in amounts sufficient to provide funds to the
Company for the payment of Benefits during the next thirty (30) days, or such
other amount as may be mutually agreed by the parties (such initial deposit
amount and each minimum funding amount as agreed from time to time shall be
referred to as a “Minimum Claims Settlement Amount”).  In addition, the Reinsurer shall deposit to the Claims Settlement
Account such additional amounts as may be required to keep

 

8

 

the balance of
such account above zero at all times. 
In consideration of the Reinsurer providing the Claims Settlement
Account arrangement, the Company agrees that it shall apply funds in the Claims
Settlement Account against the Reinsurer’s liability under this Agreement until
such funds are exhausted.

 

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

 

(d)           Within
thirty (30) days after each calendar month (or more frequently as mutually
agreed by the parties), the Company shall render a complete accounting to the
Reinsurer detailing all transactions with respect to the Claims Settlement
Account, in such form as agreed by the parties.

 

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

 

(f)            Upon
a termination of this Agreement pursuant to Article VIII, the Reinsurer shall
close the Claims Settlement Account and any closing balance therein shall be
the property of the Reinsurer.  The
Company’s claims payment authority under this Agreement with respect to the
Claims Settlement Account shall terminate immediately upon termination of this
Agreement pursuant to Article VIII or the assumption by the Reinsurer of the
administration of the Reinsured Contracts pursuant to Section 3.7.  Upon termination of its authority to pay
claims, the Company shall promptly return to the Reinsurer all unused check
stock held by it in connection with this Agreement.

 

ARTICLE V

REINSURANCE ASSET TRANSFER; CEDING COMMISSION

 

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

 

9

 

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

 

5.3.          Amounts Due the
Parties.  (a)  Except as otherwise specifically provided
herein, all amounts due to be paid to the Company under this Agreement shall be
determined on a net basis, giving full effect to Section 3.6.  The net amount due the Reinsurer from the
Company on the Closing Date under Section 5.1 and Section 5.2 shall consist of
(i) the investment assets (the “Assets”) set forth on Schedule D, which assets
have a statutory book value as of the close of business on the day immediately
preceding the Inception Date equal to (A) the Initial Reinsurance Premium, less
(B) the Ceding Commission, less (C) an amount equal to accrued but unpaid
interest on the Assets as of the close of business on the day immediately
preceding the Inception Date, plus (ii) an amount equal to the investment cash
flows received on the Assets between the Inception Date and the Closing
Date.  The Company shall pay such net
amount concurrent with its delivery of the Initial Report.  Each net amount subsequently due with
respect to each Accounting Period ending after the Inception Date (the
“Quarterly Settlement”) shall be paid in cash by the Reinsurer to the Company
no later than thirty (30) days after delivery of the Quarterly Report, as
applicable.  Each net amount
subsequently due with respect to each calendar year ending after the Inception
Date as reflected on an Annual Report shall be paid in cash by the Reinsurer to
the Company no later than thirty (30) days after delivery of the Annual Report.

 

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

 

ARTICLE VI

EXPENSE ALLOWANCES

 

6.1.          Expense Allowance.  As reimbursement for expenses incurred by
the Company in the providing of policyholder and Benefit payment services with
respect to the Reinsured Contracts, the Reinsurer shall pay to the Company with
respect to each calendar month ending after the Inception Date, an expense
allowance (each an “Expense Allowance”) in an amount calculated in accordance
with Schedule E, as subsequently adjusted in accordance with the methodology
and procedures set forth on Schedule E.

 

10

 

ARTICLE VII

ACCOUNTING AND SETTLEMENT

 

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

 

7.2.          Quarterly Settlement
Reports.  As soon as practicable but
not more than forty (40) days following each Accounting Period ending after the
Closing Date (or more frequently as mutually agreed by the parties), the
Company shall supply the Reinsurer with a report that shall provide the
financial data for such Accounting Period required in Schedule F -
Part II (the “Quarterly Report”).  For
the avoidance of doubt, the first Quarterly Report will include all transactions
with respect to the Reinsured Contracts occurring from the Inception Date
through June 30, 2004.

 

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

 

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

 

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

 

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

 

ARTICLE VIII

DURATION AND TERMINATION

 

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

 

11

 

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

 

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

 

ARTICLE IX

INSOLVENCY

 

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

 

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

 

ARTICLE X

CREDIT FOR REINSURANCE

 

10.1.        Reinsurance Credit.  Notwithstanding any other provision of this
Agreement to the contrary, if the Reinsurer becomes unauthorized or otherwise
unaccredited as an insurer or reinsurer in any U.S. jurisdiction to which the
Company must provide statutory statements of financial condition such that the
Company will not obtain full statutory financial statement credit for
reinsurance in such state for the reinsurance provided under this Agreement,
the Reinsurer, upon the request of the Company, will establish, at the Reinsurer’s
sole cost and

 

12

 

option, trust accounts for the
benefit of the Company, letters of credit, or other acceptable alternatives
necessary to permit the Company to obtain such full statutory financial
statement credit for such reinsurance in all applicable jurisdictions.  The Company shall cooperate with the
Reinsurer to take such steps.  In
addition, in such event, the Reinsurer agrees to amend this Agreement and the
Trust Agreement to the extent required under Applicable Law in order to provide
the Company with such full statutory financial statement credit.

 

ARTICLE XI

REINSURANCE SECURITY

 

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

 

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

 

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

 

(d)           The
Reinsurer, prior to depositing assets with the Trustee, shall execute all
assignments and endorsements in blank, or transfer legal title to the Trustee
of all shares, obligations or any other assets requiring assignments, in order
that, to the extent practicable, the Company, or the Trustee upon direction of
the Company, may whenever necessary negotiate any such assets without consent
or signature from the Reinsurer or any other entity.  The Company recognizes that certain assets in the Trust Account
will not be readily negotiable and that certain notices, opinions of counsel,
representations and/or consents will be required for the Company to obtain good
and marketable title to such assets.

 

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

 

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

 

(ii)                to
pay to the Reinsurer, in accordance with paragraph (h) below, any amounts held
in the Trust Account that exceed an amount (the “Funding

 

13

 

Requirement”)
equal to the sum of Total SAP Ceded Reserves and any additional reserves
attributable to the Reinsured Risks that arise as a result of regulatory asset
adequacy analysis requirements of the Reinsurer, less, prior to the date on
which the Claims Settlement Account is closed, the Minimum Claims Settlement
Amount then in effect; and

 

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

 

(f)            In
the event that the Company withdraws assets from the Trust Account for the
purposes set forth in Section 11.1(e)(i) above in excess of actual amounts
required to meet the Reinsurer’s obligations to the Company, the Company will
promptly return such excess to the Reinsurer, plus interest at an annual rate
equal to the then current thirty (30) day U.S. Treasury Bill discount rate on
the date of withdrawal plus 200 basis points for the period during which the
amounts were held pursuant to Section 11.1(e)(i).   In the event that the Company withdraws assets from the Trust
Account for the purposes set forth in Section 11.1(e)(iii) above, (i) the
Reinsurer shall be relieved of its obligation to maintain assets in the Trust
Account pursuant to this Section 11.1 to the extent of the amount of funds held
in the Company Account and (ii) the Company shall first apply the funds in the
Company Account in satisfaction of the Reinsurer’s liability under this
Agreement until the funds in the Company Account are exhausted.  In the event that the Company withdraws
assets from the Trust Account for the purposes set forth in Section
11.1(e)(iii) above, promptly following the date the Reinsurer’s liability with
respect to the Reinsured Risks is terminated, the Company shall return to the
Reinsurer any assets so withdrawn that, together with any and all interest,
dividends and other earnings thereon from the date of withdrawal to the date of
return, are in excess of actual amounts required to meet the Reinsurer’s
obligations to the Company under this Agreement.

 

(g)           The
initial deposit to the Trust Account with respect to this Agreement shall be
made on the Closing Date and shall consist of assets with a statutory book
value equal to the Total SAP Ceded Reserves as of the close of business on the
day immediately preceding the Inception Date, less an amount of assets with a
statutory book value equal to the initial Minimum Claims Settlement Amount.

 

(h)           The
aggregate statutory book value of the assets held in the Trust Account with
respect to this Agreement, shall at all times be at least equal to the Funding
Requirement, and shall be adjusted on a quarterly basis so as to equal the
Funding Requirement.  On a quarterly
basis, the Company shall promptly prepare and deliver to the Reinsurer a
specific statement of the Funding Requirement and the Reinsurer shall promptly
prepare and deliver to the Company a specific statement of the statutory book
value of the assets in the Trust Account, in each case as of the end of the
quarter.  If the statement shows that
the Funding Requirement exceeds 100% of the balance of the Trust Account with
respect to this Agreement as of the

 

14

 

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

 

ARTICLE XII

DEFERRED ACQUISITION COSTS

 

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

 

ARTICLE XIII

DISPUTE RESOLUTION

 

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

 

(b)           Commencing
with the request contemplated by Section 13.2, all communications between the
parties or their representatives in connection with the attempted resolution of
any Dispute, including any mediator’s evaluation referred to in Section 13.3,
shall be deemed to have been delivered in furtherance of a Dispute settlement
and shall be exempt from discovery and production, and shall not be admissible
in evidence for any reason (whether as an admission or otherwise), in any
arbitral or other proceeding for the resolution of the Dispute.

 

15

 

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

 

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

 

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

 

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

 

13.3.        Mediation.
If a Dispute is not resolved by negotiation as provided in Section 13.2 within
forty-five (45) days from the delivery of the Initial Notice, then either party
may submit the Dispute for resolution by mediation pursuant to the CPR Institute
for Dispute Resolution (the “CPR”) Model Mediation Procedure as then in effect.
The parties will select a mediator from the CPR Panels of Distinguished
Neutrals, but such mediator must have prior U.S.
reinsurance experience either as a lawyer or as a present or former officer or
management employee of a reinsurance company, but not of the Company, or the
Reinsurer, or any of their respective affiliates.  Either party at
commencement of the mediation may ask the mediator to provide an evaluation of
the Dispute and the parties’ relative positions.

 

13.4.        Arbitration. (a) If a Dispute is not resolved by mediation as
provided in Section 13.3 within thirty (30) days of the selection of a mediator
(unless the mediator chooses to withdraw sooner), either party may submit the
Dispute to be finally resolved by arbitration pursuant to the CPR Rules for
Non-Administered Arbitration as then in effect (the “CPR Arbitration Rules”).
The parties consent to a single, consolidated arbitration for all known Disputes
existing at the time of the arbitration and for which arbitration is permitted.

 

(b)           The
neutral organization for purposes of the CPR Arbitration Rules will be the CPR.
The arbitral tribunal shall be composed of three arbitrators who are each
experienced in the U.S. reinsurance business, of whom each party shall appoint
one in accordance with the “screened” appointment procedure provided in Rule
5.4 of the CPR Arbitration Rules.  The
non-party appointed arbitrator must have prior U.S. reinsurance experience as a
present or former officer or management employee of a reinsurance company, but
not of the Company, or the Reinsurer, or any of their respective
affiliates.  The arbitration shall be
conducted in New York

 

16

 

City.  Each party shall be permitted to present its
case, witnesses and evidence, if any, in the presence of the other party. A
written transcript of the proceedings shall be made and furnished to the
parties. The arbitrators shall determine the Dispute in accordance with the law
of Virginia, without giving effect to any conflict of law rules or other rules
that might render such law inapplicable or unavailable, and shall apply this
Agreement according to its terms, provided that the provisions relating to
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et
seq.  The arbitral tribunal shall
endeavor to render its award or order resulting from any arbitration within
forty-five (45) days following the termination of the arbitration proceedings.

 

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

 

(d)           Except
as expressly permitted by this Agreement, no party will commence or voluntarily
participate in any court action or proceeding concerning a Dispute, except (i)
for enforcement as contemplated by Section 13.4(c) above, (ii) to restrict or
vacate an arbitral decision based on the grounds specified under applicable
law, or (iii) for interim relief as provided in paragraph (e) below. For
purposes of the foregoing the parties hereto submit to the non-exclusive
jurisdiction of the courts of the State of New York.

 

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

 

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

 

ARTICLE XIV

MISCELLANEOUS PROVISIONS

 

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

 

14.2.        Notices.  All
notices, requests, demands and other communications under this Agreement must
be in writing and will be deemed to have been duly given or made as

 

17

 

follows:  (a) if sent by registered or certified mail
in the United States return receipt requested, upon receipt; (b) if sent by
reputable overnight air courier, two business days after mailing; (c) if sent
by facsimile transmission, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone; or (d) if otherwise actually personally delivered, when delivered,
and shall be delivered as follows:

 

If to the Company:

Federal Home Life Insurance Company

6620 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 662-2414

Attention:  Chief Executive Officer

 

With a copy to:

 

Federal Home Life Insurance
Company

700 Main Street

Lynchburg, VA 24504

Facsimile:  (434) 948-5819

Attention:  General Counsel

 

If to the Reinsurer:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile: (847) 330-3404

Attention: Chief Financial Officer

With a copy to:

 

Union Fidelity Life Insurance
Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

14.11.      Cooperation.  Each party hereto shall cooperate fully with
the other in all reasonable respects in order to accomplish the objectives of
this Agreement including making

 

19

 

available to each their
respective officers and employees for interviews and meetings with Governmental
Authorities and furnishing any additional assistance, information and documents
as may be reasonably requested by a party from time to time.

 

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

 

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

 

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

 

14.15.      Survival.  Article XIII and Article XIV shall survive
the termination of this Agreement.

 

20

 

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

 

	
   

  	
  FEDERAL HOME LIFE INSURANCE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/  VICTOR C. MOSES

  
	
   

  	
   

  	
  Name: Victor C. Moses

  
	
   

  	
   

  	
  Title: Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  UNION FIDELITY LIFE INSURANCE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/  GLENN JOPPA

  
	
   

  	
   

  	
  Name: Glenn Joppa

  
	
   

  	
   

  	
  Title:
  Senior Vice President and Secretary

  

 

21

 

SCHEDULE A

 

POLICY FORMS

 

8001

 

8101

 

8201

 

8401

 

1700

 

 

SCHEDULE B

 

FORM OF
ADMINISTRATIVE SERVICES AGREEMENT

 

 

SSA UFLIC/FHL

 

 

 

 

ADMINISTRATIVE SERVICES
AGREEMENT

 

by and between

 

FEDERAL HOME LIFE INSURANCE
COMPANY

 

and

 

UNION FIDELITY LIFE INSURANCE
COMPANY

 

 

Effective as of
[         ]

 

 

 

 

ADMINISTRATIVE SERVICES AGREEMENT

 

 

This
ADMINISTRATIVE SERVICES AGREEMENT (this “Agreement”), effective as of
[                     ]
(the “Effective Date”), is entered into by and between FEDERAL HOME LIFE
INSURANCE COMPANY, an insurance company organized under the laws of the
Commonwealth of Virginia (the “Company”), and UNION FIDELITY LIFE INSURANCE
COMPANY, an insurance company organized under the laws of the State of Illinois
(the “Administrator”).

 

RECITALS:

 

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

 

WHEREAS,
pursuant to the Coinsurance Agreement, the Administrator has agreed to
indemnify the Company for, among other things, 100% of the liability of the
Company for Benefits payable on or after the Inception Date with respect to the
Reinsured Contracts (capitalized terms used herein and not defined herein,
unless otherwise indicated, have the respective meanings assigned to them in
the Coinsurance Agreement); and

 

WHEREAS, the
Company wishes to appoint the Administrator to provide policyholder and claim
servicing with respect to the Reinsured Contracts, and the Administrator
desires to provide such administrative services;

 

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

 

ARTICLE I

AUTHORITY

 

The Company
hereby appoints the Administrator, and the Administrator hereby accepts
appointment, to provide as an independent contractor of the Company, from and
after the Effective Date, all of the policyholder and claim servicing services
necessary or appropriate with respect to the Reinsured Contracts including
those set forth in this Agreement (the “Administrative Services”), all on the
terms as set forth in this Agreement. 
Notwithstanding any other provision of this Agreement to the contrary,
the Company shall have the right to direct the Administrator to perform any
action necessary for the Reinsured Contracts or the policyholder and claim
servicing thereof to comply with Applicable Law, or to cease performing any
action that constitutes a violation of Applicable Law.

 

 

ARTICLE II

STANDARD FOR SERVICES; FACILITIES; SUBCONTRACTING

 

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

 

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

 

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

 

ARTICLE III

CLAIMS HANDLING

 

The
Administrator shall pay all Benefits payable on or after the Inception Date
with respect to the Reinsured Contracts (each, a “Claim” and collectively the
“Claims”).

 

ARTICLE IV

REGULATORY AND LEGAL PROCEEDINGS

 

4.1.          Regulatory Complaints
and Proceedings.  The Administrator
shall:

 

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

 

2

 

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

 

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

 

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

 

4.2.          Legal Proceedings.  The Administrator shall:

 

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

 

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

 

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

 

4.3.          Notice to
Administrator.  The Company shall
give prompt notice to the Administrator of any Legal Proceeding made or brought
against the Company after the Inception

 

3

 

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

 

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

 

ARTICLE V

NOTIFICATION TO POLICYHOLDERS

 

The
Administrator agrees to send to policyholders of the Reinsured Contracts a
written notice prepared by the Administrator and reasonably acceptable to the
Company to the effect that the Administrator, or such other Person designated
by the Administrator in accordance with the terms of this Agreement, has been
appointed by the Company to provide Administrative Services.  The Administrator shall send such notice by
first class U.S. mail at a time reasonably acceptable to the Company and the
Administrator and in all events in accordance with Applicable Law.  The parties intend to minimize the cost
associated with any notification under this Article V, including by means of inclusion
of the notice in a regularly scheduled mailing to policyholders in lieu of a
separate mailing.  The cost associated
with such notification under this Article V (upon the initial assumption of the
administration of the Reinsured Contracts under Section 3.7 of the Coinsurance
Agreement) shall be a transition cost payable by the Administrator or the
Company in accordance with Section 3.7(a) or 3.7(c) of the Coinsurance
Agreement, as applicable.

 

ARTICLE VI

INSOLVENCY FUND ACCOUNTINGS

 

6.1.          Quarterly Accountings.  Within thirty (30) days after the end of
each calendar quarter that this Agreement is in effect (or more frequently as
mutually agreed by the

 

4

 

parties), the Company shall
submit to the Administrator a written statement of accounting in a form and
containing such information to be agreed upon by the parties hereto (each, an
“Insolvency Fund Quarterly Accounting”) setting forth the Insolvency Fund
amounts assessed or payable to the extent that such assessments constitute
Reinsured Risks with respect to the Reinsured Contracts (collectively, the
“Post-Effective Date Assessments”).  The
Administrator shall remit to the Company an amount equal to the Post-Effective
Date Assessments set forth in an Insolvency Fund Quarterly Accounting received
by the Administrator within ten (10) Business Days of receipt by the
Administrator of such Insolvency Fund Quarterly Accounting.

 

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

 

ARTICLE VII

CERTAIN ACTIONS BY COMPANY

 

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

 

7.2.          Annual Adjustment.  The Company shall pay or provide to the
Administrator the benefit of any Post-Effective Date Assessments which have
been or can be applied to reduce the Company’s premium tax liability (“Premium
Tax Credits”).  The Company shall
provide to the Administrator by March 15 of each year a statement of the amount
of Premium Tax Credits for the prior calendar year and the Company will pay or
credit to the Administrator an amount equal to such Premium Tax Credits.

 

ARTICLE VIII

REGULATORY MATTERS AND AUDIT REPORTING

 

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

 

5

 

respect to records maintained
in machine readable form, hard copies) that are necessary to satisfy such
requirements.  All copies of records
furnished in the ordinary course of business shall be furnished by the Administrator
at the Administrator’s cost.  Any
extraordinary costs reasonably incurred by the Administrator in response to
requests from the Company shall be reimbursed by the Company.  Among other responsibilities:

 

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

 

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

 

8.2.          Reporting and
Accounting.  The Administrator shall
assume the reporting and accounting obligations set forth below:

 

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

 

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

 

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

 

(iv)            Within
forty-five (45) days after each calendar year end (or such longer time as may
be agreed by the parties) that this Agreement is in effect, the Administrator
shall provide to the Company (a) an opinion of an actuary reasonably acceptable
to the Company as to the adequacy of statutory

 

6

 

reserves for
the Reinsured Contracts, prepared according to accepted actuarial standards of
practice, and as otherwise required for regulatory reporting purposes and (b)
an analysis which reasonably supports such opinion.

 

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

 

ARTICLE IX

MISCELLANEOUS ADMINISTRATIVE SERVICES

 

The
Administrator shall provide such other Administrative Services as are necessary
or appropriate to fully effectuate the purpose of the Reinsurance Agreement and
this Agreement, including such Administrative Services as are not performed by
or on behalf of the Company on the date hereof but the need for which may arise
due to changes or developments in Applicable Law.

 

ARTICLE X

BOOKS AND RECORDS

 

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

 

ARTICLE XI

COOPERATION

 

Each party
hereto shall cooperate fully with the other in all reasonable respects in order
to accomplish the objectives of this Agreement including making available to
each their respective officers and employees for interviews and meetings with
Governmental Authorities and

 

7

 

furnishing any additional
assistance, information and documents as may be reasonably requested by a party
from time to time.

 

ARTICLE XII

PRIVACY REQUIREMENTS

 

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

 

ARTICLE XIII

CONSIDERATION FOR ADMINISTRATIVE SERVICES

 

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

 

ARTICLE XIV

BANK ACCOUNT; USE OF COMPANY LETTERHEAD

 

When and on
terms reasonably requested by the Administrator, the Company shall open, modify
or close, and make available for use by the Administrator for the payment of amounts
to

 

8

 

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

 

ARTICLE XV

INDEMNIFICATION

 

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

 

ARTICLE XVI

DURATION; TERMINATION

 

16.1.        Duration.  This Agreement shall commence on the
Effective Date and continue with respect to each Reinsured Contract until no
further Administrative Services in respect of such Reinsured Contract is
required, unless this Agreement is earlier terminated under Section 16.2.

 

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

 

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

 

(ii)                There
is a material breach by the Administrator of any material term or condition of
this Agreement that is not cured by the Administrator within thirty (30) days
after receipt of written notice from the Company of such breach or act
(provided that the Company shall not have the right to terminate this Agreement
(A) for so long as the Administrator is making a

 

9

 

good faith
effort to cure such breach, not to exceed an additional one hundred eighty
(180) days or (B) during the pendency of any dispute resolution proceedings as
set forth in Article XVII regarding an alleged material breach); or

 

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

 

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

 

(c)           In
the event that this Agreement is terminated under any of the provisions of
Section 16.2(a), the Administrator shall select a third-party
administrator to perform the services required by this Agreement.  The Company shall have the right to approve
any such administrator selected by the Administrator, but such approval will
not unreasonably be withheld or delayed. 
If the Administrator fails to select an administrator pursuant to this
Section 16.2(c), the Company shall select such an administrator.  In either case, the Administrator shall pay
all fees and charges imposed by the selected administrator and shall bear all
transition costs associated with the transition of the performance of the
services required under this Agreement to such administrator, including the
expense of sending policyholder notices as provided in Article V.

 

ARTICLE XVII

DISPUTE RESOLUTION

 

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

 

(b)           Commencing
with the request contemplated by Section 17.2, all communications between
the parties or their representatives in connection with the attempted
resolution of any Dispute, including any mediator’s evaluation referred to in
Section 17.3, shall be deemed to have been delivered in furtherance of a
Dispute settlement and shall be exempt

 

10

 

from discovery and production,
and shall not be admissible in evidence for any reason (whether as an admission
or otherwise), in any arbitral or other proceeding for the resolution of the
Dispute.

 

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

 

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

 

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

 

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

 

17.3.        Mediation.
If a Dispute is not resolved by negotiation as provided in Section 17.2
within forty-five (45) days from the delivery of the Initial Notice, then
either party may submit the Dispute for resolution by mediation pursuant to the
CPR Institute for Dispute Resolution (the “CPR”) Model Mediation Procedure as
then in effect. The parties will select a mediator from the CPR Panels of
Distinguished Neutrals, but such mediator must have prior U.S. reinsurance
experience either as a lawyer or as a present or former officer or management
employee of a reinsurance company, but not of the Company, or the
Administrator, or any of their respective affiliates.  Either party at commencement of the mediation may ask the
mediator to provide an evaluation of the Dispute and the parties’ relative
positions.

 

17.4.        Arbitration. (a) If a Dispute is not resolved by mediation as
provided in Section 17.3 within thirty (30) days of the selection of a
mediator (unless the mediator chooses to withdraw sooner), either party may
submit the Dispute to be finally resolved by arbitration pursuant to the CPR
Rules for Non-Administered Arbitration as then in effect (the “CPR Arbitration Rules”).
The parties consent to a single, consolidated arbitration for all known
Disputes existing at the time of the arbitration and for which arbitration is
permitted.

 

(b)           The
neutral organization for purposes of the CPR Arbitration Rules will be the CPR.
The arbitral tribunal shall be composed of three arbitrators who are each
experienced in

 

11

 

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

 

(c)           The
parties agree to be bound by any award or order resulting from any arbitration
conducted hereunder and further agree that judgment on any award or order
resulting from an arbitration conducted under this Section 17.4 may be
entered and enforced in any court having jurisdiction thereof.

 

(d)           Except
as expressly permitted by this Agreement, no party will commence or voluntarily
participate in any court action or proceeding concerning a Dispute, except (i)
for enforcement as contemplated by Section 17.4(c) above, (ii) to restrict
or vacate an arbitral decision based on the grounds specified under applicable
law, or (iii) for interim relief as provided in paragraph (e) below. For
purposes of the foregoing the parties hereto submit to the non-exclusive
jurisdiction of the courts of  the State
of New York.

 

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

 

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

 

12

 

ARTICLE XVIII

MISCELLANEOUS PROVISIONS

 

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

 

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

 

If to the Company:

 Federal Home Life Insurance Company

6620 West Broad Street

Richmond, VA 23230

Facsimile:  (804) 662-2414

Attention:  Chief Executive Officer

 

With a copy to:

 

Federal Home Life Insurance
Company

700 Main Street

Lynchburg, VA 24504

Facsimile:  (434) 948-5819

Attention:  General Counsel

 

If to the Administrator:

Union Fidelity Life Insurance Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 330-3404

Attention:  Chief Financial Officer

 

With a copy to:

 

13

 

Union Fidelity Life Insurance
Company

200 North Martingale Road

Schaumburg, IL 60173-2096

Facsimile:  (847) 605-3044

Attention:  General Counsel

 

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

 

18.3.        Successors and Assigns.  This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, permitted
assigns and legal representatives. 
Neither this Agreement, nor any right or obligation hereunder, may be
assigned by any party without the prior written consent of the other party
hereto.  Any assignment in violation of this Section 18.3 shall
be void and shall have no force and effect.

 

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

 

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

 

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

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

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

 

18.13.      Survival.  Article XVII and Article XVIII shall survive
the termination of this Agreement.

 

15

 

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

 

	
   

  	
  FEDERAL HOME LIFE INSURANCE

  COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  UNION FIDELITY LIFE INSURANCE

  COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

16

 

BUSINESS ASSOCIATE ADDENDUM

 

I.              Purpose.

 

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

 

II.            Permitted
Uses and Disclosures.

 

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

 

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

 

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

 

 

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

 

(1)          The
disclosure is required by law; or

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

this Addendum or the Agreement that are not
inconsistent with the provisions of this Addendum; and such creation, use or
disclosure is for services provided by Business Associate that relate to
Recipient’s or its Subsidiaries’ activities for purposes of “treatment”,
“payment” or “health care operations”, as those terms are defined under the
HIPAA Privacy Rule.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

or agent will comply with the same restrictions and conditions that
apply to the Business Associate under the terms and conditions of this Addendum
with respect to such PHI.

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

of certain PHI made as part of a Limited Data Set;
(ix) for certain incidental disclosures that may occur where reasonable
safeguards have been implemented; and (x) for disclosures prior to April 14,
2003.

 

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

 

VI.           Additional
Business Associate Provisions

 

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

 

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

 

(ii)                      Identify the PHI used or
disclosed;

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

6

 

SCHEDULE C

 

CEDING COMMISSION

 

The Ceding
Commission shall be the sum of the following:

 

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

 

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

 

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

 

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

 

 

SCHEDULE D

 

ASSETS

 

	
  Transfer Document

  	
   

  	
  From

  	
   

  	
  To

  	
   

  	
  Nature of
  Transfer

  	
   

  	
  Cash Map
  Cross-Reference

  	
   

  	
  Schedule

  	
   

  
	
  FHL SSA Coinsurance

  	
   

  	
  FHL

  	
   

  	
  UFLIC

  	
   

  	
  Treaty

  	
   

  	
  (82

  	
  )

  	
  Schedule D

  	
   

  

 

 

	
  Called Securities*

  	
   

  	
  Parent
  Name

  	
   

  	
  Issuer
  Name

  	
   

  	
  1Q04 Cusip

  	
   

  	
  1Q04 Tax
  lot

  	
   

  	
  12/31/03
  Local Par

  	
   

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

  	
   

  	
  12/31/03
  Accrued Interest

  	
   

  	
  12/31/03
  GAAP BV + Accrued Interest

  	
   

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

  	
   

  	
  12/31/03
  Accrued Interest

  	
   

  	
  

  12/31/03 STAT BV + Accrued Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Individual Asset Details Omitted]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Asset Sub
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  537,516,636.80

  	
   

  	
  9,378,971.69

  	
   

  	
  546,895,608.49

  	
   

  	
  537,622,322.28

  	
   

  	
  9,378,971.69

  	
   

  	
  547,001,293.97

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  1,030,722.56

  	
   

  	
   

  	
   

  	
  1,030,722.56

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  538,653,044.84

  	
   

  	
   

  	
   

  	
  548,032,016.53

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

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

 

 

SCHEDULE E

 

EXPENSE
ALLOWANCES

 

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

 

Policy
Maintenance Factor                $23.84
per Policy

 

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

 

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

 

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

 

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

 

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

 

 

number of units for the current
period to determine a prospective cost per unit for the next calendar year.

 

An additional adjustment, positive or negative, to the prospective cost
per unit determined by either the Triennial Study or the two succeeding years
may be negotiated between the parties. The additional adjustment is for special
projected costs or benefits of productivity, process improvements, inflation,
loss of scale, and any other cost variation which was not included in the prior
Triennial Study or the succeeding roll forward.

 

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

 

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

 

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

 

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

 

 

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

 

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

 

 

SCHEDULE F - PART I

 

INITIAL REPORT

 

	
  1.       Total
  SAP Ceded Reserves  Gross Policy
  Reserves calculated in accordance with SAP with respect to the reinsured
  risks.

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.       Ceding
  Commission:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  A.     Excess
  SAP Ceded Reserves over GAAP Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1)      Total
  SAP Ceded Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  2)      Total
  GAAP Ceded Reserves:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gross Policy Reserves calculated in accordance with GAAP with respect
  to the reinsured risks.

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Excess SAP Reserves over GAAP Reserves (A1-A2)

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.      Present
  Value of Future Profits (PVFP)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  C.      Deferred
  Acquisition Costs (DAC)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

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

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1)      Asset
  Book Value (GAAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  2)      Asset
  Book Value (SAP basis)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Excess Asset Book Value (D1-D2)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

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

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

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

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

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

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  

 

 

SCHEDULE F -
PART II

 

QUARTERLY REPORT

 

	
  1.       Benefits

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.       Withdrawals
  from Claims Settlement Account

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.       Expense
  Allowance

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  I.       Quarterly
  Settlement Amount (-1+2-3)

  	
   

  	
  $

  	
   

  	
   

  
	
  Net Due to (from) Reinsurer

  	
   

  	
  $

  	
   

  	
   

  

 

 

SCHEDULE F - PART III

 

ANNUAL REPORT

 

 

	
  1.       Benefits

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.       Withdrawals
  from Claims Settlement Account

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.       Expense
  Allowance

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  I.       Quarterly
  Settlement Amount (-1+2-3)

  	
   

  	
  $

  	
   

  	
   

  
	
  Net Due to (from) Reinsurer (I-II)

  	
   

  	
  $

  	
   

  	
   

  

 

 

SCHEDULE G

 

FORM OF TRUST AGREEMENT

 

 

SCHEDULE H

 

ELIGIBLE SECURITIES

 

 

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

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