Document:

EX-10.69

Exhibit 10.69

LETTER OF INTENT

          THIS LETTER OF INTENT (this “Letter”), is entered into on June 30, 2008 by and among

(a) Security Life of Denver Insurance Company, a Colorado-domiciled life insurance company
(“SLD”),

(b) Security Life of Denver International Limited, a Bermuda insurance company
(“SLDI”),

(c) Scottish Re (U.S.), Inc., a Delaware-domiciled life insurance company (“SRUS”);

(d) Ballantyne Re p.l.c., a special purpose public limited company incorporated under the
laws of Ireland (“Ballantyne Re”);

(e) Ambac Assurance UK Limited (“Ambac”), as the “Directing Guarantor” under (i)
that certain Indenture, dated as of May 2, 2006, by and among Ballantyne Re, Ambac, Assured
Guaranty (UK) Ltd. (“Assured”), The Bank of New York, acting through its London
Branch in its capacity as trustee, and The Bank of New York, as auction agent and securities
intermediary (the “Indenture”) and (ii) the other “Transaction Documents” as defined
in the Indenture;

(f) Assured; and

(g) Scottish Re Group Limited, an exempt company under the laws of the Cayman Islands.

	1.	 	Existing Agreements. SLD and SRUS entered into that certain Coinsurance Agreement
effective April 1, 2006, as amended and restated effective as of March 31, 2008 (the “SLD
Coinsurance Agreement”). SRUS and Ballantyne Re entered into that certain Indemnity
Reinsurance Agreement, dated as of May 2, 2006, as modified by that certain Recapture Notice
from Scottish Re (US) to Ballantyne Re effective as of March 31, 2008 and the related
recapture and any subsequent recapture effective on or prior to June 30, 2008 (the
“Existing Reinsurance Agreement”) and in connection with the Existing Reinsurance
Agreement, SRUS, Ballantyne Re and The Bank of New York entered into that certain Trust
Agreement dated as of May 2, 2006, as amended and modified from time to time (the
“Existing Trust Agreement”).

	2.	 	Novation. (a) SRUS, SLD, Ballantyne Re and Ambac hereby agree to novate the Existing
Reinsurance Agreement and the Existing Trust Agreement such that SLD will be substituted for
SRUS for all purposes under each such Agreement in accordance with this Section 2 and the
terms set forth on Annex A hereto (the “Term Sheet”). The novation contemplated by
the foregoing sentence will be effective as of 11:59 p.m. on June 30,

 

 

2008, if the Closing (as defined in Section 2(c) of this Letter) occurs in time to permit
SLD to take statutory financial statement credit for the reinsurance as of such time; if
not, the novation will be effective as of 12:01 a.m. on July 1, 2008 (the effective time of
the novation as so determined being referred to herein as the “Novation Effective
Time”).

(b) Each party hereto agrees to use its reasonable best efforts to cause or consent to the
execution and delivery of (i) an Indemnity Reinsurance Agreement between SLD and Ballantyne
Re effective as of the Novation Effective Time substantially in the form attached as Annex B
hereto (with changes where appropriate to reflect matters addressed in the Term Sheet) (the
“Novated Reinsurance Agreement”), (ii) an amendment of the original Trust Agreement
among SRUS, SLD, Ballantyne Re and The Bank of New York in connection with the Novated
Reinsurance Agreement (the “Novated Trust Agreement”) and (iii) an Amendment
Agreement by and among SLD, SRUS and Ballantyne Re (the “Amendment Agreement”), all
in accordance with the Term Sheet, no later than August 11, 2008; provided, that (i) the
failure of any party to this Letter to use reasonable best efforts as required by this
sentence prior to August 11, 2008, shall not relieve such party or any other party to this
Letter of its obligations hereunder, and (ii) no party shall be liable to any other party
hereto for a failure to use such efforts unless such failure was willful. In the event that
the agreements referred to in the foregoing sentence are not executed by August 11, 2008,
each party hereto agrees to use its reasonable best efforts to cause or consent to the
execution and delivery of such agreements no later than September 30, 2008.

(c) The Novated Reinsurance Agreement, the Novated Trust Agreement, the Amendment Agreement
and all other documents to be executed in accordance with this Letter shall be executed
simultaneously, and no party to this Letter shall be obligated to execute any such document
unless such other documents are executed by the other parties thereto. The execution and
delivery of the Novated Reinsurance Agreement, the Novated Trust Agreement, the Amendment
Agreement and all other documents to be executed as contemplated by this Letter is
hereinafter referred to as the “Closing,” and the date upon which the Closing occurs
is hereinafter referred to as the “Closing Date.” This Letter may be terminated at
the election of any party hereto after September 30, 2008, if the Closing has not occurred
on or prior to September 30, 2008. In the event this Letter is terminated in accordance
with the foregoing sentence, this Letter shall become null and void and of no further force
and effect, except that (x) in the event the Closing did not occur on or prior to September
30, 2008, due to a breach of this Letter by any party, the breaching party shall be liable
to the other parties hereto for all actual damages arising from such breach, including but
not limited to reasonable attorneys’ fees and expenses, and (y) the last sentence of
paragraph 6 of Annex A to this Letter will survive such termination. If the Closing does
occur on or prior to September 30, 2008, no party shall be liable to any other party hereto
for a failure to use its reasonable best efforts in accordance with the first sentence of
Section 2(b) above unless such failure was willful.

(d) The parties acknowledge and agree that, notwithstanding any provision to the contrary
herein, the novation of the Existing Reinsurance Agreement contemplated by Section 2 above
will be effected by executing the Amendment Agreement and by assigning the Existing
Reinsurance Agreement from SRUS to SLD and amending same so that (i) as amended, it
will substantially be in the form attached as Annex B hereto

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(with changes where appropriate to reflect matters addressed in the Term Sheet) and (ii)
Ballantyne Re will not be required to enter into a new reinsurance contract or SPRV contact,
as such terms are defined in the European Communities (Reinsurance) Regulations 2006 of
Ireland

	3.	 	Other Agreements. (a) SLD and SRUS will amend the SLD Coinsurance Agreement to fully
effectuate the intention of the parties hereunder. SRUS also acknowledges and agrees that,
notwithstanding the consummation of the novation as contemplated in Section 2 of this Letter,
SRUS shall continue to administer the business ceded by SLD to Ballantyne Re in accordance
with the terms of an Administrative Services Agreement to be entered into on the Closing Date
by and between SLD, SLDI and SRUS (the “New ASA”), which agreement will include
service standards and other substantive provisions substantially identical to those included
in the Administrative Services Agreement dated May 2, 2006 among SLD, SLDI and SRUS (with such
differences as may be appropriate to reflect the fact that SRUS will be acting solely as an
administrator under the New ASA rather than as administrator and reinsurer). SLD and SRUS
will provide a draft of the New ASA to Ambac and Assured not later than July 3, 2008, will
copy Ambac and Assured on all subsequent drafts exchanged by SLD and SRUS, and will provide a
copy of a substantially final draft of the New ASA to Ambac and Assured not later than three
business days before the Closing.
	 
		 	(b) SLD, Ambac and Assured agree to enter into a letter agreement substantially in the form
attached as Annex C hereto on the Closing Date.
	 
		 	(c) SRUS, Scottish Re Group Limited, Ballantyne Re, Ambac and Assured agree to cause certain
of the Transaction Documents (as defined in the Indenture) to be amended in accordance with
the terms set forth on Annex D hereto on the Closing Date.

	4.	 	Conditions. The obligations of each of the parties to consummate the transactions
contemplated by Sections 2 and 3 of this Letter shall be subject to (i) the receipt of any
required governmental approvals and (ii) the completion of definitive agreements and
amendments to existing agreements reasonably satisfactory to such party consistent with the
terms of this Letter. In addition, the obligation of SLD to consummate such transactions
shall be subject to the receipt by SLD of confirmation from the Colorado Division of Insurance
and the New York Insurance Department that SLD will receive statutory financial statement
credit for the reinsurance ceded under the Novated Reinsurance Agreement to the extent of the
market value of the assets in the trust maintained under the Novated Trust Agreement. Each of
SLD and SRUS shall use its reasonable best efforts to obtain any approvals required to be
obtained from its domiciliary state insurance department, and SLD shall use its reasonable
best efforts to obtain the confirmations described in the second sentence of this Section 4.
In addition, the obligations of each of Ambac and Assured shall be conditioned upon customary
closing opinions and other customary conditions (including, without limitation, the condition
that there is no pending litigation seeking to enjoin the consummation of the Closing). Such
opinions shall include, without limitation, opinions to the effect that (a) all necessary
prior regulatory approvals were validly given in connection with the transactions contemplated
by Sections 2 and 3 of this Letter (including all related transactions), (b) such transactions
(including all related transactions and, without

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	 	 	limitation, all amendments and novations of any agreements related thereto and any consents
given in connection therewith) were duly authorized and permitted under the terms of the
Transaction Documents, and (c) all conditions precedent set forth in the Transaction
Documents, or necessary for the valid execution and delivery of any amendments and novations
of any agreements related thereto, have been fully satisfied. Further, for the avoidance of
doubt, the conditions precedent set forth in the letter agreement dated April 22, 2008 among
Ambac, Assured, SLD, SLDI, SRUS and certain affiliates of SRUS (the “April 22
Letter”) shall be conditions precedent to the obligations of Ambac and Assured under
this Letter; provided, that the condition that the definitive documentation with respect to
the Assignment and Assumption Transaction (as defined in the April 22 Letter) must be in
form and substance reasonably satisfactory to Ambac and Assured is superseded by the
condition in clause (ii) of the first sentence of this Section 4.

	5.	 	Publicity. The parties shall mutually agree upon the form and content of any public
statement that may be made with respect to this Letter or the transactions contemplated hereby
and, except as required by law or regulation, no such public statement shall be made unless
mutually agreed upon by the parties hereto. The parties hereto agree that statements made by a
party hereto to its respective rating agencies, state or other governmental regulatory
authorities (including on Form 10-K filed with the Securities and Exchange Commission and, as
to Ballantyne, on or to the Irish Stock Exchange), holders of a controlling interest in the
ownership of such party, on its website or otherwise publicly in accordance with its customary
policies and procedures and/or industry practice, or any third-party subject to a
confidentiality agreement with the party making such public statement will not be subject to
this Section 5. For greater certainty, the parties hereto shall be entitled to disclose this
Letter and the transactions contemplated hereby to their respective rating agencies and on
Form 10-K filed with the Securities and Exchange Commission to the extent required. Any public
or private statement by any party with respect to the terms of this Letter or the transactions
contemplated hereby shall be accurate, complete and not misleading, and any material
misstatement or omission with respect thereto shall be promptly corrected by the appropriate
party. No party shall refer to any other party or any of its affiliates in any of its
advertising or promotional material without the consent of such other party. In the event
that the foregoing provisions conflict with any provision of the Transaction Documents, then
the terms of the Transaction Documents will govern except to the extent that such conflicting
provisions relate to matters specifically addressed in this Letter, in which case the terms of
this Letter shall govern.

	6.	 	Defined Terms. Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Existing Reinsurance Agreement.

	7.	 	Governing Law. This Letter shall be governed by, and construed in accordance with,
the internal laws of the State of New York.

	8.	 	Consent to Jurisdiction. THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY
COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE
COURT WHICH HEARS APPEALS FROM ANY COURT THEREOF, IN ANY ACTION, SUIT OR

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	 	 	PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREUNDER OR FOR RECOGNITION OR ENFORCEMENT OF
ANY JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
OR DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW,
IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY
SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY
WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN
ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY
SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING
IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR
PROCEEDING IS IMPROPER OR THAT THE RELATED DOCUMENTS OR THE SUBJECT MATTER
THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. EACH OF THE PARTIES HERETO
EXPRESSLY AND IRREVOCABLY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT
WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS LETTER OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS LETTER OR THE VALIDITY,
PROTECTION, INTERPRETATION OR ENFORCEMENT THEREOF.
	 
	9.	 	Specific Performance. Each party to this Letter
understands and agrees
that the breach or
non-fulfillment of any of
the covenants, agreements
or promises in this Letter
of such party would
irreparably injure the
other parties to this
Letter (the “Non-Breaching
Party”), that money
damages would not be a
sufficient remedy for any
such breach or
non-fulfillment, and that,
in addition to the
Non-Breaching Party’s
remedies available at law
for losses, claims,
damages, liabilities or
expenses suffered or
incurred in connection
with such breach or
non-fulfillment, or in
equity, the Non-Breaching
Party will be entitled to
seek specific performance
and injunctive or other
equitable relief as a
remedy for any such
non-fulfillment or breach.

	10.	 	No Third-Party Beneficiaries. No person other than the parties to this Letter, their
successors and permitted assigns, is intended to be a beneficiary of this Letter.

	11.	 	Reservation of Rights. The agreements made herein by each of the parties hereto are
strictly limited to the extent expressly set forth herein. The parties hereby acknowledge and
agree that, except for such agreements, (a) nothing in this Letter shall be a waiver of any
party’s rights or remedies under any of the Transaction Documents, including without
limitation the rights or remedies of such party in connection with any event of default under
any of the Transaction Documents, and (b) each party hereby reserves all of its rights and
remedies under the Transaction Documents.

	12.	 	Amendment. This Letter shall not be amended except by a written instrument executed
by the parties hereto.

	13.	 	Assignment. This Letter may not be assigned by any party hereto without the prior
written consent of the other parties hereto.

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	14.	 	Binding Effect. This Letter shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns and shall be enforceable
in accordance with its terms against the parties hereto and their respective successors and
permitted assigns.

	15.	 	Entire Understanding. This Letter sets forth the entire understanding of the parties
with respect to the matters addressed herein, provided that any and all provisions contained
in any prior letter agreement or other agreement among any of the parties hereto shall survive
this Letter and remain in full force and effect except to the extent that any such provision
conflicts with any provision in this Letter, in which case the relevant provision in this
Letter shall govern.

	16.	 	Counterparts. This Letter may be executed in counterparts, each of which shall be
deemed to constitute an original but all of which together shall constitute one and the same
instrument.

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     IN WITNESS WHEREOF, the parties hereto have caused this Letter to be executed as of the day and
year first above written.

	 	 	 	 	 	 	 
	 	 	SECURITY LIFE OF DENVER INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:  	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	SECURITY LIFE OF DENVER INTERNATIONAL LIMITED	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	SCOTTISH RE (U.S.), INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	BALLANTYNE RE P.L.C.	 	 
	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	SCOTTISH RE GROUP LIMITED	 	 
	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

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	 	 	AMBAC ASSURANCE UK LIMITED	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	ASSURED GUARANTY (UK) LTD.	 	 
	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

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Annex A

Terms of the Novated Reinsurance Agreement, the Novated Trust Agreement and the

Amendment Agreement

1. Insurance Obligations. The Novated Reinsurance Agreement will be effective as of the
Novation Effective Time and will reflect the then quota share obligation of Ballantyne Re under the
Existing Reinsurance Agreement (taking into account any recapture by SRUS on or prior to June 30,
2008).

	 	a.	 	Obligations Under the SLD Coinsurance Agreement. As of the Novation
Effective Time, pursuant to the amendment and restatement of the SLD Coinsurance
Agreement, (i) SLD will completely release SRUS from all payment and other obligations
to SLD under the SLD Coinsurance Agreement with respect to liabilities retroceded by
SRUS to Ballantyne Re under the Existing Reinsurance Agreement, whether such
obligations arise prior to or after the Novation Effective Time, and (ii) SRUS will
completely release SLD from all obligations to pay premiums or other amounts to SRUS
that are payable by SRUS to Ballantyne Re under the Existing Reinsurance Agreement,
whether such obligations are attributable to periods prior to or after the Novation
Effective Time. The release described in this paragraph 1(a) will not release SRUS
from liability to SLD, or SLD from any liability to SRUS, for any breaches of the SLD
Coinsurance Agreement prior to the Novation Effective Time.
	 
	 	b.	 	Obligations Under the Existing Reinsurance Agreement. As of the
Novation Effective Time, pursuant to the Amendment Agreement, (i) SRUS will completely
release Ballantyne Re from all payment and other obligations to SRUS under the Existing
Reinsurance Agreement, whether such obligations arise prior to or after the Novation
Effective Time, (ii) Ballantyne Re will completely release SRUS from all obligations to
pay premiums or other amounts to Ballantyne Re under the Existing Reinsurance
Agreement, whether such obligations are attributable to periods prior to or after the
Novation Effective Time. The release described in this paragraph 1(b) will not release
Ballantyne Re from any liability to SRUS, or release SRUS from any liability to
Ballantyne Re, for any breaches of the Existing Reinsurance Agreement prior to the
Novation Effective Time.
	 
	 	c.	 	Obligations Under the Novated Reinsurance Agreement. As of the Novation
Effective Time, pursuant to the Amendment Agreement and the Novated Reinsurance
Agreement, (i) all payment and other obligations of Ballantyne Re under the Existing
Reinsurance Agreement will become obligations of Ballantyne Re to SLD under the Novated
Reinsurance Agreement, whether such obligations arise prior to or after the Novation
Effective Time, and (ii) SLD will assume all payment and other obligations to
Ballantyne Re under the Existing Reinsurance Agreement, whether such obligations are
attributable to periods prior to or after the Novation Effective Time. The Amendment
Agreement and the Novated Reinsurance Agreement will not cause (i) any right of SRUS
with respect to a breach of the Existing Reinsurance Agreement by Ballantyne Re to be
transferred

 

 

	 	 	 	to SLD or (ii) any liability of SRUS with respect to a breach of the Existing
Reinsurance Agreement to be transferred to SLD; provided, that Ballantyne Re shall
retain the right to set off amounts owed to Ballantyne Re by SRUS under the Existing
Reinsurance Agreement against amounts payable by Ballantyne Re to SLD under the
Novated Reinsurance Agreement.

	 	d.	 	SLD/SRUS Settlement. As soon as practicable following the Closing, (i)
SRUS will transfer to a bank account or accounts designated by SLD the amount (if any)
by which the premiums or other amounts attributable to the business covered by the
Novated Reinsurance Agreement received by SRUS during the quarter in which the Closing
occurs exceed the amount of claims or other amounts attributable to the business
covered by the Novated Reinsurance Agreement paid by SRUS during such quarter and shall
cease sweeping premiums or other amounts attributable to the business covered by the
Novated Reinsurance Agreement to bank accounts of SRUS or its affiliates (using
estimated amounts where necessary, with such estimates being trued up as promptly as
practicable), and (ii) SLD and SRUS shall effect one or more separate settlements under
which SLD and SRUS will be put into the same net economic position as if any quarterly
settlements following the Novation Effective Time for periods ending on or prior to the
Novation Effective Time were effected between SRUS and Ballantyne Re. Any amounts that
should have been taken into account with respect to the settlement contemplated by
clause (ii) of the preceding sentence but were not taken into account due to oversight
or a reporting lag will be paid over to the appropriate party promptly following the
discovery of the oversight or the receipt of the relevant information.

2. Indemnification Obligation of SRUS. Under a separate letter agreement, SRUS will agree
to indemnify and hold harmless SLD and its directors, officers, employees, agents, representatives,
successors, permitted assigns and affiliates from and against all losses, liabilities, claims,
expenses (including reasonable attorneys’ fees and expenses) and damages reasonably and actually
incurred by any of such persons to the extent arising from the exercise by Ballantyne Re of any
right, or from any limitation on the ability of SLD to exercise any right or recover any amount,
under the Novated Reinsurance Agreement as a result of:

	 	a.	 	any breach of any representation, warranty or covenant of SRUS under the
Existing Reinsurance Agreement, the Existing Trust Agreement or any Transaction
Document (as defined in the Indenture); or
	 
	 	b.	 	any action or omission by any director, officer, employee, agent,
representative, appointee, successor, or permitted assign of SRUS or any of its
affiliates that causes a Tax Event (as defined in the Existing Reinsurance Agreement)
for Ballantyne Re or otherwise causes Ballantyne Re to be in breach of any
representation, warranty or covenant under the Existing Reinsurance Agreement, the
Existing Trust Agreement or any Transaction Document (as defined in the Indenture).

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In addition, if SLD makes payment of an arbitration award on behalf of SRUS as permitted by Section
20.2.2 of the Novated Reinsurance Agreement, SLD shall be entitled to indemnification from SRUS in
the amount of such payment plus interest without being obligated to comply with any otherwise
applicable requirements regarding notice of indemnification claims. For the avoidance of doubt,
the indemnification obligations set forth in this paragraph 2 shall be obligations of SRUS
exclusively, and shall not be obligations of any affiliate of SRUS.

3. Participation in Defense. SLD shall have the right to participate, at its own expense,
in the defense by SRUS of any arbitration or other proceeding brought against SRUS relating to the
Existing Reinsurance Agreement, the Existing Trust Agreement, the Indenture, the Guarantee and
Reimbursement Agreement dated May 2, 2006 among Ambac, Assured and Ballantyne Re (the
“GRA”) and the fee letters between Ambac and Assured and Ballantyne Re if such arbitration
or other proceeding would be reasonably expected to result in an indemnification claim by SLD
against SRUS pursuant to paragraph 2 above.

4. IBNR and Economic Reserves. In any recapture by SRUS from Ballantyne Re effective on or
prior to June 30, 2008 under the Existing Reinsurance Agreement involving Excess Reserves (as
defined in the Letter Agreement dated March, 31, 2008 by and among ING America Insurance Holdings,
Inc., ING North America Insurance Corporation, SLD, Security Life of Denver International Limited,
Scottish Re Group Limited, SRUS, Scottish Re Life (Bermuda) Limited, Scottish Re (Dublin) Limited
and Scottish Annuity & Life Insurance Company (Cayman) Ltd., referred to herein as the “March
31 Letter Agreement”) in an amount not in excess of $200 million, incurred but not reported
claims and pending claims will be treated in the same manner in which they were treated in the
29.5% recapture effective as of March 31, 2008; provided, that the treatment of such claims in the
initial 29.5% recapture and in any such subsequent recapture effective on or prior to June 30, 2008
shall have no precedential effect or otherwise require SRUS, SLD, Ballantyne Re, Ambac or Assured
to treat such claims in the same manner in any subsequent partial or full recapture under the
Novated Reinsurance Agreement.

5. Late Reported Policies. With respect to the late reported policies addressed in Section
7.5 of the Existing Reinsurance Agreement, SRUS will transfer to Ballantyne Re, in support of such
policies, Economic Reserves as of the date of the transfer in respect of such policies (calculated
in accordance with the methodology used to calculate Economic Reserves as of April 1, 2006) taking
into account the Reinsurer’s Quota Share to the extent appropriate. Liability for incurred but not
reported claims and pending claims will remain liabilities of SRUS and will not be assumed by
Ballantyne Re. In conjunction with the Closing, SRUS and Ballantyne Re will effect a settlement in
accordance with the foregoing with respect to late reported policies reported to SRUS by the
Novation Effective Time. Any late reported policies reported thereafter shall be treated in the
same manner and settled as promptly as practicable under the circumstances (but in any case as of
the end of a calendar quarter).

6. Excess Ballantyne Recapture Consideration. On the Closing Date, 50% of the Total Excess
Recapture Consideration (as defined below) shall be transferred to the Economic Reserve sub-account
of the Reinsurance Trust Account as a consent fee, without any restrictions on the manner in which
Ballantyne Re may apply such amount other than those that apply to any other

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asset in such sub-account, and the remainder shall be transferred to SRUS, without any restrictions
on the manner in which SRUS may apply such amount.

For the purposes of the foregoing, the “Total Excess Ballantyne Recapture Consideration” is
the sum of the Excess Ballantyne Recapture Consideration (as defined in the March 31 Letter
Agreement) in connection with the initial 29.5% recapture by SRUS from Ballantyne Re plus the
amount of any similar excess Ballantyne recapture consideration in connection with any recapture by
SRUS from Ballantyne Re effective on or prior to June 30, 2008. So long as the Closing occurs on
or prior to September 30, 2008, SRUS shall not have any obligation to amend the Existing
Reinsurance Agreement as contemplated by the May 6, 2008 letter agreement among SLD, SRUS and Ambac
(the “May 6 Letter Agreement”). If the Closing does not occur on or prior to September 30,
2008, then the provisions of the May 6 Letter Agreement shall apply to the Total Excess Ballantyne
Recapture Consideration (not just to the Excess Ballantyne Recapture Consideration); provided, that
(i) the Amendment referred to in the third paragraph of the May 6 Letter Agreement will be
effective no later than as of September 30, 2008, (ii) the Form D referred to in such paragraph
will be filed promptly following September 30, 2008, and (iii) the reference in such paragraph to
the Second Quarter Settlement shall be deemed to refer to the settlement under the Existing
Reinsurance Agreement for the quarter ended September 30, 2008.

	7.	 	Recapture.

	 	a.	 	Under the Novated Reinsurance Agreement, SLD shall not be entitled to recapture
any or all liabilities under the Defined Block Business without the prior written
consent of Ambac except that SLD may, without any consent from Ambac but with prior
notice to Ambac and Assured, recapture all or a pro-rata portion of all liabilities
under the Defined Block Business, but only to the extent necessary to ensure that the
Security Balance as of the recapture date is equal to the Required Balance.
	 
	 	b.	 	Notwithstanding the Letter Agreement dated April 22, 2008 among ING America
Insurance Holdings, Inc., ING North America Insurance Corporation, SLD, Security Life
of Denver International Limited, Scottish Re Group Limited, SRUS Ambac and Assured,
Assured hereby confirms that SLD shall not be obligated to seek consent from Assured as
a Financial Guarantor for any recapture as to which consent of the Directing Guarantor
is required.

8. No Double Payment. Ballantyne Re will not be exposed to the risk of double payment (to
SLD and SRUS) for the same liabilities or obligations under the Existing Reinsurance Agreement or
the Existing Trust Agreement. In addition, if Ballantyne Re is required to indemnify both SRUS and
SLD for any breach, it will only be responsible for the amount of the legal expenses of SRUS. SRUS
and SLD shall share ratably the legal expenses that are indemnified by Ballantyne Re based on the
legal costs they respectively incur.

9. Ballantyne Re’s Right to Arbitrate. The parties hereto acknowledge that Ballantyne Re
and SRUS retain the right to arbitrate any dispute arising under the Existing Reinsurance
Agreement, including without limitation Ballantyne Re’s right to arbitrate any dispute arising

4

 

from the initial recapture of 29.5% of Defined Block Business by SRUS, the recapture by SRUS of the
Defined Block Business effective as of June 30, 2008, and any subsequent recapture.

10. Underlying Treaties. SRUS will provide SLD prior to the Closing Date compact discs or
other reasonably accessible digital media containing copies of all Underlying Treaties. To the
extent any Underlying Treaty is not included in the compact discs or such other digital media
delivered by SRUS to SLD, SLD will use commercially reasonable efforts to obtain a copy of such
Underlying Treaty, including without limitation requesting a copy of such Underlying Treaty from
the relevant ceding company. SLD will maintain the digital media provided by SRUS under this
paragraph 10 and any copies of Underlying Treaties obtained by SLD from any other source pursuant
to this paragraph 10, and such media and copies of Underlying Treaties shall be considered books
and records of SLD that are subject to the inspection rights of Ambac and Assured under Section
3(a)(i) of the letter agreement referenced in Section 3(b) of this Letter.

11. Permitted Investments in the Reinsurance Trust Account. Permitted investments in the
Reinsurance Trust Account shall meet the applicable requirements of Colorado law.

12. Assets Withdrawn From Trust. The Novated Reinsurance Agreement will include a
provision under which assets withdrawn from the Reinsurance Trust Account will be deposited in an
account in which Ballantyne Re will have rights substantially similar to those it has with respect
to the SRUS Account. The parties hereto acknowledge that under Section 4 of this Letter SLD will
have no obligation to consummate the transactions contemplated by Section 2 of this Letter if the
Colorado Division of Insurance or the New York Insurance Department informs SLD that such provision
will preclude SLD from receiving statutory financial statement credit for the reinsurance ceded
under the Novated Reinsurance Agreement.

	13.	 	Miscellaneous.

	 	a.	 	Section 10.7. For purposes of any recapture effective on or prior to
the Novation Effective Time, clause (i)(a) of Section 10.7 of the Existing Reinsurance
Agreement shall be deemed to read “(a) shall be no greater than the WARF of the
Economic Reserve Sub-Account Assets immediately prior to the recapture payment and . .
..”.
	 
	 	b.	 	Section 19.1.6. The last sentence of Section 19.1.6 of the Existing
Reinsurance Agreement (“In accordance with the Existing Practices and in a manner
consistent with the first sentence of this Section 19.1.6, the Ceding Insurer shall use
commercially reasonable efforts to enforce its rights and remedies under the
Administrative Services Agreement, dated as of December 31, 2004, entered into by and
among the Ceding Insurer, SLD and Security Life of Denver International Limited,
including without limitation, in the event of a material breach thereunder caused by
the failure of an Original Insurer to provide complete or accurate Factual Information
(as defined below) to the Ceding Insurer”) will not be included in the Novated
Reinsurance Agreement. However, the concept reflected in that sentence shall be
included in the New ASA and any other service arrangement covering the Defined Block
Business.

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Annex B

Draft of Novated Reinsurance Agreement

1

 

Annex C

Draft of SLD Side Letter

1

 

Annex D

Certain Transaction Documents to be Amended

The following terms shall be included where relevant in the Transaction Documents in addition to
any other conforming changes as necessary in connection with the Term Sheet:

	1)	 	The Indenture will be amended to eliminate Ballantyne Re’s obligation to provide any
financial statements of Scottish Re Group Limited or SRUS under Section 8.03 thereof.

	2)	 	Ballantyne Re will agree to provide to SLD the following reports and information on and after
the Novation Effective Time (all subject to reasonable cure periods consistent with the terms
of the agreements referenced in (a) and (b) below) not later than five (5) business days of
providing such report and information to the Financial Guarantors:

	 	a.	 	Information provided under the following sections of the GRA:

	 	(i)	 	2.2.2(vi)(a), (b), (c), (d), (e), (g), (h), (i) and (j) 
“Notice of Material Events”; provided that (1) Ballantyne Re shall have an
obligation under clause (a), (b) or (j) thereof only to provide information
that would be reasonably likely to have an Issuer Material Adverse Effect, and
(2) Ballantyne shall not have any obligation under clause (i) thereof to
provide information with respect to any written legal advice that Ballantyne Re
has become subject to U.S. taxation.
	 
	 	(ii)	 	2.2.2(vii) (b) and (d) “Regulatory Matters”;
	 
	 	(iii)	 	2.2.2(viii) (a), (b) and (c) “Financial Information”;
	 
	 	(iv)	 	2.2.2(xiv) “Change of tax law or practice”; and
	 
	 	(v)	 	2.2.2(xix) (a) “Rating Downgrade”.

	 	b.	 	Investment reports provided by the investment advisor under the investment
management agreements referenced in paragraph 3 of this Annex D.
	 
	 	c.	 	SLD’s remedies for any breach of the foregoing by Ballantyne Re shall be
limited to specific performance and/or actual damages.

	 	 	In addition, the Indenture will be amended to require the trustee thereunder to provide to
SLD and Assured copies of all reports and other information provided to Ballantyne Re
thereunder.

	3)	 	Any amendment to either (i) Investment Management Agreement I, by and between Ballantyne Re
as Issuer and JPMorgan Investment Management, Inc. or such person designated from time to time
as successor as Investment Advisor I, dated May 2, 2006; and (ii) Investment Management
Agreement II, by and between Ballantyne Re as Issuer and Wellington Management Company, LLP or
such person designated from time to time

1

 

	 	 	as successor as Investment Advisor II, dated May 2, 2006 shall be reasonably satisfactory to
SLD, and each such Investment Management Agreement shall be amended to refer to SLD (not
SRUS) as the ceding insurer in Section 3 of such agreement and to include other conforming
changes. In the event that it has not been superseded by an amendment to Investment
Management Agreement I, the December 28, 2007, letter agreement among Ballantyne Re, Ambac
(as Directing Guarantor) and SRUS shall be amended prior to the Closing Date to substitute
SLD for SRUS for all purposes of such letter agreement. The parties hereto agree that the
investment guidelines with respect to such investment management agreements will include
direction to the investment manager to use reasonable efforts to sequence any asset
dispositions so as to minimize, to the extent reasonably practicable, the realization of
losses with respect to such assets.

	4)	 	Following the Novation Effective Time, neither Scottish Re Group Limited nor SALIC shall
appoint any person to serve as a director of Ballantyne Re without SLD’s prior written consent
(it being understood that the foregoing requirement shall not apply to Adrian Masterson). 
Subject to the foregoing, neither Scottish Re Group Limited nor SALIC shall appoint as a
director of Ballanyne Re any current or former employee, officer or director of Scottish Re
Group Limited or any of its affiliates (or any company that was such an affiliate as of the
Novation Effective Time).  Scottish Re Group Limited and SALIC shall at no time require any
director they appoint to exercise his or her duties as a director other than in accordance
with his or her fiduciary duties under Irish law and the Transaction Documents.  Scottish Re
Group Limited shall be responsible for the obligations of SALIC set forth in this paragraph 4.

	5)	 	The Board of Directors of Ballantyne Re shall consider in good faith Assured’s interpretation
of the manner in which to calculate the fee payable under Assured’s fee letter, taking into
account the Board’s fiduciary duties.  In furtherance of the foregoing, the Board of Directors
of Ballantyne Re shall give prompt and due consideration to any written materials prepared by
Assured or its advisors in support of its position (including any opinion or advice of
Assured’s legal counsel) and agrees to meet with Assured in Dublin at its request to discuss
the foregoing.

	6)	 	The GRA and the SLD Coinsurance Agreement will be amended to eliminate references to any
Ballantyne Re consent right with respect to changes to the SLD Coinsurance Agreement and to
any consent of Ambac or Assured with respect to any such changes.

	7)	 	No Scottish Re Group Limited affiliate (or any company that was such an affiliate as of the
Novation Effective Time), other than in its capacity as administrator or services provider to
SLD or Ballantyne Re, as applicable, shall take any proactive action intended to affect
investment decisions with respect to any asset of Ballantyne Re (whether held in the
Reinsurance Trust Account or outside of such account); provided that the foregoing
will not be deemed to prohibit any Scottish Re Group Limited affiliate (or any company that
was such an affiliate as of the Novation Effective Time) from responding to any unsolicited
inquiry from one or more of the directors of Ballantyne Re.  Scottish Re Group Limited and
SRUS hereby acknowledge, on their own behalf and on behalf of their affiliates, that the
Directing Guarantor has certain consent and direction rights with regard to investment
management decisions pursuant to the Transaction Documents, and

2

 

	 	 	hereby agree, on their own behalf and on behalf of their affiliates, that they will not
interfere with the exercise by the Directing Guarantor of such consent or direction rights
in accordance with the terms of the Transaction Documents.

	8)	 	The legal opinions to be provided by SLD in connection with the Closing shall be limited to
customary opinions regarding power and authority, due authorization, no conflicts, and receipt
of required regulatory approvals. For the avoidance of doubt, such opinions will not address
the question whether the transactions contemplated by this Letter conflict with, or require
consents or approvals under, and Transaction Document.

	9)	 	The New ASA and any subsequent administrative services agreement will require the service
provider to provide to the investment managers under Investment Management Agreement I and
Investment Management Agreement II reports consistent with those typically provided by
insurance companies to the managers of their investment assets to permit such investment
managers to undertake asset/liability matching analyses.

	10)	 	The Indenture will be amended to prohibit the issuance of Additional Notes (as defined in the
Existing Reinsurance Agreement) by Ballantyne Re.

	11)	 	The letter agreement dated as of May 2, 2006, by and among SRUS, Ambac and Assured (the
“SRUS Side Letter”) will be amended to confirm the matters set forth in the letter
dated June 9, 2008, from Chris Shanahan, Interim President and CEO of SRUS, to Ambac and
Assured.

	12)	 	The representations and warranties of (i) Ballantyne Re under the GRA, (ii) Scottish Re Group
Limited under the letter agreement dated as of May 2, 2006, by and among Scottish Re Group
Limited, Ambac and Assured, and (iii) SRUS under the SRUS Side Letter, will be brought down to
the Closing Date to the extent reasonable and appropriate under the circumstances.

3EX-10.70

Exhibit 10.70

	 	 	 
	 

	 	EXECUTION VERSION
	 
	 	 
	 

	 	June 30, 2008

CONFIDENTIAL

VIA FEDERAL EXPRESS AND ELECTRONIC MAIL

Security Life of Denver Insurance Company

Security Life of Denver International Limited

ING America Insurance Holdings, Inc.

ING North America Insurance Corporation

Attention: David S. Pendergrass

5780 Powers Ferry Road NW

Atlanta, Georgia 30327

     Re:      Ballantyne Re Reinsurance Transaction

Ladies and Gentlemen:

     This letter (this “Letter”) sets forth the right of Scottish Re Group Limited and each
subsidiary of Scottish Re Group Limited that is a party hereto (collectively, “Scottish
Re”), and each of the companies set forth as an addressee of this Letter (collectively,
“ING”) with respect to a recapture, effective June 30, 2008, from Ballantyne Re plc
(“Ballantyne”) of a pro-rata portion of the business ceded by Scottish Re (U.S.), Inc.
(“SRUS”) to Ballantyne pursuant to that certain Indemnity Reinsurance Agreement, effective
as of April 1, 2006, entered into by and between SRUS and Ballantyne (the “Ballantyne
Reinsurance Agreement”) as well as the other matters included herein.

     Reference also is made to that certain letter, dated March 31, 2008, by and among Scottish Re
and ING (the “ March 31 LOI”). The parties hereto desire to amend the March 31 LOI in the
manner set forth in Section 2 of this Letter.

	1.	 	June 30th Recapture.

	 	(a)	 	In accordance with Section 4.2(c) of the Coinsurance Agreement effective April
1, 2006, as amended and restated effective March 31, 2008 (the “SLD Coinsurance
Agreement”), by and among Security Life of Denver Insurance Company
(“SLD”) and SRUS, SLD hereby irrevocably consents to the voluntary recapture,
effective as of June 30, 2008, of a pro rata portion of the liabilities (other than
liabilities attributable to claims pending as of June 30, 2008 and claims incurred but
not reported as of June 30, 2008) under the Defined Block Business (as defined in the

 

 

	 	 	 	Ballantyne Reinsurance Agreement) arising under the policies that are included in
the Defined Block Business (the “June 30th Ballantyne Recapture”
and the portion of the business so recaptured, the “June 30th
Ballantyne Recaptured Business”). Scottish Re shall ensure that June
30th Excess Reserves (as defined below) (measured as of June 30, 2008)
do not exceed $200,000,000.

	 	(b)	 	Pursuant to the Ballantyne Reinsurance Agreement, in consideration for the
June 30th Ballantyne Recapture, Ballantyne has the obligation to pay to
SRUS, in accordance with Section 10.5.1 of the Ballantyne Reinsurance Agreement, an
amount equal to the sum of (i) 92.5% of the Economic Reserves attributable to the June
30th Ballantyne Recaptured Business, less (ii) the Loss Carryforward Balance,
less (iii) the Recapture Fee (the “June 30th Ballantyne Recapture
Consideration”). SRUS shall withdraw the June 30th Ballantyne
Recapture Consideration from the Reinsurance Trust Account and deposit such amount
into the SRUS Account (as defined in the Ballantyne Reinsurance Agreement).
	 
	 	(c)	 	Immediately following the consummation of the June 30th Ballantyne
Recapture, subject to the limitations described in this Letter, Scottish Re and ING
shall execute the following transactions (collectively, the “June 30th Recapture
and Reinsurance Transactions” and together with the June 30th
Ballantyne Recapture, the “June 30th Recapture”) effective as of
June 30, 2008, which transactions shall occur effectively simultaneously but in the
following sequence:

	 	(i)	 	SLD shall recapture from SRUS the same percentage of the
Reinsured Liabilities (as defined in the SLD Coinsurance Agreement) as the
percentage of the Defined Block Business recaptured by SRUS in the June 30
Ballantyne Recapture (the “June 30th SLD Recaptured
Business”) pursuant to a recapture agreement and an amendment to the SLD
Coinsurance Agreement in exchange for consideration from SRUS to SLD in an
amount equal to the economic reserves (measured as of June 30,
2008) associated with the June 30th SLD Recaptured Business as
determined in accordance with the methodology used by SLD and Scottish Re to
determine the portion of the U.S. statutory reserves associated with the
business ceded by SLD to Security Life of Denver International Ltd.
(“SLDI”) that SLD maintains in the segregated account (the “ING Re
Segregated Account”) SLD established pursuant to Section 5.25 of the APA
(as defined below) (the economic reserves associated with the June
30th SLD Recaptured Business, as so calculated, the “June
30th SLD Economic Reserves”). The June 30th SLD Economic
Reserves shall be withdrawn from the SRUS Account and deposited and maintained
in the ING Re Segregated Account on a modified coinsurance and/or funds
withheld coinsurance basis. The assets

2

 

	 	 	 	constituting the June 30th SLD Economic Reserves to be
transferred to the ING Re Segregated Account shall be reasonably
acceptable to SLD. With respect to the excess, if any, of the June 30th
Ballantyne Recapture Consideration over the June 30th SLD Economic
Reserves (the “June 30th Excess Ballantyne Recapture
Consideration”), SRUS shall transfer such excess from the SRUS Account
as follows: (i) SRUS shall remit 50% of the June 30th Excess
Ballantyne Recapture Consideration to Ballantyne Re, as a consent fee, for
deposit into the economic reserve subaccount of the Reinsurance Trust
Account and (ii) SRUS shall be entitled to deposit the remainder of the
June 30th Excess Ballantyne Recapture Consideration in any
account of SRUS it so chooses and shall be entitled to retain and apply
such amount as it elects in its sole discretion. For purposes of this
Letter, “APA” means the Asset Purchase Agreement, dated as of
October 17, 2004, by and among Scottish Re Group Limited, SRUS, SLD, SLDI
and Scottish Re Life (Bermuda) Limited (“SRLB”);
	 
	 	(ii)	 	SLD shall cede the June 30th SLD Recaptured Business to SLDI
pursuant to amendments to (a) the Second Amendment and Restatement (Effective
December 31, 2004) to the Reinsurance Agreement (Effective July 1, 2001)
(Agreement Number 0900 2774) and (b) the Second Amendment and Restatement
(Effective December 31, 2004) to the Reinsurance Agreement (Effective July 1,
2001) (Agreement Number 0900 2962), each entered into by and between SLD and
SLDI, and in accordance with the security arrangements described below;
	 
	 	(iii)	 	SLDI shall have the right, but not the obligation, to cede
the June 30th SLD Recaptured Business to SRLB in accordance with amendments to
the Coinsurance/Modified Coinsurance Agreement (Treaty Number 5040) and the
Coinsurance Funds Withheld Agreement (Treaty Number 5041); and
	 
	 	(iv)	 	SRLB shall cede the June 30th SLD Recaptured Business to (i)
Scottish Annuity & Life Insurance Company (Cayman) Ltd. or Scottish Re
(Dublin) Limited (“SR Dublin”) or (ii) with the consent of ING (such
consent not to be unreasonably withheld), any other affiliate of SRLB.

	 	(d)	 	SLDI shall provide or cause the provision of one or more letters of credit in
order to provide SLD with statutory financial statement credit for the excess of the
U.S. statutory reserves associated with the June 30th SLD Recaptured Business over the
June 30th SLD Economic Reserves (the “June 30th Excess Reserves”)
(such letters of credit, the “June 30th Letters of Credit”).
Scottish Re shall bear the costs of the June 30th Letters of Credit by
paying to SLD a facility fee based on the face amount of the

3

 

	 	 	 	June 30th Letters of Credit outstanding as of the end of the preceding
calendar quarter (the “June 30th Recapture Covered Amount”)
equal to 0.85% for calendar year 2008, 1.05% for calendar year 2009 and 1.25% for
all calendar years thereafter (calculated on a per annum basis) multiplied by the
June 30th Recapture Covered Amount (the “June 30 LOC Fee”). If
a definitive and binding agreement for the ING Business Transaction (as defined in
the March 31 LOI) is not executed on or before December 31, 2008, Scottish Re
agrees that as of January 1, 2009, the applicable rate then in effect for the June
30 LOC Fee and for each calendar year thereafter shall be increased to
1.75% (the “Step-Up June 30 LOC Rate”). If a definitive and binding
agreement for the ING Business Transaction is executed on or before December 31,
2008 but the ING Business Transaction is not consummated on or before April 30,
2009, Scottish Re agrees that as of May 1, 2009, the June 30 LOC Fee then in effect
and for all periods thereafter shall be calculated based on the Step-Up June 30
Rate.
	 
	 	(e)	 	Notwithstanding anything to the contrary in this Section 1, if (i) ING
reasonably believes (based upon an adverse change in SRUS’ condition following the
execution of this Letter, taking into account the financial and other information
concerning SRUS disclosed or made available to ING prior to the execution of this
Letter) that, after giving effect to the June 30th Recapture, (A) SRUS is
likely to be declared insolvent by SRUS’ domiciliary insurance regulator, (B) a
conservation, liquidation, rehabilitation, reorganization or similar proceeding is
likely to be commenced against SRUS by its domiciliary insurance regulator, or (C)
SRUS is likely to lose its accreditation as a reinsurer in New York or Colorado, in
each case at any time prior to the date that is two (2) months following the date on
which SLD is required to file its next statutory financial statement or (ii) the New
York Insurance Department or the Colorado Insurance Division informs ING that the
accredited reinsurer status of SRUS will be revoked or the Delaware Insurance
Department informs ING that it will declare SRUS insolvent or will commence a
conservation, liquidation, rehabilitation, reorganization or similar proceeding
against SRUS, then ING shall be entitled, upon written notice to SRUS, to revoke its
consent to the June 30 Recapture.
	 
	 	(f)	 	The parties hereto acknowledge and agree that SRUS intends to report late
reported policies to Ballantyne (as addressed in Section 7.5 of the Ballantyne
Reinsurance Agreement) after giving effect to the June 30th Ballantyne
Recapture, and accordingly no portion of such late reported policies will be
recaptured pursuant to the June 30th Ballantyne Recapture, but SLD will
recapture from SRUS a portion of such policies, and such portion will be reinsured,
both as described in clauses (i) through (iv) of Section 1(c) of this Letter.

4

 

	 	(g)	 	For the avoidance of doubt, except as specifically provided herein the terms
and conditions of the March 31 LOI shall not apply to the June 30th
Recapture.

	2.	 	Amendments to March 31 LOI. The parties to the March 31 LOI (including without
limitation SR Dublin) hereby agree to amend the March 31 LOI as set forth in this Section 2.

	 	(a)	 	Section 1(d) of the March 31 LOI is hereby amended by deleting clause (C)
thereto in its entirety, and the existing clauses (D) and (E) of Section 1(d) of the
March 31 LOI are hereby re-designated as clauses (C) and (D), respectively, of Section
1(d).
	 
	 	(b)	 	Section 3 (“Assignment and Assumption Transaction”) of the March 31 LOI is
hereby amended and restated in its entirety as follows:

	 	(a)	 	The parties agree promptly to effect, following the
completion of the first Recapture and Reinsurance Transaction, an assignment
from SRUS to SLD, and the assumption by SLD, of all of SRUS’ rights and
obligations under the Ballantyne Reinsurance Agreement, the Reinsurance Trust
Agreement (as defined in the Ballantyne Reinsurance Agreement), with the
effect that SLD shall be substituted for SRUS, in SRUS’ name, place and stead,
as the ceding company under the Ballantyne Reinsurance Agreement and as the
beneficiary of the Reinsurance Trust Account so as to effect a novation of the
Ballantyne Reinsurance Agreement, such that SRUS is fully and finally released
of all of its liabilities and obligations under such agreements, the SLD
Coinsurance Agreement and the Control Agreement (as defined in the Ballantyne
Reinsurance Agreement) (the “Assignment and Assumption Transaction”).
In furtherance of the foregoing, Scottish Re and ING shall negotiate
definitive documentation and use their respective reasonable best efforts to
obtain all necessary regulatory, shareholder and third party consents and
approvals in order to enter into the Assignment and Assumption Transaction
with an effective date not later than June 30, 2008.
	 
	 	(b)	 	ING and Scottish Re hereby agree that the terms of the
Assignment and Assumption Transaction shall provide that SLD shall have the
right to recapture from Ballantyne, at any time and from time to time, a
pro-rata portion of the business reinsured by Ballantyne, but only to the
extent that SLD determines, acting reasonably and in good faith, that it is
reasonably likely that, in the absence of such a recapture, the Security
Balance as of any date of determination will not exceed the Required Balance
(both as defined in the Ballantyne Reinsurance Agreement) as of such date. If
SLD recaptures business from Ballantyne Re as described in the

5

 

	 	 	 	immediately preceding sentence and cedes such business to SLDI (i) SLDI
shall have the right, but not the obligation, to retrocede such business
to SRLB or to another affiliate of Scottish Re selected by Scottish Re and
reasonably acceptable to SLDI on an economic basis consistent with the
treatment of the cessions by SLDI in the Recapture and Reinsurance
Transactions effected pursuant to this Letter, (ii) SLD shall use the
recapture payment it receives from Ballantyne to fund the ING Re
Segregated Account for the economic reserves required to be held therein
(and Scottish Re shall not be required to reimburse SLD for the amount of
such deposit), and (iii) if the amount of the recapture payment SLD
receives from Ballantyne exceeds the amount needed to fund the ING Re
Segregated Account with respect to the recaptured business, SLD and SRUS
shall cause the excess to be deposited into a trust account reasonably
satisfactory to SLD and SRUS (except that SRUS or an affiliate it selects
shall be the grantor of such trust) and treated in the same manner as the
Excess Ballantyne Recapture Consideration as described in the third
sentence of Section 1(b)(i) of this Letter. In such case Scottish Re
shall bear the costs of any letters of credit obtained by SLDI to support
the business so recaptured in accordance with this Section 3(b) (such
letters of credit, the “Post-Assignment Letters of Credit”) by
paying to SLD a facility fee based on the face amount of the
Post-Assignment Letters of Credit outstanding as of the end of the
preceding calendar quarter (the “Post-Assignment LOC Covered
Amount”) equal to 0.85% for calendar year 2008, 1.05% for calendar
year 2009 and 1.25% for all calendar years thereafter (calculated on a per
annum basis) multiplied by the Post-Assignment LOC Covered Amount. For
greater certainty, Scottish Re’s obligation to pre-fund letter of credit
fees as set forth in Section 1(c) of this Letter, and Scottish Re’s
obligation to pay stepped-up letter of credit fees as set forth in Section
1(d) of this Letter, shall not apply to the Post-Assignment Letters of
Credit.
	 
	 	(c)	 	ING further agrees to indemnify Scottish Re, in accordance
with the indemnification procedures set forth in the APA, for any Losses (as
defined in the APA) incurred by Scottish Re as a result of any breach or
asserted breach or violation or asserted violation of any representation,
warranty or covenant or other promise or obligation of Scottish Re made to
Ambac UK, Assured UK or any other party (other than ING) in connection with
the Ballantyne Purchaser Facility (as defined in the SLD Coinsurance
Agreement), if and to the extent that such Loss arises out of ING’s breach of
any of its covenants, promises or obligations set forth in the Ballantyne
Reinsurance Agreement, the Reinsurance Trust Agreement or any other agreement
entered into by ING in connection with the Assignment and Assumption
Transaction (in

6

 

	 	 	 	each case taking into account any amendments to such agreements entered
into as a result of the Assignment and Assumption Transaction).

	 	(d)	 	Scottish Re hereby acknowledges and agrees that,
notwithstanding the consummation of the Assignment and Assumption Transaction
in accordance with this Section 3, Scottish Re shall continue to administer
the business ceded to Ballantyne in accordance with the terms of the
Administrative Services Agreement (as defined in the APA), except that the
Administrative Services Agreement shall be amended concurrently with the
consummation of the Assignment and Assumption Transaction as may be reasonably
necessary in order to take into account the effects of the Assignment and
Assumption Transaction.

	 	(c)	 	Except as amended by this Letter, the March 31 LOI remains in full force and
effect, without modification or amendment.

	3.	 	Taxes. Scottish Re shall indemnify ING for any and all Losses related to Taxes (as
defined in the APA) imposed upon ING resulting from the transactions contemplated under this
Letter, but excluding Losses related to any Taxes (a) resulting from income generated by ING
as a result of the transactions contemplated by this Letter, (b) imposed by a foreign
governmental authority or foreign Tax Authority (as defined in the APA) or (c) resulting from
any actions of ING other than actions taken in accordance with and pursuant to the definitive
agreements executed and performed in connection with the transactions contemplated by this
Letter; provided, however, that such indemnification shall be subject to
Section 9.1(d) and (f) and Section 10.3 of the APA.
	 
	4.	 	Attorney’s Fees. Scottish Re shall reimburse ING for, or pay on ING’s behalf,
reasonable actual attorneys’ fees and disbursements incurred in connection with the
negotiation, preparation, execution and delivery of this Letter and the transaction documents
contemplated by Section 1 of this Letter (without duplication of attorney’s fees payable under
the March 31 LOI) provided that such fees and disbursements shall be aggregated with
those subject to Section 8 of the March 31 LOI in applying the $1 million limitation set forth
therein.
	 
	5.	 	Conditions to Closing. The closing of the transactions contemplated by Section 1 of
this Letter under the definitive agreements contemplated thereby will be conditioned on the
receipt of all required governmental, regulatory, shareholder and material third-party
consents and the approvals set forth in Section 9 of this Letter. The conditions to the
closing of the transactions contemplated by the March 31 LOI shall be as set forth in the
March 31 LOI.
	 
	6.	 	Confidentiality. The parties here acknowledge and agree that this Letter and the
transactions contemplated hereby shall be subject to the Confidentiality Agreement, dated as
of December 21, 2007, by and among Scottish Re Group

7

 

	 	 	Limited and ING America Holdings Inc. (the “Confidentiality Agreement”).
Notwithstanding the foregoing or anything in this Letter or the Confidentiality Agreement
to the contrary, the parties acknowledge and agree that disclosure of any of the terms of,
or the existence of, this Letter may be made as is necessary or advisable in communications
or filings made with auditors retained by either party, any state or governmental insurance
regulators (whether domestic or foreign), or the party’s rating agencies, or as may be
necessary or advisable under federal or state securities laws.

	7.	 	Publicity. The parties shall mutually agree upon the form and content of any public
statement that may be made with respect to this Letter or the transactions contemplated hereby
and, except as required by law or regulation, no such public statement shall be made unless
mutually agreed upon by the parties hereto. The parties agree that statements made by either
party to its respective ratings agencies, state or other governmental regulatory authority
(including on Form 10-K filed with the Securities and Exchange Commission), holders of a
controlling interest in the ownership of such party, or any third-party subject to a
confidentiality agreement with the party making such public statement will not be deemed a
public statement for purposes of this Letter. For greater certainty, the parties hereto shall
be entitled to disclose this Letter and the transactions contemplated hereby to their
respective rating agencies and on Form 10-K filed with the Securities and Exchange Commission
to the extent required. Any public or private statement by any party with respect to the
terms of this Letter or the transactions contemplated hereby shall be accurate, complete and
not misleading, and any material misstatement or omission with respect thereto shall be
promptly corrected by the appropriate party. No party shall refer to any other party or any
of its affiliates in any of its advertising or promotional material without the consent of
such other party.
	 
	8.	 	Good Faith. Following the signing of this Letter, each of the parties to this Letter
shall promptly enter into good faith negotiations to prepare and execute definitive agreements
as soon as practicable with respect to, and when required by, the transactions contemplated
herein. The parties shall use their reasonable best efforts to have the definitive agreements
drafted in substantially final form on or before thirty (30) days from the date of execution
of this Letter. The definitive agreements will include the terms described in this Letter and
such other representations, warranties, covenants, indemnities, conditions and other terms as
are appropriate and agreed to by the parties hereto.
	 
	9.	 	Consents and Approvals. Commencing upon signing of this Letter, Scottish Re and ING
will use all commercially reasonable efforts, and will cooperate with each other in good
faith, to cause Scottish Re and ING to obtain all governmental, regulatory and third party
consents and approvals necessary for the consummation of the transactions contemplated herein
on an expedited basis.
	 
	10.	 	Remedies. Each party to this Letter understands and agrees that the breach or
non-fulfillment of any of the covenants, agreements or promises under this Letter

8

 

	 	 	of such party would irreparably injure the other party to this Letter (the
“Non-Breaching Party”), that money damages would not be a sufficient remedy for any
such breach or non-fulfillment, and that, in addition to the Non-Breaching Party’s remedies
available at law for losses, claims, damages, liabilities or expenses suffered or incurred
in connection with such breach or non-fulfillment, or in equity, the Non-Breaching Party
will be entitled to seek specific performance and injunctive or other equitable relief as a
remedy for any such non-fulfillment or breach.

	11.	 	Assignment; Binding Effect. This Letter may not be assigned by either ING or
Scottish Re without the prior written consent of the other. This Letter shall be binding upon
and inure to the benefit of Scottish Re and ING and their respective successors and permitted
assigns and shall be enforceable in accordance with its terms against Scottish Re and ING and
their respective successors and permitted assigns.
	 
	12.	 	Governing Law. This Letter shall be governed by, and construed in accordance with,
the laws of the State of New York.
	 
	13.	 	No Third-Party Beneficiaries. No person other than the parties to this Letter, their
successors and permitted assigns, is intended to be a beneficiary of this Letter.
	 
	14.	 	Amendment. This Letter shall not be amended except by a written instrument executed
by the parties hereto.
	 
	15.	 	Entire Understanding. This Letter and the Confidentiality Agreement set forth the
entire understanding of the parties with respect to the matters addressed herein.
	 
	16.	 	Counterparts. This Letter may be executed in counterparts, each of which shall be
deemed to constitute an original but all of which together shall constitute one and the same
instrument.
	 
	17.	 	Obligations of SR Dublin. SR Dublin shall be liable pursuant to the terms of this
Letter only in respect of those obligations that are explicitly assumed by it hereunder
(including obligations relating to the March 31 LOI) and shall not be liable for obligations
described as those of Scottish Re (as such term is defined in the opening paragraph of this
Letter).

[Remainder of page intentionally left blank]

9

 

     Please confirm your agreement to the foregoing by signing in the space provided below and
returning to Scottish Re a copy hereof, whereupon this Letter shall constitute a binding agreement
between the parties hereto.

Yours sincerely,

SCOTTISH RE GROUP LIMITED

By:                                                             

Name:

Title:

ACCEPTED AND AGREED:

ING NORTH AMERICA INSURANCE CORPORATION

By:                                                            

Name:

Title:

ING AMERICA INSURANCE HOLDINGS, INC.

By:                                                            

Name:

Title:

SECURITY LIFE OF DENVER INSURANCE COMPANY

By:                                                            

Name:

Title:

SECURITY LIFE OF DENVER INTERNATIONAL LTD.

By:                                                            

Name:

Title:

10

 

SCOTTISH RE (U.S.), INC.

By:                                                            

Name:

Title:

SCOTTISH RE LIFE (BERMUDA) LIMITED

By:                                                            

Name:

Title:

SCOTTISH RE (DUBLIN) LIMITED

By:                                                            

Name:

Title:

SCOTTISH ANNUITY & LIFE INSURANCE COMPANY (CAYMAN) LTD.

By:                                                            

Name:

Title:

11

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