Membership Agreement

Each Member is required to execute a Membership Agreement in substantially the form ofExhibit Eattached hereto. The Agreement provides, among other things, that the Company will maintain class accounting for possible use in determining distributions and an acknowledgment that membership interests in the Company are not transferable. It also contains provisions related to the payment of Membership Account balances upon cancellation or termination of a Member’s active participation in the Reinsurance Program.

Member Distributions

Distributions may be paid by the Company to Members at the sole discretion of the Board of Directors, but no distributions are guaranteed. The Company may determine the amount of distributions based on Member class (“Pod”) in accordance with the class accounting established in the Membership Agreement, the current terms of which are set forth in the Standards and Formulas for Membership Account Valuation and Distributions (“Standards”), attached heretoas Exhibit F, which takes into account the loss experience, surplus contributions, attributable income and other factors related to the Members of each class. Though the Company may make distributions based on class accounting, unexpected losses and negative results affecting the Members of any class could negatively impact distributions to all other classes of Members. A Member will not be entitled to receive distributions following the termination or cancellation of such Member’s active status in the Company. Payment of all distributions is subject to the prior approval of the Vermont Insurance Commissioner.

Membership Accounts

In accordance with the Amended and Restated Bylaws and Membership Agreement and the Standards, the Company maintains for each Member a “Membership Account,” which sets forth the value of the Company’s surplus attributed to the Member based on such Member’s original surplus contribution, as adjusted from time to time at the sole discretion of the Board of Directors, based on, without limitation, such factors as the operating results of the Company as a whole, the premium paid by Members on a class and individual basis, the operating results of the insurance and reinsurance of Members within a class and class membership. The Board has established methods for determining the value of Membership Accounts which may change from time to time resulting in a loss of Membership Account value for any particular Member.

Termination of Membership

Membership in the Company will terminate automatically when a Member ceases to participate in the Reinsurance Program either by choice, lack of eligibility or other reason. Upon termination, the Company will pay to the Member, if able, such Member’s Membership Account balance, but payment may be deferred under certain circumstances at the sole discretion of the Board of Directors, in some cases without interest, and without subsequent appreciation due to allocations made after the date of termination, and will in all cases be subject to the prior approval of the Vermont Insurance Commissioner. Deferrals of Membership Account payments have occurred and continue. See “PAYMENT OF MEMBERSHIP ACCOUNT BALANCE.

PAYMENT OF MEMBERSHIP ACCOUNT BALANCE

General

In accordance with the Amended and Restated Bylaws and Membership Agreement, the Company will pay to a Member the balance contained in a Member’s Membership Account upon termination of the Member’s participation in the Company. The payment will be initiated by the Company when coverage of the Member is cancelled, non-renewed or terminated.

Time of Payment

Payment of a Member’s Membership Account balance is subject to the prior approval of the Vermont Insurance Commissioner. The Company is authorized to suspend and postpone payment for good cause related to impairment of the Company’s financial condition or other regulatory or financial considerations and has done so to date and the Membership Account balance could be reduced or eliminated during such postponement.