-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hdqe8LI/erMgx2tJzk27KT0vgBoLTJbgDkFSQkuCiYfphVgsVWbvuHGMK3QnEkgY dPVmdMVBNM6Qsvb9XkSniA== 0000355429-02-000007.txt : 20020415 0000355429-02-000007.hdr.sgml : 20020415 ACCESSION NUMBER: 0000355429-02-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTECTIVE LIFE CORP CENTRAL INDEX KEY: 0000355429 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 952492236 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12332 FILM NUMBER: 02588346 BUSINESS ADDRESS: STREET 1: 2801 HGWY 280 S CITY: BIRMINGHAM STATE: AL ZIP: 35223 BUSINESS PHONE: 2058799230 MAIL ADDRESS: STREET 1: PO BOX 2606 CITY: BIRMINGHAM STATE: AL ZIP: 35202 10-K 1 f10kplc.htm 10K
_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549
_____________

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2001 Commission File Number 1-12332

Protective Life Corporation

(Exact name of Registrant as specified in its charter)



2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223

(Address of principal executive offices, including zip code)

DELAWARE 95-2492236
(State or other jurisdiction (IRS Employer
incorporation or organization) Identificiation No.)




Registrant's telephone number, including area code (205) 879-9230


_____________


Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.50 Par Value
Series A Junior Participating Cumulative Preferred Stock, $1.00 Par Value
PLC Capital Trust I 8.25% Trust Originated Preferred Securities
PLC Capital Trust III 7.5% Trust Originated Preferred Securities
Guarantees Issued for the Benefit of Holders of:
PLC Capital Trust I 8.25% Trust Originated Preferred Securities
Guarantees Issued for the Benefit of Holders of:
PLC Capital Trust III 7.5% Trust Originated Preferred Securities
(Title of Class)


Name of each exchange
on which registered
New York Stock Exchange


Securities registered pursuant to Section 12(g) of the Act: None


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No[ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in the definitive proxy statement or information statements or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Aggregate market value of voting stock held by nonaffiliates of the Registrant as of March 8, 2002: $2,102,188,319
Number of shares of Common Stock, $0.50 Par Value, outstanding as of March 8, 2002:68,643,043

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's 2001 Annual Report To Share Owners (the "2001 Annual Report To Share Owners") are incorporated by reference into Parts I, II, and IV of this Report.

Portion of the Registrant's Proxy Statement dated March 30, 2002, are incorporated by reference into Part III of this Report.

_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________

PROTECTIVE LIFE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2001



TABLE OF CONTENTS

                                            PART I

Item 1.       Business.............................................................

Item 2.       Properties...........................................................

Item 3.       Legal Proceedings....................................................

Item 4.       Submission of Matters to a Vote of Security Holders..................


                                            PART II

Item 5.       Market for the Registrant's Common Equity and
                Related Share-Owner Matters........................................

Item 6.       Selected Financial Data..............................................

Item 7.       Management's Discussion and Analysis of Financial
                Condition and Results of Operations................................

Item 7a.      Quantitative and Qualitative Disclosure About Market Risk............

Item 8.       Financial Statements and Supplementary Data..........................

Item 9.       Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure................................


                                            PART III

Item 10.      Directors and Executive Officers of the Registrant...................

Item 11.      Executive Compensation...............................................

Item 12.      Security Ownership of Certain Beneficial Owners and
                Management.........................................................

Item 13.      Certain Relationships and Related Transactions.......................

                                           PART IV

Item 14.      Exhibits, Financial Statement Schedules, and Reports
                on Form 8-K........................................................

PART I

Item 1. Business

        Protective Life Corporation is a holding company, whose subsidiaries provide financial services through the production, distribution, and administration of insurance and investment products. Founded in 1907, Protective Life Insurance Company is the Company’s largest operating subsidiary. Unless the context otherwise requires, the “Company” refers to the consolidated group of Protective Life Corporation and its subsidiaries.

        Copies of the Company’s Proxy Statement and 2001 Annual Report to Share Owners will be furnished to anyone who requests such documents from the Company. Requests for copies should be directed to: Share-Owner Relations, Protective Life Corporation, P. O. Box 2606, Birmingham, Alabama 35202, Telephone (205) 868-3573, FAX (205) 868-3541. Copies may also be requested through the Internet from the Company’s Worldwide Web Site (www.protective.com). The information incorporated herein by reference is also electronically accessible through the Internet from the “EDGAR Database of Corporate Information” on the Securities and Exchange Commission’s World Wide Web site (www.sec.gov).

        The Company operates business segments each having a strategic focus which can be grouped into three general categories: life insurance, retirement savings and investment products, and specialty insurance products.

        The following table shows the percentages of pretax operating income from continuing operations represented by each of the strategic focuses and the Corporate and Other segment. 


                                                       RETIREMENT
                                                      SAVINGS AND              SPECIALTY              CORPORATE
       YEAR ENDED                 LIFE                 INVESTMENT              INSURANCE                 AND
      DECEMBER 31               INSURANCE               PRODUCTS               PRODUCTS                 OTHER
- ----------------------------------------------------------------------------------------------------------------------

          1997                     56.9%                  26.6%                    9.5%                   7.0%
          1998                     56.6                   24.1                    10.4                    8.9
          1999                     59.2                   20.4                    10.7                    9.7
          2000                     66.5                   23.8                    16.5                   (6.8)
          2001                     68.3                   21.7                    14.7                   (4.7)

        Additional information concerning the Company’s divisions may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” and Note 10  to Consolidated Financial Statements in the Company’s 2001 Annual Report to Share Owners, which are incorporated herein by reference.

        In the following paragraphs, the Company reports sales and new capital invested. These statistics are used by the Company to measure the relative progress of its marketing and acquisition efforts. These statistics were derived from the Company’s various sales tracking and administrative systems and were not derived from the Company’s financial reporting systems or financial statements. These statistics attempt to measure only one of many factors that may affect future profitability, and therefore are not intended to be predictive of future profitability.

LIFE INSURANCE

        A strategic focus of the Company is to expand its individual life insurance operations through internal growth and acquisitions.

Life Marketing

        The Individual Life and West Coast Divisions support the Company’s strategy to expand its individual life insurance operations through internal growth.

        The Individual Life Division markets level premium term and term-like insurance, universal life and variable universal life products on a national basis primarily through networks of independent insurance agents. The Division has two primary agent networks. The first is based on experienced independent personal producing general agents who are recruited by regional sales managers. The Division also distributes insurance products in the life insurance brokerage market through another wholly-owned subsidiary, Empire General Life Assurance Corporation. The Division also distributes life insurance products through regional stockbrokers and banks, and through direct response and worksite arrangements.

        In 1997, the Company acquired West Coast Life Insurance Company (West Coast). The West Coast Division sells universal life and level premium term and term-like insurance products in the life insurance brokerage market and in the “bank owned life insurance” (BOLI) market. The Division primarily utilizes a distribution system comprised of brokerage general agencies who recruit a network of independent life agents. The Division also offers corporate owned life insurance products to the BOLI market through an independent marketing organization which specializes in this market. The products are sold to smaller and regional banks.

        A subsidiary of the Company, Matrix Direct, Inc. (Matrix), is a leading direct marketer of life and other insurance products. Matrix offers a full complement of direct marketing services, including market research, media buying, fulfillment, a nationally-licensed sales group and new business processing.

        Another subsidiary, ProEquities, Inc. (ProEquities), is a full-service securities broker-dealer. ProEquities primarily recruits financial planners. ProEquities makes available variable insurance products, mutual funds, and other investment products to its licensed representatives to offer to their clients and customers.

        The following table shows the Life Marketing business segment’s sales measured by new premium. 

             YEAR ENDED
             DECEMBER 31                             SALES
- -------------------------------------------------------------------------
                                             (DOLLARS IN MILLIONS)

                1997                                $  78.5
                1998                                  111.8
                1999                                  139.2
                2000                                  161.8
                2001                                  163.4

Acquisitions

        The Acquisitions Division focuses on acquiring, converting, and servicing policies acquired from other companies. The Division's primary focus is on life insurance policies sold to individuals. These acquisitions may be accomplished through acquisitions of companies or through the reinsurance of blocks of policies from other insurers. Forty-two transactions have been closed by the Division since 1970, including 15 since 1989. Policies acquired through the Division are usually administered as "closed" blocks; i.e., no new policies are being marketed. Therefore, the amount of insurance in force for a particular acquisition is expected to decline with time due to lapses and deaths of the insureds.

        Most acquisitions closed by the Acquisitions Division do not include the acquisition of an active sales force. In transactions where some marketing activity was included, the Company generally either ceased future marketing efforts or redirected those efforts to another division of the Company. However, in the case of the acquisition of West Coast which was closed by the Acquisitions Division, the Company elected to continue the marketing of new policies and operate West Coast as a separate division of the Company.

        The Company believes that its focused and disciplined approach to the acquisition process and its experience in the assimilation, conservation, and servicing of acquired policies give it a significant competitive advantage over many other companies that attempt to make similar acquisitions. The Company expects acquisition opportunities to continue to be available as the life insurance industry continues to consolidate; however, management believes that the Company may face increased competition for future acquisitions.

        Total revenues and income before income tax from the Acquisitions business segment are expected to decline with time unless new acquisitions are made. Therefore, the segment’s revenues and earnings may fluctuate from year to year depending upon the level of acquisition activity.

        The following table shows the number of transactions closed by the Acquisitions business segment and the approximate amount of (statutory) capital invested for each year in which an acquisition was made. 


                                  NUMBER
       YEAR ENDED                   OF                       CAPITAL
      DECEMBER 31              TRANSACTIONS                  INVESTED
- --------------------------------------------------------------------------------
                                                      (DOLLARS IN MILLIONS)
          1997                     1 (1)                      $116.8 (1)
          1998                     1                            77.8
          2001                     2                           247.8
                  ___________
                  (1) West Coast

        Although acquisition opportunities were pursued, no transactions were completed in 1999 or 2000. In 2001, the Company coinsured a block of individual life policies from Standard Insurance Company, and acquired the stock of Inter-State Assurance Company and First Variable Life Insurance Company from ILona Financial Group, Inc., the U.S. subsidiary of Irish Life & Permanent plc of Dublin, Ireland.

        From time to time other of the Company’s business segments have acquired companies and blocks of policies which are included in their respective results.

RETIREMENT SAVINGS AND INVESTMENT PRODUCTS

        A second strategic focus of the Company is to offer products that respond to the shift in consumer preference to savings products brought about by demographic trends as “baby-boomers” move into the saving stage of their life cycle. The products that support this strategy are stable value contracts and annuities.

Stable Value Contracts

        The Company’s Stable Value Products Division markets guaranteed investment contracts (GICs) to 401(k) and other qualified retirement savings plans. GICs are generally contracts which specify a return on deposits for a specified period and often provide flexibility for withdrawals at book value in keeping with the benefits provided by the plan. The demand for GICs is related to the relative attractiveness of the “fixed rate” investment option in a 401(k) plan compared to the equity-based investment options available to plan participants.

        The Division also markets fixed and floating rate funding agreements to the trustees of municipal bond proceeds, institutional investors, bank trust departments and money market funds. The Division also sells funding agreements to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations.

        The Company’s emphasis is on a consistent and disciplined approach to product pricing and asset/liability management, careful underwriting of early withdrawal risks and maintaining low distribution and administration costs. Most GIC contracts and funding agreements written by the Company have maturities of three to five years.

        The following table shows the stable value contracts sales.

       YEAR ENDED                              FUNDING
       DECEMBER 31              GICS          AGREEMENTS          TOTAL
- ----------------------------------------------------------------------------
                                        (DOLLARS IN MILLIONS)

          1997                 $203             $461             $ 664
          1998                  488              336               824
          1999                  584              386               970
          2000                  418              801             1,219
          2001                  409              637             1,046

        The rate of growth in account balances is affected by the amount of maturing contracts relative to the amount of sales.

Annuities

        The Company’s Investment Products Division manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers and ProEquities, but are also sold through financial institutions and the Individual Life Division’s sales force.

        The Company’s fixed annuities are primarily modified guaranteed annuities which guarantee an interest rate for a fixed period. Because contract values are “market-value adjusted” upon surrender prior to maturity, these products afford the Company a measure of protection from the effects of changes in interest rates. The Company also offers variable annuities which offer the policyholder the opportunity to invest in various investment accounts.

        The following table shows fixed and variable annuity sales. The demand for annuity products is related to the general level of interest rates and performance of the equity markets. 


       YEAR ENDED                 FIXED                   VARIABLE                    TOTAL
       DECEMBER 31              ANNUITIES                ANNUITIES                  ANNUITIES
- ------------------------------------------------------------------------------------------------------
                                                   (DOLLARS IN MILLIONS)

          1997                     $180                      $324                      $504
          1998                       97                       472                       569
          1999                      350                       361                       711
          2000                      635                       257                       892
          2001                      689                       263                       952

SPECIALTY INSURANCE PRODUCTS

        A third strategic focus of the Company is to participate in specialized segments of the insurance industry.

Credit Products

        The Financial Institutions Insurance Division markets credit life and disability insurance products through banks, consumer finance companies and automobile dealers and markets vehicle and recreational marine extended service contracts. The Division markets through employee field representatives, independent brokers and wholly-owned subsidiaries.

        In 1997, the Company acquired the Western Diversified Group. In 2000, the Company acquired The Lyndon Insurance Group (Lyndon).

        The Company is one of the largest independent writers of credit insurance in the United States. These policies cover consumer loans made by financial institutions located primarily in the southeastern United States and automobile dealers throughout the United States.

        The following table shows the credit insurance and related product sales measured by new premium including the sales of Western Diversified and Lyndon since the date of acquisition. 

             YEAR ENDED
             DECEMBER 31                             SALES
- -------------------------------------------------------------------------
                                             (DOLLARS IN MILLIONS)
                1997                                 $189.3
                1998                                  273.5
                1999                                  283.4
                2000                                  523.6
                2001                                  521.5

        In 2001, approximately 60% of the business segment’s sales were through automobile dealers, and approximately 37% of sales were extended service contracts. A portion of the sales are reinsured with producer-owned reinsurers.

        The Company has also coinsured closed blocks of credit policies in 1996 and 1997, and in 1999 the Company recaptured a closed block of credit policies that it had previously ceded to another insurer.

Corporate and Other

        The Company has an additional business segment referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the other business segments described above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earnings from several small lines of business which the Company is not actively marketing (mostly cancer insurance and group annuities), various investment-related transactions, and the operations of several small subsidiaries. The earnings of this segment may fluctuate from year to year. In 2000, the Company sold its participation in a joint venture which owned a small life insurance company in Hong Kong.

Discontinued Operations

        On December 31, 2001, the Company completed the sale to Fortis, Inc. of substantially all of its Dental Benefits Division (Dental Division), and discontinued other remaining Dental Division operations, primarily other health insurance lines.

Investments

        The types of assets in which the Company may invest are influenced by various state laws which prescribe qualified investment assets. Within the parameters of these laws, the Company invests its assets giving consideration to such factors as liquidity needs, investment quality, investment return, matching of assets and liabilities, and the overall composition of the investment portfolio by asset type and credit exposure. For further information regarding the Company’s investments, the maturity of and the concentration of risk among the Company’s invested assets, derivative financial instruments, and liquidity, see Notes 1 and 2 to the Consolidated Financial Statements, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2001 Annual Report to Share Owners.

        A significant portion of the Company’s bond portfolio is invested in mortgage-backed securities. Mortgage-backed securities are constructed from pools of residential mortgages, and may have cash flow volatility as a result of changes in the rate at which prepayments of principal occur with respect to the underlying loans. Prepayments of principal on the underlying residential loans can be expected to accelerate with decreases in interest rates and diminish with increases in interest rates. The Company has not invested in the higher risk tranches of mortgage-backed securities (except mortgage-backed securities issued in securitization transactions sponsored by the Company). In addition, the Company has entered into hedging transactions to reduce the volatility in market value of its mortgage-backed securities.

        The table below shows a breakdown of the Company’s mortgage-backed securities portfolio by type at December 31, 2001. Planned amortization class securities (PACs) pay down according to a schedule. Targeted amortization class securities (TACs) pay down in amounts approximating a targeted schedule. Non-Accelerated Security (NAS) receive no principal payments in the first five years, after which NAS receive an increasing percentage of pro rata principal payments until the tenth year, after which NAS receive principal as principal of the underlying mortgages is received. All of these types of structured mortgage-backed securities give the Company some measure of protection against both prepayment and extension risk.

        Accretion directed securities have a stated maturity but may repay more quickly. Sequentials receive scheduled payments with any “excess” cash flow going to repay the earliest maturing tranches first. Pass through securities receive principal as principal of the underlying mortgages is received. Support tranches are designed to receive cash after the more stable tranches (i.e., PACs and TACs) are satisfied. The CMBS are commercial mortgage-backed securities issued in securitization transactions sponsored by the Company, in which the Company securitized portions of its mortgage loan portfolio. 

                                               PERCENTAGE OF
                                              MORTGAGE-BACKED
     TYPE                                        SECURITIES
- ---------------------------------------------------------------------------

     PAC                                              7.3%
     TAC                                              3.7
     NAS                                             10.5
     Accretion Directed                               4.0
     Sequential                                      14.4
     Pass Through                                    49.9
     Support                                          1.1
     CMBS                                             9.1
                                                    ------
                                                    100.0%
                                                    ======

        The Company obtains ratings of its fixed maturities from Moody's Investors Service, Inc. (Moody's) and Standard & Poor's Corporation (S&P). If a bond is not rated by Moody's or S&P, the Company uses ratings from the Securities Valuation Office of the National Association of Insurance Commissioners (NAIC), or the Company rates the bond based upon a comparison of the unrated issue to rated issues of the same issuer or rated issues of other issuers with similar risk characteristics. At December 31, 2001, approximately 99.7% of bonds were rated by Moody's, S&P, or the NAIC.

        The approximate percentage distribution of the Company's fixed maturity investments by quality rating at December 31, 2001, is as follows:

RATING                                           PERCENTAGE OF FIXED
                                                 MATURITY INVESTMENTS
- ------------------------------------------------------------------------

AAA                                                      38.4%
AA                                                        6.3
A                                                        24.3
BBB                                                      26.7
BB or less                                                4.2
Redeemable preferred stocks                               0.1
                                                       ------
                                                       100.0%
                                                       ======

        At December 31, 2001, approximately $9,390.8 million of the Company’s $9,838.1 million bond portfolio was invested in U.S. Government or agency-backed securities or investment grade bonds and approximately $447.3 million of its bond portfolio was rated less than investment grade, of which $63.3 million were securities issued in Company-sponsored commercial mortgage loan securitizations.

        Risks associated with investments in less than investment grade debt obligations may be significantly higher than risks associated with investments in debt securities rated investment grade. Risk of loss upon default by the borrower is significantly greater with respect to such debt obligations than with other debt securities because these obligations may be unsecured or subordinated to other creditors. Additionally, there is often a thinly traded market for such securities and current market quotations are frequently not available for some of these securities. Issuers of less than investment grade debt obligations usually have higher levels of indebtedness and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than investment-grade issuers.

        The Company also invests a significant portion of its portfolio in mortgage loans. Results for these investments have been excellent due to careful management and a focus on a specialized segment of the market. The Company generally does not lend on speculative properties and has specialized in making loans on either credit-oriented commercial properties or credit-anchored strip shopping centers. The average size of loans made during 2001 was $3.5 million. The average size mortgage loan in the Company’s portfolio is approximately $2.1 million. The largest single loan amount is $18.8 million.

        The following table shows a breakdown of the Company’s mortgage loan portfolio by property type at December 31, 2001: 



                                               PERCENTAGE OF
                                               MORTGAGE LOANS
     PROPERTY TYPE                             ON REAL ESTATE
- ---------------------------------------------------------------------------
     Retail                                          74.9%
     Apartments                                       9.9
     Office Buildings                                 7.0
     Warehouses                                       7.0
     Other                                            1.2
                                                    -----
     Total                                          100.0%
                                                    =====

        Retail loans are generally on strip shopping centers located in smaller towns and anchored by one or more regional or national retail stores. The anchor tenants enter into long-term leases with the Company's borrowers. These centers provide the basic necessities of life, such as food, pharmaceuticals, and clothing, and have been relatively insensitive to changes in economic conditions. The following are the largest anchor tenants (measured by the Company's exposure) at December 31, 2001:

                                                 PERCENTAGE OF
                                                 MORTGAGE LOANS
     ANCHOR TENANTS                              ON REAL ESTATE
- -----------------------------------------------------------------------------

     Food Lion, Inc.                                    3.5%
     Winn Dixie Stores, Inc.                            3.4
     Wal-Mart Stores, Inc.                              3.1
     Rite-Aid Corporation                               1.9
     Walgreen Corporation                               1.8

        The Company’s mortgage lending criteria generally require that the loan-to-value ratio on each mortgage be at or under 75% at the time of origination. Projected rental payments from credit anchors (i.e., excluding rental payments from smaller local tenants) generally exceed 70% of the property’s projected operating expenses and debt service. The Company also offers a commercial loan product under which the Company will permit a loan-to-value ratio of up to 85% in exchange for a participating interest in the cash flows from the underlying real estate. Approximately $548.4 million of the Company’s mortgage loans have this participation feature.

        Many of the Company’s mortgage loans have call or interest rate reset provisions between 3 and 10 years. However, if interest rates were to significantly increase, the Company may be unable to call the loans or increase the interest rates on its existing mortgage loans commensurate with the significantly increased market rates.

        At December 31, 2001, $29.6 million or 1.2% of the mortgage loan portfolio was nonperforming. It is the Company’s policy to cease to carry accrued interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is the Company’s general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place.

        In 1996, the Company sold approximately $554 million of its mortgage loans in a securitization transaction. In 1997, the Company sold approximately $445 million of its loans in a second securitization transaction. In 1998 the Company securitized $146 million of its mortgage loans and in 1999 the Company securitized $263 million. The securitizations’ senior tranches were sold, and the Company retained the junior tranches. The Company continues to service the securitized mortgage loans. At December 31, 2001, the Company had investments related to retained beneficial interests of mortgage loan securitizations of $286.4 million.

        As a general rule, the Company does not invest directly in real estate. The investment real estate held by the Company consists largely of properties obtained through foreclosures or the acquisition of other insurance companies. In the Company’s experience, the appraised value of a foreclosed property often approximates the mortgage loan balance on the property plus costs of foreclosure. Also, foreclosed properties often generate a positive cash flow enabling the Company to hold and manage the property until the property can be profitably sold.

        The following table shows the investment results from continuing operations of the Company: 


                                                                                              REALIZED INVESTMENT
                        CASH, ACCRUED                                                            GAINS (LOSSES)
                         INVESTMENT                                   PERCENTAGE      ----------------------------------
                         INCOME, AND                                   EARNED ON         DERIVATIVE
  YEAR ENDED           INVESTMENTS AT                              AVERAGE OF CASH        FINANCIAL         ALL OTHER
  DECEMBER 31            DECEMBER 31      NET INVESTMENT INCOME    AND INVESTMENTS       INSTRUMENTS       INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------
                                                (DOLLARS IN THOUSANDS)

      1997              $ 8,192,538            $583,193                  8.0%                           $       830
      1998                8,718,455             629,045                  7.7                                  3,121
      1999                8,877,038             667,968                  7.6           $  (2,279)             1,222
      2000               10,419,217             730,149                  7.6               9,013            (16,056)
      2001               13,604,102             884,041                  7.3             (11,431)            (8,740)

Life Insurance in Force

        The following table shows life insurance sales by face amount and life insurance in force.

                                                                         YEAR ENDED DECEMBER 31
                                           ----------------------------------------------------------------------------------
                                               2001             2000            1999             1998            1997
                                           ----------------------------------------------------------------------------------
                                                                        (DOLLARS IN THOUSANDS)
New Business Written
     Life Marketing....................     $ 40,538,738   $ 45,918,373    $   26,918,775   $   21,238,653    $12,573,522
     Group Products(1).................          123,062        143,192           123,648          113,056        124,230
     Credit Products...................        5,917,047      7,052,106         6,665,219        5,257,957      4,183,216
                                            ------------   ------------    --------------   --------------    -----------
        Total..........................     $ 46,578,847   $ 53,113,671    $   33,707,642   $   26,609,666    $16,880,968
                                            ============   ============    ==============   ==============    ===========

Business Acquired
     Life Marketing....................                                                                       $10,237,731
     Acquisitions......................     $ 19,992,424                                    $   7,787,284
     Credit Products...................                    $  2,457,296    $     620,000                        3,364,617
                                            ------------   ------------    -------------    -------------     -----------
         Total.........................     $ 19,992,424   $  2,457,296    $     620,000    $   7,787,284     $13,602,348
                                            ============   ============    =============    =============     ===========
Insurance in Force at End of Year(2)
     Life Marketing....................     $159,485,393   $129,502,305    $ 91,627,218     $ 66,086,218      $51,720,575
     Acquisitions......................       36,856,042     20,133,370      22,054,734       27,606,592       20,955,836
     Group Products(1).................        5,821,744      7,348,195       6,065,604        6,665,815        6,393,076
     Credit Products...................       12,094,947     13,438,226      10,069,030        9,632,466       10,183,997
                                            ------------   ------------    ------------     ------------      -----------
         Total.........................     $214,258,126   $170,422,096    $129,816,586     $109,991,091      $89,253,484
                                            ============   ============    ============     ============      ===========
(1)     On December 31, 2001, The Company  completed the sale of  substantially  all of its Dental  Benefits  Division,  with which the
        group products are associated.
(2)     Reinsurance   assumed  has  been  included;   reinsurance  ceded   (2001-$171,449,182;   2000-$128,374,583;   1999-$92,566,755;
        1998-$64,846,246; 1997-$34,139,554) has not been deducted.

        The ratio of voluntary terminations of individual life insurance to mean individual life insurance in force, which is determined by dividing the amount of insurance terminated due to lapses during the year by the mean of the insurance in force at the beginning and end of the year, adjusted for the timing of major acquisitions was:

YEAR ENDED                               RATIO OF VOLUNTARY
DECEMBER 31                                 TERMINATIONS
- -------------------------------------------------------------
     1997.........................              6.9%
     1998.........................              6.4
     1999.........................              6.0
     2000.........................              5.8
     2001.........................              7.4

        The amount of investment products in force is measured by account balances. The following table shows stable value contract and annuity account balances. Most of the variable annuity account balances are reported in the Company's financial statements as liabilities related to separate accounts.

                                  STABLE                MODIFIED
      YEAR ENDED                  VALUE                GUARANTEED                FIXED                VARIABLE
      DECEMBER 31               CONTRACTS              ANNUITIES               ANNUITIES              ANNUITIES
- ----------------------------------------------------------------------------------------------------------------------
                                                            (DOLLARS IN THOUSANDS)

          1997                   $2,684,676          $   926,071             $   453,418              $1,057,186
          1998                    2,691,697              818,566                 432,237               1,554,969
          1999                    2,680,009              941,692                 391,085               2,085,072
          2000                    3,177,863            1,384,027                 330,428               2,043,878
          2001                    3,716,530            1,883,998               1,143,394               2,131,476

Underwriting

        The underwriting policies of the Company’s insurance subsidiaries are established by management. With respect to individual insurance, the subsidiaries use information from the application and, in some cases, inspection reports, attending physician statements, or medical examinations to determine whether a policy should be issued as applied for, rated, or rejected. Medical examinations of applicants are required for individual life insurance in excess of certain prescribed amounts (which vary based on the type of insurance) and for most individual insurance applied for by applicants over age 50. In the case of “simplified issue” policies, which are issued primarily through the Financial Institutions Division and the Individual Life Division in the payroll deduction market, coverage is rejected if the responses to certain health questions contained in the application indicate adverse health of the applicant. For other than “simplified issue” policies, medical examinations are requested of any applicant, regardless of age and amount of requested coverage, if an examination is deemed necessary to underwrite the risk. Substandard risks may be referred to reinsurers for full or partial reinsurance of the substandard risk.

        The Company’s insurance subsidiaries require blood samples to be drawn with individual insurance applications for coverage at age 16 and above except in the payroll deduction market where the face amount must be $100,000 or more before blood testing is required. Blood samples are tested for a wide range of chemical values and are screened for antibodies to the HIV virus. Applications also contain questions permitted by law regarding the HIV virus which must be answered by the proposed insureds.

Indemnity Reinsurance

        The Company’s insurance subsidiaries cede insurance to other insurance companies. The ceding insurance company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it. The Company sets a limit on the amount of insurance retained on the life of any one person. In the individual lines it will not retain more than $500,000, including accidental death benefits, on any one life. In many cases the retention is less. At December 31, 2001, the Company had insurance in force of $214.3 billion of which approximately $171.4 billion was ceded to reinsurers.

        Over the past several years, the Company’s reinsurers have reduced the net cost of reinsurance to the Company. Consequently, the Company has increased the amount of reinsurance which it cedes on newly-written individual life insurance policies, and has also ceded a portion of the mortality risk of existing business of the Life Marketing and Acquisitions business segments.

        The Company also has used reinsurance in the sale of the Dental segment and to reinsure fixed annuities in conjunction with the acquisition of two small insurers.

Policy Liabilities and Accruals

        The applicable insurance laws under which the Company’s insurance subsidiaries operate require that each insurance company report policy liabilities to meet future obligations on the outstanding policies. These liabilities are the amounts which, with the additional premiums to be received and interest thereon compounded annually at certain assumed rates, are calculated in accordance with applicable law to be sufficient to meet the various policy and contract obligations as they mature. These laws specify that the liabilities shall not be less than liabilities calculated using certain named mortality tables and interest rates.

        The policy liabilities and accruals carried in the Company’s financial reports presented on the basis of accounting principles generally accepted in the United States of America ( GAAP) differ from those specified by the laws of the various states and carried in the insurance subsidiaries’ statutory financial statements (presented on the basis of statutory accounting principles mandated by state insurance regulations). For policy liabilities other than those for universal life policies, annuity contracts, GICs, and funding agreements, these differences arise from the use of mortality and morbidity tables and interest rate assumptions which are deemed to be more appropriate for financial reporting purposes than those required for statutory accounting purposes; from the introduction of lapse assumptions into the calculation; and from the use of the net level premium method on all business. Policy liabilities for universal life policies, annuity contracts, GICs, and funding agreements are carried in the Company’s financial reports at the account value of the policy or contract.

Federal Income Tax Consequences

        Existing federal laws and regulations affect the taxation of the Company’s products. Income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. Congress has from time to time considered proposals that, if enacted, would have had an adverse impact on the federal income tax treatment of such products, or would increase the tax-deferred status of competing products. In addition, life insurance products are often used to fund estate tax obligations. Legislation has recently been enacted that would over time, reduce and eventually eliminate the estate tax. If the estate tax is significantly reduced or eliminated, the demand for certain life insurance products could be adversely affected. The Company cannot predict what tax initiatives may be enacted which could adversely affect the Company.

        The Company’s insurance subsidiaries are taxed by the federal government in a manner similar to companies in other industries. However, certain restrictions on consolidating recently acquired life insurance companies and on consolidating life insurance company income with non-insurance income are applicable to the Company; thus, the Company is not able to consolidate all of the operating results of its subsidiaries for federal income tax purposes.

        Under pre-1984 tax law, certain income of the Company was not taxed currently, but was accumulated in a memorandum account designated as “Policyholders’ Surplus” to be taxed only when such income was distributed to share owners or when certain limits on accumulated amounts were exceeded. Consistent with current tax law, amounts accumulated in Policyholders’ Surplus have been carried forward, although no accumulated income may be added to these accounts. As of December 31, 2001, the aggregate accumulation in the Policyholders’ Surplus account was $70.5 million. Under current income tax laws, the Company does not anticipate paying income tax on amounts in the Policyholders’ Surplus accounts.

Competition

        Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. The Company encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than the Company, as well as competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

        The insurance industry is consolidating, with larger, potentially more efficient organizations emerging from consolidation. Also, some mutual insurance companies are converting to stock ownership which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied.

        The Company’s ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong ratings from rating agencies. However, irrational competition from other insurers could adversely affect the Company’s competitive position.

Regulation

        The Company’s insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than share owners.

        A life insurance company’s statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners (NAIC) as modified by the insurance company’s state of domicile. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs and more conservative computations of policy liabilities. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. These requirements are intended to allow insurance regulators to identify inadequately capitalized insurance companies based upon the types and mixtures of risks inherent in the insurer’s operations. The formula includes components for asset risk, liability risk, interest rate exposure, and other factors. Based upon the December 31, 2001 statutory financial reports, the Company’s insurance subsidiaries are adequately capitalized under the formula.

        The Company’s insurance subsidiaries are required to file detailed annual reports with the supervisory agencies in each of the jurisdictions in which they do business and their business and accounts are subject to examination by such agencies at any time. Under the rules of the NAIC, insurance companies are examined periodically (generally every three to five years) by one or more of the supervisory agencies on behalf of the states in which they do business. To date, no such insurance department examinations have produced any significant adverse findings regarding any insurance company subsidiary of the Company.

        Under insurance guaranty fund laws in most states, insurance companies doing business in such a state can be assessed up to prescribed limits for policyholder losses incurred by insolvent or failed insurance companies. Although the Company cannot predict the amount of any future assessments, most insurance guaranty fund laws currently provide that an assessment may be excused or deferred if it would threaten an insurer’s financial strength. The Company’s insurance subsidiaries were assessed immaterial amounts in 2001, which will be partially offset by credits against future state premium taxes.

        In addition, many states, including the states in which the Company’s insurance subsidiaries are domiciled, have enacted legislation or adopted regulations regarding insurance holding company systems. These laws require registration of and periodic reporting by insurance companies domiciled within the jurisdiction which control or are controlled by other corporations or persons so as to constitute an insurance holding company system. These laws also affect the acquisition of control of insurance companies as well as transactions between insurance companies and companies controlling them. Most states, including Tennessee, where Protective Life Insurance Company (Protective Life) is domiciled, require administrative approval of the acquisition of control of an insurance company domiciled in the state or the acquisition of control of an insurance holding company whose insurance subsidiary is incorporated in the state. In Tennessee, the acquisition of 10% of the voting securities of an entity is generally deemed to be the acquisition of control for the purpose of the insurance holding company statute and requires not only the filing of detailed information concerning the acquiring parties and the plan of acquisition, but also administrative approval prior to the acquisition.

        The Company’s insurance subsidiaries are subject to various state statutory and regulatory restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval. Dividends in larger amounts are subject to approval by the insurance commissioner of the state of domicile. The maximum amount that would qualify as ordinary dividends to the Company by Protective Life in 2002 is estimated to be $99.0 million. No assurance can be given that more stringent restrictions will not be adopted from time to time by states in which the Company’s insurance subsidiaries are domiciled, which restrictions could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to the Company by such subsidiaries without affirmative prior approval by state regulatory authorities.

        The Company’s insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

        Certain policies, contracts and annuities offered by the Company’s insurance subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative and private remedial provisions.

        Additional issues related to regulation of the Company and its insurance subsidiaries are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2001 Annual Report to Share Owners.

Employees

        At December 31, 2001 the Company had approximately 2,524 authorized positions, including approximately 1,333 in Birmingham, Alabama. Most employees are covered by contributory major medical, dental, group life, and long-term disability insurance plans. The cost of these benefits to the Company in 2001 was approximately $8.2 million. In addition, substantially all of the employees are covered by a pension plan. The Company also matches employee contributions to its 401(k) Plan and makes discretionary profit sharing contributions for employees not otherwise covered by a bonus or sales incentive plan. See Note 11 to Consolidated Financial Statements.

Item 2. Properties

        The Company’s Home Office is located at 2801 Highway 280 South, Birmingham, Alabama. This campus includes the original 142,000 square-foot building which was completed in 1976 and a second contiguous 220,000 square-foot building which was completed in 1985. In addition, parking is provided for approximately 1,200 vehicles. In 2000, the Company began construction of a third contiguous building which will have approximately 315,000 square feet and parking for approximately 1,560 vehicles. The third building is expected to be completed during 2002. The Company has financed the construction under an operating lease arrangement.

        The Company leases administrative and marketing office space in approximately 30 cities including approximately 88,151 square feet in Birmingham, with most leases being for periods of three to ten years. The aggregate annualized rent is approximately $8.7 million.

Item 3. Legal Proceedings

        There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company, to which the Company or any of its subsidiaries is a party or of which any of the Company’s properties is the subject. For additional information regarding legal proceedings see “Known Trends and Uncertainties” in the Company’s 2001 Annual Report to Share Owners.

Item 4. Submission of Matters to a Vote of Security Holders

        No matter was submitted during the fourth quarter of 2001 to a vote of security holders of the Company.

PART II

Item 5. Market for the Registrant's Common Equity and Related Share-Owner Matters

        The Company’s Common Stock is listed and principally traded on the New York Stock Exchange (NYSE symbol: PL). The following table sets forth the highest and lowest closing prices of the Company’s Common Stock, $0.50 par value, as reported by the New York Stock Exchange during the periods indicated, along with the dividends paid per share of Common Stock during the same periods. 



                                                           RANGE            DIVIDENDS
                                                           -----            ---------
                                                      HIGH        LOW
                                                      ----        ---
2000
  First Quarter............................         $31.75      $20.81        $.12
  Second Quarter...........................          30.75       21.25         .13
  Third Quarter............................          32.06       25.75         .13
  Fourth Quarter...........................          32.25       22.00         .13
2001
  First Quarter............................          32.16       27.69         .13
  Second Quarter...........................          34.51       29.92         .14
  Third Quarter............................          34.48       25.55         .14
  Fourth Quarter...........................          29.88       27.16         .14

        On March 8, 2002, there were approximately 2,300 owners of record of Company Common Stock.

        The Company (or its predecessor) has paid cash dividends each year since 1926 and each quarter since 1934. The Company expects to continue to pay cash dividends, subject to the earnings and financial condition of the Company and other relevant factors. The ability of the Company to pay cash dividends is dependent in part on cash dividends received by the Company from its life insurance subsidiaries. See Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Liquidity and Capital Resources” in the Company’s 2001 Annual Report to Share Owners. Such subsidiary dividends are restricted by the various insurance laws of the states in which the subsidiaries are incorporated. See Item 1 – “Business – Regulation”.

Item 6. Selected Financial Data


                                                                       YEAR ENDED DECEMBER 31
                                           --------------------------------------------------------------------------------
                                                 2001             2000            1999            1998            1997
                                           --------------------------------------------------------------------------------
                                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

INCOME STATEMENT DATA


Premium and policy fee.................       $1,389,820     $ 1,175,898       $ 861,027      $  790,584       $592,959
Reinsurance ceded......................         (771,151)       (686,108)       (462,297)       (378,397)      (227,623)
                                               ---------       ---------       ---------      ----------       --------
    Net of reinsurance ceded...........          618,669         489,790         398,730         412,187        365,336
Net investment income..................          884,041         730,149         667,968         629,045        583,193
Realized investment gains (losses).....
    Derivative financial instruments             (11,431)          9,013          (2,279)
    All other investments                         (8,740)        (16,056)          1,222           3,121            830
Other income...........................          131,678         151,833          89,680          60,022         31,506
                                               ---------       ---------       ---------       ---------       --------
    Total revenues.....................        1,614,217       1,364,729       1,155,321       1,104,375        980,865
Benefits and expenses..................        1,404,621       1,153,054         951,932         922,404        832,325
Income tax expense.....................           68,538          74,321          71,941          63,309         49,702
Income (loss) from discontinued
operations (1)                                   (30,522)         16,122          21,642          12,119         13,155
Extraordinary loss(2)                                                             (1,763)
Change in accounting principles (3)               (7,593)
                                               ---------       ---------      ----------       ---------      ---------
Net income.............................     $    102,943    $    153,476     $   151,327    $    130,781    $   111,993

PER SHARE DATA(4)
Income from continuing operations (5)
    basic..............................    $        2.02   $        2.09     $        2.01  $       1.87    $      1.58
Net income - basic.....................    $        1.48   $        2.33     $        2.31  $       2.06    $      1.79
Average shares outstanding - basic.....       69,410,525      65,832,349        65,604,311    63,521,587     62,429,250
Operating income - diluted(6)..........    $        2.21   $        2.15     $        2.01  $       1.83    $      1.57
Income from continuing operations (5)
    - diluted..........................    $        2.01   $        2.08     $        1.99  $       1.85    $      1.57
Net income - diluted...................    $        1.47   $        2.32     $        2.29  $       2.04    $      1.78
Average shares
    outstanding - diluted..............       69,950,173      66,281,128        66,161,367    64,087,744     62,849,618
Cash dividends.........................    $         .55   $         .51     $         .47  $        .43    $       .39
Share-owners' equity...................    $       20.42   $       17.26     $       13.41  $      14.65    $     12.30
Share-owners' equity excluding net
    unrealized gains and losses
    on investments.....................    $       19.63   $       18.05     $       15.68  $      13.80    $     11.30

(1)   Income from discontinued  operations in 2001 includes loss on sale of the Dental Division and other costs related to
      the discontinuance, net of income tax.
(2)   Due to early extinguishments of debt, net of income tax.
(3)   Cumulative effect of change in accounting principle relating to SFAS No. 133, net of income tax.
(4)   Prior periods have been restated to reflect a two-for-one stock split on April 1, 1998, and to reflect  discontinued
      operations.
(5)   Net income excluding extraordinary loss, change in accounting principle, and income from discontinued operations.
(6)   Net income excluding realized investment gains and losses and related amortization, extraordinary loss, change in
accounting principle, and income from discontinued operations.  2000 excludes income from sale of Hong Kong
affiliate of $.24 per share.




                                                                           DECEMBER 31
                                           ----------------------------------------------------------------------------
                                               2001            2000           1999           1998            1997
                                           ----------------------------------------------------------------------------
                                                                     (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA
Total assets...........................    $  19,718,824  $  15,145,633   $  12,994,164  $  11,989,495  $  10,511,635
Long-term debt(7)......................    $     376,211  $     306,125   $     181,023  $     152,286  $     120,000
Total debt(7)..........................    $     376,211  $     306,125   $     236,023  $     172,035  $     120,000
9% Cumulative Monthly Income
    Preferred Securities, Series A                                                       $      55,000  $      55,000
8.25% Trust Originated Preferred
    Securities.........................    $      75,000  $      75,000   $      75,000  $      75,000  $      75,000
7.5% Trust Originated Preferred
    Securities.........................    $     100,000
6.5% FELINE PRIDES                                        $     115,000   $     115,000  $     115,000  $     115,000
Share-owners' equity                       $   1,400,144  $   1,114,058   $     865,223  $     944,194  $     758,197
Share-owners' equity excluding net
    unrealized gains and losses
    on investments                         $   1,345,816  $   1,165,431   $   1,011,304  $     889,137  $    696,470


(7)  Excludes stable value contract account balances and annuity account balances which do not possess significant         mortality
risk.  Such account balances totaled $3.9 billion, $3.4 billion, $2.9 billion, $3.0 billion, and $3.0 billion at   December  31,  2001,
2000, 1999, 1998, and 1997, respectively.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        Information regarding the Company’s financial condition and results of operations is included under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2001 Annual Report to Share Owners and is incorporated herein by reference.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

        The information required by this item is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Consolidated Financial Statements” in the Company’s 2001 Annual Report to Share Owners and is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

        The financial statements and supplementary data for the Company and its subsidiaries, which are included under the caption “Consolidated Financial Statements” in the Company’s 2001 Annual Report to Share Owners, are incorporated herein by reference.





REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Share Owners of
Protective Life Corporation

Our audits of the consolidated financial statements referred to in our report dated March 1, 2002 appearing in the 2001 Annual Report to Share Owners of Protective Life Corporation and subsidiaries (which report and consolidated financial statements are incorporated by reference on this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 14 (a) (2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

As discussed in Note 1 of the Notes to the Condensed Financial Statements, effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”.

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP

Birmingham, Alabama
March 1, 2002

SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENTS OF INCOME
PROTECTIVE LIFE CORPORATION (Parent Company)
Years Ended December 31, 2001, 2000, and 1999

(in thousands)
                                                                    2001             2000              1999
REVENUES                                                            ----             ----              ----
       Dividends from subsidiaries*                              $  3,701      $    27,362        $   18,980
       Service fees from subsidiaries*                             87,239           78,999            82,559
       Net investment income                                        6,804            7,173            10,506
       Realized investment gains (losses)                         (12,341)           6,856            (5,817)
       Other income (loss) (2000 - sale of affiliate)                               24,856             1,327
                                                                 --------         --------          --------
                                                                   85,403          145,246           107,555
                                                                 --------         --------          --------
EXPENSES
       Operating and administrative                                55,256           50,600            44,074
       Interest - subsidiaries*                                    10,163           14,085            17,217
       Interest - other                                            22,859           18,082            12,215
                                                                 --------         --------          --------
                                                                   88,278           82,767            73,506
                                                                 --------         --------          --------
INCOME BEFORE FEDERAL INCOME
       TAX AND OTHER ITEMS BELOW                                   (2,875)          62,479            34,049

INCOME TAX EXPENSE (BENEFIT)                                       (2,150)          16,468            11,136
                                                                 --------         --------          --------

INCOME BEFORE EQUITY IN UNDISTRIBUTED
       INCOME OF SUBSIDIARIES                                        (725)          46,011            22,913

EQUITY IN UNDISTRIBUTED INCOME OF
       SUBSIDIARIES*                                              141,783           91,343           108,535
                                                                 --------          -------          --------

NET INCOME FROM CONTINUING OPERATIONS
        BEFORE EXTRAORDINARY LOSS AND
        CUMULATIVE EFFECT OF CHANGE IN
        ACCOUNTING PRINCIPLE                                      141,058          137,354           131,448

INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
        NET OF INCOME TAX                                          (9,977)          16,122            21,642

LOSS FROM SALE OF DISCONTINUED OPERATIONS,
        NET OF INCOME TAX                                         (20,545)

EXTRAORDINARY (LOSS) ON EARLY
        EXTINGUISHMENT OF DEBT, NET OF
        INCOME TAX
                                                                                                      (1,763)
                                                                 --------         --------          --------
CUMULATIVE EFFECT OF CHANGE IN                                    110,536          153,476           151,327
        ACCOUNTING PRINCIPLE, NET OF
        INCOME TAX
                                                                   (7,593)
                                                                 --------         --------          --------
NET INCOME                                                       $102,943         $153,476          $151,327
                                                                 ========         ========          ========
- ---------------
*Eliminated in consolidation.
See notes to condensed financial statements.

SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
BALANCE SHEETS
PROTECTIVE LIFE CORPORATION (Parent Company)

(in thousands)

                                                                                            DECEMBER 31
                                                                                            -----------
                                                                                    2001                    2000
ASSETS
     Investments:
         Fixed maturities                                                       $    26,000             $     24,511
         Other long-term investments                                                 20,303                   18,027
         Short-term investments                                                          10                    4,000
         Investments in subsidiaries (equity method)*                             1,942,449                1,594,462
                                                                                  ---------                ---------
                                                                                  1,988,762                1,641,000

     Cash                                                                             2,114                    2,958
     Accrued investment income                                                                                   247
     Receivables from subsidiaries*                                                  18,171                   14,348
     Property and equipment, net                                                        285                      513
     Other                                                                           36,466                   19,880
                                                                                  ---------                ---------
                                                                                 $2,045,798               $1,678,946
                                                                                  =========                =========
LIABILITIES
     Accrued expenses and other liabilities                                     $    77,186             $     42,750
     Accrued income taxes                                                           (17,336)                 (32,264)
     Deferred income taxes                                                           36,150                   54,716
     Debt:
         Senior and Medium-Term Notes                                               369,241                  303,810
         Subsidiaries*                                                              180,413                  195,876
                                                                                  ---------                ---------
                                                                                    645,654                  564,888
                                                                                  ---------                ---------
SHARE-OWNERS' EQUITY
     Preferred Stock
     Junior Participating Cumulative
         Preferred Stock
     Common Stock                                                                    36,626                   34,667
     Additional paid-in capital                                                     405,420                  289,819
     Treasury stock                                                                 (15,895)                 (12,812)
     Stock Held in Trust                                                             (1,535)                  (1,318)
     Unallocated stock in Employee Stock Ownership Plan                              (3,317)                  (3,686)
     Retained earnings (including undistributed
         income of subsidiaries: 2001 - $1,064,188; 2000 - $922,405)                924,517                  858,761
     Accumulated other comprehensive income
         Net unrealized gains (losses) on
         investments (all from subsidiaries, net
         of income tax: 2001 - $29,254; 2000 - $(27,662))                            54,328                  (51,373)
                                                                                  ---------                ---------
                                                                                  1,400,144                1,114,058
                                                                                  ---------                ---------
                                                                                 $2,045,798               $1,678,946
                                                                                  =========                =========
- ------------------
*Eliminated in consolidation.
See notes to condensed financial statements.

SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENTS OF CASH FLOWS
PROTECTIVE LIFE CORPORATION (Parent Company)
Years Ended December 31, 2001, 2000, and 1999

(in thousands)

                                                                    2001                 2000                1999
CASH FLOWS FROM OPERATING ACTIVITIES                                ----                 ----                ----
     Net income                                                $  102,943            $ 153,476           $ 151,327
     Adjustments to reconcile net income
        to net cash provided by operating
        activities:
             Realized investment (gains) losses                    12,341               (6,856)              5,817
             Equity in undistributed net income
                 of subsidiaries*                                (105,418)            (107,465)           (130,177)
             Deferred income taxes                                (18,566)              25,947               7,935
             Accrued income taxes                                  14,928              (43,080)             19,666
             Accrued expenses                                      25,313                6,822               4,380
             Accrued investment income                                247                1,913              (2,160)
             Receivables from subsidiaries                         (7,823)               8,976              (8,746)
             Other (net)                                          (20,400)             (11,255)              5,884
                                                                 --------             --------            --------
     Net cash provided by operating activities                      3,565               28,478              53,926
                                                                 --------             --------            --------
CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of and/or additional investments
        in subsidiaries*                                         (133,406)            (102,987)            (28,638)
     Return of capital from subsidiaries                                                34,288              14,621
     Principal payments received on loan
        to subsidiary*                                              4,000                4,000               4,000
     Change in fixed maturities and long-term
        investments                                                (7,020)               3,047              (5,516)
     Change in short-term investments                               3,990               (2,000)             (2,000)
                                                                 --------             --------            --------
     Net cash used in investing activities                       (132,436)             (63,652)            (17,533)
                                                                 --------             --------            --------
CASH FLOWS FROM FINANCING ACTIVITIES
     Borrowings under line of
        credit arrangements and long-term debt                    159,160              237,104             106,800
     Principal payments on line of credit
        arrangements and debt                                     (93,729)            (166,979)            (41,538)
     Repayment of subsidiary debt                                                                          (69,621)
     Issuance of guaranteed preferred
         beneficial interests                                     100,000
     Purchase of Common Stock                                        (217)                (697)               (621)
     Dividends to Share Owners                                    (37,187)             (32,919)            (30,305)
                                                                ---------             --------            --------
     Net cash provided by (used in) financing
        activities                                                128,027               36,509             (35,285)
                                                                ---------             --------            --------
INCREASE (DECREASE) IN CASH                                          (844)               1,335               1,108
CASH AT BEGINNING OF YEAR                                           2,958                1,623                 515
                                                                ---------             --------            --------
CASH AT END OF YEAR                                            $    2,114            $   2,958           $   1,623
                                                                =========             ========            ========
- ------------------
*Eliminated in consolidation.
See notes to condensed financial statements.

SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
PROTECTIVE LIFE CORPORATION (Parent Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

The Company publishes consolidated financial statements that are its primary financial statements. Therefore, these parent company condensed financial statements are not intended to be the primary financial statements of the Company, and should be read in conjunction with the consolidated financial statements and notes thereto of Protective Life Corporation and subsidiaries.

NOTE 1 - RECENTLY ISSUED ACCOUNTING STANDARDS

On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133, as amended by SFAS Nos. 137 and 138, requires the company to record all derivative financial instruments, at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instrument. The adoption of SFAS No. 133 resulted in a cumulative charge to net income, net of income tax, of $7.6 million on January 1, 2001. The charge to net income primarily resulted from the recognition of derivative instruments embedded in the Company’s corporate bond portfolio. In addition, the charge to net income includes the recognition of the ineffectiveness on existing hedging relationships including the difference in spot and forward exchange rates related to foreign currency swaps used as an economic hedge of foreign-currency-denominated stable value contracts. Prospectively, the adoption of SFAS No. 133 may introduce volatility into the Company’s reported net income and other comprehensive income depending on future market conditions and the Company’s hedging activities.

NOTE 2 - DEBT

At December 31, 2001, the Company had no borrowings under its $200 million line of credit arrangements. $100.0 million of Floating Rate Senior Notes due 2003, $75.0 million of Senior Notes due 2004, $49.9 million of Senior Notes due 2010, $9.9 million of Medium-Term Notes due 2011, $39.9 million of Senior Notes due 2015, $59.9 million of Senior Notes due 2016, $77.3 million of subordinated debentures due 2027, $34.7 million of Senior Notes due 2030, and $103.1 million of subordinated debentures due 2031 were outstanding at December 31, 2001. The subordinated debentures were issued to affiliates in connection with the issuance by such affiliates of Trust Originated Preferred Securities.

NOTE 3 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION


                                                                         2001             2000             1999
                                                                   ---------------------------------------------------
CASH PAID (RECEIVED) DURING THE YEAR FOR:

       Interest Paid to Non-Affiliates                                 $ 22,693           $14,696         $ 12,215

       Interest Paid to Subsidiary*                                      10,163            14,085           17,218
                                                                       --------           -------         --------
                                                                       $ 32,856           $28,781         $ 29,433
                                                                       ========           =======         ========
       Income Taxes (reduced by amounts received
          from affiliates under a tax sharing agreement)               $  3,000           $32,039         $(18,584)
                                                                       ========           =======         ========
NONCASH INVESTING AND FINANCING ACTIVITIES

       Reissuance of Treasury Stock to ESOP                            $    879           $   255         $    440
                                                                       ========           =======         ========
       Change in unallocated Stock in ESOP                             $    369           $   357         $    234
                                                                       ========           =======         ========
       Stock-based Compensation                                        $  3,589           $33,655         $  1,092
                                                                       ========           =======         ========
       Redemption of FELINE PRIDES                                     $113,414
                                                                       ========

NOTE 4 - SUBSIDIARY SURPLUS DEBENTURES

Protective Life Insurance Company (Protective Life) has issued surplus debentures to the Company in order to finance acquisitions and growth. At December 31, 2001, the balance of the surplus debentures was $6.0 million. The surplus debentures are included in receivables from subsidiaries. Protective Life must obtain the approval of the Tennessee Commissioner of Insurance before it may pay interest or repay principal on the surplus debentures.

NOTE 5 - SALE OF AFFILIATE

In 2000, the Company completed the sale of its Hong Kong affiliate. Included as a component of other income is $24.8 million relating to the transaction.

NOTE 6 - DISCONTINUED OPERATIONS

On December 31, 2001, the Company completed the sale to Fortis, Inc. of substantially all of its Dental Benefits Division (Dental Division), and discontinued other remaining Dental Division related operations, primarily other health insurance lines.

SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES

(in thousands)
            COL. A                   COL. B           COL. C          COL. D          COL. E           COL. F
            ------                   ------           ------          ------          ------           ------
                                                                                   STABLE VALUE
                                                                                     CONTRACTS,
                                                                                      ANNUITY
                                    DEFERRED                                       CONTRACTS AND
                                     POLICY       FUTURE POLICY                        OTHER        NET PREMIUMS
                                   ACQUISITION     BENEFITS AND      UNEARNED     POLICYHOLDERS'     AND POLICY
           SEGMENT                   COSTS           CLAIMS         PREMIUMS          FUNDS            FEES
- -------------------------------------------------------------------------------------------------------------------
Year Ended
  December 31, 2001:
      Life Marketing               $  829,021       $3,326,841     $       303      $     86,937       $120,995
      Acquisitions                    418,268        3,046,401             434           876,221        182,433
      Stable Value Contracts            6,374                -               -         3,872,637
      Annuities                       128,488          281,074               -         2,232,779         28,145
      Credit Products                 141,882          208,818         901,062             2,773        250,061
      Corporate and Other               8,650           16,573           2,241               247         37,035
      Adjustments(2)                                    92,085             334            24,193
                                   ----------       ----------        --------        ----------       --------
      TOTAL                        $1,532,683       $6,971,792        $904,374        $7,095,787       $618,669
                                   ==========       ==========        ========        ==========       ========
Year Ended
  December 31, 2000:
      Life Marketing               $  630,838       $2,721,847       $     315        $  101,105       $ 99,813
      Acquisitions                    223,430        1,364,830             484           238,466        102,997
      Stable Value Contracts            2,144          162,236             -           3,177,863              -
      Annuities                       127,334          306,021             -           1,633,203         30,127
      Credit Products                 112,135          292,634         931,735             3,963        220,421
      Corporate and Other              81,711           70,729           2,261             1,286         36,432
      Adjustments(2)                   11,788          113,660           2,721            64,404
                                   ----------       ----------        --------        ----------       --------
      TOTAL                        $1,189,380       $5,031,957        $937,516        $5,220,290       $489,790
                                   ==========       ==========        ========        ==========       ========
Year Ended
  December 31, 1999:
      Life Marketing                                                                                   $115,713
      Acquisitions                                                                                      114,866
      Stable Value Contracts                                                                               -
      Annuities                                                                                          24,248
      Credit Products                                                                                   107,969
      Corporate and Other                                                                                35,934
      Adjustments
                                                                                                       --------
TOTAL                                                                                                  $398,730
                                                                                                       ========

(1)      Allocations  of Net Investment  Income and Other  Operating  Expenses are based on a number of  assumptions  and estimates and
         results would change if different methods were applied.
(2)      Asset adjustments represent the inclusion of assets related to discontinued operations.


            COL. A                    COL. G          COL. H           COL. I          COL. J
            ------                    ------          ------           ------          ------
                                                                    AMORTIZATION
                                                                     OF DEFERRED
                                       NET         BENEFITS AND        POLICY           OTHER
                                    INVESTMENT      SETTLEMENT      ACQUISITIONS      OPERATING
             SEGMENT                 INCOME(1)        EXPENSES           COSTS        EXPENSES(1)
- -------------------------------- ---------------- ---------------- ---------------- --------------
Year Ended
  December 31, 2001:
      Life Marketing                  $179,346        $190,538       $   41,399      $  49,743
      Acquisitions                     187,535         238,877           20,501         43,232
      Stable Value Contracts           261,079         222,306            1,662          3,961
      Annuities                        167,905         137,204           24,021         29,434
      Credit Products                   48,940         154,893           57,681         99,103
      Corporate and Other               39,236          28,806            1,794         59,466
      Adjustments(2)                  --------        --------         --------       --------
      TOTAL                           $884,041        $972,624         $147,058       $284,939
                                      ========        ========         ========       ========
Year Ended
  December 31, 2000:
      Life Marketing                  $152,511        $149,430         $ 48,771       $ 47,861
      Acquisitions                     116,940         125,151           17,081         24,939
      Stable Value Contracts           243,132         207,143              900          3,881
      Annuities                        132,314         109,607           24,156         25,403
      Credit Products                   47,029         135,494           50,132         90,958
      Corporate and Other               38,223          33,953            2,140         56,054
      Adjustments(2)                  --------        --------         --------       --------
      TOTAL                           $730,149        $760,778         $143,180       $249,096
                                      ========        ========         ========       ========
Year Ended
  December 31, 1999:
      Life Marketing                  $138,198        $147,631         $ 29,481       $ 66,391
      Acquisitions                     129,806         129,581           19,444         31,967
      Stable Value Contracts           210,208         175,290              744          4,709
      Annuities                        106,645          88,642           19,820         21,014
      Credit Products                   24,506          55,899           24,718         57,382
      Corporate and Other               58,605          32,613            2,482         44,124
      Adjustments                     --------        --------         --------       --------
TOTAL                                 $667,968        $629,656         $ 96,689       $225,587
                                      ========        ========         ========       ========

(1)      Allocations  of Net Investment  Income and Other  Operating  Expenses are based on a number of  assumptions  and estimates and
         results would change if different methods were applied.
(2)      Asset adjustments represent the inclusion of assets related to discontinued operations.

SCHEDULE IV - REINSURANCE
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES

(dollars in thousands)
            COL. A                    COL. B            COL. C           COL. D            COL. E           COL. F
            ------                    ------            ------           ------            ------           ------
                                                                                                         PERCENTAGE OF
                                                    CEDED TO OTHER    ASSUMED FROM                      AMOUNT ASSUMED
                                   GROSS AMOUNT       COMPANIES      OTHER COMPANIES     NET AMOUNT         TO NET
                                 ----------------------------------------------------------------------------------------
Year Ended
    December 31, 2001:
       Life insurance
       in force                    $191,105,511     $171,449,182       $23,152,614      $42,808,943           54.1%
                                   ============     ============       ===========      ===========           =====

       Premiums and
       policy fees:
       Life insurance              $    774,294     $    565,130       $   198,832      $   407,996           48.7%
       Accident/health
          insurance                     181,509          122,747                             58,762            0.0%
       Property and liability
          insurance                     158,890           83,274            76,295          151,911           50.2%
                                   ------------     ------------       -----------      -----------
       TOTAL                       $  1,114,693     $    771,151       $   275,127      $   618,669
                                   ============     ============       ===========      ===========
Year Ended
    December 31, 2000:
       Life insurance
       in force                   $153,371,754      $128,374,583       $17,050,342      $42,047,513           40.6%
                                  ============      ============       ===========      ===========           =====
       Premiums and
       policy fees:
       Life insurance             $    670,113      $    493,793       $   112,668      $   288,988           39.0%
       Accident/health
          insurance                    203,430           128,520            17,164           92,074           18.6%
       Property and liability
          insurance                    159,354            63,795            13,169          108,728           12.1%
                                  ------------      ------------       -----------      -----------
       TOTAL                      $  1,032,897      $    686,108       $   143,001      $   489,790
                                  ============      ============       ===========      ===========
Year Ended
    December 31, 1999:
       Life insurance
       in force                   $112,726,959     $ 92,566,755        $17,089,627     $37,249,831           45.9%
                                  ============     ============        ===========     ===========           =====

       Premiums and
       policy fees:
       Life insurance             $    530,728     $    368,139        $   130,368     $   292,957           44.5%
       Accident/health
          insurance                    153,818           93,657             11,893          72,054           16.5%
       Property and liability
          insurance                     34,109              501                111          33,719            0.3%
                                  ------------     ------------        -----------     -----------
       TOTAL                      $    718,655     $    462,297        $   142,372     $   398,730
                                  ============     ============        ===========     ===========

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None

PART III

Item 10. Directors and Executive Officers of the Registrant

        Except for the information concerning executive officers of the Company set forth below, the information called for by this Item 10 is incorporated herein by reference to the section entitled “Election of Directors and Information about Nominees” in the Company’s definitive proxy statement for the Annual Meeting of Share Owners, May 6, 2002, to be filed with the Securities and Exchange Commission by the Company pursuant to Regulation 14A within 120 days after the end of its 2001 fiscal year.

        The executive officers of the Company are as follows:


     NAME                     AGE                      POSITION
     ----                     ---                      --------
John D. Johns                 50         President and Chief Executive Officer, and
                                         Director
R. Stephen Briggs             52         Executive Vice President, Individual Life
Jim E. Massengale             59         Executive Vice President, Acquisitions
Allen W. Ritchie              44         Executive Vice President and Chief Financial
                                         Officer
Richard J. Bielen             41         Senior Vice President, Chief Investment Officer
                                         and Treasurer
J. William Hamer, Jr.         57         Senior Vice President and Chief
                                         Human Resources Officer
Thomas Davis Keyes            49         Senior Vice President,
                                         Information Services
Carolyn King                  51         Senior Vice President,
                                         Investment Products
Deborah J. Long               48         Senior Vice President,
                                         Secretary and General Counsel
Steven A. Schultz             48         Senior Vice President,
                                         Financial Institutions
Wayne E. Stuenkel             48         Senior Vice President
                                         and Chief Actuary
Carl S. Thigpen               45         Senior Vice President, Chief Mortgage and Real
                                         Estate Officer
Judy Wilson                   44         Senior Vice President,
                                         Stable Value Products
Jerry W. DeFoor               49         Vice President and Controller,
                                         and Chief Accounting Officer

        All executive officers are elected annually and serve at the pleasure of the Board of Directors. None of the executive officers is related to any director of the Company or to any other executive officer.

        Mr. Johns has been President and Chief Executive Officer of the Company since December 2001 and a Director of the Company since May 1997. He was President and Chief Operating Officer of the Company from August 1996 to December 2001. He is also a director of National Bank of Commerce of Birmingham, Alabama National Bancorporation and John H. Harland Company. Mr. Johns has been employed by the Company and its subsidiaries since 1993.

        Mr. Briggs has been Executive Vice President, Individual Life of the Company since October 1993 and has responsibility for the Individual Life Division. Mr. Briggs has been associated with the Company and its subsidiaries since 1971.

        Mr. Massengale has been Executive Vice President, Acquisitions of the Company since August 1996 and also has responsibility for the West Coast Division. Mr. Massengale has been employed by the Company and its subsidiaries since 1983.

        Mr. Ritchie has been Executive Vice President and Chief Financial Officer of the Company since August 2001. From July 1998 until 2000, Mr. Ritchie was President, Chief Executive Officer and Director of Per-Se Technologies, Inc. From April 1998 until July 1998, he served as Chief Operating Officer of Per-Se. From January 1998 until April 1998, Mr. Ritchie served as Executive Vice President and Chief Financial Officer of Per-Se Technologies. From 1996 to 1997, Mr. Ritchie was President of AGCO Corporation.

        Mr. Bielen has been Senior Vice President, Chief Investment Officer and Treasurer, of the Company since January 2002. From August 1996 until January 2002, he was Senior Vice President, Investments of the Company. Mr. Bielen has been employed by the Company and its subsidiaries since 1991.

        Mr. Hamer has been Senior Vice President, Chief Human Resources Officer of the Company since March 2001. From 1981 to March 2001, he was Vice President, Human Resources. Mr. Hamer has been employed by the Company since 1981.

        Mr. Keyes has been Senior Vice President, Information Services of the Company since April 1999. He was Vice President, Information Services of the Company from May 1993 to April 1999. Mr. Keyes has been employed by the Company and its subsidiaries since 1982.

         Ms. King has been Senior Vice President, Investment Products of the Company since April 1995.

        Ms. Long has been Senior Vice President, Secretary and General Counsel of the Company since November 1996. Ms. Long has been employed by the Company and its subsidiaries since 1993.

        Mr. Schultz has been Senior Vice President, Financial Institutions of the Company since March 1993. Mr. Schultz has been employed by the Company and its subsidiaries since 1989.

        Mr. Stuenkel has been Senior Vice President and Chief Actuary of the Company since March 1987. Mr. Stuenkel is a Fellow of the Society of Actuaries and has been employed by the Company and its subsidiaries since 1978.

         Mr. Thigpen has been Senior Vice President, Chief Mortgage and Real Estate Officer of the Company since January 2002. From March 2001 to January 2002, he was Senior Vice President, Investments. From May 1996 to March 2001, he was Vice President, Investments for the Company. Mr. Thigpen has been employed by the Company and its subsidiaries since 1992.

         Ms. Wilson has been Senior Vice President, Stable Value Products of the Company since January 1995. Ms. Wilson has been employed by the Company and its subsidiaries since 1991.

         Mr. DeFoor has been Vice President and Controller, and Chief Accounting Officer of the Company since April 1989. Mr. DeFoor is a certified public accountant and has been employed by the Company and its subsidiaries since 1982.

        These executive officers also serve as executive officers and/or directors of various other Company subsidiaries.

Section 16(a) Beneficial Ownership Reporting Compliance

        Directors and executive officers of the Company are required to file reports with the Securities and Exchange Commission showing changes in their beneficial ownership of the Company’s Common Stock. The Company has reviewed copies of these reports and written representations from the individuals who are required to file reports. Based on this review, we believe that each of the Company’s directors and executive officers has complied with the reporting requirements in 2001, with the following exceptions. The Form 5 filed by Mr. Cabaniss included a previously unreported indirect holding in a trust for which he is designated as a co-trustee. A report of a sale of 1,739 shares by Mr. Nabers in connection with his retirement was inadvertently filed late. One Form 4 filed by Mr. Briggs included a previously unreported indirect holding. One Form 4 filed by Mr. Hamer reporting the sale of 6,954 shares and the indirect ownership of shares held by his daughter was inadvertently filed late.

Item 11. Executive Compensation

        The information called for by this Item is incorporated herein by reference from the Company’s definitive proxy statement for the Annual Meeting of Share Owners, May 6, 2002.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The information called for by this Item is incorporated herein by reference from the Company’s definitive proxy statement for the Annual Meeting of Share Owners, May 6, 2002.

Item 13. Certain Relationships and Related Transactions

        None.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

          (a)     The following documents are filed as part of this report:

           1.     Financial Statements:

                  The following financial  statements set forth in the Company's 2001 Annual Report to Share Owners as indicated in the
                  following table are incorporated by reference (see Exhibit 13).
                                                                                                                                   Page
                  Consolidated Statements of Income for the years
                    ended December 31, 2001, 2000, and 1999...............................................
                  Consolidated Balance Sheets as of December 31,
                    2001 and 2000 ........................................................................
                  Consolidated Statements of Share-Owners' Equity
                    for the years ended December 31, 2001, 2000, and 1999.................................
                  Consolidated Statements of Cash Flows
                    for the years ended December 31, 2001, 2000, and 1999.................................
                  Notes to Consolidated Financial Statements..............................................
                  Report of Independent Accountants.......................................................

          2.      Financial Statement Schedules:

                  The Report of  Independent  Accountants  which covers the financial  statement  schedules  appears on page 21 of this
                  report.  The following schedules are located in this report on the pages indicated.

                                                                                                                                   Page
                  Schedule II - Condensed Financial Information
                    of Registrant.........................................................................
                  Schedule III - Supplementary Insurance Information......................................
                  Schedule IV - Reinsurance...............................................................
                  All other  schedules  to the  consolidated  financial  statements  required by Article 7  of  Regulation  S-X are not
                  required under the related instructions or are inapplicable and therefore have been omitted.

          3.      Exhibits:

                  Included as exhibits are the items listed below.  The Company will furnish a copy of any of the exhibits  listed upon
                  the payment of $5.00 per exhibit to cover the cost of the Company in furnishing the exhibit.

                  Item Number                       Document

                  2(a)                  Stock and Asset Purchase  Agreement By and Among Protective Life  Corporation,  Protective Life
                                        Insurance Company, Fortis, Inc. and Dental Care Holdings, Inc. dated July 9, 2001.



                  2(b)                  Indemnity  Reinsurance  Agreement By and Between  Protective Life Insurance  Company and Fortis
                                        Benefits Insurance Company dated December 31, 2001.

                  2(c)                  Indemnity  Reinsurance  Agreement By and Between Empire General Life Assurance  Corporation and
                                        Fortis Benefits Insurance Company dated December 31, 2001.

                  2(d)                  Indemnity  Reinsurance Agreement By and Between Protective Life & Annuity Insurance Company and
                                        First Fortis Life Insurance Company dated December 31, 2001.

                  *3(a)                 1998 Restated  Certificate of Incorporation of the Company filed with the Secretary of State of
                                        Delaware on November 12, 1998,  filed as Exhibit 3(a) to the  Company's  Annual  Report on Form
                                        10-K/A for the year ended December 31, 1998.

- ------------------------------
*incorporated by reference

                  *3(b)                 1998 Restated By-laws of the Company  effective  November 2, 1998, filed as Exhibit 3(b) to the
                                        Company's Annual Report on Form 10-K for the year ended December 31, 1998.

                  3(b)(1)               Amendment No. 1 dated February 4, 2002, to the 1998 Restated By-Laws of the Company.

                  4(a)                  Reference is made to Exhibit 3(a) above.

                  4(b)                  Reference is made to Exhibits 3(b) and 3(b)(1) above.

                  *4(c)                 Rights Agreement,  dated as of August 7, 1995,  between the Company and The Bank of New York as
                                        successor to AmSouth Bank (formerly,  AmSouth Bank N.A.), as Rights Agent filed as Exhibit 2 to
                                        the  Company's  Form 8-K  Current  Report  filed  August 7, 1995 and filed as  Exhibit 1 to the
                                        Company's Form 8-A Registration Statement filed August 7, 1995.

                  *4(d)                 Rights Certificate filed as Exhibit 1 to the Company's Form 8-A filed August 7, 1995.

                  *4(e)                 Certificate  of  Trust  of PLC  Capital  Trust  I  filed  as  Exhibit  4(a)  to  the  Company's
                                        Registration Statement on Form S-3 filed April 11, 1997 (No. 333-25027).

                  *4(f)                 Declaration  of  Trust  of PLC  Capital  Trust  I  filed  as  Exhibit  4(b)  to  the  Company's
                                        Registration Statement on Form S-3 filed April 11, 1997 (No. 333-25027).

                  *4(g)                 Form of Amended and  Restated  Declaration  of Trust for PLC  Capital  Trust I filed as Exhibit
                                        4(c) to Amendment No. 1, filed April 21, 1997, to the Company's  Registration Statement on Form
                                        S-3 (No. 33-25027).

                  *4(h)                 Form of  Preferred  Security  Certificate  for PLC Capital  Trust I (included as Exhibit A-1 of
                                        Exhibit 4(f)).
                  *4(i)                 Form of Guarantee with respect to Preferred  Securities of PLC Capital Trust I filed as Exhibit
                                        4(i) to the Company's Registration Statement on Form S-3 filed April 11, 1997 (No. 333-25027).

                  *4(j)                 Certificate  of  Trust  of PLC  Capital  Trust  III  filed as  Exhibit  4(bb) to the  Company's
                                        Registration Statement on Form S-3 filed July 8, 1997 (No. 333-30965).

                  *4(k)                 Declaration  of  Trust of PLC  Capital  Trust  III  filed as  Exhibit  4 (ee) to the  Company's
                                        Registration Statement on Form S-3 filed July 8, 1997 (No. 333-30965).

                  *4(l)                 Form of Amended and Restated  Declaration  of Trust of PLC Capital  III,  dated August 22, 2001
                                        filed as Exhibit 4.3 to the Company's Current Filing on Form 8-K filed August 22, 2001.

                  *4(m)                 Form of Preferred Security Certificate for PLC Capital Trust III (included in Exhibit 4(l)).

                  *4(n)                 Preferred  Securities  Guarantee  Agreement,  dated  August 22, 2001 with  respect to Preferred
                                        Securities  issued by PLC  Capital  Trust III filed as  Exhibit  4.4 to the  Company's  Current
                                        Report on Form 8-K filed August 22, 2001.

                  *10(a)†               The Company's  Annual  Incentive Plan (effective as of January 1,  1997) filed as Exhibit 10(b)
                                        to the Company's Form 10-Q Quarterly Report filed May 14, 1997.

                  *10(b)†               The Company's 1997 Long-Term  Incentive Plan  (formerly,  the "1997  Performance  Share Plan"),
                                        filed as Exhibit 10(a) to the Company's Form 10-Q Quarterly Report filed May 15, 1998.

                   10(c)†               Excess Benefit Plan amended and restated as of July 1, 2001.

                  *10(d)†               Form of Indemnity  Agreement  for Directors  filed as Exhibit 19.1 to the  Company's  Form 10-Q
                                        Quarterly Report filed August 14, 1986.

                  *10(d)(1)†            Form of Indemnity  Agreement for Officers  filed as Exhibit  10(d)(1) to the  Company's  Annual
                                        Report on Form 10-K for the year ended December 31, 1996.

                  *10(e)†               Form  of the  Company's  Employment  Continuation  Agreement  filed  as  Exhibit  10(a)  to the
                                        Company's Form 10-Q Quarterly Report filed September 30, 1997.

                  *10(f)†               The Company's Deferred  Compensation Plan for Directors Who Are Not Employees of the Company as
                                        amended  through  March 3,  1997,  filed as Exhibit 10(e) to the Company's  Form 10-Q Quarterly
                                        Report filed May 14, 1997.

                  *10(g)†               The Company's  Deferred  Compensation Plan for Officers as amended through March 3, 1997, filed
                                        as Exhibit 10(d) to the Company's Form 10-Q Quarterly Report filed May 14, 1997.
- ----------------------------
*incorporated by reference
†Management contract or compensatory plan or arrangement

                  *10(h)†               The Company's  1996 Stock  Incentive  Plan as amended  through March 3, 1997,  filed as Exhibit
                                        10(c) to the Company's Form 10-Q Quarterly Report filed May 14, 1997.

                  *10(h)(1)†            The Company's  specimen letter confirming grants under the Company's 1996 Stock Incentive Plan,
                                        filed as Exhibit 10(2) to the Company's Form 10-Q Quarterly Report filed November 13, 1996.

                  10(i)                 Credit Agreement among Protective Life Corporation, the several lenders from time to time party
                                        thereto, Suntrust Bank, as Syndication Agent, and AmSouth Bank, as Administrative Agent, dated
                                        October 17, 2001.

                  10(j)                 Reference is made to Exhibit 2(a) above.

                  10(k)                 Reference is made to Exhibit 2(b) above.

                  13                    Selected  portions of the 2001 Annual Report To Share Owners which are  incorporated  herein by
                                        reference.

                  21                    Organization Chart of the Company and Affiliates.

                  23                    Consent of PricewaterhouseCoopers LLP.

                  24                    Powers of Attorney.

                  99                    Safe Harbor for Forward-Looking Statements.

               (b)   Current Reports on Form 8-K:

               (1)                      Form 8-K, dated August 23, 2001
                                        - Item 5
                                        - Item 7

- --------------------
*incorporated by reference
†Management contract or compensatory plan or arrangement





SIGNATURES

        Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PROTECTIVE LIFE CORPORATION
BY/s/John D. Johns
John D. Johns
President and
Chief Executive Officer

Dated:   March 27, 2002


        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.



              SIGNATURE                      CAPACITY IN WHICH SIGNED                               DATE


/s/John D. Johns                             President and Chief Executive Officer            March 27, 2002
- ----------------------                       (Principal Executive Officer)
JOHN D. JOHNS                                and Director


/s/Allen W. Ritchie                          Executive Vice President and                     March 27, 2002
- -----------------------                      Chief Fiancial Officer
ALLEN W. RITCHIE                             (Principal Financial Officer)


/s/Jerry W. DeFoor                           Vice President and Controller,                   March 27, 2002
- -----------------------                      and Chief Accounting Officer
JERRY W. DEFOOR                              (Principal Accounting Officer)


                    *                        Director                                         March 27, 2002
- -----------------------
WILLIAM J. CABANISS, JR.



                    *                        Director                                         March 27, 2002
- ----------------------
JOHN J. MCMAHON, JR.


                    *                        Director                                         March 27, 2002
- ----------------------
A. W. DAHLBERG





                    *                        Director                                         March 27, 2002
- ----------------------
JAMES S. M. FRENCH


                    *                        Director                                         March 27, 2002
- ----------------------
ROBERT A. YELLOWLEES


                    *                        Director                                         March 27, 2002
- ----------------------
DONALD M. JAMES


                    *                        Director                                         March 27, 2002
- ----------------------
J. GARY COOPER


                    *                        Director                                         March 27, 2002
- ----------------------
H. CORBIN DAY


                   *                         Director                                         March 27, 2002
- ----------------------
W. MICHAEL WARREN, JR.


                    *                        Director                                         March 27, 2002
- ----------------------
SUSAN MOLINARI

- ---------------------

        *John D. Johns, by signing his name hereto, does sign this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission.

BY/s/John D. Johns
JOHN D. JOHNS
Attorney-in-fact
EX-2 3 ex2aplc.htm Exhibit 2

Exhibit 2(a)

STOCK AND ASSET PURCHASE AGREEMENT

BY AND AMONG

PROTECTIVE LIFE CORPORATION,

PROTECTIVE LIFE INSURANCE COMPANY,

FORTIS, INC.

AND

DENTAL CARE HOLDINGS, INC.




JULY 9, 2001













                                                 TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS.........................................................................
   Section 1.1        Definitions.............................................................
ARTICLE 2 SALE OF THE COMPANIES' SHARES AND CERTAIN ASSETS; ASSUMPTION OF CERTAIN LIABILITIES.
   Section 2.1        Transfer and Acquisition of Shares......................................
   Section 2.2        Transfer and Acquisition of Assets......................................
   Section 2.3        Assumed Liabilities.....................................................
ARTICLE 3 AMOUNT AND PAYMENT OF PURCHASE PRICE................................................
   Section 3.1        Purchase Price..........................................................
   Section 3.2        Payment of Estimated Purchase Price.....................................
   Section 3.3        Closing Date Equity Schedule............................................
   Section 3.4        Post Closing Adjustment.................................................
   Section 3.5        True-Up Accounting......................................................
   Section 3.6        Transfer Expenses.......................................................
ARTICLE 4 PROCEDURE FOR CLOSING...............................................................
   Section 4.1        Place and Date of Closing...............................................
   Section 4.2        Payments and Deliveries Made at Closing.................................
ARTICLE 5 REPRESENTATIONS AND WARRANTIES  CONCERNING SELLERS, PLAIC, EMPIRE AND THE BUSINESS..
   Section 5.1        Incorporation and Standing..............................................
   Section 5.2        Authorization...........................................................
   Section 5.3        No Conflict or Violation................................................
   Section 5.4        Consents and Approvals..................................................
   Section 5.5        Actions Pending.........................................................
   Section 5.6        Ownership of the Companies..............................................
   Section 5.7        Liens...................................................................
   Section 5.8        Business Employees......................................................
   Section 5.9        Business Employee Plans.................................................
   Section 5.10       Transferred Contracts and Other Agreements; No Defaults.................
   Section 5.11       No Brokers..............................................................
   Section 5.12       Compliance..............................................................
   Section 5.13       Purchased Assets........................................................
   Section 5.14       Absence of Certain Changes..............................................
ARTICLE 6 REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES AND THE BUSINESS............
   Section 6.1        Incorporation and Standing..............................................
   Section 6.2        Capitalization; Ownership of Stock......................................
   Section 6.3        Actions Pending.........................................................
   Section 6.4        Licenses and Permits....................................................
   Section 6.5        Material Contracts......................................................
   Section 6.6        Compliance..............................................................
   Section 6.7        Title to Assets.........................................................
   Section 6.8        Intellectual Property...................................................
   Section 6.9        Computer Programs.......................................................
   Section 6.10       Financial Statements....................................................
   Section 6.11       Taxes...................................................................
   Section 6.12       Absence of Certain Changes..............................................
   Section 6.13       Real Property...........................................................
   Section 6.14       Environmental Matters...................................................
   Section 6.15       Labor Matters...........................................................
   Section 6.16       Reserves................................................................
   Section 6.17       Subsidiaries............................................................
   Section 6.18       Insurance Policies......................................................
   Section 6.19       Investment Assets.......................................................
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF FORTIS, PURCHASER, FBIC AND FFLIC.................
   Section 7.1        Incorporation and Standing..............................................
   Section 7.2        Authorization...........................................................
   Section 7.3        No Conflict or Violation................................................
   Section 7.4        Consents and Approvals..................................................
   Section 7.5        Actions Pending.........................................................
   Section 7.6        Ratings.................................................................
   Section 7.7        No Brokers..............................................................
   Section 7.8        Investment Intent of Purchaser..........................................
   Section 7.9        Investment Company......................................................
   Section 7.10       Financing...............................................................
   Section 7.11       Sophisticated Purchaser.................................................
ARTICLE 8 PRE-CLOSING COVENANTS...............................................................
   Section 8.1        Conduct of Business.....................................................
   Section 8.2        Expenses................................................................
   Section 8.3        Access; Certain Communications..........................................
   Section 8.4        Regulatory and Contract Matters.........................................
   Section 8.5        Further Assurances......................................................
   Section 8.6        Notification of Certain Matters.........................................
   Section 8.7        Maintenance and Transfer of Records.....................................
   Section 8.8        Employee Matters........................................................
   Section 8.9        No Solicitations........................................................
   Section 8.10       Intercompany Balances and Transactions..................................
   Section 8.11       Facilities Plan.........................................................
   Section 8.12       Statutory Required Assets...............................................
   Section 8.13       Purchaser's Undertaking With Respect to the Business....................
   Section 8.14       WARN Act................................................................
   Section 8.15       Indemnity Reinsurance Agreements........................................
   Section 8.16       Transition Services.....................................................
   Section 8.17       Transfer of Capital Stock of Oracare....................................
   Section 8.18       Bidder Agreements.......................................................
   Section 8.19       New York Amendment......................................................
ARTICLE 9 TAX MATTERS REGARDING THE COMPANIES.................................................
   Section 9.1        Tax Indemnification; Tax Indemnification Basket.........................
   Section 9.2        Tax Sharing Agreements..................................................
   Section 9.3        Certain Taxes...........................................................
   Section 9.4        Tax Return Filing, Etc..................................................
ARTICLE 10 CONDITIONS PRECEDENT TO THE OBLIGATION OF FORTIS AND PURCHASER TO CLOSE............
   Section 10.1       Representations, Warranties and Covenants...............................
   Section 10.2       Related Agreements......................................................
   Section 10.3       Approvals and Consents..................................................
   Section 10.4       Injunction and Litigation...............................................
   Section 10.5       Material Adverse Effect.................................................
   Section 10.6       Required Deliveries at Closing..........................................
ARTICLE 11 CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLERS TO CLOSE.........................
   Section 11.1       Representations, Warranties and Covenants...............................
   Section 11.2       Related Agreements......................................................
   Section 11.3       Approvals and Consents..................................................
   Section 11.4       Injunction and Litigation...............................................
   Section 11.5       Required Deliveries at Closing..........................................
ARTICLE 12 POST-CLOSING COVENANT..............................................................
   Section 12.1       Cooperation.............................................................
   Section 12.2       Regulatory Compliance...................................................
   Section 12.3       Use of Names............................................................
   Section 12.4       Non-Competition.........................................................
   Section 12.5       Books and Records.......................................................
ARTICLE 13 SURVIVAL AND INDEMNIFICATION AND OTHER REMEDIES....................................
   Section 13.1       Survival of Representations and Warranties..............................
   Section 13.2       Obligation to Indemnify.................................................
   Section 13.3       Notice of Asserted Liability............................................
   Section 13.4       Opportunity to Defend...................................................
   Section 13.5       Exclusive Remedy........................................................
   Section 13.6       Cooperation and Minimization of Damages.................................
ARTICLE 14 TERMINATION PRIOR TO CLOSING.......................................................
   Section 14.1       Termination of Agreement................................................
   Section 14.2       Survival................................................................
   Section 14.3       Certain Obligations upon Termination....................................
ARTICLE 15 MISCELLANEOUS......................................................................
   Section 15.1       Publicity...............................................................
   Section 15.2       Notices.................................................................
   Section 15.3       Entire Agreement........................................................
   Section 15.4       Waivers and Amendments; Preservation of Remedies........................
   Section 15.5       Governing Law...........................................................
   Section 15.6       Dispute Resolution......................................................
   Section 15.7       Binding Effect; No Assignment...........................................
   Section 15.8       No Third Party Beneficiaries............................................
   Section 15.9       Expenses................................................................
   Section 15.10       Counterparts...........................................................
   Section 15.11       Headings...............................................................
   Section 15.12       Severability...........................................................
   Section 15.13       Waiver of Jury Trial...................................................


                                                 LIST OF SCHEDULES

Schedule 1.1(a)           --   Knowledge
Schedule 1.1(b)           --   Change in Control Agreements
Schedule 2.2(a)           --   Systems
Schedule 2.2(b)           --   Furniture, Equipment and Business Machines
Schedule 2.2(c)           --   Transferred Contracts
Schedule 2.2(d)           --   Intellectual Property
Schedule 2.2(g)           --   Prepaid Items
Schedule 2.3(b)           --   Vacation Policy
Schedule 2.3(c)           --   Retention and Stay Agreements
Schedule 5.3              --   Conflicts or Violations
Schedule 5.4              --   Consents and Approvals
Schedule 5.5              --   Actions Against Sellers, PLAIC and Empire
Schedule 5.8              --   Certain Business Employees
Schedule 5.9              --   Business Employee Plans
Schedule 5.10             --   Contract Defaults
Schedule 5.12             --   Licensed Jurisdictions
Schedule 5.13             --   Excluded Utilized Assets
Schedule 5.14             --   Sellers' Absence of Certain Changes
Schedule 6.1              --   Company Foreign Qualifications
Schedule 6.2              --   Capitalization and Ownership of Shares
Schedule 6.3              --   Actions Against Companies
Schedule 6.4              --   Licenses and Permits
Schedule 6.5              --   Material Contracts
Schedule 6.8              --   Companies' Intellectual Property
Schedule 6.9              --   Computer Programs
Schedule 6.10             --   Financial Statements
Schedule 6.11             --   Taxes
Schedule 6.12             --   Companies' Absence of Certain Changes
Schedule 6.13             --   Leases and Subleases
Schedule 6.15             --   Labor Matters
Schedule 6.18             --   Insurance Policies
Schedule 7.3              --   Purchaser's Conflicts or Violations
Schedule 7.4              --   Purchaser's Consents and Approvals
Schedule 7.5              --   Purchaser's Pending Actions
Schedule 8.8(a)           --   Purchaser Severance Benefits
Schedule 8.8(c)           --   PLC Severance Benefits
Schedule 8.10             --   Intercompany Agreements not to be Terminated
Schedule 8.11             --   Lease Credit Enhancements
Schedule 9.4(g)           --   Purchase Price Allocation
Schedule 10.3             --   Approvals and Consents Required to Close
Schedule 12.3             --   Use of Names
Schedule 12.4             --   List of No-Hire Employees


                                                 LIST OF EXHIBITS


Exhibit A         --       Form of Legal Opinion of Sutherland Asbill & Brennan LLP, counsel to Sellers

Exhibit B         --       Form of Assignment and  Assumption  Agreement of the  Transferred  Contracts and Assumed
                           Liabilities

Exhibit C         --       March Adjusted Equity Schedule

Exhibit D         --       Forms  Indemnity  Reinsurance  Agreements  between  each of FBIC and  FFLIC,  on the one
                           hand, and each of PLICO, Empire and PLAIC, on the other hand

Exhibit E         --.......Indemnity Accounting Statement as of March 31, 2001

Exhibit F         --.......Form of License Agreement

STOCK AND ASSET PURCHASE AGREEMENT

        THIS STOCK AND ASSET PURCHASE AGREEMENT, dated as of July 9, 2001 (this “Agreement”), has been made and entered into by and among Protective Life Corporation, a Delaware corporation (“PLCu”), and Protective Life Insurance Company, a Tennessee corporation (“PLICO”) (together with PLC, the “Sellers” and each a “Seller”), and Fortis, Inc., a Nevada corporation (“Fortis”), and Dental Care Holdings, Inc., a Delaware corporation (“Purchaser”).

WITNESSETH:

        WHEREAS, Sellers, directly and by and through direct and indirect subsidiaries, conduct business commonly referred to as the Dental Benefits Division, which business consists of marketing, underwriting, issuing, selling and administering dental indemnity insurance business, prepaid managed dental care business, and minor blocks of employer- and employee-paid group disability, group ordinary life, group term life and other non-major medical “A&H” policies and such other business activities related thereto (collectively, the “Business”);

        WHEREAS, the Business is conducted in various legal entities, including:

        (a) United Dental Care, Inc., a Delaware corporation ("UDC") and a wholly owned subsidiary of PLICO;

        (b) UDC Life and Health Insurance Company, an Oklahoma corporation ("UDC Life"), United Dental Care of Missouri, Inc., a Missouri corporation ("UDC-MO"), and Denticare of Oklahoma, Inc., an Oklahoma corporation ("Denticare-OK"), each of which is a wholly owned subsidiary of UDC (collectively, the "UDC Subsidiaries"); and

        (c) The following other wholly owned subsidiaries of PLICO: Denticare of Alabama, Inc., an Alabama corporation ("Denticare-AL"); Denticare, Inc., a Florida corporation ("Denticare-FL"); Georgia Dental Plan, Inc., a Georgia corporation ("GDC"); Protective DentalCare, Inc., a Wisconsin corporation ("DentalCare-WI"); UDC Dental California, d/b/a United Dental Care of California, Inc., a California corporation ("UDC-CA"); United Dental Care of Colorado, Inc., a Colorado corporation ("UDC-CO"); United Dental Care of Michigan, Inc., a Michigan corporation ("UDC-MI"); United Dental Care of New Mexico, Inc., a New Mexico corporation ("UDC-NM"); United Dental Care of Texas, Inc., a Texas corporation ("UDC-TX"); UDC Ohio, Inc., d/b/a United Dental Care of Ohio, Inc., an Ohio corporation ("UDC-OH"); Denticare of Arkansas, Inc., an Arkansas corporation ("Denticare-AR"); Denticare, Inc., a Kentucky corporation ("Denticare-KY"); International Dental Plans, Inc., a Florida corporation ("IDP-FL"); Protective DentalCare of New Jersey, Inc., a New Jersey corporation ("DentalCare-NJ"); United Dental Care of Arizona, Inc., an Arizona corporation ("UDC-AZ"); United Dental Care of Indiana, Inc., an Indiana corporation ("UDC-IN"); United Dental Care of Nebraska, Inc., a Nebraska corporation ("UDC-NE"); United Dental Care of Pennsylvania, Inc., a Pennsylvania corporation ("UDC-PA"); United Dental Care of Utah, Inc., a Utah corporation ("UDC-UT"); and United Dental Care Insurance Company, an Arizona corporation ("UDCIC").

        Each of UDC, the UDC Subsidiaries, Denticare-AL, Denticare-FL, GDC, DentalCare-WI, UDC-CA, UDC-CO, UDC-MI, UDC-NM, UDC-TX, UDC-OH, Denticare-AR, Denticare-KY, IDP-FL, DentalCare-NJ, UDC-AZ, UDC-IN, UDC-NE, UDC-PA, UDC-UT and UDCIC is referred to as a “Company,” and collectively, as the “Companies.”

        WHEREAS, PLICO, Protective Life & Annuity Insurance Company, an Alabama corporation and wholly owned subsidiary of PLICO (“PLAIC”), and Empire General Life Assurance Corporation, a Tennessee corporation and wholly owned subsidiary of PLICO (“Empire”), also conduct certain aspects of, and hold certain assets relating to, the Business; and

        WHEREAS, Sellers wish to sell, and Purchaser wishes to purchase, all of the outstanding shares of capital stock of the Companies (collectively, the “Shares”), and certain assets used in connection with the Business and owned or held by Sellers, upon the terms and subject to the conditions set forth herein; and

        WHEREAS, Sellers and Purchaser wish to facilitate certain reinsurance arrangements relating to the Business.

        NOW, THEREFORE, in consideration of the premises and the covenants and conditions contained herein, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1
DEFINITIONS

        Section 1.1 Definitions. The following terms shall have the respective meanings set forth below throughout this Agreement:

         "A&H Claim Reserves" means the aggregate reserves with respect to the Insurance Policies of the Companies determined in accordance with Modified GAAP and, for each Company, appropriately includable (i) on line 2 of the Liabilities page (page 3) of the NAIC Annual Statement Blank for health maintenance organizations (orange blank) for 2000, (ii) on line 1 of the Liabilities page (page 3) of the NAIC Annual Statement Blank for health maintenance organizations (orange blank) for 2001, (iii) on the comparable line in other forms of NAIC Annual Statement Blank, or (iv) to determine the same computation of the same liability if such Company is not required to file an NAIC Annual Statement Blank.

        “A&H Premiums Due and Deferred” means the aggregate of all premiums receivable (including, without limitation, due and deferred premiums) with respect to the Insurance Policies of the Companies determined in accordance with Modified GAAP and, for each Company, appropriately includable as a net admitted asset (i) on line 2 of the Assets page (page 2) of the NAIC Annual Statement Blank for health maintenance organizations (orange blank) for 2000, (ii) on line 10 of the Assets page (page 2) of the NAIC Annual Statement Blank for health maintenance organizations (orange blank) for 2001, (iii) on the comparable line in other forms of NAIC Annual Statement Blank, or (iv) to determine the same computation of the same asset if such Company is not required to file an NAIC Annual Statement Blank.

        "Adjusted Equity of the Companies" means the consolidated and combined equity of the Companies as of a specified date, determined without duplication, as reflected on a schedule that consolidates and combines the balance sheets for all of the Companies, where each such balance sheet is prepared in accordance with Modified GAAP using accounting and actuarial principles, practices and methodologies consistent with the applicable Company's December 31, 2000 GAAP balance sheet and consistent with the terms of this Agreement, including the following adjustments (regardless of whether such adjustments are in conformity with GAAP, Modified GAAP or the Company's prior principles, practices and methodologies): (i) none of the balance sheets will include any applicable goodwill as an asset; (ii) the balance sheets will include any applicable prepaid capitation and prepaid expenses as assets; (iii) the balance sheets will include any applicable Tax liabilities for adjustments pursuant to Section 9.1(c), to the extent they remain the liabilities of one or more of the Companies; (iv) the consolidated and combined balance sheet will show zero for investments in subsidiaries; (v) the consolidated and combined balance sheet will not include any asset or liability for intercompany items, consistent with the requirements of Section 8.10 that all intercompany items be settled in full at or prior to the Closing Date; (vi) the consolidated and combined balance sheet will not include any asset for receivables or other amounts owed to any of the Companies by or with respect to Peter Barnett or the operations or business of Oracare Consultants, Inc. For the avoidance of doubt, the parties agree that differences between the parties, if any, relating to the Adjusted Equity of the Companies shall be resolved solely in accordance with Article 3.

        "Adjustment Amount" has the meaning set forth in Section 3.4(b).

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

        "Agreement" means this Stock and Asset Purchase Agreement, as it may be amended, supplemented or restated from time to time.

        "Alternative Transaction" has the meaning set forth in Section 8.9(b).

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

        "Asserted Liability" has the meaning set forth in Section 13.3.

        "Asset Price" has the meaning set forth in Section 3.1(b).

        "Assumed Liabilities" has the meaning set forth in Section 2.3.

        "BBI" means Better Benefits, Inc., formerly known as Better Compensation, Inc.

        “BBI Marketing Agreement” means collectively (i) the Joint Marketing Agreement between BBI and PLICO, dated as of January 1, 1991, as amended, and (ii) the Amended and Restated Joint Marketing Agreement by and among BBI, PLICO and PLAIC dated February 7, 1997, as amended on April 15, 1999 and March 31, 2000.

        "Basket Amount" has the meaning set forth in Section 13.2(a).

        "Bidder Agreements" has the meaning set forth in Section 8.18.

        “Books and Records”with respect to Sellers means all records and all other data and information (in whatever form maintained) in the possession or control of Sellers and relating to the Business as currently conducted, including administrative records, claim records, policy files, sales records, files and records pertaining to regulatory matters, reinsurance records, underwriting records and accounting records, but excluding any Tax Returns and work papers; provided, however, that to the extent any such financial or accounting records contain information which does not pertain to the Business, such information shall not constitute “Books and Records”. “Books and Records” with respect to the Companies means all records and all other data and information (in whatever form maintained) of the Companies; provided, however, to the extent that the Companies’ accounting and tax information has been consolidated with that of Sellers and their other Affiliates, the portion of the Companies’ records that contain data and information about Sellers and their other Affiliates shall not constitute “Books and Records.”

        "Business" has the meaning set forth in the preamble.

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

        "Business Employee Plans" has the meaning set forth in Section 5.9(a).

        “Business Employees” means (a) the employees of PLICO and UDC-CA who are permanently assigned to and who provide substantial services to the Business and (b) the employees listed on Schedule 5.8. Except for the employees listed on Schedule 5.8, “Business Employees” does not include employees assigned to the corporate staff or technology department of PLICO or any of its Affiliates.

        "Business Properties" has the meaning set forth in Section 6.13.

        “CAO Certifications” refers to the certifications provided by the Chief Accounting Officer of PLC pursuant to Sections 3.3 and 3.4.

        "Claims Notice" has the meaning set forth in Section 13.3.

        "Closing" has the meaning set forth in Section 4.1.

        "Closing Date" has the meaning set forth in Section 4.1.

        “Closing Date Equity Schedule& ” has the meaning set forth in Section 3.3.

        “Code” means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

        “Company” and “Companies” have the respective meanings set forth in the preamble.

         "Company Statement" has the meaning set forth in Section 6.10(a).

        “Computer Programs” means (i) any and all computer programs, including all object code and all available source code, (ii) all descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, and (iii) all documentation, including user manuals and training materials, relating to any of the foregoing.

        “Confidentiality Agreement” means that certain agreement dated April 5, 2001, between Fortis and PLC with respect to the confidentiality of information about the Business, Sellers, the Companies and their respective Affiliates and other related Persons, as such agreement may be amended, supplemented or restated pursuant to its terms from time to time.

        “Contracts” means contracts, leases, warranties, commitments, agreements, and arrangements, whether oral or written.

         "Control Transaction" has the meaning set forth in Section 8.9(b).

         "Covered Policies" has the meaning set forth in Section 8.1(e)(ii).

         "Dental Insurance" has the meaning set forth in Section 12.4(b).

         "Empire" has the meaning set forth in the preamble.

         "Enforceability Exceptions" has the meaning set forth in Section 5.2.

        “Environmental Condition” means any action, omission, event, condition or circumstance, including, without limitation, the presence of any Hazardous Substances, which does or reasonably could (i) require assessment, investigation, abatement, correction, removal or remediation pursuant to any Environmental Law, (ii) give rise to any obligation or liability of any nature (whether civil or criminal, arising under a theory of negligence or strict liability, or otherwise) pursuant to any Environmental Law, (iii) create or constitute a public or private nuisance or trespass, or (iv) constitute a violation of or non-compliance with any Environmental Law, including, without limitation, Environmental Laws requiring the acquisition of and compliance with the terms of permits, licenses, approvals, consents and authorizations issued by any Government Entity.

        “Environmental Law” means any law primarily intended for the protection of the environment, including but not limited to laws which regulate, establish standards, or concern liability with respect to natural resources, safety, or health of humans or other organisms, including the manufacture, distribution in commerce, and use of Hazardous Substances, but excluding laws establishing crimes against the person (except for laws imposing criminal sanctions for knowing or reckless endangerment of persons caused by Environmental Conditions), food and drug laws, laws regulating the provision of health care and laws regulating the professions.

         "ERISA" has the meaning set forth in Section 5.9(a).

         "Estimated Stock Price" has the meaning set forth in Section 3.2.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

         "FBIC" means Fortis Benefits Insurance Company, a Minnesota corporation.

         "FFLIC" means First Fortis Life Insurance Company, a New York corporation.

         "Fortis" has the meaning set forth in the preamble.

        “Fortis LeafRe Agreement” has the meaning set forth in Section 8.1(e)(i).

         "GAAP" means United States generally accepted accounting principles.

        “Governing Documents” means, with respect to any Person who is not a natural Person, the certificate or articles of incorporation, bylaws, declaration of trust, formation or governing agreement and other charter documents or organizational or governing documents or instruments of such Person.

        “Governmental Entity” means any foreign, federal, state, local, municipal, county or other governmental, quasi-governmental, administrative or regulatory authority, body, agency, court, tribunal, commission or other similar entity (including any branch, department, agency or political subdivision thereof).

        “Governmental Order” means any legally binding order or directive issued by a Governmental Entity.

         "HSR Act" has the meaning set forth in Section 5.4.

        “Hazardous Substances” means any pollutant, contaminant, hazardous substance, hazardous waste, toxic substance, petroleum or petroleum-derived substance, waste, or additive, asbestos, PCBs, radioactive material, or other compound, element, material or substance in any form whatsoever (including, without limitation, products) regulated, restricted or addressed by or under any Environmental Law.

        “Income Tax” means any Tax to the extent it is based on or measured by gross or net income or gains.

         "Indemnified Matters" means:

         (a) the business of Oracare Consultants, Inc., a New Jersey corporation, conducted prior to, on or after the Closing Date;

         (b) the dental practice of Oracare Dental Associates, P.A., a New Jersey professional association;

        (c) the Voluntary Dental Program Agreement made as of November 30, 1993, by and between CUNA Mutual Insurance Society and PLICO (except with respect to the obligations related thereto that FBIC expressly agrees to perform pursuant to Section 5.17 of the applicable Indemnity Reinsurance Agreement);

        (d) the BBI Marketing Agreement (except with respect to any obligations related thereto that FBIC or FFLIC expressly agrees to pay or perform pursuant to the Indemnity Reinsurance Agreements);

        (e) the LeafRe Reinsurance Agreements (except with respect to any obligations related thereto that FBIC or FFLIC expressly agrees to pay or perform pursuant to the Indemnity Reinsurance Agreements);

        (f) all liabilities or obligations of any character or nature (whether known or unknown, absolute or contingent, disclosed or undisclosed) (including the change of control agreements set forth on Schedule 1.1(b)) of any of Sellers, PLAIC or Empire that are not Assumed Liabilities, Policy Liabilities or Other Assumed Liabilities (as such latter two terms are defined in the Indemnity Reinsurance Agreements); and

        (g) liabilities to third parties for acts or omissions of the Companies occurring prior to the Closing Date except for (i) executory obligations and liabilities of the Companies arising from and after the Closing pursuant to Contracts, (ii) contractual obligations of the Companies under Insurance Policies, (iii) liabilities of the Companies to the extent included on the Post Closing Equity Schedule, and (iv) liabilities to the extent attributable to acts or omissions of the Companies occurring on or after the Closing Date (for example, a regulatory fine for failure to have a required Permit will be an Indemnified Matter to the extent the fine relates to the period prior to Closing, and will not be an Indemnified Matter pursuant to this subsection (g) to the extent the fine relates to the period on and after the Closing). The parties agree that this definition shall not operate as a warranty of the Post Closing Equity Schedule, it being understood that differences, if any, relating to the Post Closing Equity Schedule shall be resolved solely in accordance with Article 3.

        “Indemnity Accounting” means the indemnity reinsurance accounting statement attached hereto as Exhibit E.

        “Indemnity Financial Statements” has the meaning set forth in Section 6.10(a).

        “Indemnity Reinsurance Agreements” has the meaning set forth in Section 8.15.

        “Insurance Policies” means the policies or contracts of insurance, including contracts providing for prepaid managed dental care benefits, that have been issued or assumed under reinsurance by PLICO, PLAIC, Empire or the Companies in connection with the Business, that are, on the Closing Date, in force or subject to being renewed or reinstated in accordance with their terms, together with all related binders, slips and certificates (including applications therefor and all supplements, endorsements and riders in connection therewith).

        “Intellectual Property” means intellectual property rights, including but not limited to all patent and patent applications, Trademarks, copyrights, copyright registrations and applications, technology, domain names, uniform resource locators (URLs), trade secrets, know-how, confidential information, proprietary processes and formulae (but excluding Computer Programs).

        “Knowledge” or “knowledge of Sellers” or similar words or phrases means the actual knowledge of those individuals listed on Schedule 1.1(a) and the constructive knowledge ascribed to such individuals as being knowledge that each such individual, in the exercise of reasonable diligence with respect to his or her duties, should possess.

         "LeafRe" means LeafRe Reinsurance Company.

        “LeafRe Reinsurance Agreements” means collectively (i) the Reinsurance Agreement between LeafRe and PLICO effective January 1, 1993, as amended on January 1, 1996, and (ii) the Reinsurance Agreement between LeafRe and PLAIC effective January 1, 1993, as amended on January 1, 1996.

        “License Agreement” means the form of license agreement to be entered into as of the Closing Date and attached hereto as Exhibit F.

        “Lien” means any lien, pledge, security interest, encumbrance, restriction, easement, limitation, claim, charge or defect of title; provided that such term shall not include restrictions imposed by any applicable state insurance laws or regulations or state or federal securities laws.

        “Losses” and individually “Loss” has the meaning set forth in Section 13.2(a).

        “March Adjusted Equity Schedule” means the calculation of the Adjusted Equity of the Companies as of March 31, 2001 based upon the assumption of a March 31, 2001 Closing Date, which is attached hereto as Exhibit C.

        “Material Adverse Effect” means an event, change or occurrence that, individually or together with any other event, change or occurrence, has or is reasonably likely to have a material adverse effect on the business, financial condition and results of operations of the Companies and the Business taken as a whole or on the ability of Sellers to perform their obligations under this Agreement or to consummate the transactions contemplated hereby; provided, however, that the following shall be excluded from the definition of “Material Adverse Effect” and from any determination as to whether a Material Adverse Effect has occurred or may occur: (i) any adverse change or effect that is caused by or that arises out of any change in conditions affecting the economy or the financial, banking, currency or capital markets in general or changes in Applicable Laws affecting the Business; (ii) any adverse change or effect that is caused by or that arises out of any change in conditions affecting the health care or insurance industries; (iii) any adverse change or effect that is caused by or that arises out of any downgrade of the financial strength, claims paying ability, insurance or other ratings of PLICO, Empire or PLAIC by A.M. Best Company, Inc. below A-; and (iv) any adverse change or effect resulting from the announcement or the pendency of the transactions contemplated by this Agreement.

         "Material Contracts" has the meaning set forth in Section 6.5.

        “Maximum Indemnification Obligation” has the meaning set forth in Section 13.2(a).

        “Modified GAAP” means GAAP except for the absence of footnotes and customary and immaterial year-end adjustments (that, if presented, would not differ materially from those included in audited financial statements of PLC) and includes, where applicable, a reconciliation of SAP to GAAP using principles and practices that are consistent with the reconciliation prepared for the entity’s December 31, 2000 financial statements.

        “NAIC Annual Statement Blank” means the form of annual statement for dental health maintenance organizations as prescribed by the NAIC, or such other form of comparable annual statement blank that any Company is required to use in lieu thereof by the insurance regulatory authority in its state of domicile.

         "NY Amendment Date" has the meaning set forth in Section 8.19(c).

         "NY DOI" has the meaning set forth in Section 8.19.

        “Other Agreements” has the meaning set forth in the Indemnity Reinsurance Agreements.

        “90-Day Treasury Rate” means the annual yield rate, on the date to which such 90-Day Treasury Rate relates, of actively traded U.S. Treasury securities having a remaining duration to maturity of three months, as such rate is published under “Treasury Constant Maturities” in Federal Reserve Statistical Release H.15(519).

        "Passive Investor" has the meaning set forth in Section 12.4(a)

.

        "PLAIC" has the meaning set forth in the preamble.

        "PLC" has the meaning set forth in the preamble.

        "PLC Severance Benefits" has the meaning set forth in Section 8.8(c).

        "PLICO" has the meaning set forth in the preamble.

        “Permitted Liens”, as to any asset, means each of the following: (i) Liens for taxes, assessments and governmental charges or levies not yet due and payable or which are being contested in good faith; (ii) Liens imposed by law, including, without limitation, materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s liens and other similar liens arising in the ordinary course of business; (iii) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations; (iv) Liens related to deposits to secure policyholders’ obligations as required by the insurance departments of the various states; and (v) Liens that do not in the aggregate materially detract from the value or materially interfere with the present or reasonably contemplated use of such asset in the Business.

        “Permits” means all licenses, permits, orders, approvals and non-disapprovals, registrations, authorizations, qualifications and filings with and under all Governmental Entities and Applicable Laws.

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

        “Policy-Related Assets” has the meaning set forth in the Indemnity Reinsurance Agreements.

        “Policy-Related Liabilities” has the meaning set forth in the Indemnity Reinsurance Agreements.

        “Post Closing Equity Schedule” has the meaning set forth in Section 3.4(a).

        "Pre-Closing Tax Period" has the meaning set forth in Section 9.1(a).

        "Proposal" has the meaning set forth in Section 8.9(b).

        "Purchase Price" has the meaning set forth in Section 3.1.

        "Purchased Assets" has the meaning set forth in Section 2.2.

        "Purchaser" has the meaning set forth in the preamble.

        "Purchaser Indemnitees" has the meaning set forth in Section 13.2(a).

        “Purchaser Severance Benefits” has the meaning set forth in Section 8.8(a).

        “Related Agreements” means each of the following agreements or documents contemplated to be executed and delivered in connection with the transactions contemplated by this Agreement on or as of the Closing Date: (i) the Indemnity Reinsurance Agreements; (ii) the bills of sale or any other necessary asset purchase and sale documents and other appropriate evidences of transfer; (iii) the agreement of assignment and assumption of the Transferred Contracts and Assumed Liabilities; (iv) the closing certificates contemplated by Sections 10.1 and 11.1; (v) the Secretary’s certificates contemplated by Sections 4.2(a)(ix) and 4.2(b)(vi); (vi) the Transition Services Agreement; and (vii) the License Agreement.

        "Representative" has the meaning set forth in Section 8.9(a).

        "Resolving Accountants" has the meaning set forth in Section 3.4(c).

        "Restricted Area" has the meaning set forth in Section 12.4(b).

        "Restricted Business" has the meaning set forth in Section 12.4(b).

        “SAP” means, with respect to a Company’s, PLICO’s, PLAIC’s or Empire’s statutory financial statements, the statutory accounting practices prescribed or permitted by the insurance regulatory authority of each such entity’s jurisdiction of domicile.

        "Securities Act" means the Securities Act of 1933, as amended.

        "Seller Indemnitees" has the meaning set forth in Section 13.2(b).

        "Sellers" has the meaning set forth in the preamble.

        "Shares" has the meaning set forth in the preamble.

        “Shrink Wrap Computer Programs” means all Computer Programs that, to the knowledge of Sellers, have been purchased by the Companies in off-the-shelf, commercial packaging and are currently used by one or more of the Companies.

        "Statutory Assets" has the meaning set forth in Section 8.12.

        "Stock Price" has the meaning set forth in Section 3.1(a).

        "Straddle Period" has the meaning set forth in Section 9.1(a).

        “subsidiary” means any Person more than 50% of the ownership interest or voting interest of which is owned or controlled, directly or indirectly, by another Person.

        “Taxes” (or “Tax” as the context may require) means all Federal, state, county, local, foreign and other taxes or withholding (including, without limitation, Income Tax, payroll and employee withholding, unemployment insurance, social security, premium, excise, sales, use, gross receipts, franchise, ad valorem, severance, capital and property taxes, and other governmental charges and assessments), and includes interest, additions to tax and penalties with respect thereto.

        "Tax Contest" has the meaning set forth in Section 9.4(d).

        "Tax Losses" has the meaning set forth in Section 9.1(a).

        “Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

        "Termination Date" has the meaning set forth in Section 14.1(c).

        “Trademarks” means all United States and foreign trademarks (including service marks and trade names, whether registered or at common law), registrations and applications therefor, domain names, logos and designs, together with the goodwill of each of the respective businesses associated therewith, together with any and all (i) renewals thereof and (ii) rights to sue for past, present and future infringement or misappropriation thereof.

        "Transferred Contracts" has the meaning set forth in Section 2.2(c).

         "Transferred Employee" has the meaning set forth in Section 8.8(a).

        “Transition Services Agreement” has the meaning set forth in Section 8.16.

        “True-Up Items” means, collectively, the A&H Claim Reserves and the A&H Premiums Due and Deferred.

        “True-Up Reserve Accounting” has the meaning set forth in Section 3.5(a).

         "UDC Subsidiaries" has the meaning set forth in the preamble.

        "WARN Act" has the meaning set forth in Section 8.14.

ARTICLE 2
SALE OF THE COMPANIES' SHARES AND CERTAIN
ASSETS; ASSUMPTION OF CERTAIN LIABILITIES

        Section 2.1 Transfer and Acquisition of Shares. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Sellers shall sell and deliver to Purchaser and Purchaser shall purchase and accept from Sellers all of (i) the Shares (other than the Shares of the UDC Subsidiaries) and (ii) the corporate franchise, stock record books, corporate record books (containing minutes of meetings of directors and stockholders), and such other records having to do with each Company’s organization or stock capitalization, in all cases free and clear of all Liens. Seller and Purchaser acknowledge and agree that upon consummation of the transactions contemplated by this Agreement, Purchaser shall become the indirect owner of the Shares of the UDC Subsidiaries as a result of Purchaser’s acquisition of the Shares of UDC.

        Section 2.2 Transfer and Acquisition of Assets. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Sellers shall, and shall cause Empire and PLAIC to, sell, transfer, convey, assign and deliver to Purchaser, and Purchaser shall purchase and accept from Sellers, Empire and PLAIC, all of Sellers’, Empire’s and PLAIC’s right, title and interest in and to the following assets used in the Business, free and clear of all Liens other than the Permitted Liens:

        (a) (i) computers, terminals, computer equipment and systems, telephones and telephone systems (including parts, accessories, and the like, with respect to the foregoing), but only to the extent specifically identified on Schedule 2.2(a), (ii) any and all assignable warranties of third parties with respect to the items described on Schedule 2.2(a); and (iii) Computer Programs and software licenses, but only to the extent specifically identified on Schedule 2.2(a);

        (b) (i) office furniture, office equipment and business machines (including parts, accessories and the like, with respect to the foregoing), but only to the extent specifically identified on Schedule 2.2(b), and (ii) any and all assignable warranties of third parties with respect to the items described on Schedule 2.2(b);

        (c) all rights of Sellers, PLAIC and Empire in and under Contracts utilized or relied upon by the Business, but only to the extent specifically identified on Schedule 2.2(c) (collectively, the “Transferred Contracts”);

        (d) Intellectual Property, but only to the extent specifically identified on Schedule 2.2(d);

        (e) all existing data, databases, Books and Records (except those records at a Seller’s corporate offices or at off-site storage facilities that are duplicates of the Books and Records), correspondence, business plans and projections, records of sales, customer and vendor lists, files, papers, manuals and printed instructions relating exclusively to the Business;

        (f) to the extent permitted under Applicable Law, (i) copies of employment applications, notices of transfer, notices of rate changes, historical personnel payroll and similar documents (and any summaries of such documents) maintained by PLICO and its Affiliates for each of the Transferred Employees, and (ii) to the extent a Transferred Employee grants PLICO and its Affiliates permission to release the following if such consent is required by Applicable Law, all medical records, corrective action reports and disciplinary reports in the possession of PLICO and its Affiliates; and

        (g) prepaid expenses and other prepaid assets, such as deposits on equipment purchases, security deposits, service contracts and arrangements, and utility deposits, and all prepaid rental amounts utilized by the Business, and owned, retained or held by one or more of the Sellers, but only to the extent specifically identified on Schedule 2.2(g).

        The assets described in Sections 2.2(a) through (g) are hereinafter collectively referred to as the “Purchased Assets.”

        Section 2.3 Assumed Liabilities. As of the Closing, Purchaser shall assume responsibility for the performance and satisfaction of the following liabilities of Sellers (in addition to those liabilities assumed by the Purchaser as a matter of law as a consequence of the acquisition of the Shares, that are not Indemnified Matters) (collectively, the “Assumed Liabilities”):

        (a) All of the executory obligations and liabilities of Sellers, PLAIC or Empire arising from and after the Closing pursuant to the Transferred Contracts, including any liabilities arising from or incurred as a result of the transfer of such Transferred Contracts;

        (b) The obligations of PLICO and its Affiliates to pay the Transferred Employees for all of their unused vacation accumulated as of the Closing Date under PLICO’s and its Affiliates’ vacation policy set forth on Schedule 2.3(b); and

        (c) The retention and stay agreements shown on Schedule 2.3(c).

ARTICLE 3
AMOUNT AND PAYMENT OF PURCHASE PRICE

        Section 3.1 Purchase Price. The consideration to be paid to Sellers for the sale, transfer, and conveyance for the capital stock of the Companies and the Purchased Assets consists of the following amounts (collectively, the “Purchase Price”):

        (a) $35,900,000 plus the Adjusted Equity of the Companies as of the Closing Date, for the capital stock of the Companies (the “Stock Price”); and

        (b) $3,500,000 (the “Asset Price”) plus the assumption of the Assumed Liabilities, for the Purchased Assets and the undertakings contained herein.

        Section 3.2 Payment of Estimated Purchase Price. The Stock Price to be paid at Closing shall be estimated based on the Closing Date Equity Schedule (the “Estimated Stock Price”) and, subject to the fulfillment of the conditions set forth herein, at the Closing, Purchaser shall pay or deliver to Sellers (i) an amount equal to the Estimated Stock Price, and (ii) an amount equal to the Asset Price.

        Section 3.3 Closing Date Equity Schedule. No later than the fifth Business Day prior to the Closing Date, PLC will deliver to Purchaser a pro forma schedule, estimated as of and for the Closing Date, of the Adjusted Equity of the Companies (collectively, the “Closing Date Equity Schedule”) in substantially the form of the March Adjusted Equity Schedule and setting forth the Estimated Stock Price. The Closing Date Equity Schedule will be accompanied by a certificate signed by the Chief Accounting Officer of PLC, certifying that to his knowledge the Closing Date Equity Schedule is: (i) correct and does not contain errors in calculation, methodology or application; (ii) is based on the books and records of the Companies; (iii) is prepared in accordance with Modified GAAP using accounting and actuarial principles, practices and methodologies consistent with the applicable Company’s December 31, 2000 GAAP balance sheet; and (iv) is prepared consistent with the terms of this Agreement, including the adjustments provided for herein. Purchaser shall be provided with reasonable access to the work papers (including those of PLC’s independent accounting firm if applicable), books, records, data, information and personnel of PLC and its subsidiaries supporting the Closing Date Equity Schedule.

        Section 3.4 Post Closing Adjustment.

        (a) Within sixty (60) calendar days following the Closing Date, PLC shall deliver to Purchaser a schedule (the “Post Closing Equity Schedule”) setting forth the actual Adjusted Equity of the Companies as of the Closing Date without estimation, in substantially the form of the March Adjusted Equity Schedule and the Closing Date Equity Schedule, but also including a computation of the Stock Price and the Adjustment Amount. The Post Closing Equity Schedule will be accompanied by a certificate signed by the Chief Accounting Officer of PLC, certifying that to his knowledge the Post Closing Equity Schedule is: (i) correct and does not contain errors in calculation, methodology or application; (ii) is based on the books and records of the Companies; (iii) is prepared in accordance with Modified GAAP using accounting and actuarial principles, practices and methodologies consistent with the applicable Company’s December 31, 2000 GAAP balance sheet; and (iv) is prepared consistent with the terms of this Agreement, including the adjustments provided for herein. Purchaser shall be provided with reasonable access to the work papers (including those of PLC’s independent accounting firm if applicable), books, records, data, information and personnel of PLC and its subsidiaries supporting the Post Closing Equity Schedule. After the Closing, Purchaser shall provide PLC with reasonable access to the books, records, data and information (in whatever form maintained) in the possession or under the control of Purchaser, its Affiliates or its agents relating to the Business and reasonable access to Purchaser’s and its Affiliates’ personnel (including Transferred Employees) to the extent reasonably necessary for PLC to prepare the Post Closing Equity Schedule.

        (b) Purchaser shall have sixty (60) calendar days in which to review the Post Closing Equity Schedule and to the extent that Purchaser has any objections thereto, then within sixty (60) calendar days from the date of receipt by Purchaser of the Post Closing Equity Schedule, Purchaser shall provide written notice thereof to PLC stating any such objection and the basis for such objection. If Purchaser does not timely deliver a notice of objection to PLC, (i) if the Stock Price shown on the Post Closing Equity Schedule is less than the Estimated Stock Price, then Sellers shall pay the amount of such difference to Purchaser in cash by wire transfer of immediately available funds within ten (10) calendar days after the lapse of the 60-day notice period, and (ii) if the Stock Price shown on the Post Closing Equity Schedule is greater than the Estimated Stock Price, Purchaser shall pay the amount of such difference to PLICO in cash by wire transfer of immediately available funds within ten (10) calendar days after the lapse of the 60-day notice period (such increase or decrease to the Estimated Stock Price, as the case may be, being the “Adjustment Amount”). Payment of the amount pursuant to clause (i) or (ii) immediately above, if any, will be accompanied by the payment of interest thereon from the Closing Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Closing Date.

        (c) If Purchaser does timely deliver a notice of objection to PLC pursuant to clause (b) above, Purchaser and PLC shall undertake to negotiate in good faith in order to resolve the amount so disputed. If Purchaser and PLC are unable to resolve the dispute within thirty (30) calendar days from the date of PLC’s receipt of the notice of objection, then the issues remaining in dispute will be submitted to a panel of three (3) accountants (the “Resolving Accountants”), each of whom has substantial experience in the life and health insurance industry and with whom neither Purchaser nor PLC has had a business relationship during the two (2) years prior to the Closing Date. Not more than one of such Resolving Accountants may be from the same accounting firm. One of such Resolving Accountants shall be selected by PLC, one of such Resolving Accountants shall be selected by Purchaser, and the third Resolving Accountant shall be mutually selected by the two Resolving Accountants selected by PLC and Purchaser. If issues in dispute are submitted to the Resolving Accountants, each of PLC and Purchaser will furnish to the Resolving Accountants such work papers and other documents and information relating to the disputed issues as the Resolving Accountants may request and are available, and each of PLC and Purchaser will be afforded the opportunity to present to the Resolving Accountants any material relating to the determination and to discuss the determination with the Resolving Accountants, and copies of such material shall be provided to the other party at the same time. The determination by the Resolving Accountants, as set forth in a written notice delivered to Purchaser and PLC by the Resolving Accountants, will be in accordance with the standards set forth in items (i) through (iv) of Section 3.4(a), consistent with the terms of this Agreement including the adjustments provided for herein. The determination by the Resolving Accountants will be binding and conclusive on Fortis, Purchaser and Sellers, and Purchaser and Sellers will each bear the fees of the Resolving Accountants for such determination based upon the Resolving Accountants’ determination of the extent to which each of PLC and Purchaser was correct or incorrect as to the dispute. For purposes of this Agreement, “binding and conclusive” shall mean that the aforesaid determinations shall have the same preclusive effect for all purposes as if such determinations had been embodied in a final judgment, no longer subject to appeal, entered by a court of competent jurisdiction.

        (d) Upon resolution of such dispute as contemplated by clause (c) above, whether by agreement between Purchaser and PLC or by determination of the Resolving Accountants, (i) if the Stock Price shown on such resolved Post Closing Equity Schedule is less than the Estimated Stock Price, then Sellers shall pay the amount of such difference to Purchaser in cash by wire transfer of immediately available funds within ten (10) calendar days of the resolution of the dispute or (ii) if the Stock Price shown on such resolved Post Closing Equity Schedule is more than the Estimated Stock Price, then Purchaser shall pay the amount of such difference to PLICO in cash by wire transfer of immediately available funds within ten (10) calendar days of the resolution of the dispute. Payment of the amount pursuant to clause (i) or (ii) immediately above, if any, will be accompanied by the payment of interest thereon from the Closing Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Closing Date.

        Section 3.5 True-Up Accounting.

        (a) Within sixty (60) calendar days following the one year anniversary of the Closing Date, Purchaser will prepare and deliver to PLC a final accounting consisting only of the True-Up Items as of the Closing Date, in substantially the same form as the Post Closing Equity Schedule (the “True-Up Reserve Accounting”). The True-Up Reserve Accounting will include a statement comparing the values of the items set forth on the True-Up Reserve Accounting with the values of such items on the Post Closing Equity Schedule and compute the differences in such values. With respect to the A&H Claim Reserves that have been estimated, the True-Up Reserve Accounting will restate the liability for claims that were incurred before the Closing Date but not reported as of the Closing Date by replacing the estimated liability for such claims that was included in the Post Closing Equity Schedule with the sum of (i) the actual runoff of such claims that were incurred before the Closing Date and that have been paid since the Closing Date, plus (ii) an estimate for any such claims that were incurred before the Closing Date and may be unpaid as of the date that is one year after the Closing Date. To the extent that the actual amounts relating to the A&H Premiums Due and Deferred as of the Closing Date become determinable prior to the preparation of the True-Up Reserve Accounting, such items shall be reflected on the True-Up Reserve Accounting as actual amounts rather than estimations. The True-Up Reserve Accounting will be accompanied by a certificate of the Chief Financial Officer of Purchaser, certifying that to his or her knowledge, the True-Up Reserve Accounting is: (i) correct and does not contain errors in calculation, methodology or application; (ii) is based on the books and records of the Companies; (iii) is prepared in accordance with Modified GAAP using accounting and actuarial principles, practices and methodologies consistent with the applicable Company’s December 31, 2000 GAAP balance sheet; and (iv) is prepared consistent with the terms of this Agreement, including the adjustments provided for herein. PLC shall be provided with reasonable access to the work papers (including those of Purchaser’s independent accounting firm, if applicable), books, records, data, information and personnel of Purchaser and its Affiliates supporting the True-Up Reserve Accounting.

        (b) PLC shall have sixty (60) calendar days in which to review the True-Up Reserve Accounting and to the extent that PLC has any objections thereto, then within sixty (60) calendar days from the date of receipt by PLC of the True-Up Reserve Accounting, PLC shall provide written notice thereof to Purchaser stating any such objection and the basis for such objection. If PLC does not timely deliver a notice of objection to Purchaser:

          (i)  if (A) the A&H Premiums Due and Deferred shown on the True-Up Reserve Accounting minus the A&H Claim Reserves shown on the True-Up Reserve Accounting, is less than (B) the A&H Premiums Due and Deferred shown on the Post Closing Equity Schedule minus the A&H Claim Reserves shown on the Post Closing Equity Schedule, then the Sellers shall pay the amount of such difference to Purchaser in cash by wire transfer of immediately available funds within ten (10) calendar days after the lapse of the 60-day notice period; or

          (ii)  if (Y) the A&H Premiums Due and Deferred shown on the True-Up Reserve Accounting minus the A&H Claim Reserves shown on the True-Up Reserve Accounting, is greater than (Z) the A&H Premiums Due and Deferred shown on the Post Closing Equity Schedule minus the A&H Claim Reserves shown on the Post Closing Equity Schedule, then Purchaser shall pay the amount of such difference to PLICO in cash by wire transfer of immediately available funds within ten (10) calendar days after the lapse of the 60-day notice period.

        Payment of the amount pursuant to clause (i) or (ii) immediately above, if any, will be accompanied by the payment of interest thereon from the Closing Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Closing Date.

        (c) If PLC does timely deliver a notice of objection to Purchaser pursuant to clause (b) above, Purchaser and PLC shall undertake to negotiate in good faith in order to resolve the amount so disputed. If Purchaser and PLC are unable to resolve the dispute within thirty (30) calendar days from the date of Purchaser’s receipt of the notice of objection, then the issues remaining in dispute will be submitted to arbitration in accordance with Section 15.6, except that all arbitrators must be Members of the American Academy of Actuaries familiar with the types of policies included in the Insurance Policies and the arbitrators will determine the True-Up Reserve Accounting in accordance with the standards set forth in Section 3.5(a) and consistent with the terms of this Agreement.

        (d) Upon resolution of such dispute as contemplated by clause (c) above, whether by agreement between Purchaser and PLC or by arbitration:

          (i)  if (A) the A&H Premiums Due and Deferred shown on the True-Up Reserve Accounting minus the A&H Claim Reserves shown on the True-Up Reserve Accounting, is less than (B) the A&H Premiums Due and Deferred shown on the Post Closing Equity Schedule minus the A&H Claim Reserves shown on the Post Closing Equity Schedule, then the Sellers shall pay the amount of such difference to Purchaser in cash by wire transfer of immediately available funds within ten (10) calendar days after the resolution of such dispute; or

          (ii)  if (Y) the A&H Premiums Due and Deferred shown on the True-Up Reserve Accounting minus the A&H Claim Reserves shown on the True-Up Reserve Accounting, is greater than (Z) the A&H Premiums Due and Deferred shown on the Post Closing Equity Schedule minus the A&H Claim Reserves shown on the Post Closing Equity Schedule, then Purchaser shall pay the amount of such difference to PLICO in cash by wire transfer of immediately available funds within ten (10) calendar days after the resolution of such dispute.

        Payment of the amount pursuant to clause (i) or (ii) immediately above, if any, will be accompanied by the payment of interest thereon from the Closing Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Closing Date.

        Section 3.6 Transfer Expenses. Purchaser shall pay any and all sales, use, transfer or documentary Taxes levied on the transfer of the Purchased Assets and the Shares, respectively. Purchaser shall timely report and remit any such Taxes to the applicable revenue authorities on the Closing Date or promptly thereafter, and shall promptly remit any increases in such Taxes determined to be due after the Closing Date, but in all cases within the time period prescribed by Applicable Law.

ARTICLE 4
PROCEDURE FOR CLOSING

        Section 4.1 Place and Date of Closing. Unless otherwise mutually agreed upon by PLC and Purchaser, the closing of the purchase and sale of the Shares and the Purchased Assets, and the consummation of the other matters contemplated by this Agreement to take place at such time (the “Closing”), shall be effective on the first calendar day of the month following the month in which the satisfaction or waiver of all of the conditions set forth in Articles 10 and 11 occurs (the “Closing Date”) and shall be effective as of 12:01 a.m. on such date. The Closing shall take place in the offices of Sutherland Asbill & Brennan LLP, 999 Peachtree Street, N.E., Atlanta, Georgia 30308. Notwithstanding the foregoing, in the event that the Closing would, under the terms hereof, occur as of 12:01 a.m. on January 1, 2002, the parties hereby agree that the Closing will instead occur as of 11:59 p.m. on December 31, 2001, and this Agreement and the Related Agreements will be deemed modified where necessary to be consistent with the Sellers continuing to own the Business for all of the Closing Date until such effective time. In such event, Sellers will provide to Purchaser, FBIC and FFLIC such financial information regarding the Business as Purchaser, FBIC and FFLIC shall reasonably request to permit Purchaser, FBIC and FFLIC to file their 2001 financial statements on a timely basis. If the Closing Date falls on a day that is not a Business Day, all payments of money to be made hereunder on the Closing Date shall be made on the first Business Day following the Closing Date.

        Section 4.2 Payments and Deliveries Made at Closing. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing:

        (a) Sellers shall deliver to Purchaser the following:

        (i) Certificates representing all of the Shares (other than the Shares of the UDC Subsidiaries), duly executed in blank or accompanied by stock powers duly executed in blank, in proper form for transfer;

        (ii) Bills of sale and any other necessary asset purchase and sale documents, and other appropriate evidence of transfer, executed and in form and substance reasonably satisfactory to Purchaser, as shall be necessary and effective to transfer, convey and assign to, and vest in, Purchaser all of Sellers’, Empire’s and PLAIC’s right, title, and interests in and to the Purchased Assets;

        (iii) Evidence of compliance with the requirements of the HSR Act;

        (iv) Evidence of receipt of all consents identified on Schedule 10.3;

        (v) Certificates of the applicable public officials to the effect that each Seller and each of PLAIC and Empire is a validly existing corporation in good standing in its state of incorporation, as of a date not more than twenty (20) days prior to the Closing Date;

        (vi) Certificates of the applicable public officials to the effect that each of the Companies is a validly existing corporation in good standing in its state of incorporation and in each jurisdiction in which it is qualified to do business, as of a date not more than twenty (20) days prior to the Closing Date;

        (vii) True and correct copies of (i) the Governing Documents (other than the bylaws) of each Seller, PLAIC and Empire as of a date not more than twenty (20) days prior to the Closing Date, certified by the Secretary of State of the state of incorporation of such entity, and (ii) the bylaws of such Seller, PLAIC and Empire as of the Closing Date, certified by the Secretary of such entity;

        (viii) Evidence of termination of the BBI Marketing Agreement, pursuant to and as described in Section 8.1(e)(i);

        (ix) The closing certificate described in Section 10.1;

        (x) A certificate of the Secretary of each Seller and each of PLAIC and Empire which (i) sets forth all resolutions of the Board of Directors of such entity authorizing the execution and delivery of this Agreement and the Related Agreements and the performance by such entity of the transactions contemplated hereby and thereby, (ii) is to the effect that the Governing Documents of such entity delivered pursuant to Section 4.2(a)(vii) were in effect at the date of adoption of such resolutions, the date of execution of this Agreement and the Closing Date; and (iii) certifies as to the incumbency as of the Closing Date and specimen signature of the applicable officers of such entity who have executed this Agreement, the Related Agreements or any other document contemplated by this Agreement;

        (xi) The opinion of Sutherland Asbill & Brennan LLP, legal counsel to Sellers, in substantially the form of Exhibit A;

        (xii) All required deliveries under the Indemnity Reinsurance Agreements; and

        (xiii) Such other agreements and documents as may be reasonably necessary.

        (b) Fortis and Purchaser shall deliver to Sellers the following:

        (i) The Asset Price and the Estimated Stock Price, in cash, by wire transfer of immediately available funds to the account(s) designated to Purchaser by PLC;

        (ii) Evidence of compliance with the requirements of the HSR Act;

        (iii) A certificate of the applicable public official to the effect that each of Fortis, Purchaser, FBIC and FFLIC is a validly existing corporation in good standing in its state of incorporation, as of a date not more than twenty (20) days prior to the Closing Date;

        (iv) True and correct copies of (i) the Governing Documents (other than the bylaws) of each of Fortis, Purchaser, FBIC and FFLIC as of a date not more than twenty (20) days prior to the Closing Date, certified by the Secretary of State of the state of incorporation of each such entity, and (ii) the bylaws of each of Fortis, Purchaser, FBIC and FFLIC as of the Closing Date, certified by the Secretary of each such entity;

        (v) The closing certificate described in Section 11.1;

        (vi) A certificate of the Secretary of each of Fortis, Purchaser, FBIC and FFLIC which (i) sets forth all resolutions of the Board of Directors of each such entity authorizing the execution and delivery of this Agreement and the Related Agreements and the performance by each such entity of the transactions contemplated hereby and thereby, (ii) is to the effect that the Governing Documents of each such entity delivered pursuant to Section 4.2(b)(iv) were in effect at the date of adoption of such resolutions, the date of execution of this Agreement and the Closing Date; and (iii) certifies as to the incumbency as of the Closing Date and specimen signature of the applicable officers of each such entity who has executed this Agreement, the Related Agreements or any other document contemplated by this Agreement;

        (vii) All required deliveries under the Indemnity Reinsurance Agreements; and

        (viii) Such other agreements and documents as may be reasonably necessary.

        (c) The following agreements shall be executed and/or delivered by and to the applicable parties

        (i) The Indemnity Reinsurance Agreements;

        (ii) An agreement of assignment and assumption of the Transferred Contracts and Assumed Liabilities substantially in the form of Exhibit B;

        (iii) The Transition Services Agreement; and

        (iv).....The License Agreement substantially in the form of Exhibit F.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES
CONCERNING SELLERS, PLAIC, EMPIRE AND THE BUSINESS

        PLC, on behalf of itself and PLICO, PLAIC and Empire, represents and warrants to Fortis and Purchaser as follows:

        Section 5.1 Incorporation and Standing. Each Seller, PLAIC and Empire is duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has the corporate power and authority to own, lease and operate its properties and assets and conduct its business as it is now being conducted in such jurisdiction. Each Seller, PLAIC and Empire is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required, except where the failure to be so qualified does not have a Material Adverse Effect.

        Section 5.2 Authorization. Each Seller, PLAIC and Empire has the full corporate power and authority to enter into this Agreement and the Related Agreements, as applicable, and to perform its respective obligations hereunder and thereunder. The execution and delivery of this Agreement and the Related Agreements and the performance by each Seller, PLAIC and Empire of its obligations under this Agreement and the Related Agreements have been duly and validly authorized and approved by all requisite corporate action of each Seller, PLAIC and Empire, as applicable, and no other acts or proceedings on the part of either Seller, PLAIC or Empire are necessary, and no approval of PLC’s shareholders is necessary, to authorize the execution, delivery and performance of this Agreement or the Related Agreements or the transactions contemplated hereby and thereby. Assuming the due authorization and execution of this Agreement and the Related Agreements by Fortis and Purchaser and, as applicable, FBIC and FFLIC, this Agreement constitutes, and the Related Agreements to be delivered at Closing will constitute, legal, valid and binding obligations of each Seller, PLAIC and Empire, as applicable, and this Agreement and each such Related Agreement is and will be enforceable against each Seller, PLAIC and Empire, as applicable, in accordance with its terms (a) except as the same may be limited by applicable bankruptcy, insolvency, rehabilitation, moratorium or similar laws of general application relating to or affecting creditors’ rights or of application to insurance companies relating to or affecting policyholders’ and creditors’ rights, including, without limitation, statutory and other laws regarding fraudulent conveyances and preferential transfers, and (b) except for the limitations imposed by general principles of equity. The foregoing exceptions set forth in clauses (a) and (b) of this Section 5.2 are hereinafter referred to as the “Enforceability Exceptions.”

        Section 5.3 No Conflict or Violation. Except as disclosed in Schedule 5.3 and subject to obtaining the consents and approvals described in Section 5.4 (including those listed on Schedule 5.4), the execution, delivery and performance of this Agreement and the Related Agreements and the consummation of the transactions contemplated hereby and thereby by each Seller, PLAIC and Empire, as applicable, in accordance with the respective terms and conditions hereof and thereof, will not (a) violate any provision of its Governing Documents or the Governing Documents of any of the Companies; (b) result in the creation of any Lien (other than a Permitted Lien) on any of its assets or properties or the assets or properties of any of the Companies; (c) violate, conflict with or result in the breach of any of the terms of, result in any modification of, accelerate or permit the acceleration of the performance required by, otherwise give any other contracting party the right to terminate, or constitute (with notice or lapse of time, or both) a default under, any material agreement to which it or any of the Companies is a party or by or to which it or any of the Companies or any of its or the Companies’ assets or properties may be subject; (d) with respect to the Business, violate any order, judgment, injunction, award or decree of any court, arbitrator or Governmental Entity, or any agreement with, or condition imposed by, any Governmental Entity; (e) subject to obtaining the Permits referred to in Sections 5.12 and 6.4 hereof, violate any statute, law or regulation of any jurisdiction as each statute, law or regulation relates to the Business, the Purchased Assets, the Policy-Related Assets and the Other Agreements, except for such violations that will not, individually or in the aggregate, have a Material Adverse Effect; or (f) result in a material breach or violation of any of the terms or conditions of, constitute a material default under, or otherwise cause a material impairment or a revocation of, any Permit related to the Business.

        Section 5.4 Consents and Approvals. Except as set forth in Schedule 5.4, except in connection with the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and except for consents required under Transferred Contracts that are not material to the Business, no consent, approval, non-disapproval, authorization, ruling, order of, notice to, or registration with, any Governmental Entity or other Person is required on the part of any Seller, PLAIC, Empire or any Company in connection with the execution and delivery of this Agreement or the Related Agreements, as applicable, or the consummation by any Seller, PLAIC, Empire or any Company of the transactions contemplated hereby and thereby.

        Section 5.5 Actions Pending. Except as set forth in Schedule 5.5, (i) there is no action, suit, investigation or proceeding pending or, to the knowledge of Sellers, threatened against any Seller or any properties or rights of any Seller or against PLAIC or Empire or any properties or rights of PLAIC or Empire by or before any court, arbitrator or administrative or Governmental Entity with respect to the Business, Business Employees, the Purchased Assets, the Policy-Related Assets or the Other Agreements, and (ii) there are no outstanding orders, judgments, injunctions, awards or decrees binding upon any Seller, PLAIC or Empire with respect to the Business, Business Employees, the Purchased Assets, the Policy-Related Assets or the Other Agreements.

        Section 5.6 Ownership of the Companies. PLICO is the holder of record and beneficial owner of all of the Shares (other than the shares of capital stock of the UDC Subsidiaries), free and clear of any mortgage, pledge, Lien, encumbrance, charge or security interest of any kind (other than restrictions imposed under securities or insurance laws of general applicability). UDC is the holder of record and beneficial owner of all of the shares of capital stock of the UDC Subsidiaries, free and clear of any mortgage, pledge, Lien, encumbrance, charge or security interest of any kind (other than restrictions imposed under securities or insurance laws of general applicability). Neither PLICO nor UDC is a party to any option, warrant, purchase right or other Contract or commitment that could require the sale, transfer or other disposition of any of the Shares owned by it (other than this Agreement). Neither PLICO nor UDC is a party to any voting trust, proxy or other agreement or understanding with respect to the voting of the Shares owned by it. Upon the delivery of and payment for the Shares at the Closing as provided for in this Agreement, Purchaser will acquire good and valid title to all the Shares, free and clear of any and all Liens.

        Section 5.7 Liens. Other than the Intellectual Property identified on Schedule 2.2(d), each Seller and each of PLAIC and Empire has good and marketable title to all of the Purchased Assets and the Policy-Related Assets owned by it, and a good and valid leasehold interest with respect to each of the Purchased Assets leased by it, free and clear of all Liens, claims, charges, security interests, and other encumbrances of any kind and of any nature, except Permitted Liens. With respect to all of the Intellectual Property included within the Purchased Assets, (i) Sellers, Empire and PLAIC have the right to use each item of such Intellectual Property, free and clear of any royalty or other similar payment obligations, which right, to the knowledge of Sellers, is free and clear of material claims of infringement or alleged infringement or other Lien (other than any Permitted Lien) of any kind; and (ii) to the knowledge of Sellers, the use of such Intellectual Property does not infringe upon or otherwise violate the rights of any Person and no Person has misappropriated or is violating or infringing any of such Intellectual Property.

        Section 5.8 Business Employees. Purchaser has been provided with a true and complete listing of the Business Employees, including each such Business Employee’s job title, classification, hire date, vesting date and current annual salary. Schedule 5.8 identifies any Business Employee who is not assigned to the Business but who renders substantial services to the Business and who is hereby agreed by the parties for purposes of this Agreement to be a Business Employee. All of the Business Employees are employed by either PLC, PLICO or UDC-CA.

        Section 5.9 Business Employee Plans.

        (a) Schedule 5.9 contains a list of all material plans, programs, arrangements and Contracts which provide benefits or compensation to or on behalf of Business Employees, former Business Employees or other employees or former employees of the Business or any of the Companies and/or their respective dependents, or to which any of the Sellers or the Companies or their Affiliates contributes or has any obligation to contribute on behalf of any such current or former employees of the Business and/or their dependents, including executive arrangements and “employee benefit plans” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). All such material plans, programs, arrangements or Contracts are referred to herein as “Business Employee Plans.”

        (b) All Business Employee Plans have been administered and operated in material compliance with their terms and with the requirements of ERISA, the Code and all other Applicable Laws. Each Business Employee Plan that is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service stating that it is so qualified, and such determination letter has not been revoked.

        (c) There is no Lien, and there is not expected to be a Lien, under Code Sections 412(n) or 401(a)(29) or ERISA Section 302(f) or Tax under Code Section 4971.

        (d) All required contributions to Business Employee Plans have been made within the timeframes required by Applicable Law and the terms of any Business Employee Plan, except to the extent that the failure to do so reasonably could be expected to have a Material Adverse Effect.

        (e) To the knowledge of Sellers, no event has occurred or circumstances exist that reasonably could be expected to result in a material increase in premium costs under any insured Business Employee Plan that provides health benefits, or a material increase in benefit costs of any self-insured Business Employee Plan that provides health benefits.

        Section 5.10 Transferred Contracts and Other Agreements; No Defaults. True and correct copies of each of the Transferred Contracts and each of the Other Agreements have been made available to Purchaser. Except as set forth in Schedule 5.10, all of the Transferred Contracts and Other Agreements are in full force and effect and valid, binding and enforceable upon and against the Sellers, PLAIC and Empire (to the extent a party thereto) and, to the knowledge of Sellers, upon each of the other parties thereto and, to the knowledge of Sellers and subject to obtaining any required consents of the counterparties thereto, will continue to be following the Closing. There are no material defaults under any of the Transferred Contracts or Other Agreements by Sellers, PLAIC or Empire and, to the knowledge of Sellers, by any of the other parties thereto, and no event has occurred which, with the passage of time or giving of notice or both, would result in any of the Sellers, PLAIC or Empire or, to the knowledge of Sellers, any of the other parties to the Transferred Contracts or Other Agreements being in material default under any of the Transferred Contracts or Other Agreements, except as identified on Schedule 5.10. Except as set forth on Schedule 5.4, none of the Transferred Contracts or Other Agreements requires the consent of any other party thereto in order to be legally assigned to Purchaser, FBIC or FFLIC, as applicable. Each of the Related Agreements as defined in the Indemnity Reinsurance Agreements (which provide for the payment of Commissions (as that term is defined in the Indemnity Reinsurance Agreements)), and each of the Provider Agreements (as that term is defined in the Indemnity Reinsurance Agreements), is in form and substance customary and reasonable for the dental, life and disability insurance industries, as applicable.

        Section 5.11 No Brokers. Other than Goldman, Sachs & Co., the fees of which will be paid by Sellers, no broker or finder has acted directly or indirectly for Sellers or the Companies, nor have Sellers or any of the Companies incurred any obligation to pay any brokerage or finder’s fee or other commission, in connection with the transactions contemplated by this Agreement and the Related Agreements.

        Section 5.12 Compliance.

        (a) With respect to the Business, each of the Sellers, PLAIC and Empire is in compliance with all Applicable Laws in all jurisdictions in which it is presently conducting the Business, except for instances of non-compliance that could not reasonably be expected to have a Material Adverse Effect. None of Sellers, PLAIC or Empire has received any written notice alleging any violations of any law or regulation by any of such entities related to the Business, except for instances of violations that could not reasonably be expected to have a Material Adverse Effect.

        (b) Schedule 5.12 lists all jurisdictions in which PLICO, PLAIC and Empire are licensed to issue the Insurance Policies and the lines of insurance business that each of PLICO, PLAIC and Empire are authorized to transact in such jurisdiction with respect to the Business. Each of PLICO, PLAIC and Empire has been duly authorized by the relevant state insurance regulatory authorities to issue the Insurance Policies that it is currently writing, and was duly authorized to issue the Insurance Policies that it is not currently writing at the time such Insurance Policies were issued, in the respective states in which it conducts the Business, except for authorizations the failure of which to have could not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect. Except as set forth on Schedule 5.12, each of PLICO, PLAIC and Empire has all other Permits necessary to conduct the Business in the manner and in the areas in which the Business is presently being conducted and to perform their obligations under this Agreement and the Related Agreements and all such Permits are valid and in full force and effect, except where the failure to have such a Permit or for such permit not to be valid or not in full force or effect could not or would not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect. Except as set forth on Schedule 5.12, none of PLICO, PLAIC or Empire is operating under any formal or informal agreement or understanding with the licensing authority of any state that restricts its authority to do business or requires any such entity to take, or refrain from taking, any action, in each case with respect to the Business.

        Section 5.13 Purchased Assets. Except for those agreements, properties and other assets listed on Schedule 5.13 (which are not part of the Purchased Assets, the Policy-Related Assets and the Other Agreements), the Purchased Assets, the Policy-Related Assets and the Other Agreements, together with all agreements, properties and assets that Purchaser will acquire by means of acquiring the Shares, include all agreements, properties and assets utilized by the Sellers and their Affiliates in the conduct of the Business as presently conducted.

        Section 5.14 Absence of Certain Changes. With respect to the Business, except as disclosed in Schedule 5.14 or as expressly contemplated by this Agreement and the Related Agreements, since December 31, 2000, the Business of each of PLICO, PLAIC and Empire has been conducted in the ordinary course consistent with past practices, and there has not been:

        (i)......any material change in the financial, Tax, accounting, actuarial or reserving policies of PLICO, PLAIC or Empire, except for such change as a result of a change in GAAP or SAP;

        (ii).....any amendment, termination, waiver or lapse of, or other failure to preserve, any material Permit;

        (iii)....any amendment of, any failure by any Seller, Empire or PLICO to perform all of its obligations under, any default under, or any termination of (other than on the stated expiration date), any Transferred Contract or Other Agreement, except in the ordinary course of business and consistent with past practice;

        (iv).....any event, occurrence or condition of any character that has had, or that might reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or

        (v)......any agreement or commitment (contingent or otherwise) to do any of the foregoing.

ARTICLE 6
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANIES AND THE BUSINESS

        PLC, on behalf of itself and PLICO, hereby represents and warrants to Fortis and Purchaser as follows:

        Section 6.1 Incorporation and Standing. Each of the Companies is duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has the corporate power and authority to own, lease and operate its properties and assets and to conduct its business as it is now being conducted in such jurisdiction. Each of the Companies is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required, except where the failure to be so qualified does not have a Material Adverse Effect. Schedule 6.1 lists all the states where the Companies are qualified to do business as foreign corporations.

        Section 6.2 Capitalization; Ownership of Stock.

        (a) Schedule 6.2 sets forth, for each Company, (i) the number of authorized shares of stock of such Company, (ii) the number of outstanding Shares of such Company and (iii) the identity of the record owner of the Shares of such Company. All of the issued and outstanding Shares of each Company have been duly authorized, are validly issued, fully paid and nonassessable.

        (b) None of the Companies is a party to any option, warrant, purchase right or other Contract or commitment that could (i) require the sale, transfer or other disposition of any of the Shares (other than this Agreement) or (ii) require the issuance of any securities by any of the Companies. None of the Companies is a party to any voting trust, proxy or other agreement or understanding with respect to the voting of any of the Shares, as applicable. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to any of the Companies.

        Section 6.3 Actions Pending. Except as set forth in Schedule 6.3, (i) there is no action, suit, investigation or proceeding pending or, to the knowledge of Sellers, threatened against any of the Companies or any properties or rights of any of the Companies, by or before any court, arbitrator or administrative or Governmental Entity, and (ii) there are no outstanding orders, judgments, injunctions, awards or decrees binding upon any of the Companies.

        Section 6.4 Licenses and Permits. Each of the Companies is duly qualified, has all necessary Permits to conduct the Business in the manner and in the areas in which the Business is presently being conducted, and is in good standing in every jurisdiction where the nature of the Business requires it to be qualified or licensed, except where such qualifications, Permits and good standings, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. All such Permits and licenses are valid and in full force and effect except where such could not reasonably be expected to have a Material Adverse Effect. Schedule 6.4 lists all jurisdictions in which each of the Companies is licensed to issue Insurance Policies and the lines of business that each of the Companies is authorized to transact in such jurisdiction. Each of the Companies has been duly authorized by the relevant state insurance regulatory authorities to issue the Insurance Policies that it is currently writing, and was duly authorized to issue the Insurance Policies that it is not currently writing at the time such Insurance Policies were issued, in the respective states in which it conducts the Business, except for authorizations the failure of which to have could not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect. Except as set forth on Schedule 6.4, none of the Companies is operating under any formal or informal agreement or understanding with the licensing authority of any state that restricts its authority to do business or requires any such entity to take, or refrain from taking, any action, in each case with respect to the Business.

        Section 6.5 Material Contracts. Except as provided in this Section 6.5, Schedule 6.5 lists all of the following Contracts to which any of the Companies has any rights or benefits or undertakes any obligations or liabilities (collectively, the “Material Contracts”):

        (a) Contracts, the performance of each of which is expected to involve consideration payable or receivable subsequent to the date of this Agreement in excess of $50,000, including Contracts for the payment of commissions and other similar compensation to brokers, agents, producers and similar sales representatives;

        (b) Contracts which restrict in any material respect or contain or purport to contain material limitations on the ability of any of the Companies to freely conduct business in the United States;

         (c) Contracts under which any of the Companies have borrowed money or guaranteed borrowings of money;

         (d) third party administration agreements;

        (e) Contracts with Sellers or any of their Affiliates (other than the Companies);

        (f) Contracts pursuant to which any Lien, other than Permitted Liens, is placed or imposed on any asset of any of the Companies;

        (g) employment Contracts and employee severance or retention Contracts, to the extent not listed on Schedule 5.9;

        (h) partnership or joint venture Contracts;

        (i) leases and subleases of real property;

        (j) any indemnification Contract or guarantee;

        (k) independent contractor and consulting agreements;

        (l) Contracts that provide for supplemental capitation payments to dentists and other providers of dental services;

        (m) Contracts that provide for any of the Companies to cede or reinsure any insurance obligations; or

        (n) any other “material contract” (as defined in Item 601(b)(10) of Regulation S-K promulgated pursuant to the Securities Act) not terminable upon 90 days written notice.

        Schedule 6.5 excludes the Insurance Policies of the Companies issued or administered in the ordinary course of business, licenses and other agreements related to the use of Computer Programs, and the Related Agreements.

        Except as set forth in Schedule 6.5, all of the Material Contracts are in full force and effect and valid, binding and enforceable upon and against the Companies (to the extent a party thereto) and, to the knowledge of Sellers, upon each of the other parties thereto and, to the knowledge of Sellers and subject to obtaining any required consents of the counterparties thereto will continue to be following the Closing. None of the Companies or, to the knowledge of Sellers, any other party, is in breach of or in default under any such Material Contract, and no event has occurred which, with the passage of time or giving of notice or both, would result in any of the Companies or, to the knowledge of Sellers, any of the other parties to the Material Contracts being in material default under any of the Material Contracts, except as identified on Schedule 6.5. Except as set forth on Schedule 6.5, none of the Material Contracts requires the consent of any other party thereto in connection with the transactions contemplated hereby. Sellers have made available to Purchaser a true and correct copy of each contract and instrument listed in Schedule 6.5.

        Each of the Commission Agreements, the Customer Agreements and the Provider Agreements (as such agreements are identified and defined in Schedule 6.5) is in form and substance customary and reasonable for the dental, life and disability insurance industries, as applicable.

        Section 6.6 Compliance. Each of the Companies is in compliance with all Applicable Laws, except for instances of non-compliance that could not reasonably be expected to have a Material Adverse Effect. No Company has received any written notice alleging any violations of any Applicable Law by any Company, except for instances of violations that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

        Section 6.7 Title to Assets. No items of tangible personal property are owned or leased by the Companies having a recorded book value of more than $5,000 per item. Except for assets which have been disposed of in the ordinary course of business, each Company has good and marketable title to, a valid leasehold interest in or a valid license or other right to use, the material properties and assets, shown on the December 31, 2000 balance sheet of such Company referred to in Section 6.10 or acquired after the date thereof, free and clear of all Liens except Permitted Liens.

        Section 6.8 Intellectual Property. Schedule 6.8 contains a true and complete listing of all Intellectual Property (i) owned or licensed by one or more of the Sellers and utilized by one or more of the Companies, (ii) owned by one or more of the Companies, or (iii) licensed (whether as licensor or licensee) by one or more of the Companies. The Companies have the right to use each item of Intellectual Property owned by one or more of the Sellers or any Company described on Schedule 6.8, free and clear of any royalty or other similar payment obligations, which right, to the knowledge of Sellers, is free and clear of material claims of infringement or alleged infringement or other Lien (other than any Permitted Lien) of any kind. The Companies have the right to use any licensed Intellectual Property described on Schedule 6.8, which right, to the knowledge of Sellers, is free and clear of material claims of infringement or alleged infringement or other Lien of any kind (other than any Permitted Lien), except for costs, charges, fees or other payments required under the terms of the licenses or other Contracts governing such licensed Intellectual Property. To the knowledge of Sellers, the use of such Intellectual Property described on Schedule 6.8 does not infringe upon or otherwise violate the rights of any Person and no Person has misappropriated or is violating or infringing any of the Intellectual Property described on Schedule 6.8.

        Section 6.9 Computer Programs.

(a) Other than Shrink Wrap Computer Programs, Schedule 6.9 sets forth a true and complete listing of all Computer Programs used in the conduct of the Business, and sets forth (i) the owner of each such Computer Program or whether such Computer Program is licensed and from whom licensed and (ii) whether such Computer Program is (A) exclusively used in the Business or (B) used in the Business and in other business units of one or more of the Sellers.

        (b) Other than the rights of those Persons listed as an owner or licensee on Schedule 6.9, no rights have been granted to any other Person to use the Computer Programs described on Schedule 6.9 as being used exclusively by the Business. To the knowledge of Sellers, the use of the Computer Programs included on Schedule 6.9 in the conduct of the Business does not infringe upon or otherwise violate the rights of any Person and no Person has misappropriated or is violating or infringing any of the Computer Programs.

        (c) None of the Companies or, to the knowledge of Sellers, any other party is in breach of or default under any license or other Contracts under which the Companies have rights to use licensed Computer Programs.

        Section 6.10 Financial Statements.

        (a) PLICO has previously made available to Purchaser the following financial statements:

        (i) The audited and unaudited statutory statements and audited and unaudited financial statements for each of the Companies set forth in Schedule 6.10 (each such statement, a “Company Statement”);

        (ii) Excerpts for the Business from the:

        (A) audited financial statements of PLICO as of and for the years ended December 31, 1998, 1999 and 2000 and the unaudited financial statements of PLICO as of and for the quarter ended March 31, 2001;

        (B) audited statutory statements of PLICO as of and for the years ended December 31, 1998 and 1999 and the unaudited statutory statements of PLICO as of and for the year ended December 31, 2000 and as of and for the quarter ended March 31, 2001;

        (C) audited statutory statements of Empire as of and for the years ended December 31, 1998 and 1999 and the unaudited statutory statements of Empire as of and for the year ended December 31, 2000 and as of and for the quarter ended March 31, 2001;

        (D) audited financial statements of PLAIC as of and for the years ended December 31, 1998, 1999 and 2000 and the unaudited financial statements of PLAIC as of and for the quarter ended March 31, 2001; and

        (E) audited statutory financial statements of PLAIC as of and for the years ended December 31, 1998 and 1999 and the unaudited statutory financial statements of PLAIC as of and for the year ended December 31, 2000 and as of and for the quarter ended March 31, 2001.

        The excerpts of financial statements referred to in this Section 6.10(a)(ii), which are set forth in Schedule 6.10(a), are referred to as the “Indemnity Financial Statements.”

        (b) Each Company Statement presents fairly, in all material respects, the financial condition and results of operations of the applicable Company as of the applicable date and for the applicable period specified in Schedule 6.10. Except as set forth in the notes to Schedule 6.10:

        (i) Each of the statutory statements described on Schedule 6.10 was prepared in accordance with SAP;

        (ii) Each of the audited financial statements described on Schedule 6.10 was prepared in accordance with GAAP;

        (iii) Each of the December 31, 1998, 1999 and 2000 unaudited financial statements described on Schedule 6.10 was prepared in accordance with GAAP and consistently, in all material respects, with the methods used in preparing the audited consolidated financial statements of PLC as of the same date (except for the absence of footnotes); and

        (iv) Each of the March 31, 2001 unaudited financial statements described on Schedule 6.10 was prepared in accordance with Modified GAAP consistently, in all material respects, with the methods used in preparing the unaudited consolidated financial statements of PLC as of March 31, 2001.

        (c) The Indemnity Financial Statements were derived from excerpts of the consolidating statutory and financial statements of PLICO, Empire and PLAIC, as applicable, such excerpts were prepared in accordance with SAP or Modified GAAP, as applicable, on a consistent basis (unless otherwise noted in such excerpts) with such underlying statutory and financial statements, and such underlying statutory and financial statements were prepared in accordance with SAP or Modified GAAP, as applicable, and present fairly, in all material respects, the financial condition and results of operations of the Business conducted by PLICO, Empire and PLAIC as of dates and for the periods therein specified.

        (d) Each statutory statement contained within the Company Statements and from which the Indemnity Financial Statements were excerpted was timely filed with all required Governmental Entities and complied in all material respects with all Applicable Laws when it was filed. No material deficiencies have been asserted by any Governmental Entity with respect to any such statutory statement. All statutory reserves reflected in such statutory statement with respect to the Business were determined in all material respects in accordance with applicable SAP and generally accepted actuarial standards, consistently applied. With respect to the Business, neither Sellers, PLAIC, Empire nor any of the Companies use any deviations from applicable SAP or generally accepted actuarial standards that have been specifically approved for such entity by the insurance departments of its state of domicile (typically referred to as “permitted practices”).

        (e) The March Adjusted Equity Schedule was prepared in good faith by Sellers for the purpose of the sale of the Business and based on the books and records of Sellers and the Companies. All items on the March Adjusted Equity Schedule were prepared in accordance with Modified GAAP using accounting and actuarial principles, practices and methodologies consistent with the applicable Company’s December 31, 2000 GAAP balance sheet.

        (f) The Indemnity Accounting was prepared in good faith by Sellers for the purpose of reinsuring to FBIC and FFLIC the indemnity insurance portion of the Business and is based on the books and records of PLICO, PLAIC and Empire. The Indemnity Accounting was prepared in accordance with SAP using accounting and actuarial principles, practices and methodologies consistent with PLICO’s, PLAIC’s and Empire’s respective March 31, 2001 SAP balance sheets.

        Section 6.11 Taxes. Except as set forth on Schedule 6.11:

(a) Each of the Companies has timely filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects when filed. All Taxes owed by any of the Companies (whether or not shown on such Tax Returns) have been paid.

        (b) None of the Companies has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency or executed or filed any power of attorney, which power of attorney is currently in force, in each case with respect to any Tax Return.

        (c) No deficiency for any amount of Tax that has not been resolved has been asserted or assessed by a taxing authority against Sellers with respect to any of the Companies or for which the Companies could be held liable and Sellers have no knowledge that any such assessment or asserted Tax liability shall be made. There is no action, lawsuit, taxing authority proceeding or audit now in progress, pending or, to Sellers’ knowledge, threatened against or with respect to any Tax Return of Sellers which includes any of the Companies.

        (d) Sellers have delivered to Purchaser correct and complete copies of all Tax Returns, examination reports, and statements of deficiencies assessed against, affecting or agreed to by any of the Companies since December 31, 1995.

        (e) None of the Companies has filed a consent under Section 341(f) of the Code concerning collapsible corporations.

        (f) None of the Companies has been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. None of the acquired assets constitutes a “United States real property interest” within the meaning of Section 897(c)(1) of the Code. None of the Companies is, or owns or is deemed to own an interest directly or indirectly in a passive foreign investment company as defined in Section 1297(a) of the Code.

        (g) None of the Companies within the past six years has been a member of an affiliated group, or any similar group defined under local, state or foreign Tax law, other than an affiliated group of which Sellers are a part.

        (h) Except as disclosed on Schedule 6.5, none of the Companies is a party to or bound by any Tax allocation, sharing, indemnity or similar agreement or arrangement with any Person, and none of the Companies has any current or potential contractual obligation to indemnify any other Person with respect to Taxes.

        (i) No claim has ever been made by a taxing authority in a jurisdiction where none of the Companies pays Taxes or files Tax Returns that any of such Companies is or may be subject to Taxes assessed by such jurisdiction.

        (j) Sellers are not foreign persons within the meaning of Section 1445(f)(3) of the Code.

        Section 6.12 Absence of Certain Changes. Except as disclosed in Schedule 6.12 or as expressly contemplated by this Agreement and the Related Agreements, since December 31, 2000, the business of each of the Companies has been conducted in the ordinary course consistent with past practices, and there has not been:

        (a) any incurrence, assumption or guarantee by a Company of any indebtedness for money borrowed;

        (b) any material change in the financial, Tax, accounting, actuarial or reserving policies of a Company, except for any such change as a result of a change in GAAP or SAP;

        (c) to the extent payable by a Company, any (i) employment, deferred compensation, severance, retirement or other similar Contract entered into with any director, officer or employee (or any amendment to any such existing Contract), (ii) grant of any severance or termination pay to any director, officer or employee other than in the ordinary course of business, or (iii) change in compensation or other benefits payable to any director, officer or employee, other than (A) increases in compensation in the ordinary course of business consistent with past practice and (B) changes in benefits required by plans and arrangements under the terms in effect as of December 31, 2000;

        (d) any material transaction or commitment by a Company involving assets or rights of any of the Companies other than in the ordinary course of business consistent with past practice;

        (e) any transaction or commitment, or any Contract entered into, between a Company and any of its Affiliates;

        (f) any amendment, termination, waiver or lapse of, or other failure to preserve, any material Permit;

        (g) any amendment of, any failure by any Company to perform all of its obligations under, any default under, or any termination of (other than on the stated expiration date) of, any Material Contract of the type described in Section 6.5, except in the ordinary course of business and consistent with past practice;

        (h) any payment, discharge or satisfaction by any Company of any claims, liabilities or obligations other than in the ordinary course of business and consistent with past practice;

        (i) any capital expenditure except in the ordinary course of business and consistent with past practice;

        (j) any event, occurrence or condition of any character that has had, or that might reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or

        (k) any agreement or commitment (contingent or otherwise) to do any of the foregoing.

        Section 6.13 Real Property.

        (a) The Companies own no real property.

        (b) Schedule 6.13 sets forth a true and complete list and summary description (stating the name of owner or lessor, name of lessee or sublessee, expiration date, and renewal option and any consent of the lessor or other third party required to maintain the effectiveness of the lease or sublease) of each lease and sublease under which real property is occupied by Business Employees or used by any of the Sellers or Companies exclusively or primarily in the Business as of the date hereof (collectively, the “Business Properties”). Each of the Business Properties consists of conventional office space and (if any) associated loading docks, maintenance areas and other similar utility areas. The relevant Seller or Company has a good and valid leasehold interest with respect to the Business Properties, free and clear of all Liens (other than Permitted Liens). None of the Sellers or Companies nor any of their Affiliates or, to the knowledge of Sellers, any other party is in breach of or default under any such lease or sublease. The relevant Company’s use of the Business Properties is in compliance with all zoning, fire, health, building, handicapped persons, sanitation, use, occupancy and other Applicable Laws, except to the extent that such non-compliance could not reasonably be likely to result in a Material Adverse Effect. Sellers have made available to Purchaser a true, correct and complete copy of each lease and sublease listed in Schedule 6.13.

        (c) Except for the leases and subleases listed in Schedule 6.13, none of the Companies is a party to any lease or sublease of real property.

        Section 6.14 Environmental Matters. To the knowledge of Sellers, (i) there is not and has not been any Environmental Condition at, under or in or originating from any premises or property currently or formerly owned, leased, operated, or used by the Companies for which the Companies have any legal responsibility, or any premises or property currently or formerly owned, leased or used by Sellers, PLAIC or Empire with respect to the Business for which an acquirer of the Business could be reasonably expected to have any legal responsibility, (ii) none of the Companies, and none of Sellers, PLAIC or Empire as lessor under real property leases in connection with the Business, is subject to any Governmental Order or is subject to any indemnity or other agreement with any Person relating to liabilities or obligations (contingent or otherwise) arising under Environmental Laws, and (iii) none of the Companies, and none of Sellers, PLAIC or Empire with respect to the Business, has received any notice alleging that it is or may be liable for any Environmental Condition at any location.

        Section 6.15 Labor Matters. Neither PLC, PLICO or UDC-CA, in respect of the Business Employees, nor any of the Companies, is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization. Except as set forth on Schedule 6.15, there is no unfair labor practice or labor arbitration proceeding pending or, to the knowledge of Sellers, threatened against PLC, PLICO or UDC-CA, in respect of the Business Employees, or any of the Companies. To the knowledge of Sellers, there are no organizational efforts with respect to the formation of a collective bargaining unit currently being made or threatened involving the Business Employees and there have been no such efforts within the last five (5) years. With respect to the Business Employees, PLC, PLICO and UDC-CA are in material compliance with all Applicable Laws regarding employment, consulting, employment practices, wages, hours and terms and conditions of employment. All Persons treated as independent contractors with respect to the Business at any time during the past five (5) years were properly so treated and neither Sellers nor the Companies are liable for any misclassifications of such Persons which will become the liability of Purchaser or its Affiliates (including after the Closing the Companies).

        Section 6.16 Reserves. The actuarial reserves established or reflected in the Company Statements and the Indemnity Financial Statements:

        (a) are computed in (X) accordance with commonly accepted actuarial standards consistently applied and are fairly stated in accordance with sound actuarial principles, and (Y) a manner consistent with the projection models and methodologies used to prepare the actuarial valuation of the Business contained in the Appendix to the Information Memorandum,

        (b) are based on actuarial assumptions which produce reserves at least as great as those called for in any Insurance Policy provision as to reserve basis and method, and are in accordance with all other Insurance Policy provisions,

        (c) meet the requirements of Applicable Laws, and

        (d) are calculated on the basis of reserving methodologies consistent with those employed by PLICO, PLAIC, Empire and the Companies for the calculation of reserves associated with the relevant Insurance Policies for purposes of such entity’s statutory Annual Statement for the year ended December 31, 2000 and such entity’s Quarterly Statements for the quarter ended March 31, 2001.

        Section 6.17 Subsidiaries. None of the Companies (other than UDC) has any direct or indirect subsidiaries. UDC has no subsidiaries other than UDC Life, UDC-MO, Denticare-OK and, as of the date of this Agreement, Oracare Consultants, Inc.

        Section 6.18 Insurance Policies. With respect to all Insurance Policies of the Business, including those of the Companies, PLICO, PLAIC and Empire:

        (a) The forms of Insurance Policies currently utilized for issuance by the Companies, PLICO, PLAIC and Empire, and the states in which such forms are authorized for issuance, on the date hereof are listed on Schedule 6.18. All Insurance Policies now in force are, to the extent required under Applicable Law, on forms (including any actuarial memoranda or supporting documentation) and with premium rates that have been approved by applicable insurance regulatory authorities or that have been filed and not objected to by such authorities within the period provided for objection, and such forms and premium rates comply in all respects with the insurance laws applicable thereto, except where the failure to have such approval or non-objection or the failure to so comply could not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect.

        (b) At the time any Company, PLICO, PLAIC or Empire paid commissions or similar compensation to any broker, agent, producer or similar sales representative within the past three years in connection with the sale or renewal of Insurance Policies, each such broker, agent, producer or other sales representative was duly licensed and was duly appointed by such Company, PLICO, PLAIC or Empire as an insurance broker, agent, producer or sales representative (for the type of business sold by such broker, agent, producer or sales representative) in the particular jurisdiction in which such broker, agent, producer or sales representative sold such business for such Company, PLICO, PLAIC or Empire, and no such broker, agent, producer or sales representative violated any federal, state, local or foreign law applicable to the Business, except where the failure to be so licensed or so appointed or any such violation could not, individually or in the aggregate, reasonably be likely to have a Material Adverse Effect.

        (c) Except as set forth on Schedule 6.18, no Insurance Policy entitles the holder thereof or any other Person to receive dividends, distributions or other benefits based on the revenues or earnings of any of the Companies.

        (d) Except as set forth on Schedule 6.18, there are no Contracts to which any Company, PLICO, PLAIC or Empire is a party, or which is binding upon any of them, that restrict such entity’s right to change the crediting rates and other non-guaranteed elements under the Insurance Policies, other than pursuant to the terms of the Insurance Policies.

        (e) All Insurance Policies were issued in conformity in all material respects with the applicable Company’s, PLICO’s, PLAIC’s or Empire’s underwriting standards. With respect to the Insurance Policies that are reinsured or retroceded in whole or in part, such Insurance Policies conform in all material respects to the standards agreed to with reinsurers in the related reinsurance, retrocession or other similar contracts other than such deviations that are immaterial individually or in the aggregate.

        (f) Sellers have made available to Purchaser all material correspondence with respect to the Companies and the Business between or among any Seller, PLAIC, Empire or any Company and any Governmental Entity, including, but not limited to, all state insurance regulatory authorities regarding any material violation of laws within the last two years.

        Section 6.19 Investment Assets. The investment assets owned by each Company are admitted assets for such Company under all Applicable Laws regarding insurance of such Company’s state of domicile.

ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF FORTIS, PURCHASER, FBIC AND FFLIC

        Fortis, on behalf of itself and Purchaser, FBIC and FFLIC hereby represents and warrants to PLC as follows:

        Section 7.1 Incorporation and Standing. Fortis, Purchaser, FBIC and FFLIC are each duly incorporated, validly existing and in good standing under the laws of their respective jurisdictions of incorporation and each has the corporate power and authority to own, lease and operate its properties and assets and conduct its business as it is now being conducted in such jurisdiction.

        Section 7.2 Authorization. Fortis, Purchaser, FBIC and FFLIC each has the full corporate power and authority to enter into this Agreement and the Related Agreements, as applicable, and to perform their respective obligations hereunder and thereunder. The execution and delivery of this Agreement and the Related Agreements and the performance by Fortis, Purchaser, FBIC and FFLIC of its respective obligations under this Agreement and the Related Agreements have been duly and validly authorized and approved by all requisite corporate action of Fortis, Purchaser, FBIC and FFLIC, as applicable, and no other acts or proceedings on the part of Fortis, Purchaser, FBIC or FFLIC are necessary to authorize the execution, delivery and performance of this Agreement or the Related Agreements or the transactions contemplated hereby and thereby. Assuming the due authorization and execution of this Agreement and the Related Agreements by Sellers, PLAIC and Empire, as applicable, this Agreement constitutes, and the Related Agreements to be delivered at Closing will constitute, legal, valid and binding obligations of Fortis, Purchaser, FBIC and FFLIC, as applicable, and this Agreement and each Related Agreement, will be enforceable against Fortis, Purchaser, FBIC and FFLIC, as applicable, in accordance with its terms, subject to the Enforceability Exceptions.

        Section 7.3 No Conflict or Violation. Except as disclosed in Schedule 7.3 and subject to obtaining the consents and approvals described in Section 7.4, the execution, delivery and performance of this Agreement and the Related Agreements and the consummation of the transactions contemplated hereby and thereby by Fortis, Purchaser, FBIC and FFLIC, as applicable, in accordance with the respective terms and conditions hereof and thereof will not (i) violate any provision of Fortis’, Purchaser’s, FBIC’s or FFLIC’s Governing Documents; (ii) violate, conflict with or result in the breach of any of the terms of, result in any modification of, accelerate or permit the acceleration of the performance required by, otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time, or both) a default under, any material agreement to which Fortis, Purchaser, FBIC or FFLIC is a party or by or to which it or any of its assets or properties may be subject; (iii) violate any order, judgment, injunction, award or decree of any court, arbitrator or Governmental Entity, or any agreement with, or condition imposed by, any Governmental Entity, which violation would be reasonably likely to have a material adverse effect on Fortis’, Purchaser’s FBIC’s or FFLIC’s ability to perform its obligations under this Agreement or any Related Agreement or to consummate the transactions contemplated hereby or thereby; or (iv) violate any statute, law or regulation of any jurisdiction as each statute, law or regulation relates to Fortis, Purchaser, FBIC or FFLIC or to the assets or business of Purchaser, FBIC or FFLIC, except for such violations that will not, individually or in the aggregate, have a material adverse effect on Fortis’, Purchaser’s, FBIC’s or FFLIC’s ability to perform its obligations under this Agreement or any Purchaser Related Agreement or to consummate the transactions contemplated hereby or thereby.

        Section 7.4 Consents and Approvals. Except as set forth in Schedule 7.4, and except in connection with the applicable requirements of the HSR Act, no consent, approval, non-disapproval, authorization, ruling, order of, notice to, or registration with any Governmental Entity or any other Person is required on the part of Fortis, Purchaser, FBIC or FFLIC in connection with the execution and delivery of this Agreement or the Related Agreements, as applicable, or the consummation by Fortis, Purchaser, FBIC or FFLIC of the transactions contemplated hereby and thereby.

        Section 7.5 Actions Pending. Except as set forth in Schedule 7.5, there is no action, suit, investigation or proceeding pending or, to the knowledge of Fortis, Purchaser, FBIC or FFLIC, threatened against Fortis, Purchaser, FBIC or FFLIC, or any properties or rights of Fortis, Purchaser, FBIC or FFLIC, by or before any court, arbitrator or administrative or Governmental Entity, which action, suit, investigation or proceeding, if adversely determined, would materially impair the ability of Fortis, Purchaser, FBIC or FFLIC to perform its obligations under this Agreement or the Related Agreements, as applicable.

        Section 7.6 Ratings. Neither Fortis, Purchaser, FBIC or FFLIC has any reason to believe, as of the date hereof and as of the Closing Date, that the claims-paying ability, financial strength or other ratings by A.M. Best Company, Inc. or any other rating agency of Fortis, Purchaser, FBIC or FFLIC will be materially adversely affected by the consummation of the transactions contemplated hereby.

        Section 7.7 No Brokers. Other than Credit Suisse First Boston, no broker or finder has acted directly or indirectly for Fortis or Purchaser, nor has Fortis or Purchaser incurred any obligation to pay any brokerage or finder’s fee or other commission, in connection with the transactions contemplated by this Agreement and the Related Agreements.

        Section 7.8 Investment Intent of Purchaser. The Shares will be acquired by Purchaser for its own account and not for the purpose of a distribution. Purchaser will refrain from transferring or otherwise disposing of any of the Shares acquired by it, or any interest therein, in such manner as would violate any provision of the Securities Act, or any applicable state securities law regulating the disposition thereof. Purchaser acknowledges and agrees that the certificates representing the Shares may bear legends to the effect that the Shares have not been registered under the Securities Act, or such other state securities laws, and that no interest therein may be transferred or otherwise disposed of in violation of the provisions thereof. Purchaser shall comply with Purchaser’s warranties and obligations set forth in this Section 7.8.

        Section 7.9 Investment Company. Purchaser is not an investment company subject to registration and regulation under the Investment Company Act of 1940, as amended.

        Section 7.10 Financing. Fortis has available, and at the Closing will have available, sufficient funds for Fortis, Purchaser, FBIC and FFLIC to consummate the transactions contemplated by this Agreement and the Related Agreements and to pay all related fees and expenses required to be paid by Purchaser, FBIC and FFLIC hereunder and thereunder.

        Section 7.11 Sophisticated Purchaser. Each of Fortis and Purchaser is a sophisticated Person who has extensive experience in the industry in which the Business is a part and has conducted an extensive due diligence review of the Business and has made a determination of whether to execute this Agreement and the Related Agreements, to purchase the Shares and Purchased Assets and otherwise consummate the transactions contemplated by this Agreement and the Related Agreements solely based upon its own professional business judgment. Other than as specifically provided for in this Agreement and the Related Agreements, neither Fortis or Purchaser is relying upon any representation, warranty, covenant or agreement made by PLC or its subsidiaries in executing this Agreement or any Related Agreement or in order to purchase the Shares and Purchased Assets or otherwise consummate the transactions contemplated by this Agreement or any Related Agreement.

ARTICLE 8
PRE-CLOSING COVENANTS

        Section 8.1 Conduct of Business.

        (a) Prior to the earlier of the Closing Date or the termination of this Agreement pursuant to the terms hereof, except as contemplated hereby, unless the prior written consent of Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed) is obtained, Sellers, PLAIC and Empire will conduct the Business and will cause the Companies to conduct their business only in the ordinary course of business, consistent in all material respects with past practice, specifically including the right to declare and pay dividends in respect of the Companies (so long as the act of or result of such dividends do not conflict or violate Applicable Law), and with current business plans and will use commercially reasonable efforts to preserve the business organization and value of the Business and good relationships with its agents, brokers, customers, suppliers, employees and other Persons having dealings with Sellers, PLAIC, Empire and the Companies with respect to the Business.

        (b) Without limiting the generality of Section 8.1(a), except as otherwise expressly provided in this Agreement, without the prior written consent of Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed), prior to the earlier of the Closing Date or termination of this Agreement, Seller shall not, and shall cause PLAIC, Empire and the Companies not to:

        (i) enter into, terminate or fail to renew any Contract that would constitute a Transferred Contract or a Material Contract, other than in the ordinary course of business and consistent with past practice, or modify in any manner materially adverse to the Business any Transferred Contract or Material Contract, except as may be required by Applicable Law;

        (ii) acquire, dispose of, lease, assign or encumber any asset that is used or to be used in the Business, other than acquisitions, dispositions, leases, assignments or encumbrances in the ordinary course of the business and consistent with past practice;

        (iii) enter into, adopt, or (except as may be required by Applicable Law or the terms of any such arrangement) modify or terminate any Business Employee Plan (or any plan, program, arrangement or Contract that would fit within the description set forth in the first sentence of Section 5.9(a)) or any compensation plan, in each case as it relates to the Business Employees and which will be an obligation of any of the Companies, Purchaser or any of its Affiliates after the Closing Date except for a change in the base salary of any Business Employee that is a merit or tenure increase granted in the ordinary course of business and consistent with past practice and does not exceed 5% of such Business Employee’s base salary;

        (iv) make any capital expenditure by any of the Companies that is not in the ordinary course of business consistent with past practice, enter into any new or increase any existing indebtedness of the Companies, or have the Companies guarantee any indebtedness of any other Person;

        (v) make any material change to the financial, Tax, accounting, actuarial or reserving policies employed with respect to the Business, except as may be required by Applicable Law, GAAP or SAP;

        (vi) enter into or terminate any reinsurance contract relating to the Business, other than renewals of existing reinsurance contracts in the ordinary course of business consistent with past practice;

        (vii) redeem, repurchase or issue any shares of capital stock of any Company, or grant any options, warrants or other rights to purchase or obtain any shares of capital stock of any Company;

        (viii) cause or permit any amendment, supplement, waiver or modification to or of any of the Companies’ Governing Documents;

        (ix) pay, discharge, compromise or satisfy any claims, liabilities or obligations associated with the Business other than the payment, discharge, compromise or satisfaction of claims, liabilities or obligations in the ordinary course of business and consistent with past practice;

        (x) increase the commissions or benefits of any agents, brokers, producers or other sales representatives for the Business, except in any case (1) as may be required under the terms of the applicable contractual relationship with any such Person, or (2) in the ordinary course of business and consistent with past practice;

        (xi) except in the ordinary course of business, launch, market, issue or agree to issue any new products that vary materially from presently existing products, that are similar to the Insurance Policies or make material modifications or additions to the terms and conditions of the Insurance Policies;

        (xii) agree in writing or otherwise to take any of the actions described above in this Section 8.1(b).

        (c) Notwithstanding the provisions contained in paragraphs (a) and (b) of this Section 8.1, the Sellers, PLAIC, Empire and the Companies may continue to pursue the “exit strategy” described in Schedule 6.4.

        (d) Prior to Closing, Sellers shall notify Purchaser as promptly as practicable of any event or transaction that could reasonably be likely to have a Material Adverse Effect.

        (e) Notwithstanding any other provisions of this Section 8.1 to the contrary, PLC shall have the right to take or cause to be taken any and all actions it deems appropriate in its sole judgment with respect to (i) the BBI Marketing Agreement and (ii) the LeafRe Reinsurance Agreements, subject to the following covenants which Sellers shall cause to happen:

        (i) At the Closing, PLICO shall, and PLC shall cause PLAIC to, terminate the BBI Marketing Agreement as provided in the next sentence and to acknowledge in writing to BBI that the BBI Marketing Agreement is terminated as provided in the next sentence, provided that such obligation to terminate the BBI Marketing Agreement and provide such acknowledgement shall be subject to BBI's agreement to such termination. Unless PLICO, PLAIC and BBI otherwise agree, such termination shall be only as to all matters arising on or after the Closing Date but shall not affect the claims of each party to the BBI Marketing Agreement against any other party or parties thereto with respect to actions or inactions prior to such termination, including, the claims set forth in Protective Life Insurance Company v. Better Benefits, Inc. f/k/a Better Compensation, Inc., and LeafRE Reinsurance Company, United States District Court, Northern District of Alabama, Case No.: CV-01-BU-1232-S. BBI has agreed to such termination of the BBI Marketing Agreement in the Agreement dated July 2, 2001 by and between LeafRe, BBI, Dr. Robert J. Leaf and FBIC ("Fortis LeafRe Agreement").

        (ii) At Closing, FBIC and FFLIC shall reinsure pursuant to the Indemnity Reinsurance Agreements the Insurance Policies that both (A) were included in the periodic financial reports provided by PLICO and PLAIC to LeafRe on or before March 31, 2001 as being reinsured pursuant to the LeafRe Reinsurance Agreements, or were reinsured pursuant to the LeafRe Reinsurance Agreements in the ordinary course of business after March 31, 2001, and (B) continue in force as of the Closing Date (such Insurance Policies being referred to in this Section 8.1(e) as the “Covered Policies”). Such reinsurance by FBIC and FFLIC will be subject to and consistent with the contractual obligations of PLICO and PLAIC, as applicable, arising on or after the Closing Date under the LeafRe Reinsurance Agreements. Such reinsurance shall include FBIC’s and FFLIC’s agreement, as applicable, to pay all commissions owing to BBI under the BBI Marketing Agreement and arising from and after the Closing Date with respect to the Covered Policies only and shall provide that all other BBI commissions and overrides shall remain PLICO’s and PLAIC’s obligations and responsibilities, except that such reinsurance shall also include FBIC’s and FFLIC’s agreement, as applicable, to pay all commissions owing to BBI under the BBI Marketing Agreement and arising prior to the Closing Date with respect to the Covered Policies to the extent such commissions are included as a Policy-Related Liability as of the effective time of the Closing.

        (iii) Any settlement among any of BBI, LeafRe, PLICO, and PLAIC involving the BBI Marketing Agreement or the LeafRe Reinsurance Agreements prior to Closing (A) shall not be on terms that prevent compliance by FBIC with the provisions of Sections 2 and 3 of the Fortis LeafRe Agreement, (B) shall ensure that the only Insurance Polices subject to the LeafRe Reinsurance Agreements are the Covered Policies, and (C) shall be approved by Fortis in writing in advance with respect to the matters described in (A) and (B), which approval shall not be unreasonably withheld, conditioned or delayed.

        Section 8.2 Expenses. Regardless of whether any or all of the transactions contemplated by this Agreement are consummated, and except as otherwise expressly provided herein, Purchaser and Sellers shall each bear their respective direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement, the Related Agreements and the consummation of the transactions contemplated hereby or thereby and all of such expenses incurred and not paid by the Companies shall be accrued on the Closing Date Equity Schedule and the Post Closing Equity Schedule.

        Section 8.3 Access; Certain Communications. Between the date of this Agreement and the Closing Date, subject to Applicable Laws relating to the exchange of information, Sellers shall (and shall cause PLAIC, Empire and the Companies to) afford to Purchaser and its authorized agents and representatives access, upon reasonable notice and during normal business hours, to all contracts, documents and information of or relating to the assets, liabilities, business, operations and other aspects of the Business. PLC shall cause the management employees of the Dental Benefits Division to provide reasonable assistance to Purchaser in Purchaser’s investigation of matters relating to the transactions contemplated hereby and reasonable access to the properties of the Business; provided, however, that Purchaser’s inquiries shall be conducted in a manner that does not unreasonably interfere with Sellers’ or the Companies’ normal operations and customers, and that Purchaser shall not contact any customer, broker or agent of the Business without the prior written approval of PLC, which approval shall not be unreasonably withheld or delayed. Without limiting any of the terms thereof, the terms of the Confidentiality Agreement shall govern Purchaser’s and its agents’ and representatives’ obligations with respect to all confidential information with respect to the Business, Sellers and the Companies and their respective Affiliates and other related Persons, which has been provided or made available to them at any time, including during the period between the date of this Agreement and the Closing Date.

        Section 8.4 Regulatory and Contract Matters.

        (a) Sellers and Purchaser shall cooperate and use commercially reasonable efforts to obtain all consents, approvals and agreements of, and to give and make all notices to and filings with, any Governmental Entity necessary to authorize, approve or permit the consummation of the transactions contemplated by this Agreement, the Related Agreements and any other agreements contemplated hereby or thereby, including the necessary filings pursuant to the HSR Act (the filing fees of which shall be paid by Purchaser). Purchaser and Sellers will provide each other and their respective counsel the opportunity to review in advance and comment on any initial filings with any Governmental Entity (other than proprietary or confidential information filed as part of the HSR Act) provided that the parties receiving such filing shall respond on a timely basis, and the party preparing such filing shall not be restricted from making such filing as required by Applicable Law. Purchaser and Sellers will keep each other informed of the status of matters relating to obtaining the necessary regulatory approvals. It is expressly understood by the parties hereto that each party hereto shall use commercially reasonable efforts to permit, to the extent practicable, representatives of the other party to attend and participate reasonably in any hearing, proceeding, meeting, conference or similar event before or with a Governmental Entity relating to this Agreement or a Related Agreement. In furtherance of the foregoing, Purchaser and Sellers shall provide each other reasonable advance notice, to the extent practicable, of any such hearing, proceeding, meeting, conference or similar event. The notice required to be given under this Section 8.4 shall be given to representatives of Sellers or Purchaser entitled to receive notices hereunder, to the extent practicable.

        (b) Sellers and Purchaser shall cooperate and use commercially reasonable efforts to obtain all other approvals and consents to the transactions contemplated by this Agreement and the Related Agreements, including the consents of third parties required under the Transferred Contracts, the Other Agreements and the Material Contracts, provided that exercise of commercially reasonable efforts shall not require the payment of any fee or other economic consideration for any such approval or consent. Except as otherwise provided in Section 8.11, in the event and to the extent that, prior to Closing, Sellers are unable to obtain any required approval or consent of non-governmental authorities to any Contract to be assigned to Purchaser hereunder, (i) Sellers shall use commercially reasonable efforts in cooperation with Purchaser after the Closing to (A) provide or cause to be provided to Purchaser the benefits of any such agreement or license, (B) cooperate in any arrangement, reasonable and lawful as to Sellers and Purchaser, designed to provide such benefits to Purchaser and (C) enforce for the account of Purchaser any rights of Sellers arising from such agreements and licenses, including the right to elect to terminate any such agreement or license in accordance with the terms thereof on the advice of Purchaser, and (ii) Purchaser shall use commercially reasonable efforts to perform the obligations of Sellers arising under such agreements and licenses, to the extent that, by reason of the transactions consummated pursuant to this Agreement or otherwise, Purchaser has control over the resources necessary to perform such obligations and can perform such obligations without violating the non-assigned agreement or license; provided however, Purchaser’s obligations to perform under any such non-assigned agreement or license shall at all times be conditioned upon Purchaser’s being entitled to receive all amounts due and owing from the counterparty. If and when any such approval or consent shall be obtained or such agreement or license shall otherwise become assignable, the applicable Seller shall promptly assign all of its rights and obligations thereunder to Purchaser without the payment of further consideration and Purchaser shall, without the payment of any further consideration therefor, assume such rights and obligations and the applicable Seller shall be relieved of any and all obligation or liability hereunder.

        Section 8.5 Further Assurances. Each of the parties hereto shall execute such documents and other papers and perform such further acts as may be reasonably required to carry out the provisions of this Agreement and the Related Agreements and the transactions contemplated hereby and thereby. Each such party shall, at or prior to the Closing, use its commercially reasonable efforts to fulfill or obtain the fulfillment of the conditions precedent to the consummation of the transactions contemplated by this Agreement and the Related Agreements, including the execution and delivery of any documents, certificates, instruments or other papers that are reasonably required for the consummation of the transactions contemplated hereby and thereby.

        Section 8.6 Notification of Certain Matters.

        (a) Each party shall give prompt notice to the other party of (i) the occurrence, or failure to occur, of any event or the existence of any condition that has caused or could reasonably be expected to cause any of its representations or warranties contained in this Agreement to be untrue or inaccurate in any material respect at any time after the date of this Agreement, up to and including the Closing Date (except to the extent such representations and warranties are given as of a particular date or period and relate solely to such particular date or period), and that reasonably could be expected to postpone the Closing or prevent the Closing from occurring, and (ii) any failure on its part to comply with or satisfy, in any material respect, any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, which failure reasonably could be expected to postpone the Closing or prevent the Closing from occurring.

        (b) From the date of this Agreement to the earlier of the termination of this Agreement or up to and including the Closing Date, Sellers may, by written notice to Purchaser, provide or supplement any schedule to reflect any change or event that occurs after the date of this Agreement (1) that, if existing or occurring on the date hereof, should have been so disclosed, or (2) that is necessary to correct any information in such schedules that was or has been rendered inaccurate thereby; provided however, that any such supplemental schedules shall not be deemed to have been disclosed as of the date hereof, to constitute a part of, or an amendment or supplement to, the schedules, or to cure any breach or inaccuracy of a representation or warranty, unless (i) the changes reflected in such supplemental schedules reflect the addition or subtraction of Material Contracts or Transferred Contracts resulting from the ordinary course of business consistent with past practice and are not matters for which Purchaser’s prior written consent is required pursuant to Section 8.1, or (ii) are so agreed to in writing by Purchaser, which agreement shall not waive any of Purchaser’s rights to indemnification under Article 13; and provided further, that such supplemental schedules shall not entitle Purchaser to refuse to consummate the transactions contemplated hereby unless such supplemental schedules, individually or in the aggregate, disclose a failure to satisfy a condition to Closing specified in Section 10.1.

        Section 8.7 Maintenance and Transfer of Records.

        (a) Maintenance. Through the Closing Date, Sellers shall, shall cause the Companies to, and shall cause Empire and PLAIC with respect to the Business to, maintain their respective Books and Records in all material respects in the same manner and with the same care that the Books and Records have been maintained prior to the execution of this Agreement.

        (b) Employment Records. Consistent with Section 2.2(f), employment records of Transferred Employees will be transferred at or promptly after the Closing by PLC, PLICO and UDC-CA to Purchaser (or other transferee designated by Purchaser) in the form mutually agreed to in advance between PLICO and Purchaser. PLICO will retain all other employment records of the Transferred Employees and will grant access by Purchaser and the Companies to such records.

        (c) Books and Records Custody Plan. Prior to the Closing, PLC shall identify to Purchaser in reasonable detail the description and location of all Books and Records in the custody of Sellers and their Affiliates, and Purchaser will arrange to take delivery of such Books and Records at or shortly after Closing. To the extent any Books and Records are included in books and records of Sellers or Affiliates of Sellers, Sellers will cause the Books and Records to be extracted and delivered to Purchaser.

        Section 8.8 Employee Matters.

        (a) Effective as of the Closing Date, Purchaser may, in its sole discretion, offer to employ Business Employees; provided, however, that, with respect to each “single site of employment” (as such term is defined in the WARN Act and with all of the greater Birmingham, Alabama facilities being aggregated for this purpose) of the Business that has 50 or more Business Employees assigned to it as of the Closing Date, Purchaser or its Affiliates will offer “Comparable Jobs” (as such term is defined in Schedule 8.8(c)) to not less than 70% of the Business Employees who are assigned to each such single site of employment as of the Closing Date. PLC and PLICO shall, and shall cause UDC-CA to, reasonably cooperate with Purchaser with respect to the transition of Business Employees. Without limiting the generality of the foregoing, Sellers shall not, and shall cause their Affiliates not to, directly or indirectly, take any action specifically designed and intended to influence an individual’s decision to accept or decline such offer of employment from Purchaser. Each Business Employee who accepts employment with Purchaser or its Affiliates following the Closing Date shall be treated as a “Transferred Employee” for purposes hereof. From and after the Closing Date, subject to Applicable Law, (i) Purchaser agrees to credit each Transferred Employee with all unused vacation accumulated with PLC and its subsidiaries before the Closing Date in accordance with the vacation policy set forth in Schedule 2.3(b), plus any additional vacation that such Transferred Employee accumulates under Purchaser’s vacation policy (taking into account the provisions of Section 8.8(b)), and (ii) Purchaser agrees to pay severance benefits in an amount no less than the Purchaser Severance Benefits to any Transferred Employee who has an involuntary termination of employment with Purchaser or its Affiliates other than for cause within 18 months after the Closing Date. “Purchaser Severance Benefits” shall mean the benefits determined and paid as set forth in Schedule 8.8(a).

        (b) To the extent that any employee benefit plan, program or policy of Purchaser is made available to Transferred Employees on or following the Closing Date, Purchaser shall, or shall cause its applicable Affiliate to, grant Transferred Employees credit for all service with PLC and its subsidiaries prior to the Closing Date for purposes of eligibility and vesting (but not benefit accrual), to the extent that service of Purchaser’s or its applicable Affiliate’s employees is recognized for any such purpose. Such credit of service shall include credit for service with PLC and its subsidiaries for purposes of vacation, sick pay, paid time off, employee recognition or length of service rewards, and severance pay, unless such grant of credit would violate Applicable Law or require Purchaser or its Affiliates, pursuant to Applicable Law, to increase benefits for its other employees. Purchaser agrees that where applicable with respect to any medical, dental, vision or disability benefit plan of Purchaser or its applicable Affiliate, (i) Purchaser shall waive, with respect to any Transferred Employee, any pre-existing condition exclusion and actively-at-work requirements (to the extent such exclusion or requirement would not have applied under the applicable Business Employee Plan) and (ii) any covered expenses incurred on or before the Closing Date by a Transferred Employee or a Transferred Employee’s covered dependents shall be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Closing Date to the same extent as such expenses would be taken into account if incurred by similarly situated employees of Purchaser and its Affiliates.

        (c) Purchaser agrees to reimburse PLC and its Affiliates for the cost of the PLC Severance Benefits provided by PLC or its Affiliates to each Business Employee who both (i) has an involuntary termination of employment (except as set forth in Schedule 8.8(c)) with PLC and its Affiliates within seven (7) days after the Closing Date as a direct result of the sale of the Business (other than for such Business Employees who will be retained by PLC and its Affiliates in order to provide transition services to Purchaser pursuant to Section 8.16, for whom involuntary termination shall occur within seven (7) days after such Business Employee’s services are no longer needed to provided the transition services described in Section 8.16), and (ii) is not offered a “Comparable Job” (as defined in Schedule 8.8(c)) by Purchaser. “PLC Severance Benefits” shall mean the benefits determined and paid as set forth in Schedule 8.8(c).

        (d) Sellers shall be solely responsible for and retain all liabilities under the Business Employee Plans, other than the vacation accrual and retention and stay agreements that are expressly part of the Assumed Liabilities in accordance with Sections 2.3(b) and 2.3(c). PLC shall, and shall cause its applicable Affiliates to, take all steps reasonably necessary to transfer sponsorship of the DentiCare, Inc. 401(k) Profit Sharing Plan and the United Dental Care, Inc. 401(k) Plan and Trust to PLC prior to the Closing Date. Notwithstanding any other provision of this Agreement to the contrary, PLC shall indemnify, reimburse, defend, and hold harmless Purchaser and its Affiliates (including, after the Closing, the Companies) from and against any and all Losses incurred by Purchaser or its Affiliates that are based upon, arise out of, or are otherwise related to any Business Employee Plan or any other plan described in the first sentence of Section 5.9(a) that is not listed on Schedule 5.9 because such plan was not “material”.

        (e) Sellers shall cause each Transferred Employee to be fully vested as of the Closing Date in their accrued benefit, if any, under all stock bonus, pension or profit sharing plans of Sellers and their Affiliates that are intended to be qualified under Code Section 401(a), except to the extent that such vesting would violate Applicable Law or require Sellers, pursuant to Applicable Law, to increase benefits for their other employees. Sellers shall also pay, or cause to be paid, to each Transferred Employee for calendar year 2001 such cash bonuses as Sellers reasonably determine to be reasonable and appropriate under applicable cash bonus plans of Sellers and their Affiliates, in consideration of the circumstances of the transactions contemplated by this Agreement.

        (f) Sellers shall, at their expense, cause all employer contributions to be made to the accounts of all Transferred Employees under the Protective Life Corporation 401(k) and Stock Ownership Plan for that portion of the plan year during which the Closing occurs and during which such Transferred Employee was eligible to receive an employer contribution, without regard to any requirement that the Transferred Employees be employed on any particular date or earn any minimum number of hours of service to receive such contribution; provided, however, that any contributions made in respect to the corporate performance of Sellers shall not be within the scope of this Section, it being understood that Sellers retain the sole discretion with respect to such contributions.

        (g) If the Closing occurs after December 31, 2001, PLC and Purchaser shall enter into an agreement to transfer the net assets, net liabilities and records under PLC’s Code Section 125 plan attributable to health care and dependent care spending accounts maintained for the Transferred Employees to a Code Section 125 plan maintained by Purchaser or (with respect to net assets) to Purchaser.

        Section 8.9 No Solicitations.

        (a) From and after the date hereof, PLC shall not, and shall cause each of its Affiliates, and its and their respective officers, directors, employees, agents, advisors or other representatives (each a “Representative”) not to, directly or indirectly, (i) solicit, initiate or knowingly encourage the submission of any Proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any Person any non-public information with respect to, any Proposal or Alternative Transaction, other than with Purchaser; provided, however, that to the extent required by the fiduciary obligations of PLC, as determined in good faith by PLC following consultation with outside counsel, PLC may participate in discussions or negotiations, furnish information (pursuant to a confidentiality agreement in customary form), or enter into any agreement with respect to a Control Transaction so long as PLC takes all actions reasonably necessary to ensure a Person who enters into a Control Transaction is obligated to honor all of Sellers’ obligations hereunder. PLC shall promptly inform Fortis if PLC or any of its Representatives receives a Proposal or any inquiry regarding a Proposal unless such Proposal is for a Control Transaction and to disclose such Proposal would, as determined in good faith by PLC following consultation with outside counsel, violate the fiduciary obligations or an applicable confidentiality agreement of PLC. Prior to PLC informing Purchaser if it or any of its Representatives receives a Proposal or any inquiry regarding a Proposal, Fortis, on behalf of itself and its Affiliates, shall enter into a reasonable and customary confidentiality agreement with PLC regarding such Proposal.

        (b) For purposes of this Agreement: (i) “Proposal” means any oral or written proposal or offer from any Person relating to an Alternative Transaction; and (ii) “Alternative Transaction” means any (A) direct or indirect acquisition or purchase of any equity securities of, or other equity interest in, any of the Companies that if consummated would result in any Person beneficially owning (or having the right to acquire) any equity securities of, or any equity interest in, any of the Companies or, (B) merger, consolidation, business combination, sale of a material portion of the assets (including, without limitation, by means of any reinsurance or renewal rights transaction), liquidation, dissolution or similar transaction involving any of the Companies or the Business or (C) other transaction the consummation of which could reasonably be expected to materially impede, interfere with, prevent or materially delay the transactions with Purchaser contemplated by this Agreement or which could reasonably be expected to dilute by more than a de minimis amount the benefits of such transactions to Purchaser; and (iii) “Control Transaction” means any transaction that involves a (A) merger or consolidation or similar business combination involving PLC or PLICO, (B) sale of all or substantially all of the assets of PLC or PLICO or (C) a transaction which will result in a Person beneficially owning equity securities of PLC or PLICO representing a majority of the voting power with respect to the election of the directors of PLC or PLICO.

        Section 8.10 Intercompany Balances and Transactions. Prior to the Closing, Sellers will (i) cause all receivables and payables of any kind (including the principal amount and interest, if any, due thereon) between any of the Companies, on the one hand, and Sellers or any of their Affiliates (other than the Companies), on the other hand, to be settled in full; (ii) except for those agreements listed on Schedule 8.10, cause the termination, effective prior to the Closing, of any and all existing agreements between any of the Companies, on the one hand, and Sellers or any of their Affiliates, on the other hand; and (iii) transfer the Promissory Note dated November 14, 1996 from Peter R. Barnett, as maker, in favor of United Dental Care, Inc., in the principal amount of $953,125, the Pledge and Security Agreement dated November 14, 1996 between Peter R. Barnett and United Dental Care, Inc., the Option Agreement dated November 14, 1996 between Peter R. Barnett and United Dental Care, Inc., as amended, and the Indemnification Agreement dated November 14, 1996, between Peter R. Barnett and United Dental Care, Inc. to one or more of the Sellers. For purposes of the foregoing sentence, receivables and payables shall include accruals, reserves and assets representing amounts owing to PLC or by PLC under any tax sharing agreements among PLC, the Companies and other Affiliates of PLC.

        Section 8.11 Facilities Plan.

        (a) Assignment. With respect to each Business Property, the applicable lessee shall assign to Purchaser or Purchaser’s designated Affiliate all of the lessee’s interest in the lease and such assignment shall provide that occupancy of such Business Property pursuant thereto shall be subject to the terms of the lease and at a rental payable to the landlord equal to all rental and other charges provided therein. Such assignment shall be in a form reasonably acceptable to PLC and Purchaser. In addition, Purchaser, or a Purchaser’s Affiliate reasonably acceptable to PLC, will assume the proportion of those credit enhancements of the lease identified on Schedule 8.11 that have been made by the lessee or otherwise required by the landlord with respect to each Business Property.

        (b) Failure to Obtain Landlord Consents. Except for those leases listed on Schedule 10.3 (which shall be subject to the provisions of Section 10.3 rather than this Section 8.11(b)), if, after commercially reasonable efforts by PLC or the applicable lessee to obtain landlord consents to the lease assignments described in Section 8.11(a), such consents are not granted on or prior to the Closing Date or are subject to price or other conditions deemed unreasonably burdensome by Purchaser or PLC, Purchaser agrees to assume responsibility for either continued negotiations in order to obtain landlord consent or to relocate the Business and the Transferred Employees from the applicable Business Property as soon as reasonably practicable. All costs of relocating Transferred Employees pursuant to this subsection, including rental charges for replacement premises, shall be borne by Purchaser.

        Section 8.12 Statutory Required Assets. During the period between the signing of this Agreement and the Closing Date: (a) the amount, type and location of assets required to be maintained by each Company pursuant to the Applicable Law of its jurisdiction of domicile (the “Statutory Assets”) shall be invested and may be sold or otherwise disposed of, and funds realized upon sale, maturity or other realization event, and new funds received may be invested and reinvested or held in cash or cash equivalents, in the ordinary course of business consistent with past practice and in accordance with Applicable Law and (b) Sellers shall cause the Companies to maintain the Statutory Assets in accordance with the Applicable Law of each Company’s domicile. The Closing Date Equity Schedule and the Post Closing Equity Schedule shall include the Statutory Assets of each Company that comply with this Section 8.12.

        Section 8.13 Purchaser's Undertaking With Respect to the Business.

        (a) Communications With Business Employees.The parties acknowledge that, prior to the date of this Agreement, they have mutually agreed upon the form, substance and manner of delivery of a package of communications to the Business Employees regarding the transactions contemplated by this Agreement, which will be delivered to the Business Employees promptly after the date of this Agreement. Thereafter until the Closing, the parties will consult with each other and cooperate reasonably to facilitate Purchaser’s access to and communications with the Business Employees as necessary and appropriate, including regarding such matters as discussing with certain Business Employees terms of potential post-Closing employment with Purchaser and its Affiliates, without undue disruption to the operations of the Business prior to Closing.

        (b) Transition. From the date hereof through the Closing Date, Sellers and Purchaser shall (i) provide the other party with access to individuals reasonably specified by such other party to plan the transition of the Business to Purchaser, (ii) designate certain individuals (subject to the other party’s reasonable approval) to serve as members of a joint transition team and cause such individuals to devote reasonable time to transition matters, (iii) devote reasonable resources to transition matters, (iv) cooperate with Purchaser in its filing of policy and contract forms (provided, however, in the event this Agreement is terminated prior to Closing, Purchaser and its Affiliates covenant not to use PLC’s and its Affiliates’ forms, and this provision shall specifically survive such termination) to enable Purchaser to issue policies and contracts substantially similar to those included in the Business, and (v) consult with each other regarding each party’s development work pertaining to systems, products, distribution and customer and producer services in connection with the Business. From the date hereof to the Closing Date, Fortis and Purchaser will cause FBIC and FFLIC to use commercially reasonable efforts to obtain approval of PLICO’s, PLAIC’s and Empire’s rates and policy forms (as applicable) from the relevant regulatory authorities to enable FBIC and FFLIC, as applicable, to convert the Insurance Policies that are reinsured under the Indemnity Reinsurance Agreements to FBIC’s and FFLIC’s own policies on the first practicable policy renewal date following the Closing Date, in accordance with the terms of the Indemnity Reinsurance Agreements.

        (c) Interference with the Business. From the date of signing this Agreement through the Closing Date, Purchaser and its Affiliates shall take no action that is both (i) not contemplated by this Agreement or the Related Agreements or otherwise necessary or appropriate to effect the transactions contemplated hereby or thereby and (ii) designed or intended to interfere with or damage the conduct of the Business; provided, however, that Purchaser’s lawful activities in the ordinary course of selling products that compete with those of the Business shall not constitute a violation of this covenant so long as such activities do not constitute a breach of the Confidentiality Agreement.

        Section 8.14 WARN Act. Purchaser acknowledges that as a consequence of the transactions contemplated by this Agreement, PLC, PLICO and UDC-CA may terminate the employment of a significant number, substantially all, or all of the Business Employees who are not offered employment by Purchaser or an Affiliate of Purchaser pursuant to Section 8.8. Purchaser and Sellers agree that for purposes of the Worker Adjustment and Retraining Notification Act (the “WARN Act”), the Closing Date shall be the “effective date of the sale” as such term is used in the WARN Act. PLC, PLICO and UDC-CA agree that prior to, on or as of the Closing Date, they shall be responsible for any notification required under the WARN Act with respect to the Business Employees and the Companies (including in connection with the termination by PLC, PLICO and UDC-CA of Business Employees as a consequence of the transactions contemplated by this Agreement) and Sellers agree not to deliver any such notices until they have been reviewed and approved by Purchaser, which approval shall not be unreasonably withheld, conditioned or delayed; provided, however, in addition to the amounts to be borne by Purchaser pursuant to Section 8.8, Purchaser shall indemnify and hold harmless PLC and its subsidiaries from and against all payments, benefits costs, related expenses (including attorney’s fees and expenses incurred) and fines which may become due and payable under the WARN Act because of PLC, PLICO’s and/or UDC-CA’s termination of Business Employees solely as a direct consequence of the Business having been sold to Purchaser pursuant to this Agreement and Purchaser not having made offers of Comparable Jobs to the Business Employees, but Purchaser will not be liable in any way for any WARN Act costs or obligations that arise because PLC, PLICO and/or UDC-CA terminated employees prior to the Closing Date for reasons other than Purchaser’s or its Affiliate’s failure to offer Comparable Jobs to the Business Employees. Purchaser further agrees that after the Closing Date it shall be responsible for any notification required under the WARN Act with respect to any employment loss by Transferred Employees occurring after the Closing Date and shall indemnify and hold harmless PLC and its subsidiaries from and against all payments, benefits costs, related expenses (including attorney’s fees and expenses incurred) and fines which may become due under the WARN Act due to Purchaser’s failure to comply with the WARN Act after the Closing Date with respect to the Transferred Employees and the Companies.

        Section 8.15 Indemnity Reinsurance Agreements. At the Closing, the parties shall execute and deliver the Indemnity Reinsurance Agreements by and between each of FBIC and FFLIC, on the one hand, and each of PLICO, Empire and PLAIC, on the other hand (the “Indemnity Reinsurance Agreements”) in substantially the forms collectively attached hereto as Exhibit D.

        Section 8.16 Transition Services. After the Closing, upon the request of Purchaser, PLC shall provide Purchaser and its Affiliates with reasonable and customary transition services on an interim basis in order to facilitate the orderly transition of the Business to Purchaser and such Affiliates. Within sixty (60) days of the date of this Agreement, Purchaser shall deliver to PLC a preliminary list setting forth those transition services and the length of time after Closing for which such services will be required. Purchaser shall pay PLC for PLC’s cost of providing such services which shall be (a) all reasonable out-of-pocket expenses incurred by PLC in providing such services, (b) a proportionate and reasonable share of PLC’s corporate overhead allocable to providing such services computed, as of any date, in accordance with PLC’s charge-back methodologies used generally by PLC for its own internal allocation purposes, (c) all employment related costs reasonably incurred by PLC in providing such service (to the extent not included in item (b) above), computed, as of any date, in accordance with PLC’s charge-back methodologies used generally by PLC for its own internal allocation purposes, and (d) any sales or use taxes charged, assessed or incurred by PLC directly in connection with providing such services. It is the understanding of the parties that the costs described above will be on a cost basis to recapture PLC’s and its Affiliates’ costs of providing the services and not for the purpose of generating a profit for providing such services. At Closing, PLC and Purchaser shall execute and deliver a transition services agreement with respect to the foregoing matters, which agreement the parties shall negotiate in good faith prior to the Closing (the “Transition Services Agreement”).

        Section 8.17 Transfer of Capital Stock of Oracare. Prior to the Closing, PLC will cause UDC to transfer to a Person or Persons other than the Companies, all of UDC's right, title and interest, in and to all issued and outstanding shares of capital stock of Oracare Consultants, Inc., so that at Closing Oracare Consultants, Inc. will not be owned by UDC or any of the other Companies as of the Closing Date.

        Section 8.18 Bidder Agreements. From the date hereof to the Closing, PLC shall use commercially reasonable efforts to enforce its rights under all effective agreements entered into between PLC and any proposed buyer with respect to the potential acquisition of the Business (the “Bidder Agreements”). To the extent permitted by the terms and conditions of each respective Bidder Agreement, immediately following the Closing, PLC shall assign each of the Bidder Agreements to Purchaser. To the extent permitted by the terms of each Bidder Agreement, at the Closing, PLC shall provide Purchaser with a list of all Bidder Agreements that are not being assigned to Purchaser, and after the Closing PLC shall take commercially reasonable actions to enforce such unassigned Bidder Agreements against the other parties thereto as may be reasonably requested by Purchaser.

        Section 8.19 New York Amendment. Notwithstanding Sections 10.3 and 11.3 hereof, the parties agree that if all of the conditions to Closing as set forth in Articles 10 and 11 are satisfied or waived, except that the parties have not obtained the necessary approval of the transactions contemplated hereby from the Superintendent of Insurance of the State of New York (the “NY DOI”), if any, the parties will proceed with Closing in accordance with the terms of this Agreement, subject to the following adjustments.

        (a) The Indemnity Reinsurance Agreement to be entered into between PLAIC and FFLIC on the Closing Date will be amended to reflect a cession of the maximum amount of liabilities permissible under the insurance laws of the state of New York in the absence of approval by the NY DOI.

        (b) The Preliminary Effective Date Accounting and Effective Date Accounting (as those terms are defined in the Indemnity Reinsurance Agreement to be entered into between PLAIC and FFLIC) shall reflect the percentage of cession actually made to FFLIC under such Indemnity Reinsurance Agreement. The Ceding Commission (as defined in such Indemnity Reinsurance Agreement) shall be reduced by a percentage equal to 100% less the percentage of cession actually made to FFLIC.

        (c) For a period of up to 18 months after the Closing Date, the parties shall use all commercially reasonable efforts to obtain the approval of the NY DOI for a 100% cession of PLAIC’s Policy Liabilities to FFLIC. On a date (the “NY Amendment Date”) that is not more than three (3) Business Days after the parties have obtained such required approval from the NY DOI, PLAIC and FFLIC shall execute and deliver an amendment to the Indemnity Reinsurance Agreement between PLAIC and FFLIC providing for 100% reinsurance by FFLIC of the risks under such Reinsurance Agreement.

        (d) On the NY Amendment Date, PLAIC and FFLIC shall make whatever adjustments and payments are appropriate to cause the parties to be in the same economic position as if PLAIC had ceded 100% of its Policy Liabilities on the Closing Date, including FFLIC’s payment of the remainder of the Ceding Commission and PLAIC’s transfer to FFLIC of reserves and other applicable assets and liabilities.

ARTICLE 9
TAX MATTERS REGARDING THE COMPANIES

        Section 9.1 Tax Indemnification; Tax Indemnification Basket.

        (a) Tax Indemnification. Sellers shall indemnify, defend and hold harmless Purchaser and its Affiliates (including, after Closing, the Companies) from and against any and all Losses that Purchaser or any of its Affiliates may suffer as a result of any liability of any of the Companies for (i) any unpaid Taxes of the Companies with respect to Tax periods ending before the Closing Date and (ii) any unpaid Taxes of the Companies and any unpaid Taxes with respect to the Purchased Assets with respect to any Tax period beginning before and ending after the Closing Date (a “Straddle Period”) to the extent allocable (as determined in Section 9.1(b)) to the portion of such period ending before the Closing Date (the “Pre-Closing Tax Period”), except to the extent such Taxes are reflected on the Post Closing Equity Schedule. In the event Sellers are required to make a payment under this Section 9.1(a) as a result of an adjustment made by a taxing authority, and such adjustment results in a decrease in the Tax liability of the Companies, Purchaser or any Affiliate of Purchaser with respect to the Companies for any Tax period beginning after the Closing Date or for the portion of any Straddle Period beginning after the Closing Date, then Purchaser shall pay to Sellers the amount of any such reduction in Tax liability when such reduction is actually realized. The Losses with respect to which Purchaser and its Affiliates may be entitled to indemnification pursuant to this Section 9.1 are sometimes referred to hereinafter as “Tax Losses.”

        (b) Straddle Period Tax Allocation. For purposes of Section 9.1(a)(ii), in the case of any ad valorem or similar Taxes that are imposed on a periodic basis and are payable for a Straddle Period, the portion of such Tax which relates to the portion of such Tax period beginning before and ending on the day immediately preceding the Closing Date shall (i) in the case of any Taxes other than Income Taxes, be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction, the numerator of which is the number of days in the Tax period ending before the Closing Date and the denominator of which is the number of days in the entire Tax period and (ii) in the case of any Income Taxes or any Tax based on or measured by capital, be deemed equal to the amount which would be payable if the relevant Tax period had actually ended on the day immediately preceding the Closing Date and a short year tax return were filed for such period.

        (c) Deconsolidation. Sellers will be liable for all of the Taxes with respect to income of the Companies for all deconsolidating adjustments (including without limitation any deferred income triggered into income by Section 1.1502-13 of the Treasury Regulations promulgated under the Code and any excess loss accounts taken into income under Section 1.1502-19 of the Treasury Regulations) for all periods through the Closing Date to the extent such Taxes are not reflected on the Post Closing Equity Schedule.

        (d) Limitation on Indemnification. Notwithstanding anything in this Agreement to the contrary, Sellers shall have no indemnification obligation with respect to (i) any Taxes of the Companies attributable to (A) Tax periods (and partial Tax periods) beginning on or after the Closing Date, (B) operations of the Companies after the Closing or (C) actions taken or elections made by Purchaser or the Companies after the Closing or (ii) any Taxes that Purchaser is obligated to pay pursuant to the express terms of this Agreement or any Related Agreement.

        (e) Taxes of Other Persons. Sellers shall indemnify Purchaser and its Affiliates (including, after the Closing, the Companies) from and against the entirety of any Loss that Purchaser or its Affiliates may suffer for periods prior to the Closing, including a Straddle Period to the extent allocable to a Pre-Closing Tax Period, resulting from, arising out of, relating to, in nature of, or caused by any liability of any of the Companies for Taxes (including interest and penalties) of any Person other than the Companies (i) under Section 1.1502-6 of the Treasury Regulations promulgated under the Code (or any similar provision of state or local law), (ii) as a transferee or successor, (iii) by contract, or (iv) otherwise.

        Section 9.2 Tax Sharing Agreements. All tax sharing agreements or similar agreements (other than this Agreement) with respect to or involving the Companies shall be terminated as of the date before the Closing Date and, on and after the Closing Date, none of the Companies shall be bound thereby or have any liability thereunder for any taxable year (whether the current year, a future year or a past year) unless such liability is included in the determination of Adjusted Equity of the Companies as of the Closing Date.

        Section 9.3 Certain Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees arising or becoming payable as a result of the execution, delivery or performance of this Agreement or any Related Agreement (other than the Indemnity Reinsurance Agreements) or the consummation of the transactions contemplated hereby or thereby shall be paid by Purchaser when due, and Purchaser will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by Applicable Law, Sellers will join in the execution of any such Tax Returns and other documentation.

        Section 9.4 Tax Return Filing, Etc.

        (a) Tax Periods Ending on or Before the Closing Date. Sellers shall prepare or cause to be prepared and shall file or cause to be filed all Tax Returns for the Companies for all periods ending on or before the Closing Date, including all Income Tax Returns with respect to periods for which a consolidated, unitary or combined Income Tax Return of either Seller will include the operations of the Companies. All such Income Tax Returns shall be prepared and filed in a manner that is consistent with prior practice, except as required by a change in Applicable Law. If Sellers are required to file any Income Tax Return on behalf of the Companies on or after the Closing Date, Sellers shall permit Purchaser to review each such Income Tax Return to the extent applicable to the Companies at least 15 days prior to the date such Income Tax Return is filed, and Purchaser shall cause each of the applicable Companies to execute any powers of attorney or other documents or forms necessary in order to allow Sellers to file or cause to be filed all such Income Tax Returns.

        (b) Tax Periods Beginning Before and Ending After the Closing Date. Purchaser shall prepare or cause to be prepared and shall file or cause to be filed any Tax Returns of the Companies for any Straddle Period. All such Income Tax Returns shall be prepared in accordance with past practice except as otherwise required by Applicable Law. Purchaser shall permit Sellers to review and approve each such Income Tax Return at least fifteen (15) days prior to the date such Income Tax Return is filed. Purchaser shall be responsible for the timely payment of all Taxes due with respect to such Tax Returns, subject, however, to the obligation of Sellers to indemnify Purchaser for the amount of any Tax Losses to the extent required under Section 9.1.

        (c) Refunds and Tax Benefits. Any Income Tax refunds that are received by Purchaser or the Companies, and any amounts credited against Income Tax to which Purchaser or the Companies become entitled, that relate to Tax periods or portions thereof ending before the Closing Date shall be for the account of Sellers, and Purchaser shall pay over to Sellers any such refund or the amount of any such credit within 15 days after receipt or entitlement thereto. Notwithstanding the foregoing, Purchaser shall not be obligated to pay over the amount of any such refund or credit to the extent that such amount actually reduces Sellers’ indemnification liability under Section 9.1(a).

        (d) Contests. If a notice of deficiency, proposed adjustment, assessment, audit, examination or other administrative or court proceeding, suit, dispute or other claim (a “Tax Contest”) shall be delivered, sent, commenced, or initiated to, by or against Purchaser or any of the Companies by any taxing authority with respect to Taxes that results in or may result in a Tax Loss for which indemnification may be claimed from Sellers under this Agreement, Purchaser shall promptly notify Sellers in writing of such Tax Contest; provided that the failure to so notify Sellers shall not relieve Sellers of their indemnification obligations hereunder, except to the extent that such failure prejudices Sellers’ defense of the Tax Contest. Sellers shall have the sole right to represent the Companies’ interests and to employ counsel of their choice at their expense with respect to any such Tax Contest; and Purchaser shall cause each of the applicable Companies to execute any powers of attorney or other documents or forms necessary in order to allow Sellers to control such Tax Contest and to settle any such Tax Contest; provided that in the case of any Tax Contest relating to any Tax for any Straddle Period, Purchaser and Sellers shall each be entitled to participate at their own expense in such Tax Contest to the extent it relates to a Tax for which such party bears liability pursuant to Section 9.1. No party may settle or otherwise dispose of any Tax Contest for which another party may have a liability under Section 9.1 or which settlement could adversely affect either party in Tax periods for which such party is responsible or for which another party may be entitled to a refund or credit under Section 9.1 without the prior written consent of such other party, which consent will not be unreasonably withheld, conditioned or delayed. In the event that Sellers do not take control of a Tax Contest that they have the right to control hereunder, Purchaser and the Companies shall keep Sellers reasonably informed as to the progress of such Tax Contest and shall not enter into any settlement or other disposition of the such Tax Contest prior to receiving the written consent of Sellers, which consent will not be unreasonably withheld, conditioned or delayed. In no event, without the prior written consent of PLC, which shall not be unreasonably withheld, conditioned or delayed, shall Purchaser or the Companies grant an extension of any applicable statute of limitations in respect of any Tax period ending prior to the Closing Date or any Straddle Period.

        (e) Cooperation on Tax Matters. Purchaser, the Companies and Sellers shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section 9.4 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Purchaser, the Companies and Sellers agree (A) to retain all books and records with respect to Tax matters pertinent to the Companies relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by the Purchaser or any of Sellers, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, the Companies or Sellers, as the case may be, shall allow the other party to take possession of such books and records.

        (f) Further Assistance. Purchaser and Sellers further agree, upon request, to use their reasonable best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). Purchaser and Sellers further agree, upon request, to provide the other party with all information that either party may be required to report pursuant to Section 6043 of the Code.

        (g) Allocation of Purchase Price. The allocation of the Asset Price shall each be made mutually by Purchaser and PLC in accordance with and pursuant to the methodology in Section 1060 of the Code and any comparable provisions of state or local law, as applicable, and such allocation shall be consented to by Purchaser and PLC, which consent will not be unreasonably withheld, conditioned or delayed. The Stock Price based on the March 31, 2001 Adjusted Equity of the Companies shall be allocated among the Companies in the amounts set forth on Schedule 9.4(g). Upon determination of the final Stock Price as provided in Sections 3.4 and 3.5 , the portion of the Stock Price allocated to each of the Companies on Schedule 9.4(g) shall be adjusted based on the Companies’ relative GAAP income (or loss) from March 31, 2001 to the Closing Date.

ARTICLE 10
CONDITIONS PRECEDENT TO THE OBLIGATION
OF FORTIS AND PURCHASER TO CLOSE

        Fortis’ and Purchaser’s obligations to consummate the transactions contemplated by this Agreement and the Related Agreements are subject to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Purchaser.

        Section 10.1 Representations, Warranties and Covenants. The representations and warranties of Sellers contained in this Agreement shall be true and correct on and as of the date of this Agreement and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except that any such representations and warranties that are given as of a particular date and relate solely to a particular date or period shall be true and correct as of such date or period, and except where the failure to be true and correct (without regard to any materiality qualifiers therein) could not reasonably be expected to have a Material Adverse Effect. Sellers shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Sellers on or prior to the Closing Date. On the Closing Date, Sellers shall have delivered to Purchaser a certificate dated as of the Closing Date, and signed by a senior officer of each Sellers, to the effect contemplated by this Section 10.1.

        Section 10.2 Related Agreements. The Related Agreements shall have been duly executed and delivered by Sellers, PLAIC and Empire, as applicable, on or prior to the Closing Date and such agreements shall be in full force and effect with respect to Sellers, PLAIC and Empire, as applicable, on the Closing Date.

        Section 10.3 Approvals and Consents. The approvals and consents listed on Schedule 10.3 shall have been received or deemed received in each case without any conditions, restrictions or limitations which in the aggregate reasonably could be expected to have a Material Adverse Effect; provided, however, that if any Seller cannot obtain a consent listed in Schedule 10.3 from a Person other than a Governmental Entity, it shall have the option to provide Purchaser with substantially equivalent arrangements with respect to the item for which such approval or consent could not be obtained, in which event the condition contained in this Section 10.3 with respect to such approval or consent shall be deemed satisfied. All applicable waiting periods under any federal, including the HSR Act, or state statute or regulation shall have expired or been terminated.

        Section 10.4 Injunction and Litigation. There shall be in effect no injunction, writ, preliminary restraining order or other order of any nature issued by any court of competent jurisdiction directing that the transactions contemplated by this Agreement or the Related Agreements not be consummated as herein or therein provided.

        Section 10.5 Material Adverse Effect. Since the date hereof, there shall not have occurred any Material Adverse Effect.

        Section 10.6 Required Deliveries at Closing. Sellers shall have delivered to Purchaser the items and documents called for by Sections 4.2(a) and 4.2(c) before, on or as of the Closing Date. Sellers shall have delivered to Purchaser, not later than five Business Days prior to the Closing Date, the Preliminary Effective Date Accounting (as defined in the Indemnity Reinsurance Agreements) for each of the Indemnity Reinsurance Agreements, in accordance with Section 4.4 thereof.

ARTICLE 11
CONDITIONS PRECEDENT TO THE OBLIGATION
OF SELLERS TO CLOSE

        Sellers’ obligation to consummate the transactions contemplated by this Agreement and the Related Agreements is subject to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Sellers.

        Section 11.1 Representations, Warranties and Covenants. The representations and warranties of Fortis contained in this Agreement shall be true and correct on and as of the date of this Agreement and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except that any such representations and warranties that are given as of a particular date and relate solely to a particular date or period shall be true and correct as of such date or period, and except where the failure to be true and correct (without regard to any materiality qualifiers therein) would not impair the ability of Fortis, Purchaser, FBIC and FFLIC, as the case may be, to perform its obligations under this Agreement and the Related Agreements. Fortis and Purchaser shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by them on or prior to the Closing Date. On the Closing Date, Fortis and Purchaser shall have delivered to Sellers a certificate dated as of the Closing Date, and signed by a senior officer of each of Fortis and Purchaser, to the effect contemplated by this Section 11.1.

        Section 11.2 Related Agreements. The Related Agreements shall have been duly executed and delivered by Purchaser, FBIC and FFLIC, as applicable, on or prior to the Closing Date and such agreements shall be in full force and effect with respect to Purchaser, FBIC and FFLIC, as the case may be, on the Closing Date.

        Section 11.3 Approvals and Consents. The approvals and consents listed in Schedule 7.4 shall have been received or deemed received in each case without any conditions, restrictions or limitations which in the aggregate reasonably could be expected to have a material adverse effect on the financial condition and results of operations of Sellers taken as a whole. All applicable waiting periods under any federal, including the HSR Act, or state statute or regulation shall have expired or been terminated.

        Section 11.4 Injunction and Litigation. There shall be in effect no injunction, writ, preliminary restraining order or any order of any nature directing that the transactions contemplated by this Agreement or the Related Agreements not be consummated as herein or therein provided.

        Section 11.5 Required Deliveries at Closing. Purchaser shall have delivered the Asset Price and the Estimated Stock Price and the other items and documents called for by Sections 4.2(b) and 4.2(c) before, on or as of the Closing Date.

ARTICLE 12
POST-CLOSING COVENANT

        Section 12.1 Cooperation. After Closing, Sellers and Purchaser shall cooperate with each other by furnishing any additional information and executing and delivering any additional documents as may be reasonably requested by the other to further perfect or evidence the consummation of, or otherwise implement, any transaction contemplated by this Agreement or the Related Agreements, or to aid in the preparation of any regulatory filing, financial statement or Tax Return; provided, however, that any such additional documents must be reasonably satisfactory to each of the parties and not impose upon either party any material liability, risk, obligation, loss, cost or expense not contemplated by this Agreement or the Related Agreements.

        Section 12.2 Regulatory Compliance. After Closing, Purchaser and Sellers and their agents, representatives and Affiliates shall comply in all material respects with all Applicable Laws in performing their obligations under this Agreement and the Related Agreements.

        Section 12.3 Use of Names.

        (a) After Closing, notwithstanding any inference contained herein or prior course of conduct to the contrary, in no event shall Purchaser or any of its Affiliates have any right to use, nor shall Purchaser or any of its Affiliates use, any corporate name or acronym of Sellers or any of their Affiliates (not including the Companies) as of the Closing Date in any jurisdiction, including the names and acronyms set forth in Schedule 12.3, or any Intellectual Property or any application or registration therefor, owned by, licensed to or used by Sellers or any of their Affiliates (not including the Companies) as of the Closing Date, or any other name, term or identification that suggests, simulates or is otherwise confusing due to its similarity to the foregoing, except with respect to any Intellectual Property that is part of the Purchased Assets and except as expressly provided in the Related Agreements. No later than 30 days following the Closing Date, Purchaser shall file all requisite applications with Governmental Entities in order to change the name of the Companies to ones not using the name “Protective” or any other name, term or identification that suggests, simulates or is otherwise confusing due to its similarity to “Protective” and Purchaser shall effect such changes no later than 180 days following the Closing Date.

        (b) Any rights of Purchaser, FBIC and FFLIC under any Related Agreement to use, and any use by Purchaser, FBIC and FFLIC of, any Intellectual Property shall be limited by the terms of such agreement or agreements.

        (c) The parties hereto acknowledge that any damage caused to Sellers or any of their Affiliates by reason of the breach by Purchaser or any of its Affiliates of this Section 12.3 would cause irreparable harm that could not be adequately compensated for in monetary damages alone; therefore, each party agrees that, in addition to any other remedies, at law or otherwise, Sellers and any of their Affiliates shall be entitled to an injunction issued by a court of competent jurisdiction restraining and enjoining any violation by Purchaser or any of its Affiliates of this Section 12.3, and Purchaser further agrees that it will stipulate to the fact that Sellers or any of their Affiliates, as applicable, has been irreparably harmed by such violation and not oppose the granting of such injunctive relief and Purchaser specifically waives any requirement of the posting of a bond as a condition precedent to the entering of an appropriate injunctive order.

        Section 12.4 Non-Competition.

        (a) Generally.

        (i) In consideration of the benefits of this Agreement and in order to induce Purchaser to enter into this Agreement, PLC, on behalf of itself and its Affiliates (other than any Person who is deemed to be an Affiliate of PLC solely because such Person owns 5% or more of PLC’s publicly traded securities and such Person does not exercise actual control over PLC (a “Passive Investor”)), hereby covenants and agrees, subject to the exceptions in Section 12.4(d), that for a period of three (3) years after the Closing Date, neither it nor any of its Affiliates (other than Passive Investors) shall, without the prior written consent of Purchaser, subject to Section 12.4(e), directly or indirectly, operate, engage in, manage or own any equity interest in any Restricted Business in the Restricted Area, nor utilize, for purposes of soliciting business, any customer list or portion thereof that exists on the Closing Date with respect to the Business.

        (ii) PLC, on behalf of itself and its Affiliates (other than Passive Investors), specifically agrees that this covenant is an integral part of the inducement of Fortis and Purchaser to enter into this Agreement and that Fortis or Purchaser (or their respective successors or assigns) shall be damaged by reason of a breach of this Section 12.4 which would constitute an irreparable harm that could not be adequately compensated for in monetary damages alone; and therefore, Fortis and Purchaser (and their respective successors and assigns) shall be entitled to injunctive relief issued by a court of competent jurisdiction restraining and enjoining any violation of this Section 12.4 in addition to all other legal and equitable rights and remedies available to them in connection with any breach by PLC, or any of its Affiliates (other than Passive Investors), of any provision of this Section 12.4. PLC agrees on behalf of itself and its Affiliates (other than Passive Investors) that it will stipulate to the fact that Fortis or Purchaser, or their respective successors or assigns, as applicable, has been irreparably harmed by a violation of this Section 12.4 and not oppose the granting of such injunctive relief and specifically waives any requirement of the posting of a bond as a condition precedent to the entering of an appropriate injunctive order.

        (b) Restricted Business; Restricted Area. For purposes of this Section 12.4, “Restricted Business” means the manufacture, marketing, underwriting and administering of Dental Insurance products, and as a matter of clarification and for the avoidance of doubt, Restricted Business does not include the manufacture, marketing or sale of products not constituting Dental Insurance products. For purposes of the preceding sentence, “marketing” shall not include the incidental marketing of Dental Insurance products not containing the name “Protective” by First Protective Insurance Group, Inc., Consumer Direct and Benefits Plans Group (Consumer Direct and Benefits Plans Group being divisions of PLC); provided, however, that, if Benefits Plans Group desires to commence marketing of Dental Insurance products, Benefits Plans Group shall consult with FBIC to determine if FBIC or its Affiliates offers or is willing to offer products that are appropriate for the market needs of Benefits Plans Group, and if Benefits Plans Group determines, in its reasonable judgment, that FBIC’s or its Affiliates’ products are appropriate for its market needs and are competitive on the basis of premiums, benefits and commissions with other third party Dental Insurance products, then, to the extent that such products are approved and otherwise available in all jurisdictions for marketing by Benefits Plans Group, Benefits Plans Group shall market such products to the exclusion of competing products for the three-year period covered by this Section 12.4. The covenants contained in Section 12.4(a) shall be construed as a series of separate covenants, one for each county or state of the United States of America (including its territories and possessions) (together, the “Restricted Area”). For purposes of this Section 12.4, “Dental Insurance” shall mean only dental indemnity insurance, prepaid managed dental care, and dental claims and administrative services.

        (c) No-Hire.

        (i) Fortis hereby covenants and agrees that neither Fortis nor any of its Affiliates within the United States shall, from the date hereof until eighteen (18) months following the Closing Date, without the prior written consent of PLC (which consent shall not be unreasonably withheld, conditioned or delayed), directly or indirectly, solicit for employment, hire, or enter into an agency relationship with, any personnel employed by Sellers or their Affiliates during the period beginning on the date hereof and ending on the date that is 18 months after the Closing Date, other than the Business Employees. Sellers hereby covenant and agree that neither Sellers nor any of their Affiliates shall, from the date hereof until eighteen (18) months following the Closing Date, without the prior written consent of Fortis (which consent shall not be unreasonably withheld, conditioned or delayed), directly or indirectly, solicit for employment, hire, or enter into an agency relationship with, any personnel employed by Fortis or its Affiliates during the period beginning on the date hereof and ending on the date that is 18 months after the Closing Date.

        (ii) Fortis, on behalf of itself and its Affiliates, hereby covenants and agrees that in the event this Agreement is terminated at any time prior to the Closing, neither Fortis nor any of its Affiliates within the United States shall, for a period of eighteen (18) months from and including the date of such termination, without the prior written consent of PLC (which consent shall not be unreasonably withheld, conditioned or delayed), directly or indirectly, solicit for employment, hire or enter into an agency relationship with, any employee of PLC or its Affiliates who is listed on Schedule 12.4.

        (iii) PLC, on behalf of itself and its Affiliates, hereby covenants and agrees that in the event this Agreement is terminated at any time prior to the Closing, neither PLC nor any of its Affiliates shall, for a period of eighteen (18) months from and including the date of such termination, without the prior written consent of Fortis (which consent shall not be unreasonably withheld, conditioned or delayed), directly or indirectly, solicit for employment, hire or enter into an agency relationship with, any employee of Fortis or its Affiliates.

        (iv) The provisions of this Section 12.4(c) shall not be violated by any party if any party solicits for employment, hires or enters into an agency relationship with any Person (A) who is no longer employed by either Sellers, Fortis or their respective Affiliates, as the case may be; (B) who responds to any advertisement that is not specifically directed to employees of either Sellers, Fortis or their respective Affiliates, as the case may be; or (C) has been referred by a search firm, employment agency or other similar entity that has not been instructed to solicit the employees of either Sellers, Fortis or their respective Affiliates, as the case may be.

        (d) Exceptions. Notwithstanding any other provisions of this Agreement to the contrary:

        (i) The provisions of Section 12.4(a) shall not apply to:

        (A) any Person who acquires any interest in PLC or any of its Affiliates, or any of PLC’s or such Affiliate’s contracts, policies or business by way of acquisition, merger or otherwise and who does not use the name “Protective” or any derivation thereof in connection with any Dental Insurance business;

        (B) any Person(s) in which PLC or any of its Affiliates acquires any interest (including interests in such Person’s contracts or policies), provided, however, this exception shall not apply if the acquired Person(s) or business is principally engaged in one or more lines of business constituting the Restricted Business. “Principally engaged” means, for purposes of this subsection, that sales of products constituting the Restricted Business account for at least 10% of aggregate annual sales of the acquired Person(s) or business.

        (ii) Sellers and their Affiliates shall not be prohibited from making investments in the ordinary course of business in not more than 4.9% of the outstanding voting stock or stock equivalents of entities engaging in any lines of business constituting the Restricted Business.

        (e) Each Seller, Fortis and Purchaser agree that in the event that either the length of time, Restricted Business or Restricted Area set forth in this Section 12.4 is deemed too restrictive by any court of competent jurisdiction, the covenants and agreements in this Section 12.4 shall be enforceable for such time, within such geographical area and for such scope of business, as applicable, as such court may deem reasonable under the circumstances.

        Section 12.5 Books and Records. From and after the Closing Date, each of the parties hereto shall permit any other party hereto reasonable access to (including making copies of) any applicable Books and Records in its possession, as well as all books, records, data and information (in whatever form maintained) in the possession of it, its Affiliates or its agents, and reasonable access to its and its Affiliates’ personnel, in each case, however, relating only to the Business, for any reasonable business purpose, including (i) initiating or defending any form of litigation, (ii) preparing or filing any Tax Return or participating in any Tax Contest, and (iii) responding to any notice, demand or order of or participating in any proceeding of any Governmental Entity with respect to the conduct of the Business. All access and copying of the Books and Records and other such books, records, data and information shall be at the expense of the party requesting such access and copies. Each of PLC and Purchaser shall notify the other of any extension of any applicable statute of limitations related to the Books and Records and, prior to the sixth anniversary of the Closing Date, PLC shall obtain the consent of Purchaser and Purchaser shall obtain the consent of PLC (such consents not to be unreasonably withheld, delayed or conditioned) before destroying any of the Books and Records retained by such party. Notwithstanding any other provision of this Section 12.5, access to any Books and Records and any other books, records, data and information relating to the Business may be denied to the requesting party if the other party is required under Applicable Law to deny such access. The parties acknowledge that each party’s disclosure of information pursuant to this Section 12.5 shall be subject to the terms of the Confidentiality Agreement and a reasonable and customary confidentiality agreement to be entered into between PLC and Fortis at or prior to Closing that contains terms and conditions substantially similar to those in the Confidentiality Agreement except that it will require PLC to protect the confidential information of Fortis and its Affiliates.

        ARTICLE 13
SURVIVAL AND INDEMNIFICATION AND OTHER REMEDIES

        Section 13.1 Survival of Representations and Warranties. The representations and warranties contained in Sections 5.6 and 6.2 and all covenants and agreements made by Sellers, Fortis and Purchaser in any part of this Agreement, the Related Agreements or in any document, certificate, schedule or instrument delivered or executed in connection herewith or therewith shall survive the Closing, the representations and warranties in Sections 5.9 and 6.11 and Article 9 shall survive the Closing until sixty days after expiration of the relevant statutes of limitations, after giving effect to any extensions or waivers thereof, whereupon they shall expire, and all other representations and warranties made by Sellers, Fortis and Purchaser in Articles 5, 6 and 7 or any other part of this Agreement, the Related Agreements or in any document, certificate, schedule or instrument delivered or executed in connection herewith or therewith shall survive the Closing for a period of eighteen (18) months after the Closing Date, whereupon they shall expire. All claims for breach of said representations and warranties will be deemed waived unless prior to the expiration thereof, the nonbreaching party delivers in writing to the breaching party a detailed description of the matters constituting the breach (and an explanation of how those matters constitute a breach) and a description of the damages incurred by the nonbreaching party as a result of such breach.

        Section 13.2 Obligation to Indemnify.

        (a) Subject to the expiration of the representations and warranties of the parties as provided in Section 13.1 and the limitations set forth in this Article 13, PLC agrees to indemnify, defend and hold harmless Fortis and its Affiliates and each of their respective directors, officers, employees and assigns (the “Purchaser Indemnitees”) from and against all claims, losses, liabilities, damages, deficiencies, costs, expenses, penalties and reasonable outside attorneys’ fees and disbursements (collectively, “Losses,” and individually a “Loss”), asserted against, imposed upon or incurred by them, directly or indirectly, by reason of or arising out of or in connection with (i) any misrepresentation, breach of or inaccuracy in any representation or warranty of Sellers in this Agreement or the Related Agreements (other than the CAO Certifications), (ii) any breach of or failure to perform any covenant, undertaking or agreement of Sellers in this Agreement or the Related Agreements (other than the CAO Certifications), (iii) Tax Losses in accordance with Article 9, (iv) Business Employee Plans in accordance with Section 8.8(d), (v) Indemnified Matters, or (vi) the reasonable costs to the Purchaser Indemnitees of enforcing this indemnity against PLC provided that such costs are awarded to the Purchaser Indemnitees in accordance with Section 15.6(d). The Purchaser Indemnitees shall be entitled to indemnification under this Section 13.2(a) for Losses in respect of the matters described in clause (i) immediately above and in respect of matters described in clause (g) of the definition of “Indemnified Matters” only when the aggregate amount of all such Losses exceeds $2,500,000 (the “Basket Amount”), in which case the Purchaser Indemnitees shall be entitled to indemnification for any and all such Losses but only in excess of the Basket Amount; provided, however that Losses incurred by the Purchaser Indemnitees for breaches of the representations and warranties contained in Sections 5.6, 5.9, 6.2 and 6.11 and Article 9 shall not be subject to the Basket Amount. In addition, the maximum amount for which Sellers shall be liable under clause (i) shall not exceed $180,000,000 (“Maximum Indemnification Obligation”); provided, however, that Losses incurred by the Purchaser Indemnities for breaches of the representations and warranties contained in Sections 5.6, 5.9, 6.2 and 6.11 and Article 9 shall not be subject to the Maximum Indemnification Obligation. For purposes of this Section 13.2(a), and in particular clauses (i) and (ii) of the first sentence of this Section 13.2(a), the provisions contained in Articles 5 and 6 shall only be considered representations and warranties, and shall not be considered covenants, undertakings or agreements of the Sellers, PLAIC, Empire or the Companies. For purposes of this Section 13.2(a), Losses asserted against, imposed upon or incurred by FBIC, FFLIC or any of their respective directors, officers, employees, Affiliates or assigns as a result of a violation of any of the representations of each of PLICO, PLAIC and Empire contained in Section 4 of the Indemnity Reinsurance Agreement to which such Person is a party shall not be subject to the Basket Amount or the Maximum Indemnification Obligation with respect to Sellers. Notwithstanding the foregoing provisions of this Section 13.2(a), for the avoidance of doubt Losses shall not include any Loss arising from (i) any liability, obligation or other matter for which Purchaser, FBIC or FFLIC is liable pursuant to any of the Indemnity Reinsurance Agreements or any other Related Agreement, (ii) any Assumed Liabilities, or (iii) any liabilities or obligations to the extent set forth on the Post Closing Equity Schedule.

        (b) Subject to the expiration of the representations and warranties of the parties as provided in Section 13.1, and the limitations set forth in this Article 13, Fortis agrees to indemnify, defend and hold harmless Sellers and their Affiliates and each of their respective directors, officers, employees and assigns (the “Seller Indemnitees”) from and against all Losses asserted against, imposed upon or incurred by them, directly or indirectly, by reason of or arising out of or in connection with (i) any misrepresentation, breach of or inaccuracy in any representation or warranty of Fortis in this Agreement or the Related Agreements, (ii) any breach of or failure to perform any covenant, undertaking or agreement of Fortis or Purchaser in this Agreement or the Related Agreements, (iii) any income Tax refund or credit described in Section 9.4(c), (iv) Assumed Liabilities or (v) the reasonable costs to the Seller Indemnitees of enforcing this indemnity against Fortis provided that such costs are awarded to the Seller Indemnitees in accordance with Section 15.6(d). The Seller Indemnitees shall be entitled to indemnification under this Section 13.2(b) in respect of the matters described in clause (i) immediately above only when the aggregate amount of all such Losses exceeds the Basket Amount, in which case the Seller Indemnitees shall be entitled to indemnification for any and all such Losses but only in excess of the Basket Amount. In addition, the maximum amount for which Fortis shall be liable under such clause (i) shall not exceed the Maximum Indemnification Obligation. For purposes of this Section 13.2(b), the provisions contained in Article 7 shall only be considered representations and warranties and shall not be considered covenants, undertakings or agreements of Fortis, Purchaser, FFLIC or FBIC. For purposes of this Section 13.2(b), Losses asserted against, imposed upon or incurred by PLICO, PLAIC or Empire or any of their respective directors, officers, employees, Affiliates or assigns as a result of a violation of any of the representations of each of FBIC and FFLIC contained in Section 4 of the Indemnity Reinsurance Agreement to which such Person is a party shall not be subject to the Basket Amount or the Maximum Indemnification Obligation with respect to Fortis. Notwithstanding the foregoing provisions of this Section 13.2(b), for the avoidance of doubt Losses shall not include any Loss arising from any liability, obligation or other matter for which PLICO, Empire or PLAIC is liable pursuant to any of the Indemnity Reinsurance Agreements or any other Related Agreement, or (ii) any Excluded Liabilities (as defined in the Indemnity Reinsurance Agreements).

        (c) Required payments by an indemnifying party pursuant to this Article 13 shall be limited to the amount of any Loss that remains after deducting therefrom (i) any net tax benefit actually received by the indemnified party, (ii) any insurance proceeds recovered by the indemnified party, and (iii) any indemnity, contribution or other similar payment recovered by the indemnified party from any third party, in each case with respect to such Loss. The indemnified party shall use commercially reasonable efforts to collect all such insurance proceeds and indemnity, contribution and other similar payments.

        Section 13.3 Notice of Asserted Liability. Promptly after receipt by an indemnified party hereunder of notice of any demand, claim or circumstances which, with or without the lapse of time, could give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (an “Asserted Liability”) that may result in a Loss, such indemnified party shall give written notice thereof (the “Claims Notice”) to the indemnifying party. The Claims Notice shall describe the Asserted Liability in reasonable detail and shall indicate the amount (estimated, if necessary) of the Loss that has been or may be suffered by such indemnified party and shall include a statement as to the basis for the indemnification sought. Failure to provide a Claims Notice in a timely manner shall not be deemed a waiver of the indemnified party’s right to indemnification other than to the extent that such failure prejudices the defense of the claim by the indemnifying party.

        Section 13.4 Opportunity to Defend. The indemnifying party may elect to compromise or defend, at its own expense and by its own counsel, any Asserted Liability; provided, however, the indemnifying party may not compromise or settle any Asserted Liability without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld, conditioned or delayed) unless (i) such compromise or settlement requires no more than a monetary payment for which the indemnified party hereunder is fully indemnified and such settlement provides a complete release of, or dismissal with prejudice of, all claims against the indemnified party for all matters that were or could have been asserted in connection with such claim, or (ii) involves no other matters binding upon the indemnified party (other than obligations of confidentiality). If the indemnifying party elects to compromise or defend such Asserted Liability, it shall within thirty (30) calendar days from receipt of the Claims Notice notify the indemnified party of its intent to do so, and the indemnified party shall cooperate, at the expense of the indemnifying party, in the compromise of, or defense against, such Asserted Liability. If the indemnified party shall fail to cooperate, then each indemnifying party shall be relieved of its obligations under this Article 13 only to the extent that such indemnifying party is prejudiced by such failure to cooperate. Unless and until the indemnifying party elects to defend the Asserted Liability, the indemnified party shall have the right, at its option, to do so in such manner as it deems appropriate; provided, however, that the indemnified party shall not settle or compromise any Asserted Liability for which it seeks indemnification hereunder without the prior written consent of the indemnifying party (which shall not be unreasonably withheld, conditioned or delayed). The indemnifying party shall be entitled to participate in (but not to control) the defense of any Asserted Liability that it has elected not to defend with its own counsel and at its own expense.

        Section 13.5 Exclusive Remedy. The parties hereto expressly acknowledge that (a) except for any express indemnification obligations set forth in any Related Agreement, the provisions of this Article 13 shall be the sole and exclusive remedy for damages caused as a result of breaches of the warranties, representations, covenants and agreements contained in this Agreement, the Related Agreements or any document, certificate, schedule or instrument delivered or executed in connection herewith or therewith, except that the remedies of injunction and specific performance shall remain available to the parties hereto and (b) no indemnifying party shall be liable or otherwise responsible to any indemnified party for punitive damages resulting from any breach of any such warranties, representations, covenants and agreements.

        Section 13.6 Cooperation and Minimization of Damages. The Purchaser Indemnitees and the Seller Indemnitees shall cooperate in good faith, and shall each use reasonable efforts, to minimize their respective Losses for which they are entitled to indemnification under this Article 13 or for which they are entitled to indemnification under any of the Related Agreements.

ARTICLE 14
TERMINATION PRIOR TO CLOSING

        Section 14.1 Termination of Agreement. This Agreement may be terminated at any time prior to the Closing:

        (a) By PLC’s providing written notice of termination to Purchaser, without liability (except as provided in Section 14.2), if Fortis or Purchaser shall (i) fail to perform in any material respect its agreements contained herein required to be performed by it prior to the date of such termination, or (ii) materially breach any of its representations or warranties contained herein, such that, together with all other breaches, it would cause a condition to closing set forth in Article 11 not to be satisfied, which failure or breach is not cured within fifteen (15) days after PLC has notified Purchaser in writing of its intent to terminate this Agreement pursuant to this Section 14.1(a).

        (b) By Purchaser’s providing written notice of termination to PLC, without liability (except as provided in Section 14.2), if Sellers shall (i) fail to perform in any material respect their agreements contained herein required to be performed by them prior to the date of such termination, or (ii) materially breach any of their representations or warranties contained herein, such that, together with all other breaches, it would cause a condition to closing set forth in Article 10 not to be satisfied, which failure or breach is not cured within fifteen (15) days after Purchaser has notified Sellers of its intent to terminate this Agreement pursuant to this Section 14.1(b).

        (c) By Purchaser or PLC, by written notice delivered to the other, if (i) the Closing has not occurred on or before December 31, 2001 (provided, however, that if all conditions to Closing have been satisfied or waived on or before December 31, 2001, other than obtaining any required consents from Governmental Entities as listed on Schedules 7.4 and 10.3, such date shall be extended past December 31, 2001 for up to three additional months to April 1, 2002, at the request of either Sellers or Purchaser) (the “Termination Date”); or (ii) if any order, judgment or decree permanently restraining, enjoining or otherwise prohibiting consummation of the transactions contemplated by this Agreement shall become final and non-appealable; provided, that the right to terminate this Agreement pursuant to clause (i) above shall not be available to any party that has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of the transactions contemplated by this Agreement to be consummated.

        (d) At any time on or prior to the Closing Date, by mutual written consent of PLC and Purchaser.

        Section 14.2 Survival. If this Agreement is terminated and the transactions contemplated hereby are not consummated as described above, this Agreement shall become null and void and of no further force and effect, except for the provisions of Section 12.4(c)(ii) and (iii), which shall survive for the periods set forth therein, and the provisions of Sections 15.1, 15.6 and 15.9 and the remedies contemplated by Article 13, including, without limitation, specific performance and injunction as contemplated therein, which shall survive indefinitely.

        Section 14.3 Certain Obligations upon Termination.If this Agreement is terminated and the transactions contemplated hereby are not consummated as described above, Fortis shall, and shall cause each of its Affiliates to, promptly after such termination (a) deliver to PLC or destroy all information, records, forms, data, lists and other materials provided by PLC or any of its Affiliates to Fortis or any of its Affiliates with respect to the Business and (b) withdraw all policy forms filed for approval pursuant to Section 8.13(b) and destroy all such forms and work papers relating to such forms. The preceding sentence shall not be deemed to preclude Fortis or any of its Affiliates from developing on its own any such information, records, data, lists, materials or forms or from using any such developed information, records, data, lists, materials or forms so long as Fortis or such Affiliate complies with the terms and conditions of the Confidentiality Agreement.

ARTICLE 15
MISCELLANEOUS

        Section 15.1 Publicity. No release or announcement concerning this Agreement or the transactions contemplated hereby shall be made prior to the earlier of the Closing Date or termination of this Agreement without the prior written approval of both PLC and Fortis (which approval shall not be unreasonably withheld, conditioned or delayed), except as may otherwise be required by Applicable Law (including, without limitation, the filing of periodic and other reports with the Securities and Exchange Commission concerning the transactions contemplated by this Agreement and the Related Agreements and the filing as exhibits thereto of this Agreement and the Related Agreements) or the rules or requirements of any applicable United States or foreign stock exchange, and except (i) with respect to any Governmental Entity having jurisdiction over the disclosing party, (ii) to the NAIC, the NASD or any nationally recognized ratings agency that requests access to such information, (iii) in order for the parties to comply with their obligations hereunder, or (iv) if a default by the other party hereto has occurred under this Agreement to the extent reasonable for the non-defaulting party to enforce its rights and remedies hereunder. All parties shall cooperate with each other in making any release or announcement.

        Section 15.2 Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered by commercial courier, sent by facsimile transmission (and immediately after transmission confirmed by telephone) or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered by commercial courier or sent by facsimile transmission (and immediately after transmission confirmed by telephone) or, if mailed, on the date shown on the receipt therefor, as follows: 


         (i)      If to Sellers to:
                  Protective Life Corporation
                  2801 Highway 280 South
                  Birmingham, Alabama  35223
                  Attn: Deborah Long, General Counsel
                  Fax No.: (205) 868-3597
                  Phone No.: (205) 879-9230

                  with a copy to (which shall not constitute notice for purposes of this Agreement):

                  Sutherland Asbill & Brennan LLP
                  999 Peachtree Street
                  Atlanta, Georgia  30309
                  Attn: Eric R. Fenichel
                  Fax No.: (404) 853-8806
                  Phone No.: (404) 853-8000

         (ii)     If to Purchaser to:
                  Fortis, Inc.
                  One Chase Manhattan Plaza
                  New York, New York 10005
                  Attn:    General Counsel
                  Fax No.:  212-859-7034
                  Phone No.:  212-859-7021

                  with a copy to (which shall not constitute notice for purposes of this Agreement):
                  Alston & Bird LLP
                  1201 West Peachtree Street
                  Atlanta, Georgia 30309-3424
                  Attn:  Susan J. Wilson
                  Fax No.:  (404) 881-4777
                  Phone No.:  404-881-7974

Any party may, by notice given in accordance with this Section 15.2 to the other party, designate another address or person for receipt of notices hereunder.

        Section 15.3 Entire Agreement. This Agreement and the Related Agreements contain the entire agreement among Fortis, Purchaser and Sellers with respect to the transfer of the Business by Sellers to Purchaser and supersede all prior agreements, written or oral, with respect thereto, except that the Confidentiality Agreement shall remain in full force and effect in accordance with its terms as provided in Section 8.3.

        Section 15.4 Waivers and Amendments; Preservation of Remedies. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by all of the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power, remedy or privilege, nor any single or partial exercise of any such right, power, remedy or privilege, preclude any further exercise thereof or the exercise of any other such right, remedy, power or privilege. Except as provided in Section 13.5, the rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity.

        Section 15.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of laws thereof.

Section 15.6 Dispute Resolution.

        (a) Other than as provided for in Sections 3.4, 12.3(c) and 12.4(a) or in any Related Agreement, any dispute, controversy or claim arising out of or relating to this Agreement or any Related Agreement or the performance by the parties of its or their terms shall be settled by binding arbitration held at a location to be mutually agreed upon by the parties and in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, except as specifically otherwise provided in this Section 15.6. The interpretation and enforceability of this Section 15.6 shall be governed exclusively by the Federal Arbitration Act, 9 U.S.C. § 1-16.

        (b) There shall be a panel of three (3) arbitrators, each of whom has substantial experience in the life and health insurance industry, one of which shall be selected by PLC, one of which shall be selected by Purchaser, and the third of which shall be mutually selected by the arbitrators selected by PLC and Purchaser. In the event that such third arbitrator is not selected within ten (10) calendar days after the selection of the second arbitrator, the third arbitrator shall be selected by the American Arbitration Association.

        (c) The arbitrators shall allow such discovery as the arbitrators determine appropriate under the circumstances and shall resolve the dispute as expeditiously as practicable, and if reasonably practicable, within one hundred twenty (120) calendar days after the selection of the arbitrators. The arbitrators shall give the parties written notice of the decision, with the reasons therefor set out, and shall have thirty (30) calendar days thereafter to reconsider and modify such decision if any party so requests within ten (10) calendar days after the decision. Thereafter, the decision of the arbitrators shall be final, binding, and nonappealable with respect to all Persons, including (without limitation) Persons who have failed or refused to participate in the arbitration process, unless such Person is challenging participation in the arbitration process pursuant to an action in a court of competent jurisdiction.

        (d) The arbitrators shall have authority to award relief under legal or equitable principles, including interim or preliminary relief, and to allocate responsibility for the costs of the arbitration and to award recovery of attorneys’ fees and expenses in such manner as is determined to be appropriate by the arbitrators; provided that the arbitrators shall be bound by and shall limit their awards based upon the limitations of liability contained in this Agreement. A party may, however, seek an emergency temporary restraining order, if appropriate under Applicable Law, in any court having jurisdiction over the subject matter and the parties. Following the ruling on the request for temporary restraining order, the matter shall proceed in arbitration as set forth herein.

        (e) Judgment upon the award rendered by the arbitrators may be entered in any court having in personam and subject matter jurisdiction.

        (f) All proceedings under this Section 15.6, and all evidence given or discovered pursuant hereto, shall be maintained in confidence by all parties and the arbitrators.

        (g) The fact that the dispute resolution procedures specified in this Section 15.6 shall have been or may be invoked shall not excuse any party from performing its obligations under this Agreement and the Related Agreements and during the pendency of any such procedure, all parties shall continue to perform their respective obligations in good faith, subject to any rights to terminate this Agreement that may be available to any party.

        (h) All applicable statutes of limitation shall be tolled with respect to the subject matter of the dispute while the procedures specified in this Section 15.6 are pending. The parties will take such action, if any, required to effectuate such tolling.

        Section 15.7 Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns and legal representatives, whether by merger, consolidation or otherwise. This Agreement may not be assigned by any party without the prior written consent of the other party hereto provided, however, that Purchaser may assign its rights and obligations under this Agreement, in whole or in part, to any wholly owned subsidiary of Fortis without obtaining the prior written consent of Sellers, and provided, further that (i) Fortis gives Sellers notice of such assignment, and (ii) any such assignment shall not relieve Fortis of its obligations hereunder.

        Section 15.8No Third Party Beneficiaries. Except as otherwise expressly set forth in any provision of this Agreement, nothing in this Agreement is intended or shall be construed to give any Person (including Business Employees or Transferred Employees), other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein.

        Section 15.9 Expenses. Except as otherwise provided herein, the parties hereto shall each bear their respective expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement and the Related Agreements and the transactions contemplated hereby and thereby, including, without limitation, all fees and expenses of agents, representatives, investment bankers, counsel, actuaries and accountants.

        Section 15.10 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. Each counterpart may be delivered by facsimile transmission, which transmission shall be deemed delivery of an originally executed document.

        Section 15.11 Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”

        Section 15.12 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. If any provision of this Agreement is so broad as to be unenforceable, that provision shall be interpreted to be only so broad as is enforceable.

        Section 15.13 Waiver of Jury Trial. Each of the parties hereto irrevocably waives any and all right to trial by jury in any legal proceedings arising out of or related to this Agreement or the transactions contemplated hereby.

[Remainder of this page intentionally left blank. Signatures on the following page.]

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




                   PROTECTIVE LIFE CORPORATION

                   By:
                   Name:
                   Title:

                   PROTECTIVE LIFE INSURANCE COMPANY


                   By:
                   Name:
                   Title:

                   FORTIS, INC.


                   By:
                   Name:
                   Title:

                   DENTAL CARE HOLDINGS, INC.

                   By:
                   Name:
                   Title:
EX-2 4 ex2bplc.htm Exhibit 2

Exhibit 2(b)

INDEMNITY REINSURANCE AGREEMENT
BY AND BETWEEN
PROTECTIVE LIFE AND ANNUITY INSURANCE COMPANY
AND
FIRST FORTIS LIFE INSURANCE COMPANY

        This Indemnity Reinsurance Agreement (the “Agreement”) is made and entered into as of December 31, 2001 (the “Effective Date”), by and between Protective Life & Annuity Insurance Company, an Alabama corporation (“Ceding Company”), and First Fortis Life Insurance Company, a New York corporation (“Reinsurer”).

        Ceding Company, through the Dental Benefits Division of Protective Life Corporation (the “Dental Division”), has issued or assumed certain insurance products consisting of group indemnity dental insurance policies and group prepaid managed dental care products, all of which either currently are in force, or have terminated but with respect to which there still are runoff claims.

        Reinsurer desires to reinsure, and Ceding Company desires to cede to Reinsurer, one hundred percent (100%) of the Policy Liabilities (as defined below). Ceding Company also desires to assign and delegate to Reinsurer, and Reinsurer also desires to accept and assume, certain of Ceding Company’s rights and obligations under the Other Agreements (as such term is defined below).

AGREEMENT

        Now, therefore, in consideration of the mutual promises of the parties set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Definitions. As used in this Agreement, the following capitalized terms will have the following meanings.

        1.1. “Administrative Services” means the performance of tasks, duties, responsibilities and actions necessary to administer the Business, as more specifically set forth in Section 5.

        1.2. “Adjusted Transfer Amount” means the amount of the Policy-Related Liabilities as of the Effective Time less the amount of the Policy-Related Assets as of the Effective Time, as set forth on the Effective Date Accounting.

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

        1.4. "Agreement" means this Indemnity Reinsurance Agreement and all exhibits hereto, as it may be amended, supplemented or restated from time to time.

        1.5. "Asserted Liability" is defined in Section 6.3.

        1.6. “Assumed Agreements” means (a) the Provider Agreements, (b) the Third-Party Administration Agreements and (c) each Other Agreement that Reinsurer assumes pursuant to the provisions of Section 3.11 hereof but only from and after the date of such assumption; provided, however, that with respect to (a) and (b) above, “Assumed Agreements” will not include the Mutual of Omaha Agreement or any other Provider Agreement or Third-Party Administration Agreement that Reinsurer specifies in writing to Ceding Company on the Effective Date as an agreement that is not to be treated as an Assumed Agreement for the purposes of this Agreement unless such Provider Agreement or Third-Party Administration Agreement is assumed by Reinsurer after the Effective Date under Section 3.11 (and in such case, it will be treated as an Assumed Agreement only from and after the date of such assumption as provided in Section 3.11).

        1.7. "BBI" means Better Benefits, Inc., formerly known as Better Compensation, Inc.

        1.8. “BBI Marketing Agreement” means collectively (i) the Joint Marketing Agreement between BBI and Protective Life Insurance Company, dated as of January 1, 1991, as amended, and (ii) the Amended and Restated Joint Marketing Agreement by and among BBI, Protective Life Insurance Company and Protective Life & Annuity Insurance Company dated February 7, 1997, as amended on April 15, 1999 and March 31, 2000.

        1.9. "Business" means all business under the Reinsured Policies, Reinsured Assumed Agreements, Reinsurance Agreements, Related Agreements, Provider Agreements and Third Party Administration Agreements.

        1.10. “Business Proceeding” means each action, suit, investigation or proceeding with respect to the Business by or before any court, arbitrator or administrative or governmental body.

        1.11. "Ceding Commission" is defined in Section 4.2.

        1.12. “Ceding Company” means Protective Life & Annuity Insurance Company and its permitted successors and assigns, including any liquidator, receiver, rehabilitator, or other statutory successor.

        1.13. "Ceding Company Indemnitees" is defined in Section 6.2.

        1.14. "Ceding Company's DAC Calculation" is defined in Section 4.13.5.

        1.15. "Claims Notice" is defined in Section 6.3.

        1.16. "Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

        1.17. "Commissions" means all commissions or other compensation due agents or brokers with respect to any of the Reinsured Policies.

        1.18. “Commissions Due & Accrued” means the aggregate of all Commissions due with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on lines 12 and 18 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on lines 10 and 18 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.19. "Confidential Information" is defined in Section 5.15.

        1.20. "Effective Date" means the date specified in the first paragraph of this Agreement.

        1.21. "Effective Date Accounting" is defined in Section 4.5.

        1.22. "Effective Time" means 11:59 pm on the Effective Date.

        1.23. “Excluded Liability” means all liabilities or obligations of Ceding Company of any character or nature arising out of or related to the Business that are not Policy Liabilities or Other Assumed Liabilities, including, without limitation, liabilities (i) for taxes payable with respect to Premiums received by Ceding Company before the Effective Time or on account of the Premiums Receivable as of the Effective Time; (ii) arising from participation in any guaranty fund, insolvency fund, plan, pool, association or other similar organization, and that is assessed with respect to the Reinsured Policies based on Premiums received by Ceding Company before the Effective Time or on account of the Premiums Receivable as of the Effective Time; (iii) for Commissions that are payable with respect to the Reinsured Policies with respect to Premiums received by Ceding Company before the Effective Time or on account of the Premiums Receivable as of the Effective Time (other than Commissions with respect to such Premiums Receivable to the extent that such Commissions are included in the Policy-Related Liabilities as of the Effective Time); (iv) all Extra-Contractual Liabilities related to acts or omissions that occurred, or were alleged to have occurred, prior to the Effective Time; or (v) to LeafRe or any of its Affiliates (A) pursuant to the LeafRe Reinsurance Agreements, including any LeafRe claims with respect to Reinsured Policies that are not LeafRe Covered Policies, but not including any liabilities to LeafRe arising at or after the Effective Time with respect to the Reinsured Policies that are LeafRe Covered Policies or (B) pursuant to the BBI Marketing Agreement except for (1) Commissions arising after the Effective Time with respect to the LeafRe Covered Policies and (2) Commissions arising at or prior to the Effective Time with respect to the LeafRe Covered Policies to the extent such Commissions are included in the Policy-Related Liabilities as of the Effective Time.

        1.24. “Existing Policies” means all group indemnity dental insurance policies and group prepaid managed care dental contracts that have been issued, or assumed pursuant to the Reinsured Assumed Agreements, by Ceding Company through the Dental Division, whether offered on a voluntary basis (employee-paid) or true group (employer-paid) basis, that are both listed on Exhibit A and in force at the Effective Time, as well as any riders thereto, including those providing for other supplemental benefits, any such policies and contracts that have lapsed but are subject to reinstatement, and any supplemental benefits arising out of such policies and contracts.

        1.25. “Experience Rating Refund Liability” means the aggregate of all experience rating refund liabilities with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on line 11.2 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on line 9.2 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.26. “Extra-Contractual Liabilities” means all liabilities (including but not limited to liabilities for consequential, exemplary, punitive or similar damages) that relate to or arise in connection with any alleged or actual act, error or omission, whether intentional or otherwise, or from any alleged or actual reckless conduct or bad faith (i) in connection with the handling of any claim under any of the Reinsured Policies, or (ii) in connection with the marketing, issuance, delivery, administration or cancellation of any of the Reinsured Policies.

        1.27. “Final Transfer Amount” means the amount of the Policy-Related Liabilities as of the Effective Time less the amount of the Policy-Related Assets as of the Effective Time, as set forth on the True-Up Accounting.

        1.28. “Governmental Entity” means any foreign, federal, state, local, municipal, county or other governmental, quasi-governmental, administrative or regulatory authority, body, agency, court, tribunal, commission or other similar entity (including any branch, department, agency or political subdivision thereof).

        1.29. “Indemnity Accounting” means the indemnity reinsurance accounting, setting forth the Policy-Related Assets and Policy-Related Liabilities as of March 31, 2001, assuming a March 31, 2001 Effective Date, which is attached hereto as Exhibit B.

        1.30. "LeafRe" means LeafRe Reinsurance Company.

        1.31. "LeafRe Covered Policies" is defined in Section 2.4.

        1.32. “LeafRe Reinsurance Agreements” means collectively (i) the Reinsurance Agreement between LeafRe and PLICO effective January 1, 1993, as amended on January 1, 1996, and (ii) the Reinsurance Agreement between LeafRe and PLAIC effective January 1, 1993, as amended on January 1, 1996.

        1.33. "Losses" and individually "Loss" is defined in Section 6.1.

        1.34. “Marketing Termination Date” means the date that is one (1) year after the Effective Date, or such earlier date as Reinsurer may hereafter request.

        1.35. "Monthly Accounting" is defined in Section 4.7.

        1.36. “Mutual of Omaha Agreement” means the PPO Network Access Agreement dated as of January 1, 2000, between Protective Life Insurance Company and Mutual of Omaha Insurance Company.

        1.37. “NAIC Annual Statement Blank” means the form of annual statement for life and accident and health insurance companies-association edition, as prescribed from time to time by the NAIC.

        1.38. “New Policies” means group indemnity dental insurance policies and group prepaid managed dental care contracts that may be issued by Ceding Company as required under Section 3.6. New Policies will only be issued on the forms and in those states set forth in Exhibit C.

        1.39. "Net Premiums" means Premiums after any adjustments or refunds.

        1.40. "Net Transfer Amount Difference" is defined in Section 4.5.3.

        1.41. “90-Day Treasury Rate” means the annual yield rate, on the date to which such 90-Day Treasury Rate relates, of actively traded U.S. Treasury securities having a remaining duration to maturity of three months, as such rate is published under “Treasury Constant Maturities” in Federal Reserve Statistical Release H.15(519).

        1.42. “Other Assumed Liabilities” means the contractual liabilities and obligations of Ceding Company arising (a) at or after the Effective Time under the Other Agreements or (b) prior to the Effective Time under the Other Agreements to the extent that such liabilities and obligations are included in Policy-Related Liabilities as of the Effective Time.

        1.43. "Other Agreements" means collectively the Related Agreements, the Reinsurance Agreements, the Reinsured Assumed Agreements, the Provider Agreements and the Third-Party Administration Agreements.

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

        1.45. “Policy Liabilities” means: (i) all contractual obligations of Ceding Company under the Reinsured Policies; (ii) all obligations of Ceding Company represented by the Reserves transferred to Reinsurer pursuant to Section 4.3 (to the extent not included in the immediately preceding clause (i)); (iii) all liabilities for premium taxes arising on account of Premiums received by Reinsurer at or after the Effective Time other than such taxes arising on account of Premiums Receivable as of the Effective Time; (iv) all amounts payable for returns or refunds of Premiums under the Reinsured Policies; (v) all liabilities for Commissions payable with respect to the Reinsured Policies with respect to Premiums received by Reinsurer at or after the Effective Time (including the Premiums Receivable to the extent that the Commissions in respect thereof are included in the Policy-Related Liabilities as of the Effective Time but excluding Commissions owing to LeafRe or BBI with respect to Reinsured Policies that are not LeafRe Covered Policies); (vi) all guaranty fund assessments and similar charges imposed with respect to the Reinsured Policies based on Premiums received by Reinsurer at or after the Effective Time other than such assessments and similar charges arising on account of Premiums Receivable as of the Effective Time; and (vii) all Extra-Contractual Liabilities related to acts or omissions that occurred, or were alleged to have occurred at or after the Effective Time, other than Extra-Contractual Liabilities arising from acts or omissions of Ceding Company; provided, however, that acts or omissions of Reinsurer and its Affiliates, acting on behalf of Ceding Company, with respect to the Reinsured Policies and the Other Agreements will not be deemed to be the acts or omissions of Ceding Company and provided that acts or omissions at and after the Effective Time of (x) brokers and agents that Ceding Company appointed prior to the Effective Time to market the Reinsured Policies, (y) brokers and agents that Reinsurer appoints on behalf of Ceding Company after the Effective Time with respect to the Reinsured Policies or (z) brokers and agents that Ceding Company appoints at the direction of Reinsurer with respect to the Reinsured Policies will not be deemed to be the acts or omissions of Ceding Company.

        1.46. "Policy-Related Assets" means collectively the Reinsurance Receivable, Premiums Receivable and Prepaid Capitation.

        1.47. "Policy-Related Liabilities" means collectively the Reserves, Premiums Paid in Advance, Experience Rating Refund Liability, and Commissions Due & Accrued.

        1.48. "Policy Termination Date" means the date that is two (2) years after the Marketing Termination Date.

        1.49. "Policyholder" means the policyholder with respect to a Reinsured Policy.

        1.50. "Preliminary Effective Date Accounting" is defined in Section 4.4.

        1.51. “Preliminary Transfer Amount” means the amount of the Policy-Related Liabilities less the amount of the Policy-Related Assets, in each case as of the last day of the calendar month that is two months immediately preceding the calendar month during which the Effective Date occurs (by way of example, if the Effective Date were August 1, such accounting would be as of June 30), as set forth on the Preliminary Effective Date Accounting.

        1.52. "Premiums" is defined in Section 4.1.

        1.53. “Premiums Due & Deferred A&H” means the aggregate of all Premiums receivable (including, without limitation, due and deferred Premiums) with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable as a net admitted asset on line 16 of the Assets page of the 2000 NAIC Annual Statement Blank, on line 17 of the Assets page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.54. “Premiums Due & Deferred Life” means the aggregate of all Premiums receivable (including, without limitation, due and deferred Premiums) with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable as a net admitted asset on line 15 of the Assets page of the 2000 NAIC Annual Statement Blank, on line 16 of the Assets page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.55. “Premiums Paid in Advance” means the aggregate of all Premiums paid in advance with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on line 9 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on line 8 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.56. "Premiums Receivable" means the aggregate of all Premiums Due and Deferred Life and Premiums Due & Deferred A&H.

        1.57. “Prepaid Capitation” means the aggregate of all prepaid capitation amounts paid in advance with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on line 22 of the Assets page of the 2000 NAIC Annual Statement Blank, on line 24 of the Assets page of the 2001 NAIC Annual Statement Blank, or in comparable line items on successor NAIC Annual Statement Blanks, in each case whether or not such prepaid capitation amounts are admitted assets for statutory reporting purposes.

        1.58. “Provider Agreements” means those agreements with Persons listed on Exhibit D hereto pursuant to which Ceding Company directly or indirectly contracts for the services of dental care providers with respect to benefits provided under the Reinsured Policies that are group indemnity dental insurance policies or prepaid managed dental care contracts.

        1.59. "Purchase Agreement" means the Stock and Asset Purchase Agreement dated July 9, 2001, by and among Protective Life Corporation, Protective Life Insurance Company, Fortis, Inc. and Dental Care Holdings, Inc., as amended, supplemented or restated from time to time.

        1.60. “Reinsurance Agreements” means the reinsurance agreements listed on Exhibit E and under which Ceding Company has ceded liabilities to Persons other than Reinsurer, and the LeafRe Reinsurance Agreements. The cession of the Reinsured Policies to Reinsurer hereunder is not intended to alter the reinsurance of the portion of the risk that has been so ceded to other Persons under the Reinsurance Agreements.

        1.61. “Reinsurance Receivable” means the aggregate of all amounts recoverable from reinsurers with respect to the Reinsured Policies, determined in accordance with SAP and appropriately includable as a net admitted asset on lines 12.1, 12.2, 12.3 and 12.4 of the Assets page of the 2000 NAIC Annual Statement Blank, on lines 12.1, 12.2, 12.3 and 12.4 of the Assets page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.62. “Reinsured Assumed Agreements” means those reinsurance contracts listed in Exhibit F and pursuant to which Ceding Company reinsures or coinsures policies issued by third-party insurers.

        1.63. "Reinsured Policies" means, collectively, all Terminated Policies, Existing Policies and New Policies.

        1.64. “Reinsurer” means First Fortis Life Insurance Company and its permitted successors and assigns, including any liquidator, receiver, rehabilitator, or other statutory successor.

        1.65. "Reinsurer's DAC Calculation" is defined in Section 4.13.4.

        1.66. “Related Agreements” means the agreements of Ceding Company requiring the payment of Commissions relating to the Reinsured Policies to the Persons listed on Exhibit G but excluding the BBI Marketing Agreement.

        1.67. “Reserves” means the aggregate of all reserves (including, as applicable, funds at interest, life benefit reserves, A&H benefit reserves, life claim reserves, A&H claim reserves and unearned Premium reserves and premium deposit fund liabilities) with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable, as applicable to the Reinsured Policies, on lines 1, 2, 3, 4.1, 4.2, 5, 10.1, 10.2 and 10.3 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on lines 1, 2, 3, 4.1 and 4.2 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.68. “SAP” means the statutory accounting practices prescribed or permitted by the insurance regulatory authority of the Ceding Company’s jurisdiction of domicile.

        1.69. “Terminated Policies” means all group indemnity dental insurance policies and group prepaid managed care dental contracts issued, or assumed pursuant to the Reinsured Assumed Agreements, by Ceding Company through the Dental Division, whether offered on a voluntary basis (employee-paid) or true group (employer-paid) basis, as well as any riders providing for other supplemental benefits, and any supplemental benefits arising out of such policies, that have been terminated before the Effective Date but with respect to which there still are runoff claims at or after the Effective Time.

        1.70. “Third-Party Administration Agreements” means those agreements listed on Exhibit H. “Third Party Administration Agreements” includes administrative-services-only agreements (often referred to as “ASO Agreements”).

        1.71. "True-Up Accounting" is defined in Section 4.6.

        1.72. "True-Up Value Difference" is defined in Section 4.6.3.

2. Purpose of Agreement; Coverages to be Reinsured; Liabilities Assumed.

        2.1. Purpose. The purpose of this Agreement is to provide for, as of the Effective Time, (i) the one hundred percent (100%) reinsurance by Reinsurer on a coinsurance basis of the Policy Liabilities, (ii) the assumption by Reinsurer of all Other Assumed Liabilities with reference only to the Assumed Agreements and (iii) the agreement by Reinsurer to pay and otherwise perform all of the Other Assumed Liabilities under the Other Agreements (other than the Assumed Agreements), all in consideration of the transfer of ownership by Ceding Company to Reinsurer of the cash and other assets as provided in Section 4.3 and the transfer to Reinsurer by Ceding Company of certain of Ceding Company’s rights and obligations under and in connection with the Business as set forth in this Agreement. As between the parties to this Agreement. Reinsurer accepts all service responsibilities with respect to all of the Business in accordance with the terms of this Agreement. Reinsurer will not accept any liabilities of Ceding Company under this Agreement other than the Policy Liabilities and the Other Assumed Liabilities.

        2.2. Cession and Assignment. As of the Effective Time, Ceding Company hereby cedes to Reinsurer, and Reinsurer hereby accepts reinsurance on a coinsurance basis, of 100% of the Policy Liabilities, to the end that then and thereafter, as between the parties to this Agreement, Ceding Company will have no liability for Policy Liabilities and no rights to any profits or other benefits of the Business. With respect to the Other Agreements and the Other Assumed Liabilities, the parties hereby agree as follows:

        2.2.1. As of the Effective Time, Reinsurer hereby agrees to pay and otherwise perform on behalf of Ceding Company the Other Assumed Liabilities.

        2.2.2. As of the Effective Time, Ceding Company hereby assigns to Reinsurer, and Reinsurer hereby accepts and assumes, all of Ceding Company’s rights and interests in and under the Assumed Agreements.

        2.2.3. Ceding Company’s rights and interests under and in all of the Related Agreements, and each Provider Agreement and Third Party Administration Agreement that is not an Assumed Agreement, will not be assigned to Reinsurer at the Effective Time, but may be assigned to Reinsurer after the date hereof in accordance with Section 3.11; provided, however, that until such assignment, if any, Ceding Company will provide or cause to be provided to Reinsurer all benefits of Ceding Company under each such Related Agreement, Provider Agreement and Third Party Administration Agreement and will enforce for the account of Reinsurer any rights of Ceding Company arising from each such Related Agreement, Provider Agreement and Third Party Administration Agreement, so that Reinsurer receives the full economic and other benefits of each such Related Agreement, Provider Agreement and Third Party Administration Agreement as though they had been assigned to Reinsurer. Reinsurer will reimburse Ceding Company for Ceding Company’s reasonable costs and expenses in so enforcing any such rights.

        2.2.4. As of the Effective Time, Ceding Company hereby assigns to Reinsurer, and Reinsurer hereby accepts, all of Ceding Company’s rights and interests in and under the Reinsurance Agreements and Reinsured Assumed Agreements, if consent to such assignment has been obtained from the other contracting party thereto or no such consent was required, except that Reinsurer will not acquire any of the Ceding Company’s claims against LeafRe pursuant to the LeafRe Reinsurance Agreements that arise before the Effective Time. If such consent has not been obtained, from and after the Effective Time, Ceding Company will provide or cause to be provided to Reinsurer all benefits of Ceding Company under such unassigned Reinsurance Agreements and Reinsured Assumed Agreements and will enforce for the account of Reinsurer any rights of Ceding Company arising from such unassigned Reinsurance Agreements and Reinsured Assumed Agreements, so that Reinsurer receives the full economic and other benefits of the Reinsurance Agreements and Reinsured Assumed Agreements as though they had been assigned to Reinsurer. Reinsurer will reimburse Ceding Company for Ceding Company’s reasonable costs and expenses in so enforcing any such rights.

        2.3. Ceding Company Access to Provider Agreements and Third Party Administration Agreements. Beginning at the Effective Time and extending through the Policy Termination Date, with respect to the Provider Agreements and Third Party Administration Agreements that are Assumed Agreements, as such agreements relate to the Reinsured Policies, Reinsurer will provide to Ceding Company such rights and benefits under such agreements as are necessary and appropriate for Ceding Company to perform its obligations under this Agreement as the direct writer of the Reinsured Policies.

        2.4. LeafRe Reinsurance Agreements. None of the Reinsured Policies is subject to the LeafRe Reinsurance Agreements except for the Reinsured Policies that both (A) were included in the periodic financial reports provided by Protective Life Insurance Company and Protective Life & Annuity Insurance Company to LeafRe on or before March 31, 2001 as being reinsured pursuant to the LeafRe Reinsurance Agreements, or were reinsured pursuant to the LeafRe Reinsurance Agreements in the ordinary course of business after March 31, 2001, and (B) continue in force as of the Effective Time (such Reinsured Policies referred to in (A) and (B) being referred to as the “LeafRe Covered Policies”). The Reinsured Policies that are not subject to the LeafRe Reinsurance Agreements include, without limitation, the Reinsured Policies that are the subject of legal actions between Ceding Company and LeafRe or an Affiliate of LeafRe initiated prior to the Effective Time. Ceding Company is retaining all claims against LeafRe with respect to the LeafRe Reinsurance Agreements arising prior to the Effective Time and is retaining all obligations to LeafRe with respect to the LeafRe Reinsurance Agreements arising prior to the Effective Time, including any obligations to LeafRe relative to all Reinsured Policies that are not LeafRe Covered Policies. Notwithstanding any other provision of this Agreement, Ceding Company acknowledges that Reinsurer may retrocede all or part of the Reinsured Policies subject to the LeafRe Reinsurance Agreements to another insurance company or companies, and Ceding Company hereby consents to such retrocession and agrees to cooperate to effectuate such retrocession to the extent reasonably requested by Reinsurer; provided, however, that no such retrocession will relieve Reinsurer of its obligations under this Agreement with respect to such Reinsured Policies. The aggregate amount of the deposit funds, as referred to in the LeafRe Reinsurance Agreements, are and will be included in the Reserves within the line “Funds at Interest” in the Indemnity Accounting, the Preliminary Effective Date Accounting and the Effective Date Accounting.

3. Reinsurance Provisions.

        3.1. Duration of Reinsurance. The liability of Reinsurer under this Agreement with respect to any Reinsured Policy will begin simultaneously with that of Ceding Company, but not before the Effective Time. Reinsurer’s liability with respect to any Reinsured Policy will not terminate until Ceding Company’s liability on such Reinsured Policy terminates. Reinsurer’s liability with respect to any Related Agreement, any Provider Agreement or any Third Party Administration Agreement will not terminate until Ceding Company’s liability under such agreement terminates.

        3.2. Responsibility for Payments and Performance. At and after the Effective Time, Reinsurer will have the responsibility for paying all Policy Liabilities. At and after the Effective Time, Reinsurer will have the responsibility for performing or paying all Other Assumed Liabilities. Ceding Company will have the responsibility for paying all Excluded Liabilities.

        3.3. Changes to Existing Policies or New Policies. Except as otherwise set forth herein, any changes to Existing Policies or New Policies may be made only with the prior written consent of Ceding Company, which consent will not be unreasonably withheld, conditioned or delayed. Ceding Company will not make any changes to the terms and conditions of a Reinsured Policy or withdraw or terminate any form of Reinsured Policy on file with any Governmental Entity, except in either case with Reinsurer’s prior written consent, which consent will not be unreasonably withheld, conditioned or delayed; provided, however, that Ceding Company will be entitled to make changes to a Reinsured Policy or withdraw or terminate the form of a Reinsured Policy to the extent such action is required by applicable law or pursuant to the terms of the Reinsured Policy, and Ceding Company shall have given written notice thereof to Reinsurer in advance of taking such action.

        3.4. Conversions. At and after the Effective Time, Reinsurer will issue or cause to be issued any individual conversion policy that may be required under the terms of a Reinsured Policy.

        3.5. Errors and Omissions. If through an oversight, Ceding Company fails to list an Existing Policy on Exhibit A, a Reinsurance Agreement on Exhibit E, a Reinsured Assumed Agreement on Exhibit F, a Related Agreement on Exhibit G, a Third Party Administration Agreement on Exhibit H, or a Provider Agreement on Exhibit D or if Ceding Company fails to transfer to Reinsurer any Reserves or applicable Premiums with respect thereto and a party discovers such error in the information in any such Exhibit or in the transfer of such Reserves or Premiums, the party discovering the error must promptly notify the other party and provide information documenting the error. The parties then in good faith will attempt to resolve the matter, and if the parties cannot resolve the matter, the matter will be submitted to arbitration in accordance with Section 7, in each case in order to place both parties in the positions they would have been in had the error not occurred.

        3.6. New Policies. During the period that begins at the Effective Time and ends on the Marketing Termination Date, New Policies will be issued by Ceding Company at the request of Reinsurer; provided, however, that a New Policy that is delivered after the Marketing Termination Date but that has an effective date that is on or prior to the Marketing Termination Date shall, for the purposes of this Section 3.6 and of Section 3.7, be deemed issued on such effective date. Each New Policy will have a term not to exceed one (1) year from its effective date; provided, however, that a New Policy may have a term not to exceed two (2) years from its effective date or may provide a guaranteed Premium rate for an initial two-year period from its effective date, if such New Policy is issued prior to the Marketing Termination Date in the ordinary course of business consistent with Ceding Company’s past practices. Reinsurer will pay all expenses and perform all responsibilities related to the issue of any New Policies as permitted under this Agreement, including but not limited to all expenses related to agent appointments, commissions, marketing and printing. A New Policy may not include any term or condition that would prevent the termination of such policy on or at any time after the Policy Termination Date, other than a term that is the same as is contained in one of the forms of New Policies set forth in Exhibit C providing for a prior notice of termination or an effective date of termination. Reinsurer will provide and maintain all documentation related to the appointment of agents in connection with the sale or issue of New Policies. Ceding Company will cooperate with such agent appointments but it may, in its reasonable discretion, terminate the appointment of any agent following prior notice to Reinsurer of such intended action if, in Ceding Company’s reasonable judgment, such agent is creating an unreasonable business or legal risk for Ceding Company. Ceding Company will promptly terminate the appointment of any agent to sell New Policies if directed in writing to do so by Reinsurer. In marketing New Policies as permitted under this Agreement, Reinsurer may use only those marketing materials approved for use by Ceding Company at the Effective Time or that may be approved by Ceding Company after the Effective Time at the request of Reinsurer, such approval not to be unreasonably withheld, conditioned or delayed. Reinsurer may not otherwise use Ceding Company’s name, logo, trademarks or trade names, except as permitted by Section 5.14 of this Agreement or by the Purchase Agreement.

        3.7. Renewal and Termination of Existing and New Policies. At and after the Effective Time and before the Marketing Termination Date, Ceding Company will, at Reinsurer’s request, renew any Existing Policy at the conclusion of the normal renewal cycle for such policy or on the anniversary date for such policy for a term not to exceed one (1) year and at rates mutually determined by Ceding Company and Reinsurer. In addition, Ceding Company will renew a New Policy after the Marketing Termination Date, at Reinsurer’s request, where appropriate to honor a two-year rate guarantee for a New Policy that was issued before the Marketing Termination Date for a period not to extend beyond the Policy Termination Date and at rates mutually determined by Ceding Company and Reinsurer. Reinsurer will pay all expenses and perform all responsibilities related to the renewal of any Existing Policies or New Policies as permitted under this Agreement, including but not limited to all expenses related to agent appointments, commissions, marketing and printing. With respect to any such renewal of an Existing Policy or New Policy after the Effective Time, Reinsurer may not provide or include any term or condition that would prevent the termination of such policy on or at any time after the Policy Termination Date, other than a term providing for a prior notice of termination or an effective date of termination that is the same as is contained in such Existing Policy (in the case of a renewal of an Existing Policy) or in one of the forms of New Policies set forth in Exhibit C (in the case of a renewal of a New Policy). After the Marketing Termination Date, except as provided above in this Section 3.7 or in Section 3.6, Ceding Company will not be obligated to renew any Existing Policy or New Policy or to issue any New Policy, and Reinsurer may not do so on Ceding Company’s behalf. Reinsurer agrees that, on and after the Policy Termination Date, at Ceding Company’s written direction, Reinsurer will, on Ceding Company’s behalf, terminate any Existing Policy or any New Policy that may be in force on such date in accordance and consistent with the provisions thereof and, that if Reinsurer fails to so terminate any such Existing Policy or New Policy prior to the earlier of (x) sixty (60) calendar days after Reinsurer receives such notice from Ceding Company and (y) five (5) business days prior to the renewal date of such Existing Policy or New Policy, then Ceding Company may terminate such Existing Policy or New Policy. Ceding Company represents and warrants to Reinsurer that all policy forms listed on Exhibits A and C contain terms and conditions that will not preclude Reinsurer from complying with the obligations in Section 3.7 and this Section 3.8, including, without limitation, the obligation to permit Existing Policies to be terminated on and after the Policy Termination Date.

        3.8. Compliance with Certain Agreements. Anything herein to the contrary notwithstanding, without Ceding Company’s prior written consent, Reinsurer will not cause to be issued any New Policy to any state or federally chartered credit union operating in the United States. In the event that BBI does not agree to terminate the BBI Marketing Agreement at or prior to the Effective Time, then anything herein to the contrary notwithstanding, without Ceding Company’s prior written consent, Reinsurer will not cause to be issued any New Policy or cause to be renewed any Existing Policy in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, West Virginia, Connecticut, Pennsylvania, New Jersey, Delaware or New York other than through BBI.

        3.9. Compliance with Law. Reinsurer will comply in all material respects with all state insurance laws and regulations and all other applicable laws and regulations in performing its activities under this Section 3 and its other obligations under this Agreement, including but not limited to its appointment of agents on behalf of Ceding Company, its payment of commissions to such agents and its use of marketing materials, and no approval by Ceding Company under Section 3.7 above of any marketing materials used by Reinsurer will be deemed to waive any liability of Reinsurer to Ceding Company under this Agreement arising from the failure of such marketing materials to comply with such laws and regulations. Ceding Company will use all commercially reasonable efforts to comply with directions from Reinsurer with respect to issuance of New Policies, renewals of Existing Policies and New Policies, and administration of Reinsured Policies, so long as such directions comply with all applicable laws and are not inconsistent with the provisions of this Agreement. Reinsurer will reimburse Ceding Company for Ceding Company’s reasonable costs and expenses in complying with such directions.

        3.10. Credit for Ceded Reinsurance. Reinsurer will maintain all licenses or otherwise take all action that may be necessary for Ceding Company to obtain full financial credit for the Reinsured Policies.

        3.11. Assignment of Certain Other Agreements. From and after the Effective Time, as may be requested by Reinsurer from time to time, Ceding Company will assign to Reinsurer, and Reinsurer will assume and accept, all of Ceding Company’s rights and interests in and under any Related Agreement, Provider Agreement and Third Party Administration Agreement that has not been previously assumed by Reinsurer pursuant to the provisions of this Agreement (including assumptions pursuant to this Section 3.11); provided, however, that to the extent that any such assignment would preclude Ceding Company from lawfully fulfilling its obligations under this Agreement, then as a condition to such assignment, Reinsurer and Ceding Company will enter into an appropriate agreement to provide Ceding Company with the necessary rights and benefits under such assigned agreement to enable Ceding Company to fulfill lawfully its obligations under this Agreement; and provided further, that following the Policy Termination Date (but not prior to such date), Ceding Company will terminate any of the Related Agreements, Provider Agreements or Third Party Administration Agreements that have not then been assigned to Reinsurer.

        3.12. Approval of Reinsurer Rates and Forms. Reinsurer will use commercially reasonable efforts to obtain approval of Reinsurer’s rates and policy forms from the relevant regulatory authorities to enable Reinsurer to convert the Reinsured Policies to Reinsurer’s own policies on the first practicable policy renewal date (in accordance with Section 3.7) following the Effective Date.

4. Accounting, Payments and Procedures.

        4.1. Premium Accounting. Reinsurer will be entitled to receive as a reinsurance premium one hundred percent (100%) of all premiums and other amounts with respect to the Reinsured Policies (“Premiums”) that are received at or after the Effective Time, including, without limitation, amounts received in payment of Premiums Receivable as of the Effective Time, and all such Premiums will be the sole property of Reinsurer. Reinsurer will be authorized to endorse for payment to Reinsurer all checks, drafts and money orders payable to Ceding Company as payment of Premiums that are received at or after the Effective Time. Ceding Company hereby assigns to Reinsurer, as of the Effective Time, all of its rights and privileges to draft or debit the accounts of any Policyholders for Premiums, including existing pre-authorized bank draft or electronic fund transfer arrangements between Ceding Company and such Policyholders. Ceding Company will promptly (but in no event later then five (5) business days following Ceding Company’s receipt thereof) endorse and remit, and hereby assigns to Reinsurer, any Premiums received at or after the Effective Time. All Premiums received before the Effective Time will be retained by Ceding Company.

        4.2. Ceding Commission. In consideration of Ceding Company's transfer of the Reinsured Policies and the Preliminary Transfer Amount to Reinsurer as provided herein, on the Effective Date, Reinsurer will pay to Ceding Company a ceding commission in cash in the amount of $2,500,000 (the "Ceding Commission").

        4.3. Transfer of Assets. On the Effective Date, in consideration of and subject to Reinsurer’s (a) reinsurance of the Policy Liabilities, (b) assumption or payment and performance of the Other Assumed Liabilities and (c) payment of the ceding commission, all as provided in this Agreement, Ceding Company hereby (x) transfers to Reinsurer cash equal to the Preliminary Transfer Amount and (y) sells, transfers, conveys, grants, assigns and delivers to Reinsurer, free and clear of all claims, liens, interests and encumbrances, and Reinsurer hereby accepts from Ceding Company, all of Ceding Company’s existing and future right, title and interest in and to the Policy-Related Assets received by or on behalf of Ceding Company at or after the Effective Time with respect to the Reinsured Policies, and Ceding Company agrees to execute and deliver to Reinsurer any further instruments or assurances that Reinsurer may reasonably request for more effectual vesting of Reinsurer’s right, title and interest in and to such Policy-Related Assets. To the extent that a court of competent jurisdiction or Governmental Entity determines that the foregoing transfer and conveyance of Policy-Related Assets is not effective to vest absolute and irrevocable title in such Policy-Related Assets in Reinsurer, then Ceding Company hereby grants to Reinsurer a first priority security interest in such Policy-Related Assets to secure payment and performance of the Policy Liabilities and the Other Assumed Liabilities. Ceding Company will take all action reasonably requested by Reinsurer to assist Reinsurer in recording and perfecting such first priority security interest, including Ceding Company’s execution and delivery of any financing statements reasonably requested by Reinsurer.

        4.4. Preliminary Effective Date Accounting. Ceding Company has delivered to Reinsurer not later than five business days prior to the Effective Date an accounting, as of the last day of the calendar month that is two months immediately preceding the calendar month during which the Effective Date occurs (by way of example, if the Effective Date were August 1, such accounting would be as of June 30) of all Policy-Related Liabilities and Policy-Related Assets as of such date in the same form as the Indemnity Accounting (the “Preliminary Effective Date Accounting”). Such accounting was reviewed and accompanied by a certificate signed by Ceding Company’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Ceding Company; (iii) calculated in accordance with applicable SAP; and (iv) prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000 and the Indemnity Accounting. Ceding Company will provide Reinsurer with a copy of all work papers and data used, and access to all Ceding Company personnel involved, in preparing the Preliminary Effective Date Accounting as requested by Reinsurer.

4.5. Effective Date Accounting.

        4.5.1. No later than sixty (60) calendar days after the Effective Date, Ceding Company will prepare as of the Effective Date and deliver to Reinsurer an accounting of all Policy-Related Liabilities and Policy-Related Assets, in the same form as the Preliminary Effective Date Accounting (the “Effective Date Accounting”). In addition, the Effective Date Accounting will include a statement comparing the values set forth on the Preliminary Effective Date Accounting with the values on the Effective Date Accounting and computing the difference in such values. The Effective Date Accounting must be reviewed and accompanied by a certificate signed by Ceding Company’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Ceding Company; (iii) calculated in accordance with applicable SAP; and (iv) prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000, the Indemnity Accounting and the Preliminary Effective Date Accounting. Ceding Company will provide Reinsurer with a copy of all work papers and data used, and access to all personnel involved, in preparing the Effective Date Accounting. After the Effective Date, Reinsurer will provide Ceding Company with reasonable access to the books and records of the Business, and access to Reinsurer’s personnel, reasonably necessary for Ceding Company to prepare the Effective Date Accounting.

        4.5.2. Reinsurer will have sixty (60) calendar days after receipt of the Effective Date Accounting to review such accounting and suggest changes or corrections thereto. On or before the end of such period, Reinsurer will notify Ceding Company in writing whether or not it accepts the Effective Date Accounting. If Reinsurer fails to so notify Ceding Company, Reinsurer will be deemed to have accepted the Effective Date Accounting. If Reinsurer notifies Ceding Company that it does not accept the Effective Date Accounting, Reinsurer will set forth in reasonable detail its objections thereto and the reasons for such objections. The parties in good faith will discuss and negotiate any such objections in an effort to reach agreement on the Effective Date Accounting. If despite good faith negotiations the parties are unable to reach agreement within thirty (30) calendar days after Ceding Company’s receipt of Reinsurer’s notice of objections, then the parties will submit the dispute to arbitration in accordance with Section 7, except that all arbitrators must be Members of the American Academy of Actuaries familiar with the types of policies included in the Reinsured Policies, and the arbitrators will determine the Effective Date Accounting in accordance with the standards set forth in items (i) through (iv) of Section 4.5.1.

        4.5.3. Within ten (10) calendar days after agreement is reached on the Effective Date Accounting or the Effective Date Accounting is determined by arbitration, as the case may be, the parties will settle any differences on such accountings as follows: (i) if the Net Transfer Amount Difference is positive, then Ceding Company will pay such difference to Reinsurer in cash; and (ii) if the Net Transfer Amount Difference is negative, then Reinsurer will pay such difference to Ceding Company in cash. “Net Transfer Amount Difference” means the result of subtracting the value of the Preliminary Transfer Amount from the value of the Adjusted Transfer Amount. Payment of the Net Transfer Amount Difference will be accompanied by the payment of interest thereon from the Effective Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Effective Date.

4.6. True-Up Accounting.

        4.6.1. Within sixty (60) calendar days after the date that is one (1) year after the Effective Date, Reinsurer will prepare and deliver to Ceding Company a final accounting, in the same form as the Preliminary Effective Date Accounting and the Effective Date Accounting, of all Policy-Related Liabilities and Policy-Related Assets as of the Effective Date (the “True-Up Accounting”). Such accounting must be reviewed and accompanied by a certificate signed by Reinsurer’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Reinsurer; (iii) calculated in accordance with applicable SAP; and (iv) to the best knowledge of such actuary, prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000, the Indemnity Accounting, the Preliminary Effective Date Accounting and the Effective Date Accounting. The True-Up Accounting will include a statement comparing the values of the items set forth on the True-Up Accounting with the values of such items on the Effective Date Accounting and computing the difference in such values; provided, however, that the True-Up Accounting will make no true-up adjustment for items that customarily are included in Exhibit 8 and Exhibit 9 of the NAIC Annual Statement Blank (other than the A&H benefit reserves that are customarily included in Exhibits 8 and 9, which will be adjusted as part of the True-Up Accounting). With respect to the Reserves that have been estimated for claims for policy benefits under the Reinsured Policies, the True-Up Accounting will restate the liability for claims that were incurred before the Effective Time but not reported as of the Effective Time by replacing the estimated liability for such claims that was included in the Effective Date Accounting with the sum of (a) the actual runoff of such claims that were incurred before the Effective Time and that have been paid since the Effective Time, plus (b) an estimate for any such claims that were incurred before the Effective Time and may be unpaid as of the date that is one year after the Effective Time. To the extent that the actual amounts of any other Policy-Related Liabilities and Policy-Related Assets as of the Effective Date become determinable prior to the preparation of the True-Up Accounting, such items will be reflected on the True-Up Accounting as such actual amounts rather than estimations. Reinsurer will provide Ceding Company with a copy of all work papers and data used, and access to all personnel involved, in preparing the True-Up Accounting.

        4.6.2. Ceding Company will have sixty (60) calendar days after receipt of the True-Up Accounting to review such accounting and suggest changes or corrections thereto. On or before the end of such period, Ceding Company will notify Reinsurer in writing whether or not it accepts the True-Up Accounting. If Ceding Company fails to so notify Reinsurer, Ceding Company will be deemed to have accepted the True-Up Accounting. If Ceding Company does not accept the True-Up Accounting, Ceding Company will set forth in reasonable detail its objections thereto and the reasons for such objections. The parties in good faith will discuss and negotiate any such objections in an effort to reach agreement on the True-Up Accounting. If despite good faith negotiations the parties are unable to reach agreement within thirty (30) calendar days after Reinsurer’s receipt of Ceding Company’s notice of objections, then the parties will submit the dispute to arbitration in accordance with Section 7, except that all arbitrators must be Members of the American Academy of Actuaries familiar with the types of policies included in the Reinsured Policies, and the arbitrators will determine the True-Up Accounting in accordance with the standards set forth in items (i) through (iv) of Section 4.6.1.

        4.6.3. Within ten (10) calendar days after agreement is reached on the True-Up Accounting or the True-Up Accounting is determined by arbitration, as the case may be, the parties will settle any differences on such accountings as follows: (i) if the True-Up Value Difference is positive, then Ceding Company will pay such difference to Reinsurer in cash; and (ii) if the True-Up Value Difference is negative, then Reinsurer will pay such difference to Ceding Company in cash. “True-Up Value Difference” means the result of subtracting the value for the Adjusted Transfer Amount from the value for the Final Transfer Amount. Payment of the True-Up Value Difference will be accompanied by the payment of interest thereon from the Effective Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Effective Date.

        4.7. Monthly Accounting. After the Effective Date and for as long as this Agreement is in effect, each calendar month Reinsurer will prepare and deliver to Ceding Company an accounting (the “Monthly Accounting”), which will be delivered no later than the fifteenth (15th) calendar day of the calendar month immediately following the calendar month for which such accounting is prepared; except that the first Monthly Accounting will not be due until forty-five (45) calendar days after the Effective Date. The Monthly Accounting will be substantially in the form set forth in Exhibit I. Reinsurer will supply Ceding Company on a timely basis with all accounting data relating to transactions carried out by it in connection with the Business that Ceding Company may reasonably request.

        4.8. Annual and Quarterly Reporting. On or before January 20 of each year, Reinsurer will furnish Ceding Company an accounting statement that contains such information with respect to the Reinsured Policies, for the immediately preceding calendar year, as Ceding Company may reasonably require to complete its annual financial statements as required by applicable statute or regulation, including but not limited to “State Page” information and all information needed by Ceding Company for calculation and payment of premium taxes and municipal taxes. On or before the twentieth (20th) day after the end of each calendar quarter, Reinsurer also will provide Ceding Company with an accounting statement that contains such information with respect to the Reinsured Policies, for the immediately preceding calendar quarter, as Ceding Company may reasonably require to complete its quarterly financial statements as required by applicable statute or regulation.

        4.9. Reserves. With respect to the Reinsured Policies, before the Effective Time, Ceding Company has established and maintained as a liability on its statutory statements not less than the statutory reserves and claims reserves required by all applicable regulatory authorities and as calculated in accordance with applicable SAP and in accordance with generally accepted actuarial principles. With respect to the Reinsured Policies, at and after the Effective Time, Reinsurer will establish and maintain as a liability on its statutory statements not less than the statutory reserves and claim reserves required by applicable SAP and in accordance with generally accepted actuarial principles. If Reinsurer reinsures or retrocedes the Reinsured Policies to an Affiliate or other Person outside of the United States, such reserves will be maintained in the United States pursuant to a funds withheld, trust or other arrangement (reasonably acceptable to Ceding Company) to secure Ceding Company’s continuing obligations thereunder.

        4.10. Commissions. If Ceding Company pays any Commissions that are the obligation of Reinsurer pursuant to Section 2.2 because Reinsurer fails to do so, Reinsurer will promptly reimburse Ceding Company therefor as set forth in Section 4.11.

        4.11. Reimbursements. If Reinsurer fails to pay any Policy Liabilities, Reinsurer will reimburse Ceding Company for all Policy Liabilities that may be paid by Ceding Company at and after the Effective Time, provided that any such payments by Ceding Company will be in accordance with the terms and conditions of the applicable Reinsured Policy or Other Agreement. The reimbursements required by this Section 4.11 will be paid by Reinsurer to Ceding Company within ten (10) calendar days of Reinsurer’s receipt of written notice from Ceding Company thereof. Such written notice from Ceding Company will be accompanied by such supporting information and detail as Reinsurer reasonably requests.

        4.12. Wire Transfers. Any payment of cash required under this Agreement must be paid to the payee in immediately available funds, United States Dollars, by means of a wire transfer if the payee provides to the payer appropriate wire transfer instructions at least two (2) business days before the required date of payment, and otherwise by means of a certified, cashier’s or bank check.

        4.13. DAC Tax Provisions. In accordance with Treasury Regulations Section 1.848-2(g)(8), Ceding Company and Reinsurer hereby elect to determine specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1) of the Code.

        4.13.1. All uncapitalized terms used in this Section 4.13 will have the meanings set forth in the regulations under Section 848 of the Code.

        4.13.2. The party with net positive consideration under this Agreement for each taxable year will capitalize specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1) of the Code.

        4.13.3. Both parties will exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency.

        4.13.4. Reinsurer will submit a schedule to Ceding Company by May 1 of each year of its calculation (“Reinsurer’s DAC Calculation”) of the net consideration under this Agreement for the preceding taxable year. This schedule of calculations must be accompanied by a statement signed by an authorized representative of Reinsurer stating that Reinsurer will report such net consideration in its federal income tax return for the preceding taxable year.

        4.13.5. Ceding Company may contest such calculation by providing an alternative calculation (“Ceding Company’s DAC Calculation”) to Reinsurer in writing within thirty (30) calendar days after the date on which Ceding Company receives Reinsurer’s calculation. If Ceding Company does not so notify Reinsurer, Ceding Company will report the net consideration under this Agreement as determined by Reinsurer in Ceding Company’s federal income tax return for the preceding taxable year.

        4.13.6. If Ceding Company contests Reinsurer’s calculation of the net consideration under this Agreement, the parties will negotiate in good faith to reach an agreement as to the correct amount of net consideration within thirty (30) calendar days after the date on which Ceding Company submits its alternative calculation. If Reinsurer and Ceding Company reach agreement as to the amount of net consideration under this Agreement, each party will report such amount in its federal income tax return for the preceding taxable year. If, during such period, Reinsurer and Ceding Company are unable to reach agreement, they will promptly thereafter cause independent accountants of nationally recognized standing reasonably satisfactory to Reinsurer and Ceding Company (who will not have any material relationship with Reinsurer or Ceding Company), promptly to review (which review will commence no later than five (5) business days after the selection of such independent accountants), this Agreement and the calculations of Reinsurer and Ceding Company for the purpose of calculating the net consideration under this Agreement. Such independent accountants will deliver to Reinsurer and Ceding Company, as promptly as practicable (but no later than sixty (60) calendar days after the commencement of their review), a report setting forth such calculation, which calculation will result in a net consideration between the amount thereof shown in Reinsurer’s DAC Calculation and the amount thereof shown in Ceding Company’s DAC Calculation. Such report will be final and binding upon Reinsurer and Ceding Company. The fees, costs and expenses of such independent accountant will be borne (i) by Ceding Company if the difference between the net consideration as calculated by the independent accountants and Ceding Company’s DAC Calculation is greater than the difference between the net consideration as calculated by the independent accountants and Reinsurer’s DAC Calculation, (ii) by Reinsurer if the first such difference is less than the second such difference, and (iii) otherwise equally by Reinsurer and Ceding Company.

        4.13.7. This election will be effective for the 2001 taxable year and for all subsequent taxable years for which this Agreement remains in effect.

        4.13.8. Both parties will attach a schedule to their respective federal income tax returns for the first taxable year ending after the date on which this election becomes effective which identifies this Agreement as a reinsurance agreement for which an election has been made under Treasury Regulations Section 1.848-2(g)(8).

        4.14. Premium Taxes. Notwithstanding Sections 4.7 and 4.11 above, Reinsurer will reimburse Ceding Company for Premium taxes that are part of the Policy Liabilities on the basis specified herein. For each calendar year, Reinsurer will reimburse such Premium tax payments, with respect to each state and municipality, on an annual basis, within thirty (30) calendar days after Reinsurer receives a billing from Ceding Company for Reinsurer’s share of such Premium taxes paid. Reinsurer’s share will be determined on the basis of each such state’s actual applicable tax rate multiplied by the Premiums for the Reinsured Policies received in such state during the annual period. Such Premium taxes will be reduced to the extent of any credit that Ceding Company is entitled to take in any such year on its Premium tax returns for any amounts paid by Reinsurer for the guaranty fund assessments and similar charges that are part of the Policy Liabilities. Notwithstanding the foregoing, because Ceding Company is required by law to pay estimated Premium taxes on a quarterly basis throughout each calendar year, Reinsurer will pay Ceding Company such Premium tax reimbursements on a quarterly basis within fifteen (15) calendar days after receipt of a written estimate prepared by Ceding Company, and the parties will make any necessary adjustment at the end of the calendar year so that Reinsurer only reimburses Ceding Company for the actual Premium taxes on the basis specified above.

5. Administrative Services and Records.

        5.1. Administration and Servicing. At and after the Effective Time, Reinsurer will provide or arrange for (including through receipt of services from Ceding Company for a transition period) all Administrative Services for the Business and supply to Ceding Company copies of accounting and other records pertaining to such services as Ceding Company may from time to time reasonably request. Such services will include but not be limited to the following:

        (a) billing and collection of Premiums;

        (b) payment of claims;

        (c) payment of any refunds of Premiums;

        (d) handling of normal Policyholder requests under the Reinsured Policies;

        (e) preparation of monthly, quarterly and annual financial statement data, where applicable, for inclusion in Ceding Company's financial statements;

        (f) administration of the Other Agreements;

        (g) preparation, processing and filing of any agent appointments;

        (h) underwriting and issuing of any New Policies on behalf of Ceding Company; and

        (i) renewal of any Existing Policies or New Policies on behalf of Ceding Company.

        Reinsurer will perform all Administrative Services in a manner that is consistent with the terms of the Reinsured Policies and the Other Agreements (as the case may be), the current practice of reinsurance with respect to its business, and in a reasonable manner consistent with industry standards for the administration of dental, life, accident and health insurance and in accordance in all material respects with all applicable laws and regulations, and in accordance with other standards mutually agreed to by the parties. The parties acknowledge that Ceding Company has the ultimate authority to make decisions regarding servicing of the Reinsured Policies in accordance with applicable New York insurance laws and regulations. The parties will make it clear to the Policyholders that the Administrative Services are being performed by Reinsurer as administrator for Ceding Company, in accordance with applicable New York insurance laws and regulations.

        5.2.Transfer of Records. On the Effective Date, Ceding Company will deliver to Reinsurer all books and records relating to the Business. On and after the Effective Date, Reinsurer will provide Ceding Company reasonable access to such books and records, and to Reinsurer’s personnel, with such access to be during normal business hours, on reasonable notice and at Ceding Company’s expense. Such records will remain the property of Ceding Company, will be maintained by Reinsurer in accordance with Regulation 152 of the New York Department of Insurance and will be returned to Ceding Company upon the termination of this Agreement.

        5.3. Reinsurer Records. Reinsurer will maintain true and accurate books and records of all reinsurance hereunder, including all such records as may be required by law. As long as this Agreement is in effect, Reinsurer will make available for reasonable inspection and copying by Ceding Company (during normal business hours, on reasonable notice and at Ceding Company’s expense) any financial or other records pertaining to the Business that Ceding Company reasonably may require for financial statement preparation or any other reasonable business purposes.

        5.4.Privacy. Pursuant to the provisions of the Insurance Information and Privacy Protection Act or similar laws as enacted in various states, Reinsurer recognizes that, in the performance of its obligations under this Agreement, it will obtain from Ceding Company and other sources personal or privileged information about individuals collected or received in connection with insurance transactions. Reinsurer will maintain the confidentiality of such information in accordance with all such laws and not disclose such information further without the individual’s written authorization, unless such disclosure is otherwise permitted by law.

        5.5.Audit. Each party will have the right to audit at its sole expense, at the office of the other during regular business hours and on reasonable notice, all records and procedures relating to the Business.

        5.6.Continuing Cooperation. Subject to then-available staff and facilities and workloads associated with Ceding Company’s operations, Ceding Company will use reasonable efforts to assist Reinsurer in resolving issues relating to the Business, and Ceding Company promptly will provide Reinsurer with such information with respect to the Business as Reinsurer may reasonably request for purposes of preparing Reinsurer’s income tax returns or financial statements, to satisfy any other regulatory requirement or for any other reasonable business purpose. Subject to then-available staff and facilities and workloads associated with Ceding Company’s operations, Ceding Company will provide (at Reinsurer’s expense) such other assistance as Reinsurer may reasonably request in the performance of the Administrative Services. Nothing contained herein is intended to alter Ceding Company’s obligations under the transition services agreement entered into pursuant to Section 8.16 of the Purchase Agreement.

        5.7.Forwarding of Claims and Inquiries. At and after the Effective Time, Ceding Company promptly will remit and refer to Reinsurer all inquiries involving the Business, including but not limited to inquiries regarding additional premiums, claims payment or policy provisions, limitations or exclusions. Claims that are part of the Business erroneously submitted to Ceding Company will be forwarded promptly to Reinsurer.

        5.8.Complaint-Handling Procedure. The parties will cooperate with each other in providing information necessary to respond to any complaints concerning the Business or to respond to any request from a Governmental Entity having jurisdiction over the Business. At and after the Effective Time, Reinsurer will answer all complaints received by it concerning the Business. All complaints concerning the Business received by Ceding Company at and after the Effective Time will be forwarded promptly by fax or overnight mail to a contact person designated by Reinsurer for reply. Upon answering such complaints, Reinsurer will furnish Ceding Company with a copy of the complaint file. Ceding Company will be responsible for maintaining complaint files, complaint registers and other reports of any kind with respect to the Business that are required to be maintained under applicable state laws. However, Reinsurer also will maintain complaint files and registers and will provide Ceding Company with copies of complaint registers concerning the Business quarterly or upon written request by Ceding Company. Ceding Company also will be responsible for preparing and submitting any other filings with respect to complaints as may be required by applicable law or regulation. The parties acknowledge that Ceding Company has the ultimate responsibility for consumer complaints and regulatory inquiries with respect to the Reinsured Policies in accordance with applicable New York insurance laws and regulations (subject to Ceding Company’s right of indemnification under Section 6.2).

        5.9.Compliance. At and after the Effective Time, with such cooperation from Ceding Company as Reinsurer may reasonably request, Reinsurer will handle all compliance and regulatory matters relating to the administration of the Business, including but not limited to monitoring and implementing necessary changes to forms and rates that may be required by applicable laws and regulations and preparing and filing all reports and other filings related to the Business that may be required by Governmental Entities. Reinsurer, and any other party that performs claims adjusting with respect to the Reinsured Policies, will maintain all licenses and registrations required by regulators for the performance of its duties and obligations under this Agreement, including, without limitation, any independent adjusters license.

        5.10.Oversights and Errors. In the event that any unintentional or accidental failure to comply with the terms of this Agreement can be shown to be the result of a misunderstanding, oversight or clerical error, both parties will be restored to the position they would have occupied had the misunderstanding, oversight or error not occurred.

5.11.Litigation.

        5.11.1. At and after the Effective Time, Ceding Company will retain responsibility for the liability, cost and management of all Business Proceedings commenced before the Effective Time. At the request of Reinsurer, Ceding Company will provide Reinsurer with reasonable updates regarding the progress and status of all such Business Proceedings.

        5.11.2. At and after the Effective Time, Reinsurer will notify Ceding Company promptly of claims made under the Reinsured Policies or Other Agreements that involve Excluded Liabilities. The parties will mutually agree on an appropriate response to any such claims that involve both an Excluded Liability and either a Policy Liability or Other Assumed Liability and hereby agree to cooperate and coordinate in resolving any and all such claims. In lieu of participating with Ceding Company in the defense of any claim involving both an Excluded Liability and either a Policy Liability or Other Assumed Liability, Reinsurer may elect to pay to Ceding Company the portion of such claim that is reinsured by or the responsibility of Reinsurer under this Agreement, following which Ceding Company will be solely responsible for resolving the remainder of such claim at its own expense. Notwithstanding anything in this Agreement to the contrary, (i) without Ceding Company's prior written consent, which will not be unreasonably withheld, conditioned or delayed, Reinsurer will not pay any portion of or settle any claim involving Excluded Liabilities or admit liability on the part of Ceding Company with respect to such claim, and (ii) without Reinsurer's prior written consent, which will not be unreasonably withheld, conditioned or delayed, Ceding Company will not pay any portion of or settle any claim involving Policy Liabilities or Other Assumed Liabilities or admit liability on the part of Reinsurer with respect to such claim.

        5.11.3. At and after the Effective Time, Reinsurer will have responsibility for the liability, cost and management of all Business Proceedings commenced at and after the Effective Time that are Policy Liabilities or Other Assumed Liabilities. Reinsurer will provide Ceding Company with reasonable updates regarding the progress and status of all such Business Proceedings.

        5.12.Power of Attorney. Subject to the provisions of Section 5.11 of this Agreement regarding the handling of Business Proceedings and Excluded Liabilities, and specifically referencing Section 5.8, Ceding Company does hereby appoint and name Reinsurer, acting through Reinsurer’s authorized officers and employees, as Ceding Company’s lawful attorney in fact with respect to the rights, duties, privileges and obligations of Ceding Company relating to the Reinsured Policies and Other Agreements, (i) to do any and all lawful acts that Ceding Company might have done with respect to the Reinsured Policies and Other Agreements, and (ii) to proceed by all lawful means (A) to perform any and all of Ceding Company’s obligations under the Reinsured Policies and Other Agreements, (B) to enforce any right and defend against any liability arising under the Reinsured Policies and Other Agreements, (C) to sue or defend (in the name of Ceding Company, when necessary) any action arising under the Reinsured Policies and Other Agreements, (D) to collect any and all sums due or payable to Ceding Company under the Reinsured Policies and Other Agreements and to quit and release for same, (E) to collect any and all Premiums due or payable under the Reinsured Policies through any automatic charge authorizations or otherwise of persons who own or hold Reinsured Policies, (F) to sign (in Ceding Company’s name, when necessary) vouchers, receipts, releases and other papers in connection with any of the foregoing matters, (G) to take actions necessary, as may be reasonably determined, to maintain the Reinsured Policies in compliance with applicable laws and regulations, (H) to request rate changes for the Reinsured Policies, (I) to undertake the necessary duties in connection with payment of Commissions in connection with the Reinsured Policies, (J) to establish and maintain bank accounts in the name of Ceding Company and issue drafts and make deposits thereon for the purpose of performing the Administrative Services, and (K) to do everything lawful in connection with the satisfaction of the Reinsurer’s obligations and the exercise of its rights under this Agreement.

        5.13.Abandoned Property, etc. Ceding Company will promptly reimburse Reinsurer for any and all amounts paid to Policyholders by Reinsurer as a result of the non-negotiability of checks and other drafts issued by Ceding Company prior to the Effective Time for amounts owed under Reinsured Policies. Reinsurer will reimburse Ceding Company for all amounts under Reinsured Policies paid by Ceding Company to the applicable state that escheat to such state as abandoned property because checks and other drafts issued by Reinsurer at or after the Effective Time with respect to Policy Liabilities were not timely cashed or deposited by the applicable payee. Ceding Company will promptly seek reimbursement from the applicable state for any amounts paid by Reinsurer to Policyholders under the Reinsured Policies after corresponding amounts have been paid to Ceding Company and escheated to the applicable state pursuant to the immediately preceding sentence, and Ceding Company will promptly reimburse Reinsurer after it has received such amounts from the applicable state. Reinsurer will provide to Ceding Company information concerning the Reinsured Policies reasonably necessary for the preparation of any report, notice or filing concerning abandoned property required to be made by Ceding Company by the applicable state.

        5.14.Restrictive License Regarding Use of Names. Ceding Company hereby grants a restrictive, non-exclusive license, during the term of this Agreement, with no right to sublicense or assign without Ceding Company’s express written consent (except in connection with an assignment of this Agreement pursuant to Section 8.1), for Reinsurer to display and refer to Ceding Company’s name as may be necessary or appropriate for Reinsurer to perform its obligations or exercise its rights hereunder, provided that Reinsurer’s use of Ceding Company’s name will be in accordance with Ceding Company’s written trademark usage guidelines as provided to Reinsurer from time to time. Reinsurer will not take any action that might have an adverse effect on the validity of Ceding Company’s name or ownership by Ceding Company thereof, and will cease to use Ceding Company’s name in any manner immediately upon the expiration or termination of all of the Reinsured Policies. Reinsurer will not acquire any other rights of any kind in Ceding Company’s trade names, trademarks, product name or marks by the use authorized in this Section 5.14. Reinsurer may also use its own marks in connection therewith.

        5.15.Confidential Information. Reinsurer and Ceding Company acknowledge that during the performance of services pursuant to this Agreement, each of them will be exposed to the confidential and proprietary information of the other party and the other party’s Affiliates, including, but not limited to, information containing the names and addresses of Policyholders and all other non-public personal information related to the Reinsured Policies or the Policyholders (the “Confidential Information”). Each party agrees to take all commercially reasonable measures to prevent the Confidential Information from being acquired by unauthorized Persons to the same extent it protects its own confidential and proprietary information, and will not disclose the Confidential Information to third parties without the prior written consent of the other party, except as required by applicable law. Neither party nor any of their respective Affiliates may use the Confidential Information for any purpose other than the performance of its obligations pursuant to this Agreement or as required by applicable law. This Section 5.15 will survive the termination of this Agreement for a period of five (5) years from the date of such termination. Notwithstanding the foregoing, Confidential Information will not include (a) information that is in the recipient’s possession prior to disclosure to it, (b) information that is or becomes publicly available, provided that such public availability does not result from (i) the misappropriation of such information by the recipient or (ii) the obtaining of such information by improper means of the recipient or from acts or omissions of another Person that the recipient knows, or should have reason to know, misappropriated such information or utilized improper means to acquire it or acquired it under circumstances giving rise to a duty to maintain its secrecy or limit its use or by accident or mistake and (c) information that is developed independently by the recipient without the use of any Confidential Information.

        5.16.Customer Lists. Without limiting any obligations of Ceding Company under Section 5.15 above, from and after the Effective Time until two (2) years after the Marketing Termination Date, Ceding Company will not use any customer list or portion thereof that exists on the Marketing Termination Date with respect to the Business for the purpose of soliciting indemnity or prepaid dental insurance business, subject to any other restrictions applicable to Ceding Company pursuant to the Purchase Agreement.

6. Indemnification.

        6.1. Indemnification of Reinsurer. Ceding Company will indemnify, defend and hold harmless Reinsurer and its Affiliates and their respective directors, officers, employees and assigns (the “Reinsurer Indemnitees”) from and against all claims, losses, liabilities, damages, deficiencies, costs, expenses, penalties and reasonable outside attorneys’ fees and disbursements (collectively, “Losses,” and individually a “Loss”), asserted against, imposed upon or incurred by them, directly or indirectly, by reason of or arising out of or in connection with (i) any breach of any covenant or agreement made or to be performed by Ceding Company pursuant to this Agreement, (ii) any Excluded Liability, and (iii) the reasonable costs to Reinsurer Indemnitees of enforcing this indemnity against Ceding Company provided that such costs are awarded to Reinsurer Indemnitees in accordance with Section 7.4.

        6.2. Indemnification of Ceding Company. Reinsurer will indemnify, defend and hold harmless Ceding Company and its Affiliates and their respective directors, officers, employees and assigns (the “Ceding Company Indemnitees”) from and against Losses asserted against, imposed upon or incurred by them, by reason of or arising out of or in connection with (i) any breach of any covenant or agreement made or to be performed by Reinsurer pursuant to this Agreement, (ii) any Policy Liability or Other Assumed Liability, and (iii) the reasonable costs to Ceding Company Indemnitees of enforcing this indemnify against Reinsurer provided that such costs are awarded to Ceding Company Indemnitees in accordance with Section 7.4.

        6.3. Notice of Asserted Liability. Promptly after receipt by an indemnified party hereunder of notice of any demand, claim or circumstances which, with or without the passage of time, could give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (an “Asserted Liability”) that may result in a Loss, such indemnified party must give written notice thereof (the “Claims Notice”) to the indemnifying party. The Claims Notice must describe the Asserted Liability in reasonable detail and indicate the amount (estimated, if necessary) of the Loss that has been or may be suffered by such indemnified party and will include a statement as to the basis for the indemnification sought. Failure to provide a Claims Notice in a timely manner will not be deemed a waiver of the indemnified party’s right to indemnification other than to the extent that such failure prejudices the defense of the claim by the indemnifying party.

        6.4. Opportunity to Defend. The indemnifying party may elect to compromise or defend, at its own expense and by its own counsel, any Asserted Liability; provided, however, the indemnifying party may not compromise or settle any Asserted Liability without the prior written consent of the indemnified party (which consent will not be unreasonably withheld, conditioned or delayed) unless (i) such compromise or settlement requires no more than a monetary payment for which the indemnified party hereunder is fully indemnified and such settlement provides a complete release of, or dismissal with prejudice of, all claims against the indemnified party for all matters that were or could have been asserted in connection with such claim, or (ii) involves no other matters binding upon the indemnified party (other than obligations of confidentiality). If the indemnifying party elects to compromise or defend such Asserted Liability, it will within thirty (30) calendar days from receipt of the Claims Notice notify the indemnified party of its intent to do so, and the indemnified party will cooperate, at the expense of the indemnifying party, in the compromise of, or defense against, such Asserted Liability. If the indemnified party fails to cooperate, then each indemnifying party will be relieved of its obligations under this Section 6 only to the extent that such indemnifying party is prejudiced by such failure to cooperate. Unless and until the indemnifying party elects to defend the Asserted Liability, the indemnified party will have the right, at its option, to do so in such manner as it deems appropriate; provided, however, that the indemnified party will not settle or compromise any Asserted Liability for which it seeks indemnification hereunder without the prior written consent of the indemnifying party (which will not be unreasonably withheld, conditioned or delayed). The indemnifying party will be entitled to participate in (but not to control) the defense of any Asserted Liability that it has elected not to defend with its own counsel and at its own expense.

        6.5. Exclusive Remedy. The parties hereto expressly acknowledge that (a) the provisions of this Section 6 will be the sole and exclusive remedy for damages caused as a result of breaches of the covenants and agreements contained in this Agreement and in any exhibit, certificate or schedule delivered or executed in connection herewith, except that the remedies of injunction and specific performance will remain available to the parties hereto, and (b) no indemnifying party will be liable or otherwise responsible to any indemnified party for punitive damages resulting from any breach of any such covenants and agreements.

7. Dispute Resolution.

        7.1. Any dispute, controversy or claim arising out of or relating to this Agreement or the performance by the parties of its terms will be settled by binding arbitration held at a location to be mutually agreed upon by the parties in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, except as specifically otherwise provided in this Section 7. The interpretation and enforceability of this Section 7 will be governed exclusively by the Federal Arbitration Act, 9 U.S.C. §§ 1-16.

        7.2. There will be a panel of three (3) arbitrators, one of whom will be selected by Ceding Company, one of whom will be selected by Reinsurer, and the third of whom will be mutually selected by the arbitrators selected by Ceding Company and Reinsurer. In the event that such third arbitrator is not selected within ten (10) calendar days after the selection of the second arbitrator, the third arbitrator will be selected by the American Arbitration Association. All arbitrators must have substantial experience in the life and health insurance industry.

        7.3. The arbitrators will allow such discovery as they determine appropriate under the circumstances and will resolve the dispute as expeditiously as practicable, and if reasonably practicable, within one hundred twenty (120) calendar days after the selection of the arbitrators. The arbitrators will give the parties written notice of the decision, with the reasons therefor set out, and they will have thirty (30) calendar days thereafter to reconsider and modify such decision if any party so requests within ten (10) calendar days after the decision. Thereafter, the decision of the arbitrators will be final, binding, and nonappealable with respect to all Persons, including (without limitation) Persons who have failed or refused to participate in the arbitration process, unless such Person is challenging participation in the arbitration process pursuant to an action in a court of competent jurisdiction.

        7.4. The arbitrators will have authority to award relief under legal or equitable principles, including interim or preliminary relief, and to allocate responsibility for the costs of the arbitration and to award recovery of attorneys’ fees and expenses in such manner as is determined to be appropriate by the arbitrators; provided that the arbitrators will be bound by and will limit their awards based upon the limitations of liability contained in this Agreement. A party may, however, seek an emergency temporary restraining order, if appropriate under applicable law, in any court having jurisdiction over the subject matter and the parties. Following the ruling on the request for temporary restraining order, the matter will proceed in arbitration as set forth herein.

        7.5. Judgment upon the award rendered by the arbitrators may be entered in any court having in personam and subject matter jurisdiction.

        7.6. All proceedings under this Section 7, and all evidence given or discovered pursuant hereto, must be maintained in confidence by all parties and the arbitrators.

        7.7. The fact that the dispute resolution procedures specified in this Section 7 have been or may be invoked will not excuse any party from performing its obligations under this Agreement, and during the pendency of any such procedure all parties must continue to perform their respective obligations in good faith.

        7.8. All applicable statutes of limitation will be tolled with respect to the subject matter of the dispute while the procedures specified in this Section 7 are pending. The parties will take such action, if any, required to effectuate such tolling.

8. General Provisions.

        8.1. Successors; Assigns. This Agreement will inure to the benefit of and be binding upon the successors and permitted assigns of both Ceding Company and the Reinsurer. Neither party may assign, transfer or reinsure its rights or obligations under this Agreement without the prior written consent of the other party, except that, without having to obtain such consent, (i) either party may assign this Agreement to a Person who acquires all or substantially all of the equity or assets of such party, and (ii) Reinsurer may assign this Agreement to a Person who acquires all or substantially all of the assets of the Business. Notwithstanding the foregoing, without Ceding Company’s prior written consent, Reinsurer may not assign this Agreement to any Person having a Moody’s Investors Service Insurance Financial Strength Rating below A1 or that is not rated by Moody’s Investors Service. Reinsurer or Ceding Company, as the case may be, will promptly notify each other following any “change of control” filing with respect to such party made with an insurance regulatory authority, the approval of any plan to liquidate, merge or dissolve Reinsurer or Ceding Company, as applicable, or of any proceeding or lawsuit that materially affects Reinsurer’s or Ceding Company’s ability to perform this Agreement, including, but not limited to, insolvency or rehabilitation proceedings.

        8.2. Net Payment Basis. Amounts payable under this Agreement by Reinsurer to Ceding Company and by Ceding Company to Reinsurer will be netted against each other, dollar for dollar, and only a net payment will be due.

        8.3. Insolvency. In the event of the insolvency of Ceding Company, all reinsurance made, ceded, renewed or otherwise effective under this Agreement will continue to be payable by Reinsurer under the terms of the Reinsured Policies, on behalf of Ceding Company, its liquidator, receiver or statutory successor, without diminution because of the insolvency. Any conservator, receiver, liquidator or statutory successor of Ceding Company will give prompt written notice to Reinsurer of the pendency or submission of a claim under any Reinsured Policy. During the pendency of such claim, Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense available to Ceding Company or its conservator, receiver, liquidator or statutory successor. The expense thus incurred by Reinsurer is chargeable against Ceding Company as a part of the expense of insolvency, liquidation or rehabilitation to the extent of a proportionate share of the benefit which accrues to Ceding Company solely as a result of the defense undertaken by Reinsurer.

        8.4. Governing Law. Notwithstanding the place where this Agreement may be executed by any of the parties, the parties expressly agree that this Agreement will in all respects be governed by, and construed in accordance with, the laws of the State of New York, without regard for its conflict of laws doctrine.

        8.5. Headings, Construction. The section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and will not in any way affect the meaning or interpretation of this Agreement. Unless the context requires otherwise, terms defined or used in this Agreement in the singular will include the plural, and terms defined or used in this Agreement in the plural will include the singular. Whenever the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation.”

        8.6. No Third Party Rights. Nothing herein, either expressed or implied, is intended or will be construed to confer upon or give any Person, other than the Reinsurer and Ceding Company, any rights or remedies under or by reason of this Agreement.

        8.7. Counterparts. This Agreement may be executed in separate counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Each counterpart may consist of one or more copies signed by fewer than all, but together signed by all, the parties hereto.

        8.8. Duration. This Agreement will remain in force until the each Reinsured Policy terminates and all claims thereunder have been paid or satisfied. Notwithstanding anything to the contrary contained herein, the provisions set forth herein in Sections 4, 5.15, 6, 7 and 8 will survive any termination or expiration of this Agreement.

        8.9. Notices. Any notice or other communication required or permitted hereunder will be in writing and will be delivered by commercial courier, sent by facsimile transmission (and immediately after transmission confirmed by telephone) or sent by certified, registered or express mail, postage prepaid. Any such notice will be deemed given when so delivered by commercial courier or sent by facsimile transmission (and immediately after transmission confirmed by telephone) or, if mailed, on the date shown on the receipt therefor, as follows: 

         (i)      If to Ceding Company to:
                  Protective Life Corporation
                  2801 Highway 280 South
                  Birmingham, Alabama  35223
                  Attn: Deborah Long, Senior Vice President General Counsel
                  Fax: 205-868-3597
                  Phone: 205-868-3885

                  with a copy to (which will not constitute notice for purposes of this Agreement):
                  Sutherland Asbill & Brennan LLP
                  999 Peachtree Street, N.E.
                  Atlanta, Georgia  30309
                  Attn: Eric R. Fenichel
                  Fax: 404-853-8806
                  Phone: 404-853-8483

         (ii)     If to Reinsurer to:
                  Fortis, Inc.
                  One Chase Manhattan Plaza
                  New York, New York 10005
                  Attn:    General Counsel
                  Fax:     212-859-7034
                  Phone:   212-859-7285

                  with a copy to (which will not constitute notice for purposes of this Agreement):
                  Alston & Bird LLP
                  1201 West Peachtree Street
                  Atlanta, Georgia 30309
                  Attn:    Susan J. Wilson
                  Fax:     404-881-4777
                  Phone:   404-881-7974

        Any party may, by notice given in accordance with this Section to the other party, designate another address or Person for receipt of notices hereunder.

        8.10. Cooperation. With regard to any matters not expressly stated herein, each party to this Agreement will furnish such information, execute such additional documents, and cooperate with each other as may be reasonably necessary (including but not limited to responses to regulatory inquiries) to carry out the purposes of this Agreement, in accordance with industry practice for transactions of this kind.

        8.11. Waiver. No modification or waiver of any provision of this Agreement will be effective unless set forth in writing. Any waiver will constitute a waiver only with respect to the particular circumstance for which it is given and not a waiver of any future circumstance.

        8.12. Amendment. No amendment or modification hereof will be of any force or effect unless in writing and signed by the parties. This Agreement constitutes the entire agreement between the parties with respect to the matters covered hereby and there are no other understandings between the parties with respect thereto.

        8.13. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision will be interpreted to be only so broad as is enforceable.

[Remainder of this page intentionally left blank.
Signatures on the following page.]

        In Witness Whereof, Ceding Company and Reinsurer have caused this Agreement to be executed and delivered by their duly authorized officers as of the day and year first written above. 

                                                     "Ceding Company"

                                                     PROTECTIVE LIFE & ANNUITY INSURANCE COMPANY


                                                     By:

                                                     Name:

                                                     Title:


                                                     "Reinsurer"

                                                     FIRST FORTIS LIFE INSURANCE COMPANY


                                                     By:

                                                     Name:

                                                     Title:
Exhibits
A Existing Policies
B Indemnity Accounting
C New Policies
D Provider Agreements
E Reinsurance Agreements
F Reinsured Assumed Agreements
G Related Agreements
H Third Party Administration Agreements
I Monthly Accounting
 EX-2 5 ex2cplc.htm Exhibit 2

Exhibit 2(c)

INDEMNITY REINSURANCE AGREEMENT
BY AND BETWEEN
EMPIRE GENERAL LIFE ASSURANCE COMPANY
AND
FIRST FORTIS LIFE INSURANCE COMPANY

        This Indemnity Reinsurance Agreement (the “Agreement”) is made and entered into as of December 31, 2001 (the “Effective Date”), by and between Empire General Life Assurance Company, a Tennessee corporation (“Ceding Company”), and Fortis Benefits Insurance Company, a Minnesota corporation (“Reinsurer”).

        Ceding Company, through the Dental Benefits Division of Protective Life Corporation (the “Dental Division”), has issued or assumed certain insurance products consisting of group indemnity dental insurance policies and group disability insurance policies, all of which either currently are in force, or have terminated but with respect to which there still are runoff claims.

        Reinsurer desires to reinsure, and Ceding Company desires to cede to Reinsurer, one hundred percent (100%) of the Policy Liabilities (as defined below). Ceding Company also desires to assign and delegate to Reinsurer, and Reinsurer also desires to accept and assume, certain of Ceding Company’s rights and obligations under the Other Agreements (as such term is defined below).

AGREEMENT

        Now, therefore, in consideration of the mutual promises of the parties set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

        1. Definitions. As used in this Agreement, the following capitalized terms will have the following meanings.

        1.1. “Administrative Services” means the performance of tasks, duties, responsibilities and actions necessary to administer the Business, as more specifically set forth in Section 5.

        1.2. “Adjusted Transfer Amount” means the amount of the Policy-Related Liabilities as of the Effective Time less the amount of the Policy-Related Assets as of the Effective Time, as set forth on the Effective Date Accounting.

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

        1.4. "Agreement" means this Indemnity Reinsurance Agreement and all exhibits hereto, as it may be amended, supplemented or restated from time to time.

        1.5. "Asserted Liability" is defined in Section 6.3.

        1.6. “Assumed Agreements” means (a) the Provider Agreements, (b) the Third-Party Administration Agreements and (c) each Other Agreement that Reinsurer assumes pursuant to the provisions of Section 3.11 hereof but only from and after the date of such assumption; provided, however, that with respect to (a) and (b) above, “Assumed Agreements” will not include any Provider Agreement or Third-Party Administration Agreement that Reinsurer specifies in writing to Ceding Company on the Effective Date as an agreement that is not to be treated as an Assumed Agreement for the purposes of this Agreement unless such Provider Agreement or Third-Party Administration Agreement is assumed by Reinsurer after the Effective Date under Section 3.11 (and in such case, it will be treated as an Assumed Agreement only from and after the date of such assumption as provided in Section 3.11).

        1.7. "BBI" means Better Benefits, Inc., formerly known as Better Compensation, Inc.

        1.8. “BBI Marketing Agreement” means collectively (i) the Joint Marketing Agreement between BBI and Protective Life Insurance Company, dated as of January 1, 1991, as amended, and (ii) the Amended and Restated Joint Marketing Agreement by and among BBI, Protective Life Insurance Company and Protective Life & Annuity Insurance Company dated February 7, 1997, as amended on April 15, 1999 and March 31, 2000.

        1.9. "Business" means all business under the Reinsured Policies, Reinsured Assumed Agreements, Reinsurance Agreements, Related Agreements, Provider Agreements and Third Party Administration Agreements.

        1.10. “Business Proceeding” means each action, suit, investigation or proceeding with respect to the Business by or before any court, arbitrator or administrative or governmental body.

        1.11. "Ceding Commission" is defined in Section 4.2.

        1.12. “Ceding Company” means Empire General Life Assurance Corporation and its permitted successors and assigns, including any liquidator, receiver, rehabilitator, or other statutory successor.

        1.13. "Ceding Company Indemnitees" is defined in Section 6.2.

        1.14. "Ceding Company's DAC Calculation" is defined in Section 4.13.5.

        1.15. "Claims Notice" is defined in Section 6.3.

        1.16. "Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

        1.17. "Commissions" means all commissions or other compensation due agents or brokers with respect to any of the Reinsured Policies.

        1.18. “Commissions Due & Accrued” means the aggregate of all Commissions due with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on lines 12 and 18 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on lines 10 and 18 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.19. "Confidential Information" is defined in Section 5.15.

        1.20. "Effective Date" means the date specified in the first paragraph of this Agreement.

        1.21. "Effective Date Accounting" is defined in Section 4.5.

        1.22. "Effective Time" means 11:59 p.m. on the Effective Date.

        1.23. “Excluded Liability” means all liabilities or obligations of Ceding Company of any character or nature arising out of or related to the Business that are not Policy Liabilities or Other Assumed Liabilities, including, without limitation, liabilities (i) for taxes payable with respect to Premiums received by Ceding Company before the Effective Time or on account of the Premiums Receivable as of the Effective Time; (ii) arising from participation in any guaranty fund, insolvency fund, plan, pool, association or other similar organization, and that is assessed with respect to the Reinsured Policies based on Premiums received by Ceding Company before the Effective Time or on account of the Premiums Receivable as of the Effective Time; (iii) for Commissions that are payable with respect to the Reinsured Policies with respect to Premiums received by Ceding Company before the Effective Time or on account of the Premiums Receivable as of the Effective Time (other than Commissions with respect to such Premiums Receivable to the extent that such Commissions are included in the Policy-Related Liabilities as of the Effective Time); or (iv) all Extra-Contractual Liabilities related to acts or omissions that occurred, or were alleged to have occurred, prior to the Effective Time.

        1.24. “Existing Policies” means all group indemnity dental insurance policies and group disability insurance policies that have been issued, or assumed pursuant to the Reinsured Assumed Agreements, by Ceding Company through the Dental Division, whether offered on a voluntary basis (employee-paid) or true group (employer-paid) basis, that are both listed on Exhibit A and in force at the Effective Time, as well as any riders thereto, including those providing for other supplemental benefits, any such policies that have lapsed but are subject to reinstatement, and any supplemental benefits arising out of such policies.

        1.25. “Experience Rating Refund Liability” means the aggregate of all experience rating refund liabilities with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on line 11.2 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on line 9.2 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.26. “Extra-Contractual Liabilities” means all liabilities (including but not limited to liabilities for consequential, exemplary, punitive or similar damages) that relate to or arise in connection with any alleged or actual act, error or omission, whether intentional or otherwise, or from any alleged or actual reckless conduct or bad faith (i) in connection with the handling of any claim under any of the Reinsured Policies, or (ii) in connection with the marketing, issuance, delivery, administration or cancellation of any of the Reinsured Policies.

        1.27. “Final Transfer Amount” means the amount of the Policy-Related Liabilities as of the Effective Time less the amount of the Policy-Related Assets as of the Effective Time, as set forth on the True-Up Accounting.

        1.28. “Governmental Entity” means any foreign, federal, state, local, municipal, county or other governmental, quasi-governmental, administrative or regulatory authority, body, agency, court, tribunal, commission or other similar entity (including any branch, department, agency or political subdivision thereof).

        1.29. “Indemnity Accounting” means the indemnity reinsurance accounting, setting forth the Policy-Related Assets and Policy-Related Liabilities as of March 31, 2001, assuming a March 31, 2001 Effective Date, which is attached hereto as Exhibit B.

        1.30. "Losses" and individually "Loss" is defined in Section 6.1.

        1.31. “Marketing Termination Date” means the date that is one (1) year after the Effective Date, or such earlier date as Reinsurer may hereafter request.

        1.32. "Monthly Accounting" is defined in Section 4.7.

        1.33. “NAIC Annual Statement Blank” means the form of annual statement for life and accident and health insurance companies-association edition, as prescribed from time to time by the NAIC.

        1.34. “New Policies” means group indemnity dental insurance policies that may be issued by Ceding Company as required under Section 3.6. New Policies will only be issued on the forms and in those states set forth in Exhibit C.

        1.35. "Net Premiums" means Premiums after any adjustments or refunds.

        1.36. "Net Transfer Amount Difference" is defined in Section 4.5.3.

        1.37. “90-Day Treasury Rate” means the annual yield rate, on the date to which such 90-Day Treasury Rate relates, of actively traded U.S. Treasury securities having a remaining duration to maturity of three months, as such rate is published under “Treasury Constant Maturities” in Federal Reserve Statistical Release H.15(519).

        1.38. “Other Assumed Liabilities” means the contractual liabilities and obligations of Ceding Company arising (a) at or after the Effective Time under the Other Agreements or (b) prior to the Effective Time under the Other Agreements to the extent that such liabilities and obligations are included in Policy-Related Liabilities as of the Effective Time.

        1.39. "Other Agreements" means collectively the Related Agreements, the Reinsurance Agreements, the Reinsured Assumed Agreements, the Provider Agreements and the Third-Party Administration Agreements.

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

        1.41. “Policy Liabilities” means: (i) all contractual obligations of Ceding Company under the Reinsured Policies; (ii) all obligations of Ceding Company represented by the Reserves transferred to Reinsurer pursuant to Section 4.3 (to the extent not included in the immediately preceding clause (i)); (iii) all liabilities for premium taxes arising on account of Premiums received by Reinsurer at or after the Effective Time other than such taxes arising on account of Premiums Receivable as of the Effective Time; (iv) all amounts payable for returns or refunds of Premiums under the Reinsured Policies; (v) all liabilities for Commissions payable with respect to the Reinsured Policies with respect to Premiums received by Reinsurer at or after the Effective Time (including the Premiums Receivable to the extent that the Commissions in respect thereof are included in the Policy-Related Liabilities as of the Effective Time); (vi) all guaranty fund assessments and similar charges imposed with respect to the Reinsured Policies based on Premiums received by Reinsurer at or after the Effective Time other than such assessments and similar charges arising on account of Premiums Receivable as of the Effective Time; and (vii) all Extra-Contractual Liabilities related to acts or omissions that occurred, or were alleged to have occurred at or after the Effective Time, other than Extra-Contractual Liabilities arising from acts or omissions of Ceding Company; provided, however, that acts or omissions of Reinsurer and its Affiliates, acting on behalf of Ceding Company, with respect to the Reinsured Policies and the Other Agreements will not be deemed to be the acts or omissions of Ceding Company and provided that acts or omissions at and after the Effective Time of (x) brokers and agents that Ceding Company appointed prior to the Effective Time to market the Reinsured Policies, (y) brokers and agents that Reinsurer appoints on behalf of Ceding Company after the Effective Time with respect to the Reinsured Policies or (z) brokers and agents that Ceding Company appoints at the direction of Reinsurer with respect to the Reinsured Policies will not be deemed to be the acts or omissions of Ceding Company.

        1.42. "Policy-Related Assets" means collectively the Reinsurance Receivable, Premiums Receivable and Prepaid Capitation.

        1.43. "Policy-Related Liabilities" means collectively the Reserves, Premiums Paid in Advance, Experience Rating Refund Liability, and Commissions Due & Accrued.

        1.44. "Policy Termination Date" means the date that is two (2) years after the Marketing Termination Date.

        1.45. "Policyholder" means the policyholder with respect to a Reinsured Policy.

        1.46. "Preliminary Effective Date Accounting" is defined in Section 4.4.

        1.47. “Preliminary Transfer Amount” means the amount of the Policy-Related Liabilities less the amount of the Policy-Related Assets, in each case as of the last day of the calendar month that is two months immediately preceding the calendar month during which the Effective Date occurs (by way of example, if the Effective Date were August 1, such accounting would be as of June 30), as set forth on the Preliminary Effective Date Accounting.

        1.48. "Premiums" is defined in Section 4.1.

        1.49. “Premiums Due & Deferred A&H” means the aggregate of all Premiums receivable (including, without limitation, due and deferred Premiums) with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable as a net admitted asset on line 16 of the Assets page of the 2000 NAIC Annual Statement Blank, on line 17 of the Assets page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.50. “Premiums Due & Deferred Life” means the aggregate of all Premiums receivable (including, without limitation, due and deferred Premiums) with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable as a net admitted asset on line 15 of the Assets page of the 2000 NAIC Annual Statement Blank, on line 16 of the Assets page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.51. “Premiums Paid in Advance” means the aggregate of all Premiums paid in advance with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on line 9 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on line 8 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.52. "Premiums Receivable" means the aggregate of all Premiums Due & Deferred Life and Premiums Due & Deferred A&H.

        1.53. “Prepaid Capitation” means the aggregate of all prepaid capitation amounts paid in advance with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on line 22 of the Assets page of the 2000 NAIC Annual Statement Blank, on line 24 of the Assets page of the 2001 NAIC Annual Statement Blank, or in comparable line items on successor NAIC Annual Statement Blanks, in each case whether or not such prepaid capitation amounts are admitted assets for statutory reporting purposes.

        1.54. “Provider Agreements” means those agreements with Persons listed on Exhibit D hereto pursuant to which Ceding Company directly or indirectly contracts for the services of dental care providers with respect to benefits provided under the Reinsured Policies that are group indemnity dental insurance policies or prepaid managed dental care contracts.

        1.55. "Purchase Agreement" means the Stock and Asset Purchase Agreement dated July 9, 2001, by and among Protective Life Corporation, Protective Life Insurance Company, Fortis, Inc. and Dental Care Holdings, Inc., as amended, supplemented or restated from time to time.

        1.56. “Reinsurance Agreements” means the reinsurance agreements listed on Exhibit E and under which Ceding Company has ceded liabilities to Persons other than Reinsurer. The cession of the Reinsured Policies to Reinsurer hereunder is not intended to alter the reinsurance of the portion of the risk that has been so ceded to other Persons under the Reinsurance Agreements.

        1.57. “Reinsurance Receivable” means the aggregate of all amounts recoverable from reinsurers with respect to the Reinsured Policies, determined in accordance with SAP and appropriately includable as a net admitted asset on lines 12.1, 12.2, 12.3 and 12.4 of the Assets page of the 2000 NAIC Annual Statement Blank, on lines 12.1, 12.2, 12.3 and 12.4 of the Assets page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.58. “Reinsured Assumed Agreements” means those reinsurance contracts listed in Exhibit F and pursuant to which Ceding Company reinsures or coinsures policies issued by third-party insurers.

        1.59. "Reinsured Policies" means, collectively, all Terminated Policies, Existing Policies and New Policies.

        1.60. “Reinsurer” means Fortis Benefits Insurance Company and its permitted successors and assigns, including any liquidator, receiver, rehabilitator, or other statutory successor.

        1.61. "Reinsurer's DAC Calculation" is defined in Section 4.13.4.

        1.62. “Related Agreements” means the agreements of Ceding Company requiring the payment of Commissions relating to the Reinsured Policies to the Persons listed on Exhibit G.

        1.63. “Reserves” means the aggregate of all reserves (including, as applicable, funds at interest, life benefit reserves, A&H benefit reserves, life claim reserves, A&H claim reserves and unearned Premium reserves and premium deposit fund liabilities) with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable, as applicable to the Reinsured Policies, on lines 1, 2, 3, 4.1, 4.2, 5, 10.1, 10.2 and 10.3 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on lines 1, 2, 3, 4.1 and 4.2 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.64. “SAP” means the statutory accounting practices prescribed or permitted by the insurance regulatory authority of the Ceding Company’s jurisdiction of domicile.

        1.65. “Terminated Policies” means all group indemnity dental insurance policies and group disability insurance policies issued, or assumed pursuant to the Reinsured Assumed Agreements, by Ceding Company through the Dental Division, whether offered on a voluntary basis (employee-paid) or true group (employer-paid) basis, as well as any riders providing for other supplemental benefits, and any supplemental benefits arising out of such policies, that have been terminated before the Effective Date but with respect to which there still are runoff claims at or after the Effective Time.

        1.66. “Third-Party Administration Agreements” means those agreements listed on Exhibit H. “Third Party Administration Agreements” includes administrative-services-only agreements (often referred to as “ASO Agreements”).

        1.67. "True-Up Accounting" is defined in Section 4.6.

        1.68. "True-Up Value Difference" is defined in Section 4.6.3.

        1.69. "Trust Agreement" is defined in Section 8.1.

2. Purpose of Agreement; Coverages to be Reinsured; Liabilities Assumed.

        2.1. Purpose. The purpose of this Agreement is to provide for, as of the Effective Time, (i) the one hundred percent (100%) reinsurance by Reinsurer on a coinsurance basis of the Policy Liabilities, (ii) the assumption by Reinsurer of all Other Assumed Liabilities with reference only to the Assumed Agreements and (iii) the agreement by Reinsurer to pay and otherwise perform all of the Other Assumed Liabilities under the Other Agreements (other than the Assumed Agreements), all in consideration of the transfer of ownership by Ceding Company to Reinsurer of the cash and other assets as provided in Section 4.3 and the transfer to Reinsurer by Ceding Company of certain of Ceding Company’s rights and obligations under and in connection with the Business as set forth herein. Reinsurer accepts all service responsibilities with respect to all of the Business in accordance with the terms of this Agreement. Reinsurer will not accept any liabilities of Ceding Company under this Agreement other than the Policy Liabilities and the Other Assumed Liabilities.

        2.2. Cession and Assignment. As of the Effective Time, Ceding Company hereby cedes to Reinsurer, and Reinsurer hereby accepts reinsurance on a coinsurance basis, of 100% of the Policy Liabilities, to the end that then and thereafter, as between the parties to this Agreement, Ceding Company will have no liability for Policy Liabilities and no rights to any profits or other benefits of the Business. With respect to the Other Agreements and the Other Assumed Liabilities, the parties hereby agree as follows:

        2.2.1. As of the Effective Time, Reinsurer hereby agrees to pay and otherwise perform on behalf of Ceding Company the Other Assumed Liabilities.

        2.2.2. As of the Effective Time, Ceding Company hereby assigns to Reinsurer, and Reinsurer hereby accepts and assumes, all of Ceding Company’s rights and interests in and under the Assumed Agreements.

        2.2.3. Ceding Company’s rights and interests under and in all of the Related Agreements, and each Provider Agreement and Third Party Administration Agreement that is not an Assumed Agreement, will not be assigned to Reinsurer at the Effective Time, but may be assigned to Reinsurer after the date hereof in accordance with Section 3.11; provided, however, that until such assignment, if any, Ceding Company will provide or cause to be provided to Reinsurer all benefits of Ceding Company under each such Related Agreement, Provider Agreement and Third Party Administration Agreement and will enforce for the account of Reinsurer any rights of Ceding Company arising from each such Related Agreement, Provider Agreement and Third Party Administration Agreement, so that Reinsurer receives the full economic and other benefits of each such Related Agreement, Provider Agreement and Third Party Administration Agreement as though they had been assigned to Reinsurer. Reinsurer will reimburse Ceding Company for Ceding Company’s reasonable costs and expenses in so enforcing any such rights.

        2.2.4. As of the Effective Time, Ceding Company hereby assigns to Reinsurer, and Reinsurer hereby accepts, all of Ceding Company’s rights and interests in and under the Reinsurance Agreements and Reinsured Assumed Agreements, if consent to such assignment has been obtained from the other contracting party thereto or no such consent was required. If such consent has not been obtained, from and after the Effective Time, Ceding Company will provide or cause to be provided to Reinsurer all benefits of Ceding Company under such unassigned Reinsurance Agreements and Reinsured Assumed Agreements and will enforce for the account of Reinsurer any rights of Ceding Company arising from such unassigned Reinsurance Agreements and Reinsured Assumed Agreements, so that Reinsurer receives the full economic and other benefits of the Reinsurance Agreements and Reinsured Assumed Agreements as though they had been assigned to Reinsurer. Reinsurer will reimburse Ceding Company for Ceding Company’s reasonable costs and expenses in so enforcing any such rights.

        2.3. Ceding Company Access to Provider Agreements and Third Party Administration Agreements. Beginning at the Effective Time and extending through the Policy Termination Date, with respect to the Provider Agreements and Third Party Administration Agreements that are Assumed Agreements, as such agreements relate to the Reinsured Policies, Reinsurer will provide to Ceding Company such rights and benefits under such agreements as are necessary and appropriate for Ceding Company to perform its obligations under this Agreement as the direct writer of the Reinsured Policies.

3. Reinsurance Provisions.

        3.1. Duration of Reinsurance. The liability of Reinsurer under this Agreement with respect to any Reinsured Policy will begin simultaneously with that of Ceding Company, but not before the Effective Time. Reinsurer’s liability with respect to any Reinsured Policy will not terminate until Ceding Company’s liability on such Reinsured Policy terminates. Reinsurer’s liability with respect to any Related Agreement, any Provider Agreement or any Third Party Administration Agreement will not terminate until Ceding Company’s liability under such agreement terminates.

        3.2. Responsibility for Payments and Performance. At and after the Effective Time, Reinsurer will have the responsibility for paying all Policy Liabilities. At and after the Effective Time, Reinsurer will have the responsibility for performing or paying all Other Assumed Liabilities. Ceding Company will have the responsibility for paying all Excluded Liabilities.

        3.3. Changes to Existing Policies or New Policies. Except as otherwise set forth herein, any changes to Existing Policies or New Policies may be made only with the prior written consent of Ceding Company, which consent will not be unreasonably withheld, conditioned or delayed. Ceding Company will not make any changes to the terms and conditions of a Reinsured Policy or withdraw or terminate any form of Reinsured Policy on file with any Governmental Entity, except in either case with Reinsurer’s prior written consent, which consent will not be unreasonably withheld, conditioned or delayed; provided, however, that Ceding Company will be entitled to make changes to a Reinsured Policy or withdraw or terminate the form of a Reinsured Policy to the extent such action is required by applicable law or pursuant to the terms of the Reinsured Policy, and Ceding Company shall have given written notice thereof to Reinsurer in advance of taking such action.

        3.4. Conversions. At and after the Effective Time, Reinsurer will issue or cause to be issued any individual conversion policy that may be required under the terms of a Reinsured Policy.

        3.5. Errors and Omissions. If through an oversight, Ceding Company fails to list an Existing Policy on Exhibit A, a Reinsurance Agreement on Exhibit E, a Reinsured Assumed Agreement on Exhibit F, a Related Agreement on Exhibit G, a Third Party Administration Agreement on Exhibit H, or a Provider Agreement on Exhibit D or if Ceding Company fails to transfer to Reinsurer any Reserves or applicable Premiums with respect thereto and a party discovers such error in the information in any such Exhibit or in the transfer of such Reserves or Premiums, the party discovering the error must promptly notify the other party and provide information documenting the error. The parties then in good faith will attempt to resolve the matter, and if the parties cannot resolve the matter, the matter will be submitted to arbitration in accordance with Section 7, in each case in order to place both parties in the positions they would have been in had the error not occurred.

        3.6. New Policies. During the period that begins at the Effective Time and ends on the Marketing Termination Date, New Policies will be issued by Ceding Company at the request of Reinsurer; provided, however, that a New Policy that is delivered after the Marketing Termination Date but that has an effective date that is on or prior to the Marketing Termination Date shall, for the purposes of this Section 3.6 and of Section 3.7, be deemed issued on such effective date. Each New Policy will have a term not to exceed one (1) year from its effective date; provided, however, that a New Policy may have a term not to exceed two (2) years from its effective date or may provide a guaranteed Premium rate for an initial two-year period from its effective date, if such New Policy is issued prior to the Marketing Termination Date in the ordinary course of business consistent with Ceding Company’s past practices. Reinsurer will pay all expenses and perform all responsibilities related to the issue of any New Policies as permitted under this Agreement, including but not limited to all expenses related to agent appointments, commissions, marketing and printing. A New Policy may not include any term or condition that would prevent the termination of such policy on or at any time after the Policy Termination Date, other than a term that is the same as is contained in one of the forms of New Policies set forth in Exhibit C providing for a prior notice of termination or an effective date of termination. Reinsurer will provide and maintain all documentation related to the appointment of agents in connection with the sale or issue of New Policies. Ceding Company will cooperate with such agent appointments but it may, in its reasonable discretion, terminate the appointment of any agent following prior notice to Reinsurer of such intended action if, in Ceding Company’s reasonable judgment, such agent is creating an unreasonable business or legal risk for Ceding Company. Ceding Company will promptly terminate the appointment of any agent to sell New Policies if directed in writing to do so by Reinsurer. In marketing New Policies as permitted under this Agreement, Reinsurer may use only those marketing materials approved for use by Ceding Company at the Effective Time or that may be approved by Ceding Company after the Effective Time at the request of Reinsurer, such approval not to be unreasonably withheld, conditioned or delayed. Reinsurer may not otherwise use Ceding Company’s name, logo, trademarks or trade names, except as permitted by Section 5.14 of this Agreement or by the Purchase Agreement.

        3.7. Renewal and Termination of Existing and New Policies. At and after the Effective Time and before the Marketing Termination Date, Ceding Company will, at Reinsurer’s request, renew any Existing Policy at the conclusion of the normal renewal cycle for such policy or on the anniversary date for such policy for a term not to exceed one (1) year and at rates determined by Reinsurer. In addition, Ceding Company will renew a New Policy after the Marketing Termination Date, at Reinsurer’s request, where appropriate to honor a two-year rate guarantee for a New Policy that was issued before the Marketing Termination Date for a period not to extend beyond the Policy Termination Date and at rates determined by Reinsurer. Reinsurer will pay all expenses and perform all responsibilities related to the renewal of any Existing Policies or New Policies as permitted under this Agreement, including but not limited to all expenses related to agent appointments, commissions, marketing and printing. With respect to any such renewal of an Existing Policy or New Policy after the Effective Time, Reinsurer may not provide or include any term or condition that would prevent the termination of such policy on or at any time after the Policy Termination Date, other than a term providing for a prior notice of termination or an effective date of termination that is the same as is contained in such Existing Policy (in the case of a renewal of an Existing Policy) or in one of the forms of New Policies set forth in Exhibit C (in the case of a renewal of a New Policy). After the Marketing Termination Date, except as provided above in this Section 3.7 or in Section 3.6, Ceding Company will not be obligated to renew any Existing Policy or New Policy or to issue any New Policy, and Reinsurer may not do so on Ceding Company’s behalf. Reinsurer agrees that, on and after the Policy Termination Date, at Ceding Company’s written direction, Reinsurer will, on Ceding Company’s behalf, terminate any Existing Policy or any New Policy that may be in force on such date in accordance and consistent with the provisions thereof and, that if Reinsurer fails to so terminate any such Existing Policy or New Policy prior to the earlier of (x) sixty (60) calendar days after Reinsurer receives such notice from Ceding Company and (y) five (5) business days prior to the renewal date of such Existing Policy or New Policy, then Ceding Company may terminate such Existing Policy or New Policy. Ceding Company represents and warrants to Reinsurer that all policy forms listed on Exhibits A and C contain terms and conditions that will not preclude Reinsurer from complying with the obligations in Section 3.7 and this Section 3.8, including, without limitation, the obligation to permit Existing Policies to be terminated on and after the Policy Termination Date.

        3.8. Compliance with Certain Agreements. Anything herein to the contrary notwithstanding, without Ceding Company’s prior written consent, Reinsurer will not cause to be issued any New Policy to any state or federally chartered credit union operating in the United States. In the event that BBI does not agree to terminate the BBI Marketing Agreement at or prior to the Effective Time, then anything herein to the contrary notwithstanding, without Ceding Company’s prior written consent, Reinsurer will not cause to be issued any New Policy or cause to be renewed any Existing Policy in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, West Virginia, Connecticut, Pennsylvania, New Jersey, Delaware or New York other than through BBI.

        3.9. Compliance with Law. Reinsurer will comply in all material respects with all state insurance laws and regulations and all other applicable laws and regulations in performing its activities under this Section 3 and its other obligations under this Agreement, including but not limited to its appointment of agents on behalf of Ceding Company, its payment of commissions to such agents and its use of marketing materials, and no approval by Ceding Company under Section 3.7 above of any marketing materials used by Reinsurer will be deemed to waive any liability of Reinsurer to Ceding Company under this Agreement arising from the failure of such marketing materials to comply with such laws and regulations. Ceding Company will use all commercially reasonable efforts to comply with directions from Reinsurer with respect to issuance of New Policies, renewals of Existing Policies and New Policies, and administration of Reinsured Policies, so long as such directions comply with all applicable laws and are not inconsistent with the provisions of this Agreement. Reinsurer will reimburse Ceding Company for Ceding Company’s reasonable costs and expenses in complying with such directions.

        3.10. Credit for Ceded Reinsurance. Subject to Section 8 hereof, Reinsurer will maintain all licenses or otherwise take all action that may be necessary for Ceding Company to obtain full financial credit for the Reinsured Policies.

        3.11. Assignment of Certain Other Agreements. From and after the Effective Time, as may be requested by Reinsurer from time to time, Ceding Company will assign to Reinsurer, and Reinsurer will assume and accept, all of Ceding Company’s rights and interests in and under any Related Agreement, Provider Agreement and Third Party Administration Agreement that has not been previously assumed by Reinsurer pursuant to the provisions of this Agreement (including assumptions pursuant to this Section 3.11); provided, however, that to the extent that any such assignment would preclude Ceding Company from lawfully fulfilling its obligations under this Agreement, then as a condition to such assignment, Reinsurer and Ceding Company will enter into an appropriate agreement to provide Ceding Company with the necessary rights and benefits under such assigned agreement to enable Ceding Company to fulfill lawfully its obligations under this Agreement; and provided further, that following the Policy Termination Date (but not prior to such date), Ceding Company will terminate any of the Related Agreements, Provider Agreements or Third Party Administration Agreements that have not then been assigned to Reinsurer.

        3.12. Approval of Reinsurer Rates and Forms. Reinsurer will use commercially reasonable efforts to obtain approval of Reinsurer’s rates and policy forms from the relevant regulatory authorities to enable Reinsurer to convert the Reinsured Policies to Reinsurer’s own policies on the first practicable policy renewal date (in accordance with Section 3.7) following the Effective Date.

4. Accounting, Payments and Procedures.

        4.1. Premium Accounting. Reinsurer will be entitled to receive one hundred percent (100%) of all premiums and other amounts with respect to the Reinsured Policies (“Premiums”) that are received at or after the Effective Time, including, without limitation, amounts received in payment of Premiums Receivable as of the Effective Time, and all such Premiums will be the sole property of Reinsurer. Reinsurer will be authorized to endorse for payment to Reinsurer all checks, drafts and money orders payable to Ceding Company as payment of Premiums that are received at or after the Effective Time. Ceding Company hereby assigns to Reinsurer, as of the Effective Time, all of its rights and privileges to draft or debit the accounts of any Policyholders for Premiums, including existing pre-authorized bank draft or electronic fund transfer arrangements between Ceding Company and such Policyholders. Ceding Company will promptly (but in no event later then five (5) business days following Ceding Company’s receipt thereof) endorse and remit, and hereby assigns to Reinsurer, any Premiums received at or after the Effective Time. All Premiums received before the Effective Time will be retained by Ceding Company.

        4.2. Ceding Commission. In consideration of Ceding Company's transfer of the Reinsured Policies and the Preliminary Transfer Amount to Reinsurer as provided herein, on the Effective Date, Reinsurer will pay to Ceding Company a ceding commission in cash in the amount of $2,500,000 (the "Ceding Commission").

        4.3. Transfer of Assets. On the Effective Date, in consideration of and subject to Reinsurer’s (a) reinsurance of the Policy Liabilities, (b) assumption or payment and performance of the Other Assumed Liabilities and (c) payment of the ceding commission, all as provided in this Agreement, Ceding Company hereby (x) transfers to Reinsurer cash equal to the Preliminary Transfer Amount and (y) sells, transfers, conveys, grants, assigns and delivers to Reinsurer, free and clear of all claims, liens, interests and encumbrances, and Reinsurer hereby accepts from Ceding Company, all of Ceding Company’s existing and future right, title and interest in and to the Policy-Related Assets received by or on behalf of Ceding Company at or after the Effective Time with respect to the Reinsured Policies, and Ceding Company agrees to execute and deliver to Reinsurer any further instruments or assurances that Reinsurer may reasonably request for more effectual vesting of Reinsurer’s right, title and interest in and to such Policy-Related Assets. To the extent that a court of competent jurisdiction or Governmental Entity determines that the foregoing transfer and conveyance of Policy-Related Assets is not effective to vest absolute and irrevocable title in such Policy-Related Assets in Reinsurer, then Ceding Company hereby grants to Reinsurer a first priority security interest in such Policy-Related Assets to secure payment and performance of the Policy Liabilities and the Other Assumed Liabilities. Ceding Company will take all action reasonably requested by Reinsurer to assist Reinsurer in recording and perfecting such first priority security interest, including Ceding Company’s execution and delivery of any financing statements reasonably requested by Reinsurer.

        4.4. Preliminary Effective Date Accounting. Ceding Company has delivered to Reinsurer not later than five business days prior to the Effective Date an accounting, as of the last day of the calendar month that is two months immediately preceding the calendar month during which the Effective Date occurs (by way of example, if the Effective Date were August 1, such accounting would be as of June 30) of all Policy-Related Liabilities and Policy-Related Assets as of such date in the same form as the Indemnity Accounting (the “Preliminary Effective Date Accounting”). Such accounting was reviewed and accompanied by a certificate signed by Ceding Company’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Ceding Company; (iii) calculated in accordance with applicable SAP; and (iv) prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000 and the Indemnity Accounting. Ceding Company will provide Reinsurer with a copy of all work papers and data used, and access to all Ceding Company personnel involved, in preparing the Preliminary Effective Date Accounting as requested by Reinsurer.

4.5. Effective Date Accounting.

        4.5.1. No later than sixty (60) calendar days after the Effective Date, Ceding Company will prepare as of the Effective Date and deliver to Reinsurer an accounting of all Policy-Related Liabilities and Policy-Related Assets, in the same form as the Preliminary Effective Date Accounting (the “Effective Date Accounting”). In addition, the Effective Date Accounting will include a statement comparing the values set forth on the Preliminary Effective Date Accounting with the values on the Effective Date Accounting and computing the difference in such values. The Effective Date Accounting must be reviewed and accompanied by a certificate signed by Ceding Company’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Ceding Company; (iii) calculated in accordance with applicable SAP; and (iv) prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000, the Indemnity Accounting and the Preliminary Effective Date Accounting. Ceding Company will provide Reinsurer with a copy of all work papers and data used, and access to all personnel involved, in preparing the Effective Date Accounting. After the Effective Date, Reinsurer will provide Ceding Company with reasonable access to the books and records of the Business, and access to Reinsurer’s personnel, reasonably necessary for Ceding Company to prepare the Effective Date Accounting.

        4.5.2. Reinsurer will have sixty (60) calendar days after receipt of the Effective Date Accounting to review such accounting and suggest changes or corrections thereto. On or before the end of such period, Reinsurer will notify Ceding Company in writing whether or not it accepts the Effective Date Accounting. If Reinsurer fails to so notify Ceding Company, Reinsurer will be deemed to have accepted the Effective Date Accounting. If Reinsurer notifies Ceding Company that it does not accept the Effective Date Accounting, Reinsurer will set forth in reasonable detail its objections thereto and the reasons for such objections. The parties in good faith will discuss and negotiate any such objections in an effort to reach agreement on the Effective Date Accounting. If despite good faith negotiations the parties are unable to reach agreement within thirty (30) calendar days after Ceding Company’s receipt of Reinsurer’s notice of objections, then the parties will submit the dispute to arbitration in accordance with Section 7, except that all arbitrators must be Members of the American Academy of Actuaries familiar with the types of policies included in the Reinsured Policies, and the arbitrators will determine the Effective Date Accounting in accordance with the standards set forth in items (i) through (iv) of Section 4.5.1.

        4.5.3. Within ten (10) calendar days after agreement is reached on the Effective Date Accounting or the Effective Date Accounting is determined by arbitration, as the case may be, the parties will settle any differences on such accountings as follows: (i) if the Net Transfer Amount Difference is positive, then Ceding Company will pay such difference to Reinsurer in cash; and (ii) if the Net Transfer Amount Difference is negative, then Reinsurer will pay such difference to Ceding Company in cash. “Net Transfer Amount Difference” means the result of subtracting the value of the Preliminary Transfer Amount from the value of the Adjusted Transfer Amount. Payment of the Net Transfer Amount Difference will be accompanied by the payment of interest thereon from the Effective Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Effective Date.

4.6. True-Up Accounting.

        4.6.1. Within sixty (60) calendar days after the date that is one (1) year after the Effective Date, Reinsurer will prepare and deliver to Ceding Company a final accounting, in the same form as the Preliminary Effective Date Accounting and the Effective Date Accounting, of all Policy-Related Liabilities and Policy-Related Assets as of the Effective Date (the “True-Up Accounting”). Such accounting must be reviewed and accompanied by a certificate signed by Reinsurer’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Reinsurer; (iii) calculated in accordance with applicable SAP; and (iv) to the best knowledge of such actuary, prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000, the Indemnity Accounting, the Preliminary Effective Date Accounting and the Effective Date Accounting. The True-Up Accounting will include a statement comparing the values of the items set forth on the True-Up Accounting with the values of such items on the Effective Date Accounting and computing the difference in such values; provided, however, that the True-Up Accounting will make no true-up adjustment for items that customarily are included in Exhibit 8 and Exhibit 9 of the NAIC Annual Statement Blank (other than the A&H benefit reserves that are customarily included in Exhibits 8 and 9, which will be adjusted as part of the True-Up Accounting). With respect to the Reserves that have been estimated for claims for policy benefits under the Reinsured Policies, the True-Up Accounting will restate the liability for claims that were incurred before the Effective Time but not reported as of the Effective Time by replacing the estimated liability for such claims that was included in the Effective Date Accounting with the sum of (a) the actual runoff of such claims that were incurred before the Effective Time and that have been paid since the Effective Time, plus (b) an estimate for any such claims that were incurred before the Effective Time and may be unpaid as of the date that is one year after the Effective Time. To the extent that the actual amounts of any other Policy-Related Liabilities and Policy-Related Assets as of the Effective Date become determinable prior to the preparation of the True-Up Accounting, such items will be reflected on the True-Up Accounting as such actual amounts rather than estimations. Reinsurer will provide Ceding Company with a copy of all work papers and data used, and access to all personnel involved, in preparing the True-Up Accounting.

        4.6.2. Ceding Company will have sixty (60) calendar days after receipt of the True-Up Accounting to review such accounting and suggest changes or corrections thereto. On or before the end of such period, Ceding Company will notify Reinsurer in writing whether or not it accepts the True-Up Accounting. If Ceding Company fails to so notify Reinsurer, Ceding Company will be deemed to have accepted the True-Up Accounting. If Ceding Company does not accept the True-Up Accounting, Ceding Company will set forth in reasonable detail its objections thereto and the reasons for such objections. The parties in good faith will discuss and negotiate any such objections in an effort to reach agreement on the True-Up Accounting. If despite good faith negotiations the parties are unable to reach agreement within thirty (30) calendar days after Reinsurer’s receipt of Ceding Company’s notice of objections, then the parties will submit the dispute to arbitration in accordance with Section 7, except that all arbitrators must be Members of the American Academy of Actuaries familiar with the types of policies included in the Reinsured Policies, and the arbitrators will determine the True-Up Accounting in accordance with the standards set forth in items (i) through (iv) of Section 4.6.1.

        4.6.3. Within ten (10) calendar days after agreement is reached on the True-Up Accounting or the True-Up Accounting is determined by arbitration, as the case may be, the parties will settle any differences on such accountings as follows: (i) if the True-Up Value Difference is positive, then Ceding Company will pay such difference to Reinsurer in cash; and (ii) if the True-Up Value Difference is negative, then Reinsurer will pay such difference to Ceding Company in cash. “True-Up Value Difference” means the result of subtracting the value for the Adjusted Transfer Amount from the value for the Final Transfer Amount. Payment of the True-Up Value Difference will be accompanied by the payment of interest thereon from the Effective Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Effective Date.

        4.7. Monthly Accounting. After the Effective Date and for as long as this Agreement is in effect, each calendar month Reinsurer will prepare and deliver to Ceding Company an accounting (the “Monthly Accounting”), which will be delivered no later than the fifteenth (15th) calendar day of the calendar month immediately following the calendar month for which such accounting is prepared; except that the first Monthly Accounting will not be due until forty-five (45) calendar days after the Effective Date. The Monthly Accounting will be substantially in the form set forth in Exhibit I. Reinsurer will supply Ceding Company on a timely basis with all accounting data relating to transactions carried out by it in connection with the Business that Ceding Company may reasonably request.

        4.8. Annual and Quarterly Reporting. On or before January 20 of each year, Reinsurer will furnish Ceding Company an accounting statement that contains such information with respect to the Reinsured Policies, for the immediately preceding calendar year, as Ceding Company may reasonably require to complete its annual financial statements as required by applicable statute or regulation, including but not limited to “State Page” information and all information needed by Ceding Company for calculation and payment of premium taxes and municipal taxes. On or before the twentieth (20th) day after the end of each calendar quarter, Reinsurer also will provide Ceding Company with an accounting statement that contains such information with respect to the Reinsured Policies, for the immediately preceding calendar quarter, as Ceding Company may reasonably require to complete its quarterly financial statements as required by applicable statute or regulation.

        4.9. Reserves. With respect to the Reinsured Policies, before the Effective Time, Ceding Company has established and maintained as a liability on its statutory statements not less than the statutory reserves and claims reserves required by all applicable regulatory authorities and as calculated in accordance with applicable SAP and in accordance with generally accepted actuarial principles. With respect to the Reinsured Policies, at and after the Effective Time, Reinsurer will establish and maintain as a liability on its statutory statements not less than the statutory reserves and claim reserves required by applicable SAP and in accordance with generally accepted actuarial principles. If Reinsurer reinsures or retrocedes the Reinsured Policies to an Affiliate or other Person outside of the United States, such reserves will be maintained in the United States pursuant to a funds withheld, trust or other arrangement (reasonably acceptable to Ceding Company) to secure Ceding Company’s continuing obligations thereunder.

        4.10. Commissions. If Ceding Company pays any Commissions that are the obligation of Reinsurer pursuant to Section 2.2 because Reinsurer fails to do so, Reinsurer will promptly reimburse Ceding Company therefor as set forth in Section 4.11.

        4.11. Reimbursements. If Reinsurer fails to pay any Policy Liabilities, Reinsurer will reimburse Ceding Company for all Policy Liabilities that may be paid by Ceding Company at and after the Effective Time, provided that any such payments by Ceding Company will be in accordance with the terms and conditions of the applicable Reinsured Policy or Other Agreement. The reimbursements required by this Section 4.11 will be paid by Reinsurer to Ceding Company within ten (10) calendar days of Reinsurer’s receipt of written notice from Ceding Company thereof. Such written notice from Ceding Company will be accompanied by such supporting information and detail as Reinsurer reasonably requests.

        4.12. Wire Transfers. Any payment of cash required under this Agreement must be paid to the payee in immediately available funds, United States Dollars, by means of a wire transfer if the payee provides to the payer appropriate wire transfer instructions at least two (2) business days before the required date of payment, and otherwise by means of a certified, cashier’s or bank check.

        4.13. DAC Tax Provisions. In accordance with Treasury Regulations Section 1.848-2(g)(8), Ceding Company and Reinsurer hereby elect to determine specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1) of the Code.

        4.13.1. All uncapitalized terms used in this Section 4.13 will have the meanings set forth in the regulations under Section 848 of the Code.

        4.13.2. The party with net positive consideration under this Agreement for each taxable year will capitalize specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1) of the Code.

        4.13.3. Both parties will exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency.

        4.13.4. Reinsurer will submit a schedule to Ceding Company by May 1 of each year of its calculation (“Reinsurer’s DAC Calculation”) of the net consideration under this Agreement for the preceding taxable year. This schedule of calculations must be accompanied by a statement signed by an authorized representative of Reinsurer stating that Reinsurer will report such net consideration in its federal income tax return for the preceding taxable year.

        4.13.5. Ceding Company may contest such calculation by providing an alternative calculation (“Ceding Company’s DAC Calculation”) to Reinsurer in writing within thirty (30) calendar days after the date on which Ceding Company receives Reinsurer’s calculation. If Ceding Company does not so notify Reinsurer, Ceding Company will report the net consideration under this Agreement as determined by Reinsurer in Ceding Company’s federal income tax return for the preceding taxable year.

        4.13.6. If Ceding Company contests Reinsurer’s calculation of the net consideration under this Agreement, the parties will negotiate in good faith to reach an agreement as to the correct amount of net consideration within thirty (30) calendar days after the date on which Ceding Company submits its alternative calculation. If Reinsurer and Ceding Company reach agreement as to the amount of net consideration under this Agreement, each party will report such amount in its federal income tax return for the preceding taxable year. If, during such period, Reinsurer and Ceding Company are unable to reach agreement, they will promptly thereafter cause independent accountants of nationally recognized standing reasonably satisfactory to Reinsurer and Ceding Company (who will not have any material relationship with Reinsurer or Ceding Company), promptly to review (which review will commence no later than five (5) business days after the selection of such independent accountants), this Agreement and the calculations of Reinsurer and Ceding Company for the purpose of calculating the net consideration under this Agreement. Such independent accountants will deliver to Reinsurer and Ceding Company, as promptly as practicable (but no later than sixty (60) calendar days after the commencement of their review), a report setting forth such calculation, which calculation will result in a net consideration between the amount thereof shown in Reinsurer’s DAC Calculation and the amount thereof shown in Ceding Company’s DAC Calculation. Such report will be final and binding upon Reinsurer and Ceding Company. The fees, costs and expenses of such independent accountant will be borne (i) by Ceding Company if the difference between the net consideration as calculated by the independent accountants and Ceding Company’s DAC Calculation is greater than the difference between the net consideration as calculated by the independent accountants and Reinsurer’s DAC Calculation, (ii) by Reinsurer if the first such difference is less than the second such difference, and (iii) otherwise equally by Reinsurer and Ceding Company.

        4.13.7. This election will be effective for the 2001 taxable year and for all subsequent taxable years for which this Agreement remains in effect.

        4.13.8. Both parties will attach a schedule to their respective federal income tax returns for the first taxable year ending after the date on which this election becomes effective which identifies this Agreement as a reinsurance agreement for which an election has been made under Treasury Regulations Section 1.848-2(g)(8).

        4.14. Premium Taxes. Notwithstanding Sections 4.7 and 4.11 above, Reinsurer will reimburse Ceding Company for Premium taxes that are part of the Policy Liabilities on the basis specified herein. For each calendar year, Reinsurer will reimburse such Premium tax payments, with respect to each state and municipality, on an annual basis, within thirty (30) calendar days after Reinsurer receives a billing from Ceding Company for Reinsurer’s share of such Premium taxes paid. Reinsurer’s share will be determined on the basis of each such state’s actual applicable tax rate multiplied by the Premiums for the Reinsured Policies received in such state during the annual period. Such Premium taxes will be reduced to the extent of any credit that Ceding Company is entitled to take in any such year on its Premium tax returns for any amounts paid by Reinsurer for the guaranty fund assessments and similar charges that are part of the Policy Liabilities. Notwithstanding the foregoing, because Ceding Company is required by law to pay estimated Premium taxes on a quarterly basis throughout each calendar year, Reinsurer will pay Ceding Company such Premium tax reimbursements on a quarterly basis within fifteen (15) calendar days after receipt of a written estimate prepared by Ceding Company, and the parties will make any necessary adjustment at the end of the calendar year so that Reinsurer only reimburses Ceding Company for the actual Premium taxes on the basis specified above.

5. Administrative Services and Records.

        5.1. Administration and Servicing. At and after the Effective Time, Reinsurer will provide or arrange for (including through receipt of services from Ceding Company for a transition period) all Administrative Services for the Business and supply to Ceding Company copies of accounting and other records pertaining to such services as Ceding Company may from time to time reasonably request. Such services will include but not be limited to the following:

        (a) billing and collection of Premiums;

        (b) payment of claims;

        (c) payment of any refunds of Premiums;

        (d) handling of normal Policyholder requests under the Reinsured Policies;

        (e) preparation of monthly, quarterly and annual financial statement data, where applicable, for inclusion in Ceding Company's financial statements;

        (f) administration of the Other Agreements;

        (g) preparation, processing and filing of any agent appointments;

        (h) underwriting and issuing of any New Policies on behalf of Ceding Company; and

        (i) renewal of any Existing Policies or New Policies on behalf of Ceding Company.

        Reinsurer will perform all Administrative Services in a manner that is consistent with the terms of the Reinsured Policies and the Other Agreements (as the case may be), the current practice of reinsurance with respect to its business, and in a reasonable manner consistent with industry standards for the administration of dental, life, accident and health insurance and in accordance in all material respects with all applicable laws and regulations.

        5.2. Transfer of Records. On the Effective Date, Ceding Company will deliver to Reinsurer all books and records relating to the Business. On and after the Effective Date, Reinsurer will provide Ceding Company reasonable access to such books and records, and to Reinsurer’s personnel, with such access to be during normal business hours, on reasonable notice and at Ceding Company’s expense.

        5.3. Reinsurer Records. Reinsurer will maintain true and accurate books and records of all reinsurance hereunder, including all such records as may be required by law. As long as this Agreement is in effect, Reinsurer will make available for reasonable inspection and copying by Ceding Company (during normal business hours, on reasonable notice and at Ceding Company’s expense) any financial or other records pertaining to the Business that Ceding Company reasonably may require for financial statement preparation or any other reasonable business purposes.

        5.4. Privacy. Pursuant to the provisions of the Insurance Information and Privacy Protection Act or similar laws as enacted in various states, Reinsurer recognizes that, in the performance of its obligations under this Agreement, it will obtain from Ceding Company and other sources personal or privileged information about individuals collected or received in connection with insurance transactions. Reinsurer will maintain the confidentiality of such information in accordance with all such laws and not disclose such information further without the individual’s written authorization, unless such disclosure is otherwise permitted by law.

        5.5. Audit. Each party will have the right to audit at its sole expense, at the office of the other during regular business hours and on reasonable notice, all records and procedures relating to the Business.

        5.6. Continuing Cooperation. Subject to then-available staff and facilities and workloads associated with Ceding Company’s operations, Ceding Company will use reasonable efforts to assist Reinsurer in resolving issues relating to the Business, and Ceding Company promptly will provide Reinsurer with such information with respect to the Business as Reinsurer may reasonably request for purposes of preparing Reinsurer’s income tax returns or financial statements, to satisfy any other regulatory requirement or for any other reasonable business purpose. Subject to then-available staff and facilities and workloads associated with Ceding Company’s operations, Ceding Company will provide (at Reinsurer’s expense) such other assistance as Reinsurer may reasonably request in the performance of the Administrative Services. Nothing contained herein is intended to alter Ceding Company’s obligations under the transition services agreement entered into pursuant to Section 8.16 of the Purchase Agreement.

        5.7. Forwarding of Claims and Inquiries. At and after the Effective Time, Ceding Company promptly will remit and refer to Reinsurer all inquiries involving the Business, including but not limited to inquiries regarding additional premiums, claims payment or policy provisions, limitations or exclusions. Claims that are part of the Business erroneously submitted to Ceding Company will be forwarded promptly to Reinsurer.

        5.8. Complaint-Handling Procedure. The parties will cooperate with each other in providing information necessary to respond to any complaints concerning the Business or to respond to any request from a Governmental Entity having jurisdiction over the Business. At and after the Effective Time, Reinsurer will answer all complaints received by it concerning the Business. All complaints concerning the Business received by Ceding Company at and after the Effective Time will be forwarded promptly by fax or overnight mail to a contact person designated by Reinsurer for reply. Upon answering such complaints, Reinsurer will furnish Ceding Company with a copy of the complaint file. Ceding Company will be responsible for maintaining complaint files, complaint registers and other reports of any kind with respect to the Business that are required to be maintained under applicable state laws. However, Reinsurer also will maintain complaint files and registers and will provide Ceding Company with copies of complaint registers concerning the Business quarterly or upon written request by Ceding Company. Ceding Company also will be responsible for preparing and submitting any other filings with respect to complaints as may be required by applicable law or regulation.

        5.9. Compliance. At and after the Effective Time, with such cooperation from Ceding Company as Reinsurer may reasonably request, Reinsurer will handle all compliance and regulatory matters relating to the administration of the Business, including but not limited to monitoring and implementing necessary changes to forms and rates that may be required by applicable laws and regulations and preparing and filing all reports and other filings related to the Business that may be required by Governmental Entities. Reinsurer will maintain all licenses and registrations required by regulators for the performance of its duties and obligations under this Agreement.

        5.10. Oversights and Errors. In the event that any unintentional or accidental failure to comply with the terms of this Agreement can be shown to be the result of a misunderstanding, oversight or clerical error, both parties will be restored to the position they would have occupied had the misunderstanding, oversight or error not occurred.

5.11. Litigation.

        5.11.1. At and after the Effective Time, Ceding Company will retain responsibility for the liability, cost and management of all Business Proceedings commenced before the Effective Time. At the request of Reinsurer, Ceding Company will provide Reinsurer with reasonable updates regarding the progress and status of all such Business Proceedings.

        5.11.2. At and after the Effective Time, Reinsurer will notify Ceding Company promptly of claims made under the Reinsured Policies or Other Agreements that involve Excluded Liabilities. The parties will mutually agree on an appropriate response to any such claims that involve both an Excluded Liability and either a Policy Liability or Other Assumed Liability and hereby agree to cooperate and coordinate in resolving any and all such claims. In lieu of participating with Ceding Company in the defense of any claim involving both an Excluded Liability and either a Policy Liability or Other Assumed Liability, Reinsurer may elect to pay to Ceding Company the portion of such claim that is reinsured by or the responsibility of Reinsurer under this Agreement, following which Ceding Company will be solely responsible for resolving the remainder of such claim at its own expense. Notwithstanding anything in this Agreement to the contrary, (i) without Ceding Company’s prior written consent, which will not be unreasonably withheld, conditioned or delayed, Reinsurer will not pay any portion of or settle any claim involving Excluded Liabilities or admit liability on the part of Ceding Company with respect to such claim, and (ii) without Reinsurer’s prior written consent, which will not be unreasonably withheld, conditioned or delayed, Ceding Company will not pay any portion of or settle any claim involving Policy Liabilities or Other Assumed Liabilities or admit liability on the part of Reinsurer with respect to such claim.

        5.11.3. At and after the Effective Time, Reinsurer will have responsibility for the liability, cost and management of all Business Proceedings commenced at and after the Effective Time that are Policy Liabilities or Other Assumed Liabilities. Reinsurer will provide Ceding Company with reasonable updates regarding the progress and status of all such Business Proceedings.

        5.12. Power of Attorney. Subject to the provisions of Section 5.11 of this Agreement regarding the handling of Business Proceedings and Excluded Liabilities, Ceding Company does hereby appoint and name Reinsurer, acting through Reinsurer’s authorized officers and employees, as Ceding Company’s lawful attorney in fact with respect to the rights, duties, privileges and obligations of Ceding Company relating to the Reinsured Policies and Other Agreements, (i) to do any and all lawful acts that Ceding Company might have done with respect to the Reinsured Policies and Other Agreements, and (ii) to proceed by all lawful means (A) to perform any and all of Ceding Company’s obligations under the Reinsured Policies and Other Agreements, (B) to enforce any right and defend against any liability arising under the Reinsured Policies and Other Agreements, (C) to sue or defend (in the name of Ceding Company, when necessary) any action arising under the Reinsured Policies and Other Agreements, (D) to collect any and all sums due or payable to Ceding Company under the Reinsured Policies and Other Agreements and to quit and release for same, (E) to collect any and all Premiums due or payable under the Reinsured Policies through any automatic charge authorizations or otherwise of persons who own or hold Reinsured Policies, (F) to sign (in Ceding Company’s name, when necessary) vouchers, receipts, releases and other papers in connection with any of the foregoing matters, (G) to take actions necessary, as may be reasonably determined, to maintain the Reinsured Policies in compliance with applicable laws and regulations, (H) to request rate changes for the Reinsured Policies, (I) to undertake the necessary duties in connection with payment of Commissions in connection with the Reinsured Policies, (J) to establish and maintain bank accounts in the name of Ceding Company and issue drafts and make deposits thereon for the purpose of performing the Administrative Services, and (K) to do everything lawful in connection with the satisfaction of the Reinsurer’s obligations and the exercise of its rights under this Agreement.

        5.13. Abandoned Property, etc. Ceding Company will promptly reimburse Reinsurer for any and all amounts paid to Policyholders by Reinsurer as a result of the non-negotiability of checks and other drafts issued by Ceding Company prior to the Effective Time for amounts owed under Reinsured Policies. Reinsurer will reimburse Ceding Company for all amounts under Reinsured Policies paid by Ceding Company to the applicable state that escheat to such state as abandoned property because checks and other drafts issued by Reinsurer at or after the Effective Time with respect to Policy Liabilities were not timely cashed or deposited by the applicable payee. Ceding Company will promptly seek reimbursement from the applicable state for any amounts paid by Reinsurer to Policyholders under the Reinsured Policies after corresponding amounts have been paid to Ceding Company and escheated to the applicable state pursuant to the immediately preceding sentence, and Ceding Company will promptly reimburse Reinsurer after it has received such amounts from the applicable state. Reinsurer will provide to Ceding Company information concerning the Reinsured Policies reasonably necessary for the preparation of any report, notice or filing concerning abandoned property required to be made by Ceding Company by the applicable state.

        5.14. Restrictive License Regarding Use of Names. Ceding Company hereby grants a restrictive, non-exclusive license, during the term of this Agreement, with no right to sublicense or assign without Ceding Company’s express written consent (except in connection with an assignment of this Agreement pursuant to Section 9.1), for Reinsurer to display and refer to Ceding Company’s name as may be necessary or appropriate for Reinsurer to perform its obligations or exercise its rights hereunder, provided that Reinsurer’s use of Ceding Company’s name will be in accordance with Ceding Company’s written trademark usage guidelines as provided to Reinsurer from time to time. Reinsurer will not take any action that might have an adverse effect on the validity of Ceding Company’s name or ownership by Ceding Company thereof, and will cease to use Ceding Company’s name in any manner immediately upon the expiration or termination of all of the Reinsured Policies. Reinsurer will not acquire any other rights of any kind in Ceding Company’s trade names, trademarks, product name or marks by the use authorized in this Section 5.14. Reinsurer may also use its own marks in connection therewith.

        5.15. Confidential Information.Reinsurer and Ceding Company acknowledge that during the performance of services pursuant to this Agreement, each of them will be exposed to the confidential and proprietary information of the other party and the other party’s Affiliates, including, but not limited to, information containing the names and addresses of Policyholders and all other non-public personal information related to the Reinsured Policies or the Policyholders (the “Confidential Information”). Each party agrees to take all commercially reasonable measures to prevent the Confidential Information from being acquired by unauthorized Persons to the same extent it protects its own confidential and proprietary information, and will not disclose the Confidential Information to third parties without the prior written consent of the other party, except as required by applicable law. Neither party nor any of their respective Affiliates may use the Confidential Information for any purpose other than the performance of its obligations pursuant to this Agreement or as required by applicable law. This Section 5.15 will survive the termination of this Agreement for a period of five (5) years from the date of such termination. Notwithstanding the foregoing, Confidential Information will not include (a) information that is in the recipient’s possession prior to disclosure to it, (b) information that is or becomes publicly available, provided that such public availability does not result from (i) the misappropriation of such information by the recipient or (ii) the obtaining of such information by improper means of the recipient or from acts or omissions of another Person that the recipient knows, or should have reason to know, misappropriated such information or utilized improper means to acquire it or acquired it under circumstances giving rise to a duty to maintain its secrecy or limit its use or by accident or mistake and (c) information that is developed independently by the recipient without the use of any Confidential Information.

        5.16. Customer Lists. Without limiting any obligations of Ceding Company under Section 5.15 above, from and after the Effective Time until two (2) years after the Marketing Termination Date, Ceding Company will not use any customer list or portion thereof that exists on the Marketing Termination Date with respect to the Business for the purpose of soliciting indemnity or prepaid dental insurance business, subject to any other restrictions applicable to Ceding Company pursuant to the Purchase Agreement.

6. Indemnification.

        6.1. Indemnification of Reinsurer. Ceding Company will indemnify, defend and hold harmless Reinsurer and its Affiliates and their respective directors, officers, employees and assigns (the “Reinsurer Indemnitees”) from and against all claims, losses, liabilities, damages, deficiencies, costs, expenses, penalties and reasonable outside attorneys’ fees and disbursements (collectively, “Losses,” and individually a “Loss”), asserted against, imposed upon or incurred by them, directly or indirectly, by reason of or arising out of or in connection with (i) any breach of any covenant or agreement made or to be performed by Ceding Company pursuant to this Agreement, (ii) any Excluded Liability, and (iii) the reasonable costs to Reinsurer Indemnitees of enforcing this indemnity against Ceding Company provided that such costs are awarded to Reinsurer Indemnitees in accordance with Section 7.4.

        6.2. Indemnification of Ceding Company. Reinsurer will indemnify, defend and hold harmless Ceding Company and its Affiliates and their respective directors, officers, employees and assigns (the “Ceding Company Indemnitees”) from and against Losses asserted against, imposed upon or incurred by them, by reason of or arising out of or in connection with (i) any breach of any covenant or agreement made or to be performed by Reinsurer pursuant to this Agreement, (ii) any Policy Liability or Other Assumed Liability, and (iii) the reasonable costs to Ceding Company Indemnitees of enforcing this indemnify against Reinsurer provided that such costs are awarded to Ceding Company Indemnitees in accordance with Section 7.4.

        6.3. Notice of Asserted Liability. Promptly after receipt by an indemnified party hereunder of notice of any demand, claim or circumstances which, with or without the passage of time, could give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (an “Asserted Liability”) that may result in a Loss, such indemnified party must give written notice thereof (the “Claims Notice”) to the indemnifying party. The Claims Notice must describe the Asserted Liability in reasonable detail and indicate the amount (estimated, if necessary) of the Loss that has been or may be suffered by such indemnified party and will include a statement as to the basis for the indemnification sought. Failure to provide a Claims Notice in a timely manner will not be deemed a waiver of the indemnified party’s right to indemnification other than to the extent that such failure prejudices the defense of the claim by the indemnifying party.

        6.4. Opportunity to Defend. The indemnifying party may elect to compromise or defend, at its own expense and by its own counsel, any Asserted Liability; provided, however, the indemnifying party may not compromise or settle any Asserted Liability without the prior written consent of the indemnified party (which consent will not be unreasonably withheld, conditioned or delayed) unless (i) such compromise or settlement requires no more than a monetary payment for which the indemnified party hereunder is fully indemnified and such settlement provides a complete release of, or dismissal with prejudice of, all claims against the indemnified party for all matters that were or could have been asserted in connection with such claim, or (ii) involves no other matters binding upon the indemnified party (other than obligations of confidentiality). If the indemnifying party elects to compromise or defend such Asserted Liability, it will within thirty (30) calendar days from receipt of the Claims Notice notify the indemnified party of its intent to do so, and the indemnified party will cooperate, at the expense of the indemnifying party, in the compromise of, or defense against, such Asserted Liability. If the indemnified party fails to cooperate, then each indemnifying party will be relieved of its obligations under this Section 6 only to the extent that such indemnifying party is prejudiced by such failure to cooperate. Unless and until the indemnifying party elects to defend the Asserted Liability, the indemnified party will have the right, at its option, to do so in such manner as it deems appropriate; provided, however, that the indemnified party will not settle or compromise any Asserted Liability for which it seeks indemnification hereunder without the prior written consent of the indemnifying party (which will not be unreasonably withheld, conditioned or delayed). The indemnifying party will be entitled to participate in (but not to control) the defense of any Asserted Liability that it has elected not to defend with its own counsel and at its own expense.

        6.5. Exclusive Remedy. The parties hereto expressly acknowledge that (a) the provisions of this Section 6 will be the sole and exclusive remedy for damages caused as a result of breaches of the covenants and agreements contained in this Agreement and in any exhibit, certificate or schedule delivered or executed in connection herewith, except that the remedies of injunction and specific performance will remain available to the parties hereto, and (b) no indemnifying party will be liable or otherwise responsible to any indemnified party for punitive damages resulting from any breach of any such covenants and agreements.

7. Dispute Resolution.

        7.1. Any dispute, controversy or claim arising out of or relating to this Agreement or the performance by the parties of its terms will be settled by binding arbitration held at a location to be mutually agreed upon by the parties in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, except as specifically otherwise provided in this Section 7. The interpretation and enforceability of this Section 7 will be governed exclusively by the Federal Arbitration Act, 9 U.S.C. §§ 1-16.

        7.2. There will be a panel of three (3) arbitrators, one of whom will be selected by Ceding Company, one of whom will be selected by Reinsurer, and the third of whom will be mutually selected by the arbitrators selected by Ceding Company and Reinsurer. In the event that such third arbitrator is not selected within ten (10) calendar days after the selection of the second arbitrator, the third arbitrator will be selected by the American Arbitration Association. All arbitrators must have substantial experience in the life and health insurance industry.

        7.3. The arbitrators will allow such discovery as they determine appropriate under the circumstances and will resolve the dispute as expeditiously as practicable, and if reasonably practicable, within one hundred twenty (120) calendar days after the selection of the arbitrators. The arbitrators will give the parties written notice of the decision, with the reasons therefor set out, and they will have thirty (30) calendar days thereafter to reconsider and modify such decision if any party so requests within ten (10) calendar days after the decision. Thereafter, the decision of the arbitrators will be final, binding, and nonappealable with respect to all Persons, including (without limitation) Persons who have failed or refused to participate in the arbitration process, unless such Person is challenging participation in the arbitration process pursuant to an action in a court of competent jurisdiction.

        7.4. The arbitrators will have authority to award relief under legal or equitable principles, including interim or preliminary relief, and to allocate responsibility for the costs of the arbitration and to award recovery of attorneys’ fees and expenses in such manner as is determined to be appropriate by the arbitrators; provided that the arbitrators will be bound by and will limit their awards based upon the limitations of liability contained in this Agreement. A party may, however, seek an emergency temporary restraining order, if appropriate under applicable law, in any court having jurisdiction over the subject matter and the parties. Following the ruling on the request for temporary restraining order, the matter will proceed in arbitration as set forth herein.

        7.5. Judgment upon the award rendered by the arbitrators may be entered in any court having in personam and subject matter jurisdiction.

        7.6. All proceedings under this Section 7, and all evidence given or discovered pursuant hereto, must be maintained in confidence by all parties and the arbitrators.

        7.7. The fact that the dispute resolution procedures specified in this Section 7 have been or may be invoked will not excuse any party from performing its obligations under this Agreement, and during the pendency of any such procedure all parties must continue to perform their respective obligations in good faith.

        7.8. All applicable statutes of limitation will be tolled with respect to the subject matter of the dispute while the procedures specified in this Section 7 are pending. The parties will take such action, if any, required to effectuate such tolling.

8. Downgrade or Failure of Reinsurance Credit.

        8.1. If (a) Reinsurer's Moody's Investors Service Insurance Financial Strength Rating drops below A1 or Reinsurer ceases to be rated by Moody's, or (b) for any reason

        (i) Reinsurer ceases to be licensed as an insurer or ceases to qualify as an accredited reinsurer in a particular jurisdiction under circumstances that would cause Ceding Company to be denied credit for the reinsurance ceded under this Agreement on the financial statements filed by Ceding Company in said jurisdiction, and

        (ii) Reinsurer within thirty (30) days does not substitute as Ceding Company's reinsurer under the terms of this Agreement a company affiliated with Reinsurer with an equal or better claims-paying ability rating that either is licensed as a life insurer or is an accredited reinsurer in all states or otherwise fulfills all requirements necessary so that Ceding Company is allowed credit for the reinsurance ceded under this Agreement in all states, then, absent a written waiver of this funding requirement from Ceding Company signed by the President of Ceding Company, Reinsurer will, within thirty (30) days of the drop in Reinsurer’s rating described in clause (a) above or the loss of one or more of Reinsurer’s licenses or accreditation under the circumstances described in clause (b)(i) above (absent Reinsurer taking the action described in clause (b)(ii) above) deposit and maintain assets in trust with an independent trustee, on the terms provided below and as more fully set forth in the trust agreement executed in accordance with terms set forth below (the “Trust Agreement”) to support the Policy Liabilities and the Other Assumed Liabilities. The Trust Agreement will provide Ceding Company with security for the payment of all Policy Liabilities and Other Assumed Liabilities. In the event of the occurrence of the events described in clauses (a) or (b) above, until such deposit in trust is made, a constructive trust consistent with the terms of the Trust Agreement will be imposed on all Premiums and other receipts relating to the Reinsured Policies.

        8.2. Assets deposited and maintained in trust will at all times meet all applicable regulatory requirements. Such assets will consist solely of “Class A Assets,” defined as cash, cash equivalents or publicly traded bonds and “Class B Assets,” defined as fully performing mortgage-backed securities. No more than 40% of the assets deposited in the trust may be Class B Assets. The assets deposited in the trust must have a market value weighted average credit rating of at least “A1” as specified by Moody’s or at least “A” as specified by Standard & Poor’s Corporation, and no more than 10% thereof will consist of securities with a Standard & Poor’s rating below BBB or Moody’s rating below Baa. The market value of Class A Assets plus the market value of Class B Assets will at all times be at least equal to 110% of (x) Policy-Related Liabilities minus (y) Policy-Related Assets at such time. The form and duration of assets to be held in trust will be appropriate in light of the Policy Liabilities. Reinsurer will provide to Ceding Company at least quarterly a report identifying all assets in the trust as of the date of such report and setting forth the market value and duration of each such asset.

        8.3. Following the transfer of the assets to the trust all Premiums will be contributed directly to the trust. Policy Liabilities and Other Assumed Liabilities may be paid from the trust provided that such payments do not reduce trust assets below 110% of the required Reserves, which will be measured at the end of each calendar quarter. The composition of the assets will be maintained in accordance with the limitations contained in the preceding paragraph.

        8.4. The trustee will be a banking institution (selected by Ceding Company and reasonably acceptable to Reinsurer) incorporated or organized under the laws of the United States or of any State and have stockholders equity in excess of $200,000,000 as of the end of the most recent fiscal year.

        8.5. If the Trust Agreement is not executed and the trust timely funded in accordance with the provisions of this Section 8, all marketing of New Policies will cease, and Ceding Company will be entitled to seek specific performance of the obligations of Reinsurer set forth in this Section 8.

9. General Provisions.

        9.1. Successors; Assigns. This Agreement will inure to the benefit of and be binding upon the successors and permitted assigns of both Ceding Company and the Reinsurer. Neither party may assign, transfer or reinsure its rights or obligations under this Agreement without the prior written consent of the other party, except that, without having to obtain such consent, (i) either party may assign this Agreement to a Person who acquires all or substantially all of the equity or assets of such party, and (ii) Reinsurer may assign this Agreement to a Person who acquires all or substantially all of the assets of the Business. Notwithstanding the foregoing, without Ceding Company’s prior written consent, Reinsurer may not assign this Agreement to any Person having a Moody’s Investors Service Insurance Financial Strength Rating below A1 or that is not rated by Moody’s Investors Service. Reinsurer or Ceding Company, as the case may be, will promptly notify each other following any “change of control” filing with respect to such party made with an insurance regulatory authority, the approval of any plan to liquidate, merge or dissolve Reinsurer or Ceding Company, as applicable, or of any proceeding or lawsuit that materially affects Reinsurer’s or Ceding Company’s ability to perform this Agreement, including, but not limited to, insolvency or rehabilitation proceedings.

        9.2. Net Payment Basis. Amounts payable under this Agreement by Reinsurer to Ceding Company and by Ceding Company to Reinsurer will be netted against each other, dollar for dollar, and only a net payment will be due.

        9.3. Insolvency. In the event of the insolvency of Ceding Company, all reinsurance made, ceded, renewed or otherwise effective under this Agreement will continue to be payable by Reinsurer under the terms of the Reinsured Policies, on behalf of Ceding Company, its liquidator, receiver or statutory successor, without diminution because of the insolvency. Any conservator, receiver, liquidator or statutory successor of Ceding Company will give prompt written notice to Reinsurer of the pendency or submission of a claim under any Reinsured Policy. During the pendency of such claim, Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense available to Ceding Company or its conservator, receiver, liquidator or statutory successor. The expense thus incurred by Reinsurer is chargeable against Ceding Company as a part of the expense of insolvency, liquidation or rehabilitation to the extent of a proportionate share of the benefit which accrues to Ceding Company solely as a result of the defense undertaken by Reinsurer.

        9.4. Governing Law. Notwithstanding the place where this Agreement may be executed by any of the parties, the parties expressly agree that this Agreement will in all respects be governed by, and construed in accordance with, the laws of the State of Tennessee, without regard for its conflict of laws doctrine.

        9.5. Headings, Construction. The section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and will not in any way affect the meaning or interpretation of this Agreement. Unless the context requires otherwise, terms defined or used in this Agreement in the singular will include the plural, and terms defined or used in this Agreement in the plural will include the singular. Whenever the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation.”

        9.6. No Third Party Rights. Nothing herein, either expressed or implied, is intended or will be construed to confer upon or give any Person, other than the Reinsurer and Ceding Company, any rights or remedies under or by reason of this Agreement.

        9.7. Counterparts. This Agreement may be executed in separate counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Each counterpart may consist of one or more copies signed by fewer than all, but together signed by all, the parties hereto.

        9.8. Duration. This Agreement will remain in force until the each Reinsured Policy terminates and all claims thereunder have been paid or satisfied. Notwithstanding anything to the contrary contained herein, the provisions set forth herein in Sections 4, 5.15, 6, 7 and 8 will survive any termination or expiration of this Agreement.

        9.9. Notices. Any notice or other communication required or permitted hereunder will be in writing and will be delivered by commercial courier, sent by facsimile transmission (and immediately after transmission confirmed by telephone) or sent by certified, registered or express mail, postage prepaid. Any such notice will be deemed given when so delivered by commercial courier or sent by facsimile transmission (and immediately after transmission confirmed by telephone) or, if mailed, on the date shown on the receipt therefor, as follows: 

         (i)      If to Ceding Company to:
                  Protective Life Corporation
                  2801 Highway 280 South
                  Birmingham, Alabama  35223
                  Attn: Deborah Long, Senior Vice President General Counsel
                  Fax: 205-868-3597
                  Phone: 205-868-3885

                  with a copy to (which will not constitute notice for purposes of this Agreement):
                  Sutherland Asbill & Brennan LLP
                  999 Peachtree Street, N.E.
                  Atlanta, Georgia  30309
                  Attn: Eric R. Fenichel
                  Fax: 404-853-8806
                  Phone: 404-853-8483

         (ii)     If to Reinsurer to:
                  Fortis, Inc.
                  One Chase Manhattan Plaza
                  New York, New York 10005
                  Attn:    General Counsel
                  Fax:     212-859-7034
                  Phone:   212-859-7285

                  with a copy to (which will not constitute notice for purposes of this Agreement):
                  Alston & Bird LLP
                  1201 West Peachtree Street
                  Atlanta, Georgia 30309
                  Attn:    Susan J. Wilson
                  Fax:     404-881-4777
                  Phone:   404-881-7974

        Any party may, by notice given in accordance with this Section to the other party, designate another address or Person for receipt of notices hereunder.

        9.10. Cooperation. With regard to any matters not expressly stated herein, each party to this Agreement will furnish such information, execute such additional documents, and cooperate with each other as may be reasonably necessary (including but not limited to responses to regulatory inquiries) to carry out the purposes of this Agreement, in accordance with industry practice for transactions of this kind.

        9.11. Waiver. No modification or waiver of any provision of this Agreement will be effective unless set forth in writing. Any waiver will constitute a waiver only with respect to the particular circumstance for which it is given and not a waiver of any future circumstance.

        9.12. Amendment. No amendment or modification hereof will be of any force or effect unless in writing and signed by the parties.

        9.13. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision will be interpreted to be only so broad as is enforceable.

[Remainder of this page intentionally left blank.
Signatures on the following page.]

        In Witness Whereof, Ceding Company and Reinsurer have caused this Agreement to be executed and delivered by their duly authorized officers as of the day and year first written above. 


                                                     "Ceding Company"

                                                     EMPIRE GENERAL LIFE ASSURANCE CORPORATION

                                                     By:

                                                     Name:

                                                     Title:

                                                    "Reinsurer"

                                                     FORTIS BENEFITS INSURANCE COMPANY

                                                     By:

                                                     Name:

                                                     Title:
Exhibits
A Existing Policies
B Indemnity Accounting
C New Policies
D Provider Agreements
E Reinsurance Agreements
F Reinsured Assumed Agreements
G Related Agreements
H Third Party Administration Agreements
I Monthly Accounting
 EX-2 6 ex2dplc.htm Exhibit 2

Exhibit 2(d)

INDEMNITY REINSURANCE AGREEMENT
BY AND BETWEEN
PROTECTIVE LIFE INSURANCE COMPANY
AND
FIRST FORTIS LIFE INSURANCE COMPANY

        This Indemnity Reinsurance Agreement (the “Agreement”) is made and entered into as of December 31, 2001 (the “Effective Date”), by and between Protective Life Insurance Company, a Tennessee corporation (“Ceding Company”), and Fortis Benefits Insurance Company, a Minnesota corporation (“Reinsurer”).

        Ceding Company, through the Dental Benefits Division of Protective Life Corporation (the “Dental Division”), has issued or assumed certain insurance products consisting of group indemnity dental insurance policies, group and individual prepaid managed dental care products, and other group insurance business consisting of small blocks of term life, whole life, disability, accident-only, and non-major group medical A&H policies, all of which either currently are in-force, or have terminated but with respect to which there still are runoff claims.

        Reinsurer desires to reinsure, and Ceding Company desires to cede to Reinsurer, one hundred percent (100%) of the Policy Liabilities (as defined below). Ceding Company also desires to assign and delegate to Reinsurer, and Reinsurer also desires to accept and assume, certain of Ceding Company’s rights and obligations under the Other Agreements (as such term is defined below).

AGREEMENT

        Now, therefore, in consideration of the mutual promises of the parties set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Definitions. As used in this Agreement, the following capitalized terms will have the following meanings.

        1.1. “Administrative Services” means the performance of tasks, duties, responsibilities and actions necessary to administer the Business, as more specifically set forth in Section 5.

        1.2. “Adjusted Transfer Amount” means the amount of the Policy-Related Liabilities as of the Effective Time less the amount of the Policy-Related Assets as of the Effective Time, as set forth on the Effective Date Accounting.

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

        1.4. "Agreement" means this Indemnity Reinsurance Agreement and all exhibits hereto, as it may be amended, supplemented or restated from time to time.

        1.5. "Asserted Liability" is defined in Section 6.3.

        1.6. “Assumed Agreements” means (a) the Provider Agreements, (b) the Third-Party Administration Agreements and (c) each Other Agreement that Reinsurer assumes pursuant to the provisions of Section 3.11 hereof but only from and after the date of such assumption; provided, however, that with respect to (a) and (b) above, “Assumed Agreements” will not include the Mutual of Omaha Agreement or any other Provider Agreement or Third-Party Administration Agreement that Reinsurer specifies in writing to Ceding Company on the Effective Date as an agreement that is not to be treated as an Assumed Agreement for the purposes of this Agreement unless such Provider Agreement or Third-Party Administration Agreement is assumed by Reinsurer after the Effective Date under Section 3.11 (and in such case, it will be treated as an Assumed Agreement only from and after the date of such assumption as provided in Section 3.11).

        1.7. "BBI" means Better Benefits, Inc., formerly known as Better Compensation, Inc.

        1.8. “BBI Marketing Agreement” means collectively (i) the Joint Marketing Agreement between BBI and Protective Life Insurance Company, dated as of January 1, 1991, as amended, and (ii) the Amended and Restated Joint Marketing Agreement by and among BBI, Protective Life Insurance Company and Protective Life & Annuity Insurance Company dated February 7, 1997, as amended on April 15, 1999 and March 31, 2000.

        1.9. "Business" means all business under the Reinsured Policies, Reinsured Assumed Agreements, Reinsurance Agreements, Related Agreements, Provider Agreements and Third Party Administration Agreements.

        1.10. “Business Proceeding” means each action, suit, investigation or proceeding with respect to the Business by or before any court, arbitrator or administrative or governmental body.

        1.11. "Ceding Commission" is defined in Section 4.2.

        1.12. Ceding Company” means Protective Life Insurance Company and its permitted successors and assigns, including any liquidator, receiver, rehabilitator, or other statutory successor.

        1.13. "Ceding Company Indemnitees" is defined in Section 6.2.

        1.14. "Ceding Company's DAC Calculation" is defined in Section 4.13.5.

        1.15. "Claims Notice" is defined in Section 6.3.

        1.16. "Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

        1.17. “Commissions” means all commissions or other compensation due agents or brokers with respect to any of the Reinsured Policies, including compensation owing with respect to the Reinsured Policies under the Premier Agreement.

        1.18. Commissions Due & Accrued” means the aggregate of all Commissions due with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on lines 12 and 18 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on lines 10 and 18 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.19. "Confidential Information" is defined in Section 5.15.

        1.20. "CUNA Agreement" is defined in Section 5.17.

        1.21. "Effective Date" means the date specified in the first paragraph of this Agreement.

        1.22. "Effective Date Accounting" is defined in Section 4.5.

        1.23. "Effective Time" means 11:59 p.m. on the Effective Date.

        1.24. Excluded Liability” means all liabilities or obligations of Ceding Company of any character or nature arising out of or related to the Business that are not Policy Liabilities or Other Assumed Liabilities, including, without limitation, liabilities (i) for taxes payable with respect to Premiums received by Ceding Company before the Effective Time or on account of the Premiums Receivable as of the Effective Time; (ii) arising from participation in any guaranty fund, insolvency fund, plan, pool, association or other similar organization, and that is assessed with respect to the Reinsured Policies based on Premiums received by Ceding Company before the Effective Time or on account of the Premiums Receivable as of the Effective Time; (iii) for Commissions that are payable with respect to the Reinsured Policies with respect to Premiums received by Ceding Company before the Effective Time or on account of the Premiums Receivable as of the Effective Time (other than Commissions with respect to such Premiums Receivable to the extent that such Commissions are included in the Policy-Related Liabilities as of the Effective Time); (iv) all Extra-Contractual Liabilities related to acts or omissions that occurred, or were alleged to have occurred, prior to the Effective Time; or (v) to LeafRe or any of its Affiliates (A) pursuant to the LeafRe Reinsurance Agreements, including any LeafRe claims with respect to Reinsured Policies that are not LeafRe Covered Policies, but not including any liabilities to LeafRe arising at or after the Effective Time with respect to the Reinsured Policies that are LeafRe Covered Policies or (B) pursuant to the BBI Marketing Agreement except for (1) Commissions arising after the Effective Time with respect to the LeafRe Covered Policies and (2) Commissions arising at or prior to the Effective Time with respect to the LeafRe Covered Policies to the extent such Commissions are included in the Policy-Related Liabilities as of the Effective Time.

        1.25. “Existing Policies” means all group indemnity dental insurance policies, group and individual prepaid managed care dental contracts, group whole life insurance policies, group term life insurance policies, group disability insurance policies, group accident-only insurance policies, and other group non-major medical A&H insurance policies, that have been issued, or assumed pursuant to the Reinsured Assumed Agreements, by Ceding Company through the Dental Division, whether offered on a voluntary basis (employee-paid) or true group (employer-paid) basis, that are both listed on Exhibit A and in force at the Effective Time, as well as any riders thereto, including those providing for other supplemental benefits, any such policies and contracts that have lapsed but are subject to reinstatement, and any supplemental benefits arising out of such policies and contracts.

        1.26. “Experience Rating Refund Liability” means the aggregate of all experience rating refund liabilities with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on line 11.2 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on line 9.2 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.27. “Extra-Contractual Liabilities” means all liabilities (including but not limited to liabilities for consequential, exemplary, punitive or similar damages) that relate to or arise in connection with any alleged or actual act, error or omission, whether intentional or otherwise, or from any alleged or actual reckless conduct or bad faith (i) in connection with the handling of any claim under any of the Reinsured Policies, or (ii) in connection with the marketing, issuance, delivery, administration or cancellation of any of the Reinsured Policies.

        1.28. “Final Transfer Amount” means the amount of the Policy-Related Liabilities as of the Effective Time less the amount of the Policy-Related Assets as of the Effective Time, as set forth on the True-Up Accounting.

        1.29. “Governmental Entity” means any foreign, federal, state, local, municipal, county or other governmental, quasi-governmental, administrative or regulatory authority, body, agency, court, tribunal, commission or other similar entity (including any branch, department, agency or political subdivision thereof).

        1.30. “Indemnity Accounting” means the indemnity reinsurance accounting, setting forth the Policy-Related Assets and Policy-Related Liabilities as of March 31, 2001, assuming a March 31, 2001 Effective Date, which is attached hereto as Exhibit B.

        1.31. "LeafRe" means LeafRe Reinsurance Company.

        1.32. "LeafRe Covered Policies" is defined in Section 2.4.

        1.33. “LeafRe Reinsurance Agreements” means collectively (i) the Reinsurance Agreement between LeafRe and PLICO effective January 1, 1993, as amended on January 1, 1996, and (ii) the Reinsurance Agreement between LeafRe and PLAIC effective January 1, 1993, as amended on January 1, 1996.

        1.34. "Losses" and individually "Loss" is defined in Section 6.1.

        1.35. “Marketing Termination Date” means the date that is one (1) year after the Effective Date, or such earlier date as Reinsurer may hereafter request.

        1.36. "Monthly Accounting" is defined in Section 4.7.

        1.37. “Mutual of Omaha Agreement” means the PPO Network Access Agreement dated as of January 1, 2000, between Protective Life Insurance Company and Mutual of Omaha Insurance Company.

        1.38. “NAIC Annual Statement Blank” means the form of annual statement for life and accident and health insurance companies-association edition, as prescribed from time to time by the NAIC.

        1.39. “New Policies” means all group indemnity dental insurance policies and group and individual prepaid managed dental care contracts that may be issued by Ceding Company as required under Section 3.6. New Policies will only be issued on the forms and in those states set forth in Exhibit C.

        1.40. "Net Premiums" means Premiums after any adjustments or refunds.

        1.41. "Net Transfer Amount Difference" is defined in Section 4.5.3.

        1.42. “90-Day Treasury Rate” means the annual yield rate, on the date to which such 90-Day Treasury Rate relates, of actively traded U.S. Treasury securities having a remaining duration to maturity of three months, as such rate is published under “Treasury Constant Maturities” in Federal Reserve Statistical Release H.15(519).

        1.43. “Other Assumed Liabilities” means the contractual liabilities and obligations of Ceding Company arising (a) at or after the Effective Time under the Other Agreements or (b) prior to the Effective Time under the Other Agreements to the extent that such liabilities and obligations are included in Policy-Related Liabilities as of the Effective Time.

        1.44. "Other Agreements" means collectively the Related Agreements, the Reinsurance Agreements, the Reinsured Assumed Agreements, the Provider Agreements and the Third-Party Administration Agreements.

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

        1.46. “Policy Liabilities” means: (i) all contractual obligations of Ceding Company under the Reinsured Policies; (ii) all obligations of Ceding Company represented by the Reserves transferred to Reinsurer pursuant to Section 4.3 (to the extent not included in the immediately preceding clause (i)); (iii) all liabilities for premium taxes arising on account of Premiums received by Reinsurer at or after the Effective Time other than such taxes arising on account of Premiums Receivable as of the Effective Time; (iv) all amounts payable for returns or refunds of Premiums under the Reinsured Policies; (v) all liabilities for Commissions payable with respect to the Reinsured Policies with respect to Premiums received by Reinsurer at or after the Effective Time (including the Premiums Receivable to the extent that the Commissions in respect thereof are included in the Policy-Related Liabilities as of the Effective Time but excluding Commissions owing to LeafRe or BBI with respect to Reinsured Policies that are not LeafRe Covered Policies); (vi) all guaranty fund assessments and similar charges imposed with respect to the Reinsured Policies based on Premiums received by Reinsurer at or after the Effective Time other than such assessments and similar charges arising on account of Premiums Receivable as of the Effective Time; and (vii) all Extra-Contractual Liabilities related to acts or omissions that occurred, or were alleged to have occurred at or after the Effective Time, other than Extra-Contractual Liabilities arising from acts or omissions of Ceding Company; provided, however, that acts or omissions of Reinsurer and its Affiliates, acting on behalf of Ceding Company, with respect to the Reinsured Policies and the Other Agreements will not be deemed to be the acts or omissions of Ceding Company and provided that acts or omissions at and after the Effective Time of (x) brokers and agents that Ceding Company appointed prior to the Effective Time to market the Reinsured Policies, (y) brokers and agents that Reinsurer appoints on behalf of Ceding Company after the Effective Time with respect to the Reinsured Policies or (z) brokers and agents that Ceding Company appoints at the direction of Reinsurer with respect to the Reinsured Policies will not be deemed to be the acts or omissions of Ceding Company.

        1.47. "Policy-Related Assets" means collectively the Reinsurance Receivable, Premiums Receivable and Prepaid Capitation.

        1.48. "Policy-Related Liabilities" means collectively the Reserves, Premiums Paid in Advance, Experience Rating Refund Liability, and Commissions Due & Accrued.

        1.49. "Policy Termination Date" means the date that is two (2) years after the Marketing Termination Date.

        1.50. "Policyholder" means the policyholder with respect to a Reinsured Policy.

        1.51. "Preliminary Effective Date Accounting" is defined in Section 4.4.

        1.52. “Preliminary Transfer Amount” means the amount of the Policy-Related Liabilities less the amount of the Policy-Related Assets, in each case as of the last day of the calendar month that is two months immediately preceding the calendar month during which the Effective Date occurs (by way of example, if the Effective Date were August 1, such accounting would be as of June 30), as set forth on the Preliminary Effective Date Accounting.

        1.53. "Premier Agreement" means the Agreement dated June 1, 1999, between Protective Life Insurance Company and Premier Dental Network, Inc.

        1.54. "Premiums" is defined in Section 4.1.

        1.55. “Premiums Due & Deferred A&H” means the aggregate of all Premiums receivable (including, without limitation, due and deferred Premiums) with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable as a net admitted asset on line 16 of the Assets page of the 2000 NAIC Annual Statement Blank, on line 17 of the Assets page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.56. “Premiums Due & Deferred Life” means the aggregate of all Premiums receivable (including, without limitation, due and deferred Premiums) with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable as a net admitted asset on line 15 of the Assets page of the 2000 NAIC Annual Statement Blank, on line 16 of the Assets page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.57. “Premiums Paid in Advance” means the aggregate of all Premiums paid in advance with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on line 9 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on line 8 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.58. "Premiums Receivable" means the aggregate of all Premiums Due & Deferred Life and Premiums Due & Deferred A&H.

        1.59. “Prepaid Capitation” means the aggregate of all prepaid capitation amounts paid in advance with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable on line 22 of the Assets page of the 2000 NAIC Annual Statement Blank, on line 24 of the Assets page of the 2001 NAIC Annual Statement Blank, or in comparable line items on successor NAIC Annual Statement Blanks, in each case whether or not such prepaid capitation amounts are admitted assets for statutory reporting purposes.

        1.60. “Provider Agreements” means those agreements with Persons listed on Exhibit D hereto pursuant to which Ceding Company directly or indirectly contracts for the services of dental care providers with respect to benefits provided under the Reinsured Policies that are group indemnity dental insurance policies or prepaid managed dental care contracts.

        1.61. "Purchase Agreement" means the Stock and Asset Purchase Agreement dated July 9, 2001, by and among Protective Life Corporation, Protective Life Insurance Company, Fortis, Inc. and Dental Care Holdings, Inc., as amended, supplemented or restated from time to time.

        1.62. “Reinsurance Agreements” means the reinsurance agreements listed on Exhibit E and under which Ceding Company has ceded liabilities to Persons other than Reinsurer, and the LeafRe Reinsurance Agreements. The cession of the Reinsured Policies to Reinsurer hereunder is not intended to alter the reinsurance of the portion of the risk that has been so ceded to other Persons under the Reinsurance Agreements.

        1.63. “Reinsurance Receivable” means the aggregate of all amounts recoverable from reinsurers with respect to the Reinsured Policies, determined in accordance with SAP and appropriately includable as a net admitted asset on lines 12.1, 12.2, 12.3 and 12.4 of the Assets page of the 2000 NAIC Annual Statement Blank, on lines 12.1, 12.2, 12.3 and 12.4 of the Assets page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.64. “Reinsured Assumed Agreements” means those reinsurance contracts listed in Exhibit F and pursuant to which Ceding Company reinsures or coinsures policies issued by third-party insurers.

        1.65. "Reinsured Policies" means, collectively, all Terminated Policies, Existing Policies and New Policies.

        1.66. “Reinsurer” means Fortis Benefits Insurance Company and its permitted successors and assigns, including any liquidator, receiver, rehabilitator, or other statutory successor.

        1.67. "Reinsurer's DAC Calculation" is defined in Section 4.13.4.

        1.68. “Related Agreements” means the agreements of Ceding Company requiring the payment of Commissions relating to the Reinsured Policies to the Persons listed on Exhibit G but excluding the BBI Marketing Agreement.

        1.69. “Reserves” means the aggregate of all reserves (including, as applicable, funds at interest, life benefit reserves, A&H benefit reserves, life claim reserves, A&H claim reserves and unearned Premium reserves and premium deposit fund liabilities) with respect to the Reinsured Policies determined in accordance with SAP and appropriately includable, as applicable to the Reinsured Policies, on lines 1, 2, 3, 4.1, 4.2, 5, 10.1, 10.2 and 10.3 of the Liabilities, Surplus and Other Funds page of the 2000 NAIC Annual Statement Blank, on lines 1, 2, 3, 4.1 and 4.2 of the Liabilities, Surplus and Other Funds page of the 2001 NAIC Annual Statement Blank or on comparable line items in successor NAIC Annual Statement Blanks.

        1.70. “SAP” means the statutory accounting practices prescribed or permitted by the insurance regulatory authority of the Ceding Company’s jurisdiction of domicile.

        1.71. “Terminated Policies” means all group indemnity dental insurance policies, group and individual prepaid managed dental care contracts, group whole life insurance policies, group term life insurance policies, group disability insurance policies, group accident-only insurance policies and other group non-major medical A&H insurance policies issued, or assumed pursuant to the Reinsured Assumed Agreements, by Ceding Company through the Dental Division, whether offered on a voluntary basis (employee-paid) or true group (employer-paid) basis, as well as any riders providing for other supplemental benefits, and any supplemental benefits arising out of such policies or contracts, that have been terminated before the Effective Time but with respect to which there still are runoff claims at or after the Effective Time.

        1.72. “Third-Party Administration Agreements” means those agreements listed on Exhibit H. “Third Party Administration Agreements” includes administrative-services-only agreements (often referred to as “ASO Agreements”).

        1.73. "True-Up Accounting" is defined in Section 4.6.

        1.74. "True-Up Value Difference" is defined in Section 4.6.3.

        1.75. "Trust Agreement" is defined in Section 8.1.

2. Purpose of Agreement; Coverages to be Reinsured; Liabilities Assumed.

        2.1. Purpose. The purpose of this Agreement is to provide for, as of the Effective Time, (i) the one hundred percent (100%) reinsurance by Reinsurer on a coinsurance basis of the Policy Liabilities, (ii) the assumption by Reinsurer of all Other Assumed Liabilities with reference only to the Assumed Agreements and (iii) the agreement by Reinsurer to pay and otherwise perform all of the Other Assumed Liabilities under the Other Agreements (other than the Assumed Agreements), all in consideration of the transfer of ownership by Ceding Company to Reinsurer of the cash and other assets as provided in Section 4.3 and the transfer to Reinsurer by Ceding Company of certain of Ceding Company’s rights and obligations under and in connection with the Business as set forth herein. Reinsurer accepts all service responsibilities with respect to all of the Business in accordance with the terms of this Agreement. Reinsurer will not accept any liabilities of Ceding Company under this Agreement other than the Policy Liabilities and the Other Assumed Liabilities.

        2.2. Cession and Assignment. As of the Effective Time, Ceding Company hereby cedes to Reinsurer, and Reinsurer hereby accepts reinsurance on a coinsurance basis, of 100% of the Policy Liabilities, to the end that then and thereafter, as between the parties to this Agreement, Ceding Company will have no liability for Policy Liabilities and no rights to any profits or other benefits of the Business. With respect to the Other Agreements and the Other Assumed Liabilities, the parties hereby agree as follows:

        2.2.1. As of the Effective Time, Reinsurer hereby agrees to pay and otherwise perform on behalf of Ceding Company the Other Assumed Liabilities.

        2.2.2. As of the Effective Time, Ceding Company hereby assigns to Reinsurer, and Reinsurer hereby accepts and assumes, all of Ceding Company’s rights and interests in and under the Assumed Agreements.

        2.2.3. Ceding Company’s rights and interests under and in all of the Related Agreements, and each Provider Agreement and Third Party Administration Agreement that is not an Assumed Agreement, will not be assigned to Reinsurer at the Effective Time, but may be assigned to Reinsurer after the date hereof in accordance with Section 3.11; provided, however, that until such assignment, if any, Ceding Company will provide or cause to be provided to Reinsurer all benefits of Ceding Company under each such Related Agreement, Provider Agreement and Third Party Administration Agreement and will enforce for the account of Reinsurer any rights of Ceding Company arising from each such Related Agreement, Provider Agreement and Third Party Administration Agreement, so that Reinsurer receives the full economic and other benefits of each such Related Agreement, Provider Agreement and Third Party Administration Agreement as though they had been assigned to Reinsurer. Reinsurer will reimburse Ceding Company for Ceding Company’s reasonable costs and expenses in so enforcing any such rights.

        2.2.4. As of the Effective Time, Ceding Company hereby assigns to Reinsurer, and Reinsurer hereby accepts, all of Ceding Company’s rights and interests in and under the Reinsurance Agreements and Reinsured Assumed Agreements, if consent to such assignment has been obtained from the other contracting party thereto or no such consent was required, except that Reinsurer will not acquire any of the Ceding Company’s claims against LeafRe pursuant to the LeafRe Reinsurance Agreements that arise before the Effective Time. If such consent has not been obtained, from and after the Effective Time, Ceding Company will provide or cause to be provided to Reinsurer all benefits of Ceding Company under such unassigned Reinsurance Agreements and Reinsured Assumed Agreements and will enforce for the account of Reinsurer any rights of Ceding Company arising from such unassigned Reinsurance Agreements and Reinsured Assumed Agreements, so that Reinsurer receives the full economic and other benefits of the Reinsurance Agreements and Reinsured Assumed Agreements as though they had been assigned to Reinsurer. Reinsurer will reimburse Ceding Company for Ceding Company’s reasonable costs and expenses in so enforcing any such rights.

        2.3. Ceding Company Access to Provider Agreements and Third Party Administration Agreements. Beginning at the Effective Time and extending through the Policy Termination Date, with respect to the Provider Agreements and Third Party Administration Agreements that are Assumed Agreements, as such agreements relate to the Reinsured Policies, Reinsurer will provide to Ceding Company such rights and benefits under such agreements as are necessary and appropriate for Ceding Company to perform its obligations under this Agreement as the direct writer of the Reinsured Policies.

        2.4. LeafRe Reinsurance Agreements. None of the Reinsured Policies is subject to the LeafRe Reinsurance Agreements except for the Reinsured Policies that both (A) were included in the periodic financial reports provided by Protective Life Insurance Company and Protective Life & Annuity Insurance Company to LeafRe on or before March 31, 2001 as being reinsured pursuant to the LeafRe Reinsurance Agreements, or were reinsured pursuant to the LeafRe Reinsurance Agreements in the ordinary course of business after March 31, 2001, and (B) continue in force as of the Effective Time (such Reinsured Policies referred to in (A) and (B) being referred to as the “LeafRe Covered Policies”). The Reinsured Policies that are not subject to the LeafRe Reinsurance Agreements include, without limitation, the Reinsured Policies that are the subject of legal actions between Ceding Company and LeafRe or an Affiliate of LeafRe initiated prior to the Effective Time. Ceding Company is retaining all claims against LeafRe with respect to the LeafRe Reinsurance Agreements arising prior to the Effective Time and is retaining all obligations to LeafRe with respect to the LeafRe Reinsurance Agreements arising prior to the Effective Time, including any obligations to LeafRe relative to all Reinsured Policies that are not LeafRe Covered Policies. Notwithstanding any other provision of this Agreement, Ceding Company acknowledges that Reinsurer may retrocede all or part of the Reinsured Policies subject to the LeafRe Reinsurance Agreements to another insurance company or companies, and Ceding Company hereby consents to such retrocession and agrees to cooperate to effectuate such retrocession to the extent reasonably requested by Reinsurer; provided, however, that no such retrocession will relieve Reinsurer of its obligations under this Agreement with respect to such Reinsured Policies. The aggregate amount of the deposit funds, as referred to in the LeafRe Reinsurance Agreements, are and will be included in the Reserves within the line “Funds at Interest” in the Indemnity Accounting, the Preliminary Effective Date Accounting and the Effective Date Accounting.

3. Reinsurance Provisions.

        3.1. Duration of Reinsurance. The liability of Reinsurer under this Agreement with respect to any Reinsured Policy will begin simultaneously with that of Ceding Company, but not before the Effective Time. Reinsurer’s liability with respect to any Reinsured Policy will not terminate until Ceding Company’s liability on such Reinsured Policy terminates. Reinsurer’s liability with respect to any Related Agreement, any Provider Agreement or any Third Party Administration Agreement will not terminate until Ceding Company’s liability under such agreement terminates.

        3.2. Responsibility for Payments and Performance. At and after the Effective Time, Reinsurer will have the responsibility for paying all Policy Liabilities. At and after the Effective Time, Reinsurer will have the responsibility for performing or paying all Other Assumed Liabilities. Ceding Company will have the responsibility for paying all Excluded Liabilities.

        3.3. Changes to Existing Policies or New Policies. Except as otherwise set forth herein, any changes to Existing Policies or New Policies may be made only with the prior written consent of Ceding Company, which consent will not be unreasonably withheld, conditioned or delayed. Ceding Company will not make any changes to the terms and conditions of a Reinsured Policy or withdraw or terminate any form of Reinsured Policy on file with any Governmental Entity, except in either case with Reinsurer’s prior written consent, which consent will not be unreasonably withheld, conditioned or delayed; provided, however, that Ceding Company will be entitled to make changes to a Reinsured Policy or withdraw or terminate the form of a Reinsured Policy to the extent such action is required by applicable law or pursuant to the terms of the Reinsured Policy, and Ceding Company shall have given written notice thereof to Reinsurer in advance of taking such action.

        3.4. Conversions. At and after the Effective Time, Reinsurer will issue or cause to be issued any individual conversion policy that may be required under the terms of a Reinsured Policy.

        3.5. Errors and Omissions. If through an oversight, Ceding Company fails to list an Existing Policy on Exhibit A, a Reinsurance Agreement on Exhibit E, a Reinsured Assumed Agreement on Exhibit F, a Related Agreement on Exhibit G, a Third Party Administration Agreement on Exhibit H, or a Provider Agreement on Exhibit D or if Ceding Company fails to transfer to Reinsurer any Reserves or applicable Premiums with respect thereto and a party discovers such error in the information in any such Exhibit or in the transfer of such Reserves or Premiums, the party discovering the error must promptly notify the other party and provide information documenting the error. The parties then in good faith will attempt to resolve the matter, and if the parties cannot resolve the matter, the matter will be submitted to arbitration in accordance with Section 7, in each case in order to place both parties in the positions they would have been in had the error not occurred.

        3.6. New Policies. During the period that begins at the Effective Time and ends on the Marketing Termination Date, New Policies will be issued by Ceding Company at the request of Reinsurer; provided, however, that a New Policy that is delivered after the Marketing Termination Date but that has an effective date that is on or prior to the Marketing Termination Date shall, for the purposes of this Section 3.6 and of Section 3.7, be deemed issued on such effective date. Each New Policy will have a term not to exceed one (1) year from its effective date; provided, however, that a New Policy may have a term not to exceed two (2) years from its effective date or may provide a guaranteed Premium rate for an initial two-year period from its effective date, if such New Policy is issued prior to the Marketing Termination Date in the ordinary course of business consistent with Ceding Company’s past practices. Reinsurer will pay all expenses and perform all responsibilities related to the issue of any New Policies as permitted under this Agreement, including but not limited to all expenses related to agent appointments, commissions, marketing and printing. A New Policy may not include any term or condition that would prevent the termination of such policy on or at any time after the Policy Termination Date, other than a term that is the same as is contained in one of the forms of New Policies set forth in Exhibit C providing for a prior notice of termination or an effective date of termination. Reinsurer will provide and maintain all documentation related to the appointment of agents in connection with the sale or issue of New Policies. Ceding Company will cooperate with such agent appointments but it may, in its reasonable discretion, terminate the appointment of any agent following prior notice to Reinsurer of such intended action if, in Ceding Company’s reasonable judgment, such agent is creating an unreasonable business or legal risk for Ceding Company. Ceding Company will promptly terminate the appointment of any agent to sell New Policies if directed in writing to do so by Reinsurer. In marketing New Policies as permitted under this Agreement, Reinsurer may use only those marketing materials approved for use by Ceding Company at the Effective Time or that may be approved by Ceding Company after the Effective Time at the request of Reinsurer, such approval not to be unreasonably withheld, conditioned or delayed. Reinsurer may not otherwise use Ceding Company’s name, logo, trademarks or trade names, except as permitted by Section 5.14 of this Agreement or by the Purchase Agreement.

        3.7. Renewal and Termination of Existing and New Policies. At and after the Effective Time and before the Marketing Termination Date, Ceding Company will, at Reinsurer’s request, renew any Existing Policy at the conclusion of the normal renewal cycle for such policy or on the anniversary date for such policy for a term not to exceed one (1) year and at rates determined by Reinsurer. In addition, Ceding Company will renew a New Policy after the Marketing Termination Date, at Reinsurer’s request, where appropriate to honor a two-year rate guarantee for a New Policy that was issued before the Marketing Termination Date for a period not to extend beyond the Policy Termination Date and at rates determined by Reinsurer. Reinsurer will pay all expenses and perform all responsibilities related to the renewal of any Existing Policies or New Policies as permitted under this Agreement, including but not limited to all expenses related to agent appointments, commissions, marketing and printing. With respect to any such renewal of an Existing Policy or New Policy after the Effective Time, Reinsurer may not provide or include any term or condition that would prevent the termination of such policy on or at any time after the Policy Termination Date, other than a term providing for a prior notice of termination or an effective date of termination that is the same as is contained in such Existing Policy (in the case of a renewal of an Existing Policy) or in one of the forms of New Policies set forth in Exhibit C (in the case of a renewal of a New Policy). After the Marketing Termination Date, except as provided above in this Section 3.7 or in Section 3.6, Ceding Company will not be obligated to renew any Existing Policy or New Policy or to issue any New Policy, and Reinsurer may not do so on Ceding Company’s behalf. Reinsurer agrees that, on and after the Policy Termination Date, at Ceding Company’s written direction, Reinsurer will, on Ceding Company’s behalf, terminate any Existing Policy or any New Policy that may be in force on such date in accordance and consistent with the provisions thereof and, that if Reinsurer fails to so terminate any such Existing Policy or New Policy prior to the earlier of (x) sixty (60) calendar days after Reinsurer receives such notice from Ceding Company and (y) five (5) business days prior to the renewal date of such Existing Policy or New Policy, then Ceding Company may terminate such Existing Policy or New Policy. Ceding Company represents and warrants to Reinsurer that all policy forms listed on Exhibits A and C contain terms and conditions that will not preclude Reinsurer from complying with the obligations in Section 3.7 and this Section 3.8, including, without limitation, the obligation to permit Existing Policies to be terminated on and after the Policy Termination Date.

        3.8. Compliance with Certain Agreements. Anything herein to the contrary notwithstanding, without Ceding Company’s prior written consent, Reinsurer will not cause to be issued any New Policy to any state or federally chartered credit union operating in the United States. In the event that BBI does not agree to terminate the BBI Marketing Agreement at or prior to the Effective Time, then anything herein to the contrary notwithstanding, without Ceding Company’s prior written consent, Reinsurer will not cause to be issued any New Policy or cause to be renewed any Existing Policy in Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, West Virginia, Connecticut, Pennsylvania, New Jersey, Delaware or New York other than through BBI.

        3.9. Compliance with Law. Reinsurer will comply in all material respects with all state insurance laws and regulations and all other applicable laws and regulations in performing its activities under this Section 3 and its other obligations under this Agreement, including but not limited to its appointment of agents on behalf of Ceding Company, its payment of commissions to such agents and its use of marketing materials, and no approval by Ceding Company under Section 3.7 above of any marketing materials used by Reinsurer will be deemed to waive any liability of Reinsurer to Ceding Company under this Agreement arising from the failure of such marketing materials to comply with such laws and regulations. Ceding Company will use all commercially reasonable efforts to comply with directions from Reinsurer with respect to issuance of New Policies, renewals of Existing Policies and New Policies, and administration of Reinsured Policies, so long as such directions comply with all applicable laws and are not inconsistent with the provisions of this Agreement. Reinsurer will reimburse Ceding Company for Ceding Company’s reasonable costs and expenses in complying with such directions.

        3.10. Credit for Ceded Reinsurance. Subject to Section 8 hereof, Reinsurer will maintain all licenses or otherwise take all action that may be necessary for Ceding Company to obtain full financial credit for the Reinsured Policies.

        3.11. Assignment of Certain Other Agreements. From and after the Effective Time, as may be requested by Reinsurer from time to time, Ceding Company will assign to Reinsurer, and Reinsurer will assume and accept, all of Ceding Company’s rights and interests in and under any Related Agreement, Provider Agreement and Third Party Administration Agreement that has not been previously assumed by Reinsurer pursuant to the provisions of this Agreement (including assumptions pursuant to this Section 3.11); provided, however, that to the extent that any such assignment would preclude Ceding Company from lawfully fulfilling its obligations under this Agreement, then as a condition to such assignment, Reinsurer and Ceding Company will enter into an appropriate agreement to provide Ceding Company with the necessary rights and benefits under such assigned agreement to enable Ceding Company to fulfill lawfully its obligations under this Agreement; and provided further, that following the Policy Termination Date (but not prior to such date), Ceding Company will terminate any of the Related Agreements, Provider Agreements or Third Party Administration Agreements that have not then been assigned to Reinsurer.

        3.12. Approval of Reinsurer Rates and Forms. Reinsurer will use commercially reasonable efforts to obtain approval of Reinsurer’s rates and policy forms from the relevant regulatory authorities to enable Reinsurer to convert the Reinsured Policies to Reinsurer’s own policies on the first practicable policy renewal date (in accordance with Section 3.7) following the Effective Date.

4. Accounting, Payments and Procedures.

       4.1. Premium Accounting. Reinsurer will be entitled to receive one hundred percent (100%) of all premiums and other amounts with respect to the Reinsured Policies (“Premiums”) that are received at or after the Effective Time, including, without limitation, amounts received in payment of Premiums Receivable as of the Effective Time, and all such Premiums will be the sole property of Reinsurer. Reinsurer will be authorized to endorse for payment to Reinsurer all checks, drafts and money orders payable to Ceding Company as payment of Premiums that are received at or after the Effective Time. Ceding Company hereby assigns to Reinsurer, as of the Effective Time, all of its rights and privileges to draft or debit the accounts of any Policyholders for Premiums, including existing pre-authorized bank draft or electronic fund transfer arrangements between Ceding Company and such Policyholders. Ceding Company will promptly (but in no event later then five (5) business days following Ceding Company’s receipt thereof) endorse and remit, and hereby assigns to Reinsurer, any Premiums received at or after the Effective Time. All Premiums received before the Effective Time will be retained by Ceding Company.

       4.2. Ceding Commission. In consideration of Ceding Company’s transfer of the Reinsured Policies and the Preliminary Transfer Amount to Reinsurer as provided herein, on the Effective Date, Reinsurer will pay to Ceding Company a ceding commission in cash in the amount of $209,700,000 (the “Ceding Commission”). For all purposes related to income taxes, the parties agree to allocate the Ceding Commission 90% to the dental indemnity insurance and prepaid managed dental care business being reinsured hereunder, and 10% to all other business being reinsured hereunder.

       4.3. Transfer of Assets. On the Effective Date, in consideration of and subject to Reinsurer’s (a) reinsurance of the Policy Liabilities, (b) assumption or payment and performance of the Other Assumed Liabilities and (c) payment of the ceding commission, all as provided in this Agreement, Ceding Company hereby (x) transfers to Reinsurer cash equal to the Preliminary Transfer Amount and (y) sells, transfers, conveys, grants, assigns and delivers to Reinsurer, free and clear of all claims, liens, interests and encumbrances, and Reinsurer hereby accepts from Ceding Company, all of Ceding Company’s existing and future right, title and interest in and to the Policy-Related Assets received by or on behalf of Ceding Company at or after the Effective Time with respect to the Reinsured Policies, and Ceding Company agrees to execute and deliver to Reinsurer any further instruments or assurances that Reinsurer may reasonably request for more effectual vesting of Reinsurer’s right, title and interest in and to such Policy-Related Assets. To the extent that a court of competent jurisdiction or Governmental Entity determines that the foregoing transfer and conveyance of Policy-Related Assets is not effective to vest absolute and irrevocable title in such Policy-Related Assets in Reinsurer, then Ceding Company hereby grants to Reinsurer a first priority security interest in such Policy-Related Assets to secure payment and performance of the Policy Liabilities and the Other Assumed Liabilities. Ceding Company will take all action reasonably requested by Reinsurer to assist Reinsurer in recording and perfecting such first priority security interest, including Ceding Company’s execution and delivery of any financing statements reasonably requested by Reinsurer.

       4.4. Preliminary Effective Date Accounting. Ceding Company has delivered to Reinsurer not later than five business days prior to the Effective Date an accounting, as of the last day of the calendar month that is two months immediately preceding the calendar month during which the Effective Date occurs (by way of example, if the Effective Date were August 1, such accounting would be as of June 30) of all Policy-Related Liabilities and Policy-Related Assets as of such date in the same form as the Indemnity Accounting (the “Preliminary Effective Date Accounting”). Such accounting was reviewed and accompanied by a certificate signed by Ceding Company’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Ceding Company; (iii) calculated in accordance with applicable SAP; and (iv) prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000 and the Indemnity Accounting. Ceding Company will provide Reinsurer with a copy of all work papers and data used, and access to all Ceding Company personnel involved, in preparing the Preliminary Effective Date Accounting as requested by Reinsurer.

4.5. Effective Date Accounting.

       4.5.1. No later than sixty (60) calendar days after the Effective Date, Ceding Company will prepare as of the Effective Date and deliver to Reinsurer an accounting of all Policy-Related Liabilities and Policy-Related Assets, in the same form as the Preliminary Effective Date Accounting (the “Effective Date Accounting”). In addition, the Effective Date Accounting will include a statement comparing the values set forth on the Preliminary Effective Date Accounting with the values on the Effective Date Accounting and computing the difference in such values. The Effective Date Accounting must be reviewed and accompanied by a certificate signed by Ceding Company’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Ceding Company; (iii) calculated in accordance with applicable SAP; and (iv) prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000, the Indemnity Accounting and the Preliminary Effective Date Accounting. Ceding Company will provide Reinsurer with a copy of all work papers and data used, and access to all personnel involved, in preparing the Effective Date Accounting. After the Effective Date, Reinsurer will provide Ceding Company with reasonable access to the books and records of the Business, and access to Reinsurer’s personnel, reasonably necessary for Ceding Company to prepare the Effective Date Accounting.

       4.5.2. Reinsurer will have sixty (60) calendar days after receipt of the Effective Date Accounting to review such accounting and suggest changes or corrections thereto. On or before the end of such period, Reinsurer will notify Ceding Company in writing whether or not it accepts the Effective Date Accounting. If Reinsurer fails to so notify Ceding Company, Reinsurer will be deemed to have accepted the Effective Date Accounting. If Reinsurer notifies Ceding Company that it does not accept the Effective Date Accounting, Reinsurer will set forth in reasonable detail its objections thereto and the reasons for such objections. The parties in good faith will discuss and negotiate any such objections in an effort to reach agreement on the Effective Date Accounting. If despite good faith negotiations the parties are unable to reach agreement within thirty (30) calendar days after Ceding Company’s receipt of Reinsurer’s notice of objections, then the parties will submit the dispute to arbitration in accordance with Section 7, except that all arbitrators must be Members of the American Academy of Actuaries familiar with the types of policies included in the Reinsured Policies, and the arbitrators will determine the Effective Date Accounting in accordance with the standards set forth in items (i) through (iv) of Section 4.5.1.

       4.5.3. Within ten (10) calendar days after agreement is reached on the Effective Date Accounting or the Effective Date Accounting is determined by arbitration, as the case may be, the parties will settle any differences on such accountings as follows: (i) if the Net Transfer Amount Difference is positive, then Ceding Company will pay such difference to Reinsurer in cash; and (ii) if the Net Transfer Amount Difference is negative, then Reinsurer will pay such difference to Ceding Company in cash. “Net Transfer Amount Difference” means the result of subtracting the value of the Preliminary Transfer Amount from the value of the Adjusted Transfer Amount. Payment of the Net Transfer Amount Difference will be accompanied by the payment of interest thereon from the Effective Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Effective Date.

4.6. True-Up Accounting.

       4.6.1. Within sixty (60) calendar days after the date that is one (1) year after the Effective Date, Reinsurer will prepare and deliver to Ceding Company a final accounting, in the same form as the Preliminary Effective Date Accounting and the Effective Date Accounting, of all Policy-Related Liabilities and Policy-Related Assets as of the Effective Date (the “True-Up Accounting”). Such accounting must be reviewed and accompanied by a certificate signed by Reinsurer’s chief actuary who is a Member of the American Academy of Actuaries, certifying that all items appearing on such accounting were: (i) correct to the best knowledge of such actuary and do not contain errors in calculation, methodology or application; (ii) based on the books and records of Reinsurer; (iii) calculated in accordance with applicable SAP; and (iv) to the best knowledge of such actuary, prepared using the same accounting and actuarial methodologies, assumptions and procedures, and the application thereof, that Ceding Company utilized in preparing its statutory Annual Statement as of December 31, 2000, the Indemnity Accounting, the Preliminary Effective Date Accounting and the Effective Date Accounting. The True-Up Accounting will include a statement comparing the values of the items set forth on the True-Up Accounting with the values of such items on the Effective Date Accounting and computing the difference in such values; provided, however, that the True-Up Accounting will make no true-up adjustment for items that customarily are included in Exhibit 8 and Exhibit 9 of the NAIC Annual Statement Blank (other than the A&H benefit reserves that are customarily included in Exhibits 8 and 9, which will be adjusted as part of the True-Up Accounting). With respect to the Reserves that have been estimated for claims for policy benefits under the Reinsured Policies, the True-Up Accounting will restate the liability for claims that were incurred before the Effective Time but not reported as of the Effective Time by replacing the estimated liability for such claims that was included in the Effective Date Accounting with the sum of (a) the actual runoff of such claims that were incurred before the Effective Time and that have been paid since the Effective Time, plus (b) an estimate for any such claims that were incurred before the Effective Time and may be unpaid as of the date that is one year after the Effective Time. To the extent that the actual amounts of any other Policy-Related Liabilities and Policy-Related Assets as of the Effective Date become determinable prior to the preparation of the True-Up Accounting, such items will be reflected on the True-Up Accounting as such actual amounts rather than estimations. Reinsurer will provide Ceding Company with a copy of all work papers and data used, and access to all personnel involved, in preparing the True-Up Accounting.

       4.6.2. Ceding Company will have sixty (60) calendar days after receipt of the True-Up Accounting to review such accounting and suggest changes or corrections thereto. On or before the end of such period, Ceding Company will notify Reinsurer in writing whether or not it accepts the True-Up Accounting. If Ceding Company fails to so notify Reinsurer, Ceding Company will be deemed to have accepted the True-Up Accounting. If Ceding Company does not accept the True-Up Accounting, Ceding Company will set forth in reasonable detail its objections thereto and the reasons for such objections. The parties in good faith will discuss and negotiate any such objections in an effort to reach agreement on the True-Up Accounting. If despite good faith negotiations the parties are unable to reach agreement within thirty (30) calendar days after Reinsurer’s receipt of Ceding Company’s notice of objections, then the parties will submit the dispute to arbitration in accordance with Section 7, except that all arbitrators must be Members of the American Academy of Actuaries familiar with the types of policies included in the Reinsured Policies, and the arbitrators will determine the True-Up Accounting in accordance with the standards set forth in items (i) through (iv) of Section 4.6.1.

       4.6.3. Within ten (10) calendar days after agreement is reached on the True-Up Accounting or the True-Up Accounting is determined by arbitration, as the case may be, the parties will settle any differences on such accountings as follows: (i) if the True-Up Value Difference is positive, then Ceding Company will pay such difference to Reinsurer in cash; and (ii) if the True-Up Value Difference is negative, then Reinsurer will pay such difference to Ceding Company in cash. “True-Up Value Difference” means the result of subtracting the value for the Adjusted Transfer Amount from the value for the Final Transfer Amount. Payment of the True-Up Value Difference will be accompanied by the payment of interest thereon from the Effective Date to and including the date of payment at an annual rate equal to the 90-Day Treasury Rate in effect on the Effective Date.

       4.7. Monthly Accounting. After the Effective Date and for as long as this Agreement is in effect, each calendar month Reinsurer will prepare and deliver to Ceding Company an accounting (the “Monthly Accounting”), which will be delivered no later than the fifteenth (15th) calendar day of the calendar month immediately following the calendar month for which such accounting is prepared; except that the first Monthly Accounting will not be due until forty-five (45) calendar days after the Effective Date. The Monthly Accounting will be substantially in the form set forth in Exhibit I. Reinsurer will supply Ceding Company on a timely basis with all accounting data relating to transactions carried out by it in connection with the Business that Ceding Company may reasonably request.

       4.8. Annual and Quarterly Reporting. On or before January 20 of each year, Reinsurer will furnish Ceding Company an accounting statement that contains such information with respect to the Reinsured Policies, for the immediately preceding calendar year, as Ceding Company may reasonably require to complete its annual financial statements as required by applicable statute or regulation, including but not limited to “State Page” information and all information needed by Ceding Company for calculation and payment of premium taxes and municipal taxes. On or before the twentieth (20th) day after the end of each calendar quarter, Reinsurer also will provide Ceding Company with an accounting statement that contains such information with respect to the Reinsured Policies, for the immediately preceding calendar quarter, as Ceding Company may reasonably require to complete its quarterly financial statements as required by applicable statute or regulation.

       4.9. Reserves. With respect to the Reinsured Policies, before the Effective Time, Ceding Company has established and maintained as a liability on its statutory statements not less than the statutory reserves and claims reserves required by all applicable regulatory authorities and as calculated in accordance with applicable SAP and in accordance with generally accepted actuarial principles. With respect to the Reinsured Policies, at and after the Effective Time, Reinsurer will establish and maintain as a liability on its statutory statements not less than the statutory reserves and claim reserves required by applicable SAP and in accordance with generally accepted actuarial principles. If Reinsurer reinsures or retrocedes the Reinsured Policies to an Affiliate or other Person outside of the United States, such reserves will be maintained in the United States pursuant to a funds withheld, trust or other arrangement (reasonably acceptable to Ceding Company) to secure Ceding Company’s continuing obligations thereunder.

       4.10. Commissions. If Ceding Company pays any Commissions that are the obligation of Reinsurer pursuant to Section 2.2 because Reinsurer fails to do so, Reinsurer will promptly reimburse Ceding Company therefor as set forth in Section 4.11.

       4.11. Reimbursements. If Reinsurer fails to pay any Policy Liabilities, Reinsurer will reimburse Ceding Company for all Policy Liabilities that may be paid by Ceding Company at and after the Effective Time, provided that any such payments by Ceding Company will be in accordance with the terms and conditions of the applicable Reinsured Policy or Other Agreement. The reimbursements required by this Section 4.11 will be paid by Reinsurer to Ceding Company within ten (10) calendar days of Reinsurer’s receipt of written notice from Ceding Company thereof. Such written notice from Ceding Company will be accompanied by such supporting information and detail as Reinsurer reasonably requests.

       4.12. Wire Transfers. Any payment of cash required under this Agreement must be paid to the payee in immediately available funds, United States Dollars, by means of a wire transfer if the payee provides to the payer appropriate wire transfer instructions at least two (2) business days before the required date of payment, and otherwise by means of a certified, cashier’s or bank check.

       4.13. DAC Tax Provisions. In accordance with Treasury Regulations Section 1.848-2(g)(8), Ceding Company and Reinsurer hereby elect to determine specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1) of the Code.

       4.13.1. All uncapitalized terms used in this Section 4.13 will have the meanings set forth in the regulations under Section 848 of the Code.

       4.13.2. The party with net positive consideration under this Agreement for each taxable year will capitalize specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1) of the Code.

       4.13.3. Both parties will exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency.

       4.13.4. Reinsurer will submit a schedule to Ceding Company by May 1 of each year of its calculation (“Reinsurer’s DAC Calculation”) of the net consideration under this Agreement for the preceding taxable year. This schedule of calculations must be accompanied by a statement signed by an authorized representative of Reinsurer stating that Reinsurer will report such net consideration in its federal income tax return for the preceding taxable year.

       4.13.5. Ceding Company may contest such calculation by providing an alternative calculation (“Ceding Company’s DAC Calculation”) to Reinsurer in writing within thirty (30) calendar days after the date on which Ceding Company receives Reinsurer’s calculation. If Ceding Company does not so notify Reinsurer, Ceding Company will report the net consideration under this Agreement as determined by Reinsurer in Ceding Company’s federal income tax return for the preceding taxable year.

       4.13.6. If Ceding Company contests Reinsurer’s calculation of the net consideration under this Agreement, the parties will negotiate in good faith to reach an agreement as to the correct amount of net consideration within thirty (30) calendar days after the date on which Ceding Company submits its alternative calculation. If Reinsurer and Ceding Company reach agreement as to the amount of net consideration under this Agreement, each party will report such amount in its federal income tax return for the preceding taxable year. If, during such period, Reinsurer and Ceding Company are unable to reach agreement, they will promptly thereafter cause independent accountants of nationally recognized standing reasonably satisfactory to Reinsurer and Ceding Company (who will not have any material relationship with Reinsurer or Ceding Company), promptly to review (which review will commence no later than five (5) business days after the selection of such independent accountants), this Agreement and the calculations of Reinsurer and Ceding Company for the purpose of calculating the net consideration under this Agreement. Such independent accountants will deliver to Reinsurer and Ceding Company, as promptly as practicable (but no later than sixty (60) calendar days after the commencement of their review), a report setting forth such calculation, which calculation will result in a net consideration between the amount thereof shown in Reinsurer’s DAC Calculation and the amount thereof shown in Ceding Company’s DAC Calculation. Such report will be final and binding upon Reinsurer and Ceding Company. The fees, costs and expenses of such independent accountant will be borne (i) by Ceding Company if the difference between the net consideration as calculated by the independent accountants and Ceding Company’s DAC Calculation is greater than the difference between the net consideration as calculated by the independent accountants and Reinsurer’s DAC Calculation, (ii) by Reinsurer if the first such difference is less than the second such difference, and (iii) otherwise equally by Reinsurer and Ceding Company.

       4.13.7. This election will be effective for the 2001 taxable year and for all subsequent taxable years for which this Agreement remains in effect.

       4.13.8. Both parties will attach a schedule to their respective federal income tax returns for the first taxable year ending after the date on which this election becomes effective which identifies this Agreement as a reinsurance agreement for which an election has been made under Treasury Regulations Section 1.848-2(g)(8).

       4.14. Premium Taxes. Notwithstanding Sections 4.7 and 4.11 above, Reinsurer will reimburse Ceding Company for Premium taxes that are part of the Policy Liabilities on the basis specified herein. For each calendar year, Reinsurer will reimburse such Premium tax payments, with respect to each state and municipality, on an annual basis, within thirty (30) calendar days after Reinsurer receives a billing from Ceding Company for Reinsurer’s share of such Premium taxes paid. Reinsurer’s share will be determined on the basis of each such state’s actual applicable tax rate multiplied by the Premiums for the Reinsured Policies received in such state during the annual period. Such Premium taxes will be reduced to the extent of any credit that Ceding Company is entitled to take in any such year on its Premium tax returns for any amounts paid by Reinsurer for the guaranty fund assessments and similar charges that are part of the Policy Liabilities. Notwithstanding the foregoing, because Ceding Company is required by law to pay estimated Premium taxes on a quarterly basis throughout each calendar year, Reinsurer will pay Ceding Company such Premium tax reimbursements on a quarterly basis within fifteen (15) calendar days after receipt of a written estimate prepared by Ceding Company, and the parties will make any necessary adjustment at the end of the calendar year so that Reinsurer only reimburses Ceding Company for the actual Premium taxes on the basis specified above.

5. Administrative Services and Records.

        5.1. Administration and Servicing. At and after the Effective Time, Reinsurer will provide or arrange for (including through receipt of services from Ceding Company for a transition period) all Administrative Services for the Business and supply to Ceding Company copies of accounting and other records pertaining to such services as Ceding Company may from time to time reasonably request. Such services will include but not be limited to the following:

        (a) billing and collection of Premiums;

        (b) payment of claims;

        (c) payment of any refunds of Premiums;

        (d) handling of normal Policyholder requests under the Reinsured Policies;

        (e) preparation of monthly, quarterly and annual financial statement data, where applicable, for inclusion in Ceding Company's financial statements;

        (f) administration of the Other Agreements;

        (g) preparation, processing and filing of any agent appointments;

        (h) underwriting and issuing of any New Policies on behalf of Ceding Company; and

        (i) renewal of any Existing Policies or New Policies on behalf of Ceding Company.

        Reinsurer will perform all Administrative Services in a manner that is consistent with the terms of the Reinsured Policies and the Other Agreements (as the case may be), the current practice of reinsurance with respect to its business, and in a reasonable manner consistent with industry standards for the administration of dental, life, accident and health insurance and in accordance in all material respects with all applicable laws and regulations.

        5.2. Transfer of Records. On the Effective Date, Ceding Company will deliver to Reinsurer all books and records relating to the Business. On and after the Effective Date, Reinsurer will provide Ceding Company reasonable access to such books and records, and to Reinsurer’s personnel, with such access to be during normal business hours, on reasonable notice and at Ceding Company’s expense.

        5.3. Reinsurer Records. Reinsurer will maintain true and accurate books and records of all reinsurance hereunder, including all such records as may be required by law. As long as this Agreement is in effect, Reinsurer will make available for reasonable inspection and copying by Ceding Company (during normal business hours, on reasonable notice and at Ceding Company’s expense) any financial or other records pertaining to the Business that Ceding Company reasonably may require for financial statement preparation or any other reasonable business purposes.

        5.4. Privacy. Pursuant to the provisions of the Insurance Information and Privacy Protection Act or similar laws as enacted in various states, Reinsurer recognizes that, in the performance of its obligations under this Agreement, it will obtain from Ceding Company and other sources personal or privileged information about individuals collected or received in connection with insurance transactions. Reinsurer will maintain the confidentiality of such information in accordance with all such laws and not disclose such information further without the individual’s written authorization, unless such disclosure is otherwise permitted by law.

        5.5. Audit. Each party will have the right to audit at its sole expense, at the office of the other during regular business hours and on reasonable notice, all records and procedures relating to the Business.

        5.6. Continuing Cooperation. Subject to then-available staff and facilities and workloads associated with Ceding Company’s operations, Ceding Company will use reasonable efforts to assist Reinsurer in resolving issues relating to the Business, and Ceding Company promptly will provide Reinsurer with such information with respect to the Business as Reinsurer may reasonably request for purposes of preparing Reinsurer’s income tax returns or financial statements, to satisfy any other regulatory requirement or for any other reasonable business purpose. Subject to then-available staff and facilities and workloads associated with Ceding Company’s operations, Ceding Company will provide (at Reinsurer’s expense) such other assistance as Reinsurer may reasonably request in the performance of the Administrative Services. Nothing contained herein is intended to alter Ceding Company’s obligations under the transition services agreement entered into pursuant to Section 8.16 of the Purchase Agreement.

        5.7. Forwarding of Claims and Inquiries. At and after the Effective Time, Ceding Company promptly will remit and refer to Reinsurer all inquiries involving the Business, including but not limited to inquiries regarding additional premiums, claims payment or policy provisions, limitations or exclusions. Claims that are part of the Business erroneously submitted to Ceding Company will be forwarded promptly to Reinsurer.

        5.8. Complaint-Handling Procedure. The parties will cooperate with each other in providing information necessary to respond to any complaints concerning the Business or to respond to any request from a Governmental Entity having jurisdiction over the Business. At and after the Effective Time, Reinsurer will answer all complaints received by it concerning the Business. All complaints concerning the Business received by Ceding Company at and after the Effective Time will be forwarded promptly by fax or overnight mail to a contact person designated by Reinsurer for reply. Upon answering such complaints, Reinsurer will furnish Ceding Company with a copy of the complaint file. Ceding Company will be responsible for maintaining complaint files, complaint registers and other reports of any kind with respect to the Business that are required to be maintained under applicable state laws. However, Reinsurer also will maintain complaint files and registers and will provide Ceding Company with copies of complaint registers concerning the Business quarterly or upon written request by Ceding Company. Ceding Company also will be responsible for preparing and submitting any other filings with respect to complaints as may be required by applicable law or regulation.

        5.9. Compliance. At and after the Effective Time, with such cooperation from Ceding Company as Reinsurer may reasonably request, Reinsurer will handle all compliance and regulatory matters relating to the administration of the Business, including but not limited to monitoring and implementing necessary changes to forms and rates that may be required by applicable laws and regulations and preparing and filing all reports and other filings related to the Business that may be required by Governmental Entities. Reinsurer will maintain all licenses and registrations required by regulators for the performance of its duties and obligations under this Agreement.

        5.10. Oversights and Errors. In the event that any unintentional or accidental failure to comply with the terms of this Agreement can be shown to be the result of a misunderstanding, oversight or clerical error, both parties will be restored to the position they would have occupied had the misunderstanding, oversight or error not occurred.

5.11. Litigation.

        5.11.1. At and after the Effective Time, Ceding Company will retain responsibility for the liability, cost and management of all Business Proceedings commenced before the Effective Time. At the request of Reinsurer, Ceding Company will provide Reinsurer with reasonable updates regarding the progress and status of all such Business Proceedings.

        5.11.2. At and after the Effective Time, Reinsurer will notify Ceding Company promptly of claims made under the Reinsured Policies or Other Agreements that involve Excluded Liabilities. The parties will mutually agree on an appropriate response to any such claims that involve both an Excluded Liability and either a Policy Liability or Other Assumed Liability and hereby agree to cooperate and coordinate in resolving any and all such claims. In lieu of participating with Ceding Company in the defense of any claim involving both an Excluded Liability and either a Policy Liability or Other Assumed Liability, Reinsurer may elect to pay to Ceding Company the portion of such claim that is reinsured by or the responsibility of Reinsurer under this Agreement, following which Ceding Company will be solely responsible for resolving the remainder of such claim at its own expense. Notwithstanding anything in this Agreement to the contrary, (i) without Ceding Company’s prior written consent, which will not be unreasonably withheld, conditioned or delayed, Reinsurer will not pay any portion of or settle any claim involving Excluded Liabilities or admit liability on the part of Ceding Company with respect to such claim, and (ii) without Reinsurer’s prior written consent, which will not be unreasonably withheld, conditioned or delayed, Ceding Company will not pay any portion of or settle any claim involving Policy Liabilities or Other Assumed Liabilities or admit liability on the part of Reinsurer with respect to such claim.

        5.11.3. At and after the Effective Time, Reinsurer will have responsibility for the liability, cost and management of all Business Proceedings commenced at and after the Effective Time that are Policy Liabilities or Other Assumed Liabilities. Reinsurer will provide Ceding Company with reasonable updates regarding the progress and status of all such Business Proceedings.

        5.12. Power of Attorney. Subject to the provisions of Section 5.11 of this Agreement regarding the handling of Business Proceedings and Excluded Liabilities, Ceding Company does hereby appoint and name Reinsurer, acting through Reinsurer’s authorized officers and employees, as Ceding Company’s lawful attorney in fact with respect to the rights, duties, privileges and obligations of Ceding Company relating to the Reinsured Policies and Other Agreements, (i) to do any and all lawful acts that Ceding Company might have done with respect to the Reinsured Policies and Other Agreements, and (ii) to proceed by all lawful means (A) to perform any and all of Ceding Company’s obligations under the Reinsured Policies and Other Agreements, (B) to enforce any right and defend against any liability arising under the Reinsured Policies and Other Agreements, (C) to sue or defend (in the name of Ceding Company, when necessary) any action arising under the Reinsured Policies and Other Agreements, (D) to collect any and all sums due or payable to Ceding Company under the Reinsured Policies and Other Agreements and to quit and release for same, (E) to collect any and all Premiums due or payable under the Reinsured Policies through any automatic charge authorizations or otherwise of persons who own or hold Reinsured Policies, (F) to sign (in Ceding Company’s name, when necessary) vouchers, receipts, releases and other papers in connection with any of the foregoing matters, (G) to take actions necessary, as may be reasonably determined, to maintain the Reinsured Policies in compliance with applicable laws and regulations, (H) to request rate changes for the Reinsured Policies, (I) to undertake the necessary duties in connection with payment of Commissions in connection with the Reinsured Policies, (J) to establish and maintain bank accounts in the name of Ceding Company and issue drafts and make deposits thereon for the purpose of performing the Administrative Services, and (K) to do everything lawful in connection with the satisfaction of the Reinsurer’s obligations and the exercise of its rights under this Agreement.

        5.13. Abandoned Property, etc. Ceding Company will promptly reimburse Reinsurer for any and all amounts paid to Policyholders by Reinsurer as a result of the non-negotiability of checks and other drafts issued by Ceding Company prior to the Effective Time for amounts owed under Reinsured Policies. Reinsurer will reimburse Ceding Company for all amounts under Reinsured Policies paid by Ceding Company to the applicable state that escheat to such state as abandoned property because checks and other drafts issued by Reinsurer at or after the Effective Time with respect to Policy Liabilities were not timely cashed or deposited by the applicable payee. Ceding Company will promptly seek reimbursement from the applicable state for any amounts paid by Reinsurer to Policyholders under the Reinsured Policies after corresponding amounts have been paid to Ceding Company and escheated to the applicable state pursuant to the immediately preceding sentence, and Ceding Company will promptly reimburse Reinsurer after it has received such amounts from the applicable state. Reinsurer will provide to Ceding Company information concerning the Reinsured Policies reasonably necessary for the preparation of any report, notice or filing concerning abandoned property required to be made by Ceding Company by the applicable state.

        5.14. Restrictive License Regarding Use of Names. Ceding Company hereby grants a restrictive, non-exclusive license, during the term of this Agreement, with no right to sublicense or assign without Ceding Company’s express written consent (except in connection with an assignment of this Agreement pursuant to Section 9.1), for Reinsurer to display and refer to Ceding Company’s name as may be necessary or appropriate for Reinsurer to perform its obligations or exercise its rights hereunder, provided that Reinsurer’s use of Ceding Company’s name will be in accordance with Ceding Company’s written trademark usage guidelines as provided to Reinsurer from time to time. Reinsurer will not take any action that might have an adverse effect on the validity of Ceding Company’s name or ownership by Ceding Company thereof, and will cease to use Ceding Company’s name in any manner immediately upon the expiration or termination of all of the Reinsured Policies. Reinsurer will not acquire any other rights of any kind in Ceding Company’s trade names, trademarks, product name or marks by the use authorized in this Section 5.14. Reinsurer may also use its own marks in connection therewith.

        5.15. Confidential Information. Reinsurer and Ceding Company acknowledge that during the performance of services pursuant to this Agreement, each of them will be exposed to the confidential and proprietary information of the other party and the other party’s Affiliates, including, but not limited to, information containing the names and addresses of Policyholders and all other non-public personal information related to the Reinsured Policies or the Policyholders (the “Confidential Information”). Each party agrees to take all commercially reasonable measures to prevent the Confidential Information from being acquired by unauthorized Persons to the same extent it protects its own confidential and proprietary information, and will not disclose the Confidential Information to third parties without the prior written consent of the other party, except as required by applicable law. Neither party nor any of their respective Affiliates may use the Confidential Information for any purpose other than the performance of its obligations pursuant to this Agreement or as required by applicable law. This Section 5.15 will survive the termination of this Agreement for a period of five (5) years from the date of such termination. Notwithstanding the foregoing, Confidential Information will not include (a) information that is in the recipient’s possession prior to disclosure to it, (b) information that is or becomes publicly available, provided that such public availability does not result from (i) the misappropriation of such information by the recipient or (ii) the obtaining of such information by improper means of the recipient or from acts or omissions of another Person that the recipient knows, or should have reason to know, misappropriated such information or utilized improper means to acquire it or acquired it under circumstances giving rise to a duty to maintain its secrecy or limit its use or by accident or mistake and (c) information that is developed independently by the recipient without the use of any Confidential Information.

        5.16. Customer Lists. Without limiting any obligations of Ceding Company under Section 5.15 above, from and after the Effective Time until two (2) years after the Marketing Termination Date, Ceding Company will not use any customer list or portion thereof that exists on the Marketing Termination Date with respect to the Business for the purpose of soliciting indemnity or prepaid dental insurance business, subject to any other restrictions applicable to Ceding Company pursuant to the Purchase Agreement.

        5.17. CUNA Agreement. As part of its administrative services under this Agreement, Reinsurer agrees to perform, on behalf of Ceding Company, Ceding Company’s obligations under Section 4.3(a), Article 6 and Article 10 of the Voluntary Dental Program Agreement dated as of November 30, 1993, between CUNA Mutual Insurance Society and Ceding Company (the “CUNA Agreement”). Reinsurer agrees that it will not take any action that would cause Ceding Company to breach its obligations under Section 6.4, 7.1 or 10.1 of the CUNA Agreement.

6. Indemnification.

        6.1. Indemnification of Reinsurer. Ceding Company will indemnify, defend and hold harmless Reinsurer and its Affiliates and their respective directors, officers, employees and assigns (the “Reinsurer Indemnitees”) from and against all claims, losses, liabilities, damages, deficiencies, costs, expenses, penalties and reasonable outside attorneys’ fees and disbursements (collectively, “Losses,” and individually a “Loss”), asserted against, imposed upon or incurred by them, directly or indirectly, by reason of or arising out of or in connection with (i) any breach of any covenant or agreement made or to be performed by Ceding Company pursuant to this Agreement, (ii) any Excluded Liability, and (iii) the reasonable costs to Reinsurer Indemnitees of enforcing this indemnity against Ceding Company provided that such costs are awarded to Reinsurer Indemnitees in accordance with Section 7.4.

        6.2. Indemnification of Ceding Company. Reinsurer will indemnify, defend and hold harmless Ceding Company and its Affiliates and their respective directors, officers, employees and assigns (the “Ceding Company Indemnitees”) from and against Losses asserted against, imposed upon or incurred by them, by reason of or arising out of or in connection with (i) any breach of any covenant or agreement made or to be performed by Reinsurer pursuant to this Agreement, (ii) any Policy Liability or Other Assumed Liability, and (iii) the reasonable costs to Ceding Company Indemnitees of enforcing this indemnify against Reinsurer provided that such costs are awarded to Ceding Company Indemnitees in accordance with Section 7.4.

        6.3. Notice of Asserted Liability. Promptly after receipt by an indemnified party hereunder of notice of any demand, claim or circumstances which, with or without the passage of time, could give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (an “Asserted Liability”) that may result in a Loss, such indemnified party must give written notice thereof (the “Claims Notice”) to the indemnifying party. The Claims Notice must describe the Asserted Liability in reasonable detail and indicate the amount (estimated, if necessary) of the Loss that has been or may be suffered by such indemnified party and will include a statement as to the basis for the indemnification sought. Failure to provide a Claims Notice in a timely manner will not be deemed a waiver of the indemnified party’s right to indemnification other than to the extent that such failure prejudices the defense of the claim by the indemnifying party.

        6.4. Opportunity to Defend. The indemnifying party may elect to compromise or defend, at its own expense and by its own counsel, any Asserted Liability; provided, however, the indemnifying party may not compromise or settle any Asserted Liability without the prior written consent of the indemnified party (which consent will not be unreasonably withheld, conditioned or delayed) unless (i) such compromise or settlement requires no more than a monetary payment for which the indemnified party hereunder is fully indemnified and such settlement provides a complete release of, or dismissal with prejudice of, all claims against the indemnified party for all matters that were or could have been asserted in connection with such claim, or (ii) involves no other matters binding upon the indemnified party (other than obligations of confidentiality). If the indemnifying party elects to compromise or defend such Asserted Liability, it will within thirty (30) calendar days from receipt of the Claims Notice notify the indemnified party of its intent to do so, and the indemnified party will cooperate, at the expense of the indemnifying party, in the compromise of, or defense against, such Asserted Liability. If the indemnified party fails to cooperate, then each indemnifying party will be relieved of its obligations under this Section 6 only to the extent that such indemnifying party is prejudiced by such failure to cooperate. Unless and until the indemnifying party elects to defend the Asserted Liability, the indemnified party will have the right, at its option, to do so in such manner as it deems appropriate; provided, however, that the indemnified party will not settle or compromise any Asserted Liability for which it seeks indemnification hereunder without the prior written consent of the indemnifying party (which will not be unreasonably withheld, conditioned or delayed). The indemnifying party will be entitled to participate in (but not to control) the defense of any Asserted Liability that it has elected not to defend with its own counsel and at its own expense.

        6.5. Exclusive Remedy. The parties hereto expressly acknowledge that (a) the provisions of this Section 6 will be the sole and exclusive remedy for damages caused as a result of breaches of the covenants and agreements contained in this Agreement and in any exhibit, certificate or schedule delivered or executed in connection herewith, except that the remedies of injunction and specific performance will remain available to the parties hereto, and (b) no indemnifying party will be liable or otherwise responsible to any indemnified party for punitive damages resulting from any breach of any such covenants and agreements.

7. Dispute Resolution.

        7.1. Any dispute, controversy or claim arising out of or relating to this Agreement or the performance by the parties of its terms will be settled by binding arbitration held at a location to be mutually agreed upon by the parties in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, except as specifically otherwise provided in this Section 7. The interpretation and enforceability of this Section 7 will be governed exclusively by the Federal Arbitration Act, 9 U.S.C. §§ 1-16.

        7.2. There will be a panel of three (3) arbitrators, one of whom will be selected by Ceding Company, one of whom will be selected by Reinsurer, and the third of whom will be mutually selected by the arbitrators selected by Ceding Company and Reinsurer. In the event that such third arbitrator is not selected within ten (10) calendar days after the selection of the second arbitrator, the third arbitrator will be selected by the American Arbitration Association. All arbitrators must have substantial experience in the life and health insurance industry.

        7.3. The arbitrators will allow such discovery as they determine appropriate under the circumstances and will resolve the dispute as expeditiously as practicable, and if reasonably practicable, within one hundred twenty (120) calendar days after the selection of the arbitrators. The arbitrators will give the parties written notice of the decision, with the reasons therefor set out, and they will have thirty (30) calendar days thereafter to reconsider and modify such decision if any party so requests within ten (10) calendar days after the decision. Thereafter, the decision of the arbitrators will be final, binding, and nonappealable with respect to all Persons, including (without limitation) Persons who have failed or refused to participate in the arbitration process, unless such Person is challenging participation in the arbitration process pursuant to an action in a court of competent jurisdiction.

        7.4. The arbitrators will have authority to award relief under legal or equitable principles, including interim or preliminary relief, and to allocate responsibility for the costs of the arbitration and to award recovery of attorneys’ fees and expenses in such manner as is determined to be appropriate by the arbitrators; provided that the arbitrators will be bound by and will limit their awards based upon the limitations of liability contained in this Agreement. A party may, however, seek an emergency temporary restraining order, if appropriate under applicable law, in any court having jurisdiction over the subject matter and the parties. Following the ruling on the request for temporary restraining order, the matter will proceed in arbitration as set forth herein.

        7.5. Judgment upon the award rendered by the arbitrators may be entered in any court having in personam and subject matter jurisdiction.

        7.6. All proceedings under this Section 7, and all evidence given or discovered pursuant hereto, must be maintained in confidence by all parties and the arbitrators.

        7.7. The fact that the dispute resolution procedures specified in this Section 7 have been or may be invoked will not excuse any party from performing its obligations under this Agreement, and during the pendency of any such procedure all parties must continue to perform their respective obligations in good faith.

        7.8. All applicable statutes of limitation will be tolled with respect to the subject matter of the dispute while the procedures specified in this Section 7 are pending. The parties will take such action, if any, required to effectuate such tolling.

8. Downgrade or Failure of Reinsurance Credit.

        8.1. If (a) Reinsurer's Moody's Investors Service Insurance Financial Strength Rating drops below A1 or Reinsurer ceases to be rated by Moody's, or (b) for any reason

        (i) Reinsurer ceases to be licensed as an insurer or ceases to qualify as an accredited reinsurer in a particular jurisdiction under circumstances that would cause Ceding Company to be denied credit for the reinsurance ceded under this Agreement on the financial statements filed by Ceding Company in said jurisdiction, and

        (ii) Reinsurer within thirty (30) days does not substitute as Ceding Company’s reinsurer under the terms of this Agreement a company affiliated with Reinsurer with an equal or better claims-paying ability rating that either is licensed as a life insurer or is an accredited reinsurer in all states or otherwise fulfills all requirements necessary so that Ceding Company is allowed credit for the reinsurance ceded under this Agreement in all states, then, absent a written waiver of this funding requirement from Ceding Company signed by the President of Ceding Company, Reinsurer will, within thirty (30) days of the drop in Reinsurer’s rating described in clause (a) above or the loss of one or more of Reinsurer’s licenses or accreditation under the circumstances described in clause (b)(i) above (absent Reinsurer taking the action described in clause (b)(ii) above) deposit and maintain assets in trust with an independent trustee, on the terms provided below and as more fully set forth in the trust agreement executed in accordance with terms set forth below (the “Trust Agreement”) to support the Policy Liabilities and the Other Assumed Liabilities. The Trust Agreement will provide Ceding Company with security for the payment of all Policy Liabilities and Other Assumed Liabilities. In the event of the occurrence of the events described in clauses (a) or (b) above, until such deposit in trust is made, a constructive trust consistent with the terms of the Trust Agreement will be imposed on all Premiums and other receipts relating to the Reinsured Policies.

        8.2. Assets deposited and maintained in trust will at all times meet all applicable regulatory requirements. Such assets will consist solely of “Class A Assets,” defined as cash, cash equivalents or publicly traded bonds and “Class B Assets,” defined as fully performing mortgage-backed securities. No more than 40% of the assets deposited in the trust may be Class B Assets. The assets deposited in the trust must have a market value weighted average credit rating of at least “A1” as specified by Moody’s or at least “A” as specified by Standard & Poor’s Corporation, and no more than 10% thereof will consist of securities with a Standard & Poor’s rating below BBB or Moody’s rating below Baa. The market value of Class A Assets plus the market value of Class B Assets will at all times be at least equal to 110% of (x) Policy-Related Liabilities minus (y) Policy-Related Assets at such time. The form and duration of assets to be held in trust will be appropriate in light of the Policy Liabilities. Reinsurer will provide to Ceding Company at least quarterly a report identifying all assets in the trust as of the date of such report and setting forth the market value and duration of each such asset.

        8.3. Following the transfer of the assets to the trust all Premiums will be contributed directly to the trust. Policy Liabilities and Other Assumed Liabilities may be paid from the trust provided that such payments do not reduce trust assets below 110% of the required Reserves, which will be measured at the end of each calendar quarter. The composition of the assets will be maintained in accordance with the limitations contained in the preceding paragraph.

        8.4. The trustee will be a banking institution (selected by Ceding Company and reasonably acceptable to Reinsurer) incorporated or organized under the laws of the United States or of any State and have stockholders equity in excess of $200,000,000 as of the end of the most recent fiscal year.

        8.5. If the Trust Agreement is not executed and the trust timely funded in accordance with the provisions of this Section 8, all marketing of New Policies will cease, and Ceding Company will be entitled to seek specific performance of the obligations of Reinsurer set forth in this Section 8.

9. General Provisions.

        9.1. Successors; Assigns. This Agreement will inure to the benefit of and be binding upon the successors and permitted assigns of both Ceding Company and the Reinsurer. Neither party may assign, transfer or reinsure its rights or obligations under this Agreement without the prior written consent of the other party, except that, without having to obtain such consent, (i) either party may assign this Agreement to a Person who acquires all or substantially all of the equity or assets of such party, and (ii) Reinsurer may assign this Agreement to a Person who acquires all or substantially all of the assets of the Business. Notwithstanding the foregoing, without Ceding Company’s prior written consent, Reinsurer may not assign this Agreement to any Person having a Moody’s Investors Service Insurance Financial Strength Rating below A1 or that is not rated by Moody’s Investors Service. Reinsurer or Ceding Company, as the case may be, will promptly notify each other following any “change of control” filing with respect to such party made with an insurance regulatory authority, the approval of any plan to liquidate, merge or dissolve Reinsurer or Ceding Company, as applicable, or of any proceeding or lawsuit that materially affects Reinsurer’s or Ceding Company’s ability to perform this Agreement, including, but not limited to, insolvency or rehabilitation proceedings.

        9.2. Net Payment Basis. Amounts payable under this Agreement by Reinsurer to Ceding Company and by Ceding Company to Reinsurer will be netted against each other, dollar for dollar, and only a net payment will be due.

        9.3. Insolvency. In the event of the insolvency of Ceding Company, all reinsurance made, ceded, renewed or otherwise effective under this Agreement will continue to be payable by Reinsurer under the terms of the Reinsured Policies, on behalf of Ceding Company, its liquidator, receiver or statutory successor, without diminution because of the insolvency. Any conservator, receiver, liquidator or statutory successor of Ceding Company will give prompt written notice to Reinsurer of the pendency or submission of a claim under any Reinsured Policy. During the pendency of such claim, Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense available to Ceding Company or its conservator, receiver, liquidator or statutory successor. The expense thus incurred by Reinsurer is chargeable against Ceding Company as a part of the expense of insolvency, liquidation or rehabilitation to the extent of a proportionate share of the benefit which accrues to Ceding Company solely as a result of the defense undertaken by Reinsurer.

        9.4. Governing Law. Notwithstanding the place where this Agreement may be executed by any of the parties, the parties expressly agree that this Agreement will in all respects be governed by, and construed in accordance with, the laws of the State of Tennessee, without regard for its conflict of laws doctrine.

        9.5. Headings, Construction.The section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and will not in any way affect the meaning or interpretation of this Agreement. Unless the context requires otherwise, terms defined or used in this Agreement in the singular will include the plural, and terms defined or used in this Agreement in the plural will include the singular. Whenever the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to be followed by the words “without limitation.”

        9.6. No Third Party Rights. Nothing herein, either expressed or implied, is intended or will be construed to confer upon or give any Person, other than the Reinsurer and Ceding Company, any rights or remedies under or by reason of this Agreement.

        9.7. Counterparts. This Agreement may be executed in separate counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Each counterpart may consist of one or more copies signed by fewer than all, but together signed by all, the parties hereto.

        9.8. Duration. This Agreement will remain in force until the each Reinsured Policy terminates and all claims thereunder have been paid or satisfied. Notwithstanding anything to the contrary contained herein, the provisions set forth herein in Sections 4, 5.15, 6, 7 and 8 will survive any termination or expiration of this Agreement.

        9.9. Notices. Any notice or other communication required or permitted hereunder will be in writing and will be delivered by commercial courier, sent by facsimile transmission (and immediately after transmission confirmed by telephone) or sent by certified, registered or express mail, postage prepaid. Any such notice will be deemed given when so delivered by commercial courier or sent by facsimile transmission (and immediately after transmission confirmed by telephone) or, if mailed, on the date shown on the receipt therefor, as follows: 


         (i)      If to Ceding Company to:
                  Protective Life Corporation
                  2801 Highway 280 South
                  Birmingham, Alabama  35223
                  Attn: Deborah Long, Senior Vice President General Counsel
                  Fax: 205-868-3597
                  Phone: 205-868-3885

                  with a copy to (which will not constitute notice for purposes of this Agreement):
                  Sutherland Asbill & Brennan LLP
                  999 Peachtree Street, N.E.
                  Atlanta, Georgia  30309
                  Attn: Eric R. Fenichel
                  Fax: 404-853-8806
                  Phone: 404-853-8483

         (ii)     If to Reinsurer to:
                  Fortis, Inc.
                  One Chase Manhattan Plaza
                  New York, New York 10005
                  Attn:    General Counsel
                  Fax:     212-859-7034
                  Phone:   212-859-7285

                  with a copy to (which will not constitute notice for purposes of this Agreement):
                  Alston & Bird LLP
                  1201 West Peachtree Street
                  Atlanta, Georgia 30309
                  Attn:    Susan J. Wilson
                  Fax:     404-881-4777
                  Phone:   404-881-7974

        Any party may, by notice given in accordance with this Section to the other party, designate another address or Person for receipt of notices hereunder.

        9.10. Cooperation. With regard to any matters not expressly stated herein, each party to this Agreement will furnish such information, execute such additional documents, and cooperate with each other as may be reasonably necessary (including but not limited to responses to regulatory inquiries) to carry out the purposes of this Agreement, in accordance with industry practice for transactions of this kind.

        9.11. Waiver. No modification or waiver of any provision of this Agreement will be effective unless set forth in writing. Any waiver will constitute a waiver only with respect to the particular circumstance for which it is given and not a waiver of any future circumstance.

        9.12. Amendment. No amendment or modification hereof will be of any force or effect unless in writing and signed by the parties.

        9.13. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision will be interpreted to be only so broad as is enforceable.

[Remainder of this page intentionally left blank.
Signatures on the following page.]

        In Witness Whereof, Ceding Company and Reinsurer have caused this Agreement to be executed and delivered by their duly authorized officers as of the day and year first written above. 



                        "Ceding Company"

                        PROTECTIVE LIFE INSURANCE COMPANY

                        By:_______________________________

                        Name:_____________________________

                        Title:____________________________

                        "Reinsurer"

                        FORTIS BENEFITS INSURANCE COMPANY

                        By:_______________________________

                        Name:_____________________________

                        Title:____________________________

Exhibits
A Existing Policies
B Indemnity Accounting
C New Policies
D Provider Agreements
E Reinsurance Agreements
F Reinsured Assumed Agreements
G Related Agreements
H Third Party Administration Agreements
I Monthly Accounting

 EX-3 7 ex3b1plc.htm EXHIBIT 3

Exhibit 3(B)(1)

AMENDMENT NO. 1
DATED FEBRUARY 4, 2002
TO THE 1998 RESTATED BY-LAWS OF
PROTECTIVE LIFE CORPORATION
(herein called the "Corporation")

        The By-laws of the Corporation are hereby amended by deleting the first paragraph of Article III, Section 2 in its entirety and replacing it with the following:

  Section 2. Number, Tenure and Qualifications. So long as the stock of the Corporation is owned by one stockholder, the number of directors shall be three. Effective immediately when there is more than one stockholder, the following provisions shall be effective: The number of directors shall be fixed from time to time by a resolution of a majority of the existing directors of the Corporation. Subject to the provisions of the next paragraph, the number of directors so fixed shall be elected at the annual meeting of stockholders of the Corporation and each director so elected shall serve until the next annual meeting and until his successor shall be elected and shall qualify. Each director shall, as a condition to serving on the Board of Directors of the Corporation, be required to own shares of Protective Life Corporation Common Stock (director qualifying shares) standing in his or her name on the books of the Corporation within sixty (60) days after (i) initially being elected to the Board or (ii) being re-elected to the Board after a break in service as a director of the Corporation. Vacancies occurring in the Board of Directors by reason of the death, resignation or removal of any director may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected to serve until the next annual meeting of the stockholders.

        IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 1 to the 1998 Restated By-laws of Protective Life Corporation to be signed by John D. Johns, as its President and Chief Executive Officer, and attested by Deborah J. Long, as its Secretary, and has caused its corporate seal to be hereunto affixed, hereby declaring and certifying that this Amendment No. 1 was duly adopted by the Board of Directors at a duly called regular meeting held on the 4th day of February, 2002, at which all members of the Board were at all times present and acting. 


                                                       By:  /S/  JOHN D. JOHNS
                                                       ------------------------
                                                       John D. Johns
                                                       President and
                                                       Chief Executive Officer


ATTEST:

/S/ DEBORAH J. LONG
- -------------------
Deborah J. Long
Secretary

(CORPORATE SEAL)
EX-10 8 ex10cplc.htm Exhibit 10(c)

Exhibit 10(c)



PROTECTIVE LIFE CORPORATION
EXCESS BENEFIT PLAN
(AMENDED AND RESTATED AS OF JULY 1, 2001)

        This Excess Benefit Plan was adopted by the Company for the purpose of providing benefits to certain employees of the Company and its subsidiaries in excess of the Limitations imposed by of the Code on the Company’s Pension Plan.

1. Definitions. Each of the following words and phrases as used herein shall have the meanings set forth in this Section 1. Any term which is not defined in this Section 1 but which is used in the Plan and which is defined in the Pension Plan shall have the meaning set forth therein. Whenever necessary or appropriate to the meaning hereof, the singular shall include the plural, and the plural shall include the singular.

        (a) The “Code” means the Internal Revenue Code of 1986, as amended from time to time. Reference to any provision of the Code shall include such provision, any comparable provision or provisions of any legislation that amends or supersedes such provision, and any regulatons or rulings with respect thereto.

        (b) The "Company" means Protective Life Corporation, a Delaware corporation.

        (c) The "Committee" means the Compensation Committee of the Company's Board of Directors.

        (d) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to any provision of ERISA shall include such provision, any comparable provision or provisions of any legislation that awards or supersedes such provision, and any regulations or rulings with respect thereto.

        (e) The “Limitations” mean the limitations set forth in Section 415 of the Code with respect to benefits payable under the Pension Plan and Section 401(a)(17) of the Code with respect to compensation included for purposes of benefit determination under the Pension Plan. References to the Limitations shall include any cost of living adjustments made by the Secretary of the Treasury pursuant to Sections 415(d) and 401(a)(17) of the Code.

        (f) An "Excess Benefit" means a benefit provided under the Plan to a Participant or his or her Beneficiary.

        (g) A “Participant” under this Plan means an employee of the Company or its subsidiaries who is a participant in the Pension Plan and whose benefits under the Pension Plan are reduced by application of the Limitations; provided, however that with respect to a participant in the Pension Plan who retired or whose employment with the Company or its subsidiaries otherwise terminated before January 1, 2000, a Participant shall be limited to a participant in the Pension Plan who has been notified in writing by the Committee that he or she is covered under this Plan.

        (h) The “Plan” means this Excess Benefit Plan established by the Company effective September 1, 1984 and as amended and restated from time to time thereafter.

        (i) The "Pension Plan" means the Protective Life Corporation Pension Plan, as amended from time to time.

        2. Purpose. The Plan is intended to be (1) an “excess benefit plan” within the meaning of Section 3(36) of ERISA, (2) a plan maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of ERISA, and (3) “unfunded” within the meaning of the Code and ERISA. Thus, Excess Benefits will not and may not be funded in any respect, and the payment thereof shall be made at the appropriate time or times from the general assets of the Company. Should any provision of the Plan be inconsistent with the Code, ERISA or any regulations issued thereunder, or with any provision of law, regulation, ruling or decision governing the status of the Plan or the Pension Plan, the Company shall take whatever steps are necessary to conform it to the applicable authority.

        3. Normal Retirement. If a Participant retires at or after the Participant’s Normal Retirement Date in accordance with the Pension Plan, the Participant shall be entitled to an Excess Benefit equal to (i) the amount of the Participant’s normal retirement benefit under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, without regard to the Limitations, reduced by (ii) the amount of the normal retirement benefit which the Participant is entitled to receive under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, after application of the Limitations.

        4. Early Retirement. If a Participant retires prior to his or her Normal Retirement Date in accordance with the provisions of the Pension Plan, the Participant shall be entitled to an Excess Benefit equal to (i) the amount of his or her early retirement benefit under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, without regard to the Limitations, reduced by (ii) the amount of the early retirement benefit which the Participant is entitled to receive under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, after application of the Limitations.

        5. Disability Retirement. If a Participant becomes totally and permanently disabled in accordance with the Pension Plan, the Participant shall be entitled to an Excess Benefit equal to (i) the amount of the Participant’s disability retirement benefit under the Pension Plan without regard to the Limitations, reduced by (ii) the amount of the disability retirement benefit which the Participant is entitled to receive under the Pension Plan, after application of the Limitations.

        6. Termination of Employment. If a Participant is eligible to receive a deferred vested retirement benefit under the Pension Plan, the Participant shall be entitled to an Excess Benefit equal to (i) the amount of the Participant’s deferred vested retirement benefit under the Pension Plan, based upon the Participant’s election as to the form of benefit payment without regard to the Limitations, reduced by (ii) the amount of the deferred vested retirement benefit which the Participant is entitled to receive under the Pension Plan, based upon the Participant’s election as to the form of benefit payment, after application of the Limitations.

        7. Death. If a Participant’s Beneficiary becomes eligible at any time to receive a death benefit payable before or after the commencement of the Participant’s benefit under the Pension Plan, the Beneficiary shall be entitled to an Excess Benefit equal to (i) the amount of the death benefit which the Beneficiary is entitled to receive under the Pension Plan without regard to the Limitations, reduced by (ii) the amount of the death benefit which the Beneficiary is entitled to receive under the Pension Plan, after application of the Limitations.

        8. Benefit Payments. Except as otherwise specifically provided herein, the payment of a benefit to which a Participant or Beneficiary shall be entitled under this Plan shall be made in the same manner and subject to the same conditions as is the benefit under the Pension Plan.

        9. Single Sum Provisions. Notwithstanding any other provisions of the Plan to the contrary, if a Participant’s employment terminates for any reason, including Normal Retirement, and the present value of the Excess Benefit payable to the Participant or the Participant’s Beneficiary under this Plan is less than $50,000, the Company may, in its sole discretion, elect to distribute the present value of the Excess Benefit in a single sum payment. If the Company elects to distribute the Excess Benefit in a single sum payment such payment shall be made as soon as practicable following the Participant’s termination of employment (or, if the Participant has died, the date on which the Company receives written notice of the Participant’s death). Any such payment shall be in full satisfaction of the Company’s obligations under the Plan.

        10. Administration. Notwithstanding the incorporation of various provisions of the Pension Plan into this Plan, all matters pertaining to benefit payments, options and elections hereunder shall be administered by the Committee, which shall have the sole authority to interpret and act on behalf of the Company hereunder.

        11. Tax Withholding. All payments under the Plan shall be subject to applicable federal, state and local tax withholding. If taxes are imposed under the Federal Insurance Contributions Act or any other tax law (“Advance Taxes”) with respect to the Excess Benefits payable to a Participant or Beneficiary, and the Participant’s or Beneficiary’s portion of such Advance Taxes is due and payable before payment of an Excess Benefit at least equal in amount to such portion of such Advance Taxes, then (a) the Company shall remit such Advance Taxes as required by law, and (b) the Committee shall request the Participant or Beneficiary to pay the Participant’s or Beneficiary’s portion of such Advance Taxes to the Company. If the Participant or Beneficiary fails to pay such amount, the Company shall (1) treat such amount remitted as taxable income to the Participant or Beneficiary, in accordance with all laws regarding tax liability, withholding and reporting, and (2) reduce the value of the Excess Benefits otherwise payable hereunder to take into account, on an actuarial basis, the present value of all taxes remitted by the Company with respect to the Participant’s or Beneficiary’s portion of such Advance Taxes.

        12. Amendment or Termination. The Plan may be amended or terminated at any time by the Company with respect to any or all Participants by written instrument executed with the same formality as the Plan; provided that no such amendment or termination shall impair the benefits a Participant has accrued under the Plan before such amendment or termination.

        13. Governing Law. Except as provided under federal law, the provisions of the Plan shall be governed by and construed in accordance with the laws of the State of Alabama.

        14. Non-Alienation of Benefits. Except as provided in Section 11, no benefit payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, garnishment, encumbrance or charge by a Participant, a Participant’s Beneficiary, or anyone claiming under or through either of them.

        IN WITNESS WHEREOF, the Company has caused its duly authorized officers to execute this document effective as of July 1, 2001.

ATTEST: PROTECTIVE LIFE CORPORATION
/s/Deborah J. Long /s/John D. Johns
Its Secretary Its President and Chief Operating Officer
EX-10 9 ex10iplc.htm Exhibit 10(i)

[EXECUTION COPY]




CREDIT AGREEMENT


among


PROTECTIVE LIFE CORPORATION,


THE SEVERAL LENDERS FROM TIME
TO TIME PARTY HERETO


SUNTRUST BANK,
as Syndication Agent


and


AMSOUTH BANK,
as Administrative Agent


$200,000,000 Revolving Credit Facility


Dated as of October 17, 2001




CREDIT AGREEMENT

        THIS CREDIT AGREEMENT dated as of October 17, 2001 (“this Agreement”) is entered into by and among PROTECTIVE LIFE CORPORATION, a Delaware corporation (the “Borrower”), AMSOUTH BANK, an Alabama banking corporation, and the various lenders identified on the signature pages hereto (collectively, with all other persons that may from time to time hereafter become Lenders hereunder by execution of an Assignment and Acceptance, the “Lenders”), and AMSOUTH BANK, in its capacity, as Agent for the Lenders (the “Agent”).

RECITALS

        WHEREAS, the Borrower has applied to the Lenders for a revolving credit facility in an aggregate principal amount outstanding not to exceed $200,000,000 (the “Revolving Credit Facility”) the proceeds of which are to be used by the Borrower for general corporate purposes, including working capital needs, stock repurchases, capital contributions to Borrower’s Subsidiaries and acquisitions.

        WHEREAS, the Lenders are willing to make the Revolving Credit Facility available to the Borrower only if, among other things, the Borrower enters into this Agreement and the other Credit Documents (as hereinafter defined).

        NOW, THEREFORE, in consideration of the foregoing Recitals, and to induce the Lenders to make the Revolving Credit Facility available, the Borrower, the Lenders and the Agent agree as follows:

ARTICLE I


DEFINITIONS




        As used in this Agreement:

        “Adjusted Consolidated Indebtedness” means (i) Consolidated Indebtedness, less (ii) Short-Term Indebtedness for advance fundings of guaranteed investment contracts, annuities and other similar insurance and investment products.

        “Adjusted Consolidated Interest Expense” means, for any period of calculation, (i) Consolidated Interest Expense, less (ii) interest on Short-Term Indebtedness for advance fundings of guaranteed investment contracts, annuities and other similar insurance and investment products.

        “Adjusted Consolidated Net Worth” means at any date of determination, Consolidated Net Worth excluding all unrealized net losses and gains on assets held for sale pursuant to SFAS 115 and other accumulated comprehensive income pursuant to SFAS No. 133, to the extent such unrealized net losses and gains have been taken into account in determining Consolidated Net Worth.

        “Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise.

        “Agent” means AmSouth Bank in its capacity as agent for the Lenders pursuant to Article IX of this Agreement, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article IX hereof.

        “Agreement” means this Credit Agreement (including all schedules and exhibits hereto), as it may be amended or modified and in effect from time to time.

        “AmSouth” means AmSouth Bank, an Alabama banking corporation, in its individual capacity, and its successors and assigns.

        “Annual Statement” means the annual statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary’s jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements recommended by the NAIC to be used for filing annual statutory financial statements and shall contain the type of information recommended by the NAIC to be disclosed therein, together with all exhibits or schedules filed therewith.

        “Applicable Facility Fee,” “Applicable LIBOR Rate Margin,” and “Applicable Prime Rate Margin” mean, with respect to any Revolving Credit Loan and the facility fee, the rates per annum set forth opposite the appropriate test in the pricing grid below: 



                                                     PRIME RATE     LIBOR MARGIN IN
                                                      MARGIN IN       BASIS POINTS      FACILITY FEE IN
                   S&P Rating                       Basis Points                          Basis Points
- -------------------------------------------------- ---------------- ----------------- ---------------------

Tier 1 - Greater than or equal to A+                          0bps             35bps                 10bps
- -------------------------------------------------- ---------------- ----------------- ---------------------

Tier 2 - Greater than or equal to A-                          0bps             50bps               12.5bps
- -------------------------------------------------- ---------------- ----------------- ---------------------

Tier 3 - Greater than or equal to BBB+                        0bps             60bps                 15bps
- -------------------------------------------------- ---------------- ----------------- ---------------------

Tier 4 - Less than BBB+                                       0bps             80bps                 15bps
- -------------------------------------------------- ---------------- ----------------- ---------------------

        The Applicable Facility Fee, Applicable LIBOR Rate Margin and Applicable Prime Rate Margin shall be based on the Borrower’s current senior long-term unsecured debt rating as published by S&P and as determined by the above-referenced pricing grid. Changes in the Applicable Facility Fee and Applicable Prime Rate Margin shall become effective on the date on which the rating change was announced by S&P. Changes in the Applicable LIBOR Margin shall become effective at the end of the applicable Interest Period subsequent to the date on which the rating change was announced by S&P. As of the date of this Agreement, the Borrower is currently rated A by S&P and the Applicable LIBOR Rate Margin is therefor 50 basis points and the Applicable Facility Fee is therefor 12.5 basis points.

        "Article" means an article of this Agreement.

        “Assignment and Acceptance” means an Assignment and Acceptance in the form of Exhibit 9.2 (with blanks appropriately completed) delivered in connection with an assignment of a portion of a Lender’s interest under this Agreement pursuant to Section 9.2.

        “Authorized Officer” means any of the President, Chief Financial Officer, Chief Accounting Officer or any Vice President of the Borrower, acting singly.

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

        "Borrowing Notice" is defined in Section 2.5.

        “Business Day” means any day on which Agent is open for the conduct of ordinary business; provided however, that when used in connection with determining the LIBOR Rate, the term “Business Day” shall exclude any day on which banks are not open for dealings in U.S. Dollar deposits in the London Interbank Market.

        “Capitalized Lease” of a Person means any lease of Property by such Person as lessee that would be capitalized on a balance sheet of such Person prepared in accordance with GAAP.

        “Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases that would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP.

        “Change in Control” means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 35% or more of the outstanding shares of voting stock of the Borrower.

        "Closing Date" means October 17, 2001.

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

        “Consolidated Capitalization” means, at any date of determination, the sum of (i) Adjusted Consolidated Net Worth as at such date plus (ii) Adjusted Consolidated Indebtedness as at such time.

        “Consolidated Indebtedness” means the Indebtedness of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP.

        “Consolidated Interest Expense” means, for any period of calculation, interest expense, whether paid or accrued, of the Borrower and its Subsidiaries calculated on a consolidated basis in accordance with GAAP.

        “Consolidated Net Worth” means, at any date of determination, the amount of consolidated common shareholders’ equity of the Borrower and its Subsidiaries, determined as at such date in accordance with GAAP (or SAP, with respect to the Insurance Subsidiaries).

        “Consolidated Subsidiary” means, a Subsidiary, the accounts of which are customarily consolidated with those of the Borrower for the purpose of reporting to stockholders of the Borrower or, in the case of a recently acquired Subsidiary, the accounts of which would, in accordance with the Borrower’s regular practice, be so consolidated for that purpose.

        “Consolidated Total Assets” means, at any time, the total assets of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries, prepared in accordance with GAAP.

        “Credit Documents” means, collectively, each writing delivered at any time by the Borrower to Lenders or Agent relating to the Loans, the Swingline Loans, any Hedge Agreement or to evidence or secure any of the Obligations.

        "Default" means an event described in Article VI.

        “Default Rate” means a rate of interest equal to two percentage points (200 basis points) in excess of the highest interest rate that would otherwise be payable on the principal amount of the Obligations under the Credit Documents from time to time in the absence of the existence of a default, or the maximum rate permitted by law, whichever is less.

        “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

        “ERISA Affiliate” means any Person that is a member of the Borrower’s controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Code.

        “ERISA Event” means (i) the occurrence with respect to a Plan of a reportable event, within the meaning of Section 4034 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC, (ii) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility of the Borrower or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (v) the conditions set forth in Section 302(f)(1)(A) and (B) of ERISA to the creation of a lien upon property or rights to property of the Borrower or any ERISA Affiliate for failure to make a required payment to a Plan are satisfied; (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan.

        “GAAP” means generally accepted accounting principles as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.1.

        “Governmental Authority” means the federal government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government including, without limitation, any board of insurance, insurance department or insurance commissioner.

        “Guaranteed Obligations” of a Person means all guaranties, endorsements, assumptions and other contingent obligations with respect to, or to purchase or to otherwise pay or acquire, Indebtedness of others.

        “Hedge Agreement” means any agreement between the Borrower and any Lender now existing or hereafter entered into, which provides for an interest rate or commodity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross-currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging the Borrower’s exposure to fluctuations in interest rates, currency valuations or commodity prices.

        “Indebtedness” of a Person means, without duplication, such Person’s (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person’s business payable on terms customary in the trade), (iii) obligations, whether or not assumed, payable out of the proceeds or production from Property now or hereafter owned or acquired by such Persons, (iv) obligations evidenced by notes, acceptances or other instruments, (v) Capitalized Lease Obligations, (vi) obligations for reimbursement of drafts drawn or available to be drawn under letters of credit, (vii) Synthetic Lease Obligations and (viii) Guaranteed Obligations.

        “Insufficiency” means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities as defined in Section 4001(a)(18) of ERISA.

        “Insurance Subsidiary” means any Subsidiary that is engaged in the insurance business.

        “Interest Payment Date” means, (i) as to Prime Rate Loans and Swingline Loans, the first day of each month, and (ii) as to any LIBOR Loan, the last day of the Interest Period applicable to such Loan.

        “Interest Period” means, as to any LIBOR Loan, the period commencing on (and including) the date of such LIBOR Loan and ending on (but excluding) the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2 or 3 months thereafter, as Borrower may elect; provided, however, that (x) if any Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to LIBOR Loans, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (y) no Interest Period with respect to any Loan shall end later than the Termination Date. Interest shall accrue from and including the first Business Day of an Interest Period to but excluding the last Business Day of such Interest Period.

        “Law” or “Laws” means all applicable constitutional provisions, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, and requirements of all Governmental Authorities.

        “Lender” means (a) AmSouth in its capacity as a Lender and each Person listed on the signature pages hereto and identified as a Lender and (b) each Person that becomes an Assignee pursuant to the provisions of Section 9.2.

        “LIBOR Liabilities” means deposit liabilities incurred through the London Interbank Market.

        “LIBOR Loan” means a Loan for which the Borrower has elected application of an interest rate based on the LIBOR Rate.

        “LIBOR Rate” means, for any given Interest Period with respect to a given LIBOR Loan, the rate per annum appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term LIBOR Rate shall mean, for any given Interest Period with respect to a given LIBOR Loan, the rate per annum appearing on Reuters Screen LIBOR Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBOR Page, the applicable rate shall be the arithmetic mean of all such rates.

        “LIBOR Rate Reserve Percentage” means the reserve percentage applicable during any Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for Lenders with respect to liabilities or assets consisting of or including LIBOR Liabilities having a term equal to such Interest Period.

        “License” means any license, certificate of authority, permit or other authorization required to be obtained from a Governmental Authority in connection with the operation, ownership or transaction of the insurance business.

        “Lien” means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). Notwithstanding the foregoing, a Lien shall not include (i) obligations arising out of or related to reinsurance arrangements entered into by Borrower, PLICO or any of their subsidiaries or (ii) any short-term indebtedness incurred for the pre-funding of anticipated policy obligations or anticipated investment cashflow.

        “Loan” means and collectively refers to, loans advanced under the Revolving Credit Loan or, when the context so requires, advanced as a Swingline Loan.

        “Material Adverse Effect” means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Credit Documents or (iii) the validity or enforceability of any of the Credit Documents or the rights or remedies of the Agent or the Lenders thereunder.

        “Maximum Lawful Amount” means the maximum lawful amount of interest, loan charges, commitment fees or other charges that may be assessed under Alabama law or, if higher, under applicable federal law.

        “Multiemployer Plan” means a “multiemployer plan” as defined in Section 3(37) of ERISA.

        “Multiple Employer Plan” means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the Borrower or an ERISA Affiliate and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and with respect to which the Borrower or an ERISA Affiliate could have liability under Section 4064 or 4049 of ERISA in the event such plan has been or were to be terminated.

        “NAIC” means the National Association of Insurance Commissioners or any successor thereto, or in lieu thereof, any other association, agency or other organization performing advisory, coordination or other like functions among insurance departments, insurance commissions and similar Governmental Authorities of the various states of the United States of America toward the promotion of uniformity in the practices of such Governmental Authorities.

        “Notes” means any of the Revolving Credit Notes and the Swingline Note.

        “Obligations” means the obligations of Borrower to Lenders to repay the Loans, the obligation of Borrower to the Swingline Lender to repay the Swingline Loans, and all other obligations of Borrower to Lenders and to Agent under this Agreement and the other Credit Documents.

        “PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.

        "Permitted Liens" means: (i) with respect to the Synthetic Lease Facility, any of the following:

        (a) rights reserved to or vested in any Governmental Authority by the terms of any right, power, franchise, grant, license, permit or provision of law affecting the Synthetic Lease Facility to (1) terminate, or take any other action which has the effect of modifying, such right, power, franchise, grant, license, permit or provision of law; provided that such termination or other action, when taken, shall not have resulted in a loss event and shall not have had a Material Adverse Effect, or (2) purchase, condemn, appropriate or recapture, or designate a purchaser of, the Synthetic Lease Facility;

        (b) any Liens thereon for impositions or taxes and any Liens of mechanics, materialmen and laborers for work or services performed or materials furnished which (i) are not overdue, or (ii) are being contested in good faith;

        (c) Liens of mechanics, materialmen and laborers for work or services performed or materials furnished during the construction term of the Synthetic Lease Facility;

        (d) rights reserved to or vested in any Governmental Authority to control or regulate the use of such Property or to use the Synthetic Lease Facility in any manner;

        (e) in the case of the Site, encumbrances, easements, and other similar rights existing which existence or exercise of which do not have a Material Adverse Effect; and

        (f) any Liens created under the operative documents relating to the Synthetic Lease Facility and any financing statements filed in connection therewith; and

        (ii) with respect to any other Property, any of the following:

        (a) Liens existing on the Closing Date of this Agreement securing Indebtedness outstanding on the Closing Date;

        (b) any Lien existing on any asset of (i) corporation or partnership at the time such corporation or such partnership becomes a consolidated Subsidiary of the Borrower, or (ii) Subsidiary at the time it becomes a Subsidiary, and in either case not created in contemplation of such event;

        (c) any Lien on any asset securing Indebtedness incurred for the purposes of financing all or any part of the cost of constructing such asset, provided that such Lien attaches to such asset concurrently with or within 18 months after the completion of construction thereof;

        (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into PLICO or the Borrower or its Subsidiaries and not created in contemplation of such event;

        (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower, PLICO or another Subsidiary of the Borrower and not created in contemplation or such acquisition;

        (f) Liens securing Indebtedness owing by any Subsidiary to the Borrower or PLICO;

        (g) Any Lien arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing clauses of this subsection (ii) provided that (i) such Indebtedness is not secured by any additional assets, and (ii) the amount of such Indebtedness secured by any such Lien is not increased;

        (h) Liens incidental to the conduct of the business of PLICO, the Borrower or any of its Subsidiaries or the ownership of their respective assets which (i) do not secure Indebtedness and (ii) do not in the aggregate materially detract from the value of their respective assets or materially impair the use thereof in the operation of their respective businesses;

        (i) Any Lien on margin stock (as defined in Regulation U);

        (j) Liens for impositions or taxes either not yet delinquent or which are being contested in good faith by appropriate proceedings;

        (k) Liens not securing Indebtedness which are created by or relate to any legal proceedings which at the time are being contested in good faith by appropriate proceedings;

        (l) Any other statutory or inchoate Lien securing amounts other than Indebtedness which are not delinquent;

        (m) Liens securing purchase money debt, or Indebtedness arising under capitalized leases; provided, however, that in each case any such Lien attaches only to the specific item(s) or property or asset(s) financed with such purchase money debt or capitalized lease; and

        (n) Liens not otherwise permitted by the foregoing paragraphs of this subsection (ii) securing Indebtedness and other obligations in an aggregate principal amount at any time outstanding not to exceed 15% of Adjusted Consolidated Net Worth.

        "Person" (whether or not capitalized) means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government, limited liability company, governmental agency or political subdivision thereof or other governmental authority, or any other form of entity.

        "Plan" means a Single Employer Pension Plan or a Multiple Employer Pension Plan.

        "PLICO" means Protective Life Insurance Company, a Tennessee corporation.

        “Prime Rate” means that rate of interest designated by AmSouth from time to time as its “prime rate”, it being expressly understood and agreed that such prime rate is merely an index rate used by AmSouth to establish lending rates and is not necessarily AmSouth’s most favorable lending rate, and that changes in the prime rate are discretionary with AmSouth.

        “Prime Rate Loan” means a Loan for which the Borrower has elected application of an interest rate based on the Prime Rate.

        “Pro Rata” or “Pro Rata Share” of any amount means, with respect to any Lender at any time, the product of (i) such amount, multiplied by (ii) such Lender’s Revolving Credit Percentage at such time of the Revolving Credit Facility; provided however, if at a time of determination there are principal amounts outstanding under the Revolving Credit Loan, and if any Lender has failed to fund any unrepaid Revolving Credit Loan that was funded by any other Lender or Lenders, this apportionment shall be determined according to the respective total principal amounts of the Revolving Credit Loan held by the respective Lenders rather than by their Revolving Credit Commitments.

        “Property” of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person.

        “Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System.

        “Required Lenders” means, at any time, the Lenders owning or holding 662/3% or more of the aggregate of all Revolving Credit Commitments at such time. For purposes of this definition, if at a time of determination there are principal amounts outstanding under the Revolving Credit Loan, and if any Lender has failed to fund any unrepaid Revolving Credit Loan that was funded by any other Lender or Lenders, this determination shall be made according to Lenders holding the required percentage of principal amounts of the Revolving Credit Loan rather than by the outstanding Revolving Credit Commitments.

        “Revolving Credit Commitment” means, with respect to any Lender at any time, the amount set forth under such Lender’s name on its signature page hereto under the caption “Revolving Credit Commitment” or if such Lender has entered into one or more Assignment and Acceptances, the amount set forth for such Lender at such time in the register maintained by the Agent pursuant to Section 9.2 as such Lender’s “Revolving Credit Commitment” as such amount may be reduced at or prior to such time pursuant to the terms hereof.

        “Revolving Credit Facility” means the revolving line of credit established by the Lenders under Article II.

        “Revolving Credit Loans” means the revolving credit loans described in Article II hereof.

        “Revolving Credit Note” means the promissory notes of the Borrower in substantially the form of Exhibit 2.3, executed and delivered to the Lenders with the Revolving Credit Commitments pursuant to Section 2.3 or, in connection with an Assignment and Acceptance, pursuant to Section 9.2, together with any amendments, modifications and supplements thereto and restatements thereof, in whole or in part.

        “Revolving Credit Percentage” means, with respect to any Lender at any time, a fraction (expressed as a percentage) the numerator of which is the Revolving Credit Commitment of such Lender at such time and denominator of which is the total Revolving Credit Commitment at such time; provided that if the Revolving Credit Percentage of any Lender is to be determined after the Revolving Credit Commitments have been terminated, then such Revolving Credit Percentage shall be determined immediately prior (and without giving effect) to such termination.

        "S&P" means Standard & Poor's Ratings Group.

        “SAP” means, with respect to any Insurance Subsidiary, the statutory accounting practices prescribed or permitted by the insurance commissioner (or other similar authority) as of the Closing Date in the jurisdiction of incorporation of such Insurance Subsidiary for the preparation of annual statements and other financial reports by insurance companies of the same type as such Insurance Subsidiary.

        “Section” means a numbered section of this Agreement, unless another document is specifically referenced.

        “Short-Term Indebtedness” means all indebtedness that by its terms matures within one year from and that is not renewable at the option of the obligor to a date later than one year after, the date such indebtedness was incurred. Any indebtedness which is extended or renewed (other than pursuant to the option of the obligor) shall be deemed to have been incurred at the date of such extension or renewal.

        "Significant Insurance Subsidiary" means any Significant Subsidiary that is an Insurance Subsidiary.

        “Significant Subsidiary” means any Subsidiary which meets or exceeds any of the following conditions:

        (1) The Borrower’s and its other Subsidiaries’ investments in and advances to the Subsidiary exceed 10 percent of the total assets of the Borrower and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or

        (2) The Borrower’s and its other Subsidiaries’ proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10 percent of the total assets of the Borrower and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or

        (3) The Borrower’s and its other Subsidiaries’ equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Subsidiary exceeds 10 percent of such income of the Borrower and its Subsidiaries consolidated for the most recently completed fiscal year.

        “Single Employer Plan” means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the Borrower or an ERISA Affiliate and no Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and with respect to which the Borrower or an ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated.

        “Site” means certain real property located in Birmingham, Alabama which generally comprises a building, related parking deck, and related furniture, equipment, fixtures and other improvements, located at 2801 Highway 280 South, Birmingham, Alabama 35223.

        “Subsidiary” means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. A separate account established pursuant to SAP or any applicable insurance regulatory requirement shall be deemed not to be a Subsidiary.

        “Substantial Portion” means, with respect to the Property of the Borrower and its Subsidiaries, Property that (i) represents more than 10% of the consolidated assets of the Borrower and its Subsidiaries as would be shown in the consolidated financial statements of the Borrower and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made or (ii) is responsible for more than 10% of the consolidated net sales or of the consolidated net income of the Borrower and its Subsidiaries as reflected in the financial statements referred to in clause (i) above.

        “Surplus Note” means a promissory note executed by an Insurance Subsidiary to the Borrower of the type generally described in the insurance industry as a “surplus note”, the principal amount of which is properly recorded by the issuer as an addition to capital and surplus rather than as a liability in accordance with SAP.

        “Swingline Borrowing Notice” has the meaning assigned in Section 2.16.3(b) hereof.

        "Swingline Lender" means AmSouth Bank.

        “Swingline Loan” means a loan advanced under Section 2.16 hereof, and funded under the Revolving Credit Loan.

        “Swingline Note” means the promissory note of the Borrower in substantially the form of Exhibit 2.16.2 hereto executed and delivered to the Swingline Lender, together with any amendments, modifications and supplements thereto and restatements thereof.

        “Synthetic Lease Facility” means those documents pertaining to the synthetic lease facility for a building, related parking deck and related furniture, equipment, fixtures and other improvements in Birmingham, Jefferson County, Alabama among Wachovia Capital Investments, Inc. as Lessor and Ground Lessee, LaSalle Bank National Association and SunTrust Bank as Lease Participants, PLICO as Lessee and Ground Lessor, and Borrower as Guarantor dated as of February 1, 2000.

        “Synthetic Lease Obligations” of a Person means the amount of the obligations of such Person under any lease that would not be shown as a liability, but would be treated as an operating lease, in accordance with GAAP, but which arise under a transaction in which the property subject to such lease is owned by the lessee for the purposes of the Code. Obligations under the Synthetic Lease Facility are Synthetic Lease Obligations.

        “Termination Date” means October 1, 2005, or such earlier date on which the obligations of the Lenders to make Loans hereunder are terminated pursuant to the terms of this Agreement.

        “Unconsolidated Cash Inflow Available for Interest Expense” means, for any period of calculation, the sum (without duplication) of (a) all amounts received by the Borrower from its Subsidiaries during such period as (i) interest and principal on Indebtedness (including but not limited to Surplus Notes) and (ii) management fees (net of expenses incurred in providing the services for which such management fees were paid), (b) all amounts that the Borrower’s Subsidiaries were permitted, under applicable laws and regulations, to distribute to the Borrower during each period as dividends, whether or not so distributed, and (c) other income of the Borrower.

        “Unmatured Default” means an event that, but for the lapse of time or the giving of notice, or both, would constitute a Default.

        “Wholly-Owned Subsidiary” means (i) any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by the Borrower or one or more Wholly-Owned Subsidiaries of the Borrower, or by the Borrower and one or more Wholly-Owned Subsidiaries of the Borrower, or (ii) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled.

        The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

ARTICLE II


THE LOANS



        Concurrently with the execution of this Agreement, Lenders agree on a several basis, and not on a joint basis, in accordance with their respective Revolving Credit Commitments, to make the Loans to Borrower, under the following terms and conditions:

        2.1. Amount of Revolving Credit Loan. The principal indebtedness of Borrower to Lenders having a Revolving Credit Commitment under the Revolving Credit Loan shall not exceed Two Hundred Million and No/100 Dollars ($200,000,000.00) less the outstanding principal balance of Swingline Loans outstanding from time to time.

        2.2. Use of Proceeds. The Revolving Credit Loan shall be used by Borrower for general corporation purposes, including working capital needs, stock repurchases, capital contributions to Borrower's Subsidiaries and acquisitions.

        2.3. Revolving Credit Notes. Borrower's obligations under the Revolving Credit Loan shall be evidenced by Revolving Credit Notes in favor of the respective Lenders in the form included as Exhibit 2.3 hereto payable to each Lender for its Revolving Credit Commitment.

        2.4. Separate Commitments of Lenders. Borrower acknowledges that each Lender’s commitment to fund its portion of the Loans is made by each Lender severally, and neither Agent nor any Lender shall be liable for the failure of another Lender to timely perform under this Agreement.

        2.5. Advances of Loans. Subject to the terms and conditions of this Agreement, Borrower may borrow, repay and reborrow Loans under the Revolving Credit Loan, provided that the outstanding principal balance of the Revolving Credit Loan shall not at any time exceed the amounts permitted under Section 2.1 above. Loans shall be disbursed as follows:

        2.5.1 Loans Advanced Pursuant to Borrowing Notices.

        2.5.1(a) Applicability. Loans (other than the Swingline Loan) may be LIBOR Loans, Prime Rate Loans, or a combination thereof, and the funding thereof shall be subject to this Section 2.5.1.

        2.5.1(b) Borrowing Notices. As long as Borrower meets the conditions for funding stated in this Agreement, Borrower may submit requests for Loans (“Borrowing Notices”) to Agent. All requests shall be made in writing (or by telephone, subject to such security procedures as Agent may require from time to time, provided that all telephonic notices shall be confirmed by written Borrowing Notices within one (1) Business Day) and shall specify the proposed disbursement date for the requested Loan; the amount of the Loan; the purpose of the Loan (characterized in accordance with Section 2.2 above); the type of Loan, i.e., LIBOR Loan or Prime Rate Loan; and if a LIBOR Loan, the designated Interest Period. Each Borrowing Notice shall irrevocably obligate Borrower to accept the Loan requested thereby. Borrowing Notices shall be in the form of Exhibit 2.5.1(b) hereto or such other form as Agent may from time to time require.

        2.5.1(c) Funding of Loans. Lenders shall fund their respective portions of requested Loans on the next following Business Day after the Business Day of Agent’s receipt of the Borrowing Notice, in the case of Prime Rate Loans, and on the second (2nd) Business Day following the Business Day of Agent’s receipt of the Borrowing Notice, in the case of LIBOR Loans. All funds shall be disbursed directly into an account maintained by the Borrower with Agent. Borrower agrees that if any Lender elects to fund any requested Loan(s) sooner after requested than is required hereunder, the Lender may nevertheless use the entire response period allowed hereunder upon receipt of any subsequent request, at the Lender’s sole option.

        2.5.1(d) Prime Rate Loan Limitations. Individual Prime Rate Loans shall be in the minimum amount of Five Hundred Thousand and No/100 Dollars ($500,000.00) each. Any number of Prime Rate Loans may be outstanding at any one time.

        2.5.1(e) LIBOR Loan Limitations. Individual LIBOR Loans shall be in the minimum amount of Three Million and No/100 Dollars ($3,000,000.00) each (and in multiples of $1,000,000 if in excess thereof). No more than four (4) LIBOR Loans may be outstanding under the Revolving Credit Loan.

        2.5.1(f) Additional Limitation on LIBOR Interest Periods. Notwithstanding anything to the contrary in this Agreement, if an Unmatured Default or a Default shall have occurred and be continuing, no additional LIBOR Loans may be created or continued and no Prime Rate Loan may be converted into a LIBOR Loan.

        2.5.2 Conversion of Loans. The Borrower shall have the right, on prior irrevocable written notice to Agent given two (2) Business Days prior to the date of any requested conversion, to convert any Prime Rate Loan or LIBOR Loan into a Loan of another type, or to continue any LIBOR Loan for another Interest Period, subject in each case to the following:

        2.5.2(a) Application of Loans. Each conversion shall be effected by applying the proceeds of the new LIBOR Loan and/or Prime Rate Loan, as the case may be, to the Loan (or portion thereof) being converted.

        2.5.2(b) Notices of Conversions. Each notice pursuant to this 2.5.2(b) shall be irrevocable and shall refer to this Agreement and specify the identity and principal amount of the particular Loan that the Borrower requests be converted or continued; if such notice requests conversion, the date of such conversion (which shall be a Business Day); and if a Loan is to be converted to a LIBOR Loan or a LIBOR Loan is to be continued, the Interest Period with respect thereto. No LIBOR Loan shall be converted at any time other than at the end of the Interest Period applicable thereto, except in accordance with Section 2.12 hereof. Conversion notices shall be in the form attached as Exhibit 2.5.1(b) hereto.

        2.5.3 Absence of Election. If the Borrower fails to give Agent notice to continue any LIBOR Loan for a subsequent period, such LIBOR Loan (unless repaid) shall automatically be converted into a Prime Rate Loan. If the Borrower fails to specify in any Borrowing Notice the type of borrowing or, in the case of a LIBOR Loan, the applicable Interest Period, the Borrower will be deemed to have requested a Prime Rate Loan.

        2.5.4 Implied Representations Upon Request for Loan. Upon making any request for any Loan, Borrower shall be deemed to have warranted to Agent and Lenders that all conditions to funding set forth in Article III hereof are satisfied.

        2.5.5 Advance Not Waiver. Any Lender’s making of any Loan that it is not obligated to be made under any provision of Article III hereof or any other provision hereof shall not be construed as a waiver of the Lenders’ right to withhold future Loans, declare a Default, or otherwise demand strict compliance with this Agreement, acting through Agent as permitted by the terms hereof.

        2.6. Interest. Interest shall accrue on each Loan as follows:

        2.6.1 Prime Rate Loans. Interest shall accrue on each Prime Rate Loan at an annual rate equal to the Prime Rate plus the Applicable Prime Rate Margin, said rate to change contemporaneously with any change in the Prime Rate.

        2.6.2 LIBOR Loans. Interest shall accrue on each LIBOR Loan at a rate equal to the LIBOR Rate for the selected Interest Period plus the Applicable LIBOR Rate Margin.

        2.6.3 Additional Interest on LIBOR Loans. In addition to the interest described above, Borrower shall pay to Lenders, if and so long as Lenders shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including LIBOR Liabilities, additional interest on the unpaid principal amount of each LIBOR Loan, from the date of such advance until said principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the LIBOR Rate for the Interest Period from (ii) the rate obtained by dividing the LIBOR Rate by a percentage equal to 100% minus the LIBOR Rate Reserve Percentage for such Interest Period. This additional interest shall be payable on each date on which interest is payable. The amount of additional interest shall be determined by each Lender, who shall notify Borrower and Agent thereof and whose determination shall be conclusive, absent manifest error.

        2.6.4 Calculation of Interest. Interest for both Prime Rate Loans and LIBOR Loans shall be computed on the basis of a 360-day year counting the actual number of days elapsed. Interest shall accrue on the Business Day a Loan is extended and shall accrue through the Business Day prior to the Business Day on which it is repaid.

        2.6.5 Default Rate. Notwithstanding the foregoing, upon the occurrence of a Default and during the continuation of such Default, interest shall be charged at the Default Rate, regardless of whether Lenders have elected to exercise any other remedies available to Lenders, including, without limitation, acceleration of the maturity of the outstanding principal of the Revolving Credit Loan. All such interest shall be paid without demand on the Interest Payment Dates applicable to Prime Rate Loans.

        2.6.6 Payment of Interest. Interest for Prime Rate Loans and LIBOR Loans shall be due and payable in arrears, without notice, on each Interest Payment Date.

        2.6.7 Usury Savings Provision. It is the intention of the parties that all charges under or in connection with this Agreement and the Obligations, however denominated, and including (without limitation) all interest, commitment fees, late charges and loan charges, shall be limited to the Maximum Lawful Amount. Such charges hereunder shall be characterized and all provisions of the Credit Documents shall be construed as to uphold the validity of charges provided for therein to the fullest possible extent. Additionally, all charges hereunder shall be spread over the full permitted term of the Obligations for the purpose of determining the effective rate thereof to the fullest possible extent, without regard to prepayment of or the right to prepay the Obligations. If for any reason whatsoever, however, any charges paid or contracted to be paid in respect of the Obligations shall exceed the Maximum Lawful Amount, then, without any specific action by Lenders, Agent or Borrower, the obligation to pay such interest and/or other charges shall be reduced to the Maximum Lawful Amount in effect from time to time and any amounts collected by Lenders that exceed the Maximum Lawful Amount shall be applied to the reduction of the principal balance of the Obligations and/or refunded to Borrower so that at no time shall the interest or loan charges paid or payable in respect of the Obligations exceed the Maximum Lawful Amount. This provision shall control every other provision herein and in any and all other agreements and instruments now existing or hereafter arising between Borrower and Lenders with respect to the Obligations.

        2.7. Alternate Rate of Interest if LIBOR Unavailable. In the event, and on each occasion, that on the date of commencement of any Interest Period for a LIBOR Loan, a Lender shall have determined (i) that dollar deposits in the amount of the requested principal amount of such LIBOR Loan are not generally available in the London Interbank Market; (ii) that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to such Lender of making or maintaining such LIBOR Loan during such Interest Period; or (iii) that reasonable means do not exist for ascertaining the LIBOR Rate, such Lender shall, as soon as practicable thereafter, give written or telephonic notice of such determination to Borrower. In the event of any such determination, any request by Borrower for a LIBOR Loan under this Agreement shall, until the circumstances giving rise to such notice no longer exist, be deemed to be a request for a Prime Rate Loan. Each determination by such Lender hereunder shall be conclusive absent manifest error.

        2.8 Change in Circumstances.

        2.8.1 Imposition of Requirements. Notwithstanding any other provision herein, if after the date of this Agreement any change in applicable Laws or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to a Lender under any LIBOR Loan made by the Lender or any other fees or amounts payable hereunder (other than taxes imposed on the overall net income, gross receipts or added value of a Lender by the country in which the Lender is located, or by the jurisdiction in which a Lender has its principal office, or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve requirement, special deposit, insurance charge (including FDIC insurance on LIBOR Liabilities) or similar requirement against assets of, deposits with or for the account of, or credit extended by, a Lender or shall impose on a Lender or the London Interbank Market any other condition affecting this Agreement or LIBOR Loans made by a Lender, and the result of any of the foregoing shall be to increase the cost to the Lender of making or maintaining its LIBOR Loan or to reduce the amount of any sum received or receivable by a Lender hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed by the affected Lender to be material, then Borrower will pay to such Lender such additional amount or amounts as will compensate the Lender for such additional costs of reduction.

        2.8.2 Other Changes. If either (i) the introduction of, or any change in, or in the interpretation of, any United States or foreign Law; or (ii) compliance with any directive, guidelines or request from any central bank or other United States or foreign Governmental Authority (whether or not having the force of law) promulgated or made after the date hereof, affects or would affect the amount of capital required or expected to be maintained by a Lender (or any lending office of a Lender) or any corporation directly or indirectly owning or controlling a Lender (or any lending office of a Lender) based upon the existence of this Agreement, and the Lender shall have determined that such introduction, change or compliance has or would have the effect of reducing the rate of return on the Lender’s capital or on the capital of such owning or controlling corporation as a consequence of its obligations hereunder (including its commitment) to a level below that which the Lender or such owning or controlling corporation could have achieved but for such introduction, change or compliance (after taking into account that Lender’s policies or the policies of such owning or controlling corporation, as the case may be, regarding capital adequacy) by an amount deemed by the Lender (in its sole discretion) to be material, then, from time to time, Borrower shall pay to the Lender such additional amount or amounts as will compensate the Lender for such reduction attributable to making, funding and maintaining its commitment and Loans hereunder.

        2.8.3 Computation of Amounts. A certificate of a Lender setting forth the basis and method of computation of such amount or amounts specified in Section 2.11 hereof as shall be necessary to compensate the Lender (or its participating banks) as specified above, as the case may be, shall be delivered to Borrower and shall be conclusive absent manifest error; provided however, that Borrower shall be responsible for compliance herewith and the payment of increased costs only to the extent that (i) any change in Laws giving rise to increased costs occurs after the date of this Agreement; and (ii) the Lender gives notice of the change giving rise to increased costs within one hundred eighty (180) Business Days after the Lender has, or with reasonable diligence should have had, knowledge of the change, or else Lender can only collect costs from and after the date of the notice. Subject to the foregoing, Borrower shall pay the affected Lender the amount shown as due on any such certificate within ten (10) Business Days after its receipt of such certificate.

        2.8.4 No Duty to Contest. The protection of this Section 2.8 shall be available to a Lender regardless of any possible contention of invalidity or inapplicability of the Law or condition that shall have been imposed. Should a Lender assess any charge to Borrower under this Section 2.8, and provided that Borrower pays the assessment to the Lender, Borrower may thereafter undertake, at Borrower’s own expense any contest of the matters giving rise to the charge that may, in the opinion of Borrower’s independent counsel issued to the affected Lender, and concurred in by counsel to the Lender, have a reasonable chance of success, provided further that the contest would not require the assertion of any position contrary to a position taken by the Lender generally with taxing authorities or any other involved parties and that there does not exist any other circumstance that would disadvantage the Lender in the event of such contest, as the affected Lender may determine in its discretion. The affected Lender shall offer reasonable participation to Borrower for the purpose of enabling Borrower to pursue the contest of such issue, with all expenses, including fees and expenses of the affected Lender’s counsel, to be paid by Borrower.

        2.8.5 Replacement Lender. Notwithstanding anything to the contrary contained herein or in any other Credit Document, upon the occurrence of any event that obligates the Borrower to pay any amount under Section 2.8 with respect to any Lender, the Borrower shall have the right, if no Default or Unmatured Default then exists or will exist immediately after giving effect to the respective replacement, to replace such Lender (the “Replaced Lender”) by designating another Lender or an eligible assignee under Section 9.2 (such Lender or eligible assignee being herein called a “Replacement Lender”) to which such Replaced Lender shall assign, in accordance with Section 9.2 and without recourse to or warranty by, or expense to, such Replaced Lender, all of the rights and obligations of such Replaced Lender hereunder and, upon such assignment, such Replaced Lender shall no longer be a party hereto or have any rights hereunder (except for such rights as survive repayment of the Loans), and such Replacement Lender shall succeed to the rights and obligations of such Replaced Lender hereunder. The Borrower shall pay to such Replaced Lender in same day funds on the date of replacement all interest, fees and other amounts then due and owing such Replaced Lender by the Borrower hereunder to and including the date of replacement, including, without limitation, costs incurred under Section 2.8. Notwithstanding anything to the contrary set forth herein or implied above, no Lender shall be obligated hereunder to become a Replacement Lender.

        2.9. Change in Legality of LIBOR Loans. Notwithstanding anything to the contrary herein contained, if any change in any Law or in interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for a Lender to make or maintain any LIBOR Loan or to give effect to its obligations as contemplated hereby, then, by written notice to Borrower, the Lender may (i) declare that LIBOR Loans will not thereafter be made by the Lender hereunder, whereupon Borrower shall be prohibited from requesting LIBOR Loans from the Lender hereunder unless such declaration is subsequently withdrawn; and (ii) require that all outstanding LIBOR Loans made by it be converted to Prime Rate Loans, in which event (a) all such LIBOR Loans shall be automatically converted to Prime Rate Loans (but without imposition of any additional charge that would normally become due under Section 2.8 hereof) as of the effective date of such notice, and (b) all payments and prepayments of principal that would otherwise have been applied to repay the converted LIBOR Loans shall instead be applied to repay the Prime Rate Loans resulting from the conversion of such LIBOR Loans. For purposes of this Section 2.9, a notice to Borrower by the Lender pursuant to (a) above shall be effective, if lawful, on the last day of the then current Interest Period; in all other cases, such notice shall be effective on the date of receipt by Borrower.

        2.10. Principal Repayment. All remaining principal outstanding under the Revolving Credit Loan shall become due on the Termination Date or the earlier acceleration of the Revolving Credit Loan in accordance with the terms of this Agreement. During the continuance of any Default, all prepayments shall be applied, first, to the Swing Line Loans, and second, after payment in full of the Swing Line Loans, to the Revolving Credit Loans. In the absence of a Default, voluntary prepayments pursuant to this Agreement shall be applied as the Borrower determines. Revolving Credit Loans and Swing Line Loans prepaid pursuant to this Agreement may be reborrowed, subject to the terms and conditions of this Agreement. Each prepayment of the Revolving Credit Loans made pursuant to this Agreement shall be applied to reduce the aggregate outstanding principal amount of the Revolving Credit Loans, ratably among the Lenders holding Revolving Credit Loans in proportion to the principal amount held by each.

        2.11. Prepayment of LIBOR Loans.

        2.11.1 Notice of LIBOR Loan Prepayment. Borrower may, upon two (2) Business Days’ prior written notice to Agent, and upon payment of all applicable premiums set forth in Section 2.11.3 hereof, prepay any outstanding LIBOR Loans prior to any Interest Payment Date for such LIBOR Loans, in whole or in part. Each notice of prepayment of any LIBOR Loan shall specify the date and amount of such prepayment and shall be irrevocable.

        2.11.2 Amount of LIBOR Loan Prepayment. Each partial prepayment of any LIBOR Loan shall be in an aggregate principal amount which is the lesser of (i) the then outstanding principal balance of the one or more LIBOR Loans to be prepaid, or (ii) Three Million and No/100 Dollars ($3,000,000.00) or an integral multiple thereof. Interest on the amount prepaid accrued to the prepayment date shall be paid on such date.

        2.11.3 LIBOR Loan Prepayment Premium. Upon prepayment of any LIBOR Loan on a date other than the relevant Interest Payment Date for such borrowing, Borrower shall pay to Lenders, in addition to all other payments then due and owing Lenders, premiums which shall be equal to an amount, if any, reasonably determined by Agent to be the difference between the rate of interest then applicable to the relevant LIBOR Loan and the yield Lenders would receive upon reinvestment of so much of the relevant LIBOR Loans as is prepaid for the remainder of the term of the relevant LIBOR Loan or Loans. Anything in this Section 2.11.3 to the contrary notwithstanding, the premiums payable upon any such prepayment shall not exceed the amount, if any, determined by Agent to be the difference between the rate of interest then applicable to the relevant LIBOR Loan and the yield that Lenders could receive upon reinvestment in the “Floor Reinvestment” of so much of the relevant LIBOR Loan as is prepaid for the remainder of the term of the relevant LIBOR Loan. For purposes hereof, “Floor Reinvestment” shall mean an investment for the time period from the date of such prepayment to the end of the relevant Interest Period applicable to such LIBOR Loan at an interest rate per annum equal to the federal funds “offered” rate as published in the Wall Street Journal on the date of such prepayment. All determinations, estimates, assumptions, allocations and the like required for the determination of such premiums shall be made by Agent in good faith and shall be presumed correct absent manifest error.

        2.12. Prepayment of Prime Rate Loans. Borrower may at any time prepay any outstanding Prime Rate Loans prior to the Termination Date in whole or in part without premium or penalty on one (1) Business Day’s notice in a minimum amount of $500,000 or any incremental multiple of $100,000.

        2.13. Fixed Commitment Fees. Upon the execution of this Agreement, Borrower shall pay commitment fees to AmSouth and the other Lenders, in the amounts previously agreed to by the Borrower and the Lenders. These commitment fees are not refundable or proratable.

        2.14. Periodic Facility Fee. Borrower shall pay to Agent for distribution to Lenders Pro Rata a facility fee determined by applying the Applicable Facility Fee to the total Revolving Credit Commitment. The facility fee shall be paid in arrears on the first day of each January, April, July and October, commencing on January 1, 2002. This facility fee is not refundable or proratable.

        2.15. Agent's Fee. On the Closing Date, and on each subsequent anniversary thereof excepting only an anniversary corresponding to the Termination Date, Borrower shall pay to Agent, for its own account, a fee in such amount as shall be agreed to from time to time.

        2.16. Swingline Loans. The Swingline Lender hereby agrees to extend to Borrower Swingline Loans in the aggregate amount not to exceed Ten Million and No/100 Dollars ($10,000,000.00), on the following terms and conditions.

        2.16.1 Use of Proceeds of Swingline Loans. Borrower may use the proceeds of Swingline Loans for any purpose permitted for the proceeds of the Revolving Credit Loan under Section 2.2 of this Agreement. Swingline Loans shall be applied to reduce the amount of the Revolving Credit Loan.

        2.16.2 Swingline Note. The Swingline Loans shall be evidenced by the Swingline Note.

        2.16.3 Funding of Swingline Loans Advanced Pursuant to Borrowing Notices.

        2.16.3(a) Applicability. Except for Swingline Loans made pursuant to Account Agreements as provided in Section 2.16.4 hereof, the funding of Swingline Loans shall be subject to this Section 2.16.3.

        2.16.3(b) Borrowing Notices. As long as Borrower meets the conditions for funding stated in this Agreement, the Borrower may submit requests for Swingline Loans (“Swingline Borrowing Notices”) to the Swingline Lender. All requests shall be made in writing (or by telephone, subject to such security procedures as the Swingline Lender may require from time to time, provided that all telephonic notices shall be confirmed by written Swingline Borrowing Notices within one (1) Business Day) and shall specify the proposed date of the requested disbursement and the aggregate amount of such disbursement. Each Swingline Borrowing Notice shall irrevocably obligate Borrower to accept the Swingline Loan requested thereby. Swingline Borrowing Notices shall be in such form as the Swingline Lender may from time to time require.

        2.16.3(c) Funding of Swingline Loans. The Swingline Lender shall fund Swingline Loans on the Business Day following the Business Day of the Swingline Lender’s receipt of the Swingline Borrowing Notice. All funds shall be disbursed directly into an account maintained by Borrower with the Swingline Lender. Borrower agrees that if the Swingline Lender elects to fund any requested Swingline Loan(s) sooner after requested than is required hereunder, the Swingline Lender may nevertheless use the entire response period allowed hereunder upon receipt of any subsequent request, at its sole option.

        2.16.4 Funding of Swingline Loans Advanced Pursuant to Cash Management Accounts. Borrower may have in effect from time to time separate agreements with the Swingline Lender or its affiliates (“Account Agreements”) establishing cash management procedures that may involve the automatic disbursement of Swingline Loans. The Account Agreements may be established using standardized forms that do not address the specific circumstances of the Swingline Loan. To resolve potential inconsistencies between this Agreement and Account Agreements, the terms of this Agreement and of Account Agreements shall relate to one another as follows:

        2.16.4(a) Funding and Payment Procedures Controlled by Account Agreements. The Account Agreements shall control this Agreement as to (i) Section 2.16.3 hereof regarding funding procedures, and (ii) Interest Payment Dates, to the extent that an Account Agreement may provide for such payment more frequently than otherwise required under this Agreement.

        2.16.4(b) Certain Provisions Controlled by this Agreement. Notwithstanding any provision of an Account Agreement to the contrary, except as provided above in Section 2.16.4(a) hereof, the provisions of this Agreement shall control any Account Agreement to the extent that an Account Agreement may be inconsistent with this Agreement.

        2.16.4(c) Continuing Warranty Under Account Agreements. Because Account Agreements may provide for the making of Swingline Loans without formal draw requests from Borrower, Borrower agrees that Borrower’s warranty under Section 2.16.5 hereof as to the satisfaction of all conditions to the right to receive Swingline Loans shall be a continuing one during any period that such an Account Agreement may be in effect. Therefore, any Swingline Loans funded by the Swingline Lender pursuant to an Account Agreement after the failure of a condition stated in Article III hereof shall be deemed made upon the affirmative misrepresentation of Borrower unless the Swingline Lender has received written notice of and waived the failed condition in writing.

        2.16.5 Implied Representations Upon Request for Swingline Loan. Upon making any request for a Swingline Loan, Borrower shall be deemed to have warranted to the Swingline Lender that all conditions to funding are satisfied as of the submission of the request to the Swingline Lender.

        2.16.6 Advance Not Waiver. The Swingline Lender’s making of any Swingline Loan that it is not obligated to make under any provision of Article III hereof or any other provision hereof shall not be construed as a waiver of the Swingline Lender’s right to withhold future Swingline Loans, notify Agent of a Default, or otherwise demand strict compliance with this Agreement.

        2.16.7 Interest. Interest shall be charged and paid on each Swingline Loan as follows:

        2.16.7(a) Rate of Interest. Interest shall accrue on Swingline Loans at an annual rate equal to the Prime Rate, said rate to change contemporaneously with any change in the Prime Rate.

        2.16.7(b) Calculation of Interest. Interest shall be computed on the basis of a 360-day year counting the actual number of days elapsed.

        2.16.7(c) Payment of Interest. Interest shall be due and payable in arrears without notice on each Interest Payment Date.

        2.16.7(d) Default Rate. Notwithstanding the foregoing, upon the occurrence of a Default and during the continuation of such Default until it is cured or waived, interest shall be charged at the Default Rate, regardless of whether the Swingline Lender has elected to exercise any other remedies available to it, including, without limitation, acceleration of the maturity of the outstanding principal of the Swingline Loans. All such interest shall be paid at the time of and as a condition precedent to the curing of any such Default to the extent any right to cure is given in this Agreement.

        2.16.7(e) Usury Savings Provision. It is the intention of the parties that all charges under or in connection with this Agreement and the Obligations, however denominated, and including (without limitation) all interest, commitment fees, late charges and loan charges, shall be limited to the Maximum Lawful Amount. Such charges hereunder shall be characterized and all provisions of the Credit Documents shall be construed as to uphold the validity of charges provided for therein. If for any reason whatsoever, however, any charges paid or contracted to be paid in respect of the Swingline Loans shall exceed the Maximum Lawful Amount, then, ipso facto the obligation to pay such interest and/or other charges shall be reduced to the Maximum Lawful Amount in effect from time to time, and any amounts collected by Lender that exceed the Maximum Lawful Amount shall be applied to the reduction of the principal balance of the Swingline Loans and/or refunded to Borrower so that at no time shall the interest or loan charges paid or payable in respect of the Swingline Loans exceed the Maximum Lawful Amount. This provision shall control every other provision herein and in any and all other agreements and instruments now existing or hereafter arising between Borrower and the Swingline Lender with respect to the Swingline Loans.

        2.16.8 Repayment of Principal. All remaining principal, interest and expenses outstanding under the Swingline Loans shall become due in full on the Termination Date or the earlier acceleration of the Revolving Credit Loan in accordance with the terms of this Agreement. Borrower may at any time prepay the interest or principal on any outstanding Swingline Loans in whole or in part without premium or penalty.

        2.16.9 Procedures Among Lenders Upon Default. Upon the occurrence of a Default, Lenders shall acquire participation interests in the outstanding Swingline Loans as necessary to cause each Lender to own a Pro Rata interest in the outstanding Swingline Loans, pursuant to such documentation as Agent may deem necessary. The obligation of each Lender to acquire such a participation interest shall be unconditional and, without limiting the foregoing, shall remain in effect irrespective of (i) the occurrence of any Default or Unmatured Default, (ii) the financial condition of Borrower, the Agent, the Swingline Lender or any other Lender or (iii) the termination or cancellation of the Revolving Credit Commitments (provided that such Swingline Loan was made prior to the date of such termination or cancellation). The Swingline Loans shall thereafter be administered by Lenders and Agent as though the Swingline Loans were amounts outstanding under the Revolving Credit Loan. Additionally, to this end, upon the occurrence and continuation of a Default, Agent may, in its discretion, and without Borrower’s consent, cause an advance to be made under the Revolving Credit Loan sufficient to repay the outstanding Swingline Loans, even if a Default is then outstanding.

        2.17. Withholding Tax Exemption. Each Lender that is not incorporated or organized under the laws of the United States of America, or a state thereof, shall, on or before the date such Lender becomes a party to this Agreement, deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and such Lender’s Revolving Credit Note without deduction or withholding of any United States federal income taxes. Each Lender that so delivers a Form 1001 or 4224 further undertakes to deliver to each of the Borrower and the Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224), becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from a required withholding or deduction of United States federal income tax or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and such Lender’s Revolving Credit Note without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred after the Closing Date and prior to the date on which any such delivery would otherwise be required that renders all such forms inapplicable or that would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender promptly advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax.

ARTICLE III


CONDITIONS PRECEDENT

        3.1. Initial Advance. The Lenders shall not be required to make the initial Advance hereunder unless the Borrower has furnished to the Agent, with sufficient copies for the Lenders:

        (i) A certificate of good standing from the Secretary of State of Delaware and certificate of existence from the Secretary of State of Alabama with respect to the Borrower and a certificate of good standing from the Secretary of State of Tennessee with respect to PLICO.

        (ii) Copies, certified by the Secretary or an Assistant Secretary of the Borrower, of its certificate of incorporation, together with all amendments thereto, and by-laws and Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) authorizing the execution of the Credit Documents.

        (iii) An incumbency certificate, executed by the Secretary or any Assistant Secretary of the Borrower, which shall identify by name and title and bear the signature of the officers of the Borrower authorized to sign the Credit Documents and to make borrowings hereunder, upon which certificate the Agent and the Lenders shall be entitled to rely until informed in writing by the Borrower of any change.

        (iv) A certificate, signed by the Chief Financial Officer or the Chief Accounting Officer of the Borrower, stating that on the initial Borrowing Date no Default or Unmatured Default has occurred and is continuing.

        (v) A written opinion of the Borrower's counsel, addressed to the Lenders in form and substance satisfactory to the Agent.

        (vi) Revolving Credit Notes payable to the order of each of the Lenders and the Swingline Note.

        (vii) Written money transfer instructions, in a form required by the Agent, addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested.

        (viii) A duly completed compliance certificate as of June 30, 2001, in substantially the form of Exhibit 3.1(viii) hereto.

        (ix) Such other documents as any Lender or its counsel may have reasonably requested.

         3.2. Each Loan. The Lenders shall not be required to make or continue any Loan, unless on the applicable borrowing date or date of continuation:

        (i) There exists no Default or Unmatured Default.

        (ii) The representations and warranties contained in Article IV (other than Section 4.5) are true and correct as of such borrowing date or date of continuation.

        Each Borrowing Notice with respect to each such Loan shall constitute a representation and warranty by the Borrower that the conditions contained in Section 3.2(i) and (ii) have been satisfied. Any Lender may require a duly completed compliance certificate in substantially the form of Exhibit 3.1(viii) hereto as a condition to making or continuing a Loan.

ARTICLE IV


REPRESENTATIONS AND WARRANTIES

        The Borrower represents and warrants to the Lenders and the Agent that:

        4.1. Corporate Existence and Standing. Each of the Borrower and its Significant Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted.

        4.2. Authorization and Validity. The Borrower has the corporate power and authority and legal right to execute and deliver the Credit Documents and to perform its obligations thereunder. The execution and delivery by the Borrower of the Credit Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Credit Documents constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.

        4.3. No Conflict; Government Consent. Neither the execution and delivery by the Borrower of the Credit Documents, nor the consummation of the transactions provided for therein, nor compliance with the provisions thereof, will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Significant Subsidiaries or the Borrower’s or any of its Significant Subsidiaries’ certificate or articles of incorporation or by-laws or the provisions of any indenture, instrument or agreement to which the Borrower or any of its Significant Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on the Property of the Borrower or any of its Significant Subsidiaries pursuant to the terms of any such indenture, instrument or agreement, other than such violations, conflicts or defaults which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any Governmental Authority is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Credit Documents, except such as would not have a Material Adverse Effect.

        4.4. Financial Statements. The June 30, 2001, consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lenders were prepared in accordance with generally accepted accounting principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations for the period then ended. The December 31, 2000 consolidated financial statements of PLICO and its Subsidiaries heretofore delivered to the Lenders were prepared in accordance with SAP in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of PLICO and its Subsidiaries at such date and the consolidated results of the operations of PLICO and its Subsidiaries for the period then ended.

        4.5. Material Adverse Change. Since June 30, 2001, there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Significant Subsidiaries which would have a Material Adverse Effect.

        4.6. Taxes. The Borrower and its Significant Subsidiaries have filed all United States federal tax returns and all other tax returns required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Significant Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which, in the good faith judgment of the Borrower, adequate reserves have been provided. The United States income tax returns of the Borrower and its Significant Subsidiaries have been audited by the Internal Revenue Service through the fiscal year ended December 31, 1995. No tax liens have been filed with respect to any such taxes. The charges, accruals and reserves on the books of the Borrower and its Significant Subsidiaries with respect to any taxes or other governmental charges are adequate in the good faith judgment of the Borrower.

        4.7. Litigation and Guaranteed Obligations. Except as disclosed on Exhibit 4.7 hereto, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened in writing against or affecting the Borrower or any of its Significant Subsidiaries which could reasonably be expected to have a Material Adverse Effect. The Borrower has no material Guaranteed Obligations not provided for or disclosed in the financial statements referred to in Section 4.4.

        4.8. List of Significant Subsidiaries. Exhibit 4.8 hereto contains an accurate list of all of the now existing Significant Subsidiaries of the Borrower, setting forth their respective jurisdictions of incorporation and the percentage of their respective capital stock owned by the Borrower or other Subsidiaries. All the issued and outstanding shares of capital stock of such Significant Subsidiaries have been duly authorized and issued and are fully paid and non-assessable.

        4.9. ERISA. Each Plan complies in all material respects with all applicable requirements of law and regulations, and no ERISA Event has occurred or is reasonably expected to occur with respect to any Plan. No Insufficiency exists with respect to any Plan. Neither the Borrower nor any ERISA Affiliate is required to contribute to or has ever had a liability to a Multiemployer Plan.

        4.10. Accuracy of Information. No information, exhibit or report furnished by the Borrower or any of its Significant Subsidiaries to the Agent or any Lender in connection with the negotiation of, or compliance with, the Credit Documents contained any material misstatement of fact or purposely omitted to state a material fact.

        4.11. Regulation U. Margin stock (as defined in Regulation U) constitutes less than 25% of those assets of the Borrower and its Significant Subsidiaries that are subject to any limitation on sale, pledge or other restriction hereunder.

        4.12. Material Agreements. Neither the Borrower nor any Significant Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction that could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Significant Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Significant Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument evidencing or governing Indebtedness.

        4.13. Compliance With Laws. The Borrower and its Significant Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any Governmental Authority, having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, except where the failure so to comply could not reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Significant Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect.

        4.14. Investment Company Act. Neither the Borrower nor any Significant Subsidiary thereof is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended.

        4.15. Public Utility Holding Company Act. Neither the Borrower nor any Significant Subsidiary is a “holding company” or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company”, within the meaning of the Public Utility Holding Company Act of 1935, as amended.

        4.16. Insurance Licenses. Each Significant Insurance Subsidiary holds active Licenses, and is authorized to transact insurance business, in each jurisdiction wherein it transacts any insurance business. No such License is the subject of a proceeding for suspension or revocation, there is no sustainable basis for such suspension or revocation, and to the Borrower’s knowledge no such suspension or revocation has been threatened by any Governmental Authority.

        4.17. Ownership of Properties. On the Closing Date, the Borrower and its Significant Subsidiaries have beneficial ownership of the property and assets reflected in the financial statements referred to in Section 4.4 as owned by it, free of all Liens other than Permitted Liens.

ARTICLE V


COVENANTS

        During the term of this Agreement, unless the Lenders shall otherwise consent in writing:

        5.1. Financial Reporting. The Borrower will maintain, for itself and each Consolidated Subsidiary, a system of accounting established and administered in accordance with GAAP and (where applicable) SAP, and furnish to the Lenders:

        (i) Within 120 days after the close of each of its fiscal years, an unqualified audit report certified by independent certified public accountants, acceptable to the Lenders, prepared in accordance with GAAP on a consolidated and consolidating basis (consolidating statements need not be certified by such accountants) for itself and the Consolidated Subsidiaries, including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows (solely with respect to the consolidated statements), accompanied by a certificate of said accountants that, in the course of their examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Unmatured Default, or if, in the opinion of such accountants, any Default or Unmatured Default shall exist, stating the nature and status thereof.

        (ii) Within 60 days after the close of each quarterly period of each of its fiscal years, for itself and the Consolidated Subsidiaries, consolidated and consolidating unaudited balance sheets as at the close of each such period and consolidated and consolidating profit and loss statements and a consolidated statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its Chief Financial Officer or Chief Accounting Officer.

        (iii) Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit 3.1(viii) hereto signed by the Chief Financial Officer or Chief Accounting Officer of the Borrower showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof.

        (iv) In the event an Insufficiency exists, within 270 days after the close of each fiscal year, a statement of the Insufficiency with respect to each Plan, certified as correct by an actuary enrolled under ERISA.

        (v) Promptly upon the request of any of the Lenders, copies of all the most recent material reports and notices in connection with Plans that the Borrower or any Significant Subsidiary is required to file under ERISA with the Internal Revenue Service or the PBGC or the U.S. Department of Labor, or which the Borrower or any Significant Subsidiary receives from such Governmental Authorities.

        (vi) As soon as possible and in any event within 10 days after receipt by the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Significant Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Significant Subsidiaries or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Significant Subsidiaries, which, in either case, could reasonably be expected to have a Material Adverse Effect.

        (vii) Upon the earlier of (i) 15 days after the regulatory filing date or (ii) 90 days after the close of each fiscal year of each Significant Insurance Subsidiary copies of the Annual Statement of each of the Significant Insurance Subsidiaries prepared on the NAIC annual statement blanks (or such other form as shall be required by the jurisdiction of incorporation of each such Significant Insurance Subsidiary), all such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein; and within 15 days after the regulatory filing date, copies of such Annual Statements certified by independent certified public accountants reasonably acceptable to the Lenders if such certification is so required by any Governmental Authority.

        (viii) Promptly upon the filing thereof, copies of all Forms 10Q and 10K (other than earnings press releases) that the Borrower or any Significant Subsidiary files with the Securities and Exchange Commission and, upon request, any Forms A and B that any Significant Insurance Subsidiary files with any insurance commission or department or analogous Governmental Authority.

        (ix) Promptly upon the Borrower's receipt thereof, copies of reports, notices, or claims prepared by or on behalf of any Governmental Authority with respect to any adverse action or event that has resulted in the reduction by 10% or more in the capital and surplus of any Significant Insurance Subsidiary.

        (x) Promptly and in any event within 10 days after learning thereof, notification of any decrease after the Closing Date of any rating given (a) by S&P with respect to the Borrower or any Consolidated Subsidiary or (b) by A.M. Best & Co. with respect to any Significant Insurance Subsidiary.

        (xi) Such other information (including, without limitation, non-financial information) as the Agent or any Lender may from time to time reasonably request.

        5.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary to, use the proceeds of the Loans as set forth in Section 2.2. The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Loans to purchase or carry any "margin stock" (as defined in Regulation U).

        5.3. Notice of Default. The Borrower will give prompt notice in writing to the Agent and the Lenders of (i) the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, that could reasonably be expected to have a Material Adverse Effect, (ii) the receipt of any notice from any Governmental Authority of the expiration without renewal, revocation or suspension of, or the institution of any proceedings to revoke or suspend, any License now or hereafter held by any Significant Insurance Subsidiary which is required to conduct insurance business in compliance with all applicable laws and regulations, other than such expiration, revocation or suspension or institution of such proceedings that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (iii) the receipt of any notice from any Governmental Authority of the institution of any disciplinary proceedings against or with respect to any Significant Insurance Subsidiary, or the issuance of any order, the taking of any action or any request for an extraordinary audit for cause by any Governmental Authority which is reasonably expected to have a Material Adverse Effect or (iv) any judicial or administrative order limiting or controlling the insurance business of any Significant Insurance Subsidiary (and not the insurance industry generally) which has been issued or adopted and which could reasonably be expected to have a Material Adverse Effect.

        5.4. Conduct of Business. The Borrower will, and will cause each Significant Subsidiary to, do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted except where such failure to do so would not have a Material Adverse Effect. The Borrower will cause each Significant Insurance Subsidiary to (i) carry on or otherwise be associated with the business of a licensed insurance carrier and (ii) do all things necessary to renew, extend and continue in effect all Licenses that may at any time and from time to time be necessary for such Significant Insurance Subsidiary to operate its insurance business in compliance with all applicable laws and regulations; provided, however, that any such Significant Insurance Subsidiary may withdraw from one or more states as an admitted insurer or change the state of its domicile, if such withdrawal or change is in the best interests of the Borrower and such Significant Insurance Subsidiary.

        5.5. Taxes. The Borrower will, and will cause each Significant Subsidiary to, pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except where the failure to file has not had and would not reasonably be expected to have, a Material Adverse Effect, and except those that are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside.

        5.6. Insurance. The Borrower will, and will cause each Significant Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all or substantially all of its Property in such amounts and covering such risks, and with such risk retention or self-insurance, as is consistent with sound business practice for Persons in substantially the same industry as the Borrower or such Significant Subsidiary, and the Borrower will furnish to any Lender upon request full information as to the insurance carried and any applicable risk retention or self-insurance.

        5.7. Compliance with Laws. The Borrower will, and will cause each Significant Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect.

        5.8. Maintenance of Properties. The Borrower will, and will cause each Significant Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, except where the failure to so maintain, preserve, protect and repair could not reasonably be expected to have a Material Adverse Effect.

        5.9. Inspection. The Borrower will, and will cause each Significant Subsidiary to, permit the Lenders, by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of the Borrower and each Significant Subsidiary, to examine and make copies of the books or accounts and other financial records of the Borrower and each Significant Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Significant Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may designate.

        5.10. Merger, Consolidation and Sale of Assets. The Borrower will not, nor will it permit any Significant Subsidiary to, merge or consolidate with or into, or sell, lease or otherwise transfer all or any Substantial Portion of its assets to any other Person, except that (a) the Borrower or PLICO or a Significant Subsidiary may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) PLICO, the Borrower or a Significant Subsidiary is the corporation surviving such merger (provided that in a merger of the Borrower or PLICO and a Significant Subsidiary, the Borrower or PLICO shall be the corporation surviving such merger) and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing and (b) Subsidiaries (other than PLICO) may merge with one another or into the Borrower or PLICO. The foregoing limitation on merger and consolidation and the sale, lease or other transfer of assets shall not prohibit (i) sales of investment assets in the ordinary course of business and (ii) during any fiscal quarter, a merger, consolidation or any transfer of assets (in a single transaction or a series of related transactions) unless the aggregate assets that are the subject of such merger or consolidation or to be so transferred, when combined with all other assets transferred (including as the result of a merger or consolidation) during such fiscal quarter and the immediately preceding 3 fiscal quarters, constituted more than 15% of Consolidated Total Assets at the end of the most recent fiscal year.

        5.11. Liens. The Borrower will not, nor will it permit any Significant Subsidiary to, create, incur or suffer to exist any Lien in, of or on any Property, except for Permitted Liens.

        5.12. Adjusted Consolidated Net Worth. The Borrower will maintain at all times Adjusted Consolidated Net Worth equal to not less than the sum of (i) $1,000,000,000 plus (ii) 25% of the Borrower’s cumulative Consolidated Net Income, if positive, earned after December 31, 2000, through the last day of the most recent fiscal quarter for which statements were delivered or required to have been delivered to the Lenders pursuant to Section 5.1, taken as one accounting period, minus (iii) the Borrower’s consolidated allowance for potential future losses on investments at the end of such fiscal quarter.

        5.13. Ratio of Adjusted Consolidated Indebtedness to Consolidated Capitalization. The Borrower will maintain at all times a ratio of Adjusted Consolidated Indebtedness to Consolidated Capitalization of not more than 0.4 to 1.0.

        5.14. Total Adjusted Capital of PLICO. The Borrower will cause PLICO to maintain at all times Total Adjusted Capital in an amount not less than 3.6 times PLICO’s Authorized Control Level Risk-Based Capital. As used herein the terms “Total Adjusted Capital” and “Authorized Control Level Risk-Based Capital” have the meanings attributed thereto in the Risk-Based Capital (RBC) for Life and/or Health Insurers Model Act adopted by the NAIC in December 2000, as the same may be modified, supplemented or amended from time to time.

        5.15. Ratio of Unconsolidated Cash Inflow Available for Interest Expense to Adjusted Consolidated Interest Expense. The Borrower will maintain, on a rolling four quarter basis, a ratio of (i) Unconsolidated Cash Inflow Available for Interest Expense to (ii) Adjusted Consolidated Interest Expense, in each case calculated for such quarter, of not less than 2.0 to 1.0.

        5.16. Affiliates. The Borrower will not, and will not permit any Significant Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make payments or transfer to, any Affiliate (other than a Wholly-Owned Subsidiary) except (i) any such transactions, payments or transfers with or to such Affiliates as are made in the ordinary course of business and pursuant to the reasonable requirements of the Borrower’s or such Significant Subsidiary’s business and upon fair and reasonable terms no less favorable to the Borrower or such Significant Subsidiary than the Borrower or such Significant Subsidiary would obtain in a comparable arms-length transaction and (ii) any such other transactions, payments or transfers with or to such Affiliates as could not reasonably be expected to have a Material Adverse Effect.

        5.17. Compliance with ERISA. The Borrower will not (i) terminate, or permit any ERISA Affiliate to terminate, any Plan so as to result in any material (in the opinion of the Lenders) liability of the Borrower or an ERISA Affiliate to the PBGC; (ii) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), or any other event or condition, that presents a material (in the opinion of the Lenders) risk of such a termination by the PBGC of any Plan so as to result in any material (in the opinion of the Lenders) liability of the Borrower or any ERISA Affiliate to the PBGC; (iii) be an “employer” (as defined in Section 3(5) of ERISA), or permit any ERISA Affiliate to be an “employer”, required to contribute to any Multiemployer Plan; or (iv) fail to comply in all material respects with any laws or regulations applicable to any Plan.

        5.18. Debt Rating. To the extent the Borrower shall have outstanding issues of rated unsecured, unenhanced senior debt (each, a “Rated Debt Issue”), no such Rated Debt Issue shall have a rating less than “BBB--” as determined by S&P.

ARTICLE VI


DEFAULTS

        The occurrence of any one or more of the following events shall constitute a Default:

        6.1. Any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in connection with this Agreement, any Loan or any certificate or written information delivered in connection with this Agreement or any other Credit Document shall be materially false on the date as of which made.

        6.2. Nonpayment of principal of any Loan when due, or nonpayment of interest upon any Loan or of any facility fee or other Obligation under any of the Credit Documents.

        6.3. The breach by the Borrower of any of the terms or provisions of Section 5.2, 5.10, 5.11, 5.12, 5.13 and 5.18.

        6.4. The breach by the Borrower (other than a breach that constitutes a Default under Section 6.1, 6.2 or 6.3) of any of the terms or provisions of this Agreement, and the continuance of such breach for a period of 30 days after there has been given, by registered or certified mail, to the Borrower by the Agent a written notice specifying such breach and requiring it to be remedied and stating that such notice is a “notice of default” hereunder.

        6.5. Failure of the Borrower or any of its Subsidiaries to pay when due or within any applicable cure periods any Indebtedness, if the aggregate amount of all such Indebtedness involved exceeds $5,000,000; or if any event or condition shall occur that results in any Indebtedness of the Borrower or any Subsidiary being declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment or a payment made in the ordinary course of business and pursuant to a contractual obligation) prior to the stated maturity thereof, if the aggregate amount of all such Indebtedness involved exceeds $5,000,000; or the Borrower or any of its Subsidiaries shall not pay, or admit in writing its inability to pay, its debts generally as they become due.

        6.6. The Borrower or any of its Significant Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any Substantial Portion of its Property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding, filed against it, (v) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 6.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 6.7.

        6.7. Without the application, approval or consent of the Borrower or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Significant Subsidiaries or any Substantial Portion of its Property, or a proceeding described in Section 6.6(iv) shall be instituted against the Borrower or any of its Significant Subsidiaries, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 30 consecutive days.

        6.8. Any Governmental Authority shall condemn, seize or otherwise appropriate, or take custody or control of (each a “Condemnation”), all or any portion of the Property of the Borrower or any of its Significant Subsidiaries which, when taken together with all other Property of the Borrower and its Significant Subsidiaries so condemned, seized, appropriated or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion.

        6.9. The Borrower or any of its Subsidiaries shall fail within 45 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $5,000,000, which is not stayed on appeal or otherwise being appropriately contested in good faith.

        6.10. (i) Any ERISA Event shall have occurred or (ii) the sum of the aggregate Insufficiencies of all Plans shall exceed $5,000,000.

        6.11. Any Governmental Authority having jurisdiction shall prohibit or further limit the payment or distribution by PLICO or any other Significant Insurance Subsidiary to the Borrower of dividends, principal or interest payments or management fees, if such prohibition or further limitation could reasonably be expected to have a Material Adverse Effect.

        6.12. The Borrower or any of its Subsidiaries shall be the subject of any proceedings or investigation of any toxic or hazardous waste or substance into the environment, or any violation of any federal, state or local environmental, health or safety law or regulation, which, in either case, could reasonably be expected to have a Material Adverse Effect.

        6.13. Any Change in Control shall occur.

        6.14. Any License of any Insurance Subsidiary held by such Insurance Subsidiary on the Closing Date or acquired by such Insurance Subsidiary thereafter, the loss of which would have, in the reasonable judgment of the Lenders, a Material Adverse Effect (i) shall be revoked by a final non-appealable order by the state that issued such License, or any action (whether administrative or judicial) to revoke such License shall have been commenced against such Insurance Subsidiary which shall not have been dismissed or contested in good faith within 30 days of the commencement thereof, (ii) shall be suspended by such state for a period in excess of 30 days or (iii) shall not be reissued or renewed by such state upon the expiration thereof following application for such reissuance or renewal by such Insurance Subsidiary.

        6.15. A federal tax lien shall attach against the Borrower or any Subsidiary under Section 6323 of the Code or a lien of the PBGC shall be filed against the Borrower or any Subsidiary under Section 4068 of ERISA in an amount that would have, in the reasonable judgment of the Lenders, a Material Adverse Effect and in either case such lien shall remain undischarged for a period of 60 days after the attachment or filing, as the case may be.

ARTICLE VII


REMEDIES

        Upon the happening of any Default:

        7.1 Default Rate. Agent shall at the direction, or may with the consent, of the Required Lenders declare the Obligations to thereafter bear interest at the Default Rate until such Default is cured or no longer exists.

        7.2 Termination of Commitments. As provided in Article III hereof, Lenders shall not be obligated to advance any additional Loans. Agent shall at the direction, or may with the consent, of the Required Lenders terminate the obligation of Lenders to advance any additional Loans.

        7.3 Acceleration. Agent may, by written notice to the Borrower, declare the entire principal amount of all Obligations then outstanding, including interest accrued thereon, to be immediately due and payable without presentment, demand, protest, notice of protest, or dishonor or other notice of default of any kind, all of which are hereby expressly waived.

        7.4 Setoff. Any Lender may, to the extent of the amount of the Obligations, exercise its lien upon and right of setoff against any monies, items, credits, deposits or instruments that such Lender may have in its possession and which belong to Borrower or to any other person or entity liable for the payment of any or all of the Obligations.

        7.5 Other Remedies. Lenders and Agent may exercise any right that they may have under any other document evidencing or securing the Obligations or otherwise available to Lenders or Agent at law or equity.

ARTICLE VIII


THE AGENT

        8.1. Appointment of Agent. Lenders hereby appoint Agent to act as specified in this Article VIII. Agent’s duties hereunder are administrative and ministerial in nature, and Agent’s capacity is that of an independent contractor for Lenders. Agent is not a trustee or other fiduciary for Lenders, and Agent has no duties whatsoever to Lenders except as expressly set forth in this Agreement.

        8.2. Powers of Agent.

        8.2.1 Administration of Loans. Except as otherwise provided in this Section 8.2, Agent shall have the exclusive power and authority to (i) give all consents and approvals, issue waivers and amendments, enforce the Credit Documents (including, but not limited to, the power to enforce the Credit Documents in any relevant case under the Bankruptcy Code) and otherwise take all actions permitted of Agent under this Agreement or any other Credit Document, (ii) give all consents and approvals, issue waivers and amendments, enforce the Credit Documents (including, but not limited to, the power to enforce the Credit Documents in any relevant case under the Bankruptcy Code) and otherwise take all actions permitted of Lenders under this Agreement or any other Credit Document, excepting only those matters that the Credit Documents specifically reserve for the respective Lenders severally (such as the computation of LIBOR charges unique to the circumstances of a given Lender), (iii) receive all payments, notices and other deliveries and communications to be given Lenders or Agent under this Agreement or any other Credit Document, and (iv) to perform such actions as are incidental to any of the foregoing.

        8.2.2 Matters Reserved to Required Lenders. Absent the prior approval of the Required Lenders, Agent shall not waive or amend any provision of this Agreement or any other Credit Document.

        8.2.3 Matters Reserved to all Lenders. Absent the prior approval of all Lenders, Agent shall not forgive any principal included in the Obligations; waive or amend any interest rate applicable to the Obligations; waive or amend the Termination Date; waive or amend the amount of any Lender’s Revolving Credit Commitment; waive a Default arising from non-payment of any principal or interest due on the Obligations; accelerate the maturity of the Obligations; or amend the definitions of Pro Rata Share or Required Lenders.

        8.3. Duties of Agent.

        8.3.1 Specific Duties of Agent: Standard of Care. Agent shall (i) remit to each Lender, with reasonable promptness, the appropriate Pro Rata Share of payments received or other amounts collected on account of the Obligations, (ii) forward to Lenders, with reasonable promptness, counterparts or copies of Borrowing Notices, financial reports and other information that may be delivered to Agent by Borrower pursuant to the requirements of the Credit Documents, (iii) notify Lenders of any Unmatured Default or Default known to Agent, in accordance with Section 8.7 below, and (iv) otherwise administer the Loans through the exercise of such of the powers granted herein as Agent deems appropriate from time to time. Agent shall have no liability to Lenders for any action or inaction relating to this Agreement or the other Credit Documents, except for actual losses caused by its gross negligence or reckless or willful misconduct.

        8.3.2 Limitations on Agent’s Duties. Agent shall not be obligated to take any action hereunder or under any other Credit Document (i) if such action would, in the opinion of Agent, be contrary to applicable law, this Agreement or the other Credit Documents, (ii) if it shall not first be specifically indemnified to its satisfaction against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action, (iii) if it would likely subject Agent to a tax in any jurisdiction where it is not then subject to a tax, (iv) if it would likely require Agent to qualify to do business in any jurisdiction where it is not then so qualified, unless Agent receives security or indemnity satisfactory to it against any tax or other liability in connection with such qualification or resulting from the taking of such action in connection therewith, or (v) if it would likely subject Agent to in personam jurisdiction in any location where it is not then so subject.

        8.3.3 Agent’s Right to Require Instructions in Performance of Duties. If Agent, in its sole and absolute discretion, requests instructions from the Required Lenders with respect to any act or action (including the failure to act) in connection with this Agreement or any other Credit Document for which the approval of the Required Lenders or all Lenders is not otherwise required, Agent shall be entitled, at its option, to refrain from such action, or to continue such inaction, unless and until Agent shall have received such instructions, and Agent shall incur no liability by reason of so acting or refraining from action. No Lender shall have any right of action whatsoever against Agent as a result of Agent’s acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders in such a case.

        8.3.4 Agent’s Reliance on Others in Performance of Duties. Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, consent, certificate, telex, teletype or facsimile message, order or other documentary, teletransmission or telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person. Agent may consult with legal counsel (including counsel for Borrower), accountants and other experts selected by it with respect to all matters pertaining to this Agreement and the other Credit Documents and its duties hereunder and thereunder and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel (including counsel for Borrower), accountants or experts.

        8.3.5 Sharing of Information. Except as otherwise expressly provided in this Article VIII, Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information concerning the business, prospects, operations, properties, financial or other condition or creditworthiness of the Borrower or any other Person that may come into its possession, whether before the making of the initial Loans or at any time or times thereafter. All notices to be given to Borrower by a Lender hereunder shall be concurrently given to Agent and all other Lenders.

        8.4. Indemnification of Agent. To the extent Agent is not reimbursed by or on behalf of Borrower, and without limiting the obligation of Borrower to do so, Lenders will reimburse and indemnify Agent, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys’ fees and expenses) or disbursements of any kind or nature whatsoever that may at any time (including at any time following the indefeasible repayment in full of the Loans) be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement or any other Credit Document or the transactions contemplated thereby or any action taken or omitted by Agent under or in connection with any of the foregoing, and in particular will reimburse Agent for out-of-pocket expenses promptly upon demand by Agent therefor; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements finally determined by a court of competent jurisdiction and not subject to any appeal or pursuant to arbitration to have resulted from Agent’s gross negligence or reckless or willful misconduct. Agent may offset any amounts due Agent by any Lender against obligations of Agent to that Lender.

        8.5. No Representations by Agent. Each Lender acknowledges that neither Agent nor any of its officers, directors, employees, attorneys, accountants or agents has made any representation or warranty to it regarding the Borrower, the Loans, or otherwise relating to this Agreement. Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any other Credit Document or in any document, instrument, certificate or other writing delivered in connection herewith or therewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Borrower or any other Person, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of the Borrower or any other Person or the existence or possible existence of any Unmatured Default or Default.

        8.6. Independent Investigations by Lenders. Each Lender acknowledges that, independently and without reliance upon Agent or any other Lender and based on such documents and information as it has deemed and may deem appropriate, (i) it has made its own appraisal of and investigation into the business, prospects, operations, properties, financial and other condition and creditworthiness of the Borrower in connection with its decision to enter into this Agreement and extend credit to Borrower hereunder, and (ii) it will continue to make its own credit analysis, appraisals and decisions in taking or not taking action hereunder.

        8.7. Notice of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Unmatured Default or Default, other than any Unmatured Default or Default arising out of the failure to pay any principal, interest, fees or other amounts payable to Agent for the account of Lenders, unless Agent has received written notice from Borrower or a Lender describing such Unmatured Default or Default and stating that such notice is a “notice of default.” In the event that Agent receives such a notice, Agent shall give notice thereof to Lenders as soon as reasonably practicable; provided, however, that if any such notice has also been furnished to Lenders, Agent shall have no obligation to notify Lenders with respect thereto. Each Lender shall promptly give Agent such a notice upon its actual knowledge of an Unmatured Default or a Default; provided, however, that the failure of any Lender to deliver such notice in the absence of gross negligence or reckless or willful misconduct shall not affect its rights hereunder or under the other Credit Documents.

        8.8. Funding of Loans Pursuant to Borrowing Notices. Promptly following receipt of notice from Agent that a Borrowing Notice has been submitted, and provided that all conditions to funding are believed to have been satisfied, each Lender shall transfer to a designated account with Agent that Lender’s Pro Rata Share of the requested funding. The transfer of funds shall occur within the time required for funding under this Agreement; provided, however, no Lender shall be obligated to fund a LIBOR Loan earlier than two (2) Business Days after its receipt of notice of the borrowing from Agent. Should any Lender fail to timely fund its Pro Rata Share of a requested Loan, Agent may, but shall be under no obligation whatsoever to, advance to Borrower the defaulted Lender’s Pro Rata Share of the requested Loan. If such an advance is made, it shall be deemed an advance by Agent for the account of the defaulting Lender and shall bear interest at the rate applicable to the Loan funded by the advance, payable on demand.

        8.9. Agent in its Individual Capacity. With respect to its Commitments, and the Loans made by it, Agent shall have the same rights and powers under the Credit Documents as any other Lender or holder of a Note and may exercise the same as though it were not performing the duties specified herein; and the terms “Lenders,” “Required Lenders,” and any similar terms shall, unless the context clearly otherwise indicates, include Agent in its individual capacity as a Lender. Agent may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with the Borrower or any of their respective Affiliates as if it were not performing the servicing duties specified herein, and may accept fees and other consideration from Borrower for services in connection with this Agreement and otherwise without having to disclose or account for the same to Lenders.

        8.10. Holders. Agent may deem and treat the payee of any Note as the holder thereof and Lender hereunder for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof purportedly executed by the payee, as the case may be, shall have been filed with Agent. Any request, authority or consent of any Person that, at the time of making such request or giving such authority or consent, is the holder of any Note according to Agent’s information, shall be conclusive and binding on any subsequent holder, transferee, assignee or endorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor.

        8.11. Successor Agent. Agent may resign at any time upon sixty (60) days’ prior written notice to Borrower and Lenders. Agent may be removed upon Agent’s insolvency, liquidation or the appointment of a receiver for Agent, and by action of the Required Lenders, at any time upon sixty (60) days’ prior written notice to Borrower and Agent. Such resignation or removal, as the case may be, shall take effect upon the appointment of a successor Agent as provided herein. The Required Lenders will appoint from among Lenders a successor Agent. If no successor Agent shall have been appointed within such sixty (60) day period, Agent may appoint, after consulting with Lenders and Borrower, a successor agent from among Lenders, who shall serve as Agent until such time, if any, as the Required Lenders shall have appointed a successor Agent as provided hereinabove. Upon the written acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder and under the other Credit Documents. After any retiring Agent’s resignation as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

        8.12. Sharing of Payments. etc. Each Lender agrees that if it shall, through the exercise of a right of banker’s lien, set-off, counterclaim or otherwise, obtain payment with respect to the Obligations which results in its receiving more than its Pro Rata Share of the aggregate payments with respect to all of the Obligations, then (a) such Lender shall be deemed to have simultaneously purchased from the other Lenders a share in the Obligations so that the amount of the Obligations held by each of Lenders shall continue to equal their respective Pro Rata Shares, and (b) such other adjustments shall be made from time to time as shall be equitable to insure that Lenders share such payments ratably. No Lender shall exercise its banker’s lien, set-off or other right to accomplish such payment absent Agent’s prior consent.

        8.13. Payments Between Agent and Lenders. All payments by Agent to any Lender, and all payments by any Lender to Agent, under the terms of this Agreement shall be made by wire transfer in immediately available funds to the receiving party’s address specified for notices in this Agreement. If any of Lenders fail to pay when due any sum payable to Agent, then, except as otherwise provided in Section 8.8 hereof, such sum shall bear interest until paid at the interest rate per annum for overnight borrowing by the payee from the Federal Reserve Bank for the period commencing on the date such payment was due and ending on, but excluding, the date such payment is made.

        8.14. Bankruptcy Provisions. Should the Borrower become a party to a case under the Bankruptcy Code, each Lender shall be entitled to file its own claim, to the extent such a filing may be necessary. Agent shall review each claim before being filed by a Lender to assure that the claim is filed on a basis consistent with Agent’s records and Agent’s legal positions taken pursuant to this Agreement. Should the Borrower become a party to a reorganization proceeding under the Bankruptcy Code, each Lender shall be recognized as the holder of a separate claim for the purpose of the approval or rejection of a Plan under 11 U.S.C. § 1126, may freely vote such claim, and the provisions of that Section shall control the other provisions of this Agreement that otherwise require the consent of the Required Lenders or all Lenders in certain circumstances. Agent shall continue to administer the Revolving Credit Loan on behalf of Lenders, as they may be amended by any adopted Plan of Reorganization.

        8.15. Procedures for Notices and Approvals. All notices given among Lenders and Agent with respect to this Agreement or the other Credit Documents shall be given in the manner provided in this Agreement. Additionally, should Agent request Lenders’ approval of any matter, each Lender shall respond in writing within five (5) Business Days after the Business Day on which the request was received. If a Lender fails to so respond, it shall be deemed to have approved the action proposed by Agent.

        8.16. Amendments to Article VIII. No provision of this Article VIII may be amended or waived absent the prior written consent of all Lenders and Agent. Borrower’s approval shall not be required for the amendment or waiver of any provision of this Article VIII; provided, however, Borrower’s written consent shall be required for any amendment of this Article VIII that would eliminate the position of Agent.

ARTICLE IX


BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATION

        9.1. Successors and Assigns. The terms and provision of the Credit Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Credit Documents, and (ii) any assignment by any Lender must be made in compliance with Section 9.2. Notwithstanding clause (ii) of the immediately preceding sentence, any Lender may at any time, without the consent of the Borrower or the Agent, assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 9.2, in the case of an assignment thereof, or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Credit Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor.

        9.2. Participations and Assignments.

        (a) Lenders may, from time to time, in their sole discretion, and with concurrent notice to Borrower, sell participations in any credit subject hereto to such other investors or financial institutions as it may elect. Lenders and Agent may from time to time disclose to any participant or prospective participant such information as they may have regarding the financial condition. operations, and prospects of Borrower, which participant agrees to keep such information confidential.

        (b) At any time after the Closing Date each Lender may, with the prior consent of the Agent and the Borrower (so long as no Default or Unmatured Default exists), which consent shall not be unreasonably withheld, assign to one or more banks or financial institutions all or a portion of its rights and obligations under this Agreement (including all or a portion of the Note payable to its order); provided, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender’s rights and obligations under this Agreement, (ii) for each assignment involving the issuance and transfer of Notes, the assigning Lender shall execute an Assignment and Acceptance and the Borrower hereby consent to execute a replacement Note or Notes to give effect to the assignment, (iii) the minimum commitment which shall be assigned is $5,000,000 and (iv) such assignee shall have an office located in the United States. Upon such execution, delivery, approval and acceptance, from and after the effective date specified in each Assignment and Acceptance (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder or under such Note or Notes have been assigned or negotiated to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder, as fully as if such assignee had been named as a Lender in this Agreement, and of a holder of such Note or Notes, and (y) the assignor shall, to the extent that rights and obligations hereunder or under such Note or Notes have been assigned or negotiated by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its future obligations under this Agreement. No assignee shall have the right to make any further assignment of its rights and obligations pursuant to this Agreement. Any Lender that makes an assignment (other than an assignment to an existing Lender or an Affiliate of a Lender) shall pay to the Agent a one-time administrative fee of $5,000, which fee shall not be reimbursed by Borrower.

        (c) By executing and delivering an Assignment and Acceptance, the Lender-assignor and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) the assignment made under such Assignment and Acceptance is made under such Assignment and Acceptance without recourse; (ii) such assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any other person or the performance or observance by the Borrower or any other person of any of its obligations under any Credit Document or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of all financial statements delivered pursuant to this Agreement, and such other Credit Documents and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, the assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Note and the other Credit Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender and a holder of such Note.

        (d) The Agent shall maintain at its address referred to herein a copy of each Assignment and Acceptance delivered to and accepted by it.

        (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender, the Agent shall give prompt notice thereof to the Borrower.

ARTICLE X


GENERAL PROVISIONS

        10.1. Notices. All communications relating to this Agreement or any of the other Credit Documents shall be in writing and shall effective when be delivered by mail, overnight courier, special courier, telecopier or otherwise to the following addresses:

                  If to Borrower:

                  2801 Highway 280 South
                  Birmingham, Alabama 35223
                  Telecopier:       (205) 868-3642
                  Attention:        Richard J. Bielen





                  With a Copy To:

                  2801 Highway 280 South
                  Birmingham, Alabama 35223
                  Telecopier:       (205) 868-3597
                  Attention:        Barrie B. Stokes, Esq.
                                    Legal Department

                  If to AmSouth or Agent:

                  1900 Fifth Avenue North
                  Upper Lobby, AmSouth-Sonat Tower
                  Birmingham, Alabama 35203
                  Telecopier:       (205) 801-0157
                  Attention:        David A. Simmons

                  With a Copy To:

                  Maynard, Cooper & Gale, P.C.
                  1901 6th Avenue North
                  2400 AmSouth/Harbert Plaza
                  Birmingham, Alabama  35203-2618
                  Telecopier:       (205) 254-1999
                  Attention:        J. Kris Lowry, Esq.

        If to the other Lenders, at the address set forth on the signature pages attached hereto. Any party may change its address for receipt of notice by written direction to the other parties hereto.

        10.2. Renewal, Extension, or Rearrangement. All provisions of this Agreement relating to Obligations shall apply with equal force and effect to each and all promissory notes executed hereafter which in whole or in part represent a renewal, extension for any period, increase, or rearrangement of any part of the Obligations originally represented by any part of such other Obligations.

        10.3. Application of Payments. Amounts received with respect to the Obligations shall be applied (i) first, to any expenses due Lenders or Agent, (ii) second, to accrued and unpaid interest under any of the Obligations, (iii) third, to reduce the unpaid principal portion of the Obligations (other than those arising from Hedge Agreements) in such manner as determined by Agent, and (iv) fourth, to any Obligations arising under Hedge Agreements (apportioned pro rata among them if more than one).

        10.4. Counterparts. This Agreement may be executed in counterparts with all signatures or by counterpart signature pages, and it shall not be necessary that the signatures of all parties be contained on any one counterpart. Each counterpart shall be deemed an original, but all of them together shall constitute one and the same instrument.

        10.5. Negotiated Document. This Agreement and the other Credit Documents have been negotiated by the parties with full benefit of counsel and should not be construed against any party as author.

        10.6. Consent to Jurisdiction: Exclusive Venue. Borrower hereby irrevocably consents to the jurisdiction of the United States District Court for the Northern District of Alabama and of all Alabama state courts sitting in Jefferson County, Alabama, for the purpose of any litigation to which Lenders or Agent may be a party and which concerns this Agreement or the Obligations. It is further agreed that venue for any such action shall lie exclusively with courts sitting in Jefferson County, Alabama, unless Lenders and Agent agree to the contrary in writing.

        10.7. Not Partners: No Third Party Beneficiaries. The relationship of Lenders and Borrower is that of lenders and borrowers only, and neither is a fiduciary, partner or joint venturer of the other for any purpose. This Agreement has been executed for the sole benefit of Lenders, and no third party is authorized to rely upon Lenders' rights or duties hereunder.

        10.8. No Reliance on Lenders’ Analysis. Borrower acknowledges and represents that, in connection with the Obligations, Borrower have not relied upon any financial projection, budget, assessment or other analysis by Lenders or Agent upon any representation by Lenders as to the risks, benefits or prospects of Borrower’s business activities or present or future capital needs incidental thereto, all such considerations having been examined fully and independently by Borrower.

        10.9. No Marshaling of Assets. Lenders and Agent may proceed against collateral securing the Obligations and against parties liable therefor in such order as they may elect, and neither Borrower nor any surety or guarantor for Borrower nor any creditor of Borrower shall be entitled to require Lenders or Agent to marshal assets. The benefit of any rule of law or equity to the contrary is hereby expressly waived.

        10.10. Business Days. If any payment date under the Obligations falls on a day that is not a Business Day, or if the last day of any notice period falls on such a day, the payment shall be due and the notice period shall end on the next following Business Day.

        10.11. Standard of Care: Limitation of Damages. Lenders and Agent shall be liable to Borrower only for matters arising from this Agreement or otherwise related to the Obligations resulting from such Lender’s or Agent’s gross negligence or reckless or willful misconduct, and liability for all other matters is hereby waived. Lenders and Agent shall not in any event be liable to Borrower for special or consequential damages arising from this Agreement or otherwise related to the Obligations.

        10.12. Incorporation of Schedules. All Schedules and Exhibits referred to in this Agreement are incorporated herein by this reference.

        10.13. Indulgence Not Waiver. Lenders’ or Agent’s indulgence in the existence of a default hereunder or any other departure from the terms of this Agreement shall not prejudice Lenders’ or Agent’s rights to declare a default or otherwise demand strict compliance with this Agreement.

        10.14. Cumulative Remedies. The remedies provided Lenders and Agent in this Agreement are not exclusive of any other remedies that may be available to Lenders and Agent under any other document or at law or equity.

        10.15. Amendment and Waiver in Writing. No provision of this Agreement can be amended or waived, except by a statement in writing signed by the party or parties against whom enforcement of the amendment or waiver is sought. Waivers and amendments may be executed by Agent on behalf of Lenders, subject to the requirements of Article VIII hereof requiring the consent of some or all of Lenders under certain circumstances.

        10.16. Entire Agreement. This Agreement and the other written agreements among Borrower, Lenders and Agent represent the entire agreement between the parties concerning the subject matter hereof, and all oral discussions and prior agreements are merged herein. Provided, if there is a conflict between this Agreement and any other document executed contemporaneously herewith with respect to the Obligations, the provisions in this Agreement shall control.

        10.17. Severability. Should any provision of this Agreement be declared invalid or unenforceable for any reason, the remaining provisions hereof shall remain in full effect.

        10.18. Time of Essence. Time is of the essence of this Agreement, and all dates and time periods specified herein shall be strictly observed.

        10.19. Applicable Law. The validity, construction and enforcement of this Agreement and all other documents executed with respect to the Obligations shall be determined according to the laws of Alabama applicable to contracts executed and performed entirely within that state.

        10.20. Captions Not Controlling. Captions and headings have been included in this Agreement for the convenience of the parties, and shall not be construed as affecting the content of the respective Sections.

        10.21. Facsimile Signatures. This Agreement may be executed by facsimile signatures, and shall be effective when Agent has received telecopy transmissions of the signature pages executed by all parties hereto; provided, however, that all parties shall deliver original executed documents to Agent promptly following the execution hereof.

        10.22. Termination. The termination of this Agreement shall not affect any rights of the Borrower, the Lenders or the Agent or any obligation of the Borrower, the Lenders or the Agent, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Obligations arising prior to or after such termination have been irrevocably paid in full. The rights granted to the Agent for the benefit of the Lenders hereunder and under the other Credit Documents shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Obligations have been paid in full after the termination hereof or the Borrower has furnished the Lenders with an indemnification satisfactory to the Lenders with respect thereto. All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until payment in full of the Obligations unless otherwise provided herein. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Obligations, the Agent or the Lenders are for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrower shall be liable to, and shall indemnify and hold the Agent and the Lenders harmless for, the amount of such payment surrendered until the Agent and the Lenders shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or the Lenders in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Agent’s or the Lenders’ rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable.

        10.23. Waiver of Jury Trial. THE BORROWER, THE AGENT AND THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDERS, THE AGENT OR THE BORROWER OR ANY OF THEM. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS’ AND THE AGENT’S ENTERING INTO THIS AGREEMENT.

[Remainder of page left intentionally blank]

         IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed this Agreement.

                                                              PROTECTIVE LIFE CORPORATION


                                                              By:

                                                              Print Name:

                                                              Title:

                                                                       2801 Highway 280 South
                                                                       Birmingham, Alabama 35223







                           Revolving
                           Credit Commitment

                           $ 55,000,000              AMSOUTH BANK


                                                     By:

                                                     Print Name:

                                                     Title:

                                                              Post Office Box 11007
                                                              Birmingham, Alabama 35288

                                                     Attention: Mr. David A. Simmons
                                                     Senior Vice President
                                                     Telephone Number: (205) 326-5924
                                                     Telecopier: (205) 801-0157





                           Revolving
                           Credit Commitment

                           $ 30,000,000              SUNTRUST BANK


                                                     By:

                                                     Print Name:

                                                     Title:
                                                              303 Peachtree Street, N.E., 2nd Floor
                                                              Atlanta, Georgia 30308

                                                     Attention: Mr. Nathan Bickford
                                                     Assistant Vice President
                                                     Telephone Number: (404) 658-4219
                                                     Telecopier: (404) 588-8833





                           Revolving
                           Credit Commitment

                           $ 25,000,000              SOUTHTRUST BANK


                                                     By:

                                                     Print Name:

                                                     Title:
                                                              420 North 20th Street
                                                              11th Floor, SouthTrust Tower
                                                              Birmingham, Alabama 35203

                                                     Attention: Mr. John Lotz
                                                     Senior Vice President
                                                     Telephone Number: (205) 254-5795
                                                     Telecopier: (205) 254-6600





                           Revolving
                           Credit Commitment

                           $ 20,000,000              WACHOVIA BANK, N.A.


                                                     By:

                                                     Print Name:

                                                     Title:

                                                              191 Peachtree Street, N.E., 29th Floor
                                                              Atlanta, Georgia  30303

                                                     Attention: Mr. Holger B. Ebert
                                                     Senior Vice President
                                                     Telephone Number: (404) 332-4332
                                                     Telecopier:  (404) 332-5905





                           Revolving
                           Credit Commitment

                           $ 20,000,000              REGIONS BANK


                                                     By:

                                                     Print Name:

                                                     Title:

                                                              417 North 20th Street, Suite 220
                                                              Birmingham, Alabama 35203

                                                     Attention: Mr. Ron Montgomery
                                                     Senior Vice President
                                                     Telephone Number: (205) 326-7170
                                                     Telecopier: (205) 326-7739





                           Revolving
                           Credit Commitment

                           $ 15,000,000              U.S. BANK NATIONAL ASSOCIATION


                                                     By:

                                                     Print Name:

                                                     Title:
                                                              One Firstar Plaza
                                                              Corporate Banking - 12th Floor
                                                              St. Louis, Missouri  63101

                                                     Attention: Mr. Gregory L. Dryden
                                                     Vice President
                                                     Telephone Number: (314) 418-3983
                                                     Telecopier: (314) 418-3859





                           Revolving
                           Credit Commitment

                           $ 15,000,000              LASALLE BANK NATIONAL ASSOCIATION


                                                     By:

                                                     Print Name:

                                                     Title:

                                                              135 South LaSalle, Suite 243
                                                              Chicago, Illinois 60603

                                                     Attention: Mr. George Kumis
                                                     Senior Vice President
                                                     Telephone Number: (312) 904-8659
                                                     Telecopier: (312) 904-6189





                           Revolving
                           Credit Commitment

                           $ 10,000,000              FIRST COMMERCIAL BANK


                                                     By:

                                                     Print Name:

                                                     Title:

                                                              800 Shades Creek Parkway
                                                              Birmingham, Alabama  35209

                                                     Attention: Mr. James W. Brunstad
                                                     Senior Vice President
                                                     Telephone Number: (205) 868-4924
                                                     Telecopier: (205) 868-4898



                           Revolving
                           Credit Commitment

                           $ 10,000,000              COMPASS BANK


                                                     By:

                                                     Print Name:

                                                     Title:

                                                              15 South 20th Street, 2nd Floor
                                                              Birmingham, Alabama 35233

                                                     Attention: Mr. David Nabors
                                                     Vice President
                                                     Telephone Number: (205) 297-3992
                                                     Telecopier: (205) 297-3926


                                                     AMSOUTH BANK, as Agent

                                                     By:

                                                     Print Name:

                                                     Title:

                                                              315 Deaderick Street
                                                              9th Floor, AmSouth Center
                                                              Nashville, Tennessee 37237-0905

                                                     Attention: Mr. Robert T. Page
                                                     Vice President
                                                     Telephone Number: (615) 748-2761
                                                     Telecopier: (615) 748-1501
EX-13 10 f10kplcex13.htm EXHIBIT 13

Exhibit 13



MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This report includes “forward-looking statements” which express expectations of future events and/or results. The words “believe,” “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “plan,” and similar expressions identify forward-looking statements which are based on future expectations rather than on historical facts and are therefore subject to a number of risks and uncertainties, and the Company cannot give assurance that such statements will prove to be correct. Please refer to “Known Trends and Uncertainties” and “Other Developments” herein for more information about factors which could affect future results.

CRITICAL ACCOUNTING POLICIES

        In the conduct of business, the Company makes certain assumptions regarding the mortality, persistency, expenses and interest rates, (or other factors appropriate to the type of business) it expects to experience in future periods. Similar assumptions are also used to estimate the amounts of deferred policy acquisition costs, policy liabilities and accruals, and various other items. The Company’s actual experience, as well as changes in estimates, are components of the Company’s statements of income.

RESULTS OF CONTINUING OPERATIONS

        The Company operates several business segments each having a strategic focus which can be grouped into three general product categories: life insurance, retirement savings and investment products, and specialty insurance products. The Company’s operating segments are Life Marketing, Acquisitions, Stable Value Contracts, Annuities, and Credit Products. The Company also has an additional business segment referred to as Corporate and Other.

PREMIUMS AND POLICY FEES

        The following table sets forth for the periods shown the amount of premiums and policy fees, net of reinsurance (premiums and policy fees), and the percentage change from the prior period: 

          YEAR ENDED                 AMOUNT                  PERCENTAGE
          DECEMBER 31            (IN THOUSANDS)          INCREASE (DECREASE)
          ------------------------------------------------------------------
            1999                   $ 398,730                    (3.3)%
            2000                     489,790                    22.8
            2001                     618,669                    26.3
          ------------------------------------------------------------------

        In 2000, premiums and policy fees increased $91.1 million or 22.8% over 1999. The Life Marketing segment's premiums and policy fees decreased $15.9 million due to a higher amount of reinsurance ceded. Premiums and policy fees in the Acquisitions segment are expected to decline with time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made. No acquisitions were completed in this segment in 1999 or 2000, resulting in a decrease of $11.9 million in premiums and policy fees in 2000. The increase in premiums and policy fees from the Annuities segment was $5.9 million. In January 2000, the Credit Products segment acquired the Lyndon Insurance Group (Lyndon), which resulted in a $97.1 million increase in premiums and policy fees. Premiums and policy fees related to the segment's other businesses increased $15.4 million. Premiums and policy fees relating to various health insurance lines in the Corporate and Other segment increased $0.5 million.

        In 2001, premiums and policy fees increased $128.9 million or 26.3% over 2000. Premiums and policy fees in the Life Marketing segment increased $21.2 million due to increased sales. In January 2001, the Acquisitions segment coinsured a block of individual life insurance policies from Standard Insurance Company, and in October 2001, acquired Inter-State Assurance Company and First Variable Life Insurance Company from Ilona Financial Group, Inc. a subsidiary of Irish Life & Permanent plc. These transactions resulted in a $86.8 million increase in premium and policy fees. Premiums and policy fees from older acquired blocks declined $7.2 million in 2001. The decrease in premiums and policy fees from the Annuities segment was $2.0 million. Premiums and policy fees from the Credit Products segment increased $29.6 million. Premiums and policy fees relating to various health insurance lines in the Corporate and Other segment increased $0.6 million.

NET INVESTMENT INCOME

        The following table sets forth for the periods shown the amount of net investment income, the percentage change from the prior period, and the percentage earned on average cash and investments: 

                                                                  PERCENTAGE
                                                                     EARNED
                                                                  ON AVERAGE
            YEAR ENDED          AMOUNT             PERCENTAGE       CASH AND
            DECEMBER 31     (IN THOUSANDS)          INCREASE      INVESTMENTS
            -----------------------------------------------------------------
               1999            $667,968               6.2%            7.6%
               2000             730,149               9.3             7.6
               2001             884,041              21.1             7.3
            -----------------------------------------------------------------

        Net investment income in 2000 increased $62.2 million or 9.3% over 1999, and in 2001 increased $153.9 million or 21.1% over 2000, primarily due to increases in the average amount of invested assets. Invested assets have increased primarily due to acquisitions, receiving stable value and annuity deposits, and the asset growth that results from the sale of various insurance products. The January 2000 Lyndon acquisition increased net investment income $21.8 million. The January 2001 coinsurance arrangement and the October 2001 acquisitions resulted in an increase in investment income of $66.4 million.

        The percentage earned on average cash and investments was 7.6% in 2000 and 7.3% in 2001.

REALIZED INVESTMENT GAINS (LOSSES)

        The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs.

        The following table sets forth realized investment gains (losses) relating to derivative financial instruments and all other investments for the periods shown: 


                            DERIVATIVE
                             FINANCIAL              ALL OTHER
        YEAR ENDED          INSTRUMENTS            INVESTMENTS
        DECEMBER 31        (IN THOUSANDS)         (IN THOUSANDS)
        --------------------------------------------------------
           1999              $ (2,279)              $  1,222
           2000                 9,013                (16,056)
           2001               (11,431)                (8,740)
        --------------------------------------------------------

        Realized investment gains and losses related to derivative financial instruments primarily represent changes in the fair values of certain derivative financial instruments.

        The sales of investments that have occurred generally result from portfolio management decisions to maintain proper matching of assets and liabilities. Realized investment losses related to all other investments in 2000 of $31.2 million were largely offset by realized investment gains of $15.1 million. Realized investment losses in 2001 of $85.6 million were largely offset by realized investment gains of $76.9 million. During 2001, the Company recorded other than temporary impairments in its investments of $12.6 million.

OTHER INCOME

        The following table sets forth other income for the periods shown:

                    YEAR ENDED                  AMOUNT
                    DECEMBER 31             (IN THOUSANDS)
                    --------------------------------------
                       1999                   $ 89,680
                       2000                    151,833
                       2001                    131,678
                    --------------------------------------

        Other income consists primarily of revenues of the Company’s broker-dealer subsidiary, direct response businesses, service contract businesses, investment advisory fees from variable insurance products, and revenues of the Company’s noninsurance subsidiaries.

        In 2000, revenues from the Company’s broker-dealer subsidiary, direct response businesses, and service contract businesses increased $14.9 million, $8.7 million, and $15.7 million, respectively. In March 2000, the Company completed the sale of its Hong Kong affiliate, resulting in $24.8 million of other income. Other income from all other sources decreased $1.9 million. In 2001, revenues from the Company’s direct response businesses and service contract businesses increased $10.2 million and $3.3 million, respectively. Revenue from the Company’s broker-dealer subsidiary decreased $9.1 million in 2001 due to the general downturn in the equity markets. Other income from all other sources increased $0.2 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(continued)

Income Before Income Tax

        The table below sets forth operating income or loss and income or loss before income tax by business segment for the periods shown:

                                                                     YEAR ENDED DECEMBER 31
                                                             ------------------------------------
Amount (in thousands)                                            1999         2000         2001
- -------------------------------------------------------------------------------------------------
Operating Income(1)
LIFE INSURANCE
    Life Marketing                                           $  58,188    $  76,597    $  89,574
    Acquisitions                                                63,671       52,762       68,040
RETIREMENT SAVINGS AND INVESTMENT PRODUCTS
    Stable Value Contracts                                      29,465       31,208       33,150
    Annuities                                                   12,491       15,171       16,934
SPECIALTY INSURANCE PRODUCTS
    Credit Products                                             21,932       32,191       33,960
Corporate and Other                                             20,145       11,199      (10,895)
- -------------------------------------------------------------------------------------------------
Total operating income                                         205,892      219,128      230,763
- -------------------------------------------------------------------------------------------------
Realized investment gains (losses)
    Stable Value Contracts                                        (549)      (6,556)       7,218
    Annuities                                                    1,446          410        1,139
    Unallocated                                                 (1,954)        (897)     (28,528)
Related amortization of deferred policy acquisition costs
    Annuities                                                   (1,446)        (410)        (996)
- -------------------------------------------------------------------------------------------------
Total realized investment gains (losses), net                   (2,503)      (7,453)     (21,167)
- -------------------------------------------------------------------------------------------------
Income Before Income Tax
LIFE INSURANCE
    Life Marketing                                              58,188       76,597       89,574
    Acquisitions                                                63,671       52,762       68,040
RETIREMENT SAVINGS AND INVESTMENT PRODUCTS
    Stable Value Contracts                                      28,916       24,652       40,368
    Annuities                                                   12,491       15,171       17,077
Specialty Insurance Products
    Credit Products                                             21,932       32,191       33,960
Corporate and Other                                             20,145       11,199      (10,895)
Unallocated realized investment gains (losses)                  (1,954)        (897)     (28,528)
- -------------------------------------------------------------------------------------------------
Total income from continuing operations before income tax     $203,389     $211,675     $209,596
- -------------------------------------------------------------------------------------------------

(1) Income (loss) from continuing operations before income tax excluding realized investment gains and losses and related amortization of deferred policy acquisition costs.

        The Life Marketing segment’s 2000 pretax operating income was $76.6 million, $18.4 million above 1999. The segment’s 2001 pretax operating income was $89.6 million, $13.0 million above 2000. The segment has grown through sales. The segment’s results include expenses to develop new distribution channels.

        In the ordinary course of business, the Acquisitions segment regularly considers acquisitions of blocks of policies or smaller insurance companies. Policies acquired through the segment are usually administered as “closed” blocks; i.e., no new policies are being marketed. Therefore, earnings from the Acquisitions segment are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made. The segment did not make an acquisition in 1999 or 2000.

        In 2000, the Acquisition segment’s pretax operating income was $52.8 million, $10.9 million below 1999. In 2000, the segment had approximately $13 million less investment income as compared to 1999. Also, the segment’s mortality was approximately $5.8 million better than expected in 2000 as compared to being approximately $8.9 million better than expected in 1999. Additionally, in the fourth quarter of 1999, adjustments were made to the segment’s investment portfolio which had the effect of transferring approximately $10 million of investment income to the Corporate and Other segment during 2000. In 2001, the segment’s pretax operating income was $68.0 million, $15.3 million above 2000. The 2001 coinsurance of a block of life insurance policies and the October 2001 acquisition of two small life insurance companies resulted in a $15.9 million increase in earnings. Earnings on older acquired blocks of policies declined $0.6 million.

        The Stable Value Contracts segment had 2000 pretax operating income of $31.2 million, $1.7 million above 1999. The increase was due to higher account balances which was partially offset by lower interest rate spreads. Operating spreads in 2000 were compressed due to higher interest rates and an inverted yield curve. The Stable Value Contracts segment’s 2001 pretax operating income was $33.2 million, $2.0 million above 2000. This increase is due primarily to higher account balances. Operating spreads in 2001 were lower than last year due to lower investment income. Realized investment losses associated with this segment in 2000 were $6.5 million as compared to gains of $7.2 million in 2001. As a result, total pretax income was $24.7 million in 2000 and $40.4 million in 2001. The Annuities segment’s 2000 pretax operating income increased $2.7 million to $15.2 million. The increase reflects the segment’s growth through sales. The Annuities segment’s 2001 pretax operating income was $16.9 million, $1.7 million above 2000. The 2001 results include a tax benefit of approximately $3.0 million related to the segment’s variable annuities which was partially offset by an increase in reserves related to minimum death benefit guarantees. The segment’s future results may also be negatively affected by the slowing economy. Volatile equity markets could negatively affect sales of variable annuities and the fees the segment assesses on variable annuity contracts. Lower interest rates could negatively affect sales of fixed annuities. The segment had no realized investment gains or losses (net of related amortization of deferred policy acquisition costs) in 2000 and a $0.1 million gain in 2001. As a result, total pretax income was $15.2 million in 2000, and $17.1 million in 2001.

        The Credit Products segment’s 2000 pretax operating income increased $10.3 million to $32.2 million. Included in the segment’s 2000 results were $16.9 million from the January 2000 Lyndon acquisition. Earnings of the segment’s other businesses were lower than expected due to higher than expected claims. The segment’s 2001 pretax operating income was $34.0 million, $1.8 million above 2000. Incurred credit insurance claims were higher, but were offset by a change in estimate with respect to reserves. The segment’s 2001 results include income of approximately $2.0 million from the sale of a small insurance subsidiary’s charter. The segment’s future results may be negatively affected by the slowing economy. Lower consumer lending and fewer automobile purchases could negatively affect the segment’s sales. Also, the level of claims typically increases in a slowing economy.

        The Corporate and Other segment consists primarily of net investment income on unallocated capital, interest expense on substantially all debt, several lines of business which the Company is not actively marketing (mostly health insurance), earnings from various investment-related transactions, and the operations of several small subsidiaries. The segment’s 2000 pretax operating income was $11.2 million. The segment’s 2000 results include $24.8 million of income from the sale of the Company’s Hong Kong affiliate. Earnings from health insurance lines decreased $7.0 million. The segment also had $18.6 million less net investment income as compared to 1999. In 2000, higher short-term interest rates and an inverted yield curve reduced investment income and increased interest expense. In 2001, the segment had pretax operating losses of $10.9 million. Excluding the sale of the Company’s Hong Kong affiliate in 2000, the Corporate and Other business segment had a 2001 pretax operating loss of $10.9 million compared to a loss of $13.6 million in 2000, primarily relating to interest expense and corporate expenses.

INCOME TAX EXPENSE

The following table sets forth the effective income tax rates relating to continuing operations for the periods shown: 


                 YEAR ENDED                         EFFECTIVE INCOME
                DECEMBER 31                            TAX RATES
                ----------------------------------------------------
                   1999                                  35.4%
                   2000                                  35.1
                   2001                                  32.7
                ----------------------------------------------------

        Management’s current estimate of the effective income tax rate for 2002 is approximately 33.2%.

DISCONTINUED OPERATIONS

        On December 31, 2001, the Company completed the sale to Fortis, Inc. of substantially all of its Dental Benefits Division (Dental Division) and discontinued certain other remaining Dental Division related operations, primarily other health insurance lines. In 2000, income from discontinued operations, net of income tax, was $16.1 million. In 2001, the loss from discontinued operations was $10.0 million (primarily due to the non-performance of reinsurers) and the loss from sale of discontinued operations was $20.5 million, both net of income tax.

EXTRAORDINARY LOSS

        On June 30, 1999, the Company caused PLC Capital L.L.C. (PLC Capital), a special purpose finance subsidiary, to redeem its $55 million of 9% Cumulative Monthly Income Preferred Securities, Series A (MIPS). In a related transaction, the Company redeemed its $69.6 million of Subordinated Debentures which were held by PLC Capital. The redemption resulted in an extraordinary loss of $1.8 million or $0.03 per share on both a basic and diluted basis. The extraordinary loss was comprised primarily of unamortized deferred debt issue costs and losses related to the termination of related interest rate swap agreements, net of an income tax benefit of $0.9 million.

CHANGE IN ACCOUNTING PRINCIPLE

        On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." The adoption of SFAS No. 133 resulted in a cumulative after-tax charge to net income, net of income tax, of approximately $7.6 million or $0.11 per share on both a basic and diluted basis.

NET INCOME

        The following table sets forth net income from continuing operations before extraordinary loss and cumulative effect of change in accounting principle and related per share information for the periods shown: 



                                                                   PERCENTAGE
      YEAR ENDED             AMOUNT             PER SHARE           INCREASE/
     DECEMBER 31         (IN THOUSANDS)          DILUTED           (DECREASE)
     -------------------------------------------------------------------------
        1999               $ 131,448              $1.99               7.6%
        2000                 137,354               2.08               4.5
        2001                 141,058               2.01              (3.4)
     -------------------------------------------------------------------------

        Net income from continuing operations before extraordinary loss and cumulative effect of change in accounting principle per share diluted in 2000 increased 4.5% over 1999, reflecting improved operating earnings in the Life Marketing, Stable Value Contracts, Annuities and Credit Products segments, which were partially offset by lower operating earnings in the Acquisitions and Corporate and Other segments, and higher realized investment losses. Income from continuing operations in 2000 includes income of $.24 per share relating to the sale of the Company's Hong Kong affiliate. Excluding the effects of the sale of the Hong Kong affiliate, net income from continuing operations before extraordinary loss and cumulative effect of change in accounting principle per share diluted in 2000 was $1.84. Net income from continuing operations before extraordinary loss and cumulative effect of change in accounting principle per share diluted in 2001 of $2.01 reflects improved operating earnings in all segments partially offset by higher realized investments losses.

KNOWN TRENDS AND UNCERTAINTIES

        The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company's future results include, but are not limited to, general economic conditions and the known trends and uncertainties which are discussed more fully below. Please also refer to "Other Developments" herein.

o We are exposed to many types of risks that could negatively affect our business. There are many types of risks that all companies are exposed to in their businesses. For example, companies are exposed to the risks of natural disasters, malicious and terrorist acts, computer viruses, and other perils. While the Company has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no assurance can be given that there are not scenarios that could have an adverse effect on the Company. Additionally, there are scenarios that could have an adverse effect on general economic conditions and mortality and morbidity.

o We operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry. Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. The Company encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than the Company, as well as competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

        The insurance industry is consolidating, with larger, potentially more efficient organizations emerging from consolidation. Also, some mutual insurance companies are converting to stock ownership, which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied.

         The Company's ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong ratings from rating agencies. However, irrational competition from other insurers could adversely affect the Company's competitive position.

o A ratings downgrade could adversely affect our ability to compete. Ratings are an important factor in the Company’s competitive position. Rating organizations periodically review the financial performance and condition of insurers, including the Company’s subsidiaries. A downgrade in the ratings of the Company’s subsidiaries could adversely affect the Company’s ability to sell its products, retain existing business, and compete for attractive acquisition opportunities.

        For the past several years, rating downgrades in the industry have exceeded upgrades. Rating organizations assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating organization, general economic conditions, and circumstances outside the rated company's control. The Company cannot predict what actions the rating organizations may take, or what actions the Company may be required to take in response to the actions of the rating organizations, which could adversely affect the Company.

o Our policy claims fluctuate from year to year. The Company’s results may fluctuate from year to year due to fluctuations in policy claims received by the Company. Certain of the Company’s businesses may experience higher claims if the economy is growing slowly or in recession.

        Mortality and morbidity expectations incorporate assumptions about many factors, including for example, how a product is distributed, persistency and lapses, and future progress in the fields of health and medicine. Actual mortality and morbidity could differ from our expectations if actual results differ from those assumptions.

o We could be forced to sell investments at a loss to cover policyholder withdrawals. Many of the products offered by the Company’s insurance subsidiaries allow policyholders and contract holders to withdraw their funds under defined circumstances. The subsidiaries manage their liabilities and configure their investment portfolios so as to provide and maintain sufficient liquidity to support anticipated withdrawal demands and contract benefits and maturities. While the Company’s life insurance subsidiaries own a significant amount of liquid assets, a certain portion of their assets are relatively illiquid. Unanticipated withdrawal or surrender activity could, under some circumstances, compel the Company’s insurance subsidiaries to dispose of assets on unfavorable terms, which could have an adverse effect on the Company.

o Interest-rate fluctuations could negatively affect our spread income or otherwise impact our business. Significant changes in interest rates expose insurance companies to the risk of not earning anticipated spreads between the interest rate earned on investments and the credited interest rates paid on outstanding policies and contracts. Both rising and declining interest rates can negatively affect the Company’s spread income. While the Company develops and maintains asset/liability management programs and procedures designed to preserve spread income in rising or falling interest rate environments, no assurance can be given that changes in interest rates will not affect such spreads.

         Changes in interest rates may also impact our business in other ways. Lower interest rates may result in lower sales of certain of the Company's insurance and investment products. In addition, certain of the Company's insurance and investment products guarantee a minimum credited interest rate.

         Higher interest rates may create a less favorable environment for the origination of mortgage loans and decrease the investment income we receive in the form of prepayment fees, make-whole payments, and mortgage participation income. Higher interest rates may also increase the cost of debt and other obligations having floating rate or rate reset provisions, and may result in lower sales of variable products. Also, the amount of policy fees received from variable products is affected by the performance of the equity markets.

         Additionally, the Company's asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, and other factors. The effectiveness of the Company's asset/liability management programs and procedures may be negatively affected whenever actual results differ from these assumptions.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(continued)

o Insurance companies are highly regulated. The Company’s insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than share owners. From time to time, regulators may raise issues during examinations or audits of the Company’s subsidiaries. Even though such issues are unlikely to result in any material impact on the Company, the Company cannot predict what regulatory actions may be taken or what initiatives may be enacted which could adversely affect the Company.

         The Company's insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employment Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

         Certain policies, contracts, and annuities offered by the Company's insurance subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions.

o Tax law changes could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products. Under the Internal Revenue Code of 1986, as amended, income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of the Company’s products a competitive advantage over other non-insurance products. To the extent that the Internal Revenue Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including the Company’s subsidiaries, would be adversely affected with respect to their ability to sell such products, and, depending upon grandfathering provisions, the surrenders of existing annuity contracts and life insurance policies. In addition, life insurance products are often used to fund estate tax obligations. Legislation has recently been enacted that would over time, reduce and eventually eliminate the estate tax. If the estate tax is significantly reduced or eliminated, the demand for certain life insurance products could be adversely affected. The Company cannot predict what tax initiatives may be enacted which could adversely affect the Company.

o Financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments. A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial services companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. The Company cannot predict the outcome of any such litigation or arbitration.

o A decrease in sales or persistency could negatively affect our results. The Company’s ability to maintain low unit costs is dependent upon the level of sales and persistency. A decrease in sales or persistency without a corresponding reduction in expenses may result in higher unit costs.

         Additionally, a decrease in persistency may result in higher amortization of deferred policy acquisition costs. Although many of the Company's products contain surrender charges, the charges decrease over time and may not be sufficient to cover the unamortized deferred policy acquisition costs with respect to the insurance policy or annuity contract being surrendered. A decrease in persistency may also result in higher claims.

o Our investments are subject to risks. The Company’s invested assets and derivative financial instruments are subject to customary risks of credit defaults and changes in market values. The value of the Company’s commercial mortgage loan portfolio depends in part on the financial condition of the tenants occupying the properties which the Company has financed. Factors that may affect the overall default rate on, and market value of, the Company’s invested assets, derivative financial instruments, and mortgage loans include interest rate levels, financial market performance, and general economic conditions as well as particular circumstances affecting the businesses of individual borrowers and tenants.

o Our growth from acquisitions involves risks. The Company’s acquisitions have increased its earnings in part by allowing the Company to enter new markets and to position itself to realize certain operating efficiencies. There can be no assurance, however, that the Company will realize the anticipated financial results from its acquisitions, or that suitable acquisitions, presenting opportunities for continued growth and operating efficiencies, or capital to fund acquisitions will continue to be available to the Company.

o We are dependent on the performance of others. The Company’s results may be affected by the performance of others because the Company has entered into various arrangements involving other parties. Examples include, but are not limited to, the following: many of the Company’s products are sold through independent distribution channels; and variable annuity deposits are invested in funds managed by third parties. The Company may also use third-party administrators to collect premiums, pay claims, and/or perform customer service functions. Additionally, the Company’s operations are dependent on various technologies some of which are provided and/or maintained by other parties.

         As with all financial services companies, our ability to conduct business is dependent upon consumer confidence in the industry and its products. Actions of competitors, and financial difficulties of other companies in the industry, could undermine consumer confidence and adversely affect the Company.

o Our reinsurance program involves risks. The Company’s insurance subsidiaries cede insurance to other insurance companies through reinsurance. However, the Company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it.

         The cost of reinsurance is, in some cases, reflected in the premium rates charged by the Company. Under certain reinsurance agreements, the reinsurer may increase the rate it charges the Company for the reinsurance, though the Company does not anticipate increases to occur. Therefore, if the cost of reinsurance were to increase or if reinsurance were to become unavailable, the Company could be adversely affected.

         Additionally, the Company assumes policies of other insurers. Any regulatory or other adverse development affecting the ceding insurer could also have an adverse effect on the Company.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of SFAS No. 125". SFAS No. 140 revises the standards of accounting for securitizations and other transfers of financial assets. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of this accounting standard did not have a material effect on the Company's financial position or results of operations.

         In June 2001, the FASB issued SFAS Nos. 141, "Business Combinations" and 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and effective for any goodwill or intangible asset acquired after June 30, 2001. The Company expects the adoption of SFAS No. 142 to result in the elimination of up to $3.5 million of goodwill amortization in 2002.

         In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that companies record the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. The Statement is effective for fiscal years beginning after June 15, 2002. The Company does not expect the adoption of SFAS No. 143 to have a material effect on the Company's financial position or results of operations.

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that the same accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, expands the use of discontinued operations accounting to include more types of transactions and changes the timing of when discontinued operation accounting is applied. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS No. 144 to have a material effect on the Company's financial position or results of operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(continued)

LIQUIDITY AND CAPITAL RESOURCES

         The Company's operations usually produce a positive cash flow. This cash flow is used to fund an investment portfolio to finance future benefit payments. Since future benefit payments largely represent medium- and long-term obligations reserved using certain assumed interest rates, the Company's investments are predominantly in medium- and long-term, fixed-rate investments such as bonds and mortgage loans.

INVESTMENTS

         The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, the Company may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, the Company has classified its fixed maturities and certain other securities as "available for sale."

         The Company's investments in debt and equity securities are reported at market value, and investments in mortgage loans are reported at amortized cost. At December 31, 2001, the Company's fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $9,838.1 million, which is 1.0% above amortized cost of $9,745.1 million. The Company had $2,512.8 million in mortgage loans at December 31, 2001. While the Company's mortgage loans do not have quoted market values, at December 31, 2001, the Company estimates the market value of its mortgage loans to be $2,671.1 million (using discounted cash flows from the next call date), which is 6.3% above amortized cost. Most of the Company's mortgage loans have significant prepayment penalties. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations are not expected to adversely affect liquidity.

         At December 31, 2000, the Company's fixed maturity investments had a market value of $7,415.8 million, which was 1.0% below amortized cost of $7,489.4 million. The Company estimated the market value of its mortgage loans to be $2,385.2 million at December 31, 2000, which was 5.2% above amortized cost of $2,268.2 million.

         The following table sets forth the estimated market values of the Company's fixed maturity investments and mortgage loans resulting from a hypothetical immediate 1 percentage point increase in interest rates from levels prevailing at December 31, and the percent change in market value the following estimated market values would represent.


                                           AMOUNT                PERCENT
            AT DECEMBER 31            (IN MILLIONS)              CHANGE
            --------------------------------------------------------------
            2000
            --------------------------------------------------------------
            Fixed maturities             $7,156.3                 (3.5)%
            Mortgage loans                2,277.9                 (4.5)
            ==============================================================
            2001
            --------------------------------------------------------------
            Fixed maturities             $9,395.4                 (4.5)%
            Mortgage loans                2,550.9                 (4.5)
            ==============================================================

        Estimated market values were derived from the durations of the Company’s fixed maturities and mortgage loans. Duration measures the relationship between changes in market value to changes in interest rates. While these estimated market values generally provide an indication of how sensitive the market values of the Company’s fixed maturities and mortgage loans are to changes in interest rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

        For several years the Company has offered a type of commercial mortgage loan under which the Company will permit a slightly higher loan-to-value ratio in exchange for a participating interest in the cash flows from the underlying real estate. As of December 31, 2001, approximately $548.4 million of the Company’s mortgage loans have this participation feature.

        At December 31, 2001, delinquent mortgage loans and foreclosed properties were 0.2% of invested assets. Bonds rated less than investment grade were 3.4% of invested assets. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities.

        Policy loans at December 31, 2001, were $521.8 million, an increase of $291.3 million from December 31, 2000. The January 2001 coinsurance arrangement and the October 2001 acquisitions resulted in an increase in policy loans of $238.6 million. Policy loan rates are generally in the 4.5% to 8.0% range. Such rates at least equal the assumed interest rates used for future policy benefits.

        In the ordinary course of its commercial mortgage lending operations, the Company will commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a mortgage loan when called upon by the borrower. The commitment is not recognized in the Company’s financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest which may be less than prevailing interest rates.

        At December 31, 2001, the Company had outstanding mortgage loan commitments of $406.3 million with an estimated fair value of $429.3 million (using discounted cash flows from the first call date). At December 31, 2000, the Company had outstanding commitments of $308.4 million with an estimated fair value of $319.0 million. The following table sets forth the estimated fair value of the Company’s mortgage loan commitments resulting from a hypothetical immediate 1 percentage point increase in interest rate levels prevailing at December 31, and the percent change in fair value the following estimated fair values would represent. 


                                       AMOUNT               PERCENT
         AT DECEMBER 31            (IN MILLIONS)            CHANGE
         -----------------------------------------------------------
             2000                     $305.0                (4.4)%
             2001                      410.8                (4.3)
         -----------------------------------------------------------

        The estimated fair values were derived from the durations of the Company’s outstanding mortgage loan commitments. While these estimated fair values generally provide an indication of how sensitive the fair value of the Company’s outstanding commitments are to changes in interest rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

LIABILITIES

        Many of the Company’s products contain surrender charges and other features that reward persistency and penalize the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect the Company against investment losses if interest rates are higher at the time of surrender than at the time of issue.

        At December 31, 2001, the Company had policy liabilities and accruals of $8,859.0 million. The Company’s life insurance products have a weighted average minimum credited interest rate of approximately 4.5%.

        At December 31, 2001, the Company had $3,716.5 million of stable value account balances with an estimated fair value of $3,822.0 million (using discounted cash flows), and $3,248.2 million of annuity account balances with an estimated fair value of $3,166.1 million (using surrender values).

        At December 31, 2000, the Company had $3,177.9 million of stable value account balances with an estimated fair value of $3,251.0 million, and $1,916.9 million of annuity account balances with an estimated fair value of $1,893.7 million.

        The following table sets forth the estimated fair values of the Company’s stable value and annuity account balances resulting from a hypothetical immediate 1 percentage point decrease in interest rates from levels prevailing at December 31, and the percent change in fair value the following estimated fair values would represent. 


                                       AMOUNT          PERCENT
AT DECEMBER 31                     (IN MILLIONS)       CHANGE
- --------------------------------------------------------------
2000
- --------------------------------------------------------------
Stable value account balances         $3,299.8          1.5%
Annuity account balances               1,975.1          4.3
==============================================================

2001
- --------------------------------------------------------------
Stable value account balances          $3,887.0         1.7%
Annuity account balances                3,308.6         4.5
==============================================================

        Estimated fair values were derived from the durations of the Company’s stable value and annuity account balances. While these estimated fair values generally provide an indication of how sensitive the fair values of the Company’s stable value and annuity account balances are to changes in interest rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

        Approximately 20% of the Company’s liabilities relate to products (primarily whole life insurance), the profitability of which could be affected by changes in interest rates. The effect of such changes in any one year is not expected to be material.

DERIVATIVE FINANCIAL INSTRUMENTS

        The Company utilizes a risk management strategy that incorporates the use of derivative financial instruments, primarily to reduce its exposure to interest rate risk as well as currency exchange risk.

        Combinations of interest rate swap contracts, options and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and mortgage-backed securities. Interest rate swap contracts generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. Interest rate futures generally involve exchange traded contracts to buy or sell treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to receive cash or purchase, sell or enter into a financial instrument at a specified price within a specified period of time. The Company used interest rate swap contracts, swaptions (options to enter into interest rate swap contracts), caps, and floors to modify the interest characteristics of certain investments, its Senior Notes, Medium-Term Notes, and TOPrS. Swap contracts are also used to alter the effective durations of assets and liabilities. The Company uses currency swaps to reduce its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

        Derivative instruments expose the Company to credit and market risk. The Company minimizes its credit risk by entering into transactions with highly rated counterparties. The Company manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken.

        The Company monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. The Company’s asset/liability committee is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into the Company’s overall interest rate and currency exchange risk management strategies.

        In September 2000, the Company entered into a transaction to facilitate the Company’s possible entry into the institutional money management business involving a total return swap with respect to $400 million of a portfolio of approximately $413 million of investments held by an unrelated special purpose vehicle that are managed by the Company. The Company, in effect, has retained the investment risk with respect to the $400 million. The swap is recorded on the Company’s balance sheet at fair value.

        At December 31, 2001, contracts with a notional amount of $5,475.1 million were in a $21.9 million net loss position. At December 31, 2000, contracts with a notional amount of $3,134.2 million were in a $12.3 million net loss position. The Company recognized $11.4 million of realized investment losses and $9.0 million of realized investment gains related to derivative financial instruments in 2001 and 2000, respectively.

        The following table sets forth the notional amount and fair value of the Company’s derivative financial instruments at December 31, and the estimated gains and losses resulting from a hypothetical immediate plus and minus 1 percentage point change in interest rates from levels prevailing at December 31. 


                                                            GAIN (LOSS)
                                                          RESULTING FROM
                                                         AN IMMEDIATE +/-1
                                   FAIR VALUE              POINT CHANGE
                 NOTIONAL             AT                 IN INTEREST RATES
(IN MILLIONS)    AMOUNT           DECEMBER 31            +1%       -1%
- -------------------------------------------------------------------------------
2000
Options
    Puts            $   50.0       $  0.0            $  0.2      $ 0.0
Futures                100.8         (2.8)              4.0       (9.0)
Fixed to floating
   Swaps             1,249.3         (4.7)            (42.1)      27.9
   Swaptions           310.0          0.4               0.7        8.3
   Caps                295.0          0.0               0.3        0.0
   Floors              120.0         (0.3)              0.0       (0.8)
Floating to fixed
   Swaps               160.0         (2.5)              4.5       (9.4)
   Caps                300.0          0.0               0.6        0.0
   Floors              300.0         (1.1)              0.0       (3.1)
- -------------------------------------------------------------------------------
                    $2,885.1       $(11.0)           $(31.8)     $13.9
- -------------------------------------------------------------------------------
2001
Options
   Puts             $  775.0       $  0.1            $  1.3     $ 0.0
   Calls             1,400.0          0.3               0.0       5.4
Futures                100.0          1.1               6.9      (6.4)
Fixed to floating
   Swaps             1,654.3          0.6             (49.7)     15.1
  Swaptions             35.0          0.0               0.0       0.0
   Caps                175.0          0.0               0.0       0.0
Floating to fixed
   Swaps               460.0        (12.8)             (4.5)    (20.4)
   Caps                300.0          0.0               0.0       0.0
   Floors              300.0         (1.9)             (2.7)     (1.1)
- -------------------------------------------------------------------------------
                    $5,199.3       $(12.6)           $(48.7)    $(7.4)
- -------------------------------------------------------------------------------

        The Company is also subject to foreign exchange risk arising from stable value contracts denominated in foreign currencies and related foreign currency swaps. At December 31, 2001, stable value contracts of $275.8 million had a foreign exchange gain of approximately $7.2 million and the related foreign currency swaps had a net loss of approximately $9.3 million. At December 31, 2000, stable value contracts of $249.2 million had a foreign exchange loss of approximately $4.0 million and the related foreign currency swaps had a net unrealized loss of approximately $1.3 million.

        The following table sets forth the notional amount and fair value of the funding agreements and related foreign currency swaps at December 31, and the estimated gains and losses resulting from a hypothetical 10% change in quoted foreign currency exchange rates from levels prevailing at December 31. 

                                                          GAIN (LOSS)
                                                        RESULTING FROM
                                                       AN IMMEDIATE +/-10
                                  FAIR VALUE            POINT CHANGE
                 NOTIONAL             AT              IN INTEREST RATES
(IN MILLIONS)    AMOUNT           DECEMBER 31            +1%       -1%
- ----------------------------------------------------------------------------
2000
Stable Value
   Contracts        $  249.2       $ (4.0)           $(29.3)     $21.3
Foreign Currency
   Swaps               249.2         (1.3)             23.7      (26.4)
- ----------------------------------------------------------------------------
                    $  498.4       $ (5.3)           $ (5.6)     $(5.1)
- ----------------------------------------------------------------------------
2001
Stable Value
   Contracts        $  275.8       $  7.2            $(19.6)    $ 34.1
Foreign Currency
   Swaps               275.8         (9.3)             19.2      (37.8)
- ----------------------------------------------------------------------------
                    $  551.6       $ (2.1)           $ (0.4)    $ (3.7)
- ----------------------------------------------------------------------------

        Estimated gains and losses were derived using pricing models specific to derivative financial instruments. While these estimated gains and losses generally provide an indication of how sensitive the Company’s derivative financial instruments are to changes in interest rates and foreign currency exchange rates, they do not represent management’s view of future market changes, and actual market results may differ from these estimates.

        The Company is exploring other uses of derivative financial instruments.

ASSET/LIABILITY MANAGEMENT

        The Company’s asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, risk, and cash flow characteristics. It is the Company’s policy to generally maintain asset and liability durations within one-half year of one another, although, from time to time, a broader interval may be allowed.

        The Company believes its asset/liability management programs and procedures and certain product features provide protection for the Company against the effects of changes in interest rates under various scenarios. Additionally, the Company believes its asset/liability management programs and procedures provide sufficient liquidity to enable it to fulfill its obligation to pay benefits under its various insurance and deposit contracts. However, the Company’s asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity and other factors, and the effectiveness of the Company’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions. During 2000, market conditions and an inverted yield curve limited the Company’s ability to offset the effects of rising short-term interest rates. During 2001, the Company benefited from a steepening of the yield curve.

        Cash outflows related to stable value contracts (primarily maturing contracts, scheduled interest payments, and expected withdrawals) were approximately $735 million during 2001. Cash outflows related to stable value contracts are estimated to be approximately $1,086 million in 2002. At December 31, 2001, the Company had $30.1 million, $62.6 million, and $12.5 million of stable value contracts which may be terminated by the contract holder upon seven, thirty, and ninety days notice, respectively. The Company’s asset/liability management programs and procedures take into account maturing contracts and expected withdrawals. Accordingly, the Company does not expect stable value contract related cash outflows to have an unusual effect on the future operations and liquidity of the Company.

        The life insurance subsidiaries were committed at December 31, 2001, to fund mortgage loans in the amount of $406.3 million. The Company’s subsidiaries held $361.6 million in cash and short-term investments at December 31, 2001. Protective Life Corporation had an additional $2.1 million in cash and short-term investments available for general corporate purposes.

        While the Company generally anticipates that the cash flow of its subsidiaries will be sufficient to meet their investment commitments and operating cash needs, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has arranged sources of credit for its insurance subsidiaries to use when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Additionally, the Company may, from time to time, sell short-duration stable value products to complement its cash management practices.

        The Company has also used securitization transactions involving its commercial mortgage loans to increase its liquidity. In 1999, the Company sold $263 million of loans, receiving cash of $220 million and securities of approximately $43 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(continued)

CAPITAL

        At December 31, 2001, Protective Life Corporation had no borrowings outstanding under its $200 million revolving lines of credit.

        Protective Life Corporation's cash flow is dependent on cash dividends and payments on surplus notes from its subsidiaries; revenues from investment, data processing, legal and management services rendered to subsidiaries; and investment income. At December 31, 2001, approximately $282.1 million of consolidated share-owners’ equity, excluding net unrealized investment gains and losses, represented net assets of the Company’s insurance subsidiaries that cannot be transferred to Protective Life Corporation. In addition, the states in which the Company’s insurance subsidiaries are domiciled impose certain restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation.

        The Company plans to retain substantial portions of the earnings of its insurance subsidiaries in those companies primarily to support their future growth. Protective Life Corporation’s cash disbursements have, from time to time, exceeded its cash receipts, and these shortfalls have been funded through various external financings. Therefore, Protective Life Corporation may, from time to time, require additional external financing.

        To give the Company flexibility in connection with future acquisitions and other growth opportunities, the Company has registered debt securities, preferred and common stock, and stock purchase contracts of Protective Life Corporation, and additional preferred securities of special purpose finance subsidiaries under the Securities Act of 1933 on a delayed (or shelf) basis.

        In March 2000, the Company issued Senior Notes totaling $125 million with 10, 15, and 30 year maturities. Interest rates range from 8.00% to 8.25%. The proceeds were used to repay bank borrowings of which $55 million had been used to redeem the Monthly Income Preferred Securities in 1999.

        In December 2000, the Company issued $60 million of 7.5% Senior Notes, with a 15 year maturity. The proceeds were used to repay bank borrowings and to partially fund the January 2001 coinsurance of a block of individual life insurance policies from Standard Insurance Company (Standard).

        In February 2001, the Company issued 3.9 million shares of its Common Stock under stock purchase contracts relating to its 6.5% FELINE PRIDES. In the transaction, substantially all of the preferred securities comprising part of the FELINE PRIDES, and the underlying subordinated debt, were redeemed.

        In February 2001, the Company issued $100 million of Floating Rate Senior Notes. The proceeds were used to invest in the Company’s insurance subsidiaries, which included completing the funding of the Standard transaction, and for general corporate purposes. The Floating Rate Notes are due February 28, 2003, and bear an interest rate of LIBOR plus .375%, adjusted quarterly.

        On August 17, 2001, a special purpose finance subsidiary of the Company, PLC Capital Trust III, issued $100 million of 7.5% Trust Originated Preferred Securities ("TOPrS"). The 7.5% TOPrS are guaranteed on a subordinated basis by the Company. This guarantee, considered together with the other obligations of the Company with respect to the 7.5% TOPrS, constitutes a full and unconditional guarantee by the Company of PLC Capital Trust III’s obligations with respect to the 7.5% TOPrS.

        PLC Capital Trust III was formed solely to issue securities and use the proceeds thereof to purchase subordinated debentures of the Company. The sole assets of PLC Capital Trust III are $103.1 million of Protective Life Corporation 7.5% Subordinated Debentures due 2031, Series D. The proceeds of the Company’s subordinated debentures were used to repay outstanding bank indebtedness and the balance was used for general corporate purposes. The Company has the right under the subordinated debentures to extend interest payment periods up to five consecutive years, and, as a consequence, dividends on the 7.5% TOPrS may be deferred (but will continue to accumulate, together with additional dividends on any accumulated but unpaid dividends at the dividend rate) by PLC Capital Trust III during any such extended interest payment period. The 7.5% TOPrS are redeemable by PLC Capital Trust III at any time on or after August 22, 2006.

        A life insurance company’s statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners (NAIC), as modified by the insurance company’s state of domicile. Statutory accounting rules are different from accounting principles generally accepted in the United States of America and are intended to reflect a more conservative view by, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of the Company’s insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or equity contributions by the Company.

CONTRACTUAL OBLIGATIONS

        The table below sets forth future maturities of long-term debt, guaranteed preferred beneficial interests in the Company’s subordinated debentures (guaranteed preferred beneficial interests), and stable value contracts. 


  (IN THOUSANDS)   2002     2003-2004       2005-2006      AFTER 2006
  -------------------------------------------------------------------
  Long-term
     debt                 $  175,000                         $194,241
  Guaranteed
     preferred
     beneficial
     interests                                                175,000
  Stable value
     contracts  $971,536   1,696,120         $979,460          69,414
  Securities
     sold under
     repurchase
     agreements  117,000
  --------------------------------------------------------------------

OTHER DEVELOPMENTS

        Under insurance guaranty fund laws in most states, insurance companies doing business in a participating state can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe that any such assessments will be materially different from amounts already reflected in the financial statements.

        The Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

        The Company is not aware of any pending or threatened regulatory action with respect to the Company or any of its subsidiaries that is reasonably likely to have a material effect on the Company.

        The Company believes that the tragic events of September 11, 2001, will have little direct effect on the Company’s operations or financial strength. However, many of the Company’s businesses and the performance of the Company’s investment portfolio are affected by general economic conditions, therefore a downturn in the general economy could have a negative effect on the Company’s operations and financial strength.

        In recent years, most financial services companies, including the Company, experienced a decrease in the market price of their common stock. Although the Company believes it has sufficient capital to fund its immediate growth and capital needs, a lower stock price may limit the Company’s ability to raise capital to fund other growth opportunities and acquisitions.

IMPACT OF INFLATION

        Inflation increases the need for life insurance. Many policyholders who once had adequate insurance programs may increase their life insurance coverage to provide the same relative financial benefit and protection. Higher interest rates may result in higher sales of certain of the Company’s investment products.

        The higher interest rates that have traditionally accompanied inflation could also affect the Company’s operations. Policy loans increase as policy loan interest rates become relatively more attractive. As interest rates increase, disintermediation of stable value and annuity account balances and individual life policy cash values may increase. The market value of the Company’s fixed-rate, long-term investments may decrease, the Company may be unable to implement fully the interest rate reset and call provisions of its mortgage loans, and the Company’s ability to make attractive mortgage loans, including participating mortgage loans, may decrease. In addition, participating mortgage loan income may decrease. The difference between the interest rate earned on investments and the interest rate credited to life insurance and investment products may also be adversely affected by rising interest rates.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Share Owners of Protective Life Corporation

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, share-owners’ equity and of cash flows present fairly, in all material respects, the financial position of Protective Life Corporation and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As discussed in Note 1 of the Notes to the Consolidated Financial Statements, effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”.

PricewaterhouseCoopers LLP
Birmingham, Alabama
March 1, 2002
CONSOLIDATED STATEMENTS OF INCOME 
Year Ended December 31
(Dollars in thousands except per share amounts)                                2001              2000         1999
- ----------------------------------------------------------------------------------------------------------------------
Revenues
Premiums and policy fees                                                    $1,389,820        $1,175,898    $ 861,027
Reinsurance ceded                                                             (771,151)         (686,108)    (462,297)
- ----------------------------------------------------------------------------------------------------------------------
   Net of reinsurance ceded                                                    618,669           489,790      398,730
Net investment income                                                          884,041           730,149      667,968
Realized investment gains (losses)
   Derivative financial instruments                                            (11,431)            9,013       (2,279)
   All other investments                                                        (8,740)          (16,056)       1,222
Other income                                                                   131,678           151,833       89,680
- ----------------------------------------------------------------------------------------------------------------------
   Total revenues                                                            1,614,217         1,364,729    1,155,321
- ----------------------------------------------------------------------------------------------------------------------
Benefits and expenses
Benefits and settlement expenses (net of reinsurance ceded:
   2001 - $609,996; 2000 - $538,291; 1999 - $344,474)                          972,624           760,778      629,656
Amortization of deferred policy acquisition costs                              147,058           143,180       96,689
Amortization of goodwill                                                         3,555             3,113          316
Other operating expenses (net of reinsurance ceded:
   2001 - $167,243; 2000 - $223,498; 1999 - $150,570)                          281,384           245,983      225,271
- ----------------------------------------------------------------------------------------------------------------------
   Total benefits and expenses                                               1,404,621         1,153,054      951,932
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax                            209,596           211,675      203,389
- ----------------------------------------------------------------------------------------------------------------------
Income tax expense
   Current                                                                      64,667            11,947       43,971
   Deferred                                                                      3,871            62,374       27,970
- ----------------------------------------------------------------------------------------------------------------------
   Total income tax expense                                                     68,538            74,321       71,941
- ----------------------------------------------------------------------------------------------------------------------
Net income from continuing operations before extraordinary loss and
   cumulative effect of change in accounting principle                         141,058           137,354      131,448
Income (loss) from discontinued operations, net of income tax                   (9,977)           16,122       21,642
Loss from sale of discontinued operations, net of income tax                   (20,545)
- ----------------------------------------------------------------------------------------------------------------------
Net income before extraordinary loss and cumulative effect of change
   in accounting principle                                                     110,536           153,476      153,090
Extraordinary loss on early extinguishment of debt, net of income tax                                          (1,763)
Cumulative effect of change in accounting principle, net of income tax          (7,593)
- ----------------------------------------------------------------------------------------------------------------------
Net income                                                                   $ 102,943         $ 153,476    $ 151,327
======================================================================================================================
Net income from continuing operations before extraordinary loss
   and cumulative effect of change in accounting principle
   per share - basic                                                         $    2.02         $   2.09     $    2.01
Net income per share - basic                                                 $    1.48         $   2.33     $    2.31
Net income from continuing operations before extraordinary loss
   and cumulative effect of change in accounting principle
   per share - diluted                                                       $    2.01         $   2.08     $    1.99
Net income per share - diluted                                               $    1.47         $   2.32     $    2.29
Cash dividends paid per share                                                $     .55         $    .51     $     .47
======================================================================================================================
See Notes to Consolidated Financial Statements.

                                             CONSOLIDATED BALANCE SHEETS

December 31
(Dollars in thousands)                                                                 2001                 2000
- --------------------------------------------------------------------------------------------------------------------
Assets
Investments:
   Fixed maturities, at market (amortized cost: 2001 -  $9,745,057;
     2000 -  $7,489,361)                                                          $ 9,838,091           $ 7,415,769
   Equity securities, at market (cost: 2001 - $78,332 ; 2000 - $61,358)                76,774                58,700
   Mortgage loans                                                                   2,512,844             2,268,224
   Investment real estate, net of accumulated depreciation
    (2001 - $1,466 ; 2000 - $1,226)                                                    26,349                12,566
   Policy loans                                                                       521,841               230,527
   Other long-term investments                                                        104,624                66,462
   Short-term investments                                                             237,155               189,161
- --------------------------------------------------------------------------------------------------------------------
   Total investments                                                               13,317,678            10,241,409
Cash                                                                                  126,558                55,494
Accrued investment income                                                             159,866               122,314
Accounts and premiums receivable, net of allowance for uncollectible amounts
   (2001 - $3,025 ; 2000 - $2,195)                                                     64,410                85,223
Reinsurance receivables                                                             2,174,769             1,100,131
Deferred policy acquisition costs                                                   1,532,683             1,189,380
Goodwill                                                                               48,162               250,321
Property and equipment                                                                 51,307                54,253
Other assets                                                                          251,581               138,419
Assets related to separate accounts
   Variable annuity                                                                 1,910,651             1,841,439
   Variable universal life                                                             77,162                63,504
   Other                                                                                3,997                 3,746
- --------------------------------------------------------------------------------------------------------------------
                                                                                  $19,718,824           $15,145,633
====================================================================================================================
See Notes to Consolidated Financial Statements.

December 31
(Dollars in thousands)                                                               2001                   2000
- --------------------------------------------------------------------------------------------------------------------
Liabilities
Policy liabilities and accruals
   Future policy benefits and claims                                               $6,971,792            $5,031,957
   Unearned premiums                                                                  904,374               937,516
- --------------------------------------------------------------------------------------------------------------------
   Total policy liabilities and accruals                                            7,876,166             5,969,473
Stable value contract account balances                                              3,716,530             3,177,863
Annuity account balances                                                            3,248,217             1,916,894
Other policyholders' funds                                                            131,040               125,533
Other liabilities                                                                     498,579               393,262
Accrued income taxes                                                                   60,897               (35,330)
Deferred income taxes                                                                 127,230                79,066
Securities sold under repurchase agreements                                           117,000
Long-term debt                                                                        376,211               306,125
Guaranteed Preferred Beneficial Interests in Company's Subordinated Debentures
    8.25% Trust Originated Preferred Securities                                        75,000                75,000
    7.5% Trust Originated Preferred Securities                                        100,000
    6.5% FELINE PRIDES                                                                                      115,000
Liabilities related to separate accounts
   Variable annuity                                                                 1,910,651             1,841,439
   Variable universal life                                                             77,162                63,504
   Other                                                                                3,997                 3,746
- --------------------------------------------------------------------------------------------------------------------
   Total liabilities                                                               18,318,680            14,031,575
====================================================================================================================
   Commitments and contingent liabilities - Note 6

Share-owners' equity
Preferred Stock, $1 par value
   Shares authorized:  3,600,000
   Issued: none
Junior Participating Cumulative
   Preferred Stock, $1 par value
   Shares authorized: 400,000
   Issued: none
Common Stock, $.50 par value
   Shares authorized: 2001 and 2000 - 160,000,000
   Issued: 2001 - 73,251,960; 2000 - 69,333,117                                        36,626                34,667
Additional paid-in capital                                                            405,420               289,819
Treasury stock, at cost (2001 - 4,696,788 shares; 2000 - 4,775,550 shares)            (15,895)              (12,812)
Stock held in trust (2001 - 55,785 shares; 2000 - 36,210 shares)                       (1,535)               (1,318)
Unallocated stock in Employee Stock Ownership Plan (2001 - 1,001,401 shares;
   2000 - 1,112,668 shares)                                                            (3,317)               (3,686)
Retained earnings                                                                     924,517               858,761
Accumulated other comprehensive income
   Net unrealized gains (losses) on investments
   (net of income tax: 2001 - $ 29,254 ; 2000 - $(27,662))                             54,328               (51,373)
- --------------------------------------------------------------------------------------------------------------------
   Total share-owners' equity                                                       1,400,144             1,114,058
- --------------------------------------------------------------------------------------------------------------------
                                                                                  $19,718,824           $15,145,633
====================================================================================================================



                                   CONSOLIDATED STATEMENTS OF SHARE-OWNERS' EQUITY

                                           Additional             Stock  Unallocated          Net Unrealized    Total
                                   Common    Paid-In  Treasury   Held In  Stock in   Retained Gains (Losses)Share-Owners'
(Dollars in thousands)              Stock    Capital    Stock     Trust     ESOP     Earnings on Investments   Equity
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998        $34,667   $254,705  $(13,140)           $(4,277)   $617,182     $55,057  $   944,194
                                                                                                               --------
Net income for 1999                                                       151,327                              151,327
Change in net unrealized
gains/losses on investments
(net of income tax - $(108,675))                                                                 (201,825)    (201,825)
Reclassification adjustment for
amounts included in net income
(net of income tax - $370)                                                                            687          687
                                                                                                               --------
Comprehensive loss for 1999                                                                                    (49,811)
                                                                                                               --------
Cash dividends                                                                        (30,305)                 (30,305)
Purchase of common stock                                       $   (621)                                          (621)
Stock-based compensation                         947       145                                                   1,092
Reissuance of treasury stock
to ESOP                                          405        35               (440)                                   0
Allocation of stock to employee
accounts                                                                      674                                  674
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999         34,667    256,057   (12,960)    (621)   (4,043)    738,204    (146,081)     865,223
                                                                                                              ---------
Net income for 2000                                                                   153,476                  153,476
Change in net unrealized
gains/losses on investments
(net of income tax - $48,532)                                                                      90,130       90,130
Reclassification adjustment for
amounts included in net income
(net of income tax - $2,465)                                                                        4,578        4,578
                                                                                                              ---------
Comprehensive income for 2000                                                                                  248,184
                                                                                                              ---------
Cash dividends                                                                        (32,919)                 (32,919)
Purchase of common stock                                           (697)                                          (697)
Stock-based compensation                      33,535       120                                                  33,655
Reissuance of treasury stock
to ESOP                                          227        28               (255)                                   0
Allocation of stock to employee
accounts                                                                      612                                  612
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000         34,667    289,819   (12,812)  (1,318)   (3,686)    858,761     (51,373)   1,114,058
                                                                                                            -----------
Net income for 2001                                                                   102,943                  102,943
Change in net unrealized
gains/losses on investments
(net of income tax - $51,729)                                                                      96,069       96,069
Reclassification adjustment for
amounts included in net income
(net of income tax - $3,059)                                                                        5,681        5,681
Transition adjustment on derivative
financial instruments
(net of income tax - $2,127)                                                                        3,951        3,951
                                                                                                            -----------
Comprehensive income for 2001                                                                                  208,644
                                                                                                            -----------
Cash dividends                                                                        (37,187)                 (37,187)
Redemption of FELINE PRIDES         1,959    111,455                                                           113,414
Purchase of common stock                                           (217)                                          (217)
Purchase of treasury stock                              (3,405)                                                 (3,405)
Stock-based compensation                       3,349       240                                                   3,589
Reissuance of treasury stock
to ESOP                                          797        82               (879)                                   0
Allocation of stock to employee
accounts                                                                    1,248                                1,248
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001
- - Note 7                          $36,626   $405,420  $(15,895) $(1,535)  $(3,317)   $924,517     $54,328   $1,400,144
=======================================================================================================================
See Notes to Consolidated Financial Statements.



                                        CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31
(Dollars in thousands)                                                            2001           2000            1999
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income                                                              $      102,943 $      153,476  $      151,327
Adjustments to reconcile net income to net cash provided by operating activities:
   Realized investment losses                                                   20,171          7,043           1,057
   Extraordinary loss on early extinguishment of debt                                                           1,763
   Amortization of deferred policy acquisition costs                           154,384        149,574         104,912
   Capitalization of deferred policy acquisition costs                        (317,627)      (338,685)       (239,482)
   Depreciation expense                                                         12,110         10,421          12,030
   Deferred income taxes                                                         6,856         67,949          25,841
   Accrued income taxes                                                         98,476        (30,813)          9,499
   Amortization of goodwill                                                      9,056          8,525           5,584
   Loss from sale of discontinued operations                                    20,545
   Interest credited to universal life and investment products                 944,098        766,004         331,746
   Policy fees assessed on universal life and investment products             (222,415)      (197,581)       (165,818)
   Change in accrued investment income and other receivables                  (241,517)      (149,778)       (131,614)
   Change in policy liabilities and other policyholders' funds of traditional
      life and health products                                                 442,193        500,254         215,556
   Change in other liabilities                                                 157,529        (38,674)         77,902
   Other, net                                                                   (5,501)       (31,056)        (10,729)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                    1,181,301        876,659         389,574
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Maturities and principal reductions of investments:
   Investments available for sale                                            3,260,107     13,037,876      10,167,542
   Other                                                                       283,640        135,058         243,280
Sale of investments:
   Investments available for sale                                            9,095,873        810,716         537,343
   Other                                                                         1,363          5,222         267,892
Cost of investments acquired:
   Investments available for sale                                          (14,019,243)   (14,523,312)    (10,816,652)
   Corporate owned life insurance                                             (100,000)
   Other                                                                      (378,520)      (464,779)       (864,100)
Acquisitions and bulk reinsurance assumptions                                 (124,027)      (162,413)         46,508
Sale of discontinued operations, net of cash transferred                       216,031
Purchase of property and equipment                                             (12,282)        (5,861)        (18,741)
Sale of property and equipment                                                      70                            417
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                       (1,776,988)    (1,167,493)       (436,511)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Borrowings under line of credit arrangements and long-term debt              2,738,763      2,434,879       4,516,977
Principal payments on line of credit arrangements and long-term debt        (2,551,677)    (2,364,779)     (4,451,790)
Payment of guaranteed preferred beneficial interests                                                          (55,000)
Dividends to share owners                                                      (37,187)       (32,919)        (30,305)
Issuance of guaranteed preferred beneficial interests                          100,000
Purchase of common stock held in trust                                            (217)          (697)           (621)
Purchase of treasury stock                                                      (3,405)
Investment product deposits and change in universal life deposits            1,735,653      1,811,484       1,300,736
Investment product withdrawals                                              (1,315,179)    (1,553,282)     (1,190,904)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                      666,751        294,686          89,093
- ----------------------------------------------------------------------------------------------------------------------
Increase in cash                                                                71,064          3,852          42,156
Cash at beginning of year                                                       55,494         51,642           9,486
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                        $   126,558     $   55,494     $    51,642
======================================================================================================================
See Notes to Consolidated Financial Statements.

Notes to consolidated financial statements

(All dollar amounts in tables are in thousands except per share amounts.)

1 Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements of Protective Life Corporation and subsidiaries (the Company) are prepared on the basis of accounting principles generally accepted in the United States of America. Such accounting principles differ from statutory reporting practices used by insurance companies in reporting to state regulatory authorities. (See also Note 9.)

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make various estimates that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, as well as the reported amounts of revenues and expenses. Actual results could differ from these estimates.

Entities Included

        The consolidated financial statements include the accounts, after intercompany eliminations, of Protective Life Corporation and its wholly-owned subsidiaries.

Nature of Operations

        Protective Life Corporation is a holding company whose subsidiaries provide financial services through the production, distribution, and administration of insurance and investment products. The Company markets individual life insurance, credit life and disability insurance, guaranteed investment contracts, guaranteed funding agreements, fixed and variable annuities, and extended service contracts throughout the United States. The Company also maintains a separate division devoted to the acquisition of insurance policies from other companies. Founded in 1907, Protective Life Insurance Company (Protective Life) is the Company’s largest operating subsidiary.

        The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to changing competition, economic conditions, interest rates, investment performance, insurance ratings, claims, persistency, and other factors.

Recently Issued Accounting Standards

        On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133, as amended by SFAS Nos. 137 and 138, requires the Company to record all derivative financial instruments, at fair value on the balance sheet. Changes in fair value of a derivative instrument are reported in net income or other comprehensive income, depending on the designated use of the derivative instrument. The adoption of SFAS No. 133 resulted in a cumulative charge to net income, net of income tax, of $7.6 million ($0.11 per share on both a basic and diluted basis) and a cumulative after-tax increase to other comprehensive income of $4.0 million on January 1, 2001. The charge to net income and increase to other comprehensive income primarily resulted from the recognition of derivative instruments embedded in the Company’s corporate bond portfolio. In addition, the charge to net income includes the recognition of the ineffectiveness on existing hedging relationships including the difference in spot and forward exchange rates related to foreign currency swaps used as an economic hedge of foreign-currency-denominated stable value contracts. Prospectively, the adoption of SFAS No. 133 may introduce volatility into the Company’s reported net income and other comprehensive income depending on future market conditions and the Company’s hedging activities.

        In September 2000, the Financial Accounting Standards Board (FASB) issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of SFAS No. 125". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of this accounting standard did not have a material effect on the Company’s financial position or results of operations.

        In June 2001, the FASB issued SFAS Nos. 141, “Business Combinations”, and 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires that business combinations initiated after June 30, 2001, be accounted for using the purchase method. SFAS No. 142 revises the standards for accounting for acquired goodwill and other intangible assets. The standard replaces the requirement to amortize goodwill with one that calls for an annual impairment test, among other provisions. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and effective for any goodwill or intangible asset acquired after June 30, 2001. The Company expects the adoption of SFAS No. 142 to result in the elimination of up to $3.5 million of goodwill amortization in 2002.

        In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires that companies record the fair value of a liability for an asset retirement obligation in the period in which the liability is incurred. The Statement is effective for fiscal years beginning after June 15, 2002. The Company does not expect the adoption of SFAS No. 143 to have a material effect on the Company’s financial position or results of operations.

        In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 requires that the same accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, expands the use of discontinued operations accounting to include more types of transactions and changes the timing of when discontinued operations accounting is applied. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS No. 144 to have a material effect on the Company’s financial position or results of operations.

Investments

        The Company has classified all of its investments in fixed maturities, equity securities, and short-term investments as “available for sale.”

        Investments are reported on the following bases less allowances for uncollectible amounts on investments, if applicable:

o Fixed maturities (bonds and redeemable preferred stocks) at current market value. Where market values are unavailable, the Company obtains estimates from independent pricing services or estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics.

o Equity securities (common and nonredeemable preferred stocks)- at current market value.

o Mortgage loans- at unpaid balances, adjusted for loan origination costs, net of fees, and amortization of premium or discount.

o Investment real estate - at cost, less allowances for depreciation computed on the straight-line method. With respect to real estate acquired through foreclosure, cost is the lesser of the loan balance plus foreclosure costs or appraised value.

o Policy loans - at unpaid balances.

o Other long-term investments - at a variety of methods similar to those listed above, as deemed appropriate for the specific investment.

o Short-term investments - at cost, which approximates current market value.

        Substantially all short-term investments have maturities of three months or less at the time of acquisition and include approximately $0.6 million in bank deposits voluntarily restricted as to withdrawal.

        As prescribed by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” certain investments are recorded at their market values with the resulting unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, reported as a component of share-owners’ equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the application of SFAS No. 115 does not affect the Company’s operations, its reported share-owners’ equity will fluctuate significantly as interest rates change.

        The Company's balance sheets at December 31, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows:

                                         2001               2000
- ----------------------------------------------------------------------
Total investments                    $13,212,993        $10,317,657
Deferred policy acquisition costs      1,553,786          1,192,696
All other assets                       4,868,463          3,714,844
- ----------------------------------------------------------------------
                                     $19,635,242        $15,225,197
======================================================================
Deferred income taxes                $    97,976        $   107,257
All other liabilities                 18,191,450         13,952,509
- ----------------------------------------------------------------------
                                      18,289,426         14,059,766
Share-owners' equity                   1,345,816          1,165,431
- ----------------------------------------------------------------------
                                     $19,635,242        $15,225,197
======================================================================

        Realized gains and losses on sales of investments are recognized in net income using the specific identification basis.

Derivative Financial Instruments

        The Company utilizes a risk management strategy that incorporates the use of derivative instruments, primarily to reduce its exposure to interest rate risk as well as currency exchange risk.

        Combinations of interest rate swap contracts, options and futures contracts are sometimes used as hedges against changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and mortgage-backed securities. Interest rate swap contracts generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. Interest rate futures generally involve exchange traded contracts to buy or sell treasury bonds and notes in the future at specified prices. Interest rate options represent contracts that allow the holder of the option to receive cash or purchase, sell or enter into a financial instrument at a specified price within a specified period of time. The Company uses interest rate swap contracts, swaptions (options to enter into interest rate swap contracts), caps, and floors to modify the interest characteristics of certain investments, and its Senior Notes, Medium-Term Notes, and TOPrS. Swap contracts are also used to alter the effective durations of assets and liabilities. The Company uses foreign currency swaps to reduce its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

        Derivative instruments expose the Company to credit and market risk. The Company minimizes its credit risk by entering into transactions with highly rated counterparties. The Company manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken.

        The Company monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. The Company’s asset/liability committee is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into the Company’s overall interest rate and currency exchange risk management strategies.

        All derivatives are recognized on the balance sheet (other long-term investments or other liabilities) at their fair value (primarily estimates from independent pricing services). On the date the derivative contract is entered into, the Company designates the derivative as (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value” hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge), or (3) as a derivative either held for investment purposes or held as a natural hedging instrument designed to act as an economic hedge against the changes in value or cash flows of a hedged item (“other” derivative). Changes in the fair value of a derivative that is highly effective as and that is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as and that is designated and qualified as a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows. Changes in the fair value of other derivatives are recognized in current earnings and reported in Realized Investment Gains (Losses) Derivative Financial Instruments in the Company’s consolidated condensed statements of income.

        The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively, as discussed below.

        The Company discontinues hedge accounting prospectively when (1) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is dedesignated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; (4) because a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is no longer appropriate.

        When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative will continue to be carried on the balance sheet at its fair value, and the hedged asset or liability will no longer be adjusted for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the derivative will continue to be carried on the balance sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment will be removed from the balance sheet and recognized as a gain or loss in current-period earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will remain therein until such time as they are reclassified to earnings as originally forecasted to occur. In all situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the balance sheet, with changes in its fair value recognized in current-period earnings.

o Fair-Value Hedges. The Company has designated, as a fair value hedge, callable interest rate swaps used to modify the interest characteristics of certain callable Medium-Term Notes and stable value contracts. In assessing hedge effectiveness, the Company excludes the embedded call option’s time value component from each derivative’s total gain or loss. In 2001, total measured ineffectiveness for the fair value hedging relationships was insignificant while the excluded time value component resulted in a pre-tax gain of $1.3 million. Both the measured ineffectiveness and the excluded time value component are reported in Realized Investment Gains (Losses) Derivative Financial Instruments in the Company’s consolidated condensed statements of income.

o Cash-Flow Hedges. The Company has not designated any hedging relationships as a cash flow hedge.

o Other Derivatives. The Company uses certain interest rate swaps, caps, floors, swaptions, options and futures contracts as economic hedges against the changes in value or cash flows of outstanding mortgage loan commitments and certain owned investments as well as certain debt and preferred security obligations of the Company. In 2001, the Company recognized total pre-tax losses of $10.8 million representing the change in fair value of these derivative instruments.

        On its foreign currency swaps, the Company recognized a $8.2 million pre-tax loss in 2001 while recognizing a $11.2 million foreign exchange pre-tax gain on the related foreign-currency-denominated stable value contracts. The net gain primarily results from the difference in the forward and spot exchange rates used to revalue the currency swaps and the stable value contracts, respectively. This net gain is reflected in Realized Investment Gains (Losses) Derivative Financial Instruments in the Company’s consolidated condensed statements of income.

        The Company has entered into asset swap arrangements to effectively sell the equity options embedded in owned convertible bonds in exchange for an interest rate swap that converts the remaining host bond to a variable rate instrument. In 2001, the Company recognized a $12.2 million pre-tax gain for the change in the asset swaps’ fair value and recognized a $16.9 million pre-tax loss to separately record the embedded equity options at fair value.

        The Company has also entered into a total return swap with respect to $400 million of a portfolio of approximately $413 million of investments held by an unrelated special purpose vehicle that are managed by the Company. The Company recognized a $0.3 million pre-tax loss in 2001 for the change in the total return swap’s fair value.

        At December 31, 2001, contracts with a notional amount of $5,475.1 million were in a $21.9 million net loss position. At December 31, 2000, contracts with a notional amount of $3,134.2 million were in a $12.3 million net loss position. The Company recognized $9.0 million in realized investment gains related to derivative financial instruments in 2000.

        The Company’s derivative financial instruments are with highly rated counterparties.

Cash

        Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. The Company has deposits with certain financial institutions which exceed federally insured limits. The Company has reviewed the credit worthiness of these financial institutions and believes there is minimal risk of a material loss.

Deferred Policy Acquisition Costs

        Commissions and other costs of acquiring traditional life and health insurance, credit insurance, universal life insurance, and investment products that vary with and are primarily related to the production of new business, have been deferred. Traditional life and health insurance acquisition costs are amortized over the premium-payment period of the related policies in proportion to the ratio of annual premium income to the present value of the total anticipated premium income. Credit insurance acquisition costs are being amortized in proportion to earned premium. Acquisition costs for universal life and investment products are amortized over the lives of the policies in relation to the present value of estimated gross profits before amortization. Under SFAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments,” the Company makes certain assumptions regarding the mortality, persistency, expenses, and interest rates (equal to the rate used to compute liabilities for future policy benefits; currently 3.0% to 9.4%) it expects to experience in future periods. These assumptions are to be best estimates and are to be periodically updated whenever actual experience and/or expectations for the future change from that assumed. Additionally, relating to SFAS No. 115, these costs have been adjusted by an amount equal to the amortization that would have been recorded if unrealized gains or losses on investments associated with the Company’s universal life and investment products had been realized.

        The cost to acquire blocks of insurance representing the present value of future profits from such blocks of insurance is also included in deferred policy acquisition costs. The Company amortizes the present value of future profits over the premium payment period, including accrued interest of up to approximately 8%. The unamortized present value of future profits for all acquisitions was approximately $523.4 million and $343.6 million at December 31, 2001 and 2000, respectively. During 2001, $221.9 million of present value of future profits was capitalized, and $42.1 million was amortized. During 2000, $47.3 million of present value of future profits was capitalized (relating to acquisitions made during the year) and $44.3 million was amortized.

Goodwill

        Goodwill is being amortized straight-line over periods ranging from 10 to 40 years. Goodwill at December 31 is as follows:

                                      2001                   2000
- ---------------------------------------------------------------------
Goodwill                            $55,246                $270,250
Accumulated amortization              7,084                  19,929
- ---------------------------------------------------------------------
                                    $48,162                $250,321
=====================================================================

        The Company periodically evaluates the recoverability of its goodwill by comparing expected future cash flows to the amount of unamortized goodwill. If this evaluation were to indicate the unamortized goodwill is impaired, the goodwill would be reduced to an amount representing the present value of applicable estimated future cash flows. A substantial portion of goodwill was disposed of in connection with the 2001 sale of the Company’s Dental Benefits Division.

Property and Equipment

        Property and equipment are reported at cost. The Company primarily uses the straight-line method of depreciation based upon the estimated useful lives of the assets. Major repairs or improvements are capitalized and depreciated over the estimated useful lives of the assets. Other repairs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or retired are removed from the accounts, and resulting gains or losses are included in income.

        Property and equipment consisted of the following at December 31:

                                         2001                   2000
- ------------------------------------------------------------------------
Home Office building                  $ 45,845                $ 41,184
Data processing equipment               34,100                  34,626
Other, principally furniture
   and equipment                        40,055                  38,573
- ------------------------------------------------------------------------
                                       120,000                 114,383
Accumulated depreciation                68,693                  60,130
- ------------------------------------------------------------------------
                                      $ 51,307                $ 54,253
========================================================================

Separate Accounts

        The assets and liabilities related to separate accounts in which the Company does not bear the investment risk are valued at market and reported separately as assets and liabilities related to separate accounts in the accompanying consolidated financial statements.

Stable Value Contracts Account Balances

        The Company markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans, and fixed and floating rate funding agreements to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. The Company also sells funding agreements to special purpose entities that in turn issue notes or certificates in smaller, transferrable denominations. In a structured program, the Company issues funding agreements to a special purpose trust or entity formed solely to purchase the funding agreements and simultaneously issue certificates or notes having terms substantially identical to the underlying funding agreements. Stable value contract account balances include guaranteed investment contracts and funding agreements issued by the Company, and the obligations of consolidated special purpose trusts or entities formed to purchase funding agreements issued by the Company. At December 31, 2001 and 2000 the Company had $1.7 billion and $1.0 billion of stable value contract account balances marketed through structured programs.

Revenues and Benefits Expense

o Traditional Life, Health, and Credit Insurance Products. Traditional life insurance products consist principally of those products with fixed and guaranteed premiums and benefits, and include whole life insurance policies, term and term-like life insurance policies, limited payment life insurance policies, and certain annuities with life contingencies. Life insurance and immediate annuity premiums are recognized as revenue when due. Health and credit insurance premiums are recognized as revenue over the terms of the policies. Benefits and expenses are associated with earned premiums so that profits are recognized over the life of the contracts. This is accomplished by means of the provision for liabilities for future policy benefits and the amortization of deferred policy acquisition costs.

        Liabilities for future policy benefits on traditional life insurance products have been computed using a net level method including assumptions as to investment yields, mortality, persistency, and other assumptions based on the Company’s experience, modified as necessary to reflect anticipated trends and to include provisions for possible adverse deviation. Reserve investment yield assumptions are graded and range from 2.5% to 7.0%. The liability for future policy benefits and claims on traditional life, health, and credit insurance products includes estimated unpaid claims that have been reported to the Company and claims incurred but not yet reported. Policy claims are charged to expense in the period in which the claims are incurred.

        Activity in the liability for unpaid claims is summarized as follows:


                                   2001             2000          1999
- --------------------------------------------------------------------------
Balance beginning of year        $110,064        $122,346      $  93,966
   Less reinsurance                25,830          47,661         20,019
- --------------------------------------------------------------------------
Net balance beginning
   of year                         84,234          74,685         73,947
- --------------------------------------------------------------------------
Incurred related to:
Current year                      383,371         323,222        331,380
Prior year                         (1,080)         (4,880)        (4,997)
- --------------------------------------------------------------------------
Total incurred                    382,291         318,342        326,383
- --------------------------------------------------------------------------
Paid related to:
Current year                      312,748         252,209        283,219
Prior year                         81,220          61,925         44,093
- --------------------------------------------------------------------------
Total paid                        393,968         314,134        327,312
- --------------------------------------------------------------------------
Other changes:
Acquisitions and reserve
   transfers                       (6,257)          5,341          1,667
- --------------------------------------------------------------------------
Net balance end of year            66,300          84,234         74,685
   Plus reinsurance                33,723          25,830         47,661
- --------------------------------------------------------------------------
Balance end of year              $100,023        $110,064       $122,346
==========================================================================

o Universal Life and Investment Products. Universal life and investment products include universal life insurance, guaranteed investment contracts, deferred annuities, and annuities without life contingencies. Premiums and policy fees for universal life and investment products consist of fees that have been assessed against policy account balances for the costs of insurance, policy administration, and surrenders. Benefit reserves for universal life and investment products represent policy account balances before applicable surrender charges plus certain deferred policy initiation fees that are recognized in income over the term of the policies. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policy account balances and interest credited to policy account balances. Interest rates credited to universal life and investment products ranged from 3.0% to 9.4% in 2001.

        The Company’s accounting policies with respect to variable universal life and variable annuities are identical except that policy account balances (excluding account balances that earn a fixed rate) are valued at market and reported as components of assets and liabilities related to separate accounts.

Income Taxes

        The Company uses the asset and liability method of accounting for income taxes. Income tax provisions are generally based on income reported for financial statement purposes. Deferred federal income taxes arise from the recognition of temporary differences between the basis of assets and liabilities determined for financial reporting purposes and the basis determined for income tax purposes. Such temporary differences are principally related to the deferral of policy acquisition costs and the provision for future policy benefits and expenses.

Discontinued Operations

        On December 31, 2001, the Company completed the sale to Fortis, Inc. of substantially all of its Dental Benefits Division (Dental Division), and discontinued other remaining Dental Division related operations, primarily other health insurance lines.

        The operating results and charges related to the sale of the Dental division at December 31 are as follows: 


                                    2001             2000             1999
- -----------------------------------------------------------------------------
Total revenues                    $350,916         $369,239         $378,561
- -----------------------------------------------------------------------------
Income (loss) before
   income taxes from
   discontinued operations       $ (12,797)       $  27,718         $ 36,132
Income tax (expense)
   benefit                           2,820          (11,596)         (14,490)
- -----------------------------------------------------------------------------
Income (loss) from
   discontinued operations       $  (9,977)       $  16,122         $ 21,642
- -----------------------------------------------------------------------------
Gain from sale of
   discontinued operations
   before income tax             $  22,927
Income tax expense
   related to sale                 (43,472)
- -----------------------------------------------------------------------------
Loss from sale of
   discontinued operations       $ (20,545)
- -----------------------------------------------------------------------------
Income (loss) from
   discontinued operations -
   per share
   (diluted and basic)           $    (.14)       $     .24        $    .33
Loss from sale of
   discontinued operations -
   per share
   (diluted and basic)           $    (.29)
- -----------------------------------------------------------------------------

Remaining assets and liabilities at December 31, 2001 related to the business sold to Fortis, Inc. consist of reinsurance receivables and policy liabilities and accruals of approximately $51.2 million. Assets and liabilities related to the other discontinued lines of business of approximately $11.1 million and $14.3 million, respectively, remain at December 31, 2001.

Net Income Per Share

        Net income per share - basic is net income divided by the average number of shares of Common Stock outstanding including shares that are issuable under various deferred compensation plans.

        Net income per share - diluted is adjusted net income divided by the average number of shares outstanding including all diluted, potentially issuable shares that are issuable under various stock-based compensation plans and stock purchase contracts.

        A reconciliation of net income and adjusted net income, and basic and diluted average shares outstanding for the years ended December 31 is summarized as follows: 


                                                                     2001                2000               1999
- --------------------------------------------------------------------------------------------------------------------
Net income                                                    $     102,943       $     153,476      $     151,327
Dividends on FELINE PRIDES                                                              __(1)               __(1)
- --------------------------------------------------------------------------------------------------------------------
Adjusted net income                                           $     102,943       $     153,476      $     151,327
====================================================================================================================
Average shares issued and outstanding                            68,037,410          64,544,140         64,481,997
Stock held in trust                                                 (47,759)            (41,797)           (13,030)
Issuable under various deferred compensation plans                1,420,874           1,330,006          1,135,344
- --------------------------------------------------------------------------------------------------------------------
Average shares outstanding - basic                               69,410,525          65,832,349         65,604,311
Stock held in trust                                                  47,759              41,797             13,030
Stock appreciation rights                                           266,132             131,443            183,996
Issuable under various other stock-based compensation plans         225,757             275,539            360,030
FELINE PRIDES stock purchase contracts                                                  __(1)              __(1)
- --------------------------------------------------------------------------------------------------------------------
Average shares outstanding - diluted                             69,950,173          66,281,128         66,161,367
====================================================================================================================
(1) Excluded because the effect is anti-dilutive.

Supplemental Cash Flow Information

        The following table sets forth supplemental cash flow information for the years ended December 31:


                                                            2001          2000          1999
- -----------------------------------------------------------------------------------------------
Cash paid during the year:
Interest on debt                                        $   36,095     $  37,660     $  34,756
Income taxes                                                31,795        55,798        42,367
- -----------------------------------------------------------------------------------------------
Noncash investing and financing activities:
Reissuance of treasury stock to ESOP                    $      879     $     255     $     440
Change in unallocated stock in ESOP                            369           357           234
Stock-based compensation                                     3,589        33,655         1,092
Redemption of FELINE PRIDES                                113,414
Acquisitions and related reinsurance transactions:
Assets acquired                                         $2,554,202     $ 533,869     $  12,502
Liabilities assumed                                     (2,430,175)     (371,456)      (12,502)
- -----------------------------------------------------------------------------------------------
Net                                                       $124,027     $ 162,413     $       0
===============================================================================================

Reclassifications

        Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets, or share-owners' equity.

2 Investment Operations

        Major categories of net investment income for the years ended December 31 are summarized as follows:

                                                2001       2000       1999
- --------------------------------------------------------------------------------
Fixed maturities                             $586,305    $536,550   $470,458
Equity securities                              32,334       2,955      1,949
Mortgage loans                                208,830     177,917    172,027
Investment real estate                          4,632       3,132      2,655
Policy loans                                   31,763      14,977     15,994
Other, principally short-term investments      37,281      12,113     20,761
- --------------------------------------------------------------------------------
                                              901,145     747,644    683,844
Investment expenses                            17,104      17,495     15,876
- --------------------------------------------------------------------------------
                                             $884,041    $730,149   $667,968
================================================================================

        Realized investment gains (losses) for all other investments for the years ended December 31 are summarized as follows:


                                 2001          2000          1999
- ---------------------------------------------------------------------
Fixed maturities              $(7,311)      $(14,793)      $ 8,215
Equity securities               2,462          1,685        (3,371)
Mortgage loans and
    other investments          (3,891)        (2,948)       (3,622)
- ---------------------------------------------------------------------
                              $(8,740)      $(16,056)      $ 1,222
=====================================================================

        In 2001, gross gains on the sale of investments available for sale (fixed maturities, equity securities, and short-term investments) were $64.3 million, and gross losses were $72.9 million. In 2000, gross gains were $8.7 million, and gross losses were $28.4 million. In 1999, gross gains were $44.1 million, and gross losses were $32.4 million. Realized investment gains (losses) for derivative financial instruments for the years ended December 31 are summarized as follows:

                               2001               2000                1999
- -----------------------------------------------------------------------------
Derivative financial
   instruments              $(11,431)             $9,013            $(2,279)
=============================================================================

        The amortized cost and estimated market value of the Company's investments classified as available for sale at December 31 are as follows:

                                                         AMORTIZED    GROSS UNREALIZED  GROSS UNREALIZED    ESTIMATED
                                                           COST             GAINS            LOSSES        MARKET VALUE
2001
- ------------------------------------------------------------------------------------------------------------------------
Fixed maturities:
  Bonds:
   Mortgage-backed securities                         $  3,709,118       $  84,965          $  33,759    $  3,760,324
   United States Government and authorities                 98,967           4,088                  0         103,055
   States, municipalities, and political subdivisions       94,022           4,009                  0          98,031
   Public utilities                                        807,773          19,763              4,860         822,676
   Convertibles and bonds with warrants                     96,951           7,423              6,184          98,190
   All other corporate bonds                             4,936,614         117,092             99,500       4,954,206
  Redeemable preferred stocks                                1,612               0                  3           1,609
- ------------------------------------------------------------------------------------------------------------------------
                                                         9,745,057         237,340            144,306       9,838,091
Equity securities                                           78,332           3,565              5,123          76,774
Short-term investments                                     237,155               0                  0         237,155
- ------------------------------------------------------------------------------------------------------------------------
                                                       $10,060,544        $240,905           $149,429     $10,152,020
========================================================================================================================

2000
- ------------------------------------------------------------------------------------------------------------------------
Fixed maturities:
  Bonds:
   Mortgage-backed securities                         $  2,915,836       $  49,373          $  33,197    $  2,932,012
   United States Government and authorities                 95,567           2,662                  0          98,229
   States, municipalities, and political subdivisions       88,223           3,407                  0          91,630
   Public utilities                                        631,703           7,804              5,596         633,911
   Convertibles and bonds with warrants                     69,014          11,277             12,145          68,146
   All other corporate bonds                             3,687,250          49,533            146,704       3,590,079
Redeemable preferred stocks                                  1,768               0                  6           1,762
- ------------------------------------------------------------------------------------------------------------------------
                                                         7,489,361         124,056            197,648       7,415,769
Equity securities                                           61,358           2,761              5,419          58,700
Short-term investments                                     189,161               0                  0         189,161
- ------------------------------------------------------------------------------------------------------------------------
                                                      $  7,739,880        $126,817           $203,067    $  7,663,630
========================================================================================================================

        The amortized cost and estimated market value of fixed maturities at December 31, 2001, by expected maturity, are shown as follows. Expected maturities are derived from rates of prepayment that may differ from actual rates of prepayment.

                                                                     ESTIMATED
                                             AMORTIZED                MARKET
                                               COST                    VALUE
- --------------------------------------------------------------------------------
Due in one year or less                    $  896,159              $  899,666
Due after one year
   through five years                       3,253,264               3,318,537
Due after five years
   through ten years                        2,199,562               2,228,012
Due after ten years                         3,396,072               3,391,876
- --------------------------------------------------------------------------------
                                           $9,745,057              $9,838,091
================================================================================

        At December 31, 2001 and 2000, the Company had bonds which were rated less than investment grade of $447.3 million and $252.5 million, respectively, having an amortized cost of $524.1 million and $332.0 million, respectively. At December 31, 2001, approximately $63.3 million of the bonds rated less than investment grade were securities issued in Company-sponsored commercial mortgage loan securitizations. Approximately $1,788.2 million of bonds are not publicly traded.

        The change in unrealized gains (losses), net of income tax, on fixed maturity and equity securities for the years ended December 31 is summarized as follows:

                                      2001           2000            1999
- --------------------------------------------------------------------------------
Fixed maturities                    $108,307       $109,626       $(227,568)
Equity securities                        715           (820)            973
================================================================================

        At December 31, 2001, all of the Company’s mortgage loans were commercial loans of which 75% were retail, 10% were apartments, 7% were office buildings, 7% were warehouses, and 1% were other. The Company specializes in making mortgage loans on either credit-oriented or credit-anchored commercial properties, most of which are strip shopping centers in smaller towns and cities. No single tenant’s leased space represents more than 3.5% of mortgage loans. Approximately 76% of the mortgage loans are on properties located in the following states listed in decreasing order of significance: Texas, Tennessee, Georgia, Alabama, North Carolina, South Carolina, Florida, Virginia, California, Mississippi, Washington, Kentucky, and Ohio.

        Many of the mortgage loans have call provisions between 3 and 10 years. Assuming the loans are called at their next call dates, approximately $153.4 million would become due in 2002, $560.4 million in 2002 to 2006, $392.5 million in 2007 to 2011, and $46.7 million thereafter.

        At December 31, 2001, the average mortgage loan was $2.1 million, and the weighted average interest rate was 7.6%. The largest single mortgage loan was $18.8 million.

        For several years the Company has offered a type of commercial mortgage loan under which the Company will permit a slightly higher loan-to-value ratio in exchange for a participating interest in the cash flows from the underlying real estate. As of December 31, 2001 and 2000, approximately $548.4 million and $572.2 million respectively, of the Company’s mortgage loans have this participation feature.

        At December 31, 2001 and 2000, the Company’s problem mortgage loans (over ninety days past due) and foreclosed properties totaled $29.6 million and $20.6 million, respectively. Since the Company’s mortgage loans are collateralized by real estate, any assessment of impairment is based upon the estimated fair value of the real estate. Based on the Company’s evaluation of its mortgage loan portfolio, the Company does not expect any material losses on its mortgage loans.

        At December 31, 2001 and 2000, the Company had investments related to retained beneficial interests of mortgage loan securitizations of $286.4 million and $309.0 million, respectively.

        Certain investments with a carrying value of $62.5 million, were non-income producing for the twelve months ended December 31, 2001.

        Policy loan interest rates generally range from 4.0% to 8.0%.

        On December 31, 2001, Protective Life Insurance Company had $117.0 million of securities sold under repurchase agreements with an interest rate of 2.0%. The agreement to repurchase liability is recorded as securities sold under repurchase agreements.

3 Income Taxes

        The Company’s effective income tax rate related to continuing operations varied from the maximum federal income tax rate as follows: 

                                      2001          2000         1999
- ------------------------------------------------------------------------
Statutory federal income
    tax rate applied to pretax
    income                           35.0%          35.0%        35.0%
Amortization of
    nondeductible goodwill            0.1            0.1
State income taxes                    0.7            0.6          0.4
Dividends received
    deduction and
    tax-exempt interest              (1.8)          (0.4)
Low-income housing credit            (0.5)          (0.3)        (0.3)
Other                                (0.8)           0.1          0.3
- ------------------------------------------------------------------------
                                     32.7%          35.1%        35.4%
========================================================================

        The provision for federal income tax differs from amounts currently payable due to certain items reported for financial statement purposes in periods which differ from those in which they are reported for income tax purposes.

        Details of the deferred income tax provision for the years ended December 31 are as follows:

                                 2001            2000            1999
- --------------------------------------------------------------------------
Deferred policy
    acquisition
    costs                     $ 81,947          $30,250      $  45,671
Benefit and other
    policy liability
    changes                    (75,422)          34,986        (22,660)
Temporary
    differences of
    investment income            6,285           (2,590)         6,655
Other items                     (8,939)            (272)        (1,696)
- --------------------------------------------------------------------------
                             $   3,871          $62,374      $  27,970
==========================================================================

        The components of the Company's net deferred income tax liability as of December 31 were as follows:

                                            2001                2000
- ------------------------------------------------------------------------
Deferred income tax assets:
   Policy and policyholder
     liability reserves                  $276,071            $195,767
   Other                                   15,381               6,442
- ------------------------------------------------------------------------
                                          291,452             202,209
========================================================================

Deferred income tax liabilities:
   Deferred policy acquisition costs      379,072             302,629
   Unrealized gains (losses) on
     investments                           39,610             (21,354)
- ------------------------------------------------------------------------
                                          418,682             281,275
- ------------------------------------------------------------------------
Net deferred income tax liability        $127,230           $  79,066
========================================================================

        Under pre-1984 life insurance company income tax laws, a portion of the Company's gain from operations which was not subject to current income taxation was accumulated for income tax purposes in a memorandum account designated as Policyholders' Surplus. The aggregate accumulation in this account at December 31, 2001, was approximately $70.5 million. Should the accumulation in the Policyholders' Surplus account of the life insurance subsidiaries exceed certain stated maximums, or should distributions including cash dividends be made to Protective Life Corporation in excess of approximately $971.8 million, such excess would be subject to federal income taxes at rates then effective. Deferred income taxes have not been provided on amounts designated as Policyholders' Surplus. Under current income tax laws, the Company does not anticipate paying income tax on amounts in the Policyholders' Surplus accounts.

4 Debt and Guaranteed Preferred Beneficial Interests

Long-term debt at December 31 is summarized as follows:

                                            2001                  2000
- ---------------------------------------------------------------------------
Long-term debt (year of issue):
7.95% Senior Notes (1994),
due 2004                                  $75,000               $75,000
7.45% Medium-Term Notes
(1996), due 2011                            9,852                 9,938
7.45% Medium-Term Notes
(1996), due 2011, callable 2001                                   9,867
7.10% Medium-Term Notes
(1996), due 2011, callable 2001                                  12,238
7.00% Medium-Term Notes
(1996), due 2011, callable 2001                                  12,182
8.00% Senior Notes (2000),
due 2010, callable 2003                    49,873                49,905
8.10% Senior Notes (2000),
due 2015, callable 2003                    39,853                39,890
8.25% Senior Notes (2000),
due 2030, callable 2005                    34,719                34,790
7.50% Senior Notes (2000),
due 2016, callable 2004                    59,944                60,000
Floating Rate Senior Notes
 (2001), due 2003                         100,000
Mortgage notes on
investment real estate                      6,970                 2,315
- ---------------------------------------------------------------------------
                                         $376,211              $306,125
===========================================================================

        Under revolving line of credit arrangements with several banks, the Company can borrow up to $200 million on an unsecured basis. No compensating balances are required to maintain the line of credit. At December 31, 2001 and 2000, the Company had no borrowings outstanding under these credit arrangements.

        The aforementioned revolving line of credit arrangements contain, among other provisions, requirements for maintaining certain financial ratios and restrictions on indebtedness incurred by the Company and its subsidiaries. Additionally, the Company, on a consolidated basis, cannot incur debt in excess of 40% of its total capital.

        Except for the 7.95% Senior Notes, limited amounts of the Senior and Medium-Term Notes may be redeemed upon the death of the beneficial owner of the notes.

        At December 31, 2001, future maturities of long-term debt are $100.0 million in 2003, $75.0 million in 2004 and $194.2 million in years after 2005.

        In 1994, a special purpose finance subsidiary of the Company, PLC Capital L.L.C. (PLC Capital), issued $55 million of 9% Cumulative Monthly Income Preferred Securities, Series A (MIPSSM). In 1999, the Company caused PLC Capital to redeem the MIPS. In a related transaction the Company redeemed its subordinated debentures which were held by PLC Capital. The redemption of the subordinated debentures resulted in an extraordinary loss of $1.8 million ($0.03 per share on both a diluted and basic basis). The extraordinary loss was comprised primarily of unamortized deferred debt issue costs and losses related to the termination of related interest rate swap agreements, net of an income tax benefit of $0.9 million.

        In 1997, another special purpose finance subsidiary, PLC Capital Trust I, issued $75 million of 8.25% Trust Originated Preferred Securities (TOPrSSM). The 8.25% TOPrS are guaranteed on a subordinated basis by the Company. This guarantee, considered together with the other obligations of the Company with respect to the 8.25% TOPrS, constitutes a full and unconditional guarantee by the Company of PLC Capital Trust I’s obligations with respect to the 8.25% TOPrS.

        PLC Capital Trust I was formed solely to issue securities and use the proceeds thereof to purchase subordinated debentures of the Company. The sole assets of PLC Capital Trust I are $77.3 million of Protective Life Corporation 8.25% Subordinated Debentures due 2027, Series B. The Company has the right under the subordinated debentures to extend interest payment periods up to five consecutive years, and, as a consequence, dividends on the 8.25% TOPrS may be deferred (but will continue to accumulate, together with additional dividends on any accumulated but unpaid dividends at the dividend rate) by PLC Capital Trust I during any such extended interest payment period. The 8.25% TOPrS are redeemable by PLC Capital Trust I at any time on or after April 29, 2002.

        Also in 1997, another special purpose finance subsidiary, PLC Capital Trust II, issued $115 million of FELINE PRIDES which are comprised of stock purchase contracts and a beneficial ownership of 6.5% TOPrS. The sole assets of PLC Capital Trust II were $118.6 million of Protective Life Corporation 6.5% Subordinated Debentures due 2003, Series C. In February 2001, the Company issued 3,918,843 shares of its Common Stock under the stock purchase contracts. In the transaction, substantially all of the 6.5% TOPrS and the underlying subordinated debt were redeemed. The dividend rate on the TOPrS that remained outstanding after February 2001 was reset to 6.77% under a formula specified in the agreement. The remaining outstanding TOPrS and underlying subordinated debt were redeemed in April 2001.

        In August 2001, a third special purpose finance subsidiary of the Company, PLC Capital Trust III, issued $100 million of 7.5% TOPrS. The 7.5% TOPrS are guaranteed on a subordinated basis by the Company. This guarantee, considered together with the other obligations of the Company with respect to the 7.5% TOPrS, constitutes a full and unconditional guarantee by the Company of PLC Capital Trust III’s obligations with respect to the 7.5% TOPrS.

        PLC Capital Trust III was formed solely to issue securities and use the proceeds thereof to purchase subordinated debentures of the Company. The sole assets of PLC Capital Trust III are $103.1 million of Protective Life Corporation 7.5% Subordinated Debentures due 2031, Series D. The Company has the right under the subordinated debentures to extend interest payment periods up to five consecutive years, and, as a consequence, dividends on the 7.5% TOPrS may be deferred (but will continue to accumulate, together with additional dividends on any accumulated but unpaid dividends at the dividend rate) by PLC Capital Trust III during any such extended interest payment period. The 7.5% TOPrS are redeemable by PLC Capital Trust III at any time on or after August 22, 2006.

        The MIPS, TOPrS, and FELINE PRIDES (collectively, “preferred securities”) are reported in the accompanying balance sheets as “guaranteed preferred beneficial interests”.

        The Company uses interest rate swap agreements to convert a portion of its debt and preferred securities from a fixed interest or dividend rate to a floating rate. Interest expense on all debt, including dividends on preferred securities and the effect of interest rate swap agreements, totaled $32.9 million, $34.2 million, and $32.1 million in 2001, 2000, and 1999, respectively.

5 Recent Acquisitions

        In September 1999, the Company recaptured a block of credit life and disability policies which it had previously ceded.

        In January 2000, the Company acquired the Lyndon Insurance Group (Lyndon). The assets acquired included $47.3 million of present value of future profits and $41.4 million of goodwill.

        In January 2001, the Company coinsured a block of individual life policies from Standard Insurance Company. In October 2001, the Company completed the acquisition of the stock of Inter-State Assurance Company (Inter-State) and First Variable Life Insurance Company (First Variable) from ILona Financial Group, Inc., a subsidiary of Irish Life & Permanent plc of Dublin, Ireland. The purchase price was approximately $250 million. The assets acquired included $132.7 million of present value of future profits.

        These transactions have been accounted for as purchases, and the results of the transactions have been included in the accompanying financial statements since their respective effective dates.

        Summarized below are the consolidated results of operations for 2001 and 2000, on an unaudited pro forma basis, as if the Inter-State and First Variable acquisitions had occurred as of January 1, 2000. The pro forma information is based on the Company’s consolidated results of operations for 2001 and 2000, and on data provided by the acquired companies, after giving effect to certain pro forma adjustments. The pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transaction occurred on the basis assumed above nor are they indicative of results of the future operations of the combined enterprises. 

(unaudited)                         2001                2000
- -----------------------------------------------------------------
Total revenues                  $1,683,536           $1,457,155
Net income                         111,718              165,176
Net income per share-basic            1.61                 2.51
Net income per share-diluted          1.60                 2.49
=================================================================

6 Commitments and Contingent Liabilities

The Company is contingently liable to obtain a $20 million letter of credit under indemnity agreements with its directors. Such agreements provide insurance protection in excess of the directors’ and officers’ liability insurance in force at the time up to $20 million. Should certain events occur constituting a change in control of the Company, the Company must obtain the letter of credit upon which directors may draw for defense or settlement of any claim relating to performance of their duties as directors. The Company has similar agreements with certain of its officers providing up to $10 million in indemnification which are not secured by the obligation to obtain a letter of credit.

        The Company leases administrative and marketing office space in approximately 30 cities including Birmingham, with most leases being for periods of three to ten years. The aggregate annualized rent is approximately $8.7 million.

        The Company has financed the construction of a third building contiguous to its existing home office complex under an operating lease arrangement. Approximately $38 million of construction costs had been incurred at December 31, 2001. The Company has an option to purchase the building from the lessor at the end of the lease term.

        Under insurance guaranty fund laws, in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer’s own financial strength.

        A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives relationships with agents or persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial service companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

7 Share-Owners' Equity and Restrictions and Stock-based Compensation

Activity in the Company's issued and outstanding common stock is summarized as follows:



                                       ISSUED      TREASURY     OUTSTANDING
                                       SHARES       SHARES        SHARES
- -------------------------------------------------------------------------------
Balance, December 31, 1998           69,333,117    4,898,100    64,435,017
Reissuance of treasury stock                         (67,075)       67,075
- -------------------------------------------------------------------------------
Balance, December 31, 1999           69,333,117    4,831,025    64,502,092
Reissuance of treasury stock                         (55,475)       55,475
- -------------------------------------------------------------------------------
Balance, December 31, 2000           69,333,117    4,775,550    64,557,567
Reissuance of treasury stock                         (78,762)       78,762
Redemption of FELINE PRIDES           3,918,843                  3,918,843
- -------------------------------------------------------------------------------
Balance, December 31, 2001           73,251,960    4,696,788    68,555,172
===============================================================================

        The Company has a Rights Agreement that provides rights to owners of the Company’s Common Stock to purchase Series A Junior Participating Cumulative Preferred Stock, or in certain circumstances, either Common Stock or common stock of an acquiring company at one half the market price of such Common Stock or common stock, as the case may be. The rights will become exercisable if certain events occur with respect to the Company, including the acquisition by a person or group of 15% or more of the Company’s Common Stock. The Company can redeem the rights at $.01 per right in certain circumstances, including redemption until ten business days following a public announcement that 15% or more of the Company’s Common Stock has been acquired by a person or group.

        Share owners have authorized 4,000,000 shares of Preferred Stock, $1.00 par value. Other terms, including preferences, voting, and conversion rights, may be established by the Board of Directors. In connection with the Rights Agreement, 400,000 of these shares have been designated as Series A Junior Participating Cumulative Preferred Stock, $1.00 par value, and were unissued at December 31, 2001. The remaining 3,600,000 shares of Preferred Stock, $1.00 par value, were also unissued at December 31, 2001.

        The Company sponsors a deferred compensation plan for certain of its agents. A trust was established to aid the Company in meeting its obligations under the plan. Company Common Stock owned by the trust is accounted for as treasury stock.

        The Company has an Employee Stock Ownership Plan (ESOP). The stock is used to match employee contributions to the Company’s 401(k) and Stock Ownership Plan (401(k) Plan) and to provide other employee benefits. The stock held by the ESOP that has not yet been used is the unallocated stock shown as a reduction to share-owners’ equity. The ESOP shares are dividend-paying and are considered outstanding for earnings per share calculations. Dividends on the shares are used to pay the ESOP’s note to Protective Life. If certain events associated with a change in control of the Company occur, any unallocated shares held by the ESOP will become allocable to employee 401(k) accounts.

        The Company may, from time to time, reissue treasury shares or buy in the open market additional shares of Common Stock to complete its 401(k) obligations. Accordingly, in 2000, the Company reissued from treasury 14,126 shares of Common Stock to the 401(k) Plan and reissued from treasury another 30,721 shares during 2001.

        Since 1973, the Company has had stock-based incentive plans to motivate management to focus on the Company’s long-range performance through the awarding of stock-based compensation. Under plans approved by share owners in 1997 and 1998, up to 5,000,000 shares may be issued in payment of awards.

        The criteria for payment of performance awards is primarily based upon a comparison of the Company’s average return on average equity and total rate of return over a four year award period (earlier upon the death, disability, or retirement of the executive, or in certain circumstances, of a change in control of the Company) to that of a comparison group of publicly held life and multiline insurance companies. If the Company’s results are below the median of the comparison group, no portion of the award is earned. If the Company’s results are at or above the 90th percentile, the award maximum is earned.

        In 1999, 99,380 performance shares were awarded, having an estimated fair value on the grant date of $3.4 million. In 2000, 3,330 performance shares and 513,618 stock appreciation rights (SARs) were awarded, having a combined estimated fair value on the grant date of $3.7 million. In 2001, 153,490 performance shares and 40,000 SARs were awarded having a combined estimated fair value on the grant date of $4.9 million. The SARs, if earned, expire after ten years.

        A performance share is equivalent in value to one share of Company Common Stock. With respect to SARs, the Company will pay an amount equal to the difference between the specified base price of the Company’s Common Stock and the market value at the exercise date. Awards are paid in shares of Company Common Stock. At December 31, 2001, outstanding awards measured at maximum payouts were 423,362 performance shares and 853,236 SARs.

        During 1996, 2000, and 2001, SARs were granted to certain officers of the Company to provide long-term incentive compensation based solely on the performance of the Company’s Common Stock. The SARs are exercisable after five years (earlier upon the death, disability, or retirement of the officer, or in certain circumstances, of a change in control of the Company) and expire after ten years or upon termination of employment. In 2000, 217,500 SARs were awarded, having an estimated fair value on the grant date of $1.5 million. In 2001, 62,500 SARs were awarded, having an estimated fair value on the grant date of $0.6 million. The number of SARs granted in 1996, 2000 and 2001, outstanding at December 31, 2001, was 660,000, 215,000, and 62,500, respectively.

        The 1996 SARs have a base price of $17.4375. The 2000 SARs have a base price of $22.31. The 2001 SARs have a base price of $31.26 and $31.29. The fair value of the 2001 SARs was estimated using a Black-Scholes option pricing model. Assumptions used in the model were as follows: expected volatility of 26.4% (approximately equal to that of the S&P Life Insurance Index), a risk-free interest rate of 4.7%, a dividend rate of 1.9%, and an expected exercise date of 2007.

        The expense recorded by the Company for its stock-based compensation plans was $5.6 million, $4.1 million, and $4.0 million in 2001, 2000, and 1999, respectively. The Company’s obligations of its stock-based compensation plans that are expected to be settled in shares of the Company’s Common Stock are reported as a component of share-owners’ equity.

        The Company has established deferred compensation plans for directors, officers, and others. Compensation deferred is credited to the participants in cash, Common Stock equivalents, or a combination thereof. The Company may, from time to time, reissue treasury shares or buy in the open market shares of Common Stock to fulfill its obligation under the plans. At December 31, 2001, the plans had 1,406,692 shares of Common Stock equivalents credited to participants.

        At December 31, 2001, approximately $282.1 million of consolidated share-owners’ equity, excluding net unrealized gains on investments, represented net assets of the Company’s insurance subsidiaries that cannot be transferred to Protective Life Corporation. In addition, the Company’s insurance subsidiaries are subject to various state statutory and regulatory restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation. In general, dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as ordinary dividends to the Company by its insurance subsidiaries in 2002 is estimated to be $99.0 million.

8 Related Party Matters

        Certain corporations with which the Company’s directors were affiliated paid the Company premiums and policy fees or other amounts for various types of insurance and investment products. Such premiums, policy fees, and other amounts totaled $19.6 million, $50.9 million, and $70.3 million in 2001, 2000, and 1999, respectively. The Company paid commissions, interest on debt and investment products, and fees to these same corporations totaling $5.9 million, $28.2 million, and $16.7 million in 2001, 2000, and 1999, respectively. In addition, the Company has a swap contract with a related party having a notional amount of $443.2 million, which to the Company was in a $24.8 million gain position at December 31, 2001.

9 Reconciliation with Statutory Reporting Practices and Other Regulatory Matters

        Financial statements prepared in conformity with accounting principles generally accepted in the United States of America differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. The most significant differences are as follows: (a) acquisition costs of obtaining new business are deferred and amortized over the approximate life of the policies rather than charged to operations as incurred; (b) benefit liabilities are computed using a net level method and are based on realistic estimates of expected mortality, interest, and withdrawals as adjusted to provide for possible unfavorable deviation from such assumptions; (c) deferred income taxes are provided for temporary differences between financial and taxable earnings; (d) the Asset Valuation Reserve and Interest Maintenance Reserve are restored to share-owners’ equity; (e) furniture and equipment, agents’ debit balances, and prepaid expenses are reported as assets rather than being charged directly to surplus (referred to as nonadmitted assets); (f) certain items of interest income, such as mortgage and bond discounts, are amortized differently; and (g) bonds are recorded at their market values instead of amortized cost. The National Association of Insurance Commissioners (NAIC) has adopted the Codification of Statutory Accounting Principles (Codification). Codification changed statutory accounting rules in several areas and was effective January 1, 2001. The adoption of Codification did not have a material effect on the Company’s insurance subsidiaries’ statutory capital.

        The reconciliations of net income and share-owners’ equity prepared in conformity with statutory reporting practices to that reported in the accompanying consolidated financial statements are as follows: 


                                                       Net Income                      Share-Owners' Equity
                                          -----------------------------------------------------------------------------
                                             2001         2000       1999         2001           2000          1999
- -----------------------------------------------------------------------------------------------------------------------
In conformity with statutory
    reporting practices1                  $163,181      $69,927    $83,656      $775,138       $628,274      $598,655
Additions (deductions)
    by adjustment:
Deferred policy acquisition
    costs, net of amortization             163,243      157,617    120,644     1,532,683      1,189,380     1,011,524
Deferred income tax                         (3,871)     (62,374)   (27,970)     (127,230)       (79,066)       37,828
Asset Valuation Reserve                                                          108,062        103,853        41,104
Interest Maintenance Reserve               (10,444)      (3,540)      (226)       16,959          9,715        19,328
Nonadmitted items                                                                184,310         97,447        51,350
Noninsurance affiliates                    (23,356)      28,100      2,584       819,950        790,975       904,762
Dividends paid on Guaranteed
    Preferred Beneficial Interests          (5,766)      (9,461)   (10,606)
Discontinued operations                   (193,688)
Consolidation elimination                                                     (2,207,562)    (1,859,279)   (1,411,392)
Other valuation and timing differences      13,644      (26,793)   (16,755)      297,834        232,759      (387,936)
- -----------------------------------------------------------------------------------------------------------------------
In conformity with generally
    accepted accounting principles        $102,943     $153,476   $151,327    $1,400,144     $1,114,058      $865,223
=======================================================================================================================
(1) Consolidated

        As of December 31, 2001, the Company’s insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $81.9 million.

10 Operating Segments

        The Company operates business segments each having a strategic focus which can be grouped into three general categories: life insurance, retirement savings and investment products, and specialty insurance products. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each segment follows.

Life Insurance

o The Life Marketing segment markets level premium term and term-like insurance, universal life, and variable universal life products on a national basis primarily through networks of independent insurance agents and brokers, and in the “bank owned life insurance” market.

o The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment’s primary focus is on life insurance policies sold to individuals.

Retirement Savings and Investment Products

o The Stable Value Contracts segment markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans. The segment also markets fixed and floating rate funding agreements to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds.

o The Annuities segment manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and the Life Marketing segment’s sales force.

Specialty Insurance Products

o The Credit Products segment markets credit life and disability insurance products through banks, consumer finance companies, and automobile dealers, and markets vehicle and recreational marine extended service contracts.

Corporate and Other

        The Company has an additional business segment herein referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital and interest on substantially all debt). This segment also includes earnings from several lines of business which the Company is not actively marketing (mostly cancer insurance and group annuities), various investment-related transactions, and the operations of several small subsidiaries.

        The Company uses the same accounting policies and procedures to measure operating segment income and assets as it uses to measure its consolidated net income and assets. Operating segment income is generally income before income tax, adjusted to exclude any pretax minority interest in income of consolidated subsidiaries. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of deferred policy acquisition costs are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner which most appropriately reflects the operations of that segment. Unallocated realized investment gains (losses) are deemed not to be associated with any specific segment.

        Assets are allocated based on policy liabilities and deferred policy acquisition costs directly attributable to each segment.

        There are no significant intersegment transactions.

        The following table sets forth total operating segment income and assets for the periods shown. Adjustments represent the inclusion of unallocated realized investment gains (losses), the recognition of income tax expense, income from discontinued operations, extraordinary loss, and cumulative effect of change in accounting principle. Asset adjustments represent the inclusion of assets related to discontinued operations.

        In December 2001, the Company sold substantially all of its Dental Division and discontinued other Dental related operations. Additionally, other adjustments were made to combine its life insurance marketing operations into a single segment, and to reclassify certain smaller businesses. Prior period segment results have been restated to reflect these changes. 



                                                                                          LIFE INSURANCE
                                                                              --------------------------------------
                                                                                  LIFE
OPERATING SEGMENT INCOME                                                        MARKETING             ACQUISITIONS
- --------------------------------------------------------------------------------------------------------------------
2001
Premiums and policy fees                                                     $   542,406             $   243,915
Reinsurance ceded                                                               (421,411)                (61,482)
- --------------------------------------------------------------------------------------------------------------------
   Net of reinsurance ceded                                                      120,995                 182,433
Net investment income                                                            179,346                 187,535
Realized investment gains (losses)
Other income                                                                      70,913                     682
- --------------------------------------------------------------------------------------------------------------------
   Total revenues                                                                371,254                 370,650
- --------------------------------------------------------------------------------------------------------------------
Benefits and settlement expenses                                                 190,538                 238,877
Amortization of deferred policy acquisition costs and goodwill                    41,868                  20,501
Other operating expenses                                                          49,274                  43,232
- --------------------------------------------------------------------------------------------------------------------
   Total benefits and expenses                                                   281,680                 302,610
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax                               89,574                  68,040
Income tax expense
Discontinued operations, net of income tax
Change in Accounting Principle, net of income tax
- --------------------------------------------------------------------------------------------------------------------
Net income
====================================================================================================================
2000
Premiums and policy fees                                                     $   487,720             $   134,099
Reinsurance ceded                                                               (387,907)                (31,102)
- --------------------------------------------------------------------------------------------------------------------
   Net of reinsurance ceded                                                       99,813                 102,997
Net investment income                                                            152,511                 116,940
Realized investment gains (losses)
Other income                                                                      70,335                      (4)
- --------------------------------------------------------------------------------------------------------------------
   Total revenues                                                                322,659                 219,933
- --------------------------------------------------------------------------------------------------------------------
Benefits and settlement expenses                                                 149,430                 125,151
Amortization of deferred policy acquisition costs and goodwill                    49,111                  17,081
Other operating expenses                                                          47,521                  24,939
- --------------------------------------------------------------------------------------------------------------------
   Total benefits and expenses                                                   246,062                 167,171
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax                               76,597                  52,762
Income tax expense
Discontinued operations, net of income tax
- --------------------------------------------------------------------------------------------------------------------
Net income
====================================================================================================================
1999
Premiums and policy fees                                                     $   361,824             $   148,620
Reinsurance ceded                                                               (246,111)                (33,754)
- --------------------------------------------------------------------------------------------------------------------
   Net of reinsurance ceded                                                      115,713                 114,866
Net investment income                                                            138,198                 129,806
Realized investment gains (losses)
Other income                                                                      47,780                      (9)
- --------------------------------------------------------------------------------------------------------------------
   Total revenues                                                                301,691                 244,663
- --------------------------------------------------------------------------------------------------------------------
Benefits and settlement expenses                                                 147,631                 129,581
Amortization of deferred policy acquisition costs and goodwill                    29,538                  19,444
Other operating expenses                                                          66,334                  31,967
- --------------------------------------------------------------------------------------------------------------------
   Total benefits and expenses                                                   243,503                 180,992
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax                               58,188                  63,671
Income tax expense
Discontinued operations, net of income tax
Extraordinary loss, net of income tax
- --------------------------------------------------------------------------------------------------------------------
Net income
====================================================================================================================
Operating Segment Assets
2001
Investments and other assets                                                  $3,433,099              $4,087,470
Deferred policy acquisition costs and goodwill                                   839,375                 418,268
- --------------------------------------------------------------------------------------------------------------------
   Total assets                                                               $4,272,474              $4,505,738
====================================================================================================================
2000
Investments and other assets                                                  $2,846,551              $1,602,352
Deferred policy acquisition costs and goodwill                                   710,468                 222,620
- --------------------------------------------------------------------------------------------------------------------
   Total assets                                                               $3,557,019              $1,824,972
====================================================================================================================
(1)Adjustments to net income represent the inclusion of unallocated realized investment gains (losses), and the recognition of income tax expense, income from discontinued operations, extraordinary loss, and cumulative effect of change in Accounting Principle. Asset adjustments represent the inclusion of assets related to discontinued operations. 
     RETIREMENT SAVINGS AND        SPECIALTY INSURANCE
       INVESTMENT PRODUCTS             PRODUCTS
- -------------------------------------------------------------------------------------------------------------------
    STABLE VALUE                        CREDIT              CORPORATE                                   TOTAL
     CONTRACTS    ANNUITIES            PRODUCTS             AND OTHER        ADJUSTMENTS(1)         CONSOLIDATED
- -------------------------------------------------------------------------------------------------------------------

               $     28,145           $   524,281        $     51,073                             $  1,389,820
                                         (274,220)            (14,038)                                (771,151)
- -------------------------------------------------------------------------------------------------------------------
                     28,145               250,061              37,035                                  618,669
$   261,079         167,905                48,940              39,236                                  884,041
      7,218           1,139                                                    $ (28,528)              (20,171)
                     10,547                46,636               2,900                                  131,678
- -------------------------------------------------------------------------------------------------------------------
    268,297         207,736               345,637              79,171                                1,614,217
- -------------------------------------------------------------------------------------------------------------------
    222,306         137,204               154,893              28,806                                  972,624
      1,662          24,021                60,756               1,805                                  150,613
      3,961          29,434                96,028              59,455                                  281,384
- -------------------------------------------------------------------------------------------------------------------
    227,929         190,659               311,677              90,066                                1,404,621
- -------------------------------------------------------------------------------------------------------------------
     40,368          17,077                33,960             (10,895)                                 209,596
                                                                                  68,538                68,538
                                                                                 (30,522)              (30,522)
                                                                                  (7,593)               (7,593)
- -------------------------------------------------------------------------------------------------------------------
                                                                                                       102,943
===================================================================================================================

               $     30,127           $   479,352        $     44,600                             $  1,175,898
                                         (258,931)             (8,168)                                (686,108)
- -------------------------------------------------------------------------------------------------------------------
                     30,127               220,421              36,432                                  489,790
$   243,132         132,314                47,029              38,223                                  730,149
     (6,556)            410                                                  $      (897)               (7,043)
                     11,486                41,325              28,691                                  151,833
- -------------------------------------------------------------------------------------------------------------------
    236,576         174,337               308,775             103,346                                1,364,729
- -------------------------------------------------------------------------------------------------------------------
    207,143         109,607               135,494              33,953                                  760,778
        900          24,156                52,893               2,152                                  146,293
      3,881          25,403                88,197              56,042                                  245,983
- -------------------------------------------------------------------------------------------------------------------
    211,924         159,166               276,584              92,147                                1,153,054
- -------------------------------------------------------------------------------------------------------------------
     24,652          15,171                32,191              11,199                                  211,675
                                                                                  74,321                74,321
                                                                                  16,122                16,122
- -------------------------------------------------------------------------------------------------------------------
                                                                                                 $     153,476
===================================================================================================================

               $     24,248           $   284,897        $     41,438                            $     861,027
                                         (176,928)             (5,504)                                (462,297)
- -------------------------------------------------------------------------------------------------------------------

                     24,248               107,969              35,934                                  398,730
$   210,208         106,645                24,506              58,605                                  667,968
       (549)          1,446                                                       (1,954)               (1,057)
                      9,628                27,456               4,825                                   89,680
- ------------------------------------------------------------------------------------------------------------------
    209,659         141,967               159,931              99,364                                1,155,321
- ------------------------------------------------------------------------------------------------------------------
    175,290          88,642                55,899              32,613                                  629,656
        744          19,820                24,966               2,493                                   97,005
      4,709          21,014                57,134              44,113                                  225,271
- ------------------------------------------------------------------------------------------------------------------
    180,743         129,476               137,999              79,219                                  951,932
- ------------------------------------------------------------------------------------------------------------------
     28,916          12,491                21,932              20,145                                  203,389
                                                                                  71,941                71,941
                                                                                  21,642                21,642
                                                                                   1,763                 1,763
- ------------------------------------------------------------------------------------------------------------------
                                                                                                 $     151,327
==================================================================================================================


 $3,872,636      $4,507,289            $1,060,967          $1,063,373           $113,145           $18,137,979
      6,375         128,488               179,606               8,733                                1,580,845
- ------------------------------------------------------------------------------------------------------------------
 $3,879,011      $4,635,777            $1,240,573          $1,072,106           $113,145           $19,718,824
==================================================================================================================

 $3,340,099      $3,842,656            $1,232,950         $   623,796           $217,527           $13,705,931
      2,144         126,636               152,964              10,100            214,770             1,439,702
- ------------------------------------------------------------------------------------------------------------------
 $3,342,243      $3,969,292            $1,385,914         $   633,896           $432,297           $15,145,633
==================================================================================================================

11 Employee Benefit Plans

        The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s highest thirty-six consecutive months of compensation. The Company’s funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements of ERISA plus such additional amounts as the Company may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.

        The actuarial present value of benefit obligations and the funded status of the plan at December 31 are as follows: 

                                                                                            2001           2000
- ------------------------------------------------------------------------------------------------------------------
Projected benefit obligation, beginning of the year                                       $45,538        $36,530
Service cost - benefits earned during the year                                              3,739          3,338
Interest cost - on projected benefit obligation                                             3,531          3,195
Actuarial gain (loss)                                                                        (357)         1,968
Plan amendment                                                                              1,162            833
Divestiture                                                                                (2,165)
Benefits paid                                                                                (579)          (326)
- ------------------------------------------------------------------------------------------------------------------
Projected benefit obligation, end of the year                                              50,869         45,538
- ------------------------------------------------------------------------------------------------------------------
Fair value of plan assets beginning of the year                                            40,822         34,420
Actual return on plan assets                                                               (1,440)          (148)
Employer contribution                                                                       5,221          6,876
Benefits paid                                                                                (579)          (326)
- ------------------------------------------------------------------------------------------------------------------
Fair value of plan assets end of the year                                                  44,024         40,822
- ------------------------------------------------------------------------------------------------------------------
Plan assets less than the projected benefit obligation                                     (6,845)        (4,716)
Unrecognized net actuarial loss from past experience different from that assumed           10,213          7,766
Unrecognized prior service cost                                                             2,026          1,226
- ------------------------------------------------------------------------------------------------------------------
Net pension asset (liability) recognized in balance sheet                                 $ 5,394        $ 4,276
==================================================================================================================

Net pension cost of the defined benefit pension plan includes the following components for the years ended December 31:

                                                                             2001           2000            1999
- ------------------------------------------------------------------------------------------------------------------
Service cost                                                               $ 3,739         $3,338         $3,270
Interest cost                                                                3,531          3,195          2,779
Expected return on plan assets                                              (3,669)        (3,049)        (2,348)
Amortization of prior service cost                                             176            176            115
Amortization of transition asset                                                              (17)           (17)
Amortization of losses                                                         141
Recognized net actuarial loss                                                                                494
Cost of divestiture                                                            186
- ------------------------------------------------------------------------------------------------------------------
Net pension cost                                                           $ 4,104         $3,643         $4,293
==================================================================================================================

Assumptions used to determine the benefit obligations as of December 31 were as follows:

                                                                             2001           2000            1999
- ------------------------------------------------------------------------------------------------------------------
Weighted average discount rate                                              7.25%           7.50%          8.00%
Rates of increase in compensation level                                     5.00            5.25           5.75
Expected long-term rate of return on assets                                 8.50            8.50           8.50
==================================================================================================================

        At December 31, 2001, approximately $7.2 million of the assets of the pension plan were in a group annuity contract with Protective Life and therefore are included in the general assets of Protective Life. Approximately $36.8 million of the assets of the pension plan are invested in a collective trust managed by Northern Trust Corporation.

        Prior to July 1999, upon retirement, the amount of pension plan assets vested in the retiree were used to purchase a single premium annuity from Protective Life in the retiree’s name. Therefore, amounts presented above as plan assets exclude assets relating to such retirees. Beginning July 1999, retiree obligations are being fulfilled from pension plan assets.

        The Company also sponsors an unfunded excess benefits plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed on qualified plans by federal tax law. At December 31, 2001 and 2000, the projected benefit obligation of this plan totaled $15.9 million and $14.4 million, respectively, of which $13.8 million and $10.5 million, respectively, have been recognized in the Company’s financial statements.

Net pension costs of the excess benefits plan includes the following components for the years ended December 31: 


                                                                         2001            2000             1999
- -----------------------------------------------------------------------------------------------------------------
Service cost                                                          $   686          $   736         $   695
Interest cost                                                           1,121            1,067             887
Amortization of prior service cost                                         19               19             113
Amortization of transition asset                                           37               37              37
Recognized net actuarial loss                                             233              194             265
Cost of divestiture and special termination benefits                    1,807
- -----------------------------------------------------------------------------------------------------------------
Net pension cost                                                       $3,903           $2,053          $1,997
=================================================================================================================

        In addition to pension benefits, the Company provides limited healthcare benefits to eligible retired employees until age 65. The postretirement benefit is provided by an unfunded plan. At December 31, 2001 and 2000, the liability for such benefits was approximately $1.2 million. The expense recorded by the Company was approximately $0.1 million in 2001, 2000, and 1999. The Company’s obligation is not materially affected by a 1% change in the healthcare cost trend assumptions used in the calculation of the obligation.

        Life insurance benefits for retirees are provided through the purchase of life insurance policies upon retirement from $10,000 up to a maximum of $75,000. This plan is partially funded at a maximum of $50,000 face amount of insurance.

        The Company sponsors a defined contribution retirement plan which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code. The Company has established an Employee Stock Ownership Plan (ESOP) to match voluntary employee contributions to the Company’s 401(k) Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are not otherwise under a bonus or sales incentive plan. Expense related to the ESOP consists of the cost of the shares allocated to participating employees plus the interest expense on the ESOP’s note payable to the Company less dividends on shares held by the ESOP. All shares held by the ESOP are treated as outstanding for purposes of computing earnings per share. At December 31, 2001, the Company had committed approximately 166,861 shares to be released to fund employee benefits. The expense recorded by the Company for these employee benefits was less than $0.1 million in 2001, 2000, and 1999.

12 Reinsurance

The Company reinsures certain of its risks with, and assumes risks from, other insurers under yearly renewable term, coinsurance, and modified coinsurance agreements. Under yearly renewable term agreements, the Company generally pays specific premiums to the reinsurer and receives specific amounts from the reinsurer as reimbursement for certain expenses. Coinsurance agreements are accounted for by passing a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate part of the premiums less commissions and is liable for a corresponding part of all benefit payments. Modified coinsurance is accounted for similarly to coinsurance except that the liability for future policy benefits is held by the original company, and settlements are made on a net basis between the companies. A substantial portion of the Company’s new life insurance and credit insurance sales is being reinsured. The Company reviews the financial condition of its reinsurers and monitors the amount of reinsurance it has with its reinsurers.

        The Company has reinsured approximately $169.5 billion, $126.0 billion, and $93.5 billion in face amount of life insurance risks with other insurers representing $565.1 million, $496.4 million, and $364.7 million of premium income for 2001, 2000, and 1999, respectively. The Company has also reinsured accident and health risks representing $122.7 million, $125.8 million, and $97.1 million of premium income for 2001, 2000, and 1999, respectively. In 2001 and 2000, policy and claim reserves relating to insurance ceded of $2,059.0 million and $988.4 million, respectively, are included in reinsurance receivables. Should any of the reinsurers be unable to meet its obligation at the time of the claim, obligation to pay such claim would remain with the Company. At December 31, 2001 and 2000, the Company had paid $46.4 million and $33.5 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, at December 31, 2001, the Company had receivables of $69.3 million related to insurance assumed. Included in these receivables are $51.2 million related to the sale of the Company’s Dental Division, and $783.9 million related to fixed annuities that were ceded in conjunction with the October 2001 acquisition of two small insurers.

13 Estimated Fair Values of Financial Instruments

        The carrying amounts and estimated fair values of the Company’s financial instruments at December 31 are as follows: 

                                                           2001                                  2000
                                                ------------------------------------------------------------------
                                                                  ESTIMATED                            ESTIMATED
                                                  CARRYING          FAIR              CARRYING           FAIR
                                                  AMOUNTS          VALUES              AMOUNTS           VALUE
- ------------------------------------------------------------------------------------------------------------------
Assets (see Notes 1 and 2):
Investments:
    Fixed maturities                             $9,838,091      $9,838,091           $7,415,769      $7,415,769
    Equity securities                                76,774          76,774               58,700          58,700
    Mortgage loans on real estate                 2,512,844       2,671,074            2,268,224       2,385,174
    Short-term investments                          237,155         237,155              189,161         189,161
Cash                                                126,558         126,558               55,494          55,494
Liabilities (see Notes 1 and 4):
Stable value contract account balances            3,716,530       3,821,955            3,177,863       3,250,991
Annuity account balances                          3,248,217       3,166,052            1,916,894       1,893,749
Debt:
    Senior and Medium-Term Notes                    369,241         378,418              303,810         305,987
8.25% Trust Originated Preferred Securities          75,000          74,400               75,000          73,890
7.5% Trust Originated Preferred Securities          100,000          96,960
6.5% FELINE PRIDES                                                                       115,000         118,450
Other (see Note 1):
Derivative Financial Instruments                    (21,865)        (21,865)              (7,334)        (12,296)
==================================================================================================================

        Except as noted below, fair values were estimated using quoted market prices.

        The Company estimates the fair value of its mortgage loans using discounted cash flows from the next call date.

        The Company believes the fair value of its short-term investments and notes payable to banks approximates book value due to being either short-term or having a variable rate of interest.

        The Company estimates the fair value of its guaranteed investment contracts and annuities using discounted cash flows and surrender values, respectively.

        The Company believes it is not practicable to determine the fair value of its policy loans since there is no stated maturity, and policy loans are often repaid by reductions to policy benefits.

        The Company estimates the fair value of its derivative financial instruments using market quotes or derivative pricing models. The fair values represent the net amount of cash the Company would have received (or paid) had the contracts been terminated on December 31.

14 Consolidated Quarterly Results - Unaudited

        Protective Life Corporation’s unaudited consolidated quarterly operating data for the years ended December 31, 2001 and 2000, are presented below. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of quarterly results have been reflected in the data which follow. It is also management’s opinion, however, that quarterly operating data for insurance enterprises are not indicative of results to be achieved in succeeding quarters or years. In order to obtain a more accurate indication of performance, there should be a review of operating results, changes in share-owners’ equity, and cash flows for a period of several quarters. 

                                             FIRST QUARTER      SECOND QUARTER      THIRD QUARTER      FOURTH QUARTER
- ---------------------------------------------------------------------------------------------------------------------
2001
Premiums and policy fees                       $311,545            $324,597           $332,739            $420,939
Reinsurance ceded                              (143,716)           (176,689)          (184,629)           (266,117)
- ---------------------------------------------------------------------------------------------------------------------
   Net of reinsurance ceded                     167,829             147,908            148,110             154,822
Net investment income                           206,505             212,970            222,759             241,807
Realized investment gains (losses)                9,091              (7,520)              (752)            (20,990)
Other income                                     28,412              29,020             37,205              37,041
- ---------------------------------------------------------------------------------------------------------------------
Total revenues                                  411,837             382,378            407,322             412,680
Benefits and expenses                           348,240             333,625            349,827             372,929
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing operations
   before income tax                             63,597              48,753             57,495              39,751
Income tax expense                               21,921              15,751             18,419              12,447
- ---------------------------------------------------------------------------------------------------------------------
Net income from continuing operations            41,676              33,002             39,076              27,304
Discontinued Operations                           3,964              (5,855)             3,548             (32,179)
Change in Accounting Principle                   (7,593)
- ---------------------------------------------------------------------------------------------------------------------
Net income                                      $38,047             $27,147            $42,624             $(4,875)
=====================================================================================================================
Net income from continuing operations
   per share - basic                            $   .61             $   .47            $   .56             $   .38
Net income per share - basic                    $   .56             $   .39            $   .61             $  (.08)
Average shares outstanding - basic           67,824,547          69,978,779         69,954,622          69,855,582
Operating income1 per share - diluted           $   .52             $   .54            $   .56             $   .59
Net income from continuing operations
    per share - diluted                         $   .61             $   .46            $   .56             $   .38
Net income per share - diluted                  $   .56             $   .38            $   .61             $  (.08)
Average shares outstanding - diluted         68,315,388          70,507,398         70,459,522          70,488,901
====================================================================================================================
2000
Premiums and policy fees                       $269,669            $305,647           $289,711            $310,871
Reinsurance ceded                              (144,572)           (175,646)          (163,360)           (202,530)
- --------------------------------------------------------------------------------------------------------------------
   Net of reinsurance ceded                     125,097             130,001            126,351             108,341
Net investment income                           171,432             182,753            185,795             190,169
Realized investment gains (losses)                2,696              (3,106)            (4,646)             (1,987)
Other income                                     55,863              34,877             31,028              30,065
- --------------------------------------------------------------------------------------------------------------------
Total revenues                                  355,088             344,525            338,528             326,588
Benefits and expenses                           289,304             292,136            293,967             277,647
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations
   before income tax                             65,784              52,389             44,561              48,941
Income tax expense                               23,289              18,307             15,618              17,107
- --------------------------------------------------------------------------------------------------------------------
Net income from continuing operations            42,495              34,082             28,943              31,834
Discontinued Operations                             540               5,220              5,036               5,326
- --------------------------------------------------------------------------------------------------------------------
Net income                                      $43,035             $39,302            $33,979             $37,160
====================================================================================================================
Net income from continuing operations
   per share - basic                            $   .64             $   .52            $   .45             $   .48
Net income per share - basic                    $   .65             $   .60            $   .52             $   .56
Average shares outstanding - basic           65,717,818          65,761,522         65,912,449          65,935,592
Operating income1 per share - diluted           $   .63             $   .54            $   .48             $   .50
Net income from continuing operations
   per share - diluted                          $   .64             $   .51            $   .45             $   .48
Net income per share - diluted                  $   .65             $   .59            $   .52             $   .56
Average shares outstanding - diluted         66,148,004          66,277,100         66,350,622          66,347,295
====================================================================================================================

(1) Net income from continuing operations excluding realized investment gains and losses and related amortization, extraordinary loss, and change in Accounting Principle.

 EX-21 11 ex21plc.htm Exhibit 21

Exhibit 21
to
Form 10-K
of
Protective Life Corporation
for
Fiscal Year
Ended December 31, 2001

The following wholly-owned subsidiary of Protective Life Corporation is organized under the laws of the State of Tennessee and does business under its corporate name:

Protective Life Insurance Company

The following wholly-owned subsidiary of Protective Life Insurance Company is incorporated under the laws of the State of California and does business under its corporate name:

West Coast Life Insurance Company

 EX-23 12 ex23plc.htm Exhibit 23

Exhibit 23


Consent of Independent Accountants

        We consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-86477, 333-80769, 333-39103 and 33-59769) and Form S-8 (File Nos. 333-32420, 33-51887 and 33-61847) of Protective Life Corporation and subsidiaries of our report dated March 1, 2002, relating to the financial statements, which appears in the Annual Report to Share Owners, which is incorporated in the Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 1, 2002 relating to the financial statement schedules, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Birmingham, Alabama
March 26, 2002

 EX-24 13 ex24plc.htm Exhibit 24

Exhibit 24

DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ William J. Cabaniss, Jr.
William J. Cabaniss, Jr.
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ Drayton Nabers, Jr.
Drayton Nabers, Jr.
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ John J. McMahon, Jr.
John J. McMahon, Jr.
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long






/s/ A. W. Dahlberg
A. W. Dahlberg
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ James S. M. French
James S. M. French
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ Robert A. Yellowlees
Robert A. Yellowlees
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long





/s/ John D. Johns
John D. Johns
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long




/s/ Donald M. James
Donald M. James
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long





/s/ J. Gary Cooper
J. Gary Cooper
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long





/s/ H. Corbin Day
H. Corbin Day
Director











DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long
/s/ W. Michael Warren, Jr.
W. Michael Warren, Jr.
Director













DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of Protective Life Corporation, a Delaware corporation (the “Company”), by his execution hereof or upon an identical counterpart hereof, does hereby constitute and appoint John D. Johns, Deborah J. Long, Nancy Kane, or Jerry W. DeFoor, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and in his name, place W. Michael Warren, Jr.and stead, to execute and sign the Annual Report on Form 10-K for the year ended December 31, 2001, to be filed by the Company with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934 and, further, to execute and sign any and all amendments to such Annual Report, and to file same, with all exhibits and schedules thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all the acts of said attorneys-in-fact and agents or any of them which they may lawfully do in the premises or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney and caused it to be witnessed on this 4th day of February, 2002.

WITNESS:
BY/s/Deborah J. Long
Deborah J. Long


/s/ Susan Molinari
Susan Molinari
Director
EX-99 14 ex99plc.htm Exhibit 99

Exhibit 99
to
Form 10-K
of
Protective Life Corporation
for
Fiscal Year
Ended December 31, 2001



Safe Harbor for Forward-Looking Statements

        The Private Securities Litigation Reform Act of 1995 (the “Act”) encourages companies to make “forward-looking statements” by creating a safe harbor to protect the companies from securities law liability in connection with forward-looking statements. All statements based on future expectations rather than on historical facts and forward-looking statements. Forward-looking statements can be identified by use of words such as “expect,” “estimate,” “project, ” budget,” “forecast,” “anticipate,” “plan,” and similar expressions. Protective Life Corporation (the “Company”) intends to qualify both its written and oral forward-looking statements for protection under the Act.

        To qualify oral forward-looking statements for protection under the Act, a readily available written document must identify important factors that could cause actual results to differ materially from those in the forward-looking statements. The Company provides the following information to qualify forward-looking statements for the safe harbor protection of the Act.

        The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and the known trends and uncertainties which are discussed more fully below.

We are exposed to many types of risks that could negatively affect our business.

        There are many types of risks that all companies are exposed to in their businesses. For example, companies are exposed to the risks of natural disasters, malicious and terrorist acts, computer viruses, and other perils. While the Company has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no assurance can be given that there are not scenarios that could have an adverse effect on the Company. Additionally, there are scenarios that could have an adverse effect on general economic conditions and mortality and morbidity.

We operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry.

        Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. The Company encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than the Company, as well as competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

        The insurance industry is consolidating, with larger, potentially more efficient organizations emerging from consolidation. Also, some mutual insurance companies are converting to stock ownership, which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied.

        The Company’s ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong ratings from rating agencies. However, irrational competition from other insurers could adversely affect the Company’s competitive position.

A ratings downgrade could adversely affect our ability to compete.

        Ratings are an important factor in the Company’s competitive position. Rating organizations periodically review the financial performance and condition of insurers, including the Company’s subsidiaries. A downgrade in the ratings of the Company’s subsidiaries could adversely affect the Company’s ability to sell its products, retain existing business, and compete for attractive acquisition opportunities.

        For the past several years, rating downgrades in the industry have exceeded upgrades. Rating organizations assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating organization, general economic conditions, and circumstances outside the rated company’s control. The Company cannot predict what actions the rating organizations may take, or what actions the Company may be required to take in response to the actions of the rating organizations, which could adversely affect the Company.

Our policy claims fluctuate from year to year.

        The Company’s results may fluctuate from year to year due to fluctuations in policy claims received by the Company. Certain of the Company’s businesses may experience higher claims if the economy is growing slowly or in recession.

        Mortality and morbidity expectations incorporate assumptions about many factors, including for example, how a product is distributed, persistency and lapses, and future progress in the fields of health and medicine. Actual mortality and morbidity could differ from our expectations if actual results differ from those assumptions.

We could be forced to sell investments at a loss to cover policyholder withdrawals.

        Many of the products offered by the Company’s insurance subsidiaries allow policyholders and contract holders to withdraw their funds under defined circumstances. The subsidiaries manage their liabilities and configure their investment portfolios so as to provide and maintain sufficient liquidity to support anticipated withdrawal demands and contract benefits and maturities. While the Company’s life insurance subsidiaries own a significant amount of liquid assets, a certain portion of their assets are relatively illiquid. Unanticipated withdrawal or surrender activity could, under some circumstances, compel the Company’s insurance subsidiaries to dispose of assets on unfavorable terms, which could have an adverse effect on the Company.

Interest-rate fluctuations could negatively affect our spread income or otherwise impact our business.

        Significant changes in interest rates expose insurance companies to the risk of not earning anticipated spreads between the interest rate earned on investments and the credited interest rates paid on outstanding policies and contracts. Both rising and declining interest rates can negatively affect the Company’s spread income. While the Company develops and maintains asset/liability management programs and procedures designed to preserve spread income in rising or falling interest rate environments, no assurance can be given that changes in interest rates will not affect such spreads.

        Changes in interest rates may also impact our business in other ways. Lower interest rates may result in lower sales of certain of the Company’s insurance and investment products. In addition, certain of the Company’s insurance and investment products guarantee a minimum credited interest rate.

        Higher interest rates may create a less favorable environment for the origination of mortgage loans and decrease the investment income we receive in the form of prepayment fees, make-whole payments, and mortgage participation income. Higher interest rates may also increase the cost of debt and other obligations having floating rate or rate reset provisions, and may result in lower sales of variable products. Also, the amount of policy fees received from variable products is affected by the performance of the equity markets.

        Additionally, the Company’s asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity, and other factors. The effectiveness of the Company’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from these assumptions.

Insurance companies are highly regulated.

        The Company’s insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than share owners. From time to time, regulators may raise issues during examinations or audits of the Company’s Subsidiaries. Even though such issues are unlikely to result in any material impact on the Company, the Company cannot predict what regulatory actions may be taken or what initiatives may be enacted which could adversely affect the Company.

        The Company’s insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

        Certain policies, contracts, and annuities offered by the Company’s insurance subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions.

Tax law changes could adversely affect our ability to compete with non-insurance products or reduce the demand for certain insurance products.

        Under the Internal Revenue Code of 1986, as amended, income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of the Company’s products a competitive advantage over other non-insurance products. To the extent that the Internal Revenue Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including the Company’s subsidiaries, would be adversely affected with respect to their ability to sell such products, and, depending upon grandfathering provisions, the surrenders of existing annuity contracts and life insurance policies. In addition, life insurance products are often used to fund estate tax obligations. Legislation has recently been enacted that would over time, reduce and eventually eliminate the estate tax. If the estate tax is significantly reduced or eliminated, the demand for certain life insurance products could be adversely affected. The Company cannot predict what tax initiatives may be enacted which could adversely affect the Company.

Financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments.

        A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial services companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. The Company cannot predict the outcome of any such litigation or arbitration.

A decrease in sales or persistency could negatively affect our results.

        The Company’s ability to maintain low unit costs is dependent upon the level of sales and persistency. A decrease in sales or persistency without a corresponding reduction in expenses may result in higher unit costs.

        Additionally, a decrease in persistency may result in higher amortization of deferred policy acquisition costs. Although many of the Company’s products contain surrender charges, the charges decrease over time and may not be sufficient to cover the unamortized deferred policy acquisition costs with respect to the insurance policy or annuity contract being surrendered. A decrease in persistency may also result in higher claims.

Our investments are subject to risks.

        The Company's invested assets and derivative financial instruments are subject to customary risks of credit defaults and changes in market values. The value of the Company's commercial mortgage loan portfolio depends in part on the financial condition of the tenants occupying the properties which the Company has financed. Factors that may affect the overall default rate on, and market value of, the Company's invested assets, derivative financial instruments, and mortgage loans include interest rate levels, financial market performance, and general economic conditions as well as particular circumstances affecting the businesses of individual borrowers and tenants.

Our growth from acquisitions involves risks.

        The Company’s acquisitions have increased its earnings in part by allowing the Company to enter new markets and to position itself to realize certain operating efficiencies. There can be no assurance, however, that the Company will realize the anticipated financial results from its acquisitions, or that suitable acquisitions, presenting opportunities for continued growth and operating efficiencies, or capital to fund acquisitions will continue to be available to the Company.

We are dependent on the performance of others.

        The Company’s results may be affected by the performance of others because the Company has entered into various arrangements involving other parties. Examples include, but are not limited to, the following: many of the Company’s products are sold through independent distribution channels; and variable annuity deposits are invested in funds managed by third parties. The Company may also use third-party administrators to collect premiums, pay claims, and/or perform customer service functions. Additionally, the Company’s operations are dependent on various technologies some of which are provided and/or maintained by other parties.

        As with all financial services companies, our ability to conduct business is dependent upon consumer confidence in the industry and its products. Actions of competitors, and financial difficulties of other companies in the industry, could undermine consumer confidence and adversely affect the Company.

Our reinsurance program involves risks.

        The Company’s insurance subsidiaries cede insurance to other insurance companies through reinsurance. However, the Company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it.

        The cost of reinsurance is, in some cases, reflected in the premium rates charged by the Company. Under certain reinsurance agreements, the reinsurer may increase the rate it charges the Company for the reinsurance, though the Company does not anticipate increases to occur. Therefore, if the cost of reinsurance were to increase or if reinsurance were to become unavailable, the Company could be adversely affected.

        Additionally, the Company assumes policies of other insurers. Any regulatory or other adverse development affecting the ceding insurer could also have an adverse effect on the Company.

        Forward-looking statements express expectations of future events and/or results. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, investors are urged not to place undue reliance on forward-looking statements. In addition, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to projections over time.

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