<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) OCTOBER 9, 1996
WELLPOINT HEALTH NETWORKS INC.
(Exact Name of Registrant as Specified in Charter)
CALIFORNIA 1-14340 95-3760980
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
21555 OXNARD STREET, WOODLAND HILLS, CALIFORNIA 91367
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (818) 703-4000
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
A. On October 10, 1996, the Company entered into a definitive agreement
(the "Purchase Agreement") to acquire certain portions of the group health and
related life business (the "GBO Operations") of the Group Benefit Operations
Division (the "GBO Division") of John Hancock Mutual Life Insurance Company
("Hancock") for an aggregate purchase price of $86.7 million.
The transaction is structured as the acquisition of the assets and
assumption of the liabilities of the GBO Division by the Company (or its
designated affiliate, which is contemplated to be UNICARE Life & Health
Insurance Company, a Delaware stock life insurance company ("UNICARE")) and the
purchase of the stock of certain subsidiaries of Hancock which are part of
Hancock's GBO Operations (including Cost Care, Inc.). The Purchase Agreement
provides for a purchase price adjustment based on a post-closing audit of a
balance sheet (the "Closing Balance Sheet") to be prepared reflecting all the
assets and liabilities acquired in the transaction. WellPoint will be required
to pay the amount of the excess of net assets acquired over the net liabilities
assumed to Hancock and Hancock will be required to pay to WellPoint the amount
of any excess of liabilities over net book value of the assets acquired. The
Closing Balance Sheet will be prepared in accordance with agreed-upon procedures
and policies which are outlined in a "Summary of Accounting Principles and
Procedures" attached hereto as an exhibit. Hancock has further agreed to not
engage in any business competitive with the health and disability insurance
business of the GBO Operations for a period of five years following closing
of the transaction.
At the closing of the acquisition (which is expected to occur in
January 1997), Hancock and UNICARE will enter into a Coinsurance Agreement
pursuant to which UNICARE will reinsure, on a 100% share coinsurance basis,
Hancock's reserves and liabilities, after reduction for third-party reinsurance,
with respect to currently existing GBO Operations policies and with respect to
additional GBO policies issued on behalf of UNICARE during a 24-month or
30-month transition period (depending on the type of coverage) following the
closing. Policies subject to such reinsurance include only those that are in
effect at the closing date or, if they have lapsed prior to that time, only
those which are included in reserves set forth on the Closing Balance Sheet.
Hancock will issue transition GBO Operations policies on behalf of UNICARE
for such 24-month or 30-month period while UNICARE obtains any necessary
permits and form approvals to issue such policies in its own name.
At the closing, UNICARE and Hancock will also enter into an Assumption
and Reinsurance Agreement which will provide for UNICARE to replace Hancock on
a 100% assumption reinsurance basis on the above-described coinsured policies at
such time as UNICARE has the licenses and permits and form approvals as are
necessary to
<PAGE> 3
reinsure the coinsurance policies and the insured parties have consented to such
assumption and reinsurance.
A Limited License Agreement to be entered between UNICARE and Hancock
will entitle UNICARE to use the name "John Hancock" and related Hancock service
marks in connection with the marketing of insurance policies and administrative
services by UNICARE during the 30-month transition period. UNICARE and Hancock
will also enter into an Administrative Services Agreement and a "Services
Agreement" at the closing of the acquisition. The Administration Agreement
provides that UNICARE will perform certain administration services with respect
to the coinsurance policies, administrative services contracts and net
contracts in order to facilitate the transition of the GBO Business from
Hancock to WellPoint. Such services to be performed by UNICARE include, among
other things, claims administration, policy and contract administration, fee
administration and certain financial, statistical and tax services relating to
the contracts being administered. The Service Agreement provides for computer
and other support services to be provided by Hancock to UNICARE during the
two-year period immediately following the closing of the transaction.
B. On October 9, 1996, the Superior Court of the State of California for
Los Angeles County approved the settlement (the "Settlement") of four
substantially identical actions that had been filed against WellPoint, certain
of WellPoint's officers and directors, and Blue Cross of California in March
and April of 1995. The complaints in Gollomp and Gober, et al. v. Schaeffer,
Williams, Rich, Weinberg, et al.; Greenberg, et al. v. Schaeffer, Williams,
Rich, Weinberg, et al.; Freed, et al. v. Schaeffer, Williams, Rich, Weinberg, et
al.; and Kaiser v. WellPoint Health Networks Inc., Blue Cross of California,
et al., alleged that the defendants breached fiduciary duties to WellPoint's
public stockholders by, among other things, pursuing a business combination
with Health Systems International and purportedly rejecting certain other
proposals due consideration.
All class action claims asserted on behalf of WellPoint's public
stockholders were dismissed on August 10, 1995, leaving only claims asserted
derivatively on behalf of WellPoint. On October 9, 1996, the Settlement of the
remaining claims asserted in the actions was approved by the Court as fair,
reasonable and adequate to WellPoint and its stockholders after notice to
stockholders and the opportunity to object to its terms. On October 21, 1996
the Court issued an order (i) extending the period for objections to the
Settlement to be filed until November 8, 1996, and (ii) getting a status
conference regarding the proposed judgment for November 26, 1996.
All of the Settlement documentation is on file with the Los Angeles
County Superior Court. The principal terms of the Settlement require:
1. Certain continuing obligations regarding the structure and
operation of future independent committees of the Company
that may be formed to investigate or evaluate potential
mergers, acquisitions, financial restructurings or exchange
transactions, as described below.
2. Certain limitations on the Company's ability to make "change
in control" or "golden parachute" payments to officers or
directors.
3. The Company's Board of Directors must consider and adopt a
policy and/or recommendations regarding payment of
dividends to its shareholders on an annual basis.
4. The payment $1,850,000 in attorneys' fees and costs to
plaintiffs' counsel.
<PAGE> 4
The obligations summarized in items 1-3 above will continue in effect
for a minimum of five (5) years. Under the terms of the Settlement, WellPoint,
Blue Cross of California and the individual defendants do not admit, and
expressly deny, all claims and liability asserted against them. The Settlement
also includes a release of all claims alleged in the actions.
The following is a summary of provisions of the Settlement relating to
future independent committees of the Company that may be formed to investigate
or evaluate mergers, acquisitions, financial restructurings or exchange
transactions.
(a) There will be no prior familial, professional or business
relationship (other than service on the Board of Directors of WellPoint or any
of its predecessor boards) between the Company and its executive officers, on
the one hand, and any members of the committee and the committee's advisors
(other than through an independent committee), on the other. For purposes of
this subparagraph, (i) a prior relationship with one of the committee's
advisors will be disqualifying only to the extent that it existed within two
years prior to formation of the independent committee, and (ii) employment as
an advisor to a prior independent committee of the Company will not preclude
employment as an advisor to a subsequent independent committee of the Company.
(b) The independent committee (and not the Company or its
executive officers) will direct the activities of the committee's advisors.
(c) Meetings of the independent committee will be chaired by a
member of the committee (and not by any executive of the Company).
(d) No executive officer of the Company will serve on the
independent committee or as secretary or legal counsel to the committee. The
role of the Company's executive officers in the activities of the committee will
be limited to providing information or performing specified assignments at the
request and direction of the committee.
(e) If any executive officer of the Company attends a meeting
of the independent committee, the purpose of such attendance will be stated in
the committee minutes.
(f) Any written materials created for or on behalf of the
independent committee will only be disclosed or released to executive officers
of the Company upon a resolution and affirmative vote of the committee, unless
the matter for which the committee was created is concluded.
(g) Any due diligence investigation supervised by or at the
behest of the committee in connection with a sale or potential sale undertaken
of the Company or any material portion thereof will be directed by the
committee. A log or list of the date, purpose and type of due diligence
information disseminated or received will be kept.
(h) One or more members of the independent committee will
participate in or oversee any negotiations that may result in a merger,
acquisition, financial restructuring or exchange transaction of or by the
Company.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Historical financial information as of and for the
years ended December 31, 1995 and 1994 and as of and for
the six-month period ended June 30, 1996 are attached hereto.
(b) PRO FORMA FINANCIAL INFORMATION
Pro forma financial information as of and for the
six-month period ended June 30, 1996 and for the year ended
December 31, 1995 are attached hereto.
(c) EXHIBITS
Exhibit No. Exhibit
2.1 Purchase and Sale Agreement dated as of October 10,
1996 entered into between John Hancock Mutual Life
Insurance Company, a
<PAGE> 5
Exhibit No. Exhibit
mutual life insurance company organized under the
laws of Massachusetts and the Company.
99.1 Definitions (Annex A to Purchase Agreement).
99.2 Form of Coinsurance Agreement between John Hancock
Mutual Life Insurance Company, a mutual life
insurance company organized under the laws of
Massachusetts and UNICARE Life and Health Insurance
Company, a stock life insurance company organized
under the laws of Delaware (Annex B to Purchase
Agreement).
99.3 Form of Assumption Reinsurance Agreement by and
between John Hancock Mutual Life Insurance Company,
a mutual life insurance company organized under the
laws of Massachusetts and UNICARE Life and Health
Insurance Company, a stock life insurance company
organized under the laws of Delaware (Annex C to
Purchase Agreement).
99.4 Form of Limited License Agreement between John
Hancock Mutual Life Insurance Company, a mutual life
insurance company organized under the laws of
Massachusetts and UNICARE Life and Health Insurance
Company, a stock life insurance company organized
under the laws of Delaware (Annex D to Purchase
Agreement).
99.5 Form of Administration Agreement by and between John
Hancock Mutual Life Insurance Company, a mutual life
insurance company organized under the laws of
Massachusetts and UNICARE Life and Health Insurance
Company, a stock life insurance company organized
under the laws of Delaware (Annex E to Purchase
Agreement).
99.6 Form of Service Agreement by and between John Hancock
Mutual Life Insurance Company, a mutual life
insurance company organized under the laws of
Massachusetts and UNICARE Life and Health Insurance
Company, a stock life insurance company organized
under the laws of Delaware (Annex F to Purchase
Agreement).
<PAGE> 6
Exhibit No. Exhibit
----------- -------
99.7 Office Lease for Premises located at 200 Berkeley
Street, Boston, Massachusetts by and between John
Hancock Mutual Life Insurance Company, as landlord,
and UNICARE Life & Health Insurance Company as
Tenant (Annex G to Purchase Agreement).
99.8 Summary of Accounting Principles and Procedures
(Annex L to Purchase and Sale Agreement).
<PAGE> 7
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 25, 1996
WELLPOINT HEALTH NETWORKS INC.
By: /s/ THOMAS C. GEISER
-----------------------------------
Name: Thomas C. Geiser
----------------------------------
Title: Executive Vice President
---------------------------------
<PAGE> 8
Audited Combined Financial Statements
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
December 31, 1995
Audited Combined Financial Statements
Report of Independent Auditors...........................................1
Combined Statements of Assets and Liabilities............................2
Combined Statements of Operations and Changes in Net Asset Balance.......3
Combined Statements of Cash Flows........................................4
Notes to Combined Financial Statements...................................5
<PAGE> 9
[ERNST & YOUNG LLP LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
John Hancock Mutual Life Insurance Company
We have audited the accompanying combined statements of assets and liabilities
of the Group Benefits Operations (GBO) of John Hancock Mutual Life Insurance
Company and subsidiaries (the Company) as of December 31, 1995 and 1994, and
the related combined statements of operations and changes in net asset balance
and cash flows for the years then ended. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The combined financial statements have been prepared in conformity with
accounting principles that are generally accepted for stock life insurance
companies. These principles, which are described in Note 1, differ from
statutory accounting practices, which the Company uses to prepare its
general-purpose financial statements.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
Benefits Operations of John Hancock Mutual Life Insurance Company and
subsidiaries at December 31, 1995 and 1994 and the combined results of their
operations and their cash flows for the years then ended in conformity with
accounting principles that are generally accepted for stock life insurance
companies.
As discussed in Note 1 to the financial statements, in 1994, the GBO changed
its method of accounting for postemployment benefits.
/s/ Ernst & Young LLP
-----------------------------
September 27, 1996
<PAGE> 10
COMBINED STATEMENTS OF ASSETS AND LIABILITIES
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1995 1994
------------------------
(in thousands)
<S> <C> <C>
ASSETS
Receivable from John Hancock $462,875 $456,376
Reinsurance recoverable from reinsurers 80,350 54,878
Premiums and accounts receivable 95,455 76,937
Property and equipment, net of accumulated
depreciation (1995--$45,413; 1994--$43,097) 23,024 29,392
Intangible assets 12,132 16,422
Other assets 6,187 5,672
------------------------
TOTAL ASSETS $680,023 $639,677
========================
LIABILITIES
Future policy benefits $300,382 $315,706
Policyholders' and beneficiaries' funds 80,254 54,408
Unpaid claims and claim expense reserves 175,456 156,094
Amounts due to reinsurers 58,810 33,943
Dividends payable to policyholders 24,982 44,690
Debt 257 1,262
General insurance expenses 1,599 576
Payable to affiliate 24,873 21,816
Other liabilities 13,410 11,182
------------------------
TOTAL LIABILITIES $680,023 $639,677
========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 11
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSET BALANCE
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Revenues:
Premiums $481,340 $528,932
Service fees 168,335 182,100
Investment income 35,374 41,040
Other income 54,677 54,084
-------- --------
TOTAL REVENUES 739,726 806,156
Benefits and expenses:
Benefits to policyholders and provision for future benefits 441,693 432,229
Operating expenses 296,914 299,230
Deferred development costs 9,597 6,709
Commissions 2,334 1,687
Adjustments to intangibles 1,549 2,809
Cost of restructuring 34,722
Dividends to policyholders 353 57,421
-------- --------
TOTAL BENEFITS AND EXPENSES 752,440 834,807
-------- --------
LOSS FROM OPERATIONS BEFORE INCOME TAX
BENEFIT AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (12,714) (28,651)
INCOME TAX BENEFIT 4,450 10,028
-------- --------
LOSS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (8,264) (18,623)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 0 (2,910)
-------- --------
NET LOSS (8,264) (21,533)
NET ASSET BALANCE AT JANUARY 1 0 0
TRANSFER FROM JOHN HANCOCK 8,264 21,533
-------- --------
NET ASSET BALANCE AT DECEMBER 31 $ 0 $ 0
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 12
COMBINED STATEMENTS OF CASH FLOWS
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994
-------- -------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,264) $(21,533)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 16,049 17,434
(Increase) decrease in certain assets:
Reinsurance recoverable from reinsurers (25,472) 5,612
Premiums and accounts receivable (18,518) 37,026
Other assets (515) (1,779)
Increase (decrease) in certain liabilities:
Future policy benefits (15,324) (53,839)
Policyholders' and beneficiaries' funds 25,846 33,958
Unpaid claims and claim expense reserves 19,362 (1,948)
Amounts due to reinsurers 24,867 (21,456)
Dividends payable to policyholders (19,708) (7,590)
General insurance expenses 1,023 (471)
Payable to affiliate 3,057 (3,829)
Other liabilities 2,228 (7,942)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,631 (26,357)
-------- --------
Cash flows from investing activities:
Change in receivable from John Hancock (6,499) 17,599
Property and equipment purchased (5,071) (7,507)
Transfer from John Hancock 8,264 21,533
Increase in intangible assets (320) (4,832)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,626) 26,793
-------- --------
Cash flows from financing activities:
Principal repayments of long term debt (1,005) (436)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (1,005) (436)
-------- --------
Net increase in cash and cash equivalents 0 0
Cash and cash equivalents at beginning of year 0 0
-------- --------
Cash and cash equivalents at end of year $ 0 $ 0
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 13
NOTES TO COMBINED FINANCIAL STATEMENTS
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying combined financial statements include certain operations of
the group life and accident and health insurance business of John Hancock
Mutual Life Insurance Company (John Hancock) and Cost Care, Inc., Hancock
Association Services Group and Tri-State, Inc. (the Group Benefits Operations
or GBO). Cost Care, Inc., Hancock Association Services Group and Tri-State, Inc.
are wholly owned, indirect subsidiaries of John Hancock.
The GBO business is expected to be acquired pursuant to an agreement being
negotiated between John Hancock and WellPoint Health Networks, Inc. (see Note
7). GBO has transactions with affiliated companies, the terms and conditions of
which are determined by GBO and the members of the affiliated group. GBO
operating costs and expenses consist of direct costs, allocated costs, and
allocated corporate overhead. Accordingly, these financial statements might not
be indicative of the financial position and results of operations that would
have occurred had GBO operated as a nonaffiliated entity.
The combined financial statements of GBO have been prepared in conformity with
generally accepted accounting principles (GAAP), applied on a consistent basis,
for stock life insurance companies (stock life basis), which vary from
statutory accounting practices as prescribed or permitted by the Commonwealth
of Massachusetts Division of Insurance and the National Association of
Insurance Commissioners.
All significant intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could
impact the amounts reported and disclosed herein.
Operations
- ----------
GBO is not a legal entity but conducts group life and accident and health
insurance business through John Hancock and its subsidiaries. GBO principally
offers group life and accident and health insurance products and administrative
services to its group customers in all fifty states, the District of Columbia
and Puerto Rico.
For fully insured contracts, the policyholder elects either prospectively
pooled experience rated insurance or experience rated refund eligible
insurance. Further, the policyholder is offered fully funded or partially
funded payment options. The partially funded Minimum Premium Contract
incorporates similar insurance risks to GBO but with employer self-funding of
claims, introducing credit risk relating to employer funding. Administrative
services contracts are provided to
5
<PAGE> 14
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY AND
SUBSIDIARIES
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
self-insured plans whereby GBO provides the claims management and processing
service, and in many cases excess or stop-loss insurance. GBO also provides a
range of health care cost management services including pre-admission review
for in-patient hospital admission and preferred provider management to
insurance underwriters and private businesses for a predetermined, periodic fee
and on a fee-for-service basis.
GBO has dedicated sales, underwriting, actuarial, product development, premium
and claims operations, and systems support. Products are distributed through
group representatives, who are John Hancock employees, or through
intermediaries.
Pending Accounting Standards
- ----------------------------
In April 1993, the Financial Accounting Standard Board (FASB) issued
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises" (Interpretation).
The Interpretation, as amended, is effective for 1996 annual financial
statements and thereafter, and will require life insurance companies to adopt
all applicable authoritative GAAP pronouncements in any general-purpose
financial statements that they may issue and describe as being in accordance
with GAAP.
In January 1995, in response to Interpretation 40, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 120, "Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts." This Statement effectively establishes
generally accepted accounting principles, which are different from statutory
accounting principles, for mutual life insurance companies. Through December
31, 1995, statutory accounting practices were considered to be generally
accepted accounting principles for mutual life insurance companies.
SFAS No. 120 is effective for financial statements issued for fiscal years
beginning after December 15, 1995. Because the accompanying financial
statements of GBO have been prepared in conformity with GAAP for stock life
insurance companies, the adoption of the new pronouncements that define GAAP
for mutual life insurance companies is not expected to have a material effect
on GBO's results of operations or statements of assets and liabilities.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In those cases where it is determined that the carrying amount is
not recoverable, an impairment loss is recognized (the difference between the
cost and fair value of the asset). The Statement also requires long-lived assets
to be disposed of (e.g., real estate held for sale) to be carried at the lower
of cost or fair value less cost to sell and does not allow such assets to be
depreciated. This Statement is effective for 1996 financial statements. The
adoption of SFAS No. 121 is not expected to have a material effect on GBO's
results of operations or statements of assets and liabilities.
6
<PAGE> 15
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," was issued in June 1996, and is not expected to
have a material effect on GBO's results of operations or statements of assets
and liabilities.
Postemployment Benefits
- -----------------------
Effective January 1, 1994, GBO adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," and established a liability for the costs and
obligations of benefits such as severance, disability, life insurance, and
health care to be paid to inactive or former employees. A transition obligation
of $2,910 thousand, net of taxes of $1,567 thousand, was recognized upon
adoption.
Receivable from John Hancock
- ----------------------------
GBO is not a separate legal entity and does not have specifically identifiable
cash or investments. The receivable from John Hancock included in the
accompanying combined statements of assets and liabilities represents the
difference between GBO operating business assets and liabilities. It does not
bear a stated rate of interest. However, investment income is allocated to GBO
based on the portfolio investment income of the underlying general account
assets of John Hancock that support GBO's business.
Revenue Recognition
- -------------------
Insurance premiums on fully insured and partially funded contracts are earned
on a pro-rata basis over the period in which services are obligated to be
provided. The portion of premiums not earned at the end of the period is
recorded as unearned insurance premiums.
Administrative service fees are earned on a pro-rata basis as the services are
performed.
Dividends
- ---------
Dividends for eligible contracts are based on premiums received in excess of
claims and expenses incurred. The dividend liability for completed policy years
is established based on policy year experience, while dividends for incomplete
policy years are established based on experience through the financial
statement date.
Income Taxes
- ------------
John Hancock and certain of its affiliates, including the GBO operations, file
a consolidated federal income tax return. However, because GBO is not a
separate legal entity, a formal tax allocation agreement between John Hancock
and GBO has not been executed. For purposes of these financial statements, GBO
has been treated as a separate business of a mutual life insurance company for
the determination of the tax provision. Accordingly, income tax benefit is
allocated to GBO at 35% and is settled currently through the receivable from
John Hancock. The gross asset and liability balances relating to the future tax
consequences of temporary differences between the financial reporting and tax
basis of assets and liabilities are recorded at the John Hancock
7
<PAGE> 16
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
consolidated level. An equity tax, applicable to mutual life insurance
companies, has not been included in the provision.
Intangible Assets
- -----------------
Intangible assets, which include noncompete agreements, long-term employment
contracts, capitalized software and other intangibles, are amortized using the
straight-line method over their estimated useful lives, which range from two to
forty years. Accumulated amortization was $18,253 thousand and $13,643 thousand
at December 31, 1995 and 1994, respectively.
Property, Equipment and Leasehold Improvements
- ----------------------------------------------
Property and equipment, principally composed of furniture and equipment, are
reported at depreciated cost. Depreciation is computed using the straight-line
method based upon the estimated useful lives of the assets. Leasehold
improvements are depreciated over the shorter of the lease term or the
estimated useful life.
Future Policy Benefits and Expenses
- -----------------------------------
Future policy benefits for group life and accident and health contracts have
been computed using interest rates ranging from 2.5% to 8.42%, and mortality,
morbidity, and withdrawal assumptions based on GBO's experience and industry
standards.
Liabilities for unpaid claims and claim expenses include estimates of payments
to be made on reported life and accident and health insurance claims and
estimates of incurred but not reported claims based on historical claims
development patterns.
Estimates of future policy benefit reserves, claim reserves and expenses are
reviewed continually and adjusted as necessary; such adjustments are reflected
in current operations. Although considerable variability is inherent in such
estimates, management believes that future policy benefit reserves, claim and
expense reserves are adequate.
Payable to Affiliate
- --------------------
Payable to affiliate represents the amount due to John Hancock principally as a
result of intercompany expense allocations.
Reinsurance
- -----------
All assets and liabilities related to reinsurance ceded contracts are reported
on a gross basis in the accompanying statements of assets and liabilities. The
accompanying statements of operations reflect premiums, benefits and expenses
net of reinsurance ceded.
GBO assumes and cedes reinsurance and participates in various pools and
associations. The portion of risks that exceeds GBO's retention limits is
reinsured with other insurers. GBO also obtains other reinsurance coverages
with retentions and limits that management believes are appropriate for the
circumstances. Those reinsurance agreements provide for greater diversification
of business, allow management to control exposure to potential losses arising
from
8
<PAGE> 17
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
large risks and provide additional capacity for growth. Amounts recoverable from
reinsurers are estimated in a manner consistent with the future policy benefit
and claim liabilities associated with the reinsured policies.
Reinsurance premiums, commissions, expense reimbursements, benefits and reserves
related to reinsured business are accounted for on bases consistent with those
used in accounting for original policies issued and the terms of the reinsurance
contracts.
Restructuring Charges
- ---------------------
In 1994, the GBO recorded a $34,722 thousand restructuring charge in accordance
with its plans to reduce its cost structure and consolidate operations. This
charge included accruals for severance and related benefits for staff
reductions, property lease terminations, and the write-off of certain assets.
The restructuring liability is settled through the receivable from John Hancock.
The remaining balance of the restructuring liability at December 31, 1995 and
1994 was $7,915 thousand and $23,362 thousand, respectively. The majority of the
remaining balance relates to deferred benefits for terminated employees and
leases.
NOTE 2 -- REINSURANCE
The effect of reinsurance on premiums written and earned was as follows:
<TABLE>
<CAPTION>
1995 1994
Premiums Premiums
-------------------- --------------------
Written Earned Written Earned
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Life and Accident and Health:
Direct $576,565 $576,565 $621,577 $621,577
Assumed 36,185 36,185 30,988 30,988
Ceded (131,410) (131,410) (123,633) (123,633)
-------- -------- -------- --------
Net Life and Accident and
Health Premiums $481,340 $481,340 $528,932 $528,932
======== ======== ======== ========
</TABLE>
Benefits to policyholders ceded to reinsurers under life and accident and health
contracts in 1995 and 1994 were $114,307 thousand and $92,314 thousand,
respectively.
The carrying amounts in the statements of assets and liabilities for reinsurance
recoverable and funds held by reinsurers approximate their fair values.
<PAGE> 18
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY AND
SUBSIDIARIES
NOTE 2 - REINSURANCE - CONTINUED
Reinsurance ceded contracts do not relieve the GBO from its obligations to
contractholders. The GBO remains liable to its contractholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to GBO;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, GBO evaluates the financial condition of its reinsurers and
monitors concentration of credit risk.
NOTE 3 - LIABILITY FOR UNPAID CLAIMS
Activity in the liability for unpaid accident and health claims and loss
adjustment expenses is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Balance at January 1 $191,364 $192,180
Less reinsurance recoverable 7,244 4,534
-------- --------
Net balance at January 1 184,120 187,646
-------- --------
Incurred related to:
Current year 271,968 316,593
Prior years (24,967) (36,280)
-------- --------
Total incurred 247,001 280,313
-------- --------
Paid related to:
Current year 179,994 213,821
Prior years 78,986 70,018
-------- --------
Total paid 258,980 283,839
-------- --------
Net balance at December 31 172,141 184,120
Plus reinsurance recoverables 3,885 7,244
-------- --------
Balance at December 31 $176,026 $191,364
======== ========
</TABLE>
The accident and health liability for unpaid claims is included in the unpaid
claims and claim expense reserves and future policy benefits liabilities in the
accompanying statements of assets and liabilities.
The favorable development of prior year incurred losses relating to the
accident and health business is due to favorable changes in claim estimates.
10
<PAGE> 19
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 4 -- LEASES
GBO has operating leases for office space and certain computer processing and
other equipment to support the GBO business operations. Rental expense for
these items was approximately $7,349 thousand and $8,020 thousand for 1995 and
1994, respectively.
Future minimum aggregate rental payments at December 31, 1995 under
non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1996........................................ $ 6,948
1997........................................ 5,953
1998........................................ 4,440
1999........................................ 3,232
2000........................................ 3,207
2001 and thereafter......................... 15,098
</TABLE>
NOTE 5 -- RELATED PARTY TRANSACTIONS
The various related party transactions between John Hancock and GBO are
summarized below.
OPERATING EXPENSES: John Hancock provides GBO with personnel, property and
facilities including certain services such as investment management, legal,
financial and administrative support. GBO is charged for these services
utilizing various methods of expense allocation which are primarily based on
time incurred, ratios of direct and indirect expenses, square footage occupied,
or allocated in pro rata relationship to other business units of John Hancock.
Management believes the methods used to allocate such costs are reasonable.
Operating expenses allocated to GBO amounted to $189,883 thousand and $193,060
thousand in 1995 and 1994, respectively.
INVESTMENT INCOME AND RECEIVABLE FROM JOHN HANCOCK: GBO is not a separate legal
entity and does not have specifically identifiable cash or investments. The
receivable from John Hancock included in the accompanying combined statements
of assets and liabilities represents the difference between GBO operating
business assets and liabilities. The fair value of the receivable from John
Hancock approximates its carrying value at December 31, 1995 and 1994.
GBO is allocated investment income based on the portfolio income of the
underlying general account assets of the John Hancock that support GBO's
business. Investment income allocated to GBO was $35,374 thousand and $41,040
thousand in 1995 and 1994, respectively.
BENEFIT PLANS: Eligible employees of John Hancock participate in various types
of pension plans sponsored by John Hancock which include defined benefit,
defined contribution and nonqualified
11
<PAGE> 20
NOTES TO COMBINED FINANCIAL STATEMENTS--CONTINUED
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 5--RELATED PARTY TRANSACTIONS--CONTINUED
plans. Pension benefits under the defined benefit plans are based on years of
service and average compensation, generally during the five years prior to
retirement. John Hancock's funding policy for qualified defined benefit plans
is to contribute annually an amount in excess of the minimum annual
contribution required under the Employee Retirement Income Security Act
(ERISA). This amount is limited by the maximum amount that can be deducted for
federal income tax purposes. Plan assets consist principally of listed equity
securities, corporate obligations and U.S. government securities. GBO is
allocated its proportionate share of expense based on John Hancock's
intercompany expense allocation methodology. John Hancock also has various
defined contribution plans, nonqualified plans and additional compensation
plans covering its employees and agents. GBO is allocated a share of the
expenses related to the plans pursuant to John Hancock's intercompany expense
allocation methodology. John Hancock also provides certain life and accident
and health insurance benefit plans covering most of its retired employees and
general agency personnel. GBO is allocated its proportionate share of these
expenses.
Total benefit plan expense allocated to GBO was $14,186 thousand and $14,515
thousand for 1995 and 1994, respectively.
GBO has issued certain group life and accident and health insurance contracts
to cover employees of John Hancock. Premiums, benefits (including the provision
for future benefits), and reserves included in the combined statements of
operations and changes in net asset balance and combined statements of assets
and liabilities associated with the coverage approximates $23,978 thousand,
$24,154 thousand, and $53,706 thousand, in 1995, respectively. The
corresponding amounts in 1994 were $18,903 thousand, $19,487 thousand, and
$59,270 thousand, respectively.
NOTE 6--CONTINGENCIES
In the normal course of its business operations, GBO is involved in litigation
from time to time with claimants, beneficiaries and others, and a number of
litigation matters were pending as of December 31, 1995. It is the opinion of
management, after consultation with counsel, that the ultimate liability
with respect to these claims, if any, will not materially impact the financial
condition of GBO.
NOTE 7--SUBSEQUENT EVENTS
John Hancock and WellPoint Health Networks, Inc. are negotiating an agreement
for the sale of GBO to WellPoint Health Networks, Inc. The closing of the sale
is contingent upon state insurance department and other regulatory approvals.
The transaction is expected to close in the fourth quarter of 1996.
--------------------------------------
EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT
On October 10, 1996, John Hancock and WellPoint Health Networks, Inc. signed a
definitive agreement for the sale of GBO to WellPoint Health Networks, Inc.
Under the terms of the definitive agreement, the sale is currently scheduled to
close in January 1997.
12
<PAGE> 21
COMBINED STATEMENT OF ASSETS AND LIABILITIES
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
June 30, 1996 (in thousands)
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Receivable from John Hancock $422,224
Reinsurance recoverable from reinsurers 95,693
Premiums and accounts receivable 162,524
Property and equipment, net of accumulated
depreciation 19,498
Intangible assets 9,761
Other assets 6,336
--------
TOTAL ASSETS $716,036
========
LIABILITIES
Future policy benefits $298,246
Policyholders' and beneficiaries' funds 94,604
Unpaid claims and claim expense reserves 176,974
Amounts due to reinsurers 84,778
Dividends payable to policyholders 20,939
Debt 238
General insurance expenses 352
Payable to affiliate 21,987
Other liabilities 17,918
--------
TOTAL LIABILITIES $716,036
========
</TABLE>
See Notes to Unaudited Combined Financial Statements
1
<PAGE> 22
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN NET ASSET BALANCE
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
Six Months Ended June 30, 1996 (in thousands)
(Unaudited)
<TABLE>
<S> <C>
Revenues:
Premiums $255,188
Investment income 29,082
Other income 104,048
--------
TOTAL REVENUES 388,318
Benefits and expenses:
Benefits to policyholders and
provision for future benefits 229,551
Operating expenses 137,906
Commissions 964
Deferred development costs 4,799
Depreciation and amortization 1,733
Dividends to policyholders 7,070
--------
TOTAL BENEFITS AND EXPENSES 382,023
--------
INCOME FROM OPERATIONS BEFORE INCOME TAXES 6,295
INCOME TAXES 2,203
--------
NET INCOME 4,092
NET ASSET BALANCE AT JANUARY 1 0
TRANSFER (TO) FROM JOHN HANCOCK (4,092)
--------
NET ASSET BALANCE AT JUNE 30 $ 0
========
</TABLE>
See Notes to Unaudited Combined Financial Statements
2
<PAGE> 23
COMBINED STATEMENT OF CASH FLOWS
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
Six Months Ended June 30, 1996 (in thousands)
(Unaudited)
<TABLE>
<S> <C>
Cash flows used in operating activities:
Net income $ 4,092
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 7,991
Increase in certain assets:
Reinsurance recoverable from reinsurers (15,343)
Premiums and accounts receivable (67,069)
Other assets (149)
Increase (decrease) in certain liabilities:
Future policy benefits (2,136)
Policyholders' and beneficiaries' funds 14,350
Unpaid claims and claim expense reserves 1,518
Amounts due to reinsurers 25,968
General insurance expenses (1,247)
Dividends payable to policyholders (4,043)
Payable to affiliates (2,886)
Other liabilities 4,508
--------
CASH FLOWS USED IN OPERATING ACTIVITIES (34,446)
--------
Cash flows provided by investing activities:
Change in receivable from John Hancock 40,651
Property and equipment purchased (2,094)
Transfer to John Hancock (4,092)
--------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES 34,465
--------
Cash flows used in financing activities:
Principal repayments of long term debt (19)
--------
CASH FLOWS USED IN FINANCING ACTIVITIES (19)
--------
Net increase in cash and cash equivalents 0
Cash and cash equivalents at beginning of period 0
Cash and cash equivalents at end of period $ 0
========
</TABLE>
See Notes to Unaudited Combined Financial Statements
3
<PAGE> 24
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
- ---------------------
The accompanying unaudited combined financial statements include certain
operations of the group life and accident and health insurance business of John
Hancock Mutual Life Insurance Company (John Hancock) and Cost Care, Inc.,
Hancock Association Services Group and Tri-State, Inc. (the Group Benefits
Operations or GBO). Cost Care, Inc., Hancock Association Services Group and
Tri-State, Inc. are wholly owned, indirect subsidiaries of John Hancock.
The GBO business is expected to be acquired pursuant to an agreement between
John Hancock and WellPoint Health Networks, Inc. (see Note 3). GBO has
transactions with affiliated companies, the terms and conditions of which are
determined by GBO and the members of the affiliated group. GBO operating costs
and expenses consist of direct costs, allocated costs, and allocated corporate
overhead. Accordingly, these financial statements might not be indicative of
the financial position and results of operations that would have occurred had
GBO operated as a nonaffiliated entity.
The accompanying unaudited combined financial statements of GBO have been
prepared in accordance with generally accepted accounting principles (GAAP) for
interim financial information, applied on a consistent basis, for stock life
insurance companies (stock life basis); which vary from statutory accounting
practices as prescribed or permitted by the Commonwealth of Massachusetts
Division of Insurance and the National Association of Insurance Commissioners.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six-month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the combined financial
statements and footnotes for the years ended December 31, 1995 and 1994.
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
- -----------------------------------------------------------------------------
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In those cases where it is determined that the carrying amount is
not recoverable, an impairment loss is recognized (the difference between the
cost and fair value of the asset). The Statement also requires long-lived
assets to be disposed of (e.g., real estate held for sale) to be carried at
the lower of cost or fair value less cost to sell and does not allow such
assets to be depreciated. This Statement is effective for 1996 financial
statements. The adoption of SFAS No. 121 did not have a material effect on
GBO's results of operations or statement of assets and liabilities.
4
<PAGE> 25
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 2--CONTINGENCIES
In the normal course of its business operations, GBO is involved in litigation
from time to time with claimants, beneficiaries and others, and a number of
litigation matters were pending as of June 30, 1996. It is the opinion of
management, after consultation with counsel, that the ultimate liability with
respect to these claims, if any, will not materially impact the financial
condition of GBO.
NOTE 3--SUBSEQUENT EVENT
On October 10, 1996, John Hancock and WellPoint Health Networks, Inc. signed a
definitive agreement for the sale of GBO to WellPoint Health Networks Inc.
Under the terms of the definitive agreement, the sale is currently scheduled to
close in January 1997.
5
<PAGE> 1
PURCHASE AND SALE AGREEMENT
between
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
("Seller")
and
WELLPOINT HEALTH NETWORKS INC.
("Buyer")
Dated as of October 10, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I SALE OF GBO SUBSIDIARIES SHARES, TRANSFER OF GBO
DIVISION ASSETS AND ASSUMPTION OF GBO DIVISION
LIABILITIES........................................................................ 2
Section 1.1 Sale of the GBO Subsidiaries Shares, Transfer of the GBO Division
Assets and Assumption of the GBO Division Liabilities.............................. 2
Section 1.2 Transfers Requiring Consent........................................................ 4
Section 1.3 ASO Contracts...................................................................... 5
Section 1.4 Closing............................................................................ 7
Section 1.5 Closing GAAP Equity Amount......................................................... 7
Section 1.6 Manner of Payment.................................................................. 10
Section 1.7 Fees............................................................................... 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER AS TO THE
GBO INCLUDED BUSINESS AND GBO SUBSIDIARIES......................................... 10
Section 2.1 Organization....................................................................... 10
Section 2.2 No Conflict........................................................................ 11
Section 2.3 Financial Statements............................................................... 11
Section 2.4 Undisclosed Liabilities; Absence of Changes........................................ 12
Section 2.5 Representations Regarding GBO Included Assets and Real Property.................... 12
Section 2.6 Reserves........................................................................... 12
Section 2.7 Filings and Notices; Approvals and Consents........................................ 12
Section 2.8 Contracts.......................................................................... 13
Section 2.9 Litigation......................................................................... 15
Section 2.10 Labor Relations; Employees......................................................... 15
Section 2.11 Pension Plans...................................................................... 16
Section 2.12 Intellectual Property.............................................................. 17
Section 2.13 Taxes.............................................................................. 17
Section 2.14 Capitalization of the GBO Subsidiaries............................................. 18
Section 2.15 Subsidiaries and Investments in Affiliates......................................... 18
Section 2.16 Employees.......................................................................... 18
Section 2.17 Insurance Business................................................................. 18
Section 2.18 Compliance with Law; Permits and Licenses.......................................... 19
Section 2.19 No Brokers......................................................................... 20
Section 2.20 Compliance with Legislation Regulating Environmental Quality....................... 20
Section 2.21 No Extraordinary Items or Accounting Changes....................................... 21
Section 2.22 No Misrepresentations.............................................................. 21
Section 2.23 Adequacy and Completeness of GBO Included Assets................................... 21
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER............................................ 21
Section 3.1 Organization....................................................................... 21
Section 3.2 Authority; No Conflict; Binding Effect............................................. 21
Section 3.3 Filings and Notices; Approvals and Consents........................................ 22
Section 3.4 Brokers or Finders................................................................. 22
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 3.5 Investment Intent.................................................................. 22
Section 3.6 Actions Pending.................................................................... 22
Section 3.7 Reports; Financial Statements...................................................... 23
Section 3.8 Authority to Conduct GBO Included Business......................................... 24
Section 3.9 No Misrepresentations.............................................................. 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER AS TO
ITSELF............................................................................. 25
Section 4.1 Organization....................................................................... 25
Section 4.2 Authority; No Conflict; Binding Effect............................................. 25
Section 4.3 Filings and Notices; Approvals and Consents........................................ 25
Section 4.4 Title to GBO Subsidiaries Shares................................................... 25
Section 4.5 Actions Pending.................................................................... 26
ARTICLE V COVENANTS OF SELLER................................................................ 26
Section 5.1 Operation of the Business.......................................................... 26
Section 5.2 Access............................................................................. 27
Section 5.3 Additional Financial Statements.................................................... 27
Section 5.4 Third-Party Reinsurance Agreements................................................. 28
Section 5.5 Updating of Information............................................................ 28
Section 5.6 Employment Loss.................................................................... 28
Section 5.7 GBO Employees...................................................................... 28
Section 5.8 Regulatory Filings, etc............................................................ 28
Section 5.9 Covenant Not to Compete............................................................ 28
Section 5.10 Amounts Due to or Due From Affiliates.............................................. 29
Section 5.11 Termination or Modification of Existing GBO Policies............................... 29
Section 5.12 Healthcare Providers and Networks.................................................. 30
ARTICLE VI COVENANTS OF BUYER................................................................. 31
Section 6.1 Updating of Information............................................................ 31
Section 6.2 Post-Closing Access by Seller...................................................... 31
Section 6.3 Regulatory Filings, etc............................................................ 31
ARTICLE VII JOINT COVENANTS.................................................................... 32
Section 7.1 Filings and Notices; Approvals and Consents........................................ 32
Section 7.2 Policyholder Confidentiality....................................................... 32
Section 7.3 Form and Rate Filings.............................................................. 32
ARTICLE VIII TRANSITIONAL MATTERS............................................................... 32
Section 8.1 GBO Included Business Real Property................................................ 32
Section 8.2 Certain Support Services........................................................... 33
Section 8.3 Reinsurance........................................................................ 33
Section 8.4 Transitional Marketing Arrangements................................................ 33
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 8.5 Use of Name Post-Closing........................................................... 33
Section 8.6 Change of HASG Name................................................................ 33
Section 8.7 Lease of Furniture, Fixtures and Equipment......................................... 33
Section 8.8 Transfer of MIS Software........................................................... 35
Section 8.9 Commissions and Expenses Due....................................................... 35
Section 8.10 Seller Life and Health Account..................................................... 36
ARTICLE IX CERTAIN TAX MATTERS................................................................ 36
Section 9.1 Section 338(h)(10) Election........................................................ 36
Section 9.2 Returns; Indemnification; Liability for Taxes...................................... 37
Section 9.3 Cooperation; Refunds and Credits................................................... 38
Section 9.4 Termination of Tax Sharing Agreements.............................................. 39
Section 9.5 Conduct of Audits and Other Procedural Matters..................................... 39
Section 9.6 Resolution of Disagreements Among Parties.......................................... 39
ARTICLE X GBO EMPLOYEES...................................................................... 40
Section 10.1 GBO Employees...................................................................... 40
ARTICLE XI CONDITIONS TO OBLIGATIONS OF BUYER................................................. 42
Section 11.1 Representations and Warranties Correct............................................. 42
Section 11.2 Performance; No Default............................................................ 42
Section 11.3 Absence of Injunction.............................................................. 42
Section 11.4 Governmental Approvals............................................................. 42
Section 11.5 Consents........................................................................... 42
Section 11.6 Intercompany Accounts.............................................................. 43
Section 11.7 Transfer Taxes..................................................................... 43
Section 11.8 No Material Adverse Effect......................................................... 43
Section 11.9 Resignation of Directors........................................................... 43
Section 11.10 Other Transactional Agreements..................................................... 43
Section 11.11 Opinion of Counsel for Seller...................................................... 43
ARTICLE XII CONDITIONS TO OBLIGATIONS OF SELLER................................................ 43
Section 12.1 Representations and Warranties Correct............................................. 43
Section 12.2 Performance; No Default............................................................ 44
Section 12.3 Absence of Injunction.............................................................. 44
Section 12.4 Governmental Approvals............................................................. 44
Section 12.5 No Material Adverse Effect......................................................... 44
Section 12.6 Other Transaction Documents........................................................ 44
Section 12.7 Offers to GBO Employees............................................................ 44
Section 12.8 Buyer Capital Contribution to Buyer................................................ 44
Section 12.9 Opinion of Counsel for Buyer....................................................... 44
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE XIII DELIVERIES AT CLOSING.............................................................. 44
Section 13.1 Deliveries by Seller............................................................... 44
Section 13.2 Deliveries by Buyer................................................................ 45
Section 13.3 Deliveries by Seller and Buyer..................................................... 45
ARTICLE XIV INDEMNIFICATION.................................................................... 46
Section 14.1 Indemnification.................................................................... 46
Section 14.2 Defense of Third Party Claims...................................................... 47
Section 14.3 Direct Claims...................................................................... 49
ARTICLE XV ARBITRATION........................................................................ 49
Section 15.1 General............................................................................ 49
Section 15.2 Initiation of Arbitration.......................................................... 49
Section 15.3 Appointment of Arbitrators......................................................... 49
Section 15.4 Decision........................................................................... 50
Section 15.5 Expenses of Arbitration............................................................ 50
Section 15.6 Location of Arbitration............................................................ 50
Section 15.7 Survival of Article................................................................ 50
Section 15.8 Other Actions...................................................................... 50
ARTICLE XVI MISCELLANEOUS PROVISIONS AND AGREEMENTS............................................ 50
Section 16.1 Confidentiality.................................................................... 50
Section 16.2 Expenses........................................................................... 51
Section 16.3 Notices............................................................................ 51
Section 16.4 Amendments; Termination............................................................ 52
Section 16.5 Consent to Jurisdiction............................................................ 52
Section 16.6 Assignment; Affiliate of Buyer..................................................... 53
Section 16.7 Entire Agreement................................................................... 53
Section 16.8 Applicable Law..................................................................... 53
Section 16.9 Survival........................................................................... 53
Section 16.10 Further Assurances................................................................. 54
Section 16.11 Definition of "Knowledge."......................................................... 54
Section 16.12 Parties in Interest................................................................ 54
</TABLE>
LIST OF ANNEXES & SCHEDULES
Annex A Definitions
B Form of Coinsurance Agreement
C Form of Assumption Reinsurance Agreement
D Form of License Agreement
E Form of Administration Agreement
F Form of Service Agreement
G Form of Lease Agreement (Boston)
iv
<PAGE> 6
H Form of Lease Agreement (Dearborn)
I Form of Lease Assignment
J Omitted
K Form of Closing GAAP Balance Sheet
L Agreed GAAP Principles and Procedures
Schedule 2.1(c) Jurisdictions Where Seller and CCI Licensed
as a Utilization Review Agent
2.2 Conflicts
2.3(a) Audited Financial Statements
2.3(b) Interim Financial Statements
2.3(c) Statutory Financial Statements
2.4 Undisclosed Liabilities; Absence of Change
2.5(a) Title to GBO Included Assets; Liens
2.5(b) Real Property
2.7 Filings and Notices; Approvals and Consents
2.8(a) Contracts
2.8(b) GBO Subsidiary Contracts
2.8(c) Validity of Contracts
2.8(d) ASO Contract and Existing GBO Policies
Notice of Cancellation, Material Changes
2.9(a) GBO Included Division Litigation
2.9(b) GBO Subsidiaries Litigation
2.10(a) GBO Division Employee Litigation; GBO
Subsidiary Employee Litigation
2.10(b) State or Local Law Notices of Employee
Terminations
2.12 GBO Intellectual Property
2.13 Taxes
2.15 Investments in Subsidiaries and Affiliates
2.17(a) Insurance Business-Conduct of GBO Included
Business
2.17(b) Insurance Licenses of Seller
3.8 Insurance Licenses of Buyer
8.10 Administrative Service Performance Standards
11.5 Third Party Consents and Approvals
v
<PAGE> 7
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated as of October 10, 1996
(together with the Annexes and Schedules hereto, this "Agreement"), is entered
into between John Hancock Mutual Life Insurance Company, a mutual life insurance
company organized under the laws of Massachusetts ("Seller"), and WellPoint
Health Networks Inc., organized under the laws of California ("Buyer").
A. Seller is engaged in the GBO Business and desires to sell
the GBO Included Business to Buyer and to retain the GBO Excluded Business (in
each case, as defined in Annex A).
B. Seller and Buyer desire that Buyer or Buyer's designated
Affiliate, UNICARE Life & Health Insurance Company, a Delaware stock life
insurance company ("Unicare"), shall purchase the GBO Division Assets and assume
the GBO Division Liabilities, and Buyer shall purchase the GBO Subsidiaries
Shares, and Buyer or Unicare shall have the business capacity to conduct the GBO
Included Business independently of Seller as of the Closing, except as
specifically provided in this Agreement.
C. Seller's wholly owned subsidiary, John Hancock
Subsidiaries, Inc. ("JHSI"), owns all of the outstanding capital stock of Cost
Care, Inc. ("CCI") (the "CCI Shares") and all of the outstanding capital stock
of Hancock Association Services Group, Inc. ("HASG") (the "HASG Shares") and
sixty percent (60%) of the outstanding capital stock of TriState, Inc.
("TriState") (the "TriState Shares") (CCI owns the remaining forty percent (40%)
of the outstanding capital stock of TriState) (the CCI Shares, the HASG Shares
and the TriState Shares being collectively referred to as the "GBO Subsidiaries
Shares").
D. Buyer desires to purchase the GBO Included Business and
Seller desires to sell the GBO Included Business to Buyer on the terms and
conditions hereinafter set forth, such sale to be effected by the following
transactions at Closing:
(i) the sale and transfer by Seller, and acceptance
by Buyer or Unicare, of the GBO Division Assets and the
assignment by Seller, and assumption by Buyer or Unicare, of
the GBO Division Liabilities;
(ii) the sale by JHSI to Buyer of the GBO
Subsidiaries Shares; and
(iii) the reinsurance on an indemnity reinsurance
basis of all net retained risk of Seller after Third Party
Reinsurance under the Existing GBO Policies pursuant to the
Coinsurance Agreement and the Administration Agreement to be
entered into by Seller and Unicare.
E. Seller and Buyer desire to enter into certain transitional
arrangements that are intended to preserve the value of the GBO Included
Business for an agreed period following the Closing.
F. The definitions of certain capitalized terms used herein
are set forth on Annex A hereto.
In consideration of the premises and of the mutual covenants
and agreements contained herein, Seller and Buyer hereby agree as follows:
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ARTICLE I
SALE OF GBO SUBSIDIARIES SHARES,
TRANSFER OF GBO DIVISION ASSETS
AND ASSUMPTION OF GBO DIVISION LIABILITIES
Section 1.1 Sale of the GBO Subsidiaries Shares, Transfer of
the GBO Division Assets and Assumption of the GBO Division Liabilities.
(a) On the terms and subject to the conditions set forth in
this Agreement, at the Closing, for the consideration specified below, effective
as of the Effective Time:
(i) Subject to the modifications described below, at
the Effective Time, Buyer will acquire from Seller those
categories of GBO Division Assets identified on the Form of
Closing GAAP Balance Sheet, and Buyer will assume from Seller
those categories of GBO Division Liabilities identified on the
Form of Closing GAAP Balance Sheet, which shall contain the
following modifications and adjustments:
(1) The amount of cash and Investment Assets
to be acquired by Buyer will be subject to, and
adjusted by, the terms of Section 1.5 and by the
terms of the Coinsurance Agreement.
(2) Those "Premiums and Accounts Receivable"
relating to (i) Persons who are not a customer of the
GBO Included Business on the date following the
Closing and (ii) Persons who are in bankruptcy or
receivership at the Effective Time will not be
assigned to Buyer as GBO Included Assets. In
addition, no "Premium or Account Receivable" which is
one hundred twenty (120) or more days delinquent
under the terms of Seller's arrangement or agreement
with the account party will be assigned to Buyer as a
GBO Included Asset. Buyer shall, however, use
reasonable commercial efforts to collect for the
account of Seller those Premiums and Accounts
Receivable that are not being assigned to Buyer
pursuant to the foregoing, if requested by Seller.
Any payments received after Closing from a customer
owing Premiums and Accounts Receivable not assigned
to Buyer hereunder shall be applied on a first-in-
first-out basis to amounts then due to Seller and
Buyer from such customer, unless the customer shall
otherwise specifically designate in writing
application of such payment.
(3) For purpose of the Closing GAAP Balance
Sheet, the net book value of the "Furniture and
equipment" to be transferred as a GBO Included Asset
to Buyer will be reduced by $3,500,000.
(4) Only fifty percent (50%) of the "Deficit
recoverable" amount immediately prior to the
Effective Time will be assigned to Buyer as a GBO
Division Asset. The remaining fifty percent (50%)
will be retained by Seller.
(5) The parties have agreed that, except as
provided in Section 5.10, or as otherwise specified
in the Transaction Documents, (i) no amounts due to
the GBO Subsidiaries from their Affiliates, or due
from the GBO Subsidiaries to their Affiliates, will
remain outstanding at Closing and (ii) no amounts of
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payables or receivables due to or due from Affiliates
of the GBO Subsidiaries will be assigned or assumed,
either directly or through the purchase of the GBO
Subsidiaries Shares by Buyer at Closing. All such
amounts due to the GBO Subsidiaries from their
Affiliates, or due from the GBO Subsidiaries to their
Affiliates, that will not so remain outstanding will
be settled at face value at or prior to Closing.
(6) Liabilities for pre-Closing employee
benefits will be retained by Seller as provided in
Section 10.1(f). Seller shall be responsible for
payment of all accrued vacation amounts for the
employees of the GBO Included Business and none of
such amounts shall be assumed by Buyer at the
Effective Time.
(7) Neither Buyer nor Unicare shall assume
or have any liability with respect to any contract or
agreement of insurance except the Coinsured Policies
pursuant to the terms of the Coinsurance Agreement or
the Assumption Reinsurance Agreement.
(8) Seller will update Schedule 2.9, the
schedule of litigation, as of the Closing Date and
all litigation included in such updated schedule
shall have reserves established therefor in the
Closing GAAP Balance Sheet. Buyer or Unicare shall
assume liability and responsibility for litigation
reflected on the updated Schedule 2.9 other than
liability or litigation arising out of or based on
bad faith claims practices, willful misconduct or
gross negligence of the Seller or its Affiliates
(without attributing to the Seller or its Affiliates
the actions of Buyer or its Affiliates), and Seller
shall retain all other liability with respect to
claims or causes of actions accruing prior to the
Effective Time and not assumed by Buyer or Unicare as
above provided or otherwise assumed by Buyer or
Unicare, it being understood and agreed that Unicare
will, as provided in the Coinsurance Agreement and/or
the Assumption Reinsurance Agreement, assume
responsibility for claims and certain liabilities on
Existing GBO Policies.
(ii) Seller and Buyer or Unicare shall execute and
deliver an assignment and assumption agreement with respect to
the GBO Division Liabilities, which agreement shall provide
that Seller shall assign and transfer to Buyer or Unicare, and
Buyer or Unicare shall absolutely and irrevocably assume
without further liability or recourse to Seller (other than as
provided for in the Transaction Documents), and thereafter to
be solely liable for and pay, perform and discharge when due,
the GBO Division Liabilities.
(iii) Seller shall cause JHSI to transfer to Buyer
the certificates representing the CCI Shares, the TriState
Shares and the HASG Shares duly endorsed for transfer or
accompanied by stock powers in favor of Buyer.
(iv) Seller and Unicare shall execute and deliver the
Coinsurance Agreement.
(v) Seller and Unicare will execute and deliver the
Assumption Reinsurance Agreement.
(vi) Seller and Unicare will execute and deliver the
License Agreement.
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(vii) Seller and Unicare will execute and deliver the
Administration Agreement.
(viii) Seller and Unicare will execute and deliver
the Service Agreement.
(ix) Seller and Unicare will execute and deliver the
Lease Agreements with respect to the Seller's Facilities
located in Boston, Massachusetts and Dearborn, Michigan, and
will execute and, subject to the terms of Section 1.2(b),
deliver Lease Assignments with respect to each of the GBO
Division Leases.
The sale, assignment, transfer, license, sublicense and
conveyance to Buyer (or Unicare as appropriate) of the GBO Subsidiaries Shares
and the GBO Division Assets (including without limitation the GBO Intellectual
Property of Seller), and the assumption of the GBO Division Liabilities, as
herein provided, shall be effected by appropriate deeds, bills of sale, stock
transfer powers or endorsements, assignments, license agreements, sublicense
agreements and assumption agreements on the part of the Buyer or Unicare, as
appropriate, drafts, checks and other instruments of transfer, conveyance and
assumption in form reasonably acceptable to Buyer or Unicare, as appropriate,
and Seller (the "GBO Conveyancing Documents").
The assignment and transfer of the GBO Included Assets shall
consist of (x) those GBO Division Assets required to be transferred pursuant to
the Coinsurance Agreement and (y) all remaining GBO Division Assets and the GBO
Subsidiaries Shares (by which the GBO Included Assets owned by the GBO
Subsidiaries are transferred) which shall be transferred pursuant to this
Agreement. Such assignment and transfer of the GBO Included Liabilities shall
consist of (i) those GBO Division Liabilities required to be assigned and
transferred pursuant to the Coinsurance Agreement and (ii) all remaining GBO
Division Liabilities, and the GBO Division Liabilities owed by the GBO
Subsidiaries which shall be assigned and transferred (either directly or by
transfer of the GBO Subsidiary Shares) pursuant to this Agreement.
(b) In full consideration of the sale, assignment, transfer
and conveyance to Buyer (or Unicare, as the case may be) of the GBO Included
Business, including the GBO Subsidiaries Shares, Buyer shall pay to Seller an
amount equal to $86,700,000 (the "Purchase Price"). At the Effective Time, the
Purchase Price shall be paid by Buyer to Seller by a wire transfer of
immediately available funds to such account as Seller shall designate in writing
to Buyer.
Section 1.2 Transfers Requiring Consent.
(a) At or prior to the Closing, Seller, with Buyer's
cooperation and assistance, shall obtain all approvals, consents or waivers
necessary to assign to Buyer or Unicare the GBO Division Contracts specified on
Schedule 11.5. Seller shall use reasonable commercial efforts to terminate
without cost effective after the Effective Time any vendor contract designated
by Buyer to the extent permitted by the terms of such vendor contract.
(b) With respect to the GBO Division Leases and GBO Division
Contracts (other than GBO Division Contracts provided for in Sections 1.3, 5.12
and 8.8) for which consent is not obtained, Seller, instead of obtaining any
approval, consent or waiver necessary to sell, assign, transfer, sublease or
otherwise convey to Buyer such GBO Division Leases and GBO Division Contracts,
shall take all steps necessary to confer upon Buyer, or otherwise obtain for
Buyer, the benefits of such GBO Division Leases and GBO Division Contracts at no
cost or expense to Buyer other than those costs and
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expenses that would otherwise be payable by Buyer (i) in the case of such GBO
Division Lease, had the applicable Lease Assignment in the form requested been
executed by the landlord thereunder, or (ii) in the case of such GBO Division
Contract, had such approval, consent or waiver been executed by the other party
thereto. If any approval, consent or waiver referred to in Section 1.2(a) above
with respect to any such GBO Division Lease or GBO Division Contract has not
been obtained by Seller, as of Closing, Seller shall, following the Closing and
with Buyer's cooperation, continue to use commercially reasonable efforts to
obtain such approval, consent or waiver; provided, however, that Seller shall
not be required to pay or incur any cost or expense to any counter-party to a
lease or contract to obtain such counter-parties' consent which Seller is not
otherwise required to pay or incur in accordance with the terms of the
applicable GBO Division Lease or GBO Material Contract. Until such time as
Seller has obtained any necessary approval, consent or waiver, Seller shall take
all steps necessary to confer all benefits of such GBO Division Leases and GBO
Division Contracts on Buyer until the earliest to occur of (i) such time as all
such approvals, consents or waivers are obtained or (ii) the expiration of the
applicable term of the GBO Division Lease or GBO Division Contract, as the case
may be. During the above time period with respect to any GBO Division Lease and
GBO Division Contract for which such approval, consent or waiver has not been
obtained, Seller shall authorize Buyer (A) to enforce, to the extent permitted
by law and at Buyer's expense, any and all rights of Seller arising from such
GBO Division Lease or GBO Division Contract against any other party or parties
thereto in Seller's name and on behalf of Seller and (B) to amend or terminate,
to the extent permitted by law and the terms of the applicable GBO Division
Lease or GBO Division Contract and at Buyer's expense, any such GBO Division
Lease or GBO Division Contract in Seller's name and on behalf of Seller with
Seller's consent for any such amendment, which will not be unreasonably
withheld, provided, however, that consent is not required for any amendment made
by Buyer that does not increase the liability of Seller under the applicable GBO
Division Lease or GBO Division Contract. If the benefits of any GBO Division
Lease or any GBO Division Contract for which such approvals, consents and
waivers have not been obtained are not able to be conferred on Buyer by Seller,
and (i) in the case of GBO Division Leases, if Buyer has to vacate the premises
thereunder prior to the end of the then current term under such GBO Division
Lease, or is required to pay additional amounts to remain in the tenancy, Seller
will reimburse Buyer or otherwise make Buyer whole for any such additional
amounts or for any out-of-pocket costs and expenses incurred by Buyer in moving
the GBO Business conducted on such premises to a new leased location in the
vicinity of such premises and for any increase in rent or other lease costs or
payments incurred by Buyer above the amount of rent or other cost Buyer would
otherwise be required to pay under such GBO Division Lease during the remainder
of the then current term under such GBO Division Lease, and (ii) with respect to
GBO Division Contracts, if Buyer has to replace any GBO Division Contract with a
new third party contract in order to enable Buyer to operate the GBO Business,
Seller will reimburse Buyer or otherwise make Buyer whole for any increase in
costs or expenses to Buyer in procuring from such third party the same or
similar services above the costs or expenses Buyer would otherwise be required
to pay under such GBO Division Contract during the remainder of the then current
term under such GBO Division Contract or for such lesser period during which the
third party to such GBO Division Contract would have been otherwise required to
render the services thereunder to Seller had not the transactions contemplated
by this Agreement taken place.
Section 1.3 ASO Contracts.
(a) At or prior to the Closing, Seller, with Buyer's
cooperation and assistance, shall use commercially reasonable efforts to obtain
all approvals, consents or waivers necessary to the sale, assignment and
transfer to Buyer of each of the ASO Contracts previously designated by Buyer
after consultation with Seller and in accordance with the transition plan
developed jointly by Buyer and Seller. Except as provided herein, Seller shall
not be required to pay or incur any cost or expense to obtain any third-party
approval, consent or waiver which Seller is not otherwise required to pay or
incur in
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accordance with the terms of the applicable ASO Contract. Seller and
Buyer shall each pay their respective out-of-pocket costs and expenses in
connection with the foregoing, including, without limitation, travel costs,
salaries and attorneys' fees. Notwithstanding the foregoing, the parties have
agreed that the obtaining of such approvals, consents and waivers is not a
condition to Closing, and in each case where consent is not obtained prior to
Closing subsection (b) below shall govern.
(b) Following the Closing, Buyer and Seller shall use good
faith efforts to obtain approvals, consents or waivers with respect to each ASO
Contract for which such approval, consent or waiver is necessary for the sale,
assignment and transfer of each of such ASO Contract to Buyer which has not been
obtained as of the Closing, until the earliest to occur of (i) the second
renewal or anniversary date of such ASO Contract occurring after the Closing
Date (it being understood that anniversary dates shall occur annually on the day
immediately following the expiration of the then-current Period (as defined in
the applicable ASO Contract)), (ii) such time as such approval, consent or
waiver is obtained, (iii) the date of termination by Buyer of such ASO Contract
in Seller's name as permitted under the provisions of such ASO Contract under
the authority to be granted pursuant to clause (C) of the immediately succeeding
sentence and (iv) the date Buyer or any Affiliate of the Buyer has entered into
a Contract with the counterparty to such ASO Contract providing for services
similar to those provided under such ASO Contract (with respect to each such ASO
Contract, its "Continuation Period"). During the Continuation Period with
respect to each such ASO Contract, Seller shall: (A) at Seller's expense,
transfer to Buyer an amount equal to all revenues and fees received by Seller or
its agents or Affiliates with respect to such ASO Contract; (B) authorize Buyer
through subcontract or delegation of duties at Buyer's expense, to perform all
obligations of Seller under, and enforce any and all rights of Seller arising
from such ASO Contract against any party or parties thereto in Seller's name and
on behalf of Seller (including bringing legal action in the name of Seller) to
the extent permitted by law and the terms of the applicable ASO Contract; and
(C) authorize Buyer at Buyer's expense, to amend or terminate any such ASO
Contract in Seller's name and on behalf of Seller, to the extent permitted by
law and the terms of the applicable ASO Contract, provided that no amendment
shall be effected pursuant to this clause which would reflect a substantial
deviation from the prevailing industry standards without Seller's consent, which
consent shall not be unreasonably withheld and shall be deemed given with
respect to any amendment if Seller has not given written notice to the contrary
within ten (10) days of receiving written notice of the proposal therefor.
During the Continuation Period with respect to each ASO Contract, Buyer shall,
at its own expense (except for expenses incurred by Seller in carrying out the
immediately preceding sentence), be solely responsible for the performance of
Seller's obligations under such ASO Contract, and Buyer shall on demand
indemnify, defend and hold harmless Seller and its Affiliates, and their
respective directors, officers and employees from and against any and all
demands, actions, proceedings, costs and Liabilities (including, without
limitation, the costs and expenses of defending any and all actions, suits,
proceedings, demands, assessments, judgments, settlements and compromises and
attorneys' fees in connection therewith), paid or incurred, resulting from,
arising out of or relating to Buyer's performance or non-performance thereunder
during the Continuation Period or failure to provide timely notice of
termination or cancellation pursuant to the penultimate sentence in this Section
1.3(b). Seller shall on demand indemnify, defend and hold harmless Buyer and its
Affiliates, and their respective directors, officers and employees, from and
against any and all demands, actions, proceedings, costs and Liabilities
(including, without limitation, the costs and expenses of defending any and all
actions, suits, proceedings, demands, assessments, judgments, settlements and
compromises and attorneys' fees in connection therewith), paid or incurred,
resulting from, arising out of or relating to Seller's failure to obtain, prior
to Closing, any approval, consent or waiver for the assignment and transfer of
any ASO Contract to Buyer; provided, however, that Seller shall not be obligated
to indemnify Buyer for any of Buyer's damages from its loss of profits,
revenues, or business opportunities resulting from, arising out of or relating
to any ASO Contract. The Liability of Seller or Buyer pursuant to this Section
1.3 shall not be subject to the threshold articulated in Article XIV, but shall
be measured from the first dollar.
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Buyer shall, on behalf of Seller and itself, to the extent permitted by law and
the terms of the applicable ASO Contract, send appropriate and timely notices,
advance copies of which shall have been provided to Seller by Buyer or Unicare,
to counterparties of ASO Contracts so that all ASO Contracts for which such
approvals, consents or waivers have not been obtained and which have not been
terminated or cancelled shall be cancelled or terminated effective as of the
second renewal or anniversary date thereof occurring after the Closing Date. As
of such second renewal or anniversary date, Seller shall be relieved of any
further obligation accruing after such date under this Section 1.3(b).
Section 1.4 Closing. The closing of the sale, assignment,
transfer and conveyance of the GBO Included Business, including, without
limitation, the GBO Subsidiaries Shares (the "Closing"), will take place at the
offices of Rogers & Wells, 200 Park Avenue, New York, New York 10166 at 10:00
A.M., Eastern Time, following the fulfillment or waiver of the conditions
precedent specified in Article XI and XII, on or after January 2, 1997 and on or
before January 31, 1997, unless the parties shall have agreed in writing to such
other date, time and place (the "Closing Date"). The transactions contemplated
by this Agreement shall be effective at 12:01 A.M., Eastern Time, on the Closing
Date, or such other time as the parties shall agree in writing ("Effective
Time").
Section 1.5 Closing GAAP Equity Amount.
(a) Buyer and Seller agree that the amount of the GBO Included
Assets (including without limitation cash and Investment Assets and including
the GBO Included Assets of the GBO Subsidiaries which are transferred by the
sale of the GBO Subsidiaries Shares) transferred by Seller and accepted by Buyer
pursuant to this Agreement shall be equal to the amount of the GBO Included
Liabilities (and including the GBO Included Liabilities of the GBO Subsidiaries
which are transferred by the sale of the GBO Subsidiaries Shares) assigned by
Seller and assumed by Buyer pursuant to this Agreement, as provided in Section
1.1 hereof and elsewhere herein. Thus, the net equity value of the GBO Included
Business (i.e., the book value of the GBO Included Assets less the book value of
the GBO Included Liabilities as determined pursuant to this Section 1.5) (the
"Closing GAAP Equity Amount") shall be $0. For these purposes, the book value of
the GBO Included Assets and the GBO Included Liabilities shall be determined in
accordance with GAAP applied on a basis consistent with the Agreed GAAP
Principles and Procedures (as defined below) through the preparation and audit
of a balance sheet, which shall represent a consolidated balance sheet of the
GBO Included Business purchased by Buyer at Closing, except that cash and
Investment Assets shall be listed in the amount required to produce a Closing
GAAP Equity Amount of $0 (the "Closing GAAP Balance Sheet"). The Closing GAAP
Balance Sheet and Closing GAAP Equity Amount shall take into account and reflect
the inclusion or exclusion as the case may be of those assets and liabilities
identified in this Agreement. The parties have agreed that the form of Closing
GAAP Balance Sheet attached to this Agreement as Annex K (the "Form of Closing
GAAP Balance Sheet") shall represent the form in which the Closing GAAP Balance
Sheet shall be prepared and that the categories of assets and liabilities set
forth on such balance sheet shall represent the categories of assets and
liabilities to be included on the Closing GAAP Balance Sheet. The net amount of
cash and Investment Assets required to be transferred from Seller to Buyer as
part of the GBO Included Assets, and the timing of such transfers, shall be
determined pursuant to this Section 1.5.
(b) Not less than ten (10) Business Days nor more than fifteen
(15) Business Days prior to the Closing, Seller shall make and provide to Buyer
a good faith estimate of the value (the "Estimated Value") of cash and
Investment Assets necessary to result in a Closing GAAP Equity Amount equal to
$0 at the Effective Time. Seller shall at Closing (i) deliver to Buyer cash in
an amount equal to the (i) Estimated Amount minus (ii) an amount, as of such
Business Day, equal to the value of the cash and Investment Assets recorded on
the books of the GBO Subsidiaries (the "Delivery Amount") or (ii) deliver cash
and Investment Assets selected by Buyer in an amount equal to the Delivery
Amount.
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Seller has provided Buyer with a list of available Investment Assets of
Seller, which Seller shall revise and update from time to time at the request of
Buyer. Within ten (10) Business Days before Closing, Buyer may notify Seller of
(i) its election to receive a combination of cash and Investment Assets and (ii)
its selection of Investment Assets from the list previously provided by Seller.
For these purposes, Investment Assets that are U.S. Treasury securities or
publicly traded bonds of United States corporations shall be valued at their
published values as of the close of business on the Business Day immediately
prior to the Closing Date as reported in the Wall Street Journal. All Investment
Assets shall be rated in NAIC Categories 1 or 2 at the time of delivery to
Buyer.
(c) Promptly following the Closing Date (but not more than one
hundred twenty (120) days thereafter), management of the GBO Included Business
and Buyer shall prepare, in consultation with members of Seller's finance
department senior management, (i) a Closing GAAP Balance Sheet reflecting the
GBO Included Liabilities assigned and assumed on the Closing Date, the GBO
Included Assets other than cash and Investment Assets transferred and accepted
on the Closing Date, and the amount of cash and Investment Assets required to
produce a Closing GAAP Equity Amount of $0, and (ii) a closing statement (the
"Closing Statement") showing either the excess of the amount of cash and
Investment Assets contained in the Closing GAAP Balance Sheet over the Estimated
Amount (the "Deficiency Amount") or the excess of the Estimated Amount over the
amount of cash and Investment Assets contained in the Closing GAAP Balance Sheet
(the "Excess Amount"). A summary of the accounting principles, procedures,
methodologies and assumptions to be employed in the preparation of the Closing
GAAP Balance Sheet is set forth in Annex L hereto (the "Agreed GAAP Principles
and Procedures"). A copy of the Closing GAAP Balance Sheet and the Closing
Statement prepared by the management of the GBO Included Business and Buyer
shall be simultaneously delivered by management of the GBO Included Business to
Buyer, Seller, Coopers & Lybrand and Ernst & Young.
(d) Buyer and Seller shall jointly engage Coopers & Lybrand,
under said firm's form of engagement as previously circulated to the parties, to
audit the Closing GAAP Balance Sheet and the Closing Statement following
generally accepted auditing standards and applying the Agreed GAAP Principles
and Procedures. Coopers & Lybrand shall provide a summary of all audit findings
and differences, both favorable and unfavorable, and shall recommend that the
management of the GBO Included Business make such adjustments to the Closing
GAAP Balance Sheet and the Closing Statement prepared by the management of the
GBO Included Business as Coopers & Lybrand shall determine are required for the
Closing GAAP Balance Sheet and the Closing Statement to comply with the
requirements of this Agreement. Coopers & Lybrand shall complete its audit and
issue its report thereon simultaneously to Buyer and Seller within sixty (60)
days after receiving the Closing GAAP Balance Sheet and the Closing Statement
prepared by management of the GBO Included Business. The cost of such engagement
of Coopers & Lybrand shall be borne equally by Seller and Buyer.
(e) Seller and Buyer shall be afforded the opportunity to
review the Closing GAAP Balance Sheet and the Closing Statement, as audited by
Coopers & Lybrand, and in that regard shall be afforded full access to the
books, records, and other documents of the GBO Included Business (whether in the
possession of Buyer or Seller) containing information on which the Closing GAAP
Balance Sheet and the Closing Statement are based, as well as the work papers of
Coopers & Lybrand relating to its audit of the Closing GAAP Balance Sheet and
the Closing Statement, for the purpose of conducting a review thereof.
Appropriate confidentiality agreements shall be entered into by the parties in
connection with such review and access. Buyer shall cause the management of the
GBO Included Business to provide reasonable assistance to Seller and its
representatives in connection with such review. To the extent Seller retains
books, records and other documents of the GBO Included Business, including the
work papers of Ernst & Young, Seller shall provide reasonable assistance to
Buyer and its representatives in connection with such review. Seller and Buyer
and their representatives (including, with respect to
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Seller, Ernst & Young) shall, to the extent deemed necessary by them, be
permitted to repeat any of the auditing procedures employed by Coopers & Lybrand
in its audit of the Closing GAAP Balance Sheet and the Closing Statement. If
Seller chooses to retain Ernst & Young to perform any procedures with respect to
the Closing GAAP Balance Sheet, Ernst & Young shall complete such procedures
within a period of sixty (60) days after the receipt by Seller of Coopers &
Lybrand's recommended Closing GAAP Balance Sheet and recommended Closing
Statement together with its report thereon. In the absence of manifest error,
the recommended Closing GAAP Balance Sheet and the recommended Closing Statement
shall become final and binding on the parties hereto on the later of (i) the
tenth (10th) or (ii) if Seller chooses to retain Ernst & Young, the seventieth
(70th) Business Day following the day such Closing GAAP Balance Sheet and such
Closing Statement are delivered to Seller and Buyer by Coopers & Lybrand
together with its report thereon, unless either Seller or Buyer shall deliver a
Proposed Adjustment Notice (as defined below) during either period specified
above.
(f) If either Seller or Buyer shall object to any
recommendation made, or its failure to make a recommendation, by Coopers &
Lybrand in connection with the Closing GAAP Balance Sheet and the Closing
Statement as not having been made in accordance with the requirements of this
Agreement, then Seller or Buyer, as the case may be, shall deliver to the other
party and Coopers & Lybrand a proposed adjustment notice (the "Proposed
Adjustment Notice"). Seller and Buyer agree that any proposed adjustments shall
be limited to those adjustments required for the Closing GAAP Balance Sheet
and/or Closing Statement to be consistent with the requirements of this
Agreement.
(g) If a Proposed Adjustment Notice is delivered within the
period set forth in Section 1.5(e), then Seller and Buyer shall negotiate in
good faith for a ten (10) Business Day period commencing on the date of delivery
of the Proposed Adjustment Notice to resolve such dispute. If Seller and Buyer
cannot resolve such dispute with such ten (10) Business Day period, then Seller
and Buyer shall retain a mutually acceptable firm of independent public
accountants of nationally recognized reputation (other than Coopers & Lybrand,
Ernst & Young or Deloitte & Touche) to act as the arbitrator of such dispute.
Any such arbitration shall be conducted at a location to be determined by the
arbitrator appointed pursuant to the terms hereof. If the parties are not able
to agree to an arbitrator, then the Denver, Colorado office of the American
Arbitration Association shall select a firm of independent public accountants of
nationally recognized reputation (other than Coopers & Lybrand, Ernst & Young or
Deloitte & Touche) to act as arbitrators and the arbitration shall be held in
Denver, Colorado. Seller and Buyer shall cause the arbitrator to act promptly to
resolve any disputed issues in accordance with the terms of this Agreement, and
to issue their written decision within thirty (30) Business Days after the
appointment of the arbitrator, which decision shall be final, binding and
conclusive on both Seller and Buyer.
(h) On the day the Closing Statement becomes final and binding
on the parties hereto in accordance with Section 1.5(e) or Section 1.5(g), if
the Closing Statement contains a Deficiency Amount, then Seller promptly shall
pay to Buyer in cash in immediately available funds an amount equal to the
Deficiency Amount plus interest thereon compounded monthly from the Closing Date
to the payment date at the interest rate for 30 day United States Treasury Notes
on the Closing Date as published in the Wall Street Journal. If the Closing
Statement contains an Excess Amount, then Buyer promptly shall pay to Seller in
cash in immediately available funds an amount equal to the Excess Amount plus
interest thereon compounded monthly from the Closing Date to the payment date at
the interest rate for 30-day United States Treasury Notes on the Closing Date as
published in the Wall Street Journal.
(i) In an effort to facilitate the audit of the Closing GAAP
Balance Sheet and Closing Statement by Coopers & Lybrand and permit Coopers &
Lybrand to familiarize itself with the books, records and systems of Seller and
with the application of the Agreed GAAP Principles and Procedures,
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Seller shall allow Coopers & Lybrand to review the financial books, records and
systems of Seller with respect to the GBO Included Business, to the extent such
review does not unreasonably interfere with the conduct of Seller's business.
Seller shall engage Ernst & Young to assist and cooperate with Coopers & Lybrand
in its review. Such review shall be commenced as soon as practicable following
the execution of this Agreement. Seller shall pay all fees of Ernst & Young and
Buyer shall pay all fees of Coopers & Lybrand for the purpose of such review.
Section 1.6 Manner of Payment. Each cash payment required to
be made by any party hereto pursuant to the terms of this Agreement shall be
made by transferring the amount thereof in immediately available United States
Dollars to the account or accounts designated in writing by the party entitled
to such payment.
Section 1.7 Fees. Buyer shall pay the filing fee in connection
with any filings made under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
AS TO THE GBO INCLUDED BUSINESS AND GBO SUBSIDIARIES
Seller hereby represents and warrants to Buyer as follows:
Section 2.1 Organization.
(a) Each of the GBO Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation with the corporate power to own, lease and operate its assets and
carry on the business conducted by it as conducted on the date hereof, and to
carry on that portion of the GBO Included Business conducted by it.
(b) Each of the GBO Subsidiaries is duly qualified and is in
good standing as a foreign corporation in each jurisdiction in which such
qualification is required and is necessary to conduct its business except in
such jurisdictions where failure to so qualify could not reasonably be expected
to have a Material Adverse Effect.
(c) Neither Seller nor any of the GBO Subsidiaries is required
to be licensed as a third party administrator. Neither TriState nor HASG is
licensed or required to be licensed as a utilization review agent in any
jurisdiction. Seller in the conduct of the GBO Included Business provides
utilization review services only in those jurisdictions listed on Schedule
2.1(c), none of which requires Seller to be licensed, certified, registered or
authorized as a utilization review agent. CCI is duly licensed, certified,
registered or authorized as a utilization review agent in good standing in the
jurisdictions set forth on Schedule 2.1(c), which to the knowledge of Seller are
the only jurisdictions in which such license, certification, registration or
authorization is required.
(d) Complete and correct copies of the Certificate of
Incorporation and Bylaws of each of the GBO Subsidiaries, as in effect on the
date hereof, have been delivered to Buyer. Except as set forth on Schedule 2.15,
none of the GBO Subsidiaries has any Subsidiaries nor owns or controls, directly
or indirectly, any shares of capital stock or other interest in any other
corporation, partnership, joint venture or any other enterprise.
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(e) Seller is duly licensed as a life and health insurance
company in good standing in all states of the United States, Guam and Puerto
Rico, and is duly qualified and is in good standing in each jurisdiction in
which such qualification is required and is necessary to conduct the GBO
Included Business.
Section 2.2 No Conflict. Except as set forth on Schedule 2.2,
the execution, delivery and performance of this Agreement by Seller (i) do not
and will not conflict with, result in a breach of, or entitle any party (with
due notice or lapse of time or both) to terminate, accelerate or declare a
default with respect to the Certificate of Incorporation or Bylaws of any of the
GBO Subsidiaries, or any GBO Material Contract (with the exception in the case
of GBO Material Contracts of conflicts or breaches arising from violations of
any non-assignment or non-delegation related prohibitions contained in such GBO
Material Contracts) or result in the creation or imposition of any Lien upon the
GBO Subsidiaries Shares or any GBO Included Asset (other than a Permitted Lien
or a Lien removed by Seller or bonded against by Seller to Buyer's satisfaction
at or prior to Closing), and (ii) will not result in any violation of any law,
rule or regulation applicable to Seller or the GBO Included Business, other than
such violations as individually or in the aggregate would not be reasonably
expected to have a Material Adverse Effect.
Section 2.3 Financial Statements.
(a) Attached hereto as Schedule 2.3(a) are the audited
financial statements containing balance sheets of the GBO Included Business as
of December 31, 1994 and 1995 (collectively, the "Balance Sheets"), and the
related statements of income and cash flows for the fiscal years then ended, in
each case together with the related notes thereto (collectively, "Financial
Statements"). The Balance Sheets (including the related notes thereto) fairly
present the financial condition of the GBO Included Business as of the
respective dates thereof, and the year-end statements included in the Financial
Statements (including the related notes thereto) fairly present the results of
operations of the GBO Included Business for the respective fiscal years then
ended in accordance with GAAP as consistently applied historically by Seller as
set forth in Annex L (except as otherwise set forth therein). The balance sheet
of the GBO Included Business as of December 31, 1995 included in Schedule 2.3(a)
is hereinafter referred to as the "1995 Balance Sheet".
(b) Attached hereto as Schedule 2.3(b) are true and complete
copies of the unaudited balance sheet (the "Recent Balance Sheet") of the GBO
Included Business as of June 30, 1996 (the "Recent Balance Sheet Date") and the
related statements of income and cash flows of the GBO Included Business
(collectively, the "Unaudited Financial Statements"). The Recent Balance Sheet
fairly presents the financial condition of the GBO Included Business, as at the
Recent Balance Sheet Date, and the other related unaudited statements included
in the Unaudited Financial Statements fairly present the results of operations
of the GBO Included Business for the period then ended. The Unaudited Financial
Statements have been prepared in accordance with GAAP consistently applied
historically by Seller as set forth in Annex L (except as otherwise set forth
therein), subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount and are not or may not be necessarily
indicative of results for the full fiscal year, and except that the Unaudited
Financial Statements do not contain full footnote disclosures in accordance with
GAAP.
(c) Attached hereto as Schedule 2.3(c) are balance sheets of
the GBO Included Business and the related statements of income of the GBO
Included Business as of and for the fiscal year ending December 31, 1995 and for
the six (6) months ended June 30, 1996, which fairly present the statutory
financial condition and results of operations of the GBO Included Business at
and as of the dates and for the periods indicated therein and have been prepared
in accordance with Statutory Accounting
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Principles ("SAP") as consistently applied historically by Seller throughout the
periods indicated, except as expressly set forth therein ("Statutory Financial
Statements"). The Statutory Financial Statements were prepared by Seller and
have not been audited or reviewed by independent accountants.
Section 2.4 Undisclosed Liabilities; Absence of Changes.
Except (i) as set forth on Schedule 2.4, (ii) as and to the extent of amounts
specifically reflected or reserved against in the Recent Balance Sheet, and
(iii) Liabilities that have arisen in the ordinary course of business since the
Recent Balance Sheet Date, the GBO Included Business does not have any material
Liabilities of a nature required by GAAP to be reflected in a corporate balance
sheet or disclosed in the notes thereto. Except as disclosed on Schedule 2.4 or
as contemplated by this Agreement, since the Recent Balance Sheet Date, the GBO
Included Business has not suffered any change which would reasonably be
expected, individually or in the aggregate with all such changes, to have a
Material Adverse Effect.
Section 2.5 Representations Regarding GBO Included Assets and
Real Property.
(a) Except as set forth on Schedule 2.5(a) hereto, Seller has
good and valid title to all the GBO Division Assets wherever situated, subject
to no Liens, other than Permitted Liens and other than Liens removed by Seller
or bonded against by Seller to Buyer's satisfaction at or prior to Closing.
Except as set forth on Schedule 2.5(a) hereto, the GBO Subsidiaries have good
and valid title to all the GBO Included Assets other than the GBO Division
Assets wherever situated, subject to no Liens, other than Permitted Liens and
other than Liens removed by the GBO Subsidiaries or bonded against by the GBO
Subsidiaries to Buyer's satisfaction at or prior to Closing.
(b) Schedule 2.5(b) hereto sets forth a complete list of all
real property owned by Seller and all real estate leases entered into by Seller
(as lessee or as lessor, other than leases at the Dearborn facility) and used
principally or exclusively by Seller in the operations of the GBO Included
Business (the "GBO Division Leases") and a complete list of real estate leases
entered into by CCI (the "CCI Leases," and collectively with the GBO Division
Leases referred to herein as the "GBO Leases," and the facilities that are the
subject of the GBO Leases are referred to herein as the "Leased Facilities").
There is no real property owned by CCI. There is no real property owned or real
estate leases entered into by TriState or HASG. The operations of the GBO
Included Business are conducted in the Leased Facilities or in the Dearborn
facility or Seller's headquarters located at John Hancock Place, Boston,
Massachusetts (the Dearborn facility and Seller's headquarters are collectively
defined herein as "Seller's Facilities"). Seller or CCI, as the case may be, has
a valid leasehold interest in all Leased Facilities that are used principally or
exclusively in the GBO Included Business.
Section 2.6 Reserves. The aggregate reserves (including any
experience refunds) of the GBO Included Business as recorded in the Recent
Balance Sheet (i) have been determined in accordance with generally accepted
actuarial standards consistently applied (except as set forth therein) and are
fairly stated in accordance with sound actuarial principles; (ii) are consistent
with statutory accounting practices prescribed or permitted by the Insurance
Department of the Commonwealth of Massachusetts (except for adjustments made
thereto reflecting differences between GAAP and SAP); (iii) include adequate
provision for all actuarial reserves and related statement items which ought to
be established under the foregoing standards, principles and practices; and (iv)
are consistent with GAAP and the principles and procedures set forth in Annex L.
Section 2.7 Filings and Notices; Approvals and Consents. No
consent, waiver, approval, authorization or order of, or registration,
qualification or filing with, any court or other Governmental Entity is required
for the execution, delivery and performance by Seller of the Transaction
Documents and the consummation by Seller of the transactions contemplated
thereby, other than (i) the filing by
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Seller of applications with, and the obtaining of approvals of Buyer's
reinsurance of the Coinsured Policies by, the Department of Insurance of the
Commonwealth of Massachusetts and any other insurance regulatory jurisdictions
listed on Schedule 2.7(i), and the delivery of notices and consents, including
pre- and post-acquisition competition filings, to certain other state insurance
departments, (ii) the delivery of notices of the transfer of ownership of CCI
from Seller to Buyer to, and, to the extent necessary for CCI to conduct
business immediately following the Effective Date, the receipt of consents to
such transfer from and/or the relicensure of CCI to conduct utilization review
by, those regulatory authorities in, those jurisdictions listed on Schedule
2.7(ii), and (iii) compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and expiration of the waiting period thereunder.
Section 2.8 Contracts.
(a) Schedule 2.8(a) contains a complete and accurate list of
the following Contracts to which Seller is a party or to which Seller is bound
and which are principally or exclusively used by Seller in the operations of the
GBO Included Business categorized as follows:
(i) all Contracts with health care providers or
networks that cannot be terminated at the election of Seller on prior
notice of one hundred twenty (120) days or less without the imposition
of cost or penalty;
(ii) all Existing GBO Policies;
(iii) reinsurance agreements, retrocession contracts
and treaties with third-party reinsurers which reinsure any of the
Existing GBO Policies (designating those which are related solely
to Existing GBO Policies, those which cover in part Existing GBO
Policies and in part GBO Excluded Business, and those which are
required by the clients of GBO Included Business);
(iv) Broker Contracts regarding the GBO Included
Business;
(v) all Contracts with vendors which are material
to the GBO Included Business, including, without limitation, (A) all
such Contracts with software vendors that are reasonably necessary for
the operations of the GBO Included Business management information
systems, and (B) all such Contracts with vendors which provide for
services jointly to Seller's business generally and the GBO Included
Business ("Shared Contracts") which are used in the GBO Included
Business;
(vi) ASO Contracts;
(vii) Contracts which contain covenants limiting the
freedom of the GBO Included Business to engage in any line of business,
or of Seller to engage in the operations of the GBO Included Business,
in any geographic area or to compete with any Person;
(viii) employment or severance Contracts applicable to
any GBO Employee, which are or will be an obligation of the GBO
Included Business, other than any such Contract which by its terms is
terminable on not more than 60 days' notice without additional
liability; and
(ix) all other Contracts which are principally or
exclusively used in the operations of, and are material to, the GBO
Included Business.
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All of the foregoing (other than the Shared Contracts) and the GBO Division
Leases are herein referred to collectively as the "GBO Division Contracts." The
"GBO Division Contracts" and the "Subsidiary Material Contracts," as defined in
Section 2.8(b), are herein sometimes collectively referred to as the GBO
Material Contracts.
(b) Schedule 2.8 (b) contains a complete and accurate list of
the following Contracts to which any of the GBO Subsidiaries is a party or to
which any of the GBO Subsidiaries is bound, categorized as follows:
(i) Contracts with health care providers or
networks that cannot be terminated at the election of the GBO
Subsidiaries on prior notice of one hundred twenty (120) days or less
without the imposition of cost or penalty on the GBO Subsidiaries;
(ii) Contracts with sales agents and field
representatives;
(iii) Contracts with vendors which are material to
the GBO Included Business (including, without limitation, all contracts
that are necessary for the operations of the GBO Included Business
management information systems operated by the GBO Subsidiaries);
(iv) Contracts with customers;
(v) Contracts which contain covenants limiting
the freedom of any of the GBO Subsidiaries to engage in any line of
business in any geographic area or to compete with any Person;
(vi) employment or severance contracts applicable
to any GBO Subsidiary Employee other than any such contract which by
its terms is terminable on not more than sixty (60) days' notice
without additional liability;
(vii) Contracts between or among any of the GBO
Subsidiaries and Seller or any Affiliate; and
(viii) all other Contracts which are material to
the operations of any of the GBO Subsidiaries.
All of the foregoing and the CCI Leases are herein referred to collectively as
the "Subsidiary Material Contracts."
(c) With respect to each of the GBO Material Contracts, except
as set forth in Schedule 2.8(c):
(i) such GBO Material Contracts are, to Seller's
knowledge with respect to other parties thereto, valid and binding upon
each party thereto and are in full force and effect; and
(ii) there is no material default or claim of
material default thereunder by the Seller, any of the GBO Subsidiaries
or any Affiliate (and, to the Seller's knowledge, no other party
thereto) and to Seller's knowledge, no event has occurred which, with
the passage of time or the giving of notice (or both), would constitute
a material default thereunder, or would permit material modification,
acceleration or termination thereof.
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(d) Seller has heretofore provided to Buyer a list of the top
75 ASO Contracts and top 75 Existing GBO Policies by annualized revenue or
premiums, and to the extent such information is reasonably available to Seller:
all notices received of intention to cancel, intention to put out for bid,
material changes in coverages and material price changes in the last two (2)
years (which for this purpose shall be defined as price changes of 10% or more).
Section 2.9 Litigation.
(a) Except as expressly set forth on Schedule 2.9(a) or
expressly reflected or reserved against and identified in the Recent Balance
Sheet, there is no action, suit, grievance, arbitration or proceeding pending
or, to the knowledge of Seller, threatened against or affecting the GBO Included
Business at law or in equity, before any federal, state, municipal or other
governmental court, department, commission, board, arbitrator, bureau, agency or
instrumentality. There is no default with respect to any judgment against Seller
with respect to the GBO Included Business, and all such judgments have been
satisfied or appropriately stayed.
(b) Except as expressly set forth on Schedule 2.9(b), there is
no action, suit, grievance, arbitration or proceeding pending or, to the
knowledge of Seller, threatened against or affecting any of the GBO Subsidiaries
at law or in equity before any federal, state, municipal or other governmental
court, department, commission, board, arbitrator, bureau, agency or
instrumentality. There is no default with respect to any judgment against any of
the GBO Subsidiaries and all such judgments have been satisfied or appropriately
stayed.
Section 2.10 Labor Relations; Employees.
(a) Except as set forth in the Ford Group Office Collective
Bargaining Contract 1995, (i) none of the GBO Division Employees is represented
by any labor organization, and, to the knowledge of Seller, no union claims to
represent the GBO Division Employees and there have been no material union
organizing activities with respect to GBO Division Employees within the past
three (3) years, (ii) Seller is not a party to any agreements (including,
without limitation collective bargaining agreements, work rules or practices)
with and, to the knowledge of Seller, there are no pending petitions for
recognition of, a labor union or employee association as the exclusive
bargaining agent for any or all of the GBO Division Employees, and no such
petitions have been pending with Seller within the past five (5) years, (iii)
except as set forth on Schedule 2.10(a), there is no unfair labor practice
charge or complaint, grievance or arbitration under any collective bargaining
agreement, discrimination or equal employment opportunity charge or complaint,
or other complaint or proceeding pending, or to the knowledge of Seller,
threatened by or on behalf of any present or former GBO Division Employee, (iv)
there is no labor strike, dispute, lock-out, slowdown or stoppage pending or, to
the knowledge of Seller, threatened against the GBO Division, nor has there been
any such activity within the past five (5) years, (v) there are no pending
collective bargaining negotiations relating to the GBO Division Employees and
(vi) no Governmental Entity has given written notice to Seller of its intention
to conduct or, to the knowledge of Seller, intends to conduct, any investigation
of employment conditions or practices of the GBO Division.
(b) Seller has not during the past two (2) years prior to the
date hereof effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of the GBO Division or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the GBO Division; nor, except as set forth on Schedule 2.10(b), has
the GBO Division been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to independently trigger
application
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of any similar state or local law. None of the GBO Division Employees has
suffered an "employment loss" (as defined in the WARN Act) within the 90-day
period prior to the date hereof. To Seller's knowledge all GBO Division
Employees have been hired in compliance with the Immigration Reform and Control
Act of 1986.
(c) None of the GBO Subsidiary Employees is represented by any
labor organization and, to the knowledge of Seller, no union claims to represent
any of the GBO Subsidiary Employees and there have been no material union
organizing activities with respect to GBO Subsidiary Employees within the past
three (3) years, (ii) neither Seller nor any of the GBO Subsidiaries is a party
to any agreements (including, without limitation collective bargaining
agreements, work rules or practices) with and, to the knowledge of Seller or any
of the GBO Subsidiaries, there are no pending petitions for recognition of, a
labor union or employee association as the exclusive bargaining agent for any or
all of the GBO Subsidiary Employees, and no such petitions have been pending
with Seller or any of the GBO Subsidiaries within the past five (5) years, (iii)
except as set forth in Schedule 2.9(b), there is no unfair labor practice charge
or complaint, grievance or arbitration under any collective bargaining
agreement, discrimination or equal employment opportunity charge or complaint,
or other complaint or proceeding pending, or to the knowledge of Seller or any
of the GBO Subsidiaries, threatened by or on behalf of any present or former GBO
Subsidiary Employee, (iv) there is no labor strike, dispute, lock-out, slowdown
or stoppage pending or, to the knowledge of Seller or any of the GBO
Subsidiaries, threatened against any of the GBO Subsidiaries, nor has there been
any such activity within the past five (5) years, (v) there are no pending
collective bargaining negotiations relating to the GBO Subsidiary Employees and
(vi) no Governmental Entity has given written notice to Seller or any of the GBO
Subsidiaries of its intention to conduct or, to the knowledge of Seller or any
of the GBO Subsidiaries, intends to conduct, any investigation of employment
conditions or practices of any of the GBO Subsidiaries.
(d) None of the GBO Subsidiaries has during the past two (2)
years effectuated (i) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of such subsidiary or (ii) a "mass layoff" (as
defined in the WARN Act) affecting any site of employment or facility of any of
the GBO Subsidiaries; nor has any of the GBO Subsidiaries been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law. None of the GBO
Subsidiary Employees has suffered an "employment loss" (as defined in the WARN
Act) within the 90-day period prior to the date hereof. To Seller's knowledge,
all GBO Subsidiary Employees have been hired in compliance with the Immigration
Reform and Control Act of 1986.
Section 2.11 Pension Plans.
(a) As used herein, "Pension Plan" shall mean any "employee
pension benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) (A) which (x) is a defined benefit plan which Seller or any
ERISA Affiliate maintained, contributed to or has been required to contribute to
at any time which is no more than six (6) years prior to the Closing Date, or
(y) is a plan intended to be treated as qualified, and which Seller or any ERISA
Affiliate maintained, contributed to or has been required to contribute to at
any time which is no more than three (3) years prior to the Closing Date, (B)
which did (during the applicable periods described in clauses (x) and (y)
hereof) or does cover any employee or former employee of Seller or any ERISA
Affiliate with respect to their relationship with such entities, and (C) which
is or was subject to Title IV or ERISA.
(b) A favorable determination letter has been issued by the
Internal Revenue Service with respect to each Pension Plan as to its
qualification under the Tax Reform Act of 1986 which did or does cover GBO
Employees or former GBO Employees of Seller or any of the GBO Subsidiaries with
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respect to their relationship with Seller or such entities and which has been
treated as qualified under the provision of Code Section 401(a).
(c) No Pension Plan will be binding or impose any liability
upon Buyer or the GBO Subsidiaries or any of their respective Subsidiaries after
the Closing.
(d) To the knowledge of Seller, no fact or circumstance
exists, including, without limitation, any "reportable event" (within the
meaning of ERISA, but excluding events with respect to which the applicable
notice requirements have been waived), in connection with any Pension Plan which
did or does cover GBO Employees or former GBO Employees of Seller or any of the
GBO Subsidiaries which might constitute grounds for termination of such Pension
Plan by the Pension Benefit Guarantee Corporation (the "PBGC") or of the
appointment by a court of a trustee to administer such Pension Plan.
(e) As of January 1, 1996, all of the Pension Plans which did
or does cover GBO Employees or former GBO Employees of Seller or any of the GBO
Subsidiaries were fully funded on an ongoing basis using the actuarial
assumptions used in the most recent actuarial valuations of the Pension Plans.
(f) There are no pending or threatened claims (other than
routine claims for benefits) that have been asserted or instituted against any
employee benefit plan, the assets of any employee benefit plan or against the
sponsor, administrator or any fiduciary of any employee benefit plan with
respect to the operation of such employee benefit plan that could subject the
GBO Included Business or any GBO Subsidiary to any liability or expense, nor
does Seller or any GBO Subsidiary have any knowledge of any facts which could
form the basis for any such claim or of any pending investigations by any
governmental agency that could result in any such liability or expense.
(g) With respect to the employees and former employees of the
GBO Business or any GBO Subsidiary, their spouses and their dependents, Seller
and each GBO Subsidiary are in compliance with the notice and continuation
coverage requirements of Section 4980B(f) of the Code and regulations thereunder
("COBRA").
(h) No event has occurred in connection with which the GBO
Included Business or any GBO Subsidiary, directly or indirectly, could be
subject to any material liability (A) under any statute, regulation or
governmental order relating to any Pension Plan which covers GBO Employees or
employee benefit plan which covers GBO Employees or (B) pursuant to any
obligation of the GBO Included Business or any GBO Subsidiary to indemnify any
Person against liability incurred under any such statute, regulation or order as
they relate to the employee benefit plans.
Section 2.12 Intellectual Property. Schedule 2.12 sets forth a
list of the GBO Intellectual Property, which list is true and complete in all
material respects. Except as set forth on Schedule 2.12, Seller does not have
any knowledge of any claim that any of its material rights in the GBO
Intellectual Property infringe upon any intellectual property rights of any
Person, or that any other person has any claim therein.
Section 2.13 Taxes. Except as disclosed on Schedule 2.13: (a)
the GBO Subsidiaries are members of an affiliated group of which Seller is the
common parent, and Seller has filed a consolidated federal income tax return on
behalf of such affiliated group for the taxable year ending on December 31,
1995; (b) Seller and the GBO Subsidiaries have (i) duly and timely filed (or
there have been duly filed on their behalf) all Tax Returns required to be filed
by or on behalf of Seller and the GBO Subsidiaries on or before the date hereof,
and all such Tax Returns were true, accurate and complete in
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all material respects, and (ii) paid in full on a timely basis (or there has
been paid on their behalf) all Taxes shown to be due on such Tax Returns and (c)
the provision for Taxes on the 1995 Financial Statements and the Closing GAAP
Balance Sheet through the date thereof has been or will be determined in
accordance with GAAP (and consistent with the obligations of Seller under
Section 9.2 in the case of the Closing GAAP Equity Amount) and is adequate in
amount for the payment of all material Liabilities for Taxes for which the
Seller and the GBO Subsidiaries will be liable for the period up to and
including the Effective Time.
Section 2.14 Capitalization of the GBO Subsidiaries. The GBO
Subsidiaries Shares, together with the shares of TriState owned by CCI,
represent all of the issued and outstanding equity securities of the GBO
Subsidiaries. The GBO Subsidiaries Shares have been duly authorized by the GBO
Subsidiaries, respectively, have been validly issued and are fully paid,
non-assessable and free of preemptive or similar rights, are subject to no Liens
and are owned beneficially and of record by JHSI. There is no option, warrant,
call, registration right, convertible security, arrangement, agreement or
commitment of any character, whether oral or written, relating to any security
of, or phantom security interest in, any of the GBO Subsidiaries, and there are
no voting trusts or other agreements or understandings with respect to the
voting of the capital stock of the GBO Subsidiaries.
Section 2.15 Subsidiaries and Investments in Affiliates.
Except for CCI ownership of TriState shares, Schedule 2.15 hereto sets forth all
investments in Affiliates of any of the GBO Subsidiaries and any joint ventures
entered into by Seller related to the operations of the GBO Included Business.
Except as to the shares of TriState owned by CCI, there are no Contracts
pursuant to which the GBO Division or Seller on behalf of the GBO Division or
any of the GBO Subsidiaries is obligated, bound or otherwise required, under any
circumstance, to make contributions to the capital of any of its Affiliates, any
joint venture or any other Person.
Section 2.16 Employees.
(a) Seller has provided to Buyer a list, which is complete and
accurate in all material respects as of the date of this Agreement (and will be
updated as of the Closing Date), of the names, titles, salaries, original hire
dates, compensation (whether in the form of salaries, bonuses, commissions or
other supplemental compensation now or hereafter payable) of all GBO Division
Employees.
(b) Seller has provided to Buyer a list, which is complete and
accurate in all material respects as of the date of this Agreement (and will be
updated as of the Closing Date), of the names, titles, salaries, original hire
dates, compensation (whether in the form of salaries, bonuses, commissions or
other supplemental compensation now or hereafter payable) of all CCI Employees.
(c) Neither TriState nor HASG has any employees.
Section 2.17 Insurance Business.
(a) Except as set forth on Schedule 2.17(a), to the knowledge
of Seller, and except where the failure to comply, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
Effect, the GBO Included Business is being conducted in compliance with all
applicable insurance laws and regulations.
(b) Except as set forth in Schedule 2.17(b), Seller has all
Insurance Licenses the use and exercise of which are necessary for the conduct
of the GBO Included Business, and such Insurance Licenses are in full force and
effect and are listed, described and categorized in Schedule 2.17(b). To
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the knowledge of Seller, the GBO Included Business has been, and is being,
conducted in material compliance with all such Insurance Licenses except such
non-compliance as would not reasonably be expected to have a Material Adverse
Effect. There is no proceeding or investigation pending, or, to the knowledge of
Seller threatened, that would reasonably be expected to lead to the revocation,
amendment, failure to renew, limitation, suspension or restriction of any
Insurance License.
(c) To the knowledge of Seller, all Existing GBO Policies are,
as of the date of this Agreement, to the extent required under applicable law,
on forms approved by the insurance regulatory authority of the jurisdiction
where issued, other than such deviations which individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect.
(d) Seller has heretofore provided to Buyer a complete and
accurate list, on a state-by-state basis, of all insurance policy forms and
rates in use by the GBO Included Business.
(e) All outstanding Existing GBO Policies were issued in
conformity in all material respects with Seller's underwriting standards and,
with respect to such Existing GBO Policies reinsured or retroceded in whole or
in part, 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 which are immaterial individually or in the
aggregate.
(f) To the knowledge of Seller, all Persons through whom
Seller on behalf of the GBO Included Business has placed or sold insurance are
duly licensed (to the extent such licensing is required by the relevant
Governmental Entity) to sell or place insurance in the jurisdictions where they
do so.
(g) Seller has made available to Buyer all correspondence with
respect to the GBO Included Business between Seller, or any of the GBO
Subsidiaries, and any Governmental Entity, including, but not limited to, all
state insurance regulatory authorities regarding any material violation of laws,
rules or regulations within the last two (2) years.
Section 2.18 Compliance with Law; Permits and Licenses.
(a) To the knowledge of Seller, Seller is in compliance with
all applicable laws, statutes, ordinances and regulations, whether federal,
foreign, state or local affecting the GBO Included Business except where the
failure to comply would not have a Material Adverse Effect. To the knowledge of
Seller, neither Seller nor any GBO Subsidiary has received any written notice to
the effect that, or has otherwise been advised that, they are not in compliance
with any such statute, regulation, order, ordinance or other law affecting the
GBO Included Business where the failure to comply would have a Material Adverse
Effect on the GBO Subsidiaries or the GBO Included Business, and Seller has no
knowledge of any presently existing circumstances that are likely to result in
violations of any such regulations which would, individually or in the
aggregate, have a Material Adverse Effect on the GBO Included Business.
(b) To the knowledge of Seller, it holds all permits,
licenses, registrations, and certifications necessary for the ownership and
conduct of the GBO Included Business (including third party administrator and
utilization review authority) in all jurisdictions where the GBO Included
Business is conducted and such permits, licenses, registrations, and
certifications are in full force and effect except where the failure to hold any
permit or license or the failure of any permit or license to be in full force
and effect would not have a Material Adverse Effect on the GBO Subsidiaries or
the GBO Included Business. To the knowledge of Seller, the consummation of the
transactions contemplated by this
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Agreement will not result in any revocation, cancellation or suspension of any
such permit, license, registration or certification and, to the knowledge of
Seller, there are no pending or threatened suits, proceedings or investigations
with respect to revocation, cancellation, suspension or nonrenewal thereof, and,
to the knowledge of Seller, there has occurred no event which (whether with
notice or lapse of time or both) will result in such a revocation, cancellation,
suspension or nonrenewal thereof in any such case except where such a
revocation, cancellation, suspension or non-renewal would not have a Material
Adverse Effect on Seller or the GBO Included Business.
(c) To the knowledge of Seller, neither the GBO Division nor
the GBO Subsidiaries has violated or are in violation of any law, rule or
regulation punishable by criminal penalties that could result in the imposition
of a fine of $100,000 or more or imprisonment for a period of one (1) year or
more, or both.
Section 2.19 No Brokers. Except for Morgan Stanley & Co.,
Incorporated and Monitor, Inc., the fees of which shall be paid by Seller,
neither Seller nor its Affiliates has retained any agent, broker, investment
bank, financial advisor or other person that is or will be entitled to any
broker's or finder's fees or any other commission or similar fee in connection
with any of the transactions contemplated by the Transaction Documents. Seller
agrees to indemnify and hold Buyer harmless from and against any and all loss,
claims, damage, cost, or expense arising out of or in connection with any claim
against Buyer or its Affiliates for any such broker's or finder's fee, other
commission or similar fee resulting from actions taken by Seller. Seller's
obligations under this Section 2.19 shall be from the first dollar and shall not
be subject to any threshold amount or limitation.
Section 2.20 Compliance with Legislation Regulating
Environmental Quality.
(a) To the knowledge of Seller with respect to the Facilities
(as defined below): (i) there has not been any release (as defined in 42 U.S.C.
Section9601(22)) or other discharge or disposal of chemicals, petroleum,
asbestos, PCBs, radon or other toxic, hazardous, or regulated wastes,
substances, or materials (collectively, "Hazardous Substances") at, in, on,
under or from the Facilities except in compliance with Environmental Laws; (ii)
no such Hazardous Substances are being stored or otherwise are present at, in,
on or under the Facilities except in compliance with Environmental Laws; (iii)
the Facilities are and have been maintained in compliance with all applicable
federal, state and local environmental protection, occupational, health and
safety or similar laws, regulations, ordinances, licenses and other restrictions
(collectively, "Environmental Laws"), including, without limitation, the Federal
Water Pollution Control Act (33 U.S.C. SectionSection1251 et seq.), Resource
Conservation and Recovery Act (42 U.S.C. SectionSection6901 et seq.), Safe
Drinking Water Act (21 U.S.C. Section349, 42 U.S.C. SectionSection201, 300f),
Toxic Substances Control Act (15 U.S.C. SectionSection2601 et seq.), Clean Air
Act (42 U.S.C. SectionSection7401 et seq.), and Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. SectionSection9601 et seq.);
and (iv) there are no suits, actions, proceedings, demands, notices, or other
claims, either pending or threatened or reasonably anticipated to be made, which
relate to the Facilities and to Hazardous Substances or Environmental Laws, or
which are against Seller with respect to the GBO Included Business or which are
against any of the GBO Subsidiaries and which relate to Hazardous Substances or
Environmental Laws.
(b) "Facilities" means the Leased Facilities and Seller's
Facilities.
(c) Notwithstanding anything to the contrary contained in this
Agreement, this Section 2.20 contains the sole and exclusive representations and
warranties of Seller with respect to any and all matters relating to
Environmental Laws or Hazardous Substances with respect to the Facilities and
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otherwise in connection with the respective businesses of Seller and the GBO
Subsidiaries (other than the insuring of risks).
Section 2.21 No Extraordinary Items or Accounting Changes.
Except as disclosed in Annex L hereto, to the knowledge of Seller, as of the
date of this Agreement there are no current or anticipated extraordinary items
(as defined by GAAP) applicable to the GBO Included Business in 1996.
Section 2.22 No Misrepresentations. To the knowledge of
Seller, no representation, warranty or statement made, or information provided
by Seller or its Affiliates in this Agreement or in any other document or
instrument furnished or to be furnished by or on behalf of the Seller or its
Affiliates pursuant hereto or as contemplated hereby, when considered in the
aggregate together with all such other representations, warranties, statements
and information (including information in the Financial Statements, the
Unaudited Financial Statements and the Statutory Financial Statements), contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading or necessary in order to provide the Buyer with
complete and accurate information as to the GBO Included Business.
Section 2.23 Adequacy and Completeness of GBO Included Assets.
Except as otherwise provided in or contemplated by this Agreement, the GBO
Included Assets, including, without limitation, the Intellectual Property, being
sold or assigned to Buyer or Unicare pursuant to this Agreement or provided to
Unicare pursuant to the Transaction Documents, together with the GBO Included
Assets held by the GBO Subsidiaries, are sufficient for Unicare and Buyer to
continue to operate the GBO Included Business in material respects in the manner
heretofore conducted by the Seller and its Affiliates. Except as otherwise
provided in or contemplated by this Agreement, there is no asset of Seller or
its Affiliates which is used primarily or exclusively in connection with the
operation of the GBO Included Business and which is not being acquired by or
provided to Unicare or Buyer pursuant to the Transaction Documents other than
assets disposed of in the ordinary course of business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that:
Section 3.1 Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Unicare is an insurance corporation duly organized, validly existing
and in good standing under the laws of the state of Delaware. Buyer and Unicare
have the corporate power to consummate the transactions contemplated of them,
respectively, by the Transaction Documents, and to carry on the GBO Included
Business following the Closing, to the extent contemplated by the Transaction
Documents.
Section 3.2 Authority; No Conflict; Binding Effect. Buyer and
Unicare have the corporate power and authority to execute, deliver and perform
their respective obligations under the Transaction Documents. Such execution,
delivery and performance have been duly authorized by all necessary action on
the part of Buyer and Unicare as the case may be and do not and will not
contravene the organizational documents of Buyer or Unicare or conflict with,
result in a breach of, or entitle any party (with due notice or lapse of time or
both) to terminate, accelerate or cause a default with respect to, any of the
Articles of Incorporation or Bylaws of Buyer or Unicare or any material
agreement or instrument to which Buyer or Unicare is a party or by which Buyer
or Unicare or their respective assets
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are bound, except such termination, acceleration or default which individually
or in the aggregate would not have a Material Adverse Effect on either Buyer or
Unicare or the GBO Included Business. The execution, delivery and performance by
Buyer or Unicare, as appropriate, of the Transaction Documents will not result
in any violation by Buyer or Unicare, as appropriate, of any law, rule or
regulation applicable to Buyer or Unicare. Buyer or Unicare is not a party to,
nor subject to or bound by, any judgment, injunction or decree of any court or
other Governmental Entity which may restrict or interfere with the performance
of the Transaction Documents by Buyer or Unicare. This Agreement is (and when
executed and delivered by Buyer or Unicare, as appropriate, each of the
Transaction Documents will be) a valid and binding obligation of Buyer or
Unicare, as appropriate, enforceable against it in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
Section 3.3 Filings and Notices; Approvals and Consents. No
consent, waiver, approval, authorization or order of, or registration,
qualification or filing with, any court or other Governmental Entity is required
for the execution, delivery and performance by Buyer or Unicare of the
Transaction Documents and the consummation by Buyer of the transactions
contemplated thereby, other than (i) the filing by Unicare of applications with,
and the obtaining of approvals of Buyer's reinsurance of the Coinsured Policies
by, the Department of Insurance of the State of Delaware, the Department of
Insurance of the State of California and the other insurance regulators listed
on Schedule 2.7, and the delivery of notices and consents, including pre-and
post-acquisition competition filings, to certain other state insurance
departments, and (ii) compliance with the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended, and expiration of the waiting period
thereunder. No consent or waiver of any party to any material contract to which
Buyer or Unicare is a party is required for the execution, delivery and
performance by Buyer or Unicare of the Transaction Documents or the conduct of
the GBO Included Business following the Closing.
Section 3.4 Brokers or Finders. Except for Lazard Freres & Co.
LLC, the fees of which shall be paid by Buyer, neither Buyer nor its Affiliates
has retained any agent, broker, investment banker, financial advisor or other
firm or person that is or will be entitled to any broker's or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated by the Transaction Documents. Buyer agrees to indemnify and hold
Seller harmless from and against any and all loss, claims, damage, cost, or
expense arising out of or in connection with any claim against Seller or its
Affiliates for any such broker's or finder's fee, other commission or similar
fee resulting from actions taken by Buyer. Buyer's obligations under this
Section 3.4 shall be from the first dollar and shall not be subject to any
threshold amount or limitation.
Section 3.5 Investment Intent. Buyer is acquiring the GBO
Subsidiaries Shares for its own account for investment and not with a view to
the distribution thereof, and Buyer shall not offer to sell or otherwise dispose
of any of the GBO Subsidiaries Shares so acquired by it in violation of the
registration requirements of the Securities Act or applicable state securities
laws.
Section 3.6 Actions Pending. There is no action, suit,
investigation or proceeding pending or, to the knowledge of Buyer, threatened
against Buyer or Unicare or any of its properties or rights by or before any
court, arbitrator or administrative body or Governmental Entity which questions
the validity of the Transaction Documents or any action taken or to be taken
pursuant thereto which could reasonably be expected to impair or restrict
Buyer's or Unicare's ability to perform its obligations thereunder or to
consummate the transactions contemplated by the Transaction Documents.
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Section 3.7 Reports; Financial Statements.
(a) Since December 31, 1991, Buyer has filed (i) all forms,
reports, statements and other documents required to be filed with (A) the
Securities and Exchange Commission (the "SEC") including, without limitation,
(1) all Annual Reports on Form 10-K, (2) all Quarterly Reports on Form 10-Q, (3)
all proxy statements relating to meetings of stockholders (whether annual or
special), (4) all required Current Reports on Form 8-K, (5) all other reports or
registration statements and (6) all amendments and supplements to all such
reports and registration statements (collectively, the "Buyer SEC Reports") and
(B) any applicable state securities authorities; and (ii) all forms, reports,
statements, notices and other documents required to be filed with any other
applicable federal or state regulatory authorities, including, without
limitation, state insurance and health regulatory authorities, except where the
failure to file any such forms, reports, statements, notices and other documents
under this clause (ii) would not be reasonably expected to have a material
adverse effect on the conduct of the business of Buyer (all such forms, reports,
statements, notices and other documents in clauses (i) and (ii) of this Section
3.7(a) being collectively referred to as the "Buyer Reports"). The Buyer
Reports, including all Buyer Reports filed after the date of this Agreement and
prior to the Closing, (i) were or will be prepared in all material respects in
accordance with the requirements of applicable laws (including, with respect to
the Buyer SEC Reports, the Securities Act and the Exchange Act, as the case may
be), and (ii) did not at the time they were filed, or will not at the time they
are filed, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were or
will be made, not misleading.
(b) Each of the consolidated financial statements (including
in each case any related notes thereto) contained in the Buyer SEC Reports,
including any Buyer SEC Reports filed after the date of this Agreement and prior
to the Closing, (i) have been or will be prepared in all material respects in
accordance with the published rules and regulations of the SEC and GAAP applied
on a consistent basis throughout the periods involved except (A) to the extent
required by change in GAAP and (B) with respect to Buyer SEC Reports filed prior
to the date of this Agreement, as may be indicated in the notes thereto; and
(ii) fairly present or will fairly present the consolidated financial position
of Buyer and its Subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods indicated,
except that (A) any unaudited interim financial statements (1) were or will be
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount and (2) are not or may not be necessarily
indicative of results for the full fiscal year and (B) any pro forma financial
information contained in such consolidated financial statements is not or may
not be necessarily indicative of the consolidated financial position of Buyer
and its Subsidiaries as of the respective dates thereof and the consolidated
results of operations and cash flows for the periods indicated.
(c) Buyer has delivered to Seller Unicare's Annual Statement
for the fiscal year ending December 31, 1995 and statutory financial statements
for the six months ending June 30, 1996, as filed with the Delaware Insurance
Department, and containing in part statements of assets, liabilities, surplus
and other funds; summary of operations; capital and surplus accounts; and cash
flow ("Unicare's SAP Financial Statements"). Unicare's SAP Financial Statements
(including, without limitation, the interrogatories therein) fairly present the
statutory financial condition and results of operations of Unicare at and as of
the dates and for the periods indicated therein and have been prepared in
accordance with SAP consistently applied throughout the periods indicated,
except as expressly set forth therein. Unicare's SAP Financial Statements were
prepared by Unicare and have not been audited or reviewed by independent
accountants.
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(d) Since December 31, 1994, Unicare has filed all forms,
reports, statements, notices and other documents required to be filed with any
applicable federal or state regulatory authorities, including, without
limitation, state insurance and health regulatory authorities, except where the
failure to file any such forms, reports, statements, notices and other documents
would not be reasonably expected to have a Material Adverse Effect on the
conduct of the business of Unicare (all such forms, reports, statements, notices
and other documents being collectively referred to as the "Unicare Reports").
The Unicare Reports and all Unicare Reports filed after the date of this
Agreement and prior to the Closing, (i) were or will be prepared in all material
respects in accordance with the requirements of applicable laws and (ii) did not
at the time they were filed, or will not at the time they are filed, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were or will be made, not misleading.
(e) Except as and to the extent set forth on the balance sheet
of Buyer at December 31, 1995, including all notes thereto, contained in Buyer's
SEC Reports, Buyer has no liabilities or obligations of any nature (whether
known or unknown, matured or unmatured, and whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or reserved
against in, a balance sheet of Buyer or in the notes thereto, prepared in
accordance with GAAP except (i) as otherwise reported in the financial
statements contained in Buyer's SEC Reports, for the quarter ended June 30,
1996, or (ii) for Liabilities incurred in the ordinary course of business since
December 31, 1995, or (iii) Liabilities incurred outside the ordinary course of
business that would not have a Material Adverse Effect on the conduct of the
business of Buyer taken as a whole. Since December 31, 1995, no event has
occurred which has resulted in a Material Adverse Effect with respect to Buyer.
(f) Except as and to the extent set forth on the balance sheet
of Unicare at December 31, 1995, including all notes thereto, contained in
Unicare's SAP Financial Statements, Unicare has no liabilities or obligations of
any nature (whether known or unknown, matured or unmatured, and whether accrued,
absolute, contingent or otherwise) that would be required to be reflected on, or
reserved against in, a balance sheet of Unicare or in the notes thereto,
prepared in accordance with SAP except (i) as otherwise reported in the
financial statements contained in Unicare's SAP Financial Statements for the
quarter ended June 30, 1996, or (ii) for Liabilities incurred in the ordinary
course of business since December 31, 1995, or (iii) Liabilities incurred
outside the ordinary course of business that would not have a Material Adverse
Effect on the conduct of the business of Buyer taken as a whole. Since December
31, 1995, no event has occurred which has resulted in a Material Adverse Effect
with respect to Unicare.
Section 3.8 Authority to Conduct GBO Included Business. Except
as set forth on Schedule 3.8, Buyer believes that Buyer and its Affiliates have
all Insurance Licenses the use and exercise of which are necessary for the
conduct of the GBO Included Business, and such Insurance Licenses are in full
force and effect and are listed, described and categorized in Schedule 3.8.
There is no proceeding or investigation pending, or, to the knowledge of Buyer
threatened, that would reasonably be expected to lead to the revocation,
amendment, failure to renew, limitation, suspension or restriction of any
Insurance License.
Section 3.9 No Misrepresentations. To the knowledge of Buyer,
no representation, warranty or statement made, or information provided by Buyer
or Unicare in this Agreement or in any other document or instrument furnished or
to be furnished by or on behalf of Buyer or Unicare pursuant hereto or as
contemplated hereby, when considered in the aggregate together with all other
such representations, warranties, statements or information (including
information in the Buyer SEC Reports
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and Unicare's SAP Financial Statements), contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements or facts contained herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SELLER AS TO ITSELF
Seller hereby represents and warrants to Buyer that:
Section 4.1 Organization. Seller is a mutual life insurance
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts and has all requisite power and authority
to own (directly, or indirectly through JHSI) the GBO Subsidiaries Shares and to
carry on, directly or indirectly, the GBO Included Business.
Section 4.2 Authority; No Conflict; Binding Effect. Seller has
the corporate power and authority to execute, deliver and perform its
obligations under the Transaction Documents. Such execution, delivery and
performance have been duly authorized by all necessary action on the part of
Seller and do not and will not contravene the organizational documents of Seller
or conflict with, result in a breach of, or entitle any party (with due notice
or lapse of time or both) to terminate, accelerate or call a default with
respect to, any agreement or instrument to which Seller is a party or by which
Seller or the GBO Included Assets are bound, except such termination,
acceleration or default which individually or in the aggregate would not have a
Material Adverse Effect on the GBO Included Business. The approval of the
policyholders of Seller is not required in connection with the execution,
delivery and performance by Seller of the Transaction Documents (other than the
approval of policyholders of Coinsured Policies under the Assumption Reinsurance
Agreement) or the consummation by Seller of the transactions contemplated
thereby. The execution, delivery and performance by Seller of the Transaction
Documents will not result in any violation by Seller of any law, rule or
regulation applicable to Seller. Seller is not a party to, nor subject to or
bound by, any judgment, injunction or decree of any court or other Governmental
Entity which may restrict or interfere with the performance of the Transaction
Documents by Seller. This Agreement is (and when executed and delivered by
Seller each of the Transaction Documents will be) a valid and binding obligation
of Seller enforceable against Seller in accordance with its terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally or the rights of creditors of insurance companies
generally and (ii) the remedy of specific performance and injunctive relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 4.3 Filings and Notices; Approvals and Consents.
Except as set forth on Schedule 2.7, no consent, waiver, approval, authorization
or order of, or registration, qualification or filing with, any court or other
Governmental Entity is required for the execution, delivery and performance by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby. Except as otherwise disclosed or expressly provided for in
this Agreement, no consent or waiver of any party to any Contract to which
Seller is a party or by which it is bound is required for the execution,
delivery and performance by Seller of the Transaction Documents.
Section 4.4 Title to GBO Subsidiaries Shares. JHSI is the
record and beneficial owner of, and has good and valid title to, the GBO
Subsidiaries Shares free and clear of all Liens. Other than
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as contemplated by this Agreement, Seller is not a party to, or bound by, any
agreement, instrument, proxy, understanding or commitment restricting the
transfer of the GBO Subsidiaries Shares. No Person other than JHSI is the record
or beneficial owner of any of the GBO Subsidiaries Shares. Assuming Buyer has
the requisite power and authority to be the lawful owner of the GBO Subsidiaries
Shares and is a "bona fide purchaser" (as defined under applicable law), upon
delivery to Buyer at the Closing of certificates representing the GBO
Subsidiaries Shares, duly endorsed by JHSI for transfer to Buyer or with stock
powers attached, and upon Seller's receipt of the Purchase Price therefor, good
and valid title will pass to Buyer, free and clear of all Liens other than those
arising from acts of Buyer or its Affiliates.
Section 4.5 Actions Pending. There is no action, suit,
investigation or proceeding pending or, to the knowledge of Seller, threatened
in writing against Seller or any of its properties or rights by or before any
court, arbitrator or administrative body or Governmental Entity which questions
the validity of the Transaction Documents or any action taken or to be taken
pursuant hereto which could reasonably be expected to impair or restrict
Seller's ability to perform its obligations hereunder.
ARTICLE V
COVENANTS OF SELLER
Section 5.1 Operation of the Business. Except as specifically
provided in this Agreement, prior to Closing Seller will conduct the GBO
Included Business in the ordinary course and substantially in the same manner as
heretofore conducted and in accordance with applicable law and will use
reasonable efforts to cause the GBO Included Business to be diligently carried
on, in the ordinary course consistent with past practice. In furtherance
thereof, Seller shall use reasonable efforts to (i) preserve the GBO Included
Assets, including, without limitation, the ASO Contracts and the Existing GBO
Policies and the material permits and licenses necessary to conduct the GBO
Included Business in full force and effect, (ii) keep available the services of
the senior staff of the GBO Included Business, (iii) keep intact the workforce,
taken as a whole, of the GBO Included Business so that the conduct of the GBO
Included Business as presently conducted is not impeded, (iv) maintain present
suppliers and customers of the GBO Included Business, and (v) preserve the
goodwill of the GBO Included Business. Without limiting the foregoing, prior to
the Closing, Seller (unless otherwise consented to in writing by Buyer):
(a) will give prompt notice to Buyer of (i) any breach or
default (or notice thereof) of any of the GBO Material Contracts or (ii) any
other event that could reasonably be expected to have a Material Adverse Effect
on the GBO Included Business;
(b) will not amend, alter or modify any material provision of
any GBO Material Contract except as may be deemed necessary to maintain
compliance with applicable laws, rules or regulations;
(c) will not increase in any manner the rate of compensation
or bonus of any of the GBO Employees, other than (i) increases in the ordinary
course of business consistent with past practice and other increases in
compensation customary on a periodic basis or required by agreement or
understanding and (ii) bonus and incentive arrangements entered into by Seller
in contemplation of the sale of the GBO Included Business, except as provided in
Article X hereof, and for which Seller assumes sole responsibility and
Liability;
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(d) will not increase in any substantial amount the number of
GBO Employees, or, increase the terms of any insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with any such GBO
Employees, except as provided in Article X hereof;
(e) will not make any material change in accounting methods or
practices or in actuarial reserving practices with respect to the GBO Included
Business, including, without limitation, any change with respect to
establishment of reserves for unearned premiums, losses (including without
limitation the current practice of calculating the reserve for incurred but not
reported losses) and loss adjustment expenses, or any change in depreciation or
amortization policies or rates adopted by it, except as required by law or GAAP
(and Seller shall advise Buyer of any change so required);
(f) without prior consultation with Buyer, will not, and will
not permit any of the GBO Subsidiaries to, make or propose to make any material
change from the past underwriting, investment and other insurance practices of
the GBO Included Business (including practices for the processing of claims and
the issuance of explanations of benefits or non-benefits), or permit any of the
GBO Subsidiaries to buy any investment asset rated Below Investment Grade;
(g) will not permit any of the GBO Subsidiaries to pay any
dividend or make any distribution of cash or assets to Seller or any Affiliate
of Seller; provided, however, that Seller may cause each GBO Subsidiary to make
payments from time to time to Seller and Affiliates of Seller on account of
service fees, expense charges, insurance fees, overhead charges, taxes and other
fees and charges consistent with past practices; and
(h) will not enter into any Contract to do any of the
foregoing in clauses (b) through (g) inclusive.
Section 5.2 Access. Seller will permit Buyer and its
authorized representatives at all reasonable times, without unreasonable
disruption of the normal operations of the GBO Included Business, to have access
to and to examine all premises, properties, files, books, documents, records,
financial information (including working papers and data in the possession of
Seller's independent public accountants, internal audit reports, and "management
letters" from such accountants with respect to the systems of internal control
of the GBO Included Business) and other information relating to the GBO Included
Business (including the right to make extracts therefrom or copies thereof), and
will cooperate with Buyer in its investigation of the GBO Included Business.
Seller will permit representatives of Buyer, to the extent reasonably necessary
or desirable, to consult with GBO Employees concerning all financial and
operational matters relating to the GBO Included Business. Seller may take such
steps as are reasonably appropriate in the circumstances to protect the
confidentiality of information that does not relate to the GBO Included Business
that is contained in books and records that include information relating to the
GBO Included Business. To the extent permitted by law, Seller will transfer to
Buyer at or immediately following the Closing physical possession of all
original files, books, documents, records and financial and other information
related to the GBO Included Business. To the extent Seller is prohibited by law
from transferring any of such original files or other information, Seller shall
provide true and correct copies of such files and information to Buyer.
Section 5.3 Additional Financial Statements. As soon as
reasonably practicable after they become available, Seller shall furnish to
Buyer the unaudited GAAP financial statements of the GBO Included Business for
all interim quarterly and annual periods subsequent to the Recent Balance Sheet
Date but prior to the Closing Date, which shall be prepared in accordance with
GAAP consistently applied with the 1995 Financial Statements.
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Section 5.4 Third-Party Reinsurance Agreements. Except
pursuant to the Underwriting Manager Agreement between Seller and James E.
Hackett Reinsurance Corporation, effective April 1, 1991, Seller shall not,
without the prior written approval of Buyer, which approval will not be
unreasonably withheld, (i) enter into or commit to enter into any commutation,
loss portfolio transfer or other similar transaction, agreement or arrangement
or series of related transactions, agreements or arrangements involving any
assumed or ceded reinsurance included in the GBO Included Business or (ii) enter
into or commit to enter into any new reinsurance Contract, treaty or other
arrangement or series of such Contracts, treaties or other arrangements that
create any GBO Included Liability.
Section 5.5 Updating of Information. From the date hereof
until the Closing Date, Seller will promptly inform Buyer in writing of Seller's
knowledge of the occurrence or failure to occur of any action or event which
would violate its representations and warranties hereunder or render them
inaccurate as of the date hereof, or that would constitute a breach of any
covenant of Seller hereunder or a failure of any condition to the obligations of
Seller hereunder. Through the Closing date, Seller may supplement any Schedule
or Annex hereto; provided, however, that the delivery of any such supplement
shall not cure any breach of representation or warranty requiring disclosure of
such matter at the date hereof.
Section 5.6 Employment Loss. Without regard to the actions
contemplated by Section 10.1, Seller will not take any action in respect of the
GBO Employees within the 90-day period prior to the Closing Date which would
result in an "employment loss" (as defined in the WARN Act).
Section 5.7 GBO Employees. Prior to the second anniversary of
the Closing Date, without the consent of Buyer, Seller shall not knowingly
re-employ or attempt to re-employ any former GBO Employee who has been employed
by Buyer pursuant to Section 10.1; provided, however, that this Section 5.7
shall not prohibit Seller from employing any such individual whose employment
with Buyer or its Affiliates has been involuntarily terminated. Notwithstanding
any other provision of this Agreement to the contrary, the covenant set forth in
this Section 5.7 will survive the Closing for a period of two (2) years.
Section 5.8 Regulatory Filings, etc.
(a) Seller shall use all reasonable efforts to prepare and
file with the Department of Insurance of the Commonwealth of Massachusetts (the
"Massachusetts Department"), and the Departments of Insurance in New York,
Wisconsin, Connecticut and Colorado as promptly as practicable, such
documentation which Buyer, acting in good faith, believes is reasonably
necessary to obtain such Departments' review of Buyer's application to reinsure
the Coinsured Policies.
(b) Seller shall use all reasonable efforts to prepare and
file, as promptly as practicable, all applications, forms and other
documentation related to the approvals and consents contemplated by Section 2.7
which Buyer, acting in good faith, believes to be reasonably necessary in order
(i) to notify the applicable Governmental Entity, and (ii) if applicable, to
obtain a review by and a decision from the applicable Governmental Entity in
connection with the consummation of the transactions contemplated hereby.
Section 5.9 Covenant Not to Compete.
(a) So long as Buyer or its Affiliates is in the same line of
business in the United States, for a period of five (5) years from the date of
this Agreement, neither Seller nor any Affiliate of Seller shall, directly or
indirectly, offer in the United States such managed care or group or individual
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health (including, without limitation, group or individual pharmacy, dental or
vision products, or accident and sickness), long-term disability or short-term
disability insurance products, administrative services relating to managed care
or health or long-term disability or short-term disability benefits
(collectively, the "Subject Business").
(b) Subject to the provisions of Section 5.9(c) below, the
covenant not to compete contained in this Section 5.9 shall not apply to any
acquisition after the Closing Date by Seller or any Affiliate of Seller of (i) a
Person that is engaged in a business that is substantially similar to the
Subject Business, if such business is incidental to a substantially larger
business conducted by the Person which is not substantially similar to the
Subject Business, or (ii) a Person that is engaged in a business that is
substantially similar to the Subject Business, if such Person is acquired as
part of a substantially larger transaction where such Person is not the
principal Person acquired in such larger transaction. Seller agrees to negotiate
in good faith with Buyer on an exclusive basis for a period of ninety (90) days
following any acquisition described in the immediately preceding sentence to
determine whether Seller and Buyer can agree upon the sale to Buyer of the
business that is substantially similar to the Subject Business; provided,
however, that Seller shall not be obligated to sell such business to Buyer, and
Buyer shall not be obligated to purchase such business from Seller, unless
Seller and Buyer execute a definitive agreement relating thereto on terms and
conditions acceptable to each party in its sole discretion; and, provided,
further, that Seller and its Affiliates shall have no obligations with respect
to such business under this Section 5.9 if Seller and Buyer after such good
faith negotiations do not execute such a definitive agreement for the sale of
such business during such ninety (90) day period. In addition, the covenant not
to compete contained in this Section 5.9 shall not apply to any Person if such
Person becomes an Affiliate of the Seller by virtue of such Person or an
Affiliate of such Person having acquired all or part of the Seller and such
Person conducted a business that is substantially similar to the Subject
Business for at least twelve (12) months prior to such acquisition.
(c) Notwithstanding anything contained in Section 5.9(b) to
the contrary, in the event Seller or any Affiliate of Seller is relieved of its
obligation under Section 5.9(a) as described under Section 5.9(b), Seller shall
not utilize the "John Hancock" name or any derivative thereof in brochures,
advertisement or other materials used in marketing business that is the same or
substantially similar to the Subject Business during the period that the
covenant not to compete contained in Section 5.9(a) would otherwise apply.
Section 5.10 Amounts Due to or Due From Affiliates. Except
with respect to amounts due under the following Contracts, which Contracts will
remain in effect following the Closing, (i) the service agreement between Seller
and CCI, effective July 1, 1990, as described in item (vii)(a)(3) of Schedule
2.8(b), for CCI to provide utilization review services to Seller; (ii) the
Contracts described in item (vii)(b) of Schedule 2.8(b), (iii) the Maritime Life
Insurance Company 100% Quota Share Reinsurance Agreement described on Exhibit C
to Schedule 2.8(a), (iv) the contracts relating to life and health insurance and
administrative services described in Section 8.10, and (v) the Transaction
Documents, all other amounts due to or due from Affiliates of the GBO
Subsidiaries or the GBO Included Business shall be settled at face value at or
prior to Closing.
Section 5.11 Termination or Modification of Existing GBO
Policies. After the Closing, Seller shall, as requested by Buyer, terminate,
amend or otherwise modify any Existing GBO Policy, to the extent permitted by
the terms of such Existing GBO Policy, the Coinsurance Agreement and the
Administration Agreement and by applicable law, or otherwise modify the terms or
pricing, subject to the terms and conditions of the Administration Agreement,
upon renewals effective at or prior to the time such Existing GBO Policy is
transferred onto Unicare forms.
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Section 5.12 Healthcare Providers and Networks.
(a) As promptly as practical after execution of this
Agreement, Seller will provide to Buyer a computer generated schedule showing on
a state by state basis, the name (listed alphabetically), address, zip code, tax
identity number, specialty and applicable payment code for each health care
provider participating in a network established, managed or utilized by Seller
or an Affiliate in the conduct of the GBO Included Business, and access to
Seller's files and records with respect to each such provider.
(b) Buyer (or Unicare) and Seller shall, if requested by Buyer
(or Unicare, as the case may be), immediately upon execution of this Agreement
jointly engage one or more vendors who are not Affiliates of Buyer or Seller to
review all of Seller's (and/or its Affiliates') existing agreements with health
care providers participating in networks established or managed by Seller in
providing services to subscribers of the GBO Included Business, whether or not
listed in Seller's provider directories (the "GBO Providers") and where
necessary use reasonable commercial efforts to obtain valid and binding
amendments to such existing agreements or new agreements so that Unicare will be
assured that (i) a valid and binding agreement exists with each GBO Provider and
(ii) the subscribers of the GBO Included Business, Unicare and Seller are
entitled to the negotiated discounted fee structure. In the case of provider
networks not established or managed by Seller, the outside vendor shall also
review Seller's agreements with such provider networks and shall engage in
appropriate discussions with such provider networks to facilitate assignment of
the agreements to Unicare and appropriate amendments thereto to assure that
Unicare has the benefit of those agreements. The period of engagement for each
such vendor shall not exceed one year from the date of this Agreement. Buyer (or
Unicare) and Seller shall each pay one-half of the costs and expenses of each
such vendor. The obtaining of such valid and binding amendments and agreements
shall not be a condition to Closing under this Agreement.
(c) With respect to claims incurred by subscribers of the GBO
Included Business prior to the Effective Time and during the 90-day period
immediately following the Closing Date, if the GBO Provider with respect to such
claims alleges that such GBO Provider does not have at the time a valid and
binding agreement with Seller or Unicare, as the case may be, and as a result
such GBO Provider will not provide a discount (after Unicare makes commercially
reasonable efforts to obtain such a discount) in an amount equal to the discount
expected to be available to Seller at the Effective Time under contracts or
arrangements with such GBO Provider, then Seller shall promptly pay to Unicare
the amount by which the discount available to Seller exceeds the discount, if
any, available to such subscriber.
(d) Seller shall on demand indemnify, defend and hold harmless
Buyer and its Affiliates, and their respective directors, officers and employees
from and against any and all demands, actions, proceedings, costs and
Liabilities (including, without limitation, the costs and expenses of defending
any and all actions, suits, proceedings, demands, assessments, judgments,
settlements and compromises and attorneys' fees in connection therewith), paid
or incurred, resulting from, arising out of or relating to Seller's failure to
have appropriately credentialed the GBO Providers; provided, however, that
Seller's obligation to indemnify Buyer shall be limited to claims arising prior
to Closing and the one hundred eighty (180) day period following Closing. The
Liability of Seller pursuant to this Section 5.12(d) shall not be subject to the
threshold articulated in Article XIV, but shall be measured from the first
dollar.
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ARTICLE VI
COVENANTS OF BUYER
Section 6.1 Updating of Information. From the date hereof
until the Closing Date, Buyer will (i) keep Seller informed of the progress of
all regulatory and other filings required to be made by Buyer pursuant to
Section 6.4 and 7.3 and (ii) promptly inform Seller in writing of Buyer's
knowledge of the occurrence or failure to occur of any action or event that
would violate its representations or warranties hereunder or render them
inaccurate as of the date hereof, or would constitute a breach of any covenant
of Buyer hereunder or a failure of any condition to the obligations of Buyer
hereunder.
Section 6.2 Post-Closing Access by Seller. Buyer shall, and
shall cause its Affiliates to, permit Seller and its authorized representatives
at all reasonable times, without unreasonable disruption of the normal
operations of the GBO Included Business, to have access to and to examine all
premises, properties, files, books, documents, records, financial and tax
information (including working papers and data in the possession of Buyer's
independent financial accountants, internal audit reports and "management
letters" from such accountants with respect to the systems of internal control
of the GBO Included Business), computerized information and other information
(including the right to make extracts therefrom or copies thereof at Seller's
sole cost and expense) in connection with (i) any audit or other investigation
by any Taxing Authority or any required reports or submissions to any
Governmental Entity with respect to the GBO Included Business, (ii) Third Party
Claims (as defined in Section 14.2) and investigations and insurance relating
thereto and (iii) litigation relating to the GBO Included Business and involving
the Seller and (iv) transitional matters and activities of any of the GBO
Subsidiaries pursuant to Article VIII; provided, however, compliance by Buyer
with provisions of this Section 6.2 shall not constitute a waiver of Buyer's
attorney-client privilege. Buyer shall, and shall cause its Affiliates to,
preserve and maintain such files, books, documents, records, financial and tax
information, computerized information and other information for the greater of
(A) the period during which Buyer may make a claim against Seller for
Indemnifiable Losses (as defined in Section 14.1) hereunder or (B) five (5)
years and, thereafter, shall dispose of the same only after it shall have given
Seller prior notice of such disposition and the opportunity to remove and retain
such files, books, documents, records, financial and tax information,
computerized information and other information. Buyer shall, and shall cause its
Affiliates to, permit Seller or its representatives, to the extent reasonably
necessary or desirable, to consult with GBO Employees concerning all financial
and operational matters in connection with proceedings, claims and requirements
described in clauses (i), (ii), (iii) and (iv) above.
Section 6.3 Regulatory Filings, etc.
(a) Buyer shall use all reasonable efforts to cause Unicare to
prepare and file with the Department of Insurance of the State of Delaware (the
"Delaware Department"), as promptly as practicable, such documentation which
Buyer, acting in good faith, believes is reasonably necessary to obtain Delaware
Department's review of Unicare's application to reinsure the Coinsured Policies.
(b) Buyer shall use all reasonable efforts to prepare and file
such documentation which Buyer, acting in good faith, believes is reasonably
necessary to obtain approval of the acquisition of CCI under statutes providing
for regulation of utilization review agents.
(c) Buyer shall use all reasonable efforts to prepare and
file, or to cause its Affiliates to prepare and file, as appropriate, as
promptly as practicable, all applications, forms and other documentation related
to the approvals and consents contemplated by Section 3.3 which Seller, acting
in good faith, believes to be reasonably necessary in order (i) to notify the
applicable Governmental Entity,
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and (ii) if applicable, to obtain a review by and a decision from the applicable
Governmental Entity in connection with the consummation of the transactions
contemplated hereby.
ARTICLE VII
JOINT COVENANTS
Section 7.1 Filings and Notices; Approvals and Consents.
(a) Seller and Buyer will, as promptly as practicable after
the execution and delivery of this Agreement (or at or prior to the date
otherwise agreed herein), cooperate to make and give all governmental filings
and governmental and third party notices (and to provide requested information
supplemental thereto) required to be made or given by Seller or Buyer, including
those described in Sections 2.7 and 3.3 and on Schedule 11.5 in order to
consummate the transactions contemplated by this Agreement. Any such filing, and
any supplemental information requested by the relevant Governmental Entity in
connection therewith, shall be in substantial compliance with the requirements
of such Governmental Entity. Seller and Buyer will keep each other apprised of
the status of the governmental approval process and of any communications with,
and any inquiries or requests for additional information from, the relevant
Governmental Entity, and will comply promptly with any such inquiry or request.
Seller and Buyer will use their respective reasonable best efforts to promptly
obtain all such governmental approvals and third party consents.
(b) Seller and Buyer will furnish to each other such necessary
information and reasonable assistance as either party may request in connection
with its preparation of any filing or submission to be made in accordance with
this Section 7.1.
Section 7.2 Policyholder Confidentiality. Buyer and Seller
agree to maintain the confidentiality of all records and other information
relating to customers and plan participants of the GBO Included Business in
accordance with applicable laws.
Section 7.3 Form and Rate Filings. Buyer, with Seller's
cooperation, will, as soon as possible after the execution of this Agreement,
proceed or cause its Affiliates to proceed with the necessary regulatory filings
and applications so that Buyer may begin conducting the GBO Included Business
directly through Buyer and its Affiliates, as appropriate. Such filings and
applications shall include, but are not limited to, making form and rate filings
in all jurisdictions where such filings are required for the conduct of the GBO
Included Business. Buyer, with Seller's cooperation, will use reasonable efforts
to obtain approval of such forms and rates as promptly as possible. For purposes
of this Section 7.3, "reasonable efforts" shall include, but not be limited to,
the use of reference filings, where appropriate, with respect to policy forms
and rates.
ARTICLE VIII
TRANSITIONAL MATTERS
Section 8.1 GBO Included Business Real Property. At the
Closing, Seller and Unicare shall enter into the Lease Agreements, which provide
the terms and conditions concerning Unicare's occupancy of the premises in the
Seller's Facilities where the GBO Included Business is conducted.
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Section 8.2 Certain Support Services. Following the Closing,
Seller will also make available to Unicare certain data processing and other
support services pursuant to the terms of the Service Agreement to be entered
into by Seller and Unicare at the Closing.
Section 8.3 Reinsurance.
(a) At the Effective Time, Unicare shall reinsure Existing GBO
Policies on a coinsurance basis pursuant to the terms and conditions of the
Coinsurance Agreement, which Seller and Unicare will enter into at the Closing.
(b) After the Effective Time, Seller agrees to issue
Transition GBO Policies as requested by Unicare, which shall automatically and
immediately be 100% coinsured by Unicare pursuant to the terms and conditions,
and subject to the limitations, set forth in the Coinsurance Agreement.
(c) From and after the Effective Time, Unicare shall provide
to Seller all necessary administrative and other services with respect to the
Coinsured Policies in accordance with the terms and conditions of the
Administration Agreement which Seller and Unicare will enter into at the
Closing.
(d) After the Effective Time, Seller and Unicare will
cooperate in obtaining all required insurance regulatory approvals, transmitting
notices to policyholders and obtaining any required policyholder consents, for
the assumption reinsurance of Coinsured Policies on the terms and conditions,
and subject to the limitations, set forth in the Assumption Reinsurance
Agreement which Seller and Unicare will enter into at the Closing. Any such
assumption reinsurance will be effected in a manner creating a novation and
complete release of liability (subject to the terms of the Assumption
Reinsurance Agreement) of Seller under the Coinsured Policies being assumption
reinsured, with Unicare being substituted as the insurer thereunder.
Section 8.4 Transitional Marketing Arrangements. In order to
assist in effectively implementing the reinsurance arrangements described in
Section 8.3(b), Seller will permit Unicare and its Affiliates to market the
Coinsured Policies during the Transition Period using Seller's Insurance Policy
forms and other marketing materials used in the conduct of the GBO Included
Business and to utilize the Names as permitted in the License Agreement and the
Administration Agreement to be entered into by Seller and Unicare at the
Closing.
Section 8.5 Use of Name Post-Closing. The rights of Unicare
and its Affiliates to use the Names following the Closing Date will be governed
by the terms of the License Agreement.
Section 8.6 Change of HASG Name. The name of HASG shall be
changed to remove any reference to "Hancock" before the Closing.
Section 8.7 Lease of Furniture, Fixtures and Equipment.
(a) Subject to the provisions of this Section 8.7, Seller
hereby grants to Buyer or its assignee (and by its acceptance of any such
assignment, such assignee shall be deemed to have agreed to the terms and
conditions of this Section 8.7), a license to use all furniture, fixtures and
equipment (the "Leased Equipment") held under the Leases (as hereinafter
defined) for use by the GBO Employees in operating the GBO Included Business and
identified pursuant to the Inventory to be conducted by Buyer pursuant to
subsection (d) below for the period commencing on the Closing Date and ending
eight (8) years thereafter (the "Use Period"). Such license shall be (i)
revocable to the extent, and only to the extent, set forth in this Section 8.7,
and (ii) without additional cost to Buyer or its assignee. All costs
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and expenses of Seller under the Leases shall be borne solely by Seller and none
of such costs and expenses shall be borne by Buyer or its assignee.
(b) For purposes of this Section 8.7, (i) the term "Lease"
means the 1987 Lease or the 1988 Lease, as the case may be; (ii) the term
"Leases" means the 1987 Lease and the 1988 Lease; (iii) the term "1987 Lease"
means that certain Lease Agreement dated as of December 23, 1987 between JHM
Funding, Inc. as lessor (the "Lessor") and Seller as lessee, as amended by
Amendment No. 1 dated as of November 17, 1988 and Amendment No. 2 dated as of
November 30, 1994, and as further amended, supplemented or modified from time to
time; and (iv) the term "1988 Lease" means that certain Lease Agreement dated as
of November 17, 1988 between the Lessor as lessor and Seller as lessee, as
amended by Amendment No. 1 dated as of November 30, 1994, and as further
amended, supplemented or modified from time to time. Buyer acknowledges that it
has been provided with a copy of the Leases as in effect on the date hereof,
that it has reviewed same and is familiar with the terms thereof, and that some
of the Leased Equipment is leased to Seller under the 1987 Lease and some of the
Leased Equipment is leased to Seller under the 1988 Lease. Subject to the terms
of subsection (f) below, Seller agrees to deliver to Buyer a copy of any
amendment, supplement or modification of each Lease reasonably promptly after
the same shall have become effective.
(c) Buyer agrees that, without Seller's prior written consent,
which shall not be unreasonably withheld or delayed (it being agreed that the
refusal of the Lessor to grant any consent required under the Leases shall
constitute a reasonable basis to withhold consent), it shall (i) not have any
right to assign, sublease or relinquish possession of the Leased Equipment to
any party (other than to Unicare); (ii) not change the location of the Leased
Equipment; and (iii) not do, or omit to do, any act or omission which would
constitute an Event of Default under either or both of the Leases.
(d) As soon as reasonably practical after the Closing, Buyer
shall cause a physical inventory (the "Inventory") to be taken of the Leased
Equipment solely for the purpose of locating and identifying the Leased
Equipment and for no other purpose, and upon completion thereof shall promptly
provide a certified copy of the Inventory to Seller. Such Inventory shall be
completed at the expense of Buyer. Seller shall cooperate in all reasonable
respects with Buyer in connection with the taking of the Inventory.
(e) On the last day of the Use Period or such earlier date as
may be specified by Buyer from time to time as to all or any portion of the
Leased Equipment, Buyer or its assignee shall make available to Seller the
Leased Equipment or portion of the Leased Equipment, as the case may be, at the
same location as the Leased Equipment, or particular piece of Leased Equipment,
shall have been delivered to Buyer on the Closing Date or such other location
where such Leased Equipment shall be located at such time (after having received
consent to the move of the Leased Equipment in accordance with subsection (c)
above) in the same condition as received, reasonable wear and tear excepted.
Upon termination of use by Buyer or its assignee, Buyer or its assignee shall
give at least 30 days' advance notice to Seller of such termination, and it
shall be Seller's responsibility to remove or recover the Leased Equipment and
bear all costs associated with its return to the Lessor.
(f) Buyer hereby acknowledges and agrees that its rights under
this Section 8.7 to use the Leased Equipment are expressly subject and
subordinate to the provisions of the Leases and are subject to termination upon
termination of either or both of the Leases for any reason permitted thereunder,
and neither the provisions of this Section 8.7 nor the use of the Leased
Equipment by Buyer hereunder shall in any way be construed as a modification or
limitation of any right or power the Lessor may have under the Leases.
Notwithstanding the foregoing, however, (i) Buyer shall have a right of quiet
enjoyment with respect to the Leased Equipment during the Use Period on the
terms and conditions
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provided in the Leases without any interference from Seller or the Lessor or
anyone claiming through or under Seller or the Lessor, (ii) Seller shall not
propose or consent to any amendment, modification or termination of any term of
the Leases during the Use Period that would materially adversely impact the
right of Buyer or its assignees to use the Leased Equipment during the Use
Period, and (iii) Seller shall comply in all material respects with its
obligations under the Leases.
(g) All Leased Equipment shall be delivered in "as-is"
condition, and is located in the premises covered by the Lease Agreements and
the Lease Assignments, without material diminution from the date hereof.
(h) The provisions of this Section 8.7 shall survive the
Closing indefinitely.
Section 8.8 Transfer of MIS Software. Seller shall transfer to
Unicare all computer hardware used exclusively in the GBO Included Business, and
all the software applications, programs and licenses used exclusively in the GBO
Included Business (including without limitation those listed in Attachment 1 to
Appendix C to the Service Agreement), which hardware and software are owned by
Seller, as a part of the GBO Division Assets. Seller shall provide under the
Service Agreement on the terms set forth therein such computer hardware as is
used by Seller in both its GBO Included Business and its other businesses and
software applications, programs and licenses included in the Shared Contracts.
Seller shall also transfer, license or otherwise provide to Buyer all other
software applications, programs and licenses from third parties and used by
Seller in the conduct of the GBO Business, (including without limitation those
listed in Attachment 1 to Appendix C to the Service Agreement) (together with
the owned software described in the first sentence of this Section 8.8, the "MIS
Software"), as shall be reasonably necessary, together with the transferred
owned hardware and software (but excluding Shared Contracts and Seller's
mainframe computer), for Buyer to operate the management information, accounting
and billing systems currently operated by the GBO Included Business at a level
of functionality comparable to that enjoyed by the GBO Included Business at the
time of Closing, but not an increased level of functionality associated with an
increased number of employees or volume of the GBO Included Business and not at
locations not occupied by the GBO Included Business at the time of Closing. In
making and arranging for such transfer, Seller agrees that it will be
responsible for (i) any one-time charge imposed on Buyer or Seller by the vendor
of any such Shared Contracts or MIS Software in connection with the transfer to
Buyer thereof or the provision of services by Seller under the Service Agreement
and (ii) any increase in the periodic payments of license costs and other
charges associated with any such Shared Contracts or MIS Software imposed on
Buyer by the vendor thereof during the two-year period following the Closing (or
following the transfer in the case of MIS Software transferred to Buyer) above
the license cost and other charges imposed by such vendor on Seller prior to the
Closing, in each case, arising solely as a result of the consummation of the
transactions contemplated by this Agreement and not attributable to an increase
in the number of employees of the GBO Included Business or a change in the
volume of business or a second or subsequent change in the location of the GBO
Business after the relocation from the Berkeley Headquarters Building.
Section 8.9 Commissions and Expenses Due. All commissions and
expenses due with respect to third party reinsurers which are included in the
Closing GAAP Balance Sheet and are not collected within three hundred sixty-five
(365) days of the day on which such commissions and expenses shall have become
due under their original terms shall be transferred back to Seller, and Seller
concurrently with such transfer shall pay Buyer therefor the amount at which
such items shall have been included in the Closing GAAP Balance Sheet. Buyer
shall attempt in good faith, using commercially reasonable efforts, (i) during
the three hundred sixty-five (365) day period following the Closing to collect
or settle such commissions and expenses due, and (ii) during the period
following such three hundred sixty-five (365) days to collect or settle from the
applicable third party reinsurer any amounts represented by amounts transferred
to Seller pursuant to the preceding sentence. Any amounts collected or settled
by Buyer under clause (ii) above shall be remitted promptly to Seller.
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Section 8.10 Seller Life and Health Account. In order to
ensure life and health coverage for Seller's employees for the next calendar
year, both Seller and Buyer agree that for a period beginning as of the Closing
and ending on the first anniversary of the Effective Time, Seller shall contract
with Buyer or an Affiliate of Buyer to serve as the provider of life insurance
and health insurance and/or administrative services relating thereto for those
of the Seller's employee benefit plans that are currently insured or serviced by
the Seller (excluding long term care services), which contract shall contain the
performance standards set forth in Schedule 8.10. Seller represents and
covenants to Buyer that the performance standards set forth on such Schedule
8.10 represent the performance standards presently being complied with or
exceeded by Seller in connection with its servicing of Seller's employee benefit
plans and will be complied with or exceeded by Seller as of the Effective Time.
Seller and Buyer shall work together in good faith prior to the Closing to set
rates for such insurance and benefits that will permit Buyer to maintain a level
of profitability on a per member basis and permit Seller to establish a level of
expenses payable to the Buyer on a per member basis that are substantially
equivalent to the level of profitability and expenses currently earned and
sustained by Seller with respect thereto. At the end of this period, both Seller
and Buyer agree to negotiate, in good faith, regarding additional periods of
coverage for Seller's employees.
ARTICLE IX
CERTAIN TAX MATTERS
Seller and Buyer hereby covenant and agree with respect to
certain tax matters as follows:
Section 9.1 Section 338(h)(10) Election.
(a) With respect to the acquisition of the GBO Subsidiaries
Shares hereunder, (i) Buyer shall make a timely election under Section 338(g) of
the Code and any corresponding elections under state and local tax laws with
respect to the acquisition hereunder of such GBO Subsidiaries Shares, and Seller
and Buyer shall jointly make a timely election under Section 338(h)(10) of the
Code and any corresponding elections under state and local tax laws
(collectively, the "Election") with respect to such acquisition, (ii) Seller and
Buyer shall, as promptly as practicable following the Closing Date, cooperate
with each other to take all actions necessary and appropriate (including filing
such forms, returns, elections, schedules and other documents as may be
required) to effect and preserve a timely Election in accordance with Section
338 of the Code or any successor provisions (and all corresponding state and
local tax laws) and (iii) Seller and Buyer shall report the sale and acquisition
of the GBO Subsidiaries Shares pursuant to this Agreement consistent with the
Election.
(b) In connection with the Election, within sixty (60) days of
Closing, Seller shall provide to Buyer a schedule which sets forth the tentative
allocation (the "Tentative Allocations Schedule") of the Purchase Price (i)
between the Assets other than the GBO Subsidiaries Shares and the GBO
Subsidiaries Shares and (ii) a further allocation of the amount assigned to the
GBO Subsidiaries Shares among the assets held by the GBO Subsidiaries in a
manner that is consistent with the preliminary estimated Modified Aggregate
Deemed Sales Price and the Adjusted Gross-Up Basis resulting from the Election.
Buyer and Seller acknowledge that the allocations contained in the Tentative
Allocations Schedule will be revised to reflect the actual Purchase Price, which
allocations shall take into account the post-closing adjustment to the Purchase
Price pursuant to Section 1.5 hereof. As soon as practicable, but no later than
30 days after the Closing GAAP Balance Sheet becomes final pursuant to Section
1.5, Seller shall provide to Buyer a final revised allocation (the "Final
Allocations Schedule") of the amounts allocated in the Tentative Allocation
Schedule. Such allocations shall be made in accordance with
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Section 338(b) and Section 338(h)(10) of the Code and any applicable Treasury
Regulations, provided, however, that Buyer will be entitled to add its
transaction costs to the Adjusted Grossed- Up Basis of the GBO Subsidiaries
Shares for purposes of allocating such Adjusted Grossed-Up Basis among the GBO
Included Assets held by the GBO Subsidiaries, and Seller will be entitled to
take into account its transaction costs when calculating its gain or loss from
the sale of the Assets. Buyer shall have the right to review the Final
Allocation Schedule, and Seller and Buyer shall consult and resolve in good
faith any issues arising as a result of Buyer's review of such schedule. If the
parties accept the Final Allocation Schedule, it shall be final and binding on
the parties. However, if the parties are unable to resolve any dispute within
fifteen (15) Business Days of the receipt by Buyer or Seller of the Final
Allocation Schedule, the parties shall jointly request Coopers & Lybrand, or
other independent accountants agreed by the parties, to resolve any issue in
dispute as promptly as possible, with one-half of the costs of such resolution
to be borne by each of Seller and Buyer. The determination made by such
independent accountants shall be final and binding upon the parties hereto. If
such independent accountants are unable to make a determination with respect to
any dispute prior to the due date for the filing of any Tax Return for which
such determination is necessary, Buyer and Seller shall file such Tax Return
without such determination having been made, subject, however, to the parties'
obligation thereafter to file amended Tax Returns reflecting the final decision
of the independent accountants.
Section 9.2 Returns; Indemnification; Liability for Taxes.
(a) Seller shall prepare and file (or cause to be prepared and
filed) on a timely basis all Tax Returns with respect to the GBO Subsidiaries
for all taxable periods ending on or before the Closing Date ("Seller Tax
Returns") and shall pay, and shall indemnify and hold Buyer harmless against and
from (i) all Taxes of the GBO Subsidiaries for all taxable years or periods
which end on or before the Closing Date; (ii) all Taxes for all taxable years or
periods of all members (other than the GBO Subsidiaries) of any affiliated group
of which the GBO Subsidiaries is or has been a member prior to the Closing Date;
and (iii) with respect to any taxable period commencing before the Closing Date
and ending after the Closing Date (a "Straddle Period") all Taxes of the GBO
Subsidiaries attributable to the portion of the Straddle Period prior to and
including the Closing Date (the "Pre-closing Period"). For purposes of this
Agreement, the portion of any Tax that is attributable to the Pre-closing Period
shall be (i) in the case of a Tax that is not based on net income, gross income,
premiums or gross receipts, the total amount of such Tax for the period in
question multiplied by a fraction, the numerator of which is the number of days
in the Pre-closing Period, and the denominator of which is the total number of
days in such Straddle Period, and (ii) in the case of a Tax that is based on any
of net income, gross income, premiums or gross receipts, the Tax that would be
due with respect to the Pre-closing Period if such Pre-closing Period were a
separate taxable period, except that exemptions, allowances, deductions or
credits that are calculated on an annual basis (such as the deduction for
depreciation or capital allowances) shall be apportioned on a per diem basis.
For purposes hereof, all Taxes which are the subject of this Article IX arising
out of the transaction contemplated by Article I hereof, including Taxes
resulting from the Election, shall be deemed to be Taxes attributable to the
Pre-closing Period.
(b) Buyer shall prepare and file (or cause to be prepared and
filed) on a timely basis all Tax Returns of the GBO Subsidiaries relating to
periods ending after the Closing Date and shall pay, and, except as provided in
subsection (c) hereof, shall indemnify and hold Seller harmless against and from
(i) all Taxes of the GBO Subsidiaries for any taxable year or period commencing
after the Closing Date; and (ii) all Taxes of the GBO Subsidiaries for any
Straddle Period other than Taxes attributable to the Pre-closing Period.
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(c) Notwithstanding any other provision of this Article IX,
Seller shall indemnify and hold Buyer and the GBO Subsidiaries harmless against
any guarantee fund assessment to the extent that it is based upon premiums
written prior to Closing.
(d) In the event that any refunds are paid or made available
by any Taxing Authority (or other Governmental Entity) that relate to any
guarantee fund assessment that was indemnified by Seller or any of its
Affiliates pursuant to Section 9.2(c) hereof, Buyer shall cause such refunds to
be repaid to Seller, in accordance with the provisions of Section 9.3(d) hereof.
(e) In the event that any guarantee fund assessment that was
indemnified by Seller or any of its Affiliates pursuant to Section 9.2(c) hereof
gives rise to a credit against any liability for Tax of Buyer or any Affiliate
of Buyer, Buyer shall cause the amount of such credit to be paid to Seller as
such credit becomes available to Buyer or any of its Affiliates to reduce any
such liability for Tax, in accordance with the provisions of Section 9.3(d)
hereof.
Section 9.3 Cooperation; Refunds and Credits.
(a) All refunds or credits of Taxes for or attributable to
taxable years or periods of the GBO Subsidiaries ending on or before the Closing
Date (or the Pre-closing Period, in the case of a Straddle Period) shall be for
the account of Seller; all other refunds or credits of Taxes for or attributable
to the GBO Subsidiaries shall be the account of Buyer. Following the Closing,
Buyer shall cause the GBO Subsidiaries to forward to Seller any such refunds or
credits due Seller pursuant to this Section 9.3(a) after receipt or realization
thereof by Buyer, and Seller shall forward (or cause to be forwarded) to Buyer
any refunds or credits due to Buyer pursuant to this Section 9.3(a) after
receipt or realization thereof by Seller, in each case in accordance with the
provisions of Section 9.3(d) hereof.
(b) If an audit examination of any Tax Return of Seller or its
Subsidiaries for any taxable period ending on or before the Closing Date shall
result (by settlement or otherwise) in any adjustment the effect of which is to
increase deductions, losses or tax credits or decrease income, gains, premiums,
revenues or recapture of tax credits ("Changes") reflected on a Tax Return of
Buyer, CCI and its Subsidiaries for any taxable period ending after the Closing
Date, Seller will notify Buyer and provide it with all necessary information so
that it can reflect on the appropriate Tax Return of Buyer any appropriate
Changes. If as a result of such Changes, Buyer or its Subsidiaries enjoy a net
Tax benefit from an increase in deductions, losses or tax credits and/or a
decrease in income, gains, premiums, revenues or recapture of tax credits
("Buyer Benefits") for taxable periods ending after the Closing Date, Buyer
shall pay to Seller the amount of such Buyer Benefit, as and when such Buyer
Benefits are realized by Buyer in accordance with Section 9.3(d) hereof.
(c) If an audit examination of any Tax Return of Buyer or its
Subsidiaries for taxable periods ending after the Closing Date shall result (by
settlement or otherwise) in any Change reflected on a Tax Return of Seller or
its Subsidiaries for any taxable periods ending on or before the Closing Date,
Buyer will notify Seller and provide it with all necessary information so that
Seller can reflect any appropriate Changes on its Tax Return. If as a result of
such Changes, Seller or its Subsidiaries enjoy a net Tax benefit from an
increase in deductions, losses or tax credits and/or a decrease in the income,
gains, premiums, revenues or recapture of tax credits ("Seller Benefits") for
taxable periods ending on or before the Closing Date, Seller shall pay to Buyer
the amount of such Seller Benefits as and when such Seller Benefits are realized
by Seller, in accordance with Section 9.3(d) hereof.
(d) Any payments of refunds or credits for Taxes, or any
payment of Buyer Benefits or Seller Benefits, that are required to be paid under
this Article IX hereof shall be made within ten (10)
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Business Days of the receipt of any refund or thirty (30) Business Days of the
realization of any tax benefit, as the case may be. Any payments not made within
such time period shall be subject to an interest charge of ten percent (10%) per
annum.
Section 9.4 Termination of Tax Sharing Agreements. Seller and
Buyer hereby agree and covenant that any obligation of or to GBO Subsidiaries
pursuant to any tax sharing agreement or any similar arrangement in effect at
the Closing Date shall be paid on or before the Closing Date and any further
obligations otherwise existing thereunder shall be extinguished on the Closing
Date.
Section 9.5 Conduct of Audits and Other Procedural Matters.
Each party shall, at its own expense, control any audit or
examination by any Taxing Authority, and have the right to initiate any claim
for refund or amended return, and contest, resolve and defend against any
assessment, notice of deficiency or other adjustment or proposed adjustment of
Taxes ("Proceedings") for any taxable period for which that party is charged
with payment or indemnification responsibility under this Agreement. Each party
shall promptly forward to the other in accordance with Section 15.3 copies of
all written notifications and other written communications, including if
available the original envelope showing any postmark, from any Taxing Authority
received by such party or its Affiliates relating to any liability for Taxes for
any taxable period for which such other party or any of its Affiliates is
charged with payment or indemnification responsibility under this Agreement and
each indemnifying party shall promptly notify, and consult with, each
indemnified party as to any action it proposes to take with respect to any
liability for Taxes for which it is required to indemnify another party and
shall not enter into any closing agreement or final settlement with any Taxing
Authority with respect to any such liability without the written consent of the
indemnified parties, which consent shall not be unreasonably withheld. In the
case of any Proceedings relating to any Straddle Period, Buyer shall control
such Proceedings and shall consult in good faith with Seller as to the conduct
of such Proceedings. Seller shall reimburse Buyer for such portion of the costs,
including legal costs, of conducting such Proceedings as is represented by the
portion of the Tax with respect to such Straddle Period for which Buyer is
liable pursuant to Section 9.2 hereof. Each party shall, at the expense of the
requesting party, execute or cause to be executed any powers of attorney or
other documents reasonably requested by such requesting party to enable it to
take any and all actions such party reasonably requests with respect to any
Proceedings which the requesting party controls. The failure by a party to
provide timely notice under this Section 9.5 shall relieve the other party from
its obligations under this Article IX with respect to the subject matter of any
notification not timely forwarded, to the extent the other party has suffered a
loss or other economic detriment because of such failure to provide notification
in a timely fashion.
Section 9.6 Resolution of Disagreements Among Parties. If
Seller and Buyer disagree as to the matters governed by this Article IX, Seller
and Buyer shall promptly consult with each other in an effort to resolve such
dispute. If any such disagreement cannot be resolved within twenty (20) Business
Days of the date of initial consultation, Seller and Buyer shall jointly request
such independent accountants as shall be mutually agreed by the parties, to
resolve any issue in dispute as promptly as possible, with one-half of the costs
of such resolution to be borne by each of Buyer and Seller. The determination
made by such accountants shall be final and binding upon the parties hereto.
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ARTICLE X
GBO EMPLOYEES
Section 10.1 GBO Employees.
(a) Buyer or Unicare will make an offer of employment to each
employee of the GBO Included Business who is an "active employee" as of the
Effective Time; provided that Buyer may terminate at any time following the
Closing Date the employment of any employee who accepts such offer and may
change or alter the terms of such employment at any time following the Closing
Date. For purposes of this Agreement, the term "active employee" shall mean any
Person who, at the Effective Time, is actively employed by Seller in the GBO
Included Business (including, without limitation, part-time employees) or who is
on short-term disability leave, personal unpaid leave or family medical leave,
as of the Effective Time (such employees on short-term disability, personal
unpaid leave or family medical leave shall be offered employment by Buyer as of
the date they return to active employment provided that Buyer shall not be
responsible for holding more than fifty-five (55) positions open for persons on
short-term disability, personal unpaid leave or family medical leave as of the
Effective Time), but shall exclude all other Persons. Any such offers of
employment with Buyer shall generally be on the terms and conditions as
described in this Agreement; provided, however, that Buyer will be permitted to
make appropriate adjustments and modifications to such terms and conditions in
the instances where in good faith it believes such adjustment or modification
shall be necessary in order to integrate such employees into the existing Buyer
workforce and management structure; and provided further that Buyer shall not be
required to offer any post-retirement medical or health benefits to such
employees. Notwithstanding anything contained in this Section 10.1(a) to the
contrary, Buyer's offer of employment shall include compensation for such
employees at the same base salary as received by such employees as of the
Effective Time and such employees shall have the same responsibilities and title
(except as otherwise previously disclosed to Seller) as they had with Seller as
of the Effective Time. Each Transferring Employee's vacation days available in
1997 shall be at least equal to the number of days that would have been
available for 1996 if the Transferring Employee were employed by the Buyer for
the full year, counting all of the Transferring Employee's service with Seller
as service for the Buyer. Buyer shall recognize all service with Seller of those
employees of the GBO Included Business who accept employment with Buyer (a
"Transferring Employee") for purposes of vesting and eligibility to participate
in Buyer's vacation, pension, 401(k), severance (which will become effective 180
days after the Effective Time) and sick pay programs and for vesting purposes
under Buyer's pension plan. The pre-existing condition requirements of Buyer's
medical benefit plans and the evidence of insurability requirements of Buyer's
group term life insurance program shall be waived for Transferring Employees.
The parties agree to cooperate in the period prior to Closing with respect to
employment transition matters that may arise and with respect to issues that may
arise in connection with such transition under the WARN Act.
Buyer and Seller agree that assets (including any outstanding
loans) equal to all of the account balances of the Transferring Employees
(except for Transferring Employees who are eligible for retirement under
Seller's Pension Plans and who elect not to have their account balances
transferred) in any Seller defined contribution pension plan will be
transferred, in trustee-to-trustee transfer, to Buyer's 401(k) plan pursuant to
applicable law. Buyer's 401(k) plan shall accept such transfers which shall
occur as soon as reasonably possible subsequent to the contribution of Seller's
profit sharing contribution to its defined contribution pension plan for the
1996 calendar year. Buyer has provided Seller with a copy of the most recent
favorable determination letter issued by the Internal Revenue Service with
respect to Buyer's 401(k) plan and Buyer represents that nothing has occurred on
or prior to the transfers described in this Section 10.1 which will cause
Buyer's 401(k) plan to fail to be tax-qualified. Buyer and Seller
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shall cooperate in making, and shall make, all the appropriate filings required
under the Code and ERISA, and the regulations thereunder, and shall further
cooperate to ensure that the transfers described in this Section 10.1 satisfy
the applicable requirements of Sections 401(k), 414(l) and 401(a)(12) of the
Code and the regulations thereunder.
(b) Seller has adopted the modifications to its severance plan
in the manner previously disclosed to Buyer.
(c) Buyer shall reimburse Seller for one-half of any severance
costs (cash compensation and costs for payroll taxes, 401(k) plan contributions,
pensions and group health and life insurance ("Additional Benefit Costs") under
Seller's modified severance plan (a copy of which has been provided to Buyer)
that Seller may be required to pay to any employee of the GBO Included Business
who is offered employment by Buyer (or one of its Affiliates) at the time of
Closing, but who elects not to accept such offer and whose employment with
Seller terminates; provided, however, that Buyer's reimbursement obligation
pursuant to this subsection (c) shall not exceed $3,000,000 in the aggregate if
Buyer relocates employees at the Berkeley Headquarters Building to a location
within the Interstate 495 loop and Buyer provides to such relocated employees a
reasonable commute assistance program. There shall be no limitation on Buyer's
reimbursement obligation under this Section 10.1(c) if Buyer (i) relocates
employees at the Berkeley Headquarters Building to a location outside a 20-mile
radius from the Berkeley Headquarters Building and does not provide such a
reasonable commute assistance program, or (ii) relocates outside the area
bounded by the Interstate 495 loop corridor.
(d) Buyer shall reimburse Seller for three-quarters of any
severance costs (cash compensation and Additional Benefit Costs) that Seller may
be required to pay to any employee of the GBO Included Business who accepts
Buyer's offer of employment at the time of Closing but whose employment with
Buyer (or one of its Affiliates) is terminated without cause within six (6)
months after the Effective Time.
(e) Buyer shall reimburse Seller for amounts up to a maximum
of $5,000,000 that Seller may be required to pay or incur (including any
Additional Benefit Costs) with respect to payments to GBO Division Employees
under Seller's retention bonus plan (a copy of which has been furnished to
Buyer). With respect to payments to be made under pension plans attributable to
such retention bonus plan, Buyer shall pay Seller a lump sum payment equal to
the net present value of such future pension plan payments computed using a
discount rate equal to 7.5%. Such reimbursements or payments shall be made by
Buyer to Seller within five (5) Business Days after Buyer has received from
Seller a request for such reimbursement or payments together with such
information relating to the payments for which reimbursement or payments is
requested as shall be reasonably requested by Buyer.
(f) Except as set forth in this Section 10.1, Buyer shall have
no liability to any employee or any former employee of Seller or the GBO
Included Business or to Seller by reason of the past employment by Seller or its
affiliated company or by reason of any benefit plan including any severance or
disability plan for any of such employees and any retirement or post retirement
benefit plan of Seller; and Seller will indemnify and hold harmless Buyer
against any claim or Liability to any such employee by reason of such employment
or any such benefit arising by reason of service (or termination of service) at
any time up to and including the Closing Date. Except as expressly above
provided in this Section 10.1, it is the intention of the parties that all
accrued vacation of the Transferring Employees be paid on or prior to the
Closing Date by Seller and that bonus and other benefit amounts of the
Transferring Employees be paid when due by Seller. Seller shall have no
liability with respect to any Transferring Employee under an employee benefit
plan maintained by Buyer or any Affiliate of Buyer
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and Buyer will indemnify and hold harmless Seller against any claim or Liability
to any employee of Buyer (including Transferring Employees) with respect to such
employee benefit plans.
(g) Nothing herein shall be construed to cause any person to
be deemed to be other than an "at will" employee.
ARTICLE XI
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to consummate the transactions
contemplated by this Agreement at the Closing is subject to the satisfaction by
Seller or waiver by Buyer of the following conditions on or before the Closing
Date:
Section 11.1 Representations and Warranties Correct. All of
Seller's representations and warranties shall be true and correct in all
material respects on the date hereof and on the Closing Date as if made on such
date and the aggregate effect of all inaccuracies in Seller's representations
and warranties contained herein as of the date hereof shall not have had a
Material Adverse Effect (for this purpose treating each such representation
which has a Material Adverse Effect qualification as if it did not have such a
qualification). Buyer shall have received from appropriate officers of Seller a
certificate or certificates to such effect, in form and substance reasonably
satisfactory to Buyer.
Section 11.2 Performance; No Default. Seller shall have
performed and complied in all material respects with all the material
obligations, agreements and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing and Buyer shall have
received from appropriate officers of Seller a certificate or certificates to
such effect, in form and substance reasonably satisfactory to Buyer.
Section 11.3 Absence of Injunction. There shall be no order or
decree entered in any action or proceeding before a Governmental Entity of
competent jurisdiction restraining, enjoining or prohibiting the consummation of
this Agreement or the transactions contemplated hereby.
Section 11.4 Governmental Approvals. The consents, approvals,
permits and licenses (including any third party administrator and utilization
review authority) of Governmental Entities contemplated by Sections 2.7 and 3.3
shall have been obtained, or waiting periods referenced therein shall have
expired without adverse action, and no Governmental Entity having jurisdiction
over the business of Buyer shall have imposed any materially burdensome new
condition on Buyer. For purposes hereof, the imposition of a requirement to
maintain total adjusted capital at a level higher than 150% of "Company action
level" risk based capital by the Delaware Department, or the imposition of the
Delaware Department of other restrictions on ordinary dividends so long as such
total adjusted capital level is met, shall be considered materially burdensome.
Notwithstanding the provisions of the first sentence hereof, if notwithstanding
compliance with the terms of Section 7.1, any required relicensure contemplated
by Section 2.7(ii) has not been obtained prior to the Effective Time, such
failure to obtain relicensure shall not constitute a failure to satisfy the
condition set forth in this Section 11.4 unless such failure would have a
Material Adverse Effect with respect to the GBO Business.
Section 11.5 Consents. The consents and approvals of third
parties (other than Governmental Entities) set forth on Schedule 11.5 shall have
been obtained, and such consents and approvals shall not impose upon the Buyer
or the GBO Included Business any conditions or other
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requirements which would (i) cause the Buyer or the GBO Included Business any
material additional costs or (ii) materially interfere with the continued
operations of the GBO Included Business as it is presently conducted.
Section 11.6 Intercompany Accounts. Except as otherwise
provided in Section 5.10 hereof, there shall be no intercompany obligation of
the GBO Subsidiaries to Seller or its Affiliates reflected on the Closing GAAP
Balance Sheet.
Section 11.7 Transfer Taxes. Seller shall have paid, or caused
to be paid, all stock transfer and other transfer taxes required to be paid in
connection with the sale and delivery by Seller of the GBO Subsidiaries Shares
and the sale, assignment, transfer and conveyance of the GBO Included Assets, or
the execution, delivery and performance of contracts or agreements pursuant to
or contemplated by this Agreement and shall have caused all appropriate stock
transfer tax stamps to be affixed to the certificate or certificates
representing the GBO Subsidiaries Shares so sold and delivered.
Section 11.8 No Material Adverse Effect. No event shall have
occurred which shall have resulted or is reasonably likely to result in a
Material Adverse Effect with respect to the GBO Included Business; provided,
however, that the failure to obtain consent to the assignment of any or all GBO
Included Contracts (other than those GBO Included Contracts listed on Schedule
11.5) shall not constitute a Material Adverse Effect.
Section 11.9 Resignation of Directors. The directors of each
of the GBO Subsidiaries shall have resigned effective as of the Closing.
Section 11.10 Other Transactional Agreements. The License
Agreement, Coinsurance Agreement, Administration Agreement, Assumption
Reinsurance Agreement, Lease Agreements, Lease Assignments, and Service
Agreement shall have been entered into at Closing.
Section 11.11 Opinion of Counsel for Seller. Buyer shall have
received an opinion, dated the date of Closing, from Rogers & Wells, counsel to
the Seller, in form and substance reasonably satisfactory to Buyer.
ARTICLE XII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligation of Seller to consummate the transactions
contemplated by this Agreement at the Closing is subject to the satisfaction by
Buyer or waiver by Seller of the following conditions, on or before the Closing
Date:
Section 12.1 Representations and Warranties Correct. All of
Buyer's representations and warranties shall be true and correct in all material
respects on the date hereof and on the Closing Date as if made on such date, and
the aggregate effect of all inaccuracies in Buyer's representations and
warranties contained herein as of the date hereof shall not have had a Material
Adverse Effect (for this purpose treating each such representation which has a
Material Adverse Effect qualification as if it did not have such a
qualification). Seller shall have received from appropriate officers of Buyer a
certificate or certificates to such effect, in form and substance reasonably
satisfactory to Seller.
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Section 12.2 Performance; No Default. Buyer shall have
performed, observed and complied in all material respects with all the material
obligations and conditions required by this Agreement to be performed, observed
or complied with by it at or prior to the Closing, and Seller shall have
received from appropriate officers of Buyer a certificate to such effect, in
form and substance reasonably satisfactory to Seller.
Section 12.3 Absence of Injunction. There shall be no order or
decree entered in any action or proceeding before a Governmental Entity of
competent jurisdiction materially restraining, enjoining or prohibiting the
consummation of this Agreement or the transactions contemplated hereby.
Section 12.4 Governmental Approvals. Buyer shall have complied
with its obligations under Section 6.4, and the consents and approvals of
Governmental Entities contemplated by Section 2.7 shall have been obtained.
Section 12.5 No Material Adverse Effect. No event shall have
occurred which shall have resulted or is reasonably likely to result in a
Material Adverse Effect with respect to Buyer or Unicare.
Section 12.6 Other Transaction Documents. The License
Agreement, Coinsurance Agreement, Administration Agreement, Assumption
Reinsurance Agreement, Lease Agreements, Lease Assignments, and Service
Agreement shall have been entered into at Closing.
Section 12.7 Offers to GBO Employees. Buyer shall have made
the offers of employment to the GBO Employees required by Article X.
Section 12.8 Buyer Capital Contribution to Buyer. Buyer shall
have made a capital contribution, if necessary, to Unicare sufficient to provide
Unicare with a 150% Company Action Risk Based Capital level, and Seller shall
have received a certificate from the chief financial officer of Buyer certifying
to such effect, in form and substance reasonably satisfactory to Seller.
Section 12.9 Opinion of Counsel for Buyer. Seller shall have
received an opinion, dated the date of Closing, from Brobeck, Phleger & Harrison
LLP, counsel to the Buyer, in form and substance reasonably satisfactory to
Seller.
ARTICLE XIII
DELIVERIES AT CLOSING
At or prior to the Closing, the parties will deliver the
following documents or such documents in substitution therefor as are
satisfactory to the recipient:
Section 13.1 Deliveries by Seller. Seller will deliver to
Buyer:
(a) certificates representing all of the GBO Subsidiaries
Shares, accompanied by stock powers duly executed in blank or duly
executed instruments of transfer and any other documents that are
necessary to transfer to Buyer good title to all the GBO Subsidiaries
Shares free and clear of all Liens, including all required transfer and
documentary stamps;
(b) the certificates executed by officers of Seller provided
for in Sections 11.1 and 11.2;
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(c) duly executed counterparts of the GBO Conveyancing
Documents conveying title to all of the GBO Included Assets;
(d) the resignation of directors of each of the GBO
Subsidiaries;
(e) the Opinion of Counsel for Buyer;
(f) evidence, reasonably satisfactory in form and substance to
Buyer, of final unappealable approvals of the applicable Governmental
Authorities of the reinsurance of the Coinsured Policies required to be
obtained by Seller as contemplated by this Agreement;
(g) such other instruments and documents as may be reasonably
requested by, and in form and substance reasonably satisfactory to,
Buyer.
Section 13.2 Deliveries by Buyer. Buyer will deliver to
Seller:
(a) the Purchase Price;
(b) the certificates executed by officers of Buyer provided
for in Sections 12.1, 12.2 and 12.8;
(c) duly executed counterparts of the GBO Conveyancing
Documents;
(d) duly executed assumption and indemnification agreements in
connection with all the GBO Included Liabilities;
(e) the Opinion of Counsel for Seller;
(f) evidence, reasonably satisfactory in form and substance to
Seller, of final unappealable approvals of the Delaware Insurance
Department of the reinsurance of Coinsured Policies as contemplated by
this Agreement;
(g) such other instruments and documents as may be reasonably
requested by, and in form and substance reasonably satisfactory to,
Seller.
Section 13.3 Deliveries by Seller and Buyer. Seller and Buyer
shall each deliver:
(a) a duly executed counterpart of the Coinsurance Agreement;
(b) a duly executed counterpart of the Administration
Agreement;
(c) a duly executed counterpart of the Assumption Reinsurance
Agreement;
(d) a duly executed counterpart of the License Agreement;
(e) a duly executed counterpart of each of the Lease
Agreements;
(f) a duly executed counterpart of the Service Agreement; and
(g) a duly executed counterpart of each of the Lease
Assignments.
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ARTICLE XIV
INDEMNIFICATION
Section 14.1 Indemnification.
(a) Seller will indemnify, defend and hold harmless Buyer and
its Affiliates, and their respective directors, officers and employees from and
against any and all demands, actions, proceedings, suits (by any Person, entity
or group, including, without limitation, any Governmental Entity) and
Liabilities, paid or incurred, resulting from or arising out of any Third Party
Claim (as defined in Section 14.2 hereof) or Direct Claim (as defined in Section
14.3) (including, without limitation, the reasonable costs and expenses of
defending any and all actions, suits, proceedings, demands, assessments,
judgments, settlements and compromises arising out of Third Party Claims or
Direct Claims and reasonable attorneys' fees in connection therewith)
(individually and collectively "Buyer Indemnifiable Losses") relating to,
resulting from or arising out of any breach of any of the representations,
warranties, covenants or agreements of Seller contained in this Agreement;
provided, however, that Seller shall not have any Liability for such
indemnification (other than indemnification with respect to liabilities imposed
on Buyer in respect of GBO Excluded Liabilities, liability arising out of the
failure to obtain consent to assignment of any GBO Division Leases or GBO
Division Contracts and any amount payable pursuant to Section 1.2(b), liability
arising out of the failure to obtain consent to assignment or delegation of
duties of ASO Contracts and any amount payable pursuant to Section 1.3,
inability of Buyer to obtain discounts from GBO Providers pursuant to Sections
5.12(b) and 5.12(e), failure of Seller to have properly credentialed GBO
Providers pursuant to Section 5.12(d), failure to assign and transfer to Buyer
the hardware and MIS Software pursuant to Section 8.8 and covenants to be
performed after the Closing, including, without limitation, covenants to be
performed after the Closing pursuant to the Coinsurance Agreement, the
Assumption Reinsurance Agreement, the Administration Agreement, the Service
Agreement, the License Agreement, the Lease Agreements and the Lease Assignments
(the "Separate Transaction Documents") unless the aggregate of all Buyer
Indemnifiable Losses for which Seller would, but for this proviso, be liable
exceeds on a cumulative basis an amount equal to $2,500,000, in which case
Seller's Liability shall be only for such excess, but no more than the amount of
the Purchase Price.
(b) Buyer will indemnify, defend and hold harmless Seller and
its Affiliates, and their respective directors, officers and employees from and
against any and all demands, actions, proceedings, suits (by any Person, entity
or group, including, without limitation, any Governmental Entity) and
Liabilities, paid or incurred, resulting from or arising out of any Third Party
Claim or Direct Claim (including, without limitation, the reasonable costs and
expenses of defending any and all actions, suits, proceedings, demands,
assessments, judgments, settlements and compromises arising out of Third Party
Claims and Direct Claims, and reasonable attorneys' fees in connection therewith
(individually and collectively, "Seller Indemnifiable Losses") relating to,
resulting from or arising out of (i) any breach of any of the representations,
warranties, covenants or agreements of Buyer contained in this Agreement, and
(ii) any of the GBO Included Liabilities; provided, however, that Buyer shall
not have any Liability for such indemnification (other than indemnification with
respect to liabilities imposed on Seller in respect of GBO Included Liabilities
assumed by Buyer under the terms of the Transaction Documents, performance of
obligations under ASO Contracts pursuant to Section 1.3(b) and for covenants to
be performed after the Closing, including, without limitation, covenants to be
performed after the Closing pursuant to the Separate Transaction Documents)
unless the aggregate of all Seller Indemnifiable Losses for which Buyer would,
but for this proviso, be liable exceeds on a cumulative basis an amount equal to
$2,500,000, in which case Buyer's Liability shall be only for such excess.
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(c) Except as set forth in subsection (i) below, this Article
XIV shall be the exclusive remedy for Buyer and Seller, as the case may be,
relating to, resulting from or arising out of any breach by the other party of
any of the representations, warranties, covenants or agreements of such other
party contained in this Agreement. Indemnification under the indemnification
provisions contained in the Separate Transaction Documents is to be determined
in accordance with the terms of such Separate Transaction Documents.
(d) For purposes of this Agreement, "Indemnity Payment" means
any amounts of Indemnifiable Losses required to be paid pursuant to this Section
14.1.
(e) For purposes of this Agreement, "Indemnitee" means any
Person entitled to indemnification under this Agreement.
(f) For purposes of this Agreement, "Indemnifying Party" means
any Person required to provide indemnification under this Agreement.
(g) All statements contained herein or in any Schedule hereto,
or in any certificate delivered at the Closing, will be deemed representations
and warranties within the meaning of this Article XIV.
(h) No claim for Indemnifiable Losses made hereunder with
respect to any representation or warranty shall be made after expiration of the
survival period relating thereto set forth in Section 15.9.
(i) Notwithstanding any provisions of this Article XIV to the
contrary, the provisions of Sections 1.2(b), 1.3, 2.19, 3.4, 5.12 and 8.8 shall
be separate from and in addition to the obligations of the Buyer under this
Article XIV.
Section 14.2 Defense of Third Party Claims.
(a) If an Indemnitee receives notice of the assertion or
commencement, as the case may be, of any claim, demand, action, proceeding or
suit by any Person (including, without limitation, any Governmental Entity) who
is not a party to this Agreement or who is not an Indemnitee hereunder against
such Indemnitee, with respect to which any Indemnifying Party is obligated to
provide indemnification under Section 14.1 of this Agreement (a "Third Party
Claim"), the Indemnitee will give the Indemnifying Party prompt written notice
thereof. Such notice will describe the Third Party Claim in reasonable detail,
will be accompanied by all notices and documents (including court papers)
received by the Indemnitee with respect thereto and will indicate the estimated
amount, if practicable, of the Indemnifiable Loss that has been or may be
sustained by the Indemnitee. The Indemnifying Party will have the right to
participate in or, by giving written notice to the Indemnitee, to elect to
assume, the defense of any Third Party Claim at the Indemnifying Party's own
expense and by the Indemnifying Party's own counsel (which counsel will be
reasonably satisfactory to the Indemnitee) and the Indemnitee will, to the
extent requested, cooperate in good faith in such defense; provided, however,
that the Indemnitee may at its own expense retain separate counsel to
participate in such defense, it being understood, however, that if the
Indemnitee so chooses to participate in the defense, the Indemnifying Party
nevertheless shall be entitled to control the defense. The cooperation referred
to in the preceding sentence shall include the retention and (upon the
Indemnifying Party's reasonable request) the provision to the Indemnifying Party
of records and information which are reasonably relevant to such Third Party
Claim, and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder and
for testimony.
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(b) If an Indemnitee is given written notice from the
Indemnifying Party that such Indemnifying Party has elected to assume the
defense of any Third Party Claim, the Indemnifying Party will not be liable for
any legal expenses incurred by the Indemnitee after such notice is given in
connection with the defense thereof and the assumption of such defense by the
Indemnified Party; provided, however, that if the Indemnifying Party fails to
assume the defense of such Third Party Claim within thirty (30) calendar days
after receiving notice from the Indemnitee that the Indemnitee believes the
Indemnifying Party has failed to take such steps, the Indemnitee may assume its
own defense, and the Indemnifying Party will be liable for any reasonable
expenses therefor. Notwithstanding anything contained herein to the contrary,
the Indemnitee will have the right to employ separate counsel at the
Indemnifying Party's expense and to control its own defense of such action or
proceeding if the named parties to any such suit, action or proceeding include
both the Indemnifying Party and the Indemnitee and if representation of both
parties by the same counsel would be inappropriate because, in the reasonable
opinion of counsel to the Indemnitee, (i) there are or may be legal defenses
available to the Indemnitee that are different from or additional to those
available to the Indemnifying Party, or (ii) a conflict or potential conflict
exists between the Indemnifying Party and the Indemnitee; provided, however,
that the Indemnifying Party shall not, in connection with any one action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate counsel (in addition to
any local counsel) for all such Indemnities.
In the event that any Indemnifying Party does not elect to
assume the defense of any Third Party Claim in accordance with this Section
14.2, such Indemnifying Party will be obligated as provided in this Section 14.2
for all costs of defense of the Indemnitee.
The Indemnitee shall not knowingly or intentionally admit any
liability with respect to, or settle, compromise or discharge any Third Party
Claim prior to expiration of the 30-day period provided in the first paragraph
of this Section 14.2(b). If the Indemnifying Party shall elect not to assume the
defense of a Third Party Claim, the Indemnitee nevertheless will not enter into
a settlement, compromise or discharge of such claim without the consent of the
Indemnifying Party, which consent will not be unreasonably withheld. Without
obtaining a complete and unconditional release of the Indemnitee from any
further liability in respect of a Third Party Claim, the Indemnifying Party will
not enter into any settlement, compromise or discharge of such Claim without the
consent of the Indemnitee, which consent will not be unreasonably withheld.
(c) A failure to give timely notice as provided in this
Section 14.2 will not affect the rights or obligations of any party hereunder
except as provided in Section 14.1(g) and except and only to the extent that, as
a result of such failure, any party which was entitled to receive such notice
was deprived of its right to recover any payment under its applicable insurance
coverage or was adversely affected in its ability to defend a claim or there was
an increase in the amount of the Indemnifiable Losses which such party is
obligated to pay hereunder or such party was otherwise actually prejudiced as a
result of such failure.
(d) Upon making any Indemnity Payment, the Indemnifying Party
will, to the extent of such Indemnity Payment, be subrogated to all rights of
the Indemnitee against any third party in respect of the Indemnifiable Loss to
which the Indemnity Payment relates; provided, however, that until the
Indemnitee recovers full payment of its Indemnifiable Loss, any and all claims
of the Indemnifying Party against any such third party on account of said
Indemnity Payment are hereby made expressly subordinated and subjected in right
of payment to the Indemnitee's rights against such third party. Without limiting
the generality of any other provision hereof, each such Indemnitee and
Indemnifying
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Party will duly execute upon request all instruments reasonably necessary to
evidence and perfect the above-described subrogation and subordination rights.
Section 14.3 Direct Claims. In the event of any Indemnitee
should have a claim under this Article XIV against any Indemnifying Party that
does not involve a Third Party Claim (a "Direct Claim"), the Indemnitee shall
deliver a written notification of an Indemnifiable Loss under this Article XIV
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined in good
faith, of such Indemnifiable Loss (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party and, in any event, within the time period
referred to in Section 14.1(g). So long as Indemnitee provides the Indemnity
Notice within the time period referred to in Section 14.1(g), the failure by any
Indemnitee to give the Indemnifying Notice shall not impair such party's rights
hereunder except to the extent that an Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby or if the Indemnity Notice is not given.
If the Indemnifying Party notifies the Indemnitee that it does not dispute the
Indemnifiable Loss described in such Indemnity Notice or fails to notify the
Indemnitee within thirty (30) calendar days following receipt by an Indemnifying
party of an Indemnity Notice whether the Indemnifying Party disputes the
Indemnifiable Loss described in such Indemnity Notice, the Indemnifiable Loss in
the amount specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under Article XIV and the Indemnifying Party
shall pay the amount of such Indemnifiable Loss to the Indemnitee on demand. If
the Indemnifying Party has timely disputed its liability with respect to such
Indemnifiable Loss, the Indemnifying Party and the Indemnitee will proceed in
good faith to negotiate a resolution of such dispute, and if not resolved
through negotiations within the period ending sixty (60) calendar days following
receipt by the Indemnifying Party of the Indemnity Notice, such dispute shall be
resolved by a court of competent jurisdiction.
ARTICLE XV
ARBITRATION
Section 15.1 General. Any dispute or difference between the
parties with respect to the operation or interpretation of this Agreement or any
of the other Transaction Documents on which an amicable understanding cannot be
reached shall be decided by binding arbitration in Denver, Colorado. The
arbitrators may rely upon principles of fairness, equity, reason and custom in
the insurance and reinsurance industry in reaching their decision.
Section 15.2 Initiation of Arbitration. To initiate
arbitration, a party shall send by certified mail, return receipt requested, to
the other party, at the address specified in Section 16.3 hereof, a notice
demanding arbitration.
Section 15.3 Appointment of Arbitrators. A panel of three (3)
arbitrators will decide any dispute or difference between the parties. All
arbitrators must be (a) disinterested officers or retired officers of life
insurance or life reinsurance companies other than the parties to this Agreement
or their Affiliates, or (b) disinterested persons of comparable experience. Each
of the parties agrees to appoint one of the arbitrators. In the event that
either party should fail to appoint its arbitrator within twenty (20) Business
Days following receipt of the notice demanding arbitration set forth in Section
15.2 hereof, the party demanding such arbitration may appoint the second
arbitrator before entering upon arbitration. The two party-appointed arbitrators
shall select a third arbitrator. In the event that the two party-appointed
arbitrators shall not be able to agree on the choice of the third arbitrator
within twenty (20) Business Days following their appointment, the parties may
agree on a third arbitrator within the next twenty (20)
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Business Days, and if they have not then so agreed, the Denver, Colorado office
of the American Arbitration Association shall, at the request of either party,
appoint as such third arbitrator a person who meets the qualifications specified
in the second sentence of this Section 15.3.
Section 15.4 Decision. The decision in writing by any two
arbitrators shall be final and binding on both of the parties. Judgment may be
entered upon a final decision of the arbitrators in any court of competent
jurisdiction. Arbitrators pursuant to this Article XV shall be governed by the
Federal Arbitration Act, Title 9, United States Code.
Section 15.5 Expenses of Arbitration. Each party shall bear
the expense of its own arbitrator (whether selected by that party, or by the
other party pursuant to the procedures set out in Section 15.3 hereof) and
related outside attorneys' fees, and shall jointly and equally bear with the
other party the expenses of the third arbitrator and of the arbitration.
Section 15.6 Location of Arbitration. Any arbitration
instituted pursuant to this Article shall be held in Denver, Colorado or at such
other location as the parties hereby shall agree.
Section 15.7 Survival of Article. This Article XV shall
survive termination of this Agreement.
Section 15.8 Other Actions. Submission of a matter to
arbitration shall be a condition precedent to any right to institute a
proceeding at law or in equity concerning such matter, except for injunctive or
other provisional relief pending the arbitration of a matter subject to
arbitration pursuant to this Reinsurance Agreement.
ARTICLE XVI
MISCELLANEOUS PROVISIONS AND AGREEMENTS
Section 16.1 Confidentiality. The parties hereto agree that
the terms of this Agreement and all technical, financial, insurance, data
processing, performance and client information owned by a party and furnished or
disclosed to the other party hereunder, shall be treated as proprietary and
confidential information and shall be held in strict confidence and shall not,
without the prior written consent of the party furnishing or disclosing such
information, be made available or disclosed to any third party or be used by the
other party thereto other than as contemplated hereunder; provided, however that
Seller and Buyer may explain and reveal information concerning the transactions
contemplated by this Agreement to the extent necessary in the ordinary course of
business, to their agents, customers, employees and intermediaries; and
provided, further, that the parties shall have the right to disclose and make
available any such information that (i) was publicly known or otherwise known to
the party receiving the information prior to the time of such disclosure, (ii)
subsequently becomes publicly known through no act or omission by the party
receiving the information or any person acting on its behalf or (iii) otherwise
becomes known to the party receiving the information other than through
disclosure by such party or an affiliate thereof; and provided, further, that
the party receiving such information may deliver or disclose such information to
(a) its directors, officers, employees, agents, attorneys and Affiliates (to the
extent such disclosure reasonably relates to this Agreement and the transactions
contemplated hereby), (b) its financial advisors and other professional advisors
who agree to hold confidential such information substantially in accordance
with the terms of this Section 16.1, (c) any federal or state regulatory
authority having jurisdiction over such party, (d) the National Association of
Insurance Commissioners or any similar organization or any nationally
recognized ratings agency that
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requests access to such information, or (e) any other Person to which such
delivery or disclosure may be necessary or appropriate (1) to effect compliance
with any law, rule, regulation or order applicable to such party, (2) in
connection with any litigation to which such party is a party, or (3) if a
default has occurred and is continuing, to the extent such party may reasonably
determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under this
Agreement; and provided, further, that in connection with any disclosure made
pursuant to (e)(1) or (e)(2) above, the disclosing party shall to the extent
reasonably practicable provide prompt prior written notice of such disclosure so
that the other party may seek a protective order or other appropriate remedy;
and provided, further, that Buyer may file this Agreement with its current and
periodic reports to the SEC. Buyer and Seller will continue to comply with the
provisions of the Confidentiality Agreement dated April 25, 1995 as amended and
restated on October 10, 1996.
Section 16.2 Expenses. Each party will bear its own expenses,
including the fees of any attorneys, accountants, investment bankers or others
engaged by it, in connection with this Agreement and the transactions
contemplated hereby, except as otherwise expressly provided herein.
Section 16.3 Notices. All notices, requests, demands and other
communications made hereunder will be in writing and will be deemed duly given
upon delivery if delivered personally, upon confirmation of transmission if sent
by telex or facsimile, upon the third Business Day after mailing if sent by
registered or certified mail, postage prepaid, and upon receipt if sent by
reputable overnight courier, as follows, or to such other address or Person as
either party may designate by notice to the other parties hereunder:
If to Seller:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Thomas E. Moloney, Chief Financial Officer
Telephone: (617) 572-0600
Fax: (617) 572-5170
With copies to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Michael H. Studley, Esq., Vice President
and Counsel
Telephone: (617) 572-9253
Fax: (617) 572-1565
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attention: Paul C. Meyer, Esq.
Telephone: (212) 878-8176
Fax: (212) 878-8375
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If to Buyer:
WellPoint Health Networks Inc.
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Leonard D. Schaeffer, Chairman and
Chief Executive Officer
Telephone: 818-703-3145
Fax: 818-703-3253
With copies to:
WellPoint Health Networks Inc.
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Thomas C. Geiser, Esq., General
Counsel
Telephone: 818-703-2412
Fax: 818-703-4406
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, CA 94105
Attn: Ronald B. Moskovitz, Esq.
Telephone: 415-442-0900
Fax: 415-442-1400
Section 16.4 Amendments; Termination. This Agreement cannot be
changed or terminated orally and no waiver of compliance with any provision or
condition hereof and no consent provided for herein will be effective unless
evidenced by an instrument in writing duly executed by the proper party. This
Agreement (except for the provisions of Sections 3.4, 4.6, 15.1 and 15.2 which
will continue in effect) and the transactions contemplated hereby may be
terminated and abandoned at any time prior to the Closing Date (i) by mutual
written agreement of Buyer and Seller, (ii) by Buyer or Seller upon written
notice given to the other after entry of a restraining order or injunction
restraining or prohibiting the transactions contemplated by this Agreement and
the expiration or unfavorable disposition of all appeals related thereto, (iii)
by Buyer or Seller, upon ten (10) Business Days' written notice to the other, if
the Closing shall not have taken place by January 31, 1997 other than by reason
of a matter within the control of the party asserting such termination. In the
event of any termination permitted by the preceding sentence, the parties hereto
will have no liabilities pursuant to this Agreement to the other party hereto,
except for liabilities arising under Sections 3.4, 4.6, 15.1 and 15.2. Without
prejudice to any other rights or remedies which it may have, either party may,
prior to the Closing, forthwith abandon the transactions contemplated hereby by
written notice to the other party if any of the conditions to the obligations of
the abandoning party to close the transactions contemplated hereby have not been
fulfilled prior to January 31, 1997 and shall not have been waived.
Section 16.5 Consent to Jurisdiction. Each of Buyer and Seller
irrevocably submits to the exclusive jurisdiction of (i) the Court of Chancery
of the State of Delaware and (ii) the United States District Court for the
District of Delaware, for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby. Each of
Seller and Buyer agrees to commence any action, suit or proceeding relating
hereto either in the United States District Court for the District of Delaware
or, if such suit, action or proceeding may not be brought in such court for
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jurisdictional reasons, in the Chancery Court of the State of Delaware, New
Castle County. Buyer further agrees that service of process, summons, notice or
document by hand delivery or U.S. registered mail in care of WellPoint Health
Networks Inc., 21555 Oxnard Street, Woodland Hills, California 91367, Attention
of the General Counsel shall be effective service of process for any action,
suit or proceeding brought against Buyer in any such court. Seller further
agrees that service of process, summons, notice of document by hand delivery or
registered mail in care of John Hancock Mutual Life Insurance Company, 200
Clarendon Street, Boston, Massachusetts 02117, shall be effective service of
process for any action, suit or proceeding brought against Seller in any such
court. Each of Buyer and Seller irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in (i) the Chancery
Court of the State of Delaware, New Castle County or (ii) the United States
District Court for the District of Delaware, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
Section 16.6 Assignment; Affiliate of Buyer. This Agreement
will be binding upon and inure to the benefit of the parties hereto and their
respective permitted successors (including, but not limited to, the surviving
company of any merger involving a party), legal representatives and assigns, but
this Agreement may not be assigned by either party without the written consent
of the other party; provided, however, that Buyer may assign this Agreement to
Unicare for purposes of causing Unicare to purchase the GBO Division Assets and
assume the GBO Division Liabilities, but such assignment shall not relieve Buyer
of ultimate liability under this Agreement if Unicare shall fail to perform the
obligations of Buyer hereunder.
Section 16.7 Entire Agreement. This Agreement, the Annexes and
Schedules attached hereto and the other agreements among the parties referred to
herein, contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby and supersede all previous written or oral
negotiations, commitments and writings. The section headings of this Agreement
are for convenience of reference only and do not form a part hereof and do not
in any way modify, interpret or construe the intentions of the parties. This
Agreement may be executed in two or more counterparts, and all such counterparts
will constitute one and the same instrument.
Section 16.8 Applicable Law. This Agreement will be governed
by and construed and enforced in accordance with the internal laws of the State
of Delaware applicable to agreements made and to be performed entirely within
such State, without regard to the conflicts of law principles of such State.
Section 16.9 Survival.
(a) The representations and warranties of Seller contained in
Article II and Article IV of this Agreement shall survive the Closing and shall
terminate on the second anniversary of the Closing; provided, however, that the
representations contained in Sections 2.13 and 2.20 shall survive until the
expiration of the relevant statute of limitations.
(b) The representations and warranties of Buyer contained in
Article III of this Agreement shall survive the Closing and shall terminate on
the second anniversary of the Closing; provided, however, that the
representations and warranties in Section 3.5 shall terminate on the third
anniversary of the Closing.
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Section 16.10 Further Assurances. Each of Seller and Buyer
will use its reasonable best efforts to do or cause to be done all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement.
Section 16.11 Definition of "Knowledge." In each case in this
Agreement or in any Schedule hereto or in any certificate delivered pursuant
hereto in which a Person makes a representation or warranty based on the
"knowledge" or on what is "known" to such Person, such Person represents and
warrants only as to the knowledge of Executive Officers of such Person having
direct or indirect responsibility for the matter in question, including in the
case of any Subsidiary, the Executive Officers of such Subsidiary.
Section 16.12 Parties in Interest. Nothing in this Agreement
is intended to confer any rights or remedies under or by reason of this
Agreement on any Persons other than the parties hereto and their respective
successors and assignees. Nothing in this Agreement is intended to relieve or
discharge the obligations or liability of any third Persons to the parties
hereto. No provision of this Agreement shall give any third Persons any right of
subrogation or action over or against the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized, as of the
day and year first above written.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:
-------------------------------------
Name: Thomas E. Moloney
Title: Chief Financial Officer
WELLPOINT HEALTH NETWORKS INC.
By:
-------------------------------------
Name: D. Mark Weinberg
Title: Executive Vice President
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<PAGE> 1
ANNEX A
Definitions
"1995 Balance Sheet" is defined in Section 2.3(a).
"Accident and Health" is defined in the definition of GBO
Excluded Business.
"Additional Benefit Costs" is defined in Section 10.1(c).
"Adjusted Gross-Up Basis" has the meaning ascribed to it under
the Treasury Regulations promulgated under Section 338 of the Code.
"Administration Agreement" means the Administration Agreement,
in the form of Annex E hereto, to be entered into by Seller and Unicare on the
Closing Date.
"Affiliate" of a specified Person means a Person that (at the
time when the determination is to be made) directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the specified Person. As used in the foregoing sentence, the term
"control" (including, with correlative meaning, the terms "controlling,"
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreed GAAP Principles and Procedures" is defined in Section
1.5(c).
"Agreement" is defined in the recitals.
"ASO Contract" means a Contract issued by Seller pursuant to
which Seller provides only administrative services to customers of the GBO
Business.
"Assumption Reinsurance Agreement" means the Assumption
Reinsurance Agreement, in the form of Annex C hereto, to be entered into by
Seller and Unicare on the Closing Date.
"Balance Sheets" is defined in Section 2.3(a).
"Below Investment Grade" means, with respect to bonds, notes,
debentures or other evidence of indebtedness rated by Moody's Investors Service
Inc., Standard & Poor's Corporation or the National Association of Insurance
Commissions Securities Valuation Office, having a rating lower than Baa3 by
Moody's Investors Service Inc., BBB by Standard & Poor's Corporation or Category
2 by the National Association of Insurance Commissions Securities Valuation
Office.
"Berkeley Headquarters Building" means Seller's building
located at 200 Berkeley Street, Boston, Massachusetts.
"Broker Contracts" means Contracts entered into by Seller's
field representatives with insurance brokers relating to the sale of products of
the GBO Included Business.
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"Business Day" means any day (other than a Saturday or Sunday)
on which banks are permitted to be open and transact business in Boston,
Massachusetts and Los Angeles, California.
"Buyer" is defined in the recitals.
"Buyer Benefits" is defined in Section 9.3(b).
"Buyer Indemnifiable Losses" is defined in Section 14.1(a).
"Buyer Reports" is defined in Section 3.7(a).
"Buyer SEC Reports" is defined in Section 3.7(a).
"CCI" is defined in the recitals.
"CCI Employees" means all persons directly employed by CCI.
"CCI Leases" is defined in Section 2.5(b).
"CCI Shares" is defined in the recitals.
"Changes" is defined in Section 9.3(b).
"Closing" is defined in Section 1.4.
"Closing Date" is defined in Section 1.4.
"Closing GAAP Balance Sheet" is defined in Section 1.5(a).
"Closing GAAP Equity Amount" is defined in Section 1.5(a).
"Closing Statement" is defined in Section 1.5(c).
"COBRA" is defined in Section 2.11(g).
"Code" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
"Coinsurance Agreement" means the Coinsurance Agreement, in
the form of Annex B hereto, to be entered into by Seller and Unicare on the
Closing Date.
"Coinsured Policies" means the Existing GBO Policies and the
Transition GBO Policies.
"Continuation Period" is defined in Section 1.3(b).
"Contracts" means all agreements or contracts, including,
without limitation, all ASO Contracts, reinsurance agreements, coinsurance
agreements, pooling agreements, network agreements, agents', brokers' and other
intermediaries' agreements, mortgages, indentures, notes, guarantees, leases,
purchase agreements and sale agreements.
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"Deficiency Amount" is defined in Section 1.5(c).
"Delaware Department" is defined in Section 6.3(a).
"Delivery Amount" is defined in Section 1.5(a).
"Direct Claim" is defined in Section 14.3.
"Effective Time" is defined in Section 1.4.
"Election" is defined in Section 9.1(a).
"Environmental Laws" is defined in Section 2.20(a).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder.
"ERISA Affiliate" means any entity which is a member of a
"controlled group of corporations" with or under "common control" with the GBO
Included Business as defined in Section 414(b) or (c) of the Code.
"Estimated Value" is defined in Section 1.5(b).
"Excess Amount" is defined in Section 1.5(c).
"Executive Officer" means an officer holding the title of vice
president or higher and includes the chief financial officer, chief legal
officer and corporate secretary of any Person.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Existing GBO Policies" is defined in the Coinsurance
Agreement.
"Facilities" is defined in Section 2.20(b).
"Final Allocations Schedule" is defined in Section 9.1(b).
"Financial Statements" is defined in Section 2.3(a).
"Form of Closing GAAP Balance Sheet" is defined in Section
1.5(a).
"GAAP" means generally accepted accounting principles.
"GBO Assets" shall mean all right, title and interests in and
to every species of property, real, personal and mixed, tangible and intangible
and the rights under all Contracts of the GBO Business.
"GBO Business" means the United States, Puerto Rico and Guam
group benefit operations of Seller, including the ASO Contracts business, the
group health, group dental, group vision, group long-term disability, group
short-term disability, group accident and sickness, and group pharmacy business,
the business conducted by the GBO Subsidiaries, network arrangements, group life
businesses,
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group accidental death and dismemberment business, individual accident and
health converted business and individual life converted business, but excluding
the business conducted by HealthPlan Management Services, Inc., long-term care
insurance, group creditor insurance, and all insurance business written outside
of the United States by the International Group Program business unit of the
Seller either directly by Seller or through John Hancock Services Internacionais
S/C Limitada, John Hancock International Services, S.A. and John Hancock
International Services Pte, Ltd., by the Maritime Life Assurance Company, by
P.T. Asuransi Jiwa Bumiputera John Hancock, by P.T. Indras Insan Jaya Utama, by
John Hancock Life Insurance (Malaysia) Berhad, by John Hancock Life Assurance
Company, Ltd., and by The Interlife Assurance Public Company Ltd. or otherwise
by Seller or any of its Affiliates.
"GBO Business Policies" means all Insurance Policies issued in
the United States by Seller as part of the GBO Business.
"GBO Conveyancing Documents" is defined in Section 1.1(a).
"GBO Division" means the portion of the GBO Included Business
held and conducted directly by Seller.
"GBO Division Assets" means the GBO Included Assets held
directly by Seller.
"GBO Division Contracts" is defined in Section 2.8(a).
"GBO Division Employees" means all GBO Employees who are
directly employed by Seller.
"GBO Division Leases" is defined in Section 2.5(b).
"GBO Division Liabilities" means the GBO Included Liabilities
which are direct obligations of Seller.
"GBO Employee" means any officer and employee who is
exclusively or principally engaged in the conduct of the GBO Included Business.
"GBO Excluded Business" means (i) all group life insurance
business and/or group accidental death and dismemberment business constituting
part of the GBO Business engaged in directly by Seller ("Life or ADD") but
issued to clients of the GBO Business who are not also clients of the GBO
Business with respect to ASO Contracts business, group health, group dental,
group vision, group long-term disability, group short-term disability, group
accident and sickness, group pharmacy or network arrangements business engaged
in directly by Seller ("Accident and Health") provided, however, that
notwithstanding the foregoing, the following shall constitute GBO Excluded
Business:
(w) any Life or ADD policy which after June 30, 1996 and
prior to the date of this Agreement is sold to or
committed to a client (and disclosed to Buyer) which
was an Accident and Health client of the GBO Business
as of June 30, 1996, regardless as to when such Life
or ADD policy is actually effective, executed or
delivered;
(x) any Life or ADD policy which became effective prior
to July 1, 1996 with respect to a client which
subsequent to June 30, 1996 and prior to the
Effective Time becomes an Accident and Health client
of the GBO Business;
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(y) all guaranteed access accounts constituting part of
the GBO Business, other than such accounts affiliated
with Seller, Ford Motor Company and Digital Equipment
Corporation; and
(z) all supplementary contracts without life
contingencies constituting part of the GBO Business,
other than such contracts with Ford Motor Company;
and
(ii) all individual life converted insurance policies issued prior to the
Effective Time relating to or arising from the GBO Business.
"GBO Excluded Business Policies" means all Insurance Policies
constituting part of the GBO Excluded Business.
"GBO Included Assets" means all right, title and interest in
and to (i) every species of property other than cash and Investment Assets,
real, personal and mixed, tangible and intangible, used primarily or exclusively
in the conduct of the GBO Included Business as of the Effective Time, with such
modifications and adjustments as are set forth in Section 1.1(a), and the rights
under all GBO Included Contracts as of the Effective Time and (ii) such amount
of cash and Investment Assets as are required to be transferred from Seller to
Buyer under Section 8.1 of the Coinsurance Agreement and Section 1.5 of this
Agreement.
"GBO Included Business" means the GBO Business other than the
GBO Excluded Business.
"GBO Included Contract" means a Contract relating primarily or
exclusively to the GBO Included Business and to which the Seller or one of the
GBO Subsidiaries is a party and which is in effect as of the Effective Time.
"GBO Included Liabilities" means those liabilities and
obligations of Seller and the GBO Subsidiaries under the GBO Included Contracts
and those liabilities and obligations as of the Effective Time of the GBO
Included Business for which, in accordance with Seller's past accounting
practices and procedures, amounts would be included within the categories of
liabilities identified on the Form of Closing GAAP Balance Sheet, with such
modification and adjustments as are set forth in Section 1.1(a). All of the GBO
Included Liabilities shall have been incurred by Seller or the GBO Subsidiaries,
as the case may be, in the ordinary course of business and shall be within the
categories reflected in the Closing GAAP Balance Sheet.
"GBO Insurance Policies" are defined in the Coinsurance
Agreement.
"GBO Intellectual Property" means all patents and trademarks,
service marks, trade names, jingles, logos, assumed names, trade secrets and
other proprietary information, copyrights, licenses, permits and other similar
intangible property rights and interests applied for, issued to or presently
owned or used by Seller exclusively or principally in the GBO Included Business.
GBO Intellectual Property shall include rights in software. GBO Intellectual
Property shall not include the Names.
"GBO Leases" is defined in Section 2.5(b).
"GBO Material Contracts" is defined in Section 2.8(a).
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"GBO Providers" is defined in Section 5.12(b).
"GBO Subsidiaries" means CCI, TriState and HASG.
"GBO Subsidiaries Shares" means the CCI Shares, the TriState
Shares and the HASG Shares.
"GBO Subsidiary Employees" means GBO Employees employed by the
GBO Subsidiaries.
"Governmental Entity" means any agency, administrative
division or department (or administrative subdivision), commission, regulatory
authority, taxing or administrative authority, guarantee fund association, court
or other judicial body or legislature of the government of the United States or
of any state, city, municipality, county or town thereof, or of any foreign
jurisdiction, including the employees or agents of any thereof.
"HASG" is defined in the recitals.
"HASG Shares" is defined in the recitals.
"Hazardous Substances" is defined in Section 2.20(a).
"Indemnifiable Losses" means Buyer Indemnifiable Losses and
Seller Indemnifiable Losses, as the case may be.
"Indemnifying Party" is defined in Section 14.1(e).
"Indemnitee" is defined in Section 14.1(d).
"Indemnity Notice" is defined in Section 14.3.
"Indemnity Payment" is defined in Section 14.1(c).
"Insurance Licenses" means any license, certificate of
authority, permit or other authorization granted by a Governmental Entity to
transact an insurance or reinsurance business.
"Insurance Policies" means all insurance policies, contracts,
binders or certificates of insurance (including certificates issued with respect
to group insurance policies), and all riders, endorsements and amendments
thereto, whether written or oral.
"IRS" means the Internal Revenue Service.
"Investment Assets" means U.S. treasury securities or publicly
traded bonds of United States corporations rated NAIC Category 1 or 2 by the
Securities Valuation Office of the National Association of Insurance
Commissioners.
"JHSI" means John Hancock Subsidiaries Inc., a Delaware
corporation and a wholly-owned subsidiary of Seller.
"Knowledge" is defined in Section 16.11.
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"Lease Agreements" means the Lease Agreement, in the form of
Annex G hereto, relating to Seller's Facility at John Hancock Place, Boston,
Massachusetts, and the Lease Agreement, in the form of Annex H hereto, relating
to Seller's Facility in Dearborn, Michigan, each to be entered into by Seller
and Unicare on the Closing Date.
"Lease Assignment" means a Lease Assignment, in the form of
Annex I hereto, to be entered into by Seller and Unicare on the Closing Date
with respect to each of the GBO Division Leases.
"Leased Equipment" is defined in Section 8.7.
"Leased Facilities" is defined in Section 2.5(b).
"Liability" means any indebtedness, liability, claim, cost,
loss, damage, deficiency, judgment, settlement, obligation or responsibility,
fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, due or to become due, accrued, absolute, contingent or otherwise.
"License Agreement" means the License Agreement, in the form
of Annex D hereto, to be entered into by Seller and Unicare on the Closing Date.
"Liens" means all mortgages, pledges, security interests,
liens, charges, options, conditional sales agreements, claims, restrictions,
covenants, easements, rights of way, title defects or other encumbrances of any
nature whatsoever.
"Life or ADD" is defined in the definition of GBO Excluded
Business.
"Massachusetts Department" is defined in Section 5.8(a).
"Material Adverse Effect" means, (i) with respect to the GBO
Included Business, a change in the business, property, financial condition or
results of operation of the GBO Included Business, which is adverse and is
reasonably probable of being material, or adversely and materially affects the
ability of a party to perform its obligations under this Agreement or to
consummate the transactions contemplated hereby, but excluding the inability of
Seller to obtain any consents or approvals for the assignment of any GBO
Included Contract, and (ii) with respect to any other Person, a change in the
business, property, financial condition or results of operation of such Person
which is adverse and is reasonably probable of being material or adversely and
materially affects the ability of a party to perform its obligations under this
Agreement or to consummate the transactions contemplated hereby.
"Modified Aggregate Deemed Sales Price" shall have the meaning
ascribed to it under the Treasury Regulations promulgated under Section 338 of
the Code.
"Names" shall have the meaning set forth in the License
Agreement.
"Net Income" for any year shall mean net income after tax as
calculated in accordance with GAAP.
"PBGC" is defined in Section 2.11(d).
"Pension Plan" is defined in Section 2.11.
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"Permitted Liens" means (i) Liens for water and sewer charges
and current taxes not yet due and payable or being contested in good faith and
for which adequate reserves have been taken, (ii) mechanics', carriers',
workers', repairers', materialmen's, warehousemen's and other similar Liens
arising or incurred in the ordinary course of business, (iii) immaterial
imperfections of title, or other defects, easements, restrictions, covenants,
rights of way, liens, mortgages, pledges, encumbrances or charges, if any, which
do not materially impair the continued use and operation of GBO Included Assets
or real property or otherwise materially adversely affect the use of the GBO
Included Assets to conduct the GBO Included Business, (iv) with respect to GBO
Investments, restrictions on transfer under securities laws or as set forth in
agreements and instruments governing mortgage, partnership and venture capital
investments and loan participation investments, and rights of set-off under
banking and other agreements; (v) Liens approved in writing by the other party
hereto, (vi) Liens related to required deposits with insurance departments,
(vii) Liens with respect to leased items only, the rights of the respective
lessors in respect thereof, (viii) Liens which have arisen in the ordinary
course of business or individually or in the aggregate do not materially
interfere with the conduct of GBO Included Business as now conducted, (ix) asset
reserve and trust fund requirements and asset maintenance obligations under
reinsurance and retrocession contracts, and (x) deposits with Governmental
Entities asset reserve and trust fund requirements and asset maintenance
obligations under reinsurance and retrocession contracts.
"Person" means any corporation, individual, joint stock
company, joint venture, partnership, unincorporated association, governmental
regulatory entity, country, state or political subdivision thereof, trust or
other entity.
"Policyholder" means a holder of a Coinsured Policy.
"Pre-closing Period" is defined in Section 9.2(a).
"Proceedings" is defined in Section 9.5.
"Pro Forma Closing GAAP Balance Sheet" is defined in Section
1.5(a).
"Proposed Adjustment Notice" is defined in Section 1.5(f).
"Purchase Price" means the amount provided in Section 1.1(b).
"Recent Balance Sheet" is defined in Section 2.3(b).
"Recent Balance Sheet Date" is defined in Section 2.3(b).
"Reserves" means the Seller's reserves computed as of a
specified date and relating to the Seller's business with respect to the
Coinsured Policies for all amount of (i) unearned premiums and (ii) all losses
and all loss adjustment expenses, net of Third Party Reinsurance, calculated
under SAP and as would be described in the Seller's Statutory Annual Statement
on exhibits 8, 9, 10 or 11 (or any other exhibit then applicable) to such
Statutory Annual Statement as if such Annual Statement were being filed as of
such specified date.
"SEC" is defined in Section 3.7(a).
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
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"Seller" is defined in the recitals and shall include any
successor by merger to Seller.
"Seller Benefits" is defined in Section 9.3(c)
"Seller Indemnifiable Losses" is defined in Section 14.1(b).
"Seller's Facilities" is defined in Section 2.5(b).
"Seller Tax Returns" is defined in Section 9.2(a).
"Separate Transaction Documents" is defined in Section
14.1(a).
"Service Agreement" means the Service Agreement, in the form
of Annex F hereto, to be entered into by Seller, as service provider, and
Unicare on the Closing Date.
"Shared Contracts" is defined in Section 2.8(a)(v).
"Statutory Accounting Principles" or "SAP" means the statutory
accounting practices prescribed or permitted by the Insurance Department of the
Commonwealth of Massachusetts with respect to Seller, or the State of Delaware,
with respect to Unicare, for the preparation of annual statements and other
financial reports by insurance companies of the same type as any such company.
"Statutory Financial Statements" is defined in Section 2.3(c).
"Straddle Period" is defined in Section 9.2(a).
"Subject Business" is defined in Section 5.9(a).
"Subsidiary" means, with respect to any Person, any
corporation, partnership, joint venture or other legal entity of which such
Person (either alone or through or together with any other Subsidiary) owns,
directly or indirectly, more than 50% of the outstanding stock or other equity
interest the holders of which are generally entitled to vote for the election of
the board of directors or other governing body of such corporation or other
legal entity.
"Subsidiary Material Contracts" is defined in Section 2.8(b)
"Tax Return" means any return, report, information return, or
other document (including any related or supporting information) filed or
required to be filed with any federal, state, local, or foreign governmental
entity or other authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.
"Tax" or "Taxes" means all taxes, charges, duties, fees,
levies or other assessments, including but not limited to, income, excise,
property, sales, transfer, use, stamp, franchise, withholding, gross receipts,
value added, environmental, estimated, social security, workers compensation and
unemployment taxes, and guarantee fund assessments imposed by the United States,
any possession thereof, any state, county, local or foreign government, or any
subdivision or agency of any of the foregoing, and any interest, penalties or
additions to tax relating to the foregoing.
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"Taxing Authority" means any federal, state, local or foreign
Governmental Entity responsible for the administration or collection of any Tax,
or for the adjudication of any case, controversy or proceeding with respect to
Tax.
"Tentative Allocations Schedule" is defined in Section 9.1(b).
"Third Party Claim" is defined in Section 14.2(a).
"Third Party Reinsurance" shall mean all contracts of
reinsurance with The Maritime Life Assurance Company and with independent
parties unaffiliated with the Seller or any of its Affiliates under which the
Seller's Reserves and liabilities with respect to the Coinsured Policies or some
portion thereof are transferred, whether or not such contracts of reinsurance
are also applicable to business other than the Coinsured Policies.
"Transaction Documents" means this Agreement, the License
Agreement, the Coinsurance Agreement, the Administration Agreement, the
Assumption Reinsurance Agreement, the Lease Agreements, and the Service
Agreement and the Lease Assignments.
"Transferring Employee" is defined in Section 10.1(a).
"Transition GBO Policies" is defined in the Coinsurance
Agreement.
"Transition Period" means the period from the Effective Time
to the last Transition Termination Date under the Coinsurance Agreement.
"TriState" is defined in the recitals.
"TriState Shares" is defined in the recitals.
"Unaudited Financial Statements" is defined in Section 2.3(b).
"Unicare" is defined in the recitals.
"Unicare's SAP Financial Statements" is defined in Section
3.7(c).
"Unicare Reports" is defined in Section 3.7(d).
"WARN Act" means the Worker Adjustment and Retraining
Notification Act, as amended.
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<PAGE> 1
ANNEX B
COINSURANCE AGREEMENT
between
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
and
UNICARE LIFE & HEALTH INSURANCE COMPANY
<PAGE> 2
2
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS ...............................................
ARTICLE II. REINSURANCE CLOSING; CONDITIONS TO REINSURANCE CLOSING ....
2.1 Reinsurance Closing ................................................
2.2 Conditions to Reinsurance Closing ..................................
ARTICLE III. COINSURED POLICIES ........................................
3.1 Coinsured Policies .................................................
3.2 Liability of Reinsurer ............................................. 10
3.3 Regulatory Filings and Approvals ...................................
ARTICLE IV. GBO EXCLUDED BUSINESS .....................................
4.1 Coinsurance Agreement Inapplicable to GBO Excluded Business ........
4.2 Company's Indemnification for GBO Excluded Business ................
ARTICLE V. EXISTING GBO POLICIES .....................................
5.1 Reinsurance of Existing GBO Policies at Effective Time .............
5.2 Value of Reserves .................................................. 11
5.3 Reinsurer's Indemnification for Existing GBO Policies ..............
5.4 Company's Indemnification for Existing GBO Policies ................
ARTICLE VI. TRANSITION GBO POLICIES ................................... 12
6.1 Issuance of Transition GBO Policies by the Company .................
6.2 Reinsurance of Transition GBO Policies .............................
6.3 Reinsurer's Indemnification for Transition GBO Policies.............
6.4 Company's Indemnification for Transition GBO Policies .............. 13
6.5 Maintenance of Licenses
6.6 Limitations on Writing of Transition GBO Policies
ARTICLE VII. GENERAL PROVISIONS ........................................ 15
7.1 Reinsurer's Recordation of Liabilities ........................... 15
7.2 Administration ................................................... 15
7.3 Authorized Representatives ....................................... 15
ANNEX B
<PAGE> 3
3
7.4 Maintenance and Inspection of Records ..............................
7.5 Misunderstandings and Oversights ................................... 16
7.6 Age, Sex and Other Adjustments ..................................... 16
7.7 Reinstatements ..................................................... 16
7.8 Contract Changes or Reserve Assumption Changes .....................
7.9 Litigation ......................................................... 17
ARTICLE VIII. CONSIDERATION FOR REINSURANCE AND POLICY PREMIUMS ......... 17
8.1 Assets to be Transferred at Effective Time ......................... 17
8.2 Transition GBO Policies ............................................
8.3 Policy Premiums and Other Amounts...................................
ARTICLE IX. BENEFITS AND OTHER PAYMENTS BY REINSURER .................. 18
9.1 Benefits ........................................................... 18
9.2 Claims ............................................................. 18
9.3 Claims Payments .................................................... 18
9.4 Remittance of Third Party Reinsurance .............................. 20
9.5 Allowance for Commissions and Expenses .............................
9.6 Experience Rating Refunds ..........................................
ARTICLE X. DUTY OF COOPERATION ....................................... 20
10.1 Duty of Cooperation ...............................................
ARTICLE XI. ACCOUNTING AND SETTLEMENT ................................. 20
11.1 Remittances ....................................................... 20
11.2 Quarterly Report .................................................. 20
11.3 Amounts Due Either Party .......................................... 20
11.4 Interest on Delayed Payments ...................................... 21
ARTICLE XII. DURATION AND TERRITORY .................................... 21
12.1 Duration .......................................................... 21
12.2 Reinsurer's Liability ............................................. 21
12.3 Territory ......................................................... 21
ARTICLE XIII. INSOLVENCY ................................................ 21
13.1 Payments by Reinsurer ............................................. 21
13.2 Claims ............................................................ 22
ARTICLE XIV. ARBITRATION ............................................... 22
14.1 General ........................................................... 22
ARTICLE XV. INDEMNIFICATION ........................................... 22
15.1 The Reinsurer ..................................................... 22
15.2 The Company ....................................................... 23
15.3 Indemnification Procedures ........................................ 23
15.4 Survival of Article ............................................... 23
ANNEX B
<PAGE> 4
4
ARTICLE XVI. MISCELLANEOUS PROVISIONS .................................. 24
16.1 No Third Party Beneficiaries ...................................... 24
16.2 Headings and Exhibit .............................................. 24
16.3 Notices ........................................................... 24
16.4 Severability ...................................................... 25
16.5 Assignment ........................................................ 26
16.6 Successors and Assigns ............................................ 26
16.7 Execution in Counterparts ......................................... 26
16.8 Amendments ........................................................ 26
16.9 Waiver ............................................................ 26
16.10 Interpretation .................................................... 26
16.11 Entire Agreement .................................................. 26
16.12 Governing Law ..................................................... 26
EXHIBIT A QUARTERLY/ANNUAL REPORT
ANNEX B
<PAGE> 5
2
COINSURANCE AGREEMENT
This Coinsurance Agreement (the "Coinsurance Agreement") is
made and entered into as of the Effective Time (as hereinafter defined), between
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, a mutual life insurance company
organized under the laws of Massachusetts (the "Company"), and UNICARE LIFE &
HEALTH INSURANCE COMPANY, a stock life insurance company organized under the
laws of Delaware (the "Reinsurer").
WHEREAS, the Company and WellPoint Health Networks Inc., a
California corporation ("WellPoint") and the indirect parent of the Reinsurer,
have entered into a Purchase and Sale Agreement, dated as of October 10, 1996
(the "Purchase Agreement"), which provides for the sale by the Company to
WellPoint and the Reinsurer of the GBO Included Business (as hereinafter
defined); and
WHEREAS, to effect such sale of the GBO Included Business, the
Purchase Agreement provides for, among other things, the sale and transfer by
the Company to WellPoint or the Reinsurer of the GBO Division Assets (as
hereinafter defined) and the assignment by the Company, and assumption by
WellPoint or the Reinsurer, of the GBO Division Liabilities (as hereinafter
defined), as well as the sale by John Hancock Subsidiaries, Inc., a wholly-owned
subsidiary of the Company, of the GBO Subsidiary Shares (as hereinafter defined)
to WellPoint; and
WHEREAS, certain of the GBO Division Assets are to be sold and
transferred by the Company to the Reinsurer, and certain of the GBO Division
Liabilities are to be assigned by the Company and assumed by the Reinsurer,
under this Coinsurance Agreement; and
WHEREAS, the Company has agreed to cede to the Reinsurer, and
the Reinsurer has agreed to accept and indemnity reinsure, on a 100% coinsurance
basis, all of the Reserves and Liabilities (as hereinafter defined) arising
under or with respect to the Coinsured Policies (as hereinafter defined) as
contemplated by the Purchase Agreement and this Coinsurance Agreement; and
WHEREAS, the Reinsurer has agreed to perform administrative
services with respect to the Coinsured Policies pursuant to an administration
agreement (the "Administration Agreement") entered into between the Company and
the Reinsurer as of the Effective Time; and
<PAGE> 6
3
WHEREAS, the Company and the Reinsurer are simultaneously
entering into an Assumption Agreement (the "Assumption Agreement"), under which
Reinsurer may, in its sole discretion, assumption reinsure such Coinsured
Policies, with a concurrent novation and complete release of the Company from
any liability under such Coinsured Policies, on a state by state basis after the
Effective Time upon the receipt of any and all applicable regulatory approvals
and notice to relevant policyholders followed by expiration of the applicable
period with no opt out by such policyholders or the obtaining of required
consents from such policyholders, as the case may be.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements set forth herein, the Company and the Reinsurer mutually agree
as follows:
ARTICLE I.
DEFINITIONS
As used in this Coinsurance Agreement, the following
capitalized terms shall have the following meanings (definitions are applicable
to both the singular and the plural forms of each term defined in this
Article I):
"Accounting Period" means a calendar quarter, except that the
first Accounting Period shall be the period commencing with the Effective Time
and ending with the last day of then current calendar quarter, and the final
Accounting Period shall be the period commencing with the first day of the
calendar quarter that includes the day on which the Company's liability under
the last Coinsured Policy either terminates or is novated, and ending on such
day.
"Administration Agreement" shall have the meaning set
forth in the fifth recital hereof.
"Affiliate" of a specified Person means a Person that (at the
time when the determination is to be made) directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the specified Person. As used in the foregoing sentence, the terms
"control" (including, with correlative meaning, the terms "controlling,"
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract
<PAGE> 7
4
or otherwise.
"ASO Contract" means a Contract issued by the Company pursuant
to which the Company provides only administrative services to customers of the
GBO Business.
"Assumption Agreement" shall have the meaning set forth
in the sixth recital hereof.
"Benefits" shall have the meaning set forth in Section
9.1 hereof.
"Business Day" means any day (other than a Saturday or Sunday)
on which banks are permitted to be open and transact business in Boston,
Massachusetts and Los Angeles, California.
"Closing GAAP Balance Sheet" shall have the meaning set forth
in Section 1.5(a) of the Purchase Agreement.
"Coinsured Policies" means the Existing GBO Policies
and the Transition GBO Policies.
"Commissions" means all sales commissions, production bonuses
or other payments in cash or kind payable to agents in the ordinary course of
business with respect to the origination or renewal of any Coinsured Policies.
"Contracts" means all agreements or contracts, including,
without limitation, all ASO Contracts, reinsurance agreements, coinsurance
agreements, pooling agreements, network agreements, agents', brokers' and other
intermediaries' agreements, mortgages, indentures, notes, guarantees, leases,
purchase agreements and sale agreements.
"Effective Time" shall have the meaning set forth in
Section 2.1 hereof.
"Existing GBO Policies" means all GBO Business Policies other
than GBO Excluded Business Policies issued by the Company before the Effective
Time which are in effect on the Effective Time and such GBO Business Policies
not in effect on the Effective Time, for which Reserves have been established on
the Closing GAAP Balance Sheet, which will be coinsured by Reinsurer at the
Effective Time (but excluding all coverages other than life, accidental death
and dismemberment, survivor income benefits, long-term disability and short-term
disability coverages which expired more than three (3) years prior to the
Effective Time and which are part of the GBO Included Business) pursuant to this
Coinsurance Agreement.
"Extra Contractual Obligations" means (i) liabilities which
arise from negligence or bad faith in claims practices with
<PAGE> 8
5
respect to Coinsured Policies, or (ii) liabilities for loss in excess of the
limit of the Company's original policy applicable to any Coinsured Policy.
Notwithstanding the foregoing, the Reinsurer shall have no liability for any
Extra Contractual Obligations to the extent they arise out of or are based on
bad faith claims practices, willful misconduct, fraud or gross negligence of the
Company or its Affiliates (without attributing to the Company or its Affiliates
the actions of the Reinsurer or its Affiliates).
"GBO Business" means the United States, Puerto Rico and Guam
group benefit operations of the Company, including the ASO Contracts business,
the group health, group dental, group vision, group long-term disability, group
short-term disability, group accident and sickness, and group pharmacy business,
the business conducted by the GBO Subsidiaries, network arrangements, group life
businesses, group accidental death and dismemberment business, individual
accident and health converted business and individual life converted business,
but excluding the business conducted by HealthPlan Management Services, Inc.,
long-term care insurance, group creditor insurance and all insurance business
written outside of the United States by the International Group Program business
unit of the Company either directly by the Company or through John Hancock
Services Internacionais S/C Limitada, John Hancock International Services, S.A.
and John Hancock International Services Pte, Ltd., by the Maritime Life
Assurance Company, by P.T Asuransi Jiwa Bumiputera John pancock, by P.T. Indras
Insan Jaya Utama, by John Hancock Life Insurance (Malaysia) Berhad, by John
Hancock Life Assurance Company, Ltd., and by The Interlife Assurance Public
Company Ltd. or otherwise by the Company or any of its Affiliates.
"GBO Business Policies" means all Insurance Policies issued in
the United States, Puerto Rico or Guam by the Company as part of the GBO
Business.
"GBO Division Assets" means the GBO Included Assets held
directly by the Company.
"GBO Division Liabilities" means the GBO Included Liabilities
which are direct obligations of the Company.
"GBO Excluded Business" means (i) all group life insurance
business and/or group accidental death and dismemberment business constituting
part of the GBO Business engaged in directly by the Company ("Life or ADD") but
issued to clients of the GBO
<PAGE> 9
6
Business who are not also clients of the GBO Business with respect to ASO
Contracts business, group health, group dental, group vision, group long-term
disability, group short-term disability, group accident and sickness, group
pharmacy or network arrangements business engaged in directly by the Company
("Accident and Health") provided, however, that notwithstanding the foregoing,
the following shall constitute GBO Excluded Business:
(w) any Life or ADD policy which after June 30, 1996 and prior to
the date of the Purchase Agreement is sold to or committed to
a client (and disclosed to WellPoint) which was an Accident
and Health client of the GBO Business as of June 30, 1996,
regardless as to when such Life or ADD policy is actually
effective, executed or delivered;
(x) any Life or ADD policy which became effective prior to July 1,
1996 with respect to a client which subsequent to June 30,
1996 and prior to the Effective Time becomes an Accident and
Health client of the GBO Business;
(y) all guaranteed access accounts constituting part of the GBO
Business, other than such accounts affiliated with the
Company, Ford Motor Company and Digital Equipment Corporation;
and
(z) all supplementary contracts without life contingencies
constituting part of the GBO Business, other than such
contracts with Ford Motor Company; and
(ii) all individual life converted insurance policies issued prior to
the Effective Time relating to or arising from the GBO Business.
"GBO Excluded Business Policies" means all Insurance Policies
constituting part of the GBO Excluded Business.
"GBO Included Assets" means all right, title and interest in
and to (i) every species of property other than cash and Investment Assets,
real, personal and mixed, tangible and intangible, used primarily or exclusively
in the conduct of the GBO Included Business as of the Effective Time with such
modifications and adjustments as are set forth in Section 1.1(a) of the Purchase
Agreement, and the rights under all GBO Included Contracts as of the Effective
Time, and (ii) such amount of cash
<PAGE> 10
7
and Investment Assets as are required to be transferred from the Company to
WellPoint and/or the Reinsurer under Section 8.1 of this Coinsurance Agreement
and Section 1.5 of the Purchase Agreement.
"GBO Included Business" means the GBO Business other than the
GBO Excluded Business.
"GBO Included Contract" means a Contract relating primarily or
exclusively to the GBO Included Business and to which the Company or one of the
GBO Subsidiaries is a party and which is in effect as of the Effective Time.
"GBO Included Liabilities" means those liabilities and
obligations of the Company and the GBO Subsidiaries under the GBO Included
Contracts and those liabilities and obligations as of the Effective Time of the
GBO Included Business for which, in accordance with the Company's past
accounting practices and procedures, amounts would be included within the
categories of liabilities identified on the Form of Closing GAAP Balance Sheet,
with such modification and adjustments as are set forth in Section 1.1(a) of the
Purchase Agreement. All of the GBO Included Liabilities shall have been incurred
by the Company or the GBO Subsidiaries, as the case may be, in the ordinary
course of business and shall be within the categories reflected in the Closing
GAAP Balance Sheet.
"GBO Subsidiaries" means Cost Care, Inc., TriState, Inc. and
Hancock Association Services Group, Inc.
"GBO Subsidiary Shares" means all of the capital stock of
Cost Care, Inc. and Hancock Association Services Group, Inc., and the 60% of
the capital stock of TriState, Inc. owned by John Hancock Subsidiaries, Inc.
"Insurance Policies" means all insurance policies, contracts,
binders or certificates of insurance (including certificates issued with respect
to group insurance policies), and all riders, endorsements and amendments
thereto.
"Investment Assets" means United States treasury securities or
publicly traded bonds of United States corporations rated NAIC Category 1 or 2
by the Securities Valuation Office of the National Association of Insurance
Commissioners.
"Permitted Jurisdictions" means the fifty states of the United
States, the District of Columbia, Puerto Rico and Guam.
<PAGE> 11
8
"Person" means any corporation, individual, joint stock
company, joint venture, partnership, unincorporated association, governmental
regulatory entity, country, state or political subdivision thereof, trust or
other entity.
"Policyholder" means a holder of a Coinsured Policy.
"Purchase Agreement" shall have the meaning set forth in the
first recital hereof.
"Quarterly Report" shall have the meaning set forth in
Section 11.2 hereof.
"Reinsurance Closing" shall have the meaning set forth
in Section 2.1 hereof.
"Reinsurance Closing Date" shall have the meaning set forth in
Section 2.1 hereof.
"Reserves" means the Company's reserves computed as of a
specified date and relating to the Company's business with respect to the
Coinsured Policies for all amounts of (i) unearned premiums and (ii) all losses
and all loss adjustment expenses, net of Third Party Reinsurance, calculated
under SAP and as would be described in the Company's Statutory Annual Statement
on exhibits 8, 9, 10 or 11 (or any other exhibit then applicable) to such Annual
Statement of "Liabilities, Surplus and Other Funds" as if such Annual Statement
were being filed as of such specified date.
"Reserves and Liabilities" means all of the Reserves and other
liabilities and associated rights and obligations arising under the Coinsured
Policies including, but not limited to, liabilities for Benefits, surrenders,
returns and premium refunds, but excluding liabilities for guaranty fund
assessments and taxes that arise from or relate to the Existing GBO Policies and
are incurred during the period ending with the Effective Time.
"SAP" means statutory accounting practices prescribed or
permitted by the Insurance Department of the Commonwealth of Massachusetts for
the preparation of annual and quarterly statements by life insurance companies.
"Service Agreement" means the Service Agreement entered into
by the Company, as service provider, and Reinsurer as of the Effective Time.
"Third Party Reinsurance" shall mean all contracts of
reinsurance with The Maritime Life Assurance Company and with independent
parties unaffiliated with the Company or any of its
<PAGE> 12
9
Affiliates under which the Company's Reserves and Liabilities with respect to
the Coinsured Policies or some portion thereof are transferred, whether or not
such contracts of reinsurance are also applicable to business other than the
Coinsured Policies.
"Transition GBO Policies" means all GBO Business Policies that
are issued or renewed by the Company after the Effective Time and coinsured by
the Reinsurer pursuant to Article VI hereof.
"Transition Termination Date" means, with respect to Coinsured
Policies in each Permitted Jurisdiction, the earliest of (i) ninety (90) days
after the date that Reinsurer has obtained all licenses and form and rate
approvals necessary to write all of the GBO Business Policies other than group
life insurance policies and group accidental death and dismemberment insurance
policies in such jurisdiction, (ii) the date of consummation of assumption
reinsurance of, and novation by the Company with respect to, all Coinsured
Policies in such jurisdiction, and (iii) twenty-four (24) months from the
Reinsurance Closing Date with respect to group life, group accidental death and
dismemberment, long-term disability and survivor income Coinsured Policies, and
thirty (30) months from the date of the Reinsurance Closing Date with respect to
all other Coinsured Policies.
ARTICLE II.
REINSURANCE CLOSING; CONDITIONS TO REINSURANCE CLOSING
2.1 Reinsurance Closing. The closing hereunder for the
reinsurance of the Existing GBO Policies (the "Reinsurance Closing") shall take
place upon the date of satisfaction of the conditions set forth in Section 2.2
below at the offices of Rogers & Wells, 200 Park Avenue, New York, New York
10166 unless the parties shall have agreed in writing to another date (such date
being hereinafter referred to as the "Reinsurance Closing Date"). This
Coinsurance Agreement shall become effective as of 12:01 A.M. Eastern Time on
the Reinsurance Closing Date (the "Effective Time") or such other time and date
as may be agreed by the parties hereto.
2.2 Conditions to Reinsurance Closing. The consummation of the
transactions contemplated under this Coinsurance Agreement on the Reinsurance
Closing Date and the related obligations of the Company and the Reinsurer with
respect
<PAGE> 13
10
thereto are subject to the prior satisfaction of the following conditions,
unless waived in writing by both the Company and the Reinsurer:
(a) the Purchase Agreement shall have been executed and delivered by
the Company and WellPoint.
(b) the Administration Agreement shall have been executed and delivered
by the Company and the Reinsurer, as service provider; and
(c) the Service Agreement shall have been executed and delivered by the
Company, as service provider, and the Reinsurer; and
(d) the Assumption Agreement shall have been executed and delivered by
the Company and the Reinsurer; and
(e) consummation of all other transactions contemplated under the
Purchase Agreement, excluding those transactions contemplated under the
Assumption Agreement to be consummated after the Reinsurance Closing Date, but
including, without limitation, payment by the Reinsurer of the Purchase Price as
required by Section 1.1(b) of the Purchase Agreement, the transfer of all of the
GBO Division Assets and GBO Division Liabilities required to be transferred at
the closing under the Purchase Agreement and not transferred under this
Coinsurance Agreement, as well as the sale of the GBO Subsidiary Shares and the
receipt by the Company or the Reinsurer, as the case may be, of any and all
governmental approvals necessary for the consummation of the transactions
contemplated under this Coinsurance Agreement and the Purchase Agreement.
ARTICLE III.
COINSURED POLICIES
3.1 Coinsured Policies.
(a) From and after the Effective Time, the Company hereby
cedes and the Reinsurer hereby assumes on the terms and conditions and for the
considerations hereinafter contained, a 100% coinsurance share of the Company's
Reserves and Liabilities, after reduction for Third Party Reinsurance, with
respect to Existing GBO Policies and Transition GBO Policies to be issued or
entered into by the Company in the future pursuant to this Article III,
paragraph (c) and Article VI, but excluding (i) the
<PAGE> 14
11
GBO Excluded Business Policies and (ii) liabilities to the extent arising out
of, based upon or relating to bad faith claims practices, willful misconduct,
fraud or gross negligence of the Company or its Affiliates (without attributing
to the Company or its Affiliates the actions of the Reinsurer or its
Affiliates).
(b) It is understood and agreed that the portion of the
Coinsured Policies consisting of the Existing GBO Policies shall be ceded by the
Company and reinsured by the Reinsurer in accordance with the terms, conditions
and limitations specified in Article V herein.
(c) It is further understood and agreed that the portion of
the Coinsured Policies consisting of the Transition GBO Policies shall be issued
and automatically and immediately thereupon ceded by the Company and reinsured
by the Reinsurer in accordance with the terms, conditions and limitations
specified in Article VI herein.
3.2 Liability of Reinsurer. The liability of the Reinsurer
with respect to each cession shall commence obligatorily and simultaneously with
that of the Company according to the terms, conditions and limitations
hereinafter set forth. The Reinsurer shall benefit from all reductions of losses
by compromise, Third Party Reinsurance or otherwise.
3.3 Regulatory Filings and Approvals. The Company and the
Reinsurer agree to cooperate in good faith and use their commercially reasonable
efforts to make all necessary insurance regulatory filings and to obtain all
insurance regulatory approvals required for the consummation of the transactions
contemplated by this Coinsurance Agreement.
ARTICLE IV.
GBO EXCLUDED BUSINESS
4.1 Coinsurance Agreement Inapplicable to GBO Excluded
Business. This Coinsurance Agreement does not apply to and specifically excludes
the GBO Excluded Business. The Company shall retain any and all liabilities and
risks with respect to the GBO Excluded Business Policies, and all profit, loss
or expense from the GBO Excluded Business shall be for the account of the
Company.
4.2 Company's Indemnification for GBO Excluded Business. The
Company shall assume and indemnify fully the Reinsurer and its Affiliates for
any and all damages, costs and
<PAGE> 15
12
expenses, including reasonable attorneys' fees and disbursements, arising out
of, based upon or relating to the GBO Excluded Business.
ARTICLE V.
EXISTING GBO POLICIES
5.1 Reinsurance of Existing GBO Policies at Effective Time.
Effective as of the Effective Time, the Company shall cede, and the Reinsurer
shall accept, on a 100% coinsurance basis, all of the Company's Reserves and
Liabilities, and all risks, past, present and future, except as otherwise
provided herein, with respect to the Existing GBO Policies, after reduction for
Third Party Reinsurance.
5.2 Value of Reserves. The value of the Company's Reserves as
of the Effective Time with respect to the Existing GBO Policies shall be
established by the Closing GAAP Balance Sheet audited by Coopers & Lybrand,
pursuant to the terms and conditions set forth in Section 1.5 of the Purchase
Agreement.
5.3 Reinsurer's Indemnification for Existing GBO Policies. The
Reinsurer shall assume and indemnify fully the Company for any and all damages,
costs and expenses, including reasonable attorneys' fees and disbursements,
arising out of, based upon or relating to the Existing GBO Policies so
transferred to the Reinsurer as of the Effective Time under this Coinsurance
Agreement, including, without limitation, liabilities for Extra Contractual
Obligations; provided, however, that the Reinsurer shall have no obligation to
indemnify hereunder for liabilities to the extent such damages, costs and
expenses arise out of, are based on or are related to any bad faith claims
practices, willful misconduct, fraud or gross negligence of the Company or its
Affiliates (without attributing to the Company or its Affiliates the actions of
the Reinsurer or its Affiliates).
5.4 Company's Indemnification for Existing GBO Policies. The
Company shall assume and indemnify fully the Reinsurer for any and all damages,
costs and expenses, including reasonable attorneys' fees and disbursements,
arising out of, based upon or relating to the Existing GBO Policies to the
extent such damages, costs and expenses arise out of or are based on any bad
faith claims practices, willful misconduct, fraud or gross negligence of the
Company or its Affiliates (without attributing to the Company or its Affiliates
the actions of the Reinsurer or
<PAGE> 16
13
its Affiliates).
ARTICLE VI.
TRANSITION GBO POLICIES
6.1 Issuance of Transition GBO Policies by the Company.
Subject to the limitations contained in Section 6.6 hereof, the Company shall be
obligated to issue Transition GBO Policies in the Permitted Jurisdictions
consisting of GBO Business Policies that are (i) GBO Business Policies issued to
Persons that are not Policyholders as of the Effective Time excluding group term
life insurance policies and group accidental death and dismemberment policies;
provided, however, that no such new GBO Business Policies shall be issued in
Puerto Rico or Guam, (ii) renewal GBO Business Policies (including but not
limited to those required to be issued by law) excluding renewals with respect
to the GBO Excluded Business, (iii) individual converted accident and health
policies issued pursuant to a group GBO Business Policy, and (iv) individual
converted life policies issued pursuant to a group GBO Business Policy other
than any group GBO Business Policy constituting part of the GBO Excluded
Business. The Company shall have no other obligations to issue new or renewal or
converted policies as Transition GBO Policies. In addition, any renewal or
converted policies issued by the Company as required by law after the applicable
Transition Termination Date arising directly or indirectly with respect to any
policy previously reinsured under this Coinsurance Agreement shall constitute
Transition GBO Policies and automatically and immediately be ceded under this
Coinsurance Agreement.
6.2 Reinsurance of Transition GBO Policies. The Company shall
cede and the Reinsurer shall accept, on a 100% coinsured basis, all of the
Company's Reserves and Liabilities, after reduction for Third Party Reinsurance,
if any, and all risks, past, present and future, except as otherwise provided
herein, with respect to the Transition GBO Policies. All Transition GBO Policies
shall be automatically and immediately ceded to the Reinsurer as of the date
such Transition GBO Policies are issued as provided herein.
6.3 Reinsurer's Indemnification for Transition GBO Policies.
The Reinsurer shall assume and indemnify fully the Company for any and all
damages, costs and expenses, including reasonable attorneys' fees and
disbursements, arising out of,
<PAGE> 17
14
based upon or relating to the Transition GBO Policies so transferred to the
Reinsurer under this Coinsurance Agreement, including, without limitation,
liabilities for Extra Contractual Obligations; provided, however, that the
Reinsurer shall have no obligation to indemnify hereunder for liabilities to the
extent they arise out of, are based on or are related to any bad faith claims
practices, willful misconduct, fraud or gross negligence of the Company or its
Affiliates (without attributing to the Company or its Affiliates the actions of
the Reinsurer or its Affiliates).
6.4. Company's Indemnification for Transition GBO Policies.
The Company shall assume and indemnify fully the Reinsurer for any and all
damages, costs and expenses, including reasonable attorneys' fees and
disbursements, arising out of, based upon or relating to the Transition GBO
Policies to the extent such damages, costs and expenses arise out of, are based
on or are related to any bad faith claims practices, willful misconduct, fraud
or gross negligence of the Company or its Affiliates (without attributing to the
Company or its Affiliates the actions of the Reinsurer or its Affiliates).
6.5 Maintenance of Licenses. The Company shall use its
commercially reasonable efforts to maintain its licenses and other approvals in
the Permitted Jurisdictions to the extent necessary to issue and cede the
Transition GBO Policies pursuant to the terms of this Coinsurance Agreement.
6.6 Limitations on Writing of Transition GBO Policies. Unless
otherwise agreed to by the parties hereto, the Company shall not be required to
issue and cede Transition GBO Policies in any amount in any jurisdiction after
the Transition Termination Date for that jurisdiction; except with respect to
any renewal or conversion policies issued by the Company as required by law
after the Transition Termination Date arising directly or indirectly with
respect to any Coinsured Policy previously reinsured under this Coinsurance
Agreement. Notwithstanding any other provision of this Coinsurance Agreement,
prior to the last Transition Termination Date, the Company shall not be required
to issue and cede (i) any Transition GBO Policies if upon issuance thereof the
original gross written premiums for the aggregate of all Transition GBO Policies
issued under this Coinsurance Agreement during the first year after the
Effective Time, determined in accordance with SAP,
<PAGE> 18
15
would exceed an amount equal to 125% of the original gross written premiums for
GBO Included Business during 1996, determined in accordance with SAP, (ii) any
Transition GBO Policies if upon issuance thereof the original gross written
premiums for the aggregate of all Transition GBO Policies issued under this
Coinsurance Agreement during the eighteen (18) months after the termination of
the first year after the Effective Time, determined in accordance with SAP,
would exceed an amount equal to 100% of the original gross written premiums for
GBO Included Business during 1996, determined in accordance with SAP, (iii) any
Transition GBO Policies at any time that the Delaware Insurance Department has
issued a corrective order regarding the risk based capital level of the
Reinsurer and the subject matter of such corrective order has gone uncured for a
period of thirty (30) consecutive days, (iv) any Transition GBO Policies to the
extent that any applicable law, regulation, rule or stated position of a
regulatory authority would prohibit the insurance or reinsurance of such
Transition GBO Policies as contemplated hereunde, or (v) any Transition GBO
Policies issued in a Permitted Jurisdiction, in the event that the Reinsurer's
certificate of authority to do business in such Permitted Jurisdiction has not
been obtained or has been revoked or suspended; provided, however, that the
Company shall issue and cede as Transition GBO Policies renewals of Existing GBO
Policies issued in Maine, New Hampshire, Guam and Puerto Rico. The Company and
the Reinsurer agree that upon the occurrence of any such event described in
clause (iv) of the first sentence of this Section, they will (y) use all
commercially reasonable efforts to construct an arrangement substantially
similar to the reinsurance of the Transition GBO Policies contemplated herein
which avoids the adverse consequences described in the immediately preceding
sentence, in form and substance and with such indemnities as shall be mutually
acceptable to the parties, or (z) use their respective commercially reasonable
efforts to effect as soon as reasonably practicable the complete transfer to the
Reinsurer of the Transition GBO Policies, and all other Coinsured Policies, with
respect to which any of the adverse effects described in the immediately
preceding sentence apply, together with a novation with respect to the Company
for all such Transition GBO Policies and other Coinsured Policies through
assumption reinsurance, cancellation and rewriting of insurance policies or
another
<PAGE> 19
16
arrangement mutually satisfactory to the parties.
ARTICLE VII.
GENERAL PROVISIONS
7.1 Reinsurer's Recordation of Liabilities. The Reinsurer
shall record all Reserves and Liabilities assumed under the terms of this
Coinsurance Agreement on its books and SAP financial statements in accordance
with SAP.
7.2 Administration. The Reinsurer, as service provider, shall
perform administration services with respect to the Coinsured Policies in
accordance with the terms and provisions of the Administration Agreement.
7.3 Authorized Representatives. The Company and the Reinsurer
shall each appoint from time to time one or more individuals who shall serve as
contact person(s) and authorized representative(s) of such party for the purpose
of carrying out this Coinsurance Agreement. Such representatives shall be
authorized to act on behalf of their respective parties as to matters pertaining
to this Coinsurance Agreement. Each party shall notify the other, in writing, as
to the name, address and telephone number for every such designated contact
person and authorized representative, and for every replacement thereof.
7.4 Maintenance and Inspection of Records. The Company shall
retain possession of all books, records, papers or any other documents relating
to the Coinsured Policies that are required by law to be retained in the
possession of the Company in segregated files, in an orderly and organized
condition and in its principal offices in Boston, Massachusetts. All other
books, records, papers and documents relating to the Coinsured Policies shall be
maintained by the Reinsurer, as service provider, pursuant to the terms and
conditions of the Administration Agreement. Each party and its designated
representatives shall have the right to inspect, review and copy the papers and
any and all other books or documents relating to the Coinsured Policies
maintained by the other party under this Coinsurance Agreement or the
Administration Agreement. The rights of the parties under this Section shall
survive termination of this Coinsurance Agreement.
7.5 Misunderstandings and Oversights. If any delay, omission,
error or failure to pay amounts due or to perform any other act required by this
Coinsurance Agreement is unintentional
<PAGE> 20
17
and caused by misunderstanding or oversight, the Company and the Reinsurer will
adjust the situation to what it would have been had the misunderstanding or
oversight not occurred. The party first discovering such misunderstanding or
oversight, or act resulting from the misunderstanding or oversight, will notify
the other party in writing promptly upon discovery thereof, and the parties
shall act to correct such misunderstanding or oversight within thirty (30)
Business Days of receipt of such notice. However, this Section shall not be
construed as a waiver by either party of its right to enforce strictly the terms
of this Coinsurance Agreement.
7.6 Age, Sex and Other Adjustments. If the Company's liability
under any of the Coinsured Policies is changed because of a misstatement of age
or sex or any other material fact, the Reinsurer's liability under such
Coinsured Policies shall be changed in an identical amount.
7.7 Reinstatements. If a Coinsured Policy that is or has been
reduced, terminated, or lapsed is reinstated while this Coinsurance Agreement is
in force, the reinsurance for such Coinsured Policy shall be reinstated
automatically to the amount that would be in force if the Coinsured Policy had
not been reduced, terminated, or lapsed. The Company will pay to the Reinsurer
in accordance with the Administration Agreement all amounts received by the
Company in connection with the reinstatement.
7.8 Contract Changes or Reserve Assumption Changes. The
Company shall not change (a) the terms and conditions of any Coinsured Policies,
or (b) the assumptions, including the statutory Reserve rate assumptions, used
by the Company to establish the Reserves and Liabilities with respect to such
Coinsured Policies without the prior written approval of the Reinsurer as to
such change, except for changes required by any regulatory authority having
jurisdiction over the Coinsured Policies or as otherwise required by law. In the
event that the foregoing terms and conditions or assumptions, as the case may
be, are required to be changed by any regulatory authority having jurisdiction
over the Coinsured Policies, or as otherwise required by law, the Company shall
immediately notify the Reinsurer of such required changes.
7.9 Litigation. The Reinsurer shall be responsible for all
costs and expenses relating to litigation of claims under
<PAGE> 21
18
the Coinsured Policies. The Reinsurer shall have the right of prior approval,
which approval shall not be unreasonably withheld, regarding the conduct, costs
and expenses of such litigation for which the Reinsurer is responsible pursuant
to this Section 7.9. Notwithstanding the foregoing, the Reinsurer shall have no
liability for costs and expenses for any litigation arising out of, based on or
related to any bad faith claims practices, willful misconduct, fraud or gross
negligence of the Company or its Affiliates (without attributing to the Company
or its Affiliates the actions of the Reinsurer or its Affiliates).
ARTICLE VIII.
CONSIDERATION FOR REINSURANCE AND POLICY PREMIUMS
8.1 Assets to be Transferred at Effective Time. In
consideration for the assumption by the Reinsurer of the Company's Reserves and
Liabilities with respect to the Existing GBO Policies, as of the Effective Time,
the Company will transfer and assign to the Reinsurer, and the Reinsurer shall
acquire and accept from the Company, cash and/or Investment Assets with a fair
market value as of close of business on the date immediately preceding the
Closing Date in an amount [determined by management of the GBO Business in good
faith on or immediately prior to the Effective Time and based upon the most
recent financial data available].
8.2 Transition GBO Policies. No commission or reinsurance
premium shall be due or payable in connection with the issuance of the
Transition GBO Policies by the Company, and the reinsurance of the Transition
GBO Policies by Reinsurer, pursuant to Article VI of this Coinsurance Agreement.
8.3 Policy Premiums and Other Amounts. The Reinsurer shall, on
and after the Effective Time, collect and retain any and all gross premiums,
contract fees and any other amounts received on and after the Effective Time
with respect to the Coinsured Policies, less returns and net of premium for
Third Party Reinsurance to the extent such premium relates to the reinsurance of
Coinsured Policies.
ARTICLE IX.
BENEFITS AND OTHER PAYMENTS BY REINSURER
9.1 Benefits. Subject to the other provisions of this
Coinsurance Agreement, the Reinsurer shall assume liability for
<PAGE> 22
19
all benefit obligations with respect to Coinsured Policies, including interest
payable thereon (such benefits are herein referred to as "Benefits").
9.2 Claims. Upon receipt of any information regarding a claim
for Benefits on any Coinsured Policy, the Company will immediately notify the
Reinsurer of such claim. The reinsured claim and copies of notifications, claim
papers, and proofs will be promptly furnished by the Company to the Reinsurer as
provided in the Administration Agreement.
9.3 Claims Payments. The review, payment, settlement or
compromise of all claims and losses relating to the Coinsured Policies shall be
handled by the Reinsurer, in its capacity as service provider, in accordance
with the terms and conditions of the Administration Agreement. The Company will
not contest, compromise, or settle a claim with respect to a Coinsured Policy
without the prior written approval of the Reinsurer, unless otherwise required
by law or any regulatory authority; provided however, that in the event the
Company is so required to contest, compromise or settle a claim it shall give
prompt notice to the Reinsurer of such requirement, but in no event later than
ten (10) Business Days prior to the date of such contestation, compromise or
settlement.
9.4 Remittance of Third Party Reinsurance. The Company shall
promptly pay the Reinsurer all amounts owing from Third Party Reinsurance with
respect to the Coinsured Policies irrespective of the Company's ability to
collect such amounts from any other party to such Third Party Reinsurance. The
Reinsurer shall pay all premiums, Commissions or other amounts due for Third
Party Reinsurance to the extent attributable to reinsurance of Coinsured
Policies. The Company shall have the right to terminate any and all Third Party
Reinsurance with respect to the Coinsured Policies at any time or from time to
time on or after one year following the Effective Time; provided, however, that
the Company shall give the Reinsurer at least ninety (90) days' prior notice of
its intention to cancel any such Third Party Reinsurance.
9.5 Allowance for Commissions and Expenses. The Reinsurer
shall assume liability for all Commissions, taxes and guaranty fund assessments
imposed on or with respect to premiums earned under the Coinsured Policies after
the Effective Time; provided, however, the Reinsurer shall not pay the Company
any
<PAGE> 23
20
allowances or amounts for liabilities for guaranty fund assessments or taxes
that arise from or relate to the Existing GBO Policies and are incurred during
the period ending with the Effective Time.
9.6 Experience Rating Refunds. The Reinsurer shall assume
liability for policyholder experience rating refunds with respect to the
Coinsured Policies relating to periods prior to the Effective Time. A dividend
liability for policyholder experience rating refunds will be established on the
Closing GAAP Balance Sheet.
ARTICLE X.
DUTY OF COOPERATION
10.1 Duty of Cooperation. Each party hereto shall cooperate
fully with the other in all reasonable respects in order to accomplish the
objectives of, and consummate the transactions contemplated under, this
Coinsurance Agreement. This duty to cooperate shall include, but not be limited
to, making available any Coinsured Policy records which either party
subsequently may require to resolve issues related to claims or Reserves or
Liabilities.
ARTICLE XI.
ACCOUNTING AND SETTLEMENT
11.1 Remittances. In connection with all balances under this
Coinsurance Agreement with respect to premiums and Benefits and other amounts
received or to be paid subsequent to the Effective Time, in accordance with the
Administration Agreement, the Company and the Reinsurer shall establish an
account with a bank or trust company with respect to which the Reinsurer shall
have the authority to make deposits and withdrawals. The Company shall have no
authority to make deposits or withdrawals with respect to such account. This
account shall be financed by the Reinsurer for the benefit of the Company and
the Reinsurer. Settlements by the Company to the Reinsurer or by the Reinsurer
to the Company are deemed to take effect as the Reinsurer makes withdrawals from
or deposits into such account. Interest and any other income accruing on this
account shall be retained by the Reinsurer for its own account.
11.2 Quarterly Report. Within thirty (30) Business Days after
the end of each Accounting Period, the Reinsurer, as
<PAGE> 24
21
service provider under the Administration Agreement, shall supply the Company
with a report that shall provide data which shall account for all funds flowing
through the account established pursuant to Section 11.1 during such Accounting
Period and the net amount due by the Company or the Reinsurer, as appropriate
under this Coinsurance Agreement at the end of such Accounting Period. The data
shall be prepared substantially in the form attached hereto as Exhibit A;
provided, however, that the parties may agree from time to time on the precise
format and data which must be supplied on Exhibit A.
11.3 Amounts Due Either Party. Any net amount due from the
Company to the Reinsurer at the end of any Accounting Period shall be paid no
later than ten (10) Business Days after the date on which the Quarterly Report
showing such net amount, as described in Section 11.2 hereof, is due. Any net
amount due from the Reinsurer to the Company shall be paid no later than ten
(10) Business Days following the receipt of such quarterly report from the
Reinsurer. If amounts due to be paid cannot be determined at such dates on an
exact basis, such payments may be determined on an estimated basis, with
adjustments made at the end of subsequent Accounting Periods for actual amounts
ultimately determined to be due.
11.4 Interest on Delayed Payments. Should any payment due to
either the Company or the Reinsurer be delayed, such delayed payment (including
any amount constituting a difference between an estimated and actual amount, as
described in Section 11.3 hereof) will accrue interest at the interest rate for
thirty (30) day United States Treasury bills as reported in The Wall Street
Journal as of the day on which any payment is due for the period that payment is
overdue.
ARTICLE XII.
DURATION AND TERRITORY
12.1 Duration. This Coinsurance Agreement shall remain in full
force and effect for an unlimited time until all obligations hereunder have been
discharged or until the Company and the Reinsurer shall have agreed in writing
to a commutation or termination hereof.
12.2 Reinsurer's Liability. The Reinsurer's liability with
respect to any Coinsured Policy will terminate when the Company's liability
under the Coinsured Policy is terminated.
<PAGE> 25
22
12.3 Territory. This Coinsurance Agreement shall apply to
Coinsured Policies covering lives and risks wherever resident or situated.
ARTICLE XIII.
INSOLVENCY
13.1 Payments by Reinsurer. The Reinsurer hereby agrees that,
as to all reinsurance made, ceded or otherwise becoming effective hereunder, the
reinsurance shall be payable by the Reinsurer on the basis of the liability of
the Company under the Coinsured Policies, without diminution because of the
insolvency, liquidation or rehabilitation of the Company or the appointment of a
conservator, receiver, liquidator or statutory successor of the Company,
directly to the Company or to its conservator, receiver, liquidator, or other
statutory successor.
13.2 Claims. It is agreed that the conservator, receiver,
liquidator or statutory successor of the Company shall give prompt written
notice to the Reinsurer of the pendency or submission of a claim under any
Coinsured Policies. During the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense available to the Company or
its conservator, receiver, liquidator or statutory successor. The expense thus
incurred by the Reinsurer is chargeable against the 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 the Company solely as a
result of the defense undertaken by the Reinsurer. If two or more assuming
reinsurers are involved in the same claim and a majority in interest elect to
interpose defenses to such claim, the expense shall be apportioned in accordance
with the terms of this Section 13.2 as though such expense had been incurred by
the Company.
ARTICLE XIV.
ARBITRATION
14.1 General. Any dispute or difference between the parties
with respect to the operation or interpretation of, or arising from or relating
to, this Coinsurance Agreement on which an amicable understanding cannot be
reached shall be decided by binding arbitration. Arbitration hereunder shall be
pursuant to
<PAGE> 26
23
and in accordance with the terms, conditions and procedures set forth in Article
XV of the Purchase Agreement.
ARTICLE XV.
INDEMNIFICATION
15.1 The Reinsurer. The Reinsurer hereby agrees on demand to
indemnify and hold harmless the Company and its Affiliates, and their respective
officers, directors and employees from and against any and all demands, actions,
proceedings, suits (by any Person, entity or group, including, without
limitation, any Governmental Entity) and Liabilities, paid or incurred
(including reasonable attorneys' fees), resulting from or arising out of the
breach of or failure to perform any of the duties, obligations, covenants or
agreements of the Reinsurer contained in this Coinsurance Agreement.
15.2 The Company. The Company hereby agrees on demand to
indemnify and hold harmless the Reinsurer and its Affiliates, and their
respective officers, directors and employees from and against any and all
demands, actions, proceedings, suits (by any Person, entity or group, including,
without limitation, any Governmental Entity) and Liabilities, paid or incurred
(including reasonable attorneys' fees), resulting from or arising out of the
breach of or failure to perform any of the duties, obligations, covenants or
agreements of the Company contained in this Coinsurance Agreement.
15.3 Indemnification Procedures. Indemnification under
Section 15.1 and 15.2 shall be made using the procedures, terms and conditions
contained in Sections 14.2 and 14.3 of the Purchase Agreement as if fully set
forth herein, with (i) references in Section 14.2(a) to "indemnification under
Section 14.1 of this Agreement" changed to refer to "indemnification under
Section 15.1 or 15.2, as the case may be, of this Coinsurance Agreement", (ii)
the phrase "except as provided in Section 14.1(g) and" deleted in Section
14.2(c), (iii) references in Section 14.3 to "this Article XIV" shall be changed
to refer to "this Section 15.1" or "this Section 15.2", as the case may be, and
(iv) the phrases "and, in any event, within the time period referred to in
Section 14.1(g)" and "So long as Indemnitee provides the Indemnity Notice within
the time period referred to in Section 14.1(g)," deleted from the text of
Section 14.3; provided, however, that such indemnification shall
<PAGE> 27
24
be on a first dollar basis and be without regard to the aggregate of all
indemnifiable losses.
15.4 Survival of Article. This Article shall survive
termination of this Coinsurance Agreement.
ARTICLE XVI.
MISCELLANEOUS PROVISIONS
16.1 No Third Party Beneficiaries. This Coinsurance Agreement
is between the Company and the Reinsurer, and the performance of the obligations
of each party under this Coinsurance Agreement shall be rendered solely to the
other party. In no instance shall anyone other than the Company or the
Reinsurer, or their successors or permitted assigns, have any rights, benefits
or remedies under this Coinsurance Agreement. Until the Reinsurer has reinsured
a Coinsured Policy on an assumption reinsurance basis pursuant to the Assumption
Agreement, the Reinsurer shall not be liable to any insured, contract owner, or
beneficiary under any Coinsured Policy.
16.2 Headings and Exhibit. Headings used herein are inserted
solely for the convenience of reference and are not a part of this Coinsurance
Agreement and shall not affect the terms hereof. The attached Exhibit and
Schedule are a part of this Coinsurance Agreement.
16.3 Notices. All notices hereunder shall be in writing,
addressed as follows, or to such other address as may, from time to time, be
given in accordance with this Coinsurance Agreement:
If to the Company:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
200 Clarendon Street
Boston, MA 02117
Attention: Thomas E. Moloney,
Chief Financial Officer
Telephone: (617) 572-0600
Fax: (617) 572-5170
<PAGE> 28
25
With copies to:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
200 Clarendon Street
Boston, MA 02117
Attention: Michael H. Studley, Esq.
Telephone: (617) 572-9253
Fax: (617) 572-1565
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attention: Paul C. Meyer, Esq.
Telephone: (212) 878-8176
Fax: (212) 878-8375
If to the Reinsurer:
UNICARE LIFE & HEALTH INSURANCE COMPANY
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Leonard D. Schaeffer, Chairman
and Chief Executive Officer
Telephone: (818) 703-3145
Fax: (818) 703-3253
With copies to:
UNICARE LIFE & HEALTH INSURANCE COMPANY
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Thomas C. Geiser, Esq.,
General Counsel
Telephone: (818) 703-2412
Fax: (818) 703-4406
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, CA 94105
Attention: Ronald B. Moskovitz, Esq.
Telephone: (415) 442-0900
Fax: (415) 442-1400
Notices shall be sent by United States mail, by registered or certified mail,
and shall be deemed to have been received
<PAGE> 29
26
three (3) Business Days after deposit in the mail. Notices may also be sent by
hand, by telefax, or by overnight delivery service, and if so given, shall be
deemed received when delivered if a receipt of delivery is obtained.
16.4 Severability. If any term or provision of this
Coinsurance Agreement shall be held void, illegal, or unenforceable, the
validity of the remaining portions or provisions of this Coinsurance Agreement
shall not be affected thereby.
16.5 Assignment. This Coinsurance Agreement may not be
assigned by either party without the prior written consent of the other and any
attempted assignment without such consent shall be void.
16.6 Successors and Assigns. The provisions of this
Coinsurance Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
16.7 Execution in Counterparts. This Coinsurance Agreement may
be executed by the parties hereto in any number of counterparts, and by each of
the parties hereto in separate counterparts, each of which counterparts, when so
executed and delivered, shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
16.8 Amendments. This Coinsurance Agreement may be amended
only by written amendment hereto executed by the parties.
16.9 Waiver. The failure of the Company or Reinsurer to insist
on strict compliance with this Coinsurance Agreement, or to exercise any right
or remedy under this Coinsurance Agreement, shall not constitute a waiver of any
rights provided under this Coinsurance Agreement, nor stop the parties from
thereafter demanding full and complete compliance nor prevent the parties from
exercising such a right or remedy in the future.
16.10 Interpretation. No provision of this Coinsurance
Agreement shall be construed against any party on the ground that such party
drafted the provision or caused it to be drafted.
16.11 Entire Agreement. This Coinsurance Agreement constitutes
the entire agreement and understanding between the parties hereto, and
supersedes all prior agreements, whether oral
<PAGE> 30
27
or written, between the parties, with respect to the subject matter hereof.
16.12 Governing Law. This Coinsurance Agreement shall be
governed by the laws of the Commonwealth of Massachusetts, without giving effect
to principles of conflicts of law thereof.
<PAGE> 31
28
IN WITNESS WHEREOF, the parties hereto have caused this
Coinsurance Agreement to be duly executed by their respective officers thereunto
duly authorized, on this __ day of January, 1997.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:
Name:
-------------------------------
Title:
------------------------------
UNICARE LIFE & HEALTH
INSURANCE COMPANY
By:
Name:
-------------------------------
Title:
------------------------------
<PAGE> 32
Exhibit A
COINSURANCE AGREEMENT
between
THE COMPANY
and
REINSURER
Effective Date __________________
BULK ACCOUNTING STATEMENT
STATEMENT FOR ACCOUNTING PERIOD BEGINNING _________________
SUMMARY OF MONETARY TRANSACTIONS
(1) CONSIDERATION FOR REINSURANCE
(2) COMMISSIONS
(3) EXPENSE ALLOWANCES
(4) BENEFITS (including interest)
(5) EXPERIENCE RATING REFUNDS
NET AMOUNT DUE TO THE COMPANY
NET AMOUNT DUE TO REINSURER
<PAGE> 1
ANNEX C
ASSUMPTION REINSURANCE AGREEMENT
between
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
and
UNICARE LIFE & HEALTH INSURANCE COMPANY
1
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................. 2
ARTICLE II BUSINESS ASSUMED............................................. 8
2.1 Coverage..................................................... 8
2.2 Transfer of Reserves......................................... 8
2.3 Third Party Reinsurance...................................... 8
ARTICLE III ASSUMPTION CERTIFICATES...................................... 9
3.1 Policyholder Notices......................................... 9
3.2 Right to Object.............................................. 9
3.3 Novated Policies............................................. 9
3.4 Direct Obligations........................................... 10
3.5 Release of Company; Indemnity................................ 10
ARTICLE IV GBO EXCLUDED BUSINESS........................................ 11
4.1 Assumption Agreement Inapplicable
__to Excluded Business....................................... 11
4.2 Company's Indemnification for GBO
__Excluded Business.......................................... 11
ARTICLE V GENERAL PROVISIONS........................................... 11
5.1 Policy Administration........................................ 11
5.2 Misunderstanding and Oversights.............................. 11
ARTICLE VI CONSIDERATION FOR ASSUMPTION
REINSURANCE ............................................................. 12
ARTICLE VII DUTY OF COOPERATION.......................................... 12
ARTICLE VIII ARBITRATION.................................................. 12
8.1 General...................................................... 12
ARTICLE IX INDEMNIFICATION......................... 13
9.1 The Company.................................................. 13
9.2 The Reinsurer................................................ 13
9.3 Indemnification Procedurs.................................... 13
ARTICLE X MISCELLANEOUS PROVISIONS..................................... 14
10.1 No Third Party Beneficiaries................................. 14
10.2 Headings and Exhibit......................................... 14
10.3 Notices...................................................... 14
10.4 Severability................................................. 16
10.5 Assignment................................................... 16
10.6 Successors and Assigns....................................... 16
10.7 Execution in Counterparts.................................... 16
10.8 Amendments................................................... 16
10.9 Waiver....................................................... 16
10.10 Interpretation............................................... 16
10.11 Entire Agreement............................................. 17
10.12 Governing Law................................................ 17
10.13 Severability and Governing Law............................... 17
<PAGE> 3
EXHIBITS
A Policyholder Notice
B Certificate of Assumption
C Notice of Objection to Assumption
1
<PAGE> 4
ASSUMPTION REINSURANCE AGREEMENT
This Assumption Reinsurance Agreement (the "Assumption Agreement"), is
made and entered into as of the Effective Time (as hereinafter defined), by and
between JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, a mutual life insurance
company organized under the laws of Massachusetts ("the Company"), and UNICARE
LIFE & HEALTH INSURANCE COMPANY, a stock life insurance company organized under
the laws of Delaware ("the Reinsurer").
WHEREAS, the Company and WellPoint Health Networks Inc., a California
corporation ("WellPoint") and the indirect parent of the Reinsurer, have entered
into a Purchase and Sale Agreement, dated as of October 10, 1996 (the "Purchase
Agreement"), which provides for the sale by the Company to WellPoint of the "GBO
Included Business" (as hereinafter defined);
WHEREAS, to effect such sale of the GBO Included Business, the Purchase
Agreement provides for, among other things, the sale and transfer by the Company
to the Reinsurer of the GBO Division Assets (as hereinafter defined) and the
assignment by the Company, and assumption by Reinsurer, of the GBO Division
Liabilities (as hereinafter defined), as well as the sale by John Hancock
Subsidiaries, Inc., a wholly-owned subsidiary of the Company, of the GBO
Subsidiary Shares (as hereinafter defined) to WellPoint;
WHEREAS, the Company and the Reinsurer have entered into a Coinsurance
Agreement, as of the date hereof, pursuant to which the Company has agreed to
cede to the Reinsurer, and the Reinsurer has agreed to accept and indemnity
reinsure, on a 100% coinsurance basis, all of the Reserves and Liabilities (as
hereinafter defined) arising under or with respect to the Coinsured Policies (as
hereinafter defined) as contemplated by the Purchase Agreement (the "Coinsurance
Agreement");
WHEREAS, certain of the GBO Division Assets are to be sold and
transferred by the Company to the Reinsurer, and certain of the GBO Division
Liabilities are to be assigned by the Company and assumed by the Reinsurer,
under the Coinsurance Agreement; and
WHEREAS, the Reinsurer has agreed to perform administrative services
with respect to the Coinsured Policies pursuant to an administration agreement
(the "Administration Agreement") entered into between the Company and the
Reinsurer as of the Effective Time (as hereinafter defined); and
WHEREAS, the Purchase Agreement provides that the Reinsurer shall have
the right, in its sole discretion, to elect
<PAGE> 5
to assumption reinsure the Coinsured Policies, with a concurrent novation and
complete release of the Company from any liability under such Coinsured
Policies, on a state by state basis after the Effective Time upon the receipt of
any and all applicable regulatory approvals and notice to relevant Policyholders
followed by expiration of the applicable period with no opt out by such
Policyholders or the obtaining of required consents from such Policyholders, as
the case may be, under the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the Company and the Reinsurer mutually agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Assumption Agreement, the following capitalized terms
shall have the following meanings (definitions are applicable to both the
singular and the plural forms of each term defined in this Article_I):
"Administration Agreement" shall have the meaning set forth in the
third recital hereof.
"Affiliate" of a specified Person means a Person that (at the time when
the determination is to be made) directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified Person. As used in the foregoing sentence, the terms "control"
(including, with correlative meaning, the terms "controlling," "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise.
"Business Day" means any day (other than a Saturday or Sunday) on which
banks are permitted to be open and transact business in Boston, Massachusetts
and Los Angeles, California.
"Certificate of Assumption" shall have the meaning set forth in Section
3.1.
"Coinsurance Agreement" shall have the meaning set forth in the fourth
recital hereof.
"Coinsurance Closing Date" shall have the meaning set forth in
Section_2.1 of the Coinsurance Agreement.
3
<PAGE> 6
"Coinsured Policies" means the Existing GBO Policies and the Transition
GBO Policies.
"Effective Time" means 12:01 A.M. Eastern Time on the Reinsurance
Closing Date.
"Existing GBO Policies" means all GBO Business Policies other than GBO
Excluded Business Policies issued by the Company before the Effective Time which
are in effect on the Effective Time and such GBO Business Policies not in effect
on the Effective Time, for which Reserves have been established on the Closing
GAAP Balance Sheet, which will be coinsured by Reinsurer at the Effective Time
(but excluding all coverages other than life, accidental death and
dismemberment, survivor income benefits, long-term disability and short-term
disability coverages which expired more than three (3) years prior to the
Effective Time and which are part of the GBO Included Business) pursuant to the
Coinsurance Agreement.
"GBO Business" means the United States, Puerto Rico and Guam group
benefit operations of the Company, including the ASO Contracts business, the
group health, group dental, group vision, group long-term disability, group
short-term disability, group accident and sickness, and group pharmacy business,
the business conducted by the GBO Subsidiaries, network arrangements, group life
businesses, group accidental death and dismemberment business, individual
accident and health converted business and individual life converted business,
but excluding the business conducted by HealthPlan Management Services, Inc.,
long-term care insurance, group creditor insurance and all insurance business
written, placed or serviced outside of the United States by the International
Group Program business unit of the Company either directly by the Company or
through John Hancock Services Internacionais S/C Limitada, John Hancock
International Services, S.A. and John Hancock International Services Pte, Ltd.,
by the Maritime Life Assurance Company, by P.T. Asuransi Jiwa Bumiputera John
pancock, by P.T. Indras Insan Jaya Utama, by John Hancock Life Insurance
(Malaysia) Berhad, by John Hancock Life Assurance Company, Ltd., and by The
Interlife Assurance Public Company Ltd. or otherwise by the Company or any of
its Affiliates.
"GBO Business Policies" means all Insurance Policies issued in the
United States, Puerto Rico or Guam by the Company as part of the GBO Business.
"GBO Division Assets" means the GBO Included Assets held directly by
the Company.
"GBO Division Liabilities" means the GBO Included Liabilities which are
direct obligations of the Company.
<PAGE> 7
"GBO Excluded Business" means (i)_all group life insurance business
and/or group accidental death and dismemberment business constituting part of
the GBO Business engaged in directly by the Company ("Life or ADD") but issued
to clients of the GBO Business who are not also clients of the GBO Business with
respect to ASO Contracts business, group health, group dental, group vision,
group long-term disability, group short-term disability, group accident and
sickness, group pharmacy or network arrangements business engaged in directly by
the Company ("Accident and Health") provided, however, that notwithstanding the
foregoing, the following shall constitute GBO Excluded Business:
(w) any Life or ADD policy which after June 30, 1996 and prior to the
date of the Purchase Agreement is sold to or committed to a
client (and disclosed to WellPoint) which was an Accident and
Health client of the GBO Business as of June 30, 1996, regardless
as to when such Life or ADD policy is actually effective,
executed or delivered;
(x) any Life or ADD policy which became effective prior to July 1,
1996 with respect to a client which subsequent to June 30, 1996
and prior to the Effective Time becomes an Accident and Health
client of the GBO Business;
(y) all guaranteed access accounts constituting part of the GBO
Business, other than such accounts affiliated with the Company,
Ford Motor Company and Digital Equipment Corporation; and
(z) all supplementary contracts without life contingencies
constituting part of the GBO Business, other than such contracts
with Ford Motor Company; and
(ii) all individual life converted insurance policies issued
prior to the Effective Time relating to or arising from the GBO Business.
"GBO Excluded Business Policies" means all Insurance Policies
constituting part of the GBO Excluded Business.
"GBO Included Assets" means all right, title and interest in and to
(i)_every species of property other than Investment Assets, real, personal and
mixed, tangible and
5
<PAGE> 8
intangible, used primarily or exclusively in the conduct of the GBO Included
Business as of the Effective Time with such modifications and adjustments as are
set forth in Section 1.1(a) of the Purchase Agreement, and the rights under all
GBO Included Contracts as of the Effective Time, and (ii)_such amount of cash
and Investment Assets as are required to be transferred from the Company to
WellPoint and/or the Reinsurer under Section 8.1 of the Coinsurance Agreement
and Section 1.5 of the Purchase Agreement.
"GBO Included Business" means the GBO Business other than the GBO
Excluded Business.
"GBO Included Contract" means a Contract relating primarily or
exclusively to the GBO Included Business and to which the Company or one of the
GBO Subsidiaries is a party and which is in effect as of the Effective Time.
"GBO Included Liabilities" means those liabilities and
obligations of the Company and the GBO Subsidiaries under the GBO Included
Contracts and those liabilities and obligations as of the Effective Time of
the GBO Included Business for which, in accordance with the Company's past
accounting practices and procedures, amounts would be included within the
categories of liabilities identified on the Form of Closing GAAP Balance
Sheet, with such modification and adjustments as are set forth in Section
1.1(a) of the Purchase Agreement. All of the GBO Included Liabilities shall
have been incurred by Company or the GBO Subsidiaries, as the case may be,
in the ordinary course of business and shall be within the categories
reflected in the Closing GAAP Balance Sheet.
"GBO Subsidiaries" means Cost Care, Inc., TriState, Inc. and
Hancock Association Services Group, Inc.
"GBO Subsidiary Shares" means all of the capital stock of Cost Care,
Inc. and Hancock Association Services Group, Inc., and the 60% of the capital
stock of TriState, Inc. owned by John Hancock Subsidiaries, Inc.
"Insurance Policies" means all insurance policies, contracts, binders
or certificates of insurance (including certificates issued with respect to
group insurance policies), and all riders, endorsements and amendments thereto,
whether written or oral.
"Investment Assets" means cash, United States Treasury securities or
publicly traded bonds of United States corporations rated NAIC_Category 1 or 2
by the Securities Valuation Office of the National Association of Insurance
Commissioners.
6
<PAGE> 9
"Novated Policies" means the Coinsured Policies with respect to which
no rejection of assumption has been filed by a Policyholder pursuant to the
terms of Section 3.2 of this Assumption Agreement (or with respect to which
other applicable regulatory requirements have been met), and with respect to
which the terms of Section 3.4 apply.
"Permitted Jurisdictions" means the fifty states of the United States,
the District of Columbia, Puerto Rico and Guam.
"Person" means any corporation, individual, joint stock company, joint
venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust or other entity.
"Policyholder" means a holder of a Coinsured Policy (or a
certificateholder under a Coinsured Policy to the extent that applicable law
grants such certificateholder the right to notification of, and to opt out or
consent to, assumption reinsurance of a Coinsured Policy).
"Purchase Agreement" shall have the meaning set forth in the first
recital hereof.
"Reserves" means the Company's reserves computed as of a specified date
and relating to the Company's business with respect to the Coinsured Policies
for all amounts of (i)_unearned premiums and (ii)_all losses and all loss
adjustment expenses, net of Third Party Reinsurance, calculated under SAP and as
would be described in the Company's Statutory Annual Statement on exhibits 8, 9,
10 or 11 (or any other exhibit then applicable) to such Statutory Annual
Statement of "Liabilities, Surplus and Other Funds" as if such Annual Statement
were being filed as of such specified date.
"Reserves and Liabilities" means all of the Reserves and other
liabilities and associated rights and obligations arising under the Coinsured
Policies including, but not limited to, liabilities for Benefits, surrenders,
returns and premium refunds, but excluding liabilities for guaranty fund
assessments and taxes that arise from or relate to the Existing GBO Policies and
are incurred during the period ending with the Effective Time.
"Third Party Reinsurance" shall mean all contracts of reinsurance with
The Maritime Life Assurance Company and independent parties unaffiliated with
the Company or any of its
7
<PAGE> 10
Affiliates under which the Company's Reserves and Liabilities with respect to
the Coinsured Policies or some portion thereof are transferred, whether or not
such contracts of reinsurance are also applicable to business other than the
Coinsured Policies.
"Transition GBO Policies" means all GBO Business Policies that are
issued or renewed by the Company after the Effective Time and coinsured by the
Reinsurer pursuant to Article VI of the Coinsurance Agreement.
"Transition Termination Date" means, with respect to Coinsured Policies
in each Permitted Jurisdiction, the earliest of (i)_ninety (90) days after the
date that Reinsurer has obtained all licenses and form and rate approvals
necessary to write all of the GBO Business Policies other than group term life
insurance policies and group accidental death and dismemberment insurance
policies in such jurisdiction, (ii)_the date of consummation of assumption
reinsurance of, and novation by the Company with respect to, all Coinsured
Policies in such jurisdiction, and (iii)_twenty-four (24) months from the
Reinsurance Closing Date with respect to group term life, group accidental death
and dismemberment, long-term disability and survivor income Coinsured Policies,
and thirty (30) months from the date of the Reinsurance Closing Date with
respect to all other Coinsured Policies.
ARTICLE II
BUSINESS ASSUMED
2.1. Coverage. From time to time after the Effective Time and upon the
terms and subject to the conditions and other provisions of this Assumption
Agreement and any required governmental and regulatory consents and approvals,
the Company, if requested to do so by the Reinsurer, hereby agrees to cede to
the Reinsurer and the Reinsurer hereby agrees to accept and reinsure, on an
assumption basis, any Coinsured Policy. Reinsurance pursuant to this Section_2.1
shall occur no less frequently than on a monthly basis; provided, however, that
reinsurance may occur more frequently if the parties hereto agree.
2.2 Transfer of Reserves. Notwithstanding the provisions of Section 2.1
hereof, the Reinsurer will not be deemed to have accepted and reinsured, on an
assumption basis, any Coinsured Policy unless the Reserves underlying such
Coinsured Policy shall have been ceded by the Company to the Reinsurer, and
accepted by the Reinsurer, pursuant to Article V of the Coinsurance Agreement,
effective as of the Effective Time.
2.3. Third Party Reinsurance. If any of the Coinsured
<PAGE> 11
Policies ceded to the Reinsurer pursuant to Section 2.1 hereof are reinsured
under Third Party Reinsurance at the time of assumption by the Reinsurer, then,
at the request of the Reinsurer, the Company will make commercially reasonable
efforts to obtain the consent of the Third Party Reinsurer to the transfer and
assignment to the Reinsurer of such Third Party Reinsurance. If such consent is
granted by the Third Party Reinsurer, then the Company will transfer and assign
to the Reinsurer, for no additional consideration, all of its rights, interests
and obligations under any such Third Party Reinsurance.
ARTICLE III
ASSUMPTION CERTIFICATES
3.1. Policyholder Notices. Upon the request of the Reinsurer to
reinsure, on an assumption basis, a Coinsured Policy pursuant to Section_2.1
hereof, and to the extent that the reinsurance of such Coinsured Policy is
permitted under applicable laws, rules or regulations or stated positions of
regulatory authorities, the Reinsurer shall prepare, with the cooperation of the
Company, a Policyholder notice, Certificate of Assumption and objection form,
and mail them to the Policyholder of such Coinsured Policy. Subject to
regulatory requirements of the various states, the Policyholder notices,
Certificates of Assumption and objection forms to be delivered to Policyholders
pursuant to this Section 3.1 shall be substantially in the forms attached hereto
as Exhibits A, B and C, respectively.
3.2. Right to Object. Subject to regulatory requirements of the various
states, the Company and the Reinsurer agree that a Policyholder will be allowed
to remain a Policyholder of the Company if such Policyholder refuses to effect
the assumption of its Coinsured Policy in accordance with this Article III
during the applicable period set forth in the Policyholder notice, and all of
the rights and obligations of the Company and the Policyholder under such
Coinsured Policy and of the Company and the Reinsurer under the Coinsurance
Agreement with respect to such Coinsured Policy, shall remain the same.
3.3. Novated Policies. In the event that a Coinsured Policy defined
herein as a Novated Policy is determined by applicable regulatory authorities or
by judicial decision (in either case, following the exhaustion of all rights of
appeal) not to have been novated, such Coinsured Policy shall, for all
9
<PAGE> 12
purposes of this Assumption Agreement, be deemed never to have been a Novated
Policy. Notwithstanding the foregoing, the fact that a Coinsurance Policy has
not been or cannot be assumed and novated by the Reinsurer pursuant to the terms
and conditions of this Assumption Agreement, for whatever reason, shall in no
event cause it not to be a Coinsured Policy under the Coinsurance Agreement.
3.4. Direct Obligations. The Reinsurer shall be the successor to the
Company under the Novated Policies as if the Novated Policies were direct
obligations originally issued by the Reinsurer. The Reinsurer shall be
substituted in the place and stead of the Company, and each Policyholder,
insured or beneficiary under a Novated Policy shall disregard the Company as a
party thereto and treat the Reinsurer as if it had been originally obligated
thereunder. Such persons shall have the right to file claims or take other
actions under the Novated Policies on or after the effective date of such
novation directly with the Reinsurer, and shall have a direct right of action
for insurance liabilities reinsured thereunder against the Reinsurer, and the
Reinsurer hereby consents to be subject to direct action taken by any such
persons under a Novated Policy. The Reinsurer accepts and assumes the Novated
Policies subject to any and all defenses, setoffs and counterclaims to which the
Company would be entitled with respect to such insurance liabilities, it being
expressly understood and agreed by the parties hereto that no such defenses,
setoffs or counterclaims are waived by the execution of this Assumption
Agreement or the consummation of the transactions contemplated hereby and that
the Reinsurer shall be fully subrogated to all such defenses, setoffs and
counterclaims.
3.5 Release of Company; Indemnity. Upon the consummation of the
assumption reinsurance of a Coinsured Policy from the Company to the Reinsurer
under this Assumption Agreement, the Company shall be released from any and all
liability with respect to such Coinsured Policy, except as may otherwise be
expressly set forth in the Transaction Documents. From and after the
consummation of the assumption reinsurance of a Coinsured Policy pursuant to
this Assumption Agreement, the Reinsurer shall assume and indemnify fully the
Company for any and all damages, costs and expenses, including reasonable
attorneys' fees and disbursements, arising out of, based upon or relating to
such Novated Policy, including, without limitation, liabilities for Extra
Contractual Obligations; provided, however, that the Reinsurer shall have no
obligation to indemnify the Company for any such damages, costs and expenses
arising out of,
<PAGE> 13
based on or relating to any bad faith claims practices, willful misconduct,
fraud or gross negligence of the Company or its Affiliates (without attributing
to the Company or its Affiliates the actions of the Reinsurer or its
Affiliates).
ARTICLE IV
GBO EXCLUDED BUSINESS
4.1 Assumption Agreement Inapplicable to Excluded Business This
Assumption Agreement does not apply to and specifically excludes the GBO
Excluded Business. The Company shall retain any and all liabilities and risks
with respect to the GBO Excluded Business Policies, and all profit, loss or
expense from the GBO Excluded Business shall be for the account of the Company.
4.2 Company's Indemnification for GBO Excluded Business. The Company
hereby agrees on demand to indemnify and hold harmless the Reinsurer and its
Affiliates, and their respective officers, directors and employees from and
against any and all damages, costs and expenses, including reasonable attorneys'
fees and disbursements, arising out of, based upon or relating to the GBO
Excluded Business.
ARTICLE V
GENERAL PROVISIONS
5.1. Policy Administration. To the extent that such transfers have not
already taken place pursuant to the terms and conditions of the Administration
Agreement, the Company agrees to cooperate fully with the Reinsurer in the
transfer of all books, records, papers or any other documents relating to such
Novated Policies.
5.2. Misunderstandings and Oversights. If any delay, omission, error or
failure to pay amounts due or to perform any other act required by this
Assumption Agreement is unintentional and caused by misunderstanding or
oversight, the Company and the Reinsurer will adjust the situation to what it
would have been had the misunderstanding or oversight not occurred. The party
first discovering such misunderstanding or oversight, or act resulting from the
misunderstanding or oversight, will notify the other party in writing promptly
upon discovery thereof, and the parties shall act to correct such
misunderstanding or oversight within thirty (30) Business Days of receipt of
such notice. However, this Section shall not be construed as a waiver by
11
<PAGE> 14
either party of its right to enforce strictly the terms of this Assumption
Agreement.
ARTICLE VI
CONSIDERATION FOR ASSUMPTION REINSURANCE
The consideration provided for in Article VIII of the Coinsurance
Agreement shall be the consideration for the assumption of the Novated Policies
(as direct obligations) by the Reinsurer, and there shall be no additional
consideration or premium due or payable under this Assumption Agreement.
ARTICLE VII
DUTY OF COOPERATION
Each party hereto shall cooperate fully with the other in all
reasonable respects in order to accomplish the objectives of this Assumption
Agreement. This duty to cooperate shall include obtaining the governmental and
regulatory consents and approvals and taking the other steps necessary for the
assumption of the Coinsured Policies, as described in Article III hereof. In
addition, this duty to cooperate shall include making available any Coinsured
Policy records which either party subsequently may require to resolve issues
related to claims or liabilities. The Company and the Reinsurer agree to perform
such additional acts and execute such additional documents and agreements as may
be necessary or desirable to carry out the purposes and objectives of this
Assumption Agreement; provided however, that the Reinsurer shall reimburse the
Company for reasonable out-of-pocket expenses incurred by the Company as a
result thereof.
ARTICLE VIII
ARBITRATION
8.1. General. Any dispute or difference between the parties with
respect to the operation or interpretation of, or arising from or relating to,
this Assumption Agreement on which an amicable understanding cannot be reached
shall be decided by binding arbitration. Arbitration hereunder shall be pursuant
to and in accordance with the terms, conditions and procedures set forth in
Article XV of the Purchase Agreement.
ARTICLE IX
INDEMNIFICATION
9.1. The Company. The Company hereby agrees on demand to indemnify and
hold harmless the Reinsurer and its Affiliates, and their respective officers,
directors and employees from and against any and all demands, actions,
proceedings, suits (by any person, entity or group, including, without
limitation, any governmental entity) and liabilities,
<PAGE> 15
paid or incurred (including reasonable attorneys' fees), resulting from or
arising out of the breach of or failure to perform any of the duties,
obligations, covenants or agreements of the Company contained in this Assumption
Agreement.
9.2. The Reinsurer. The Reinsurer hereby agrees on demand to indemnify
and hold harmless the Company and its Affiliates, and their respective officers,
directors and employees from and against any and all demands, actions,
proceedings, suits (by any person, entity or group, including, without
limitation, any governmental entity) and liabilities, paid or incurred
(including reasonable attorneys' fees), resulting from or arising out of the
breach of or failure to perform any of the duties, obligations, covenants or
agreements of the Reinsurer contained in this Assumption Agreement.
9.3 Indemnification Procedures. Indemnification under Section 9.1 and
9.2 hereof shall be made using the procedures, terms and conditions contained in
Section 14.2 and 14.3 of the Purchase Agreement as if fully set forth herein,
with (i)_references in Section 14.2(a) to "indemnification under Section 14.1 of
this Agreement" changed to refer to "indemnification under Section 9.1 or 9.2
hereof, as the case may be, of this Assumption Agreement", (ii)_the phrase
"except as provided in Section 14.1(g) and" deleted in Section 14.2(c),
(iii)_references in Section 14.3 to "this Article XIV" shall be changed to refer
to "this Section 9.1" or "this Section 9.2", as the case may be, and (iv)_the
phrases "and, in any event, within the time period referred to in Section
14.1(g)" and "So long as Indemnitee provides the Indemnity Notice within the
time period referred to in Section 14.1(g)," deleted from the text of Section
14.3.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. No Third Party Beneficiaries. This Assumption Agreement is
between the Company and the Reinsurer, and the performance of the obligations of
each party under this Assumption Agreement shall be rendered solely to the other
party. In no instance shall anyone other than the Company or the Reinsurer, or
their successors or permitted assigns, have any rights, benefits or remedies
under this Assumption Agreement. Until the Reinsurer has reinsured a Coinsured
Policy on an
13
<PAGE> 16
assumption reinsurance basis pursuant to this Assumption Agreement, the
Reinsurer shall not be liable to any insured, contract owner, or beneficiary
under any Coinsured Policy.
10.2. Headings and Exhibit. Headings used herein are inserted solely
for the convenience of reference and are not a part of this Assumption Agreement
and shall not affect the terms hereof. The attached Exhibits are part of this
Assumption Agreement; provided, however, that in the event of a conflict or
difference in the terms and conditions of this Assumption Agreement (other than
the Exhibits) and the Exhibits, the terms and conditions of the Assumption
Agreement (other than the Exhibits) shall control.
10.3. Notices. All notices hereunder shall be in writing, addressed as
follows, or to such other address as may, from time to time, be given in
accordance with this Assumption Agreement:
If to the Company:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Thomas E. Moloney,
Chief Financial Officer
Telephone: (617) 572-0600
Fax: (617) 572-5170
With copies to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Michael H. Studley, Esq.
Telephone: (617) 572-9253
Fax: (617) 572-1565
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attention: Paul C. Meyer, Esq.
Telephone: (212) 878-8176
Fax: (212) 878-8375
<PAGE> 17
If to the Reinsurer:
UniCARE Life & Health Insurance Company
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Leonard D. Schaeffer, Chairman
and Chief Executive Officer
Telephone: (818) 703-3145
Fax: (818) 703-3253
With copies to:
UniCARE Life & Health Insurance Company
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Thomas C. Geiser, Esq.,
General Counsel
Telephone: (818) 703-2412
Fax: (818) 703-4406
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, CA 94105
Attention: Ronald B. Moskovitz, Esq.
Telephone: (415) 442-0900
Fax: (415) 442-1400
Notices shall be sent by United States mail, by registered or certified mail,
and shall be deemed to have been received three (3) Business Days after deposit
in the mail. Notices may also be sent by hand, by telefax, or by overnight
delivery service, and if so given, shall be deemed received when delivered if a
receipt of delivery is obtained.
10.4. Severability. If any term or provision of this Assumption
Agreement shall be held void, illegal, or unenforceable, the validity of the
remaining portions or provisions of this Assumption Agreement shall not be
affected thereby.
10.5. Assignment. This Assumption Agreement may not be assigned by
either party without the prior written consent of the other and any attempted
assignment without such consent shall be void.
15
<PAGE> 18
10.6. Successors and Assigns. The provisions of this Assumption
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors and permitted assigns.
10.7. Execution in Counterparts. This Assumption Agreement may be
executed by the parties hereto in any number of counterparts, and by each of the
parties hereto in separate counterparts, each of which counterparts, when so
executed and delivered, shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
10.8. Amendments. This Assumption Agreement may be amended only by
written amendment hereto executed by the parties.
10.9. Waiver. The failure of the Company or Reinsurer to insist on
strict compliance with this Assumption Agreement, or to exercise any right or
remedy under this Assumption Agreement, shall not constitute a waiver of any
rights provided under this Assumption Agreement, nor estop the parties from
thereafter demanding full and complete compliance nor prevent the parties from
exercising such a right or remedy in the future.
10.10. Interpretation. No provision of this Assumption Agreement shall
be construed against any party on the ground that such party drafted the
provision or caused it to be drafted.
10.11. Entire Agreement. This Assumption Agreement constitutes the
entire agreement and understanding between the parties hereto, and supersedes
all prior agreements, whether oral or written, between the parties, with respect
to the subject matter hereof.
10.12. Governing Law.This Assumption Agreement shall be governed by the
laws of the Commonwealth of Massachusetts, without giving effect to principles
of conflicts of law thereof.
10.13. Severability and Governing Law. If any term or provision of this
Assumption Agreement shall be held void, illegal, or unenforceable, the validity
of the remaining portions or provisions shall not be affected thereby. This
Assumption Agreement shall be governed by the laws of the Commonwealth of
Massachusetts, without giving effect to principles of conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Assumption
Agreement to be executed by their respective officers thereunto duly authorized,
on this __ day of January, 1997.
<PAGE> 19
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: ____________________________________
Name:
Title:
UNICARE LIFE & HEALTH
INSURANCE COMPANY
By: ____________________________________
Name:
Title:
1
<PAGE> 20
Exhibit A
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
UNICARE LIFE & HEALTH INSURANCE COMPANY
________________,199__
Dear Policyholder:
We are pleased to notify you that through an agreement reached between
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY (the "Company") and UNICARE LIFE &
HEALTH INSURANCE COMPANY ("the Reinsurer"), the Reinsurer will become your
insurer and assume all liabilities, rights and duties of the insurer under your
policy.
Your rights as a policyholder will not be affected by this change in
insurance companies. All terms, obligations and values will remain the same. The
Reinsurer will perform all duties previously performed by the Company.
Your policy is identified in the enclosed Certificate of Assumption,
which should be attached to your policy.
While no action is required on your part to effect the transfer, you do
have the right to object by completing the enclosed form and returning it
together with the Certificate of Assumption in the accompanying postage-paid
envelope within thirty (30) days of the date of this notice.
If the objection notice is not received by the deadline, you will be
deemed to have accepted the transfer of your policy and will have no future
claims against the Company.
The Reinsurer is licensed to write this coverage in your state, and the
assumption agreement between the Company and the Reinsurer has been approved by
the Department of Insurance in Delaware, the domicile state of the Company [and
the Department of Insurance of your state].
If you have any questions about the assumption agreement or the
Reinsurer, please call us toll-free at [1-800-___-____]. Written inquiries can
be mailed to:
UniCARE Life & Health Insurance Company
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
It is our privilege to serve you.
Sincerely,
UNICARE LIFE & HEALTH INSURANCE COMPANY
By: __________________________________
<PAGE> 21
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: __________________________________
1
<PAGE> 22
Exhibit B
UNICARE LIFE & HEALTH INSURANCE COMPANY
[ , Massachusetts]
CERTIFICATE OF ASSUMPTION
[Policy Number]
You are hereby notified that UniCARE Life & Health Insurance Company
("the Reinsurer") has, effective as of _________, 199_ (the "Effective Date"),
assumed liability for your policy of insurance with John Hancock Mutual Life
Insurance Company (the "Company").
From and after _________, 199_, all references in the policy to the
Company are hereby changed to the Reinsurer. The Reinsurer has assumed all
liabilities, rights and duties under your policy. You have no future claims
against the Company.
Your rights as a policyholder will not be affected by the changes in
insurance companies.
All correspondence and inquiries, including notices of claims, should
be submitted to:
UniCARE Life & Health Insurance Company
[ , Massachusetts]
This Certificate of Assumption forms a part of and should be attached
to your insurance policy issued to you by the Company.
IN WITNESS WHEREOF, UniCARE Life & Health Insurance Company has caused
this Certificate of Assumption to be duly signed and issued.
------------------------- ---------------------------
Secretary President
<PAGE> 23
Exhibit C
NOTICE OF OBJECTION TO ASSUMPTION
Complete and return this form only if you object
to the assumption of your policy by
UniCARE Life & Health Insurance Company
To: UniCARE Life & Health Insurance Company
[ , Massachusetts]
Dear UniCARE Life & Health Insurance Company:
I hereby notify you that I object to the assumption by UniCARE Life &
Health Insurance Company of the [ ] policy which was issued by John Hancock
Mutual Life Insurance Company. I would like John Hancock Mutual Life Insurance
Company to remain as my insurer. Enclosed is the Assumption Certificate which
you sent to me.
POLICY NUMBER:
- --------------
DATE: POLICYHOLDER SIGNATURE
- -------------- ---------------------------
---------------------------
PRINT OR TYPE NAME
<PAGE> 1
ANNEX D
LIMITED LICENSE AGREEMENT
This Limited License Agreement (the "Agreement") dated as of January
___, 1997, between John Hancock Mutual Life Insurance Company, a mutual life
insurance corporation organized and existing under the laws of the Commonwealth
of Massachusetts ("Licensor") and Unicare Life & Health Insurance Company, a
stock life insurance company organized and existing under the laws of the State
of Delaware ("Licensee") is the License Agreement contemplated by the Purchase
and Sale Agreement between Licensor and Licensee dated as of October 10, 1996
(the "Purchase Agreement").
W I T N E S S E T H
WHEREAS, Licensor is the owner of rights (including, without
limitation, common law rights and registered state and federal copyrights,
trademarks and service marks) in the Territory (as defined below) in and to the
names set forth on Schedule A and any abbreviation, derivation, colorable
imitation or variation thereof (the "Names"), and the goodwill associated
therewith including, but not limited to, the registrations and applications set
forth in Schedule A attached hereto and made a part hereof (collectively, the
"Name Rights");
WHEREAS, Licensor is transferring to Licensee (as defined below) the
GBO Included Business (as defined in the Purchase Agreement) consisting of
certain assets of Licensor as described in the Purchase Agreement;
WHEREAS, Licensor and Licensee are entering into a Coinsurance
Agreement (the "Coinsurance Agreement") on the date hereof under which the
Licensor will cede, and the Licensee will reinsure, on a 100% coinsurance basis,
certain Reserves and Liabilities under the Coinsured Policies which consist of
the Existing GBO Policies and the Transition GBO Policies (the terms "Reserves
and Liabilities," "Insurance Policies," "Coinsured Policies," "Existing GBO
Policies," and "Transition GBO Policies" having the meanings set forth in the
Purchase Agreement, or, if not defined in the Purchase Agreement, the
Coinsurance Agreement);
WHEREAS, Licensor and Licensee are entering into an Administration
Agreement (the "Administration Agreement") on the date hereof whereby Licensee
agrees to perform for Licensor services required for the administration of the
Coinsured Policies;
WHEREAS, pursuant to Section 8.5 of the Purchase Agreement, Licensor
has agreed to grant to Licensee the right and license to use the Names as
provided in this License Agreement in the performance of the services required
to be performed by Licensee under the Administration Agreement and the
Coinsurance Agreement and the
<PAGE> 2
consummation of the transactions contemplated by the Purchase Agreement
(including the Transaction Documents referenced therein);
WHEREAS, subject to the terms and conditions hereinafter set forth,
Licensee desires to obtain such license as contemplated in the Purchase
Agreement and Licensor is willing to grant to Licensee such license;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the parties agree as follows:
A G R E E M E N T
1. Certain Definitions
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Purchase Agreement.
"Agreement" means this License Agreement as it may be amended from time
to time.
"Licensee" means Unicare Life & Health Insurance Company and any
successor (including, but not limited to, the surviving company of any merger or
reorganization involving the Licensee) or permitted assignee thereof.
"Licensor" means Licensor and any successor (including, but not limited
to, the surviving company of any merger or reorganization involving the
Licensor) or assignee thereof.
"Term" means the term of this Agreement as set forth in Section 5
hereof.
"Territory" means the United States, Guam and Puerto Rico.
2. Grant of License
Licensor hereby grants to Licensee, subject to the terms and conditions
of this Agreement, a personal, nonexclusive, royalty-free, limited license,
without the right to sublicense, under the Name Rights to use the Names in the
Territory during the Term solely for the purpose of performing its duties and
obligations under the Administration Agreement and the Coinsurance Agreement and
the consummation of the transactions contemplated by the Purchase Agreement and
the other Transaction Documents. So long as Licensee is in the same line of
business in the United States, for a period of five (5) years from the date of
this License Agreement, Licensor will not grant any rights under the Name Rights
to any third party to use the Names in the United States in the Subject Business
(as defined in the Purchase Agreement), except where such use of Name Rights, if
done directly by Licensor, would not violate the covenant not to
2.
<PAGE> 3
compete contained in Section 5.11 of the Purchase Agreement. Licensee's rights
to use the Names shall be subject to the following limitations:
(a) Licensee shall use the Names during the Term in the performance of
its duties and obligations under the Administration Agreement and the
Coinsurance Agreement with respect to the GBO Included Business and the
consummation of the transactions contemplated in the Purchase Agreement and the
other Transaction Documents as follows:
(i) On Licensor's business forms presently used in the conduct of
the GBO Included Business, Licensee shall have the right to use the Names
as used in the forms in the performance of its duties and obligations under
the Administration Agreement.
(ii) In Licensor's marketing materials and advertisements used
with respect to products of the GBO Included Business (whether alone or in
conjunction with other products offered by Affiliates of Licensee),
Licensee shall have the right to use the Names during the Term; provided,
however, that such marketing material and advertisements either shall be
substantially similar in form and content and circumstances for proposed
use to that used by Licensor prior to the date of this License Agreement or
shall be approved by Licensor in writing prior to the use thereof, which
approval shall not be unreasonably withheld; and provided, further, that
all use of such marketing materials or advertisements by Licensee must be
made in compliance with all applicable law. Licensor shall designate a
member of its legal department to approve marketing materials, and all
materials not specifically disapproved in writing within five (5) Business
Days after submission for approval to Licensor by Licensee shall be deemed
approved.
(iii) To the extent required by law or regulatory authorities in
connection with performing the duties and obligations under the
Administration Agreement and the Coinsurance Agreement and the consummation
of the transactions contemplated by the Purchase Agreement and the other
Transaction Documents, Licensee will give Licensor prior written notice of
each use of the Names pursuant to this Section 2(a)(iii).
In addition, during the Term hereof through the last Transition
Termination Date (i) Licensee may use the phrase "formerly issued by John
Hancock Mutual Life Insurance Company" with respect to Insurance Policies issued
by Licensee as a continuation of the GBO Included Business after the Effective
Time and (ii) Licensee may use the phrase "formerly conducted by John Hancock
Mutual Life Insurance Company" with respect to the provision of administrative
services by Licensee as a continuation of the GBO Included Business after the
Effective Time.
(b) In using the Names as provided in Section 2(a) above, Licensee
shall not use the Names in any manner which jeopardizes the significance,
distinctiveness, or validity thereof or impairs the value of the goodwill
associated therewith. Licensee shall permit Licensor's authorized
representative(s) to review
3.
<PAGE> 4
relevant materials related to the use of the Name from time to time during the
Term for the purpose of determining conformity with the quality standards
specified in Section 4 hereof.
(c) Where required by applicable law in the Territory, the Names shall
be identified as a trademark or service mark of Licensor by appropriate
statutory notice. Any such requirements as of the Closing Date shall be set
forth on Schedule A attached hereto. Licensee shall use such additional required
statutory trademark notice or other marking as may be reasonably requested in
writing by Licensor from time to time. Licensor shall be obligated to give
timely notice to Licensee of any change in required statutory notice after the
Closing Date, including the maturation of applications into registrations.
(d) Licensee agrees during and after the Term (i) not to use the Names
or any variation thereof outside the Territory, and (ii) not to seek
registration of the Names or any variation thereof in any jurisdiction.
(e) To the extent required by law or regulation, all advertising and
other materials utilized by Licensee bearing the Names shall clearly indicate
that use of the Names is under license from the Licensor.
(f) Licensee shall not have any title or interest, express or implied,
in the Names or the right to use the Names, except as provided herein and
subject to the terms and conditions stated in this Agreement. No license, either
express or implied, is granted by Licensor to Licensee hereunder with respect to
any trademark or service mark or otherwise except as specifically stated herein.
3. Indemnification
(a) Licensee shall indemnify, defend, and hold Licensor, its
Affiliates, and their respective directors, officers, employees and agents,
harmless from and against any Liability paid or incurred arising out of the
marketing, offering, issuance, sale or performance of any products or services
bearing the Names or offered under the Names by Licensee following the Closing
or otherwise arising in any manner out of the use of the name by Licensee
(including, without limitation, the reasonable costs or expenses of
investigating and defending any and all actions, suits, proceedings, demands,
assessments, judgments, settlements and compromises relating thereto and
reasonable attorneys' fees in connection therewith) ("Licensor Indemnifiable
Losses"); provided, however, that Licensee shall not have any obligation to
indemnify Licensor for Licensor Indemnifiable Losses (i) arising out of
Licensor's failure to have or maintain valid intellectual property rights in the
Names as specified in Schedule A hereof, to the extent such failure is not
attributable to actions by Licensee or failure by Licensee to take actions
required by the terms of this License Agreement, or (ii) arising in connection
with a use of the Names which gives rise to a valid claim by Licensee against
Licensor pursuant to the indemnification provisions set forth in subsection (b)
of this Section 3.
4.
<PAGE> 5
(b) Licensor shall indemnify, defend and hold harmless Licensee, its
Affiliates, and their respective directors, officers, employees and agents,
harmless from and against any Liability (including, without limitation, the
reasonable costs or expenses of investigating and defending any and all actions,
suits, proceedings, demands, assessments, judgments, settlements and compromises
relating thereto and reasonable attor- neys' fees in connection therewith) (i)
arising out of Licensor's failure to have or maintain valid intellectual
property rights in the Names, to the extent such failure is not attributable to
actions by Licensee or failure by Licensee to take actions required by the terms
of this License Agreement, and (ii) arising out of any third party claim that
Licensee's use of the Names pursuant to this Agreement infringes such third
party's intellectual property rights.
(c) The indemnification contemplated in this Section 3 shall be from
the first dollar and independent of and in addition to the provisions set forth
in Article XIV of the Purchase Agreement, except that indemnification under this
Section 3 shall be made using the procedures, terms and conditions contained in
Sections 14.2 and 14.3 of the Purchase Agreement as if fully set forth herein,
with (i) references in Section 14.2(a) to "indemnification under Section 14.1 of
this Agreement" changed to refer to "indemnification under Section 3 of this
License Agreement", (ii) the phrase "except as provided in Section 14.1(g) and"
deleted in Section 14.2(c), (iii) references in Section 14.3 to "this Article
XIV" shall be changed to refer to "this Section 3", and (iv) the phrases "and,
in any event, within the time period referred to in Section 14.1(g)" and "So
long as Indemnitee provides the Indemnity Notice within the time period referred
to in Section 14.1(g)" deleted from the text of Section 14.3.
4. Quality Standards
(a) As a condition to the rights and licenses granted herein, Licensee
shall perform the services required pursuant to the Administration Agreement and
the Coinsurance Agreement in accordance with the standards set forth in the
Administration Agreement.
(b) Licensee shall be responsible for ensuring that the products and
services offered by Licensee under the Names will comply and be conducted in
accordance with applicable laws and regulations.
5. Term; Effect of Termination
(a) This Agreement and the licenses granted in Section 2 hereof shall
become effective as of the Closing Date. Unless earlier terminated in accordance
with the provisions of this Section 5, the license granted pursuant to Section
2(a)(ii) shall be terminated as of the last Transition Termination Date as set
forth in the Coinsurance Agreement. Unless earlier terminated in accordance with
the provisions of this Section 5, the license granted pursuant to Section
2(a)(i) and (iii) hereof shall continue in full force and effect until the
termination of the Administration Agreement.
5.
<PAGE> 6
(b) This Agreement may be terminated by Licensor, at its option, upon
written notice to Licensee if there shall occur a material breach of a material
provision of this Agreement and such breach is not cured within thirty (30) days
after written notice from Licensor to Licensee.
(c) Upon the termination of this Agreement by Licensor, Licensee shall,
subject to applicable regulatory requirements, cease use of the Names and shall
destroy, give reasonably timely notice to all agents and employees to destroy
or, at the request of Licensor, return to Licensor, all written materials
bearing the Names, and Licensee shall immediately change any trade name or d/b/a
to a name which does not include the Names (except with respect to words therein
other than "John Hancock" or a derivative thereof which are not distinctive to
Seller), to the extent not already changed, and shall not thereafter use the
Names or indicate that Licensee is a trademark licensee of Licensor. In
addition, after such termination, Licensee shall refrain from using or
displaying any advertising or promotional material or performing any other act
which would cause anyone to infer or believe Licensee to be licensee of Licensor
with respect to the Name Rights.
(d) Termination of this Agreement shall not release either party from
any Liability incurred while this Agreement was in effect or which thereafter
may accrue in respect of any act or omission that occurred prior to termination,
nor shall termination affect in any way survival of this Section 4 or the
indemnification provisions of Section 3, and any other right or obligation
which, by its context, is intended to remain in effect after termination.
(e) Upon termination of this Agreement, Licensee shall promptly perform
all reasonable acts which may be necessary to render effective the termination
of its interest in the Names including, but not limited to, the cancellation of
any registration or recordation of this Agreement or any summary thereof, and
Licensee shall execute any assignment, conveyance, acknowledgment, or other
document required or requested by Licensor relinquishing or conveying to
Licensor any and all rights to or interest in the Names which Licensee has or
may have acquired.
(f) The rights and remedies set forth in this Section 4 are in addition
to all other rights and remedies available at law or equity.
6. Protection of Licensed Marks; Litigation.
(a) Licensor and Licensee agree to notify each other promptly if either
party receives notice of (i) any conflicting uses of, or any applications of or
registrations for, a trademark or service mark that may conflict with the Names,
(ii) any acts of infringement or unfair competition involving the Names, or
(iii) any allegations that the use of the Names by Licensor or Licensee
infringes the trademark or service mark or other rights (including rights
relating to unfair competition) of any other person.
(b) During the Term, Licensor will be obligated, and will have the sole
right, to take all reasonable steps to enforce the Name Rights, which shall
include the
6.
<PAGE> 7
filing of opposition and cancellation proceedings before the United States
Patent and Trademark Office and state agencies responsible for registration of
trademarks and service marks but shall not include the obligation to initiate
unfair competition and trademark infringement litigation in the federal or state
courts. Licensor shall have the right to include Licensee as a party in such
litigation where necessary to maintain Licensor's standing, and Licensee agrees
to join in such litigation at Licensor's expense as a voluntary plaintiff or
claimant upon request of Licensor. Licensor shall have the sole right to control
and settle any opposition and cancellation proceedings and any infringement
proceedings that Licensor elects to initiate. Licensee shall cooperate with
Licensor in the prosecution of such litigation, opposition, or cancellation
proceedings, at Licensor's expense.
(c) Any recovery obtained as a result of infringement shall be applied
first to reimburse the parties for their respective expenses (including costs
and attorney fees) incurred in connection with such suit or other proceeding and
any remaining recovery will be retained by Licensor.
7. Miscellaneous
(a) Notices. All notices, requests, demands and other communications
made hereunder will be in writing and will be deemed duly given if delivered
personally, upon confirmation of transmission if sent by telex or facsimile,
upon the third Business Day after mailing if sent by registered or certified
mail, postage prepaid, or upon receipt if sent by reputable overnight carrier as
follows, or to such other address or Person as either party may designate by
notice to the other parties hereunder:
If to Licensor:
John Hancock Mutual Life Insurance Company
Attention: Thomas E. Moloney
Chief Financial Officer
200 Clarendon Street
Boston, MA 02117
Telephone: (617) 572-0600
Fax: (617) 572-5170
With copies to:
John Hancock Mutual Life Insurance Company
Attention: Michael H. Studley, Esq.
Vice President and Counsel
200 Clarendon Street
Boston, MA 02117
Telephone: (617) 572-9253
Fax: (617) 572-1565
7.
<PAGE> 8
If to Licensee:
Unicare Life & Health Insurance Company
Attention: D. Mark Weinberg
President, National Business
26565 Agoura Road, Suite 300
Calabasas Hills, CA 91301-5339
Telephone: (818) 878-2929
Fax: (818) 880-4306
With copies to:
WellPoint Health Networks, Inc.
Attention: Kandy F. Waldie, Esq.
Vice President, Assistant General Counsel
21555 Oxnard Street
Woodland Hills, CA 91367
Telephone: (818) 703-4595
Fax: (818) 703-4406
(b) Amendments, Waivers, Consents. This Agreement cannot be changed or
terminated orally and no waiver of compliance with any provision or condition
hereof and no consent provided for herein will be effective unless evidenced by
an instrument in writing duly executed by the proper party. The failure of
Licensor or Licensee to insist on strict compliance with this License Agreement,
or to exercise any right or remedy under this License Agreement, shall not
constitute a waiver of any rights provided under this License Agreement, nor
estop the parties from thereafter demanding full and complete compliance nor
prevent the parties from exercising such right or remedy in the future.
(c) Consent to Jurisdiction. Each of Licensee and Licensor irrevocably
submits to the exclusive jurisdiction of (i) the Court of Chancery of the State
of Dela- ware and (ii) the United States District Court for the District of
Delaware, for the purposes of any suit, action or other proceeding arising out
of this Agreement. Each of Licensee and Licensor agree to commence any action
suit or proceeding relating hereto either in the United States District Court
for the District of Delaware or, if such suit, action or proceeding may not be
brought in such court for jurisdictional reasons, in the Chancery Court of the
State of Delaware, New Castle County. Licensee further agrees that service of
process, summons, notice or document by hand delivery or U.S. registered mail in
care of John Hancock Mutual Life Insurance Company, Attention of the General
Counsel, shall be effective service of process for any action, suit or
proceeding brought against Licensor in any such court. Licensor further agrees
that service of process, summons, notice of document by hand delivery or U.S.
registered mail in care of Unicare Life & Health Insurance Company, Attention of
the General Counsel, shall be effective service of process for any action, suit
or proceeding brought against Licensee in any such court. Each of Licensee and
Licensor irrevocably and unconditionally waives
8.
<PAGE> 9
any objection to the laying of venue of any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby in (A) the
Chancery Court of the State of Delaware, New Castle County or (B) the United
States District Court for the District of Delaware, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
(d) Assignment. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors, legal
representatives and assigns; provided, however, that this Agreement may not be
assigned to any Person by Licensee without the prior written consent of the
Licensor. Any attempted assignment in contravention of this paragraph shall be
void.
(e) Entire Agreement. This Agreement and the other agreements referred
to herein contain the entire agreement among the parties hereto with respect to
the subject matter hereof and supersede all previous written or oral
negotiations, commitments and writings. The section headings of this Agreement
are for convenience of reference only and do not form a part hereof and do not
in any way modify, interpret, or construe the intentions of the parties. This
Agreement may be executed in two or more counterparts, and all such counterparts
will constitute one and the same instrument.
(f) Applicable Law. This Agreement will be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such state.
(g) Parties in Interest. Nothing in this Agreement is intended to
confer any rights or remedies under or by reason of this Agreement on any
Persons other than the parties hereto, their respective successors and permitted
assignees. Nothing in this Agreement is intended to relieve or discharge the
obligations or liability of any third Persons to the parties hereto. No
provision of this Agreement shall give any third Persons any right of
subrogation or action over or against the parties hereto.
(h) Execution by Licensee. By execution of this License Agreement,
Licensee agrees on behalf of itself and each of its Affiliates to be bound by
the terms of this Agreement.
9.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized, as of the
day and year first above written.
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY
By: ___________________________________
Name:
Title:
UNICARE LIFE & HEALTH INSURANCE COMPANY
By: ___________________________________
Name:
Title:
10.
<PAGE> 11
Schedule A
Name Rights Registrations and Applications
Copyrights:
None.
Tradenames:
John Hancock Mutual Life Insurance Company
John Hancock Financial Services
Service Marks:
PTO Registration Date Mark
Number Registered
GBO Only Service Marks:
Hancock Preferred R#1417955 Nov. 18, 1986
John Hancock Preferred Health Plan R#1399811 July 1, 1986
GBO Shared Service Marks:
John Hancock (block letters) R#1287236 July 24, 1984
John Hancock (signature logo) R#557033 April 1, 1952
Hanstar R#1389411 April 8, 1986
11.
<PAGE> 1
ANNEX E
--------------------------------------------
ADMINISTRATION AGREEMENT
--------------------------------------------
JOHN HANCOCK
MUTUAL LIFE INSURANCE COMPANY
and
UNICARE LIFE & HEALTH INSURANCE COMPANY
--------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS................................................. 2
ARTICLE II APPOINTMENT................................................. 3
ARTICLE III TERM........................................................ 3
ARTICLE IV STANDARDS OF PERFORMANCE.................................... 3
A. Generally....................................................... 3
B. Standards of Performance........................................ 4
ARTICLE V SERVICES PROVIDED BY THE SERVICE PROVIDER................... 5
A. Generally....................................................... 5
B. Policy and Contract Issuance.................................... 7
C. Claims Administration........................................... 8
D. Policy and Contract Administration;
Reimbursements; Regulatory Matters .................................... 10
E. Premium Rate Formulas........................................... 11
F. Financial, Statistical and Tax Services......................... 12
ARTICLE VI. REGULATORY MATTERS.......................................... 13
A. Financial Obligations........................................... 13
B. Responses to Regulatory Authorities............................. 13
C. Reviews and Audits by Regulatory Authorities.................... 14
D. Cooperation..................................................... 14
E. Notice to Insureds.............................................. 15
ARTICLE VII OTHER SERVICES AND FURTHER AGREEMENTS....................... 15
A. Specific Actions................................................ 15
B. Fees for Services; Reimbursement of Expenses.................... 15
ARTICLE VIII BANK ACCOUNTS............................................... 16
A. Accounts........................................................ 16
B. Escheat......................................................... 16
C. Banking Functions............................................... 16
D. Assignment...................................................... 16
ARTICLE IX REPORTS AND RECORDS......................................... 17
A. Records and Access to Records................................... 17
B. Ownership....................................................... 20
C. Audit........................................................... 20
ARTICLE X LEGAL ACTIONS............................................... 21
A. Generally....................................................... 21
B. Notification.................................................... 21
ARTICLE XI TERMINATION................................................. 21
A. Termination of Administration Agreement......................... 21
B. Events of Default............................................... 21
C. Termination Upon Event of Default............................... 23
D. Transition Following Termination
Upon Event of Default ................................................... 23
E. Return of Files................................................. 24
F. Partial Termination............................................. 24
G. Continuation of Certain Obligations............................. 24
ARTICLE XII CONFIDENTIALITY............................................. 24
ARTICLE XIII INDEMNIFICATION............................................. 25
A. The Service Provider............................................ 25
B. The Company..................................................... 25
<PAGE> 3
C. Indemnification Procedures...................................... 26
ARTICLE XIV ARBITRATION................................................. 26
A. General......................................................... 26
ARTICLE XV GENERAL PROVISIONS.......................................... 26
A. Cooperation..................................................... 26
B. Amendment; Waivers.............................................. 27
C. Entire Agreement................................................ 27
D. Relationship.................................................... 27
E. Errors and Omissions............................................ 28
F. Best Efforts.................................................... 28
G. Governing Law................................................... 28
H. Invalidity...................................................... 28
I. Counterparts.................................................... 28
J. No Third Party Beneficiaries.................................... 28
K. Assignment...................................................... 29
L. Headings........................................................ 29
M. Preparation..................................................... 29
N. Reasonableness.................................................. 29
O. Notices......................................................... 29
P. Offset.......................................................... 31
Annex A -- Form of Agent Fee Agreement .................................. A-1
Annex B -- Information and data to be provided
by the Service Provider ........................................... B-1
Annex C -- Bank Accounts ................................................ C-1
1
<PAGE> 4
ADMINISTRATION AGREEMENT
This Administration Agreement dated as of January , 1997 (hereinafter
referred to as the "Administration Agreement") is made and entered into by and
between JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY (the "Company"), a mutual
life insurance company organized under the laws of the Commonwealth of
Massachusetts, and UNICARE LIFE & HEALTH INSURANCE COMPANY (the "Service
Provider"), a stock life insurance company organized under the laws of the State
of Delaware.
WHEREAS, the Company and WellPoint Health Networks Inc., a California
Corporation ("WellPoint") and the indirect parent of the Service Provider, have
entered into a Purchase and Sale Agreement, dated as of October 10, 1996 (the
"Purchase Agreement"), pursuant to which the Company is selling and WellPoint
and the Service Provider are acquiring the GBO Included Business (as therein
defined);
WHEREAS, the Company and the Service Provider have entered into a
Coinsurance Agreement, effective as of January , 1997, (the "Coinsurance
Agreement"), pursuant to which the Company will cede, and the Service Provider
will reinsure, the Coinsured Policies (as therein defined);
WHEREAS, the Service Provider desires to provide any and all
administrative and other services in respect of Coinsured Policies, ASO
Contracts and Network Contracts (as hereinafter defined) to the Company in
accordance with the terms of this Administration Agreement;
WHEREAS, the Company will cooperate in a commercially reasonable manner
with the Service Provider in the provision by the Service Provider of such
administrative and other services in respect of Coinsured Policies, ASO
Contracts and Network Contracts in accordance with the provisions of this
Administration Agreement;
WHEREAS, the Company and the Service Provider have entered into a
Service Agreement pursuant to which the Company agrees to provide certain
services to the Service Provider, on an interim basis to facilitate the orderly
transition of the GBO Included Business from the Company to the Service Provider
from and after the Closing Date (the "Service Agreement"); and
WHEREAS, this Administration Agreement is intended to implement the
provisions of the Purchase Agreement providing for all administrative and other
services with respect to the Coinsured Policies, ASO Contracts and Network
Contracts being performed by the
2
<PAGE> 5
Service Provider and an orderly transition of the GBO Included Business from the
Company to the Service Provider from and after the Closing Date under the
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and mutual promises of
the parties hereto, they hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS
Terms not defined herein shall have the meanings ascribed to them in
the Purchase Agreement or the Coinsurance Agreement, as the case may be. In the
event of a conflict or difference in the definitions of any term in the Purchase
Agreement and the Coinsurance Agreement, the definitions of the Purchase
Agreement shall be used.
The following terms, when used in this Administration Agreement, shall
have the meanings set forth below, and shall be deemed to refer to the singular
or plural as the context requires:
"Administered Contracts" shall have the meaning set forth in Article II.
"Administrative Services" shall have the meaning set forth in Article
V.A.2.(a).
"ASO Contract" shall have the meaning set forth in the Purchase
Agreement.
"Claim" shall mean a claim for benefits by or on behalf of a
policyholder, certificate holder, beneficiary, plan participant, member,
provider or other Person that has received an assignment of benefits, under an
Administered Contract.
"Claimant" shall mean any Person who has a Claim.
"Event of Default" shall have the meaning set forth in Article XI.
"GBO Fees" shall have the meaning set forth in Article VII.C.1.
"Network Contract" means a contract with a health care provider or
health care facility, or with an entity which has a contract with health care
providers and/or health care facilities, under which the Company, its Affiliates
or its client(s) is/are entitled to the benefit of negotiated rates of
reimbursement for health care services.
ARTICLE II
3
<PAGE> 6
APPOINTMENT
The Company hereby appoints the Service Provider as its exclusive
provider of Administrative Services with respect to all (i) Coinsured Policies,
(ii) ASO Contracts and (iii) Network Contracts (collectively the "Administered
Contracts"), all on the terms, and subject to the limitations and conditions,
set forth in this Administration Agreement. The Service Provider hereby accepts
such appointment by the Company as its exclusive provider of Administrative
Services with respect to all Administered Contracts, and agrees to perform the
Administrative Services, all on the terms, and subject to the limitations and
conditions, set forth in this Administration Agreement. Subject to the
limitations set forth herein, the Service Provider shall have any and all
required power, both express and implied, to carry out its duties and
obligations under this Administration Agreement, including, without limitation,
the power and authority to execute documents in the name of the Company.
ARTICLE III
TERM
Subject to the provisions of Article XI hereof, this Administration
Agreement shall become effective as of the Effective Time and shall continue in
effect until it terminates automatically upon the termination of all of the
Company's liabilities and obligations under the Administered Contracts and the
termination of all of the Company's and the Service Provider's obligations under
the Coinsurance Agreement and this Administration Agreement.
ARTICLE IV
STANDARDS OF PERFORMANCE
A. Generally. Subject to the provisions of this Administration
Agreement, the Service Provider agrees that in providing the services under this
Administration Agreement, it shall: (i) conduct itself in accordance with all
reasonable commercial and professional standards of care, diligence and good
faith which are substantially equal in quality to the standards the Company
applied prior to the Effective Time, provided that such standards are not
inconsistent with prudent management practices in the life and health insurance
industry generally, and shall generally act in such a way as to preserve
goodwill toward the Company on the part of the general public, customers, and
all those having business relations with the Company; (ii) comply with all
material laws, regulations and orders applicable to the Company with respect to
the Administered Contracts and to
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the conduct of the activities contemplated hereby; (iii) comply with all
standards of performance, terms and conditions of all Administered Contracts;
and (iv) with respect to the Administered Contracts, carry on its affairs in the
ordinary course of business and not make or institute any unusual method of
doing business, GAAP or SAP accounting or operation. Notwithstanding the
foregoing, the failure of the Service Provider to provide such services in
accordance with the standards set forth above, to the extent due to the failure
of the Company to provide information or services to the Service Provider as
required under the Transaction Documents, shall not be deemed to be a breach of
this Administration Agreement.
B. Standards of Performance. Prior to the Effective Time, the Company
shall provide the Service Provider access to all of the Company's standards,
procedures, policies, operating guidelines, practices and instructions
(collectively, the "Standards"), which are in effect on the Effective Time, and
which the Company has established and employed to administer the Administered
Contracts, and the Service Provider shall acknowledge receipt of such Standards;
provided, however, the parties hereby agree that after the Effective Time,
subject to the provisions of this Administration Agreement the Service Provider
may, adopt or reject, maintain, update, change or alter such Standards, if such
changes in the Standards are not inconsistent with prudent management practices
observed from time to time in the life and health insurance industry generally;
further provided, however, that for purposes of applying the foregoing standard,
the parties hereto agree to recognize the unique nature of the transactions
contemplated by this Administration Agreement and the other Transaction
Documents, including but not limited to the transfer of GBO Included Business
from the Company to the Service Provider during the Transition Period. The
Service Provider shall be solely liable for all claims, liabilities, demands,
actions, proceedings, damages, including punitive, consequential or
extracontractual obligations and obligations in excess of original policy
limits, losses, deficiencies, fines, penalties, costs or expenses, including
reasonable attorneys' fees ("Demands") relating to or arising out of any act or
omission of the Service Provider with respect to the adoption, rejection,
modification or application of
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such Standards by the Service Provider.
ARTICLE V
SERVICES PROVIDED BY THE SERVICE PROVIDER
A. Generally.
1. While this Administration Agreement is in effect, except as provided
herein, the Service Provider shall provide all Administrative Services (as
hereinafter defined) with respect to the Administered Contracts.
2. (a) "Administrative Services" shall mean all services or duties
necessary, customary or advisable in the conduct of the GBO Included Business
with respect to the Administered Contracts, including without limitation all
services and duties relating to the issuance, administration or renewal of all
Administered Contracts and the services more fully described in this Article V;
provided, however, that Administrative Services shall not include any services
which applicable law or regulatory requirement prohibit or otherwise do not
permit the Service Provider to provide under this Administration Agreement; and
provided, further, that any such services not permitted to be provided under
this Administration Agreement shall be provided by the Company with the
cooperation and assistance of the Service Provider, and the Service Provider
shall reimburse the Company for its reasonable out-of-pocket expenses incurred
in connection therewith. The Company will provide copies of and access to all
books, records, documents and other information("Records") as requested by the
Service Provider with respect to any such services provided by the Company
hereunder.
(b) The Administrative Services provided hereunder by the Service
Provider shall include without limitation: underwriting; pricing of risk;
premium and fee administration; policy and contract administration; policyholder
and customer services; provider and related policyholder and customer services,
including but not limited to, medical cost management, case management and
medical review utilization management; claims administration, including the
provision of benefit statements and of certain tax reporting data relating to
the benefit payments; network development and network management services; the
issuance, preparation and amending of contracts, forms and documents relating to
any Administered Contract; maintenance of files (including, without limiting the
foregoing, financial and tax information relating to any Administered Contract
in accordance with applicable law and SAP and GAAP consistently applied, where
applicable); calculation of
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book and tax reserves; maintenance of agent records and lists, and transmittal
to agents of all required communications, all as related to any Administered
Contract, including but not limited to, rate revision notices; agents'
compensation calculation and support as related to the Administered Contracts;
provision of other information and data; electronic data processing; regulatory
compliance; office services; accounting, financial and other record-keeping
services; management of relationships with third party vendors and others that
provide services with respect to any Administered Contract; and any and all
other services incidental to the administration of any Administered Contract.
3. In performing the Administrative Services, the Service Provider
agrees, subject to the provisions of Article V.A.2, to comply in all material
respects with the terms of the Administered Contracts, provided, however, that
the Service Provider shall have no liability for the failure to comply with any
terms of the Administered Contracts relating to or associated with the
non-transferability or non-assignment provisions of such Administered Contracts.
4. In performing the Administrative Services, the Service Provider
agrees to use commercially reasonable efforts to keep informed of and comply in
all material respects with applicable laws, rules and regulations relating to
the Administered Contracts and the performance by the Service Provider of its
duties and obligations under this Administration Agreement.
5. The Service Provider agrees to use commercially reasonable efforts
to maintain a staff of competent and trained personnel and sufficient equipment
and supplies to perform the activities covered by this Administration Agreement
in accordance with the standards required by this Administration Agreement;
provided, however, that for purposes of this Article V.A.5., the parties hereto
agree to recognize the unique nature of the transactions contemplated by this
Administration Agreement and the other Transaction Documents, including but not
limited to the transfer of GBO Included Business from the Company to the Service
Provider during the Transition Period. Whenever the Service Provider utilizes
its employees to perform Administrative Services for the Company pursuant to
this Administration Agreement, such
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employees shall at all times remain subject to the direction and control of the
Service Provider.
6. The Service Provider shall provide Administrative Services in
accordance with and subject to the terms of this Administration Agreement. At
the request of the Service Provider, the Company shall provide commercially
reasonable cooperation to the Service Provider in connection with the provision
of such services under this Administration Agreement.
7. The Company and the Service Provider each shall from time to time
appoint one or more individuals who shall serve as authorized representative(s)
of such party for the purpose of carrying out this Administration Agreement.
Such persons shall be authorized to act on behalf of their respective parties as
to matters pertaining to this Administration Agreement. Each party shall notify
the other, in writing, as to the name, address, and telephone number for any
such authorized representative, and of any replacement thereof.
B. Policy and Contract Issuance.
1. The Service Provider shall have authority to solicit the sale of
Transition GBO Policies through the use of marketing and advertising materials
in a form, content and circumstances as have been generally used by the Company
prior to the Effective Time or as have been otherwise approved by the Company
prior to the use thereof, which approval shall not be unreasonably withheld;
provided, however, that each such solicitation, use of marketing and advertising
materials must be made in compliance in all material respects and subject to the
limitations of all applicable laws and regulations, the terms and conditions of
the Coinsurance Agreement, and the terms and conditions of the License
Agreement.
2. The Service Provider shall have authority to underwrite Transition
GBO Policies (including certificates, endorsements and binders), subject to the
standards set forth in Article IV A.1 and in the Coinsurance Agreement.
3. The Service Provider shall have authority to issue, deliver and
arrange for execution or countersignature of Transition GBO Policies (including
certificates, endorsements and binders), on forms generally used by the Company
prior to the Effective Time and any new forms approved by the Company, which
approval shall not be unreasonably withheld, and approved by appropriate
regulatory authorities as required by law, consistent with the terms and
conditions of the Coinsurance Agreement.
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4. The Service Provider is authorized to enter into fee agreements with
agents on behalf of the Company to the extent necessary to sell, market and
service the Administered Contracts. The form of the fee agreement for such
agents shall be substantially the form attached hereto as Annex A, unless
otherwise agreed to by the parties hereto.
C. Claims Administration.
1. The claims administration obligations of the Service Provider under
this Administration Agreement shall include all obligations with respect to
claims set forth in the Administered Contracts and the following:
(a) the provision of standard forms necessary for submission and
processing of Claims;
(b) the receipt of notices of and review of all Claims, and creation
and maintenance of files with respect to, and administration to final
disposition of, each Claim made to or received by the Service Provider with
respect to or arising out of any Administered Contract;
(c) timely acknowledgment of the receipt of notices received from
Claimants in connection with any such Claim;
(d) timely investigation of any Claim, as necessary, to determine
its validity and compensability, including verification of coverage and
status information and utilization of any relevant documents and/or
information made available to the Service Provider;
(e) coordination of benefits in accordance with the provisions of
Administered Contracts, if applicable;
(f) performance of all administrative and clerical work in
connection with any such Claim including computation and verification of
the amounts of benefits, and furnishing to each Claimant an appropriate
statement of the amounts of benefits, including to the extent permitted by
law, and furnishing copies of benefit statements prepared for Claimants;
(g) notification to Claimants of declined Claims and the reasons for
the declinations;
(h) provision to the appropriate ERISA plan fiduciary of all
available information and documents
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within the control of the Service Provider which are necessary to enable
such ERISA plan fiduciary to provide a review of a disputed Claim or a
Claim on appeal;
(i) maintenance and updating of sufficient statistical data to
enable the Service Provider to effectively administer the Company's fee
basis, if applicable, for benefit payments, as well as fees negotiated
under Network Contracts, provided, however, that to the extent that the
condition or sufficiency of the statistical data provided to the Service
Provider by the Company under this Administration Agreement or the Service
Agreement causes circumstances that would constitute a breach by the
Service Provider of its obligations under this Administration Agreement,
the Service Provider will be deemed not to be in default under this
Administration Agreement;
(j) reasonable response to any inquiry, complaint or request
received from any Claimant, agent, broker, regulator or other interested
party pertaining to or regarding any such Claim, and proper recordation of
such complaints in separate complaint logs to be maintained by the Service
Provider;
(k) provision of such special telephone arrangements, including
access to toll-free telephone lines, as is required by the Service
Provider's obligations and responsibilities under the Administered
Contracts;
(l) provision of the services of claim consultants to advise and
assist on matters relating to Claims, as needed;
(m) to the extent required by law, provision for withholding of
FICA, federal, state and/or local income taxes from benefit payments, and
for remittance of amounts withheld to the Internal Revenue Service and/or
appropriate state or local tax authorities;
(n) to the extent required by law, provision of reports on taxable
benefits, and the amounts withheld on account of FICA, federal, state
and/or local income taxes, both as payments of benefits are made, and as of
the end of each calendar or fiscal year;
(o) to the extent required by law, preparation of individual income
tax reports indicating taxable benefits paid and amounts withheld, and
distributions required;
(p) compliance with Claims file maintenance, record retention and
reconciliation requirements in
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conformity in all material respects with applicable law and regulation and
the provisions of the Administered Contracts and the performance standards
set forth in this Administration Agreement or as otherwise agreed upon by
the parties;
(q) engagement and direction, as necessary, of attorneys,
consultants or other professionals in connection with the processing and
handling of any such Claim; and
(r) generally, subject to the provisions of Section 7.9 of the
Coinsurance Agreement, all such other acts and things reasonably necessary
in the administration and settlement of all such Claims and processing and
submission to reinsurers of all claims relating to reinsurance agreements
with respect to the Coinsured Policies, including all other matters
relating to coverage determination, investigation, compromise, settlement,
negotiation, denial, defense or payment of Claims.
2. As soon as is reasonably practicable, the Service Provider
will make arrangements with policyholders and contractholders under Administered
Contracts to report all Claims directly to the Service Provider. The Company
will promptly forward any Claim and Claim material that are received by the
Company or its Affiliates directly to the Service Provider.
3. The Service Provider shall adjudicate Claims within a reasonable
period after the date on which all necessary documents and information are
received by the Service Provider and in accordance with the terms of the
Administered Contracts and applicable law and regulations.
D. Policy and Contract Administration; Reimbursements; Regulatory
Matters.
1. The policy and contract administration obligations of the Service
Provider under this Administration Agreement shall include all services required
with respect to the administration of the Administered Contracts, including,
without limitation:
(a) administration of premiums and fees (including billing,
payment, reimbursement and collection) and general policyholder and
contract holder services (including processing of experience refunds or
similar payments); and
(b) The Service Provider's reasonable estimates
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of the calculation, establishment or recommendation of applicable reserves
and appropriate reporting to the Company of such reserves; and
2. (a) To the extent that the Company pays costs for which the Service
Provider is liable pursuant to this Article, the Service Provider shall
reimburse the Company for such amounts paid by the Company, net of any offset,
credit or return that directly reduces such costs. To the extent that the
Service Provider pays or reimburses the Company for any costs, and the Company
obtains an offset, credit or return that directly reduces such costs, the
Company shall reimburse the Service Provider for such amounts if not previously
netted.
(b) To the extent the Service Provider pays costs or expenses for which
the Company is liable pursuant to this Article, the Company shall reimburse the
Service Provider for such amounts paid by the Service Provider, net of any
offset, credit or return that directly reduces such costs. To the extent that
the Company pays or reimburses the Service Provider for any costs, and the
Service Provider obtains an offset, credit or return that directly reduces such
costs, the Service Provider shall reimburse the Company for such amounts if not
previously netted.
(c) A party shall reimburse the other party within ten (10) Business
Days of the delivery of any request for reimbursement, together with any
necessary supporting documentation therefor. A party shall reimburse the other
party within ten (10) Business Days of the receipt of any offset, credit or
return for which the other party is entitled to reimbursement. Any amount not
paid within such ten-day period shall bear simple interest at the daily average
of the 30-day commercial paper rates as reported in Federal Reserve Publication
H-15 (the "30-Day C.P. Rate") until the date of payment.
E. Premium Rate Formulas.
The Service Provider shall provide the Company with its premium rate
formulas that are currently used to develop premium rates applicable to the
Coinsured Policies. The Service Provider shall have the right to propose and
implement changes to such premium rate formulas, subject to all required
regulatory approvals and the Service Provider shall prepare any necessary rate
submissions with respect to the changes to premium rate formulas under the
Coinsured Policies. Where required by law, the Company shall execute and forward
any necessary rate submissions prepared by the Service Provider with
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respect to permitted changes in premium rate formulas to the applicable state
insurance departments, on its own behalf, in accordance with state regulatory
requirements. The parties agree that the Company's right to disapprove any
proposed premium rate formula will be exercised only if such formula would be
violative of applicable laws or regulations, or would be grossly commercially
unreasonable or, with respect to a particular Existing GBO Policy form, would
represent a 15% or greater reduction in pricing.
F. Financial, Statistical and Tax Services.
1. To the extent applicable, the Service Provider shall use
commercially reasonable efforts to collect, administer and provide to the
Company the information and data required for the Company to:
(a) continue to maintain financial, statistical and tax data with respect
to its Administered Contracts;
(b) comply with any and all federal, state, and local laws including,
without limitation, all statutory insurance reporting requirements and
tax filing requirements;
(c) meet all applicable regulatory requirements, annual and quarterly
statement data (by statutory line of business; direct, acquired, ceded;
by state, etc.) in accordance with both SAP and GAAP consistently
applied, which are necessary to prepare the detailed supporting
statutory exhibits and schedules; and
(d) provide reports to Third Party Reinsurers of Administered Contracts;
provided, however, that to the extent that the condition or sufficiency of the
financial, statistical, tax or other data provided to the Service Provider by
the Company under the Service Agreement causes circumstances that would
constitute a breach by the Service Provider of its obligations under this
Administration Agreement, the Service Provider will be deemed not to be in
default under this Administration Agreement. All information and data provided
by the Service Provider to the Company pursuant to this Article V.F. will be
provided in accordance with Annex A.
2. The Service Provider will provide such other information relating to
the Coinsured Policies as may be reasonably requested from time to time by the
Company.
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3. Nothing herein shall be construed to require the Service Provider to
prepare any tax return, SAP filing or any other report required to be filed by
the Company. The Company shall be solely responsible for preparing and filing
such reports.
ARTICLE VI
REGULATORY MATTERS
A. Financial Obligations.
1. The Company shall be solely liable for any governmental or other
regulatory complaints or regulatory proceedings to the extent they arise from
facts, actions, omissions or occurrences which arise or were initiated prior to
the Effective Time. Such responsibility shall include, without limiting the
foregoing, all fines, penalties, obligations, liabilities, costs and expenses
including but not limited to liability for all legal expenses incurred by the
Service Provider after the Effective Time with respect to such complaints or
proceedings, and all amounts payable in settlement of such complaints or
proceedings.
2. The Service Provider shall be solely liable for any governmental or
other regulatory complaints or regulatory proceedings to the extent that they
arise from facts, actions, omissions or occurrences which arise or were
initiated on or after the Effective Time. Such responsibility shall include,
without limiting the foregoing, all fines, penalties, obligations, liabilities,
costs and expenses including but not limited to liability for all legal expenses
incurred by the Service Provider, and all amounts payable in settlement of such
complaints or proceedings.
B. Responses to Regulatory Authorities. The Company (with respect to
matters affecting its license and liability) or the Service Provider (with
respect to matters affecting its license and liability), as the case may be,
agrees to provide a prompt initial response to inquiries received from state
insurance departments or other governmental or regulatory authorities regarding
policyholder, contractholder, provider and consumer concerns or otherwise
arising out of or in connection with any activity or omission with respect to
the Administered Contracts which occurred prior to, on, or after the Effective
Time. Notwithstanding the foregoing, the Company and the Service Provider shall
consult with one another prior to providing such response or entering into any
other communications with regulators regarding such inquiries, and they shall
both act in good faith and cooperate with each other in attempting to agree on
the
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form and substance of such response or communication. The Company and the
Service Provider shall both have the right to participate in meetings and
conversations with such governmental or regulatory authorities to discuss such
inquiries. The Service Provider or the Company, as the case may be, will provide
the other party with all information necessary for such other party to conduct
whatever investigation is reasonable under the circumstances in order to respond
to such inquiries. Each party shall notify in writing the other of any such
inquiry within two (2) Business Days of receipt of such inquiry and provide
copies of all relevant documents related thereto. After such consultation and
cooperation, the Company shall have the right to control the resolution
(including entering into settlements) with respect to any inquiry that could
lead to the restriction or revocation of its license. The Service Provider shall
have the right to control the resolution (including entering into settlements)
with respect to any inquiry that could lead to the restriction or revocation of
its license.
C. Reviews and Audits by Regulatory Authorities. Each party agrees to
notify in writing the other party within two (2) Business Days upon receipt of
any written or oral communication from any state insurance department or any
other government or regulatory department or agency of such department's or
agency's intention to commence any market conduct or similar examination or
review or to proceed with any administrative action, such as a hearing, fine,
penalty, license suspension or revocation or similar action, against the Service
Provider or the Company, which examination, review or administrative action
relates in any way to the Service Provider's performance under this
Administration Agreement or which otherwise relates solely to any of the
Administered Contracts. The Service Provider and the Company agree to cooperate
fully with each other and to use their reasonable good faith efforts in jointly
resolving any such issue or matter raised by a state insurance department or any
other government or regulatory department or agency.
D. Cooperation. The Company and the Service Provider agree to cooperate
fully with each other and use their reasonable good faith efforts in dealing
with the various state insurance departments and other regulatory
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authorities in maintaining the Administered Contracts in compliance in all
material respects with existing and future laws and regulations. If the Service
Provider determines that any of the Administered Contracts are materially not in
compliance with such laws and regulations, the Service Provider shall so notify
the Company. The Service Provider shall prepare and file any necessary
amendments to such Administered Contracts and other filings or documents
required and shall prepare any necessary filings for submission by the Company.
E. Notice to Insureds. Where required by law, the Service Provider,
with the Company's cooperation, shall give written notice to insureds of the
identity of the Service Provider and the relationship between the Service
Provider, the Company and the insured. The Service Provider shall provide the
Company with an advance copy of such notice prior to any distribution of the
notice.
ARTICLE VII
OTHER SERVICES AND FURTHER AGREEMENTS
A. Specific Actions.
1. The Company shall take no action with respect to the Administered
Contracts without obtaining the prior written consent of the Service Provider,
which consent shall not be unreasonably withheld, except to the extent required
by applicable law or regulatory authority or as required by the provisions of
the applicable Administered Contract.
2. The Company shall make no change, modification, amendment or renewal
of any of its Administered Contracts or any other arrangements with a third
party to provide services relating to the Administered Contracts without the
prior written consent of the Service Provider, which consent shall not be
unreasonably withheld, except to the extent required by applicable law or
regulatory authority or as required by the provisions of the applicable
Administered Contract. Notwithstanding anything to the contrary herein, the
Company agrees that upon the request of the Service Provider, the Company will
not renew an Administered Contract unless required to do so by applicable law or
regulation or the provisions of an Administered Contract.
B. Fees for Services; Reimbursement of Expenses.
1. As consideration for the purchase by WellPoint of the GBO Included
Business from the Company pursuant to the Purchase Agreement and the provision
of Administrative Services hereunder, the Service Provider
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shall be entitled to any and all consideration arising out of the Administered
Contracts, including, without limitation, all premium and other fees received by
the Company in respect of such Administered Contracts (collectively, "GBO
Fees"). The Service Provider shall provide all Administrative Services pursuant
to this Administration Agreement with respect to the Administered Contracts at
its own expense.
2. All GBO Fees shall be paid to bank accounts established or
maintained pursuant to Article VIII, and the Service Provider shall be permitted
to withdraw the GBO Fees as provided in Annex C.
ARTICLE VIII
BANK ACCOUNTS
A. Accounts.
1. Consistent with their respective obligations to pay Claims with
respect to the Administered Contracts, the Company and the Service Provider
shall establish or maintain disbursement and claims paying accounts owned by and
in the name of the Company or the Service Provider, as the case may be.
2. As between the parties, the rights, responsibilities and obligations
of each party with respect to such bank accounts shall be as set forth on Annex
C, attached hereto.
B. Escheat. Each party shall retain responsibility for all
applicable escheat administration services with respect to such bank accounts
established by it, including check escheat and related record keeping. Each
party agrees to provide such information available to it to the other party and
to maintain and transmit such records with respect to such bank accounts to
reflect such information as may be required by the other party with respect to
escheatable amounts.
C. Banking Functions. Each party shall retain responsibility for all
banking functions with respect to all such bank accounts of such party, and the
Service Provider shall retain responsibility for all banking functions with
respect to all such bank accounts of clients, including performing daily
operational activities, account maintenance and contracts with the respective
banks, and bank reconciliations. These functions shall be performed in
accordance with the applicable standards set forth herein.
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D. Assignment. At the Effective Time, the Company shall assign, or
cause the Service Provider's name to be added to, all bank accounts theretofore
established by the Company pursuant to this Article VIII.
ARTICLE IX
REPORTS AND RECORDS
A. Records and Access to Records.
1. The Service Provider agrees to use commercially reasonable efforts
to perform all data processing activities and to keep and maintain identifiable,
orderly, accurate, complete and timely records and accounts of all business and
transactions pertaining thereto and Claims administered under this
Administration Agreement including complete underwriting and claims files;
provided, however, that to the extent that the condition or sufficiency of the
statistical data, books, records, accounts and files provided to the Service
Provider by the Company under this Administration Agreement or the Service
Agreement causes circumstances that would constitute a breach by the Service
Provider of its obligations under this Administration Agreement, the Service
Provider will be deemed not to be in default under this Administration
Agreement. The Service Provider agrees to keep such records and accounts
available at such locations as required by applicable state law. All books,
records and files established and maintained by the Service Provider by reason
of its performance under this Administration Agreement shall be subject to
examination at all reasonable times upon reasonable notice by the Company and
persons authorized by it or any governmental agency having jurisdiction over the
Company.
2. The Company shall on the Closing Date, or as soon thereafter as is
practicable:
(a) transfer to the Service Provider in a commercially reasonable manner
and form the files, or copies thereof, owned by it that relate
exclusively to each Administered Contract or, if not exclusively so
relating, copies of those portions of such files applicable to each
Administered Contract will be transferred to the Service Provider to
the extent reasonable and practicable; and
(b) if a file or portion thereof relating to an Administered Contract
cannot be transferred or a copy cannot be provided to the Service
Provider pursuant to Article IX B hereof, then it will be made
available for inspection by the Service Provider.
3. (a) If the transfer of any files requires the
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consent of any Person, the Company shall use commercially reasonable
efforts to secure such consent on or prior to the date such transfer is to
be made. Where such consent cannot be obtained, the Company shall not be
required to transfer the applicable files to the Service Provider but shall
provide copies of such files unless the absence of such consent prohibits
providing copies, in which case the Company shall provide the Service
Provider with access to such files.
(b) Nothing in this Article shall require the Company to transfer to the
Service Provider any original files which the Company is required by any
applicable laws or regulations or contractual obligations to retain,
provided that the Company shall provide true and complete copies of such
original files to the Service Provider.
4. For so long as there are Administered Contracts issued or renewed by
the Company (or thereafter, if required by law or regulation or the provisions
of the applicable Administered Contract), the Service Provider shall retain all
files transferred by the Company or produced by the Service Provider on behalf
of the Company to the extent such files are required by applicable law or
regulation or the provisions of the applicable Administered Contract to be
retained by either the Service Provider or the Company.
5. To the extent permitted or not prohibited by applicable law or
regulation, from the date hereof until the date on which the Company has
fulfilled all of its obligations to transfer files to the Service Provider under
this Administration Agreement, and at any time (without limitation) as may be
required in the Service Provider's reasonable judgment in order for the Service
Provider to comply with any law or regulation or to perform its obligations or
responsibilities under this Administration Agreement, the Service Provider and
its authorized representatives may from time to time reasonably request, and the
Company shall provide, at reasonable times during normal business hours, full
and open access to examine all such files to be transferred and all files under
the control of the Company pertaining to any of the Administered Contracts and
to the services to be provided
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by the Service Provider under this Administration Agreement and to discuss any
matters relating to any of the Administered Contracts and the services to be
provided by the Service Provider under this Administration Agreement with the
employees and agents of the Company who are knowledgeable therewith, so that the
Service Provider shall have sufficient opportunity to make whatever
investigation it shall deem necessary and desirable in connection with the
transactions contemplated by this Administration Agreement. Such access and
opportunity shall be exercised by the Service Provider and such authorized
representatives in a manner that shall not interfere unreasonably with the
operations of the Company. Such access shall include the right of the Service
Provider to make and retain copies of any files to the extent that the Service
Provider reasonably determines that it requires copies of such files in order to
carry out the transactions contemplated by this Administration Agreement or for
any legitimate business purpose related to this Administration Agreement.
Notwithstanding the first sentence of this subparagraph, no request by the
Service Provider shall diminish or otherwise affect any of the obligations or
responsibilities of the Company under this Administration Agreement.
6. To the extent permitted or not prohibited by applicable law or
regulation, from the date hereof until the date on which the Service Provider
has fulfilled all its obligations to perform services for the Company under this
Administration Agreement, and at any time (without limitation) as may be
required in the reasonable judgment of the Company for the Company to comply
with any law or regulation or to perform its obligations or responsibilities
under this Administration Agreement, the Company and its authorized
representatives may from time to time reasonably request, and the Service
Provider shall provide, at reasonable times during normal business hours, full
and open access to examine the files of the Service Provider pertaining to any
of the Administered Contracts and to the services to be provided by the Service
Provider under this Administration Agreement (including, but not limited to, the
files transferred to the Service Provider pursuant to this Article and still
then retained by the Service Provider) and to discuss such services with the
employees and agents of the Service Provider who are knowledgeable therewith, so
that the Company shall have sufficient opportunity to make whatever
investigation it shall deem necessary and desirable in connection with the
transactions contemplated by this Administration Agreement. Such access and
opportunity shall be exercised by the
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Company and such representatives' in a manner that shall not interfere
unreasonably with the operations of the Service Provider. Such access shall
include the right of the Company to make and retain copies of any files to the
extent that the Company reasonably determines that it requires copies of such
files in order to carry out the transactions contemplated by this Administration
Agreement or for any legitimate business purpose contemplated by this
Administration Agreement. Notwithstanding the first sentence of this
subparagraph, no request by the Company shall diminish or otherwise affect any
of the obligations or responsibilities of the Service Provider under this
Administration Agreement.
7. During the term of this Administration Agreement (or thereafter, if
required by law or regulation), the Service Provider shall retain all files
transferred by the Company or produced by the Service Provider on behalf of the
Company to the extent such files are required by applicable law or regulation or
the terms of an Administered Contract to be retained by either the Service
Provider or the Company and to the extent such files have not been transferred
to the Company. Any files which are not transferred to the Service Provider
shall be retained by the Company to the extent such files are required by
applicable law or regulation or the terms of an Administered Contract to be
retained by either the Service Provider or the Company.
8. Each party hereto shall pay all storage and related expenses
associated with any files, and copies thereof, which it retains in its
possession.
B. Ownership. All original files or suitable copies, which are
transferred to the Service Provider by the Company or produced by the Service
Provider for the benefit of the Company pursuant to this Administration
Agreement, shall be or remain the property of the Service Provider unless it is
otherwise required by applicable law or regulations that the Company retain
ownership. At such time as the Service Provider determines it is no longer
necessary under applicable law or regulation or the terms of an Administered
Contract to retain any file or copy thereof which is the property of the
Company, it may elect to return such file or copy thereof to the Company.
Notwithstanding anything herein to the contrary, the Service Provider shall have
the right
21
<PAGE> 24
to retain suitable copies of all files (originals and copies) transferred by the
Company to the Service Provider pursuant to this Administration Agreement.
C. Audit. For so long as there are Coinsured Policies or ASO Contracts
issued or renewed by the Company, the Company may, at its own expense,
reasonably conduct (or have conducted on its behalf) an audit of the Service
Provider with respect to such files and other relevant documents in the
possession of the Service Provider upon reasonable written notice to the Service
Provider during normal business hours and solely for the purpose of:
(i) responding to or facilitating any regulatory investigation or inquiry, or
(ii) investigating or defending a Claim or a complaint by a third party against
the Company relating to an Administered Contract.
ARTICLE X
LEGAL ACTIONS
A. Generally. Subject to the provisions of the Purchase Agreement,
neither the Company nor the Service Provider shall have the authority to
institute, prosecute or maintain any legal or regulatory proceedings on behalf
of the other party without the prior written consent of such other party, which
consent shall not be unreasonably withheld. Notwithstanding any other provision
of this Administration Agreement, no defense shall be interposed and no
settlement shall be entered into or agreed to by either party without the prior
written consent of the other party which consent shall not be unreasonably
withheld except that such party in its sole discretion may withhold consent, if
such defense or settlement could materially affect such party's licenses, its
relationship with any regulatory or governmental authority, or such party's
ability to conduct the GBO Included Business, or the Company's ability to
conduct the GBO Excluded Business.
B. Notification. Each party shall promptly notify the other party of
any claim which may reasonably be expected to exceed $250,000 by reason of an
extracontractual obligation, a judgment in excess of policy limits, bad faith or
punitive damages.
ARTICLE XI
TERMINATION
A. Termination of Administration Agreement. This Administration
Agreement may be terminated by mutual agreement of the parties. This
Administration Agreement will, unless earlier terminated by the Company pursuant
to this Article XI, terminate automatically upon the termination of all of the
Company's
22
<PAGE> 25
liabilities and obligations under the Administered Contracts and the termination
of all of its and the Service Provider's obligations under the Coinsurance
Agreement and this Administration Agreement. Notwithstanding any other provision
of this Administration Agreement, the Service Provider may not terminate this
Agreement for any reason whatsoever.
B. Events of Default. Any one or more of the following shall constitute
an Event of Default:
1. The Service Provider fails to perform or observe any material
covenant, term or condition contained herein, including, but not limited to,
material breach of performance or payment requirements, and such failure or
breach shall (i) not have been cured within one hundred twenty (120) days, or
such lesser period as shall be necessary to avert any imminent revocation of the
Company's license to do an insurance business in any Permitted Jurisdiction,
after notice by the Company of such failure or breach, (ii) have caused
revocation of the Company's license to do an insurance business in any Permitted
Jurisdiction or a Material Adverse Effect with respect to the Company, and (iii)
have been finally decided pursuant to the procedures referenced in Article XIV
hereof, provided, however, that this subparagraph (iii) shall not apply if the
Company's license to do an insurance business in a Permitted Jurisdiction would
be revoked before the entry of a final arbitration decision pursuant to the
procedures referenced in Article XIV hereof. Any notice delivered by the Company
pursuant to this subparagraph shall be accompanied by a demand for a plan of
cure, which plan of cure shall be delivered by the Service Provider to the
Company within fifteen (15) days of the receipt of such demand.
2. The termination of the Coinsurance Agreement;
3. If the Service Provider shall (i) commence a voluntary case or other
proceeding seeking rehabilitation, reorganization, liquidation or other relief
with respect to itself or its debts under any insolvency, conservatorship,
receivership, rehabilitation, liquidation or other similar law now or hereafter
in effect that authorizes the rehabilitation, reorganization or liquidation of
the Service Provider or its debt or the appointment of a trustee, receiver,
liquidator, custodian
23
<PAGE> 26
or other similar official of it or any substantial part of its property, or (ii)
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or (iii) make a general assignment for the benefit of creditors, or (iv) fail
generally to pay its debts as they became due, or (v) take any corporate action
to authorize any of the foregoing;
4. Any involuntary case or other proceeding shall be commenced against
the Service Provider seeking rehabilitation, reorganization, liquidation or
other relief with respect to it or its debts under any insolvency,
conservatorship, receivership, rehabilitation, liquidation or other similar law
now or hereafter in effect seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60) days; or
5. An order is entered by a court of competent jurisdiction affecting
substantially all of the property or affairs of the Service Provider under
insolvency, conservatorship, receivership, rehabilitation, liquidation or other
similar laws as now or hereafter in effect and such order shall remain
undismissed and unstayed of a period of sixty (60) days.
C. Termination Upon Event of Default. Upon the occurrence of an Event
of Default as described in paragraph B above, the Company may, at its option,
terminate this Administration Agreement by giving written notice to the Service
Provider of its termination of this Administration Agreement.
D. Transition Following Termination Upon Event of Default. In the event
of termination under paragraph B above, the Service Provider and the Company
shall effect a transition and an orderly transfer of responsibilities as
follows:
1. Transition. If this Administration Agreement is terminated by the
Company pursuant to paragraph B above, the Service Provider will take all
such action reasonably requested by the Company (including without
limitation continuing to provide such services as are necessary until
transfer of administration to another service provider or the Company), and
will reasonably cooperate with the Company, to facilitate the transition of
the services to another service provider selected by the Company or to the
Company.
2. Transfer of Information to the Company. Upon
24
<PAGE> 27
termination of this Administration Agreement under paragraph B above, at
the Company's option and request, the Service Provider shall perform all
steps necessary, at the expense of the Service Provider, to transfer all
Company property and information to the Company or a party designated by
the Company, including, but not limited to, insurance policies, financial
and technical information and data, and the Service Provider shall promptly
deliver all such property and information to the Company or the Company's
designee.
3. Obligations Regarding Covered Policies. Upon termination of this
Administration Agreement for any reason, the Company shall assume all of
the obligations of the Service Provider hereunder relating to the provision
of administrative services with respect to the Administered Contracts.
E. Return of Files. Upon termination of this Administration Agreement,
under paragraph A above at the request of a party, any files obtained by the
other party from the requesting party or produced by the other party for the
benefit of the requesting party shall be returned or transferred to such
requesting party in a commercially reasonable manner at the expense of the
requesting party promptly after written request therefor shall have been
received from such requesting party, provided, however, that such other party
shall be permitted to make copies of such files as may be required for such
party to meet its obligations and responsibilities and engage in the
transactions contemplated by the Purchase Agreement, the Coinsurance Agreement,
this Administration Agreement or for other good and valid business reasons
contemplated by such agreements, including but not limited to the obligations of
such other party to comply with applicable law or regulatory requirements or the
requirements of Administered Contracts. If a party has not requested return of
any file within one hundred eighty (180) days after the termination under
paragraph A above; such party shall be deemed to have waived its rights to
return of such file.
F. Partial Termination. If, as a result of the loss of any license,
authorization or accreditation, the Service Provider is unable to perform its
obligations hereunder, then this Administration Agreement shall be terminated as
to the affected obligations only; provided,
25
<PAGE> 28
however, that in such event, the Service Provider shall have obtained the
services of a third party to perform such affected obligations.
G. Continuation of Certain Obligations. Notwithstanding the termination
of this Administration Agreement, the obligations of the Service Provider or of
the Company, as the case may be, under Article IX.A.7., Article IX.C., Article
XI.D., Article XI.G., Article XII, Article XIII, Article XIV and Article XV,
paragraphs B,G and O shall remain in full force and effect. In addition,
notwithstanding the termination of this Administration Agreement, the Service
Provider shall pay to the Company all amounts due and owing to the Company
pursuant to Article V.A.2. through the termination of this Administration
Agreement.
ARTICLE XII
CONFIDENTIALITY
This Administration Agreement and the information provided thereunder
shall be subject to the confidentiality provisions of Section 16.1 of the
Purchase Agreement. Notwithstanding the foregoing, disclosure of confidential or
proprietary information with respect to any individual covered for benefits with
respect to an Administered Contract may be made at the request of such
individual or his or her legal representative. Confidential and proprietary
information may also be disclosed with the consent of both parties, which
consent will not be unreasonably withheld. The Service Provider and the Company
will continue to comply with the provisions of the Confidentiality Agreement
dated April 25, 1995.
ARTICLE XIII
INDEMNIFICATION
A. The Service Provider. The Service Provider hereby agrees on demand
to indemnify and hold harmless the Company and its Affiliates, and their
respective officers, directors and employees (each an "Indemnified Party") from
and against any and all demands, actions, proceedings, suits (by any Person,
entity or group, including, without limitation, any Governmental Entity) and
Liabilities, paid or incurred (including reasonable attorneys' fees), resulting
from or arising out of (i) the breach of or failure to perform any of the
duties, obligations, covenants or agreements of the Service Provider contained
in this Administration Agreement, (ii) any claim made against any Indemnified
Party by any person to the extent relating to the Service Provider's performance
of, or failure to perform, the
26
<PAGE> 29
terms of this Administration Agreement, (iii) the Service Provider's
failure to comply with all laws, regulations and orders applicable to the
Company with respect to the Administered Contracts and to the conduct of the
activities contemplated hereby and (iv) any failure to comply with the standards
of performance, terms or conditions of all Administered Contracts; provided,
however, that this subparagraph (iv) shall not apply to the extent that such
failure to comply arises out of or is based on (x) any terms of the Administered
Contracts relating to or associated with the non-transferability or
non-assignment provisions of such Administered Contracts, or (y) any bad faith
claims practices, willful misconduct, fraud or gross negligence of the Company
or its Affiliates (without attributing to the Company or its Affiliates the
actions of the Service Provider or its Affiliates).
B. The Company. The Company hereby agrees on demand to indemnify and
hold harmless the Service Provider and its Affiliates, and their respective
officers, directors and employees from and against any and all demands, actions,
proceedings, suits (by any Person, entity or group, including, without
limitation, any Governmental Entity) and Liabilities, paid or incurred
(including reasonable attorneys' fees), resulting from or arising out of the
breach of or failure to perform any of the duties, obligations, covenants or
agreements of the Company contained in this Administration Agreement.
C. Indemnification Procedures. Indemnification under Section XIII.A.
and XIII.B. shall be made using the procedures, terms and conditions contained
in Sections 14.2 and 14.3 of the Purchase Agreement as if fully set forth
herein, with (i) references in Section 14.2(a) to "indemnification under Section
14.1 of this Agreement" changed to refer to "indemnification under Section
XIII.A. or XIII.B., as the case may be, of this Administration Agreement", (ii)
the phrase "except as provided in Section 14.1(g) and" deleted in Section
14.2(c), (iii) references in Section 14.3 to "this Article XIV" shall be changed
to refer to "this Section XIII.A." or "this Section XIII.B.", as the case may
be, and (iv) the phrases "and, in any event, within the time period referred to
in Section 14.1(g)" and "So long as Indemnitee provides the Indemnity Notice
within the time period referred to in Section 14.1(g)," deleted from the text of
27
<PAGE> 30
Section 14.3.
ARTICLE XIV
ARBITRATION
A. General. Any dispute or difference between the parties with respect
to the operation or interpretation of, or arising from or relating to, this
Administration Agreement on which an amicable understanding cannot be reached
shall be decided by binding arbitration. Arbitration hereunder shall be pursuant
to and in accordance with the terms, conditions and procedures set forth in
Article XV of the Purchase Agreement.
ARTICLE XV
GENERAL PROVISIONS
A. Cooperation. The parties shall cooperate in a commercially
reasonable manner in order that the duties assumed by the Service Provider will
be effectively, efficiently and promptly discharged, and will not take any
actions which would frustrate the intent of the transactions contemplated by
this Administration Agreement, the Purchase Agreement or the Coinsurance
Agreement. Each party shall, at all reasonable times during normal business
hours under the circumstances, make available to the other party properly
authorized personnel for the purpose of consultation and decision. As soon as
practicable after the Effective Time, the Company shall make available to the
Service Provider copies of all policy forms and examples of all other forms,
including drafts and checks, used by the Company in its administration of the
Administered Contracts as reasonably requested by the Service Provider.
B. Amendment; Waivers. This Administration Agreement may be amended or
modified, and any of the terms or conditions hereof may be waived, only by a
written instrument executed by the parties hereto, or in the case of a waiver,
by the party waiving compliance. Any waiver by any party of any condition, or of
the breach of any provision or term contained in this Administration Agreement,
in any one or more instances, shall not be deemed to be nor construed as a
further or continuing waiver of any such condition, or of the breach of any
other provision or term of this Administration Agreement. The failure of the
Company or the Service Provider to insist on strict compliance with this
Administration Agreement, or to exercise any right or remedy under this
Administration Agreement, shall not constitute a waiver of any rights provided
under this Administration Agreement, nor estop the parties from thereafter
demanding full and
28
<PAGE> 31
complete compliance nor prevent the parties from exercising such a right or
remedy in the future.
C. Entire Agreement. Except as otherwise provided in the Purchase
Agreement and the Annexes and Schedules attached thereto, this Administration
Agreement, including all Annexes or Schedules attached hereto, and the other
Transaction Documents contain the entire understanding between the parties
hereto with respect to the transactions contemplated hereby and supersedes and
replaces all prior and contemporaneous agreements and understandings, oral or
written with regard to such transactions. All Annexes or Schedules delivered
pursuant to any provision hereof are expressly made a part of this Agreement as
fully as though completely set forth herein.
D. Relationship. The Company and the Service Provider are and shall
remain independent contractors and not employees, agents or partners of the
other party. Except as expressly granted in this Administration Agreement or
otherwise by the other party in writing or as may be required by law or as
necessary to perform the services to be provided hereunder or to obtain the
benefits hereof, no party shall have any authority, express or implied, to act
as an agent of the other party or its subsidiaries or affiliates under this
Administration Agreement. Except as otherwise provided by any agreement between
the parties, the Service Provider shall be responsible for, and the Company
shall have no liability for, the payment of all employment, income and social
security taxes arising in connection with the compensation payable to the
Service Provider's personnel involved in the provision of the services
hereunder.
E. Errors and Omissions. Any delays, errors or omissions on the part of
a party occurring in connection with this Administration Agreement or any
transaction hereunder shall not relieve any other party from any liability to
the first party which would have otherwise attached, had such delay, error or
omission not occurred, provided that such error or omission is rectified as soon
as reasonably practicable after discovery thereof.
F. Best Efforts. No reference in this Administration Agreement to "best
efforts" or "commercially reasonable efforts" shall require a person obligated
to use its best or commercially reasonable efforts to incur substantial
out-of-pocket expenses, to
29
<PAGE> 32
incur indebtedness or, except as expressly provided herein, to institute
litigation or to consent generally to service of process in any jurisdiction.
G. Governing Law. This Administration Agreement shall be deemed to have
been made under and governed by the laws of the State of Delaware without regard
to Delaware's choice of law rules.
H. Invalidity. Unless the invalidity or unenforceability of any
provision or portion thereof frustrates the intent of the parties or the purpose
of this Administration Agreement, such invalidity or unenforceability shall not
affect the validity or enforceability of the other provisions or portions
thereof. In the event that such provision shall be declared unenforceable by a
court of competent jurisdiction, such provision or portion thereof, to the
extent declared unenforceable, shall be stricken. However, in the event any such
provision or portion thereof shall be declared unenforceable due to its scope,
breadth or duration, then it shall be modified to the scope, breadth or duration
permitted by law and shall continue to be fully enforceable as so modified
unless such modification frustrates the intent of the parties or the purpose of
this Administration Agreement.
I. Counterparts. This Administration Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
J. No Third Party Beneficiaries. Nothing in this Administration
Agreement is intended to confer any rights or remedies under or by reason of
this Administration Agreement on any persons other than the Company and the
Service Provider and their respective successors and assigns. Nothing in this
Administration Agreement is intended to relieve or discharge the obligations or
liability of any third persons to the Company or the Service Provider. No
provision of this Administration Agreement shall give any third persons any
right of subrogation or action over or against the Company or the Service
Provider.
K. Assignment. The Service Provider may assign its rights and
obligations under this Administration Agreement to a wholly-owned subsidiary or
an Affiliate which is directly or indirectly wholly-owned by the Service
Provider's ultimate parent, after giving written notice of such assignment to
the Company, provided, however, that the Service Provider shall remain primarily
liable for any obligations which it assigns, delegates or
30
<PAGE> 33
out sources. Except as so permitted, neither party shall assign this
Administration Agreement or any rights or obligations hereunder without the
prior written consent of the other party hereto, and any such attempted
assignment without such prior written consent shall be void and of no force and
effect; provided, however, that no such assignment shall reduce or otherwise
vitiate any of the obligations of any other party hereunder. This Administration
Agreement shall inure to the benefit of and shall be binding upon the successors
and permitted assigns of the parties hereto.
L. Headings. The headings in this Administration Agreement are for the
convenience of reference only and shall not affect its interpretation.
M. Preparation. This Administration Agreement has been jointly prepared
by the parties hereto and the terms hereof will not be construed in favor of or
against any such party by reason of its participation in such preparation.
N. Reasonableness. Each of the parties will act reasonably and in good
faith on all matters within the terms of this Administration Agreement.
O. Notices. All notices, requests, demands, approvals and other
communications under this Administration Agreement shall be in writing and shall
be deemed duly given upon delivery if delivered personally, upon confirmation of
transmission if sent by telex or facsimile, upon the third Business Day after
mailing if sent by certified or registered mail, postage prepaid, and upon
receipt if sent by reputable overnight carrier, as follows:
If to the Company:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Thomas E. Moloney,
Chief Financial Officer
Telephone: (617) 572-0600
Fax: (617) 572-5170
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<PAGE> 34
With copies to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Michael H. Studley, Esq.,
Vice President and Counsel
Telephone: (617) 572-9253
Fax: (617) 572-1565
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attention: Paul C. Meyer, Esq.
Telephone: (212) 878-8176
Fax: (212) 878-8375
If to the Service Provider:
WellPoint Health Networks Inc.
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Leonard D. Schaeffer, Chairman
and Chief Executive Officer
Telephone: (818) 703-3145
Fax: (818) 703-3253
With copies to:
WellPoint Health Networks Inc.
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Thomas C. Geiser, Esq.,
General Counsel
Telephone: (818) 703-2412
Fax: (818) 703-4406
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, CA 94105
Attention: Ronald B. Moskovitz, Esq.
Telephone: (415) 442-0900
Fax: (415) 442-1400
Notices shall be sent by United States mail, by registered or certified mail,
and shall be deemed to have been received three (3) Business Days after deposit
in the mail. Notices may also be sent by hand, by telefax, or by overnight
delivery service, and if so given, shall be deemed received when delivered if a
receipt of delivery is obtained.
Any party may, by notice given in accordance with this
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<PAGE> 35
Administration Agreement to the other parties, designate another address or
person for receipt of notices hereunder.
P. Offset. Notwithstanding any provision of this Administration
Agreement to the contrary, any offset, credit or return permitted by this
Agreement is limited to amounts arising from or in connection with the
Administered Contracts and shall exclude any other amounts including but not
limited to amounts payable pursuant to the Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Administration
Agreement to be executed by their respective officers thereunto duly authorized,
as of the day and year first above written.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:
Name:
Title:
UNICARE LIFE & HEALTH INSURANCE COMPANY
By:
Name:
Title:
1
<PAGE> 36
ANNEX A
Form of Agent Fee Agreement
A-1
<PAGE> 37
ANNEX B
Information and data to be provided by the Service Provider Information, data,
and access to supporting records and documentation on book and tax basis, as
appropriate, for the following:
premium receipts on state, local and municipal basis
due and unpaid premiums, deferred premiums and uncollected premiums
book and tax reserves, tax/statutory reserve differences, and reconciliation of
tax reserves with statutory reserves
minimum premium plan (MPP) and administrative services only book and tax
adjustments and premiums; reserves disclosed in Exhibits 9 and 11 to
statutory financial statements
deferred acquisition costs
policyholder dividends and experience refunds
commissions payable
Section 807(f) 10-year spread items
life company tax adjustments (retired lives reserves, non-MPP experience
refunds.)
information for reinsurance accounting
guaranty fund assessments
other information reasonably requested by the Company or necessary or
appropriate to comply with laws, rules or regulations
When information is to be provided
Information to be provided on a basis which permits timely completion of tax and
other required regulatory filings. See the attached example of the timing for
tax and financial information preparation.
Format in which information to be provided
Information to be provided in substantially the format currently provided, or in
a format mutually agreed upon by the parties, which format may include tapes,
disks, hardcopy and other media.
Persons to whom information to be provided
Information to be provided to persons designated, and from time to time updated
by, the Company. For example, consistent with past practices, the timing for
preparation of tax and other financial information for a calendar year is as
follows.
1. Estimated Tax Return Information provided by the following March 31, with
final Tax Return data provided by
B-2
<PAGE> 38
August 15.
2. Statutory financial information to prepare Balance Sheet, Income Statement,
Cash Flow and footnotes by January 15.
3. Statutory financial data to prepare the NAIC Life Company Convention Blank
for the Mutual Company by January 30.
4. Statutory financial data to prepare the Canadian Convention Blank for the
Mutual Company by February 5.
5. Supporting detail Canadian policyholder and contractholder financial data for
record purposes at our Toronto office by February 28.
6. Subsequent Statutory financial data to prepare MD&A by February 15; A&H
Experience Exhibit March 1.
7. Financial information prepared in accordance with generally accepted
accounting principles provided January 31.
In addition, consistent with past practices, the timing for preparation of SAP
financial information for each quarter is within fifteen (15) days after the end
of each calendar quarter.
B-1
<PAGE> 39
ANNEX C
BANK ACCOUNTS
The Company and the Service Provider shall establish bank accounts for
purposes of fulfilling their respective obligations under this Administration
Agreement and the Coinsurance Agreement as follows:
PREMIUM ACCOUNTS
The Service Provider shall establish and own premium accounts for the
collection of premium and fee payments with respect to the Administered
Contracts. Premiums paid with respect to Coinsured Policies and fees paid with
respect to ASO Contracts and Network Contracts shall be for the account of the
Service Provider.
COMMISSION AND OTHER EXPENSE DISBURSEMENT ACCOUNTS
The Service Provider shall establish and own accounts for the payment
of commissions and other expenses with respect to the Administered Contracts and
shall be responsible for funding such accounts. The Service Provider shall be
liable for payment of commissions and other expenses with respect to the
Administered Contracts.
CLAIMS PAYING ACCOUNTS
Coinsured Policies The Service Provider shall establish and own
accounts for the payment of Claims for Coinsured Policies and for the receipt or
payment of all other amounts to be received or paid after the Effective Time
with respect to the Coinsured Policies under the Coinsurance Agreement. The
Service Provider shall be responsible for funding and administering such
accounts with respect to the payment of claims for Coinsured Policies.
ASO Contracts The Service Provider shall be responsible for obtaining
from the client the proper funding of all disbursement accounts and for
administering client funding of associated client accounts with respect to ASO
Contracts, but shall not otherwise be responsible for proper funding of said
accounts.
OTHER
The parties shall establish and administer such other bank accounts as
they shall mutually determine to be appropriate.
C-2
<PAGE> 1
ANNEX F
SERVICE AGREEMENT
Between
UNICARE LIFE & HEALTH INSURANCE COMPANY
and
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
Dated as of January [ ], 1997
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Definitions....................................................... 1
2. Description of Services and Performance Standards................. 1
2.1 Description of Services.............................. 1
2.2 Performance Standards................................ 2
2.3 Engagement of Transition Consultants................. 2
3. Facilities and Personnel.......................................... 2
3.1 Facilities and Trained Personnel..................... 2
3.2 Status of Employees and Facilities................... 2
3.3 Control.............................................. 2
4. Fees and Reimbursements........................................... 2
5. Payment........................................................... 3
6. Accounting Records and Documents.................................. 3
6.1 Maintenance of Records............................... 3
6.2 Inspection and Audit Rights.......................... 3
7. Other Records and Documents....................................... 3
8. Cooperation....................................................... 4
9. Authorized Representatives........................................ 4
10. Nonexclusive Services............................................. 4
11. Indemnification................................................... 4
11.1 The Service Provider................................. 4
11.2 The Company.......................................... 4
11.3 Indemnification Procedures........................... 4
12. Term and Termination Rights....................................... 5
12.1 Term................................................. 5
12.2 Event of Default..................................... 5
-i-
<PAGE> 3
Page
----
12.3 Remedies upon Occurrence of Event of Default......... 6
12.4 Termination Upon Termination of Administration
Agreement.......................................... 6
13. Effect of Termination or Expiration of Agreement.................. 6
13.1 Transition........................................... 6
13.2 Transfer of Information upon Termination of Services. 6
13.3 Payment of Amounts Due............................... 6
13.4 Reinsurance Agreements............................... 6
14. Confidentiality................................................... 6
15. Miscellaneous..................................................... 7
15.1 Waiver............................................... 7
15.2 Conflict with Law.................................... 7
15.3 Assignment........................................... 7
15.4 Binding on Successors and Assigns.................... 7
15.5 No Third Party Beneficiaries......................... 7
15.6 Independent Contractor............................... 7
15.7 Arbitration.......................................... 7
15.8 Notice............................................... 7
15.9 Entire Agreement..................................... 9
15.10 Amendments........................................... 9
15.11 Survival............................................. 9
15.12 Severability......................................... 9
15.13 Interpretation....................................... 9
15.14 Headings............................................. 9
15.15 Counterparts......................................... 9
15.16 Governing Law........................................ 9
Appendices
Appendix A Administrative and Support Service Fees............ A-1
Appendix B Financial and Reporting Services................... A-4
Appendix C Computer Support................................... A-6
Schedule of Attachments to Appendix C........................... A-13
Attachment 1 Schedule of Mainframe Applications................ A-14
Attachment 2 Schedule of Mainframe Tools....................... A-15
-ii-
<PAGE> 4
Page
----
Attachment 3 GBO Business Requirements for Service Provider ITS
Services.................................. A-18
Attachment 4 Overview of Service Provider's Techline Services... A-23
Appendix D Graphic Services................................... A-24
Appendix E Office Services.................................... A-25
Appendix F Output Services.................................... A-28
Appendix G Dining and Conference Center Services.............. A-29
Appendix H Childcare Center................................... A-30
Appendix I Legal Services..................................... A-31
Appendix J Tax Services....................................... A-32
Appendix K Treasury Services.................................. A-33
-iii-
<PAGE> 5
SERVICE AGREEMENT
THIS SERVICE AGREEMENT (this "Agreement") dated as of January [ ],
1997, by and between John Hancock Mutual Life Insurance Company, a Massachusetts
corporation with offices at 200 Clarendon Street, Boston, Massachusetts 02117
("Service Provider"), and UniCARE Life & Health Insurance Company, a Delaware
corporation with offices at 21555 Oxnard Street, Woodland Hills, California
91367 ("Company").
W I T N E S S E T H:
WHEREAS, Service Provider and Wellpoint Health Networks, Inc., a
California Corporation ("Wellpoint") and the indirect parent of the Company,
have entered into a Purchase and Sale Agreement (the "Purchase Agreement")
pursuant to which Service Provider is selling and Wellpoint and the Company are
acquiring the GBO Included Business (as defined in the Purchase Agreement) of
Service Provider; and
WHEREAS, the Purchase Agreement requires that, as a condition to
closing under the Purchase Agreement, the Service Provider and Company enter
into this Agreement under which Service Provider will provide to Company certain
administrative services relating to the conduct of the GBO Included Business for
an interim period after closing on the terms and conditions set forth in this
Agreement; and
WHEREAS, Company desires Service Provider to perform such
administrative services for Company, and Company desires to receive such
services from Service Provider, on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the covenants and of the mutual
promises set forth herein, Service Provider and Company agree as follows:
1. Definitions. Terms not defined herein shall have the
meanings ascribed to them in the Purchase Agreement.
2. Description of Services and Performance Standards.
2.1 Description of Services. Subject to the terms and
conditions and limitations of this Agreement, Service Provider agrees to perform
the administrative services for Company described in Appendices A through K
annexed hereto (collectively, the "Services"). If Company desires to receive
from Service Provider additional services which are not otherwise contemplated
under this Agreement, the parties shall negotiate in good faith to reach a
mutually acceptable arrangement with respect to the provision of such services.
<PAGE> 6
2.2 Performance Standards. Service Provider agrees that in
providing Services under this Agreement it shall: (i) conduct itself in
accordance with all reasonable commercial and professional standards of care,
diligence and good faith which are substantially equal in quality to the
standards Service Provider applied prior to the Effective Time, provided that
such standards are not inconsistent with prudent management practices in the
life and health insurance industry generally, and shall generally act in such a
way as to preserve goodwill toward Company on the part of the general public,
customers, and all those having business relations with Company, (ii) comply
with all material laws, regulations and orders applicable to Service Provider
with respect to the Services and to the conduct of the activities contemplated
hereby and (iii) with respect to the Services carry on its affairs in the
ordinary course of business and not make or institute any unusual method of
doing business, GAAP or SAP accounting or operation. Notwithstanding the
foregoing, the failure of the Service Provider to provide such Services in
accordance with the standards set forth above, to the extent due to the failure
of the Company to provide information or services to Service Provider as
required under the Transaction Documents, shall not be deemed to be a breach of
this Agreement.
2.3 Engagement of Transition Consultants. Service Provider
agrees to engage transition consultants on behalf of Company or Wellpoint and as
designated by Company or Wellpoint and to pay invoices received for fees and
disbursements from such consultants for amounts up to $3,000,000.
3. Facilities and Personnel.
3.1 Facilities and Trained Personnel. Service Provider will at
all times maintain sufficient facilities and trained personnel of the kind
necessary to perform this Agreement in accordance with the performance
standards.
3.2 Status of Employees and Facilities. Whenever Service
Provider utilizes its employees to perform Services for Company pursuant to this
Agreement, such employees shall at all times remain subject to the direction and
control of Service Provider, and Company shall have no liability to such Persons
for their welfare, salaries, fringe benefits, legally required employer
contributions and tax obligations by virtue of the relationships established
under this Agreement. No facility of Service Provider used in performing the
Services for or subject to use by Company shall be deemed to be transferred,
assigned, conveyed or leased by such performance or use. Service Provider shall
maintain appropriate security, maintenance and insurance coverage on such
facility.
3.3 Control. The performance of the Services by Service
Provider for Company pursuant to this Agreement shall in no way impair the
absolute control of the business and operations of Service Provider or Company
by their respective Boards of Directors.
4. Fees and Reimbursements. In consideration for the
performance of the Services by Service Provider, Company shall pay to Service
Provider administrative fees in the amounts and at the times set forth on
Appendix A. In the event that Company relocates the principal office at which
the GBO Included Business is conducted from 200 Berkeley Street,
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<PAGE> 7
Boston, Massachusetts, Company will reimburse Service Provider for any
incremental costs which are incurred and documented by Service Provider in
providing Services to Company at the new location.
5. Payment. Service Provider shall submit to Company within 10
Business Days after the end of each month a written statement of the amount owed
by Company for fees and reimbursements pursuant to Section 4 of this Agreement
for that month, and Company shall pay to Service Provider within 30 Business
Days following receipt of such written statement, the amount set forth in the
statement. Any amount owed by Company to Service Provider that is paid after the
due date therefor shall bear interest at the interest rate for 30 day United
States Treasury bills as reported in the Wall Street Journal as of the day on
which any payment is due, from the due date through the date of payment.
6. Accounting Records and Documents.
6.1 Maintenance of Records. Service Provider shall be
responsible for maintaining full and accurate accounts and records of all
Services rendered pursuant to this Agreement and such additional information as
Company may reasonably request for purposes of its internal bookkeeping,
accounting, operations and management. Service Provider shall keep such accounts
and records available, during all reasonable business hours during the term of
this Agreement, at its principal offices, or at such other location as required
by applicable state laws and regulations or by state regulatory authorities, for
audit, inspection and copying by Company and Persons authorized by it or any
governmental agency having jurisdiction over Company. With respect to accounting
and statistical records prepared by or for Service Provider by reason of its
performance under this Agreement, summaries of such records in a form acceptable
to both Service Provider and Company shall be delivered to Company within 15
days from the end of the period to which the records pertain.
6.2 Inspection and Audit Rights. In addition to rights granted
under Section 7 below, at any time during the term of this Agreement, and for a
period of 2 years after termination or expiration of this Agreement, Company, or
its authorized independent auditors or counsel, shall have the right to inspect
and audit Service Provider's premises and facilities, accounts, books and
records relating to the Services upon 15 Business Days' prior written notice
during Service Provider's regular business hours.
7. Other Records and Documents. All books, records and files
established and maintained by Service Provider by reason of its performance
under this Agreement shall be the property of Service Provider, and shall be
subject to examination at all times during the term of this Agreement upon 15
Business Days' prior written notice during Service Provider's regular business
hours by Company and Persons authorized by it or any governmental agency having
jurisdiction over Company. Company shall have the right, at its expense, to
receive duplicate copies of any records retained by Service Provider within 15
days after any request by Company or originals of such records (with Service
Provider retaining copies thereof) if required by law. Company shall be
responsible for payment of all documented costs of copying and mailing or
otherwise transporting any documentation as required under this Section 7.
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<PAGE> 8
8. Cooperation. The parties agree to cooperate with each other
in a commercially reasonable manner in order that the duties assumed by the
parties under this Agreement may be effectively, efficiently and promptly
discharged. Each party shall at all reasonable times during normal business
hours under the circumstances make available to the other party properly
authorized personnel for the purpose of consultation and decision.
9. Authorized Representatives. Service Provider and Company
each shall from time to time appoint one or more individuals who shall serve as
authorized representative(s) of such party for the purposes of carrying out this
Agreement. Such Persons shall be authorized to act on behalf of their respective
parties as to matters pertaining to this Agreement. Each party shall notify the
other, in writing, as to the name, address, and telephone number for any such
authorized representative, and of any replacement thereof.
10. Nonexclusive Services. Company acknowledges and agrees
that Service Provider shall have the right to provide services to other third
parties.
11. Indemnification.
11.1 The Service Provider. The Service Provider hereby agrees
on demand to indemnify and hold harmless the Company and its Affiliates, and
their respective directors, officers and employees (each, an "Indemnified
Party") from and against any and all demands, actions, proceedings, suits (by
any Person, entity or group, including, without limitation, any Governmental
Entity) and Liabilities, paid or incurred (including reasonable attorneys' fees)
resulting from or arising out of (i) the breach of or failure to perform any of
the duties, obligations, covenants or agreements of the Service Provider
contained in this Agreement, (ii) any claims made against any Indemnified Party
by any Person to the extent relating to the Service Provider's performance of,
or failure to perform, the terms of this Agreement, and (iii) the Service
Provider's failure to comply with all laws, regulations and orders applicable to
the Company with respect to the Services provided under this Agreement.
11.2 The Company. The Company hereby agrees on demand to
indemnify and hold harmless the Service Provider and its Affiliates, and their
respective officers, directors and employees from and against any and all
demands, actions, proceedings, suits (by any Person, entity or group, including,
without limitation, any Governmental Entity) and Liabilities, paid or incurred
(including reasonable attorney's fees), resulting from or arising out of the
breach of or failure to perform any of the duties, obligations, covenants or
agreements of the Company contained in this Agreement.
11.3 Indemnification Procedures. Indemnification under Section
11.1 and 11.2 shall be made using the procedures, terms and conditions contained
in Sections 14.2 and 14.3 of the Purchase Agreement as if fully set forth
herein, with (i) with references in Section 14.2(a) to "indemnification under
Section 14.1 of this Agreement" changed to refer to "indemnification under
Section 11.1 or 11.2, as the case may be, of this Agreement", (ii) the phrase
"except as provided in Section 14.1 (g) and" deleted in Section 14.2(c), (iii)
references in Section 14.3 to "this Article XIV" shall be changed to refer to
"this Section 11.1" or "this Section 11.2", as the
4
<PAGE> 9
case may be, and (iv) the phrases "and, in any event, within the time period
referred to in Section 14.1(g)" and "So long as Indemnitee provides the
Indemnity Notice within the time period referred to in Section 14.1(g)," deleted
from the text of Section 14.3.
12. Term and Termination Rights.
12.1 Term. This Agreement will commence on the date hereof and
will continue in effect for a period of 2 years from such date, unless earlier
terminated pursuant to Sections 12.3 or 12.4 below; provided, however, that in
the event that Company relocates the principal office at which the GBO Included
Business is conducted from 200 Berkeley Street, Boston, Massachusetts, the
Services described in Appendices G and H will terminate; and provided, further,
that Company shall have the right to terminate this Agreement on a service by
service basis at any time without an Event of Default having occurred, upon 30
days' prior written notice to Service Provider and payment of all fees and other
amounts due to Service Provider through the date of termination of such
Services.
12.2 Event of Default. Any one or more of the following shall
constitute an Event of Default as to a party hereunder:
(a) It fails to pay any amount when due to the other
party under this Agreement; or
(b) It fails to perform or observe any other
covenant, term or condition contained in this Agreement, including, but not
limited to, breach of performance requirements, and such failure or breach shall
not have been cured within 30 days after notice by the non-defaulting party of
such failure or breach; provided, however, that if the defaulting party
reasonably believes that the failure or breach is not curable within such 30-day
period, the defaulting party may send written notice to the non-defaulting party
prior to the expiration of such 30-day period setting forth the anticipated time
it believes would be necessary to cure, and the action proposed to effectively
cure, such failure or breach, and such failure or breach shall not constitute an
Event of Default if the defaulting party shall thereafter diligently prosecute
and effect a cure; or
(c) If it shall (i) commence a voluntary case or
other proceeding seeking liquidation, rehabilitation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency,
rehabilitation or other similar law now or hereafter in effect that authorizes
the reorganization, rehabilitation or liquidation of such party or its debt or
the appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or (ii) consent to any
such relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against it, or (iii) make a
general assignment for the benefit of creditors, or (iv) fail generally to pay
its debts as they became due, or (v) take any corporate action to authorize any
of the foregoing; or
(d) An involuntary case or other proceeding shall be
commenced against it seeking liquidation, rehabilitation, reorganization or
other relief with respect to it or its
5
<PAGE> 10
debts under any bankruptcy, rehabilitation, insolvency or other similar law now
or hereafter in effect seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or
(e) An order is entered by a court of competent
jurisdiction affecting substantially all of its property or affairs under
bankruptcy, rehabilitation, insolvency or other similar laws as now or hereafter
in effect and such order shall remain undismissed and unstayed for a period of
60 days.
12.3 Remedies upon Occurrence of Event of Default. Upon the
occurrence of an Event of Default as described in Section 12.2 above, the
non-defaulting party may, at its option, terminate this Agreement by giving
written notice of its intention to terminate this Agreement.
12.4 Termination Upon Termination of Administration
Agreement. In addition to any other right to terminate this Agreement, either
party shall have the right, without an Event of Default hereunder having
occurred, to terminate this Agreement upon notice at or after the termination of
the Administration Agreement.
13. Effect of Termination or Expiration of Agreement.
13.1 Transition. If this Agreement is terminated by Company
following an Event of Default by Service Provider, then Service Provider agrees
to take action reasonably requested by Company, and will reasonably cooperate
with Company, to facilitate the transition of the Services to another service
provider selected by Company or to Company.
13.2 Transfer of Information upon Termination of Services.
Upon termination of this Agreement, or any Service under this Agreement, at
Company's option and request, Service Provider shall promptly transfer all
Company information relating to the Services terminated (including but not
limited to, financial and technical information and data), in its existing
format, to Company or a party designated by Company. Such transfer shall be made
at Service Provider's expense, except that Company will reimburse Service
Provider for reasonable out-of-pocket expenses incurred by Service Provider and
agreed to in advance by Company in connection with such transfer.
13.3 Payment of Amounts Due. No termination of this Agreement,
however effected, shall relieve either party of its obligations to pay any
amounts which then may be due or may thereafter become due as provided in this
Agreement.
13.4 Reinsurance Agreements. Nothing in Section 12 or this
Section 13 shall affect any co-insurance or reinsurance agreement between the
parties.
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<PAGE> 11
14. Confidentiality. This Agreement and the information
provided hereunder shall be subject to the confidentiality provisions of Section
16.1 of the Purchase and Sale Agreement.
15. Miscellaneous.
15.1 Waiver. The failure of Service Provider or Company to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.
15.2 Conflict with Law. If any provision of this Agreement
should be declared invalid by a court of general jurisdiction and superseded by
specific law or regulation, such law or regulation shall control to the extent
of such conflict without affecting the remaining provisions of this Agreement.
15.3 Assignment. Either party shall have the right to assign
any or all of its rights or obligations under this Agreement to a third party
with the other party's prior written consent, which will not be unreasonably
withheld; provided, however, that the assigning party shall, notwithstanding
such assignment, remain primarily liable to the other party for performance by
the assignee of its obligations to the other party hereunder.
15.4 Binding on Successors and Assigns. The provisions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns.
15.5 No Third Party Beneficiaries. Except as and to the extent
specifically provided in this Agreement, nothing in this Agreement, expressed or
implied, is intended to confer on any Person other than the parties hereto, or
their respective legal successors or permitted assigns, any benefits or
remedies.
15.6 Independent Contractor. Nothing contained in this
Agreement shall be construed to create the relationship of joint venture or
partnership between Service Provider and Company. Service Provider is an
independent contractor and shall be free, subject to the terms and conditions of
this Agreement, to exercise judgment and discretion with regard to the conduct
of business.
15.7 Arbitration. Any dispute or difference between the
parties with respect to the operation or interpretation of or arising from or
relating to, this Service Agreement on which an amicable understanding cannot be
reached shall be decided by binding arbitration. Arbitration hereunder shall be
pursuant to and in accordance with the terms, conditions and procedures set
forth in Article XV of the Purchase Agreement.
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<PAGE> 12
15.8 Notice. Any notice or other communication in connection
with this Agreement shall be in writing and shall be deemed to be delivered if
(i) actually delivered to the following address, (ii) sent by telecopy to the
following telecopy number and a transmission confirmation is received or (iii)
sent by certified United States mail, postage prepaid, return receipt requested
to the following address and 5 Business Days lapse after deposit in the mail:
If to the Service Provider: John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Thomas E. Moloney, Chief
Financial Officer
Telephone: (617) 572-0600
Telecopier No.: (617) 572-5170
With copies to: John Hancock Mutual Life Insurance
Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Michael H. Studley, Esq., Vice
President and Counsel
Telephone: (617) 572-9253
Telecopier No.: (617) 572-1565
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Paul C. Meyer, Esq.
Telephone: (212) 878-8176
Telecopier No.: (212) 878-8375
If to the Company: UniCARE Life & Health Insurance Company
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Leonard D. Schaeffer, Chairman
and Chief Executive Officer
Telephone: (818) 703-3145
Telecopier: (818) 703-3253
With copies to: UniCARE Life & Health Insurance Company
21555 Oxnard Street
Woodland Hills, CA 91367
Attention: Thomas C. Geiser, Esq., General
Counsel
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<PAGE> 13
Telephone: (818) 703-2412
Telecopier: (818) 703-4406
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, CA 94105
Attention: Ronald B. Moskovitz, Esq.
Telephone: (415) 442-0900
Telecopier: (415) 442-1400
or to such other name(s) or to such other address(es) or telecopier number(s) as
a party may designate from time to time to the other party by written notice.
15.9 Entire Agreement. This Agreement (including the
Appendices attached hereto), the Purchase Agreement, and the other agreements
referred to therein, constitute the entire agreement and understanding between
the parties, and supersede all prior agreements, whether oral or written,
between the parties with respect to the subject matter hereof and thereof.
15.10 Amendments. This Agreement may be amended, altered or
modified, and any of the terms or conditions hereof may be waived, only by a
written instrument signed by both parties, or in the case of a waiver, by the
party waiving compliance.
15.11 Survival. Upon the expiration or termination of this
Agreement for any reason whatsoever, the obligations set forth in Section 6.2
(Inspection and Audit Rights), Section 7 (Other Records and Documents), Section
11 (Indemnification), Section 13 (Effect of Termination or Expiration of
Agreement), Section 14 (Confidentiality), and Section 15 (Arbitration) shall
survive such termination.
15.12 Severability. The invalidity or unenforceability of any
term or provision hereof shall not affect the validity or enforceability of any
other term or provision hereof.
15.13 Interpretation. No provision of this Agreement shall be
construed against any party on the ground that such party drafted the provision
or caused it to be drafted.
15.14 Headings. The headings preceding the text of the
articles and paragraphs of this Agreement are inserted solely for the
convenience of reference and shall not affect the meaning, construction or
effect of this Agreement.
15.15 Counterparts. This Agreement may be executed in
separate counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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<PAGE> 14
15.16 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware applicable to
contracts made and to be performed in that State, without regard to conflicts of
laws principles.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed in duplicate by their respective officers duly authorized so to do,
and their respective corporate seals to be affixed hereto, as of the date and
year first above written.
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY
By:_____________________________________
Name: Thomas E. Moloney
Title: Chief Financial Officer
UNICARE LIFE & HEALTH INSURANCE
COMPANY
By:_____________________________________
Name: D. Mark Weinberg
Title: President
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<PAGE> 15
APPENDIX A
ADMINISTRATIVE AND SUPPORT SERVICE FEES
Throughout these Appendices the term "Buyer" shall mean Unicare Life and Health
Insurance Company and its affiliates. The term "Seller" shall mean John Hancock
Mutual Life Insurance Company and its affiliates. The fees to be charged for the
services performed under this Agreement will be as follows. Unless otherwise
specified, all charges will increase 3% annually on January 1, beginning January
1, 1998. Except as otherwise specified herein or in the Agreement, fixed costs,
where shown, are subject to change on a quarterly basis if services and/or
volumes of activity change materially. The provisions of Section 8.8 of the
Purchase Agreement are independent of, and are not superceded by, this Service
Agreement and shall survive the Closing.
Financial Accounting and Reporting Services (Appendix B)
<TABLE>
<S> <C>
$16,500 per month for services included in items 2-12 of Appendix B
$2,100 per quarter for services included in item 1 of Appendix B
$16,000 payable on January 30, 1997 for preparing Seller's general ledger
system for required financial accounting and reporting services.
$50 per hour for consulting and/or support services considered to be
extraordinary, to be charged only with prior agreement of Buyer.
Actual cost for vendor data entry charges, printing charges for statutory
statement, on line queries, filing fees and other out-of-pocket
expenses
Computer Support (Appendix C)
No Fees for services included in Appendix C,
other than Voice Communications, for the
first nine months of the term of the
Service Agreement
$700,000 for services included in Appendix C, other than Voice
Communications, for the tenth month of the term of the Service
Agreement
$1,300,000 for services included in Appendix C, other than Voice
Communications, for the eleventh month of the term of the
Service Agreement
$1,600,000 for services included in Appendix C other than Voice
Communications for the twelfth month of the term of the Service
</TABLE>
<PAGE> 16
<TABLE>
<S> <C>
Agreement with such fees increasing at a rate of 3% per annum
each month thereafter
$22.50 per month per extension for common equipment and extension
availability
Standard Seller rates per month per telephone set
$2 per month per voice mailbox
Actual Cost for long distance and local outbound calls
Actual Cost for inbound 800 number calls
$2,300 per month for 800 number availability
$65 per hour for consulting and/or support services considered to be
extraordinary, to be charged only with prior agreement of Buyer
Graphic Services (Appendix D)
Standard Seller Rates Charges will be on a per job basis with the cost of each job
quoted in advance if requested.
Office Services (Appendix E)
$5000 per month for records management for active files and check
look-ups
Actual costs for inactive records management by vendor per month for receipt
$8000 and distribution of incoming mail and materials
$10,000 per month for manual handling and consolidation of outgoing
non-automated mail
Actual costs for all postage charges
$0.02205 per piece for inserting automated mail
$0.01 per piece for sorting automated mail
$55 per hour for special purchasing services requested, to be charged
only with prior agreement of Buyer
$21 per hour for addressing and labeling services requested
Actual cost for any business research services provided via a vendor, such
as database searches
Output Services (Appendix F)
$130,000 per month for all Output Services
</TABLE>
A-2
<PAGE> 17
Dining and Conference Center Services (Appendix G)
<TABLE>
<S> <C>
$18,000 per month for employee access to and use of JH dining facilities
Standard Seller rates for requested catering services, with quotes provided in advance
if requested.
$95 per guest room per day at the JH Conference Center
Standard Seller rates for JH Conference Center conference room usage, with quotes
provided in advance if requested.
Childcare Center (Appendix H)
$635 per month per child for use of JH Childcare Center
Legal Services (Appendix I)
$141 per hour for attorney time
$76 per hour for paralegal time
Tax Services (Appendix J)
$70 per hour for tax consultation
Treasury Services (Appendix K)
$1800 per month for Treasury Services included in Appendix K
Actual cost for banking service charges
</TABLE>
A-3
<PAGE> 18
APPENDIX B
FINANCIAL AND REPORTING SERVICES
Provide all necessary and appropriate general financial accounting and reporting
services, including the following:
1. The quarterly preparation of all books of account and other records
necessary to reflect and report the financial condition of the GBO
business which was transferred from Seller and its subsidiaries,
jointly referenced hereafter as the GBO Business, as required by
various state and governmental and regulatory authorities.
2. The monthly preparation of information pertinent to the operation of
the GBO Business and access to the general ledger, bank reconciliation
system, abandoned property system and fixed asset system, provided that
all such books of account and records shall at all times be the
property of Seller and shall be surrendered to Seller on request.
Further information will include but is not limited to:
a. Audited GAAP Financial Statements as of 12/31/96 (or
such other closing date as applicable);
b. Statutory adjustments as of 12/31/96 (or such other
closing date as applicable) and quarterly adjustments
thereafter;
c. Monthly close with general ledger file feed and
printed copy;
d. Escheat amounts semi-annually;
e. Premium taxes quarterly;
f. Monthly estimates for amounts due under the Services
Agreement
g. Fees and licenses;
h. Ability to book to Seller's general ledger
i. Monthly financial statements, including a trial
balance
j. Support in reporting and analyzing monthly
statements.
3. The coordination and support of audits by outside accountants
A-4
<PAGE> 19
4. The audit of travel expenses of the GBO business to ensure compliance
with Seller's travel policies and the reporting of all travel expenses,
if required.
5. The reconciliation of Seller's various checking accounts to the
appropriate financial records.
6. The funding of the GBO Business field office Working Balance Accounts
(Imprest Funds) and the reporting of all related expenses to be
reimbursed by Buyer to Seller;
7. Compliance with all state abandoned property and escheat filing
requirements including searching for and contacting claimants and
policyholders to replace uncashed checks for all checks written on
behalf of the GBO Business by Seller out of accounts owned or
controlled by Seller;
8. The maintenance of fixed asset records to support GBO assets formerly
owned by Seller and associated depreciation and a computer file
containing detailed asset records in a format acceptable by the Buyer's
fixed asset system. These records will include assets owned by Seller
prior to the sale as well as assets purchased by Seller on behalf of
the GBO Business subsequent to the sale date. This will also include a
monthly report detailing new capital acquisitions.
9. GAAP basis income statement, balance sheet and statements of cash flows
for 1994, 1995 and 1996 for the GBO Business, as of 12/31 for each year
and quarterly statements for 1994, 1995 and 1996. Also, Statutory
financial statements for years 1995 and 1996.
10. For Canadian business of the GBO Business, financial information detail
and support for quarterly and year-end reporting.
11. Ability by Buyer's internal auditors, or their designees, to audit
certain procedures which are performed by Seller on behalf of Buyer as
part of the Services Agreement. Adequate notice of the intent to audit
will be provided by Buyer.
12. Other consultative services as required.
A-5
<PAGE> 20
APPENDIX C
COMPUTER SUPPORT
This Appendix C sets forth the computer support services (the "Services") that
Seller will provide to the GBO Business which will be transferred to Buyer
(hereinafter "GBO.")
1.0 DIGITAL ENVIRONMENT
1.1 HARDWARE. The computer equipment and peripherals will be
housed in Seller's data center at its corporate offices in
Boston, Massachusetts. Said equipment and peripherals will not
be dedicated exclusively to running GBO's applications.
1.2 SOFTWARE. Seller will obtain the necessary licenses from the
applicable software vendors for development tools, operating
systems and utilities which are necessary for GBO. These
licenses will be provided at Seller's expense. In no event
will Seller have any obligation for obtaining or continuing
such licenses on GBO's behalf when the Computer Support
Services are no longer provided by Seller.
1.3 DATA CENTER. The GBO-owned Mid-Range Equipment and Mid-Range
Software will be installed in Seller's data center at its
corporate offices in Boston, Massachusetts. Seller will
provide adequate floor space and environments for the
Mid-Range Equipment as specified by the equipment
manufacturer(s), including, but not limited to, climate
control, electricity, elevator services, janitorial services,
water, security, electricity, fire control, HVAC, mail, alarm
and voice telecommunication services. A Mid-Range Equipment
operations staff equivalent to three (3) full-time associates
will provide operations support 24 hours per day, 5 and one
third days per week.
1.4 INFORMATION TECHNOLOGY SERVICES ("ITS") TECHNICAL SUPPORT
STAFF. Seller will provide a technical support staff
("Mid-Range Technical Support Staff") to support GBO's use of
the Mid-Range Software on the MidRange Equipment (and like or
similar tools or applications which may be licensed directly
by GBO, subject to the mutual agreement of the parties). The
Services to be provided by Seller's Mid-Range Technical
Support Staff will include:
a. problem and change management,
b. software upgrades,
c. capacity planning,
d. hardware and software acquisitions,
e. hardware and software installations,
f. vendor management,
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g. consultation on the pay point equipment
configuration,
h. management of the storage environment, and
i. support for the Mid-Range programs and applications
developed by Seller.
Seller's Mid-Range Technical Support Staff will consist of two
(2) full-time associates with the necessary skills and
experience to support GBO's use and operation of its Mid-Range
Equipment and Mid-Range Software.
1.5 CONTACT. Seller will assign a manager on behalf of its
Mid-Range Technical Support Staff as a primary point of
contact for communicating Seller's requirements for the
Services provided hereunder and for monitoring Seller support
services provided hereunder. Seller will be responsible for
coordinating GBO's activities on the Mid-Range Equipment,
Mid-Range Software, and any other activities which may
potentially impact the ITS infrastructure.
1.6 GBO RESPONSIBILITIES. GBO will be responsible for prioritizing
its MidRange Equipment and Mid-Range Software project
activities and communicating such priorities to Seller. GBO
will be responsible for supporting the programs and
applications developed by GBO, including Digital Eligibility,
Digital Account Service Support and CostCare Digital
interface.
1.7 DISASTER RECOVERY. Seller will coordinate GBO's disaster
recovery services for the Digital Environment under its
existing agreement with Comdisco. Said agreement provides for
an alternate computer facility and the use of equivalent
Mid-Range Equipment to run GBO's Mid-Range Software in the
event of a disaster. Seller will assign its technical support
staff referenced in Section 1.4 to provide reasonable
assistance to GBO in its disaster recovery testing and
planning.
2.0 MAINFRAME ENVIRONMENT
2.1 MAINFRAME APPLICATIONS. "Mainframe Applications" is defined as
the computer applications set forth in Attachment 1. Seller
will provide a mainframe environment (computer equipment and
peripherals) for GBO's use and operation of the Mainframe
Applications. The foregoing computer equipment and peripherals
will be housed in Seller's data center at its corporate
offices in Boston, Massachusetts. Said equipment and
peripherals will not be dedicated exclusively to running GBO's
Mainframe Applications.
2.2 MAINFRAME TOOLS. "Mainframe Tools" is defined as the mainframe
software development tools, operating system software and
utilities, including but not limited to those set forth in
Attachment 2. The Mainframe Tools will be provided for GBO's
non-exclusive use on the computer equipment and peripherals
referenced in Section 2.1 above. Seller will obtain the
necessary licenses from the applicable software vendors to
provide for GBO's use thereof, at its expense. In no event
will Seller have any obligation for obtaining or continuing
such licenses
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on GBO's behalf when the Computer Support Services are no
longer provided by Seller.
2.3 ITS TECHNICAL SUPPORT STAFF. Seller will provide a technical
support staff ("Mainframe Technical Support Staff") to support
GBO's use of its Mainframe Applications and Mainframe Tools
hereunder (and like or similar Mainframe Applications and/or
Mainframe Tools which may be licensed directly by GBO, subject
to the mutual agreement of the parties). The Services provided
by Seller's Mainframe Technical Support Staff will include:
a. problem and change management,
b. software upgrades,
c. capacity planning,
d. hardware and software acquisitions,
e. hardware and software installations,
f. management of the storage environment, and
g support for the mainframe programs and applications
developed by Seller's Mainframe Technical Support
Staff set forth in Attachment 1.
2.4 CONSULTING SERVICES. Seller will provide reasonable technical
consulting and support services, as needed, for GBO's
mainframe development activities consistent with previous
levels of consulting and support services (i.e., application
design, package selection, testing, etc.). Any extraordinary
consulting and/or support services requested by GBO will be
subject to the mutual agreement of the parties and may be
subject to a separate consulting fee.
2.5 MAINFRAME APPLICATIONS - VENDOR CORRESPONDENCE. GBO will be
responsible for communicating any performance problems to the
applicable vendors relative to the Mainframe Applications.
Seller will cooperate with GBO in communicating any
performance problems to the vendors.
2.6 MAINFRAME TOOLS - VENDOR CORRESPONDENCE. Seller will be
responsible for communicating any performance problems to the
applicable vendors relative to the Mainframe Tools. GBO will
cooperate with Seller in the identification of any performance
problems.
2.7 DISASTER RECOVERY. Seller will be responsible for defining its
disaster recovery support requirements for its mainframe
environment, and for contracting with a third party to provide
an alternate computer facility and mainframe environment in
the event of a disaster, at Seller's expense.
2.8 GBO RESPONSIBILITIES. GBO will be responsible for supporting
the mainframe programs and applications developed by GBO set
forth in Attachment 1.
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3.0 SERVICE LEVELS. GBO's requirements for the ITS Services provided
hereunder for the Mainframe environments are set forth in Attachment 3
hereto (i.e., response times, availability of technical support staff
and computer resources, target turnaround times for problem
resolutions, method for prioritizing workloads, etc.).
4.0 SELLER'S TECHLINE. Seller will provide and maintain a TechLine to be
used by GBO in requesting certain support services from ITS. The
specific support services to be requested through Seller's TechLine are
set forth in Attachment 4 hereto.
5.0 SECURITY, GBO will strictly abide by Seller's Security Procedures and
Policies as outlined in Seller's ITS Standards & Procedures.
Seller will provide GBO with reasonable consulting services to address
application security issues and the maintenance of Seller's RACF rule
database, consistent with previous levels of consulting and support
services. Any extraordinary consulting and/or support services
requested by GBO will be subject to the mutual agreement of the parties
and may be subject to a separate consulting fee.
6.0 DATA NETWORK
6.1 NETWORK LINES. GBO will order, install and pay monthly costs
for network lines between the new GBO building and the
Seller's corporate offices. Seller will monitor and manage
these lines. For network lines dedicated to GBO traffic, GBO
will pay all fees, but Seller will monitor and manage these
lines. For lines that are shared between GBO and another
division or affiliate of Seller, Seller will retain the line,
and responsibility for monitoring and managing it, but provide
for its use by GBO, subject to a charge back fee.
6.2 NETWORK EQUIPMENT. Seller will provide for GBO's use of
related network equipment. GBO will be responsible for
acquiring, installing and maintaining any such network
equipment, at its expense, when the Computer Support Services
are no longer provided by Seller. GBO will provide a secure
environment for storing any monitoring and/or management
equipment reasonably deemed necessary by Seller for supporting
GBO's use of such network equipment.
6.3 LOCAL AREA NETWORK EQUIPMENT. GBO will be responsible for
maintaining its local area network equipment and servers, at
its expense, including, but not limited to, remedial and
preventive maintenance, wiring, software upgrades and related
support services.
6.4 CONSULTING SERVICES. Seller will provide reasonable
communications consulting and design support services, as
needed, consistent with previous levels of communications
consulting and design support services. Any extraordinary
communications consulting and design support services
requested by GBO will be
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subject to the mutual agreement of the parties and may be subject to a
separate consulting fee.
7.0 PRINT/OUTPUT SERVICES. Seller will provide GBO with application support
services in the areas of output generation, forms design and creation,
and coordination of special cycles, consistent with previous levels of
support (i.e., Year End).
8.0 VOICE SUPPORT SERVICES
8.1 VOICE SUPPORT IN SELLER'S CORPORATE OFFICES. Prior to the
completion of the move of GBO to the new GBO building, Seller
will charge GBO for its use of Seller's PBX system, as
outlined below.
The managers of each GBO cost center will receive detailed
phone usage reports which will include: a) all outbound
calling charges (local and long distance), b) all 800 calls
which terminated at a GBO associate's desk, and c) the
phonemail box monthly charges.
As GBO associates are moved into the new GBO building, Seller
will remove the associated telephone from the system and the
calling charges will cease. If GBO requests that an
associate's voicemail box be kept in place for a period of
time following said associate's move, the cost center will be
charged the standard monthly rate for the box until it is
removed. GBO is exclusively responsible for supporting and
maintaining its PBX system and voice infrastructure in the new
GBO building.
8.2 FIELD VOICE SUPPORT. GBO will continue to contract with Lucent
Technologies ("Lucent") for providing voice support to GBO's
field offices and use Seller's TechLine to dispatch Lucent
support personnel as needed.
8.3 FOCAL POINT. GBO will designate one of its employees as a
focal point for voice support issues for both new GBO building
and its field offices.
9.0 STANDARDS & PROCEDURES. In all instances where a systems related
activity performed by GBO has the potential to impact any portion of
Seller's computer operations or telecommunications infrastructure, GBO
will adhere to Seller's ITS Standards & Procedures. Said Standards &
Procedures are incorporated herein and made a part hereof by this
reference and will be made available to GBO on-line. (NOTE: Seller's
Standards & Procedures are subject to change, from time to time, upon
written or electronic notice).
10.0 TAPE VAULTING. Seller will arrange for the off site vaulting of
computer tapes containing the backup data for the mainframe and
computing environments. The charges
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will be directly passed through to GBO and the mainframe
charges are included in other rates. GBO will be responsible for the
vaulting of its computer tapes when the Computer Support Services are
no longer provided by Seller. GBO will be responsible for the validity
of server/PC backup data and for managing the rotation of the backup
media. For the period when GBO associates are located within Seller's
corporate offices, they will continue to have access to the failsafe
storage area; after they are relocated to the new GBO building, backup
data will be transported to and restored in the failsafe area by
Seller.
11.0 WORKSTATION EQUIPMENT, ROUTERS, HUBS AND SERVERS. GBO will contract
with Seller for maintaining its Workstation Equipment under a separate
Maintenance Agreement between Seller and Digital Equipment Corporation
or Compucom as appropriate, at the rate and subject to the terms and
conditions of said Maintenance Agreement, GBO may also acquire
additional workstation equipment through Seller, subject to its
availability and at the prevailing rate of Seller's reseller (Compucom
Corporation).
12.0 WORKSTATION SOFTWARE. GBO will be responsible for the license and
maintenance charges under applicable license and maintenance agreements
for the Workstation Software. GBO may also acquire additional
Workstation Software through Seller, subject to its availability and at
the prevailing rates of Seller's reseller (Compucom Corporation).
13.0 E-MAIL. Seller will maintain electronic mail connectivity with GBO
using either IBM Mail or the Internet, as ultimately agreed to by both
parties. In either case, any incremental costs for software or other
technical requirements will be borne by GBO. Such costs will include,
but not be limited to, extension of monthly IBM Mail charges (planned
to cease on 12/31/96) or Internet software security packages.
14.0 RELOCATION. Following the relocation of GBO's personnel to the new GBO
building from Seller's corporate office in Boston, GBO will assume all
responsibility for the following:
a. all voice and data move and change activity (home office and
field), including wiring, labor and equipment,
b. all budget, contract and acquisition activities,
c. all voice operator activities,
d. all desktop support (software and hardware) and related
activities,
e. all technical training,
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15.0 ACCESS TO SELLER'S DATA CENTER. In no event shall GBO use or occupy, or
suffer or permit anyone to use or occupy, Seller's data center (or
other restricted areas of Seller) or do or permit anything to be done
in the data center (or other restricted areas of Seller) which: a)
causes or is liable to cause injury to persons, to the building, its
equipment, facilities or systems; b) impairs or tends to impair the
proper maintenance operation and repair of the building, equipment,
facilities or systems; or c) annoys or inconveniences other occupants
of the building. Access to the data center (and other restricted areas
of Seller) will be controlled by Seller and subject to Seller's then
current safety and security procedures.
16.0 SUPPORT FOR SELLER DEVELOPED PROGRAMS. Seller will provide GBO with any
program fixes and/or enhancements which Seller may elect to make to the
Seller developed programs, free of charge, as well as reasonable
technical support services for GBO's use and operation of the Seller
developed programs.
17.0 DISPUTE RESOLUTION PROCESS. The parties agree to negotiate in good
faith to resolve all disputes arising under this Appendix C. Primary
responsibility for resolving any dispute arising hereunder shall rest
with Seller's ITS senior vice president and GBO's senior officer in
charge of its application support services. If negotiation between such
persons fails to resolve any such dispute to the satisfaction of both
parties, then each party shall nominate one senior officer of the rank
of Vice President or higher as its representative. Such representatives
shall meet in person and alone (except for one assistant allowed for
each party) and shall attempt in good faith to resolve the dispute.
This meeting must be held before either party may seek any other method
of dispute resolution, including judicial or governmental resolutions.
Notwithstanding the foregoing, this section shall not be construed to
prevent either party from seeking and obtaining temporary equitable
remedies, including injunctive relief.
18.0 INTELLECTUAL PROPERTY. Under no circumstances will Seller or GBO
modify, test, copy or otherwise use third party intellectual property
licensed to the other party without obtaining the necessary written
authorization or license from the third party.
19.0 ADDITIONS AND DELETIONS. Each party will promptly notify the other
party of any additions or deletions to the hardware and/or software as
they relate to the Services provided hereunder. If necessary, the
applicable charge back fees will be adjusted to reflect such additions
or deletions.
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SCHEDULE OF ATTACHMENTS TO APPENDIX C
COMPUTER SUPPORT
Attachment 1: Schedule of Mainframe Applications
Attachment 2: Schedule of Mainframe Tools
Attachment 3: GBO Business Requirements for Seller ITS Services
Attachment 4: Overview of Seller's TechLine Services
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ATTACHMENT 1
Group Systems Mainframe Applications
Hanstar2 On-line
Hanstar Batch
EMC
A&H Extracts Daily
A&H Extracts Monthly
A&H Claim Reporting
Data Analysis & Reporting
Group Data Warehouse
Hanstar Reporting
Actuarial Systems
CASS
Ford Systems
GLAD
IDP
Mini Group
Pricing Reconciliation
Primary Care Network
Group Systems Information Center Applications
Reinsurance Ceded
Digital Open Enrollment System
Ford IC Systems
Cash Pay
Vision Provider
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OSR
ATTACHMENT 2
SCHEDULE OF MAINFRAME TOOLS
Company Name Product Name
International Business Machines ADSM
International Business Machines ISPF Version 4.1
International Business Machines DB2PM V3
International Business Machines MVS/ESA SP JES2 Version 5.2
International Business Machines RMF Version 5
International Business Machines TCP/IP 3.1 for MVS
International Business Machines Print Management Facility
International Business Machines Overlay Generation Language
International Business Machines ACF/SSP 3.8
International Business Machines Print Services Acc Facility
International Business Machines GDDM 2.1
International Business Machines Service Level Reporter 3.3
International Business Machines ACF/NCP 6.2
International Business Machines GDDM-PGF 2.0
International Business Machines APL2
International Business Machines PL/I Compiler, Library, & ITF 2.0
International Business Machines Batch Terminal Simulator
International Business Machines SMP/E
International Business Machines Host Command Facility 2.0
International Business Machines IMS/ESA Database Manager 4.1.0
International Business Machines IMS/ESA Transaction Manager 4.1.0
International Business Machines TSO Extensions 2.4
International Business Machines CICS/ESA Version 3.3
International Business Machines IMS System Utilities
International Business Machines Netview V2 1.2
International Business Machines Database 2 MVS Version 3.1
International Business Machines C/370 Compiler Version 2.2
International Business Machines Page Print Format AID/370
International Business Machines IBM Code/370
International Business Machines IBM Cobol for MVS and VM
International Business Machines Lanaguage Environment MVS/VM
International Business Machines RACF Version 2 Release 1
International Business Machines Print Services Facility 2.1
International Business Machines Data Interchange/MVS CICS
International Business Machines ACF/VTAM V4 MVS/ESA
International Business Machines Information/Management V6
International Business Machines DFSMS/MVS Version 1 Rel 1
International Business Machines High Level Assembler MVS
International Business Machines QMF 3.1.1
International Business Machines 5280 Communications Utilities
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Company Name Product Name
International Business Machines 5280 Utilities
International Business Machines Fortran IV (G1) Compiler
International Business Machines Fortran IV Library (Mod I)
International Business Machines TSO Data Utilities
International Business Machines Emulation Program/3725
International Business Machines Document Composition Facility
International Business Machines Document Library Facility
International Business Machines MQ Series for MVS/ESA Ver 1.1.3
ASI (Applications Software Inc) Interrogate
Bachman Information Systems Catalog EXT MVS
Cambridge Computer Associates Crosstabs with Retrieval Option
Candle DB/SMU
Candle OMEGAMON II For CICS
Candle OMEGAMON II For DB2
Candle OMEGAMON II For IMS
Candle OMEGAMON II For MVS
Computer Associates CA-Easytrieve Plus
Computer Associates CA-Easytrieve Plus IMS Option
Computer Associates IMS/Culprit MVS
Computer Associates JCLCHECK MVS
Computer Associates Multi Image Allocation (tape)
Computer Associates ONE MVS - (TMS)
Computer Associates PDSMAN
Computer Associates Prevail/XP-Automation for MVS
Computer Associates Prevail/XP-Automation for MVS/IMS
Computer Associates Prevail/XP-Automation for MVS/MSF
Computer Associates Telon Base MVS
Computer Associates Telon Cobol Language Option MVS
Computer Associates Telon DB2 Target Option MVS
Computer Associates Telon Design Facility TSO MVS
Computer Associates Telon IMS/DB Target Option MVS
Computer Associates Telon IMS/DC Target Option MVS
Compuware Abend-AID DB2
Compuware Abend-AID/MVS
Compuware CICS Abend-AID DB2
Compuware CICS Abend-AID/MVS & Radar
Compuware File-AID/SPF
Compuware File-AID/XE
Compuware Xpediter/CICS
Cybermation ESP (Unix Extension for RS/6000)
Cybermation ESP Workload Manager
Cybermation ESPx (Extension for MVS)
Diversified Software Systems DOCU/TEXT
Document Sciences Compuset 6.0
Information Retrieval Companies DBAV5
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Company Name Product Name
Information Retrieval Companies DMUV5
Innovative Designs DC Monitor Extensions
Manugistics APL *PLUS
Merrill Consultants MXG Software Support
Micro Decisionware PC/SQL Link
Mobius Document Direct
Mobius Infopac
Optima ChangeMan MVS
Optima ChangeMan MVS DB2 Option
Pace DASD Management System
Pace Data Center Accounting System
PanOrama Sunrise
Rocket Complier
Rocket Manager
SAS Institute Base SAS
SAS Institute SAS/ACCESS DB2
SAS Institute SAS/FSP
SAS Institute SAS/GRAPH
Simware SIM3278 VTAM 6.0.1
Software Engineering of America PDSFAST
StandardWare DBAid
Sterling Software Advanced Network Management
Sterling Software Connect Direct(SNA) MVS
Sterling Software SOLVE:Access - MVS
Sterling Software Supertracs for MVS Combo
Tangram AM:PM
Tangram AM:PM Driver
Tangram AM:PM EASI
Tangram AM:PM Windows
Tangram DDC LU2
Tangram DDC NTRD
Trilogy SpaceFinder
ViaSoft Insight
ViaSoft SmartEdit
ViaSoft SmartTest (TSO)
ViaSoft VIA/ValidDate
XEROX HFDL/MVS Host SW
State Street Bank & Trust Co. Data Processing Services regarding
Guaranteed Access Account Program
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ATTACHMENT 3
GBO BUSINESS REQUIREMENTS FOR SELLER ITS SERVICES
The GBO Business acquired by Buyer (hereinafter in this Attachment "GBO") and
the Seller's ITS Division ("ITS") agree to support objectives and conditions set
forth in this attachment.
The intent of this attachment is to:
- establish a support relationship between the parties; the
nature of which is likely to be dynamic rather than static due
to changes in business drivers for GBO and ITS.
- Ensure that business needs are properly met;
- clarify the service and support requirements and
responsibilities.
As a result of the constantly changing business requirements and technological
advances, this attachment will be reviewed on an annual basis to insure it
remains current.
1. Architecture
The GBO processing architecture for claims processing has two major
components. They are on-line processing and batch processing. In
addition there are a number of administrative systems, dominated by the
billing and accounting system called CASS, which is client server
system where the server is DB2 on the mainframe. Both are critical to
the success and effectiveness of GBO's business.
Batch Processing. The Batch processing system for the claims system
begins at 7:30 p.m. E.S.T. each evening. As the claims system,
Hanstar2, is a true on-line interactive update system, it is not
necessary for the batch cycle to be completed before the on-line system
is brought up for the next business day. There are a number of batch
jobs that must be completed and these are prioritized to be done as
early in the batch cycle as possible. The system completes the claim
payment cycle through the production of checks/EOBs, daily accounting
reports and feeds administrative reports.
On-Line Processing. The on-line systems are separated into several
distinct functions. The Hanstar2 claim payment system which provides
support to all field claim offices across the country; the CASS system,
which provides support for billing and accounting activities; and
several other on-line systems that support pricing, dividends,
contracts, association billing and administrative services.
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It will be incumbent upon the parties involved to ensure that the
installed infrastructure is capable of supporting the architectural
requirements of the business systems.
2. Roles and Responsibilities
ITS and GBO will designate individuals to be the focal points for
interfacing on mainframe and midrange systems related issues. These
individuals' responsibilities will include:
a. Monthly meetings to review results and issues;
b. Negotiating special requests;
c. Resolving issues and establishing priorities for
staff assignments; and
d. Problem escalation.
ITS Technical Services. ITS Technical Services is responsible for
creating and maintaining the technical infrastructure required to
support the GBO environment. Technical Services will provide staffing
to accommodate a workload projected to be equivalent to seven (7) full
time systems programmers. This is consistent with previous support
levels. Workloads and priorities will be determined and scheduled
through the ITS Relationship Manager with input from the GBO
Relationship Manager.
TechLine. The TechLine is responsible for assisting the GBO Production
Support teams with online and client/server environmental problems.
Escalation procedures for problems are defined by communication from
the problem source through GBO Help Desk operations staff, and up to
the management of both ITS and GBO using existing procedures. The
Relationship Managers will also be notified and it will be their
responsibility to resolve any issues.
With very few exceptions, the GBO Help Desk will be the primary contact
for GBO clients. The GBO Production teams will assess the problem and
will determine if the TechLine should be contacted.
Computer Operations. Computer Operations is responsible for monitoring
and reporting problems with system level hardware and software used to
support the GBO applications. This function will be staffed on a 7X24
hour basis and special requests outside of the Seller's normal work
hours (7:00 a.m. to 5:00 p.m., Eastern Standard Time) will be addressed
to the shift supervisor. All batch problems will be serviced in the
existing traditional Job scheduling notification and escalation
workflow.
GBO Systems. The GBO Systems Department is responsible for all
application sets and administration of all relevant databases. GBO
Systems will have primary responsibility for these systems. This
includes problem identification, resolution, maintenance and support of
files and data. The team will also be responsible for change controls
as it
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pertains to these applications. GBO Systems will insure that their
information on ESP Scheduler remains current and correct.
GBO Systems personnel will adhere to all standard Seller operations
practices (i.e., change control, problem management, data security,
etc.).
Vendors. ITS will interface with vendors on behalf of GBO for system
and layered software products as well as third party software. This
will include but not be exclusive to hardware/software implementation
and systems support. The use of vendor resources in resolving
hardware/system problems will be managed by ITS. The use of vendor
resources in resolving application problems will be managed by GBO
Systems with ITS acting as a technical consultant.
3. Production/System Support
GBO Business Group Systems teams will be the primary contact for
Computer operations on both online and batch components to the GBO
system.
The call list is maintained by GBO on the Mainframe Call List on TSO.
In cases where the call individual is not available, follow
instructions in each respective call list. The GBO clients will contact
the GBO Systems team prior to calling the TechLine for system problems
during normal business hours (8:00 a.m. - 5:00 p.m. Eastern Standard
Time).
Changes to Production Systems. Changes to the production system and
special events such as long running monthly sweeps will be coordinated
through a major events calendar maintained in Lotus Notes. All GBO
batch jobs will be scheduled through ESP Scheduler.
ITS will be notified of changes in a timely manner to allow for proper
testing and preparation prior to implementation.
4. Support Process
A. Online Processing
Seller will use reasonable efforts to assure that the mainframe online
component will be available Monday through Friday from 6:00 a.m.
through 12:00 midnight Eastern Standard Time. The availability goal for
all on-line networks will be 99.8%. Sunday availability will follow
corporate standards with notification to GBO as to when the systems
will be unavailable. The Sunday goal being to provide as many hours as
possible, but the available time will not be traced for performance
purposes.
Seller will use reasonable efforts to assure that the midrange online
components will be available Monday through Friday from 6:00 a.m.
through 12:00 midnight Eastern Standard Time. The response time
objective for the Hanstar on-line network will be 95% of all
transactions occurring in 6 seconds or less.
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B. Batch Processing
All GBO batch processing will be scheduled and controlled by ESP
Scheduler. Major batch processing includes the monthly and quarterly
processing, monthly backups, monthly report processing and nightly
report processing. The significant processing from these systems may be
split over several days to avoid conflict with other processing.
Seller will use reasonable efforts to assure that performance for the
GBO workload will be consistent with expectations established annually
with the GBO Capacity Planning Process.
Network impacts caused by program abends,hardware failures or heavy
batch processing will be communicated to GBO Systems as they occur but
not later than 5:00 a.m., Eastern Standard Time.
Problem Tracking and Reporting. The online system will be tracked on
the Remedy tracking system with availability percentages reported to
ITS Management on a monthly basis. Availability and outages will appear
in The Daily Flash.
Any incidence of failure will be reported to the Remedy tracking
system. A Remedy ticket will be prepared. This information will be
discussed at the weekly ITS Management meeting where GBO will be
represented by the Relationship Manager named pursuant to Section 2
above.
Remedy tickets for any failures of the GBO Systems will be discussed at
the 8:00 a.m. Eastern Standard Time daily ITS meeting and promptly
assigned to the department responsible for the resolution and
documentation of the issue.
Remedy tickets will be discussed at the monthly ITS review meeting to
ensure the problem has been properly tracked and resolved. Information
text within the tickets will be kept current by GBO.
Problem Resolution/Escalation Process. If a failure to the operating
system or any system software occurs, either the Tech Line or the
Operations Staff will notify the GBO and follow the existing escalation
procedures to inform GBO and Seller management. The Relationship
Managers will also be notified.
5. System Response and Recovery
Application Notification Measures:
Batch. The GBO batch systems will process on the mainframe processors
in the overnight environment. Batch abends will be monitored by the
Operations staff and calls will be made to GBO Systems within 30
minutes of the failure.
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<PAGE> 36
On-Line. The online systems will be monitored by the ITS Staff. Daytime
failure of the hardware platform or systems software will be
communicated to GBO Systems by ITS within 30 minutes at any time of the
day. Nighttime failures will be communicated to GBO Systems and ITS
Tech Support as they occur.
Data Responsibilities. The information contained in system and data
backups will be property of GBO and be maintained through the existing
Seller ADSM System. The scheduling and administration of these backups
will remain the shared responsibility of GBO Systems and Seller Tech
Support Teams. ITS will maintain its current schedule for all
production applications.
Tech Support will restore mainframe data base and other system data
from the most recent system backups. It will be the responsibility of
the GBO system area to ensure the files are restored to the proper
generations and are in synchronization with other department and
company files. Tech Support will restore midrange system data from the
most current system backups and ensure the files are in synchronization
with necessary business needs.
Special Considerations. The mainframe and midrange systems may be
unavailable at specific times on Sundays due to scheduled ITS system
maintenance and disaster recovery backups, as appropriate. The
unavailable time will be coordinated through GBO Systems. The goal is
to have the system available as much as possible on Sundays but it will
not be tracked for performance purposes on that day.
Any requests to make the system unavailable Monday through Friday will
result in time being counted as unavailable time.
Special arrangements for holidays will be communicated to ITS by GBO
Systems. (The systems will be unavailable from 4:00 p.m. Christmas Eve
(12/24) until 12:01 a.m. December 26, from 8:00 a.m. on Thanksgiving to
8:00 a.m. on the following day and from 6:00 p.m. on December 31 until
10:00 a.m. on January 1.)
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<PAGE> 37
ATTACHMENT 4
OVERVIEW OF SELLER'S ITS TECHLINE
Seller's ITS TechLine provides a service to GBO on a 7X24 basis. This service
includes questions answered, level 1 problems resolution, internal and external
vendor dispatch, vendor management, problem management and problem escalation.
The TechLine is staffed with seven full-time employees and supports all
Corporate Units and Lines of Business.
GBO employees with a question or problem can call the TechLine. The TechLine
will take ownership for the call and if they can't answer the question or solve
the problem they will find someone who can.
For computer hardware problems in the Home Office and Field Offices, the
TechLine will dispatch Digital or Compucom as applicable, to repair the
equipment. (This does not include "Glass House" equipment such as CPUs, Tape
Drives and Disk Drives. Operations monitors this equipment and dispatches the
appropriate vendor when problems arise.)
For voice problems while GBO is located at Seller's corporate offices, the
TechLine will dispatch Lucent Technologies for equipment-related trouble or
maintenance. For network service, MCI or AT&T will be contacted by TechLine.
For Field Office Data Communication problems, ITS will begin problem analysis
and determine if a vendor is needed. If it is a leased line problem, ITS will
contact AT&T or MCI control centers, as appropriate, to resolve the problem. If
it is determined to be a problem with communications equipment (routers, hubs)
at the remote site, Dataserve, or other appropriate equipment vendor, will be
contacted to resolve the problem.
The TechLine will retain ownership of problems that have required a dispatch to
insure that the problem is being addressed in a timely manner. They will also
work with the vendors to resolve any service problems that may occur.
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<PAGE> 38
APPENDIX D
GRAPHIC SERVICES
1. Design and coordination services: Provide graphic design and
composition services for the design/layout of internal and external
communication material. Prepare original artwork for
marketing/communication material. Work with the client to conceptualize
the client's ideas into tangible products which conform to product line
identity. Act as coordinator for projects which involve not only
Graphic Services, but also mainframe print, warehousing and mail
services.
2. Composition and print services: Provide composition and printing
services for various types of business forms, brochures, booklets,
folders, letterhead, newsletters, claim forms, directories, enrollment
forms, etc. Also provide composition and print services for EPO/PPO
directories, supplements and ID cards. If outside services are
required, provide specifications and coordination for outside print.
Provide guidance in decision making process regarding the construction
of printed material in order to achieve the most cost effective job.
Through LAN to LAN connectivity, create and maintain various business
forms for group claims, compliance and contracts.
3. Files are maintained on a file server for subsequent requests for
changes or reprints.
4. Provide bulk copying, color copying and similar services.
5. Provide high-quality multi-color printing services.
6. The service-level goal for forms-on-demand (expressed as hours until
shipped) is within 24 hours.
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<PAGE> 39
APPENDIX E
OFFICE SERVICES
1. Materials management: Provide at no charge for the management of forms
and sales promotion materials used by the GBO home office and field
offices. Included in this service are forms design and control,
inventory management and warehousing management.
Purchases of custom forms, including sales tax and inbound freight to
the warehouse, are charged directly to Buyer. Outbound shipping charges
from the warehouse are also charged directly to Buyer.
Vendor charges for warehousing and ordering are charged directly to
Buyer as follows:
a. For materials warehoused: $8.00 per month per pallet
b. For materials ordered:
(1) $1.04 per each requisition
(2) $0.70 per line item requisitioned
The service-level goal for materials ordered from the warehouse is
same-day shipping.
2. Freight administration: Provide at no charge for the auditing of
carriers' invoices (e.g., rate verification, examination for duplicate
invoices and overcharges, etc.) and for freight management information
control.
3. Records Management: Provide for on-site records management (additions,
storage, inquiries, retrievals and refiles) of group claims files,
dividend files and commission cards. Also provide for off-site records
management for less active and inactive records. In addition, provide
for check look-up services, including the search for and production of
check copies as requested.
Monthly fee includes personnel expense for on-site record management
and check lookup services.
Current vendor charges below for off-site record services, which are
subject to change, are charged directly to Buyer:
a. Storage: $2.04 annual rate per 1.2 cubic foot box
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<PAGE> 40
b. Retrieval: $1.50 per box
c. Round-trip travel from off-site to home office: $12.00 per box
d. Refile: $1.50 per box
e. File Destruction: $1.50 per box
Service-level goals for normal requests are as follows:
a. Retrievals from on-site storage - within 24 hours
b. Retrievals from off-site storage - next day
c. Production of check copies - within 24 hours
Special requests for large volumes of records retrievals or check
copies require negotiated service commitments.
4. Receipt and distribution of GBO Home Office mail and materials. Provide
for the pick-up and/or receipt, sort, and delivery to GBO Home Office
mail stops of incoming Postal Service mail, private carriers express
shipments, goods and materials purchased, internal home office mail and
centralized system-generated output.
Service-level goals include:
a. 5 daily (2 in the morning and 3 in the afternoon) deliveries
to internal home office mail stops of incoming mail, express
shipments, internal home office mail and centralized system
generated output.
b. Delivery of Federal Express priority overnight shipments by
10:30 a.m.
c. 4 daily pick-ups and/or deliveries of Postal Service incoming
mail.
d. Same-day delivery of goods and materials purchased.
5. Manual handling and consolidation of non-automated mail. Provide for
the manual separation and matching of explanation-of-benefits forms and
claim drafts for insertion in address-labeled, non-letter-size
envelopes (e.g., large-volume mailpieces and special- handled cases.)
Also provide for the sorting and consolidation of internal mail via
First Class/Priority Mail and mailing to field office locations. Two
new sort stations will be established for Buyer's designated
Massachusetts and California locations and outgoing mail will be
sorted, consolidated and mailed to these locations. Actual postage is
charged directly to Buyer.
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<PAGE> 41
Service-level goal is same-day mailing of outgoing mail received by 4
p.m. in the Corporate Mail Division. (Receipt of the mail in field
locations is dependent on Postal Service delivery service standards.)
6. Automated Mail Services: Provide automated document insertion, sealing,
metering, postmarking, presorting, mail preparation and deposit with
the Postal Service of letter-size, machinable mailpieces. Actual
postage is charged directly to Buyer.
Service-level goal: Explanation-of-benefit forms, drafts, and form
letters are printed at night and then inserted, presorted and delivered
to the Postal Service the next day.
7. Maintenance and repairs of small office equipment: Provide in-house
maintenance and repairs of small office equipment off-warranty,
specifically for fax machines, electronic and electric typewriters and
calculators. Other miscellaneous equipment (fiche readers, date stamps,
et al.) may be repaired by this service. Photocopier maintenance,
however, is the responsibility of the vendor (Ricoh, Lanier or Konica)
at Buyer's request.
Actual vendor charges for replacement parts and supplies and
photocopier usage are charged directly to Buyer.
Service-level goal: Repair within 2 hours or provide functional loaner
equipment until the repair is completed, if available.
8. Purchasing Services: Provide service resulting in the purchase of goods
and services at the best price, quality as defined by the customer, and
add value to each and every purchase. Consulting services on purchasing
decisions and in working with Buyer at its request in developing
requests for proposals and/or contracts are charged to Buyer. There is
no charge to Buyer for routine transactions.
Service-level goal: Receipt of goods and services in a time frame
acceptable to the customer within the vendors' constraints.
9. Address and labeling services: Provide addressing and labeling services
from address files for external mail and home office internal
distribution at Buyer's request.
Service-level goal: Normally within 24 hours of receipt of an accepted
file.
10. Business research services: Provide information as requested by Buyer
on specified business topics, such as financial information,
demographics, technology, strategic direction, etc. This service is
usually provided by on-line searches or reviews or periodicals. The
only charge to Buyer is the vendor's charge for the search at the
former's request.
11. Travel Services: Provide internal business travelers with the highest
quality travel arrangements for airlines, hotels and car rentals at the
lowest cost appropriate to the
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<PAGE> 42
company's business objectives. Actual cost of airfare is charged back
to Buyer. Hotels and car rentals paid by the traveler.
Service-level goal: Immediate confirmation of arrangements.
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<PAGE> 43
APPENDIX F
OUTPUT SERVICES
1. Centralized printing services - Produce mainframe- or
Hancock-LAN-generated documents (e.g. explanation of benefit forms,
claim drafts, form letters and client invoices), internal production
output, and testing output. The print production of drafts is
reconciled to the system-expected production of drafts. Provide ongoing
monitoring of print quality including the periodic testing of the
drafts' MICR line. Provide computer output microfiche.
Service-level goals: Defined due-out times exist for all jobs in order
to meet strict time frames.
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<PAGE> 44
APPENDIX G
DINING AND CONFERENCE CENTER SERVICES
1. Dining services: While GBO employees continue to be located in the
Seller premises, provide coffee stops in the morning and cafeteria
dining services for breakfast and lunch. Food sales are at Hancock
employee rates. The monthly charge is for the provision of luncheon
services.
Catered coffee and pastry services, luncheons, refreshments, and
receptions can be provided at Buyer's request. Quotes or estimates are
provided in advance, if requested.
2. Conference center services: Guest rooms if available, can be provided
to Buyer employees.
Conference rooms, if available, can be provided to Buyer employees.
Different size conference rooms are available at different rates. Rates
vary according to whether the rooms are desired for a half day or full
day and depend on special equipment requested.
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<PAGE> 45
APPENDIX H
CHILDCARE CENTER
Allow continued use of the Seller's Childcare Center by GBO employees while they
are located in Seller's Corporate Offices.
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<PAGE> 46
APPENDIX I
LEGAL SERVICES
1. Litigation Management
Recognizing that GBO Included Business is written in the name of John
Hancock, Seller will provide legal services to Buyer with respect to
GBO Included Business as follows:
Seller's lawyers will manage litigation related to the GBO
Included Business (as defined in the Purchase and Sale
Agreement) from the Closing Time until such time as each such
case is terminated, settled, otherwise disposed of or
transferred to UniCARE Health & Life Insurance Company.
Buyer will have ultimate control and authority over
settlements, choice of local counsel and strategy. Review
points for each case will be established jointly by Buyer and
Seller legal personnel.
Functions to include:
a. Small Claims Matters
b. Workers' Compensation Intervention cases
c. Collection Litigation (for cases specified)
d. Fraud recoveries
e. Claims advice on pre-litigation matters to former GBO
claims and business personnel in Buyer
f. Coordination of and review of subpoenas and other
third party information requests directed to the GBO
Business.
2. Product Work
Seller will make available lawyers and support staff as necessary to
provide legal services to Buyer relative to the GBO Included Business.
This will include support for contract interpretation, contract
drafting, statutory interpretation and general business legal advice to
the GBO Included Business.
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<PAGE> 47
APPENDIX J
TAX SERVICES
The following sets forth the tax services to be provided by the Seller to Buyer
following the closing date:
A. Seller will provide Buyer with appropriate back-up information and any
applicable calculations to allow Buyer to evaluate the accuracy and
propriety of any reimbursement request.
B. For twelve months following the Closing Date, or a shorter period if
such period is requested at any time by Buyer, Seller will provide
consultation services on the preparation of monthly federal, foreign,
state and local premium tax provisions for GAAP financial reporting
purposes and statutory reporting purposes. Consultation services will
include advice regarding the accumulation of appropriate information
and advice regarding information systems reports and capabilities.
C. For twelve months following the Closing Date, or a shorter period if
such shorter period is requested at any time by Buyer, Seller will
provide consultation on foreign, state, and local premium, license,
administration, income, property, ad valorem, and any other tax of fee
compliance and/or payment matters, including advice regarding
accumulation of appropriate information and advice regarding
information systems reports and capabilities.
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<PAGE> 48
APPENDIX K
TREASURY SERVICES
Provide all necessary and appropriate treasury management and banking related
services, including the following:
1. Treasury consulting services regarding the collection and disbursement
of funds - together with the capture and reporting of related
information - and related banking services for check and electronic
collections and payment (i.e., ACH, EDI and wire transfers.)
2. Treasury operations services which provide the mechanism for electronic
transfers for funding ASO and other applications.
3. Treasury operations services to include the check issuance function for
payment of expenses, commissions and miscellaneous disbursements. This
will include data capture of invoice and accounting data, matching
enclosures and mailing checks, feeding data to other systems (general
ledger and bank reconciliation) and maintaining permanent records of
these disbursements.
4. Treasury operations services to include the check receipt function with
the capture of check and accounting data, encoding and endorsing the
check, preparing deposit tickets, and maintaining permanent records of
these receipts.
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<PAGE> 1
200 Berkeley Street
Transaction Lease
ANNEX G
OFFICE LEASE
FOR PREMISES LOCATED AT
200 BERKELEY STREET
BOSTON, MASSACHUSETTS
BY AND BETWEEN
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY,
AS LANDLORD
and
UNICARE LIFE & HEALTH INSURANCE COMPANY
AS TENANT
DATED AS OF _________, 199_
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEMISING CLAUSE AND DEFINED TERMS
1.01 Demising Clause..................................... 1
1.02 Defined Terms....................................... 1
ARTICLE II PREMISES AND TERM
2.01 The Premises, Common Areas.......................... 3
2.02 Term................................................ 4
2.03 Parking............................................. 4
2.04 Termination Option.................................. #
2.05 Reduction Options................................... #
ARTICLE III RENT
3.01 Base Rent........................................... 4
3.02 Intentionally Deleted............................... 5
ARTICLE IV CONDITION OF PREMISES
4.01 As-Is Condition..................................... 8
ARTICLE V LANDLORD'S COVENANTS
5.01 Basic Services. .................................... 10
5.02 Extra Services...................................... 12
5.03 Window Coverings.................................... 13
5.04 Repair Obligation................................... 13
5.05 Peaceful Enjoyment.................................. 13
ARTICLE VI TENANT'S COVENANTS
6.01 Use, Maintenance and Repairs by Tenant.............. 13
6.02 Taxes on Personal Property.......................... 14
6.03 Waste............................................... 14
6.04 Assignment or Sublease.............................. 14
6.05 Alterations and Surrender........................... 17
6.06 Compliance with Laws and Insurance Standards........ 18
6.07 Entry for Repairs and Leasing....................... 18
6.08 No Nuisance......................................... 19
6.09 Subordination....................................... 19
6.10 Estoppel Certificate................................ 20
6.11 Tenant's Remedies................................... 20
6.12 Rules and Regulations............................... 20
6.13 Personal Property at Tenant's Risk.................. 20
6.14 Payment of Landlord's Expenses...................... 21
6.15 Environmental Compliance............................ 21
ARTICLE VII CASUALTY, EMINENT DOMAIN
7.01 Casualty Insurance.................................. 22
7.02 Liability Insurance................................. 22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
7.03 Tenant's Insurance.................................. 23
7.04 Indemnity and Exoneration........................... 24
7.05 Waiver of Subrogation Rights........................ 24
7.06 Condemnation and Loss or Damage..................... 25
7.07 Damage Due to Fire and Casualty..................... 25
ARTICLE VIII DEFAULT
8.01 Events of Default................................... 26
8.02 Remedies Upon Default............................... 28
8.03 Damages Upon Termination............................ 28
8.04 Computation of Rent for Purposes of Default......... 29
8.05 Intentionally Deleted............................... 30
8.06 Rights of Landlord in Bankruptcy.................... 30
8.07 Late Charge......................................... 30
ARTICLE IX MISCELLANEOUS
9.01 No Waiver........................................... 30
9.02 Holding Over........................................ 31
9.03 Amendments and Modifications........................ 31
9.04 Transfers by Landlord............................... 31
9.05 Severability........................................ 31
9.06 Notices............................................. 31
9.07 No Joint Venture.................................... 32
9.08 Successors and Assigns.............................. 32
9.09 Applicable Law...................................... 32
9.10 Time of the Essence................................. 32
9.11 Submission Not an Option............................ 32
9.12 Brokerage........................................... 32
9.13 Waiver of Jury Trial................................ 32
9.14 All Agreements Contained............................ 33
9.15 Cumulative Remedies................................. 33
9.16 Failure to Enforce.................................. 33
9.17 Representations by Tenant........................... 33
9.18 Force Majeure....................................... 33
9.19 Limitation on Liability............................. 34
9.20 Notice of Lease..................................... 34
</TABLE>
EXHIBITS
Exhibit A - Premises
Exhibit B - Description of Lot
Exhibit C - Schedule of Janitorial Services
Exhibit D - List of Legal Holidays
Exhibit E - Rules and Regulations
ii
<PAGE> 4
ARTICLE I
DEMISING CLAUSE AND DEFINED TERMS
1.01. Demising Clause. This lease (the "Lease") is made and entered into
by and between the Landlord and the Tenant, as defined below, as of the Date of
Lease. In consideration of the mutual covenants made herein, Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, the Premises as
defined below, on all of the terms and conditions set forth herein.
1.02. Defined Terms.
The terms listed below shall have the following meanings throughout this
Lease:
(a) "LANDLORD": John Hancock Mutual Life Insurance Company, a
Massachusetts corporation
(b) "LANDLORD'S John Hancock Place
ADDRESS": P.O. Box 111
Boston, Massachusetts 02117
Attn: Corporate Property Management
Department
(c) "TENANT": Unicare Life & Health Insurance Company,
a Delaware corporation
(d) "TENANT'S Prior to Term Commencement Date:
ADDRESS": ______________________________________
______________________________________
Attn: ________________________________
________________________________
After Term Commencement Date:
200 Berkeley Street
Boston, Massachusetts
Attn: _______________________________
_______________________________
(e) "GUARANTOR": NONE
(f) "BUILDING": 200 Berkeley Street
Boston, Massachusetts
(g) "PREMISES": The space located on all or a portion of
floors 3,7,8,9,11,12,13 and 14 of the Building
as shown on Exhibit A attached hereto,
subject to reduction pursuant to Section 2.05.
(h) "PROPERTY": The Building and the legal parcel (the "Lot")
on which it is situated. The Lot is described
in Exhibit B, attached hereto.
<PAGE> 5
(i) "RENTABLE SQUARE
FEET IN THE
PREMISES": 136,221 rentable square feet located on
floors 3,7,8,9,11,12,13 and 14, subject to
reduction pursuant to Section 2.05.
(j) "TOTAL RENTABLE
SQUARE FEET IN
THE BUILDING: 651,730 rentable square feet.
(k) "TERM COMMENCE-
MENT DATE":
(l) "TERM": one (1) year, commencing on the Term
Commencement Date, subject to early
termination pursuant to Section 2.04.
(m) "BASE RENT": $26.00 per Rentable Square Feet In The
Premises. (Initially the Base Rent shall be
$3,541,746 per year, payable in equal
monthly installments of $295,145.50, i.e.
$26.00 per 136,221 of Rentable Square Feet
In The Premises, subject to reduction
pursuant to Section 2.05.)
(n) "PERMITTED USES": Corporate, executive and professional office
use in the Premises of a kind appropriate
in a building of the type and quality of the
Building.
(o) "BROKER": NONE
(p) "DATE OF LEASE": ____________, 199_ (The date on which both
parties have executed this Lease)
(q) "SECURITY DEPOSIT":NONE
ARTICLE II
PREMISES AND TERM
2.01. The Premises, Common Areas.
(a) The Premises leased hereby are comprised of the space shown
on Exhibit A. The Premises extend from the top surface of the subfloor to the
bottom surface of the ceiling, but do not include (i) the exterior faces of
exterior walls or exterior window glass, (ii) anything beyond the interior face
of demising walls, or (iii) any pipes, ducts, conduits, wires and fixtures
serving other parts of the
2
<PAGE> 6
Building. If the Premises include less than the entire rentable area of any
floor, then the Premises also exclude any Common Areas, as defined below, on
such floor.
(b) For the purposes of this Lease, Rentable Square Feet of the
Premises shall be computed as follows (and the term "Rentable Square Foot", the
term "Rentable Square Feet" or the term "RSF" shall mean the area of any such
space within the Premises as so computed):
(i) The Rentable Square Feet of a single
tenancy floor shall be computed by measuring to the inside finish of the
interior walls and shall include all areas within such interior walls excluding
public stairs, elevator shafts, flues, stacks, pipe shafts, and vertical ducts
with their enclosing walls and shall include: toilets, janitor closets and
electrical closets within and serving only such floor.
(ii) The Rentable Square Feet for a multiple
tenancy floor shall include the Premises' proportionate share of the areas
described in the preceding subsection plus the proportionate share of corridor
space necessary for the multiple tenancy of the floor. Individual offices or a
portion of a divided floor shall be computed by measuring to the inside finish
of the interior walls to the corridor side of corridors and other permanent
partitions, and to the center of partitions that separate the premises from
adjoining rentable areas.
(c) Tenant shall have the right to use the Common Areas in
common with other tenants. The "Common Areas" include the Building's common
lobbies, corridors, stairways, and elevators necessary for access to the
Premises, the common walkways necessary for access to the Building, the loading
docks of the Building and the common toilets, corridors and elevator lobbies of
any multi-tenant floor. All use of the Common Areas shall be only upon the
reasonable and nondiscriminatory terms set forth at any time by Landlord.
Landlord may at any time make any changes, additions, replacements to the
Property including the Common Areas, that it considers desirable so long as the
same do not materially interfere with Tenant's use of the Premises. In so doing,
Landlord (i) may use or temporarily close any of the Common Areas, relocate any
portion of the Common Areas, or permanently change their configuration, and (ii)
shall use reasonable efforts to minimize interference with Tenant's normal
activities.
2.02. Term. Both parties shall be bound by all of the terms of this Lease
as of the Date of Lease. The Term shall begin on the Term Commencement Date, and
shall continue for the length of the Term set forth in Section 1.02, unless
otherwise sooner terminated as hereinafter provided.
2.03. Parking. Landlord agrees to make available to Tenant Two Hundred
(200) automobile parking permits for use in the Hancock Garage located at 100
Clarendon Street in Boston.
The monthly rates to be charged by Landlord or its operator for such
parking shall be $220 per month for each parking permit.
3
<PAGE> 7
Tenant's right to use of the parking shall be subject to (i) timely payment of
the parking rate as established above, (ii) such further reasonable and
nondiscriminatory rules and regulations as Landlord or its operator may
establish from time to time, and (iii) all applicable laws, ordinances, rules
and regulations; provided, however, that Tenant shall have access to such
parking seven (7) days per week, twenty-four (24) hours per day.
Notwithstanding anything to the contrary contained herein, all parking
permits provided to Tenant shall be used solely by the partners, officers,
employees or agents or licensees of Tenant or any permitted assignees or
sublessees of Tenant occupying the Premises to the extent permitted in Section
6.04 hereof. As provided herein, Tenant shall not sublease, assign or otherwise
transfer its rights in any parking permit it receives from Landlord to any third
party including, without limitation, any other tenant in the Building.
2.04. Termination Option. Provided that no Event of Default shall have
occurred and is continuing, Tenant shall have the option (the "Termination
Option") to terminate this Lease effective as of any monthly anniversary of the
Term Commencement Date, provided that Tenant gives written notice to Landlord of
the exercise thereof in each instance not later than thirty (30) days prior to
the respective monthly anniversary of the Term Commencement Date. In exercising
the Termination Option hereunder, Tenant acknowledges that time is of the
essence. If the Termination Option is duly exercised as aforesaid, the Term of
this Lease shall wholly cease and expire by lapse of time on the respective
monthly anniversary of the Term Commencement Date, as fully and completely as if
that day were the date herein distinctly fixed for the expiration of the Term,
and Tenant shall forthwith vacate the Premises and surrender same to Landlord on
such date in full compliance with all of the terms and conditions of this Lease.
The Termination Option is not assignable separate and apart from this Lease, is
personal to Tenant and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Tenant.
2.05. Reduction of Premises. Provided no Event of Default shall have
occurred and is continuing, and provided Tenant has not previously exercised its
Termination Option pursuant to the terms and conditions of Section 2.04 above,
Tenant shall have the following options (the "Reduction Options") to reduce
certain portions of the Rentable Square Feet In The Premises and eliminate same
from the Lease, in accordance with the terms and conditions of this Section
2.05, effective as of the third monthly anniversary of the Term Commencement
Date (herein the "Third Anniversary"), the sixth monthly anniversary of the Term
Commencement Date (herein the "Sixth Anniversary") and the ninth monthly
anniversary of the Term Commencement Date (herein the "Ninth Anniversary"),
provided Tenant gives written notice to Landlord of the exercise thereof (herein
the "Reduction Notice") not later than thirty (30) days prior to the respective
Third Anniversary, Sixth Anniversary or Ninth Anniversary, as the case may be.
The Reduction Notice shall include a floor plan detailing the portion of the
Premises to be reduced from the Rentable Square Feet In The Premises and
released from the Lease (herein the
4
<PAGE> 8
"Released Premises"), provided however that (i) the Released Premises must
consist of contiguous blocks of space containing not less than 5,000 Rentable
Square Feet, and (ii) the Released Premises must be, in Landlord's reasonable
judgment, in a location which is suitable for leasing. Provided Tenant has
complied with the above terms and conditions, effective as of the respective
Third, Sixth or Ninth Anniversary, (i) the applicable Released Premises shall be
eliminated from the Rentable Square Feet In The Premises and released from the
Lease, (ii) Tenant shall vacate the applicable Released Premises and surrender
same to Landlord on such date in full compliance with all the terms and
conditions of this Lease, and (iii) the Base Rent shall be reduced accordingly
as a result of the reduction in the Rentable Square Feet In The Premises. In
exercising the respective Reduction Options hereunder, Tenant acknowledges that
time is of the essence. The Reduction Options are not assignable separate and
apart from this Lease, are personal to Tenant and may not be exercised or be
assigned, voluntarily or involuntarily, by or to any person or entity other than
Tenant.
2.05.1 Without limiting Tenant's rights in Section 2.05 above, on or
before the Term Commencement Date, Tenant shall provide to Landlord its good
faith estimate as to the anticipated plans for Tenant's use and occupancy of the
Premises and the anticipated exercise and timing of its Reduction Options,
including a space plan detailing the location, configuration and timing of the
anticipated Released Premises.
ARTICLE III
RENT
3.01. Base Rent. Beginning on the Term Commencement Date, Tenant shall
pay the Base Rent in equal monthly installments in advance on the first day of
each calendar month during the Term. For any partial month at the beginning or
end of the Term, Tenant shall pay a proportional share of the amount that would
be due for a full month, and with respect to a partial month at the beginning of
the Term, Tenant shall pay such proportional share on the Term Commencement
Date. In addition to the Base Rent, Tenant shall pay all additional rent
provided herein at the times set forth herein, or if no time for payment is
specified, then payment shall be made within thirty (30) days after Tenant's
receipt of an invoice from Landlord or another billing authority. All payments
shall be made to Landlord at Landlord's Address or such other place as Landlord
may designate in writing, without prior demand and without abatement, deduction
or offset except as may be specifically set forth herein. Tenant shall not pay,
and Landlord shall not accept, any rental payment more than one month in
advance. All charges to be paid by Tenant hereunder, other than Base Rent, shall
be considered additional rent for the purposes of this Lease, and the words
"rent" or "Rent" as used in this Lease shall mean both Base Rent and such
additional rent unless the context specifically or clearly indicates that only
the Base Rent is referenced.
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ARTICLE IV
CONDITION OF PREMISES
4.01. As-Is Condition. Landlord shall deliver the Premises to Tenant on
the Term Commencement Date in "as-is" condition. Landlord shall have no
obligation to construct any leasehold improvements to the Premises.
Notwithstanding the foregoing, Landlord represents and warrants that (i)
the Permitted Uses are permitted by applicable zoning laws, and (ii) to the best
of Landlord's actual knowledge, neither the Premises nor the Building are in
material noncompliance under applicable building, fire and safety laws,
including without limitation, the Americans With Disabilities Act ("ADA"). In
the event Landlord receives written notice of any such material noncompliance
under applicable building, fire and safety laws or the ADA, Landlord covenants
to make any repairs required by law in order to remedy such noncompliance, at
Landlord's sole cost and expense. Notwithstanding the foregoing, Tenant shall be
responsible, at its sole cost and expense, for ensuring that any alterations or
improvements installed or performed by Tenant are in compliance with applicable
laws.
ARTICLE V
LANDLORD'S COVENANTS
5.01. Basic Services.
(a) Landlord or its affiliates shall furnish Tenant during
Business Hours on Business Days (unless otherwise stated herein) during Tenant's
occupancy of the Premises:
(i) Water used by the building standard
cooling, drinking and sanitation systems, and for maintenance and janitorial
services.
(ii) Central heat, ventilation and air
conditioning in season, at such temperatures and in such amounts as are from
time to time furnished to Tenants in comparable buildings in downtown Boston, or
as may be permitted or controlled by applicable laws, ordinances, rules and
regulations.
(iii) Maintenance, repairs, structural and
exterior maintenance (including exterior glass and glazing), painting and
electric lighting service for all Common Areas in the manner and to the extent
customarily provided by landlords in first-class office buildings in Boston.
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(iv) Janitorial service in scope and frequency
as set forth in the specifications on Exhibit C, attached hereto and made a part
hereof.
(v) Security for the Building.
(vi) Public elevator service serving the
floors on which the Premises are situated, including a freight elevator.
(vii) Electricity for lighting, light
fixtures, lamps, typewriters, voice writers, calculating machines, low
consumption, dictating machines, low consumption electronic data processing
equipment, and other machines of similar low electrical consumption (it being
agreed that Tenant's total consumption for such items shall not exceed 5.5 watts
per square foot of Net Rentable Area per month at 120 volts).
As used herein, the following terms used in this Section 5.01 shall have
the following meanings for purposes of this Lease:
(i) The term "Business Days" means Monday
through Friday and Saturday (from 6:00 a.m. to 3:00 p.m.), excluding Legal
Holidays.
(ii) The term "Business Hours" means from 6:00
a.m. to midnight on Monday through Friday and from 8:00 a.m. to 3:00 p.m. on
Saturday.
(iii) The Term "Legal Holidays" means those
days listed on Exhibit D attached hereto and made a part hereof.
Notwithstanding the foregoing limitation as to the Business Days
and Business Hours during which Landlord shall provide the above referenced
Basic Services to Tenant, from and after the Term Commencement Date Tenant shall
have access to the Premises seven (7) days per week, twenty-four (24) hours per
day, subject to the provisions of this Lease and the Rules and Regulations
referenced in Section 6.12 herein.
(b) Landlord shall not be liable for injuries to persons or damage to
property nor shall Landlord be deemed to have evicted Tenant, nor shall there be
any abatement of Rent nor shall Tenant be relieved from performance of any
covenant on its part to be performed hereunder by reason of (i) deficiency in
the provision of Basic Services, (ii) breakdown of equipment or machinery
utilized in supplying services, or (iii) curtailment or cessation of services
due to causes or circumstances beyond the reasonable control of Landlord.
Landlord shall use reasonable diligence to make such repairs as may be required
to machinery or equipment within the Building to provide restoration of services
and, where the cessation or interruption of service has occurred due to
circumstances or conditions beyond Building boundaries, to cause the same to be
restored, by diligent application or request to the provider thereof. In no
event shall any mortgagee referred to in Section 6.09 be or become liable for
any default of Landlord under this Section 5.01(b).
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5.02. Extra Services. Landlord shall provide to Tenant at Tenant's sole
cost and expense at standard Building charges in effect from time to time (and
subject to the limitations hereinafter set forth) the following:
(a) Heating, ventilation, air conditioning or extra service
provided by Landlord to Tenant (i) during hours other than Business Hours, (ii)
on days other than Business Days, said heating, ventilation and air conditioning
or extra service to be furnished solely upon the prior written request of Tenant
given with such advance notice as Landlord may reasonably require;
(b) Additional air conditioning and ventilating capacity or
chilled water required by reason of any electrical data processing or other
equipment or facilities or services required to support the same, in excess of
that which would be required for standard usage in the Building;
(c) Repair and maintenance which is the obligation of Tenant
hereunder;
(d) Additional cleaning and janitorial services required by
Tenant;
(e) Any Basic Service in amounts determined by Landlord to
exceed the amounts required to be provided under Section 5.01(a), but only if
Landlord elects to provide such additional or excess service.
The cost chargeable to Tenant for all extra services shall
constitute additional rent.
5.03. Window Coverings. All window coverings shall be provided by
Landlord as Building standard improvements. Tenant shall not place or maintain
any window coverings, blinds or drapes (other than those supplied by Landlord)
on any exterior window without Landlord's prior written approval which Landlord
shall have the right to grant or withhold in its absolute and sole discretion.
Tenant acknowledges that breach of this covenant will directly and adversely
affect the exterior appearance of the Building.
5.04. Repair Obligation. Landlord's obligation with respect to repair
shall be limited to (i) the structural portions of the Building, (ii) the
exterior wall of the Building, including glass and glazing, (iii) the roof, (iv)
mechanical, electrical, plumbing and life safety systems, serving to the
perimeter of the Premises, and (v) Common Areas. Landlord shall have the right,
but not the obligation, to undertake work of repair which Tenant is required to
perform pursuant to Section 6.0, and which Tenant fails or refuses to perform in
a timely and efficient manner; and all costs incurred by Landlord in performing
any such repair for the account of Tenant shall be repaid by Tenant to Landlord
upon demand, together with an amount equal to fifteen percent (15%) of such
costs, to reimburse Landlord for its administration and managerial effort.
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5.05. Peaceful Enjoyment. So long as Tenant pays the Rent and performs
all of Tenant's covenants and agreements contained in this Lease, Tenant shall
peacefully have, hold and enjoy the Premises, subject to the other terms hereof
and other matters to which this Lease is subject and subordinate. This covenant
and the other covenants of Landlord contained in this Lease shall be binding
upon Landlord and its successors only with respect to breaches occurring during
its and their respective ownerships of Landlord's interest hereunder.
ARTICLE VI
TENANT'S COVENANTS
6.01. Use, Maintenance and Repairs by Tenant. Tenant shall use the
Premises solely for the Permitted Uses and for no other use or purpose, except
as permitted by Landlord pursuant to Landlord's written consent. Tenant shall be
obligated for maintenance and repair of the Premises, to keep the same in good
order, repair and condition and, upon expiration of the Term, surrender the same
to Landlord in the same condition as when leased, reasonable wear and tear,
damage by fire or other insured casualty unless such damage is caused by
Landlord or its agents, servants, employees, licensees and business invitees
(collectively "Invitees") excepted. Tenant's obligation shall include, without
limitation, the obligation to maintain and repair all walls (except the exterior
surface or structural portion of the Building or any building systems, unless
the damage thereto is caused by the negligence of Tenant or any of its Invitees,
in which event the maintenance or repair of the exterior surface or structural
portion of the Building or building systems shall be performed by Landlord and
Tenant shall pay to Landlord the costs of such maintenance or repair), floors,
ceilings, windows (except for windows located on the exterior of the Building),
doors and fixtures and to repair all damage caused by Tenant or its Invitees to
the Premises or anywhere in the Building. At the request of Tenant, Landlord
shall perform the work of maintenance and repair constituting Tenant's
obligation pursuant to this Section 6.01 at Tenant's sole cost and expense and
as an extra service to be rendered pursuant to Section 5.02(c). Any work of
repair and maintenance performed by or for the account of Tenant by persons
other than Landlord shall be performed by contractors approved by Landlord and
in accordance with procedures Landlord shall from time to time establish.
Nothing herein contained, however, shall be deemed to impose upon Tenant the
obligation for performance of work of maintenance and repair required to be
performed by reason of Landlord's negligence or wrongful acts or those of
Landlord's agents or employees.
6.02. Taxes on Personal Property. In addition to, and wholly apart from
its obligation to pay Tenant's Share of Operating Expenses and Taxes, Tenant
shall be responsible for and shall pay, prior to delinquency, taxes or
governmental service fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other charges imposed upon, levied with
respect to or assessed
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against its personal property, or the value of its Tenant Improvements or its
interests pursuant to this Lease. To the extent that any such taxes are not
separately assessed and billed to Tenant, Tenant shall pay the amount thereof as
invoiced to Tenant by Landlord.
6.03. Waste. Tenant shall not commit or allow any waste or damage to be
committed in any portion of the Premises.
6.04. Assignment or Sublease. Tenant shall not assign this Lease, make
any sublease of the Premises, or permit occupancy of any part thereof by anyone
other than Tenant (any such act being referred to herein as a "Transfer" and the
other party to the transaction being referred to herein as a "Transferee"), or
mortgage, pledge or otherwise transfer this Lease, without in each case
obtaining the prior written consent of Landlord, which consent may be granted or
withheld in Landlord's sole discretion. Any Transfer or attempt to Transfer
without Landlord's express written consent shall be void, and shall be a default
under this Lease. Tenant shall reimburse Landlord for legal and other expenses
incurred by Landlord in connection with any request for consent, up to $1,000.
Notwithstanding any contrary provision herein, provided Tenant is not in
default hereunder beyond any applicable grace or notice period, Tenant may
assign this Lease to any entity controlling, controlled by or under common
control with Tenant, or any successor by merger, consolidation or sale of all or
substantially all of Tenant's assets without Landlord's prior consent, provided
the assignee is of sound financial condition, and provided further that the
Tenant originally named herein shall remain fully liable for Tenant obligations
hereunder, including, without limitation, the obligation to pay the rent and
other amounts provided under this Lease.
6.05. Alterations and Surrender.
(a) Tenant shall not make or allow to be made any alterations or physical
additions in or to the Premises without obtaining the prior written consent of
Landlord, which consent shall not be unreasonably withheld with respect to
proposed alterations and additions which (i) comply with all applicable laws,
ordinances, rules and regulations, (ii) are compatible with the Building and its
mechanical, electrical, HVAC and life safety systems, and do not excessively
burden the capacity of such systems; (iii) will not interfere with the use and
occupancy of any other portion of the Building; (iv) will not affect any
structural component of the Building; and (v) satisfy the standards and comply
with the procedures and requirements required for in this Section 6.05.
Specifically, but without limiting the generality of the foregoing, Landlord's
right of consent shall encompass plans and specifications for proposed
alterations or additions, construction means and methods, the identity of any
contractor or subcontractor to be employed on the work of alterations or
additions, and the time for performance of such work. Tenant shall supply to
Landlord any information reasonably requested by Landlord in connection with its
consent hereunder. All alterations
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and additions permitted hereunder shall be made and performed by Tenant without
cost or expense to Landlord. Tenant shall take such steps as may be necessary to
avoid the filing, perfection or enforcement of any lien for labor or materials
against the Land or the Building by reason of work performed by or on behalf of
Tenant. Such alterations, physical additions or improvements, when made to the
Premises by Tenant shall become the property of Landlord upon the termination of
this Lease and shall be surrendered to Landlord upon the termination of this
Lease by lapse of time or otherwise; provided, however, that this clause shall
not apply to movable equipment or furniture owned by Tenant and shall not apply
to any alterations, additions or improvements specified by Tenant to Landlord
and approved by Landlord in writing prior to the installation of such additions,
alterations or improvements, and all such movable equipment or furniture,
together with any such additions, alterations or improvements so specified by
Landlord, shall be removed by Tenant, at Tenant's expense, prior to the
expiration of the Term, and Tenant shall be responsible for leaving the Premises
clean and neat. Title to all alterations, additions or improvements not removed
by Tenant pursuant to the immediately preceding sentence on or prior to the
termination of the Term shall automatically be conveyed and transferred by
Tenant to Landlord upon such expiration or termination, and shall be deemed
abandoned by Tenant and shall thereupon become the property of Landlord. Tenant
shall execute such documentation confirming and ratifying such conveyance and
transfer as Landlord shall reasonably require. Tenant shall repair at its sole
cost and expense all damage caused to the Premises or the Building by removal of
Tenant's movable equipment or furniture and such other alterations and additions
as Tenant shall be allowed or required to remove from the Premises by Landlord.
(b) All construction work in the Premises shall be done by union
contractors and laborers, subject to the prior written approval of Landlord,
which approval shall not be unreasonably withheld or delayed, in a good and
workmanlike manner and in compliance with the Lease, all applicable laws and
lawful ordinances, regulations and orders of governmental authority and insurers
of the Building or the Premises. Before Tenant begins any work, it shall secure
all licenses and permits necessary therefor; deliver to Landlord a statement of
the names of all its contractors and subcontractors and the estimated cost of
all labor and material to be furnished by them; and cause each contractor to
carry (1) workmen's compensation insurance in statutory amounts covering all the
contractor's and subcontractor's employees, (2) comprehensive public liability
insurance with such limits as Landlord may reasonably require, but in no event
less than $3,000,000, and (3) property damage insurance with limits of not less
than $1,000,000 (all such insurance to be written in companies approved by
Landlord and insuring Landlord and Tenant as well as the contractors), and to
deliver to Landlord certificates of all such insurance; and secure casualty
insurance against loss or damage to Tenant's work pending completion and deliver
evidence of such insurance to Landlord. Tenant agrees to pay promptly when due
the entire cost of any work done in the Premises by Tenant, its agents,
employees, or independent contractors, and not to cause or permit any liens for
labor or materials performed or furnished in
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connection with its work to attach to the Premises and immediately to discharge
any such liens which may attach. Landlord may inspect the work at any time.
Tenant shall indemnify Landlord and hold it harmless from and against any cost,
claim, or liability arising from any work done by or at the direction of Tenant.
All work shall be done so as to minimize interference with other tenants and
with Landlord's operation of the Building or other construction work being done
by Landlord.
6.06. Compliance with Laws and Insurance Standards. Tenant shall not
occupy, use, or permit any portion of the Premises to be occupied or used, for
any business or purpose which is disreputable or creates a fire hazard, or
permit anything to be done which would in any way increase the rate of insurance
coverage on the Building and/or its contents. If Tenant does or permits anything
to be done which shall increase the cost of any insurance policy required to be
carried hereunder, then Tenant shall reimburse Landlord, upon demand, for any
such additional premiums. Landlord shall deliver to Tenant a written statement
setting forth the amount of any such insurance cost increase and showing in
reasonable detail the manner in which it has been computed. Tenant shall comply
with all laws, ordinances, orders, rules and regulations (state, federal,
municipal or promulgated by other agencies or bodies having or claiming
jurisdiction) related to the use, condition or occupancy of the Premises or the
conduct of Tenant's business therein, including but not limited to, any
requirements concerning hiring of employees and any applicable laws and
regulations regarding accommodations for disabled persons, and Tenant shall keep
the Premises equipped with all safety appliances required by any law or
ordinance or other regulation of any public authority because of any use made by
Tenant of the Premises, and shall procure all licenses and permits so required
because of such use, and, if required by Landlord, do any work so required
because of such use, it being understood that the foregoing provisions shall not
be construed to broaden in any way the Permitted Use. Nothing done by Tenant in
its use or occupancy of the Premises shall create, require or cause imposition
of any requirement by any public authority for structural or other upgrading of
or improvement to the Building. Notwithstanding the foregoing, Tenant shall not
be liable for any capital improvements or repairs to the Premises required by
any public authority unless such requirement arises due to the particular use of
the Premises by Tenant.
6.07. Entry for Repairs and Leasing. After reasonable notice (but not
more than two days' notice, except in emergencies when no such notice shall be
required), Landlord, its agents and representatives, shall have the right to
enter the Premises to inspect the same, to exercise such rights as may be
permitted hereunder, to make repairs or alterations to the Building or other
tenant spaces therein, to deal with emergencies, to post such notices as may be
permitted or required by law to prevent the perfection of liens against
Landlord's interest in the Building or to exhibit the Premises to prospective
tenants, purchasers, encumbrancers or others, or for any other purpose as
Landlord may deem necessary or desirable; provided, however, that Landlord shall
use reasonable efforts not to interfere with Tenant's business operations.
Tenant shall not be
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entitled to any abatement of Rent by reason of the exercise of any such right of
entry.
6.08. No Nuisance. Tenant shall conduct its business and control its
agents, employees, invitees and visitors in such manner as not to create any
nuisance, or interfere with, annoy or disturb any other tenant or Landlord in
its operation of the Building.
6.09. Subordination. Upon request of Landlord or the holder of any
Mortgage, within twenty (20) days of such request, Tenant shall execute and
deliver a recordable subordination, non-disturbance and attornment agreement or
other document in the form and containing such terms, conditions and covenants
(including without limitation those set forth below in this Section 6.09) as are
customarily used by the holder of such Mortgage, if such holder is an
institutional lender, or, if such holder is not an institutional lender,
containing such terms, conditions and covenants (including without limitation
those set forth below in this Section 6.09) as are customarily used by
institutional lenders lending funds in Boston, subordinating this Lease and the
rights of Tenant hereunder to the lien of the Mortgage and the rights of the
holder thereunder, provided that such holder of the Mortgage shall acknowledge
in writing that Tenant's quiet enjoyment under this Lease shall not be disturbed
nor shall Tenant's rights be terminated except in accordance with the terms of
this Lease. Without the consent of Tenant, the holder of any such Mortgage shall
have the right to elect to be subject and subordinate to this Lease, such
subordination to be effective upon such terms and conditions as such holder may
direct which are not inconsistent with the provisions hereof. Notwithstanding
any foreclosure or sale under any such Mortgage (or deed in lieu thereof), this
Lease shall remain in full force and effect, but Tenant shall attorn to the
holder or the purchaser at any such sale or foreclosure or the grantee of any
such deed. Upon such attornment, this Lease shall continue in full force and
effect as a direct lease between such mortgagee, purchaser or grantee, as a
successor landlord, and Tenant, upon all the terms, conditions and covenants set
forth herein, except that such mortgagee, purchaser or grantee (unless formerly
the Landlord under this Lease) shall not be (a) bound by any payment of Rent for
more than one month in advance; (b) bound by any amendment or modification of
this Lease made without the consent of the holder of the Mortgage; (c) liable in
any way to Tenant for any act or omission, neglect or default on the part of
Landlord under this Lease; (d) obligated to perform any work or improvements to
be done by Landlord in the Premises; or (e) subject to any counterclaim or
setoff which theretofore accrued to Tenant against Landlord. No owner of the
Premises shall be liable under this Lease except for breaches of Landlord's
obligations occurring while such person is the owner of the Premises.
For purposes of this Lease, "Mortgage" shall mean any and all
mortgages securing indebtedness for money borrowed by Landlord or indebtedness
for the refinancing of any such indebtedness, provided any such mortgage grants
a lien on all or any portion of the Building, including all amendments and
modifications thereto, from time to time. Any reference to "Mortgage" and
"mortgagee" herein
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shall include a sale and leaseback and the grantee-lessor of a sale and
leaseback used for financing purposes.
6.10 Estoppel Certificate. Within ten (10) days after written request by
Landlord, Tenant shall execute, acknowledge and deliver to Landlord a written
statement certifying (a) that this Lease is unmodified and in full force and
effect, or is in full force and effect as modified and stating the
modifications; (b) the amount of Base Rent and the date to which Base Rent and
additional rent have been paid in advance; (c) the amount of any security
deposited with Landlord; (d) that Landlord is not in default hereunder or, if
Landlord is claimed to be in default, stating the nature of any claimed default,
and (e) such other matters as may be reasonably requested by Landlord or any
prospective purchaser or mortgagee of the Property. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to execute and
deliver such statement within the time required shall be a default under this
Lease and shall also be conclusive evidence that (1) this Lease is in full force
and effect and has not been modified except as represented by Landlord; (2)
there are no uncured defaults in Landlord's performance and Tenant has no right
of offset, counterclaim or deduction against rent; and (3) not more than one
month's Base Rent has been paid in advance.
6.11. Tenant's Remedies. Tenant shall look solely to Landlord's interest
in the Building for recovery of any judgment from Landlord. Landlord, its
agents, employees, and, if Landlord is a partnership, its partners, whether
general or limited, or if Landlord is a corporation, its directors, officers or
shareholders, shall never be personally liable for any such judgment. Any lien
obtained to enforce any such judgment and levy of execution thereon shall be
subject and subordinate to any Mortgage.
6.12. Rules and Regulations. Tenant shall comply with the rules and
regulations for the Building attached as Exhibit E and such amendments thereto
as Landlord may adopt from time to time with prior notice to Tenant.
6.13. Personal Property at Tenant's Risk. All of the furnishings,
fixtures, equipment, effects and property of every kind, nature, and description
of Tenant and of all persons claiming by, through and under Tenant which, during
the continuance of this Lease or any occupancy of the Premises by Tenant or
anyone claiming under Tenant, may be on the Premises or elsewhere in the
Building, shall be at the sole risk and hazard of Tenant, and if the whole or
any part thereof shall be destroyed or damaged by fire, water or otherwise, by
the leakage or bursting of water pipes, steam pipes, or other pipes, or by theft
or from any other cause, no part of said loss or damage is to be charged to or
be borne by Landlord, except to the extent caused by Landlord's negligence or
willful misconduct and except Landlord shall in no event be held harmless or
exonerated for any liability to Tenant or to any other person, for any injury,
loss, damage or liability to the extent such indemnity, hold harmless or
exoneration is prohibited by law.
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6.14. Payment of Landlord's Expenses. Tenant shall pay, as additional
rent, all reasonable costs, counsel and other fees incurred by Landlord in
connection with all requests by Tenant for consent or approval hereunder, and
the successful enforcement by Landlord of any obligation of Tenant under this
Lease.
6.15. Environmental Compliance. Tenant shall not cause or permit any
hazardous or toxic wastes, hazardous or toxic substances or hazardous or toxic
materials except for ordinary office and cleaning supplies (collectively,
"Hazardous Materials") to be used, generated, stored or disposed of on, under or
about, or transported to or from, the Premises (collectively, "Hazardous
Materials Activities") without first receiving Landlord's written consent, which
may be withheld for any reason and revoked at any time. If Landlord consents to
any such Hazardous Materials Activities, Tenant shall conduct them in strict
compliance (at Tenant's expense) with all applicable Regulations, as hereinafter
defined, and using all necessary and appropriate precautions to prevent any
spill, discharge, release or exposure to persons or property. Landlord shall not
be liable to Tenant for any loss, cost, expense, claims, damage or liability
arising out of any Hazardous Materials Activities by Tenant, Tenant's employees,
agents, contractors, licensees, customers or invitees, whether or not consented
to by Landlord. Tenant shall indemnify, defend with counsel acceptable to
Landlord, and hold Landlord harmless from and against any and all loss, costs,
expenses, claims, damages or liabilities arising out of all Hazardous Materials
Activities on the Premises by Tenant, its agents and employees during the Term,
whether or not consented to by Landlord. For purposes hereof, Hazardous
Materials shall include but not be limited to substances defined as "hazardous
substances", "toxic substances", or "hazardous wastes" in the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; the Federal Hazardous Materials Transportation Act, as amended; and the
Federal Resource Conservation and Recovery Act, as amended ("RCRA"); those
substances defined as "hazardous wastes" in the Massachusetts Hazardous Waste
Facility Siting Act, as amended (Massachusetts General Laws Chapter 21D); those
substances defined as "hazardous materials" or "oil" in Massachusetts General
Laws Chapter 21E, as amended; and as such substances are defined in any
regulations adopted and publication promulgated pursuant to any of said laws
(collectively, "Regulations"). If Landlord consents to any Hazardous Materials
Activities, prior to using, storing or maintaining any Hazardous Materials on or
about the Premises, Tenant shall provide Landlord with a list of the types and
quantities thereof, and shall update such list as necessary for continued
accuracy. Tenant shall also provide Landlord with a copy of any Hazardous
Materials inventory statement required by any applicable Regulations, and any
update filed in accordance with any applicable Regulations. If Tenant's
activities violate or create a risk of violation of any Regulations or cause a
spill, discharge, release or exposure to any persons or property, Tenant shall
cease such activities immediately upon notice from Landlord. Tenant shall
immediately notify Landlord both by telephone and in writing of any spill,
discharge, release or exposure of Hazardous Materials or of any condition
constituting an "imminent hazard" under any
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Regulations. Landlord, Landlord's representatives and employees may enter the
Premises at any time during the Term to inspect Tenant's compliance herewith,
and may disclose any spill, discharge, release, or exposure or any violation of
any Regulations to any governmental agency with jurisdiction. Nothing herein
contained shall prohibit Tenant from using minimal quantities of cleaning fluid
and office supplies which may constitute Hazardous Materials but which are
customarily present in premises devoted to office use, provided that such use is
in compliance with all Regulations and shall be subject to all of the other
provisions of this Section 6.15.
ARTICLE VII
CASUALTY, EMINENT DOMAIN
7.01. Casualty Insurance. Landlord shall maintain, or cause to be
maintained, a policy or policies of insurance with the premiums thereon fully
paid in advance, issued by and binding upon an insurance company of good
financial standing, insuring the Building against loss or damage by fire or
other insurable hazards and contingencies for at least eighty percent (80%) of
the replacement cost thereof (or such minimum amount as shall be required to
eliminate operation of coinsurance provisions); provided, that Landlord shall
not be obligated to insure any furniture, equipment, machinery, goods or
supplies not covered by this Lease which Tenant may keep or maintain in the
Premises, or any alteration, addition or improvement which Tenant may make upon
the Premises. If the annual premiums charged Landlord for such casualty
insurance exceed the standard premium rates because the nature of Tenant's
operations results in extra-hazardous exposure, then Tenant shall, upon receipt
of appropriate premium invoices, reimburse Landlord for such increases in
premium as additional rent.
7.02. Liability Insurance. Landlord (with respect to the Building) and
Tenant (with respect to the Premises) shall maintain or cause to be maintained a
policy or policies of comprehensive general liability insurance with the
premiums thereon fully paid in advance issued by and binding upon an insurance
company of good financial standing, such insurance to afford minimum protection
of not less than Three Million Dollars ($3,000,000.00) for personal injury or
death in any one occurrence and of not less than One Million Dollars
($1,000,000.00) for property damage in any one occurrence. The coverages
required to be carried shall be extended to include blanket contractual
liability, personal injury liability (libel, slander, false arrest and wrongful
eviction), and broad form property damage liability. The certificate shall
indicate that the insurance provided specifically recognizes the liability
assumed by Tenant under this Lease and that the Tenant's insurance is primary
with any other insurance available to Landlord or any other named insured being
excess. Upon request of either party, the other party shall provide reasonable
evidence that the insurance required to be maintained hereunder is in full force
and effect.
7.03. Tenant's Insurance.
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(a) Tenant shall carry fire and special extended coverage
insurance on Tenant's own fixtures and personal property in the Premises in the
amount of their full replacement cost. In addition, Tenant shall maintain
workers' compensation insurance and all such other insurance as may be required
by applicable law. All policies required to be carried by Tenant hereunder and
all evidence of insurance provided to Landlord shall be issued by responsible,
financially sound companies qualified to do business and in good standing in the
Commonwealth of Massachusetts and shall contain an endorsement showing that
Landlord and each holder of a Mortgage (disclosed in writing to Tenant) is
included as an additional insured (except as to workers' compensation
insurance), as its interests may appear and an endorsement whereby the insurer
agrees not to cancel or alter the policy without not less than thirty (30) days
prior written notice to Landlord, to such mortgagee and all other named
insureds. Tenant shall, on or prior to the Term Commencement Date, deposit with
Landlord certificates of such insurance, and thereafter, on or prior to fifteen
(15) days before the expiration date of any coverage thereunder, shall deposit
with Landlord certificates evidencing the renewal of such policies. Any such
insurance may be maintained by Tenant under a blanket policy or policies,
however, that the minimum amount of the total insurance afforded by such blanket
policy which shall be allocable to the Premises and any sublimits of such policy
allocable to the Premises, shall be in amounts which shall not be less than the
amounts of the insurance required hereunder, and the protection afforded to
Landlord and each holder of a Mortgage under such policy shall be not less than
that which would have been afforded under a separate policy or policies relating
only to the Premises, and the certificate evidencing such insurance shall
contain provisions confirming the foregoing.
(b) In the event that Tenant fails to provide evidence of
insurance required to be provided by Tenant hereunder, Landlord shall be
authorized (but not required) to procure such coverage in the amounts stated
with all costs thereof to be chargeable to Tenant as additional rent, and
payable by Tenant upon receipt of written invoice therefor.
7.04. Indemnity and Exoneration. Except to the extent such indemnity or
exoneration is prohibited by law,
(a) As a material consideration to Landlord for executing this
Lease, Tenant assumes all risk of damage or injury to any person or property in,
on, or about the Premises from any cause, including without limitation, injury
or damage which may be sustained by the person or property of Tenant, its
employees, invitees, or any other person in or about the Premises, caused by or
resulting from (i) theft, burglary or acts of unauthorized persons in or about
the Building, (ii) any act of force majeure or any repair or alteration of any
part of the Building or failure to make any such repair or (iii) fire, steam,
electricity, gas, water or rain which may leak or blow from or into any part of
the Premises, or from the breakage, leakage, obstruction, or other defects of
pipes, sprinklers, wires, appliances, plumbing, air-conditioning or lighting
fixtures, whether
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such damage or injury results from conditions arising upon the Premises, any
other portion of the Property, or other sources, except the negligence or
willful misconduct of, or breach of this Lease, by Landlord, its agents,
employees, contractors or licensees provided, however, that nothing herein
contained shall limit Tenant's rights against any third party other than
Landlord, its agents, contractors or employees. Landlord shall not be liable to
Tenant or any other person or entity for any damages arising from any act or
omission of any other tenant of the Building.
(b) Tenant shall indemnify Landlord and hold Landlord harmless
of and from any and all loss, cost, damage, injury or expense arising out of or
related to claims of injury to or death of persons, damage to property occurring
or resulting directly or indirectly from the negligence or willful misconduct of
Tenant, its agents, employees and contractors in or about the Premises or the
Building, excluding however any such claim arising as a result of the gross
negligence or willful misconduct or breach of this Lease on the part of
Landlord, its agents, contractors or employees, such indemnity to include,
without limitation, the obligation to provide all costs of defense against any
such claims; and
(c) Tenant shall hold and save Landlord harmless and indemnify
Landlord of and from any and all loss, cost, damage, injury or expense arising
out of or in any way related to claims for work or labor performed, materials or
supplies furnished to or at the request of Tenant or in connection with
performance of any work done for the account of Tenant in the Premises or the
Building, such indemnity to include, without limitation, the obligation to
provide all costs of defense against any such claim.
(d) Landlord shall indemnify, protect, defend and hold harmless
the Tenant, its directors, officers, agents, lenders, employees, successors and
assigns from and against any and all claims, expenses or liabilities of whatever
nature arising from any negligence, willful misconduct or breach of this Lease
by Landlord, its officers, agents, employees, contractors or licensees.
7.05. Waiver of Subrogation Rights. Anything in this Lease to the
contrary notwithstanding, Landlord and Tenant each waive all rights or recovery,
claim, action or cause of action against the other, its agents (including
partners, both general and limited), officers, directors, shareholders or
employees, for any loss or damage that may occur to the Premises, or any such
party thereto, to the Building or to any personal property of such party
therein, by reason of fire, the elements, or any other cause which are required
to be insured against under the terms of the fire and extended coverage
insurance policies obtained pursuant to this Lease, regardless of cause or
origin, including negligence of the other party hereto, its agents, officers or
employees; and each party covenants that no insurer shall hold any right of
subrogation against such other party. Landlord and Tenant shall advise insurers
of the foregoing and such waiver shall be a part of each policy maintained by
such party which applies to the Premises, any part of the Building or Tenant's
use and occupancy of any part thereof; provided that this
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waiver shall be null and void if the affected insurer refuses to consent to such
waiver, and provided further that all costs associated with obtaining insurer
consent shall be borne by the party benefited by such waiver.
7.06. Condemnation and Loss or Damage.
(a) If the Premises or any portion of the Building shall be
taken or condemned for any public purpose to such an extent as to render the
Premises unsuitable for Tenant's use as reasonably determined by Landlord, this
Lease shall, at the option of either party (provided such option shall be
exercised by the giving of notice by the exercising party to the other party
within sixty (60) days from the date the exercising party has been notified in
writing of such taking or condemnation) forthwith cease and terminate as of the
date of the taking. All proceeds from any taking or condemnation of the Premises
shall belong to and be paid to Landlord and Tenant hereby assigns to Landlord
its interest in said proceeds subject to the rights of any holder of any
Mortgage; provided, however, that Landlord shall cooperate with Tenant if Tenant
seeks, in a separate proceeding, to recover, at its cost and expense,
compensation for its moving expenses and personal property diminishing or
delaying the award payable to Landlord on account of any taking or condemnation.
(b) In the event of a temporary taking (i.e. less than ninety
(90) days) of a portion of the Premises, there shall be no abatement of Rent and
Tenant shall remain fully obligated for performance of all of the covenants and
obligations on its part to be performed pursuant to the terms of this Lease. All
proceeds awarded or paid with respect thereto shall belong to Landlord.
7.07. Damage Due to Fire and Casualty. In the event of a fire or other
casualty in the Premises, Tenant shall immediately give notice thereof to
Landlord. The following provisions shall then apply:
(a) If the damage is limited solely to the Premises and the
Premises can be restored to substantially the condition that existed immediately
prior to the damage within six (6) months from the date of damage or
destruction, then, subject to any limitation contained in any Mortgage, Landlord
shall be obligated to rebuild the same and shall proceed diligently to do so;
provided, however, that Landlord shall have no obligation to repair or restore
the Premises or leasehold improvements except to the extent that Landlord
realizes insurance proceeds, if any, sufficient for such purposes and for all
other restoration and repair purposes and to the extent such proceeds are not
applied on account of the indebtedness secured by any Mortgage.
(b) If portions of the Building outside the boundaries of the
Premises are damaged or destroyed (whether or not the Premises are also damaged
or destroyed) and the Premises and the Building can both be made tenantable with
substantially all damage repaired within six (6) months from the date of damage
or destruction, and provided that Landlord determines that such repair and
restoration is
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economically feasible, then subject to any limitation contained in any Mortgage,
Landlord shall be obligated to do so; provided, however, that Landlord shall
have no obligation to repair or restore the Premises or leasehold improvements
except to the extent that Landlord realizes insurance proceeds, if any,
allocable thereto and sufficient for such purpose and for all other restoration
and repair purposes.
(c) If neither subsection 7.07(a) nor 7.07(b) above applies,
Landlord shall notify Tenant within sixty (60) days after such date and either
Tenant or Landlord may terminate this Lease within thirty (30) days after the
date of such notice; provided, however, that Landlord or its mortgagee shall
have the right to elect to reconstruct the Building and the Premises (provided
that the mortgagee shall undertake to reconstruct within the same time periods
allowed to Landlord), in which event Landlord or its mortgagee shall so notify
Tenant within said sixty (60) day period and Tenant shall thereupon have no
right to terminate this Lease except as otherwise set forth in the Lease.
(d) During any period when Tenant's use of the Premises is
significantly affected by damage or destruction, Rent shall abate
proportionately until such time as the Premises are restored as reasonably
determined by Landlord and no portion of the Rent so abated shall be subject to
subsequent recapture.
(e) The proceeds from any insurance paid by reason of damage to
or destruction of the Building or any part thereof or any other element,
component or property insured by Landlord shall belong to and be paid to
Landlord, subject to the rights of the holder of any Mortgage, and Tenant hereby
assigns to Landlord any interest in said proceeds.
ARTICLE VIII
DEFAULT
8.01. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" on the part of Tenant:
(a) Nonpayment Of Rent. Failure to pay any payment of Rent due
and payable hereunder, upon the date when payment is due, such failure
continuing for a period of ten (10) business days after written notice of such
failure; provided, however, that Landlord shall not be required to provide such
notice more than twice during any twelve (12) month period with respect to
non-payment of Base Rent, the third such non-payment constituting default
without requirement of notice;
(b) Other Obligations. Failure to perform any obligation,
agreement or covenant under this Lease other than those matters specified in
Section 8.01(a), such failure continuing for twenty (20) business days after
written notice of such failure (or such longer period as is reasonably necessary
to remedy such default, provided
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that Tenant shall within such twenty (20) business-day period have commenced
such remedy and thereafter Tenant shall continuously and diligently pursue such
remedy at all times until such default is cured);
(c) Abandonment. Abandonment of the Premises or any part thereof
during the Term. Tenant shall be deemed to have abandoned the Premises if the
Premises remain substantially vacant or unoccupied for a period of thirty (30)
days;
(d) General Assignment. A general assignment by Tenant for the
benefit of creditors;
(e) Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged or unstayed for a
period of sixty (60) days. In the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and continue to perform
the obligations of Tenant hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having jurisdiction, cure all
defaults of Tenant hereunder outstanding as of the date of the affirmance of
this Lease and provide to Landlord such adequate assurances as may be necessary
to ensure Landlord of the continued performance of Tenant's obligations under
this Lease;
(f) Receivership. The employment of a receiver to take
possession of substantially all of Tenant's assets or the Premises, if such
receivership remains undissolved for a period of ten (10) business days after
creation thereof;
(g) Attachment. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or the Premises, if such
attachment or other seizure remains undismissed or undischarged for a period of
ten (10) business days after the levy thereof;
(h) Insolvency. The admission by Tenant in writing of its
inability to pay its debts as they become due, the filing by Tenant of a
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, the filing by Tenant of an answer admitting or failing timely
to contest a material allegation of a petition filed against Tenant in any such
proceeding or, if within sixty (60) days after the commencement of any
proceeding against Tenant seeking any reorganization, or arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall not have
been dismissed.
8.02. Remedies Upon Default.
(a) If an Event of Default occurs, Landlord shall have the
right, with or without notice or demand, immediately to terminate this Lease,
and at any time thereafter recover possession of the
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Premises or any part thereof and expel and remove therefrom Tenant and any other
person occupying the same, by any lawful means, and again repossess and enjoy
the Premises without prejudice to any of the remedies that Landlord may have
under this Lease, or at law or equity by reason of Tenant's default or of such
termination.
(b) Even though Tenant has breached this Lease, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant's right to
possession under Section 8.02(a) hereof, and Landlord may enforce all of its
rights and remedies under this Lease, including, without limitation, the right
to recover Rent as it becomes due. Acts of maintenance, preservation or efforts
to lease the Premises or the appointment of a receiver upon application of
Landlord to protect Landlord's interest under this Lease shall not constitute an
election to terminate Tenant's right to possession.
8.03. Damages Upon Termination. Should Landlord terminate this Lease
pursuant to the provisions of Section 8.02(a) hereof, Landlord shall have all
the rights and remedies of a landlord in law or in equity. Upon such
termination, in addition to any other rights and remedies to which Landlord may
be entitled under applicable law, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination; (ii) the worth at the time of
award of the amount by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such Rent loss that
the Tenant proves could have been reasonably avoided; (iii) the worth at the
time of award of the amount by which the unpaid Rent for the balance of the Term
after the time of award exceeds the rental value of the Premises for the balance
of the Term; and (iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course, would be likely to result
therefrom. Tenant further covenants, as an additional cumulative obligation
after any such termination, to punctually pay to Landlord all sums and perform
all obligations which Tenant covenants in this Lease to pay and to perform, as
if this Lease had not been terminated. In calculating the amounts to be paid by
Tenant pursuant to this Section 8.03, Tenant shall be credited with any amount
paid to Landlord pursuant to this Section 8.03 and also (in respect of the
amounts referred to in (i) and (ii)) the net proceeds of rent obtained by
Landlord by reletting the Premises through the time of award, after deducting
all Landlord's expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for reletting, it being agreed
by Tenant that Landlord may (x) relet the Premises or any part thereof for a
term or terms which may at Landlord's option be equal or less than or exceed the
period which would otherwise have constituted the balance of the Term and may
grant such concessions and free rent as Landlord in its sole judgment considers
advisable or necessary to relet the same and (y) make such alterations, repairs
and decorations in the Premises as Landlord in its sole judgment considers
advisable or necessary to relet the same, and no action of Landlord in
accordance with the foregoing or failure to relet or
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collect rent under Landlord's reletting of the Premises shall operate or be
construed to release or reduce Tenant's liability as aforesaid. The "time of
award" shall refer to such time as (I) Tenant shall, as a settlement of the
amounts due pursuant to this Section 8.03, pay to Landlord such sums pursuant to
a written agreement in form and substance satisfactory to Landlord, or (II) the
date on which a judgment shall be entered in a court of competent jurisdiction
to the effect that Tenant shall pay Landlord the amounts due and owing pursuant
to this Section 8.03. The "worth at the time of award" of the amounts referred
to in (i) and (ii) shall mean such amounts together with interest at the lesser
of eighteen percent (18%) per annum or the maximum rate allowed by law. The
"worth at the time of award" of the amount referred to in (iii) shall mean such
amounts as computed by referenced to competent appraisal evidence or the formula
prescribed by and using the lowest discount rate permitted under applicable law.
8.04. Computation of Rent for Purposes of Default. For purposes of
computing unpaid Rent which would have accrued and become payable under this
Lease pursuant to the provisions of Section 8.03, unpaid Rent shall consist the
total Base Rent for the balance of the Term.
8.05. Intentionally Deleted.
8.06. Rights of Landlord in Bankruptcy. Nothing contained in this Lease
shall limit or prejudice the right of Landlord to prove for and obtain in
proceedings for bankruptcy or insolvency, by reason of the termination of this
Lease, an amount equal to the maximum allowed by any statute or rule of law in
effect at the time when, and governing the proceedings in which, the damages are
to be proved, whether or not the amount be greater, equal to, or less than the
amount of the loss or damages referred to in this Article VIII.
8.07. Late Charge. In addition to its other remedies, Landlord shall have
the right to add to the amount of any payment required to be made by Tenant
hereunder, and which is not paid on or before the date the same is due, an
amount equal to ten percent (10%) per annum of the delinquency thereof that the
delinquency remains outstanding, the parties agreeing that Landlord's damage by
virtue of such delinquencies would be difficult to compute and the amount stated
herein represents a reasonable estimate thereof. The late charge shall be due
upon demand by Landlord. Tenant shall reimburse Landlord for all costs and
expenses (including reasonable attorney's fees) incurred by Landlord to recover
the late charges due hereunder.
ARTICLE IX
MISCELLANEOUS
9.01. No Waiver. Failure of Landlord or Tenant to declare any default
immediately upon occurrence thereof, or delay in taking any action in connection
therewith, shall not waive such default, but Landlord or Tenant, as the case may
be, shall have the right to declare any such default at any time thereafter.
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9.02. Holding Over. In the event of holding over by Tenant after
expiration or termination of this Lease without the written consent of Landlord,
Tenant shall pay for each month of holdover tenancy one hundred and fifty
percent (150%) of the Rent which Tenant was obligated to pay for the month
immediately preceding the end of the Term for each month or partial month of any
such hold-over period together with such other amounts as may become due
hereunder. No holding over by Tenant after the Term shall operate to extend the
Term. In the event of any unauthorized holding over, Tenant shall indemnify
Landlord (i) against all claims for damages by any other tenant to whom Landlord
may have leased all or any part of the Premises covered hereby effective upon
the termination of this Lease, and (ii) for all other losses, costs and
expenses, including reasonable attorney's fees, incurred by Landlord by reason
of such holding over. Any holding over with the consent of Landlord in writing
shall thereafter constitute a lease from month to month.
9.03. Amendments and Modifications. This Lease may not be altered,
changed or amended, except by an instrument in writing signed by both parties
hereto.
9.04. Transfers by Landlord. Landlord shall have the right to transfer
and assign, in whole or in part, all of its rights and obligations hereunder in
the Building and in such event and upon such transfer, no further liability or
obligations shall thereafter accrue against the transferring or assigning person
as Landlord hereunder.
9.05. Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstances, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and shall be enforceable to the fullest extent
permitted by law.
9.06. Notices. All notices, demands, consents and approvals which may be
or are required to be given by either party to the other hereunder shall be in
writing and shall be deemed to have been delivered on the earlier of (i) the
date received, or (ii) the date of delivery, refusal, or non-delivery indicated
on the return receipt, if deposited in a United States Postal Service
depository, postage pre-paid, sent registered or certified mail, return receipt
requested, and addressed to the party to be notified at the address for such
party specified in Section 1.02 hereof, or to such other place as the party to
be notified may from time to time designate by at least fifteen (15) days notice
to the notifying party.
9.07. No Joint Venture. This Lease shall not be deemed or construed to
create or establish any relationship of partnership or joint venture or similar
relationship or arrangement between Landlord and Tenant hereunder.
9.08. Successors and Assigns. This Lease shall be binding upon and inure
to the benefit of Landlord, its successors and assigns; and
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shall be binding upon and inure to the benefit of Tenant, its successors, and to
the extent assignment may be permitted as of right or approved by Landlord
hereunder, Tenant's assigns.
9.09. Applicable Law. All rights and remedies of Landlord and Tenant
under this Lease shall be construed and enforced according to the laws of the
Commonwealth of Massachusetts.
9.10. Time of the Essence. Time is of the essence of each and every
covenant herein contained.
9.11. Submission Not an Option. The submission of this Lease for
examination does not constitute a reservation of or option for the Premises or
an offer to lease, it being understood and agreed that neither Landlord nor
Tenant shall be legally bound with respect to the leasing of the Premises unless
and until this Lease has been executed and delivered by both Landlord and
Tenant.
9.12. Brokerage. Tenant and Landlord each warrant to the other that it
has had no dealings with any broker or agent in connection with this Lease other
than the Broker, and each covenants to defend (with counsel reasonably approved
by the other party), hold harmless and indemnify the other party from and
against any and all costs, expense or liability for any compensation, commission
and charges claimed by any broker or agent except the Broker, arising out of the
warranting party's dealings in connection with this Lease or the negotiation
thereof.
9.13. Waiver of Jury Trial. Landlord and Tenant hereby waive trial by
jury in any action, proceeding or counterclaim brought by either of the parties
hereto against the other, on or in respect of a matter whatsoever arising out of
or in any way connected with this Lease, the relationship of Landlord and Tenant
hereunder, Tenant's use or occupancy of the Premises, and/or any claim of injury
or damages.
9.14. All Agreements Contained. This Lease contains all of the agreements
of the parties with respect to the subject matter hereof and supersedes all
prior dealings between them with respect to such subject matter.
9.15. Cumulative Remedies. The specific remedies to which Landlord may
resort under the terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by Tenant of any provisions
of this Lease. In addition to the other remedies provided in this Lease,
Landlord may be entitled to the restraint by injunction of the violation or
attempted or threatened violation of any of the covenants, conditions or
provisions of this Lease or to a decree compelling specific performance of any
such covenants, conditions or provisions.
9.16. Failure to Enforce. The failure of Landlord to seek redress for
violation of, or to insist upon strict performance of, any covenant or condition
of this Lease, or with respect to such
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failure of Landlord to enforce any of the rules and regulations referred to
herein, whether heretofore or hereafter adopted by Landlord, shall not be deemed
a waiver of such violation nor prevent a subsequent act which would have
originally constituted a violation from having all the force and effect of the
original violation, nor shall the failure of Landlord to enforce any of said
rules and regulations against any other tenant in the Building be deemed a
waiver of any such rules or regulations. The receipt by Landlord of Rent with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. No provision of this Lease shall be deemed to have been
waived by Landlord, unless such waiver shall be in writing and signed by
Landlord. No consent or waiver, express or implied, by Landlord to any breach of
any agreement or duty shall be construed as a waiver or consent to or of any
other breach of the same or any other agreement or duty.
9.17. Representations by Tenant. Tenant represents and warrants that any
financial statements provided by it to Landlord were true, correct and complete
when provided, and that no material adverse change has occurred since that date
that would render them inaccurate or misleading. Tenant represents and warrants
that those persons executing this Lease on Tenant's behalf are duly authorized
to execute and deliver this Lease on its behalf, and that this Lease is binding
upon Tenant in accordance with its terms. Simultaneously with the execution of
this Lease, Tenant shall deliver evidence of such authority to Landlord in form
satisfactory to Landlord.
9.18. Force Majeure. When a period of time is herein prescribed for
action to be taken by Landlord, Landlord shall not be liable or responsible for,
and there is excluded from the computation for any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions or any other cause of any kind
whatsoever which are beyond the control of Landlord. Subject to the preceding
sentence, time is of the essence of every part of this Lease.
9.19. Limitation on Liability. Landlord's rights hereunder are solely for
Landlord's benefit, and Landlord has no duty to exercise them for the benefit of
Tenant or others. Any liability of Landlord to Tenant under this Lease, or
arising from the relationship under it, is limited to the interest of Landlord
in the Building, and Landlord shall not be personally liable for any deficiency;
but this does not limit or deny any remedies which do not involve personal
liability.
9.20. Notice of Lease. Tenant agrees not to record this Lease, but on the
request of either party hereto, both parties hereto shall execute and deliver
(i) a notice of this Lease in form appropriate for recording or registration,
(ii) an agreement setting forth the Term Commencement Date, (iii) a notice in
form appropriate for recording or registration of any amendment of this Lease,
(iv) an agreement by Tenant to make payments and give notices to whatever
individual or entity shall be designated by Landlord for receiving any such
notice or payment and to comply with the provisions of any assignment of rents
granted to the holder of any Mortgage, and (v) if
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this Lease is terminated before the expiration of the Term, an instrument in
form appropriate for recording or registration pursuant to which Tenant
acknowledges the date of termination. If Tenant unreasonably refuses to execute
any of the notices, amendments, agreements and instruments provided for in the
immediately preceding sentence, or in Sections 6.05 and 6.10, within ten (10)
business days after Landlord gives notice to Tenant requesting execution of the
same, Landlord may effect such execution on behalf of Tenant as Tenant's
attorney-in-fact and Tenant hereby grants to Landlord an irrevocable power of
attorney to execute on behalf of Tenant each such notice, amendment, agreement
and instrument, which power is coupled with an interest.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as a
sealed instrument as of the day and year first above written.
LANDLORD
Attest: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
___________________________ By:___________________________
Clerk Its:
UNICARE LIFE & HEALTH
INSURANCE COMPANY
Attest: ______________________________
___________________________ By:___________________________
Clerk Its:
27
<PAGE> 31
Exhibit A
Premises
28
<PAGE> 32
3RD FLOOR PLAN
<PAGE> 33
7TH FLOOR PLAN
<PAGE> 34
8TH FLOOR PLAN
<PAGE> 35
9TH FLOOR PLAN
<PAGE> 36
11TH FLOOR PLAN
<PAGE> 37
12TH FLOOR PLAN
<PAGE> 38
13TH FLOOR PLAN
<PAGE> 39
14TH FLOOR PLAN
<PAGE> 40
Exhibit B to Lease
200 Berkeley Street
Boston, Massachusetts
John Hancock Mutual Life Insurance Company - Landlord
_________________________________________ - Tenant
Description of Lot
The land with the building thereon situated on Berkeley Street, Boston,
Suffolk County, Commonwealth of Massachusetts, bounded and described as follows:
Northerly on St. James Avenue two hundred seventy-two 7/10 feet; Easterly on
Berkeley Street two hundred ninety-one 68/100 feet; Southerly on Stuart Street
two hundred seventy-two 8/10 feet and Westerly by other land of Landlord two
hundred ninety-one 7/10 feet. There is included within the Lot 79,566 square
feet more or less.
The Lot is shown as the cross hatched area on the survey prepared by
Gunther Freulich, R.L.S., dated February 17, 1983 attached as Exhibit B-1
hereto.
The Lot is a portion of the premises described in deed of Amory Eliot,
Edgar R. Champlin, Frederick J. Bradlee, Joseph E. Worcester and Winthrop R.
Scudder, Trustees of the Park Square Real Estate Trust to John Hancock Mutual
Life Insurance Company, dated September 27, 1918 and recorded with the Suffolk
County Registry of Deeds in Book 4107, Page 81 and shown on a plan by Aspinwall
& Lincoln, Civil Engineers, dated September 18, 1918 recorded with said Deeds in
Book 4107, Page 80.
29
<PAGE> 41
Exhibit C to Lease
200 Berkeley Street
Boston, Massachusetts
John Hancock Mutual Life Insurance Company - Landlord
_________________________________________ - Tenant
Schedule of Janitorial Services
OFFICE AREA
Daily: (Monday through Friday, inclusive, holidays excepted)
1. Empty all waste receptacles and return to proper locations.
2. Sweep and dust mop all uncarpeted areas.
3. Vacuum all rugs and carpeted areas.
4. Dust all horizontal surfaces of furniture and equipment within
normal reach.
5. Clean and sanitize all drinking fountains and water coolers.
6. Remove fingermarks from glass doors.
7. Wipe clean all brass and other metal surfaces within normal reach.
Monthly:
1. Remove all fingermarks from doors, door jambs, and light switches.
Quarterly:
1. Dust all pictures, frames, chart boards and similar wall hangings.
2. Dust all vertical surfaces not reached in daily cleaning.
LAVATORIES
Daily:
1. Sweep and mop floors.
2. Clean and sanitize all floors, toilet seats, bowls, urinals and
fixtures.
3. Clean all mirrors and shelves.
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<PAGE> 42
4. Refill towel dispensers, soap dispensers, tissue holders; materials
to be furnished by Landlord.
5. Empty paper towel receptacles.
6. Dust all partitions.
Monthly:
1. Wash all partitions, dispensers, and splash areas.
2. Dust all light fixtures and ventilating grilles.
Quarterly:
1. Wash all tile walls and partitions.
Tenant requiring services in excess of those described above shall request same
through Landlord at Tenant's expense.
31
<PAGE> 43
Exhibit D to Lease for Floors
200 Berkeley Street
Boston, Massachusetts
John Hancock Mutual Life Insurance Company - Landlord
_________________________________________ - Tenant
List of Legal Holidays
For the purposes of the Lease of which this Exhibit is a part, the term "Legal
Holidays" shall be construed to include those days upon which the following
holidays are legally observed from time to time, according to the laws of The
Commonwealth of Massachusetts or the United States of America:
New Year's Day
Martin Luther King's Birthday
Washington's Birthday
Patriots' Day
Memorial Day
Independence Day
Labor Day
Columbus Day
Veteran's Day
Thanksgiving Day
Christmas Day
The term "Legal Holidays" shall also include such additional holidays, if any,
hereafter provided for by The Commonwealth of Massachusetts or the United States
of America.
32
<PAGE> 44
Exhibit E to Lease
200 Berkeley Street
Boston, Massachusetts
John Hancock Mutual Life Insurance Company - Landlord
_________________________________________ - Tenant
Rules and Regulations
1. The sidewalks, doorways, halls, stairways, vestibules and other
similar areas shall not be obstructed or used for any purpose other than ingress
to and egress from tenants' respective leased premises, and for going from one
part of the Building to another part.
2. Plumbing fixtures shall be used only for their designated purpose, and
no substances of any kind shall be deposited therein which they are not designed
to handle. Damage to any such fixture resulting from misuse by any tenant or its
employees or invitees shall be repaired at the expense of such tenant.
3. Signs, advertisements, graphics, or notices visible in or from public
corridors shall be subject to Landlord's written approval. Nails, screws, and
other attachments to the Building, other than within the tenants' respective
leased premises, require prior written consent from Landlord.
4. Movement in to, inside of or out of the Building of furniture, office
equipment, or other bulky material which requires the use of elevators,
stairways, or Building entrance and lobby shall be restricted to hours
reasonably established by Landlord. All such movements shall be restricted to
the Building's freight elevators. Prearrangements with Landlord should be made
regarding the time, method, and routing of movement.
5. Landlord shall have the power to reasonably prescribe the weight and
position of safes and other heavy equipment, which shall in all cases, to
distribute weight, stand on supporting devices approved by Landlord. In
addition, tenants shall obtain written approval of Landlord prior to
installation or subsequent relocation of any libraries or storage rooms.
6. All routine deliveries to the premises shall be made between the hours
of 8:00 a.m. and 5:00 p.m. weekdays (other than holidays) unless other
arrangements are approved in advance by the Building management office, and only
shall be made through the freight elevators. Passenger elevators are to be used
only for the movement of persons, unless an exception is approved by the
Building management office. Tenants will adhere to any peak period delivery
restrictions implemented by the City of Boston.
7. Corridor doors, when not in use, shall be kept closed.
33
<PAGE> 45
8. Deliveries of water, soft drinks, newspapers, or other such items to
any tenant's leased premises shall be made by use of the freight elevators, if
Landlord so directs.
9. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts, or stairways. No birds, fish, or animals of any kind (other than
seeing-eye dogs) shall be brought into or kept in, on or about any tenant's
leased premises.
10. No cooking shall be done in any tenant's leased premises except in
connection with a Permitted Use as provided in tenant's lease. All permitted
cooking shall be done in a manner which complies with all of the provisions of
the tenant's lease and which does not produce fumes or odors. All cooking
facilities shall be subject to approval of Landlord and must be approved by all
applicable state and municipal authorities.
11. No tenant shall use or keep on its leased premises any kerosene,
gasoline, or inflammable or combustible fluid or material other than limited
quantities reasonably necessary for the operation and maintenance of office
equipment or for other Permitted Uses under tenant's lease or as otherwise
expressly permitted by tenant's lease. No tenant shall use or keep any noxious
gas or substances in its leased premises, or permit its leased premises to be
used in a manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors, or vibrations, or interfere in any way
with other tenants or those having business therein. All equipment causing
vibrations shall be isolated.
12. Tenants shall not tamper with or attempt to adjust temperature
control thermostats in their leased premises. Landlord shall make adjustments in
thermostats on call from tenants.
13. Tenants shall comply with all requirements necessary for the security
of their leased premises and the Building, including the use of service passes
issued by Landlord for after hours movement of office equipment/packages, and
signing security register in Building lobby after hours.
14. Landlord will furnish each tenant with a reasonable number of initial
keys for entrance doors into its leased premises, and may charge for additional
keys thereafter. All such keys shall remain the property of Landlord. No
additional locks will be allowed on any door of any leased premises without
Landlord's prior written consent and tenants shall not make any duplicate keys,
except those provided by Landlord. Upon termination of this Lease, each tenant
shall surrender to Landlord all keys to its leased premises, and give to
Landlord the combination of all locks for safes and vault doors, if any, in the
leased premises.
15. Canvassing, peddling, soliciting and distribution of hand-bills in
the Building are prohibited and each tenant will cooperate to prevent these
activities.
34
<PAGE> 46
16. Landlord reserves the right to modify or rescind any of these rules
and regulations and to make future reasonable and nondiscriminatory rules and
regulations required for the safety, protection, and maintenance of the
Building, the operation and preservation of good order thereof, and the
protection and comfort of the tenants and their employees and visitors so long
as the same shall be adopted after prior notice to tenants and in any event:
consistent with and in furtherance of the operation of the Building as a
first-class, multi-tenant office building; not inconsistent with any of the
provisions of, or materially affect any of the costs and expenses of tenant
under tenant's lease; and shall be uniformly applied to all tenants and
occupants of the Building. Such rules and regulations, when made and written
notice given to a tenant, shall be binding upon such tenant as if originally
herein prescribed from and after the date of notice to Tenant.
17. Tenants shall not make or permit any improper noises in the Building
or otherwise unreasonably interfere in any way with other tenants or persons
having business with them.
18. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from any tenant's leased premises or public areas,
regardless of whether such loss occurs when such area is locked against entry or
not.
35
<PAGE> 1
ANNEX L
AGREED GAAP PRINCIPLES AND PROCEDURES
The Closing GAAP Balance Sheet shall be prepared on basis in conformity with
accounting principles that are generally accepted for stock life insurance
companies as further specified below and in accordance with the following:
(1) the polices and practices provided for in Note 1 - Summary of
Significant Accounting Policies and Note 5 - Related Party
Transactions to the Financial Statements, as follows:
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements include certain operations of the
group life and accident and health insurance business of John Hancock Mutual
Life Insurance Company (John Hancock) and Cost Care, Inc., Hancock Association
Services Group and Tri-State, Inc. (the Group Benefits Operations or GBO). Cost
Care, Inc., Hancock Association Services Group and Tri-State, Inc. are wholly
owned, indirect subsidiaries of John Hancock, as defined in this agreement..
The GBO business is expected to be acquired pursuant to an agreement being
negotiated between John Hancock and WellPoint Health Networks, Inc. (see Note
7). GBO has transactions with affiliated companies, the terms and conditions of
which are determined by GBO and the members of the affiliated group. GBO
operating costs and expenses consist of direct costs, allocated costs, and
allocated corporate overhead. Accordingly, these financial statements might not
be indicative of the financial position and results of operations that would
have occurred had GBO operated as a nonaffiliated entity.
The combined financial statements of GBO have been prepared in conformity with
generally accepted accounting principles (GAAP), applied on a consistent basis,
for stock life insurance companies (stock life basis), which vary from statutory
accounting practices as prescribed or permitted by the Commonwealth of
Massachusetts Division of Insurance and the National Association of Insurance
Commissioners.
All significant intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
<PAGE> 2
OPERATIONS
GBO is not a legal entity but conducts group life and accident and health
insurance business through John Hancock and its subsidiaries. GBO principally
offers group life and accident and health insurance products and administrative
services to its group customers in all fifty states, the District of Columbia
and Puerto Rico.
For fully insured contracts, the policyholder elects either prospectively pooled
experience rated insurance or experience rated refund eligible insurance.
Further, the policyholder is offered fully funded or partially funded payment
options. The partially funded Minimum Premium Contract incorporates similar
insurance risks to GBO but with employer self-funding of claims, introducing
credit risk relating to employer funding. Administrative services contracts are
provided to self-insured plans whereby GBO provides the claims management and
processing service, and in many cases excess or stop-loss insurance. GBO also
provides a range of health care cost management services including pre-admission
review for in-patient hospital admission and preferred provider management to
insurance underwriters and private businesses for a predetermined, periodic fee
and on a fee-for-service basis.
GBO has dedicated sales, underwriting, actuarial, product development, premium
and claims operations, and systems support. Products are distributed through
group representatives, who are John Hancock employees, or through
intermediaries.
PENDING ACCOUNTING STANDARDS
In April 1993, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises" (Interpretation). The
Interpretation, as amended, is effective for 1996 annual financial statements
and thereafter, and will require life insurance companies to adopt all
applicable authoritative GAAP pronouncements in any general-purpose financial
statements that they may issue and describe as being in accordance with GAAP.
In January 1995, in response to Interpretation 40, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 120, "Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts." This Statement effectively establishes
generally accepted accounting principles, which are different from statutory
accounting principles, for mutual life insurance companies. Through December 31,
1995, statutory accounting practices were considered to be generally accepted
accounting principles for mutual life insurance companies.
SFAS No. 120 is effective for financial statements issued for fiscal years
beginning after December 15, 1995. Because the accompanying financial statements
of GBO have been prepared in conformity with GAAP for stock life insurance
companies, the adoption of the new pronouncements that define GAAP for mutual
life insurance companies is not expected to have a material effect on GBO's
results of operations or statements of assets and liabilities.
2
<PAGE> 3
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In those cases where it is determined that the carrying amount is
not recoverable, an impairment loss is recognized (the difference between the
cost and fair value of the asset). The Statement also requires long-lived assets
to be disposed of (e.g., real estate held for sale) to be carried at the lower
of cost or fair value less cost to sell and does not allow such assets to be
depreciated. This Statement is effective for 1996 financial statements. The
adoption of SFAS No. 121 is not expected to have a material effect on GBO's
results of operations or statements of assets and liabilities.
SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" was issued in June 1996, and is not expected to
have a material effect on GBO's results of operations or statements of assets
and liabilities.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, GBO adopted SFAS No. 112 "Employers' Accounting for
Postemployment Benefits," and established a liability for the costs and
obligations of benefits such as severance, disability, life insurance, and
health care to be paid to inactive or former employees. A transition obligation
of $2,910 thousand, net of taxes of $1,567 thousand, was recognized upon
adoption.
RECEIVABLE FROM JOHN HANCOCK
GBO is not a separate legal entity and does not have specifically identifiable
cash or investments. The receivable from John Hancock included in the
accompanying combined statements of assets and liabilities represents the
difference between GBO operating business assets and liabilities. It does not
bear a stated rate of interest. However, investment income is allocated to GBO
based on the portfolio investment income of the underlying general account
assets of John Hancock that support GBO's business. This Agreement provides for
the monetization of this receivable at Closing.
REVENUE RECOGNITION
Insurance premiums on fully insured and partially funded contracts are earned on
a pro-rata basis over the period in which services are obligated to be provided.
The portion of premiums not earned at the end of the period is recorded as
unearned insurance premiums.
Administrative service fees are earned on a pro-rata basis as the services are
performed.
3
<PAGE> 4
DIVIDENDS
Dividends for eligible contracts are based on premiums received in excess of
claims and expenses incurred. The dividend liability for completed policy years
is established based on policy year experience, while dividends for incomplete
policy years are established based on experience through the financial statement
date.
INCOME TAXES
John Hancock and certain of its affiliates, including the GBO operations, file a
consolidated federal income tax return. However, because GBO is not a separate
legal entity, a formal tax allocation agreement between John Hancock and GBO has
not been executed. For purposes of these financial statements, GBO has been
treated as a separate business of a mutual life insurance company for the
determination of the tax provision. Accordingly, income tax benefit is allocated
to GBO at 35% and is settled currently through the receivable from John Hancock.
The gross asset and liability balances relating to the future tax consequences
of temporary differences between the financial reporting and tax basis of assets
and liabilities are recorded at the John Hancock consolidated level. An equity
tax, applicable to mutual life insurance companies, has not been included in the
provision.
INTANGIBLE ASSETS
Intangible assets, which include noncompete agreements, long-term employment
contracts, capitalized software and other intangibles, are amortized using the
straight-line method over their estimated useful lives, which range from two to
forty years. Accumulated amortization was $18,253 thousand and $13,643 thousand
at December 31, 1995 and 1994, respectively.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property and equipment, principally composed of furniture and equipment, are
reported at depreciated cost. Depreciation is computed using the straight-line
method based upon the estimated useful lives of the assets. Leasehold
improvements are depreciated over the shorter of the lease term or the estimated
useful life.
FUTURE POLICY BENEFITS AND EXPENSES
Future policy benefits for group life and accident and health contracts have
been computed using interest rates ranging from 2.5% to 8.42%, and mortality,
morbidity, and withdrawal assumptions based on GBO's experience and industry
standards.
Liabilities for unpaid claims and claim expenses include estimates of payments
to be made on reported life and accident and health insurance claims and
estimates of incurred but not reported claims based on historical claims
development patterns.
4
<PAGE> 5
Estimates of future policy benefit reserves, claim reserves and expenses are
reviewed continually and adjusted as necessary; such adjustments are reflected
in current operations. Although considerable variability is inherent in such
estimates, management believes that future policy benefit reserves, claim and
expense reserves are adequate.
PAYABLE TO AFFILIATE
Payable to affiliate represents the amount due to John Hancock principally as a
result of intercompany expense allocations.
REINSURANCE
All assets and liabilities related to reinsurance ceded contracts are reported
on a gross basis in the accompanying statements of assets and liabilities. The
accompanying statements of operations reflect premiums, benefits and expenses
net of reinsurance ceded.
GBO assumes and cedes reinsurance and participates in various pools and
associations. The portion of risks that exceeds GBO's retention limits is
reinsured with other insurers. GBO also obtains other reinsurance coverages with
retentions and limits that management believes are appropriate for the
circumstances. Those reinsurance agreements provide for greater diversification
of business, allow management to control exposure to potential losses arising
from large risks and provide additional capacity for growth. Amounts recoverable
from reinsurers are estimated in a manner consistent with the future policy
benefit and claim liabilities associated with the reinsured policies.
Reinsurance premiums, commissions, expense reimbursements, benefits and reserves
related to reinsured business are accounted for on bases consistent with those
used in accounting for original policies issued and the terms of the reinsurance
contracts.
RESTRUCTURING CHARGES
In 1994, the GBO recorded a $34,722 thousand restructuring charge in accordance
with its plans to reduce its cost structure and consolidate operations. This
charge included accruals for severance and related benefits for staff
reductions, property lease terminations, and the write-off of certain assets.
The restructuring liability is settled through the receivable from John Hancock.
The remaining balance of the restructuring liability at December 31, 1995 and
1994 was $7,915 thousand and $23,362 thousand, respectively. The majority of the
remaining balance relates to deferred benefits for terminated employees and
leases.
5
<PAGE> 6
NOTE 5--RELATED PARTY TRANSACTIONS
The various related party transactions between John Hancock and GBO are
summarized below:
OPERATING EXPENSES: John Hancock provides GBO with personnel, property and
facilities including certain services such as investment management, legal,
financial and administrative support. GBO is charged for these services
utilizing various methods of expense allocation which are primarily based on
time incurred, ratios of direct and indirect expenses, square footage occupied,
or allocated in pro rata relationship to other business units of John Hancock.
Management believes the methods used to allocate such costs are reasonable.
Operating expenses allocated to GBO amounted to $189,883 thousand and $193,060
thousand in 1995 and 1994, respectively.
Investment Income and Receivable from John Hancock: GBO is not a separate legal
entity and does not have specifically identifiable cash or investments. The
receivable from John Hancock included in the accompanying combined statements of
assets and liabilities represents the difference between GBO operating business
assets and liabilities. The fair value of the receivable from John Hancock
approximates its carrying value at December 31, 1995 and 1994.
GBO is allocated investment income based on the portfolio income of the
underlying general account assets of the John Hancock that support GBO's
business. Investment income allocated to GBO was $35,374 thousand and $41,040
thousand in 1995 and 1994, respectively.
BENEFIT PLANS: Eligible employees of John Hancock participate in various types
of pension plans sponsored by John Hancock which include defined benefit,
defined contribution and nonqualified plans. Pension benefits under the defined
benefit plans are based on years of service and average compensation, generally
during the five years prior to retirement. John Hancock's funding policy for
qualified defined benefit plans is to contribute annually an amount in excess of
the minimum annual contribution required under the Employee Retirement Income
Security Act (ERISA). This amount is limited by the maximum amount that can be
deducted for federal income tax purposes. Plan assets consist principally of
listed equity securities, corporate obligations and U.S. government securities.
GBO is allocated its proportionate share of expense based on John Hancock's
intercompany expense allocation methodology. John Hancock also has various
defined contribution plans, nonqualified plans and additional compensation plans
covering its employees and agents. GBO is allocated a share of the expenses
related to the plans pursuant to John Hancock's intercompany expense allocation
methodology. John Hancock also provides certain life and accident and health
insurance benefit plans covering most of its retired employees and general
agency personnel. GBO is allocated its proportionate share of these expenses.
Total benefit plan expense allocated to GBO was $14,186 thousand and $14,515
thousand for 1995 and 1994, respectively.
6
<PAGE> 7
GBO has issued certain group life and accident and health insurance contracts to
cover employees of John Hancock. Premiums, benefits (including the provision for
future benefits), and reserves included in the combined statements of operations
and changes in net asset balance and combined statements of assets and
liabilities associated with the coverage approximates $23,978 thousand, $24,154
thousand, and $53,706 thousand, in 1995, respectively. The corresponding amounts
in 1994 were $18,903 thousand, $19,487 thousand, and $59,270 thousand,
respectively.
(2) the following reserve development procedures and methods used
with respect to the GBO Included Business Reserves as of the
Closing Date:
GENERAL COMMENTS
The reserve development processes described here were those used to establish
12/31/93 through 12/31/95 reserves. The 1996 reserves were established using the
same methods, which were consistently applied throughout the period. Knowledge
of exceptional and unusual circumstances is taken into account when reserves are
established ( e.g., when a known claim has not yet been entered into the
reporting system). However, certain situation specific reserves have been
released during 1995 and 1996 and are summarized herein.
Two distinct valuation methods are generally accepted actuarial practice as
described in ASOP #5. Each of these methods are applied to appropriate
liabilities described herein. The two methods are developmental and seriatim
(tabular). The developmental method reflects emerging experience from prior
periods, while the seriatim method is based on defined mortality or morbidity
tables and valuation interest rates.
Unless otherwise noted, GAAP and statutory reserves are equal. Valuation bases
as of 12/31/95 are shown in Exhibit 1 for statutory and GAAP reserves that
differ. Prior to 1995, SIB reserves for GBS and Association on a GAAP basis were
a mixture of statutory and tax valuation bases. This change increased the GAAP
reserves by $800,000.
Completion analysis and annual factor development are all based on 12/31/XX
runouts. This process ignores possible seasonality in generating reserves.
With the exception of Ford reserves, the triangulation reserves, the life IBNR
and the AD&D IBNR are all developed using claim data up to the end of the month
preceding the valuation date; i.e., December 31, reserves are developed from
claims paid up to November 30th. Ford reserves are based on data through the end
of the valuation month.
7
<PAGE> 8
LIFE INSURANCE RESERVES (EXHIBITS 8, 10 & 11)
GROUP PAID-UP LIFE INSURANCE
These are paid-up life insurance benefits issued in accordance with group
paid-up life policies. Benefits are payable upon death of the insured. The
amount of individual benefits is determined by incremental purchases of paid-up
coverage over the years the group plan has been inforce. Reserves are determined
by a seriatim reserve calculation. The valuation basis differs according to the
issue years of each increment of paid-up coverage. There are five different
reserve bases (see Exhibit 1) depending on year of issue. Cash surrender values
are available under the terms of the paid-up certificates. These surrender
values are only available after an employee leaves the active employment of the
group policyholder.
GROUP UNIVERSAL LIFE INSURANCE
These are life insurance benefits issued under a group universal life-type plan.
Individual account balances are used to provide insurance for death benefits.
The death benefit varies according to the terms of the plan and the amounts
contributed by individual enrollees. Seriatim reserves are established equal to
the individual account balances. Account balances are available as cash
surrender values.
WAIVER OF PREMIUM BENEFITS
These benefits provide for continuation of Group Life coverage to disabled
individuals under the terms of their group life insurance plan. The period for
which coverage is continued and the amount of coverage vary according to the
terms of the plan. Benefits are payable upon the death of the insured during the
period of disability. Reserves are established upon disability. There are no
surrender options, and benefits cannot be commuted. This is a seriatim reserve
calculation for reported waiver claims. There are four different statutory
reserve bases (see Exhibit 1) depending on year of disability. There are
thirteen different GAAP reserve bases (see Exhibit 1) depending on year of
disability.
The reserve for unreported claims is on the developmental method using annual
(as opposed to monthly or quarterly) lags, with completion assumed after four
years. The completion factors are applied to premium for the most recent year
and to reserves for the prior three years.
LIFE UNEARNED PREMIUM RESERVE
The reserve is the prorata portion of premiums between the valuation date and
the next premium due date.
8
<PAGE> 9
SURVIVOR INCOME (SIB) BENEFITS
(SUPPLEMENTARY CONTRACTS WITH LIFE CONTINGENCIES)
These contracts are immediate annuities issued to a surviving spouse or the
children of a plan participant upon the death of the participant in certain
group plans. The terms of the annuities vary according to the group plan. While
some of the contracts are guaranteed for life, some are for a limited period
such as two years or until the spouse reaches a specified age such as
sixty-five. Under certain group plans, the remarriage of the annuitant
disqualifies the annuitant from receiving further benefits. All of these
contracts involve life contingencies.
The amount of the benefit also depends on the particular group coverage. In some
cases, the benefit is fixed at issue and does not change. In some cases, part of
the benefit is attributed to surviving children of the participant and decreases
upon a child's attainment of a specified age, such as 18 or 21. Some group
contracts offset the annuity benefit for Social Security.
Annuity payments are made monthly. Reserves are established when the annuity
begins, upon the death of a covered plan participant. There are no surrender
options under these contracts, and benefits cannot be commuted. The reserve for
established claims is a seriatim calculation. There are six statutory reserve
bases (see Exhibit 1) depending on date of death. There are six GAAP valuation
bases (see Exhibit 1) depending on date of death and type of benefit.
The reserve for unreported claims is developed from annual lags, with the
completion assumed in one year, and with the completion factor applied to
reserve. The factor used is the higher of the most recent years completion
factor and the average of the last three years' factors.
SUPPLEMENTARY CONTRACTS WITHOUT LIFE CONTINGENCIES
These are monthly annuity benefits payable to survivors as a result of the death
of an insured under certain group term life plans. Certain approved Permanent
and Total Disability benefits in payment status are also included. Benefit
amounts and payment durations vary. No contingencies are involved, so the
reserve is simply future benefits discounted for interest. The interest rates
for the survivor benefits, which are the bulk of the reserves, are 8% from 1985
to 1992, 5% for 1993 & 1994 and 6% for 1995. This is a seriatim calculation.
There are no unreported claims.
PERMANENT AND TOTAL DISABILITY (PTD) BENEFITS
These are monthly benefits payable to disabled individuals for a fixed period,
which reduce the death benefit otherwise provided by the insured's group life
plan. The benefit amounts and payment periods vary according to the terms of the
plan. Reserves are established upon disability. There are no surrender values.
Remaining benefit payments may be commuted upon the death of the disabled
insured. This is a seriatim calculation for reported disability claims. There
are two reserve bases (see Exhibit 1) depending on when disability began.
9
<PAGE> 10
The reserve for unreported claims is based on the development method. The bulk
of this reserve is for the Ford case, where PTD coverage eligibility follows a
period on LTD. The reserve for unreported claims for Ford arises from the one
year waiting period for LTD, and is estimated from prior years' incurrals.
LIFE PENDING CLAIM RESERVE
This is a reserve for reported life claims that have not been paid. The reserve
is equal to the sum of these claims. Resisted claims are included at 50% of
amount of claim based on historical experience.
LIFE INCURRED BUT NOT REPORTED CLAIM RESERVE
This is a reserve for death claims where death has occurred but claim has not
been reported. The development method reserve is calculated as a factor
multiplied by last three months paid claims. The factor is developed from prior
years run-out. For each year a factor equal to run-out divided by last three
months paid claims from preceding year is developed. The factor used is the
greater of the most recent years factor, or the factor equal to average of last
three years factors.
GUARANTEED ACCESS ACCOUNTS
These are death benefits under certain group life plans which have been left on
deposit with the company. Beneficiaries may withdraw amounts at any time by
writing checks against their account balances. Liabilities equal the account
balances.
DIVIDENDS TO ACCUMULATE
These are policyholder dividends which are left on deposit with the Company.
A&H CLAIM RESERVES (EXHIBITS 9 & 11)
AD&D PENDING
This is a reserve for reported AD&D claims that have not been paid. The reserve
is equal to the sum of these claims. Resisted claims are included at 50% of
amount of claim based on historical experience.
AD&D INCURRED BUT NOT REPORTED
This is a reserve for AD&D claims where death has occurred but claim has not
been reported. The development method reserve is calculated as a factor
multiplied by last 12 months paid claims. The factor is developed from prior
years run-out. For each year a factor equal to run-out divided by last calendar
year's paid claims is developed. The factor used is the greater of the most
recent years factor, or the factor equal to average of last three years factors.
10
<PAGE> 11
TRIANGULATION RESERVES
These reserves are for short term disability, dental and medical coverages and
group conversion. The developmental reserves are determined from last three
years experience by the triangulation method. Exhibit 2 shows which triangles
are developed. Claims are divided by incurral month, with completion factors
developed for each month. Judgmental adjustments are made to reflect special
circumstances such as large claims or extra backlog, and for the most recent
months where credible runout is not yet available. The reserve for all medical
coverages has a 5% load for extended benefits.
LONG TERM DISABILITY (LTD) BENEFITS
These benefits are payable monthly to disabled individuals under the terms of
group LTD plans. Some plans pay benefits to a specified age such as sixty-five,
or according to a fixed duration schedule, during the continuance of disability
as defined in the plan. Benefit amounts depend on the particular group plan, and
are usually offset for Social Security. Benefits are payable monthly after an
elimination period which varies by group plan. Reserves are established upon
disability (considering Incurred and Unreported reserves). The reserves are
based on a seriatim calculation. There are three valuation bases (prior to
7/1/84 6% with 64 CDT: 7/1/84 - 12/31/92 7.5% with 64 CDT and 1/1/93 and later
5% with 87 GLTD with modification for first 2 years). The development reserve
for incurred but not reported claims is based on completion factors from the
last four completed years. All claims are assumed to be reported in three years,
so the completed years used are the current year minus six through current year
minus three. Annual lag periods are used, with completion factors applied to
reserves.
A&H UNEARNED PREMIUM RESERVE
This reserve is the prorata portion of premium between the valuation date and
the next premium due date.
SPECIAL RESERVES
Stoploss - This reserve is for pending and IBNR claims under stoploss coverages.
Pending claims are based on actual reported claims while IBNR claims are
estimated using loss ratios from historical experience for prior year incurrals
and pricing loss ratios for the current year incurrals. The loss ratio times
earned premium minus reported claims equals the unreported reserve.
Mini Excess - This reserve is for amounts owed to Minimum Premium or Planned
Funding clients as a result of actual claims exceeding the claim liability limit
to date.
Group Health Conversions - This reserve is for expected future losses under the
group conversion line due to inadequate premium. The reserve equals 40% of
future projected premiums, currently discounted at 6.25%.
11
<PAGE> 12
Supp State Plans- This reserve is for assessments under supplemental state
disability plans under New York and New Jersey and is determined by applying a
factor (5% for NY and 10% for NJ) to the premium earned for those states.
Missing Tapes - This reserve is for known health claims not yet recorded on our
claim system due to late submission of claim tapes from Third Party
Administrators.
FASCO / Hackett - This reserve is for pending and IBNR claims under special
reinsurance arrangements. Loss ratios are used for the most recent 12 month
period, with completion factors for prior periods. Reserves are based on monthly
reporting periods for FASCO and quarterly for Hackett. These reserves are 95%
ceded. This reserve can fluctuate due to the delay in reporting paid claims.
Mini Terminal Premium - This reserve is the reserve held for Minimum Premium or
Planned Funding clients who have chosen to deposit reserve funds with John
Hancock.
Litigation - This was for possible loss in a litigation in the FASCO case. This
reserve was released during 1996 as a result of favorable court ruling.
AIDS - This reserve was initially established to cover claims due to AIDS. The
life reserve was released in 1995 and the health reserve in 1996 as our general
IBNR reserves have been shown to be adequate without the inclusion of an
additional reserve.
Two Year Average - This reserve was for possible additional A&H lag claims not
projected by the triangulation runout factors. This reserve was released during
1995 since our general IBNR claims have been shown to be adequate.
A&H Resisted Claims - This reserve is for A&H resisted claims.
OTHER LIABILITIES
CLAIM STABILIZATION RESERVES (CSRS)
These are amounts held under certain group life and/or A&H contracts to provide
for contingencies of claim fluctuation. CSR liabilities are subject to
withdrawal upon the termination of their associated policies, or earlier as an
additional dividend payment.
DIVIDENDS DUE & UNPAID AND APPORTIONED
For participating group policyholders, dividends are the difference between
earned premium and all incurred claims and expenses. The reserves used in the
dividend liability estimate are dividend basis reserves (see Exhibit 1).
Liabilities for Due & Unpaid dividends are determined for completed policy years
for participating group policyholders. Apportioned dividend liabilities are
estimated based on incomplete policy years.
12
<PAGE> 13
EXHIBIT 1
Summary of Life Reserve Valuation Bases where Valuation Bases Differ
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Statutory Tax
Coverage Incurral Date Valuation Basis Incurral Date Valuation Basis Incurral Date
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deaths pre 7/1/72 1960 CSG @ 3.5% Deaths pre 1/1/75 1951 GA @ 3.50% Deaths pre 7/1/72
SIB 7/1/72 - 12/31/79 1937 SA @ 3.50% 1/1/75 - 12/31/79 1971 GA @ 6.00% 7/1/72-6/30/73
1/1/80 - 12/31/87 1937 SA @ 4.50% 1/1/80 - 12/31/82 1971 GA @ 7.50% 7/1/73 - 12/31/92
1/1/88 - 12/31/92 1983 GA @ 6.25% 1/1/83 - 12/31/84 1971 GA @ 11.25% T&B
1/1/93 - 12/31/94 1983 GA @ 5.00% 1/1/85 - 12/31/85 1971 GA @ 11.00% G&C
1/1/95 & Later 1983 GA @ 6.00% 1/1/86 - 12/31/86 1983 GA @ 9.25%
1/1/87 - 12/31/87 1983 GA @ 8.00% 1/1/93 - 12/31/94
1/1/88 - 12/31/89 1983 GA @ 8.75% 1/1/95 & Later
1/1/90 - 12/31/90 1983 GA @ 8.37%
1/1/91 - 12/31/91 1983 GA @ 8.42%
1/1/92 - 12/31/92 1983 GA @ 8.40%
1/1/93 - 12/31/93 1983 GA @ 8.10%
1/1/94 - 12/31/94 1983 GA @ 7.45%
1/1/95 - 12/31/95 1983 GA @ 7.25%
1/1/96 - 12/31/96 1983 GA @ 6.63%
Note: AFR for 1995 is 6.99% but prevailing state rate is higher
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Waiver Disabilities prior 1970 Intercompany Group Disabilities prior 1970 Intercompany Grp Disabilites pre 1/1/75
of to 1/1/88 Life Disability Table to 1/1/88 Life Disability Table 1/1/75 - 12/31/79
Premium @ 3.5% @ 3.5% 1/1/80 - 12/31/82
Disabilities between 1970 Intercompany Group Disabilities between 1970 Intercompany Grp 1/1/83 - 12/31/86
1/1/88 - 12/31/92 Life Disability Table 1/1/88 - 12/31/92 Life Disability Table 1/1/87 - 12/31/87
@ 5.5% @ 5.5% 1/1/88 - 12/31/88
Disabilities on or 1970 Intercompany Group Disabilities on or 1970 Intercompany Group 1/1/89 - 12/31/89
1/1/93 - 12/31/94 Life Disability Table 1/1/93 - 12/31/94 Life Disability Table 1/1/90 - 12/31/90
@ 5.0% @ 5.0% 1/1/91 - 12/31/91
Disabilities on or 1970 Intercompany Group Disabilities on or 1970 Intercompany Group 1/1/92 - 12/31/92
after 1/1/95 Life Disability Table after 1/1/95 Life Disability Table 1/1/93 - 12/31/93
@ 4.5% @ 4.5% 1/1/94 - 12/31/94
1/1/95 - 12/31/95
Reserves loaded 5% Reserves loaded 5%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Paid Up Purchases prior 1941 CSO @ 2.5% Purchases prior 1941 CSO @ 2.5% Purchases prior
to 1/1/61 to 1/1/61 to 1/1/61
1/1/61 & Later 1958 CSO @ 3.0% 1/1/61 & Later 1958 CSO @ 3.0% 1/1/61 & Later
7/1/68 - 6/30/84 1958 CSO @ 3.5% 7/1/68 - 6/30/84 1958 CSO @ 3.5% 7/1/68 - 6/30/84
7/1/85 - 6/30/89 1980 CSO @ 4.5% 7/1/85 - 6/30/89 1980 CSO @ 4.5% 7/1/85 - 6/30/89
7/1/89 & Later 1980 CSO @ 5.0% 7/1/89 & Later 1980 CSO @ 5.0% 7/1/89 & Later
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PTD Disabilities prior 1964 CDT @ 2.5% Disabilities prior 1964 CDT @ 2.50% Disabilities prior
to 1/1/77 to 1/1/77 to 1/1/77
1/1/77 & Later 1964 CDT @ 3.5% 1/1/77 - 12/31/87 1964 CDT @ 3.50% 1/1/77 & Later
1/1/88 - 12/31/88 1964 CDT @ 7.77%
Reserves loaded 5% 1/1/89 - 12/31/89 1964 CDT @ 8.16%
1/1/90 - 12/31/90 1964 CDT @ 8.37%
1/1/91 - 12/31/91 1964 CDT @ 8.42%
1/1/92 - 12/31/92 1964 CDT @ 8.40%
1/1/93 - 12/31/93 1964 CDT @ 8.10%
1/1/94 - 12/31/94 1964 CDT @ 7.45%
1/1/95 - 12/31/95 1964 CDT @ 6.99%
1/1/96 - 12/31/96 1964 CDT @ 6.63%
Reserves loaded 5%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
GAAP * Dividend
Coverage Valuation Basis Incurral Date Valuation Basis
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
1960 CSG @ 3.50% Deaths pre 7/1/72 1960 CSG @ 3.50%
SIB 1959-61 USWF @5.5% 7/1/72-6/30/73 1959-61 USWF @ 5.5%
1959-61 USWF 7/1/73 - 12/31/92 1959-61 USWF
5.50% T&B 5.50%
6.75% G&C 6.75%
Ford 5.50%
1983 GA @ 5.00% 1/1/93 - 12/31/94 1983 GA @ 5.00%
1983 GA @ 6.00% 1/1/95 & Later 1983 GA @ 6.00%
Note: AFR for 1995 is 6.99% but prevailing state rate is higher
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Waiver 1970 Interco @ 3.50% Prior to 1/1/93 1970 Intercompany Grp
of 1970 Interco @ 4.00% Disability Table @ 3.5%
Premium 1970 Interco @ 4.50% Loaded 8%
1970 Interco @ 6.00%
1970 Interco @ 5.50% 1/1/93 - 12/31/94 1970 Intercompany Grp
1970 Interco @ 7.77% Disability Table @ 5.0%
1970 Interco @ 8.16% Loaded 8%
1970 Interco @ 8.37%
1970 Interco @ 8.42% 1/1/95 & Later 1970 Intercompany Grp
1970 Interco @ 8.40% Disability Table @ 4.5%
1970 Interco @ 8.10% Loaded 8%
1970 Interco @ 5.00%
1970 Interco @ 4.50%
Reserves loaded 5%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Paid Up 1941 CSO @ 2.5% Purchases prior 1941 CSO @ 2.5%
to 1/1/61
1958 CSO @ 3.0% 1/1/61 & Later 1958 CSO @ 3.0%
1958 CSO @ 3.5% 7/1/68 - 6/30/84 1958 CSO @ 3.5%
1980 CSO @ 4.5% 7/1/85 - 6/30/89 1980 CSO @ 4.5%
1980 CSO @ 5.0% 7/1/89 & Later 1980 CSO @ 5.0%
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
PTD 1964 CDT @ 2.5% I&U calculated as 12% of premium
Pending claims charged at full face
1964 CDT @ 3.5% amount. Note: no extended reserves
Reserves loaded 5% Benefits paid by Retail Annuities
- -----------------------------------------------------------------------------
</TABLE>
* Note: For John Hancock case, GAAP = Stat = Dividend
for all years For Ford, GAAP = Dividend for all years
For Association, SIB GAAP = Stat
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<PAGE> 14
Exhibit 2 - Triangulation
Triangulation reserves are developed separately for the following:
Group Benefit Services
Group Conversions
John Hancock General Agents
John Hancock
Commonwealth of Massachusetts
Ford
Ferco
Ford PPO
Association (separately by case for approximately 22 cases as of 1st qtr, 1996)
For each of the above, reserves are developed for each of the following
coverages (if applicable):
Short Term Disability (A&S)
Maternity
Basic
Supplemental Major Med (John Hancock Base)
Supplemental Major Med (Non-John Hancock Base)
Comprehensive Major Med
Miscellaneous Health (Vision, Drug, Executive Medical)
Dental
14
