-----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, KTbNoVy/HT1cRZnk03uMCSMBsKqxIXzuk1TJQxnB93+TREscxMa2qYm+83CKyg6/ pXha6JGZtT74jpD09wuMxw== 0000310826-02-000057.txt : 20020415 0000310826-02-000057.hdr.sgml : 20020415 ACCESSION NUMBER: 0000310826-02-000057 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTECTIVE LIFE INSURANCE CO CENTRAL INDEX KEY: 0000310826 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 630169720 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-31940 FILM NUMBER: 02596905 BUSINESS ADDRESS: STREET 1: 2801 HIGHWAY 280 SOUTH 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 f10kplico.htm 10K
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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, 2002 Commission File Number
33-31940
33-39345
33-57052
333-02249

_____________

Protective Life Insurance Company

(Exact name of Registrant as specified in its charter)



Tennessee 63-0169720
(State or other jurisdiction (IRS Employer
incorporation or organization) Identificiation No.)




2801 Highway 280 South
Birmingham, Alabama 35223
(Address of principal (Zip Code)
executive offices)




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


_____________


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


_____________


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 (or for such shorter period that the registrant was required to file such reports), 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. [X]

Aggregate market value of voting stock held by nonaffiliates of the registrant: None

Number of shares of Common Stock, $1.00 Par Value, outstanding as of March 9, 2002: 5,000,000.

The registrant meets the conditions set forth in General Instruction I(1) (a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format pursuant to General Instruction I(2).

DOCUMENTS INCORPORATED BY REFERENCE


None, except Exhibits


_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________


PART I

Item 1. Business

        Protective Life Insurance Company (Protective), a stock life insurance company, was founded in 1907. Protective Life is a wholly-owned subsidiary of Protective Life Corporation (PLC), an insurance holding company whose common stock is traded on the New York Stock Exchange (symbol: PL). Protective provides financial services through the production, distribution, and administration of insurance and investment products. Unless the context otherwise requires “Protective” refers to the consolidated group of Protective Life Insurance Company and its subsidiaries.

        Protective offers a competitive selection of individual life insurance products, credit life and disability insurance products, guaranteed investment contracts, guaranteed funding agreements, and fixed and variable annuities. Protective distributes these products through many channels, primarily independent agents, insurance brokers, stockbrokers, financial institutions, company sales representatives, and automobile dealerships. Protective also seeks to acquire insurance policies from other insurers.

        Protective operates several 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. Protective’s operating segments are Life Marketing, Acquisitions, Stable Value Contracts, Annuities, and Credit Products. Protective also has an additional business segment which is described herein as Corporate and Other.

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

          1997                     63.5%                  9.5%                   26.5%                     0.5%
          1998                     61.2                  10.4                    24.3                      4.1
          1999                     66.5                  12.3                    22.3                     (1.1)
          2000                     68.2                  18.4                    23.6                    (10.2)
          2001                     72.3                  16.0                    21.7                    (10.0)

        Additional information concerning Protective’s business segments may be found in “Management’s Narrative Analysis of the Results of Operations” and Note K to Consolidated Financial Statements included herein.

Item 2. Properties

        Protective’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. During 2000, Protective 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. Protective has financed the construction under an operating lease arrangement.

        Protective leases administrative and marketing office space in approximately 25 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 $8.5 million.

Item 3. Legal Proceedings

        There are no material pending legal proceedings, other than routine litigation incidental to the business of Protective, to which Protective or any of its subsidiaries is a party or of which any of Protective’s properties is subject. For additional information regarding legal proceedings see Note G to the consolidated financial statements included herein.

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

        Not required in accordance with General Instruction I(2)(c).

PART II

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

        Protective is a wholly-owned subsidiary of PLC which also owns all of the preferred stock issued by Protective’s subsidiary, Protective Life and Annuity Insurance Company (PL&A). Therefore, neither Protective’s common stock nor PL&A’s preferred stock is publicly traded.

        At December 31, 2001, $1,053.6 million of consolidated share-owner’s equity excluding net unrealized gains and losses represented net assets of Protective that cannot be transferred to PLC in the form of dividends, loans, or advances. Also, distributions, including cash dividends to PLC in excess of approximately $972 million, would be subject to federal income tax at rates then effective.

        Insurers are subject to various state statutory and regulatory restrictions on the insurers’ ability to pay dividends. In general, dividends up to specific 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 PLC by Protective in 2002 is estimated to be $99.0 million. Protective paid no dividends to PLC in 2001 or 2000.

        PL&A paid $1.0 million of preferred dividends in 2001. PL&A did not pay any preferred dividends in 2000. Protective and PL&A expect to pay cash dividends in the future, subject to their earnings and financial condition and other relevant factors.

Item 6. Selected Financial Data

        Not required in accordance with General Instruction I(2)(a).

Item 7. Management's Narrative Analysis of the Results of Operations

        In accordance with General Instruction I(2)(a), Protective includes the following analysis with the reduced disclosure format.

Critical Accounting Policies

        In the conduct of business, Protective 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. Protective’s actual experience, as well as changes in estimates, are components of Protective’s statements of income.

Revenues

        The following table sets forth revenues by source for the periods shown:


                                                              YEAR ENDED                    PERCENTAGE
                                                              DECEMBER 31              INCREASE (DECREASE)
                                                     -----------------------------    --------------------
                                                         2001           2000
                                                         ----           ----
                                                            (in thousands)
 Premiums and policy fees......................       $  618,668    $   489,835              26.3%
 Net investment income.........................          839,103        692,081              21.2%
 Realized investment gains (losses) ...........           (7,841)       (14,599)             46.3%
 Other income..................................           38,578         35,194               9.6%
                                                       ---------      ---------
                                                      $1,488,508     $1,202,511
                                                       =========      =========

        In 2001, premiums and policy fees, net of reinsurance (premiums and policy fees) increased $128.8 million or 26.3% over 2000. The Life Marketing segment’s premiums and policy fees increased $21.2 million due to increased sales. Premiums and policy fees in the Acquisition 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. In January 2001, Protective coinsured a block of individual life policies from Standard Insurance Company resulting in an increase of $68.9 million in premiums and policy fees. In October 2001, Protective purchased two companies from a subsidiary of Irish Life & Permanent plc: Inter-State Assurance Company and First Variable Life Insurance Company. These transactions increased premiums and policy fees by $17.9 million over 2000. Premiums and policy fees from older acquired blocks declined $7.2 million in 2001 as compared to 2000. Premiums and policy fees related to the Credit Products segment increased $29.6 million. The decrease in premiums and policy fees from the Annuities segment was $2.0 million. Premium and policy fees relating to various health insurance lines in the Corporate and Other segment increased $0.6 million.

        Net investment income for 2001 was $147.0 million or 21.2% higher than for the preceding year 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 2001 coinsurance agreement 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 7.0% in 2001 and 7.1% in 2000.

        Protective generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, Protective may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, Protective has classified its fixed maturities and certain other securities as “available for sale.” The sales of investments that have occurred generally result from portfolio management decisions to maintain proper matching of assets and liabilities.

        Other income consists primarily of revenues from Protective’s direct response business, service contract business, non-insurance subsidiaries and rental of space in its administrative building to PLC. In 2001, revenues from Protective’s direct response business and service contract business increased $2.0 million and $0.5 million, respectively. Income from other sources increased $0.9 million.

Income Before Income Tax

        The following table sets forth operating income or loss and income or loss before income tax by business segment for the periods shown:


                                                       YEAR ENDED DECEMBER 31
                                                           (IN THOUSANDS)
                                                        2001            2000
                                                        ----            ----
Operating Income (Loss)(1)
Life Insurance
      Life Marketing                                $  92,016       $  75,806
      Acquisitions                                     69,251          53,624
Retirement Savings and
  Investment Products
      Stable Value Contracts                           33,150          31,208
      Annuities                                        15,093          13,584
Specialty Insurance Products
      Credit Products                                  35,731          34,826
Corporate and Other                                   (22,446)        (19,417)
- ---------------------------------------------------------------------------------
Total operating income                                222,795         189,631
- ---------------------------------------------------------------------------------
Realized Investment Gains (Losses)
      Stable Value Contracts                            7,218          (6,556)
      Annuities                                         1,139             410
      Unallocated                                     (16,198)         (8,453)
Related Amortization of Deferred
  Policy Acquisition Costs
      Annuities                                          (996)           (410)
- ---------------------------------------------------------------------------------
Total realized investment gains
(losses), net                                          (8,837)        (15,009)
- --------------------------------------------------------------------------------
Income (Loss) Before Income Tax
Life Insurance
      Life Marketing                                   92,016          75,806
      Acquisitions                                     69,251          53,624
Retirement Savings and
  Investment Products
      Stable Value Contracts                           40,368          24,652
      Annuities                                        15,236          13,584
Specialty Insurance Products
      Credit Products                                  35,731          34,826
Corporate and Other                                   (22,446)        (19,417)
Unallocated Realized
  Investment Gains (Losses)                           (16,198)         (8,453)
- ---------------------------------------------------------------------------------
Total income from continuing operations
  before income tax                                  $213,958        $174,622
- ---------------------------------------------------------------------------------

        (1)  Income  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 2001 pretax income was $92.0 million, $16.2 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 Acquisitions segment’s 2001 pretax operating income was $69.3 million, $15.6 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 declined $0.3 million.

        The Stable Value Contracts segment’s 2001 pretax operating income increased $2.0 million to $33.2 million. The increase was due to higher account balances which was partially offset by lower interest rate spreads. Operating spreads in 2001 were compressed due to lower investment income. Realized investment gains associated with this segment in 2001 were $7.2 million as compared to realized investment losses of $6.5 million in 2000. As a result, total pretax income was $40.4 million in 2001 and $24.7 million in 2000.

        The Annuities segment’s 2001 pretax operating income was $15.1 million, an increase of $1.5 million. The increase reflects the segment’s growth through sales. 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 $0.1 million of gains in 2001. As a result, total pretax income was $15.2 million in 2001 and $13.6 million in 2000.

        The Credit Products segment’s 2001 pretax income increased $1.0 million to $35.7 million. 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 of net investment income on unallocated capital, several lines of business which Protective is not actively marketing (mostly health insurance), and other operating expenses not identified with the preceding business segments (including interest on substantially all debt). Pretax operating losses for this segment were $22.4 million in 2001 as compared to pretax operating losses of $19.4 million in 2000.

Income Tax Expense

        The following table sets forth the effective income tax rates for the periods shown:


  YEAR ENDED                          EFFECTIVE INCOME
  DECEMBER 31                            TAX RATES
  ---------------------------------- -------------------

  2001...........................            32.9%
  2000...........................            39.0%
  1999...........................            39.2%

        Management’s current estimate of the effective income tax rate for 2002 is between 33% and 34%.

Discontinued Operations

        On December 31, 2001, Protective 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 $10.9 million. In 2001, the loss from discontinued operations was $10.7 million (primarily due to the non-performance of reinsurers) and the loss from sale of discontinued operations was $17.8 million, both net of income tax.

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 of approximately $8.3 million. The adoption of SFAS No. 133 also resulted in a cumulative after-tax increase to other comprehensive income of approximately $4.0 million.

Net Income

        The following table sets forth net income from continuing operations before the cumulative effect of change in accounting principle for the periods shown:


                                                     NET INCOME
                                       ---------------------------------------
YEAR ENDED                                                    PERCENTAGE
DECEMBER 31                                 AMOUNT        INCREASE (DECREASE)
- ------------------------------------------------------------------------------
                                        (IN THOUSANDS)

2001..............................          $143,501             34.7%
2000..............................           106,551             (6.1)
1999..............................           113,434              9.5

        Compared to 2000, net income from continuing operations before cumulative effect of change in accounting principle in 2001 increased 34.7%, reflecting improved operating earnings in the Life Marketing, Acquisitions, Stable Value Contracts, Annuities, and Credit Products segments and lower realized investment losses, which were offset by lower operating earnings in the Corporate and Other segment.

Recently Issued Accounting Standards

        For additional information regarding recently issued accounting standards see Note A to the consolidated financial statements included herein.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Investments

        Protective’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, Protective’s fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $9,812.1 million, which is 1.0% above amortized cost of $9,719.1 million. Protective had $2,512.8 million in mortgage loans at December 31, 2001. While Protective’s mortgage loans do not have quoted market values, at December 31, 2001, Protective 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. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations are not expected to adversely affect liquidity.

        The approximate percentage distribution of Protective’s fixed maturity investments by quality rating at December 31 is as follows: 

RATING                                  2001             2000
- ------                                  ----             ----

  AAA..............................     38.4%            37.3%
  AA...............................      6.3              7.0
  A................................     24.3             25.2
  BBB                                   26.7             27.4
  BB or less.......................      4.2              3.0
  Redeemable preferred stocks......      0.1              0.1
                                       -----            -----
                                       100.0%           100.0%
                                       =====            =====

        At December 31, 2000, Protective’s fixed maturity investments had a market value of $7,390.1 million, which was 1.0% below amortized cost of $7,463.7 million. Protective 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 Protective’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.

Estimated Market Values Resulting From An
Immediate 1 Percentage Point Increase
In Interest Rates


                                                   AMOUNT                         PERCENT
AT DECEMBER 31, 2000                            (IN MILLIONS)                      CHANGE
- -----------------------------------------------------------------------------------------------
Fixed maturities                                  $7,131.4                          (3.5)%
Mortgage loans                                     2,277.9                          (4.5)
===============================================================================================


At December 31, 2001
- -----------------------------------------------------------------------------------------------
Fixed maturities                                  $9,370.6                          (4.5)%
Mortgage loans                                     2,550.9                          (4.5)
===============================================================================================

        Estimated market values were derived from the durations of Protective’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 Protective’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, Protective has offered a type of commercial mortgage loan under which Protective 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 Protective’s mortgage loans have this participation feature.

        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, Protective 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 Protective’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, Protective had outstanding 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, Protective had outstanding mortgage loan commitments of $308.4 million, with an estimated fair value of $319.0 million. The following table sets forth the estimated fair value of Protective’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.

Estimated Fair Values Resulting From An
Immediate 1 Percentage Point Increase
In Interest Rates

                                  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 Protective’s outstanding mortgage loan commitments. While these estimated fair values generally provide an indication of how sensitive the fair value of Protective’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 Protective’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 Protective against investment losses if interest rates are higher at the time of surrender than at the time of issue.

        At December 31, 2001, Protective had policy liabilities and accruals of $7,876.3 million. Protective’s life insurance products have a weighted average minimum credited interest rate of approximately 4.5%.

        At December 31, 2001, Protective 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, Protective had $3,177.9 million of stable value account balances with an estimated fair value of $3,251.0 million (using discounted cash flows), and $1,916.9 million of annuity account balances with an estimated fair value of $1,893.7 million (using surrender values).

        The following table sets forth the estimated fair values of Protective’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.

Estimated Fair Values Resulting From An
Immediate 1 Percentage Point Decrease
In Interest Rates


                                                   AMOUNT            PERCENT
AT DECEMBER 31, 2000                            (IN MILLIONS)         CHANGE
- --------------------------------------------------------------------------------
Stable value account balances                     $3,299.8              1.5%
Annuity account balances                           1,975.1              4.3
================================================================================

At December 31, 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 Protective’s stable value and annuity account balances. While these estimated fair values generally provide an indication of how sensitive the fair values of Protective’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 Protective’s liabilities relate to products (primary 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

        Protective 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.

        Protective uses interest rate swap contracts, swaptions (options to enter into interest rate swap contracts), caps, and floors to convert certain investments and liabilities from a variable rate of interest to a fixed rate of interest, and from a fixed rate to a variable rate of interest. Swap contracts are also used to alter the effective durations of assets and liabilities. Protective uses foreign currency swaps in connection with certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

        Derivative instruments expose Protective to credit and market risk. Protective minimizes its credit risk by entering into transactions with highly rated counterparties. Protective 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. Protective monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. Protective’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 Protective’s overall interest rate and currency exchange risk management strategies.

        At December 31, 2001, contracts with a notional amount of $4,485.1 were in a $1.6 million net loss position. At December 31, 2000, contracts with a notional amount of $2,424.3 million were in a $13.0 million net loss position.

The following table sets forth the notional amount and fair value of Protective’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.

Derivative Financial Instruments

                                                                                  GAIN(LOSS)
                                                                                RESULTING FROM AN
                                                                           IMMEDIATE +/-1 PERCENTAGE
                                                  FAIR VALUE                    POINT CHANGE
                             NOTIONAL                 AT                      IN INTEREST RATES
                              AMOUNT              DECEMBER 31             +1%                   -1%
(in millions)
- ---------------------------------------------------------------------------------------------------------
2000
Options
     Puts                  $     50.0             $   0.0              $   0.2                 $  0.0
Futures                         100.8                (2.8)                 4.0                   (9.0)
Fixed to floating
     Swaps                      689.3                (5.5)               (27.2)                  16.8
     Swaptions                  275.0                 0.5                  0.0                    7.4
     Caps                       200.0                 0.0                  0.3                    0.0
     Floors                     100.0                (0.3)                 0.0                   (0.8)
Floating to fixed
     Swaps                      160.0                (2.5)                 4.5                   (9.4)
     Caps                       300.0                 0.0                  0.5                    0.0
     Floors                     300.0                (1.1)                 0.0                   (3.1)
- ---------------------------------------------------------------------------------------------------------
                             $2,175.1              $(11.7)              $(17.7)                $  1.9
=========================================================================================================
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                  7.0                   (6.4)
Fixed to floating
     Swaps                      799.3                20.8                 (2.0)                  33.5
     Caps                       175.0                 0.0                  0.0                    0.0
Floating to fixed
     Swaps                      360.0               (12.7)                (5.5)                 (19.5)
     Caps                       300.0                 0.0                  0.0                    0.0
     Floors                     300.0                (2.0)                (2.7)                  (1.1)
- ---------------------------------------------------------------------------------------------------------
                             $4,209.3             $   7.6                $(1.9)                 $11.9
=========================================================================================================

        Protective 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. At December 31, 2000, 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%
                                                                 CHANGE IN FOREIGN
                                                                 CURRENCY EXCHANGE
                                                                       RATES
                                                         ---------------------------------
                                          FAIR VALUE
                           NOTIONAL           AT               +10%             -10%
(IN MILLIONS)               AMOUNT        DECEMBER 31
- ------------------------------------------------------------------------------------------
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 Protective'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.

Contractual Obligations

        The table below sets forth future maturities of debt and stable value contracts.

(in thousands)               2002          2003-2004         2005-2006       After 2006
- ------------------------------------------------------------------------------------------
Stable Value
  Contracts               $971,536        $1,696,120         $979,460         $69,414
Note Payable                                   2,291
Securities
  sold under
  repurchase
  agreements               117,000
- ------------------------------------------------------------------------------------------

Item 8. Financial Statements and Supplementary Data



INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants
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-Owner's 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
Financial Statement Schedules:
    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.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Share Owner
Protective Life Insurance Company
Birmingham, Alabama

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Protective Life Insurance Company and 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. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedules 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 A 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

PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)



                                                                                             YEAR ENDED DECEMBER 31
                                                                                   -------------------------------------------
                                                                                       2001          2000           1999
                                                                                       ----          ----           ----
REVENUES
   Premiums and policy fees................................................        $1,389,819    $1,175,943     $  861,021
   Reinsurance ceded.......................................................          (771,151)     (686,108)      (462,297)
                                                                                    ----------    ----------      ---------
     Net of reinsurance ceded..............................................           618,668       489,835        398,724
   Net investment income...................................................           839,103       692,081        617,829
   Realized investment gains (losses):
      Derivative financial instruments.....................................            (1,718)        2,157          3,425
      All other investments................................................            (6,123)      (16,756)         1,335
   Other income............................................................            38,578        35,194         22,599
                                                                                   -----------   -----------    -----------
                                                                                    1,488,508     1,202,511      1,043,912
                                                                                   -----------   -----------    -----------
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...............................................              2,827         2,514
   Other operating expenses (net of reinsurance ceded: 2001 - $167,243;
    2000 -  $223,498; 1999 - $150,570)....................................            152,041       121,417        130,954
                                                                                   -----------   -----------    -----------
                                                                                    1,274,550     1,027,889        857,299
                                                                                   -----------   -----------    -----------
INCOME FROM CONTINUING OPERATIONS  BEFORE INCOME TAX.......................           213,958       174,622        186,613
INCOME TAX EXPENSE
   Current.................................................................           118,421        12,180         43,945
   Deferred................................................................           (47,964)       49,298         24,046
                                                                                   -----------   -----------    -----------
                                                                                       70,457        61,478         67,991
                                                                                   -----------   -----------    -----------
Net income from continuing operations before cumulative effect of change in
accounting principle.......................................................           143,501       113,144        118,622
Income (loss) from discontinued operations, net of income tax .............           (10,748)       10,891          9,636
Loss from sale of discontinued operations, net of income tax ..............           (17,754)
                                                                                   -----------   -----------    -----------
Net income before cumulative effect of change in accounting principle......           114,999       124,035        128,258
Cumulative effect of change in accounting principle, net of income tax.....            (8,341)
                                                                                   -----------   -----------    -----------
NET INCOME.................................................................        $  106,658    $  124,035     $  128,258
                                                                                   ===========   ===========    ===========

                                     See notes to consolidated financial statements.

PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)


                                                                                                       DECEMBER 31
                                                                                             ---------------------------------
                                                                                                    2001           2000
                                                                                                    ----           ----
ASSETS
Investments:
    Fixed maturities, at market (amortized cost: 2001 - $9,719,057; 2000 - $7,463,700)..       $ 9,812,091      $7,390,110
    Equity securities, at market (cost: 2001 - $62,051; 2000 - $44,450).................            60,493          41,792
    Mortgage loans on real estate.......................................................         2,512,844       2,268,224
    Investment real estate, net of accumulated depreciation (2001 - $1,452; 2000 - $1,226)          24,173          12,566
    Policy loans........................................................................           521,840         230,527
    Other long-term investments.........................................................           100,686          66,646
    Short-term investments..............................................................           228,396         172,699
                                                                                               ------------    ------------
        Total investments...............................................................        13,260,523      10,182,564
Cash....................................................................................           107,166          33,517
Accrued investment income...............................................................           158,841         121,996
Accounts and premiums receivable, net of allowance for uncollectible
    amounts (2001 - $3,025; 2000 - $2,195)..............................................            55,809          72,189
Reinsurance receivables.................................................................         2,173,987       1,099,574
Deferred policy acquisition costs.......................................................         1,532,683       1,189,380
Goodwill, net...........................................................................            35,992         241,831
Property and equipment, net.............................................................            46,337          51,166
Other assets............................................................................           219,355         120,874
Receivable from related parties.........................................................                             4,768
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
                                                                                               ------------    ------------
                                                                                               $19,582,503     $15,026,548
                                                                                               ============    ============
LIABILITIES
Policy liabilities and accruals:
     Future policy benefits and claims..................................................       $ 6,974,685     $ 5,033,397
     Unearned premiums..................................................................           901,653         935,605
                                                                                               ------------    ------------
     Total policy liabilities and accruals..............................................         7,876,338       5,969,002
Stable value contract deposits..........................................................         3,716,530       3,177,863
Annuity deposits........................................................................         3,248,218       1,916,894
Other policyholders' funds..............................................................           132,124         125,336
Other liabilities.......................................................................           410,621         324,901
Accrued income taxes....................................................................           125,835         (10,932)
Deferred income taxes...................................................................            72,403          72,065
Note payable............................................................................             2,291           2,315
Indebtedness to related parties.........................................................             6,000          10,000
Securities sold under repurchase agreements.............................................           117,000
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................................................................        17,699,170      13,496,133
                                                                                               ============    ============
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE G

SHARE-OWNER'S EQUITY
Preferred Stock, $1.00 par value, shares
  authorized and issued:  2,000, liquidation preference $2,000..........................                 2               2
Common Stock, $1.00 par value, shares
   authorized and issued: 5,000,000.....................................................             5,000           5,000
Additional paid-in capital..............................................................           785,419         632,805
Note receivable from PLC Employee Stock Ownership Plan..................................            (4,499)         (4,841)
Retained earnings.......................................................................         1,044,243         948,819
Accumulated other comprehensive income
  Net unrealized gains (losses) on investments
  (net of income tax: 2001 - $28,629; 2000-$(27,661))...................................            53,168         (51,370)
                                                                                               ------------    ------------
       Total share-owner's equity.......................................................         1,883,333       1,530,415
                                                                                               ------------    ------------
                                                                                               $19,582,503     $15,026,548
                                                                                               ============    ============
                                      See notes to consolidated financial statements

PROTECTIVE LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF SHARE-OWNER'S EQUITY (Dollars in thousands, except per share amounts)

                                                                                                                         NET
                                                                                               NOTE                   UNREALIZED
                                                                                            RECEIVABLE                  GAINS
                                                                                ADDITIONAL     FROM                    (LOSSES)      TOTAL
                                                          PREFERRED   COMMON     PAID-IN       PLC       RETAINED        ON       SHARE-OWNER'S
                                                            STOCK     STOCK      CAPITAL       ESOP      EARNINGS    INVESTMENTS     EQUITY
                                                          ---------   ------    ----------  ----------   --------    -----------   ------------
 Balance, December 31, 1998                                    $2     $5,000    $327,992    $(5,199)     $686,519     $  55,057     $1,069,371
                                                                                                                                   -----------
     Net income for 1999                                                                                  128,258                     128,258
     Change in net unrealized gains/losses on
        investments (net of income tax - $(106,638))                                                                  (198,043)      (198,043)
     Reclassification adjustment for amounts included
        in net income (net of income tax - $(1,666))                                                                    (3,094)        (3,094)
                                                                                                                                   -----------
     Comprehensive loss for 1999                                                                                                      (72,879)
                                                                                                                                   -----------
     Decrease in note receivable from PLC ESOP                                                   51                                        51
                                                          --------    -------   ---------   --------     ---------   ----------    -----------
 Balance, December 31, 1999                                     2      5,000     327,992     (5,148)      814,777     (146,080)       996,543
                                                                                                                                   -----------
     Net income for 2000                                                                                  124,035                     124,035
     Change in net unrealized gains/losses on
      investments (net of income tax - $45,887)                                                                         85,221         85,221
     Reclassification adjustment for amounts included
      in net income (net of income tax - $5,110)                                                                         9,489          9,489
                                                                                                                                   -----------
     Comprehensive income for 2000                                                                                                    218,745
                                                                                                                                   -----------
     Capital contribution                                                         81,000                                               81,000
     Transfer of subsidiaries from PLC (see Note A)                              223,813                   10,007                     233,820
     Decrease in note receivable from PLC ESOP                                                   307                                      307
                                                         ---------   --------   ---------    --------   ---------     ---------    -----------
 Balance, December 31, 2000                                     2      5,000     632,805      (4,841)     948,819      (51,370)     1,530,415
                                                                                                                                   -----------
     Net income for 2001                                                                                  106,658                     106,658
     Change in net unrealized gains/losses on
       investments (net of income tax - $52,019)                                                                        96,607         96,607
     Reclassification adjustment for amounts included
        in net income (net of income tax - $2,143)                                                                       3,980          3,980
     Transition adjustment on derivative financial
       instruments (net of income tax - $2,127)                                                                          3,951          3,951
                                                                                                                                   -----------
     Comprehensive income for 2001                                                                                                    211,196
                                                                                                                                   -----------
     Capital contribution                                                        134,000                                              134,000
     Common dividend - transfer of subsidiary to PLC
       (see note H)                                                                                       (2,052)                      (2,052)
     Preferred dividend                                                                                   (1,000)                      (1,000)
     Transfer of subsidiaries from PLC (see Note A)                              18,614                   (8,182)                      10,432
     Decrease in note receivable from PLC ESOP                                                  342                                       342
                                                         ---------   --------  ---------    --------  ----------      --------     -----------
 Balance, December 31, 2001                                    $2     $5,000   $785,419     $(4,499)  $1,044,243      $ 53,168     $1,883,333
                                                         =========   ========  =========    ========  ==========      ========     ===========

                                     See notes to consolidated financial statements.

PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

                                                                                                                 DECEMBER 31
                                                                                            ---------------------------------------------------
                                                                                                      2001            2000             1999
                                                                                                      ----            ----             ----
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income..............................................................................     $   106,658  $      124,035     $    128,258
    Adjustments to reconcile net income to net cash provided by operating activities:
         Realized investment (gains) losses.................................................           7,841          14,599           (4,760)
         Amortization of deferred policy acquisition costs..................................         154,383         149,574          104,913
         Amortization of goodwill...........................................................           8,328           3,867
         Capitalization of deferred policy acquisition costs................................        (317,626)       (338,685)        (239,483)
         Loss from sale of discontinued operations..........................................          17,754
         Depreciation expense...............................................................          11,651           9,581           10,513
         Deferred income taxes..............................................................         (40,970)         55,161           24,234
         Accrued income taxes...............................................................         139,017          13,265          (14,841)
         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..........................        (241,230)       (160,488)        (119,183)
         Change in policy liabilities and other policyholder funds of traditional life and
         health products....................................................................         443,023         508,454          215,201
         Change in other liabilities........................................................         138,190           1,809           67,552
         Other (net)........................................................................           8,764         (34,626)          (5,526)
                                                                                                 ------------    ------------     ------------
Net cash provided by operating activities...................................................       1,157,466         914,969          332,806
                                                                                                 ------------    ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES
     Maturities and principal reduction of investments:
         Investments available for sale.....................................................       3,062,262      12,828,276        9,973,742
         Other..............................................................................         283,181         133,814          243,280
     Sale of investments:
         Investments available for sale.....................................................       8,943,123         810,716          537,343
         Other..............................................................................               0           5,222          267,892
     Cost of investments acquired:
         Investments available for sale.....................................................     (13,647,757)    (14,384,625)     (10,625,354)
         Corporate owned life insurance.....................................................        (100,000)
         Other..............................................................................        (378,520)       (463,909)        (864,100)
     Acquisitions and bulk reinsurance assumptions..........................................        (118,557)       (141,040)          46,508
     Purchase of property and equipment.....................................................         (10,099)         (5,085)         (18,075)
     Sale of discontinued operations, net of cash transferred...............................         216,031
     Sale of property and equipment.........................................................              70                              151
                                                                                                 ------------   -------------    -------------
Net cash used in investing activities.......................................................      (1,750,266)     (1,216,631)        (438,613)
                                                                                                 ------------   -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES
     Borrowings under line of credit arrangements and long-term debt........................       2,574,954       2,197,800        4,351,177
     Capital contribution from PLC..........................................................         134,000          81,000
     Principal payments on line of credit arrangements and long-term debt...................      (2,457,979)     (2,197,823)      (4,351,203)
     Principal payment on surplus note to PLC...............................................          (4,000)         (4,000)          (4,000)
     Dividends to share owner...............................................................          (1,000)
     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)      (1,190,903)
                                                                                                 ------------     -----------      -----------
Net cash provided by financing activities...................................................         666,449         335,179          105,807
                                                                                                 ------------     -----------      -----------
INCREASE IN CASH............................................................................          73,649          33,517                0
CASH AT BEGINNING OF YEAR...................................................................          33,517               0                0
                                                                                                 ------------   -------------      -----------
CASH AT END OF YEAR.........................................................................     $   107,166    $     33,517       $        0
                                                                                                 ============   =============      ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION
     Cash paid during the year:
         Interest on debt...................................................................     $     1,390    $      3,310       $    5,611
         Income taxes.......................................................................     $    27,395    $     25,638       $   56,192

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
     Reduction of principal on note from ESOP...............................................     $       342    $        307       $       51
     Acquisitions, related reinsurance transactions and subsidiary transfer
         Assets acquired....................................................................     $ 2,549,484    $    759,067       $   12,502
         Liabilities assumed................................................................      (2,430,927)       (384,207)         (12,502)
         Equity from subsidiary transfers (see Note A)......................................         (10,432)       (233,820)               0
                                                                                                 ------------   -------------      -----------
         Net................................................................................     $   108,125    $    141,040               $0
                                                                                                 ============   =============      ===========

                                     See notes to consolidated financial statements.

PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in tables are in thousands)

Note A - SIGNIFICANT ACCOUNTING POLICIES

        BASIS OF PRESENTATION

        The accompanying consolidated financial statements of Protective Life Insurance Company and subsidiaries (Protective) 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 B.)

        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 Insurance Company and its wholly-owned subsidiaries. Protective is a wholly-owned subsidiary of Protective Life Corporation (PLC), an insurance holding company.

        On October 1, 2000, PLC transferred its ownership of twenty companies (that market prepaid dental products) to Protective. This transfer was accounted for in a manner similar to that in pooling-of-interests accounting, which resulted in the assets and liabilities of these companies being transferred at amounts equal to PLC’s bases (including approximately $200 million of goodwill). In addition, Protective’s share-owner’s equity was adjusted by an amount equal to the companies’ share-owner’s equity at October 1, 2000.

        On May 1, 2001, PLC transferred its ownership of another five companies (that market prepaid dental products) to Protective. This transfer was also accounted for in a manner similar to that in pooling-of-interests accounting, which resulted in the assets and liabilities of these companies being transferred at amounts equal to PLC’s bases. Protective’s share-owner’s equity was also adjusted by an amount equal to the companies’ share-owner’s equity at May 1, 2001.

        The results of operations of these companies have been included in the accompanying financial statements since the effective date of the transfer.

        On December 31, 2001, Protective sold substantially all of the companies transferred from PLC as part of the sale of the Dental Benefits Division. For more information see the discussion under the heading “Discontinued Operations” included in Note A herein.

        NATURE OF OPERATIONS

        Protective provides financial services through the production, distribution, and administration of insurance and investment products. Protective 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. Protective also maintains a separate division devoted to the acquisition of insurance policies from other companies.

        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, Protective 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 Protective 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 $8.3 million 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 Protective’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 Protective’s reported net income and other comprehensive income depending on future market conditions and Protective’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 Protective’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. Protective expects the adoption of SFAS No. 142 to result in the elimination of up to $2.8 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. Protective does not expect the adoption of SFAS No. 143 to have a material effect on Protective’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 sales, 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. Protective does not expect the adoption of SFAS No. 144 to have a material effect on Protective’s financial position or results of operations.

        INVESTMENTS

        Protective 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:

    • Fixed maturities (bonds, and redeemable preferred stocks) — at current market value. Where market values are unavailable, Protective 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.

    • Equity securities (common and nonredeemable preferred stocks)-- at current market value.

    • Mortgage loans — at unpaid balances, adjusted for loan origination costs, net of fees, and amortization of premium or discount.

    • 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.

    • Policy loans-- at unpaid balances.

    • Other long-term investments — at a variety of methods similar to those listed above, as deemed appropriate for the specific investment.

Note A-- SIGNIFICANT ACCOUNTING POLICIES (continued)

    • 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-owner’s 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 Protective’s operations, its reported share-owner’s equity will fluctuate significantly as interest rates change.

        Protective'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.......................................          $13,157,623        $10,258,809
Deferred policy acquisition costs.......................            1,553,786          1,192,696
All other assets........................................            4,789,297          3,654,604
                                                                  ------------       ------------
                                                                  $19,500,706        $15,106,109
                                                                  ============       ============

Deferred income taxes...................................          $    43,774        $   100,256
All other liabilities...................................           17,626,767         13,424,068
                                                                  ------------       ------------
                                                                   17,670,541         13,524,324
Share-owner's equity....................................            1,830,165          1,581,785
                                                                  ------------       ------------
                                                                  $19,500,706        $15,106,109
                                                                  ============       ============

        Realized gains and losses on sales of investments are recognized in net income using the specific identification basis.

        DERIVATIVE FINANCIAL INSTRUMENTS

        Protective 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 involved 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. Protective 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 Protective to credit and market risk. Protective minimizes its credit risk by entering into transactions with highly rated counterparties. Protective 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.

        Protective monitors its use of derivatives in connection with its overall asset/liability management programs and procedures. Protective'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 Protective'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, Protective 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 Protective’s consolidated statements of income.

        Protective 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. Protective 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, Protective discontinues hedge accounting prospectively, as discussed below.

        Protective 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.

        Fair-Value Hedges. Protective has designated, as a fair value hedge, callable interest rate swaps used to modify the interest characteristics of certain stable value contracts. In assessing hedge effectiveness, Protective 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 Protective's consolidated statements of income.

        Cash-Flow Hedges. Protective has not designated any hedging relationships as a cash flow hedge.

        Other Derivatives. Protective 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. In 2001, Protective recognized total pre-tax losses of $1.2 million representing the change in fair value of these derivative instruments.

        On its foreign currency swaps, Protective 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 Protective's consolidated statements of income.

Note A-- SIGNIFICANT ACCOUNTING POLICIES (continued)

        Protective 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, Protective 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.

        At December 31, 2001, contracts with a notional amount of $4,485.1 million were in a $1.6 million net loss position. At December 31, 2000, contracts with a notional amount of $2,424.3 million were in a $13.0 million net loss position. Protective recognized $2.2 million in realized investment gains related to derivative financial instruments in 2000.

        Protective's derivative financial instruments are with highly rated counterparties.

        CASH

        Cash includes all demand deposits reduced by the amount of outstanding checks and drafts. Protective has deposits with certain financial institutions which exceed federally insured limits. Protective 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,” Protective 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 Protective’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. Protective 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 (relating to acquisitions made during the year) and $42.1 million was amortized. During 2000, $47.3 million of present value of future profits was capitalized, and $44.3 million was amortized.

        GOODWILL

        Goodwill is being amortized straight-line over periods ranging from 20 to 40 years. Goodwill at December 31, is as follows: 

                                     2001                      2000
                                     ----                      ----
 Goodwill...................       $41,363                   $260,773
 Accumulated amortization...         5,371                     18,942
                                   -------                   --------
                                   $35,992                   $241,831
                                   =======                   ========

        Protective 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 Protective’s Dental Benefits Division.

Note A-- SIGNIFICANT ACCOUNTING POLICIES (Continued)

        PROPERTY AND EQUIPMENT

        Property and equipment are reported at cost. Protective 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....................................         $  42,980          $  41,184
Other, principally furniture and equipment..............            67,128             66,484
                                                                 ----------         ----------
                                                                   110,108            107,668
Accumulated depreciation................................            63,771             56,502
                                                                 ----------         ----------
                                                                 $  46,337          $  51,166
                                                                 ==========         ==========

        SEPARATE ACCOUNTS

        The assets and liabilities related to separate accounts in which Protective 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

        Protective 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. Protective also sells funding agreements to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. In a structured program, Protective 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 Protective, and the obligations of consolidated special purpose trusts or entities formed to purchase funding agreements issued by Protective. At December 31, 2001 and 2000 Protective had $1.7 billion and $1.0 billion of stable value contract account balances marketed through structured programs.

        REVENUES AND BENEFITS EXPENSE

    • 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 Protective’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 Protective and claims incurred but not yet reported. Policy claims are charged to expense in the period that the claims are incurred.

Note A-- SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Activity in the liability for unpaid claims is summarized as follows:



                                                                          2001          2000           1999
                                                                          ----          ----           ----
Balance beginning of year......................................         $109,973      $120,575      $ 90,332
        Less reinsurance.......................................           25,830        47,661        20,019
                                                                        ---------     ---------     ---------
    Net balance beginning of year..............................           84,143        72,914        70,313
                                                                        ---------     ---------     ---------
    Incurred related to:
    Current year...............................................          383,371       311,633       311,002
    Prior year.................................................           (1,080)       (4,489)       (5,574)
                                                                        ---------     ---------     ---------
        Total incurred.........................................          382,291       307,144       305,428
                                                                        ---------     ---------     ---------
    Paid related to:
    Current year...............................................          312,748       241,566       264,298
    Prior year.................................................           81,220        60,972        40,197
                                                                        ---------     ---------     ---------
        Total paid.............................................          393,968       302,538       304,495
                                                                        ---------     ---------     ---------
    Other changes:
        Acquisitions and
           reserve transfers...................................           (6,166)        6,623         1,668
                                                                        ---------     ---------     ---------
    Net balance end of year....................................           66,300        84,143        72,914
        Plus reinsurance.......................................           33,723        25,830        47,661
                                                                        ---------     ---------     ---------
Balance end of year............................................         $100,023      $109,973      $120,575
                                                                        =========     =========     =========
      • Universal Life and Investment Products — Universal life and investment products include universal life insurance, guaranteed investment contracts, deferred annuities, and annuities without life contingencies. Revenues for universal life and investment products consist of policy 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 credit rates for universal life and investment products ranged from 3.0% to 9.4% in 2001.

        Protective’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

        Protective 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, Protective 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.

Note A-- SIGNIFICANT ACCOUNTING POLICIES (Continued)

        The operating results and charges related to the sale of the Dental Division at December 31 are as follows:




                                        2001                  2000                  1999
- -----------------------------------------------------------------------------------------------
Total revenues                        $346,315              $254,547              $210,405
- -----------------------------------------------------------------------------------------------
Income (loss) before
      income taxes from
      discontinued operations        $ (13,983)            $  17,484             $  14,824
Income tax (expense)
      Benefit                            3,235                (6,593)               (5,188)
- ----------------------------------------------------------------------------------------------
Income (loss) from
      discontinued operations        $ (10,748)            $  10,891             $   9,636
- ----------------------------------------------------------------------------------------------
Gain from sale of
      discontinued operations
      before income tax              $  27,221
Income tax expense
      related to sale                  (44,975)
- ----------------------------------------------------------------------------------------------
Loss from sale of
      discontinued operations        $ (17,754)
- ----------------------------------------------------------------------------------------------

        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.

        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.

Note B-- RECONCILIATION WITH STATUTORY REPORTING PRACTICES

        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-owner’s 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 Protective’s statutory capital.

Note B-- RECONCILIATION WITH STATUTORY REPORTING PRACTICES - (Continued)

        The reconciliations of net income and share-owner’s equity prepared in conformity with statutory reporting practices to that reported in the accompanying consolidated financial statements are as follows: 



                                                                NET INCOME                             SHARE OWNER'S EQUITY
                                                 -----------------------------------------    ---------------------------------------
                                                     2001          2000          1999            2001         2000          1999
                                                     ----          ----          ----            ----         ----          ----
In conformity with statutory reporting
  practices:(1)..............................      $163,181     $  66,694      $   75,114       $775,138   $  628,274     $ 567,634
  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....................        47,964       (52,580)        (25,675)       (74,083)     (72,065)       32,335
      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......................                                                    139,500       97,447        51,350
      Other timing and valuation adjustments.       (33,456)      (43,757)         72,527       (334,198)    (204,985)     (467,130)
      Discontinued operations................      (193,688)
      Noninsurance affiliates................        19,022        21,276          20,698
      Consolidation elimination..............       (49,164)      (21,675)       (134,824)      (280,728)    (221,204)     (259,602)
In conformity with generally accepted              ---------     ---------      ----------    -----------  -----------    ----------
  accounting principles......................      $106,658      $124,035       $ 128,258     $1,883,333   $1,530,415     $ 996,543
                                                   =========     =========      ==========    ===========  ===========    ==========
 (1) Consolidated

        As of December 31, 2001, Protective and its insurance subsidiaries had on deposit with regulatory authorities, fixed maturity and short-term investments with a market value of approximately $81.9 million.

Note C - INVESTMENT OPERATIONS

        Major categories of net investment income for the years ended December 31 are summarized as follows:


                                                               2001          2000           1999
                                                               ----          ----           ----
Fixed maturities....................................         $609,578      $529,990       $462,295
Equity securities...................................            2,247         2,532            775
Mortgage loans......................................          208,830       177,917        172,027
Investment real estate..............................            2,094         2,027          1,949
Policy loans........................................           31,763        14,977         15,994
Other, principally short-term investments...........           36,695        12,532         19,504
                                                             ---------    ----------     ----------
                                                              891,207       739,975        672,544
Investment expenses.................................           52,104        47,894         54,715
                                                             ---------    ----------     ----------
                                                             $839,103      $692,081       $617,829
                                                             =========    ==========     ==========

        Realized investment gains (losses) for all other investments for the years ended December 31 are summarized as follows:

                                                                2001          2000         1999
                                                                ----          ----         ----
Fixed maturities....................................         $ (4,693)    $ (14,787)    $  8,327
Equity securities...................................            2,462         1,685       (3,371)
Mortgage loans and other investments................           (3,892)       (3,654)      (3,621)
                                                             ---------    ----------    ---------
                                                             $ (6,123)    $ (16,756)    $  1,335
                                                             =========    ==========    =========

        In 2001, gross gains on the sale of investments available for sale (fixed maturities, equity securities and short-term investments) were $62.5 million and gross losses were $68.1 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 $32.3 million. During 2001, Protective recorded other than temporary impairments in its investments of $12.6 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                           $(1,718)        $2,157       $3,425
- -------------------------------------------------------------------------------

Note C - INVESTMENT OPERATIONS (Continued)

        The amortized cost and estimated market values of Protective's investments classified as available for sale at December 31 are as follows:

                                                                   GROSS          GROSS         ESTIMATED
                                                  AMORTIZED      UNREALIZED     UNREALIZED       MARKET
                                                    COST           GAINS          LOSSES         VALUES
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 subdivision..............           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............        4,910,614       117,092          99,500       4,928,206
Redeemable preferred stocks...............            1,612             0               3           1,609
                                                ------------    ----------       ---------   -------------
                                                  9,719,057       237,340         144,306       9,812,091
Equity securities.........................           62,051         3,565           5,123          60,493
Short-term investments....................          228,396             0               0         228,396
                                                ------------    ----------       ---------   -------------
                                                $10,009,504      $240,905        $149,429     $10,100,980
                                                ============    ==========       =========   =============

                                                                  GROSS           GROSS        ESTIMATED
                                                 AMORTIZED      UNREALIZED      UNREALIZED      MARKET
                                                   COST            GAINS          LOSSES        VALUES
2000                                            -----------    ------------     -----------    ---------
- ----
Fixed maturities:
Bonds:
     Mortgage-backed securities...........      $2,915,813      $  49,372         $33,173     $2,932,012
     United States Government and
       authorities........................          95,567          2,662               0         98,229
     States, municipalities, and
       political subdivision..............          88,222          3,408               0         91,630
     Public utilities.....................         631,698          7,803           5,591        633,910
     Convertibles and bonds with
       warrants...........................          69,013         11,277          12,145         68,145
     All other corporate bonds............       3,662,586         49,536         146,732      3,565,390
Redeemable preferred stocks...............             801              0               7            794
                                                -----------     ----------       ---------    -----------
                                                 7,463,700        124,058         197,648      7,390,110
Equity securities.........................          44,450          2,761           5,419         41,792
Short-term investments....................         172,699              0               0        172,699
                                                -----------     ----------       ---------    -----------
                                                $7,680,849       $126,819        $203,067     $7,604,601
                                                ===========     ==========       =========    ===========

        The amortized cost and estimated market values of fixed maturities at December 31, 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                 VALUES
2001                                                    ------------          ------------
- ----
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                                      3,370,072              3,365,876
                                                        -----------            -----------
                                                        $9,719,057             $9,812,091
                                                        ===========            ===========

Note C - INVESTMENT OPERATIONS (Continued)

        At December 31, 2001 and 2000, Protective had bonds which were rated less than investment grade of $421.3 million and $226.5 million, respectively, having an amortized cost of $499.9 million and $306.0 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 $1,762.2 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       $109,625       $(217,901)
Equity securities....        715           (820)            973

        At December 31, 2001, all of Protective’s mortgage loans were commercial loans of which 75% were retail, 10% were apartments, 7% were office buildings, and 7% were warehouses, and 1% other. Protective 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 after 3 to 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 2003 to 2006, and $392.5 million in 2007 to 2011, and $46.7 million thereafter.

        At December 31, 2001, the average mortgage loan was approximately $2.1 million, and the weighted average interest rate was 7.6%. The largest single mortgage loan was $18.8 million.

        For several years Protective has offered a type of commercial mortgage loan under which Protective 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 Protective’s mortgage loans have this participation feature.

        At December 31, 2001 and 2000, Protective’s problem mortgage loans (over ninety days past due) and foreclosed properties totaled $29.6 million and $20.6 million, respectively. Since Protective’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 Protective’s evaluation of its mortgage loan portfolio, Protective does not expect any material losses on its mortgage loans.

        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.

Note D-- FEDERAL INCOME TAXES

        Protective’s effective income tax rate 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%
Dividends received deduction and tax-exempt interest........................       (1.7)       (0.6)         (0.1)
Low-income housing credit...................................................       (0.5)       (0.4)         (0.5)
Other.......................................................................       (0.1)        0.0           0.4
State income taxes..........................................................        0.2         1.2           1.6
                                                                                   -----       -----         -----
Effective income tax rate...................................................       32.9%       35.2%         36.4%
                                                                                   =====       =====         =====

Note D - FEDERAL INCOME TAXES - (Continued)

        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.....................................     $ 81,015      $41,533     $44,546
      Benefits and other policy liability changes...........................     (127,189)      10,969     (27,158)
      Temporary differences of investment income............................        7,145       (3,333)      6,655
      Other items...........................................................       (8,935)         129           3
                                                                                 ---------     --------   ---------
                                                                                 $(47,964)     $49,298     $24,046
                                                                                 =========     ========   =========

        The components of Protective's net deferred income tax liability as of December 31 were as follows:

                                                                                   2001           2000
                                                                                   ----           ----
      Deferred income tax assets:
      Policy and policyholder liability reserves............................     $334,876      $ 205,815
      Other.................................................................       10,893          1,959
                                                                                 --------       --------
                                                                                  345,769        207,774
      Deferred income tax liabilities:                                           --------       --------
      Deferred policy acquisition costs.....................................      379,072        302,631
      Unrealized gains (losses) on investments..............................       39,100        (22,792)
                                                                                 --------       --------
                                                                                  418,172        279,839
                                                                                 --------       --------
      Net deferred income tax liability                                          $ 72,403       $ 72,065
                                                                                 ========       ========

        Under pre-1984 life insurance company income tax laws, a portion of Protective'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 exceed certain stated maximums, or should distributions including cash dividends be made to PLC in excess of approximately $972 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, Protective does not anticipate paying income tax on amounts in the Policyholders' Surplus accounts.

        Protective’s income tax returns are included in the consolidated income tax returns of PLC. The allocation of income tax liabilities among affiliates is based upon separate income tax return calculations.

Note E-- DEBT

        Under revolving line of credit arrangements with several banks, PLC can borrow up to $200 million on an unsecured basis. No compensating balances are required to maintain the line of credit. These lines of credit arrangements contain, among other provisions, requirements for maintaining certain financial ratios, and restrictions on indebtedness incurred by PLC’s subsidiaries including Protective. Additionally, PLC, on a consolidated basis, cannot incur debt in excess of 40% of its total capital. At December 31, 2001, PLC had no borrowings outstanding under these credit arrangements.

        Protective has a mortgage note on investment real estate amounting to approximately $2.3 million that matures in 2003.

        Included in indebtedness to related parties is a surplus debenture issued by Protective to PLC. At December 31, 2001, the balance of the surplus debenture was $6.0 million. The debenture matures in 2003 and has an interest rate of 8.5%.

        Protective routinely receives from or pays to affiliates under the control of PLC reimbursements for expenses incurred on one another’s behalf. Receivables and payables among affiliates are generally settled monthly.

        Interest expense on debt totaled $1.8 million, $3.8 million, and $5.1 million in 2001, 2000 and 1999, respectively.

Note F-- RECENT ACQUISITIONS

        In September 1999, Protective recaptured a block of credit life and disability policies which it had previously ceded.

        In January 2000, Protective 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, Protective coinsured a block of individual life policies from Standard Insurance Company.

        In October 2001, Protective 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 Protective’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                     $1,557,827             $1,294,937
Net income                            115,433                135,735

Note G - COMMITMENTS AND CONTINGENT LIABILITIES

        Protective leases administrative and marketing office space in approximately 25 cities including Birmingham, with most leases being for periods of three to five years. The aggregate annual rent is approximately $8.5 million.

        Protective 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. Protective 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. Protective 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. Protective, 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 Protective 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 Protective.

Note H-- SHARE-OWNER'S EQUITY AND RESTRICTIONS

        At December 31, 2001, approximately $1,053.6 million of consolidated share-owner's equity, excluding net unrealized gains on investments, represented net assets of Protective and its subsidiaries that cannot be transferred to PLC in the form of dividends, loans, or advances. In addition, Protective and its subsidiaries are subject to various state statutory and regulatory restrictions on their ability to pay dividends to PLC. 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 PLC by Protective in 2002 is estimated to be $99.0 million.

        On October 1, 2001, Protective transferred its ownership interest in a small subsidiary to PLC. This transfer was recorded as a common dividend at an amount equal to Protective's basis in the subsidiary, which approximated fair value.

Note I-- PREFERRED STOCK

        PLC owns all of the 2,000 shares of preferred stock issued by Protective's subsidiary, Protective Life and Annuity Insurance Company (PL&A). The stock pays, when and if declared, noncumulative participating dividends to the extent PL&A's statutory earnings for the immediately preceding fiscal year exceeded $1.0 million. In 2001, PL&A paid a $1.0 million preferred dividend to PLC. PL&A paid no preferred dividends during 2000 or 1999.

Note J-- RELATED PARTY MATTERS

        On August 6, 1990, PLC announced that its Board of Directors approved the formation of an Employee Stock Ownership Plan (ESOP). On December 1, 1990, Protective transferred to the ESOP 520,000 shares of PLC's common stock held by it in exchange for a note. The outstanding balance of the note, $4.5 million at December 31, 2001, is accounted for as a reduction to share-owner's equity. The stock will be used to match employee contributions to PLC's existing 401(k) Plan. The ESOP shares are dividend paying. Dividends on the shares are used to pay the ESOP's note to Protective.

        Protective leases furnished office space and computers to affiliates. Lease revenues were $4.0 million in 2001, $4.0 million in 2000, and $3.7 million in 1999. Protective purchases data processing, legal, investment and management services from affiliates. The costs of such services were $82.6 million, $76.7 million, and $69.2 million in 2001, 2000, and 1999, respectively. Commissions paid to affiliated marketing organizations of $10.0 million, $12.0 million, and $11.4 million in 2001, 2000, and 1999, respectively, were included in deferred policy acquisition costs.

        Certain corporations with which PLC's directors were affiliated paid Protective 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. Protective and/or PLC 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.

        For a discussion of indebtedness to related parties, see Note E.

Note K-- OPERATING SEGMENTS

        Protective 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 division follows.

Life Insurance

        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.

        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.

Note K-- OPERATING SEGMENTS - (Continued)

Retirement Savings and Investment Products

        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.

        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

        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

        Protective 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 earning from several lines of business which Protective is not actively marketing (mostly cancer insurance and group annuities).

        Protective 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. 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, and cumulative effect of change in accounting principle. Asset adjustments represent the inclusion of assets related to discontinued operations.

        In December 2001, Protective 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
Gross premiums and policy fees                                             $   542,407       $   243,914
Reinsurance ceded                                                             (421,411)          (61,482)
- ----------------------------------------------------------------------------------------------------------
Net premium and policy fees                                                    120,996           182,432
Net investment income                                                          178,866           187,535
Realized investment gains (losses)                                                   -                 -
Other income                                                                     1,134               345
- ----------------------------------------------------------------------------------------------------------
Total revenues                                                                 300,996           370,312
- ----------------------------------------------------------------------------------------------------------
Benefits and settlement expenses                                               190,538           238,877
Amortization of deferred policy acquisition costs and goodwill                  41,399            20,500
Other operating expenses                                                       (22,957)           41,684
- ----------------------------------------------------------------------------------------------------------
Total benefits and expenses                                                    208,980           301,061
- ----------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax                             92,016            69,251
Income tax expense
Discontinued operations, net of income tax
Change in accounting principle, net of income tax
- ----------------------------------------------------------------------------------------------------------
Net income
- ----------------------------------------------------------------------------------------------------------
2000
Gross premiums and policy fees                                             $   487,720       $   134,099
Reinsurance ceded                                                             (387,907)          (31,102)
- ----------------------------------------------------------------------------------------------------------
Net premium and policy fees                                                     99,813           102,997
Net investment income                                                          152,317           116,940
Realized investment gains (losses)                                                   -                 -
Other income                                                                    (1,379)               (4)
- ----------------------------------------------------------------------------------------------------------
Total revenues                                                                 250,751           219,933
- ----------------------------------------------------------------------------------------------------------
Benefits and settlement expenses                                               149,430           125,151
Amortization of deferred policy acquisition costs and goodwill                  48,770            17,081
Other operating expenses                                                       (23,255)           24,077
- ----------------------------------------------------------------------------------------------------------
Total benefits and expenses                                                    174,945           166,309
- ----------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax                             75,806            53,624
Income tax expense
Discontinued operations, net of income tax
Change in accounting principle, net of income tax
- ----------------------------------------------------------------------------------------------------------
Net income
- ----------------------------------------------------------------------------------------------------------
1999
Gross premiums and policy fees                                             $   361,824       $   148,620
Reinsurance ceded                                                             (246,111)          (33,754)
- ----------------------------------------------------------------------------------------------------------
Net premium and policy fees                                                    115,713           114,866
Net investment income                                                          138,044           129,806
Realized investment gains (losses)                                                   -                 -
Other income                                                                      (948)               (9)
- ----------------------------------------------------------------------------------------------------------
Total revenues                                                                 252,809           244,663
- ----------------------------------------------------------------------------------------------------------
Benefits and settlement expenses                                               147,631           129,581
Amortization of deferred policy acquisition costs and goodwill                  29,481            19,444
Other operating expenses                                                        18,201            31,178
- ----------------------------------------------------------------------------------------------------------
Total benefits and expenses                                                    195,313           180,203
- ----------------------------------------------------------------------------------------------------------
Income from continuing operations before income tax                             57,496            64,460
Income tax expense
Discontinued operations, net of income tax
Change in accounting principle, net of income tax
- ----------------------------------------------------------------------------------------------------------
Net income
- ----------------------------------------------------------------------------------------------------------
Operating Segment Assets
2001
Investments and other assets                                                $3,431,441        $4,091,672
Deferred policy acquisition costs and goodwill                                 829,021           418,268
- ----------------------------------------------------------------------------------------------------------
Total assets                                                                $4,260,462        $4,509,940
- ----------------------------------------------------------------------------------------------------------
2000
Investments and other assets                                                $2,834,956        $1,602,352
Deferred policy acquisition costs and goodwill                                 710,468           222,620
- ----------------------------------------------------------------------------------------------------------
Total assets                                                                $3,545,424        $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,  and  cumulative  effect of change in
         accounting principle.  Asset adjustments represent the inclusion of assets related to discontinued operations.



                                          SPECIALTY
          RETIREMENT SAVINGS AND      INSURANCE PRODUCTS
            INVESTMENT PRODUCTS
     ----------------------------------------------------------------------------------------------------------
       STABLE VALUE                         CREDIT            CORPORATE                            TOTAL
         CONTRACTS       ANNUITIES         PRODUCTS           AND OTHER       ADJUSTMENTS (1)   CONSOLIDATED
     ----------------------------------------------------------------------------------------------------------

                 -       $   28,145      $  524,281         $  51,072                    -      $ 1,389,819
                 -                         (274,220)          (14,038)                   -         (771,151)
                                  -
     ----------------------------------------------------------------------------------------------------------
                 -           28,145         250,061            37,034                    -          618,668
       $   261,079          167,809          48,617            (4,803)                   -          839,103
             7,218            1,139               -                 -           $  (16,198)          (7,841)
                 -            3,441          31,907             1,751                    -           38,578
     ----------------------------------------------------------------------------------------------------------
           268,297          200,534         330,585            33,982              (16,198)       1,488,508
     ----------------------------------------------------------------------------------------------------------
           222,306          137,204         154,893            28,806                    -          972,624
             1,662           24,021          60,508             1,795                    -          149,885
             3,961           24,073          79,453            25,827                    -          152,041
     ----------------------------------------------------------------------------------------------------------
           227,929          185,298         294,854            56,428                    -        1,274,550
     ----------------------------------------------------------------------------------------------------------
            40,368           15,236          35,731           (22,446)             (16,198)         213,958
                                                                                    70,457           70,457
                                                                                   (28,502)         (28,502)
                                                                                    (8,341)          (8,341)
     ----------------------------------------------------------------------------------------------------------
                                                                                               $    106,658
     ----------------------------------------------------------------------------------------------------------

                 -       $   30,127      $  479,397         $  44,600                    -      $ 1,175,943
                 -                -        (258,931)           (8,168)                   -         (686,108)
     ----------------------------------------------------------------------------------------------------------
                 -           30,127         220,466            36,432                    -          489,835
       $   243,133          132,204          46,464             1,023                    -          692,081
            (6,556)             410               -                 -          $    (8,453)         (14,599)
                 -            2,809          28,352             5,416                    -           35,194
     ----------------------------------------------------------------------------------------------------------
           236,577          165,550         295,282            42,871               (8,453)       1,202,511
     ----------------------------------------------------------------------------------------------------------
           207,143          109,607         135,494            33,953                    -          760,778
               900           24,156          52,646             2,141                    -          145,694
             3,882           18,203          72,316            26,194                    -          121,417
     ----------------------------------------------------------------------------------------------------------
           211,925          151,966         260,456            62,288                    -        1,027,889
     ----------------------------------------------------------------------------------------------------------
            24,652           13,584          34,826           (19,417)              (8,453)         174,622
                                                                                    61,478           61,478
                                                                                    10,891           10,891
                                                                                         -                -
     ----------------------------------------------------------------------------------------------------------
                                                                                               $    124,035
     ----------------------------------------------------------------------------------------------------------

                 -       $   24,248      $  284,891         $  41,438                    -     $    861,021
                 -                -        (176,928)           (5,504)                   -         (462,297)
     ----------------------------------------------------------------------------------------------------------
                 -           24,248         107,963            35,934                    -          398,724
       $   210,208          106,599          24,121             9,051                    -          617,829
              (549)           1,446               -                 -         $      3,863            4,760
                 -            2,146          15,831             5,579                    -           22,599
     ----------------------------------------------------------------------------------------------------------
           209,659          134,439         147,915            50,564                3,863        1,043,912
     ----------------------------------------------------------------------------------------------------------
           175,290           88,642          55,899            32,613                    -          629,656
               744           19,820          24,718             2,482                    -           96,689
             4,709           14,617          44,728            17,521                    -          130,954
     ----------------------------------------------------------------------------------------------------------
           180,743          123,079         125,345            52,616                    -          857,299
     ----------------------------------------------------------------------------------------------------------
            28,916           11,360          22,570            (2,052)               3,863          186,613
                                                                                    67,991           67,991
                                                                                     9,636            9,636
                                                                                         -                -
     ----------------------------------------------------------------------------------------------------------
                                                                                               $    128,258
     ----------------------------------------------------------------------------------------------------------


        $3,872,637       $4,501,667      $1,050,546          $955,984             $109,881      $18,013,828
             6,374          128,488         177,874             8,650                             1,568,675
     ----------------------------------------------------------------------------------------------------------
        $3,879,011       $4,630,155      $1,228,420          $964,634             $109,881      $19,582,503
     ----------------------------------------------------------------------------------------------------------

        $3,340,099       $3,844,169      $1,220,733          $552,178             $200,850      $13,595,337
             2,144          120,219         150,984            10,006              214,770        1,431,211
     ----------------------------------------------------------------------------------------------------------
        $3,342,243       $3,964,388      $1,371,717          $562,184             $415,620      $15,026,548
     ----------------------------------------------------------------------------------------------------------

Note L-- EMPLOYEE BENEFIT PLANS

        PLC has a defined benefit pension plan covering substantially all of its employees. The plan is not separable by affiliates participating in the plan. However, approximately 86% of the participants in the plan are employees of Protective. The benefits are based on years of service and the employee’s highest thirty-six consecutive months of compensation. PLC’s funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements of ERISA plus such additional amounts as PLC 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 taken as a whole 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 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
                                                         =======     =======       =======

        Protective's share of the net pension cost was approximately $5.4 million, $4.1 million, and $3.6 million, in 2001, 2000, and 1999, respectively.

        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 and therefore are included in the general assets of Protective. Approximately $36.8 million of the assets of the pension plan are invested in a collective trust managed by Northern Trust Corporation.

Note L-- EMPLOYEE BENEFIT PLANS (Continued)

        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 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.

        PLC also sponsors an unfunded excess benefits plan, which is a nonqualified plan that provides defined pension benefits in excess of limits imposed by federal income 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 PLC’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, PLC 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 PLC was $0.1 million in 2001, 2000 and 1999. PLC'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.

        PLC 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. PLC established an Employee Stock Ownership Plan (ESOP) to match voluntary employee contributions to PLC'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 Protective less dividends on shares held by the ESOP. At December 31, 2001, PLC had committed approximately 166,861 shares to be released to fund employee benefits. The expense recorded by PLC for these employee benefits was less than $0.1 million in 2001, 2000, and 1999.

         PLC sponsors a deferred compensation plan for certain directors, officers, agents, and others. Compensation deferred is credited to the participants in cash, PLC Common Stock, or as a combination thereof.

Note M-- STOCK BASED COMPENSATION

        Certain Protective employees participate in PLC's stock-based incentive plans and receive stock appreciation rights (SARs) from PLC.

         Since 1973, PLC has had stock-based incentive plans to motivate management to focus on PLC'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 based upon a comparison of PLC'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 PLC) to that of a comparison group of publicly held life and multiline insurance companies. If PLC's results are below the median of the comparison group, no portion of the award is earned. If PLC's results are at or above the 90th percentile, the award maximum is earned.

Note M-- STOCK BASED COMPENSATION (Continued)

        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 PLC Common Stock. With respect to SARs, PLC will pay an amount equal to the difference between the specified base price of PLC's Common Stock and the market value at the exercise date. Awards are paid in shares of PLC Common Stock. At December 31, 2002, 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 PLC to provide long-term incentive compensation based solely on the performance of PLC'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 PLC) 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 PLC for its stock-based compensation plans was $5.6 million, $4.1 million, and $4.0 million in 2001, 2000, and 1999, respectively.

Note N-- REINSURANCE

        Protective 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, Protective 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 Protective's new life insurance sales are being reinsured. Protective reviews the financial condition of its reinsurers and monitors the amount of reinsurance it has with its reinsurers.

        Protective 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. Protective 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 Protective. At December 31, 2001 and 2000, Protective had paid $46.4 million and $33.5 million, respectively, of ceded benefits which are recoverable from reinsurers. In addition, at December 31, 2001, Protective had receivables of $69.3 million related to insurance assumed. Included in these receivables are $51.2 million related to the sale of Protective'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.

Note O-- ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

        The carrying amount and estimated fair values of Protective’s financial instruments at December 31 are as follows: 

                                                                   2001                              2000
                                                       -----------------------------    -----------------------------
                                                                         ESTIMATED                        ESTIMATED
                                                          CARRYING         FAIR            CARRYING         FAIR
                                                           AMOUNT         VALUES            AMOUNT           VALUES
                                                         ----------     -----------       ----------     ------------
      Assets (see Notes A and C):
      Investments:
         Fixed maturities.........................       $9,812,091      $9,812,091       $7,390,110      $7,390,110
         Equity securities........................           60,493          60,493           41,792          41,792
         Mortgage loans on real estate............        2,512,844       2,671,074        2,268,224       2,385,174
         Short-term investments...................          228,396         228,396          172,699         172,699

      Liabilities (see Notes A and E):
         Stable value account balances............        3,716,530       3,821,955        3,177,863       3,250,991
         Annuity account balances.................        3,248,218       3,166,052        1,916,894       1,893,749
         Notes payable............................            2,291           2,291            2,315           2,315
      Other (see Note A):
         Derivative Financial Instruments.........           (1,634)         (1,634)          (6,079)        (13,011)

        Except as noted below, fair values were estimated using quoted market prices.

        Protective estimates the fair value of its mortgage loans using discounted cash flows from the next call date.

        Protective believes the fair value of its short-term investments and notes payable to banks approximates book value due to either being short-term or having a variable rate of interest.

        Protective estimates the fair value of its guaranteed investment contracts and annuities using discounted cash flows and surrender values, respectively.

        Protective 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.

        Protective estimates the fair value of its derivative financial instruments using market quotes or derivative pricing models. The fair value represents the net amount of cash Protective would have received (or paid) had the contracts been terminated on December 31. 

                                                                     SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
                                                                     PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
                                                                                       (in thousands)

            COL. A                   COL. B           COL. C          COL. D          COL. E           COL. F          COL. G          COL. H           COL. I          COL. J
            ------                   ------           ------          ------          ------           ------          -------         ------           ------          ------
                                                                                   GIC, ANNUITY                                                      AMORTIZATION
                                    DEFERRED                                       DEPOSITS AND                                                       OF DEFERRED
                                     POLICY       FUTURE POLICY                        OTHER        NET PREMIUMS        NET         BENEFITS AND        POLICY           OTHER
                                   ACQUISITION     BENEFITS AND      UNEARNED     POLICYHOLDERS'     AND POLICY      INVESTMENT      SETTLEMENT      ACQUISITIONS      OPERATING
            SEGMENT                   COSTS           CLAIMS         PREMIUMS          FUNDS            FEES         INCOME(1)        EXPENSES           COSTS        EXPENSES(1)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Year Ended
  December 31, 2001:
      Life Marketing               $  829,021       $3,326,841     $       303      $     86,937       $120,996        $178,866        $190,538       $   41,399     $  (22,957)
      Acquisitions                    418,268        3,046,401             434           876,221        182,432         187,535         238,877           20,500         41,684
      Stable Value Contracts            6,374                -               -         3,872,637              0         261,079         222,306            1,662          3,961
      Annuities                       128,488          281,074               -         2,232,779         28,145         167,809         137,204           24,021         24,073
      Credit Products                 141,882          211,713         898,340             3,856        250,061          48,617         154,893           57,681         82,280
      Corporate and Other               8,650           16,572           2,242               247         37,034          (4,803)         28,806            1,795         25,827
      Adjustments(2)                        0           92,084             334            24,195              0               0               0                0              0
                                   ----------       ----------        --------        ----------       --------        --------        --------         --------       --------
      TOTAL                        $1,532,683       $6,974,685        $901,653        $7,096,872       $618,668        $839,103        $972,624         $147,058       $154,868
                                   ==========       ==========        ========        ==========       ========        ========        ========         ========       ========
Year Ended
  December 31, 2000:
      Life Marketing              $   710,468       $2,753,191     $       334       $   102,305       $ 99,813        $152,317        $149,430        $  48,771     $  (23,255)
      Acquisitions                    222,620        1,364,830             484           238,465        102,997         116,940         125,151           17,081         24,077
      Stable Value Contracts            2,144          162,236               -         3,177,863              -         243,133         207,143              900          3,882
      Annuities                       120,219          306,021               -         1,633,203         30,127         132,204         109,607           24,156         18,203
      Credit Products                 112,135          293,253         929,943             3,901        220,466          46,464         135,494           50,132         74,830
      Corporate and Other              10,006           40,588           2,242               129         36,432           1,024          33,953            2,140         26,196
      Adjustments(2)                   11,788          113,278           2,602            64,227              0               0               0                0              0
                                   ----------       ----------        --------        ----------       --------        --------        --------          --------      --------
      TOTAL                        $1,189,380       $5,033,397        $935,605        $5,220,093       $489,835        $692,082        $760,778          $143,180      $123,933
                                   ==========       ==========        ========        ==========       ========        ========        ========          ========      ========
Year Ended
  December 31, 1999:
      Life Marketing                                                                                   $115,713        $138,044        $147,631        $  29,481       $ 18,201
      Acquisitions                                                                                      114,866         129,806         129,581           19,444         31,178
      Stable Value Contracts                                                                                  -         210,208         175,290              744          4,709
      Annuities                                                                                          24,248         106,599          88,642           19,820         14,617
      Credit Products                                                                                   107,963          24,121          55,899           24,718         44,728
      Corporate and Other                                                                                35,934           9,051          32,613            2,482         17,521
      Adjustments                                                                                             0               0               0                0              0
                                                                                                       --------        --------        --------        ---------       --------
TOTAL                                                                                                  $398,724        $617,829        $629,656        $  96,689       $130,954
                                                                                                       ========        ========        ========        =========       ========
(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 INSURANCE COMPANY AND SUBSIDIARIES
                                                  (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
                COL. A                                     COL. B          COL. C          COL. D        COL. E           COL. F
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         PERCENTAGE
                                                                            CEDED TO         ASSUMED                      OF AMOUNT
                                                              GROSS          OTHER          FROM OTHER         NET         ASSUMED
                                                              AMOUNT       COMPANIES        COMPANIES         AMOUNT        TO NET
                                                          ------------    ------------      -----------   ------------     --------
Year Ended December 31, 2001:
   Life insurance in force...........................     $191,105,511    $171,449,182      $23,152,614    $42,808,143      54.1%
                                                          ============    ============      ===========    ===========      =====
Premiums and policy fees:
   Life insurance....................................     $    774,294    $    565,130      $   198,832    $   407,996      48.7%
   Accident and health insurance.....................          181,508         122,747                          58,761       0.0%
   Property and liability insurance..................          158,890          83,274           76,295        151,911      50.2%
                                                          ------------    ------------      -----------    -----------
     TOTAL...........................................     $  1,114,692    $    771,151      $   275,127    $   618,668
                                                          ============    ============      ===========    ===========
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 and health insurance.....................          203,475         128,520           17,164         92,119      18.6%
   Property and liability insurance..................          159,354          63,795           13,169        108,728      12.1%
                                                          ------------    ------------      -----------    -----------
       TOTAL.........................................     $  1,032,942    $    686,108      $   143,001    $   489,835
                                                          ============    ============      ===========    ===========

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 and health insurance.....................          153,812          93,657           11,893         72,048      16.5%
   Property and liability insurance..................           34,109             501              111         33,719       0.3%
                                                          ------------    ------------      -----------    -----------
       TOTAL.........................................     $    718,649    $    462,297      $   142,372    $   398,724
                                                          ============    ============      ===========    ===========

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

        None

PART III

Item 10. Directors and Executive Officers of the Registrant

        Not required in accordance with General Instruction I(2)(c).

Item 11. Executive Compensation

        Not required in accordance with General Instruction I(2)(c).

Item 12. Security Ownership of Certain Beneficial Owners and Management

        Not required in accordance with General Instruction I(2)(c).

Item 13. Certain Relationships and Related Transactions

        Not required in accordance with General Instruction I(2)(c).

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 (Item 8)

            2. Financial Statement Schedules (see index annexed)

            3. Exhibits:

The exhibits listed in the Exhibit Index on page 46 of this Form 10-K are filed herewith or are incorporated herein by reference. No management contract or compensatory plan or arrangement is required to be filed as an exhibit to this form. The Registrant will furnish a copy of any of the exhibits listed upon the payment of $5.00 per exhibit to cover the cost of the Registrant in furnishing the exhibit.

        (b) Reports on Form 8-K:

            None

SIGNATURES

        Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Birmingham, State of Alabama on April 1, 2002.

PROTECTIVE LIFE INSURANCE COMPANY
BY/s/John D. Johns
President

Dated:   April 1, 2002


        Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated:


        SIGNATURE                             Title                                  DATE

(i)   Principal Executive Officer
      /S/JOHN D. JOHNS                            President and Chief Executive Officer            April 1, 2002
      ----------------------                      (Principal Executive Officer) and Director
      John D. Johns

(ii) Principal Financial Officer
      /S/ALLEN W. RITCHIE                         Executive Vice President,                        April 1, 2002
      -----------------------                     and Chief Financial Officer and Director
      Allen W. Ritchie

(iii) Principal Accounting Officer
      /S/JERRY W. DEFOOR                          Vice President and Controller,                   April 1, 2002
      -----------------------                     and Chief Accounting Officer
      Jerry W. DeFoor

(iv)  Board of Directors:
      *                                           Director                                         April 1, 2002
      -----------------------
      Richard J. Bielen

      *                                           Director                                         April 1, 2002
      -----------------------
      R. Stephen Briggs

      *                                           Director                                         April 1, 2002
      -----------------------
      J. William Hamer, Jr.

      *                                           Director                                         April 1, 2002
      ----------------------
      T. Davis Keyes

      *                                           Director                                         April 1, 2002
      ----------------------
      Carolyn King

      *                                           Director                                         April 1, 2002
      ----------------------
      Deborah J. Long

      *                                           Director                                         April 1, 2002
      ----------------------
      Jim E. Massengale

      *                                           Director                                         April 1, 2002
      ----------------------
      Steven A. Schultz

      *                                           Director                                         April 1, 2002
      ----------------------
      Wayne E. Stuenkel
*BY/s/JERRY W. DEFOOR
Jerry W. DeFoor
Attorney-in-fact

EXHIBIT INDEX


      ITEM
     NUMBER                                  DOCUMENT
     ------                                  --------
      ****    2          -       Stock Purchase Agreement
         *    3(a)       -       Articles of Incorporation
         *    3(b)       -       By-laws
        **    4(a)       -       Group Modified Guaranteed Annuity Contract
       ***    4(b)       -       Individual Certificate
        **    4(c)       -       Tax-Sheltered Annuity Endorsement
        **    4(d)       -       Qualified Retirement Plan Endorsement
        **    4(e)       -       Individual Retirement Annuity Endorsement
        **    4(f)       -       Section 457 Deferred Compensation Plan Endorsement
         *    4(g)       -       Qualified Plan Endorsement
        **    4(h)       -       Application for Individual Certificate
        **    4(i)       -       Adoption Agreement for Participation in Group Modified Guaranteed
                                 Annuity
       ***    4(j)       -       Individual Modified Guaranteed Annuity Contract
        **    4(k)       -       Application for Individual Modified Guaranteed Annuity Contract
        **    4(l)       -       Tax-Sheltered Annuity Endorsement
        **    4(m)       -       Individual Retirement Annuity Endorsement
        **    4(n)       -       Section 457 Deferred Compensation Plan Endorsement
        **    4(o)       -       Qualified Retirement Plan Endorsement
      ****    4(p)       -       Endorsement - Group Policy
      ****    4(q)       -       Endorsement - Certificate
      ****    4(r)       -       Endorsement - Individual Contract
      ****    4(s)       -       Endorsement (Annuity Deposits) - Group Policy
      ****    4(t)       -       Endorsement (Annuity Deposits) - Certificate
      ****    4(u)       -       Endorsement (Annuity Deposits) - Individual Contracts
     *****    4(v)       -       Endorsement - Individual
     *****    4(w)       -       Endorsement - Group Contract/Certificate
    ******    4(x)       -       Endorsement (96) - Individual
    ******    4(y)       -       Endorsement (96) - Group Contract
    ******    4(z)       -       Endorsement (96) - Group Certificate
    ******    4(aa)      -       Individual Modified Guaranteed Annuity Contract (96)
   *******    4(bb)      -       Settlement Endorsement
********      4(cc)      -       Cancellation Endorsement
         *   10(a)       -       Bond Purchase Agreement
         *   10(b)       -       Escrow Agreement
         *   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(e)       -       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.
             10(f)       -       Indemnity Reinsurance Agreement By and Between Protective Life
                                 Insurance Company and Fortis Benefits Insurance Company dated
                                 December 31, 2001.
             24          -       Power of Attorney
             99          -       Safe Harbor for Forward-Looking Statements


            *   Previously filed or incorporated by reference in Form S-1 Registration Statement,
                Registration No. 33-31940.
           **   Previously filed or incorporated by reference in Amendment No. 1 to Form S-1
                Registration Statement, Registration No. 33-31940.
          ***   Previously filed or incorporated by reference from Amendment No. 2 to Form S-1
                Registration Statement, Registration No. 33-31940.
         ****   Previously filed or incorporated by reference from Amendment No. 2 to Form S-1 Registration Statement,
                Registration No. 33-57052.
        *****   Previously filed or incorporated by reference from Amendment No. 3 to Form S-1
                Registration Statement, Registration No. 33-57052.
       ******   Previously filed or incorporated by reference from S-1 Registration Statement,
                Registration No. 333-02249.
      *******   Previously filed or incorporated by reference from Amendment No. 1 to Form S-1
                Registration Statement, Registration No. 333-02249.
     ********   Previously filed or incorporated by reference in Form S-1 Registration Statement,
                Registration No. 333-32784.
EX-10 3 ex10eplico.htm Exhibit 10

Exhibit 10(e)

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-10 4 ex10fplico.htm Exhibit 10

Exhibit 10(f)

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-24 5 ex24plico.htm Exhibit 24

Exhibit 24

DIRECTORS' POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors of Protective Life Insurance Company, a Tennessee corporation (“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 2001 Annual Report on Form 10-K 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, each of the undersigned has hereunto set his hand and seal this 12th day of March, 2002.

/s/ John D. Johns
John D. Johns

/s/Allen W. Ritchie
Allen W. Ritchie

/s/ R. Stephen Briggs
R. Stephen Briggs

/s/ Jim E. Massengale
Jim E. Massengale

/s/ Richard J. Bielen
Richard J. Bielen

/s/ J. William Hamer, Jr.
J. William Hamer, Jr.

/s/ T. Davis Keyes
T. Davis Keyes

/s/ Carolyn King
Carolyn King

/s/ Deborah J. Long
Deborah J. Long

/s/ Steven A. Schultz
Steven A. Schultz

/s/ Wayne E. Stuenkel
Wayne E. Stuenkel

WITNESS TO ALL SIGNATURES:

/s/ Jerry W. DeFoor
Jerry W. DeFoor

 EX-99 6 ex99plico.htm Exhibit 99

Exhibit 99
to
Form 10-K
of
Protective Life Insurance Company
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 Insurance Company (Protective) 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. Protective 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 Protective’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 Protective 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 Protective. 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. Protective encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than Protective 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.

        Protective’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 Protective’s competitive position.

A ratings downgrade could adversely affect our ability to compete.

        Ratings are an important factor in Protective’s competitive position. Rating organizations periodically review the financial performance and condition of insurers, including Protective and its subsidiaries. A downgrade in the ratings of Protective and its subsidiaries could adversely affect Protective’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. Protective cannot predict what actions the rating organizations may take, or what actions Protective may be required to take in response to the actions of the rating organizations, which could adversely affect Protective.

Our policy claims fluctuate from year to year.

        Protective’s results may fluctuate from year to year due to fluctuations in policy claims received by Protective. Certain of Protective’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 on 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 Protective and its 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 Protective and its 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 Protective and its insurance subsidiaries to dispose of assets on unfavorable terms, which could have an adverse effect on Protective.

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 Protective’s spread income. While Protective 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 Protective’s insurance and investment products. In addition, certain of Protective’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, Protective’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 Protective’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from these assumptions.

Insurance companies are highly regulated.

        Protective and its 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 Protective’s subsidiaries. Even though such issues are unlikely to result in any material impact on Protective, Protective cannot predict what regulatory actions may be taken or what initiatives may be taken or what initiatives may be enacted which could adversely affect Protective.

        Protective and its 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 Protective and its 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 Protective’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 Protective and its 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. Protective cannot predict what tax initiatives may be enacted which could adversely affect Protective.

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. Protective, like other financial services companies, in the ordinary course of business, is involved in such litigation or, alternatively, in arbitration. Protective cannot predict the outcome of any such litigation or arbitration.

A decrease in sales or persistency could negatively affect our results.

        Protective’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 Protective’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.

        Protective’s invested assets and derivative financial instruments are subject to customary risks of credit defaults and changes in market values. The value of Protective’s commercial mortgage loan portfolio depends in part on the financial condition of the tenants occupying the properties which Protective has financed. Factors that may affect the overall default rate on, and market value of, Protective’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.

        Protective’s acquisitions have increased its earnings in part by allowing Protective to enter new markets and to position itself to realize certain operating efficiencies. There can be no assurance, however, that Protective 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 Protective.

We are dependent on the performance of others.

        Protective’s results may be affected by the performance of others because Protective has entered into various arrangements involving other parties. Examples include, but are not limited to, the following: many of Protective’s products are sold through independent distribution channels; and variable annuity deposits are invested in funds managed by third parties. Protective may also use third-party administrators to collect premiums, pay claims, and/or perform customer service functions. Additionally, Protective’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 Protective.

Our reinsurance program involves risks.

        Protective and its insurance subsidiaries cede insurance to other insurance companies through reinsurance. However, Protective 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 Protective. Under certain reinsurance agreements, the reinsurer may increase the rate it charges Protective for the reinsurance, though Protective does not anticipate increases to occur. Therefore, if the cost of reinsurance were to increase or if reinsurance were to become unavailable, Protective could be adversely affected.

        Additionally, Protective assumes policies of other insurers. Any regulatory or other adverse development affecting the ceding insurer could also have an adverse effect on Protective.

        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, Protective 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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