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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) 3/1/97
------------------------------
WellPoint Health Networks Inc.
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(Exact Name of Registrant as Specified in Charter)
California 1-14340 95-3760980
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
21555 Oxnard Street, Woodland Hills, California 91367
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (818) 703-4000
------------------------
Not applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 1, 1997, WellPoint Health Networks Inc., a California
corporation (the "Company"), completed its acquisition of certain portions of
the group health and related life businesses (the "GBO Operations") of John
Hancock Mutual Life Insurance Company ("Hancock") for an aggregate purchase
price of $86.7 million.
In connection with the transaction, UNICARE Life & Health Insurance
Company, a Delaware stock life insurance company and a wholly owned indirect
subsidiary of the Company ("UNICARE"), has acquired certain assets and
assumed certain liabilities of the GBO Operations. In addition, UNICARE has
acquired the stock of certain subsidiaries of Hancock which are part of the
GBO Operations (including Cost Care, Inc. ("Cost Care")).
Pursuant to the terms of the definitive agreement between the Company
and Hancock (the "Purchase Agreement"), there will be a purchase price
adjustment based on a post-closing audit of the March 1, 1997 balance sheet
(the "Closing Balance Sheet") to be prepared reflecting all the assets and
liabilities acquired in the transaction. The Company will be required to pay
the amount of the excess, if any, of the assets acquired over the liabilities
assumed to Hancock and Hancock will be required to pay to WellPoint the
amount of any excess, if any, of assumed liabilities over 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" between the parties. It is currently
anticipated that this post-closing audit will be completed on or before
August 31, 1997. 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 the date of signing of the
Purchase Agreement.
Hancock and UNICARE have entered into a Coinsurance Agreement pursuant
to which UNICARE has reinsured, 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 Operations policies issued on behalf of UNICARE during a
24-month or 30-month transition period (depending of the type of coverage)
following the closing. Policies existing as of the Closing Date that are
subject to such reinsurance include only those that were 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 certain transition GBO Operations policies on behalf of UNICARE for
such 24-month or 30-month period while UNICARE obtains any necessary licenses
and form approvals to issue such policies in its own name.
UNICARE and Hancock have also entered into an Administration Agreement
and a Services Agreement. The Administration Agreement provides that UNICARE
will perform certain administration services with respect to the coinsured
policies, administrative services contracts and certain provider network
contracts in order to facilitate the transition of the GBO Operations from
Hancock to UNICARE. 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 related to
the contracts being administered. The Service Agreement provides for
computer and other support services to be provided by Hancock to UNICARE for
up to the 24-month period immediately following the closing of the
transaction.
Finally, a Limited License Agreement between UNICARE and Hancock
executed as part of the closing entitles 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.
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The consideration for the transaction was provided by the Company's
available cash balances, although the Company anticipates making a borrowing
under the Company's Subordinated Term Loan Agreement dated as of November 21,
1996 in the amount of at least the full acquisition consideration. The amount
of the consideration for the transaction was determined by arm's-length
negotiation between the Company and Hancock.
Prior to the transaction, there were no material relationships between
Hancock and the Company or any of its affiliates, any director or officer of
the Company, or any associate of any such director of officer.
As of December 31, 1996 the GBO Operations provided benefits to
approximately 1.3 million medical members, most of which were in health
plans that are self-funded by employers. The GBO Operations offer managed
indemnity and preferred provider organization ("PPO") plans, and also provide
life, dental and disability coverage to a variety of employer groups. The
GBO Operations focus on the largest employer groups, accounts with greater
than 3,000 employees. A majority of the GBO Operations members are
located in California, Texas, Georgia, the mid-Atlantic/Washington, D.C.
area, Massachusetts, the New York/Tri-state area, Ohio, Illinois and
Michigan. In addition to the medical members, as of December 31, 1996, the
GBO Operations served approximately 270,000 pharmacy members, approximately
1.5 million dental members, approximately 1.0 million life insurance members
and approximately 940,000 members covered through disability products. As of
December 31, 1996, the GBO Operations had approximately 2,900 employees.
Cost Care, a wholly owned subsidiary of Hancock, provides utilization review
services.
Certain statements contained in this Current Report on Form 8-K, such as
statements concerning the Company's anticipated borrowings under the
Subordinated Term Loan Agreement, may be considered forward-looking statements
(as such term is defined in the Securities and Exchange Act of 1934, as
amended). Such statements involve a number of risks and uncertainties that may
cause actual results to differ from those projected. Factors that can cause
actual results to differ materially include, but are not limited to those
discussed in the section of the Company's Quarterly Reports on Form 10-Q
entitled "External Influences Which May Impact Future Operations," the Company's
1995 Annual Report to Stockholders and in other documents filed from time to
time with the Securities and Exchange Commission. Such factors also include
those discussed under the section entitled "Risk Factors" in the Company's
Registration Statement on Form S-3 (Registration No. 333-14885). Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
All of the following financial statements were filed as part of the
Company's Amendment No. 1 on Form 8-K/A filed November 18, 1996 and are
incorporated herein by this reference.
AUDITED COMBINED FINANCIAL STATEMENTS
-------------------------------------
Report of Independent Accountants
Combined Statements of Assets and Liabilities as of December 31, 1995
and 1994
Combined Statements of Operations and Changes in Net Asset Balance for
the years ended December 31, 1995 and 1994
Combined Statements of Cash Flows for the years ended December 31,
1995 and 1994
Notes to Combined Financial Statements
UNAUDITED COMBINED FINANCIAL STATEMENTS
---------------------------------------
Combined Statement of Assets and Liabilities as of September 30, 1996
Combined Statement of Operations and Changes in Net Asset Balance for
the nine months ended September 30, 1996
Combined Statement of Cash Flows for the nine months ended September
30, 1996
Notes to Combined Financial Statements (Unaudited)
(b) PRO FORMA FINANCIAL INFORMATION:
All of the following unaudited pro forma financial statements were
filed as part of the Company's Amendment No. 1 on Form 8-K/A filed November
18, 1996 and are incorporated herein by this reference.
Pro Forma Combined Condensed Balance Sheet as of September 30, 1996
Pro Forma Combined Condensed Income Statement for the nine months
ended September 30, 1996
Pro Forma Combined Condensed Income Statement for the year ended
December 31, 1995
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(c) EXHIBITS
EXHIBIT NO. EXHIBIT
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2.1 Purchase and Sale Agreement dated as of October 10, 1996
entered into between Hancock and the Company (Included as
Exhibit 2.1 to the Company's Current Report on Form 8-K
filed October 25, 1996
4
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and incorporated by reference herein).
99.1 Definitions (Annex A to Purchase Agreement) (Included as
Exhibit 99.1 to the Company's Current Report on Form 8-K
filed October 25, 1996 and incorporated by reference
herein).
99.2 Coinsurance Agreement dated as of March 1, 1997 between
Hancock and UNICARE Life & Health Insurance Company, a stock
life insurance company organized under the laws of Delaware
("UNICARE").
99.3 Administration Agreement dated as of March 1, 1997 by and
between Hancock and UNICARE.
99.4 Summary of Accounting Principles and Procedures (Included as
Exhibit 99.8 to the Company's Current Report on Form 8-K
filed October 25, 1996 and incorporated by reference
herein).
5
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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.
Dated: March 14, 1997
WELLPOINT HEALTH NETWORKS INC.
By: /s/ THOMAS C. GEISER
----------------------------------
Name: Thomas C. Geiser
Title: Executive Vice President
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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2.1 Purchase and Sale Agreement dated as of October 10, 1996
entered into between Hancock and the Company (Included as
Exhibit 2.1 to the Company's Current Report on Form 8-K
filed October 25, 1996 and incorporated by reference
herein).
99.1 Definitions (Annex A to Purchase Agreement) (Included as
Exhibit 99.1 to the Company's Current Report on Form 8-K
filed October 25, 1996 and incorporated by reference
herein).
99.2 Coinsurance Agreement dated as of March 1, 1997 between
Hancock and UNICARE Life & Health Insurance Company, a stock
life insurance company organized under the laws of Delaware
("UNICARE").
99.3 Administration Agreement dated as of March 1, 1997 by and
between Hancock and UNICARE.
99.4 Summary of Accounting Principles and Procedures (Included as
Exhibit 99.8 to the Company's Current Report on Form 8-K
filed October 25, 1996 and incorporated by reference
herein).
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EXHIBIT 99.2
COINSURANCE AGREEMENT
between
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
and
UNICARE LIFE & HEALTH INSURANCE COMPANY
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TABLE OF CONTENTS
Page
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----
ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II. REINSURANCE CLOSING; CONDITIONS TO REINSURANCE CLOSING. . . 9
2.1 Reinsurance Closing. . . . . . . . . . . . . . . . . . . . . . 9
2.2 Conditions to Reinsurance Closing. . . . . . . . . . . . . . . 9
ARTICLE III. COINSURED POLICIES . . . . . . . . . . . . . . . . . . . . 10
3.1 Coinsured Policies . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Liability of Reinsurer . . . . . . . . . . . . . . . . . . . . 10
3.3 Regulatory Filings and Approvals . . . . . . . . . . . . . . . 11
ARTICLE IV. GBO EXCLUDED BUSINESS . . . . . . . . . . . . . . . . . . . 11
4.1 Coinsurance Agreement Inapplicable to GBO Excluded Business. . 11
4.2 Company's Indemnification for GBO Excluded Business. . . . . . 11
ARTICLE V. EXISTING GBO POLICIES. . . . . . . . . . . . . . . . . . . . 11
5.1 Reinsurance of Existing GBO Policies at Effective Time . . . . 11
5.2 Value of Reserves. . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Reinsurer's Indemnification for Existing GBO Policies. . . . . 12
5.4 Company's Indemnification for Existing GBO Policies. . . . . . 12
ARTICLE VI. TRANSITION GBO POLICIES . . . . . . . . . . . . . . . . . . 12
6.1 Issuance of Transition GBO Policies by the Company . . . . . . 12
6.2 Reinsurance of Transition GBO Policies . . . . . . . . . . . . 13
6.3 Reinsurer's Indemnification for Transition GBO Policies. . . . 13
6.4 Company's Indemnification for Transition GBO Policies. . . . . 13
6.5 Maintenance of Licenses. . . . . . . . . . . . . . . . . . . . 14
6.6 Limitations on Writing of Transition GBO Policies. . . . . . . 14
ARTICLE VII. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 15
7.1 Reinsurer's Recordation of Liabilities . . . . . . . . . . . . 15
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Page
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7.2 Administration . . . . . . . . . . . . . . . . . . . . . . . . 15
7.3 Authorized Representatives . . . . . . . . . . . . . . . . . . 15
7.4 Maintenance and Inspection of Records. . . . . . . . . . . . . 16
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 . . . . . . . . 17
7.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII. CONSIDERATION FOR REINSURANCE AND POLICY PREMIUMS . . . . 18
8.1 Assets to be Transferred at Effective Time . . . . . . . . . . 18
8.2 Transition GBO Policies. . . . . . . . . . . . . . . . . . . . 18
8.3 Policy Premiums and Other Amounts. . . . . . . . . . . . . . . 18
ARTICLE IX. BENEFITS AND OTHER PAYMENTS BY REINSURER. . . . . . . . . . 18
9.1 Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.3 Claims Payments. . . . . . . . . . . . . . . . . . . . . . . . 19
9.4 Remittance of Third Party Reinsurance. . . . . . . . . . . . . 19
9.5 Allowance for Commissions and Expenses . . . . . . . . . . . . 20
9.6 Experience Rating Refunds. . . . . . . . . . . . . . . . . . . 20
ARTICLE X. DUTY OF COOPERATION. . . . . . . . . . . . . . . . . . . . . 20
10.1 Duty of Cooperation . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XI. ACCOUNTING AND SETTLEMENT . . . . . . . . . . . . . . . . . 21
11.1 Remittances. . . . . . . . . . . . . . . . . . . . . . . . . . 21
11.2 Quarterly Report . . . . . . . . . . . . . . . . . . . . . . . 21
11.3 Amounts Due Either Party . . . . . . . . . . . . . . . . . . . 21
11.4 Interest on Delayed Payments . . . . . . . . . . . . . . . . . 21
ARTICLE XII. DURATION AND TERRITORY . . . . . . . . . . . . . . . . . . 22
12.1 Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.2 Reinsurer's Liability. . . . . . . . . . . . . . . . . . . . . 22
12.3 Territory. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XIII. INSOLVENCY. . . . . . . . . . . . . . . . . . . . . . . . 22
13.1 Payments by Reinsurer. . . . . . . . . . . . . . . . . . . . . 22
13.2 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XIV. ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . 23
14.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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Page
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ARTICLE XV. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 23
15.1 The Reinsurer . . . . . . . . . . . . . . . . . . . . . . . . 23
15.2 The Company . . . . . . . . . . . . . . . . . . . . . . . . . 24
15.3 Indemnification Procedures. . . . . . . . . . . . . . . . . . 24
15.4 Survival of Article . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XVI. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . 24
16.1 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . 24
16.2 Headings and Exhibit. . . . . . . . . . . . . . . . . . . . . 25
16.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 26
16.5 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 26
16.6 Successors and Assigns. . . . . . . . . . . . . . . . . . . . 26
16.7 Execution in Counterparts . . . . . . . . . . . . . . . . . . 26
16.8 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 27
16.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
16.10 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . 27
16.11 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 27
16.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT A QUARTERLY/ANNUAL REPORT
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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, as amended,
(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 transferred 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
<PAGE>
Agreement") entered into between the Company and the Reinsurer as of the
Effective Time; and
WHEREAS, the Company and the Reinsurer may, at the option of the
Reinsurer, enter into an Assumption Agreement substantially in the form attached
as Annex C to the Purchase 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
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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.
"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
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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 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.
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"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 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.
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"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 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.
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"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.
"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
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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 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.
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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 12:02 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 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
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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 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
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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 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
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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 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
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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, 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
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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, 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
hereunder, 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
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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
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
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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 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
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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 the Coinsured Policies. The
Company shall have the right to make ultimate decisions regarding the conduct,
costs and expenses of such litigation. The Reinsurer shall be bound by all such
ultimate decisions of the Company, provided that: (i) the Company shall consult
with the Reinsurer prior to the Company's exercise of its decision-making
authority pursuant to this Section 7.9, (ii) all decisions of the Company made
hereunder shall (w) comply with the terms of the Coinsured Policies, (x) comply
with all material laws, regulations and orders applicable to the Company with
respect to the Coinsured Policies and to the conduct of the activities
contemplated hereby, (y) be consistent with prudent management practices in the
life and health insurance industry generally, and (z) comply with the Standards
of Performance as referenced and described in the Administration Agreement, and
(iii) 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). In the event the Company intends to exercise
its decision-making authority hereunder, it shall give prompt notice of such
intention to the Reinsurer, but in no event later than ten (10) Business Days
prior to the date of such exercise of authority, or such
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lesser period as is commercially reasonable for the Company and the Reinsurer
under the circumstances.
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 equal to $449,746,000.00.
8.2 TRANSITION GBO POLICIES. Except as provided in Section 8.3
hereof, 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. As consideration for the
reinsurance of the Coinsured Policies hereunder, the Company shall, on and after
the Effective Time, collect and remit to the Reinsurer 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. Notwithstanding the foregoing, it is
understood and agreed to by the parties hereto that the Company's obligation to
collect premiums, contract fees and other amounts with respect to the Coinsured
Policies shall be delegated to the Reinsurer in accordance with the terms of the
Administration Agreement.
ARTICLE IX.
BENEFITS AND OTHER PAYMENTS BY REINSURER
9.1 BENEFITS. Subject to the other provisions of this Coinsurance
Agreement, the Reinsurer shall assume
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liability for 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 shall have the
right to make ultimate decisions regarding the contesting, compromise, or
settlement of a claim with respect to a Coinsured Policy. The Reinsurer shall
be bound by all such ultimate decisions of the Company, provided that: (i) the
Company shall consult with the Reinsurer prior to the Company's exercise of its
decision-making authority pursuant to this Section 9.3, (ii) all decisions of
the Company made hereunder shall (w) comply with the terms of the Coinsured
Policies, (x) comply with all material laws, regulations and orders applicable
to the Company with respect to the Coinsured Policies and to the conduct of the
activities contemplated hereby, (y) be consistent with prudent management
practices in the life and health insurance industry generally, and (z) comply
with the Standards of Performance as referenced and described in the
Administration Agreement, and (iii) the Reinsurer shall have no liability for
costs and expenses incurred hereunder that arise out of, are 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). In the event the
Company intends to exercise its decision-making authority hereunder, it shall
give prompt notice to the Reinsurer of such action, but in no event later than
ten (10) Business Days prior to the date of such exercise of authority, or such
lesser period as is commerically reasonable for the Company and the Reinsurer
under the circumstances.
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
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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, on an indemnity basis, 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 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, on an
indemnity basis, 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.
20
<PAGE>
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. 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 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
21
<PAGE>
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.
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
22
<PAGE>
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 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.
23
<PAGE>
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 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
24
<PAGE>
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
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
25
<PAGE>
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.
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
26
<PAGE>
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 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.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Coinsurance
Agreement to be duly executed by their respective officers thereunto duly
authorized, as of the first day of March, 1997.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Thomas Moloney
--------------------------
Name: Thomas Moloney
Title: Chief Financial
Officer
UNICARE LIFE & HEALTH
INSURANCE COMPANY
By: /s/ D. Mark Weinberg
--------------------------
Name: D. Mark Weinberg
Title: President
28
<PAGE>
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>
____________________________________________
ADMINISTRATION AGREEMENT
____________________________________________
JOHN HANCOCK
MUTUAL LIFE INSURANCE COMPANY
and
UNICARE LIFE & HEALTH INSURANCE COMPANY
____________________________________________
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II APPOINTMENT . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV STANDARDS OF PERFORMANCE. . . . . . . . . . . . . . . . . . 4
A. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
B. Standards of Performance. . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE V SERVICES PROVIDED BY THE SERVICE PROVIDER. . . . . . . . . . . . 5
A. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B. Policy and Contract Issuance. . . . . . . . . . . . . . . . . . . . . 8
C. Claims Administration . . . . . . . . . . . . . . . . . . . . . . . . 8
D. Policy and Contract Administration;
Reimbursements; Regulatory Matters . . . . . . . . . . . . . . . . . 11
E. Premium Rate Formulas . . . . . . . . . . . . . . . . . . . . . . . . 12
F. Financial, Statistical and Tax Services . . . . . . . . . . . . . . . 13
ARTICLE VI. REGULATORY MATTERS. . . . . . . . . . . . . . . . . . . . . 14
A. Financial Obligations . . . . . . . . . . . . . . . . . . . . . . . . 14
B. Responses to Regulatory Authorities . . . . . . . . . . . . . . . . . 14
C. Reviews and Audits by Regulatory Authorities. . . . . . . . . . . . . 15
D. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
E. Notice to Insureds. . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII OTHER SERVICES AND FURTHER AGREEMENTS . . . . . . . . . . . 16
A. Specific Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
B. Fees for Services; Reimbursement of Expenses. . . . . . . . . . . . . 17
ARTICLE VIII BANK ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . 17
A. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
B. Escheat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
C. Banking Functions . . . . . . . . . . . . . . . . . . . . . . . . . . 17
D. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX REPORTS AND RECORDS . . . . . . . . . . . . . . . . . . . . 18
A. Records and Access to Records . . . . . . . . . . . . . . . . . . . . 18
B. Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
C. Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
<PAGE>
ARTICLE X LEGAL ACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 22
A. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
B. Notification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XI TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 22
A. Termination of Administration Agreement . . . . . . . . . . . . . . . 22
B. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 23
C. Termination Upon Event of Default . . . . . . . . . . . . . . . . . . 24
D. Transition Following Termination
Upon Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 24
E. Return of Files . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
F. Partial Termination . . . . . . . . . . . . . . . . . . . . . . . . . 25
G. Continuation of Certain Obligations . . . . . . . . . . . . . . . . . 25
ARTICLE XII CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XIII INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 26
A. The Service Provider. . . . . . . . . . . . . . . . . . . . . . . . . 26
B. The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
C. Indemnification Procedures. . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XIV ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE XV GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . 28
A. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
B. Amendment; Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . 28
C. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
D. Relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
E. Errors and Omissions. . . . . . . . . . . . . . . . . . . . . . . . . 29
F. Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
G. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
H. Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
I. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
J. No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . 30
K. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
L. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
M. Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
N. Reasonableness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
O. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
P. Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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
<PAGE>
ADMINISTRATION AGREEMENT
This Administration Agreement dated as of March 1, 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, as
amended, (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 March 1, 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
<PAGE>
Contracts and Network Contracts being performed by the 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.
<PAGE>
"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
APPOINTMENT
The Company hereby appoints the Service Provider as its exclusive
provider of Administrative Services to act in the name of and on behalf of the
Company 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. Notwithstanding the foregoing, the
Company shall have the right to make ultimate decisions under this
Administration Agreement with respect to Coinsured Policies, and the Service
Provider shall be bound by all such ultimate decisions of the Company, provided
that: (i) the Company shall consult with the Service Provider prior to the
Company's exercise of its decision-making authority pursuant to this Article II,
(ii) all decisions of the Company made hereunder shall (w) comply with the terms
of the Coinsured Policies, (x) comply with all material laws, regulations and
orders applicable to the Company with respect to the Coinsured Policies and to
the conduct of the activities contemplated hereby, (y) be consistent with
prudent management practices in the life and health insurance industry
generally, and (z) comply with the Standards of Performance as referenced and
described in Article IV hereof, and (iii) the Service Provider 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 Service Provider or its Affiliates). In
the event
<PAGE>
the Company intends to exercise its decision-making authority hereunder, it
shall give prompt notice of such intention to the Service Provider, but in no
event later than ten (10) Business Days prior to the date of such exercise of
authority, or such lesser period as is commercially reasonable for the Company
and the Service Provider under the circumstances.
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 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.
<PAGE>
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 (i) 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, and (ii) the Company approves or fails to
disapprove such changes within five (5) Business Days of its receipt of notice
from the Service Provider of such changes, and any disapproval by the Company
hereunder is not unreasonable; 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 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
<PAGE>
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 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,
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
(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 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,
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
ARTICLE VI
REGULATORY MATTERS
A. FINANCIAL OBLIGATIONS.
1. The Company shall be 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 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 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
<PAGE>
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 regulatory authorities) with respect
to any inquiry or complaint against it. The Service Provider shall have the
right to control the resolution (including entering into settlements with
regulatory authorities) with respect to any inquiry or complaint against it.
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
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
<PAGE>
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. Notwithstanding the foregoing, all correspondence
sent to policyholders of the Coinsured Policies concerning matters related to
the administration of such Coinsured Policies shall be in the name of the
Company or, alternatively, in the name of the Service Provider as administrator
of the Coinsured Policies on behalf of the Company. If correspondence is in the
name of the Service Provider, it shall nevertheless (i) clearly reference the
fact that the Company shall remain obligated to pay benefits under the Coinsured
Policies, (ii) contain a telephone number and address of the Company, and (iii)
contain a return address of either the Company or the Service Provider, as
administrator for the Company.
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, other than Coinsured Policies delivered
within the State of New York, unless required to do so by applicable law or
regulation or the provisions of an Administered Contract. With respect to
Coinsured Policies delivered within the State of New York, the Company will
renew such Coinsured Policies at the request of the Service Provider.
<PAGE>
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 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
<PAGE>
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.
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 and the Company agree to maintain such records
and accounts available at such locations as required by applicable state law,
including but not limited to New York Insurance Regulation 152. 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
shall deem necessary and desirable in connection with the transactions
contemplated by this Administration Agreement. Such access and opportunity
shall be exercised by the 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. Notwithstanding the foregoing, all files and records relating to
Coinsured Policies delivered within the State of New York shall be and remain
the property of the Company. 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
<PAGE>
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
<PAGE>
this Article XI, terminate automatically upon the termination of all of the
Company's 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 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
<PAGE>
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 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
<PAGE>
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, books, records and other information relating to the
Coinsured Policies, 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, 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
<PAGE>
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 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
<PAGE>
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 Section 14.3.
ARTICLE XIV
ARBITRATION
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.
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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
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
<PAGE>
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 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.
<PAGE>
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: /s/ Thomas Moloney
-------------------------------
Name: Thomas Moloney
Title: Chief Financial Officer
UNICARE LIFE & HEALTH INSURANCE COMPANY
By: /s/ D. Mark Weinberg
-------------------------------
Name: D. Mark Weinberg
Title: President
<PAGE>
ANNEX A
Form of Agent Fee Agreement
A-1
<PAGE>
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.
B-1
<PAGE>
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 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-2
<PAGE>
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.
C-1
<PAGE>
OTHER
The parties shall establish and administer such other bank
accounts as they shall mutually determine to be appropriate.
C-2
